BATCH 5- INSURANCE
HELD:
WARRANTIES
1. G.R. No. 138941, 8 Oct. 2001
AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. TANTUCO
ENTERPRISES, INC., respondent.
INSURANCE LAW: Liberality is the rule of construction in insurance
contracts.
FACTS: Tantuco Enterprises, Inc. is a coconut oil milling and refining
company. It owned two mills (the first oil mill and a new one), both located
at its factory compound at Iyam, Lucena City. The two oil mills are
separately covered by fire insurance policies issued by American Home
Assurance Co.
On Sept. 30, 1991, a fire broke out and gutted and consumed the new oil
mill. American Home rejected the claim for the insurance proceeds on the
ground that no policy was issued by it covering the burned oil mill. It stated
that the new oil mill was under Building No. 15 while the insurance
coverage extended only to the oil mill under Building No. 5.
Finally, petitioner contends that respondent violated the express terms of
the Fire Extinguishing Appliances Warranty. The said warranty provides:
“WARRANTED that during the currency of this Policy, Fire Extinguishing
Appliances as mentioned below shall be maintained in efficient working
order on the premises to which insurance applies:
- PORTABLE EXTINGUISHERS
- INTERNAL HYDRANTS
- EXTERNAL HYDRANTS
- FIRE PUMP
- 24-HOUR SECURITY SERVICES
BREACH of this warranty shall render this policy null and void and the
Company shall no longer be liable for any loss which may occur.”
ISSUE:
Whether or not the new oil mill is covered by the fire insurance policy
Warranty- whether or not there is a breach of the Fire Extinguishing
Appliance Warranty
1. In construing the words used descriptive of a building insured, the
greatest liberality is shown by the courts in giving effect to the
insurance. In view of the custom of insurance agents to examine
buildings before writing policies upon them, and since a mistake as
to the identity and character of the building is extremely unlikely, the
courts are inclined to consider the policy of insurance covers any
building which the parties manifestly intended to insure, however
inaccurate the description may be.
Notwithstanding, therefore, the misdescription in the policy, it is beyond
dispute, to our mind, that what the parties manifestly intended to insure
was the new oil mill.
If the parties really intended to protect the first oil mill, then there is no need
to specify it as new. Indeed, it would be absurd to assume that the
respondent would protect its first oil mill for different amounts and leave
uncovered its second one.
2. Again, the argument lacks merit. We agree with the appellate
court’s conclusion that the aforementioned warranty did not require
respondent to provide for all the fire extinguishing appliances
enumerated therein. Additionally, we find that neither did it require
that the appliances are restricted to those mentioned in the
warranty. In other words, what the warranty mandates is that
respondent should maintain in efficient working condition within the
premises of the insured property, fire fighting equipments such as,
but not limited to, those identified in the list, which will serve as the
oil mill’s first line of defense in case any part of it bursts into flame.
To be sure, respondent was able to comply with the warranty. Within the
vicinity of the new oil mill can be found the following devices: numerous
portable fire extinguishers, two fire hoses, fire hydrant, and an emergency
fire engine. All of these equipments were in efficient working order when
the fire occurred.
It ought to be remembered that not only are warranties strictly construed
against the insurer, but they should, likewise, by themselves be reasonably
interpreted. That reasonableness is to be ascertained in light of the factual
conditions prevailing in each case. Here, we find that there is no more
SOLID 1-OH INSURANCE BATCH 5- WARRANTIES AND PREMIUM 1
need for an internal hydrant considering that inside the burned building
were: (1) numerous portable fire extinguishers, (2) an emergency fire
engine, and (3) a fire hose which has a connection to one of the external
hydrants.
2. ANG GIOK CHIP vs. SPRINGFIELD FIRE & MARINE INSURANCE
COMPANY
G.R. No. L-33637
Facts: Ang Giok Chip insured his warehouse for the total value of Php
60,000. One of these, amounting to 10,000, was with Springfield Insurance
Company. His warehouse burned down, then he attempted to recover
8,000 from Springfield for the indemnity. The insurance company
interposed its defense on a rider in the policy in the form of Warranty F,
fixing the amount of hazardous good that can be stored in a building to be
covered by the insurance. They claimed that Ang violated the 3 percent
limit by placing hazardous goods to as high as 39 percent of all the goods
stored in the building. His suit to recover was granted by the trial court.
