QUA CHEE GAN vs. LAW UNION AND ROCK INSURANCE CO.,LTD. G.R. No.

L-4611, 17 December 1955 FACTS: Plaintiff-appellee owned four bodegas used for the storage of copra and hemp. These buildings, together with their contents, were insured with the defendant company since 1937 and the loss made payable to the Philippine National Bank as mortgage of the hemp and crops, to the extent of its interest. Sometime after, three of the bodegas, together with the merchandise inside, were completely destroyed by fire of an undetermined origin. Consequently, Qua Chee Gan notified the insurance company of his loss. The latter conducted an extensive investigation. The damage was determined to be equivalent to P398,562.81 which was later reduced to the full amount of the insurance, Php370,000.00. However, the insurance company refused 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. If moreover argued that since the bodegas insured had an external wall perimeter of 500 meters or 1,640 feet, the appellee should have 11 fire hydrants in the compound, and that he actually had only 2 with a further pair nearby, belonging to the municipality of Tabaco. ISSUE: Whether or not the insurer company is liable HELD: YES. The SC is 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 warining of their fatal defect, of which it was informed, and after it had misled the defendant into believing that the policies were effective. The contract of insurance is one of perfect good faith (uferrimal fidei) not for the insured alone, but equally so for the insurer, in fact, it is mere so for the latter, since its dominant bargaining position carries with it stricter responsibility. We find no reversible error in the judgment appealed from, wherefore the same is hereby affirmed. Costs against the appellant. IGNACIO SATURNINO vs. THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY G.R. No. L-16163, 28 February 1963 FACTS: Estefania Saturnino obtained a 20-year endowment non-medical

insurance. This kind of policy dispenses with the medical examination of the applicant usually required in ordinary life policies. However, two months prior to the issuance of the policy, Saturnino was operated on for cancer, involving mastectomy of the right breast. She did not make a disclosure thereof in her application for insurance. On the contrary, she stated therein that she did not have, nor had she ever had, among other ailments listed in the application, cancer or other tumors. Sometime after, Saturnino died of pneumonia, secondary to influenza. Appellants here, who are her surviving husband and minor child, respectively, demanded payment of the face value of the policy. The claim was rejected and hence an action was subsequently instituted. ISSUE: Whether or not the insured made such false representations of material facts as to avoid the policy HELD: YES. The Insurance Law provides that materiality is to be determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the proposed contract, or in making his inquiries. The waiver of medical examination renders even more material the information required of the applicant concerning previous condition of health and diseases suffered, for such information necessarily constitutes an important factor which the insurer takes into consideration in deciding whether to issue the policy or not. It is logical to assume that if appellee had been properly apprised of the insureds medical history she would at least have been made to undergo medical examination in order to determine her insurability. A concealment, whether intentional or unintentional, entitles the insurer to rescind the contract of insurance, concealment being defined as negligence to communicate that which a -party knows and ought to communicate. The basis of the rule vitiating the contract in cases of concealment is that it misleads or deceives the insurer into accepting the risk, or accepting it at the rate of premium agreed upon. The insurer, relying upon the belief that the assured will disclose every material facts within his actual or presumed knowledge, is misled into a belief that the circumstance withheld does not exist, and he is thereby induced to estimate the risk upon a false basis that it does not exist. The judgment appealed from, dismissing the complaint and awarding the return to appellants of the premium already, paid, with interest at 6% up to January 29, 1959, affirmed, with costs against appellants.

Pacific Timber Export Corporation vs. Court of Appeals [GR L-38613, 25 February 1982] First Division, De Castro (J): 6 concur Facts:

On 19 March 1963, the Pacific Timber Export Corporation (PTEC) secured temporary insurance fromthe Workmen's Insurance Company Inc. (WICI) for its exportation of 1,250,000 board feet of PhilippineLauan and Apitong logs to be shipped from the Diapitan Bay, Quezon Province to Okinawa and Tokyo, Japan.WICI issued on said date Cover Note 1010, insuring the said cargo of PTEC "Subject to the Terms and onditions of the WORKMEN'S INSURANCE COMPANY, INC. printed Marine Policy form as filed with and approved by the Office of the Insurance Commissioner." The regular marine cargo policies were issued by WICI in favor of PTEC on 2 April 1963. The two marine policies bore the numbers of 53 HO 1032 and 53HO 1033. Policy 53 HO 1032 was for 542 pieces of logs equivalent to 499,950 board feet. Policy 53 HO 1033was for 853 pieces of logs equivalent to 695, 548 board feet. The total cargo insured under the two marine policies accordingly consisted of 1,395 logs, or the equivalent of 1,195,498 bd. ft. After the issuance of Cover Note 1010, but before the issuance of the two marine policies 53 HO 1032 and 53 HO 1033, some of the logsintended to be exported were lost during loading operations in the Diapitan Bay. The logs were to be loadedon the 'SS Woodlock' which docked about 500 meters from the shortline of the Diapitan Bay. The logs weretaken from the log pond of PTEC and from which they were towed in rafts to the vessel. At about 10:00 a.m.on 29 March 1963, while the logs were alongside the vessel, bad weather developed resulting in 75 pieces oflogs which were rafted together to break loose from each other 45 pieces of logs were salvaged, but 30 pieceswere verified to have been lost or washed away as a result of the accident. In a letter dated 4 April 1963,PTEC informed WICI about the loss of approximately 32 pieces of logs during loading of the SS Woodlock.Although dated 4 April 1963, the letter was received in the office of WICI only on 15 April 1963. PTECsubsequently submitted a Claim Statement demanding payment of the loss under Policies 53 HO 1033, and 53H O 1 0 3 3 , i n t h e t o t a l a m o u n t of P19,286.79. On 17 July 1963, WICI requested the First P h i l i p p i n e Adjustment Corporation to inspect the loss and assess the damage. The adjustment company submitted itsReport on 23 August 1963. In said report, the adjuster found that 'the loss of 30 pieces of logs is not coveredby Policies 53 HO 1032 and 1033 inasmuch as said policies covered the actual number of logs loaded onboard the SS Woodlock. However, the loss of 30 pieces of logs is within the 1,250,000 bd. ft. covered byCover Note 1010 insured for $70,000.00. On 14 September 1963, the adjustment company submitted acomputation of WICI's probable liability on the loss sustained by the shipment, in the total amount ofP11,042.04. On 13 January 1964, WICI wrote PTEC denying the latter's claim, on the ground that itsinvestigation revealed that the entire shipment of logs covered by the two marine policies 53 HO 1032 and 53HO 1033 were

received in good order at their point of destination. It was further stated that the said loss maynot be considered as covered under Cover Note 1010 because the said Note had become null and void by virtue of the issuance of Marine Policies 53 HO 1032 and 1033. The denial of the claim by WICI was broughtby PTEC to the attention of the Insurance Commissioner by means of a letter dated 21 March 1964. In a replyletter dated 30 March 1964, Insurance Commissioner Francisco Y. Mandanas observed that it is only fair and equitable to indemnify the insured under Cover Note 1010, and advised early settlement of the said marine loss and salvage claim. On 26 June 1964, WICI informed the Insurance Commissioner that, on advice of their attorneys, the claim of PTEC is being denied on the ground that the cover note is null and void for lack ofvaluable consideration. The Court of First Instance of Manila ruled in favor of PTEC and against WICI whichordered the latter to pay the sum of P11,042.04 with interest at the rate of 12% interest from receipt of noticeof loss on 15 April 1963 up to the complete payment, the sum of P3,000.00 as attorney's fees and the costs.The Court of Appeals, however, reversed the decision of the trial court and thus dismissed PTEC's complaintwith costs. PTEC filed the petition for review. Issue: Whether the Cover Note is without consideration, is null and void, and thus recovery cannot be madethereon. Held:

NO. The Cover Note was not without consideration. The fact that no separate premium was paid on theC o v e r N o t e b e f o r e t h e l o s s i n s u r e d against occurred, does not militate against the validity of P T E C ' s contention, for no such premium could have been paid, since by the nature of the Cover Note, it did notc ontain, as all Cover Notes do not contain particulars of the shipment that would serve as basis for thecomputation of the premiums. As a logical consequence, no separate premiums are intended or required to bepaid on a Cover Note. This is a fact admitted by an official of WICI, Juan Jose Camacho, in charge of issuingcover notes of WICI. At any rate, it is not disputed that PTEC paid in full all the premiums as called for by thestatement issued by WICI after the issuance of the two regular marine insurance policies, thereby leaving noaccount unpaid by PTEC due on the insurance coverage, which must be deemed to include the Cover Note. Ifthe Note is to be treated as a separate policy instead of integrating it to the regular policies subsequentlyissued, the purpose and function of the Cover Note would be set at naught or rendered meaningless, for it is ina real sense a contract, not a mere application for insurance which is a mere offer. It may be true that themarine insurance policies issued were for logs no longer including those which had been lost during loadingoperations. This had to be so because the risk insured against is not for loss during loading operationsanymore, but for loss during transit, the logs having already been safely placed aboard. This would make nodifference, however, insofar as the liability on the cover note is concerned, for the number or volume of logslost can be determined independently, as in fact it had been so ascertained at the instance of WICI itself whenit sent its own adjuster to investigate and assess the loss, after the issuance of the marine insurance policies.The adjuster went as far as submitting his report to WICI, as well as its computation of WICI's liability on theinsurance coverage. This coverage could not have been no other than what was stipulated in the Cover Note,for no loss or damage had to be assessed on the coverage arising from the marine insurance policies. Forobvious reasons, it was not necessary to ask PTEC to pay premium on the Cover Note, for the loss insuredagainst having already occurred, the more practical procedure is simply to deduct the premium from theamount due PTEC on the Cover Note. The non-payment of premium on the Cover Note is, therefore, no causefor PTEC to lose what is due it as if there had been payment of premium, for nonpayment by it was notchargeable against its fault. Had all the logs been lost during the loading operations, but after the issuance ofthe Cover Note, liability on the note would have already arisen even before payment of premium. This is howthe cover note as a "binder" should legally operate; otherwise, it would serve no practical purpose in the realmof commerce, and is supported by the doctrine that where a policy is delivered without

