Premiums: Insurance Law - Digests

INSURANCE LAW - DIGESTS
Careng. Granado. Liban. Sicat
PREMIUMS
1. UCPB General Insurance Co., Inc. v. Masagana Telmart Inc.
G.R. No. 137172, April 4, 2001
DOCTRINE:
There are 5 exceptions to Section 77 of the Insurance Code. Among which is the grant of
credit terms and Estoppel. It would be unjust and inequitable 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 despite its full awareness of Section 77. Estoppel
bars it from taking refuge under said Section, since Respondent relied in good faith on
such practice.
FACTS:
On April 15, 1991, petitioner issued 5 insurance policies covering respondent's various property
described therein against fire, for the period from May 22, 1991 to May 22, 1992.
In March 1992, petitioner evaluated the policies and decided not to renew them upon
expiration of their terms on May 22, 1992. Petitioner advised respondent's broker, Zuellig
Insurance Brokers, Inc. of its intention not to renew the policies. Petitioner then gave written notice
to respondent of the non-renewal of the policies at the address stated in the policies.
On June 13, 1992, fire razed respondent's property covered by three of the insurance
policies petitioner issued. A month after, respondent presented to petitioner's cashier at its head
office 5 manager's checks representing premium for the renewal of the policies from May 22,
1992 to May 22, 1993.
The next day, respondent filed with petitioner its formal claim for indemnification of the
insured property razed by fire. On the same day, petitioner returned to respondent the 5
manager's checks that it tendered, and at the same time rejected respondent's claim for the
reasons (a) that the policies had expired and were not renewed, and (b) that the fire occurred on
a month before respondent's tender of premium payment.
For years, Petitioner had been issuing fire policies to the Respondent, and these policies
were annually renewed. Petitioner had been granting Respondent a 60- to 90-day credit term
within which to pay the premiums on the renewed policies. 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 Respondent, and the copy thereof allegedly sent to Zuellig was never transmitted
to Respondent. The premiums for the policies in question were paid by Respondent within the 60-
to 90-day credit term and were duly accepted and received by Petitioner's cashier.
ISSUE:
Whether Section 77 of the Insurance Code of 1978 (P.D. No. 1460) 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.
RULING
The Court ruled in the negative. There are certain exceptions to Section 77 of the Insurance
Code.
The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life
policy whenever the grace period provision applies. The second is that covered by Section 78 of
the Insurance Code, which provides for an acknowledgement of the receipt of the premium.A third
exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals,
wherein the Court ruled that 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.
Tuscany has also provided a fourth exception to Section 77, namely, that the insurer may grant
credit extension for the payment of the premium. This simply means that 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. Lastly, the fifth exception is estoppel.
In the instant case, the Court held that it would be unjust and inequitable 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 despite its full awareness of Section 77. Estoppel bars it from
taking refuge under said Section, since Respondent relied in good faith on such practice.
NOTE:
CASE FILED IN THE RTC
On July 21, 1992, respondent filed with the Regional Trial Court, Branch 58, Makati City, a civil
complaint against petitioner for recovery of P18,645,000.00, representing the face value of the
policies covering respondent's insured property razed by fire, and for attorney's fees.
SECTION 78- Acknowledgement
SECTION 78. 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.
Court’s ruling in Tuscany:
“While the import of Section 77 is that prepayment of premiums is strictly required

as a condition to the validity of the contract, We are not prepared to rule that the request to make
installment payments duly approved by the insurer would prevent the entire contract of insurance
from going into effect despite payment and acceptance of the initial premium or 4rst installment.
Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of
prepayment by making an acknowledgment in the insurance policy of receipt of premium as
conclusive evidence of payment so far as to make the policy binding despite the fact that premium
is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid
even if premiums are not paid, but does not expressly prohibit an agreement granting credit
extension, and such an agreement is not contrary to morals, good customs, public order or public
policy (De Leon, The Insurance Code, p. 175). So is an understanding to allow insured to pay
premiums in installments not so prescribed. At the very least, both parties should be deemed in
estoppel to question the arrangement they have voluntarily accepted.”
2. Sps. Tibay v. Court of Appeals