Hence, this appeal.
Issue: WON the warranty did not comply with the Insurance Code, thus,
avoiding the policy.
Held:
No. The warranty is valid.
The Insurance Act, Section 65, taken from California law, states: "Every
express warranty, made at or before the execution of a policy, must be
contained in the policy itself, or in another instrument signed by the insured
and referred to in the policy, as making a part of it."
Any express warranty or condition is always a part of the policy, but, like
any other part of an express contract, may be written in the margin, or
contained in proposals or documents expressly referred to in the policy,
and so made a part of it. It is well settled that a rider attached to a policy
is a part of the contract, to the same extent and with like effect as it
actually embodied therein. In the second place, it is equally well settled that
an express warranty must appear upon the face of the policy, or be
clearly incorporated therein and made a part thereof by explicit
reference, or by words clearly evidencing such intention.”
The court concluded that Warranty F is contained in the policy itself,
because by the contract of insurance agreed to by the parties it was
made to be a part. It wasn’t a separate instrument agreed to by the
parties. Warranty F, a rider attached to the face of the insurance policy,
and referred to in contract of insurance, is valid and sufficient under
section 65 of the Insurance Act.
3. Young v. Midland Textile Insurance Co., 30 Phil 617
March 31, 1915.
Facts: The plaintiff conducted a candy and fruit store on the Escolta, in the
city of Manila. The defendant. entered into a contract of insurance with the
plaintiff. One of the conditions of said contract follows that no hazardous
goods “be stored” or kept for sale, and no hazardous trade or process be
carried on, in the building to which this insurance applies, or in any building
connected therewith.tu Later, the plaintiff placed in said residence and
bodega three boxes, 18 x 18 x 20 inches measurement, which were filled
with fireworks. Said fireworks was intended by the plaintiff to be used in the
celebration of the Chinese new year despite that the authorities of the city
of Manila had prohibited the use of fireworks on said occasion. Thereafter,
said residence and bodega and the contents thereof were partially
destroyed
Plaintiff is now claiming for the insurance proceeds. However,
defendant denied them arguing that the plaintiff clearly violated the
condition of non-storage of hazardous goods, i.e. fireworks, mentioned in
the policy. The plaintiff contends they were not "stored" in said building,
and that the placing of them in the building was not a violation of the terms
of the contract. They further argued that since said fireworks were found in
a part of the building not destroyed by the fire, they were in no way
contributory to the fire, or to the loss occasioned thereby.
Issue:
1. Whether or not the placing of said fireworks is a violation of the
terms of the contract of insurance particularly that no hazardous goods
should be stored in the building?
2. Is the insurance company liable to the plaintiff by reason that the
building was destroyed by some cause other than the fireworks?
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 Held:
1. Yes. The placing of the said fireworks made by the plaintiff was
equivalent to storing it. The word "stored" has been defined to be a deposit
in a store or warehouse for preservation or safe keeping; to put away for
future use, especially for future consumption; to place in a warehouse or
other place of deposit for safe keeping. Said definition does not include a
deposit in a store, in small quantities, for daily use. "Daily use" precludes
the idea of deposit for preservation or safe keeping, as well as a deposit for
future consumption or safe keeping. In the present case no claim is made
that the "hazardous goods" were placed in the bodega for present or daily
use. It is admitted that they were placed in the bodega "for future use," or
for future consumption, or for safe keeping. The plaintiff makes no claim
that he deposited them there with any other idea than "for future use" — for
future consumption. It seems clear to us that the "hazardous goods" in
question were "stored" in the bodega, as that word is generally defined.
