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Insurance - Part V Cases

The document discusses a case regarding whether a fire insurance policy is valid if only partial premium payment was made. It analyzes relevant provisions in the Insurance Code and in the policy terms. It determines that based on the clear policy language requiring full payment of premium, the insurance contract did not take effect since only partial payment was made initially in this case.

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Jey-eel Nastor
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0% found this document useful (0 votes)
19 views16 pages

Insurance - Part V Cases

The document discusses a case regarding whether a fire insurance policy is valid if only partial premium payment was made. It analyzes relevant provisions in the Insurance Code and in the policy terms. It determines that based on the clear policy language requiring full payment of premium, the insurance contract did not take effect since only partial payment was made initially in this case.

Uploaded by

Jey-eel Nastor
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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G.R. No.

119655 : May 24, 1996 payment, and attorneys fees equivalent to 20% of the total amount claimed plus costs of
suit.
SPS. ANTONIO A. TIBAY and VIOLETA R. TIBAY and OFELIA M. RORALDO,
VICTORINA M. RORALDO, VIRGILIO M. RORALDO, MYRNA M. RORALDO and On 24 March 1995 the Court of Appeals reversed the court a quo  by declaring FORTUNE
ROSABELLA M. RORALDO, Petitioners, v. COURT OF APPEALS and FORTUNE LIFE not to be liable to plaintiff-appellees therein but ordering defendant-appellant to return to
AND GENERAL INSURANCE CO., INC., Respondents. the former the premium of P2,983.50 plus 12% interest from 10 March 1987 until full
payment.
DECISION
Hence this petition for review with petitioners contending mainly that contrary to the
BELLOSILLO, J.: conclusion of the appellate court, FORTUNE remains liable under the subject fire insurance
policy inspite of the failure of petitioners to pay their premium in full.
May a fire insurance policy be valid, binding and enforceable upon mere partial payment of
premium? We find no merit in the petition; hence, we affirm the Court of Appeals.

On 22 January 1987 private respondent Fortune Life and General Insurance Co., Inc. Insurance is a contract whereby one undertakes for a consideration to indemnify another
(FORTUNE) issued Fire Insurance Policy No. 136171 in favor of Violeta R. Tibay and/or against loss, damage or liability arising from an unknown or contingent event. The
Nicolas Roraldo on their two-storey residential building located at 5855  Zobel Street, consideration is the premium, which must be paid at the time and in the way and manner
Makati City, together with all their personal effects therein. The insurance was for specified in the policy, and if not so paid, the policy will lapse and be forfeited by its own
P600,000.00 covering the period from 23 January 1987 to 23 January 1988. On 23 terms.
January 1987, of the total premium of P2,983.50, petitioner Violeta Tibay only paid
P600.00 thus leaving a considerable balance unpaid. The pertinent provisions in the Policy on premium read