G.R. No. 119655, May 24, 2005
BELLOSILLO, J.
DOCTRINE:
● The cardinal polestar in the construction of an insurance contract is the intention of the
parties as expressed in the policy. 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.
● Under Sec. 77, as well as Sec. 78, until the premium is paid, and the law has not expressly
excepted partial payments, there is no valid and binding contract. Hence, in the absence
of clear waiver of prepayment in full by the insurer, the insured cannot collect on the
proceeds of the policy.
FACTS:
On January 22, 1987 private respondent FORTUNE issued a Fire Insurance Policy in favor of
Violeta Tibay and/or Nicolas Roraldo on their two-storey residential building in Makati City,
together with all their personal effects therein. The insurance was for P600,000.00 for the period
of January 23 1987 to January 23 1988. On January 23 1987, of the total premium, petitioner
Violeta Tibay only paid P600.00 thus leaving a considerable balance unpaid.
3 months thereafter, the insured building was completely destroyed by fire. Two days later, Violeta
Tibay paid the balance of the premium. She filed with FORTUNE a claim on the fire insurance
policy which was referred to its adjuster, Goodwill Adjustment Services, Inc. (GASI). Then, Violeta
signed a non-waiver agreement with GASI.
FORTUNE denied the claim of Violeta. Efforts to settle the case before the Insurance Commission
proved futile. Hence, Violeta and the other petitioners sued FORTUNE for damages in the amount
of P600,000.00 representing the total coverage of the fire insurance policy plus 12% interest per
annum, moral damages, and attorney's fees.
RTC: ruled for petitioners and adjudged FORTUNE liable for the total value of the insured building
and personal properties in the amount of P600,000.00 plus 6% interest per annum
CA: reversed the RTC decision by declaring FORTUNE not to be liable to the plaintiffs but ordered
defendant to return to the former the premium of P2,983.50. Hence, this petition for review.
ISSUE:
Whether or not FORTUNE remains liable under the subject fire insurance policy in spite of the
failure of petitioners to pay their premium in full.
RULING:
The Court ruled in the negative. Insurance is a contract whereby one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown or
contingent event. The consideration is the premium, which must be paid at the time and in the
way and manner specified in the policy, and if not so paid, the policy will lapse and be forfeited
by its own terms
Clearly, the Policy provides for payment of premium in full. Accordingly, 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. This is fully supported by Sec. 77 of the Insurance Code.
The main issue in this case is the phrase "unless and until the premium thereof has been paid."
The principle that where the law does not distinguish the court should neither distinguish assumes
that the legislature made no qualification on the use of a general word or expression. By express
agreement of the parties, no vinculum juris or bond of law was to be established until full
payment was effected prior to the occurrence of the risk insured against.
In the case at bench, the insurer and the insured expressly stipulated that (t)his policy including
any renewal thereof and/or any indorsement thereon is not in force until the premium has been
fully paid to and duly receipted by the Company . . . and that 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.
Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec.
77 of the Insurance Code the payment of partial premium by the assured in this particular instance
should not be considered the payment required by the law and the stipulation of the parties.
Rather, it must be taken in the concept of a deposit to be held in trust by the insurer until
such time that the full amount has been tendered and duly receipted for. In other words, as
expressly agreed upon in the contract, full payment must be made before the risk occurs for the
policy to be considered effective and in force.
NOTES:
TOTAL PREMIUM TO BE PAID: P2,983.50,
PREMIUM ALREADY PAID BY VIOLETA: P600
LAST PARAGRAPH OF THE RULING OF THE CASE:
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. The validity of these limitations is by law passed upon by the Insurance
Commissioner who is empowered to approve all forms of policies, certificates or contracts of insurance
which insurers intend to issue or deliver. That the policy contract in the case at bench was approved
and allowed issuance simply reaffirms the validity of such policy, particularly the provision in question.
LAST PARAGRAPH OF THE CASE (SEPARATE OPINION OF JUSTICE VITUG)
It seems quite clear to me that on the day premium payment is made by the insured, albeit only a
portion of it, so long as it is accepted by the insurer, the insurance coverage becomes effective and
binding, any stipulation in the policy to the contrary notwithstanding. The insurer is not without
recourse; all that it needs is not to accept, if it wants to, any premium payment of less than full. But if
it does accept payment, reason dictates that it should not be allowed to deny the insurance contract
upon which very existence that payment is predicated.
Accordingly, I vote for the reversal of the decision appealed from and the reinstatement of the ruling
of the trial court.
3. Arce v. Capital Insurance & Surety Co., Inc.

G.R. No. L-28501, September 30, 1982
DOCTRINE:
The amendment to Sec. 72 has radically changed the legal regime in that unless the premium is
paid there is no insurance. Both the Insurance Act, as amended, and the stipulation of the parties
that time is of the essence in respect of the payment of the insurance premium so that if it is not
paid the contract does not take effect unless there is still another stipulation to the contrary.
FACTS:
The appellee (Pedro Arce) owned a residential house which was insured with the appellant
COMPANY (The Capital Insurance & Surety Co., Inc.) since 1961. In November 1965, the
COMPANY sent to the INSURED a Renewal Certificate to cover the period from December 5,
1965 to December 5, 1966, and requested payment of the corresponding premium. Anticipating
that the premium could not be paid on time, the INSURED asked for an extension which was
granted by the COMPANY. After the lapse of the requested extension, INSURED still failed to
pay the premium. Thereafter, the house of the INSURED was totally destroyed by fire. Upon
INSURED’s presentation of claim for indemnity, he was told that no indemnity was due
because the premium was not paid. The INSURED sued the COMPANY for indemnity.
The trial court held that the COMPANY is liable to indemnify the INSURED on the ground that
since the COMPANY could have demanded payment of the premium, mutuality of obligation
required that it should be liable on the policy. Hence, this appeal by the COMPANY on question
of law.
ISSUE:
Whether or not
RULING
The Court ruled in
Section 72 of the Insurance Act, as amended by RA No. 3540 reads:

