Promissory Warranty: One Where The Insured Stipulates That Certain Facts or Conditions

G.
Warranties
Warranty - A statement or promise set forth in the policy itself or incorporated in it by

proper reference, the untruth or non-fulfillment of w/c in any respect and w/o reference to
whether the insurer was in fact prejudiced by such untruth or non-fulfillment, renders the
policy voidable by the insurer.
Different kinds of warranty:

1.) Affirmative (Sec. 68);
2.) Promissory (Sec. 72);
3.) Express (Sec. 67); or
4.) Implied (Sec. 67).
Express warranty An agreement contained in the policy or clearly incorporated

therein as part thereof whereby the insured stipulates that certain facts relating to the
risk are or shall be true or certain acts relating to the same subjects have been or shall
be done.
Implied warranty Warranty w/c from the very nature of the contract or from the
general tenor of the words, altho no express warranty is mentioned, is necessarily
embodied in the policy as part thereof and w/c binds the insured as tho expressed in the
contract.
Affirmative warranty One w/c asserts the existence of a fact or condition at the time
it is made.
Promissory warranty: One where the insured stipulates that certain facts or conditions
pertaining to the risk shall exist or that certain things w/ reference thereto shall be done
or
Promissory warranty commitment
Section 67 of Insurance Code

A warranty is either expressed or implied.

A warranty may relate to the past, the present, the future, or to any or all of these.

No particular form of words is necessary to create a warranty.

Without prejudice to section fifty-one, every express warranty, made at or before the
execution of a policy, must be contained in the policy itself, or in another instrument
signed by the insured and referred to in the policy as making a part of it.

A statement in a policy of matter relating to the person or thing insured, or to the risk, as
a fact, is an express warranty thereof

A statement in a policy which imparts that it is intended to do or not to do a thing which
materially affects the risk, is a warranty that such act or omission shall take place.

When, before the time arrives for the performance of a warranty relating to the future, a
loss insured against happens, or performance becomes unlawful at the place of the
contract, or impossible, the omission to fulfill the warranty does not avoid the policy.

The violation of a material warranty, or other material provision of a policy, on the part of
either party thereto, entitles the other to rescind.

A policy may declare that a violation of specified provisions thereof shall
avoid it, otherwise the breach of an immaterial provision does not avoid the policy.

