INSURANCE DIGEST PART 2
status after it has been permitted to lapse. Both the policy contract and
Violeta R. Lalican vs. Insular Life Assurance Co. Ltd.
Facts: Eulogio Lalican applied for an insurance policy with the Insular Life
amounting to Php 1,500,000.Under the terms of the policy, Eulogio was to
pay the premiums on a quarterly basis, having a grace period of 31 days, for
the payment of each premium subsequent to the first. If any premium was
not paid on or before the due date, the policy would be in default and if the
premium remained unpaid until the end of the grace period, the policy would
automatically lapse and become void.Eulogio paid the premiums due on the
first two succeeding payment dates but failed to pay subsequent premiums
even after the lapse of the grace period thereby rendering the policy void.
He submitted an application for reinstatement of policy through Josephine
Malaluan, an agent of InsularLife, together with the payment of the unpaid
premiums. However, the Insular Life notified him that his application could
not be processed because he failed to pay the overdue interest of the unpaid
premiums. On Sept. 17, 1998, Eulogio submitted to Malaluan’s house a
second application for reinstatement including the payment for the overdue
interest as well as for the premiums due for April and July of that year, which
was received by Malaluan’s husband on her behalf and was thereby issued
a receipt for the amount Eulogio deposited. However, on that same day,
Eulogio died of cardio-respiratory arrest secondary to electrocution. Violeta,
Eulogio’s widow filed with the Insular Life a claim for payment of the full
proceeds of the policy but the latter informed her that the claim could not be
granted since at the time of Eulogio’s death, his policy has already lapsed
and he failed to reinstate the same. Violeta requested a reconsideration of
her claim but the same was also rejected. Therefore, she filed a complaint
for death claim benefits with the RTC alleging the unfair claim settlement
practice of Insular Life and its deliberate failure to act with reasonable
promptness on her insurance claim. The trial court rendered a decision in
favour of Insular Life and after the former denied her motion for
reconsideration, she directly elevated her case to the Supreme Court via the
petition for review on Certiorari.
Issue: Whether or not the policy of Eulogio was reinstated before his death.
Ruling: To reinstate a policy means to restore the same to premium-paying
application for reinstatement provide for specific conditions for the
reinstatement of a lapsed policy.According to the Application for
Reinstatement, the policy would only be considered reinstated upon the
approval of the application by Insular Life during the applicant’s lifetime and
good health and whatever amount the application paid in connection was
considered to be a deposit only until approval of said application.Eulogio’s
death rendered impossible full compliance with the conditions for
reinstatement of policy even though, before his death, he managed to file his
application for reinstatement and deposit the amount for payment of his
overdue premiums and interest thereon with Malaluan. As expressly
provided on the policy contract, agents of Insular Life have no authority to
approve any application for reinstatement. They still had to turn over to
Insular Life the application for reinstatement and accompanying deposit, for
processing and approval of the latter.
Gulf Resorts Inc. vs. PCIC
Facts: Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La
Union and had its properties in said resort insured originally with the
American Home Assurance Company (AHAC). In the first 4 policies issued,
the risks of loss from earthquake shock was extended only to petitioner’s two
swimming pools. Gulf Resorts agreed to insure with Phil Charter the
properties covered by the AHAC policy provided that the policy wording and
rates in said policy be copied in the policy to be issued by Phil Charter. Phil
Charter issued Policy No. 31944 to Gulf Resorts covering the period of
March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium
of P45,159.92. the break-down of premiums shows that Gulf Resorts paid
only P393.00 as premium against earthquake shock (ES). In Policy No.
31944 issued by defendant, the shock endorsement provided that “In
consideration of the payment by the insured to the company of the sum
included additional premium the Company agrees, notwithstanding what is
stated in the printed conditions of this policy due to the contrary, that this
insurance covers loss or damage to shock to any of the property insured by
this Policy occasioned by or through or in consequence of earthquake (Exhs.
"1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C"). In Exhibit "7-C" the word
"included" above the underlined portion was deleted. On July 16, 1990 an
earthquake struck Central Luzon and Northern Luzon and plaintiff’s
properties covered by Policy No. 31944 issued by defendant, including the
two swimming pools in its Agoo Playa Resort were damaged.
Petitioner advised respondent that it would be making a claim under its
Insurance Policy 31944 for damages on its properties. Respondent denied
petitioner’s claim on the ground that its insurance policy only afforded
earthquake shock coverage to the two swimming pools of the resort. The
trial court ruled in favor of respondent. In its ruling, the schedule clearly
shows that petitioner paid only a premium of P393.00 against the peril of
earthquake shock, the same premium it had paid against earthquake shock
only on the two swimming pools in all the policies issued by AHAC.
Issue: Whether or not the policy covers only the two swimming pools owned
by Gulf Resorts and does not extend to all properties damaged therein
Ruling: YES. All the provisions and riders taken and interpreted together,
indubitably show the intention of the parties to extend earthquake shock
coverage to the two swimming pools only. An insurance premium is the
consideration paid an insurer for undertaking to indemnify the insured
against a specified peril. In fire, casualty and marine insurance, the premium
becomes a debt as soon as the risk attaches. In the subject policy, no
premium payments were made with regard to earthquake shock coverage
except on the two swimming pools. There is no mention of any premium
payable for the other resort properties with regard to earthquake shock. This
is consistent with the history of petitioner’s insurance policies with AHAC.