On 8 March 1987 the insured building was completely destroyed by fire. Two days later or THIS POLICY OF INSURANCE WITNESSETH, THAT only after payment to the Company in
on 10 March 1987 Violeta Tibay paid the balance of the premium. On the same day, she accordance with Policy Condition No. 2 of the total premiums by the insured as stipulated
filed with FORTUNE a claim on the fire insurance policy. Her claim was accordingly referred above for the period aforementioned for insuring against Loss or Damage by Fire or
to its adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately wrote Lightning as herein appears, the Property herein described x x x
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 2. This policy including any renewal thereof and/or any endorsement thereon is not in
non-waiver agreement with GASI to the effect that any action taken by the companies or force until the premium has been fully paid to and duly receipted by the Company in the
their representatives in investigating the claim made by the claimant for his loss which manner provided herein.
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 supplementary agreement seeking to amend this condition prepared by agent, broker
any condition of the policies of such companies held by said claimant, nor the rights of
or Company official, shall be deemed invalid and of no effect.
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.
xxx xxx xxx
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 Except only in those specific cases where corresponding rules and regulations which are or
Insurance Commission proved futile. On 3 March 1988 Violeta and the other petitioners may hereafter be in force provide for the payment of the stipulated premiums in periodic
sued FORTUNE for damages in the amount of P600,000.00 representing the total coverage installments at fixed percentage, it is hereby declared, agreed and warranted that this
of the fire insurance policy plus 12% interest per annum, P 100,000.00 moral damages, policy shall be deemed effective, valid and binding upon the Company only when the
and attorneys fees equivalent to 20% of the total claim. 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, (Italics supplied).
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 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 as far as the payment of the agreed premium was concerned. Thereafter the obligation of
collect at all on the policy. This is fully supported by Sec. 77 of the Insurance Code which the insurer to pay the insured the amount, for which the policy was issued in case the
provides 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
SEC. 77. An insurer is entitled to payment of the premium as soon as the thing insured is became demandable.
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 The 1967 Phoenix  case is not persuasive; neither is it decisive of the instant dispute. For
and until the premium thereof has been paid, except in the case of a life or an industrial one, the factual scenario is different. In Phoenix it was the insurance company that sued
life policy whenever the grace period provision applies (Italics supplied). 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
Apparently the crux of the controversy lies in the phrase "unless and until the premium in Phoenix,  a specific stipulation that (t)his policy xxx is not in force until the premium has
thereof has been paid." This leads us to the manner of payment envisioned by the law to been fully paid and duly receipted by the Company x x x. Resultantly, it is correct to say
make the insurance policy operative and binding. For whatever judicial construction may that in Phoenix  a contract was perfected upon partial payment of the premium since the
be accorded the disputed phrase must ultimately yield to the clear mandate of the law. parties had not otherwise stipulated that prepayment of the premium in full was a
The principle that where the law does not distinguish the court should neither distinguish condition precedent to the existence of a contract.
assumes that the legislature made no qualification on the use of a general word or
expression. In Escosura v. San Miguel Brewery, inc., the Court through Mr. Justice Jesus In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the
G. Barrera, interpreting the phrase "with pay" used in connection with leaves of absence remainder of the premium without any other precondition to its enforceability as in the
with pay granted to employees, ruled - 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
x x x the legislative practice seems to be that when the intention is to distinguish between specific performance from the insured. This is not so here. By express agreement of the
full and partial payment, the modifying term is used x x x 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.
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 In Makati Tuscany Condominium Corp. v. Court of Appeals the parties mutually agreed
and sick leaves to judges of municipal courts and justices of the peace, and finally, Art. that the premiums could be paid in installments, which in fact they did for three (3) years,
1695 of the New Civil Code providing that every househelp shall be allowed four (4) days hence, this Court refused to invalidate the insurance policy. In giving effect to the policy,
vacation each month, which laws simply stated "with pay," the Court concluded that it was the Court quoted with approval the Court of Appeals
