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I.

POLICY

1. Lim v Sunlife G.R. No. L-15774 November 29,


1920
Facts:
Luis Lim of Zamboanga applied for a Sun Life policy for Php 5,000. He designated his wife, Pilar, as
beneficiary. The first premium of P433 was paid by Lim, then the company issued a "provisional
policy." Lim died after the issuance of the provisional policy but before approval of the application.
Pilar brought an action to recover from Sun Life the sum of P5,000, the amount named in the
provisional policy. She lost in the trial court hence this appeal.
The "provisional policy" reads as follows:
The above-mentioned life is to be assured in accordance with the terms and conditions contained or
inserted by the Company in the policy which may be granted by it in this particular case for four
months only from the date of the application, provided that the Company shall confirm this
agreement by issuing a policy on said application when the same shall be submitted to the Head
Office in Montreal. Should the Company not issue such a policy, then this agreement shall be null
and void ab initio, and the Company shall be held not to have been on the risk at all, but in such
case the amount herein acknowledged shall be returned.

Issue: WON there was a perfected contract of insurance

Held: No. Petition dismissed.

Ratio:
The policy for four months is expressly made subjected to the affirmative condition that "the
company shall confirm this agreement by issuing a policy on said application when the same shall
be submitted to the head office in Montreal."
Should the company not issue such a policy, then this agreement shall be null and void ab initio,
and the company shall be held not to have been on the risk." This means that the agreement should
not go into effect until the home office of the company should confirm it by issuing a policy. The
provisional policy amounts to nothing but an acknowledgment on behalf of the company, that it has
received from the person named therein the sum of money agreed upon as the first year's premium
upon a policy to be issued upon the application, if the application is accepted by the company.
There can be no contract of insurance unless the minds of the parties have met in agreement. In this
case, the contract of insurance was not consummated by the parties.

The general rule concerning the agent's receipt pending approval or issuance of policy is in several
points, according to Joyce:
2. Where an agreement is made between the applicant and the agent whether by signing
an application containing such condition, or otherwise, that no liability shall attach until the
principal approves the risk and a receipt is given buy the agent, such acceptance is merely
conditional, and it subordinated to the act of the company in approving or rejecting; so in life
insurance a "binding slip" or "binding receipt" does not insure of itself.
The court held that this second point applied to the case.
American jurisprudence tells us of such examples.
Steinle vs. New York Life Insurance Co.- the amount of the first premium had been paid to an
insurance agent and a receipt was given. The paper declared that if the application was accepted by
the company, the insurance shall take effect from the date of the application but that if
the application was not accepted, the money shall be returned. The court held that there was no
perfection of the contract.
Cooksey vs. Mutual Life Insurance Co.- the person applying for the life insurance paid and amount
equal to the first premium, but the application and the receipt for the money paid, stipulated that the
insurance was to become effective only when the application was approved and the policy issued.
There was also no perfection.
A binding receipt is a custom where temporary insurance pending the consideration of
the application was given until the policy be issued or the application rejected, and
such contracts are upheld and enforced when the applicant dies before the issuance of a policy or
final rejection of the application.
However, there was no perfected contract because of the clause in the application and the receipt
stipulate expressly that the insurance shall become effective only when the "application shall be
approved and the policy duly signed by the secretary at the head office of the company and issued."
The premium of 433 must be returned.

2. Pacific Timber V. CA (1982)


Lessons Applicable: Rules on cover notes (if premium CANNOT yet be computed)
(Insurance)
Laws Applicable: Section 84 of the Insurance Code

FACTS:

March 19, l963: Pacific Timber secured temporary insurance from Workmen's
Insurance Company, Inc. 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 Tokyo, Japan.
Workmen's issued Cover Note insuring the cargo "Subject to the Terms and
Conditions of the Workmen's Insurance Company, Inc."
April 2, 1963: regular marine cargo policies were issued for a total
of 1,195.498 bd. ft. Due to the bad weather some of the logs were lost
during loading operations. 45 pieces of logs were salvaged, but 30 pieces
were lost. Pacific informed Workmen's who refused stating that the logs
covered in the 2 marine policies were received in good order at the point
of destination and that the cover note was null and void upon the
issuance of the Marine Policies
CFI: cover note is valid
CA: reversed
ISSUE: W/N the cover note is valid despite the absence of premium payment upon it

HELD: YES. CA set aside. CFI reinstated

it was not necessary to ask for payment of the 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 on the Cover Note
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
cover note as a "binder"
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
it sent its adjuster to investigate and assess the loss to determine if petitioner was guilty of
delay in communicating the loss but there was none
Section 84
Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any
act of his or if he omits to take objection promptly and specifically upon that ground

