Valenzuela v. CA

ARTURO VALENZUELA and HOSPITALITA VALENZUELA v. CA, BIENVENIDO ARAGON, ROBERT PARNELL, CARLOS CATOLICO and THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY

1990 / Gutierrez, Jr.

FACTS

Arturo Valenzuela [Valenzuela] is a general agent of Philippine American General Insurance Company [Philamgen] since 1965. As such, he was authorized to solicit and sell in behalf of Philamgen all kinds of non-life insurance, and in consideration of services rendered was entitled to receive the full agent's commission of 32.5% from Philamgen. From 1973 to 1975, Valenzuela solicited marine insurance from Delta Motors. However, Valenzuela did not receive his full commission.

In 1977, Philamgen started to become interested in and expressed its intent to share in the commission due Valenzuela on a 50-50 basis, but he refused. In 1978, Philamgen and its President [Aragon] insisted on the sharing of the commission with Valenzuela, but he firmly reiterated his objection to the proposals. Because of the refusal of Valenzuela, Philamgen and its officers took drastic action. They reversed the commission due him by not crediting in his account the commission earned from the Delta Motors insurance, placed agency transactions on a cash and carry basis, threatened the cancellation of policies issued by his agency, and started to leak out news that Valenzuela has a substantial account with Philamgen. This resulted in the decline of his business as insurance agent. Philamgen terminated the General Agency Agreement of Valenzuela in December 1978.

                Valenzuela filed a complaint against Philamgen, and the RTC ruled in his favor, as his termination was found to be unjustified. However, the CA ruled in favor of Philamgen, as CA ordered Valenzuela to pay Philamgen the amount corresponding to the unpaid and uncollected premiums.

ISSUE & HOLDING

WON Valenzuela should be held liable for unpaid and uncollected premiums. NO.

RATIO

Under Section 77 of the Insurance Code, the remedy for the non-payment of premiums is to put an end to and render the insurance policy not binding.

Philippine Phoenix Surety and Insurance v. Woodworks (1979)

• The non-payment of premium does not merely suspend but puts an end to an insurance contract since the time of the payment is peculiarly of the essence of the contract.
• An insurer cannot treat a contract as valid for the purpose of collecting premiums and invalid for the purpose of indemnity. (Citing Insurance Law and Practice by John Alan Appleman)
• The foregoing findings are buttressed by Section 776 of the Insurance Code (PD 612), which now provides that no contract of insurance by an insurance company is valid and binding unless and until the premium thereof has been paid, notwithstanding any agreement to the contrary

Arce v. The Capital Insurance and Surety

• Unless premium is paid, an insurance contract does not take effect.
• Delgado (Capital Insurance & Surety Co., Inc. v. Delgado) was decided in the light of the Insurance Act before Sec. 72 was amended by the underscored portion. Prior to the Amendment, an insurance contract was effective even if the premium had not been paid so that an insurer was obligated to pay indemnity in case of loss and correlatively he had also the right to sue for payment of the premium. But the amendment to Sec. 72 has radically changed the legal regime in that unless the premium is paid there is no insurance.

Since the premiums have not been paid, the policies issued have lapsed. The insurance coverage did not go into effect or did not continue and the obligation of Philamgen as insurer ceased. Hence, for Philamgen which had no more liability under the lapsed and inexistent policies to demand, much less sue Valenzuela for the unpaid premiums would be the height of injustice and unfair dealing. In this instance, with the lapsing of the policies through the nonpayment of premiums by the insured there were no more insurance contracts to speak of.

RTC DECISION REINSTATED