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 The obligation to pay premiums when due is ordinarily an indivisible obligation to pay the
absence. entire premium. Here, the parties x x x agreed to make the premiums payable in
installments, and there is no pretense that the parties never envisioned to make the
Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy despite insurance contract binding between them. It was renewed for two succeeding years, the
partial payment of the premium due and the express stipulation thereof to the contrary, second and third policies being a renewal/replacement for the previous one. And the
petitioners rely heavily on the 1967 case of Philippine Phoenix and Insurance Co., Inc. v. insured never informed the insurer that it was terminating the policy because the terms
Woodworks, Inc., where the Court through Mr. Justice Arsenio P. Dizon sustained the were unacceptable.
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 While it maybe true that under Section 77 of the Insurance Code, the parties may not
action against the insured for the unpaid balance on a fire insurance policy. In its defense agree to make the insurance contract valid and binding without payment of premiums,
the insured claimed that nonpayment of premium produced the cancellation of the there is nothing in said section which suggests that the parties may not agree to allow
insurance contract. Ruling otherwise the Court held 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
It is clear x x x that on April 1, 1960, Fire Insurance Policy No. 9652 was issued by liability under the contract, had a loss incurred (sic) before completion of payment of the
appellee and delivered to appellant, and that on September 22 of the same year, the latter entire premium, despite its voluntary acceptance of partial payments, a result eschewed
paid to the former the sum of P3,000.00 on account of the total premium of P6,051.95 by basic considerations of fairness and equity x x x.
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
These two (2) cases, Phoenix  and Tuscany,  adequately demonstrate the waiver, either A maxim of recognized practicality is the rule that the expressed exception or exemption
express or implied, of prepayment in full by the insurer: impliedly, by suing for the excludes others. Exceptio firm at regulim in casibus non exceptis. The express mention of
balance of the premium as in Phoenix, and expressly, by agreeing to make premiums exceptions operates to exclude other exceptions; conversely, those which are not within
payable in installments as in Tuscany. But contrary to the stance taken by petitioners, the enumerated exceptions are deemed included in the general rule. Thus, under Sec. 77,
there is no waiver express or implied in the case at bench. Precisely, the insurer and the as well as Sec. 78, until the premium is paid, and the law has not expressly excepted
insured expressly stipulated that (t)his policy including any renewal thereof and/or any partial payments, there is no valid and binding contract. Hence, in the absence of clear
indorsement thereon is not in force until the premium has been fully paid to and duly waiver of prepayment in full by the insurer, the insured cannot collect on the proceeds of
receipted by the Company x x x and that this policy shall be deemed effective, valid and the policy.
binding upon the Company only when the premiums therefor have actually been paid in
full and duly acknowledged. 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
Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with members of a group exposed to a particular risk contribute premiums to an insurer. From
Sec. 77 of the Insurance Code the payment of partial premium by the assured in this these contributory funds are paid whatever losses occur due to exposure to the peril
particular instance should not be considered the payment required by the law and the insured against. Each party therefore takes a risk: the insurer, that of being compelled
stipulation of the parties. Rather, it must be taken in the concept of a deposit to be held in upon the happening of the contingency to pay the entire sum agreed upon, and the
trust by the insurer until such time that the full amount has been tendered and duly insured, that of parting with the amount required as premium, without receiving anything
receipted for. In other words, as expressly agreed upon in the contract, full payment must therefor in case the contingency does not happen. To ensure payment for these losses, the
be made before the risk occurs for the policy to be considered effective and in force. law mandates all insurance companies to maintain a legal reserve fund in favor of those
claiming under their policies. It should be understood that the integrity of this fund cannot
Thus, no vinculum juris  whereby the insurer bound itself to indemnify the assured be secured and maintained if by judicial fiat partial offerings of premiums were to be
according to law ever resulted from the fractional payment of premium. The insurance construed as a legal nexus  between the applicant and the insurer despite an express
contract itself expressly provided that the policy would be effective only when the agreement to the contrary. For what could prevent the insurance applicant from
premium was paid in full. It would have been altogether different were it not so stipulated. deliberately or wilfully holding back full premium payment and wait for the risk insured
