Constantino v.

Asia Life- Non-payment of Insurance Premiums

87 PHIL 248
Facts: Appeal consolidates two cases. Asia life insurance Company (ALIC) was
incorporated in Delaware. For the sum of 175.04 as annual premium duly paid to
ALIC, it issued Policy No. 93912 whereby it insured the life of Arcadio Constantino
for 20 years for P3T with Paz Constantino as beneficiary.
First premium covered the period up to Sept. 26, 1942. No further premiums
were paid after the first premium and Arcadio died on Sept. 22, 1944.
Due to Jap occupation, ALIC closed its branch office in Manila from Jan. 2 19421945. On Aug. 1, 1938, ALIC issued Policy no. 78145 covering the lives of Spouses
Tomas Ruiz and Agustina Peralta for the sum of P3T for 20 years. The annual
premium stipulated was regularly paid from Aug. 1, 1938 up to and including Sept.
30, 1940.

Effective Aug. 1, 1941, the mode of payment was changed from annually to
quarterly and such quarterly premiums were paid until Nov. 18, 1941.

Last payment covered the period until Jan. 31, 1942.

Tomas Ruiz died on Feb. 16, 1945 with Agustina Peralta as his beneficiary.
Due to Jap occupation, it became impossible and illegal for the insured to deal with
ALIC. Aside from this the insured borrowed from the policy P234.00 such that the
cash surrender value of the policy was sufficient to maintain the policy in force only
up to Sept. 7, 1942.

Both policies contained this provision: All premiums are due in advance and any
unpunctuality in making such payment shall cause this policy to lapse unless and
except as kept in force by the grace period condition.
Paz Constantino and Agustina Peralta claim as beneficiaries, that they are entitled
to receive the proceeds of the policies less all sums due for premiums in arrears.
They also allege that non-payment of the premiums were caused by the closing of
ALICs offices during the war and the impossible circumstances by the war,
therefore, they should be excused and the policies should not be forfeited.
Lower court ruled in favor of ALIC.
Issue: May a beneficiary in a life insurance policy recover the amount thereof
although the insured died after repeatedly failing to pay the stipulated premiums,
such failure being caused by war?
Held: NO. Due to the express terms of the policy, non-payment of the premium
produces its avoidance. In Glaraga v. Sun Life, it was held that a life policy was

avoided because the premium had not been paid within the time fixed; since by its
express terms, non-payment of any premium when due or within the 31 day grace
period ipso facto caused the policy to lapse.
When the life insurance policy provides that non-payment of premiums will cause its
forfeiture, war does NOT excuse non-payment and does not avoid forfeiture.
Essentially, the reason why punctual payments are important is that the insurer
calculates on the basis of the prompt payments. Otherwise, malulugi sila.

It should be noted that the parties contracted not only as to peace time conditions
but also as to war-time conditions since the policies contained provisions applicable
expressly to wartime days. The logical inference therefore is that the parties
contemplated the uninterrupted operation of the contract even if armed conflict
should ensue.

FACTS:

Case 1:
The life of Arcadio Constantino was insured with Asia Life Insurance

Company (Asia) for a term of 20 years with Paz Lopez de Constantino as beneficiary.

The first premium covered the period up to September 26, 1942.

After the first premium, no further premiums were paid. The insured died
on September 22, 1944.
Asia Life Insurance Company, being an American Corp., had to close its
branch office in Manila by reason of the Japanese occupation, i.e. from January 2,

1942, until the year 1945.

Case 2:
Spouses Tomas Ruiz and Agustina Peralta. Their premium were initially

annually but subsequently changed to quarterly. The last quarterly premium was
delivered on on November 18, 1941 and it covered the period until January 31,
1942.

Upon the Japanese occupation, the insurer and insured were not able to
deal with each other
Because the insured had borrowed on the policy P234.00 in January,
1941, the cash surrender value of the policy was sufficient to maintain the policy in

force only up to September 7, 1942.

Tomas Ruiz died on February 16, 1945 with Agustina Peralta as
beneficiary. Her demand for payment was refused on the ground of non-payment of
the premiums.

Plaintiffs: As beneficiaries, they are entitled to receive the proceeds of the

policies minus all sums due for premiums in arrears. The non-payment of the
premiums was caused by the closing of Asia's offices in Manila during the Japanese

occupation and the impossible circumstances created by war.

lower court: absolved Asia

ISSUE: W/N the insurers still have a right to claim.

HELD: YES. lower court affirmed.

it would seem that pursuant to the express terms of the policy, non-payment of

premium produces its avoidance

Forfeitures of insurance policies are not favored, but courts cannot for that

reason alone refuse to enforce an insurance contract according to its meaning.

Nevertheless, inasmuch as the non-payment of premium was the consequence of

war, it should be excused and should not cause the forfeiture of the policy
3 Rules in case of war:
Connecticut Rule

2 elements in the consideration for which the annual premium is

paid:

mere protection for the year

privilege of renewing the contract for each succeeding year

by paying the premium for that year at the time agreed upon
payment of premiums is a condition precedent, the non-

performance would be illegal necessarily defeats the right to renew the contract
New York Rule - greatly followed by a number of cases

war between states in which the parties reside merely suspends the
contracts of the life insurance, and that, upon tender of all premiums due by the
insured or his representatives after the war has terminated, the contract revives and

becomes fully operative

United States Rule
contract is not merely suspended, but is abrogated by reason of
non-payments is peculiarly of the essence of the contract
it would be unjust to allow the insurer to retain the reserve value of
the policy, which is the excess of the premiums paid over the actual risk carried

during the years when the policy had been in force

The business of insurance is founded on the law of average; that of life insurance

eminently so
contract of insurance is sui generis

Whether the insured will continue it or not is optional with him. There
being no obligation to pay for the premium, they did not constitute a debt.
It should be noted that the parties contracted not only for peacetime conditions
but also for times of war, because the policies contained provisions applicable
expressly to wartime days. The logical inference, therefore, is that the parties
contemplated uninterrupted operation of the contract even if armed conflict should

ensue.
the fundamental character of the undertaking to pay premiums and the high

importance of the defense of non-payment thereof, was specifically recognized

adopt the United States Rule: first policy had no reserve value, and that the
equitable values of the second had been practically returned to the insured in the
form of loan and advance for premium