That being true, suppose the defendant had made an examination of the
premises, even in the absence of a fire, and had found the "hazardous
goods" there, under the conditions above described, would it not have been
justified, then and there, in declaring the policy null and of no effect by
reason of a violation of its terms on the part of the plaintiff? If it might, then
may it not repudiate its liability, even after the fire? If the "warranty" is a
term of the contract, will not its violation cause a breach and justify
noncompliance or a repudiation?
2. No. The argument of plaintiff is immaterial. The issue here is the
violation of the terms of the contract that no hazardous goods should be
stored inside the building.
4. QUA CHEE GAN vs LAW UNION AND ROCK
1. Chee Gan owned 4 warehouses or bodegas in the municipality of
Tabaco, Albay, used for the storage of stocks of copra and of hemp, baled
and loose. They had been, with their contents, insured with the defendant
Company since 1937, and the lose made payable to the PNB as mortgage
of the hemp and crops, to the extent of its interest.
2. Fire of undetermined origin which lasted almost one week, gutted and
completely destroyed Bodegas Nos. 1, 2 and 4, with the merchandise
stored therein. Plaintiff-appellee informed the insurer by telegram on the
same date; and on the next day, the fire adjusters engaged by appellant
insurance company arrived and proceeded to have an extensive
investigation. The plaintiff having submitted the corresponding fire claims,
totalling P398,562.81 (but reduced to the full amount of the insurance,
P370,000), the Insurance Company resisted payment, claiming violation of
warranties and conditions, filing of fraudulent claims, and that the fire had
been deliberately caused by the insured or by other persons in connivance
with him.
3. Que Chee Gan, with his brother, Qua Chee Pao, and some employees
of his, were indicted and tried i for the crime of arson, it being claimed that
they had set fire to the destroyed warehouses to collect the insurance. RTC
: ACQUIT
ISSUE:
1. WON QCG IS GUILTY of BREACH OF WARRANTY
2.WON the insured violated the Hemp Warranty because of the storage of
gasoline since appellee admitted that there were 36 cans of gasoline in the
building designated as Bodega No.2 that was separate structure not
affected by
HELD: 1.No. Appellant is barred by waiver/estoppel to claim violation of the
so-called fire hydrants warranty, for the reason that knowing fully all that
the number of hydrants demanded therein never existed from the very
beginning, the appellant neverthless issued the policies in question subject
to such warranty, and received the corresponding premiums. It would be
perilously close to conniving at fraud upon the insured to allow appellant to
claims now as void ab initio the policies that it had issued to the plaintiff
without warning of their fatal defect, of which it was informed, and after it
had misled the defendant into believing that the policies were effective.
REASON FOR RULE : To allow a company to accept one's money for a
policy of insurance which it then knows to be void and of no effect, though
it knows as it must, that the assured believes it to be valid and binding, is
so contrary to the dictates of honesty and fair dealing, and so closely
related to positive fraud, as to the abhorent to fairminded men. It would be
to allow the company to treat the policy as valid long enough to get the
premium on it, and leave it at liberty to repudiate it the next moment.
Receipt of Premiums or Assessments after Cause for Forfeiture Other than
Nonpayment. — It is a well settled rule of law that an insurer which with
knowledge of facts entitling it to treat a policy as no longer in force,
receives and accepts a premium on the policy, estopped to take advantage
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of the forfeiture. It cannot treat the policy as void for the purpose of defense
to an action to recover for a loss thereafter occurring and at the same time
treat it as valid for the purpose of earning
Moreover, taking into account the well known rule that ambiguities or
obscurities must be strictly interpreted against the party that caused them,
1the "memo of warranty" invoked by appellant bars the latter from
questioning the existence of the appliances called for in the insured
premises, since its initial expression, "the undernoted appliances for the
extinction of fire being kept on the premises insured hereby, . . . it is hereby
warranted . . .", admists of interpretation as an admission of the existence
of such appliances which appellant cannot now contradict, should the parol
evidence rule apply.
