AMERICAN HOME INSURANCE v.

CHUA (1999)

Facts:

1. In 1990, Antonio Chua obtained a fire insurance policy over its stock in trade in its business,
Moonlight Enterprises, with American Home Insurance. The insurance was to expire on March
25 1990.
2. On April 5, 1991, James Uy, insurer’s agent, received a check from Chua as payment for the
renewal of the policy. A Renewal Certificate was delivered to Chua.
3. The next day Moonlight Enterprises was completely razed by fire with a total loss estimated to
be between 4M and 5M.
4. Chua filed a claim against American Home Insurance and four other insurers.
5. American Home Insurance raised the following defenses: no existing contract of insurance at the
time of the fire since there was no payment of premium because the check has no effect of
payment until encashed; Chua violated several conditions of the policy like submission of
fraudulent tax returns, failure to establish actual loss and failure to notify the insurer of other
insurances on the stock in trade.
6. RTC ruled in favor of Chua. There was payment by check and the same was deposited in
insurer’s bank account and the failure to give notice of other insurances was not intentional or
fraudulent.
7. Ca affirmed the RTC in toto.
8. In this petition, American Home Insurance invokes sec.77 of the Insurance Code:
“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 life or an industrial life policy whenever the grace
period provision applies.”

Issue:

1. Whether there was a valid payment of premium, considering that respondent's check was
cashed after the occurrence of the fire. YES.
2. Whether respondent violated the policy by his submission of fraudulent documents and non-
disclosure of the other existing insurance contracts. NO.
3. Whether respondent is entitled to the award of damages. NO.

Ruling:

1. 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.

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.
 The renewal certificate issued to respondent contained the acknowledgment that premium
had been paid. Section 306 of the Insurance Code provides that any insurance company which
delivers a policy or contract of insurance to an insurance agent or insurance broker 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 or contract of insurance. American Home Insurance is
bound by its agent's acknowledgment of receipt of payment.

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. (Sec.78, Insurance Code)

2. The alleged fraudulent documents were Chua's income tax returns for 1987 to 1989.
Respondent, however, presented a BIR certification that he had paid the proper taxes for the
said years. The trial court and the Court of Appeals gave credence to the certification and it
being a question of fact, we hold that said finding is conclusive.

Indeed, respondent acquired several co-insurers and he failed to disclose this information to
petitioner. Nonetheless, petitioner is estopped from must invoking this argument because it was
known to the loss adjuster of the petitioner.

3. No legal and factual basis for 200k award for loss of profit because what was insured was the
stock in trade and not the expected loss or income.
Moral damages not proper because American Home Insurance did not act in bad faith or
fraudulently. Exemplary damages should not be awarded because there was no showing that
American Home Insurance acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner. 50k attorney’s fees excessive reduced to 10k.