A breach of warranty without fraud merely exonerates an insurer from the time that it
occurs, or where it is broken in its inception, prevents the policy from attaching to the
risk.
Performance become impossible, it is in an exception. Falsity and not fraud is the basis to
void a contract of insurance under warranty.
Note: May impose conditions; it must be happen before the contract become is binding.
STA. ANA V COMMERCIAL UNION LNSURANCE (1930)
Doctrine:
Without deciding whether notice of other insurance upon the same property must
be given in writing, or whether a verbal notice is sufficient to render an insurance valid
which requires such notice, whether oral or written, in the absolute absence of such
notice when it is one of the conditions specified in the fire insurance policy,
the policy is null and void.
Facts:
In 1923, Ulpiano Sta. Ana built a house of strong materials with a galvanized iron
roof in the municipality of Pasig. On the October 1, 1925, the plaintiff Santa Ana took out
a P3K fire insurance policy on the house in the Phoenix Assurance Company, and P6K
policy in the Guardian Assurance Company, Limited, for a period of one year from that
date until 4 o'clock in the afternoon of October 1, 1926, paying the respective premiums
of P97.50 and P196 to said companies through their duly authorized Philippine agent,
Kerr & Company.
On November 19, 1925, the plaintiff Santa Ana mortgaged said house to
the plaintiff Rafael Garcia for P5,000, for a period of two years, the contract being
drawn up as a retro sale for the sum of P5,000, and the policies issued by the
Phoenix Assurance Company and the Guardian Assurance Company, Limited,
were endorsed to the mortgagee, Rafael Garcia.
On December 16, 1925, the plaintiff Santa Ana reinsured said house with
the defendant companies, the Globe and Rutgers Fire Insurance Company of
New York, and the Commercial Union Assurance Company, Limited of London,
through their common agent duly authorized to represent them in the Philippine Islands,
the Pacific Commercial Company, for the amount of P3,000 each, paying the 90-peso
premium due upon each policy, which was to be effective for one year from the
aforementioned date until 4 o'clock in the afternoon of December 16, 1926.
On September 20, 1926, Santa Ana took out another insurance policy on the
house in question for P6,000 in the "Filipinas, Compania de Seguros, which issued the
one-year policy, upon receiving from said plaintiff the amount of P195 as premium
thereon.
About 3 o'clock in the morning of October 1, 1926, that is, twelve hours before
the expiration of the policies issued by the Phoenix Assurance Company and
the Guardian Assurance Company, Limited for P3,000 and P6,000 respectively,
a fire broke out in the insured house, where Santa Ana and his family lived,
starting in the ceiling of the living room where the plaintiff and his family were
at that time sleeping, consuming the dwelling and every combustible object
within, including jewelry and clothing. Santa Ana gave notice in due time of the loss
to each and every one of the companies in which he had insured the house and
demanded payment of the respective policies; the assurance companies refused
payment on the ground that the claim of P21,000 filed by him was fraudulent, being in
excess of the real value of the insured property; that none of said companies
had been informed of the existence of the other policies in the other
companies, and that the fire was intentional. Ulpiano Santa Ana therefore brought the
actions which gave rise to these cases.
Issue:
Whether or not the insurance companies are liable for the claims?
Held:
No, the insurance companies are not liable for the claims.
Ratio:
It appears that one of the conditions in the fire insurance policies was that no
other insurance should be admitted upon the property thereby assured
without the consent of said companies duly given by endorsement. The
insured, Ulpiano Sta. Ana, has not stated in the last two policies that his property had
previously been insured with the Phoenix and the Guardian Assurance Company, and still
less in the insurance policy of the "Compania Filipinas" taken out on September 20 of the
following year, 1926, nor has he obtained upon the first two policies the necessary
endorsements for the three subsequent insurance policies. It should be noted that clause
three of the "Filipinas" policy drawn up in Spanish, and the english policies issued
by the four other companies, provided that any outstanding insurance upon the
whole or a portion of the objects thereby assured must be declared by the insured in
writing and he must cause the company to add or insert it in the policy, without which
such policy shall be null and avoid, and the insured will not be entitled to indemnity in
case of loss.
Santa Ana maintains that he gave the required notice to all the insurance
companies; To Kerr & Company through their sub-agent, Mariano Morelos; to
the Pacific Commercial Company through their employee, Guillermo de Leon;
and to the "Filipinas, Compania de Seguros" through their agent, Juan Grey;
telling them he had paid for other insurance on the same property. But he has
been contradicted in this by all the persons mentioned, and this deprives his allegations
of probative force, especially considering that such advises or notices, so basic and
essential to the existence and validity of the policies, must be given in writing
as required in the noted attached to the four policies above mentioned, and
must be given in writing as required in the note attached to the four policies
above mentioned, and must be endorsed upon each of them, so that in case of
necessity, as in the instant one, when a loss occurs, the insured may clearly show that he
has fulfilled this indispensable requisite, since all companies, to which people apply for
insurance upon property already assured, have an interest in knowing what other
policies issued by other companies the insured already holds, for the purpose
of knowing just what interest the applicant has in the preservation of the
property, and the care and precaution to be taken for the prevention of loss.
Without deciding whether notice of other insurance upon the same
property must be given in writing, or whether a verbal notice is sufficient to
render an insurance valid which requires such notice, whether oral or written,
in the absolute absence of such notice when it is one of the conditions
specified in the fire insurance policy, the policy is null and void.
Dispositive:
Defendant insurance companies won.
ANG GIOK CHIP V. SPRINGFIELD FIRE AND MARINE INSURANCE COMPANY
Doctrine:
Section 65 of the Insurance Act and its counterpart, section 265 of the Civil Code
of California, will bear analysis as tested by reason and authority. The law says that every
express warranty must be "contained in the policy itself." The word "contained,"
according to the dictionaries, means "included," inclosed," "embraced," "comprehended,"
etc. When, therefore, the courts speak of a rider attached to the policy, and thus
"embodied" therein, or of a warranty "incorporated" in the policy, it is believed that the
phrase "contained in the policy itself" must necessarily include such rider and warranty.
As to the alternative relating to "another instrument," "instrument" as here used could
not mean a mere slip of paper like a rider, but something akin to the policy itself, which
in section 48 of the Insurance Act is defined as "The written instrument, in which a
contract of insurance is set forth." In California, every paper writing is not necessarily an
"instrument" within the statutory meaning of the term. The word "instrument has a well-
defined definition in California, and as used in the Codes invariably means some written
paper or instrument signed and delivered by one person to another, transferring the title
to, or giving a lien, on property, or giving a right to debt or duty. (Hoag vs. Howard
[1880], 55 Cal., 564; People vs. Fraser[1913], 137 Pac., 276.) In other words, the rider,
warranty F, is contained in the policy itself, because by the contract of insurance agreed
to by the parties it is made to form a part of the same, but is not another instrument
signed by the insured and referred to in the policy as forming a part of it.
Again, referring to the jurisprudence of California, another rule of insurance
adopted in that State is in point. It is admitted that the policy before us was accepted by
the plaintiff. The receipt of this policy by the insured without objection binds both the
acceptor and the insured to the terms thereof. The insured may not thereafter be heard
to say that he did not read the policy or know its terms, since it is his duty to read his
policy and it will be assumed that he did so. In California Jurisprudence, vol. 14, p. 427,
from which these statements are taken with citations to California decisions, it is added
that it has been held that where the holder of a policy discovers a mistake made by
himself and the local agent in attaching the wrong rider to his application, elects to retain
the policy issued to him, and neither requests the issuance of a different one nor offers to
pay the premium requisite to insure against the risk which he believe the rider to cover,
he thereby accepts the policy.
Facts:
Ang Giok Chip doing business under the name and style of Hua Bee Kong Si was
formerly the owner of a warehouse situated at No. 643 Calle Reina Regente, City of
Manila. The contents of the warehouse were insured with the three insurance companies
for the total sum of P60,000. One insurance policy, in the amount of P10,000, was taken
out with the Springfield Fire & Marine Insurance Company. The warehouse was destroyed
by fire on January 11, 1928, while the policy issued by the latter company was in force.
Predicated on this policy the plaintiff instituted action in the Court of First Instance
of Manila against the defendant to recover a proportional part of the loss coming to
P8,170.59. Four special defenses were interposed on behalf of the insurance company,
one being planted on a violation of warranty F fixing the amount of hazardous goods
which might be stored in the insured building. The trial judge in his decision found
against the insurance company on all points, and gave judgment in favor of the plaintiff
for the sum of P8,188.74. From this judgment the insurance company has appealed, and
it is to the first and fourth errors assigned that we would address particular attention.
Issue:
Whether or not the warranty referred to in the policy as forming part of the
contract of insurance and in the form of a rider to the insurance policy, is null and void
because not complying with the Philippine Insurance Act?
Held:
No, the warranty referred to in the policy as forming part of the contract of
insurance and in the form of a rider to the insurance policy, is not null and void because
not complying with the Philippine Insurance Act.
Ratio:
We are given to understand, and there is no indication to the contrary, that we
have here a standard insurance policy. We are further given to understand, and there is
no indication to the contrary, that the issuance of the policy in this case with its attached
rider conforms to well establish practice in the Philippines and elsewhere. We are further
given to understand, and there is no indication to the contrary, that there are no less
than sixty-nine insurance companies doing business in the Philippine Islands with
outstanding policies more or less similar to the one involved in this case, and that to
nullify such policies would place an unnecessary hindrance in the transaction of
insurance business in the Philippines. These are matters of public policy. We cannot
believe that it was ever the legislative intention to insert in the Philippine Law on
Insurance an oddity, an incongruity, entirely out of harmony with the law as found in
other jurisdiction, and destructive of good business practice.
We have studied this case carefully and having done so have reached the definite
conclusion that warranty F, a rider attached to the face of the insurance policy, and
referred to in contract of insurance, is valid and sufficient under section 65 of the
Insurance Act. Accordingly, sustaining the first and fourth errors assigned, and it being
unnecessary to discuss the remaining errors, the result will be to reverse the judgment
appealed from and to order the dismissal of the complaint, without special
pronouncement as to costs in either instance.
Dispositive:
The judgment appealed from is reversed. The warranty set forth in the policy is
deemed valid.
YOUNG V. MIDLAND TEXTILE (1915)
Doctrine:
If the insured cannot bring himself within the conditions of the policy, he is not
entitled to recover for the loss. The terms of the policy constitute the measure of the
insurer's liability, and in order to recover the insured must show himself within
those terms; and if it appears that the contract has been terminated by a violation, on
the part of the insured, of its conditions, then there can be no right of recovery. The
compliance of the insured with the terms of the contract is a condition
precedent to the right of recovery. If the insured has violated or failed to perform the
conditions of the contract, and such a violation or want of performance has not been
waived by the insurer, then the insured cannot recover.
Facts:
Plaintiff conducted a candy and fruit store in the city of Manila, and occupied a
building as a residence and bodega. Subsequently, defendant, entered into a contract of
insurance with the plaintiff by the terms of which the defendant company, upon certain
conditions, promised to pay to the plaintiff the sum of P3,000, in case said
residence and bodega and contends should be destroyed by fire.
On the conditions of said contract of insurance is found "warranty
B" and is as follows: "Waranty B. It is hereby declared and agreed that
during the pendency of this policy no hazardous goods stored or kept
for sale, and no hazardous trade or process be carried on, in the
building to which this insurance applies, or in any building
connected therewith."
Plaintiff placed in said residence and bodega three boxes, which belonged to him
and which were filled with fireworks. Some time later, said residence and bodega and
the contents thereof were partially destroyed by fire.
Said fireworks had been given to the plaintiff by the former owner of the Luneta
Candy Store; that the plaintiff intended to use the same in the celebration of the Chinese
new year; that the authorities of the city of Manila had prohibited the use of fireworks on
said occasion, and that the plaintiff then placed the same in said bodega. Both of the
parties agree that said fireworks come within the phrase "hazardous goods," mentioned
in said "warranty B" of the policy and that the fireworks were found in a part of the
building not destroyed by the fire; that they in no way contributed to the fire, or to the
loss occasioned thereby.
Issue:
Whether or not the placing of said fireworks in the building insured, under the
conditions above enumerated, they being "hazardous goods," is a violation of the terms
of the contract of insurance and especially of "warranty B."
Held:
Yes, the placing of said fireworks in the building insured, under the conditions
above enumerated, they being "hazardous goods," is a violation of the terms of the
contract of insurance and especially of "warranty B."
Ratio:
"Warranty B" provides that "no hazardous goods be stored" in the building
insured. It is admitted by both parties that the fireworks are "hazardous goods." The
defendant alleged that they were "stored." The plaintiff contends that under all the facts
and circumstances of the case, they were not "stored" in said building, and that the
placing of them in the building was not a violation of the terms of the contract. Both the
plaintiff and defendant agree that if they were "hazardous goods," and if they were
"stored," then the act of the plaintiff was a violation of the terms of the contract of
insurance and the defendant was justified in repudiating its liability thereunder.
The case calls for an interpretation of the term "stored" as used in said "warranty
B." While the word "stored" has been variously defined by authors, as well as by courts,
We have found no case exactly analogous to the present. The plaintiff says that he
placed said fireworks in the bodega after he had been notified that he could not use them
on the Chinese new year, in order that he might later send them to a friend in the
provinces. Whether a particular article is "stored" or not must, in some degree, depend
upon the intention of the parties.
The author of the Century Dictionary defines the world "store" to be a deposit in a store
or warehouse for preservation or safe keeping; or place in a warehouse or other place of
deposit for safe keeping. See also the definitions given by the Standard Dictionary, to the
same effect.
Said definitions, of course, do not include a deposit in a store, in small quantities,
for daily use. "Daily use" precludes the idea of a deposit for preservation or safe keeping,
as well as a deposit for future consumption, or safe keeping.
In the present case no claim is made that the "hazardous goods" were placed in
the bodega for present or daily use. It is admitted that they were placed in the bodega
"for future use," or for future consumption, or for safekeeping. The plaintiff makes no
claim that he deposited them there with any other idea than "for future use" for future
consumption. It seems clear to us that the "hazardous goods" in question were "stored"
in the bodega, as that word is generally defined.
If the insured cannot bring himself within the conditions of the policy, he is not
entitled to recover for the loss. The terms of the policy constitute the measure of the
insurer's liability, and in order to recover the insured must show himself within those
terms; and if it appears that the contract has been terminated by a violation, on the part
of the insured, of its conditions, then there can be no right of recovery. The compliance of
the insured with the terms of the contract is a condition precedent to the right of
recovery. If the insured has violated or failed to perform the conditions of the contract,
and such a violation or want of performance has not been waived by the insurer, then the