2. NO. It is well to note that gasoline is not specifically mentioned among
the prohibited articles listed in the so-called "hemp warranty." The cause
relied upon by the insurer speaks of "oils (animal and/or vegetable and/or
mineral and/or their liquid products having a flash point below 300o
Fahrenheit", and is decidedly ambiguous and uncertain; for in ordinary
parlance, "Oils" mean "lubricants" and not gasoline or kerosene. And how
many insured, it may well be wondered, are in a position to understand or
determine "flash point below 003o Fahrenheit. Here, again, by reason of
the exclusive control of the insurance company over the terms and
phraseology of the contract, the ambiguity must be held strictly against the
insurer and liberaly in favor of the insured, specially to avoid a forfeiture
Policies are prepared by experts who know and can anticipate the hearing
and possible complications of every contingency. So long as insurance
companies insist upon the use of ambiguous, intricate and technical
provisions, which conceal rather than frankly disclose, their own intentions,
the courts must, in fairness to those who purchase insurance, construe
every ambiguity in favor of the insured.
5. E. M. BACHRACH, Plaintiff-Appellee, v. BRITISH AMERICAN
ASSURANCE COMPANY, a corporation, Defendant-Appellant.
Doctrines: When property is insured any condition upon which the insurer
wishes to rely, in order to avoid liability in case of a loss, must be
expressed in the policy.
Interest in property insured does not pass by the mere execution of a
chattel mortgage, and, while the chattel mortgage is a conditional sale,
there is no alienation, within the meaning of the insurance law, until the
mortgagee acquires a right to take possession by default under the terms
of the mortgage.
The evidence in a civil suit, following an unsuccessful criminal prosecution
involving the same subject matter, should not be materially less convincing
than that required to convict the accused of the alleged crime.
Where the terms of an insurance policy require that notice of loss be given,
a denial of liability by the insurers under the policy operates as a waiver of
notice of loss because if the policy is null and void the furnishing of such
notice would be vain and useless. Immediate notice means within a
reasonable time.
Facts: The plaintiff commenced an action against the defendant to recover
the sum of P9,841.50, the amount due, deducting the salvage, upon the
fire insurance policy issued by the defendant to the plaintiff.ph
After hearing the evidence adduced during the trial of the cause, the lower
court found that the defendant was liable to the plaintiff and rendered a
judgment against the defendant for the sum of P9,841.50, with interest for
a period of one year at 6 per cent, making a total of P10,431.99, with costs.
From that decision the defendant appealed and made the following
assignments of error:chanrob1es virtual 1aw library
1. The court erred in failing to hold that the use of the building, No. 16 Calle
Martinez, as a paint and varnish shop annulled the policy of insurance.
2. The court erred in failing to hold that the execution of the chattel
mortgages without the knowledge and consent of the insurance company
and without receiving the sanction of said company annulled the policy of
insurance.
6. The court erred in holding that the policy of insurance was in force at the
time of said fire, and that the acts or omissions on the part of the insured
which caused, or tended to cause, the forfeiture of the policy, were waived
by the defendant.
Issue: WON the defendant is liable?
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Held: YES. With reference to the first above assignment of error, the lower
court in its decision said:jgc:It is claimed that either gasoline or alcohol was
kept in violation of the policy in the bodega containing the insured property.
It does not justify the forfeiture of the policy on that ground. The property
insured consisted mainly of household furniture kept for the purpose of
sale. The preservation of the furniture in a salable condition by retouching
or otherwise was incidental to the business. It may be added that there was
no provision in the policy prohibiting the keeping of paints and varnishes
upon the premises where the insured property was stored.
With reference to the second above assignment of error, there is no
provision in said policy prohibiting the plaintiff from placing a mortgage
upon the property insured, but, admitting that such a provision was
intended, it is claimed that the execution of a chattel mortgage on the
insured property violated what is known as the ’alienation clause,’. Interest
in property insured does not pass by the mere execution of a chattel
mortgage and that while a chattel mortgage is a conditional sale, there is
no alienation within the meaning of the insurance law until the mortgagee
acquires a right to take possession by default under the terms of the
mortgage. No such right is claimed to have accrued in the case at bar, and
the alienation clause is therefore inapplicable.library
With reference to the sixth assignment of error above noted, regardless of
the question whether the plaintiff’s letter of April 20 was a sufficient
compliance with the requirement that he furnish notice of loss, the fact
remains that on the following day the insurers replied by a letter declaring
that the ’policies were null and void,’ and in effect denying liability. It is well
settled by a preponderance of authorities that such a denial is a waiver of
notice of loss, because if the ’policies are null and void,’ the furnishing of
such notice would be vain and useless. Besides, ’immediate notice’ is
construed to mean only within a reasonable time. In addition, there was no
requirement in the policy in question that such notice be given.
