AMERICAN HOME ASSURANCE V CHUA

FACTS: CHUA OBTAINED A FIRE INSURANCE POLICY WITH AMERICAN HOME ASSURANCE COVERING THE
STOCK-IN-TRADE OF MOONLIGHT ENTERPRISES. HE THEN ISSUED A CHECK ON THE 5TH OF APRIL TO
AMERICAN HOME ASSURANCE AGENT AS PAYMENT OF THE RENEWAL, AMERICAN HOME THEN
DELIVERED THE RENEWAL CERTIFICATE TO CHUA.THE CHECK WAS DRAWN AND DEPOSITED IN
AMERICAN HOME ASSURANCE BANK ACCOUNT AND THE RECEIPT WERE ISSUED ON THE 10TH OF APRIL.
THEN A NEW POLICY WAS ISSUED. ON THE 6TH OF APRIL MOONLIGHT ENTERPRISES WAS COMPLETELY
RAZED BY FIRE, CHUA THEN FILED A CLAIM WITH AMERICAN HOME ASSURANCE AND TO FOUR OTHER
CO-INSURERS. AMERICAN HOME ASSURANCE HOWEVER DENIED THE CLAIM OF CHUA AND CONTENDS
THAT THERE WAS NO EXISTING INSURANCE CONTRACT WHEN THE FIRE OCCURED ON THE 6TH OF APRIL
SINCE CHUA DID NOT PAT THE PREMIUM AND ALTHOUGH HE GAVE A CHECK ON THE 5TH OF APRIL IT
COULD NOT HAVE BEEN CLEARED BY THE 6TH OF APRIL AND THAT THE O.R. WAS DATED 10TH OF APRIL
AND CHUA ALSO VIOLATED SEVERAL CONDITIONS OF THE POLICY.
ISSUE: WHETHER OR NOT THERE WAS A VALID PAYMENT OF PREMIUM SINCE THE CHECK WAS CASHED
AFTER THE INCIDENT?
HELD: YES, THERE WAS A VALID PAYMENT OF PREMIUM. THE GENERAL RULE IN INSURANCE LAWS AND
ACCORDING TO SECTION 77 OF THE INSURANCE CODE S THAT UNLESS THE PREMIUM IS PAID THE
INSURANCE POLICY IS NOT VALID AND BINDING AND THAT THE ONLY EXCEPTIONS ARE LIFE AND
INDUSTRIAL LIFE INSURANCE. THE NON-PAYMENT OR PAYMENT OF PREMIUM IS A QUESTION OF FACT
AND THAT THE FINDINGS OF THE TRIAL COURT WHICH AFFIRMED BY THE C.A. ARE ENTITLED TO GREAT
WEIGHT AND IT WILL NOT BE DISTURBED ON APPEAL. THE TRIAL COURT IN THIS CASE FOUND THAT THE
RENEWAL CERTIFICATE ISSUED TO CHUA CONTAINED THE ACKNOWLEDGEMENT THAT THE PREMIUM
HAS BEEN PAID. THE CHECK WAS DRAWN BY CHUA IN FAVOR OF AMERICAN HOME AND IT WAS
HONORED WHEN PRESENTED AND THAT THE O.R. WAS ISSUED TO CHUA. FURTHERMORE, SECTION 306 315
OF THE INSURANCE CODE PROVIDES THAT ANY INSURER WHICH DELIVERS A POLICY TO ITS AGENT OR
BROKER SHALL BE DEEMED TO AUTHORIZED THE AGENT OR BROKER TO RECEIVE ON ITS BEHALD ANY
PREMIUM WHICH IS DUE AT THE TIME OF ITS ISSUANCE OR DELIVERY. IN THIS CASE, AMERICAN HOME
ACCEPTED THE CHECK AND ISSUED THE O.R. AND THAT THE AGENT ACKNOWLEDGE THE RECEIPT OF
PAYMENT. SECTION 7978 OF THE INSURANCE CODE PROVIDES THAT AN ACKNOWLEDGEMENT IN A POLICY
OF THE RECEIPT OF PREMIUM IS CONCLUSIVE EVIDENCE OF ITS PAYMENT SO FAR AS TO MAKE THE
POLICY BINDING DESPITE ANY STIPULATION THEREIN THAT IT SHALL NOT BE BINDING UNTIL THE
PREMIUM IS ACTUALLY PAID. THEREFORE, SECTION 78 ESTABLISHED A LEGAL FICTION OF PAYMENT
SECTION 79
AND AN EXCEPTION TO SECTION 77.AND THAT THERE IS A VALID
PAYMENT.
ISSUE: WHETHER OF NOT CHUA IS GUILTY OF POLICY VIOLATIONS?
HELD: NO, CHUA IS NOT GUILTY OF POLICY VIOLATIONS. ORDINARILY WHERE THE INSURANCE POLICY
SPECIFIES AS A CONDITION THE DISCLOSURE OF EXISTING CO-INSURERS, NON-DISCLOSURE IS A
VIOLATION AND ENTITLES THE INSURER TO AVOID THE POLICY WHICH IS COMMON IN FIRE INSURANCE
POLICIES AND KNOW AS THE "OTHER INSURANCE CLAUSE". THE PURPOSE OF WHICH IS TO PREVENT AN
INCREASE IN THE MORAL HAZARD. IN THIS CASE, THE FAILURE OF CHUA TO DISCLOSE THE CO-INSURER
IS NOT INTENTIONAL AND FRAUDULENT. TO CONSTITUTE A VIOLATION OF SECTION 75 IT MUST BE
UPON THE SAME SUBJECT MATTER AND WITH THE SAME INTEREST AND RISK. INDEED CHUA FAILED TO
DISCLOSE THE CO-INSURERS TO AMERICAN HOME HOWEVER, AMERICAN HOME LOSS ADJUSTER
ADMITTED PREVIOUS KNOWLEDGE OF THE CO-INSURERS. THE LOST ADJUSTER BEING AN EMPLOYEE OF
AMERICAN HOME IS DEEMED A REPRESENTATIVE OF AMERICAN HOME AND AWARE OF THE EXISTENCE
OF OTHER INSURANCE AND BINDS AMERICAN HOME. THEREFORE, THERE WAS NO DECEIF AND THERE
WAS NO VIOLATION OF THE OTHER INSURANCE CLAUSE.

MORAL HAZARD-RISK THAT A PARTY HAS NOT ENTERED INTO A CONTRACT IN GOOD FAITH, OR
PROVIDED MISLEADING INFORMATION