insured cannot recover.
The plaintiff paid a premium based upon the risk at the time the policy was
issued. Certainly it cannot be denied that the placing of the firecrackers in the building
insured increased the risk. The plaintiff had not paid a premium based upon the
increased risk, neither had the defendant issued a policy upon the theory of a different
risk.
Dispositive:
The hazardous goods were stored and thus a violation of the terms of the policy.
Defendant won.
AMERICAN HOME ASSURANCE VS TANTUCO ENTERPRISE
Doctrine:
Warranties strictly construed against the insurer, but they should,
likewise, by themselves be reasonably interpreted. That reasonableness is to be
ascertained in light of the factual conditions prevailing in each case
Facts:
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and
refining industry. It owns two oil mills, which were separately covered by fire
insurance policies, issued by petitioner American Home Assurance Co., Philippine
Branch. Official receipts indicating payment for the full amount of the premium were
issued by the petitioner's agent.
A fire that broke out in the early morning, which gutted and consumed the new oil
mill.
Respondent immediately notified the petitioner of the incident but petitioner rejected
respondent's claim for the insurance proceeds on the ground that no policy was
issued by it covering the burned oil mill. It stated that the description of the insured
establishment referred to another building thus: "Our policy extend insurance
coverage to your oil mill under Building No. 5, whilst the affected oil mill was
under Building No. 14.
RTC ruled in favor of respondent Tantoco, CA affirmed in toto the decision of the
RTC
Issue:
Whether or not respondent violated the express terms of the Fire Extinguishing
Appliances Warranty?
Held:
No, the respondent did not violate the express terms of the Fire Extinguishing
Appliances Warranty
Ratio:
"WARRANTED that during the currency of this Policy, Fire Extinguishing Appliances
as mentioned below shall be maintained in efficient working order on the premises to
which insurance applies:
- PORTABLE EXTINGUISHERS
- INTERNAL HYDRANTS
- EXTERNAL HYDRANTS
- FIRE PUMP
- 24-HOUR SECURITY SERVICES
BREACH of this warranty shall render this policy null and void and the
Company shall no longer be liable for any loss which may occur."Petitioner argues
that the warranty clearly obligates the insured to maintain all the appliances specified
therein. The breach occurred when the respondent failed to install internal fire
hydrants inside the burned building as warranted. This fact was admitted by the
oil mill's expeller operator.
Supreme Court agrees with the appellate court's conclusion that the
aforementioned warranty did not require respondent to provide for all the fire
extinguishing appliances enumerated therein. Additionally, the Supreme Court find
that neither did it require that the appliances are restricted to those mentioned in the
warranty. In other words, what the warranty mandates is that respondent should
maintain in efficient working condition within the premises of the insured
property, fire fighting equipments such as, but not limited to, those identified
in the list, which will serve as the oil mill's first line of defense in case any part
of it bursts into flame.
It ought to be remembered that not only are warranties strictly construed against
the insurer, but they should, likewise, by themselves be reasonably interpreted. That
reasonableness is to be ascertained in light of the factual conditions prevailing in each
case. Here, we find that there is no more need for an internal hydrant considering
that inside the burned building were: (1) numerous portable fire extinguishers, (2) an
emergency fire engine, and (3) a fire hose which has a connection to one of the external
hydrants.
QUA CHEE GAN VS LAW UNION AND ROCK INSURANCE CO., LTD.
Doctrine:
Insurer is barred by estoppel to claim violation of the warranty where knowing
fully well of the deficiencies demanded in the warranty, and nevertheless issued the
policies subject to such warranty and received the corresponding premiums.
Even though there are printed prohibitions against keeping certain articles on the
insured premises the policy will not be avoided by a violation of these prohibitions, if the
prohibited articles are necessary or in customary use in carrying on the trade or business
conducted on the premises.
Facts:
Plaintiff-appellee owned four warehouses or bodegas used for the storage
of stocks of copra and of hemp, baled and loose, in which the appellee dealth
extensively. They had been, with their contents, insured with the defendant Company,
and the lose made payable to the Philippine National Bank as mortgage of the
hemp and crops, to the extent of its interest.
Fire of undetermined origin that broke out and lasted almost one week, gutted
and completely destroyed Bodegas Nos. 1, 2 and 4, with the merchandise stored therein.
Plaintiff-appellee informed the insurer by telegram on the same day; and on the
next day, the fire adjusters engaged by appellant insurance company arrived and
proceeded to examine and photograph the premises, pored over the books of the insured
and conducted an extensive investigation. The plaintiff having submitted the
corresponding fire claims, the Insurance Company resisted payment, claiming violation
of warranties and conditions, filing of fraudulent claims, and that the fire had
been deliberately caused by the insured or by other persons in connivance with him.
Que Chee Gan, with his brother, Qua Chee Pao, and some employees of his,
were indicted and tried for the crime of arson, it being claimed that they had set
fire to the destroyed warehouses to collect the insurance. They were, however,
acquitted by the trial court.
The civil suit to collect the insurance money proceeded to its trial and termination
in the Court below, with the result noted at the start of this opinion. The Philippine
National Bank's complaint in intervention was dismissed because the appellee had
managed to pay his indebtedness to the Bank during the pendecy of the suit,
and despite the fire losses. The insurance company alleges that the trial court should
have held that the policies were avoided for breach of warranty, specifically the one
appearing on a rider pasted on the face of the policies. These riders were attached, and
the pertinent portions read as follows:
Hydrants in the compound, not less in number than one for each
150 feet of external wall measurement of building, protected, with not less
than 100 feet of hose piping and nozzles for every two hydrants kept
under cover in convenient places, the hydrants being supplied with water
pressure by a pumping engine, or from some other source, capable of
discharging at the rate of not less than 200 gallons of water per minute
into the upper story of the highest building protected, and a trained
brigade of not less than 20 men to work the same.'
It is argued that since the bodegas insured had an external wall perimeter of 500
meters or 1,640 feet, the appellee should have eleven (11) fire hydrants in the
compound, and that he actually had only two (2), with a further pair nearby, belonging to
the municipality of Tabaco.
Issue:
1. Whether or not the appellant is barred by waiver to claim violation of the so-called
fire hydrants warranty?
2. Whether or not warranty against storage of gasoline was violated?
Held:
1. Yes, the appellant is barred by waiver to claim violation of the so-called fire
hydrants warranty.
2. No, warranty against storage of gasoline was not violated.
Ratio:
1. We are in agreement with the trial Court that the appellant is barred by waiver
(or rather estoppel) to claim violation of the so-called fire hydrants warranty, for the
reason that knowing fully all that the number of hydrants demanded therein
never existed from the very beginning, the appellant nevertheless issued the
policies in question subject to such warranty, and received the corresponding
premiums. It would be perilously close to conniving at fraud upon the insured to allow
appellant to claims now as void ab initio the policies that it had issued to the plaintiff
without warning of their fatal defect, of which it was informed, and after it had misled the
defendant into believing that the policies were effective.
The insurance company was aware, even before the policies were
issued, that in the premises insured there were only two fire hydrants installed
by Qua Chee Gan and two others nearby, owned by the municipality of Tabaco,
contrary to the requirements of the warranty in question. It is usually held that
where the insurer, at the time of the issuance of a policy of insurance, has knowledge of
existing facts which, if insisted on, would invalidate the contract from its very inception,
such knowledge constitutes a waiver of conditions in the contract inconsistent with the
facts, and the insurer is stopped thereafter from asserting the breach of such conditions.
The law is charitable enough to assume, in the absence of any showing to the contrary,
that an insurance company intends to executed a valid contract in return for the
premium received; and when the policy contains a condition which renders it voidable at
its inception, and this result is known to the insurer, it will be presumed to have intended
to waive the conditions and to execute a binding contract, rather than to have deceived
the insured into thinking he is insured when in fact he is not, and to have taken his
money without consideration. The inequitableness of the conduct observed by the
insurance company in this case is heightened by the fact that after the insured had
incurred the expense of installing the two hydrants, the company collected the premiums
and issued him a policy so worded that it gave the insured a discount much smaller than
that he was normally entitled to. The alleged violation of the warranty of 100 feet of fire
hose for every two hydrants, must be equally rejected, since the appellant's argument
thereon is based on the assumption that the insured was bound to maintain no less than
eleven hydrants (one per 150 feet of wall), which requirement appellant is estopped from
enforcing. The supposed breach of the water pressure condition is made to rest on the
testimony of witness Serra, that the water supply could fill a 5-gallon can in 3 seconds;
appellant thereupon inferring that the maximum quantity obtainable from the hydrants
was 100 gallons a minute, when the warranty called for 200 gallons a minute. The
transcript shows, however, that Serra repeatedly refused and professed
inability to estimate the rate of discharge of the water, and only gave the "5-
gallon per 3-second" rate because the insistence of appellant's counsel forced
the witness to hazard a guess. Obviously, the testimony is worthless and insufficient
to establish the violation claimed, especially since the burden of its proof lay on
appellant.
2. Under the second assignment of error, appellant insurance company avers, that
the insured violated the "Hemp Warranty" provisions, against the storage of gasoline,
since appellee admitted that there were 36 cans (latas) of gasoline in the building
designed as "Bodega No. 2" that was a separate structure not affected by the fire. It is
well to note that gasoline is not specifically mentioned among the prohibited
articles listed in the so-called "hemp warranty." The cause relied upon by the
insurer speaks of "oils (animal and/or vegetable and/or mineral and/or their
liquid products having a flash point below 3000 Fahrenheit", and is decidedly
ambiguous and uncertain; for in ordinary parlance, "Oils" mean "lubricants"
and not gasoline or kerosene. And how many insured, it may well be wondered, are in
a position to understand or determine "flash point below 0030 Fahrenheit. Here, again, by
reason of the exclusive control of the insurance company over the terms and phraseology
of the contract, the ambiguity must be held strictly against the insurer and liberally in
favor of the insured, especially to avoid a forfeiture. Insurance is, in its nature, complex
and difficult for the layman to understand.
We see no reason why the prohibition of keeping gasoline in the premises could
not be expressed clearly and unmistakably, in the language and terms that the general
public can readily understand.
Another point that is in favor of the insured is that the gasoline kept in Bodega No.
2 was only incidental to his business, being no more than a customary 2 day's supply for
the five or six motor vehicles used for transporting of the stored merchandise. "It is well
settled that the keeping of inflammable oils on the premises though prohibited by the
policy does not void it if such keeping is incidental to the business."; and "according to
the weight of authority, even though there are printed prohibitions against keeping
certain articles on the insured premises the policy will not be avoided by a violation of
these prohibitions, if the prohibited articles are necessary or in customary use in carrying
on the trade or business conducted on the premises." It should also be noted that the
"Hemp Warranty" forbade storage only "in the building to which this insurance
applies and/or in any building communicating therewith", and it is undisputed
that no gasoline was stored in the burned bodegas, and that "Bodega No. 2"
which was not burned and where the gasoline was found, stood isolated from
the other insured bodegas.
Dispositive:
We find no reversible error in the judgment appealed from, wherefore the smae is hereby
affirmed. Costs against the appellant. So ordered.
FIELDMENS INSURANCE ANCE COMPANY vs. SONGCO
Doctrine:
Ambiguities or obscurities must be strictly interpreted against the party that
caused them, the 'memo of warranty' invoked bars from questioning and estopped when
the conditions are impossible to comply with under the existing conditions at that time
and 'inconsistent with the known facts. The insurer 'is estopped from asserting breach of
such conditions.
Facts:
Federico Songco, a man of scant education being only a first grader, owned a
private. On September 15, 1960, as such private vehicle owner, he was induced by
Fieldmen's Insurance Company Pampanga agent Benjamin Sambat to apply for a
Common Carrier's Liability Insurance Policy covering his motor vehicle. Upon paying an
annual premium, defendant Fieldmen's Insurance Company, Inc. issued on September
19, 1960, Common Carriers Accident Insurance Policy, the duration of which will be for
one (1) year. The policy was renewed by extending the period of effectivity. During the
effectivity of the renewed policy, the insured vehicle while being driven by Rodolfo
Songco, a duly licensed driver and son of Federico (the vehicle owner) collided with a car
in the municipality of Calumpit, province of Bulacan, as a result of which mishap Federico
Songco (father) and Rodolfo Songco (son) died, Carlos Songco (another son), the latter's
wife, Angelita Songco, and a family friend by the name of Jose Manuel sustained physical
injuries of varying degree.
It was further shown according to the decision of respondent Court of Appeals:
"Amor Songco, 42-year-old son of deceased Federico Songco, testifying as witness,
declared that when insurance agent Benjamin Sambat was inducing his father to insure
his vehicle, he butted in saying: 'That cannot be, Mr. Sambat, because our vehicle is an
"owner" private vehicle and not for passengers,' to which agent Sambat replied: 'whether
our vehicle was an "owner" type or for passengers it could be insured because their
company is not owned by the Government and the Government has nothing to do with
their company. So they could do what they please whenever they believe a vehicle is
insurable.
Petitioner Fieldmen's Insurance Co., Inc., was not allowed to escape liability by the
lower courts under a common carrier insurance policy on the pretext that what was
insured, not once but twice, was a private vehicle and not a common carrier, the policy
being issued upon the insistence of its agent who discounted fears of the insured that his
privately owned vehicle might not fall within its terms, the insured moreover being "a
man of scant education," finishing only the first grade.
Issue:
Whether or not Fieldmens Insurance Co. may raise breach of warranty and
condition in policy as defense, so as to escape liability?
Held:
NO. Fieldmens Insurance Co. cannot raise breach of warranty and condition in
policy as defense, so as to escape liability.
Ratio
As much, if not much more so than the Qua Chee Gan decision, this is a case
where the doctrine of estoppel undeniably calls for application. After petitioner
Fieldmen's Insurance Co., Inc. had led the insured Federico Songco to believe that he
could qualify under the common carrier liability insurance policy, and to enter into
contract of insurance paying the premiums due, it could not, thereafter, in any litigation
arising out of such representation, be permitted to change its stand to the detriment of
the heirs of the insured. As estoppel is primarily based on the doctrine of good faith and
the avoidance of harm that will befall the innocent party due to its injurious reliance, the
failure to apply it in this case would result in a gross travesty of justice.
That is all that needs be said insofar as the first alleged error of respondent Court
of Appeals is concerned, petitioner being adamant in its far-from-reasonable plea that
estoppel could not be invoked by the heirs of the insured as a bar to the alleged breach
of warranty and condition in the policy. lt would now rely on the fact that the insured
owned a private vehicle, not a common carrier, something which it knew all along when
not once but twice its agent, no doubt without any objection in its part, exerted the
utmost pressure on the insured, a man of scant education, to enter into such a contract.
Nor is there any merit to the second alleged error of respondent Court that no
legal liability was incurred under the policy by petitioner. Why liability under the terms of
the policy20
was inescapable was set forth in the decision of respondent Court of Appeals. Thus:
"Since some of the conditions contained in the policy issued by the defendant-appellant
were impossible to comply with under the existing conditions at the time and