Sec. 72. An insurer is entitled to payment of premium as soon as the thing insured is
exposed to the perils insured against, unless there is clear agreement to grant credit
extension for the premium due. No policy issued by an insurance company is valid
and binding unless and until the premium thereof has been paid.
Moreover, the parties in this case had stipulated:

“X x x this insurance will be deemed valid and binding upon the Company only when the
premium and documentary stamps therefor have actually been paid in full and duly
acknowledged in an official receipt signed by an authorized official/representative of the
Company.”
It is obvious from both the Insurance Act, as amended, and the stipulation of the parties that time
is of the essence in respect of the payment of the insurance premium so that if it is not paid the
contract does not take effect unless there is still another stipulation to the contrary.
In the instant case, the INSURED was given a grace period to pay the premium but the
period having expired with no payment made, he cannot insist that the COMPANY is
nonetheless obligated to him.
NOTE:
Prior to the amendment, an insurance contract was effective even if the premium had not been
paid so that an insurer was obligated to pay indemnity in case of loss and correlatively he had
also the right to sue for payment of the premium. But the amendment to Sec. 72 has radically
changed the legal regime in that unless the premium is paid there is no insurance.
4. Makati Tuscany Condominium Corp. v. CA

G.R. No. 95546, November 6, 1992
DOCTRINE: While the import of Section 77 is that prepayment of premiums is strictly required as a condition
to the validity of the contract, We are not prepared to rule that the request to make installment payments
duly approved by the insurer, would prevent the entire contract of insurance from going into effect. Section
78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making
an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far
as to make the policy binding despite the fact that premium is actually unpaid.
FACTS:
Private respondent American Home Assurance Co. (AHAC), represented by American International
Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany Condominium Corporation
(TUSCANY) Insurance Policy on the latter's building and premises. The premium was paid on
installments and all of which were accepted by private respondent. When it was renewed, the premium
was again paid on installments and all payments were likewise accepted by private respondent.
It was renewed again and on this renewed policy, petitioner made two installment payments, both accepted
by private respondent. Thereafter, petitioner refused to pay the balance of the premium.
Consequently, private respondent filed an action to recover the unpaid balance. In its counter claim,
petitioner thus concludes that there cannot be a perfected contract of insurance upon mere partial payment
of the premiums because under Sec. 77 of the Insurance Code, no contract of insurance is valid and binding
unless the premium thereof has been paid, notwithstanding any agreement to the contrary. As a
consequence, petitioner seeks a refund of all premium payments made on the alleged invalid insurance
policies.
After some incidents, petitioner and private respondent moved for summary judgment. The trial court
dismissed the complaint and the counterclaim. Both parties appealed from the judgment of the trial court.
Thereafter, the Court of Appeals rendered a decision modifying that of the trial court by ordering herein
petitioner to pay the balance of the premiums due plus legal interest until fully paid, and affirming the denial
of the counterclaim. It held that: While it may be true that under Section 77 of the Insurance Code, the
parties may not agree to make the insurance contract valid and binding without payment of premiums, there
is nothing in said section which suggests 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.
ISSUE: Whether payment by installment of the premiums due on an insurance policy invalidates the
contract of insurance
HELD: The Court ruled in the negative and held that the subject policies are valid even if the premiums
were paid on installments. The records clearly show that petitioner and private respondent intended subject
insurance policies to be binding and effective notwithstanding the staggered payment of the premiums. The
initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three (3) 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. Certainly, basic principles of equity and
fairness would not allow the insurer to continue collecting and accepting the premiums, although paid on
installments, and later deny liability on the lame excuse that the premiums were not prepared in full.
NOTE:
The Court sustained the decision of the Court of Appeals. Wherein it held that while the import of Section
77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, We are
not prepared to rule that the request to make installment payments duly approved by the insurer, would
prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial
premium or first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of the
condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as
conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually
unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums
are not paid, but does not expressly prohibit an agreement granting credit extension, and such an
agreement is not contrary to morals, good customs, public order or public policy (De Leon, the Insurance
Code, at p. 175). So is an understanding to allow insured to pay premiums in installments not so proscribed.
At the very least, both parties should be deemed in estoppel to question the arrangement they have
voluntarily accepted.
5. Acme Shoe Rubber & Plastic Corporation v. CA

