Insurance Law

Case Digest

Submitted to:

Atty. Claire Mauro

JMC Law Professor

Submitted by:

Rommil P. Nunez
Law Student

October 21, 2021

Topic: Premium (Demand of payment)
PEDRO ARCE v. CAPITAL INSURANCE & SURETY CO., INC.
G.R. No. L-28501
September 30, 1982

Facts:
Pedro Arce owned a residential house which was insured with the Capital Insurance
and Surety Co., Inc. since 1961. In November 1965, CAPITAL sent to the Arce a
Renewal Certificate to cover the period from December 5, 1965 to December 5, 1966,
and requested payment of the corresponding premium. Anticipating that the premium
could not be paid on time, Arce asked for an extension which was granted by the
CAPITAL. After the lapse of the requested extension, Arce still failed to pay the
premium. Thereafter, the house was totally destroyed by fire. Upon Arce’s presentation
of claim for indemnity, he was told that no indemnity was due because the premium was
not paid. He sued CAPITAL for indemnity. The trial court held CAPITAL is liable to
indemnify the Arce on the ground that since CAPITAL could have demanded payment
of the premium, mutuality of obligation required that it should be liable on the policy.
Hence, this appeal on question of law.

The Supreme Court reversed the decision of the trial court. It held that Section 72 of the
Insurance Act as amended by R.A.. 3540 states that "no policy issued by an insurance
company is valid and binding unless and until the premium thereof has been paid."

Issue:
Whether the petitioners are entitled to claim for indemnity despite non-payment of their
premium.

Held:
NO, The Supreme Court reversed the decision of the trial court. It held that Section 72
of the Insurance Act as amended by R.A.. 3540 states that "no policy issued by an
insurance company is valid and binding unless and until the premium thereof has been
paid."

The parties in this case had stipulated that notwithstanding anything to the contrary
contained in the policy, the insurance will be deemed valid and binding upon CAPITAL
only when the premium and documentary stamps therefor have actually been paid in full
and duly acknowledged in an official receipt signed by an authorized
official/representative of CAPITAL.
It is obvious from both the Insurance Act, as amended, and the stipulation of the parties
that time is of the essence in respect of the payment of the insurance premium so that if
it is not paid the contract does not take effect unless there is still another stipulation to
the contrary. In the instant case, Arce was given a grace period to pay the premium but
the period having expired with no payment made, he cannot insist that CAPITAL is
nonetheless obligated to him.

Therefore, Arce cannot claim indemnity against Capital Insurance and Surety Co., Inc.
due to non-payment of the premium.
Topic: Premium ( Mode of payment)
THE CAPITAL INSURANCE & SURETY CO., INC.,
vs.
PLASTIC ERA CO., INC., AND COURT OF APPEALS
G.R. No. L-22375
July 18, 1975

Facts:
On December 17, 1960, Capital Insurance & Surety Co., Inc. delivered to the Plastic
Era Manufacturing Co., Inc., its open Fire Policy No. 227601 wherein the former
undertook to insure the latter's building, equipments, raw materials, products and
accessories located at Sheridan Street, Mandaluyong, Rizal. The policy expressly
provides that if the property insured would be destroyed or damaged by fire after the
payment of the premiums, at any time between the 15th day of December 1960 and one
o'clock in the afternoon of the 15th day of December 1961, the insurance company shall
make good all such loss or damage in an amount not exceeding P100,000.00. When
the policy was delivered, Plastic Era failed to pay the corresponding insurance premium.
However, through its duly authorized representative, it executed an acknowledgment
receipt stating the acknowledgment of Fire Policy NO. 22760 Premium and that
P2,220.00 has been paid THIRTY DAYS AFTER on effective date.

On January 8, 1961, in partial payment of the insurance premium, Plastic Era delivered
to Capital Insurance, a post-dated check for the amount of P1,000.00 dated January 16,
1961 payable to the order of Capital Insurance and drawn against the Bank of America.
However, the said check was dishonored by the bank for lack of funds. On January 18,
1961 or two days after the insurance premium became due, at about 4:00 to 5:00
o'clock in the morning, the property insured by Plastic Era was destroyed by fire. In due
time, the latter notified Capital Insurance of the loss of the insured property by fire and
accordingly filed its claim for indemnity thru the Manila Adjustment Company. The loss
and/or damage suffered by Plastic Era was estimated by the Manila Adjustment
Company to be P283,875. However, according to the records the same property has
been insured by Plastic Era with the Philamgen Insurance Company for P200,000.00.

