UCPB v.

MASAGANA TELAMART
Davide, Jr., C.J. | April 4, 2001
Topic: Premium payment
Nature: Motion for Reconsideration

PARTIES:

UCPB GENERAL INSURANCE CO., INC., petitioner, vs. MASAGANA TELAMART, INC., respondent.

DISPUTED MATTER:

Validity of 60- to 90-credit term practice for the payment of premiums

SUMMARY:

Masagana had policies with UCPB, which insured its warehouses. After the coverage period of their insurance policy,
two of their properties burned down. Masagana paid UCPB to renew their insurance policy, after which they demanded
indemnification for the insured properties. UCPB refused, prompting Masagana to file a complaint. The SC initially
reversed the RTC and CA’s ruling, holding that the supposed implied credit arrangement through actual payment of
premium at a later date and after the occurrence of the risk was invalid. Upon motion of reconsideration, however, the
SC reversed its ruling, holding that UCPB was barred by estoppel through the established credit practice and that the
same was an exception to Section 77 regarding premium payment as requisite for a valid policy.

FACTS:
● Masagana Telamart obtained from UCPB 5 insurance policies on its properties in Pasay and Manila.
o All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to 4:00 P.M. of
22 May 1992."
o On June 13, 1992, Masagana’s properties located at Pasay City were razed by fire.
o On July 13, 1992, Masagana tendered, and UCPB accepted, 5 Equitable Bank Manager's Checks in the
total amount of P225,753.45 as renewal premium payments for which Official Receipt Direct Premium No.
62926 was issued by UCPB.
o On July 14, 1992, Masagana made its formal demand for indemnification for the burned insured
properties. On the same day, UCPB returned the checks stating in its letter that it was rejecting
Masagana's claim on the following grounds:
a) Said policies expired last May 22, 1992 and were not renewed for another term;
b) Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier; and
c) The properties covered by the said policies were burned in a fire that took place last June 13, 1992, or
before tender of premium payment.
● Masagana raised the matter to the RTC, which ruled in its favor.
o RTC released a decision allowing Masagana to consign the sum of P225,753.95 as full payment of the
premiums for the renewal of the five insurance policies on their properties;
(b) declaring the replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993;
and
(c) ordering UCPB to pay Masagana P18,645,000.00 as indemnity for the burned properties covered by
the renewal-replacement policies
● UCPB raised the matter to the CA, which affirmed the RTC’s decision with the following modifications:
o (1) deletion of the trial court's declaration that three of the policies were in force from August 1991 to
August 1992; and
o (2) reduction of the award of the attorney's fees from 25% to 10% of the total amount due the
Respondent.
● The SC decided on the first
o CA: Disagreed with UCPB that Masagana’s tender of payment on June 13 did not result in the renewal of
the policies merely because they were made beyond the effective date of renewal.
▪ The CA and the RTC found sufficient proof that Masagana, which had procured coverage from
UCPB for years, had been granted a 60 to 90-day credit term for the renewal of the policies.
 ▪ CA held that no timely notice of non-renewal was made by UCPB, as Masagana
o MAIN ISSUE: W/N 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 – NO.
o Respondent filed a Motion for Reconsideration.
▪ Alleged in the motion that the SC made findings of facts no in accord with RTC and CA.
▪ Disagree with the ruling that parties may neither agree expressly or impliedly on the extension
of credit or time to pay the premium nor consider a policy binding before actual payment.
▪ Asserts estoppel applies to UCPB.
o UCPB filed an opposition to the MR.
▪ Both RTC and CA overlooked the fact that on 6 April 1992 UCPB sent by ordinary mail to
Masagana a notice of non-renewal and sent by personal delivery a copy thereof to Masagana's
broker, Zuellig. Masagana was fully aware of the notice.
ISSUES/HELD:
WON Sec. 77 of the Insurance Code of 1978 must be strictly applied to UCPB’s advantage despite the practice of a
60- to 90-day credit term for premium payment – NO.

