Sunlife Assurance vs CA

FACTS:

Robert John Bacani procured a life insurance contract for himself from petitioner-company,
designating his mother Bernarda Bacani, herein private respondent, as the beneficiary. He was
issued a policy valued at P100,000.00 with double indemnity in case of accidental death.
Sometime after, the insured died in a plane crash. Bernarda filed a claim with petitioner, seeking
the benefits of the insurance policy taken by her son. However, said insurance company rejected
the claim on the ground that the insured did not disclose material facts relevant to the issuance
of the policy, thus rendering the contract of insurance voidable. Petitioner discovered that two
weeks prior to his application for insurance, the insured was examined and confined at the Lung
Center of the Philippines, where he was diagnosed for renal failure. The RTC, as affirmed by the
CA, this fact was concealed, as alleged by the petitioner. But the fact that was concealed was not
the cause of death of the insured and that matters relating to the medical history of the insured is
deemed to be irrelevant since petitioner waived the medical examination prior to the approval and
issuance of the insurance policy.

ISSUE: Whether or not the concealment of such material fact, despite it not being the cause of
death of the insured, is sufficient to render the insurance contract voidable

HELD:

YES. Section 26 of the Insurance Code is explicit in requiring a party to a contract of insurance to
communicate to the other, in good faith, all facts within his knowledge which are material to the
contract and as to which he makes no warranty, and which the other has no means of ascertaining.
Anent the finding that the facts concealed had no bearing to the cause of death of the insured, it
is well settled that the insured need not die of the disease he had failed to disclose to the insurer.
It is sufficient that his non-disclosure misled the insurer in forming his estimates of the risks of the
proposed insurance policy or in making inquiries. The SC, therefore, ruled that petitioner properly
exercised its right to rescind the contract of insurance by reason of the concealment employed by
the insured. It must be emphasized that rescission was exercised within the two-year
contestability period as recognized in Section 48 of The Insurance Code. WHEREFORE, the
petition is GRANTED and the Decision of the Court of Appeals is REVERSED and SET ASIDE.

Unknown at 3:37 AM

Philamcare Health Systems vs. CA & Trinos

Facts:
Ernani Trinos applied for a health care coverage with Philam. He answered no to a question
asking if he or his family members were treated to heart trouble, asthma, diabetes, etc.
The application was approved for 1 year. He was also given hospitalization benefits and out-
patient benefits. After the period expired, he was given an expanded coverage for Php 75,000.
During the period, he suffered from heart attack and was confined at MMC. The wife tried to
claim the benefits but the petitioner denied it saying that he concealed his medical history by
answering no to the aforementioned question. She had to pay for the hospital bills amounting to
76,000. Her husband subsequently passed away. She filed a case in the trial court for the
collection of the amount plus damages. She was awarded 76,000 for the bills and 40,000 for
damages. The CA affirmed but deleted awards for damages. Hence, this appeal.

Issue: WON a health care agreement is not an insurance contract; hence the “incontestability
clause” under the Insurance Code does not apply.

Held: No. Petition dismissed.

Ratio:
Petitioner claimed that it granted benefits only when the insured is alive during the one-year
duration. It contended that there was no indemnification unlike in insurance contracts. It
supported this claim by saying that it is a health maintenance organization covered by the DOH
and not the Insurance Commission. Lastly, it claimed that the Incontestability clause didn’t apply
because two-year and not one-year effectivity periods were required.
Section 2 (1) of the Insurance Code defines a contract of insurance as “an agreement whereby
one undertakes for a consideration to indemnify another against loss, damage or liability arising
from an unknown or contingent event.”
Section 3 states: every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children.
In this case, the husband’s health was the insurable interest. The health care agreement was in
the nature of non-life insurance, which is primarily a contract of indemnity. The provider must
pay for the medical expenses resulting from sickness or injury.
While petitioner contended that the husband concealed materialfact of his sickness, the contract
stated that:
“that any physician is, by these presents, expressly authorized to disclose or give testimony at
anytime relative to any information acquired by him in his professional capacity upon any
question affecting the eligibility for health care coverage of the Proposed Members.”
This meant that the petitioners required him to sign authorization to furnish reports about his
medical condition. The contract also authorized Philam to inquire directly to his medical history.
Hence, the contention of concealment isn’t valid.
They can’t also invoke the “Invalidation of agreement” clause where failure of the insured to
disclose information was a grounds for revocation simply because the answer assailed by the
company was the heart condition question based on the insured’s opinion. He wasn’t a medical
doctor, so he can’t accurately gauge his condition.
Henrick v Fire- “in such case the insurer is not justified in relying upon such statement, but is
obligated to make further inquiry.”
Fraudulent intent must be proven to rescind the contract. This was incumbent upon the provider.
“Having assumed a responsibility under the agreement, petitioner is bound to answer the same
to the extent agreed upon. In the end, the liability of the health care provider attaches once the
member is hospitalized for the disease or injury covered by the agreement or whenever he
avails of the covered benefits which he has prepaid.”
Section 27 of the Insurance Code- “a concealment entitles the injured party to rescind a contract
of insurance.”
As to cancellation procedure- Cancellation requires certain conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of one or more
of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and
upon request of insured, to furnish facts on which cancellation is based
None were fulfilled by the provider.
As to incontestability- The trial court said that “under the title Claim procedures of expenses, the
defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of the
Agreement within which to contest the membership of the patient if he had previous ailment of
asthma, and six months from the issuance of the agreement if the patient was sick of diabetes
or hypertension. The periods having expired, the defense of concealment or misrepresentation
no longer lie.”