'inconsistent with the known facts,' the insurer 'is estopped from asserting breach of such
conditions.
Even if it be assumed that there was an ambiguity, an excerpt from the Qua Chee
Gan decision would reveal anew the weakness of petitioner's contention. Thus:
"Moreover, taking into account the well known rule that ambiguities or obscurities must
be strictly interpreted against the party that caused them, the 'memo of warranty'
invoked by appellant bars the latter from questioning the existence of the appliances
called for in the insured premises, since its initial expression, 'the undernoted appliances
for the extinction of fire being kept on the premises insured hereby, ... it is hereby
warranted ...,' admits of interpretation as an admission of the existence of such
appliances which appellant cannot now contradict, should the parol evidence rule apply.
Dispositive:
Respondents won. Petitioner is held liable and was considered estopped.
PIONEER V YAP
Doctrine:
And considering the terms of the policy which required the insured to declare
other insurances, the statement in question must be deemed to be a statement
(warranty) binding on both insurer and insured, that there were no other insurance on the
property. ...
The annotation then, must be deemed to be a warranty that the property was not
insured by any other policy. Violation thereof entitled the insurer to rescind. (Sec. 69,
Insurance Act.) Such misrepresentation is fatal in the light of our views in Santa Ana vs.
Commercial Union Assurance Company, Ltd., 55 Phil. 329. The materiality of non-
disclosure of other insurance policies is not open to doubt.
Furthermore, even if the annotations were overlooked the defendant insurer would
still be free from liability because there is no question that the policy issued by General
Indemnity has not been stated in nor endorsed on Policy No. 471 of defendant. And as
stipulated in the above-quoted provisions of such policy "all benefit under this policy shall
be forfeited
Facts:
Respondent Oliva Yap was the owner of a store in a two-storey building where she
sold shopping bags and footwear. Chua Soon Poon, her son-in-law, was in charge of the
store. Yap took out Respondent Oliva Yap was the owner of a store in a two-storey
building where she sold shopping bags and footwear. Chua Soon Poon, her son-in-law,
was in charge of the store. Yap took out a Fire Insurance Policy No. 4216 from Pioneer
Insurance with a value of P25,000.00 covering her stocks, office furniture, fixtures and
fittings.Among the conditions in the policy executed by the parties are the following:
unless such notice be given and the particulars of such insurance or
insurances be stated in, or endorsed on this Policy by or on behalf of the
Company before the occurrence of any loss or damage, all benefits under
this Policy shall be forfeited Any false declaration or breach or this
condition will render this policy null and void. Another insurance policy for
P20,000.00 issued by Great American covering the same properties. The
endorsement recognized co-insurance by Northwest for the same value.
Oliva Yap took out another fire insurance policy for P20,000.00 covering the
same properties from the Federal Insurance Company, Inc., which was
procured without notice to and the written consent of Pioneer.
A fire broke out in the building, and the store was burned. Yap filed an insurance
claim, but the same was denied for a breach.Oliva Yap filed a case for payment of the
face value of her fire insurance policy. The insurance company refused to pay because
she never informed Pioneer of another insurer. The trial court decided in favor of Yap. The
CA affirmed.
Issue:
Whether or not petitioner should be absolved from liability on the Pioneeer policy
on account of any violation of the co-insurance clause?
Held:
No, petitioner should be not be absolved from liability on the Pioneeer policy on
account of any violation of the co-insurance clause .
Ratio:
There was violation. The insurance policy for P20,000.00 issued by the Great
American, ceased to be recognized by them as a co-insurance policy. The endorsement
shows the clear intention of the parties to recognize on the date the endorsement was
made, the existence of only one co-insurance, the Northwest one. The finding of the
Court of Appeals that the Great American Insurance policy was substituted by the Federal
Insurance policy is indeed contrary to said stipulation.Other insurance without the
consent of Pioneer would avoid the contract. It required no affirmative act of election on
the part of the company to make operative the clause avoiding the contract, wherever
the specified conditions should occur. Its obligations ceased, unless, being informed of
the fact, it consented to the additional insurance. The validity of a clause in a fire
insurance policy to the effect that the procurement of additional insurance without the
consent of the insurer renders the policy void is in American jurisprudence.Milwaukee
Mechanids' Lumber Co., vs. Gibson- "The rule in this state and practically all of the states
is to the effect that a clause in a policy to the effect that the procurement of additional
insurance without the consent of the insurer renders the policy void is a valid provision.
In this jurisdiction, General Insurance & Surety Corporation vs. Ng Hua- The
annotation then, must be deemed to be a warranty that the property was not insured by
any other policy. Violation thereof entitled the insurer to rescind. Furthermore, even if the
annotations were overlooked the defendant insurer would still be free from liability
because there is no question that the policy issued by General Indemnity has not been
stated in nor endorsed on Policy No. 471 of defendant. The obvious purpose of the
aforesaid requirement in the policy is to prevent over-insurance and thus avert
the perpetration of fraud where a fire would be profitable to the insured.
Dispositive:
Insurance Pioneer Won
Prudential Guarantee v Trans Asia (2006)
Doctrine:
A warranty is a statement or promise set forth in the policy, or by reference
incorporated therein, the untruth or non-fulfillment of which in any respect, and without
reference to whether the insurer was in fact prejudiced by such untruth or non-
fulfillment, renders the policy voidable by the insurer. However it must be first duly
proven by the one who alleges that there was a breach of warranty.
Facts:
TRANS-ASIA is the owner of the vessel M/V Asia Korea. In consideration of
payment of premiums, PRUDENTIAL insured M/V Asia Korea for loss/damage of the hull
and machinery arising from perils, inter alia, of fire and explosion for the sum of P40
Million, beginning from the period of July 1, 1993 up to July 1, 1994.
On October 25, 1993, while the policy was in force, a fire broke out while M/V Asia
Korea was undergoing repairs at the port of Cebu. On October 26, 1993 TRANS-ASIA filed
its notice of claim for damage sustained by the vessel evidenced by a letter/formal claim.
TRANS-ASIA reserved its right to subsequently notify PRUDENTIAL as to the full amount of
the claim upon final survey and determination by average adjuster Richard Hogg
International (Phil.) of the damage sustained by reason of fire.
TRANS-ASIA executed a document denominated "Loan and Trust receipt", a
portion of which states that Received from Prudential Guarantee and Assurance, Inc.,
the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan without interest under
Policy No. MH 93/1353 [sic], repayable only in the event and to the extent that any net
recovery is made by Trans-Asia Shipping Corporation, from any person or persons,
corporation or corporations, or other parties, on account of loss by any casualty for which
they may be liable occasioned by the 25 October 1993: Fire on Board."
PRUDENTIAL later on denied Trans-Asias claim in stated in a letter that "After a
careful review and evaluation of your claim arising from the above-captioned incident, it
has been ascertained that you are in breach of policy conditions, among them
"WARRANTED VESSEL CLASSED AND CLASS MAINTAINED". Accordingly, we regret to
advise that your claim is not compensable and hereby DENIED." and asked for the return
of the 3,000,000.
TRANS-ASIA filed a Complaint for Sum of Money against PRUDENTIAL with the RTC
of Cebu City, wherein TRANS-ASIA sought the amount of P8,395,072.26 from
PRUDENTIAL, alleging that the same represents the balance of the indemnity due upon
the insurance policy in the total amount of P11,395,072.26. TRANS-ASIA similarly sought
interest at 42% per annum citing Section 243 of Presidential Decreee No. 1460, otherwise
known as the "Insurance Code," as amended.
PRUDENTIAL denied the material allegations of the Complaint and interposed the
defense that TRANS-ASIA breached insurance policy conditions, in particular:
PRUDENTIAL posits that TRANS-ASIA violated an express and material warranty in the
subject insurance contract, i.e., Marine Insurance Policy No. MH93/1363, specifically
Warranty Clause No. 5 thereof, which stipulates that the insured vessel, "M/V ASIA
KOREA" is required to be CLASSED AND CLASS MAINTAINED. According to
PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire,
"M/V ASIA KOREA" was in violation of the warranty as it was not CLASSED AND
CLASS MAINTAINED. PRUDENTIAL submits that Warranty Clause No. 5 was a condition
precedent to the recovery of TRANS-ASIA under the policy, the violation of which entitled
PRUDENTIAL to rescind the contract under Sec. 74 of the Insurance Code. By way of a
counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it allegedly
advanced to TRANS-ASIA by way of a loan without interest and without prejudice to the
final evaluation of the claim, including the amounts of P500,000.00, for survey fees and
P200,000.00, representing attorneys fees.
Trial court ruled in favor of Prudential. It ruled that a determination of the parties
liabilities hinged on whether TRANS-ASIA violated and breached the policy conditions on
WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. It interpreted the provision to
mean that TRANS-ASIA is required to maintain the vessel at a certain class at all times
pertinent during the life of the policy. According to the court a quo, TRANS-ASIA failed to
prove compliance of the terms of the warranty, the violation thereof entitled PRUDENTIAL
to rescind the contract.
The Court of Appeals reversed the decision. It ruled that PRUDENTIAL, as the party
asserting the non-compensability of the loss had the burden of proof to show that TRANS-
ASIA breached the warranty, which burden it failed to discharge. PRUDENTIAL cannot rely
on the lack of certification to the effect that TRANS-ASIA was CLASSED AND CLASS
MAINTAINED as its sole basis for reaching the conclusion that the warranty was breached.
It opined that the lack of a certification does not necessarily mean that the warranty was
breached by TRANS-ASIA. Instead, it considered PRUDENTIALs admission that at the time
the insurance contract was entered into between the parties, the vessel was properly
classed by Bureau Veritas, a classification society recognized by the industry. It similarly
gave weight to the fact that it was the responsibility of Richards Hogg International
(Phils.) Inc., the average adjuster hired by PRUDENTIAL, to secure a copy of such
certification to support its conclusion that mere absence of a certification does not
warrant denial of TRANS-ASIAs claim under the insurance policy.
Issue:
Whether or not Trans-Asia breached the warranty stated in the insurance policy,
thus absolving Prudential from paying Trans-Asia?
Held:
No, Trans-Asia did not breach the warranty stated in the insurance policy, thus
absolving Prudential from paying Trans-Asia.
Ratio
As found by the Court of Appeals and as supported by the records, Bureau Veritas
is a classification society recognized in the marine industry. As it is undisputed that
TRANS-ASIA was properly classed at the time the contract of insurance was
entered into, thus, it becomes incumbent upon PRUDENTIAL to show evidence
that the status of TRANS-ASIA as being properly CLASSED by Bureau Veritas
had shifted in violation of the warranty. Unfortunately, PRUDENTIAL failed to
support the allegation.
The lack of a certification in PRUDENTIALs records to the effect that TRANS-ASIAs
"M/V Asia Korea" was CLASSED AND CLASS MAINTAINED at the time of the occurrence of
the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact breached the
warranty contained in the policy.
It was likewise the responsibility of the average adjuster, Richards Hogg
International (Phils.), Inc., to secure a copy of such certification, and the alleged breach
of TRANS-ASIA cannot be gleaned from the average adjusters survey report, or
adjustment of particular average per "M/V Asia Korea" of the 25 October 1993 fire on
board.
The Supreme Court is not unmindful of the clear language of Sec. 74 of the
Insurance Code which provides that, "the violation of a material warranty, or other
material provision of a policy on the part of either party thereto, entitles the other to
rescind." It is generally accepted that "a warranty is a statement or promise set forth in
the policy, or by reference incorporated therein, the untruth or non-fulfillment of which in
any respect, and without reference to whether the insurer was in fact prejudiced by such
untruth or non-fulfillment, renders the policy voidable by the insurer."
However, it is similarly indubitable that for the breach of a warranty to avoid a
policy, the same must be duly shown by the party alleging the same. We cannot sustain
an allegation that is unfounded. Consequently, PRUDENTIAL, not having shown that
TRANS-ASIA breached the warranty condition, CLASSED AND CLASS MAINTAINED, it
remains that TRANS-ASIA must be allowed to recover its rightful claims on the policy.
Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED
VESSEL CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the
same.
PRUDENTIAL can be deemed to have made a valid waiver of TRANS-ASIAs breach
of warranty as alleged. Because after the loss, Prudential renewed the insurance policy of
Trans-Asia for two (2) consecutive years, from noon of 01 July 1994 to noon of 01 July
1995, and then again until noon of 01 July 1996. This renewal is deemed a waiver of any
breach of warranty.
PRUDENTIAL, in renewing TRANS-ASIAs insurance policy for two consecutive years after
the loss covered by Policy No. MH93/1363, was considered to have waived TRANS-ASIAs
breach of the subject warranty, if any. Breach of a warranty or of a condition renders the
contract defeasible at the option of the insurer; but if he so elects, he may waive his
privilege and power to rescind by the mere expression of an intention so to do. In that
event his liability under the policy continues as before. There can be no clearer intention
of the waiver of the alleged breach than the renewal of the policy insurance granted by
PRUDENTIAL to TRANS-ASIA in MH94/1595 and MH95/1788, issued in the years 1994 and
1995, respectively.
Dispositive:
Trans-Asia won
General Insurance v Ng Hua
Doctrine:
The statement in question must be deemed to be a statement (warranty) binding
on both insurer and insured, that there were no other insurance on the property.
Facts:
General Insurance and Surety Corporation issued its Insurance Policy No. 471,
insuring against fire, for 1 year, the stock in trade of the Central Pomade Factory owned
by Ng Hua. The policy covered damages up to P10,000.00. The next day, Pomade factory
building burned. Ng Hua claimed indemnity from the insurer. After some negotiations and
upon suggestion of the Manila Adjustment Company, he reduced the claim of P5,000.00.
Nevertheless, the insurer refused to pay for various reasons, namely (a) action was not
filed in time; (b) violation of warranty; (c) submission of fraudulent claim; and (f) failure
to pay the premium. The aforesaid Policy No. 471 contains this stipulation on the back
thereof:
3. The insured shall give notice to the company of any insurance or insurances
already affected, or which may subsequently be effected, covering any of the
property hereby insured, and unless such notice be given and the
particulars of such insurance or insurances be stated in or endorsed on
this Policy by or on behalf of the Company before the occurrence of any loss or
damage, all benefits under the policy shall be forfeited.
The face of the policy bore the annotation: "Co-Insurance Declared NIL"
TC and CA, referring to the annotation and overruling the defense, held that there
was no violation of the above clause, inasmuch as "co-insurance exists when a
condition of the policy requires the insured to bear ratable proportion of the
loss when the value of the insured property exceeds the face value of the
policy," hence there is no co-insurance here.
Issue:
Whether or not there is breach of warranty of the above stipulation?
Held:
Yes, there is breach of warranty of the above stipulation.
Ratio:
It is undenied that Ng Hua had obtained fire insurance on the same goods, for the
same period of time, in the amount of P20,000.00 from General Indemnity Co.
Hence, there is co-insurance.
The statement in question must be deemed to be a statement (warranty) binding
on both insurer and insured, that there were no other insurance on the property.
Remember it runs "Co-Insurance declared"; emphasis on the last word. If "Co-Insurance"
means that the Court of Appeals says, the annotation served no purpose. The annotation
then, must be deemed to be a warranty that the property was not insured by any other
policy. Violation thereof entitles the insurer to rescind. (Sec. 69. Insurance Act).
Ng Hua alleges "actual knowledge" on the part of General insurance of the fact
that he had taken out additional insurance with General Indemnity. However, CA found
no evidence of such knowledge. Indeed, this concealment and violation was
expressly set up as a special defense in the answer.
Petitioner successfully established its defense of warranty breach or concealment
of the other insurance and/or violation of the provision of the policy above-mentioned.
Dispositive:
Petitioner acquitted from all the liability under the policy.
Note: Marine insurance is huge. The insurance commission will usually will not put
everything in put in one basket and reinsure most of the time.
H. Premium paid by the insurer to insured for indemnity.

