G.R. No. 119655 May 24, 1996
SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO, VICTORINA M. RORALDO, VIRGILIO M. RORALDO, MYRNA M. RORALDO and ROSABELLA M. RORALDO, petitioners,
vs.
COURT OF APPEALS and FORTUNE LIFE AND GENERAL INSURANCE CO., INC., respondents.
BELLOSILLO, J.:p
May a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium?
On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc. (FORTUNE) issued Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-storey residential building located at 5855 Zobel Street, Makati City, together with all their personal effects therein. The insurance was for P600,000.00 covering the period from 23 January 1987 to 23 January 1988. On 23 January 1987, of the total premium of P2,983.50, petitioner Violeta Tibay only paid P600.00 thus leaving a considerable balance unpaid.
On 8 March 1987 the insured building was completely destroyed by fire. Two days later or on 10 March 1987 Violeta Tibay paid the balance of the premium. On the same day, she filed with FORTUNE a claim on the fire insurance policy. Her claim was accordingly referred to its adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately wrote Violeta requesting her to furnish it with the necessary documents for the investigation and processing of her claim. Petitioner forthwith complied. On 28 March 1987 she signed a non-waiver agreement with GASI to the effect that any action taken by the companies or their representatives in investigating the claim made by the claimant for his loss which occurred at 5855 Zobel Roxas, Makati on March 8, 1987, or in the investigating or ascertainment of the amount of actual cash value and loss, shall not waive or invalidate any condition of the policies of such companies held by said claimant, nor the rights of either or any of the parties to this agreement, and such action shall not be, or be claimed to be, an admission of liability on the part of said companies or any of them.1
In a letter dated 11 June 1987 FORTUNE denied the claim of Violeta for violation of Policy Condition No. 2 and of Sec. 77 of the Insurance Code. Efforts to settle the case before the Insurance Commission proved futile. On 3 March 1988 Violets and the other petitioners sued FORTUNE for damages in the amount of P600,000.00 representing the total coverage of the fire insurance policy plus 12% interest per annum, P100,000.00 moral damages, and attorney's fees equivalent to 20% of the total claim.
On 19 July 1990 the trial court ruled for petitioners and adjudged FORTUNE liable for the total value of the insured building and personal properties in the amount of P600,000.00 plus interest at the legal rate of 6% per annum from the filing of the complaint until full payment, and attorney's fees equivalent to 20% of the total amount claimed plus costs of suit.2
On 24 March 1995 the Court of Appeals reversed the court a quo by declaring FORTUNE not to be liable to plaintiff-appellees therein but ordering defendant-appellant to return to the former the premium of P2,983.50 plus 12% interest from 10 March 1987 until full payment.3
Hence this petition for review with petitioners contending mainly that contrary to the conclusion of the appellate court, FORTUNE remains liable under the subject fire insurance policy in spite of the failure of petitioners to pay their premium in full.
We find no merit in the petition; hence, we affirm the Court of Appeals.
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.4
The consideration is the premium, which 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.5
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. (emphasis supplied).6
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 (emphasis supplied).
Apparently the crux of the controversy lies in the phrase "unless and until the premium thereof has been paid." This leads us to the manner of payment envisioned by the law to make the insurance policy operative and binding. For whatever judicial construction may be accorded the disputed phrase must ultimately yield to the clear mandate of the law. The principle that where the law does not distinguish the court should neither distinguish assumes that the legislature made no qualification on the use of a general word or expression. In Escosura v. San Miguel Brewery, Inc.,7 the Court through Mr. Justice Jesus G. Barrera, interpreting the phrase "with pay" used in connection with leaves of absence with pay granted to employees, ruled —
. . . the legislative practice seems to be that when the intention is to distinguish between full and partial payment, the modifying term is used . . .
Citing C.A. No. 647 governing maternity leaves of married women in government, R. A. No. 679 regulating employment of women and children, R.A. No. 843 granting vacation and sick leaves to judges of municipal courts and justices of the peace, and finally, Art. 1695 of the New Civil Code providing that every househelp shall be allowed four (4) days vacation each month, which laws simply stated "with pay," the Court concluded that it was undisputed that in all these laws the phrase "with pay" used without any qualifying adjective meant that the employee was entitled to full compensation during his leave of absence.
Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy despite partial payment of the premium due and the express stipulation thereof to the contrary, petitioners rely heavily on the 1967 case of Philippine Phoenix and Insurance Co., Inc. v. Woodworks, Inc.8 where the Court through Mr. Justice Arsenio P. Dizon sustained the ruling of the trial court that partial payment of the premium made the policy effective during the whole period of the policy. In that case, the insurance company commenced action against the insured for the unpaid balance on a fire insurance policy. In its defense the insured claimed that nonpayment of premium produced the cancellation of the insurance contract. Ruling otherwise the Court held —
It is clear . . . that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by appellee and delivered to appellant, and that on September 22 of the same year, the latter paid to the former the sum of P3,000.00 on account of the total premium of P6,051.95 due thereon. There is, consequently, no doubt at all that, as 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.
The 1967 Phoenix case is not persuasive; neither is it decisive of the instant dispute. For one, the factual scenario is different. In Phoenix it was the insurance company that sued for the balance of the premium, i.e., it recognized and admitted the existence of an insurance contract with the insured. In the case before us, there is, quite unlike in Phoenix, a specific stipulation that (t)his policy . . . is not in force until the premium has been fully paid and duly receipted by the Company . . . Resultantly, it is correct to say that in Phoenix a contract was perfected upon partial payment of the premium since the parties had not otherwise stipulated that prepayment of the premium in full was a condition precedent to the existence of a contract.
In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the remainder of the premium without any other precondition to its enforceability as in the instant case, the insurer in effect had shown its intention to continue with the existing contract of insurance, as in fact it was enforcing its right to collect premium, or exact specific performance from the insured. This is not so here. By express agreement of the parties, no vinculum juris or bond of law was to be established until full payment was effected prior to the occurrence of the risk insured against.
In Makati Tuscany Condominium Corp. v. Court of Appeals9 the parties mutually agreed that the premiums could be paid in installments, which in fact they did for three (3) years, hence, this Court refused to invalidate the insurance policy. In giving effect to the policy, the Court quoted with approval the Court of Appeals —
The obligation to pay premiums when due is ordinarily an indivisible obligation to pay the entire premium. Here, the parties . . . agreed to make the premiums payable in installments, and there is no pretense that the parties never envisioned to make the insurance contract binding between them. It was renewed for two succeeding years, the second and third policies being a renewal/replacement for the previous one. And the insured never informed the insurer that it was terminating the policy because the terms were unacceptable.
While it may be true that under Section 77 of the Insurance Code, the parties may not agree to make the insurance contract valid and binding without payment of premiums, there is nothing in said section which suggests that the parties may not agree to allow payment of the premiums in installment, or to consider the contract as valid and binding upon
payment of the first premium. Otherwise we would allow the insurer to renege on its liability under the contract, had a loss incurred (sic) before completion of payment of the entire premium, despite its voluntary acceptance of partial payments, a result eschewed by basic considerations of fairness and equity . . .
These two (2) cases, Phoenix and Tuscany, adequately demonstrate the waiver, either express or implied, of prepayment in full by the insurer: impliedly, by suing for the balance of the premium as in Phoenix, and expressly, by agreeing to make premiums payable in installments as in Tuscany. But contrary to the stance taken by petitioners, there is no waiver express or implied in the case at bench. Precisely, the insurer and the insured expressly stipulated that (t)his policy including any renewal thereof and/or any indorsement thereon is not in force until the premium has been fully paid to and duly receipted by the Company . . . and 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.
Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77 of the Insurance Code the payment of partial premium by the assured in this particular instance should not be considered the payment required by the law and the stipulation of the parties. Rather, it must be taken in the concept of a deposit to be held in trust by the insurer until such time that the full amount has been tendered and duly receipted for. In other words, as expressly agreed upon in the contract, full payment must be made before the risk occurs for the policy to be considered effective and in force.