Edillon vs. Manila Bankers Life

Facts:
Carmen O, Lapuz applied with Manila Bankers for insurance coverage against accident and
injuries. She gave the date of her birth as July 11, 1904. She paid the sum of P20.00 representing
the premium for which she was issued the corresponding receipt. The policy was to be effective
for 90 days.
During the effectivity, Carmen O. Lapuz died in a vehicular accident in the North Diversion Road.
Petitioner Regina L. Edillon, a sister of the insured and the beneficiary in the policy, filed her claim
for the proceeds of the insurance. Her claim having been denied, Regina L. Edillon instituted this
action in the trial court.
The insurance corporation relies on a provision contained in the contract excluding its liability to
pay claims under the policy in behalf of "persons who are under the age of sixteen (16) years of
age or over the age of sixty (60) years" They pointed out that the insured was over sixty (60) years
of age when she applied for the insurance coverage, hence the policy became void.
The trial court dismissed the complaint and ordered edillon to pay P1000. The reason was that a
policy of insurance being a contract of adhesion, it was the duty of the insured to know the terms
of the contract he or she is entering into.
The insured could not have been qualified under the conditions stated in said contract and should
have asked for a refund of the premium.

Issue:
Whether or not the acceptance by the insurance corporation of the premium and the issuance of
the corresponding certificate of insurance should be deemed a waiver of the exclusionary
condition of coverage stated in the policy.

Held: Yes. Petition granted.

Ratio:
The age of Lapuz was not concealed to the insurance company. Her application clearly indicated
her age of the time of filing the same to be almost 65 years of age. Despite such information which
could hardly be overlooked, the insurance corporation received her payment of premium and
issued the corresponding certificate of insurance without question.
There was sufficient time for the private respondent to process the application and to notice that
the applicant was over 60 years of age and cancel the policy.
Under the circumstances, the insurance corporation is already deemed in estoppel. It inaction to
revoke the policy despite a departure from the exclusionary condition contained in the said policy
constituted a waiver of such condition, similar to Que Chee Gan vs. Law Union Insurance.
The insurance company was aware, even before the policies were issued, that in the premises
insured there were only two fire hydrants contrary to the requirements of the warranty in question.
It is usually held that where the insurer, at the time of the issuance of a policy of insurance, has
knowledge of existing facts which, if insisted on, would invalidate the contract from its very
 inception, such knowledge constitutes a waiver of conditions in the contract inconsistent with the
known facts, and the insurer is stopped thereafter from asserting the breach of such conditions.
To allow a company to accept one's money for a policy of insurance which it then knows to be
void and of no effect, though it knows as it must, that the assured believes it to be valid and
binding, is so contrary to the dictates of honesty and fair dealing.
Capital Insurance & Surety Co., Inc. vs. - involved a violation of the provision of the policy requiring
the payment of premiums before the insurance shall become effective. The company issued the
policy upon the execution of a promissory note for the payment of the premium. A check given
subsequent by the insured as partial payment of the premium was dishonored for lack of funds.
Despite such deviation from the terms of the policy, the insurer was held liable.
“... is that although one of conditions of an insurance policy is that "it shall not be valid or binding
until the first premium is paid", if it is silent as to the mode of payment, promissory notes received
by the company must be deemed to have been accepted in payment of the premium. In other
words, a requirement for the payment of the first or initial premium in advance or actual cash may
be waived by acceptance of a promissory note...”

Perla Cia De Seguros Inc. vs. CA

FACTS:

Spouses Lim purchased a brand new red Ford Laser car from Supercars, Inc. in a sale by
installment secured by a chattel mortgage. The same car is insured with Perla Compania de
Seguros (Perla). On the same day, Supercars, Inc. assigned its rights, title and interest to FCP
Credit Corporation (FCP).

On a later date, the vehicle was carnapped. Spouses Lim filed a claim for loss with Perla but
this was denied on the ground that Evelyn Lim, who was using the vehicle before it was
carnapped, was in possession of an expired driver’s license at the time of the loss, in violation of
the authorized driver clause of the insurance policy.

ISSUE:

o Whether or not Perla is liable despite the alleged violation of the authorized driver clause in
the insurance contract

HELD:

The Supreme Court held that Perla is liable to pay the insurance claim.