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.

An acknowledgment in a policy or contract of insurance or the receipt of premium
is conclusive evidence of its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be binding until the
premium is actually paid.

A person insured is entitled to a return of premium, as follows:
(a) To the whole premium if no part of his interest in the thing insured be
exposed to any of the perils insured against;
(b) Where the insurance is made for a definite period of time and the insured
surrenders his policy, to such portion of the premium as corresponds with the
unexpired time, at a pro rata rate, unless a short period rate has been agreed
upon and appears on the face of the policy, after deducting from the whole
premium any claim for loss or damage under the policy which has previously
accrued; Provided, That no holder of a life insurance policy may avail
himself of the privileges of this paragraph without sufficient cause as
otherwise provided by law.

If a peril insured against has existed, and the insurer has been liable for any period,
however short, the insured is not entitled to return of premiums, so far as that particular
risk is concerned.

A person insured is entitled to return of the premium when the contract is voidable, on
account of fraud or misrepresentation of the insurer, or of his agent, or on account of
facts, the existence of which the insured was ignorant without his fault; or when by any
default of the insured other than actual fraud, the insurer never incurred any liability
under the policy.

In case of over-insurance by several insurers, the insured is entitled to a ratable return of
the premium, proportioned to the amount by which the aggregate sum insured in all the
policies exceeds the insurable value of the thing at risk.

An agreement not to transfer the claim of the insured against the insurer after
the loss has happened, is void if made before the loss except as otherwise provided
in the case of life insurance.