In less than a month Plastic Era demanded from Capital Insurance the payment of the
sum of P100,000.00 as indemnity for the loss of the insured property under Policy No.
22760 but the latter refused for the reason that, among others, Plastic Era failed to pay
the insurance premium.
On August 25, 1961, Plastic Era filed its complaint against Capital Insurance for the
recovery of the sum of P100,000.00 plus P25,000.00 for attorney's fees and P20,000.00
for additional expenses. Capital Insurance filed a counterclaim of P25,000.00 as and for
attorney's fees.

The trial court rendered judgment in favor of Plastic Era for the sum of P88,325.63 with
interest at the legal rate from the filing of the complaint and to pay the costs. On appeal
the Court of Appeals rendered its decision affirming that of the trial court. Hence, this
petition for review by certiorari to this Court.

Issue:
Whether a contract of insurance has been duly perfected

Held:
YES, Article 1249 of the New Civil Code states that the delivery of promissory notes
payable to order, or bills of exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when through the fault of the
creditor they have been impaired. In the meantime, the action derived from the original
obligation shall be held in abeyance. Under this provision the mere delivery of a bill of
exchange in payment of a debt does not immediately effect payment. It simply
suspends the action arising from the original obligation in satisfaction of which it was
delivered, until payment is accomplished either actually or presumptively.

However, the Capital Insurance accepted the promise of Plastic Era to pay the
insurance premium within thirty (30) days from the effective date of policy. By so doing,
it has implicitly agreed to modify the tenor of the insurance policy and in effect, waived
the provision therein that it would only pay for the loss or damage in case the same
occurs after the payment of the premium. Considering that the insurance policy is silent
as to the mode of payment, Capital Insurance is deemed to have accepted the
promissory note in payment of the premium. This rendered the policy immediately
operative on the date it was delivered.

If it is silent as to the mode of payment, promissory notes received by the company

must be deemed to have been accepted in payment of the premium. In other words, a
requirement for the payment of the first or initial premium in advance or actual cash may
be waived by acceptance of a promissory note. Capital Insurance accepted the
acknowledgment receipt of the Plastic Era promising to pay the insurance premium
within thirty (30) days from December 17, 1960. Hence, when the damage or loss of the
insured property occurred, the insurance policy was in full force and effect. The fact that
the check issued by Plastic Era in partial payment of the promissory note was later on
dishonored did not in any way operate as a forfeiture of its rights under the policy, there
being no express stipulation therein to that effect.

With regards to the partial payment, Capital Insurance had accepted a check for
P1,000.00 from Plastic Era in partial payment of the premium on the insurance policy.
Although the check was due for payment on January 16, 1961 and Plastic Era had
sufficient funds to cover it as of January 19, 1961, Capital Insurance decided to hold the
same for thirty-five (35) days before presenting it for payment. Having held the check for
such an unreasonable period of time, Capital Insurance was estopped from claiming a
forfeiture of its policy for non-payment even if the check had been dishonored later. As a
principle, where the check is held for an unreasonable time before presenting it for
payment, the insurer may be held estopped from claiming a forfeiture if the check is
dishonored.

Therefore, Plastic Era has complied with its obligation to pay the insurance premium
and therefore Capital Insurance is obliged to make good its undertaking to Plastic Era.
Topic: Premium (Policy Stipulations)
FE DE JOYA LANDICHO,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM
G.R. No. L-28866
March 17, 1972

Facts:
On June 1, 1964, the GSIS issued in favor of Flaviano Landicho, a civil engineer of the
Bureau of Public Works, stationed at Mamburao, Mindoro Occidental, optional
additional life insurance policy No. OG-136107 in the sum of P7,900.

The policy provides that premiums are due and payable at the Office of the System in
Manila or at any of its branches. When any premium or installment thereof remains
unpaid after its due date, such due date is the date of default in payment of premiums.
The mere possession of this Policy does not imply that it is in force unless the premiums
due thereon are paid on time or the policy has sufficient cash value to keep it in force.
Another stipulation is that policy shall be made effective on the first day of the month
next following the month the first premium is paid; provided, that it is not more ninety
(90) days before or after the date of the medical examination,was conducted if required.
Also, the failure to deduct from the salary the month premiums shall not make the policy
lapse, however, the premium account shall be considered as indebtedness which, I bind
myself to pay the System. Unfortunately, there was no deduction from the salary of Mr.
Landicho for the payment of premium.