The comprehensive motor car insurance policy issued by Perla covered loss or damage to the
car: (a) xxx; (b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or
theft; (c) xxx.

Where a car is admittedly unlawfully and wrongfully taken without the owner’s consent or
knowledge, such taking constitutes theft, and therefore, it is the “THEFT” clause, and not the
“AUTHORIZED DRIVER” clause that should apply.

The Court of Appeals was correct in holding that:

“…Theft is an entirely different legal concept from that of accident. Theft is committed by a
person with the intent to gain or, to put it in another way, with the concurrence of the doer’s will.
On the other hand, accident, although it may proceed or result from negligence, is the
happening of an event without the concurrence of the will of the person by whose agency it was
caused. (Bouvier’s Law Dictionary).

Clearly, the risk against accident is distinct from the risk against theft. The “authorized driver
clause” in a typical insurance policy is in contemplation or anticipation of accident in the legal
sense in which it should be understood, and not in contemplation or anticipation of an event
such as theft. The distinction – often seized upon by insurance companies in resisting claims
from their assureds – between death occurring as a result of accident and death occurring as a
result of intent may, by analogy, apply to the case at bar. Thus, if the insured vehicle had figured
in an accident at the time she drove it with an expired license, then, appellee Perla Compania
could properly resist appellant’s claim for indemnification for the loss or destruction of the
vehicle resulting from the accident. But in the present case, the loss of the insured vehicle did
not result from an accident where intent was involved; the loss in the present case was caused
by theft, the commission of which was attended by intent.”

There is no causal connection between the possession of a valid driver’s license and the loss of
a vehicle. To rule otherwise would render car insurance practically a sham since an insurance
company can easily escape liability by citing restrictions which are not applicable or germane to
the claim, thereby reducing indemnity to a shadow.

Country Banker’s Insurance vs. Lianga Bay

FACTS:

1. Respondent, Llanga Bay and Community Multi-Purpose Cooperative, and petitioner entered into a
contract of fire insurance to protect respondent’s stocks-in-trade against fire loss, damage or liability
for P200,000.00;

2. The respondent’s building was gutted in a fire resulting in the total loss of the respondent’s stocks-
in-trade, pieces of furniture and fixtures, equipment and records.

3. The petitioner denied the insurance claim on the ground that the building was set on fire by two (2)
NPA rebels who wanted to obtain canned goods, rice and medicines as provisions for their comrades
in the forest, and that such loss was an excepted risk under paragraph No. 6 of the policy conditions
of Fire Insurance Policy.

4. Paragraph 6 provides that the insurance does not cover any loss or damage through or in
consequence of mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or
usurped power.

5. RTC – Found for the respondent; CA – affirmed RTC’s decision

ISSUE:

Whether the stocks-in-trade were burned by NPA rebels and thus an excepted risk under the fire
insurance policy.

HELD:

NO.

A party is bound by his own affirmative allegations. This is a well-known postulate echoed in Section
1 of Rule 131 of the Revised Rules of Court. Each party must prove his own affirmative allegations by
the amount of evidence required by law which in civil cases, as in this case, is preponderance of
evidence, to obtain a favorable judgment. In the instant case, the petitioner does not dispute that the
respondent’s stocks-in-trade were insured against fire loss, damage or liability under Fire Insurance
Policy No. F- 1397 and that the respondent lost its stocks-in-trade in a fire that occurred on July 1,
1989, within the duration of said fire insurance. The petitioner, however, posits the view that the cause
of the loss was an excepted risk under the terms of the fire insurance policy. Where a risk is excepted
by the terms of a policy which insures against other perils or hazards, loss from such a risk constitutes
a defense which the insurer may urge, since it has not assumed that risk, and from this it follows that
an insurer seeking to defeat a claim because of an exception or limitation in the policy has the burden
of proving that the loss comes within the purview of the exception or limitation set up. If a proof is made
of a loss apparently within a contract of insurance, the burden is upon the insurer to prove that the
loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which
limits its liability. Stated elsewise, since the petitioner in this case is defending on the ground of non-
coverage and relying upon an exemption or exception clause in the fire insurance policy, it has the
burden of proving the facts upon which such excepted risk is based, by a preponderance of evidence.
But petitioner failed to do so. The Sworn Statements of Jose Lomocso and Ernesto Urbiztondo are
inadmissible in evidence, for being hearsay, inasmuch as they did not take the witness stand and
could not therefore be cross-examined. The petitioner’s evidence to prove its defense is sadly wanting
and thus, gives rise to its liability to the respondent under Fire Insurance Policy No. F-1397.

