Great Pacific Life Assurance Co.

v Court of Appeals 89 SCRA 543 April 30, 1979 Facts: Respondent Ngo Hing filed an application with petitioner Great Pacific Life Assurance Company (Pacific Life) for a twenty-year endowment policy in the life of Helen Go, his one year old daughter. Petitioner Lapulapu D. Mondragon, the branch manager, prepared application form using the essential data supplied by respondent. The latter paid the annual premium and Mondragon retained a portion of it as his commission. The binding deposit receipt was issued to respondent. Mondragon wrote his strong recommendation for the approval of the insurance application. However, Pacific Life disapproved the application since the plan was not available for minors below 7 years old but it can consider the same under another plan. The non-acceptance of the insurance plan was allegedly not communicated by Mondragon to respondent. Mondragon again asserted his strong recommendation. Helen Go died of influenza. Thereupon, respondent sought the payment of the proceeds of the insurance, but having failed in his effort, he filed an action for the recovery of the same. Hence the case at bar. Issue: Whether or not the insurance contract has been perfected on the ground that a binding receipt has been issued? Held: NO, it was not perfected. The binding deposit receipt is merely an acknowledgement, on behalf of the company, that the latters branch office had received from the applicant the insurance premium and had accepted the application subject for processing by the insurance company; and that the latter will either approve or reject the same on the basis of whether or not the applicant is insurable on standard rates. The binding deposit receipt is merely conditional and does not insure outright. Where an agreement is made between the applicant and the agent, no liability shall attach until the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional, and is subordinated to the act of the company in approving or rejecting the application. Thus, in life insurance, a binding slip or binding receipt does not insure by itself. *************************************************************************************************************** Perez v CA 323 SCRA 613 Jan. 28, 2000 Facts: Primitivo Perez had been insured with BF Lifeman Insurance Corp. An agent of the insurance corp Rodolfo Lalog, visited Perez and convinced him to apply for additional insurance coverage ot

avail of the ongoing promotional discount if the premium were paid annually. On the same day the application form for the additional insurance coverage was accomplished, Petitioner Virginia Perez, Primitivos wife paid for it. The receipt issued by Lalog indicated the amount received was a deposit. Lalog forwarded the application to the office of the company at Gumaca, Quezon which office was supposed to forward th papers to Manila office. On Nov. 25, 1987, Perez died in an accident. At the tie o f his death, his application papers were still with the Gamaca office. Lalog personally brought the papers to the Manila office. It was only on Nov. 27, 1987 that said papers were received in Manila without knowing that Perez died, the insurance company approved the application and issued the policy. Petitioner went to Manila to claim the benefits under the insurance policies of the deceased but the company refused hence the case at bar. Issue: Whether or not the insurance company is liable to pay on the ground that the contract was perfected? Held: No, it was not perfected. Consent must be manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. The application was subject to the acceptance of the insurance company. Its perfection was further conditioned upon compliance with the requisites stated in the application form that there shall be no contract of insurance unless and until a policy is issued and that said policy shall not take effect until the premium has been paid and policy delivered to and accepted while in good health. The assent of respondent was not given when it merely received the application form and all supporting papers. Its assent was given when it issues a corresponding policy to the applicant. It is only when the applicant pays the premium and receives and accepts the policy while he is in good health that the contract is deemed to have been perfected. In the case at bar, there was absolutely no way the acceptance of the application could have been communicated to the applicant for the latter to accept inasmuch as the applicant was already dead. ))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))) )))))) Perez v. CA- Perfection of the Contract of Insurance 323 SCRA 613 (2000) Facts: > Primitivo Perez had been insured with the BF Lifeman Insurance Corporation since 1980 for P20,000.00. > In October 1987, an agent of Lifeman, Rodolfo Lalog, visited Perez in Quezon and convinced him to apply for additional insurance coverage of P50,000.00, to avail of the ongoing promotional discount of P400.00 if the premium were paid annually. > Primitivo B. Perez accomplished an application form for the additional insurance coverage. Virginia A. Perez, his wife, paid P2,075.00 to Lalog. The receipt issued by Lalog indicated the amount received was a "deposit." > Unfortunately, Lalog lost the application form accomplished by Perez and so on October 28, 1987, he asked the latter to fill up another application form. On November 1, 1987, Perez was made to undergo the required medical examination, which he passed. > Lalog forwarded the application for additional insurance of Perez, together with all its supporting papers, to the office of BF Lifeman Insurance Corporationn in Quezon which office