134 SCRA 155
DOCTRINE:
In a FIRE INSURANCE; FAILURE TO PAY PREMIUM WITHIN STIPULATED PERIOD; POLICY HELD
AUTOMATICALLY CANCELLED.
FACTS:
Since 1946, petitioner ACME Shoe Rubber and Plastic Corporation (ACME, for brevity) had been
insuring yearly against fire its building, machines and general merchandise, located at Caloocan
City, with respondent Domestic Insurance Company of the Philippines (the INSURER, for short).
On May 14, 1962, ACME continued to insure its properties with the INSURER and was issued
Policy No. 24887 in the amount of P200,000.00 for the period May 15, 1962 up to May 15, 1963.
On May 14, 1963, the INSURER issued Renewal Receipt No. 22989 to cover the period May 15,
1963 to May 15, 1964. On January 8, 1964, ACME paid P3,331.26 as premium. The INSURER
applied the payment as renewal premium for the period May 15, 1963 to May 15, 1964.
On May 15, 1964, the INSURER issued Renewal Receipt No. 30127 for the renewal premium of
P3,331.26 for the period May 15, 1964 to May 15, 1965.
On May 26, 1964, ACME, through its President, signed a promissory note promising to pay the
premium and documentary stamps in the sum of P3,331.26. Should they fail to pay the promissory
note when due, they agree that the said policy should stand automatically cancelled, without
further notice by the Company or election on their part, and I/we shall then be liable to pay only
the short period premium corresponding to 90 days|||
ACME's properties were completely destroyed by fire on October 13, 1964. ACME filed its
insurance claim but the INSURER disclaimed liability on the ground that as of the date of loss,
the properties burned were not covered by insurance.
On March 20, 1965, ACME sued on the policy before the Court of First Instance of Rizal Branch
XII, Caloocan City, for the collection of the insurance proceeds and for damages in the form of
lost profits by reason of the delay in payment.
ISSUE:
Whether or not there was an insurance contract between the parties at the time the fire occurred
RULING
The Court ruled in the negative.
By the express terms of the Promissory Note signed by its President, ACME was fully aware that
the policy would be automatically cancelled on August 13, 1964, the 90th day from March 14,
1964, if it did not pay the premium before the former date. There is also evidence to the effect
that various reminders by the INSURER for payment remained unheeded. Not having paid the
1964-1965 premium within the extension granted, and pursuant to R.A. No. 3540, the policy was
automatically cancelled and there was no insurance coverage to speak of as of the date of the
fire on October 13, 1964.
NOTE:
RE: RETROACTIVITY OF RA 3540
ACME contends, however, that the INSURER 'accepted (the) one-year premium on January 8,
1964 and it had no right to apply it to the payment of a period of coverage prior thereto when
under Republic Act 3540 the policy was void and respondent insurer could have validly disclaimed
liability for loss had one occurred then".
The pertinent provision of Republic Act No. 3540, approved on June 20, 1963, and put into effect
by the Office of the Insurance Commissioner beginning October 1, 1963 (Exhibit "11"), reads:
"Sec. 72. An insurer is entitled to payment of the premium as soon as the thing
insured is exposed to the peril insured against, unless there is clear agreement
to grant the insured credit extension of the premium due. No policy issued by an
insurance company is valid and binding unless and until the premium thereof has
been paid."
Since Republic Act No. 3540 was approved only on June 20, 1963 and was put into effect only
beginning October 1, 1963, it could not retroactively affect the renewal of the insurance policy on
May 15, 1963, or prior to the Act's effective date. ACME's premium payment of January 8, 1964,
therefore, was properly applied to the 1963-1964 premium. The Trial Court's opinion that there
was a clear agreement to grant ACME credit extension for 1964-1965 is negated by ACME's
Promissory Note binding itself to pay "within ninety days from the effective date of this policy, 15th
May, 1964 . . . the premium and documentary stamps in the sum of P3,331.26 . . . Indubitably,
the credit extension granted ACME was only for 90 days.
If, in the past, ACME had been granted credit extensions, the Promissory Note it had signed did
away with such credit arrangement. Moreover, it was prior to the advent of Republic Act No. 3540
when renewal receipts that the INSURER had issued did not contain the "Receipt of Payment"
and "Credit Agreement" clauses. By 1964, however, the situation had changed by the passage of
said Act by the express provision of which no policy could be valid and binding unless and until
the premium thereof had been paid. LLpr
ACME's claim that the INSURER would unjustly enrich itself if it were to be allowed to apply the
one-year premium it received to a past period when the policy was void and the INSURER had
incurred no risk, is flawed for the reason already stated that Renewal Receipt No. 22989 for 1963-
1964 had been issued on May 14, 1963 before R.A. No. 3540 was approved on June 20, 1963
and implemented on October 1, 1963. It is axiomatic that laws have no retroactive effect unless
the contrary is provided. What became automatically cancelled by R.A. No. 3540 was the 1964-
1965 policy for ACME's failure to pay the premium within the 90-day extension granted, and in
accordance with the express terms of the Promissory Note that it had signed.
6. The Manufacturers Life Insurance Co. v. Bibiano L. Meer

