Violeta R. Lalican vs. Insular Life Assurance Co. Ltd.

Facts: Eulogio Lalican applied for an insurance policy with the Insular Life amounting to Php
1,500,000.Under the terms of the policy, Eulogio was to pay the premiums on a quarterly basis,
having a grace period of 31 days, for the payment of each premium subsequent to the first. If any
premium was not paid on or before the due date, the policy would be in default and if the premium
remained unpaid until the end of the grace period, the policy would automatically lapse and
become void.Eulogio paid the premiums due on the first two succeeding payment dates but failed
to pay subsequent premiums even after the lapse of the grace period thereby rendering the policy
void. He submitted an application for reinstatement of policy through Josephine Malaluan, an agent
of InsularLife, together with the payment of the unpaid premiums. However, the Insular Life notified
him that his application could not be processed because he failed to pay the overdue interest of the
unpaid premiums. On Sept. 17, 1998, Eulogio submitted to Malaluan’s house a second application
for reinstatement including the payment for the overdue interest as well as for the premiums due
for April and July of that year, which was received by Malaluan’s husband on her behalf and was
thereby issued a receipt for the amount Eulogio deposited. However, on that same day, Eulogio
died of cardio-respiratory arrest secondary to electrocution. Violeta, Eulogio’s widow filed with the
Insular Life a claim for payment of the full proceeds of the policy but the latter informed her that the
claim could not be granted since at the time of Eulogio’s death, his policy has already lapsed and
he failed to reinstate the same. Violeta requested a reconsideration of her claim but the same was
also rejected. Therefore, she filed a complaint for death claim benefits with the RTC alleging the
unfair claim settlement practice of Insular Life and its deliberate failure to act with reasonable
promptness on her insurance claim. The trial court rendered a decision in favour of Insular Life and
after the former denied her motion for reconsideration, she directly elevated her case to the
Supreme Court via the petition for review on Certiorari.

Issue: Whether or not the policy of Eulogio was reinstated before his death.

Ruling: To reinstate a policy means to restore the same to premium-paying status after it has been
permitted to lapse. Both the policy contract and application for reinstatement provide for specific
conditions for the reinstatement of a lapsed policy.According to the Application for Reinstatement,
the policy would only be considered reinstated upon the approval of the application by Insular Life
during the applicant’s lifetime and good health and whatever amount the application paid in
connection was considered to be a deposit only until approval of said application.Eulogio’s death
rendered impossible full compliance with the conditions for reinstatement of policy even though,
before his death, he managed to file his application for reinstatement and deposit the amount for
payment of his overdue premiums and interest thereon with Malaluan. As expressly provided on
the policy contract, agents of Insular Life have no authority to approve any application for
reinstatement. They still had to turn over to Insular Life the application for reinstatement and
accompanying deposit, for processing and approval of the latter.

Gulf Resorts Inc. vs. PCIC

Facts: Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La Union and had its
properties in said resort insured originally with the American Home Assurance Company (AHAC).
In the first 4 policies issued, the risks of loss from earthquake shock was extended only to
petitioner’s two swimming pools. Gulf Resorts agreed to insure with Phil Charter the properties
covered by the AHAC policy provided that the policy wording and rates in said policy be copied in
the policy to be issued by Phil Charter. Phil Charter issued Policy No. 31944 to Gulf Resorts
covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium of
P45,159.92. the break-down of premiums shows that Gulf Resorts paid only P393.00 as premium
against earthquake shock (ES). In Policy No. 31944 issued by defendant, the shock endorsement
provided that “In consideration of the payment by the insured to the company of the sum included
additional premium the Company agrees, notwithstanding what is stated in the printed conditions
of this policy due to the contrary, that this insurance covers loss or damage to shock to any of the
property insured by this Policy occasioned by or through or in consequence of earthquake (Exhs.
"1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C"). In Exhibit "7-C" the word "included" above the
underlined portion was deleted. On July 16, 1990 an earthquake struck Central Luzon and
Northern Luzon and plaintiff’s properties covered by Policy No. 31944 issued by defendant,
including the two swimming pools in its Agoo Playa Resort were damaged.

Petitioner advised respondent that it would be making a claim under its Insurance Policy 31944 for
damages on its properties. Respondent denied petitioner’s claim on the ground that its insurance
policy only afforded earthquake shock coverage to the two swimming pools of the resort. The trial
court ruled in favor of respondent. In its ruling, the schedule clearly shows that petitioner paid only
a premium of P393.00 against the peril of earthquake shock, the same premium it had paid against
earthquake shock only on the two swimming pools in all the policies issued by AHAC.

