G.R. No. 102253, 2 June 1995, 244 SCRA 744

FACTS:

On January 16, 1984, plaintiff, Valenzuela Hardwood and Industrial Supply, Inc. entered into an agreement with the defendant Seven Brothers whereby the latter undertook to load on board its vessel M/V Seven Ambassador the former’s lauan round logs numbering 940 at the port of Maconacon, Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs, against loss and/or, damage with defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00 and the latter issued its Marine Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance policy to Mr. Victorio Chua.
On 25 January 1985, the said vessel M/V Seven Ambassador sank resulting in the loss of the plaintiffs insured logs.
On 30 January 1984, a check for P5,625.00 to cover payment of the premium and documentary stamps due on the policy was tendered to the insurer but was not accepted. Instead, the South Sea Surety and Insurance Co., Inc. cancelled the insurance policy it issued as of the date of inception for non-payment of the premium due in accordance with Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the payment of the proceeds of the policy but the latter denied liability under the policy. Plaintiff likewise filed a formal claim with defendant Seven Brothers Shipping Corporation for the value of the lost logs but the latter denied the claim.1
The trial court rendered judgment in favor of plaintiff Hardwood.
Court of Appeals affirmed the judgment of the trial court only against the insurance corporation and absolved the shipping entity from liability.
In this petition for review on certiorari brought by South Sea Surety and Insurance Co., Inc., argues that it likewise should have been freed from any liability to Hardwood. It faults the appellate court for having supposedly disregarded Section 77 of the insurance Code and (b) for holding Victorio Chua to have been an authorized representative of the insurer.

ISSUE:

Whether there is a valid contract of insurance between Valenzuela Hardwood and South Sea Security and Insurance Corp?
Whether Mr. Chua has acted as an agent of the surety company when he received the check for insurance premiums?

RULING:

The Supreme Court affirmed the decision of the Court of Appeals. The contract of insurance between Valenzuela Hardwood and South Sea Security and Insurance Corp. is valid as the insurance policy is considered paid when Mr. Chua receive the check as payment, the latter acting as agent by South Sea Security.

Undoubtedly, the payment of the premium is a condition precedent to, and essential for, the efficaciousness of the contract. The only two statutorily provided exceptions are (a) in case the insurance coverage relates to life or industrial life (health) insurance when a grace period applies and (b) when the insurer makes a written acknowledgment of the receipt of premium, this acknowledgment being declared by law to be then conclusive evidence of the premium payment (Secs. 77-78, Insurance Code).

It is therefore important to determine whether at the time of the loss, the premium was already paid as when on the plaintiff on January 24, 1984 gave the check in payment of the premium on the insurance policy to Mr. Victorio Chua.

Sec. 306. Which states that any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy of contract of insurance at the time of its issuance or delivery or which becomes due thereon.

When the appellant South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine cargo insurance policy for the plaintiffs logs, he is deemed to have been authorized by the South Sea Surety and Insurance Co., Inc. to receive the premium which is due on its behalf.

When therefore the insured logs were lost, the insured had already paid the premium to an agent of the South Sea Surety and Insurance Co., Inc., which is consequently liable to pay the insurance proceeds under the policy it issued to the insured.

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