requiring payment ofthe premium, the presumption is that a credit was intended and policy is validity. Makati Tuscany Condominium Corporation vs. Court of Appeals [GR 95546, 6 November 1992] First Division, Bellosillo (J): 3 concur, 1 on leave Facts: Sometime in early 1982, American Home Assurance Co. ( A H A C ) , r e p r e s e n t e d b y A m e r i c a n International Underwriters (Phils.), Inc., (AIUI) issued in favor of Makati Tuscany Condominium Corporation(Tuscany) Insurance Policy AH-CPP-9210452 on the latter's building and premises, for a period beginning 1March 1982 and ending 1 March 1983, with a total premium of P466,103.05. The premium was paid oninstallments on 12 March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of which wereaccepted by AHAC. On 10 February 1983, AHAC issued to Tuscany Insurance Policy No. AH-CPP9210596, which replaced and renewed the previous policy, for a term covering 1 March 1903 to 1 March 1984. Thepremium in the amount of P466,103.05 was again paid on installments on 13 April 1983, 13 July 1983, 3August 1983, 9 September 1983, and 21 November 1983. All payments were likewise accepted by AHAC. On20 January 1984, the policy was again renewed and AHAC issued to Tuscany Insurance Policy AH-CPP-9 2 1 0 6 5 1 for the period 1 March 1984 to 1 March 1985. On this r e n e w e d p o l i c y , T u s c a n y m a d e t w o installment payments, both accepted by AHAC, the first on 6 February 1984 for P52,000.00 and the second,o n 6 J u n e 1 9 8 4 f o r P 1 0 0 , 0 0 0 . 0 0 . T h e r e a f t e r , T u s c a n y r e f u s e d t o p a y t h e b a l a n c e o f t h e p r e m i u m . Consequently, AHAC filed an action to recover the unpaid balance of P314,103.05 for Insurance Policy AH-CPP-9210651. In its answer with counterclaim, Tuscany admitted the issuance of Insurance Policy AH-CPP-9210651. It explained that it discontinued the payment of premiums because the policy did not contain acredit clause in its favor and the receipts for the installment payments covering the policy for 1984-85, as wellas the two (2) previous policies, stated the following reservations: (2) Acceptance of this payment shall notwaive any of the company rights to deny liability on any claim under the policy arising before such paymentsor after the expiration of the credit clause of the policy; and (3) Subject to no loss prior to premium payment.If there be any loss such is not covered. Tuscany 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 alreadyp a i d f o r 1984-85, and in its answer with amended counterclaim, s o u g h t t h e r e f u n d o f P 9 2 4 , 2 0 6 . 1 0 representing the premium payments for 1982-85. After some incidents, Tuscany and AHAC

