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

Velasco v. Apostol

LAURA VELASCO and GRETA ACOSTA v. JUDGE SERGIO APOSTOL and MAHARLIKA INSURANCE

1989 / Regalado

FACTS

On 27 Nov 1973, around 230 PM, Laura Velasco and Greta Acosta were riding in Velasco’s Mercury car when an N/S taxicab driven by Dominador Santos [registered in the name of Alice Artuz, c/o Norberto Santos] crossed the center island towards their direction, and collided with their car at the left front part. The taxicab tried to return to its original lane, but was unable to climb the island. It backtracked, hitting again Velasco’s car in the left near portion, causing the latter's back portion to turn toward the center hitting a jeepney on its right, which was travelling along their side.

                Velasco and Acosta sued the taxicab driver and its registered owners, claiming actual, moral and exemplary damages plus attorney's fees. Maharlika Insurance was impleaded as a defendant in an amended complaint, with an allegation that the N/S taxicab was insured against third party liability for 20k with Maharlika at the time of the accident.

Maharlika claimed that there was no cause of action against it because at the time of the accident, the alleged insurance policy was not in force due to non-payment of the premium. It further averred that even if the taxicab had been insured, the complaint would still be premature since the policy provides that the insurer would be liable only when the insured becomes legally liable.

RTC ruled in favor of Velasco and Acosta, finding that the proximate cause of the accident was the taxicab driver’s negligence. However, Maharlika was exonerated on the ground that the policy was not in force for failure to pay the initial premium and for their concealment of a material fact. The payment was accepted by Maharlika without any knowledge that the risk insured against had already occurred since such fact was concealed by the insured and was not revealed to Maharlika.

The accident occurred on 27 Nov 1973 while the initial premium was paid only on 11 Dec 1973. Velasco and Acosta maintain that in spite of this late payment, the policy is binding because there was an implied agreement to grant a credit extension so as to make the policy effective. To them, the subsequent acceptance of the premium and delivery of the policy estops Maharlika from asserting that the policy is ineffective.

ISSUE & HOLDING

WON Maharlika Insurance is liable. NOT LIABLE. RTC JUDGMENT AFFIRMED.

RATIO

It should be noted that this controversy arose under the aegis of the old insurance law, Act No. 2427, as amended. The former insurance law, which applies to this case, provided that:

An insurer is entitled to the payment of premium as soon as the thing insured is exposed to the peril insured against, unless there is clear agreement to grant the insured credit extension of the premium due. No policy issued by an insurance company is valid and binding unless and until the premium thereof has been paid.

The insurance policy in question would be valid and binding notwithstanding the non-payment of the premium if there was a clear agreement to grant to the insured credit extension. Such agreement may be express or implied.

SC finds no cogent proof of any such implied agreement. Had there really been a credit extension, the insured would not have had any apprehension or hesitation to inform Maharlika at the time of or before the payment of the premium that an accident for which the insurer may be held liable had already happened. Under such circumstances, notice alone is necessary and the insured need not pay the premium because whatever premium may have been due may already be deducted upon the satisfaction of the loss under the policy. Velasco and Acosta failed to point out any other circumstances showing that prepayment of premium was not intended to be insisted upon. They have thus failed to discharge the burden of proving their allegation of the existence of the purported credit extension agreement.

                SC noted that in the present law, Section 77 of the Insurance Code of 1978 has deleted the clause "unless there is clear agreement to grant the insured credit extension of the premium due" which was involved in this controversy.

The fact withheld could not have influenced Maharlika in entering into the supposed contract or in estimating the character of the risk or in fixing the rate premium, because no such contract existed at the time of the accident. There was nothing to rescind at that point in time. What should be apparent from such actuations of the taxicab owner/s is the presence of bad faith on their part, a reprehensible disregard of the principle that insurance contracts are uberrimae fidae and demand the most abundant good faith. 

UCPB General Insurance v. Masagana Telamart (2001)

UCPB GENERAL INSURANCE [UCPB] v. MASAGANA TELAMART [Masagana]

2001 / Davide, Jr.

FACTS [SEE 1999 CASE DIGEST FOR THE OTHER FACTS]

CA disagreed with UCPB’s stand that Masagana’s tender of payment of the premiums on 13 July 1992 did not result in the renewal of the policies, having been made beyond the effective date of renewal as provided under Policy Condition No. 26:

Renewal Clause. -- Unless the company at least 45 days in advance of the end of the policy period mails or delivers to the assured at the address shown in the policy notice of its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of coverages, the assured shall be entitled to renew the policy upon payment of the premium due on the effective date of renewal.