6. Geagonia v CA
G.R. No. 114427 February 6, 1995
Facts: Geagonia, owner of a store, obtained from Country Bankers fire
insurance policy for P100,000.00. The 1 year policy and covered the stock
trading of dry goods.
The policy noted the requirement that
"3. The insured shall give notice to the Company of any insurance or
insurances already effected, or which may subsequently be effected,
covering any of the property or properties consisting of stocks in trade,
goods in process and/or inventories only hereby insured, and unless notice
be given and the particulars of such insurance or insurances be stated
therein or endorsed in this policy pursuant to Section 50 of the Insurance
Code, by or on behalf of the Company before the occurrence of any loss or
damage, all benefits under this policy shall be deemed forfeited, provided
however, that this condition shall not apply when the total insurance or
insurances in force at the time of the loss or damage is not more than
P200,000.00."
The petitioners’ stocks were destroyed by fire. Geagonia then filed a
complaint against the private respondent in the Insurance Commission for
the recovery of P100,000.00 under fire insurance policy and damages. The
basis of the private respondent's denial was the petitioner's alleged
violation of Condition 3 of the policy. He claimed that he knew the
existence of the other two policies. But, he said that he had no knowledge
of the provision in the private respondent's policy requiring him to inform it
of the prior policies and this requirement was not mentioned to him by the
private respondent's agent.
The Insurance Commission found that the petitioner did not violate
Condition 3 as he had no knowledge of the existence of the two fire
insurance policies obtained from the PFIC; that it was Cebu Tesing Textiles
w/c procured the PFIC policies w/o informing him or securing his consent;
and that Cebu Tesing Textile, as his creditor, had insurable interest on the
stocks. (The rule on Mortgagee and Mortgagor separate interests)
Issues:
1. WON the petitioner had not disclosed the two insurance policies when
he obtained the fire insurance and thereby violated Condition 3 of the
policy.
2. WON he is prohibited from recovering
Held: 1. Yes. The court agreed with the CA that the petitioner knew of the
prior policies issued by the PFIC. His letter of 18 January 1991 to the
private respondent conclusively proves this knowledge. His testimony to
the contrary before the Insurance Commissioner and which the latter relied
upon cannot prevail over a written admission made ante litem motam. It
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was, indeed, incredible that he did not know about the prior policies since
these policies were not new or original.
2. No. With these principles in mind, Condition 3 of the subject policy is not
totally free from ambiguity and must be meticulously analyzed. Such
analysis leads us to conclude that (a) the prohibition applies only to double
insurance, and (b) the nullity of the policy shall only be to the extent
exceeding P200,000.00 of the total policies obtained.
Furthermore, by stating within Condition 3 itself that such condition
shall not apply if the total insurance in force at the time of loss does
not exceed P200,000.00, the private respondent was amenable to
assume a co-insurer's liability up to a loss not exceeding P200,000.00.
What it had in mind was to discourage over-insurance. Indeed, the
rationale behind the incorporation of "other insurance" clause in fire policies
is to prevent over-insurance and thus avert the perpetration of fraud. When
a property owner obtains insurance policies from two or more insurers in a
total amount that exceeds the property's value, the insured may have an
inducement to destroy the property for the purpose of collecting the
insurance. The public as well as the insurer is interested in preventing a
situation in which a fire would be profitable to the insured.
PREMIUM
1. UCPB GENERAL INSURANCE CO. INC., petitioner, vs. MASAGANA
TELAMART, INC., respondent.
