TITLE 8 PREMIUM SEC. 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 led by ‘an insurance company is val ‘extension to a duly licensed intermediary shi ninety (90) days from date of issuance of the scent erate cre nd es Premium defined. An insurance premium may : - ' be defined. assuming and carrying the rs as the agreed price for an insurer for un dertking ex athatis the consideration paid specified peril. (43 Am. Jur. 2d 326. _y the insured against a 28 lan, to pay losses and expenses. A poli issued on the assessment plan has been defined as one where the payment of the benefit isin any manner or degree dependent upon the collection of an assessment upon persons holding Premium distinguished from assessment. In theory, all payments of premiums and assessments are but contributions from all members ofthe insuring organization to make good the losses of individual members. distinction, however, between premiums and in the fact that the former are levied and paid to meet anticipated losses, while the latter are collected to meet actual losses. The payment of premium, after the ist, isnot enforceable against the insured; while assessments unless otherwise agreed, ‘once levied. Hence, while premium is ly levied, unless otherwise "pp. 296-257, 300) are legally enforceable not a debt, an assessment, propet expressly agreed, is a debt. (Vance, oP Payment of premium ordinarily not a debt marine insurance. — The premium I as the risk attaches’ Sec. 77; sip, as soon asthe contract OF - rsrance Corporation 658 SCRA 550 7G Resorts Inc vs: Prine Ce te Pippines 972. (2005) ting De Lon Hector S, The Isurane259 _-THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED | Secs.77-75 bond is perfected and delivered to the obligor. (Sec. 179.) The phrase “the thing insured is exposed tothe peril insured against” Essumes that the contract is perfected which takes place when the applicant's offer is accepted by the insurer. Where, 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, 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. Non-payment of lance of the premium due does not produce the cancellation of the contract of insurance in the sense that it can no longer be enforced. A contrary rule would place exclusively in the hands of the insured the right to decide whether the contract should stand or not. (Phil. Phoenix Surety é& Insurance Co., Inc. vs. Woodworks, Inc,, 20 SCRA 1270 [1967].) ILLUSTRATIVE CASES: 1. Balance of premio was not pad Facts: On April, 1960, X Co. (insurer) issued and delivered 6,000. On September 22, 1960, Y Co. paid P3,000. Notwithstanding several demands, Y Co. refused to pay the balance. Issue: Did the nonpayment cancel the policy? Held: No. In this case, the risk attached upo and delivery to Y Co. on April 1, 1960 of the fire policy was effective for one year, from Aj 1961, the balance of the premium was contract had become perfected, the parties could demand from «ach ater the performance of whatever obligations they had In the case of the insurer (X Co.),ithad the right to demand from the insured (Y Co.) the completion of the a ‘of the premium due or sue for rescission of the contract. As it chose to sec. 7778 oe demand specie pesio dente crag Peformanc: ofthe insures obligation pay Pret . indubitable, (ig) e's ty to pays indeed 2. Nopremiem ws pei Facts: Suppose, no paral paymen made by YCo.toXCo. ee Issue: May X Co. recover ‘the unpaid premium from Y Co.? Held: No. The continuance ofthe insurer's obligation is conditioned upon the payment ofthe premium, so"that no recovery can be had upon a lapsed policy, the contractual relation between the parties having ceased, Infact ifthe peril insured against had occurred, X Co., as insurer, would have had a valid defense against recovery under the policy. Phi. Phoenix Surety & Ins, Cae, Wooton In, 92 SCRA [9791 ‘Note In the preceding case, recovery ofthe balance ofthe unpold premium was allowed inasmuch there wast oly cafe conacefrsurnce but prtaly peronned one oFfaas the payment of he aed rman was nc.” 3. The balance ofthe premium which wus only partly pai twas paid only afer the loss has ocurred. Facts: Private respondent X & Co. (insurer) issued a fre insurance policy in favor of (insured) ona residential building For Pe00,000. only paid P600 out of the total premium of 72900 thus leaving a considerable lace Psi the insured building was “T paid the balance two days after the insu in completely destroyed by fire. The plcy provides fo" BAYT’ Serer inl befor the poly shallbe deemed fee ‘valid and binding upon the company” cof premium. ‘upon tial payment pa vid Nox (1 Phaeic and Maal Tony 88 PT e the factual scenario is Gecisive of the instant dispute. For One sy that sued for ifferent. In Phoeni, it was the tas oe ee batonce of the premium ei recognized and252 THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED | Seek 77-73 existence of an insurance contact with he insite, In the case fr ‘ I >hoenix, a specific stipulation Pa has is correct to say that in PH perfected upon partial payment of the premium parties had not otherwise stipulated that prepaymes ‘premium in full was a condition precedent to the existence of a contract. balanceof the premium. to make premium payable ion with Section 77 of the Insurance Code the payment emium by the assured in this particular instance a not b 1 pay the stipulation of the partes. Rather, i concept ofa deposit tobe held in trust by the insurer until such worn rcommacron ngcrornsueance tne that the full amount hasbeen tendered and duly receipted igoymen mptbenee arses went er tetera ene @) Premium is the ‘tsi vitae