Phil Phoenix Surety & Insurance Co., Inc., v. Woodworks, Inc., G.R. No.

L-25317, August 6, 1979

FACTS:
Upon WOODWORKS’s application, PHIL. PHOENIX issued in its favor a fire insurance policy whereby PHIL.
PHOENIX insured WOODWORKS’ building, machinery and equipment for a term of one year from against loss
by fire. The premium and other charges amounted to P10,593.36.

It is undisputed that WOODWORKS did not pay the premium stipulated in the Policy when it was issued nor at
any time thereafter.

Before the expiration of the one-year term, PHIL. PHOENIX notified WOODWORKS of the cancellation of the
Policy allegedly upon request of WOODWORKS. The latter has denied having made such a request. PHIL.
PHOENIX credited WOODWORKS with the amount of P3,110.25 for the unexpired period of 94 days, and
claimed the balance of P7,483.11 representing , earned premium. Thereafter, PHIL. PHOENIX demanded in
writing for the payment of said amount. 
WOODWORKS disclaimed any liability contending, in essence, that it need not pay premium “because the
Insurer did not stand liable for any indemnity during the period the premiums were not paid.”

For this reason, PHIL. PHOENIX commenced action in the CFI of Manila. Judgment was rendered in PHIL.
PHOENIX’s favor . From this adverse Decision, WOODWORKS appealed to the Court of Appeals which
certified the case to SC on a question of law.

ISSUE:
May the insurer collect the earned premiums?

HELD:
NO. The Courts findings are buttressed by Section 77 of the Insurance Code (Presidential Decree No. 612,
promulgated on December 18, 1974), which now provides that “no contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof has been paid, notwithstanding
any agreement to the contrary.”

Since the premium had not been paid, the policy must be deemed to have lapsed.

The non-payment of premiums does not merely suspend but put, an end to an insurance contract, since the
time of the payment is peculiarly of the essence of the contract.

In fact, if the peril insured against had occurred, PHIL. PHOENIX, as insurer, would have had a valid defense
against recovery under the Policy it had issued. Explicit in the Policy itself is PHIL. PHOENIX’s agreement to
indemnify WOODWORKS for loss by fire only “after payment of premium,”  Compliance by the insured with the
terms of the contract is a condition precedent to the right of recovery.

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The burden is on an insured to keep a policy in force by the payment of premiums, rather than on the insurer to
exert every effort to prevent the insured from allowing a policy to elapse through a failure to make premium
payments. The continuance of the insurer’s obligation is conditional upon the payment of premiums, so that no
recovery can be had upon a lapsed policy, the contractual relation between the parties having ceased.

Moreover, “an insurer cannot treat a contract as valid for the purpose of collecting premiums and invalid for the
purpose of indemnity.” 
DISPOSITION:
The judgment appealed from was reversed, and PHIL. PHOENIX’s complaint dismissed.

FGU Insurance Corporation v CA (Insurance)

[G.R. No. 137775. March 31, 2005]

FGU INSURANCE CORPORATION, petitioner, vs. THE COURT OF APPEALS, SAN MIGUEL CORPORATION,
and ESTATE OF ANG GUI, represented by LUCIO, JULIAN, and JAIME, all surnamed ANG, and CO
TO, respondents.

FACTS:
Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was engaged in the shipping
business. It owned the M/T ANCO tugboat and the D/B Lucio barge that were operated as common carriers.
Since the D/B Lucio had no engine of its own, it could not maneuver by itself and had to be towed by a tugboat
for it to move from one place to another.
On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on board the D/B
Lucio, for towage by M/T ANCO, when the barge and tugboat arrived at San Jose, Antique, in the afternoon of
30 September 1979, the clouds over the area were dark and the waves were already big. The arrastre
workers unloading the cargoes of SMC on board the D/B Lucio began to complain about their difficulty in
unloading the cargoes. SMC’s District Sales Supervisor, Fernando Macabuag, requested ANCO’s representative
to transfer the barge to a safer place because the vessel might not be able to withstand the big waves.
ANCO’s representative did not heed the request because he was confident that the barge could withstand the
waves. At around midnight, the barge run aground and was broken and the cargoes of beer in the barge were
swept away.
As a consequence of the incident, SMC filed a complaint for Breach of Contract of Carriage and Damages
against ANCO. ANCO admitted that the cases of beer Pale Pilsen and Cerveza Negra mentioned in the
complaint were indeed loaded on the vessel belonging to ANCO. It claimed however that it had an agreement
with SMC that ANCO would not be liable for any losses or damages resulting to the cargoes by reason of
fortuitous event. Third-party defendant FGU admitted the existence of the Insurance Policy under Marine
Cover Note No. 29591 but maintained that the alleged loss of the cargoes covered by the said insurance policy
cannot be attributed directly or indirectly to any of the risks insured against in the said insurance policy.

DECISION OF LOWER COURTS:

(1) RTC-Cebu: The estate of Ang Gui and Co To is liable to SMC for the amount of the lost shipment. With
respect to the Third-Party complaint, the court a quo found FGU liable to bear Fifty-Three Percent (53%) of
the amount of the lost cargoes. While the cargoes were indeed lost due to fortuitous event, there was failure
on ANCO’s part, through their representatives, to observe the degree of diligence required that would
exonerate them from liability. 

(2) CA: affirmed RTC in toto.

ISSUES:
(1) Whether ANCO’s representatives was able to exercise the extraordinary degree of diligence required by
the law to exculpate them from liability for the loss of the cargoes.
(2) Whether or not FGU can be held liable under the insurance policy to reimburse ANCO for the loss of the
cargoes despite the findings of the respondent court that such loss was occasioned by the blatant negligence
of the latter’s employees.
RULING:
(1) No.
In this case, the calamity that caused the loss of the cargoes was not unforeseen nor was it unavoidable. In
fact, the other vessels in the port of San Jose, Antique, managed to transfer to another place, a circumstance
which prompted SMC’s District Sales Supervisor to request that the D/B Lucio be likewise transferred, but to
no avail. The D/B Lucio had no engine and could not maneuver by itself. Even if ANCO’s representatives
wanted to transfer it, they no longer had any means to do so as the tugboat M/T ANCO had already departed,
leaving the barge to its own devices. The captain of the tugboat should have had the foresight not to leave the
barge alone considering the pending storm.
(2) No, FGU is not liable.
The ordinary negligence of the insured and his agents has long been held as a part of the risk which the
insurer takes upon himself, and the existence of which, where it is the proximate cause of the loss, does not
absolve the insurer from liability. But willful exposure, gross negligence, negligence amounting to misconduct,
etc., have often been held to release the insurer from such liability.
In the case at bar, both the trial court and the appellate court had concluded from the evidence that the
crewmembers of both the D/B Lucio and the M/T ANCO were blatantly negligent. To wit: There was blatant
negligence on the part of the employees of defendants-appellants when the patron (operator) of the tug boat
immediately left the barge at the San Jose, Antique wharf despite the looming bad weather. The negligence of
the defendants- appellants is proved by the fact that on 01 October 1979, the only simple vessel left at the wharf
in San Jose was the D/B Lucio.
This Court, taking into account the circumstances present in the instant case, concludes that the blatant
negligence of ANCO’s employees is of such gross character that it amounts to a wrongful act that must
exonerate FGU from liability under the insurance contract.