While still under the employment of the Bureau of Public Works, Mr. Landicho met his
death, on June 29, 1966, in an airplane crash in Mindoro. Thereupon, Mrs. Landicho
filed with the GSIS a claim for P15,800 because of the untimely death of the insured
owing to said accident. The GSIS denied the claim, upon the ground that the policy had
never been in force because no premium had ever been paid on said policy. Upon
refusal of the GSIS a case was filed, September 22, 1967, in the Court of First Instance
of Manila. The Court of First Instance of Manila rendered a decision directing GSIS to
pay to Fe de Joya Landicho and her minor children the sum of P15,800, with interest
until fully paid, in addition to the sum of P1,000, as and for attorney's fees, and the
costs.

Issue:
Whether the insurance policy has been in force without a single premium having been
paid thereon.

Held:
Yes, our Civil Code provides that the interpretation of obscure words or stipulations in a
contract shall not favor the party who caused the obscurity. This is particularly true as
regards insurance policies, in respect of which it is settled that the terms in an insurance
policy, which are ambiguous, equivocal, or uncertain are to be construed strictly and
most strongly against the insurer, and liberally in favor of the insured so as to effect the
dominant purpose of indemnity or payment to the insured.

The stipulation in the policy to the effect that the information contained in the application
filed by the insured shall form part of the contract between him and the GSIS. It was
stipulated that payment is through deduction from the salary of the insured, the monthly
premium in the amount of P33.36 shall be deducted beginning the month of May, 1964,
and every month thereafter, and that failure to deduct from such salary the monthly
premiums shall not make the policy lapse, however, the premium account shall be
considered as indebtedness. The aforementioned statement in the policy is to be
effected by the Collecting Officer of the Bureau of Public Works thru the authority
granted to GSIS by the policy contract.

Consequently, no such deduction was made and, not even the first premium was paid
because the collecting officer of the Bureau of Public Works was not advised by the
GSIS to make it as a deduction pursuant to said authority. Surely, this omission of the
GSIS should not inure to its benefit.

The Supreme Court opined that the GSIS had impliedly induced the insured to believe
that Policy No. OG-136107 was in force, he having been paid by the GSIS the dividends
corresponding to said policy. Had the insured had the slightest inkling that the latter was
not, as yet, effective for non-payment of the first premium, he would have, in all
probability, caused the same to be forthwith satisfied.

Thus, the language, stipulated in the policy is such as to create an ambiguity that should
be resolved against the party responsible. Therefore GSIS, as the party who prepared
and furnished the application form is deemed liable to pay the obligation.
Topic: Premium (Effect)
PHILIPPINE PHOENIX SURETY & INSURANCE, INC. vs WOODWORKS, INC
G.R. No. L-22684:
August 31, 1967

Facts:
On April 1, 1960, plaintiff issued to defendant Fire Policy No. 9652 for the
amount of P300,000.00. The premiums of said policy amounted to P6,051.95, however,
the defendant was able to pay only P3,000.00 on September 22, 1960 under
official receipt No. 30245 of plaintiff. Despite several demands, the defendant failed to
pay the balance of the premium.

Court of First Instance of Manila ordered Woodworks to pay the unpaid balance of
the premiums with interest thereon. It also ruled that a partial payment of the
premium made the policy effective during the whole period of the policy.
PHILIPPINE PHOENIX argues that non-payment of Woodworks of the premium due
produced the cancellation of the contract of insurance.

Issue:
Whether the lower court erred in deciding that a partial payment of the premium
made the policy effective during the whole period of the policy.

Held:
YES, There is, consequently, no doubt at all that, as between the insurer and the
insured, there was not only a perfected contract of insurance but a partially
performed one as far as the payment of the agreed premium was concerned.
Thereafter the obligation of the insurer to pay the insured the amount for which the
policy was issued in case the conditions therefor had been complied with, arose and
became binding upon it, while the obligation of the insured to pay the remainder
of the total amount of the premium due became demandable.

As the contract had become perfected, the parties could demand from each
other the performance of whatever obligations they had assumed. In the case of the
insurer, it is obvious that it had the right to demand from the insured the completion of
the payment of the premium due or sue for the rescission of the contract. As it
chose to demand specific performance of the insured's obligation to pay the balance of
the premium, the latter's duty to pay is indeed indubitable. The contrary to such would
place exclusively in the hands of one of the contracting parties the right to decide
whether the contract should stand or not.

Therefore, Woodworks is liable to pay the remaining unpaid premium as it has become
due since the policy was effective during the whole period of the contract.