Satisfaction. must be empha here Wat al calculations and various tabulations of probabilities under the risks insured against are based on the id hypothesis of prompt payment of premiums. Upon this bedrock, insurance firms are enabled to offer the assurance of security to the public at favorable rates. But once payment of premium is left to the whim and caprice of the insured, 2s ‘when the courts tolerate the payment of a mere P60O as partial undertaking out ofthe stipulated total premium of P2,983.50 and the balance to be paid even after the risk insured against has occurred, as petitioners have done in this case, on the principle thatthe strength ofthe vinculum urs isnot measured by any specific amount of premium payment, we will surely ‘wreak havoc on the business and set to naught what has taken ‘actuarians centuries to devise to arrive at a fair and equitable distribution of risks and benefits between the the Inc, 356 SCRA 307 decision of June 15, 1999, lus. Case No.2, infra.) ef peu payment ould Jar by any pe meron pret py Fin al see ed wh ne ae either that a juridical te exists (by suchpaymen) a ‘extant at all (by an absence thereof), Once the jusie NSURANCE CODE OF THE PHILIPPINES ANNOTATED | Secs.7.73 254 I full efficacy, not merely pro tanto, of the sores ino bin, rally flows ery not ony there an insurance perfected but also a partially performed contract. In case of loss, ecovery on the basis of the full contract Yalu es the unpaid premium can acoringly be ad; convey dblanconepeium, The insure on onehond ont avai te obligation of paying the balance the insurer, upon the other hand, cannot reduced proportionately by balance of —"Nor would the non-paymentofthe balance the hands of one ofthe contracting partes the right ‘Whether thecontractshould stand or notin possible disregard of the MUTUALITY OF CONTRACTS RULE. Instead, the parties should be able to demand from each othe: arises under the pertinent which the mutual debts are, to the Payment accepted by insurer. — “The insured premiton peso iste: HAD ACCEPTED, partial Premium pv Policy weeks before the risk insured ect 77-78 ‘THE CONTRACT OF INSURANCE 255 ‘Title 8— Premium demandability of certain obligations thereunder. Founded on the autonony of contac, the pars, of couse ae generally not prevented fro ing conditions that alone ould tigger the cntrac’s obligato 7 however must not be con public order or public policy, ‘To say that the provisions in the po ses that the insu effective, valid and binding upon the company only when therefor have atu ben pain ul and uly / override the efficaciousness of the insurance contract despite the payment and acceptance of a part of the ‘premium would be opposed not only tothe precepts heretofore adverted to on the correct application of Section 77, but also to the intent and spirit of Section 78 which, like Section 77 is not dependent on how much premium has been paid It seems quite dear fon the day premium payment is made by the in long as it is accepted by the insurer, the insurance cover becomes effective and binding, any stipulat i of respondent's icy was P89,770. wn witness, Me Bora, which te petitioner cited, the former only paid it P75,147, leaving a difference of P14,623.20. The deficiency, petitioner argues, suffices to invalidate the policy, in accordance with Section 77 ofthe Insurance Code.A. aonacmornenme Nn: ae ‘The Courtof App the petitioner. theld conappeal hence, be Section 18, Ruled (now Se: finding of the appellate tioner, however, cont ised in paragraph 24 of its ts that the issue splied withthe condition of the -24, Plaintiff has not co policy and renewal certificate that the renewal premium Should be paid on or before renewal date.” illegal. petitioner mi (f the policy’s condition for paym« raised. Most significant to point, t petitioner fatally neglected to present during the whole coure ofthe tral, any witness to testify that respondent led to pay the ‘of the premium. The thrust of the eross-examination of ME. secu 7.78 THE CONTRACT OF Tees ean = isoued by the petitioner covers the burned bil building” ‘Home Assurance Company, In. vs. Tanto Enterprises, Ine, 366 SCRA 740 [20011) " (2) In life insurance, — The premit . BO Mh peel lem ert binding, and in the cave of subsequent premiums, when the insurer has continued the insurance after maturity of the premium, in consideration of the insured’s express or implied promise to pay. (Vance, op. cit. p.300.) (a) A life insurance policy involves a contractual obligation wherein the insured becomes duty bound to pay the premium agreed upon lest he runs the risk of having his insurance policy lapse if he fails to pay such premiums. The fact that the insurance policy contains an automatic premium payment clause cannot divest such policy ofits contractual ature for the result of such failure would only be for him to pay the premium plus the corresponding interest depending ‘upon the condition of the policy. (b) There is usually no duty assumed by the insured to pay any premiums subsequent to the fist. Inofar a6 the vextract is executory, the ordinary life insurance is purely id, p- 296.) The insurer, therefore cannot compel ay the premium because the insured is by no means a debtor of the insurer, nor is the insurer the creditor of the insured. Effect of nonpayment of premium. ‘The general rules of law applicable to the payment of money obligations ‘are, of course, applicable to the payment of insurance premiums. As a general principle, the time specified for the payment of premiums is of the essence of the contract The ability of the insurer to meet its contingent obligations to