Thus, no vinculum juris whereby the insurer bound itself to indemnify the assured according to law ever resulted from the fractional payment of premium. The insurance contract itself expressly provided that the policy would be effective only when the premium was paid in full. It would have been altogether different were it not so stipulated. Ergo, petitioners had absolute freedom of choice whether or not to be insured by FORTUNE under the terms of its policy and they freely opted to adhere thereto.
Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract is the intention of the parties as expressed in the
policy. 10 Courts have no other function but to enforce the same. The rule that contracts of insurance will be construed in favor of the insured and most strongly against the insurer should not be permitted to have the effect of making a plain agreement ambiguous and then construe it in favor of the insured. 11 Verily, it is elemental law that the payment of premium is requisite to keep the policy of insurance in force. If the premium is not paid in the manner prescribed in the policy as intended by the parties the policy is ineffective. Partial payment even when accepted as a partial payment will not keep the policy alive even for such fractional part of the year as the part payment bears to the whole
payment.12
Applying further the rules of statutory construction, the position maintained by petitioners becomes even more untenable. The case of South Sea Surety and Insurance Company, Inc. v. Court Of Appeals, 13 speaks only of two (2) statutory exceptions to the requirement of payment of the entire premium as a prerequisite to the validity of the insurance contract. These exceptions are: (a) in case the insurance coverage relates to life or industrial life (health) insurance when a grace period applies, and (b) when the insurer makes a written acknowledgment of the receipt of premium, this acknowledgment being declared by law to be then conclusive evidence of the premium payment. 14
A maxim of recognized practicality is the rule that the expressed exception or exemption excludes others. Exceptio firmat regulim in casibus non exceptis. The express mention of exceptions operates to exclude other exceptions; conversely, those which are not within the enumerated exceptions are deemed included in the general rule. Thus, under Sec. 77, as well as Sec. 78, until the premium is paid, and the law has not expressly excepted partial payments, there is no valid and binding contract. Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured cannot collect on the proceeds of the policy.
In the desire to safeguard the interest of the assured, it must not be ignored that the contract of insurance is primarily a risk distributing device, a mechanism by which all members of a group exposed to a particular risk contribute premiums to an insurer. From these contributory funds are paid whatever losses occur due to exposure to the peril insured against. Each party therefore takes a risk: the insurer, that of being compelled upon the happening of the contingency to pay the entire sum agreed upon, and the insured, that of parting with the amount required as premium, without receiving anything therefor in case the contingency does not happen. To ensure payment for these losses, the law mandates all insurance companies to maintain a legal reserve fund in favor of those claiming under their policies. 15 It should be understood that the integrity of this fund cannot be secured and maintained if by judicial fiat partial offerings of premiums were to be construed as a legal nexus between the applicant and the insurer despite an express agreement to the contrary. For what could prevent the insurance applicant from deliberately or wilfully holding back full premium payment and wait for the risk insured against to transpire and then conveniently pass on the balance of the premium to be deducted from the proceeds of the insurance? Worse, what if the insured makes an initial payment of only 10%, or even 1%, of the required premium, and when the risk occurs simply points to the proceeds from where to source the balance? Can an insurance company then exist and survive upon the payment of 1%, or even 10%, of the premium stipulated in the policy on the basis that, after all, the insurer can deduct from the proceeds of the insurance should the risk insured against occur?
Interpreting the contract of insurance stringently against the insurer but liberally in favor of the insured despite clearly defined obligations of the parties to the policy can be carried out to extremes that there is the danger that we may, so to speak, "kill the goose that lays the golden egg." We are well aware of insurance companies falling into the despicable habit of collecting premiums promptly yet resorting to all kinds of excuses to deny or delay payment of just insurance claims. But, in this case, the law is manifestly on the side of the insurer. For as long as the current Insurance Code remains unchanged and partial payment of premiums is not mentioned at all as among the exceptions provided in Sees. 77 and 78, no policy of insurance can ever pretend to be efficacious or effective until premium has been fully paid.