Ergo, petitioners had absolute freedom of choice whether or not to be insured by FORTUNE against to transpire and then conveniently pass on the balance of the premium to be
under the terms of its policy and they freely opted to adhere thereto. 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
Indeed, and far more importantly, the cardinal polestar in the construction of an insurance
company then exist and survive upon the payment of 1%, or even 10%, of the premium
contract is the intention of the parties as expressed in the policy. Courts have no other
stipulated in the policy on the basis that, after all, the insurer can deduct from the
function but to enforce the same. The rule that contracts of insurance will be construed in
proceeds of the insurance should the risk insured against occur?
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. Verily, it is elemental law that the payment of premium is requisite to keep the Interpreting the contract of insurance stringently against the insurer but liberally in favor
policy of insurance in force. If the premium is not paid in the manner prescribed in the of the insured despite clearly defined obligations of the parties to the policy can be carried
policy as intended by the parties the policy is ineffective. Partial payment even when out to extremes that there is the danger that we may, so to speak, "kill the goose that
accepted as a partial payment will not keep the policy alive even for such fractional part of lays the golden egg." We are well aware of insurance companies falling into the despicable
the year as the part payment bears to the whole payment. 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
Applying further the rules of statutory construction, the position maintained by petitioners
payment of premiums is not mentioned at all as among the exceptions provided in Secs.
becomes even more untenable. The case of South Sea Surety and Insurance Company,
77 and 78, no policy of insurance can ever pretend to be efficacious or effective until
Inc. v. Court of Appeals, speaks only of two (2) statutory exceptions to the requirement of
premium has been fully paid.
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 And so it must be. For it cannot be disputed that premium is the elixir vitae of the
acknowledgment of the receipt of premium, this acknowledgment being declared by law insurance business because by law the insurer must maintain a legal reserve fund to meet
to, be then conclusive evidence of the premium payment. its contingent obligations to the public, hence, the imperative need for its prompt payment
and full satisfaction. 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 Sometime in early 1982, private respondent American Home Assurance Co. (AHAC),
payment of premium is left to the whim and caprice of the insured, as when the courts represented by American International Underwriters (Phils.), Inc., issued in favor of
tolerate the payment of a mere P600.00 as partial undertaking out of the stipulated total petitioner Makati Tuscany Condominium Corporation (TUSCANY) Insurance Policy No. AH-
premium of P2,983.50 and the balance to be paid even after the risk insured against has CPP-9210452 on the latter's building and premises, for a period beginning 1 March 1982
occurred, as petitioners have done in this case, on the principle that the strength of and ending 1 March 1983, with a total premium of P466,103.05. The premium was paid on
the vinculumjuris  is not measured by any specific amount of premium payment, we will installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of
surely wreak havoc on the business and set to naught what has taken actuarians centuries which were accepted by private respondent.
to devise to arrive at a fair and equitable distribution of risks and benefits between the
insurer and the insured. On 10 February 1983, private respondent issued to petitioner Insurance Policy No. AH-
CPP-9210596, which replaced and renewed the previous policy, for a term covering 1
The terms of the insurance policy constitute the measure of the insurers liability. In the March 1983 to 1 March 1984. The premium in the amount of P466,103.05 was again paid
absence of statutory prohibition to the contrary, insurance companies have the same on installments on 13 April 1983, 13 July 1983, 3 August 1983, 9 September 1983, and 21
rights as individuals to limit their liability and to impose whatever conditions they deem November 1983. All payments were likewise accepted by private respondent.
best upon their obligations not inconsistent with public policy. The validity of these
limitations is by law passed upon by the Insurance Commissioner who is empowered to On 20 January 1984, the policy was again renewed and private respondent issued to
approve all forms of policies, certificates or contracts of insurance which insurers intend to petitioner Insurance Policy No. AH-CPP-9210651 for the period 1 March 1984 to 1 March
issue or deliver. That the policy contract in the case at bench was approved and allowed 1985. On this renewed policy, petitioner made two installment payments, both accepted
issuance simply reaffirms the validity of such policy, particularly the provision in question. 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
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals premium.
dated 24 March 1995 is AFFIRMED.
Consequently, private respondent filed an action to recover the unpaid balance of
SO ORDERED. P314,103.05 for Insurance Policy No. AH-CPP-9210651.

