Case Digests on Insurance - Premium

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G.R. No. 95546 November 6, 1992
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, all of which were
accepted by private respondent.
Private respondent issued to petitioner another Insurance Policy, which replaced and renewed the previous
policy. The premium was again paid on installments. All payments were likewise accepted by private respondent.
On 20 January 1984, the policy was again renewed and private respondent issued to petitioner Insurance Policy. On
this renewed policy, petitioner made two installment payments, both accepted by private respondent. Thereafter,
petitioner refused to pay the balance of the premium. It explained that it discontinued the payment of premiums
because the policy did not contain a credit clause in its favor. Petitioner further claimed that the policy was never
binding and valid, and no risk attached to the policy.
Consequently, private respondent filed an action to recover the unpaid balance of P314,103.05 for Insurance
Policy. After some incidents, petitioner and private respondent moved for summary judgment. The trial court
dismissed the complaint 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 on Policy plus legal interest until fully paid.
Petitioner now asserts that its payment by installment of the premiums for the insurance policies
invalidated said policies because of the provisions of Sec. 77 of the Insurance Code, as amended, and by the
conditions stipulated by the insurer in its receipts, disclaiming liability for loss for occurring before payment of
premiums. 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.
Whether payment by installment of the premiums due on an insurance policy invalidates the contract of
We hold 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.
We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings and
conclusion of the appellate court contained in its Resolution denying the motion to reconsider its Decision —
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.
The reliance by petitioner on Arce vs. Capital Surety and Insurance Co. is unavailing because the facts
therein are substantially different from those in the case at bar. In Arce, no payment was made by the insured at all
despite the grace period given. In the case before Us, petitioner paid the initial installment and thereafter made
staggered payments resulting in full payment of the 1982 and 1983 insurance policies. For the 1984 policy,
petitioner paid two (2) installments although it refused to pay the balance.
It appearing from the peculiar circumstances that the parties actually intended to make three (3) insurance
contracts valid, effective and binding, petitioner 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. Moreover, as correctly observed by the
appellate court, 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.


G.R. No. 102253 June 2, 1995
Valenzuela Hardwood and Industrial Supply, Inc.(VHIS) entered into an agreement with the defendant
Seven Brothers whereby the latter undertook to load on board its vessel M/V Seven Ambassador at the port of
Maconacon, Isabela for shipment to Manila. VHIS insured the logs, against loss and/or, damage with defendant
South Sea Surety and Insurance Co., Inc. and the latter issued its marine insurance policy.
VHIS 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 resulting in the loss of the plaintiffs insured logs. The check
for to cover payment of the premium and documentary stamps due on the policy was tendered to the insurer but was
not accepted. Instead, the plaintiff cancelled the insurance policy it issued as of the date of inception for nonpayment of the premium.
VHIS demanded from the plaintiff the payment of the proceeds of the policy but the latter denied liability
under the policy. Defendant likewise filed a formal claim with defendant Seven Brothers Shipping Corporation for
the value of the lost logs but the latter denied the claim.
The trial court rendered judgment in favor of Hardwood. On appeal perfected by both the shipping firm and
the insurance company, the Court of Appeals affirmed the judgment of the court only against the insurance
corporation; in absolving the shipping entity from liability.
1. whether or not Victorio Chua is an authorized representative of the insurer
2. whether or not there is a valid contract of insurance between the parties
1. Yes. Victorio Chua is an agent of the insurer.
Section 306 of the Insurance Code provide as follows:
Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of I
nsurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of
any premium which is due on such policy of contract of insurance at the time of its issuance or delivery
or which becomes due thereon.
On cross-examination in behalf of the plaintiff, Mr. Chua testified that the marine cargo insurance policy for
the logs was delivered to him at his office to be delivered to VHIS. When South Sea Surety and Insurance Co., Inc.
delivered to Mr. Chua the marine cargo insurance policy for the logs, he is deemed to have been authorized by the
insurer to receive the premium which is due on its behalf.
2. Yes, there is a valid contract of insurance.
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.