Pacific Timber Export vs. CA

FACTS:

 March 19, l963: Pacific Timber secured temporary insurance from Workmen's
Insurance Company, Inc. for its exportation of 1,250,000 board feet of Philippine
Lauan and Apitong logs to be shipped from the Diapitan Bay, Quezon Province to
Tokyo, Japan.
 Workmen's issued Cover Note insuring the cargo "Subject to the Terms and
Conditions of the Workmen's Insurance Company, Inc."
 April 2, 1963: regular marine cargo policies were issued for a total
of 1,195.498 bd. ft. Due to the bad weather some of the logs were lost during
loading operations. 45 pieces of logs were salvaged, but 30 pieces were
lost. Pacific informed Workmen's who refused stating that the logs covered in the 2
marine policies were received in good order at the point of destination and that the
cover note was null and void upon the issuance of the Marine Policies
 CFI: cover note is valid
 CA: reversed
ISSUE: W/N the cover note is valid despite the absence of premium payment upon
it

HELD: YES. CA set aside. CFI reinstated

 it was not necessary to ask for payment of the premium on the Cover Note ,
for the loss insured against having already occurred, the more practical procedure
is simply to deduct the premium from the amount due on the Cover Note
 Had all the logs been lost during the loading operations, but after the
issuance of the Cover Note, liability on the note would have already arisen even
before payment of premium
 cover note as a "binder"
o supported by the doctrine that where a policy is delivered without
requiring payment of the premium, the presumption is that a credit was intended
and policy is valid
 it sent its adjuster to investigate and assess the loss to determine if
petitioner was guilty of delay in communicating the loss but there was none
 Section 84
o Delay in the prese act ntation to an insurer of notice or proof of loss is
waived if caused by any of his or if he omits to take objection promptly and
specifically upon that ground

Malayan Insurance Co., Inc. vs. Cruz Arnaldo

FACTS:

 June 7, 1981: Malayan insurance co., inc. (MICO) issued to Coronacion Pinca, Fire
Insurance Policy for her property effective July 22, 1981, until July 22, 1982
 October 15,1981: MICO allegedly cancelled the policy for non-payment, of the premium
and sent the corresponding notice to Pinca
 December 24, 1981: payment of the premium for Pinca was received by Domingo
Adora, agent of MICO
 January 15, 1982: Adora remitted this payment to MICO,together with other payments
 January 18, 1982: Pinca's property was completely burned
 February 5, 1982: Pinca's payment was returned bqy MICO to Adora on the ground that
her policy had been cancelled earlier but Adora refused to accept it and instead demanded for
payment
 Under Section 416 of the Insurance Code, the period for appeal is thirty days from notice
of the decision of the Insurance Commission. The petitioner filed its motion for reconsideration
on April 25, 1981, or fifteen days such notice, and the reglementary period began to run again
after June 13, 1981, date of its receipt of notice of the denial of the said motion for
reconsideration. As the herein petition was filed on July 2, 1981, or nineteen days later, there is
no question that it is tardy by four days.
 Insurance Commission: favored Pinca
 MICO appealed
ISSUE: W/N MICO should be liable because its agent Adora was authorized to receive it

HELD: YES. petition is DENIED

 SEC. 77. An insurer is entitled to payment of the premium as soon as the thing is
exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy
or contract of insurance issued by an insurance company is valid and binding unless and until
the premium thereof has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies.
 SEC. 306. xxx xxx xxx

Any insurance company which delivers to an insurance agant or insurance broker a policy or
contract of insurance shall be demmed to have authorized such agent or broker to receive on its
behalf payment of any premium which is due on such policy or contract of insurance at the time
of its issuance or delivery or which becomes due thereon.
 Payment to an agent having authority to receive or collect payment is equivalent to
payment to the principal himself; such payment is complete when the money delivered is into
the agent's hands and is a discharge of the indebtedness owing to the principal.
 SEC. 64. No policy of insurance other than life shall be cancelled by the insurer except
upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it
is based on the occurrence, after the effective date of the policy, of one or more of the following:

(a) non-payment of premium;

(b) conviction of a crime arising out of acts increasing the hazard insured against;

(c) discovery of fraud or material misrepresentation;

(d) discovery of willful, or reckless acts or commissions increasing the hazard insured against;
(e) physical changes in the property insured which result in the property becoming
uninsurable;or

(f) a determination by the Commissioner that the continuation of the policy would violate or
would place the insurer in violation of this Code.