was supposed to forward the papers to the Manila office. > On November 25, 1987, Perez died while he was riding a banca which capsized during a storm. > At the time of his death, his application papers for the additional insurance were still with the Quezon office. Lalog testified that when he went to follow up the papers, he found them still in the Quezon office and so he personally brought the papers to the Manila office of BF Lifeman Insurance Corporation. It was only on November 27, 1987 that said papers were received in Manila. > Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation approved the application and issued the corresponding policy for the P50,000.00 on December 2, 1987 > Virginia went to Manila to claim the benefits under the insurance policies of the deceased. She was paid P40,000.00 under the first insurance policy for P20,000.00 (double indemnity in case of accident) but the insurance company refused to pay the claim under the additional policy coverage of P50,000.00, the proceeds of which amount to P150,000.00 in view of a triple indemnity rider on the insurance policy. > In its letter of January 29, 1988 to Virginia A. Perez, the insurance company maintained that the insurance for P50,000.00 had not been perfected at the time of the death of Primitivo Perez. Consequently, the insurance company refunded the amount of P2,075.00 which Virginia Perez had paid > Lifeman filed for the rescission and the declaration of nullity. Perez, on the other hand, averred that the deceased had fulfilled all his prestations under the contract and all the elements of a valid contract are present. > RTC ruled in favor of Perez. CA reversed. Issue: Whether or not there was a perfected additional insurance contract. Held: The contract was not perfected. Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified subject by specified perils. A contract, on the other hand, is a meeting of the minds between two persons whereby one binds himself, with respect to the other to give something or to render some service. Consent must be manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. When Primitivo filed an application for insurance, paid P2,075.00 and submitted the results of his medical examination, his application was subject to the acceptance of private respondent BF Lifeman Insurance Corporation. The perfection of the contract of insurance between the deceased and respondent corporation was further conditioned upon compliance with the following requisites stated in the application form: "there shall be no contract of insurance unless and until a policy is issued on this application and that the said policy shall not take effect until the premium has been paid and the policy delivered to and accepted by me/us in person while I/We, am/are in good health." The assent of private respondent BF Lifeman Insurance Corporation therefore was not given when it merely received the application form and all the requisite supporting papers of the applicant. Its assent was given when it issues a corresponding policy to the applicant. Under the abovementioned provision, it is only when the applicant pays the premium and receives and accepts the policy while he is in good health that the contract of insurance is deemed to have been perfected. It is not disputed, however, that when Primitivo died on November 25, 1987, his application papers for additional insurance coverage were still with the branch office of respondent corporation in Gumaca and it was only two days later, or on November 27, 1987, when Lalog personally delivered the application papers to the head office in Manila. Consequently, there was

absolutely no way the acceptance of the application could have been communicated to the applicant for the latter to accept inasmuch as the applicant at the time was already dead. ***************************************************************************************************** MARINE INSURANCE Summary: Cathay Insurance Co. vs. Court of Appeals (GR 76145, 30 June 1987) Cathay Insurance Co. vs. Court of Appeals [GR 76145, 30 June 1987] Second Division, Paras (J): 3 concur, 2 took no part Facts: A complaint was filed by Remington Industrial Sales Corporation against Cathay Insurance Co. seeking collection of the sum of P868,339.15 representing Remington's losses and damages incurred in a shipment of seamless steel pipes under an insurance contract in favor of Remington as the insured, consignee or importer of aforesaid merchandise while in transit from Japan to the Philippines on board vessel SS "Eastern Mariner." The total value of the shipment was P2,894,463.83 at the prevailing rate of P7.95 to a dollar in June and July 1984, when the shipment was made. The trial court decided in favor of Remington by ordering Cathay Insurance to pay it the sum of P866,339.15 as its recoverable insured loss equivalent to 30% of the value of the seamless steel pipes; ordering Cathay Insurance to pay Remington interest on the aforecited amount at the rate of 34% or double the ceiling prescribed by the Monetary Board per annum from 3 February 1982 or 90 days from Remington's submission of proof of loss to Cathay Insurance until paid as provided in the settlement of claim provision of the policy; and ordering Cathay Insurance to pay Remington certain amounts for marine surveyor's fee, attorney's fees and costs of the suit. On appeal, the Court of Appeals affirmed the decision of the Regional Trial Court National Capital Region (NCR) Manila, Branch 