In its answer with counterclaim, petitioner admitted the issuance of Insurance Policy No.
AH-CPP-9210651. It explained that it discontinued the payment of premiums because the
G.R. No. 95546 November 6, 1992 policy did not contain a credit clause in its favor and the receipts for the installment
payments covering the policy for 1984-85, as well as the two (2) previous policies, stated
the following reservations:
MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO., represented by 2. Acceptance of this payment shall not waive any of the company rights to deny
American International Underwriters (Phils.), Inc., respondent. liability on any claim under the policy arising before such payments or after the
expiration of the credit clause of the policy; and
BELLOSILLO, J.:
3. Subject to no loss prior to premium payment. If there be any loss such is not
covered.
This case involves a purely legal question: whether payment by installment of the
premiums due on an insurance policy invalidates the contract of insurance, in view of Sec.
77 of P.D. 612, otherwise known as the Insurance Code, as amended, which provides: 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
Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing is
P924,206.10 representing the premium payments for 1982-85.
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 After some incidents, petitioner and private respondent moved for summary judgment.
industrial life policy whenever the grace period provision applies.
On 8 October 1987, the trial court dismissed the complaint and the counterclaim upon the
following findings:
While it is true that the receipts issued to the defendant contained the aforementioned It argues that where the premiums is not actually paid in full, the policy would only be
reservations, it is equally true that payment of the premiums of the three effective if there is an acknowledgment in the policy of the receipt of premium pursuant to
aforementioned policies (being sought to be refunded) were made during the lifetime or Sec. 78 of the Insurance Code. The absence of an express acknowledgment in the policies
term of said policies, hence, it could not be said, inspite of the reservations, that no of such receipt of the corresponding premium payments, and petitioner's failure to pay
risk attached under the policies. Consequently, defendant's counterclaim for refund is said premiums on or before the effective dates of said policies rendered them invalid.
not justified. Petitioner thus concludes that there cannot be a perfected contract of insurance upon
mere partial payment of the premiums because under Sec. 77 of the Insurance Code, no
As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in view of contract of insurance is valid and binding unless the premium thereof has been paid,
the reservation in the receipts ordinarily issued by the plaintiff on premium payments notwithstanding any agreement to the contrary. As a consequence, petitioner seeks a
the only plausible conclusion is that plaintiff has no right to demand their payment after refund of all premium payments made on the alleged invalid insurance policies.
the lapse of the term of said policy on March 1, 1985. Therefore, the defendant was
justified in refusing to pay the same. We 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
Both parties appealed from the judgment of the trial court. Thereafter, the Court of policies to be binding and effective notwithstanding the staggered payment of the
Appeals rendered a decision modifying that of the trial court by ordering herein petitioner premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then
to pay the balance of the premiums due on Policy No. AH-CPP-921-651, or P314,103.05 in 1984. In those three (3) years, the insurer accepted all the installment payments. Such
plus legal interest until fully paid, and affirming the denial of the counterclaim. The acceptance of payments speaks loudly of the insurer's intention to honor the policies it
appellate court thus explained — 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 obligation to pay premiums when due is ordinarily as indivisible obligation to pay
the entire premium. Here, the parties herein agreed to make the premiums payable in
installments, and there is no pretense that the parties never envisioned to make the We therefore sustain the Court of Appeals. We quote with approval the well-reasoned
insurance contract binding between them. It was renewed for two succeeding years, findings and conclusion of the appellate court contained in its Resolution denying the
the second and third policies being a renewal/replacement for the previous one. And motion to reconsider its Decision —
the insured never informed the insurer that it was terminating the policy because the
terms were unacceptable. 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
While it may be true that under Section 77 of the Insurance Code, the parties may not make installment payments duly approved by the insurer, would prevent the entire
agree to make the insurance contract valid and binding without payment of premiums, contract of insurance from going into effect despite payment and acceptance of the
there is nothing in said section which suggests that the parties may not agree to allow initial premium or first installment. Section 78 of the Insurance Code in effect allows
payment of the premiums in installment, or to consider the contract as valid and waiver by the insurer of the condition of prepayment by making an acknowledgment in
binding upon payment of the first premium. Otherwise, we would allow the insurer to the insurance policy of receipt of premium as conclusive evidence of payment so far as
renege on its liability under the contract, had a loss incurred (sic) before completion of to make the policy binding despite the fact that premium is actually unpaid. Section 77
payment of the entire premium, despite its voluntary acceptance of partial payments, a merely precludes the parties from stipulating that the policy is valid even if premiums
result eschewed by a basic considerations of fairness and equity. 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, at p. 175). So is an understanding to allow
To our mind, the insurance contract became valid and binding upon payment of the
insured to pay premiums in installments not so proscribed. At the very least, both
first premium, and the plaintiff could not have denied liability on the ground that
parties should be deemed in estoppel to question the arrangement they have
payment was not made in full, for the reason that it agreed to accept installment
voluntarily accepted. 
payment. . . .