As for the method of cancellation, Section 65 provides as follows:

 SEC. 65. All notices of cancellation mentioned in the preceding section shall be in
writing, mailed or delivered to the named insured at the address shown in the policy, and shall
state (a) which of the grounds set forth in section sixty-four is relied upon and (b) that, upon
written request of the named insured, the insurer will furnish the facts on which the cancellation
is based.
 A valid cancellation must, therefore, require concurrence of the following conditions:

(1) There must be prior notice of cancellation to the insured;

(2) The notice must be based on the occurrence, after the effective date of the policy, of one
or more of the grounds mentioned;

(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured, (c) at the
address shown in the policy;

(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and (b) that
upon written request of the insured, the insurer will furnish the facts on which the cancellation is
based.
 All MICO's offers to show that the cancellation was communicated to the insured is its
employee's testimony that the said cancellation was sent "by mail through our mailing section."
without more
 It stands to reason that if Pinca had really received the said notice, she would not have
made payment on the original policy on December 24, 1981. Instead, she would have asked for
a new insurance, effective on that date and until one year later, and so taken advantage of the
extended period.
 Incidentally, Adora had not been informed of the cancellation either and saw no reason
not to accept the said payment
 Although Pinca's payment was remitted to MICO's by its agent on January 15, 1982,
MICO sought to return it to Adora only on February 5, 1982, after it presumably had learned of
the occurrence of the loss insured against on January 18, 1982 make the motives of MICO
highly suspicious
Areola vs. CA

FACTS:

 December 17, 1984: Prudential Guarantee And Assurance, Inc. issued

collector's provisional receipt amounting to P1,609.65
 June 29, 1985: 7 months after the issuance of petitioner Santos Areola's
Personal Accident Insurance Policy, Prudential Guarantee And Assurance,
Inc. unilaterally cancelled it for failing to pay his premiums through its
manager Teofilo M. Malapit
 Shocked by the cancellation of the policy, Santos approached Carlito Ang,
agent of Prudential and demanded the issuance of an official receipt. Ang told
Santos that it was a mistake and assured its rectification.
 July 15, 1985: Santos demanded the same terms and same rate increase as
when he paid the provincial receipt but Malapit insisted that the partial payment he
made was exhausted and that he should pay the balance or his policy will cease to
operate
 July 25, 1985 : Assistant Vice-President Mariano M. Ampil III apologized
 August 6, 1985 had filed a complaint for breach of contract with damages
before the lower court
 August 13, 1985: Santos received through Carlito Ang the leeter of Assistant
Vice-President Mariano M. Ampil III finding error on their part since premiums were
not remitted Malapit, proposed to extend its lifetime to December 17, 1985
 RTC: favored Santos - Prudential in Bad Faith
 CA: Reversed - not motivated by negligence, malice or bad faith in cancelling
subject policy
ISSUE: W/N the Areolas can file against damages despite the effort to rectify the
cancellation

HELD: YES. RTC reinstated

 Malapit's fraudulent act of misappropriating the premiums paid is beyond

doubt directly imputable to Prudential
 Art. 1910. The principal must comply with all the obligations which the agent
may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not
bound except when he ratifies it expressly or tacitly.
 Subsequent reinstatement could not possibly absolve Prudential there being
an obvious breach of contract
 a contract of insurance creates reciprocal obligations for both insurer and
insured
 Article 1191
o choice between fulfillment or rescission of the obligation in case one of
the obligors fails to comply with what is incumbent upon him
o entitles the injured party to payment of damages, regardless of
whether he demands fulfillment or rescission of the obligation
 Nominal damages are "recoverable where a legal right is technically violated
and must be vindicated against an invasion that has produced no actual present
loss of any kind, or where there has been a breach of contract and no substantial
injury or actual damages whatsoever have been or can be shown.

Tibay vs. CA

Facts:
Fortune Life issued a fire insurance Policy to Tibay on her two-storey residential building at
Zobel Street, Makati City. The insurance was for P600,000.00 covering the period from January
23, 1987 to January 23, 1988. On January 23 1987, Tibay only paid P600.00 of 3,000 peso
premium and left a balance.
The insured building was completely destroyed by fire. Tibay then paid the balance. On the
same day, she filed a claim on the policy. Her claim was accordingly referred to the adjuster,
Goodwill, which immediately wrote Violeta requesting her to furnish it with the necessary
documents for the investigation and processing of her claim. Petitioner complied, and she
signed a non-waiver agreement.
Fortune denied the claim for violation of the Insurance Code. Tibay sued for damages in the
amount of P600,000.00 representing the total coverage of the policy.
The trial court ruled for petitioners and made fortune liable for the total value of the insured
building and personal properties. The Court of Appeals reversed the court by removing liability
from Fortune after returning the premium.
Hence this petition for review.
The petitioner contended that Fortune remained liable under the subject fire insurance policy in
spite of the failure of petitioners to pay their premium in full.

Issue: May a fire insurance policy be valid, binding and enforceable upon mere partial payment
of premium?

Held: No. Petition dismissed.