public depends upon the prompt payment of all premiums due it, (1) First premium. — Nos-payment of the first premium unless waived (see Sec.78.), prevents binding notwithstanding the acceptat the contract from becoming nce of the application nor‘HE INSURANCE CODE OFTHE PHILIPPINES ANNOTATED Secs. 77.73 28 i ment of the balance of the een of oe mn! oat {eee Phil Phoenix Surety & Insurance, Co, Inc. vs. Woodworks, Inc, 20 SCRA 1270 [1967], supra.) | mnt premiums, — Nonpayment of subsequent puna Ses ot affect the validity of the contracts unless, by express stipulation, ided that that event be suspended or shall lapse. In case of weeks, and where premiums are payable ‘monthly, either 30 days or one month. (Sec. 236}.) Section 78 authorizes the payment of the insurance premiums and loan obligations of government employees through salary deduction. when the premium remains unpaid. If the insured can neglect payment at maturity and yet suffer no loss or forfeiture, Premiums will not be punctually paid. The insurer must have some efficient means of enforcing punctuality; hence, insurance ontracts usually provide for the forfeiture of the policy upon Prompt payment of premiums, ect fens Coy ONY. Sa) Neer Connecticut The rule is not affected by the fact the n due to war or that the ped sherernate red has not been negligent. In this remiums does not merely suspend ince contract, “since the time of the secs. 77-78 ‘THE CONTRACT OF IsUR Tie8—Premiam NE rates they do.” (National Leather Co, Inc. vs. US. Li 87 Phil. 410 [1950]; Constantino vs. Asia Life ns, Co. 87 [1950]; Phil. Phoenix Surety & Ins. Co. vs. Woodvwar SCRA 419 [1979], supra.) irer.— Indeed, no excuse i ture except only when the nonpayment has in some way iduced by the condition, conduct or default of the insurer, Thus, nonpayment is excused: (a) Where the insurer has become insolvent and has suspended business, or has refused without justification a valid tender of premiums (see Gonzales vs, 92 Phil. 197 [1952], or (b) Where the failure to pay was due to the wrongful conduct of the insurer as when the insurer induced the beneficiary under a policy to surrender it for cancellation by falsely representing that the insurance was illegal and void, and returning the premiums paid; or (c) Where the insurer has in any wise waived his right to demand payment. (Vance, op. cit, pp. 326-331.) (3) Mere inaction or silence — But the insurer will not be deemed to have waived his privilege of forfeiture by mere inaction or silence if the ground be default in the payment of premiums, going as it does to the whole consideration inducing the insurer to enter into the contract. Furtherm insured has the privilege of continuing the p making premium payments, the insu the insured to make these payments. Validity of policy where credit extension granted to insured. ‘The first sentence of Section 72 (now Sec. 77.) of the former ‘Act includes the following ps " is a clear agreement to grant the insured260 THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED | Sees.77.75 the phrase “Notwithstanding .dded at the beginning of Section 77, the premium must be paid in cash as a condition precedent for a non-life insurance policy tobe valid and binding« and an agreement to grant the insured credit extension of the premium due is void. (see Velasco vs. Apostol, 173 SCRA 228 [1989].) In Makati Tuscany Condominium Corp. vs. Court of Appeals (infra.), the Supreme Court sustained the Court of Appeals in the latter's ruling that “Section 77 merely precludes the parties from stipulating that the policy is valid even if 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. 235.) So is an understanding to allow insured to pay premiums in installments not so proscribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted.” In UCPB General Insurance Co., Inc. vs. Masagana Telemart, Inc. "the phrase snot found in Seton 72. Under Section 1961), premium ecivablesare not allowed as amit assets the Sea. 778 ‘THE CONTRACT OF INSURANCE Title8— Premium fire insurance policies issued by petitioner to the respondent covering the period from May 22,1991 to May 22, 1992 - had ‘been extended or renewed by an implied credit arrangement though actual payment of premium was tendered on a later date and after the occurrence ofthe (fire) risk insured against. It resolved this issue in the negative in view of Section 77 of the Code decisions in Valencuea vs. Court of Sou Sea Surety and Insurance Co, of Appel (248 SCRA 744 [1995]; and Tiay 05. be 1996 ingly itreversed and set aside the decision of the Court of Appeals ‘Respondent (insured) seasonably filed a motion for the reconsideration ofthe adverse verdict ‘The following facts, as found by the trial court and the ‘Court of Appeals, are indeed duly established. (1) For years, petitioner (insure) had been issuing fre policies to the respondent and these policies were annually renewed. (2) Petitioner had been granting respondent 2 60- to ‘90-day credit term within which to pay the premiums on the renewed policies. (3) There was no valid notice of Porn the ices in question. as there is no proof at all hat the notice Sent by ordinary ved by respondent andthe copy thereof allege respondent’ broker was ever transmitted to respondent . (4) The premiums for the policies in question in ae da et S758 wee pid by spon within the 60- to 90-day ‘credit term and were duly accepted and received by Petitioners cashier. “The cor issue of whether Section 7 ofthe Insurance ctly applied to Code of 1978 (PD. No, 1460.) must be strictly petitioner's advantage despite its practice of granting a 60: to 90-day