CASE DIGESTS IN INSURANCE LAW

Topic: Premium

Arce v. Capital Insurance & Surety Co., Inc., G.R. No. L-28501, [September
30, 1982], 202 PHIL 386-390

Facts:

 Pedro Arce (insured) is the owner of a residential house in Tondo, Manila,

which had been insured with the respondent insurance company since 1961.
 On November 1965, the respondent sent to the petitioner 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, the petitioner asked
for an extension and promised to pay it on January 4, 1966. The insurance
company granted the respondent.
 After the lapse of the requested extension, petitioner still failed to pay the
premium.
 On January 8, 1966, the house of the petitioner was totally destroyed by fire.
 On January 10, 1966, upon petitioner’s presentation of claim for indemnity, he
was told that no indemnity was due because the premium on the policy was
not paid.
 The respondent tendered a check for P300.00 as financial aid which was
received by his daughter.
 The petitioner sued the respondent for indemnity. The trial court held the
respondent liable to indemnify the petitioner on the ground that since the
Insurance Company could have demanded payment of the premium and
mutuality of obligation required that it should be liable on the policy.
 Hence, this appeal by the respondent on question of law.

Issue:
Whether or not the petitioners are entitled to claim from their policy despite
non-payment of their premium.

Ruling:

No. 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
the Company 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 the Company.

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, the insured was given a grace
period to pay the premium but the period having expired with no payment made, he
cannot insist that the company is nonetheless obligated to him.

The decision of the court a quo is reversed; the appellee's complaint is dismissed.
No special pronouncement as to costs.
Topic: Premium

American Home Insurance v. Chua, G.R. No. 130421, June 28, 1999

Facts:

 Petitioner is a domestic corporation engaged in the insurance business.

 Respondent obtained from petitioner a fire insurance covering the stock-in-
trade of his business, Moonlight Enterprises, located at Valencia, Bukidnon.
The insurance was due to expire on 25 March 1990.
 On 5 April 1990 respondent issued PCI Bank Check to petitioner’s agent,
James Uy, as payment for the renewal of the policy. In turn, the latter
delivered Renewal Certificate to respondent. The check was drawn against a
Manila bank and deposited in petitioner’s bank account in Cagayan de Oro
City. The corresponding official receipt was issued on 10 April.
 Subsequently, a new insurance policy was issued for the period 25 March
1990 to 25 March 1991.
 On 6 April 1990 Moonlight Enterprises was completely razed by fire.
Respondent filed an insurance claim with petitioner and four other co-insurers.
 Petitioner refused to honor the claim notwithstanding several demands by
respondent, thus, the latter filed an action against petitioner before the trial
court.
 In its defense, petitioner claimed there was no existing insurance contract
when the fire occurred since respondent did not pay the premium.

Issue:
Whether or not there was a valid payment of premium that would result to a
valid and binding contract of insurance, considering respondent’s checks was
cashed after the occurrence of fire.

Ruling:

Yes. Section 79 of the Insurance Code explicitly provides: “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.” This Section
establishes a legal fiction of payment and should be interpreted as an exception to
Section 77. Here, according to the trial court, the renewal certificate issued to
respondent contained the acknowledgment that premium had been paid. It is not
disputed that the check drawn by respondent in favor of petitioner and delivered to
its agent was honored when presented and petitioner forthwith issued its official
receipt. The best evidence of such authority is the fact that petitioner accepted the
check and issued the official receipt for the payment. It is, as well, bound by its
agent’s acknowledgment of receipt of payment. Since there was a valid payment of
premium, then there is a valid and binding contract of insurance that would hold
herein insurer liable.
Topic: Premium

Philippine Phoenix Surety & Insurance, Inc. v. Woodworks, Inc., G.R. No.
L-22684, [August 31, 1967], 127 PHIL 697-700

Facts:

 The plaintiff and the defendant are both corporations duly organized and
existing under and by virtue of the laws of the Philippines.
 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.
 On September 22, 1960, the defendant was able to pay only P3,000.00 under
official receipt No. 30245 of plaintiff.
 Despite several demands, the defendant failed to pay the balance of the
premium.
 The Municipal Court of Manila ordered Woodworks to pay the unpaid balance
of the premiums on a fire insurance policy for a term of one year from April 1,
1960 to April 1, 1961.
 From an adverse decision of said court, appealed to the Court of First
Instance of Manila. The lower court ruled that a partial payment of the
premium made the policy effective during the whole period of the policy.
 Appellant's theory that non-payment of Woodworks of the premium due,
produced the cancellation of the contract of insurance.

Issue:
Whether or not the lower court erred in deciding that a partial payment of the
premium made the policy effective during the whole period of the policy.