Ratio:
The pertinent provisions read:
2. This policy including any renewal thereof and/or any endorsement thereon is not in force until
the premium has been fully paid to and duly receipted by the Company in the manner provided
herein.
This policy shall be deemed effective, valid and binding upon the Company only when the
premiums therefor have actually been paid in full and duly acknowledged in a receipt signed by
any authorized official of the company
Where the premium has only been partially paid and the balance paid only after the peril insured
against has occurred, the insurance contract did not take effect and the insured cannot collect at
all on the policy. The Insurance Code which says that no policy or contract of insurance issued
by an insurance company is valid and binding unless and until the premium has been paid.
What does “unless and until the premium thereof has been paid” mean?
Escosura v. San Miguel- the legislative practice was to interpret “with pay” in accordance to the
intention of distinguish between full and partial payment, where the modifying term is used.
Petitioners used Philippine Phoenix v. Woodworks, where partial payment of the premium made
the policy effective during the whole period of the policy.
The SC didn’t consider the 1967 Phoenix case as persuasive due to the different factual
scenario.
In Makati Tuscany v CA, the parties mutually agreed that the premiums could be paid in
installments, hence, this Court refused to invalidate the insurance policy.
Nothing in Article 77 of the Code suggested that the parties may not agree to allow payment of
the premiums in installment, or to consider the contract as valid and binding upon payment of
the first premium.
Phoenix and Tuscany demonstrated the waiver of prepayment in full by the insurer. In this case
however, there was no waiver. There was a stipulation that the policy wasn’t in force until the
premium has been fully paid and receipted.
There was no juridical tie of indemnification from the fractional payment of premium. The
insurance contract itself expressly provided that the policy would be effective only when the
premium was paid in full.
Verily, it is elemental law that the payment of premium is requisite to keep the policy of
insurance in force. If the premium is not paid in the manner prescribed in the policy as intended
by the parties the policy is ineffective. Partial payment even when accepted as a partial
payment will not keep the policy alive.
South Sea v CA stipulated 2 exceptions to the requirement of payment of the entire premium as
a prerequisite to the validity of the insurance contract. These are when in case the insurance
coverage relates to life or insurance when a grace period applies, and when the insurer makes
a written acknowledgment of the receipt of premium to be conclusive evidence of payment.
Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured cannot
collect on the proceeds of the policy.
“The terms of the insurance policy constitute the measure of the insurer’s liability. In the
absence of statutory prohibition to the contrary, insurance companies have the same rights as
individuals to limit their liability and to impose whatever conditions they deem best upon their
obligations not inconsistent with public policy.”
American Home Assurance vs. Chua

Facts:
Chua obtained from American Home a fire insurance covering the stock-in-trade of his
business. The insurance was due to expire on March 25, 1990.
On April 5, 1990, Chua issued a check for P2,983.50 to American Home’s agent, James Uy, as
payment for the renewal of the policy. The official receipt was issued on April 10. In turn, the
latter a renewal certificate. A new insurance policy was issued where petitioner undertook to
indemnify respondent for any damage or loss arising from fire up to P200,000 March 20, 1990
to March 25, 1991.
On April 6, 1990, the business was completely razed by fire. Total loss was estimated between
P4,000,000 and P5,000,000. Respondent filed an insurance claim with petitioner and four other
co-insurers, namely, Pioneer Insurance, Prudential Guarantee, Filipino Merchants and Domestic
Insurance. Petitioner refused to honor the claim hence, the respondent filed an action in the
trial court.
American Home claimed there was no existing contract because respondent did not pay the
premium. Even with a contract, they contended that he was ineligible bacue of his fraudulent
tax returns, his failure to establish the actual loss and his failure to notify to petitioner of any
insurance already effected. The trial court ruled in favor of respondent because the respondent
paid by way of check a day before the fire occurred and that the other insurance companies
promptly paid the claims. American homes was made to pay 750,000 in damages.
The Court of Appeals found that respondent’s claim was substantially proved and petitioner’s
unjustified refusal to pay the claim entitled respondent to the award of damages.
American Home filed the petition reiterating its stand that there was no existing insurance
contract between the parties. It invoked Section 77 of the Insurance Code, which provides that
no policy or contract of insurance issued by an insurance company is valid and binding unless
and until the premium thereof has been paid and the case of Arce v. Capital Insurance that until
the premium is paid there is no insurance.

Issues:
1. Whether there was a valid payment of premium, considering that respondent’s check was
cashed after the occurrence of the fire
2. Whether respondent violated the policy by his submission of fraudulent documents and non-
disclosure of the other existing insurance contracts
3. Whether respondent is entitled to the award of damages.
Held: Yes. No. Yes, but not all damages valid. Petition granted. Damages modified.