Issue: Whether or not the policy covers only the two swimming pools owned by Gulf Resorts and
does not extend to all properties damaged therein

Ruling: YES. All the provisions and riders taken and interpreted together, indubitably show the
intention of the parties to extend earthquake shock coverage to the two swimming pools only. An
insurance premium is the consideration paid an insurer for undertaking to indemnify the insured
against a specified peril. In fire, casualty and marine insurance, the premium becomes a debt as
soon as the risk attaches. In the subject policy, no premium payments were made with regard to
earthquake shock coverage except on the two swimming pools. There is no mention of any
premium payable for the other resort properties with regard to earthquake shock. This is consistent
with the history of petitioner’s insurance policies with AHAC.

UCPB vs. Masagana

Facts: Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5)insurance
policies on its properties. All five (5) policies reflect on their face the effectivity term: "from 4:00
P.M. of 22 May 1991 to 4:00 P.M. of 22 May 1992." On June 13, 1992,plaintiffs properties were
razed by fire. On July 13, 1992, plaintiff tendered, and defendant accepted, five (5) Equitable Bank
Manager's Checks as renewal premium payments for which Official Receipt Direct Premium was
issued by defendant. Masagana made its formal demand for indemnification for the burned insured
properties. On the same day, defendant 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."

Issue: 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.

Ruling: 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.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
instalment 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 instalment. So
is an understanding to allow insured to pay premiums in instalments not so prescribed. At the very
least, both parties should be deemed in estoppel to question the arrangement they have voluntarily
accepted.

Makati Tuscany vs. CA

Facts: Sometime in 1982, respondent American Home Assurance Co. (AHAC) represented by
American International Underwriters Inc. (Phils.) issued in favor of petitioner an insurance policy
covering the latter’s building and premises from 01 March 1982-01 March 1983 with a total
premium of P466,103.05. It was paid on installments from March 1982-November 1982 which
AHAC accepted. It was renewed on February 1983 for the period of March 1983-March 1984 and
the premium of the same amount was paid in installments again which AHAC accepted. On
January 1984, it was again renewed for the period of March 1984-March 1985. Here, petitioner
only made 2 installment payments – first one for P52,000 and the second one for P100,000. After
that, petitioner refused to pay the balance of the premium. AHAC filed an action to recover the
unpaid balance of P314,103.05. Petitioner admitted that there was an existing insurance policy and
reasoned out that he discontinued the payment of premiums because the policy didn’t contain a
credit clause in its favor. It further claimed that the policy was never binding and valid and no risk
attached to the policy. It further sought he refund of all the premium payments he made from 1982-
1985. The trial court dismissed the complaint and stated that Makati Tuscany Condo Corp.’s
premium payments cannot be refunded because there was a risk attached under the policies; and
in view of the reservation in the receipts by AHAC, AHAC has no right to demand payment and
Makati Tuscany Condo Corp is justified in not paying it. Both appealed and Makati Tuscany Condo
Corp was ordered to pay the balance of the premiums due on the existing policy with legal interest.
Petitioner now asserts that its payment by installment of the premium invalidated insurance policies
from 1982-1984 because of Sec. 77 of the Insurance Code which provides:
Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing 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.
Issue: Whether payment by installment of the premiums due on an insurance policy invalidates the
contract of insurance in view of Sec. 77 of the Insurance Code.
Ruling: No. The Court held that the subject policies are valid even if the premiums were paid on
installments. It was clearly shown that petitioner and private respondent intended the policies to be
binding and effective notwithstanding the payment on installment of the premiums. The contracts
were even renewed and the insurance company also accepted that way of paying the premiums. It
would defy the basic principles of equity and fairness if the insurer would be allowed to accept
payments and later on deny liability because the premiums were not paid in full.
As correctly stated by the Court of Appeals –
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.
xxx
Section 77 merely precludes the parties from stipulating that the policy is valid even if the
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)
xxx
At the very least, both parties should be deemed in estoppel to question the arrangement
they have voluntarily accepted.
It appearing from the circumstances that the parties actually intended to make the 3 insurance
contracts valid and binding, petitioner must pay the balance. Also, where the risk is entire and
contract is indivisible, the insured is not entitled to a refund of the premiums already paid if the
insurer was exposed to the risk insured for any period, however brief or momentary.