G.R. No. 137172. April 4, 2001; DAVIDE, JR., C.J.
FACTS: Masagana Telamart obtained from UCPB 5 insurance
policies on its properties. All 5 policies reflect on their face the effectivity
term: "from May 22, 1991 to May 22, 1992." On June 13, 1992,
Masagana’s properties were razed by fire. On July 13, 1992, Masagana
tendered, and UCPB accepted, 5 Manager's Checks in the total amount of
P225,753.45 as renewal premium payments for which Official Receipt
Direct Premium was issued by defendant. On July 14, 1992, Masagana
made its formal demand for indemnification for the burned insured
properties. On the same day, UCPB returned the 5 manager's 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."
The following facts are indeed duly established:
1. For years, Petitioner had been issuing fire policies to the Respondent,
and these policies were annually renewed.
2. Petitioner had been granting Respondent a 60- to 90-day credit term
within which to pay the premiums on the renewed policies.
3. 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 ever
transmitted to Respondent.
4. The premiums for the policies in question in the aggregate amount of
P225,753.95 were paid by Respondent within the 60- to 90-day credit term
and were duly accepted and received by Petitioner’s cashier.
ISSUE: whether or not Sec. 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 60-90-day credit term for the payment of premiums.
RULING: NO, Sec. 77 shall not be strictly applied in this case. The
EXCEPTIONS TO SEC. 77 ARE AS FOLLOWS: First is provided by
Section 77 itself, and that is, (1)in case of a life or industrial life policy
whenever the grace period provision applies. Second is that (2)covered
by Section 78 of the Insurance Code (acknowledgment of receipt of
premium as conclusive evidence of its payment). Third exception was laid
down in Makati Tuscany Condominium Corporation vs. CA, wherein we
ruled that Section 77 may not apply if the parties have (3)agreed to the
payment in installments of the premium and partial payment has been
made at the time of loss. Tuscany has provided a fourth exception to
Section 77, namely, that the (4)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. Moreover, 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. The agreement binds the parties.
Finally in the instant case, 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
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said Section, since Respondent relied in good faith on such practice.
(5)
Estoppel then is the fifth exception to Section 77.
2. SPS. TIBAY VS. CA
[G.R. No. 119655. May 24, 1996]
FACTS: Fortune Life and General Insurance Co., Inc. (FORTUNE) issued
Fire Insurance Policy in favor of Violeta R. Tibay and/or Nicolas Roraldo on
their two-storey residential building located at 5855 Zobel Street, Makati
City, together with all their personal effects therein. The insurance was for
P600,000.00 covering the period from 23 January 1987 to 23 January
1988. On 23 January 1987, of the total premium of P2,983.50, petitioner
Violeta Tibay only paid P600.00 thus leaving a considerable balance
unpaid.
On 8 March 1987 the insured building was completely destroyed by fire.
Two days later or on 10 March 1987 Violeta Tibay paid the balance of the
premium. On the same day, she filed with FORTUNE a claim on the fire
insurance policy.
In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for
violation of Policy Condition No. 2 and of Sec. 77 of the Insurance Code.
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. The trial court ruled for petitioners. Court of Appeals
reversed the court a quo.
ISSUE: May a fire insurance policy be valid, binding and enforceable upon
mere partial payment of premium?
HELD: NO.
The pertinent provisions in the Policy on premium read –
2. This policy including any renewal thereof and/or any endorsement
thereon is not in force until the premium has been fully paid to and duly
receipted by the Company in the manner provided herein.
xxx xxx xxx
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 which 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 (Italics supplied).
The Phoenix and Tuscany cases are not persuasive in the case at bar.
These two cases adequately demonstrate the waiver, either express or
implied, of prepayment in full by the insurer: impliedly, by suing for the
balance of the premium as in Phoenix, and expressly, by agreeing to make
premiums payable in installments as in Tuscany. But contrary to the stance
taken by petitioners, there is no waiver express or implied in the case at
bench. Precisely, 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 x x x 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.