Ratio:
1. The trial court found, as affirmed by the Court of Appeals, that there was a valid check
payment by respondent to petitioner. The court respected this.
The renewal certificate issued to respondent contained the acknowledgment that premium had
been paid.
In the instant case, the best evidence of such authority is the fact that petitioner accepted the
check and issued the official receipt for the payment. It is, as well, bound by its agent’s
acknowledgment of receipt of payment.
Section 78 of the Insurance Code explicitly provides:
An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive
evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation
therein that it shall not be binding until the premium is actually paid.
2. Submission of the alleged fraudulent documents pertained to respondent’s income tax returns
for 1987 to 1989. Respondent, however, presented a BIR certification that he had paid the
proper taxes for the said years. Since this is a question of fact, the finding is conclusive.
Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-
insurers, non-disclosure is a violation that entitles the insurer to avoid the policy. The purpose
for the inclusion of this clause is to prevent an increase in the moral hazard. The relevant
provision is Section 75, which provides that:
A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the
breach of an immaterial provision does not avoid the policy.
Respondent acquired several co-insurers and he failed to disclose this information to
petitioner. Nonetheless, petitioner is estopped from invoking this argument due to the loss
adjuster’s admission of previous knowledge of the co-insurers.
It cannot be said that petitioner was deceived by respondent by the latter’s non-disclosure of the
other insurance contracts when petitioner actually had prior knowledge thereof. The loss
adjuster, being an employee of petitioner, is deemed a representative of the latter whose
awareness of the other insurance contracts binds petitioner.
3. Petitioner is liable to pay the loss. But there is merit in petitioner’s grievance against the
damages and attorney’s fees awarded. There was no basis for an award for loss of profit. This
cannot be shouldered by petitioner whose obligation is limited to the object of insurance.
There was no fraud to justify moral damages. Exemplary damages can’t be awarded because
the defendant never acted in a reckless manner to claim insurance. Attorney’s fees can’t be
recovered as part of damages because no premium should be placed on the right to litigate.
Mercantile Insurance vs. Felipe Ysmael Jr.
UCPB General Insurance vs Masagana Telemart

Facts:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision[1]
of the Court of Appeals, which affirmed with modification the judgment of the trial court (a)
allowing Respondent to consign the sum of P225,753.95 as full payment of the premiums for
the renewal of the five insurance policies on Respondent’s properties; (b) declaring the
replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and
(c) ordering Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned
properties covered by the renewal-replacement policies. The modification consisted in the (1)
deletion of the trial court’s declaration that three of the policies were in force from August 1991
to August 1992; and (2) reduction of the award of the attorney’s fees from 25% to 10% of the
total amount due the Respondent.
Masagana obtained from UCPB five (5) insurance policies on its Manila properties.
The policies were effective from May 22, 1991 to May 22, 1992. On June 13, 1992, Masagana’s
properties were razed by fire. On July 13, 1992, plaintiff tendered five checks for P225,753.45
as renewal premium payments. A receipt was issued. On July 14, 1992, Masagana made its
formal demand for indemnification for the burned insured properties. UCPB then rejected
Masagana’s claims under the argument that the fire took place before the tender of payment.
Hence Masagana filed this case.
The Court of Appeals disagreed with UCPB’s argument that Masagana’s tender of payment of
the premiums on 13 July 1992 did not result in the renewal of the policies, having been made
beyond the effective date of renewal as provided under Policy Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the
policy period mails or delivers to the assured at the address shown in the policy notice of its
intention not to renew the policy or to condition its renewal upon reduction of limits or elimination
of coverages, the assured shall be entitled to renew the policy upon payment of the premium
due on the effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists that Masagana,
which had procured insurance coverage from UCPB for a number of years, had been granted a
60 to 90-day credit term for the renewal of the policies. Such a practice had existed up to the
time the claims were filed. Most of the premiums have been paid for more than 60 days after
the issuance. Also, no timely notice of non-renewal was made by UCPB.
The Supreme Court ruled against UCPB in the first case on the issue of whether the fire
insurance policies issued by petitioner to the respondent covering the period from May 22, 1991
to May 22, 1992 had been extended or renewed by an implied credit arrangement though actual
payment of premium was tendered on a later date and after the occurrence of the risk insured
against.
UCPB filed a motion for reconsideration.
The Supreme Court, upon observing the facts, affirmed that there was no valid notice of non-
renewal of the policies in question, as there is no proof at all that the notice sent by ordinary
mail was received by Masagana. Also, the premiums were paid within the grace period.

Issue: Whether Section 77 of the Insurance Code of 1978 must be strictly applied to Petitioner’s
advantage despite its practice of granting a 60- to 90-day credit term for the payment of
premiums.

Held: No. Petition denied.

Ratio:
Section 77 of the Insurance Code provides: No policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has been paid…
An exception to this section is Section 78 which provides: Any acknowledgment in a policy or
contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as
to make the policy binding, notwithstanding any stipulation therein that it shall not be binding
until premium is actually paid.
Makati Tuscany v Court of Appeals- Section 77 may not apply if the parties have agreed to the
payment in installments of the premium and partial payment has been made at the time of loss.
Section 78 allows waiver by the insurer of the condition of prepayment and makes the policy
binding despite the fact that premium is actually unpaid. Section 77 does not expressly prohibit
an agreement granting credit extension. At the very least, both parties should be deemed in
estoppel to question the arrangement they have voluntarily accepted.
The Tuscany case has provided another exception to Section 77 that the insurer may grant
credit extension for the payment of the premium. If the insurer has granted the insured a credit
term for the payment of the premium and loss occurs before the expiration of the term, recovery
on the policy should be allowed even though the premium is paid after the loss but within the
credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to
provide a credit term within which to pay the premiums. That agreement is not against the law,
morals, good customs, public order or public policy. The agreement binds the parties.
It would be unjust if recovery on the policy would not be permitted against Petitioner, which had
consistently granted a 60- to 90-day credit term for the payment of premiums. Estoppel bars it
from taking refuge since Masagana relied in good faith on such practice. Estoppel then is the
fifth exception.
South Sea Surety vs CA

