112 SCRA 199 Mercantile Law Insurance Law The Policy Separate Premiums Not

Required for Cover Notes

In 1963, Pacific Timber Export Corporation (PTEC) applied for a temporary marine insurance
from Workmens Insurance Company (WIC) in order for the latter to insure 1,250,000 board
feet of logs to be exported to Japan. In March 1963, WIC issued a cover note to PTEC for the
said logs. On April 2, 1963, WIC issued two policies for the logs. However, the total board
feet covered this time is only 1,195,498. On April 4, 1963, while the logs were in transit to
Japan, bad weather prevailed and this caused the loss of 32 pieces of logs.
WIC then asked an adjuster to investigate the loss. The adjuster submitted that the logs lost
were not covered by the two policies issued on April 2, 1963 but said logs were included in
the cover note earlier issued.
WIC however denied the insurance claim of PTEC as it averred that the cover note became
null and void when the two policies were subsequently issued. The Court of Appeals ruled
that the cover note is void for lack of valuable consideration as it appeared that no premium
payment therefor was made by PTEC.
ISSUE: Whether or not a separate premium is needed for cover notes.
HELD: No. The Cover Note was not without consideration for which the Court of Appeals
held the Cover Note as null and void, and denied recovery therefrom. The fact that no
separate premium was paid on the Cover Note before the loss insured against occurred, does
not militate against the validity of PTECs contention, for no such premium could have been
paid, since by the nature of the Cover Note, it did not contain, as all Cover Notes do not
contain particulars of the shipment that would serve as basis for the computation of the
premiums. As a logical consequence, no separate premiums are intended or required to be
paid on a Cover Note.
At any rate, it is not disputed that PTEC paid in full all the premiums as called for by the
statement issued by WIC after the issuance of the two regular marine insurance policies,
thereby leaving no account unpaid by PTEC due on the insurance coverage, which must be
deemed to include the Cover Note. If the Note is to be treated as a separate policy instead of
integrating it to the regular policies subsequently issued, the purpose and function of the
Cover Note would be set at naught or rendered meaningless, for it is in a real sense a
contract, not a mere application for insurance which is a mere offer.