G.R. No. L-2910, June 29, 1951
DOCTRINE:
FACTS:
Manufacturer Life Insurance Company in a corporation duly organized in Canada with head office at
Toronto. It was engaged in such business in the Philippines for more than five years before and
including the year 1941. But due to the exigencies of the war it closed the branch office at Manila. In
the course of its operations before the war, plaintiff issued a number of life insurance policies in the
Philippines containing stipulations referred to as non-forfeiture clauses. For failure of the insured under
the above policies to pay the corresponding premiums for one or more years, the plaintiff's head office
of Toronto, applied the provision of the automatic premium loan clauses; and the net amount of
premiums so advanced or loaned totalled P1,069,254.98. On this sum the defendant Collector of
Internal Revenue assessed P17,917.12 — which plaintiff paid supra protest. The assessment was
made pursuant to section 255 of the National Internal Revenue Code as amended.
SEC. 255. Taxes on insurance premiums. — There shall be collected from every person, company, or
corporation (except purely cooperative companies or associations) doing business of any sort in the Philippines
a tax of one per centum of the total premiums collected .. whether such premiums are paid in money, notes
credits, or any substitute for money but premiums refunded within six months after payment on account of
rejection of risk or returned for other reason to person insured shall not be included in the taxable receipts
It is the plaintiff's contention that when it made premium loans or premium advances, as above stated,
by virtue of the non-forfeiture clauses, it did not collect premiums within the meaning of the above
sections of the law, and therefore it is not amendable to the tax therein provided.
ISSUE:
Whether or not the premiums advances are considered premium collected
RULING
The Court ruled in the affirmative.
Here again it may be urged that if the credit is paid out of the cash surrender value, there were no new
funds added to the company's assets. Cash surrender value "as applied to life insurance policy, is the
amount of money the company agrees to pay to the holder of the policy if he surrenders it and releases
his claims upon it. The more premiums the insured has paid the greater will be the surrender value;
but the surrender value is always a lesser sum than the total amount of premiums paid."
The cash value or cash surrender value is therefore an amount which the insurance company holds
in trust for the insured to be delivered to him upon demand. It is therefore a liability of the company to
the insured. Now then, when the company's credit for advances is paid out of the cash value or cash
surrender value, that value and the company's liability is thereby dismissed pro tanto. Consequently,
the net assets of the insurance company increased corresponding; for it is plain mathematics that the
decrease of a person's liabilities means a corresponding increase in his net assets.
Nevertheless let us grant for the nonce that the operation of the automatic loan provision contributed
no additional cash to the funds of the insurer. Yet it must be admitted that the insurer agreed to
consider the premium paid on the strength of the automatic loan. The premium was therefore paid by
means of a "note" or "credit" or "other substitute for money" and the taxeis due because section 255
above quoted levies taxes according to the total premiums collected by the insurer "whether such
premiums are paid in money, notes, credits or any substitutes for money.
NOTE:
8. Automatic Premium Loan. — This Policy shall not lapse for non-payment of any premium after it has been three full years
in force, if, at the due date of such premium, the Cash Value of this Policy and of any bonus additions and dividends left on
accumulation (after deducting any indebtedness to the Company and the interest accrued thereon) shall exceed the amount
of said premium. In which event the company will, without further request, treat the premium then due as paid, and the amount
of such premium, with interest from its actual due date at six per cent per annum, compounded yearly, and one per cent,
compounded yearly, for expenses, shall be a first lien on this Policy in the Company's favour in priority to the claim of any
assignee or any other person. The accumulated lien may at any time, while the Policy is in force, be paid in whole or in part.
"When the premium falls due and is not paid in cash within the month's grace, if the Cash Value of this policy and of any bonus
addition and dividends left on accumulation (after deducting any accumulated indebtedness) be less than the premium then
due, the Company will, without further requests, continue this insurance in force for a period .. . .
"10. Cash and Paid-Up Insurance Values. — At the end of the third policy year or thereafter, upon the legal surrender of this
Policy to the Company while there is no default in premium payments or within two months after the due date of the premium
in default, the Company will (1) grant a cash value as specified in Column (A) increased by the cash value of any bonus
additions and dividends left on accumulation, which have been alloted to this Policy, less all indebtedness to the Company on
this Policy on the date of such surrender, or (2) endorse this Policy as a Non-Participating Paid-up Policy for the amount as
specified in Column (B) of the Table of Guaranteed Values . . ..
"11. Extended Insurance. — After the premiums for three or more full years have been paid hereunder in cash, if any
subsequent premium is not paid when due, and there is no indebtness to the Company, on the written request of the Insured
. . ..
7. GSIS v. Prudential Guarantee & Assurance Inc