FACTS:
 Valenzuela Hardwood and Industrial Supply, Inc. shipped with Seven
Brothers' vessel M/V Seven Ambassador lauan round logs numbering 940 at the
port of Maconacon, Isabela for shipment to Manila
 Valenzuela insured the logs against loss and/or, damage with South Sea
Surety and Insurance Co., Inc. for P2,000,000 issuing a Marine Cargo Insurance
Policy
 January 24 1984: Valenzuela gave the check in payment of the premium on
the insurance policy to Mr. Victorio Chua
 January 25 1984: M/V Seven Ambassador sank
 January 30 1984: The check was tendered to South Sea but it
refused. Instead it cancelled the insurance policy for non-payment of the premium
 RTC: favored Valenzuela against South Sea and Seven Brothers
 CA: Absolved Seven Brothers
o stipulation in the charter party that the ship owner would be exempted
from liability in case of loss
 South Sea contends that it is cancelled and that Mr. Chua is not authorized
ISSUE: W/N Mr. Chua is an authorized representative to receive the payment

HELD: YES. petition is DENIED

 payment of the premium is a condition precedent to, and essential for, the
efficaciousness of the contract.
o The only two statutorily provided exceptions are
 (a) in case the insurance coverage relates to life or industrial life
(health) insurance when a grace period applies and
 (b) when the insurer makes a written acknowledgment of the
receipt of premium, this acknowledgment being declared by law to be then
conclusive evidence of the premium payment
 South Sea Surety and Insurance Co., Inc. delivered to him the policy on 21
January 1984 at his office to be delivered to the Valenzuela - deemed to have been
authorized by the South Sea Surety and Insurance Co., Inc. to receive the premium

Traveller’s Insurance vs CA

Jacqueline Jimenez Vda. De Gabriel vs CA

FACTS:

Marcelino Gabriel was employed by Emerald Construction & Development Corporation (Emerald
Construction for brevity) at its construction project in Iraq. He was covered by a personal accident
insurance in the amount of P100,000.00 under a group policy procured from Fortune Insurance and
Surety Company (Fortune Insurance for brevity) by Emerald Construction for its overseas workers.
The insured risk was for bodily injury caused by violent accidental external and visible means which
injury would solely and independently of any other cause result in death or disability.

On May 22, 1982, within the life of the policy, Gabriel died in Iraq. On July 12, 1983, Emerald
Construction reported Gabriel’s death to Fortune Insurance by telephone. Among the documents
thereafter submitted to Fortune Insurance were a copy of the death certificate issued by the Ministry
of Health of the Republic of Iraq which stated that an autopsy report by the National Bureau of
Investigation was conducted to the effect that due to advanced state of post-mortem decomposition,
the cause of death of Gabriel could not be determined.

Because of this development, Fortune Insurance ultimately denied the claim of Emerald Construction
on the ground of prescription. Gabriel’s widow, Jacqueline Jimenez, went to the lower court. In her
complaint against Emerald Construction and Fortune Insurance, she averred that her husband died of
electrocution while in the performance of his work.

Fortune Insurance alleged that since both the death certificate issued by the Iraqi Ministry of Health
and the autopsy report of the NBI failed to disclose the cause of death of Gabriel, it denied liability
under the policy. In addition, private respondent raised the defense of prescription, invoking section
384 of the Insurance Code.

ISSUE:

Whether or not Jacqueline Jimenez vda. De Gabriel’s claim against Fortune Insurance should be
denied on the ground of prescription.

HELD:

Yes. The notice of death was given to Fortune Insurance, concededly, more than a year after the death
of Gabriel. The prescription referred to was not the one-year period from denial of the claim within
which to file an action against an insurer but obviously to the written notice of claim that had to be
submitted within six months from the time of the accident.

The insurance policy expressly provides that to be compensable, the injury or death should be caused
by violent accidental external and visible means. In attempting to prove the cause of Gabriel’s death,
all that Jacqueline could submit were a letter sent to her by her husband’s co-worker, stating that her
husband died when he tried to haul water out of a tank while its submerged motor was still functioning
and her sworn affidavit. The said affidavit were considered hearsay under the law for it suffers from
procedural infirmity as it was not even testified to or identified by Jacqueline herself.

In summary, evidence is utterly wanting to establish that the insured suffered from an accidental death,
the risk covered by the policy.