Ruling:

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.
Topic: Policy of Insurance

Pacific Timber Export Corporation v. CA, 112 SCRA 199

Facts:

 On 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."
 On April 2, 1963, regular marine cargo policies were issued for a total of 1,395
logs or the equivalent of 1,195.498 bd. ft.
 On March 29, 1963, after the issuance of Cover Note but before the issuance
of the two marine policies, some of the logs intended to be exported were lost
during loading operations due to the bad weather conditions – 45 pieces of
logs were salvaged, but 30 pieces were lost.
 On April 4, 1963, Pacific Timber informed Workmen’s about the loss and
subsequently submitted a “Claim Statement” demanding payment of the loss.
 On July 17, 1963, Workmen’s requested the First Philippine Adjustment
Corporation to inspect the loss and assess the damage. And submitted a
computation of the probable liability on the loss sustained by the shipment.
 On January 13, 1964, Workmen's informed Pacific denial on the latter’s claim
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.
 The denial of the claim by the defendant was brought by the plaintiff to the
attention of the Insurance Commissioner. The Insurance Commissioner ruled
in favor of indemnifying Pacific Timber.
 The trial court ruled in petitioner’s favor while the CA dismissed the case.

Issues:
Whether or not the Cover Note is valid despite the absence of premium
payment upon it.
Whether or not the insurance company was absolved from responsibility due
to unreasonable delay in giving notice of loss.

Ruling:

The fact that no separate premium was paid on the Cover Note before the loss
occurred does not militate against the validity of the contention even if no such
premium was paid. All Cover Notes do not contain particulars of the shipment that
would serve as basis for the computation of the premiums. Also, no separate
premiums are required to be paid on a Cover Note. The petitioner paid in full all the
premiums, hence there was no account unpaid on the insurance coverage and the
cover note. If the note is to be treated as a separate policy instead of integrating it to
the regular policies, the purpose of the note would be meaningless. It is a contract,
not a mere application for insurance.
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 for loss during transit, because the logs were
safely placed aboard. The non-payment of premium on the Cover Note is, therefore,
no cause for the petitioner 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.
Otherwise, the note 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.

The defense of delay can’t be sustained. The facts show that instead of invoking the
ground of delay in objecting to petitioner's claim of recovery on the cover note, the
insurer never had this in its mind. It has a duty to inquire when the loss took place,
so that it could determine whether delay would be a valid ground of objection. There
was enough time for insurer to determine if petitioner was guilty of delay in
communicating the loss to respondent company. It never did in the Insurance
Commission. Waiver can be raised against it under Section 84 of the Insurance Act.
Topic: Policy of Insurance

Guingon vs. del Monte, et. al., G.R. No. L-22042, August 17, 1967

Facts:

 Julio Aguilar owner and operator of several jeepneys insured them with
Capital Insurance & Surety Co., Inc. He entered into a contract with the
Capital Insurance & Surety Co., Inc. insuring the operation of his jeepneys
against accidents with third-party liability.
 On February 20, 1961, during the effectivity of such insurance policy,
Iluminado del Monte, one of the drivers of the jeepneys operated by Aguilar,
while driving along he, bumped one Gervacio Guingon who had just alighted
from another jeepney and as a consequence the latter died some days
thereafter.
 Iluminado del Monte was charged with homicide thru reckless imprudence
and was penalized 4 months imprisonment
 The heirs of Gervacio Guingon filed an action for damages praying that
P82,771.80 be paid to them jointly and severally by the driver del Monte,
owner and operator Aguilar, and the Capital Insurance & Surety Co., Inc.
 For failure to answer the complaint, Del Monte and Aguilar were declared in
default. Capital Insurance & Surety Co., Inc. answered, alleging that the
plaintiff has no cause of action against it.
 The CFI ruled in favor of the Guingons and held Iluminado del Monte and
Julio Aguilar jointly and severally to pay plaintiffs the sum of P8,572.95 as
damages for the death of their father, plus P1,000.00 for attorney's fees plus
costs.
 The case was appealed to the CA but was certified to the SC because the
issue involved purely questions of law.
Issues:
(1) Can the Heirs of Guingon sue the insurer (Del Monte) at all?
(2) Can plaintiffs sue the insurer jointly with the insured, regardless of the
existence of the clause that suit and final judgment be first obtained against the
insured in order to claim?

Ruling:

The policy in the present case is one whereby the insurer agreed to indemnify the
insured "against all sums which the Insured shall become legally liable to pay in
respect of: a. death of or bodily injury to any person" Clearly, therefore, it is one for
indemnity against liability. From the fact then that the insured is liable to the third
person, such third person is entitled to sue the insurer. The right of the person
injured to sue the insurer of the party at fault, depends on whether the contract of
insurance is intended to benefit third persons also or only the insured. And the test
applied has been this: Where the contract provides for indemnity against liability to
third persons, then third persons to whom the insured is liable, can sue the insurer.
Where the contract is for indemnity against actual loss or payment, then third
persons cannot proceed against the insurer, the contract being solely to reimburse
the insured for liability actually discharged by him thru payment to third persons, said
third persons' recourse being thus limited to the insured alone.

The policy expressly disallows suing the insurer as a co-defendant of the insured in a
suit to determine the latter's liability. Suit and final judgment be first obtained against
the insured; that only "thereafter" can the person injured recover on the policy. The
"no action" clause in the policy of insurance cannot prevail over the Rules of Court
provision aimed at avoiding multiplicity of suits. The Rules of Court provides that:
Sec. 5 of Rule 2 on "Joinder of causes of action" and Sec. 6 of Rule 3 on
"Permissive joinder of parties" cannot be superseded, at least with respect to third
persons not a party to the contract, as herein, by a "no action" clause in the contract
of insurance.