G.R. No. 165585 & 176982, November 20, 2013
DOCTRINE:
FACTS:
The National Electrification Administration (NEA) entered into a Memorandum of Agreement
(MOA) with GSIS insuring all real and personal properties mortgaged to it by electrical
cooperatives under an Industrial All Risks Policy. The total sum insured under the IAR policy was
P16,731,141,166.80, out of which, 95% was reinsured by GSIS with Prudential Guarantee &
Assurance Inc. (PGAI) for a period of one year or from March 5, 1999 to March 5, 2000. As
reflected in Reinsurance Request Note (Reinsurance cover) and the Reinsurance Binder, GSIS
agreed to pay PGAI reinsurance premiums in the amount of P32,885,894.52 per quarter. While
GSIS remitted to PGAI the reinsurance premiums for the first three quarters, it, however, failed
to pay the fourth and last reinsurance premium due on December 5, 1999 despite demands.
This prompted PGAI to file a Complaint for sum of money against GSIS before the RTC.
RTC
The RTC issued an Order granting PGAI’s Motion for Judgment on the Pleadings. It observed
that the admissions of GSIS that it paid the first three quarterly insurance premiums to PGAI
affirmed the validity of the contract of reinsurance between them.
1. As such, GSIS cannot now renege on its obligation to remit the last and remaining
quarterly reinsurance premium
2. It further pointed out that while it is true that the payment of the premium is a requisite for
the validity of an insurance contract as provided under Section 77 of the Insurance Code,
it was held in Makati Tuscany Condominium Corp. v. CA that insurance policies are valid
even if the premiums were paid to installments, as in this case.
Thus, the RTC ordered GSIS to pay PGAI the last quarter reinsurance premium.
COURT OF APPEALS
Dissatisfied, GSIS filed a notice of appeal.
PGAI filed a Motion for Execution Pending Appeal. The GSIS then claimed that all its funds and
properties are exempted from execution citing Section 39 of RA No. 8291, otherwise known as
“The Government Service Insurance System Act of 1997.” The RTC issued an Order granting
PGAI’s Motion for Execution Pending Appeal, conditioned on the posting of a bond. It further held
that only the GSIS Social Insurance Fund is exempt from execution. Accordingly, PGAI duly
posted a surety bond which the RTC approved through an Order resulting to the issuance of a
writ of execution and notices of garnishment against GSIS.
THE COURT OF APPEALS

GSIS filed a petition for certiorari before the CA against the RTC and PGAI. In its petition, GSIS
argued that:
a. None of the grounds proffered by PGAI justifies the issuance of a writ of execution pending
appeal; and
b. All funds and assets of GSIS are exempt from execution, GSIS’ funds with the LBP were
eventually garnished.
ISSUE:
Whether or not the non-payment of the last reinsurance premium merely rendered the contract
ineffective pursuant to Section 77 of the Insurance Code.
RULING
The Court ruled in negative. In the case of Makati Tuscany, the Court already ruled that the non-
payment of subsequent installment premiums would not prevent the insurance from taking effect:
1. The import of Section 77 is that prepayment of premiums is strictly required as a condition
of the validity of the contract. We are not prepared to rule that the request to make
installment payments duly approved by the insurer, would prevent the entire contract of
insurance from going into effect despite payment and acceptance of the initial premium or
first installment;
2. Section 77 merely precludes the parties from stipulating that the policy is valid even if
premiums are not paid, but does not expressly prohibit an agreement granting credit
extension, and such an agreement is not contrary to morals, good customs, public order
or public policy.
3. At the very least, both parties should be deemed in estoppel to question the arrangement
they have voluntarily accepted.
4. Where the risk is entire and the contract is indivisible, the insured is not entitled to a refund
of the premiums paid if the insurer was exposed to the risk insured for any period, however
brief or momentary.
Thus, owing to the identical complexion of Makati Tuscany with the present case, the Court
upholds PGAI’s right to be paid by GSIS the amount of the fourth and last reinsurance premium
pursuant to the reinsurance contract between them.
8. South Sea Surety & Ins., Co. v. Court of Appeals