And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business because by law the insurer must maintain a legal reserve fund to meet its contingent obligations to the public, hence, the imperative need for its prompt payment and full satisfaction. 16 It must be emphasized here that all actuarial calculations and various tabulations of probabilities of losses under the risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon this bedrock insurance firms are enabled to offer the assurance of security to the public at favorable rates. But once payment of premium is left to the whim and caprice of the insured, as when the courts tolerate the payment of a mere P600.00 as partial undertaking out of the stipulated total premium of P2,983.50 and the balance to be paid even after the risk insured against has occurred, as petitioners have done in this case, on the principle that the strength of the vinculum juris is not measured by any specific amount of premium payment, we will surely wreak havoc on the business and set to naught what has taken actuarians centuries to devise to arrive at a fair and equitable distribution of risks and benefits between the insurer and the insured.
The terms of the insurance policy constitute the measure of the insurer's liability. In the absence of statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever conditions they deem best upon their obligations not inconsistent with public policy. 17 The validity of these limitations is by law passed upon by the Insurance Commissioner who is empowered to approve all forms of policies, certificates or contracts of insurance which insurers intend to issue or deliver. That the policy contract in the case at bench was approved and allowed issuance simply reaffirms the validity of such policy, particularly the provision in question.
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals dated 24 March 1995 is AFFIRMED.
SO ORDERED.
Kapunan and Hermosisima, Jr., JJ., concur.
Separate Opinions
VITUG, J., dissenting:
Does a mere partial payment of the premium on a fire insurance policy render it efficacious? In the affirmative, is the contract in force conformably with its full face value, or is it merely pro tanto effective? These issues are sought by the parties to be addressed in the instant petition for review.
The policy here involved was made out on 22 January 1987 by private respondent Fortune Life and General Insurance Co., Inc. ("Fortune"), in favor of "Violeta R. Tibay and/or Nicolas Roraldo" against the risk of fire on their 2-storey building. The insurance was for P600,000.00 covering the period from 23 January 1987 to 23 January 1988. Petitioner Violeta Tibay made, on 23 January 1987, a partial payment of P600.00 out of the total agreed premium of P2,983.50 on the policy.
On 08 March 1987, the insured building was totally gutted by fire. Petitioner Violeta made full payment of the premium two days later, or on 10 March 1987, the same date that she filed a claim on the insurance policy. The payment was nevertheless accepted by Fortune. The insurance claim was referred to Fortune's adjuster, Goodwill Adjustment Services, Inc. ("GASI"), which thereupon wrote petitioners for the necessary documents to commence the investigation and the processing of the claim. Petitioners furnished GASI with, among other things, the proof of loss.
Fortune, in the end, refused to pay the loss stating that it was not liable under the policy, the agreed premium not having been paid in full at the time of loss. Then, in a letter dated 11 June 1987, Fortune formally denied petitioner Violeta's claim for these reasons: (a) violation of Policy Condition No. 2; and (b) violation of Section 77 of the Insurance Code.
Petitioner Violeta referred the matter to the Insurance Commission; no settlement, however, was reached in that office.
Ultimately, on 03 March 1988, petitioners filed their complaint against Fortune.
On 19 July 1990, the trial court ruled in favor of petitioners and held private respondent Fortune liable.
On appeal interposed by Fortune, respondent Court of Appeals, in its decision of 24 March 1995, reversed the trial court; thus:
WHEREFORE, the Decision appealed from is hereby REVERSED with MODIFICATION in that defendant-appellant Fortune Life & General Insurance Co. Inc. is declared not liable to plaintiff-appellees Tibay et al. under the subject fire insurance policy; however, said defendant-appellant is ORDERED to return to plaintiff-appellees the paid premium in the amount of P2,983.50, plus 12% interest counted from 10 March 1987 until fully paid. No costs.1
The appellate court justified its reversal of the trial court's decision on the following ratiocination:
Promptness of payment is essential in the business of life insurance. All the calculations of the company are based on the hypothesis of prompt payments. They not only calculate on the receipt of the premiums when due, but on the compounding interest upon them. It is on this basis that they are enabled to offer assurance at the favorable rates they do. (Constantino vs. Asia Life Insurance Co., 87 SCRA 248) Taking this principle, and the above stipulation in the contract into account, the failure of appellants to fully pay their premium prevented the contract of insurance from becoming binding an Fortune.