credit term forthe payment of premiums. - ceptions to Section 77. — *Seetion 77 of dr eT igeaaeprodacn of Seton 77 of No. 612 (The Insurance Code) promulgated on 18 Decerbet 1974. In turn, this Section has its source in Section 26728 squEMSURANCE CODE OFTHE PHILIPPINES ANNOTATED | See. 77.75 wn as the Insurance Act as amended by ered on 21 June 1963, which read: No, 2427 otherwise R.A. No. 3540, approved on. “SEC.72.Aninsurer isi topaymen aie -d is exposed to the Itean be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an agreement to Extend bie period to pay te premium. But are there exceptions to Section 77? The answer's in the affirmative. (2) First and second exceptions. — The first ex provided by Section 77 ite and that is, in case of a Industrial life policy whenever the grace period provision applies, ‘The second is that covered by Section 78 of the Insurance Code xxx" (3). Third exception. —“A third exception was laid down in Mast Tuscany Condominium Corpo SCRA 463 [1992].), wherein we apply ifthe parties have agreed tothe payment in installments ofthe premium and partil paymenthas been made atthe time of loss. We said therein, thus: are valid even if the The records clearly respondent intended subject insurance policies to be binding and effective notwithstanding the staggered payment of the premiums. The initial insurance contract entered into 4 ind accepting the Premiums, although pid on instalments and ner deny a coe er gemsutee ~ on the lame excuse thatthe premiums were not m— “Not only thal In Tuscany, We ato sued ah pea aligns of we Court of Appeals ints Reouton doting the maton for reconsideration of its decision: enema insured to pay premiums in installments not so prescribed, ‘At the very least, both parties should be deemed in ‘estoppel to question the arrangement they have voluntarily accepted’ By the approval of the aforequoted findings and ‘conclusion of the Court of Appeals, Twscay has provided a the insurer may parties in ai ‘which to pay the premiums. law, morals, good customs, publ ‘That agreeme ic order™ pre msuRANCE CODE OF THE PHILIPPINES ANNOTATED | Secu 77.79 agreement binds the pasties [onder [Article 1306 of the Civil (6) Fith exception, — “Finally in the ister oe would eu tend inegtableifrecovery on the POLY Would Nats Permit against Petitioner, which had Sor granted a Fp. to 90-day credit term for the payment of premiums despite ‘Eotoppel bars it from taking refuge wg practice, Estoppel then is the fith exception to faith om se ErcPB. General Insurance Co, Inc. vs. Masegena Telemart, Inc, 356 SCRA 307 [2001)) Dissenting Opinion: (a) Adverse eft of credit arrangement om integrity of legal reser rapiroment.— "A requirement imposed by way of State hemaintenanceofan adequate legal ‘egulationupon insurersis set in favor of those aiming under their policies. The law enerally mandates that insurance companies should retin an aervant sufficient to guarantee the security of its policyholders inthe remote future, as well as the present, and to cover any ‘or may be icipated. The ‘contingencies that may integrity of this legal reserve is ‘credit arrangement on the payment of pret threatened and undermined if im were to be Hiewofmere credit rode amended Insurance Act by dé lear agreement to grant the insured credit ‘of the second sentence the phrase, ‘{nJotwithstanding any $608. 77-78 a CONTRACT OF Ws Tile —Premtam NE agement tothe corey agreement tts contrary’ Commenting onthe new provision tofayorthe inured by maki ewan making standing the nompsyment of The remedy would be or teins Freremedy melt ots oad poli thet penis wee ald lth ny ee ot Inch he py Ree cig Eee ment ia conclusive evdencof payment premium Gavon 7) Ths the Supe Cou ok te the present law Secon 77 of the Insurance (3) Nomapplcbiliy of he exope dcrin. — "By weight 2 a YL cle cnt ot ote accesflly invoked to ceae 3 primary tial is the premium payment ‘between the insured and “Amount of premium payment. — "The law, however, equires for the establishment ofthe juridical te, nor sancures the strength of such te by, any specific amount Sr premium payment. A past payment of the premium, if Seckpted by the insurer, can thus perfect the contract ane to an obligatory relation. Such a payment rely pro tanto, Hence, in case of If recovery les the unpaid portion of the premium (by the operative act of egal ‘compensation), an toe ore ieured and, crrelavely no oss occurs the be had by to and the payment ofthe unpaid Balance of he premium.” (1 Dissenting Opinion:m \NNOTATED | Sees. 77.7 SA "THE INSURANCE CODE OF THEPHILPPIN itiusly paid the overdue premiums. Te ety eles hat the policy Was not renewed canter the suepitious atempt to pay overdue i ‘Such act revealed a reprehensible disregard of the ee thet maurance fa conactworina fides, the most Frnt good ath, Respondents required by law and by i written notice of express terms ofthe policy to give immediate c Ios Ths must be complied with in the ut ith espondent guilly timely written notice ofthe fi 'misrepresentation affecting the risk insured against. Section 1 ofthe policy provides: “All benefits under the policy shall be forfeited if the cdaimbein any respect fraudulent orifany false declaration ‘be made or used in support thereof, or if any fraudulent means or devices ae used by the insured or any one acting, ‘on his behalf to obtain any benefit under the policy’ lieu, the purported practice of giving 60 ion for payment of premiums was a ven fact that the written notice of respondent Masagana. The presi tid Dat he ae the President of respondent Masagana eos. 7-78 ‘THE CONTRACT OF INSURANCE Title 8 — Premium It must be stressed that a verbal understanding of respondent Masagana cannot amend an insurance policy. In insurance practice, amendments or even corrections to a policy are done by written endorsements or tickets appended to the policy: (4) Credit granted to insurance brokers, not to insured (respondent). — “However, the date on the face of the receipts does not refer to the date of actual remittance by respondent Masagana to UCPB of the premium payments, but merely to the date of remittance to UCPB of the premium payments by the insurance brokers of respondent Masagana insurance. Hence, what has been established was the grant of credit {o the issurance brokers not to assured. The insurance company recognized the payment to the issurance broker as payment to itself, through the actual remittance of the premium payments to the principal might be later. Once payment of the premium is ‘made to the insurance broker, the assured would be covered by a valid and binding insurance policy, provided the loss occurred ‘after payment tothe broker has been made." ‘an not give validity ‘or against public policy’ ‘The actual payment of premiums is a condition prece the validity of an insurance contract other than life insurance policy. Any agreement to the contrary is void as against the law and public policy.” the emphasis wason the conclusivenessof the acknowledgment in the policy of the receipt of premium, notwit absence of actual payment of premium, beca Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon, “A party may not go back on his own acts and representations to the prejudice ofthe other party who relied upon them’27 THEINSURANCE CODE OFTHE PHILIPPIN This isthe only case of estoppel whi valid exception to the mandatory requireme of premium. The law recognized that the c in entering a contract of insurance, are stipulations and make personal undertaking public policy. Howe cnowledgment the occurrence ofthe fre insured insurance policy was created after the expiration of the pol of payment of premiums was made only [30] days after 1992. Respondent to petitioner ofthe fre rance policy. Respondent wer payment of the premiums overdue titiously before giving notice of the occurrence of the the occurrence of the fire, or on Masagana did not give immediate_ fire 2 Ti thereon i ing any renewal thereof come in force until \d duly received by the respect of any premiums the premiums have been fa Insurance Company. No payment in JESANNOTATED Secs. 7.95 ‘Sect 77.78 THE CONTRACT OF INSURANCE Tiles — Premium shall be deemed to be payment to the Insurance Compan ules a printed form of esp for the same signed ya cial or duly appointed Agent of the Com Of or ly ap 5 Ye Company shall be raed therin wats May a fre is icy be nding and enforceable upon mere syment of Inthesaid case, Fortune Liteand Gene Co,, Ine. issued Fire Insurance Policy No. 136171 in fa Violeta R. Tibay and/or Nicolas Roraldo, on a two-storey residential building located at 5855 Zobel Street, Makati City, together with all the personal effects therein. The insurance was for P600,000, covering the period from 23 January 1987 to 23 January 1988. On 23 January 1987, ofthe total premium, ‘of P2,983.50, Violeta Tibay only paid P00, thus leaving a substantial balance unpaid. On March building was completely destroyed by fire. premium. On the same day, she filed with Fortune a claim for the proceeds of the fire insurance policy. In denying the claim of insurance, the Court ruled that ‘by express agreement of the parties, no vinculum juris ot bond of law was to be established until full payment was effected prior to the occurrence of the risk insured against.” As expressly stipulated in the contract, full payment must be made before the risk occurs for the policy to be considered effective and in force. “No vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever resulted from the fractional payment of premium.” AH Tuscany case different. — "The Tuscany Conn Cap ‘of Appeats to support the contention that the insurance oid a eae net ce However, the factual situation in that case was different from the case at bar. In Tuscany, the Court held that the insurance policies were valid and binding because there was partial payment of the premiums and a clear understanding between the parties that they had intended the insurance policies to be bindingey ANNOTATED See.79 ‘THE INSURANCE CODE OF THE PHILIPPINES ment of the premiums, Sout 7 tothe contrary The Court would no ingurer to continue collecting and accepting the although paid on installments, and later deny lab Tame excuse thatthe premiums were not prepaid in extension. — "In the case a wat no dsr and define agreement between pelitioner and respondent on the grant of a credit extension: neither was there partial payment of premiums for petitioner to invoke the exceptional doctrine in, Tuscany. Hence, the circumstances inthe above cited case ar different from the case at bar, and consequently, not a herein.” (12) Payment of premium a mandatory regard to the contention that the absence of noti renewal of the policy resulted to the au discussed, the law provides that only upon payment ‘insurance premium will the insurance policy bind the to the peril insured against and hol in case of los. Even in the absence of notice of non- would be bound by the law that a no takes effect only on the date payment made. mental law that the payment of premium is mandatory requisite to make the policy ofinsurone i ance effective. If ‘the premium isnot paid in the cai ; ‘manner prescribed in the policy as intended by the parties, the policy fe vo tpangended