The reliance by petitioner on Arce vs. Capital Surety and Insurance Co. is unavailing
Petitioner now asserts that its payment by installment of the premiums for the insurance
because the facts therein are substantially different from those in the case at bar. In Arce,
policies for 1982, 1983 and 1984 invalidated said policies because of the provisions of Sec.
no payment was made by the insured at all despite the grace period given. In the case
77 of the Insurance Code, as amended, and by the conditions stipulated by the insurer in
before Us, petitioner paid the initial installment and thereafter made staggered payments
its receipts, disclaiming liability for loss for occurring before payment of premiums.
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.
It appearing from the peculiar circumstances that the parties actually intended to make 1992, plaintiff tendered, and defendant accepted, five (5) Equitable Bank Manager's
three (3) insurance contracts valid, effective and binding, petitioner may not be allowed to Checks in the total amount of P225,753.45 as renewal premium payments for which
renege on its obligation to pay the balance of the premium after the expiration of the Official Receipt Direct Premium No. 62926 (Exhibit "Q", Record, p. 191) was issued by
whole term of the third policy (No. AH-CPP-9210651) in March 1985. Moreover, as defendant. On July 14, 1992, Masagana made its formal demand for indemnification for
correctly observed by the appellate court, where the risk is entire and the contract is the burned insured properties. On the same day, defendant returned the five (5)
indivisible, the insured is not entitled to a refund of the premiums paid if the insurer was manager's checks stating in its letter (Exhibit "R" / "8", Record, p. 192) that it was
exposed to the risk insured for any period, however brief or momentary. rejecting Masagana's claim on the following grounds:

WHEREFORE, finding no reversible error in the judgment appealed from, the same is "a) Said policies expired last May 22, 1992 and were not renewed for another term;
AFFIRMED. Costs against petitioner.
b) Defendant had put plaintiff and its alleged broker on notice of non-renewal
SO ORDERED. 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."
G.R. No. 137172            April 4, 2001
(Record, p. 5)
UCPB GENERAL INSURANCE CO., INC., petitioner,
vs.
MASAGANA TELAMART, INC., respondent. Hence Masagana filed this case.

RESOLUTION The Court of Appeals disagreed with Petitioner's stand that Respondent's tender of
payment of the premiums on 13 July 1992 did not result in the renewal of the policies,
DAVIDE, JR., C.J.: having been made beyond the effective date of renewal as provided under Policy Condition
No. 26, which states:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed
decision of the Court of Appeals, which affirmed with modification the judgment of the trial 26. Renewal Clause. — Unless the company at least forty five days in advance of the
court (a) allowing Respondent to consign the sum of P225,753.95 as full payment of the end of the policy period mails or delivers to the assured at the address shown in the
premiums for the renewal of the five insurance policies on Respondent's properties; (b) policy notice of its intention not to renew the policy or to condition its renewal upon
declaring the replacement-renewal policies effective and binding from 22 May 1992 until reduction of limits or elimination of coverages, the assured shall be entitled to renew
22 May 1993; and (c) ordering Petitioner to pay Respondent P18,645,000.00 as indemnity the policy upon payment of the premium due on the effective date of renewal.
for the burned properties covered by the renewal-replacement policies. The modification
consisted in the (1) deletion of the trial court's declaration that three of the policies were Both the Court of Appeals and the trial court found that sufficient proof exists that
in force from August 1991 to August 1992; and (2) reduction of the award of the Respondent, which had procured insurance coverage from Petitioner for a number of
attorney's fees from 25% to 10% of the total amount due the Respondent. 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. Thus:
The material operative facts upon which the appealed judgment was based are
summarized by the Court of Appeals in its assailed decision as follows: Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22, 1991 was issued on
May 7, 1990 but premium was paid more than 90 days later on August 31, 1990 under
Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5) O.R. No. 4771 (Exhs. "T" and "T-1"). Fire Insurance Policy No. 34660 for Insurance
insurance policies (Exhibits "A" to "E", Record, pp. 158-175) on its properties [in Pasay Risk Coverage from May 22, 1990 to May 22, 1991 was issued by UCPB on May 4, 1990
City and Manila] . . . . but premium was collected by UCPB only on July 13, 1990 or more than 60 days later
under O.R. No. 46487 (Exhs. "V" and "V-1"). And so were as other policies: Fire
Insurance Policy No. 34657 covering risks from May 22, 1990 to May 22, 1991 was
All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May issued on May 7, 1990 but premium therefor was paid only on July 19, 1990 under O.R.
1991 to 4:00 P.M. of 22 May 1992." On June 13, 1992, plaintiffs properties located at No. 46583 (Exhs. "W" and "W-1"). Fire Insurance Policy No. 34661 covering risks from
2410-2432 and 2442-2450 Taft Avenue, Pasay City were razed by fire. On July 13, May 22, 1990 to May 22, 1991 was issued on May 3, 1990 but premium was paid only
on July 19, 1990 under O.R. No. 46582 (Exhs. "X" and "X-1"). Fire Insurance Policy No. question were renewed by operation of law and were effective and valid on 30 June 1992
34688 for insurance coverage from May 22, 1990 to May 22, 1991 was issued on May when the fire occurred, since the premiums were paid within the 60- to 90-day credit
7, 1990 but premium was paid only on July 19, 1990 under O.R. No. 46585 (Exhs. "Y" term.
and "Y-1"). Fire Insurance Policy No. 29126 to cover insurance risks from May 22, 1989
to May 22, 1990 was issued on May 22, 1989 but premium therefor was collected only Respondent likewise disagrees with our ruling that parties may neither agree expressly or
on July 25, 1990[sic] under O.R. No. 40799 (Exhs. "AA" and "AA-1"). Fire Insurance impliedly on the extension of credit or time to pay the premium nor consider a policy
Policy No. HO/F-26408 covering risks from January 12, 1989 to January 12, 1990 was binding before actual payment. It urges the Court to take judicial notice of the fact that
issued to Intratrade Phils. (Masagana's sister company) dated December 10, 1988 but despite the express provision of Section 77 of the Insurance Code, extension of credit
premium therefor was paid only on February 15, 1989 under O.R. No. 38075 (Exhs. terms in premium payment has been the prevalent practice in the insurance industry. Most
"BB" and "BB-1"). Fire Insurance Policy No. 29128 was issued on May 22, 1989 but insurance companies, including Petitioner, extend credit terms because Section 77 of the
premium was paid only on July 25, 1989 under O.R. No. 40800 for insurance coverage Insurance Code is not a prohibitive injunction but is merely designed for the protection of