Further, it is elementary that contract of insurance is uberrimae fidae and demand the most abundant good faith. (Velasco us. Apostol, G.R. No. 44588, 173 SCRA 228, [1989]). Violeta made a full payment of the premium two days after the building insured was destroyed by the fire. On the same day, Violeta filed a claim based on the fire policy. This series of acts is tainted with misrepresentation and violates the uberrimae fidae principle of insurance contract.
The act of Fortune in referring the claim to GASI does not constitute estoppel. Violeta had entered into a "Non-Waiver Agreement" with the adjuster on March 28, 1987 which permitted Fortune to claim non-payment of premium as a defense to defeat the claim of Tibay notwithstanding its referral of the claim to the adjuster.2
Hence, the petition for review.
I see merit in the petition. Section 77 of the Insurance Code reads:
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.
The payment of premium, subject to the stated exceptions, is deemed by the foregoing provisions to be an element essential to establish the juridical relation between the insurer and the insured. Observe, however, that the law neither requires, nor measures the strength of the vinculum juris by, any specific amount of premium payment. It should thus be enough that payment on the premium, partly or in full, is made by the insured which the insurer accepts. In fine, it is either that a juridical tie exists (by such payment) or that it is not extant at all (by an absence thereof). Once the juridical relation comes into being, the full efficacy, not merely pro tanto, of the insurance contract naturally follows. Verily, not only is there an insurance perfected but also a partially performed contract.3
In case of loss, recovery on the basis of the full contract value, less the unpaid premium can accordingly be had;4
conversely, if no loss occurs, the insurer can demand the payment of the unpaid balance of the premium. The insured, on the one hand, cannot avoid the obligation of paying the balance of the premium while the insurer, upon the other hand, cannot treat the contract as valid only for the purpose of collecting premiums and as invalid for the purpose of indemnity.5
Nor would the non-payment of the balance due result in an AUTOMATIC cancellation of the insurance contract; otherwise, the effect would be to place exclusively in the hands of one of the contracting parties the right to decide whether the contract should stand or not6 in possible disregard of the MUTUALITY OF CONTRACTS RULE.7 Instead, the parties should be able to demand from each other the performance of whatever obligations they had assumed or, if desired, sue timely for the rescission of the contract.8 In the meanwhile, the contract endures, and an occurrence of the risk insured against triggers the insurer's liability. Forthwith, legal compensation arises under the pertinent provisions9 of the Civil Code under which the mutual debts are, to the extent of the concurrent amount, extinguished by mere operation of law.
The net result, such as in the case at bench, is that the insurer's liability to the insured would simply be reduced by the balance of the premium still due from the latter. Thus, it becomes TOTALLY INCONSEQUENTIAL whether the insured still remits or no longer remits payment of the balance of the premium, the insurer's liability theretofore having already attached.
Fortune calls attention to the following provisions of the insurance policy, to wit:
This Policy of Insurance Witnesseth, 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 afore-mentioned for insuring against Loss or Damage by Fire or Lightning as herein appears, the Property herein described, and contained, or described herein, and not elsewhere, in the sum or several sums opposite thereto.
xxx xxx xxx
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.
No payment in respect of any premium shall be deemed to be payment to the Company unless a printed form of receipt for the same signed by an official or duly appointed Agent of the Company shall have been given to the insured, except when such printed receipt is not available at the time of payment and the Company or its representative accepts the premium in which case a temporary receipt other than the printed form may be issued in lieu thereof.
Except only in those specific cases where corresponding rules and regulations which not 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. 10 (Emphasis supplied.)
It must here be noted that the insured HAD MADE, and the insurer HAD ACCEPTED, a partial premium payment on the policy weeks before the risk insured against took place.