G.R. No. 137172 April 4, 2001
Respondent obtained from Petitioner five (5) insurance policies on its properties in Pasay City and Manila.
Respondent’s properties were razed by fire. On July 13, 1992, respondent tendered, and petitioner accepted, five (5)
Equitable Bank Manager's Checks as renewal premium payments was issued by defendant. On July 14, 1992,
Masagana made its formal demand for indemnification for the burned insured properties. Petitioner returned the
five (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."
Hence Masagana filed this case. The Court of Appeals disagreed with Petitioner's stand that Respondent's
tender of payment of the premiums on 13 July 1992 did not result in the renewal of the policies, having been made
beyond the effective date of renewal as provided under Policy Condition No. 26, which states:
26. Renewal Clause. — 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.
Both the Court of Appeals and the trial court found that sufficient proof exists that Respondent, which had
procured insurance coverage from Petitioner for a number of years, had been granted a 60 to 90-day credit term for
the renewal of the policies. Moreover, according to the Court of Appeals the following circumstances constitute
preponderant proof that no timely notice of non-renewal was made by Petitioner. Insurer unconditionally accepted,
and issued an official receipt for, the premium payment which indicates defendant's willingness to assume the risk
despite only 67.5% reinsurance coverage.
Whether the fire insurance policies issued by petitioner to the respondent had been extended or renewed by
an implied credit arrangement though actual payment of premium was tendered on a later date and after the
occurrence of the (fire) risk insured against.
The courts below correctly found that no notice of non-renewal was made within 45 days or before the
expiration date of the fire insurance policies. Thus, the policies in question were renewed by operation of law
and were effective and valid when the fire occurred, since the premiums were paid within the 60- to 90day credit term. Respondent likewise disagrees with our ruling that parties may neither agree expressly or
impliedly on the extension of credit or time to pay the premium nor consider a policy binding before actual payment.
It urges the Court to take judicial notice of the fact that despite the express provision of Section 77 of the Insurance
Code, extension of credit terms in premium payment has been the prevalent practice in the insurance industry. Most
insurance companies, including Petitioner, extend credit terms because Section 77 of the Insurance Code is not a
prohibitive injunction but is merely designed for the protection of the parties to an insurance contract. The Code
itself, in Section 78, authorizes the validity of a policy notwithstanding non-payment of premiums.
Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its awareness of Section
77 Petitioner persuaded and induced Respondent to believe that payment of premium on the 60- to 90-day credit
term was perfectly alright; in fact it accepted payments within 60 to 90 days after the due dates. By extending credit
and habitually accepting payments 60 to 90 days from the effective dates of the policies, it has implicitly agreed to
modify the tenor of the insurance policy and in effect waived the provision therein that it would pay only for the loss
or damage in case the same occurred after payment of the premium.

The instant case has to rise or fall on the core issue of 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. Section 77 of the Insurance Code of 1978 provides:
SECTION 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.
It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an
agreement to extend the period to pay the premium. But are there exceptions to Section 77? The answer is in the
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 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.
A third exception is 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.
The 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.
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 said Section, since
Respondent relied in good faith on such practice. Estoppel then is the fifth exception to Section 77.


Petitioner American Home Assurance Company (AHAC) is a domestic corporation engaged in the insurance
business. Sometime in 1990, respondent Chua obtained from petitioner a fire insurance covering the stock-in-trade
of his business, Moonlight Enterprises at Valencia, Bukidnon. The insurance was due to expire on 25 March 1990.
On 5 April 1990, Chua issued a PCI Bank Check to petitioner’s agent, James Uy, as payment for the renewal of
the policy. In turn, the latter delivered a renewal certificate to Chua. The check was drawn against a Manila bank
and deposited in petitioner’s bank account in Cagayan de Oro City. Subsequently, a new insurance policy was
issued, whereby AHAC undertook to indemnify respondent for any damage or loss arising from fire up to P200,000
for the period 25 March 1990 to 25 March 1991.
On 6 April 1990, Moonlight Enterprises was completely razed by fire. Total loss was estimated
between P4,000,000 and P5,000,000. Respondent Chua filed an insurance claim with petitioner and four other coinsurers. Petitioner AHAC refused to honor the claim notwithstanding several demands by Chua, thus, the latter
filed an action against petitioner before the trial court. In its defense, petitioner claimed there was no existing
insurance contract when the fire occurred since Chua did not pay the premium.
The trial court ruled in favor of respondent Chua. It found that respondent paid by way of check a day before
the fire occurred. The check, which was deposited in petitioner’s bank account, was even acknowledged in the
renewal certificate issued by petitioner’s agent. As to respondent’s failure to notify petitioner of the other insurance
contracts covering the same goods, the trial court held that petitioner failed to show that such omission was
intentional and fraudulent. Petitioner AHAC was made to pay 750,000 in damages. The CA found that respondent
Chua’s claim was substantially proved and petitioner’s unjustified refusal to pay the claim entitled respondent to
the award of damages. American Home filed the petition reiterating its stand that there was no existing insurance
contract between the parties. It invoked Section 77 of the Insurance Code, which provides that no policy or contract
of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been
paid and cites the case of Arce v. Capital Insurance wherein the court ruled that until the premium is paid there
is no insurance.
WON there was a valid payment of premium, considering that respondent’s check was cashed after the
occurrence of the fire
YES. The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and
binding. The only exceptions are life and industrial life insurance. Whether payment was indeed made is a question
of fact which is best determined by the trial court. The trial court found, as affirmed by the Court of Appeals, that
there was a valid check payment by respondent to petitioner. Well-settled is the rule that the factual findings and
conclusions of the trial court and the Court of Appeals are entitled to great weight and respect, and will not be
disturbed on appeal in the absence of any clear showing that the trial court overlooked certain facts or
circumstances which would substantially affect the disposition of the case. According to the trial court the renewal
certificate issued to respondent contained the acknowledgment that premium had been paid. In the instant case,
the best evidence of such authority is the fact that petitioner accepted the check and issued the official receipt for
the payment. It is, as well, bound by its agent’s acknowledgment of receipt of payment.
Section 78 of the Insurance Code explicitly provides:
An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of
its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not
be binding until the premium is actually paid.


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