bythe partes, the policy is void and inetective Imran ite aceon enya cont of premium ofits paymant, so far a8 to make Gorn ov ‘twitstanaing ay etptaton’ ey Singing unt he premium ese $0079 ‘THE CONTRACT OF INSURANCE. m “Tile — Peeium Effect of acknowledgment of receipt of premium in policy. (1) Waiver of condition of prepayment. — Where the policy or contract of insurance contains an acknowledgment of receipt of premium, the insurer cannot deny the truth of the receipt of the premium in an action against him on the policy even unpaid and notwithstanding any stipulation making ent of the premium a condition preced: 1 policy. The law establishes a legal ‘The reason for the rule is founded on the policy contains such written acknowledgment, it is presumed that the insurer has waived the condition of prepayment, the acknowledgment being declared by law to be conclusive evidence of premium payment. (2) Recovery of premium if unpaid. — It must be noted, however, that the conclusive presumption extends only to the question of th ‘effect of the policy. As faras the payment concerned, the acknowledgment is only the fact of such payment: In other words, ispute its acknowledgment but only for the the premium due and unpaid. Whether payment was indeed made is a question of fact. According to the Supreme Court, Section 79 (formerly Sec. 78.) should be interpreted as an exception to Section 77. (American Home Assurance Company vs. Chua, 309 SCRA 250 [1999].) \TIVE CASE: ted the promise of the insured who delivered a py the insurance policy within 30 days. surer accepted the promise of the insured in the acknowledgment receipt to pay the insurance premium within 30 days from the effectivity date of a fire policy insurance {in partial payment ofthe insurance ‘a check for the‘76 ‘THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED See 79 premium is an independent ich would entitle the insurer y an insurance company for has no right to cancel the policy the insured in default and payment exept pu ‘Note: See, however, Section 77, Effect of acceptance of premium. Acceptance of premium within the stipul ipulated period for Payment thereof, including the agreed period of grace, merely representation. Thereis nothing inconsistent betwee, h naccepta i due under an insurance policy and the enone ne terms. (Stokes n “ (Stokes vs. Malayan Insurance Co, Ine, 127 SCRA 766 Secs. 89 ‘THE CONTRACT OF INSURANCE ms Tile8— Premium SEC. 80. A person insured is promium, as follows: itled to a return of SEC. 81. Ifa peril insured against has o> insurer has been liable for any period, particular risk concerned. SEC. 82. person insured ented oa return ofthe ‘The insured has the right to recover premiums already paid ora portion thereof in the following cases:28) THEINSURANCE CODE OF THEPHILIPPINES ANNOTATED — Secs. 605, (1) When no part of the thing insi any of the perils insured against (Sec. (@) When the insuranceis fora definite period and the insured surrenders his policy before the termination thereof (bid, [b] (3) When the contract is voidable and subsequently arin because of the fraud or misrepresentations of the insurer agent (Sec. 82.); (4) When the contract is voidable because of the existence of facts of which the insured wa fault (Ibid); (6) When the insurer never incurred any liability under the policy because of the default of the insured other than actual fraud (Ibid); en there is over-insurance (Sec. 83.); and When rescission is granted due to the insurer's breach of (Filipinas Compania de Seguros vs. Nava, 17 SCRA 216 see Sec. 74; also Art. 1385, Civil Code.) the cases mentioned in Nos. 1, 3, 4, and 5, the insured is led fo a return of the entire premium paid. Of course, the insured cannot recover premiums unless they have actually been paid. Payment to insurer’s agent is sufficient. The Code speaks of the return or refund of premium payments. Fees like documentary stamps tax and other taxes are not covered. A person insured is not a return of premium if the policy is annulled, rescinded, aim is denied by reason of fraud. (Sec. 82.) co [1966] ‘Where risk has never attached, Since premiums are paid in consideration of the assumption of specified risks by insurers, and since no premium is due unless the risk attaches, if the risk insured against does not or cannot attach, or if no part ofthe interest is subject to any of the specified perils, the insurer cannot c tain the premium thus paid, in the absence of any fraud the part of the insured. (43 ‘Am. Jur. 2d. 951.) 1uld be contrary to the dictates of honesty and fair deal- ing to allow the insurer to treat the policy as valid long enough Secs, 8088 ‘THE CONTRACTOF INSURAR TRACTOF INSURANCE a to get the premium on it and leave it at liberty to repud repudiate it the next moment. (see Edillon vs, Manila Bankers est moment (oe la Bankers Life Ins. Corp, 117 ‘Where approval of application or acceptance of policy absent. Where the application for a was not approved, no premium be covered, and wih epectt icy requi acceptance to be effective, the insured cannot be accruing premiums ifthe policy is not accepte ‘And if the premium has previously been paid, ‘as no risk whatsoever has ever attached. If no risk attaches or contract results, there is no meeting of the minds of the subject matter of the insurance. Where loss occurs before effective date. Where the insured pays in advance the annual premium on a certain property insured by him, the insurance to take effect on a certain date and the loss occurs before said date, the insured is ‘entitled to a retum of the whole premiurn. Here, the insurance never