38. Cathay Insurance moved for reconsideration, but was denied. It thus filed the petition for review. Remington, in its comment on the petition, contends that (1) Coverage of Remington's loss under the insurance policy issued by Cathay Insurance is unmistakable; (2) Alleged contractual limitations contained in insurance policies are regarded with extreme caution by courts and are to be strictly construed against the insurer; obscure phrases and exceptions should not be allowed to defeat the very purpose for which the policy was procured; (3) Rust is not an inherent vice of the seamless steel pipes without interference of external factors; (4) No matter how Cathay Insurance might want it otherwise, the 15-day clause of the policy had been foreclosed in the pretrial order and it was not even raised in Cathay Insurance's answer to Remington's complaint; (5) The decision was correct in not holding that the heavy rusting of the seamless steel pipes did not occur during the voyage of 7 days from July 1 to July 7, 1981; (6) The alleged lack of supposed bad order survey from the arrastre capitalized on by Cathay Insurance was more than clarified by no less than 2 witnesses; (7) The placing of notation "rusty" in the way bills is not only Remington's right but a natural and spontaneous reaction of whoever received the seamless steel pipes in a rusty condition at Remington's bodega; (8) The Court of Appeals did not engage in any guesswork or speculation in concluding a loss allowance of 30% in the amount of P868,339.15; and (9) The rate of 34% per annum double the ceiling prescribed by the Monetary Board is the rate of interest fixed by the Insurance Policy itself and the Insurance Code. Cathay Insurance however maintains that (1) Remington does not dispute the fact that, contrary to the finding of the respondent Court (that Cathay Insurance has failed "to present any evidence of any viable exception to the application of the policy") there is in fact an express exception to the application of the policy; (2) As adverted to in the Petition for Review, Remington has admitted that the questioned shipment is not covered by a "square provision of the contract," but Remington claims implied coverage from the phrase "perils of the sea" mentioned in the opening sentence of the policy; (3) The insistence of Remington that rusting is a peril of the sea is erroneous; (4) Remington inaccurately invokes the rule of strict construction against insurer under the guise of construction in order to impart a non-existing ambiguity or doubt into the policy so as to resolve it against the insurer; (5) Remington while impliedly admitting that a loss occasioned by an inherent defect or vice in the insured article is not within the terms of the policy, erroneously insists that rusting is not an inherent vice or in the nature of steel pipes; (6) Rusting is not a risk insured against, since a risk to be insured against should be a casualty or some casualty, something

which could not be foreseen as one of the necessary incidents of adventure; (7) A fact capable of unquestionable demonstration or of public knowledge needs no evidence. This fact of unquestionable demonstration or of public knowledge is that heavy rusting of steel or iron pipes cannot occur within a period of a 7 day voyage. Besides, Cathay Insurance had introduced the clear cargo receipts or tally sheets indicating that there was no damage on the steel pipes during the voyage; and (8) The evidence of Remington betrays the fact that the account of P868,339.15 awarded by the respondent Court is founded on speculation, surmises or conjectures and the amount of less has not been proven by competent, satisfactory and clear evidence. Issue: Whether the rusting of steel pipes in the course of a voyage is a "peril of the sea," and whether rusting is a risk insured against. Held: YES. There is no question that the rusting of steel pipes in the course of a voyage is a "peril of the sea" in view of the toll on the cargo of wind, water, and salt conditions. At any rate if the insurer cannot be held accountable therefor, the Court would fail to observe a cardinal rule in the interpretation of contracts, namely, that any ambiguity therein should be construed against the maker/issuer/drafter thereof, namely, the insurer. Besides the precise purpose of insuring cargo during a voyage would be rendered fruitless. *************************************************************************************************************** * THE POLICY OF INSURANCE Pacific Timber Export Corporation vs. Court of Appeals [GR L-38613, 25 February 1982] First Division, De Castro (J): 6 concur Facts: On 19 March 1963, the Pacific Timber Export Corporation (PTEC) secured temporary insurance from the Workmen's Insurance Company Inc. (WICI) for its exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped from the Diapitan Bay, Quezon Province to Okinawa and Tokyo, Japan. WICI issued on said date Cover Note 1010, insuring the said cargo of PTEC "Subject to the Terms and Conditions of the WORKMEN'S INSURANCE COMPANY, INC. printed Marine Policy form as filed with and approved by the Office of the Insurance Commissioner." The regular marine cargo policies were issued by WICI in favor of PTEC on 2 April 1963. The two marine policies bore the numbers of 53 HO 1032 and 53 HO 1033. Policy 53 HO 1032 was for 542 pieces of logs equivalent to 499,950 board feet. Policy 53 HO 1033 was for 853 pieces of logs equivalent to 695, 548 board feet. The total cargo insured under the two marine policies accordingly consisted of 1,395 logs, or the