3. PEDRO ARCE, vs. THE CAPITAL INSURANCE & SURETY CO., INC.,
G.R. No. L-28501 September 30, 1982
Facts:
Arce (INSURED) owned a residential house in Tondo Manila which was
insured with Capital Insurance (COMPANY) since 1961 (fire insurance). 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,
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thru his wife asked for an extension which was on January 4, 1996. The
request was granted by the COMPANY. After the lapse of the requested
extension, INSURED still failed to pay the premium. On January 8, 1996,
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 the COMPANY 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 the payment of premiums is necessary for the effectivity of
policy
Ruling:
Yes. The Court ruled that Section 72 of the Insurance Act as amended by
R.A. 3540 states that "no policy issued by an insurance company is valid
and binding unless and until the premium thereof has been paid." It is
obvious from both the Insurance Act, as amended, and the stipulation of
the parties that time is of the essence in respect to 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.
4. G.R. No. 95546 November 6, 1992
MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO.,
represented by American International Underwriters (Phils.), Inc.,
respondent.
Facts: Sometime in early 1982, American Home Assurance Co. (AHAC),
represented by American International Underwriters (Phils.), Inc., (AIUI)
issued in favor of Makati Tuscany Condominium Corporation (Tuscany)
Insurance Policy AH-CPP-9210452 on the latter's building and premises,
with a total premium of P466,103.05. The premium was paid on
installments. On 10 February 1983, AHAC issued to Tuscany Insurance
Policy No. AH-CPP9210596,which replaced and renewed the previous
policy, the premium in the amount of P466,103.05 was again paid on
installments. All payments were likewise accepted by AHAC. On 20
January 1984, the policy was again renewed and AHAC issued to Tuscany
Insurance Policy AH-CPP-9210651, Tuscany made two installment
payments, both accepted by AHAC. Thereafter, Tuscany refused to pay the
balance of the premium. Consequently, AHAC filed an action to recover the
unpaid balance of P314,103.05 for Insurance Policy AH-CPP-9210651.
In its answer with counterclaim, Tuscany admitted the issuance of
Insurance Policy AH-CPP-9210651. It explained that it discontinued the
payment of premiums because the policy did not contain a credit clause in
its favor and the receipts for the installment payments, as well as the two
(2) previous policies, stated the following reservations: (2) Acceptance of
this payment shall not waive any of the company rights to deny liability on
any claim under the policy arising before such payments or after the
expiration of the credit clause of the policy; and (3) Subject to no loss prior
to premium payment. If there be any loss such is not covered. Tuscany
further claimed that the policy was never binding and valid, and no risk
attached to the policy. It then pleaded a counterclaim for P152,000.00 for
the premiums already paid, and in its answer with amended counterclaim,
sought the refund of P924,206.10 representing the premium payments for
1982-85. After some incidents, Tuscany and AHAC moved for summary
judgment. On 8 October 1987, 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 Tuscany to pay the balance of the premiums
due on Policy AH-CPP-921-651, or P314,103.05 plus legal interest until
fully paid, and affirming the denial of the counterclaim. Tuscany filed the
petition.
Issue: Whether payment by installment of the premiums due on an
insurance policy invalidates the contract of insurance.
Held: NO. The subject policies are valid even if the premiums were paid on
installments. The records clearly show that Tuscany and AHAC 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 3 years, the
insurer accepted all the installment payments. Such acceptance of
SOLID 1-OH INSURANCE BATCH 5- WARRANTIES AND PREMIUM 8
payments speaks loudly of the insurer's intention to honor the policies it
issued to Tuscany. 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 prepaid in full. Thus, while the import of
Section 77 is that prepayment of premiums is strictly required as a
condition to the validity of the contract, the Court was 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. 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. It appearing from the peculiar circumstances that the parties
actually intended to make the three (3) insurance contracts valid, effective
and binding, Tuscany may not be allowed to renege on its obligation to pay
the balance of the premium after the expiration of the whole term of the
third policy (AH-CPP-9210651) in March 1985. Moreover, 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.