An insurance is an aleatory contract which, unlike a conditional agreement whose efficacy is dependent on stated condition, is at once effective upon its perfection although the occurrence of a condition or event may later dictate the demandability of certain obligations thereunder. Founded on the autonomy of contracts, the parties, of course, are generally not prevented from imposing conditions that alone could trigger the contract's obligatory force. These conditions, however, must not be contrary to law, morals, good customs, public order or public policy. 11
To say that the provisions in the policy issued by Fortune, i.e., that the insurance shall not "be . . . in force until the premium has been fully paid," and that it "shall be deemed effective, valid and binding upon the company only when the premiums therefor have actually been paid in full and duly acknowledged," override the efficaciousness of the insurance contract despite the payment and acceptance 12 of a part of the premium would be opposed not only to the precepts heretofore adverted to on the correct application of Section 77, but also to the intent and spirit of Section 78, of the Insurance Code —
An 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 the premium is actually paid. (emphasis supplied.)
which, like the aforequoted Section 77 of the Code, is not dependent on how much premium has been paid.
It seems quite clear to me that on the day premium payment is made by the insured, albeit only a portion of it, so long as it is accepted by the insurer, the insurance coverage becomes effective and binding, any stipulation in the policy to the contrary notwithstanding. The insurer is not without recourse; all that it needs is not to accept, if it wants to, any premium payment of less than full. But if it does accept payment, reason dictates that it should not be allowed to deny the insurance contract upon which very existence that payment is predicated.
Accordingly, I vote for the reversal of the decision appealed from and the reinstatement of the ruling of the trial court.
Padilla, J., concurs.
Separate Opinions
VITUG, J., dissenting:
Does a mere partial payment of the premium on a fire insurance policy render it efficacious? In the affirmative, is the contract in force conformably with its full face value, or is it merely pro tanto effective? These issues are sought by the parties to be addressed in the instant petition for review.
The policy here involved was made out on 22 January 1987 by private respondent Fortune Life and General Insurance Co., Inc. ("Fortune"), in favor of "Violeta R. Tibay and/or Nicolas Roraldo" against the risk of fire on their 2-storey building. The insurance was for P600,000.00 covering the period from 23 January 1987 to 23 January 1988. Petitioner Violeta Tibay made, on 23 January 1987, a partial payment of P600.00 out of the total agreed premium of P2,983.50 on the policy.
On 08 March 1987, the insured building was totally gutted by fire. Petitioner Violeta made full payment of the premium two days later, or on 10 March 1987, the same date that she filed a claim on the insurance policy. The payment was nevertheless accepted by Fortune. The insurance claim was referred to Fortune's adjuster, Goodwill Adjustment Services, Inc. ("GASI"), which thereupon wrote petitioners for the necessary documents to commence the investigation and the processing of the claim. Petitioners furnished GASI with, among other things, the proof of loss.
Fortune, in the end, refused to pay the loss stating that it was not liable under the policy, the agreed premium not having been paid in full at the time of loss. Then, in a letter dated 11 June 1987, Fortune formally denied petitioner Violeta's claim for these reasons: (a) violation of Policy Condition No. 2; and (b) violation of Section 77 of the Insurance Code.
Petitioner Violeta referred the matter to the Insurance Commission; no settlement, however, was reached in that office.
Ultimately, on 03 March 1988, petitioners filed their complaint against Fortune.
On 19 July 1990, the trial court ruled in favor of petitioners and held private respondent Fortune liable.
On appeal interposed by Fortune, respondent Court of Appeals, in its decision of 24 March 1995, reversed the trial court; thus:
WHEREFORE, the Decision appealed from is hereby REVERSED with MODIFICATION in that defendant-appellant Fortune Life & General Insurance Co. Inc. is declared not liable to plaintiff-appellees Tibay et al. under the subject fire insurance policy; however, said defendant-appellant is ORDERED to return to plaintiff-appellees the paid premium in the amount of P2,983.50, plus 12% interest counted from 10 March 1987 until fully paid. No costs.1
The appellate court justified its reversal of the trial court's decision on the following ratiocination:
Promptness of payment is essential in the business of life insurance. All the calculations of the company are based on the hypothesis of prompt payments. They not only calculate on the receipt of the premiums when due, but on the compounding interest upon them. It is on this basis that they are enabled to offer assurance at the favorable rates they do. (Constantino vs. Asia Life Insurance Co., 87 SCRA 248) Taking this principle, and the above stipulation in the contract into account, the failure of appellants to fully pay their premium prevented the contract of insurance from becoming binding an Fortune.