equivalent of 1,195,498 bd. ft. After the issuance of Cover Note 1010, but before the issuance of the two marine policies 53 HO 1032 and 53 HO 1033, some of the logs intended to be exported were lost during loading operations in the Diapitan Bay. The logs were to be loaded on the 'SS Woodlock' which docked about 500 meters from the shortline of the Diapitan Bay. The logs were taken from the log pond of PTEC and from which they were towed in rafts to the vessel. At about 10:00 a.m. on 29 March 1963, while the logs were alongside the vessel, bad weather developed resulting in 75 pieces of logs which were rafted together to break loose from each other 45 pieces of logs were salvaged, but 30 pieces were verified to have been lost or washed away as a result of the accident. In a letter dated 4 April 1963, PTEC informed WICI about the loss of approximately 32 pieces of logs during loading of the SS Woodlock. Although dated 4 April 1963, the letter was received in the office of WICI only on 15 April 1963. PTEC subsequently submitted a Claim Statement demanding payment of the loss under Policies 53 HO 1033, and 53 HO 1033, in the total amount of P19,286.79. On 17 July 1963, WICI requested the First Philippine Adjustment Corporation to inspect the loss and assess the damage. The adjustment company submitted its Report on 23 August 1963. In said report, the adjuster found that 'the loss of 30 pieces of logs is not covered by Policies 53 HO 1032 and 1033 inasmuch as said policies covered the actual number of logs loaded on board the SS Woodlock. However, the loss of 30 pieces of logs is within the 1,250,000 bd. ft. covered by Cover Note 1010 insured for $70,000.00. On 14 September 1963, the adjustment company submitted a computation of WICI's probable liability on the loss sustained by the shipment, in the total amount of P11,042.04. On 13 January 1964, WICI wrote PTEC denying

the latter's claim, on the ground that its investigation revealed that the entire shipment of logs covered by the two marine policies 53 HO 1032 and 53 HO 1033 were received in good order at their point of destination. It was further stated that the said loss may not be considered as covered under Cover Note 1010 because the said Note had become null and void by virtue of the issuance of Marine Policies 53 HO 1032 and 1033. The denial of the claim by WICI was brought by PTEC to the attention of the Insurance Commissioner by means of a letter dated 21 March 1964. In a reply letter dated 30 March 1964, Insurance Commissioner Francisco Y. Mandanas observed that it is only fair and equitable to indemnify the insured under Cover Note 1010, and advised early settlement of the said marine loss and salvage claim. On 26 June 1964, WICI informed the Insurance Commissioner that, on advice of their attorneys, the claim of PTEC is being denied on the ground that the cover note is null and void for lack of valuable consideration. The Court of First Instance of Manila ruled in favor of PTEC and against WICI which ordered the latter to pay the sum of P11,042.04 with interest at the rate of 12% interest from receipt of notice of loss on 15 April 1963 up to the complete payment, the sum of P3,000.00 as attorney's fees and the costs. The Court of Appeals, however, reversed the decision of the trial court and thus dismissed PTEC's complaint with costs. PTEC filed the petition for review. Issue: Whether the Cover Note is without consideration, is null and void, and thus recovery cannot be made thereon. Held: NO. The Cover Note was not without consideration. The fact that no separate premium was paid on the Cover Note before the loss insured against occurred, does not militate against the validity of PTEC's contention, for no such premium could have been paid, since by the nature of the Cover Note, it did not contain, as all Cover Notes do not contain particulars of the shipment that would serve as basis for the computation of the premiums. As a logical consequence, no separate premiums are intended or required to be paid on a Cover Note. This is a fact admitted by an official of WICI, Juan Jose Camacho, in charge of issuing cover notes of WICI. At any rate, it is not disputed that PTEC paid in full all the premiums as called for by the statement issued by WICI after the issuance of the two regular marine insurance policies, thereby leaving no account unpaid by PTEC due on the insurance coverage, which must be deemed to include the Cover Note. If the Note is to be treated as a separate policy instead of integrating it to the regular policies subsequently issued, the purpose and function of the Cover Note would be set at naught or rendered meaningless, for it is in a real sense a contract, not a mere application for insurance which is a mere offer. It may be true that the marine insurance policies issued were for logs no longer including those which had been lost during loading operations. This had to be so because the risk insured against is not for loss during loading operations anymore, but for loss during transit, the logs having already been safely placed aboard. This would make no difference, however, insofar as the liability on the cover note is concerned, for the number or volume of logs lost can be determined independently, as in fact it had been so ascertained at the instance of WICI itself when it sent its own adjuster to investigate and assess the loss, after the issuance of the marine insurance policies. The adjuster went as far as submitting his report to WICI, as well as its computation of WICI's liability on the insurance coverage. This coverage could not have been