5. ACME SHOE RUBBER & PLASTIC CORPORATION, petitioner vs. CA
and DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES
Facts:
Since 1946, ACME Shoe Rubber and Plastic Corporation (ACME, for
brevity) had been insuring yearly against fire its building, machines
and general merchandise, with respondent Domestic Insurance Company
of the Philippines (the INSURER, for short). In 1962, ACME continued to
insure its properties with the INSURER. In 1963, the INSURER issued
Renewal Receipt. In 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.
The clauses mentioned, which were attached as riders to
Renewal Receipt No. 30127, respectively read as follows:
RECEIPT OF PAYMENT CLAUSE
IT IS HEREBY DECLARED AND AGREED that
notwithstanding anything to the contrary contained in the
within policy, 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
(Exhibit'E-l')
CREDIT AGREEMENT
The premium corresponding to the first ninety days of the
term of this policy or any renewal thereof is hereby
considered paid for the purpose only of making this Policy
valid and binding during said portion of the term. Thereafter,
this Policy shall automatically become void and
ineffective (without prejudice to the obligation of the
Insured to pay the corresponding short period premium
for the said 90 days) unless prior to the expiration of
said period the Insured shall have actually paid to the
Company the total premium and the documentary stamps
stipulated in this Policy.
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.
Issue: WON the policy is avoided due to non-payment of premium after the
extension period
Held:
YES. 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. There is also evidence to the
SOLID 1-OH INSURANCE BATCH 5- WARRANTIES AND PREMIUM 9
effect that various reminders by the INSURER for payment remained
unheeded (Exhibit "10"). 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.
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 occureed then".
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.
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.
6. G.R. No. L-2910 June 29, 1951
THE MANUFACTURERS LIFE INSURANCE CO., plaintiff-appellant,
vs.
BIBIANO L. MEER, in the capacity as Collector of Internal
Revenue, defendant-appellee.
Facts: The plaintiff, the Manufacturer Life Insurance Company in a
corporation duly organized in Canada with head office at Toronto. It is duly
registered and licensed to engage in life insurance business in the
Philippines, and maintains a branch office in Manila. 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 during 1942 up to September 1945.
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 particularly Automatic Premium Loan; Cash and
Paid-Up Insurance Values; and Extended Insurance.
In summary, these stipulations provide that the 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 insured remitted no money within the
months grace. The insurer shall threat the “cash value of this policy as
payment thereof”
From January 1, 1942 to December 31, 1946 for failure of the “insured
(lahat ng nag 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.
Nonetheless, defendant Collector of Internal Revenue taxed and assessed
the said advances.
The plaintiff paid the said assessed value but reserved the right to question
the assessment. They contented 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 imposed on premiums.
Issue:
1. Were the advances made by plaintiff-appellant under the automatic
premium loan clause of its policies are "premium collected" by the
Company?
2. Are the premiums and the advances herein mentioned taxable?
SOLID 1-OH INSURANCE BATCH 5- WARRANTIES AND PREMIUM 10
Held:

1. Yes. The advances constitute premiums. The insurer argues that it was
not a premium since that there is no change, much less an increase, in the
amount of the assets of insurer after the application of the automatic
premium loan clause. Its assets remain exactly the same after making the
advances in question. It being so, there could have been no collection of
premium . According to the plaintiff, the advances were merely a loan.
However, this COURT belives otherwise because there was an increase.
There was the new credit for the advances made. True, the plaintiff could
not sue the insured to enforce that credit. But it has means of satisfaction
out of the cash surrender value. 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."

2. Yes. The appellant takes the position that as advances of premiums

were made in Toronto, such premiums are deemed to have been paid
there — not in the Philippines — and therefore those payments are not
subject to local taxation. Approval of appellants position will enable foreign
insurers to evade the tax by contriving to require that premium payments
shall be made at their head offices. What is important, the law does not
contemplate premiums collected in the Philippines. It is enough that the
insurer is doing insurance business in the Philippines, irrespective of the
place of its organization or establishment.

SOLID 1-OH INSURANCE BATCH 5- WARRANTIES AND PREMIUM 11