G.R.No.95546, 6 November 1992, 215 SCRA 462

FACTS:

In 1982, private respondent American Home Assurance Co. (AHAC), represented by American International Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany Condominium Corporation (TUSCANY) Insurance Policy on the latter’s building and premises, for a period beginning 1 March 1982 and ending 1 March 1983. The premium was paid on installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of which were accepted by private respondent.

The policy was renewed the following year and payments were made in the same manner.

On 1984, the policy was again renewed and petitioner made two installment payments, both accepted by private respondent, the first on 6 February 1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00. Thereafter, petitioner refused to pay the balance of the premium.

American Home Assurance Co.,consequently filed an action to recover the unpaid balance for Insurance Policy.

Petitioner explained that it discontinued the payment of premiums because the policy did not contain a credit clause in its favor. Petitioner further claimed that the policy was never binding and valid, and no risk attached to the policy. It then pleaded a counterclaim for P152,000.00 for the premiums already paid for 1984-85, and in its answer with amended counterclaim, sought the refund of P924,206.10 representing the premium payments for 1982-85.
The Trial Court dismissed the complaint and counterclaim. The Court of Appeals rendered a decision modifying the that of the trial court by ordering herein petitioner to pay the balance of the premiums due.

ISSUE:

Whether payment by installment of the premiums due on an insurance policy invalidates the contract of insurance, in view of Sec. 77 of P.D. 612, otherwise known as the Insurance Code, as amended, 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.

RULING:

The Supreme Court ruled that the subject policies are valid even if the premiums were paid on installments. The records clearly show that petitioner and private respondent intended subject insurance policies to be binding and effective notwithstanding the staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three (3) years, the insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the insurer’s intention to honor the policies it issued to petitioner. Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting and accepting the premiums, although paid on installments, and later deny liability on the lame excuse that the premiums were not prepared in full.
The Supreme Court sustained the decision of Court of Appeals that while Section 77 which states that prepayment of premiums is strictly required as a condition to the validity of the contract, It was 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.
Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid.
Section 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.
At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted.

*Case digest by Karen S. Tindugan, LLB-4, Andres Bonifacio Law School, SY 2018-2019