Unless otherwise provided by the policy, an insurer is liable for a loss of which a peril
insured against was the proximate cause, although a peril not contemplated by the
contract may have been a remote cause of the loss; but he is not liable for a loss which
the peril insured against was only a remote cause.
Note: - As soon the things is insured is at peril, it becomes due. The time is an essence.
Example: when the ship is at voyage then it is in peril but if at docked then not at
peril of the sea.
The credit extension cannot exceed than 90 day. It is an attempt to determine
that the premium is paid.
Agreement to extend on to agreement is binding under case law but not under
law. Time is of the essence is the payment of premium.
PHILIPPINE PHOENIX SURETY & INSURANCE, INC vs. WOODWORKS, INC (1967)
Doctrine:
Nonpayment of the premium due does not produce the cancellation of insurance
contract.
Facts:
On April 1, 1960, plaintiff issued and delivered to defendant a Fire Policy for the
amount of P300,000, for a term of one year. The premiums of said policy amounted to
P6,051.95. September 22 of the same year, the defendant paid P3,000. Failure of the
defendant Wood Works to pay the amount of P3,522.09 representing the
unpaid balance of the premium, plaintiff commenced an action to recover from
defendant the said amount. The Court a quo ordered the defendant to pay the
plaintiff. Hence, the present appeal.
Issue:
Whether or not the non-payment of the premium due produced the cancellation of
the insurance contract?
Held:
No, Nonpayment of the premium due does not produce the cancellation of
insurance contract.
Ratio:
Where between the insurer and the insured, there was not only a perfected
contract of insurance but a partially performed one as far as the payment of the agreed
premium was concerned. Thereafter the obligation of the insurer to pay the insured the
amount for which the policy was issued in case the conditions therefor had been
complied with, arose and became binding upon it, while the obligation of the insured to
pay the remainder of the total amount of the premium due became demandable.
As the contract had become perfected, the parties could demand from
each other the performance of whatever obligations they had assumed. In the
case of the insurer, it is obvious that it had the right to demand from the insured the
completion of the payment of the premium due or sue for the rescission of the contract.
As it chose to demand specific performance of the insured's obligation to pay
the balance of the premium, the latter's duty to pay is indeed indubitable.
Dispositive:
Wherefore, the appealed decision being in accordance with law and the evidence,
the same is hereby affirmed, with costs.
Note: No payment of premium thefore the company is not liable. There is no clear
agreement that extension of credit. The policy was not in effect because there is no
policy in effect.
PHILIPPINE PHOENIX SURETY & INSURANCE, INC vs. WOODWORKS, INC (1979)
Doctrine:
The premium must be paid at the time and in the way and manner specified in the
policy and, if not so paid, the policy will lapse and be forfeited by its own terms.
Facts:
On July 21, 1960, upon defendants application, plaintiff issued in its favor Fire
Insurance Policy whereby the plaintiff insured defendants building, machinery and
equipment for a term of one year against loss by fire. The premium and other charges
amounted to P10,593.36. The defendant did not pay the premium stipulated in
the policy when it was issued nor at any time thereafter.
On April 18, 1961, or before the expiration of the one year term - plaintiff notified
the defendant of the cancellation of the policy allegedly upon request of the defendant.
Defendant denied having such a request. On the said notification, the plaintiff credited
defendant with the amount of P3,110.25 for the unexpired period of 94 days, and
claimed the balance of P7,483.11 representing earned premium from July 21,
1960 to 18th April 1961 or, say 271 days.
On July 6, 1961, plaintiff demanded in writing for the payment of said amount.
Defendant disclaimed any liability contending, in essence, that it need not pay premium
because the Insurer did not stand liable for any indemnity during the period the
premiums were not paid.
Plaintiff commenced an action to recover the amount of P7, 483.11 as earned
premium. Defendant controverted basically on the theory that its failure to pay the
premium after the issuance of the policy put an end to the insurance contract and
rendered the policy unenforceable.
CFI ruled in favor of the plaintiff ordering the defendant to pay plaintiff the said
amount
Issue:
May the plaintiff insurer recover the unpaid premium from the defendant
Woodwork?
Held:
No, the plaintiff cannot recover the unpaid premium from the defendant
Woodwork.
Ratio:
Insurance is a contract whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event.
The consideration is the premium. The premium must be paid at the time and in
the way and manner specified in the policy and, if not so paid, the policy will
lapse and be forfeited by its own terms.
The Policy provides for prepayment of premium. Accordingly; when the policy is
tendered the insured must pay the premium unless credit is given or there is a waiver, or
some agreement obviating the necessity for prepayment. To constitute an extension of
credit there must be a clear and express agreement therefor.
From the Policy provisions, the Court failed to find any clear agreement that
a credit extension was accorded defendant. And even if it were to be presumed that
plaintiff had extended credit from the circumstances of the unconditional delivery of the
Policy without pre-payment of the premium, yet it is obvious that defendant
had not accepted the insurers offer to extend credit, which is essential for the
validity of such agreement.
The instant case differs from that involving the same parties entitled Philippine
Phoenix Surety & Insurance Inc., vs. Woodworks, Inc. (1967), where recovery of the
balance of the unpaid premium was allowed inasmuch as in that case there was not only
a perfected, contract of insurance but a partially performed one as far as the payment of
the agreed, premium was concerned. This is not the situation obtaining here
where no partial payment of premiums has been made whatsoever.
Since the premium had not been paid, the policy must be deemed to have lapsed.
The nonpayment of premiums 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.
x x x the rule is that under policy provisions that upon the failure
to make a payment of a premium or assessment at the time provided for,
the policy shall become void or forfeited, or the obligation of the insurer
shall cease, or words to like effect, because the contract so prescribes and
because such a Stipulation is a material and essential part of the contract.
This is true, for instance, in the case of life, health and accident, fire and
hail insurance policies.
Dispositive:
Wherefore, the appealed decision being in accordance with law and the evidence,
the same is hereby affirmed, with costs.
ARCE V. CAPITAL & SURETY CO., INC.
Doctrine:
An insurer is entitled to payment of premium as soon as the thing insured is
exposed to the perils insured against, unless there is clear agreement to grant credit
extension for the premium due. No policy issued by an insurance company is valid and
binding unless and until the premium thereof has been paid.
Facts:
The INSURED was the owner of a residential house in Tondo which had been
insured with the COMPANY since 1961 under a Fire Policy. On Nov 27, 1965, the COMPANY
sent to the INSURED a renewal certificate to cover the period Dec 5, 1965 to Dec 5, 1966.
The COMPANY also requested payment of the corresponding premium in the amount of P
38.10. Anticipating that the premium could not be paid on time, the INSURED,
thru his wife, promised to pay it on Jan 4, 1966. The COMPANY accepted the
promise but the premium was not paid on Jan 4, 1966. On Jan 8, 1966, the house
of the INSURED was totally destroyed by fire. The insureds wife made a claim to the
COMPANY. She was told that no indemnity was due because the premium on the policy
was not paid. Nonetheless the COMPANY tendered a check for P300.00 as financial aid
which was received by the INSURED's daughter, Evelina. The voucher for the check which
Evelina signed stated that it was "in full settlement (ex gratia) of the fire loss under Claim
No. F-554 Policy No. F-24202." Thereafter, the INSURED and his wife went to the office of
the COMPANY to have his signature on the check Identified preparatory to encashment.
The COMPANY reiterated that the check was given "not as an obligation, but as a
concession" because the renewal premium had not been paid; the INSURED cashed the
check but then sued the COMPANY on the policy.
The court a quo held that since the COMPANY could have demanded payment of
the premium, mutuality of obligation requires that it should also be liable on its policy.
The court a quo also held that the INSURED was not bound by the signature of Evelina on
the check voucher because he did not authorize her to sign the waiver.
Issue:
Whether or not the petition of the Insured has merits?
Held:
Yes, the petition of the Insured has merits
Ratio:
The appeal is impressed with merit. The trial court cited Capital Insurance and
Surety Co., Inc. v. Delgado wherein, the preponderance of the evidence shows that
appellee issued fire insurance policy No. C-1137 in favor of appellants covering a certain
property belonging to the latter located in Cebu City; that appellants failed to pay a
balance of P583.95 on the premium charges due, notwithstanding demands
made upon them. As with the issuance of the policy to appellants the same became
effective and binding upon the contracting parties, the latter cannot avoid the obligation
of paying the premiums agreed upon. In fact, appellant Mario Delgado expressly
admitted his unpaid account for premiums and asked for an extension of time to pay the
same. It is clear from the foregoing that appellants are under obligation to pay
the amount sued upon.
On the other hand, Sec. 72 of the IC states, An insurer is entitled to payment of
premium as soon as the thing insured is exposed to the perils insured against, unless
there is clear agreement to grant credit extension for the premium due. No policy issued
by an insurance company is valid and binding unless and until the premium thereof has
been paid. Moreover, had stipulated, IT IS HEREBY DECLARED AND AGREED that
notwithstanding anything to the contrary contained in the within policy, this insurance
will be deemed valid and binding upon the Company only when the premium
and documentary stamps therefor have actually been paid in full and duly
acknowledged in an official receipt signed by an authorized
official/representative of the Company.
Dispositive:
We commiserate with the INSURED. We are wen aware that many insurance
companies have fallen into the condemnable practice of collecting premiums promptly
but resort to all kinds of excuses to deny or delay payment of just claims. Unhappily the
instant case is one where the insurer has the law on its side.
WHEREFORE, the decision of the court a quo is reversed; the appellee's complaint
is dismissed. No special pronouncement as to costs.
Makati Tuscany Condomium Corporation v CA (1992)
Doctrine:
The import of Section 77 is that prepayment of premiums is strictly required as a
condition to the validity of the contract, We, would prevent the entire contract of
insurance from going into effect despite payment and acceptance are not prepared to
rule that the request to make installment payments duly approved by the insurer 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 an agreement is not contrary to morals, good customs, public order or public
policy (premiums are not paid, but does not expressly prohibit an agreement granting
credit extension, and such De Leon, the Insurance Code, at p. 175). So is an
understanding to allow insured to pay premiums in instalments not so proscribed. At the
very least, both parties should be deemed in estoppel to question the arrangement they
have voluntarily accepted.
Facts:
Sometime in early 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 No.
AH-CPP-9210452 on the latter's building and premises, for a period beginning 1 March
1982 and ending 1 March 1983, with a total premium of P466,103.05. 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.
Successive renewals of the policies 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.
Private respondent filed an action to recover the unpaid balance of P314,103.05
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.
Trial Court dismissed the complaint and counterclaim. The CA ordered herein
petitioner to pay the balance of the premiums due.
Issue:
Whether or not 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?
Held:
No, payment by installment of the premiums due on an insurance policy does not
invalidate the contract of insurance, in view of Sec. 77 of P.D. 612, otherwise known as
the Insurance Code.
Ratio:
The Supreme Court hold 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 Court, therefore, sustain the Court of Appeals. The court then quote with
approval the well-reasoned findings and conclusion of the appellate court contained in its
Resolution denying the motion to reconsider its Decision
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. 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 an agreement is not contrary to
morals, good customs, public order or public policy (premiums are not paid, but does not
expressly prohibit an agreement granting credit extension, and such De Leon, the
Insurance Code, at p. 175). So is an understanding to allow insured to pay premiums in
installments not so proscribed. At the very least, both parties should be deemed in
estoppel to question the arrangement they have voluntarily accepted. 4
More so,
The reliance by petitioner on Arce vs. Capital Surety and InsuranceCo. is
unavailing because the facts therein are substantially different from those in the case at
bar. In Arce, no payment was made by the insured at all despite the grace period given.
In the case before at bar, petitioner paid the initial installment and thereafter
made staggered payments resulting in full payment of the 1982 and 1983
insurance policies. For the 1984 policy, petitioner paid two (2) installments although it
refused to pay the balance.
Dispositive:
Petitioner Condomium lose!
TIBAY v. CA
Doctrine:
Clearly the Policy provides for payment of premium in full. Accordingly,
where the premium has only been partially paid and the balance paid only after
the peril insured against has occurred, the insurance contract did not take effect
and the insured cannot collect at all on the policy.
Facts:
Fortune Life issued a fire insurance Policy to Tibay on her two-storey residential
building at Zobel Street, Makati City. The insurance was for P600,000.00 covering the
period from January 23, 1987 to January 23, 1988. On January 23 1987, Tibay only paid
P600.00 of 3,000 peso premium and left a balance.
The insured building was completely destroyed by fire. Tibay then paid the
balance. On the same day, she filed a claim on the policy. Her claim was accordingly
referred to the adjuster, Goodwill, which immediately wrote Violeta requesting her to
furnish it with the necessary documents for the investigation and processing of her
claim. Petitioner complied, and she signed a non-waiver agreement.
Fortune denied the claim for violation of the Insurance Code. Tibay sued for
damages in the amount of P600,000.00 representing the total coverage of the policy.
The trial court ruled for petitioners and made fortune liable for the total value of the
insured building and personal properties. The Court of Appeals reversed the court by
removing liability from Fortune after returning the premium. The petitioner contended
that Fortune remained liable under the subject fire insurance policy in spite of
the failure of petitioners to pay their premium in full.
Issue:
Whether or not a fire insurance policy is valid, binding, and enforceable upon
mere partial payment of the premium?
Held:
No, the fire insurance policy is not valid, binding, and enforceable upon mere
partial payment of the premium.
Ratio:
The pertinent provisions in the Policy on premium read
THIS POLICY OF INSURANCE WITNISSETH THAT only after payment to the
Company in accordance with Policy Condition No. 2 of the total premiums by
the insured as stipulated above for the period aforementioned for insuring
against Loss or Damage by Fire or Lightning as herein appears, the Property
herein described . . .
2. This policy including any renewal thereof and/or any endorsement
thereon is not in force until the premium has been fully paid to and
duly receipted by the Company in the manner provided herein.
Any supplementary agreement seeking to amend this condition prepared by
agent, broker or Company official, shall be deemed invalid and of no effect.
xxx xxx xxx
Except only in those specific cases where corresponding rules and regulations
which are or may hereafter be in force provide for the payment of the
stipulated premiums in periodic installments at fixed percentage, it is
hereby declared, agreed and warranted that this policy shall be
deemed effective, valid and binding upon the Company only when
the premiums therefor have actually been paid in full and duly
acknowledged in a receipt signed by any authorized official or
representative/agent of the Company in such manner as provided herein.
Clearly the Policy provides for payment of premium in full. Accordingly, where
the premium has only been partially paid and the balance paid only after the
peril insured against has occurred, the insurance contract did not take effect
and the insured cannot collect at all on the policy. This is fully supported by Sec.
77 of the Insurance Code which provides
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.
Dispositive:
Ang Tibay lost.
UCPB GENERAL INSURANCE V. MASAGANA TELEMART (1999)
Doctrine:
An insurance policy, other than life, issued originally or on renewal, 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
creditor time to pay the premium and consider the policy binding before actual payment.
Facts:
Petitioner issued five (5) insurance policies covering respondent's various property
described therein against fire, for the period from May 22, 1991 to May 22, 1992. In
March 1992, petitioner evaluated the policies and decided not to renew them upon
expiration of their terms on May 22, 1992. Petitioner UCPB advised respondent's
broker, Zuellig Insurance Brokers, Inc. of its intention not to renew the policies.
Petitioner UCPB gave written notice to respondent of the non-renewal of
the policies at the address stated in the policies. Then, fire razed respondent's
property covered by three of the insurance policies petitioner issued. On July 13, 1992,
respondent presented to petitioner's cashier at its head office five (5) manager's checks
in the total amount of P225,753.95, representing premium for the renewal of the policies
from May 22, 1992 to May 22, 1993. No notice of loss was filed by respondent under the
policies prior to July 14, 1992.
On July 14, 1992, respondent filed with petitioner its formal claim for
indemnification of the insured property razed by fire. On the same day, petitioner
returned to respondent the five (5) manager's checks that it tendered, and at the same
time rejected respondent's claim for the reasons (a) that the policies had expired
and were not renewed, and (b) that the fire occurred on June 13, 1992, before
respondent's tender of premium payment.
Respondent filed with the RTC, a civil complaint against petitioner for recovery of
P18,645,000.00, representing the face value of the policies covering respondent's
insured property razed by fire, and for attorney's fees. After, its motion to dismiss had
been denied, petitioner filed an answer to the complaint. It alleged that the complaint
"fails to state a cause of action"; that petitioner was not liable to respondent for
insurance proceeds under the policies because at the time of the loss of respondent's
property due to fire, the policies had long expired and were not renewed.
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.
CA ffirmed the RTCs decision, 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:
Whether or not the fire insurance policies issued by petitioner to the respondent
covering the period May 22, 1991 to May 22, 1992, had expired on the latter date 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 (fire) insured
against?
Held:
No, the fire insurance policies issued by petitioner to the respondent covering the
period May 22, 1991 to May 22, 1992, had not expired on the latter date 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 (fire) insured
against
Ratio:
Under the Insurance Code, an insurance policy, other than life, issued originally or
on renewal, 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 creditor 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.
Dispositive:
Petitioner won
GENERAL vs. MASAGANA TELAMART, GR 137172, APRIL 4, 2001