moved forsummary judgment. On 8 October 1987, the trial court dismissed the complaint and the counterclaim. Bothparties appealed from the judgment of the trial court. Thereafter, the Court of Appeals rendered a decisionmodifying that of the trial court by ordering Tuscany to pay the balance of the premiums due on Policy AH-CPP-921-651, or P314,103.05 plus legal interest until fully paid, and affirming the denial of the counterclaim.Tuscany filed the petition. Issue: Whether payment by installment of the premiums due on an insurance policy invalidates the contractof insurance. Held: NO. The subject policies are valid even if the premiums were paid on installments. The records clearlyshow that Tuscany and AHAC intended subject insurance policies to be binding and effective notwithstandingthe staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in1983, then in 1984. In those 3 years, the insurer accepted all the installment payments. Such acceptance ofpayments speaks loudly of the insurer's intention to honor the policies it issued to Tuscany. Certainly, basicprinciples of equity and fairness would not allow the insurer to continue collecting and accepting thepremiums, although paid on installments, and later deny liability on the lame excuse that the premiums werenot prepaid in full. Thus, while the import of Section 77 is that prepayment of premiums is strictly required asa condition to the validity of the contract, the Court was not prepared to rule that the request to makeinstallment payments duly approved by the insurer, would prevent the entire contract of insurance from goinginto effect despite payment and acceptance of the initial premium or first installment. Section 78 of theI n s u r a n c e C o d e i n e f f e c t a l l o w s waiver by the insurer of the condition of prepayment by m a k i n g a n acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as tomake the policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes theparties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibitan agreement granting credit extension, and such an agreement is not contrary to morals, good customs,public order or public policy. So is an understanding to allow insured to pay premiums in installments not soproscribed. At the very least, both parties should be deemed in estoppel to question the arrangement they havevoluntarily accepted. It appearing from the peculiar circumstances that the parties actually intended to makethe three (3) insurance contracts valid, effective and binding, Tuscany may not be allowed to renege on itsobligation to pay the balance of the premium after the expiration of the whole term of the third policy (AH-CPP-9210651) in March 1985. Moreover, where the risk is entire and the contract is

indivisible, the insured isnot entitled to a refund of the premiums paid if the insurer was exposed to the risk insured for any period,however brief or momentary UCPB General Insurance vs. Masagana Telamart Inc. [GR 137172, 14 April 2001] Resolution En Banc, Davide Jr (CJ): 9 concur, 2 file separate dissenting opinions to which 3 joined Facts: In the Supreme Court's decision of 15 June 1999, it reversed and set aside the decision of the Court ofAppeals, which affirmed with modification the judgment of the trial court (a) allowing Masagana to consignthe sum of P225,753.95 as full payment of the premiums for the renewal of the five insurance policies onMasagana's properties; (b) declaring the replacement-renewal policies effective and binding from 22 May1992 until 22 May 1993; and (c) ordering UCPBGen to pay Masagana P18,645,000.00 as indemnity for theburned properties covered by the renewal-replacement policies. The modification consisted in the (1) deletionof the trial court's declaration that three of the policies were in force from August 1991 to August 1992; and(2) reduction of the award of the attorney's fees from 25% to 10% of the total amount due the Masagana.Masagana seasonably filed a motion for the reconsideration of the adverse verdict. Issue [1]: Whether there are exceptions to Section 77, to allow Masagana to recover from UCPBGen. Held [1]:

YES. The first exception is provided by Section 77 itself, and that is, in case of a life or industriallife policy whenever the grace period provision applies. The second is that covered by Section 78 of theInsurance Code, which provides that "Any acknowledgment in a policy or contract of insurance of the receiptof premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding anystipulation therein that it shall not be binding until premium is actually paid." A third exception was laid downin Makati Tuscany Condominium Corporation vs. Court of Appeals, 5 wherein the Court ruled that Section 77may not apply if the parties have agreed to the payment in installments of the premium and partial paymenthas been made at the time of loss. Further, in Tuscany, the Court also quoted with approval the followingpronouncement of the Court of Appeals in its Resolution denying the motion for reconsideration of itsdecision that "While the import of Section 77 is that prepayment of premiums is strictly required as acondition to the validity of the contract, We are not prepared to rule that the request to make installmentpayments duly approved by the insurer would prevent the entire contract of insurance from going into effectdespite payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Codein effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in theinsurance policy of receipt of premium as conclusive evidence of payment so far as to make the policybinding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties fromstipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreementgranting credit extension, and such an agreement is not contrary to morals, good customs, public order orp u b l i c p o l i c y ( D e L e o n , T h e I n s u r a n c e C o d e , p . 1 7 5 ) . S o i s a n u n d e r s t a n d i n g t o a l l o w i n s u r e d t o p a y premiums in installments not so prescribed. At the very least, both parties should be deemed in estoppel toquestion the arrangement they have voluntarily accepted." By the approval of the aforequoted findings andconclusion of the Court of Appeals, Tuscany has also provided a fourth exception to Section 77, namely, thatthe insurer may grant credit extension for the payment of the premium. This simply means that if the insurerhas granted the insured a credit term for the payment of the premium and loss occurs before the expiration ofthe term, recovery on the policy should be allowed even though the premium is paid after the loss but withinthe credit term. Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract toprovide a credit term within which to pay the premiums. That agreement is not against the law, morals, goodcustoms, public order or public policy. The agreement binds the parties. Herein, it would be unjust andinequitable if recovery on the policy would not be permitted against UCPBGen, 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 Masagana relied in good faith on such practice.Estoppel then is the fifth exception to Section 77.