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UCPB General Insurance vs.

Masagana Telemart (1999)


Pardo,J.

FACTS:

1. April 15, 1991: UCPB issued 5 fire insurance policies covering Telemarts properties. Policies
were valid from May 22, 1991 to May 22, 1992 (1 year validity).
2. March 1992: UCPB evaluated the policies and decided not to renew them upon expiration of their
terms on May 22, 1992. UCPB advised Telemarts borker, Zuellig Insurance Brokers, Inc. of its
intention not to renew the policies.
3. April 6, 1992: UCPB gave written notice to Telemart of non-renewal of the policies. This notice
was sent to the address stated in the policies.
4. June 13, 1992: Fire razed Telemarts property, covered by 3 of UCPBs insurance policies.
5. July 13, 1992: Telemart presented to UCPBs cashier at its head office 5 managers checks in the
total amount of P225,753.95, representing premium for the renewal of the policies from May 22,
1992 to May 22, 1993. No notice of loss was filed.
6. July 14, 1992: Telemart filed with UCPB a formal claim for indemnification of the insured property
razed by the fire. On the same day, UCPB returned to Telemart the managers checks that it
tendered, and rejected its claim because the policies had already expired and were not renewed,
and the fire occurred on June 13, 1992, which is before the payment of the premium.
7. July 21, 1992: Telemart filed with RTC Makati a complaint against UCPB, claiming the amount of
P18,645,000, representing the face value of the policies covering Telemarts insured property
razed by the fire and attorneys fees.
8. October 23, 1992: UCPB filed an answer, its motion to dismiss having been denied. It alleged that
Telemarts complaint failed to state a cause of action, that they were not liable for insurance
proceeds because at the time of the loss of property, the policies had long expired and were not
renewed.
9. RTC rendered a decision ordering UCPB to pay insurance proceeds to Telemart.
10. CA affirmed the decision of the RTC. It held that following previous practice, Telemart was
allowed a 60- to 90-day credit term for the renewal of its policies, and that the acceptance of late
premium payment could be made later.

ISSUE: W/N the fire insurance policies issued by UCPB to Telemart had expired on May 22, 1992 or had
been extended or renewed by an implied credit arrangement through actual payment of premium
tendered on a later date after the occurrence of the risk insured against - There was no renewal.
Therefore, UCPB cannot be held liable.

HELD: CA decision reversed.

RATIO:
1. No insurance policy, other than life, issued originally or on renewal, is not valid and binding until
actual payment of the premium. Any agreement to the contrary is void. The parties may not agree
expressly or impliedly on the extension of credit or time to pay the premium and consider the
policy binding before actual payment.
2. Malayan case is not applicable because in that case, payment of premium was made a month
before the fire occurred. In this case, the fire occurred before the payment of the premium. The
insured did not even give notice of loss to UCPB within a reasonable time.
UCPB General Insurance vs. Masagana Telemart (2001)
Davide,Jr.,CJ

***Supreme Court reversed its ruling in the 1999 decision, stating that there was no implied renewal.

NOTE: The insurance policy issued by UCPB to Telemart provided for a renewal clause.
o Policy Condition No. 26: 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.

The Supreme Court took note of the following facts in reversing its decision:
1. UCPB had been issuing fire policies to Telemart, and these policies were annually renewed.
2. UCPB had been granting Telemart 60- to 90-day credit term within which to pay the premium on
the renewed policies.
3. There was no valid notice of non-renewal, as there was no notice at all that the said notice was
sent by ordinary mail and was received by Telemart. No proof that the copy sent to Zuellig was
transmitted to Telemart.
4. Premiums paid by Telemart were within the 60- to 90-day credit term and were duly accepted by
UCPBs cashier.

ISSUE: W/N Section 77 must be strictly applied to UCPBs advantage despite its practice of granting a
60- to 90-day credit term for the payment of premiums -- NO. Section 77 admits of exceptions.

RATIO:
1. The present Insurance Code does not restate the portion of Section 72 (old version) expressly
permitting an agreement to extend the period to pay the premium. However, there are exceptions
to this.
2. The exceptions are the following:
1. As provided in the provision itself: In case of a life or industrial life policy whenever the
grace period provision applies.
2. 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.
3. Makati Tuscany 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 the loss.
4. Makati Tuscany vs. CA: The insurer may grant credit extension for the payment of the
premium. If the insurer has granted the insured a credit term for payment of the premium
and the 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. Such
agreement is not contrary to law, morals, good customs, public order, or public policy.
5. Estoppel
b. SC acknowledged that UCPB was estopped from allowing Telemart to recover from the policy
because UCPB has consistently granted a 60- to 90-day credit term for the payment of premiums
despite its awareness of the general rule in Section 77.

SEPARATE OPINIONS

Justice Vitug:
The law generally mandates that insurance companies should retain an amount sufficient to
guarantee the security of its policyholders in the remote future, and to cover any contingencies
that may arise or be fairly anticipated. By legislative fiat, any agreement to the contrary
notwithstanding, the payment of premium is a condition precedent to, and essential for, the
efficaciousness of the insurance contract, EXCEPT: (a) in case of life or industrial life insurance
where a grace period applies, or (b) in case of a written acknowledgment by the insurer of the
receipt of the premium.
By weight of authority, 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 is proscribed by
public policy.
o The deletion of the phrase unless there is a clear agreement to grant the insured credit
extension of the premium due, and the adding of the phrase notwithstanding any
agreement to the contrary were deliberate. Hence, under the present law, the policy is
not valid and binding unless and until the premium is paid. A mere credit agreement
would not be sufficient.
So essential is the premium payment in the creation of the vinculum juris between the insured
and the insurer. However, there is no provision in law that proscribes the existence of a juridical
tie in the case of partial payment. Such payment puts the contract into full binding force.
MR should be denied.

Justice Pardo, dissenting:


What an undeserved largess!
Telemarts claim is fraudulent given the following:
o Failure to give notice of the fire immediately upon its occurrence. Telemart knew that the
policy was not renewed on time. The surreptitious attempt to pay overdue premiums
revealed a reprehensible disregard of the principle that insurance is a contract uberrimae
fides.
o Telemart deviated from its previous practice of coursing its payments through its brokers.
This time, Telemart went straight to the cashier, who would, naturally, accept the premium
payment because he had no written notice of the occurrence of the fire.
o The failure to give timely written notice of the fire was a material misrepresentation
affecting the risk insured against. If there was a clear grant of credit extension, Telemart
would have given immediate written notice of the fire that razed the property. This clearly
showed Telemarts intention to deceive UCPB that the subject property still existed and
the risk insured against had not happened.
o Telemart merely deduced that a credit agreement existed based on previous years
practice that they had of delayed payments.
o The insurance company recognized the payment to the insurance brokers as payment to
itself. Hence, what was established was the grant of credit to the insurance brokers, not
to the insured. (In the testimony, Telemart admitted that it was a verbal agreement
between Telemart and the broker company, and not between Telemart and UCPB.)
o Estoppel cannot give validity to an act that is prohibited by law or against public policy.
Section 2 of the insurance policy itself provides that the policy would not be binding on
the insurer unless the premiums thereon had been paid. Following the Tibay doctrine, the
insurance policy never became effective.
o It is elementary law that the payment of premium is a mandatory requirement to make the
policy of insurance effective. If the payment of premium is not paid in the manner
prescribed in the policy as intended by the parties, the policy is void and ineffective.

MR should be denied.