Section 77 of the Insurance Code of 1978 provides:

SECTION 77. An insurer is entitled to payment of the premium as soon as the thing insured 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.
Section 77 does not restate the portion of Section 72 expressly permitting an agreement to extend the period to pay the
premium.

EXCEPTIONS:
1. In case of a life or industrial life policy whenever the grace period provision applies.
2. 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.
3. Makati Tuscany Condominium Corporation vs. CA: 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.
o initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three years, the
insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the insurer's
intention to honor the policies it issued to petitioner.
4. Makati Tuscany Condominium Corporation vs. CA: Insurer may grant credit extension for the payment of the
premium.
o 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.
5. Estoppel.
o INSTANT CASE: It would be unjust and inequitable if recovery on the policy would not be permitted against
UCPB, which had consistently granted a 60- to 90-day credit term for the payment of premiums despite its
full awareness of Section 77.

DISPOSITIVE:
WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED and SET ASIDE, and a new one is hereby
entered DENYING the instant petition for failure of Petitioner to sufficiently show that a reversible error was committed by
the Court of Appeals in its challenged decision, which is hereby AFFIRMED in toto.
No pronouncement as to cost.
SO ORDERED.

DISSENTS:

Vitug, J.:
No juridical tie was established under the situation.
o An essential characteristic of an insurance is its being synallagmatic, a highly reciprocal contract where the rights and
obligations of the parties correlate and mutually correspond.
o The business of insurance is one imbued with public interest. For the general good and mutual protection of all
the parties, it is aptly subjected to regulation and control by the State by virtue of an exercise of its police power.
o A requirement imposed by way of State regulation upon insurers is the maintenance of an adequate legal
reserve in favor of those claiming under their policies.
o Section 77 of the Insurance Code provides:

"SECTION 77. An insurer is entitled to payment of the premium as soon as the thing insured 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."
o Under the former rule, whenever the insured was granted credit extension of the premium due or given a
period of time to pay the premium on the policy issued, such policy was binding although premiums had not
been paid.
o the present provision eliminated the portion concerning credit agreement, and added the phrase
'notwithstanding any agreement to the contrary' which precludes the parties from stipulating that the policy is
valid even if premiums are not paid.
o If the insurer wants to favor the insured by making the policy binding notwithstanding the non-payment of
premium, a mere credit agreement would not be sufficient.
▪ The insurer must acknowledge in the policy that premiums were paid although they were not, in which
case the policy becomes binding because such acknowledgment is a conclusive evidence of payment
of premium
o By law, estoppel cannot create a contract of insurance, neither can it be successfully invoked to create a primary
liability, nor can it give validity to what the law so proscribes as a matter of public policy.

Pardo, J.:
Respondent’s claim is fraudulent.
o Masagana surreptitiously tried to pay the overdue premiums before giving written notice to petitioner of the occurrence
of the fire that razed the subject property.
o Masagana deviated from its previous practice of coursing its premium payments through its brokers. This time,
Masagana went directly to petitioner and paid through its cashier with manager's checks.
o If as contended, there was a clear agreement regarding the grant of a credit extension, Masagana would have
given immediate written notice of the fire that razed the property.
o The claim for insurance benefits must fall as well because the failure to give timely written notice of the fire was a
material misrepresentation affecting the risk insured against.
o The purported practice of giving 60 to 90-day credit extension for payment of premiums was a disputed fact.
But it is a given fact that the written notice of loss was not immediately given. It was given only the day after the
attempt to pay the delayed premiums.
o The credit was a mere verbal understanding of Masagana of an agreement between the insurance company
and the insurance brokers.
o The president of Masagana admitted that the insurance policy did not contain any proviso pertaining to
the grant of credit within which to pay the premiums.
▪ A verbal understanding cannot amend an insurance policy. In insurance practice, amendments or even
corrections to a policy are done by written endorsements or tickets appended to the policy.