In 1963, Pacific Timber Export Corporation (PTEC) applied for a temporary marine
insurance from Workmens Insurance Company (WIC) in order for the latter to insure
1,250,000 board feet of logs to be exported to Japan. In March 1963, WIC issued a cover
note to PTEC for the said logs. On April 2, 1963, WIC issued two policies for the logs.
However, the total board feet covered this time is only 1,195,498. On April 4, 1963, while
the logs were in transit to Japan, bad weather prevailed and this caused the loss of 32
pieces of logs.
WIC then asked an adjuster to investigate the loss. The adjuster submitted that the logs lost
were not covered by the two policies issued on April 2, 1963 but said logs were included in
the cover note earlier issued.
WIC however denied the insurance claim of PTEC as it averred that the cover note became
null and void when the two policies were subsequently issued. The Court of Appeals ruled
that the cover note is void for lack of valuable consideration as it appeared that no premium
payment therefor was made by PTEC.
ISSUE: Whether or not a separate premium is needed for cover notes.
HELD: No. The Cover Note was not without consideration for which the Court of Appeals
held the Cover Note as null and void, and denied recovery therefrom. 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 PTECs 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.
At any rate, it is not disputed that PTEC paid in full all the premiums as called for by the
statement issued by WIC 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.

3. Bonifacio Bros. v. Mora


Facts:
> Enrique Mora mortgaged his Odlsmobile sedan car to HS Reyes Inc. with the condition that Mora
would insure the car with HS Reyes as beneficiary.
> The car was then insured with State Insurance Company and the policy delivered to Mora.
> During the effectivity of the insurance contract, the car figured in an accident. The company then
assigned the accident to an insurance appraiser for investigation and appraisal of the damage.
> Mora without the knowledge and consent of HS Reyes, authorized Bonifacio Bros to fix the car,
using materials supplied by the Ayala Auto Parts Company.
> For the cost of Labor and materials, Mora was billed P2,102.73. The bill was sent to the insurers
appraiser. The insurance company drew a check in the amount of the insurance proceeds and
entrusted the check to its appraiser for delivery to the proper party.
> The car was delivered to Mora without the consent of HS Reyes, and without payment to
Bonifacio Bros and Ayala.
> Upon the theory that the insurance proceeds should be directly paid to them, Bonifacio and Ayala
filed a complaint against Mora and the insurer with the municipal court for the collection of
P2,102.73.
> The insurance company filed its answer with a counterclaim for interpleader, requiring Bonifacio
and HS Reyes to interplead in order to determine who has a better right to the proceeds.

Issue:
Whether or not there is privity of contract between Bonficacio and Ayala on one hand and State
Insurance on the other.

Held:
NONE.
It is fundamental that contracts take effect only between the parties thereto, except in some specific
instance provided by law where the contract contains some stipulation in favor of a third person.
Such stipulation is known as a stipulation pour autrui; or a provision in favor of a third person not a
party to the contract.

Under this doctrine, a third person is ed to avail himself of a benefit granted to him by the terms of
the contract, provided that the contracting parties have clearly and deliberately conferred a favor
upon such person. Consequently, a third person NOT a party to the contract has NO action against
the aprties thereto, and cannot generally demand the enforcement of the same.

The question of whether a third person has an enforceable interest in a contract must be settled by
determining whether the contracting parties intended to tender him such an interest by deliberately
inserting terms in their agreement with the avowed purpose of conferring favor upon such third
person. IN this connection, this court has laid down the rule that the fairest test to determine
whether the interest of a 3rd person in a contract is a stipulation pour autrui or merely an incidental
interest, is to rely upon the intention of the parties as disclosed by their contract.
In the instant case the insurance contract does not contain any words or clauses to disclose an
intent to give any benefit to any repairmen or material men in case of repair of the car in question.
The parties to the insurance contract omitted such stipulation, which is a circumstance that supports
the said conclusion. On the other hand, the "loss payable" clause of the insurance policy stipulates
that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc.
which they intended to benefit.

A policy of insurance is a distinct and independent contract between the insured and insurer, and
third persons have no right either in a court of equity, or in a court of law, to the proceeds of it,
unless there be some contract of trust, expressed or implied, by the insured and third person. In this
case, no contract of trust, express or implied. In this case, no contract of trust, expressed or implied
exists. We, therefore, agree with the trial court that no cause of action exists in favor of the
appellants in so far as the proceeds of insurance are concerned. The appellant's claim, if at all, is
merely equitable in nature and must be made effective through Enrique Mora who entered into a
contract with the Bonifacio Bros Inc. This conclusion is deducible not only from the principle
governing the operation and effect of insurance contracts in general, but is clearly covered by the
express provisions of section 50 of the Insurance Act (now Sec. 53).

The policy in question has been so framed that "Loss, if any, is payable to H. S. Reyes, Inc." which
unmistakably shows the intention of the parties.