took effect and there isno property insured. Insured and insurer become public enemies. rere the parties in a contract of insurance have become ine mar {ee Sec. 7.) because of the existence of a state of ‘war, justice requires that premiums paid after the declaration of War between the belligerent states be returned to the insu War abrogates insurance contracts between citizens of belligerent states, and therefor, the insured isnot entitled, notwithstanding the payment of premiums, to indemrity for loss occurring after such declaration of war. (see Filipinas Cia de Seguros vs. Christer Huenefeld & Co, Inc, 89 Phil. 54 [1951)) Where insured surrenders policy before termination. Section 80(b) does not for a definite period (See. where the insurance is not ) where a short period ratetm -THEINSURANCE CODE OFTHE PHILIPPINES ANNOTATED "Secs. 80.93 where the policy is a life insurance has been agreed upon; or 3) policy. If the insurances fora definite period of time and the insured (provided this is allowed under the poli premiums already paid eq} the unexpired term at a pro rata rate. In other words, shall refund the unearned premium in proportion to the unexpired period, retaining only the earned portion corresponding to the portion expired. But there shall be deducted from the whole premiums any claim for loss or damage under the policy which has previously accrued. EXAMPLE X insures his house for one year and pays the 16,000 corresponding to the premium for one the lapse of three months, X surrenders his py be entitled to collect 3/4 of the premium pai 000 representing the portion of the premium for the unexpired period of the policy. 16000 thereby leaving a balance of x [an will thus be entitled to a retum of P9,000 which is 3/4 of ‘P12,000. Where short period rate has been stipulated. the annual premium that the expired time by is cancelled by the in t be followed if the ears to the entire sured, the pro rata return secs $089 ‘THE CONTRACT OF INSURANCE 289 TileS— Premium “The following is an example: is hereby agreed that, in the event of this policy being surrendered by the insured for cancellation, the company shall retaina premium in accordance with the following scale for the time the policy has been in force.” Then follows the scale, eg: For 1 month o' For 2 months. percent of the Annual Rate percent of the Annual Rate percent of the Annual Rate percent of the Annual Rate percent of the Annual Rate percent of the Annual Rate percent of the Annual Rate percent of the Annual Rate percent of the Annual Rate percent of the Annual Rate percent of the Annual Rate RERSASSSSESS For 11 months. Where risk has attached. (1) Whole premium considered as earned. — The general rule is that the insurance grant the entire consideration for the premium received; hence, if the risk has attached by reason of the contract's becoming binding upon the insurer, the whole premium must be considered as earned and, therefore, cannot be apportioned in case the risk terminates before the end of the term for which the insurance was granted. (Vance, op. cit, p. 347.) ‘Thus, in the absence of any agreement to the contr insured against has existed, and the insurer has been any period, however short, the insured is not entitled to return of premiums so far as that particular risk is concerned.” (Sec. 81; see Sec. 77.) EXAMPLE: X procures insurance perils of the sea (see London. The voyage isto last for 5 two days after the voyage has comm a certain vessel against the for a voyage from Manila to ays. IX cancels the policy enced, no portion of the SAEuEH eet)-qHEPHILIFPINESANNOTATED | Secs. 8.3 ‘tah THEINSURANCECODEOF premium is returnable because the thing insure has already foen exposed to the pei insured agains. divisible, — Of course, if the contract consisting of sev‘ tinct risks for ‘premiums have been paid (see Sec, 22; Art. ‘Code, the premium paid for any particular risk isnot earned until that risk has attached. EXAMPLE: Suppose the insurance procured by X upon his vessel contemplates a voyage in thee different stages y= from Port A to Port B, then to Port C, and fin —and X paid a different amount of premium a Where the contract is voidable. (1) Fraua of the insurer or his agent. —If the policy is induced by the fraud or misrepresentation of the insurer, insured may, by timely action, rescind the contract and demand the return of the premiums paid by him. (Sec. 78.) EXAMPLES: (1) Where the insured is induced to take out an ins upon the represen the ‘poly will be issued to him wi during the period return of the premium i this point because the eo secs 80583 ‘THE CONTRACT OF INSURANCE 285 Tie 8 — Premium (2) Other grounds. — The insured is al toa return account of existence of which the insured was ignorant without oF when, by any default of the insured other than actual he insurer never incured Tability under the policy.” EXAMPLES: (1) Where the insured pays insurance premiums on his vessel not knowing that it has already been lost, he can recover bback the premiums so paid in the absence of stipulation in the policy thatthe insurer will remain liable even if the vessel is (2) Where the insured takes a policy on a vessel under repair and pays the premium in advance but for reasons not ddue to actual fraud on his part, the repair of the vessel is not completed on the date when the voyage is to start, the insured, in the absence of any contrary stipulation, may recover the premium already paid. by reason of the fraud of the insured. (De Leon vs. The Crown. Life Ins. Co,, {C.A.] No. 41482, June 20, 1939.) ‘Where there is over-insurance. surance by double insurance (see Sec. 95.), le for the total amount of insurance taken, his liability to the amount of the insurable interest on the property insured. Hence, he is not entitled to that portion of the premium corresponding to the excess of the insurance over the insurable interest of the insured. ‘The premiums to be returned where there is over-insurance by several insurers shall be proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk. (Sec. 82.)sHEINSURANCECODEOF THERHILFFINES ANNOTATED Sc. 8043 286 EXAMPLE: ; Suppose X insures his house which as an insurable value ‘of P1500,000 as follows: Insurer Amount of insurance Premiums paid AC. 1,200,000 24,000 BCo. 600,000 12,000 00,000 36,000 Inthis case, thereis an over-insurance of P300,000, the amount by which the aggregate sum insured in the two (2) the insurable value of the house. The proportion 1,800,000 or 1/6. Hence, 1/6 of P24,000 of P4,000 is what A Co. ‘must return; and 1/6 of P12,000 or P2,000 is what B Co. must return. Since the insurable interest of X is only P1,500,000; he ‘cannot recover the whole of the amount insured in case of loss. ‘When the insurance is void because it is illegal, the general rule is that the premiums cannot be recovered. But if, in fact, the parties are not in pari delicto, the law will allow an innocent insured to take again his premiums as when the insured was ignorant of the facts which rendered the insurance illegal. tis also held that where one, having no insurable interest inthe lif insured, pai premiums in the bona fide belief induced yl eres naa the insurer, that such insurance l remiums paid despit that the contract was illegal. Butt is. etaicene ee eee as a conscious party fo the wrong, Foster v. Metropolitan Life einer g3 NE 9: Vance, op cy pp. 351-952; Arts 11-142, Basis of right to recover Premiums, With regard to return of insurance, and double insura f ) nue cd hae been called to pay the whole sum insured. Grcumsiancss have ha, ty time and under any conceivable , have called on to Pay the whole sum on Premium for short interest, over- ance, the basis is this: see Bt ‘THE CONTRACT OF INSURANCE. ar Tile 8— Premium which he has received premium, in such case the whole premium iseamed and there shallbenoretum; (2) Insurer could have been called to pay only part of the whole sum insured. — If, on the other hand, he could never in any event have thus been called on to pay the whole, but only a part of the amount of his subscription — say a half or a fourth — he ought not retain a larger proportion than one-half or one-fourth of the premium and must return the residue. (Arnould on Marine Insurance, cited by Vance, p. 351.) Right to recover premiums as to life insurance. Recovery of premiums paid is not allowed in life insurance if the insured surrenders his policy. ‘The reason is that life insurance is not a divisible contract. It is not an insurance for a single year, with a privilege of renewal from year to year by paying the annual premitum but that itis an entire contract of insurance for life subject to discontinuance and forfeiture for nonpayment of any of the stipulated premiums. ‘There is no proper relation between premium and the risk of assurance for the year in which itis paid. Each installment i + consideration of the entire insurance for life. It is ig where the annual premiums are spread over the The value of assurance for one (1) year of a man’s life is young, strong and healthy is manifestly not the same when he is old and decrepit. (Vance, op. cit, pp- 298-299.) surrender value” of his policy “afte three full annual premiums shall have been paid.” (Secs. 233141, 236141) ‘SEC. 84, Aninsurer may contract and accept payments, in addition to regular premium, for the purpose of paying future premiums on the policy or to increase the benofits thereof. (n) Payments in addition to regular pr ‘The insured is duty bound to make prompt payment of only the insurance premiums due under the policy ums.288 THEINSURANCE CODEOF THE PHILIPPINES ANNOTATED Sac. 5g ‘Under Section 84, the insurer may contract with the insured whereby the insured may make and the insurer, “accept payments, in addition to regular premiums, for the purpose of paying future premiums on the policy or to increase the benefit thereof.” —000— TITLE 9 Loss ‘SEC. 85. An agreement ‘ot to transfer the claim of the “ato ‘Insurer after the loss has | ‘happened, i. ‘ thotons in the case of life insurance. once Claim in insurance defined, Claim may be defined as a demand for the satisfaction of a loss suffered within the purview of an insure’ policy. It may be made by the party insured, the insurer with right of subrogation, ‘or a non-party but with a right against the insured, Effect of agreement not to transfer claim of insured after a loss. insurance policy (see Sec. 181), is not without the consent of the insurer on the theory that the policy isa personal contract between the insured and insurer. After a loss has occurred, the insured has an absolute right to transfer or assign his claim against the insurer. A stipulation which attempts to such transfer of a policy is void. (1) Agreement hinders free transmission of property. — Such 2 stipulation is void as against public policy for it hinders the free transmission of property from one person to another. (West Branch Ins. Co. v. Holfenstain, 40 Pa. St. 289; see Sec. 21.) mn. — After (2) Transfer imootves but money claim or right of actin the loss has been suffered, the policy or right hereunder may be assigned without the consent of or notice tothe insurer for in such case, itis not the personal contract which i being assigned, 239