NOTE: This is a resolution
Facts:
Plaintiff Masagana obtained from defendant UCPB General Insurance Company
five insurance policies on its properties. All 5 policies reflect on their face the effectivity
term: "from 22 May 1991 to 22 May 1992." Plaintiff's properties located at Taft Avenue
were razed by fire. Plaintiff tendered, and defendant accepted, 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 manager's checks 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."
On the other hand, Petitioners contended that Magsanas 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.
CA disagreed with petitioner ruling that Magsanas tender of payment of the
premiums resulted in the renewal of the policies, under Policy Condition No. 26, which
states:
26. Renewal Clause. -- Unless the company at least forty five 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.
RTC and CA found that sufficient proof exists that Respondent, which had
procured insurance coverage from Petitioner for a number of years, had been granted a
60 to 90-day credit term for the renewal of the policies. Such a practice had existed up to
the time the claims were filed. CA also ruled that no timely notice of non-renewal was
made by Petitioner.
Issue:
1. Whether or not the fire insurance policies issued by petitioner to the respondent
covering the period from May 22, 1991 to May 22, 1992 had been extended or
renewed by an implied credit arrangement though actual payment of premium was
tendered on a later date and after the occurrence of the (fire) risk insured against?
2. Whether or not Section 77 of the Insurance Code must be strictly applied to
Petitioners advantage despite its practice of granting a 60- to 90-day credit term for
the payment of premiums.
3. Despite its awareness of Section 77 Petitioner persuaded and induced Respondent to
believe that payment of premium on the 60- to 90-day credit term was perfectly
alright; in fact it accepted payments within 60 to 90 days after the due dates. By
extending credit and habitually accepting payments 60 to 90 days from the effective
dates of the policies, it has implicitly agreed to modify the tenor of the insurance
policy and in effect waived the provision therein that it would pay only for the loss or
damage in case the same occurred after payment of the premium.
Held:
1. No. fire insurance policies issued by petitioner to the respondent covering the period
from May 22, 1991 to May 22, 1992 had not been extended or renewed by an implied
credit arrangement though actual payment of premium was tendered on a later date
and after the occurrence of the (fire) risk insured against.
2. No, Section 77 of the Insurance Code must not be strictly applied to Petitioners
advantage despite its practice of granting a 60- to 90-day credit term for the payment
of premiums.
3. Yes, Despite its awareness of Section 77 Petitioner persuaded and induced
Respondent to believe that payment of premium on the 60- to 90-day credit term was
perfectly alright; in fact it accepted payments within 60 to 90 days after the due
dates. By extending credit and habitually accepting payments 60 to 90 days from the
effective dates of the policies, it has implicitly agreed to modify the tenor of the
insurance policy and in effect waived the provision therein that it would pay only for
the loss or damage in case the same occurred after payment of the premium.
Ratio:
1. We resolved this issue in the negative in view of Section 77 of the Insurance Code and
our decisions. Accordingly, we reversed and set aside the decision of the Court of
Appeals. Respondent seasonably filed a motion for the reconsideration of the adverse
verdict. It alleges in the motion that we had made in the decision our own findings of
facts, which are not in accord with those of the trial court and the Court of
Appeals. The courts below correctly found that no notice of non-renewal was made
within 45 days before 22 May 1992, or before the expiration date of the fire insurance
policies. Thus, the policies in question were renewed by operation of law and were
effective and valid on 30 June 1992 when the fire occurred, since the premiums were
paid within the 60- to 90-day credit term.
Respondent likewise disagrees with our ruling that parties may neither agree
expressly or impliedly on the extension of credit or time to pay the premium nor consider
a policy binding before actual payment. It urges the Court to take judicial notice of the
fact that despite the express provision of Section 77 of the Insurance Code, extension of
credit terms in premium payment has been the prevalent practice in the insurance
industry.
Most insurance companies, including Petitioner, extend credit terms because
Section 77 of the Insurance Code is not a prohibitive injunction but is merely designed for
the protection of the parties to an insurance contract. The Code itself, in Section 78,
authorizes the validity of a policy notwithstanding non-payment of premiums.
2. 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 Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code)
promulgated on 18 December 1974. In turn, this Section has its source in Section 72 of
Act No. 2427 otherwise known as the Insurance Act as amended by RA 3540, approved
on 21 June 1963, which read:
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.
It can be seen at once that Section 77 does not restate the portion of Section 72
expressly permitting an agreement to extend the period to pay the premium. But are
there exceptions to Section 77?
Exceptions to Sec. 77:
In case of a life or industrial life policy whenever the grace period provision
applies.
That covered by Section 78 of the Insurance Code, which provides:
SEC. 78. Any acknowledgment in a policy or contract of
insurance of the receipt of premium is conclusive evidence of its
payment, so far as to make the policy binding, notwithstanding any
stipulation therein that it shall not be binding until premium is
actually paid.
Section 77 may not apply 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 Corporation vs. CA).
That the insurer may grant credit extension for the payment of the premium. This
simply means that 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.
In Tuscany, we also quoted with approval the following pronouncement of the CA
in its Resolution denying the motion for reconsideration of its decision: 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. 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 (De Leon, The Insurance
Code, p. 175). So is an understanding to allow insured to pay premiums in installments
not so prescribed. At the very least, both parties should be deemed in estoppel to
question the arrangement they have voluntarily accepted.
Moreover, there is nothing in Section 77 which prohibits the parties in an
insurance contract to provide a credit term within which to pay the premiums. That
agreement is not against the law, morals, good customs, public order or public
policy. The agreement binds the parties.
Finally in the instant case, it would be unjust and inequitable if recovery on the
policy would not be permitted against Petitioner, which had consistently granted a 60- to
90-day credit term for the payment of premiums despite its full awareness of Section
77. Estoppel bars it from taking refuge under said Section, since Respondent relied in
good faith on such practice. Estoppel then is the fifth exception to Section 77.
3. Respondent also asserts that the principle of estoppel applies to Petitioner.

Petitioner filed an opposition to the Respondents motion for reconsideration. It argues
that both the RTC and CA overlooked the fact that on 6 April 1992 Petitioner sent by
ordinary mail to Respondent a notice of non-renewal and sent by personal delivery a
copy thereof to Respondents broker, Zuellig. Both courts likewise ignored the fact that
Respondent was fully aware of the notice of non-renewal. A reading of Section 66 of the
Insurance Code readily shows that in order for an insured to be entitled to a renewal of
a non-life policy, payment of the premium due on the effective date of renewal should
first be made. Respondents argument that Section 77 is not a prohibitive provision finds
no authoritative support.
Take note of these established facts for this resolution:

1) For years, Petitioner had been issuing fire policies to the Respondent, and these
policies were annually renewed.
2) Petitioner had been granting Respondent a 60- to 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 in question, as there is
no proof at all that the notice sent by ordinary mail was received by Respondent,
and the copy thereof allegedly sent to Zuellig was ever transmitted to
Respondent.
4) The premiums for the policies in question in the aggregate amount
of P225,753.95 were paid by Respondent within the 60- to 90-day credit term and
were duly accepted and received by Petitioners cashier.
Dispositive:
Decision in this case of 15 June 1999 is RECONSIDERED and SET ASIDE, and a
new one is hereby entered DENYING the instant petition for failure of Petitioner to
sufficiently show that a reversible error was committed by the Court of Appeals in its
challenged decision, which is hereby AFFIRMED in toto.
Note: the Tuscany is an exception, UCPB, Masagana Case
Exception: section 78 and some of the cases
AMERICAN HOME ASSURANCE COMPANY v. TANTUCO ENTERPRISES, INC.
Doctrine:
It ought to be remembered that not only are warranties strictly construed
against the insurer but they should, likewise, by themselves be reasonably
interpreted. That reasonableness is to be ascertained in light of the factual conditions
prevailing in each case.
Facts:
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling and
refining industry. It owns two oil mills. Both are located at its factory compound at Iyam,
Lucena City. It appears that respondent commenced its business operations with only one
oil mill. In 1988, it started operating its second oil mill. The latter came to be commonly
referred to as the new oil mill.
The two oil mills were separately covered by fire insurance policies issued
by petitioner American Home Assurance Co., Philippine Branch. The first oil mill was
insured for P3,000,000.00 for the period March 1, 1991 to 1992. The new oil mill was
insured for P6,000,000.00 for the same term. Official receipts indicating payment for the
full amount of the premium were issued by the petitioner's agent.
A fire that broke out in the early morning of September 30,1991 gutted and
consumed the new oil mill. Respondent immediately notified the petitioner of the
incident. The latter then sent its appraisers who inspected the burned premises and the
properties destroyed. Thereafter, in a letter dated October 15, 1991, petitioner rejected
respondents claim for the insurance proceeds on the ground that no policy was issued
by it covering the burned oil mill. It stated that the description of the insured
establishment referred to another building thus: Both insurance policies
covers the first oil mill under Building No. 5, whilst the affected oil mill was
under Building No. 14.
A complaint for specific performance and damages was consequently instituted by
the respondent with the RTC, Branch 53 of Lucena City. Judgment was rendered in favor
of Tantuco, which the Court of Appeals upheld.
Issue:
1. Whether or not the Court of Appeals erred in its legal interpretation of 'Fire
Extinguishing Appliances Warranty' of the policy?
2. Whether or not respondent violated the express terms of the Fire Extinguishing
Appliances Warranty?
Held:
1. No, the Court of Appeals did not err in its legal interpretation of 'Fire Extinguishing
Appliances Warranty' of the policy.
2. No, respondent did not violate the express terms of the Fire Extinguishing Appliances
Warranty.
Ratio:
1. In construing the words used descriptive of a building insured, the greatest
liberality is shown by the courts in giving effect to the insurance. In view of the
custom of insurance agents to examine buildings before writing policies upon
them, and since a mistake as to the identity and character of the building is
extremely unlikely, the courts are inclined to consider that the policy of insurance
covers any building which the parties manifestly intended to insure, however
inaccurate the description may be.
Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute,
to our mind, that what the parties manifestly intended to insure was the new oil mill.
If the parties really intended to protect the first oil mill, then there is no need to
specify it as new.
Indeed, it would be absurd to assume that respondent would protect its
first oil mill for different amounts and leave uncovered its second one. As
mentioned earlier, the first oil mill is already covered by the petitioner. It is
unthinkable for respondent to obtain the other policy from the very same company. The
latter ought to know that a second agreement over that same realty results in its over
insurance.
The imperfection in the description of the insured oil mills boundaries can be
attributed to a misunderstanding between the petitioners general agent, Mr. Alfredo
Borja, and its policy issuing clerk, who made the error of copying the boundaries of the
first oil mill when typing the policy to be issued for the new one.
2. The warranty provides:

WARRANTED that during the currency of this Policy, Fire Extinguishing
Appliances as mentioned below shall be maintained in efficient working
order on the premises to which insurance applies:
- PORTABLE EXTINGUISHERS
- INTERNAL HYDRANTS
- EXTERNAL HYDRANTS
- FIRE PUMP
- 24-HOUR SECURITY SERVICES
BREACH of this warranty shall render this policy null and void and the
Company shall no longer be liable for any loss which may occur.
We agree with the appellate courts conclusion that the aforementioned warranty
did not require respondent to provide for all the fire extinguishing appliances enumerated
therein. Additionally, we find that neither did it require that the appliances are restricted
to those mentioned in the warranty. In other words, what the warranty mandates is
that respondent should maintain in efficient working condition within the
premises of the insured property, firefighting equipments such as, but not
limited to, those identified in the list, which will serve as the oil mills first line of
defense in case any part of it bursts into flame.
Dispositive:
Finding no reversible error in the impugned Decision, the instant petition is
DISMISSED.
Note:
Great Pacific Life v CA (1990)
Doctrine:
Sections 79, 81 and 82 of the Insurance Code of 1978 provide when the insured is
entitled to the return of premium paid.
Facts:
Private respondent Teodoro Cortez, upon the solicitation of Margarita Siega an
underwriter for the petitioner Great Pacific Insurance Corporation, applied for a 20-year
endowment policy for P30,000. His application, with the requisite medical examination,
was accepted and approved by the company and in due course, Endowment Policy No.
221944 was issued in his name.
It was delivered to him by the underwriter, Mrs. Siega on January 25, 1973. The
effective date indicated on the face of the policy in question was December 25, 1972.
The annual premium was P1,416.60. Mrs. Siega assured him that the first premium
may be paid within the grace period of thirty (30) days from date of delivery of
the policy. The first premium of P1,416.60 was paid by him in three (3) installments.
In a letter, defendant insurer advised plaintiff that Policy No. 221944 was not in
force. To make it enforceable and operative, plaintiff insured was asked to remit the
balance of P1,015.60 to complete his initial annual premium due December 15, 1972,
and to see Dr. Felipe V. Remollo for another full medical examination at his own expense.
Cortez' reaction to the company's act was to immediately inform it that he was
cancelling the policy and he demanded the return of his premium plus
damages.When the company ignored his demand, Cortez filed a complaint for damages
in the CFI. He prayed for the refund of the insurance premium of P1,416.60 which he paid
plus damages. The trial court ruled in favor of Cortez. The insurer appealed to the CA
which in turn affirmed the decision. Hence, a petition for review was filed with the SC.
Issue:
Whether or not the insured is entitled to a refund of the premiums paid?
Held:
Yes, the insured is entitled to a refund of the premiums paid.
Ratio:
The record shows that the premium was paid fully on February 21, 1973 or
within the grace period. This being so, the policy was already enforceable. The
company had sufficient time to examine the result of their medical examination on the
person of the appellee. They would not have delivered the policy on January 24, 1973 if
the appellee was unacceptable. Moreover, if premiums were to be paid within 90 days
then the reckoning period should be the date the policy was delivered and not
the date the appellee was physically examined. The 90-day period from the date of
physical examination as provided for in the receipts of payment is of no
moment, since said receipts are an integral part of the insurance policy
(contract). The official receipts issued by the company's agent can only mean
that the company ratified the act of Mrs. Margarita Siega in giving the
appellee a grace period of 30 days from January 25, 1973 within which to pay
the annual premium.
When the petitioner advised private respondent on June 1, 1973, four months
after he had paid the first premium, that his policy had never been in force, and that he
must pay another premium and undergo another medical examination to make the policy
effective, the petitioner committed a serious breach of the contract of insurance.
Petitioner should have informed Cortez of the deadline for paying the
first premium before or at least upon delivery of the policy to him, so he could
have complied with what was needful and would not have been misled into
believing that his life and his family were protected by the policy, when
actually they were not. And, if the premium paid by Cortez was unacceptable for being
late, it was the company's duty to return it. By accepting his premiums without giving
him the corresponding protection, the company acted in bad faith.
Sections 79, 81 and 82 of P.D. 612 of the Insurance Code of 1978 provide when
the insured is entitled to the return of premium paid.
Section 79. A person insured is entitled to a return of premium, as follows:
(a) To the whole premium, if no part of his interest in the thing
insured be exposed to any of the perils insured against.
(b) Where the insurance is made for a definite period of time and
the insured surrenders his policy, to such portion of the premium as
corresponds with the unexpired time, at a pro rata rate, unless a short
period rate has been agreed upon and appears on the face of the policy,
after deducting from the whole premium any claim for loss or damage
under the policy which has previously accrued: Provided, That no holder of
a life insurance policy may avail himself of the privileges of this paragraph
without sufficient causes as otherwise provided by law.
Section 81. A person insured is entitled to a return of the premium
when the contract is voidable on account of the fraud or
misrepresentation of the insurer or of his agent or on account of
facts the existence of which the insured was ignorant without his
fault; or when, by any default of the insured other than actual fraud, the
insurer never incurred any liability under the policy.
Section 82. In case of an over-insurance by several insurers, the
insured is entitled to a ratable return of the premium, proportioned to the
amount by which the aggregate sum insured in all the policies exceeds the
insurable value of the thing at risk.
Since his policy was in fact inoperative or ineffectual from the beginning,
the company was never at risk, hence, it is not entitled to keep the premium.
The award of moral damages to Cortez was proper for there can hardly be any doubt that
he must have suffered moral shock, serious anxiety and wounded feelings upon being
informed by the petitioner six (6) months after it issued the policy to him and four (4)
months after receiving the full premium, that his policy was in fact worthless for it never
took effect, hence, he and his family never received the protection that he paid for.
Dispositive:
Respondent won, he is entitled to the refund of the premiums previously paid.

Promissory Warranty: One Where The Insured Stipulates That Certain Facts or Conditions

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Promissory Warranty: One Where The Insured Stipulates That Certain Facts or Conditions

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G.

Warranty - A statement or promise set forth in the policy itself or incorporated in it by

Different kinds of warranty:

Express warranty An agreement contained in the policy or clearly incorporated

Promissory warranty commitment

Section 67 of Insurance Code

Section 68 of Insurance Code

Section 69 of Insurance Code

Section 70 of Insurance Code

Section 71 of Insurance Code

Section 72 of Insurance Code

Section 73 of Insurance Code

Section 74 of Insurance Code

Section 75 of Insurance Code

Section 76 of Insurance Code

STA. ANA V COMMERCIAL UNION LNSURANCE (1930)

ANG GIOK CHIP V. SPRINGFIELD FIRE AND MARINE INSURANCE COMPANY

YOUNG V. MIDLAND TEXTILE (1915)

FIELDMENS INSURANCE ANCE COMPANY vs. SONGCO

Prudential Guarantee v Trans Asia (2006)

General Insurance v Ng Hua

H. Premium paid by the insurer to insured for indemnity.

Section 77 of Insurance Code

Section 78 of Insurance Code

Section 79 of Insurance Code

Section 80 of Insurance Code

Section 81 of Insurance Code

Section 82 of Insurance Code

Section 83 of Insurance Code

Section 84 of Insurance Code

ARCE V. CAPITAL & SURETY CO., INC.

Makati Tuscany Condomium Corporation v CA (1992)

UCPB GENERAL INSURANCE V. MASAGANA TELEMART (1999)

GENERAL vs. MASAGANA TELAMART, GR 137172, APRIL 4, 2001

2. Sec. 77. An insurer is entitled to payment of the premium as soon as the

SEC. 72. An insurer is entitled to payment of premium as soon as the

3. Respondent also asserts that the principle of estoppel applies to Petitioner.

Take note of these established facts for this resolution:

Note: the Tuscany is an exception, UCPB, Masagana Case

Exception: section 78 and some of the cases

AMERICAN HOME ASSURANCE COMPANY v. TANTUCO ENTERPRISES, INC.

2. The warranty provides:

Great Pacific Life v CA (1990)

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