no other than what was stipulated in the Cover Note, for no loss or damage had to be assessed on the coverage arising from the marine insurance policies. For obvious reasons, it was not necessary to ask PTEC to pay premium on the Cover Note, for the loss insured against having already occurred, the more practical procedure is simply to deduct the premium from the amount due PTEC on the Cover Note. The non-payment of premium on the Cover Note is, therefore, no cause for PTEC to lose what is due it as if there had been payment of premium, for non-payment by it was not chargeable against its fault. Had all the logs been lost during the loading operations, but after the issuance of the Cover Note, liability on the note would have already arisen even before payment of premium. This is how the cover note as a "binder" should legally operate; otherwise, it would serve no practical purpose in the realm of commerce, and is supported by the doctrine that where a policy is delivered without requiring payment of the premium, the presumption is that a credit was intended and policy is valid. *********************************************************************************************************** PREMIUMS

Tibay vs. Court of Appeals [GR 119655, 24 May 1996] First Division, Bellosillo (J): 2 concur, 1 filed a separate opinion to which 1 joined Facts: On 22 January 1987, Fortune Life and General Insurance Co., Inc. (Fortune) issued Fire Insurance Policy 136171 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. Her claim was accordingly referred to its adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately wrote Violeta requesting her to furnish it with the necessary documents for the investigation and processing of her claim. Petitioner forthwith complied. On 28 March 1987 she signed a non-waiver agreement with GASI to the effect that any action taken by the companies or their representatives in investigating the claim made by the claimant for his loss which occurred at 5855 Zobel Roxas, Makati on 8 March 1987, or in the investigating or ascertainment of the amount of actual cash value and loss, shall not waive or invalidate any condition of the policies of such companies held by said claimant, nor the rights of either or any of the parties to this agreement, and such action shall not be, or be claimed to be, an admission of liability on the part of said companies or any of them. In a letter dated 11 June 1987 Fortune denied the claim of Violeta for violation of Policy Condition 2 and of Section 77 of the Insurance Code. Efforts to settle the case before the Insurance Commission proved futile. On 3 March 1988 Violeta and the other petitioners (Antonio Tibay, Ofelia M. Roraldo, Victorina M. Roraldo, Virgilio M. Roraldo, Myrna M. Roraldo, and Rosabella M. Roraldo) 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, P100,000.00 moral damages, and attorney's fees equivalent to 20% of the total claim. On 19 July 1990 the trial court ruled for Tibay, et al. and adjudged Fortune liable for the total value of the insured building and personal properties in the amount of P600,000.00 plus interest at the legal rate of 6% per annum from the filing of the complaint until full payment, and attorney's fees equivalent to 20% of the total amount claimed plus costs of suit. On 24 March 1995 the Court of Appeals reversed the court a quo by declaring Fortune not to be liable to Tibay et al. but ordering Fortune to return to the former the premium of P2,983.50 plus 12% interest from 10 March 1987 until full payment. Tibay, et al. filed the petition for review. Issue: Whether a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium. Held: NO. 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. 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 Section 77 of the Insurance Code which provides that "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." Apparently the crux of the controversy lies in the phrase "unless and until the premium thereof has been paid." This leads us to the manner of payment envisioned by the law to make the insurance policy operative and binding. For whatever judicial construction may be accorded the disputed phrase must ultimately yield to the clear mandate of the law. 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. It cannot be disputed that premium is the elixir vitae of the insurance business because by law the insurer must maintain a legal reserve fund to meet its contingent obligations to the public, hence, the imperative need for its prompt payment and full satisfaction. It must be emphasized here that all actuarial calculations and various tabulations of probabilities of losses under the risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon this bedrock insurance firms are enabled to offer the assurance of security to the public at favorable rates. But once payment of premium is left to the whim and caprice of the insured, as when the courts tolerate the payment of a mere P600.00 as partial undertaking out of the stipulated total premium of P2,983.50 and the balance to be paid even after the risk insured against has occurred, as Tibay et al. have done in this case, on the principle that the strength of the vinculum juris is not measured by any specific amount of premium payment, we will surely wreak havoc on the business and set to naught what has taken actuarians centuries to devise to arrive at a fair and equitable distribution of risks and benefits between the insurer and the insured. *****************************************************************************************************