244 SCRA 744
DOCTRINE: 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 (Secs. 77-78, Insurance Code). When therefore the insured
logs were lost, the insured had already paid the premium to an agent of the South Sea Surety and Insurance
Co., Inc., which is consequently liable to pay the insurance proceeds under the policy it issued to the
insured.
FACTS:
● Plaintiff [Valenzuela Hardwood and Industrial Supply, Inc.] entered into an agreement with the
defendant Seven Brothers whereby the latter undertook to load on board its vessel M/V Seven
Ambassador the former's lauan round logs numbering 940 at the port of Maconacon, Isabela for
shipment to Manila.
● Plaintiff insured the logs, against loss and/or, damage with defendant South Sea Surety and
Insurance Co., Inc. for P2,000,000.00 end the latter issued its Marine Cargo Insurance Policy No.
84/24229 for P2,000,000.00 on said date.
● The plaintiff gave the check in payment of the premium on the insurance policy to Mr. Victorio Chua.
● In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the
loss of the plaintiffs insured logs.
● A check for P5,625.00 (Exh. "E") to cover payment of the premium and documentary stamps due
on the policy was tendered to the insurer but was not accepted. Instead, the South Sea Surety and
Insurance Co., Inc. cancelled the insurance policy it issued as of the date of inception for non-
payment of the premium due in accordance with Section 77 of the Insurance Code.
● Plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the payment of the
proceeds of the policy but the latter denied liability under the policy. Plaintiff likewise filed a formal
claim with defendant Seven Brothers Shipping Corporation for the value of the lost logs but the
latter denied the claim.
● In its decision, the trial court rendered judgment in favor of plaintiff Hardwood.
● On appeal perfected by both the shipping firm and the insurance company, the Court of Appeals
affirmed the judgment of the court.
ISSUE:
1) Whether defendants shipping corporation and the surety company are liable to the plaintiff for the latter's
lost logs.- YES
2) Whether Mr. Victorio Chua is an agent authorixed to receive the payment of the premium-YES
RULING:
1) Section 77 of the Insurance Code provides:
Sec. 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.
Undoubtedly, the payment of the premium is a condition precedent to, and essential for, the efficaciousness
of the contract. 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 (Secs. 77-78, Insurance Code).
2) On cross-examination in behalf of South Sea Surety and Insurance Co., Inc. Mr. Chua testified that the
marine cargo insurance policy for the plaintiff's logs was delivered to him on 21 January 1984 at his office
to be delivered to the plaintiff.
When the appellant South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine cargo
insurance policy for the plaintiffs logs, he is deemed to have been authorized by the South Sea Surety and
Insurance Co., Inc. to receive the premium which is due on its behalf.
When therefore the insured logs were lost, the insured had already paid the premium to an agent of the
South Sea Surety and Insurance Co., Inc., which is consequently liable to pay the insurance proceeds
under the policy it issued to the insured.
9. Sps. Tibay v. Court of Appeals

257 SCRA 126
DOCTRINE:
FACTS:
The
ISSUE:
Whether or not
RULING
The Court ruled in
10. Malayan Insurance Co., Inc. v. Arnaldo

154 SCRA 672
CRUZ, J.
DOCTRINE:
● Section 77 of the Insurance Code is not applicable herein because payment of the
premium was in fact eventually made in this case. Such payment rendered the policy
operative.
● The policy could be cancelled on any of the supervening grounds enumerated in Article
64 (except "nonpayment of premium") provided the cancellation was made in accordance
therewith and with Article 65. As it has not been shown that there was a valid cancellation
of the policy, there was consequently no need to renew it but to pay the premium thereon.
FACTS:
On 07 June 1981, petitioner MICO issued to the private respondent, Coronacion Pinca, a Fire
Insurance Policy on her property for the amount of P14,000.00 for the period of 22 July 1981 until
22 July 1982. On 15 October 1981, MICO allegedly cancelled the policy for nonpayment, of the
premium and sent the corresponding notice to Pinca.
On 24 December 1981, payment of the premium for Pinca was received by Domingo Adora, agent
of MICO. Adora remitted this payment to MICO, together with other payments. On 18 January
1982, Pinca's property was completely burned. The following month, Pinca's payment was
returned by MICO to Adora on the ground that her policy had been cancelled earlier. But Adora
refused to accept it.
In due time, Pinca made the requisite demands for payment, which MICO rejected. She then went
to the Insurance Commission. It is because she was ultimately sustained by the public respondent
that the petitioner has come to the SC for relief.
ISSUE:
Whether or not there was no valid insurance contract at the time of the loss.
RULING:
No. There was a valid insurance contract at the time of the loss. The petitioner relies heavily on
Section 77 of the Insurance Code. Such provision is not applicable because payment of the
premium was in fact eventually made in this case, specifically on 24 December 1981. The fire
occurred on 18 January 1982. The payment rendered the policy operative as of 22 June 1981,
and removing it from the provisions of Sec. 77. Thereafter, the policy could be cancelled on any
of the supervening grounds enumerated in Article 64 (except "nonpayment of premium") provided
the cancellation was made in accordance therewith and with Article 65.
MICO's acknowledgment of Adora as its agent defeats its contention that he was not authorized
to receive the premium payment on its behalf. It is a well-known principle under the law of agency
that 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.
MICO claims it cancelled the policy in question on 15 October 1981, for non-payment of premium.
On the other hand, there is the flat denial of Pinca, who says she never received the claimed
cancellation and who, of course, did not have to prove such denial considering the strict language
of Sec. 64 that no insurance policy shall be cancelled except upon prior notice, it behooved MICO
to make sure that the cancellation was actually sent to and received by the insured.
It stands to reason that if Pinca had really received the said notice, she would not have made
payment on the original policy on 24 December 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. The Court finds that if she did pay on that date, it was because she honestly believed that
the policy issued on 07 June 1981, was still in effect and she was willing to make her payment
retroact to 22 July 1981. After all, agent Adora was very accommodating and had earlier told her
"to call him up any time" she was ready with her payment on the policy earlier issued.
MICO's suggests that Pinca knew the policy had already been cancelled and that when she paid
the premium on 24 December 1981, her purpose was "to renew it." As this could not be done by
the agent alone under the terms of the original policy, the renewal thereof did not legally bind
MICO which had not ratified it. As it has not been shown that there was a valid cancellation of the
policy, there was consequently no need to renew it but to pay the premium thereon. Payment was
thus legally made on the original transaction and it could be, and was, validly received on behalf
of the insurer by its agent Adora.
As to procedure: The petition can and should be dismissed for late filing. Petition is DENIED. The
decision of the Insurance Commission is AFFIRMED.
11. American Home Assurance Company, Inc. v. Tantoco Enterprises, Inc.