Further, it is elementary that contract of insurance is uberrimae fidae and demand the most abundant good faith. (Velasco us. Apostol, G.R. No. 44588, 173 SCRA 228, [1989]). Violeta made a full payment of the premium two days after the building insured was destroyed by the fire. On the same day, Violeta filed a claim based on the fire policy. This series of acts is tainted with misrepresentation and violates the uberrimae fidae principle of insurance contract.
The act of Fortune in referring the claim to GASI does not constitute estoppel. Violeta had entered into a "Non-Waiver Agreement" with the adjuster on March 28, 1987 which permitted Fortune to claim non-payment of premium as a defense to defeat the claim of Tibay notwithstanding its referral of the claim to the adjuster.2
Hence, the petition for review.
I see merit in the petition. Section 77 of the Insurance Code reads:
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.
The payment of premium, subject to the stated exceptions, is deemed by the foregoing provisions to be an element essential to establish the juridical relation between the insurer and the insured. Observe, however, that the law neither requires, nor measures the strength of the vinculum juris by, any specific amount of premium payment. It should thus be enough that payment on the premium, partly or in full, is made by the insured which the insurer accepts. In fine, it is either that a juridical tie exists (by such payment) or that it is not extant at all (by an absence thereof). Once the juridical relation comes into being, the full efficacy, not merely pro tanto, of the insurance contract naturally follows. Verily, not only is there an insurance perfected but also a partially performed contract.3
In case of loss, recovery on the basis of the full contract value, less the unpaid premium can accordingly be had;4
conversely, if no loss occurs, the insurer can demand the payment of the unpaid balance of the premium. The insured, on the one hand, cannot avoid the obligation of paying the balance of the premium while the insurer, upon the other hand, cannot treat the contract as valid only for the purpose of collecting premiums and as invalid for the purpose of indemnity.5
Nor would the non-payment of the balance due result in an AUTOMATIC cancellation of the insurance contract; otherwise, the effect would be to place exclusively in the hands of one of the contracting parties the right to decide whether the contract should stand or not6 in possible disregard of the MUTUALITY OF CONTRACTS RULE.7 Instead, the parties should be able to demand from each other the performance of whatever obligations they had assumed or, if desired, sue timely for the rescission of the contract.8 In the meanwhile, the contract endures, and an occurrence of the risk insured against triggers the insurer's liability. Forthwith, legal compensation arises under the pertinent provisions9 of the Civil Code under which the mutual debts are, to the extent of the concurrent amount, extinguished by mere operation of law.
The net result, such as in the case at bench, is that the insurer's liability to the insured would simply be reduced by the balance of the premium still due from the latter. Thus, it becomes TOTALLY INCONSEQUENTIAL whether the insured still remits or no longer remits payment of the balance of the premium, the insurer's liability theretofore having already attached.
Fortune calls attention to the following provisions of the insurance policy, to wit:
This Policy of Insurance Witnesseth, 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 afore-mentioned for insuring against Loss or Damage by Fire or Lightning as herein appears, the Property herein described, and contained, or described herein, and not elsewhere, in the sum or several sums opposite thereto.
xxx xxx xxx
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.
No payment in respect of any premium shall be deemed to be payment to the Company unless a printed form of receipt for the same signed by an official or duly appointed Agent of the Company shall have been given to the insured, except when such printed receipt is not available at the time of payment and the Company or its representative accepts the premium in which case a temporary receipt other than the printed form may be issued in lieu thereof.
Except only in those specific cases where corresponding rules and regulations which not 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. 10 (Emphasis supplied.)
It must here be noted that the insured HAD MADE, and the insurer HAD ACCEPTED, a partial premium payment on the policy weeks before the risk insured against took place.
