LENY S.

SANCHEZ
TOPIC: PAYMENT OF PREMIUM

AMERICAN HOME ASSURANCE COMPANY v. ANTONIO CHUA

G.R. No. 130421. June 28, 1999
DAVIDE, JR., C.J.:

DOCTRINES:

Section 77 of the Insurance Code - 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 life or an industrial life
policy whenever the grace period provision applies.

Section 78 of the Insurance Code - 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.

FACTS:

Petitioner is a domestic corporation engaged in the insurance business. Sometime in

1990, Respondent obtained from Petitioner a fire insurance covering the stock-in-trade
of his business, Moonlight Enterprises, located in Bukidnon. The insurance was due to
expire on 25 March 1990.

On 5 April 1990 Respondent issued a check in the amount of P2,983.50 to Petitioner’s

agent as payment for the renewal of the policy. In turn, the latter delivered Renewal
Certificate to Respondent.

On 6 April 1990 Moonlight Enterprises was completely razed by fire. Total loss was
estimated between P4,000,000 and P5,000,000.

On 10 April the check was drawn and deposited in Petitioner’s bank account. The
corresponding official receipt was issued. Subsequently, a new insurance policy, was
issued, whereby Petitioner undertook to indemnify Respondent for any damage or loss
arising from fire up to P200,000 for the period 25 March 1990 to 25 March 1991.

Respondent filed an insurance claim with Petitioner and four other co-insurers, namely,
Pioneer Insurance, Prudential Guarantee, Filipino Merchants Insurance and Domestic
Insurance Company of the Philippines.
The other insurance companies paid the respondent’s insurance claims but the
Petitioner refused to honor the claim notwithstanding several demands by Respondent,
thus, the latter filed an action against Petitioner before the trial court.

For its defense, Petitioner claimed there was no existing insurance contract when the
fire occurred since Respondent did not pay the premium. It invokes Section 77 of the
Insurance Code, which provides:c
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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 life or an industrial life policy whenever the grace
period provision applies.

Petitioner also emphasized that when the fire occurred on 6 April 1990 the insurance
contract was not yet subsisting pursuant to Article 1249 3 of the Civil Code, which
recognizes that a check can only effect payment once it has been cashed.

Petitioner invokes Respondent’s admission that the official receipt for his check which
was issued as payment for the renewal of the policy was received only on 10 April 1990.
Even assuming that the check was received a day before the occurrence of the fire,
there still could not have been any payment until the check was cleared. Petitioner
asserts that an insurance contract can only be enforced upon the payment of the
premium, which should have been made before the renewal period.

The trial court ruled in favor of Respondent quoting that the check, which was received
by the Petitioner’s agent; acknowledged in the renewal certificate issued by Petitioner’s
agent; and deposited in Petitioner’s bank account is a prima facie evidence of payment.
CA affirmed in TOTO.

ISSUE:

Whether there was a valid payment of premium, considering that respondent’s check
was cashed after the occurrence of the fire.

RULING:

Yes, there was a valid payment of premium:

The general rule in insurance laws is that unless the premium is paid the insurance
policy is not valid and binding. The only exceptions are life and industrial life insurance.
Whether payment was indeed made is a question of fact which is best determined by
the trial court. The trial court found, as affirmed by the Court of Appeals, that there was
a valid check payment by Respondent to Petitioner. The renewal certificate issued to
Respondent contained the acknowledgment that premium had been paid. It is not
disputed that the check drawn by Respondent in favor of Petitioner and delivered to its
agent was honored when presented and Petitioner forthwith issued its official receipt to
Respondent on 10 April 1990.

Section 306 of the Insurance Code provides that any insurance company which
delivers a policy or contract of insurance to an insurance agent or insurance
broker shall be deemed 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.

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:
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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.

This Section establishes a legal fiction of payment and should be interpreted as

an exception to Section 77.

Petitioner is liable to pay its share of the loss. The trial court and the Court of Appeals
were correct in awarding P200,000 for this.

WHEREFORE, the decisions of RTC and CA were modified. Petition was denied insofar
as the Petitioner’s refusal to pay the insurance claim of P200,000 is concerned but
found merit on its other issues like the deletion of the awards for loss of profit and
damages.