266 SCRA 740 (2001
DOCTRINE:
FACTS:
Respondent insured against fire at its two oil mills with the petitioner. The first oil mill was covered
by Fire Insurance Policy No. 306-7432324-3 for the period of March 1, 1991 to 1992 while the
second oil mill, which commonly referred to as the new oil mill was covered by Policy No. 306-
7432321-9 also for the same term.
Unfortunately, on September 30, 1991, the new oil mill was destroyed by fire. Respondent claimed
for the insurance proceeds from the petitioner but it was rejected by the latter for the reason that
the burned oil mill was not covered by an insurance policy.
According to petitioner, the oil mill gutted by the fire was not the one described by the
specific boundaries in the contested policy. In further attempt to avoid liability, petitioner
claimed that respondent forfeited the renewal policy for its failure to pay the full amount of
the premium and breached the Fire Extinguishing Appliances Warranty.
Hence, respondent filed a complaint for specific performance and damages with the Regional
Trial Court of Lucena City. After trial, the court rendered judgment in favor of respondent. On
appeal, the CA upheld the decision of the RTC
ISSUE:
Whether or not the issue of non-payment of the premium was the CA’s jurisdiction because it was
raised for the first time on appeal.
Petitioner’s claim: That respondent forfeited the renewal policy for its failure to pay the full
amount of the premium and breach of the fire extinguishing appliances warranty.
RULING
The Court ruled in the negative. When the issues to be resolved in the trial court were formulated
at the pre-trial proceedings, the questions of the supposed inadequate payment was never raised.
Petitioner fatally neglected to present, during the whole course of the trial, any witness to testify
that respondent indeed failed to pay the full amount of the premium. Hence, the Court affirmed
the ruling of the CA when it was been held that the issue was raised for the first time on appeal,
hence, beyond the CA’s jurisdiction to resolve, pursuant to Rule 46, Section 18 of the Rules of
Court.
NOTE:
MAIN ISSUE: Whether or not burned oil mill (New mill) is not covered by any insurance policy -
No
The New Mill is covered by the insurance policy.

1. The Court ruled that the words used descriptive of a building insured, the greatest liberality
is shown by the courts in giving effect to the insurance. If the parties really intended to
protect the first oil mill, then there is no need to specify it as new.
2. The imperfection in the description of the insured oil mill’s boundaries can be attributed to
a misunderstanding between the petitioner’s general agent and its policy issuing clerk,
who made the error of copying the boundaries of the first oil mill when typing the policy to
be issued for the new one. It is thus clear that the source of the discrepancy happened
during the preparation of the written contract.
The court in construing a contract is to ascertain the intent of the parties to the contract and to
enforce the agreement which the parties have entered into. In determining what the parties
intended, the courts will read and construe the policy as a whole and if possible, give effect to all
the parties of the contract, keeping in mind always, however, the prime rule that in the event of
doubt, this doubt is to be resolved against the insurer. In determining the intent of the parties, the
courts will consider the purpose and object of the contract.

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INSURANCE LAW - DIGESTS

Careng. Granado. Liban. Sicat

SECTION 78- Acknowledgement

Court’s ruling in Tuscany:

“While the import of Section 77 is that prepayment of premiums is strictly required

2. Sps. Tibay v. Court of Appeals

LAST PARAGRAPH OF THE RULING OF THE CASE:

LAST PARAGRAPH OF THE CASE (SEPARATE OPINION OF JUSTICE VITUG)

3. Arce v. Capital Insurance & Surety Co., Inc.

Section 72 of the Insurance Act, as amended by RA No. 3540 reads:

Moreover, the parties in this case had stipulated:

4. Makati Tuscany Condominium Corp. v. CA

5. Acme Shoe Rubber & Plastic Corporation v. CA

RE: RETROACTIVITY OF RA 3540

6. The Manufacturers Life Insurance Co. v. Bibiano L. Meer

7. GSIS v. Prudential Guarantee & Assurance Inc

THE COURT OF APPEALS

8. South Sea Surety & Ins., Co. v. Court of Appeals

1) Section 77 of the Insurance Code provides:

9. Sps. Tibay v. Court of Appeals

10. Malayan Insurance Co., Inc. v. Arnaldo

11. American Home Assurance Company, Inc. v. Tantoco Enterprises, Inc.

The New Mill is covered by the insurance policy.

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