An insurance is an aleatory contract which, unlike a conditional agreement whose efficacy is dependent on stated condition, is at once effective upon its perfection although the occurrence of a condition or event may later dictate the demandability of certain obligations thereunder. Founded on the autonomy of contracts, the parties, of course, are generally not prevented from imposing conditions that alone could trigger the contract's obligatory force. These conditions, however, must not be contrary to law, morals, good customs, public order or public policy. 11
To say that the provisions in the policy issued by Fortune, i.e., that the insurance shall not "be . . . in force until the premium has been fully paid," and that it "shall be deemed effective, valid and binding upon the company only when the premiums therefor have actually been paid in full and duly acknowledged," override the efficaciousness of the insurance contract despite the payment and acceptance 12 of a part of the premium would be opposed not only to the precepts heretofore adverted to on the correct application of Section 77, but also to the intent and spirit of Section 78, of the Insurance Code —
An 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 the premium is actually paid. (emphasis supplied.)
which, like the aforequoted Section 77 of the Code, is not dependent on how much premium has been paid.
It seems quite clear to me that on the day premium payment is made by the insured, albeit only a portion of it, so long as it is accepted by the insurer, the insurance coverage becomes effective and binding, any stipulation in the policy to the contrary notwithstanding. The insurer is not without recourse; all that it needs is not to accept, if it wants to, any premium payment of less than full. But if it does accept payment, reason dictates that it should not be allowed to deny the insurance contract upon which very existence that payment is predicated.
Accordingly, I vote for the reversal of the decision appealed from and the reinstatement of the ruling of the trial court.
Padilla, J., concurs.
Footnotes
1 Memorandum for Respondent Fortune Life and General Insurance Co., Inc., p. 2; Rollo, p. 79.
2 Rollo, pp. 17-18.
3 Id., p. 22; CA Decision penned by Justice Jesus M. Elbinias with Justices Lourdes K. Tayao-Jaguros and B. A. Adefuin-De la Cruz concurring.
4 Sec. 2, par. (1), The Insurance Code (P.D. No. 612, as amended), prom. 18 December 1974.
5 Glaraga v. Sun Life Assurance Co., 49 Phil. 737 (1926).
6 Rollo, pp. 44-45.
7 114 Phil. 225, 229 (1962).
8 No. L-22684, 31 August 1967, 20 SCRA 1271, 1272.
9 G.R. No. 95546, 6 November 1992, 215 SCRA 462, 466.
10 Habaz v. Employers' Fire Insurance Co., 243 F2d 784; Mercury Insurance Co. v. McClellan, 225 SW2d 931.
11 Rew v. Beneficial Standard Life Insurance Co., 250 P2d 956.
12 See Klein v. Avemco Insurance Co., 216 S. E. 2d 479, 481 citing Clifton v. Insurance Co., 84 S. E. 817.
13 G R. No. 102253, 2 June 1995, 244 SCRA 744, 747.
14 Secs. 77 and 78. Sec. 78 provides that (a)n 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 the premium is actually paid.
15 Sec. 11, 12 and 13, Title 5, The Insurance Code.
16 Vance, Handbook on the Law on Insurance, 3d Ed., p. 319.
17 Fortune Insurance and Surety Co., Inc. v. Court of Appeals, G.R. No. 115278, 23 May 1995, 224 SCRA 308, 317.
VITUG, J., dissenting:
1 Rollo. p. 22.
2 Rollo, p. 21.
3 See Phil. Phoenix Surety and Insurance Co., Inc. vs. Woodworks Inc., 20 SCRA 1271.
4 See Note 9.
5 See Insurance Law and Practice by John Appleman. Vol. 15 p. 331.
6 Commentaries and Jurisprudence on Philippine Commercial Laws by Teodorico C. Martin, Vol. 2, 1986 ed. pp. 118-119.
7 Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.
8 See Footnote 6.
Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other:
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there by any retention or controversy commenced by third persons and communicated in due time to the debtor.
10 Rollo, pp. 44-45.
11 Art. 1306. The contracting parties may establish such stipulations, clauses. terms and conditions as they may deem convenient, provided they are not contrary to laws, morals, good customs public order or public policy.
12 An insurer is bound by the acts or representations of its agents in the usual course of business.
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