UCPB vs. Masagana
Facts: Plaintiff [herein Respondent] obtained from defendant [herein
Petitioner] five (5)insurance policies on its properties. All five (5) policies
reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to
4:00 P.M. of 22 May 1992." On June 13, 1992,plaintiffs properties were
razed by fire. On July 13, 1992, plaintiff tendered, and defendant accepted,
five (5) Equitable Bank Manager's Checks as renewal premium payments
for which Official Receipt Direct Premium was issued by defendant.
Masagana made its formal demand for indemnification for the burned
insured properties. On the same day, defendant returned the five (5)
manager's checks stating in its letter) that it was rejecting Masagana's claim
on the following grounds:"a) Said policies expired last May 22, 1992 and
were not renewed for another term;b) Defendant had put plaintiff and its
alleged broker on notice of non-renewal earlier; and c) The properties
covered by the said policies were burned in a fire that took place last June
13, 1992, or before tender of premium payment."
Issue: Whether Section 77 of the Insurance Code of 1978 (P.D. No. 1460)
must be strictly applied to Petitioner's advantage despite its practice of
granting a 60- to 90-day credit term for the payment of premiums.
Ruling: Section 77 of the Insurance Code of 1978 provides:SECTION 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 contract of insurance issued by an insurance
company is valid and binding unless and until the premium thereof has been
paid, except in the case of a life or an industrial life policy whenever the grace
period provision applies.While the import of Section 77 is that prepayment of
premiums is strictly required as a condition to the validity of the contract, We
are not prepared to rule that the request to make instalment payments duly
approved by the insurer would prevent the entire contract of insurance from
going into effect despite payment and acceptance of the initial premium or
first instalment. So is an understanding to allow insured to pay premiums in
instalments not so prescribed. At the very least, both parties should be
deemed in estoppel to question the arrangement they have voluntarily
accepted.
 Makati Tuscany vs. CA
Facts: Sometime in 1982, respondent American Home Assurance Co.
(AHAC) represented by American International Underwriters Inc. (Phils.)
issued in favor of petitioner an insurance policy covering the latter’s building
and premises from 01 March 1982-01 March 1983 with a total premium of
P466,103.05. It was paid on installments from March 1982-November 1982
which AHAC accepted. It was renewed on February 1983 for the period of
March 1983-March 1984 and the premium of the same amount was paid in
installments again which AHAC accepted. On January 1984, it was again
renewed for the period of March 1984-March 1985. Here, petitioner only
made 2 installment payments – first one for P52,000 and the second one for
P100,000. After that, petitioner refused to pay the balance of the premium.
AHAC filed an action to recover the unpaid balance of P314,103.05.
Petitioner admitted that there was an existing insurance policy and reasoned
out that he discontinued the payment of premiums because the policy didn’t
contain a credit clause in its favor. It further claimed that the policy was never
binding and valid and no risk attached to the policy. It further sought he
refund of all the premium payments he made from 1982-1985. The trial court
dismissed the complaint and stated that Makati Tuscany Condo Corp.’s
premium payments cannot be refunded because there was a risk attached
under the policies; and in view of the reservation in the receipts by AHAC,
AHAC has no right to demand payment and Makati Tuscany Condo Corp is
justified in not paying it. Both appealed and Makati Tuscany Condo Corp was
ordered to pay the balance of the premiums due on the existing policy with
legal interest. Petitioner now asserts that its payment by installment of the
premium invalidated insurance policies from 1982-1984 because of Sec. 77
of the Insurance Code which provides:
Sec. 77. An insurer is entitled to the payment of the premium as soon
as the thing is exposed to the peril insured against. Notwithstanding
any agreement to the contrary, no policy or contract of insurance
issued by an insurance company is valid and binding unless and until
the premium thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision applies.
Issue: Whether payment by installment of the premiums due on an
insurance policy invalidates the contract of insurance in view of Sec. 77 of
the Insurance Code.
Ruling: No. The Court held that the subject policies are valid even if the
premiums were paid on installments. It was clearly shown that petitioner and
private respondent intended the policies to be binding and effective
notwithstanding the payment on installment of the premiums. The contracts
were even renewed and the insurance company also accepted that way of
paying the premiums. It would defy the basic principles of equity and fairness
if the insurer would be allowed to accept payments and later on deny liability
because the premiums were not paid in full.
As correctly stated by the Court of Appeals –
While the import of Section 77 is that prepayment of premiums is
strictly required as a condition to the validity of the contract, We are
not prepared to rule that the request to make installment payments
duly approved by the insurer, would prevent the entire contract of
insurance from going into effect despite payment and acceptance of
the initial premium or first installment.
xxx
Section 77 merely precludes the parties from stipulating that the
policy is valid even if the 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. 175)
xxx
At the very least, both parties should be deemed in estoppel to
question the arrangement they have voluntarily accepted.
It appearing from the circumstances that the parties actually intended to
make the 3 insurance contracts valid and binding, petitioner must pay the
balance. Also, where the risk is entire and contract is indivisible, the insured
is not entitled to a refund of the premiums already paid if the insurer was
exposed to the risk insured for any period, however brief or momentary.