The following facts have been established:

1.  For years, UCPB had been issuing fire policies to th Masagana, and these policies were annually renewed.

2.  UCPB had been granting Masagana a 60-90-day credit term within which to pay the premiums on the renewed policies.

3.  There was no valid notice of non-renewal of the policies, as there is no proof that the notice sent by ordinary mail was received by Masagana, and the copy allegedly sent to Zuellig was ever transmitted to Masagana.

4.  The premiums for the policies were paid by Masagana within the 60- 90-day credit term and were duly accepted and received by UCPB’s cashier.

ISSUE & HOLDING

WON IC 77 must be strictly applied to UCPB’s advantage despite its practice of granting a 60- to 90-day credit term for the payment of premiums. NO. MASAGANA WINS THIS TIME. 1999 DECISION SET ASIDE; CA DECISION AFFIRMED

RATIO

SEC. 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.

This was formerly Act 2427, Section 72:

SEC. 72.  An insurer is entitled to payment of premium as soon as the thing insured is exposed to the peril insured against, unless there is clear agreement to grant the insured credit extension of the premium due.  No policy issued by an insurance company is valid and binding unless and until the premium thereof has been paid. (Underscoring supplied)

IC 77 does not restate the portion of IC 72 expressly permitting an agreement to extend the period to pay the premium.  However, there are exceptions to IC 77.

1. In case of a life or industrial life policy whenever the grace period provision applies [Sec. 77]
2. Any acknowledgment of the receipt of premium is conclusive evidence of payment [Sec. 78]
3. If the parties have agreed to the payment in installments of the premium and partial payment has been made at the time of loss [Makati Tuscany Condominium v. CA]
4. The insurer may grant credit extension for the payment of the premium [Makati Tuscany Condominium] 
5. Estoppel

IC 77 merely precludes the parties from stipulating that the policy is valid even if 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. [Makati Tuscany Condominium v. CA]

ON EXCEPTION #4. If the insurer has granted the insured a credit term for the payment of the premium and loss occurs before the expiration of the term, recovery on the policy should be allowed even though the premium is paid after the loss but within the credit term.

It would be unjust and inequitable if recovery on the policy would not be permitted against UCPB, which had consistently granted a 60-90-day credit term for the payment of premiums despite its full awareness of IC 77.  Estoppel bars it from taking refuge under said section, since Masagana relied in good faith on such practice.  

UCPB General Insurance v. Masagana Telamart (1999)

UCPB GENERAL INSURANCE [UCPB] v. MASAGANA TELAMART [Masagana]

1999 / Pardo

FACTS

In 1991, UCPB issued 5 fire insurance policies covering Masagana Telamart’s various properties for the period from 22 May 1991 to 22 May 1992.

On March 1992 [~2 months before policy expiration], UCPB evaluated the policies and decided not to renew them upon expiration of their terms on 22 May 1992.  UCPB advised Masagana’s broker of its intention not to renew the policies. On April 1992 [~1 month before policy expiration], UCPB gave written notice to Masagana of the non-renewal of the policies. On June 1992 [policy already expired], Masagana’s property covered by 3 UCPB-issued policies was razed by fire.

On 13 July 1992, Masagana presented to UCPB’s cashier 5 manager's checks, representing premium for the renewal of the policies for another year.

It was only on the following day, 14 July 1992, when Masagana filed with UCPB a formal claim for indemnification of the insured property razed by fire. On the same day, UCPB returned the 5 manager's checks, and rejected Masagana’s claim since the policies had expired and were not renewed, and the fire occurred on 13 June 1992 (or before tender of premium payment).

            Masagana filed a civil complaint for recovery of the face value of the policies covering the insured property razed by fire. RTC ruled in favor of Masagana, as it found it to have complied with the obligation to pay the premium; hence, the replacement-renewal policy of these policies are effective and binding for another year [22 May 1992 – 22 May 1993].

            CA affirmed RTC, holding that following previous practice, Masagana was allowed a 60-90 day credit term for the renewal of its policies, and that the acceptance of the late premium payment suggested that payment could be made later.

ISSUE & HOLDING

WON the fire insurance policies had expired on 22 May 1992, or had been extended or renewed by an implied credit arrangement though actual payment of premium was tendered on a later date after the occurrence of the risk insured against [fire]. FIRE INSURANCE POLICIES HAD EXPIRED

RATIO

An insurance policy, other than life is not valid and binding until actual payment of the premium.  Any agreement to the contrary is void. The parties may not agree expressly or impliedly on the extension of credit or time to pay the premium and consider the policy binding before actual payment.

The case of Malayan Insurance v. Cruz-Arnaldo cited by the CA is not applicable. In that case, payment of the premium was made on before the occurrence of the fire.  In the present case, the payment of the premium for renewal of the policies was tendered a month after the fire occurred.  Masagana did not even give UCPB a notice of loss within a reasonable time after occurrence of the fire.

CA DECISION REVERSED