from May 22, 1989 to May 22, 1990 (Exhs. "CC" and "CC-1"). Fire Insurance Policy No. the parties to an insurance contract. The Code itself, in Section 78, authorizes the validity
29127 was issued on May 22, 1989 but premium was paid only on July 17, 1989 under of a policy notwithstanding non-payment of premiums.
O.R. No. 40682 for insurance risk coverage from May 22, 1989 to May 22, 1990 (Exhs.
"DD" and "DD-1"). Fire Insurance Policy No. HO/F-29362 was issued on June 15, 1989
Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its
but premium was paid only on February 13, 1990 under O.R. No. 39233 for insurance
awareness of Section 77 Petitioner persuaded and induced Respondent to believe that
coverage from May 22, 1989 to May 22, 1990 (Exhs. "EE" and "EE-1"). Fire Insurance
payment of premium on the 60- to 90-day credit term was perfectly alright; in fact it
Policy No. 26303 was issued on November 22, 1988 but premium therefor was
accepted payments within 60 to 90 days after the due dates. By extending credit and
collected only on March 15, 1989 under O.R. NO. 38573 for insurance risks coverage
habitually accepting payments 60 to 90 days from the effective dates of the policies, it has
from December 15, 1988 to December 15, 1989 (Exhs. "FF" and "FF-1").
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
Moreover, according to the Court of Appeals the following circumstances constitute after payment of the premium.
preponderant proof that no timely notice of non-renewal was made by Petitioner:
Petitioner filed an opposition to the Respondent's motion for reconsideration. It argues
(1) Defendant-appellant received the confirmation (Exhibit "11", Record, p. 350) from that both the trial court and the Court of Appeals overlooked the fact that on 6 April 1992
Ultramar Reinsurance Brokers that plaintiff's reinsurance facility had been confirmed up Petitioner sent by ordinary mail to Respondent a notice of non-renewal and sent by
to 67.5% only on April 15, 1992 as indicated on Exhibit "11". Apparently, the notice of personal delivery a copy thereof to Respondent's broker, Zuellig. Both courts likewise
non-renewal (Exhibit "7," Record, p. 320) was sent not earlier than said date, or within ignored the fact that Respondent was fully aware of the notice of non-renewal. A reading
45 days from the expiry dates of the policies as provided under Policy Condition No. 26; of Section 66 of the Insurance Code readily shows that in order for an insured to be
(2) Defendant insurer unconditionally accepted, and issued an official receipt for, the entitled to a renewal of a non-life policy, payment of the premium due on the effective
premium payment on July 1[3], 1992 which indicates defendant's willingness to date of renewal should first be made. Respondent's argument that Section 77 is not a
assume the risk despite only a 67.5% reinsurance cover[age]; and (3) Defendant prohibitive provision finds no authoritative support.
insurer appointed Esteban Adjusters and Valuers to investigate plaintiff's claim as
shown by the letter dated July 17, 1992 (Exhibit "11", Record, p. 254).
Upon a meticulous review of the records and reevaluation of the issues raised in the
motion for reconsideration and the pleadings filed thereafter by the parties, we resolved
In our decision of 15 June 1999, we defined the main issue to be "whether the fire insurance policies
issued by petitioner to the respondent covering the period from May 22, 1991 to May 22, 1992 . . . had to grant the motion for reconsideration. The following facts, as found by the trial court
been extended or renewed by an implied credit arrangement though actual payment of premium was and the Court of Appeals, are indeed duly established:
tendered on a later date and after the occurrence of the (fire) risk insured against." We resolved this
issue in the negative in view of Section 77 of the Insurance Code and our decisions in Valenzuela v. 1. For years, Petitioner had been issuing fire policies to the Respondent, and these
Court of Appeals; South Sea Surety and Insurance Co., Inc. v. Court of Appeals; and Tibay v. Court of
Appeals.  Accordingly, we reversed and set aside the decision of the Court of Appeals.

policies were annually renewed.

Respondent seasonably filed a motion for the reconsideration of the adverse verdict. It 2. Petitioner had been granting Respondent a 60- to 90-day credit term within which
alleges in the motion that we had made in the decision our own findings of facts, which are to pay the premiums on the renewed policies.
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
3. There was no valid notice of non-renewal of the policies in question, as there is no notwithstanding any stipulation therein that it shall not be binding until premium is
proof at all that the notice sent by ordinary mail was received by Respondent, and the actually paid.
copy thereof allegedly sent to Zuellig was ever transmitted to Respondent.
A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of
4. The premiums for the policies in question in the aggregate amount of P225,753.95 Appeals, wherein we ruled that 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
were paid by Respondent within the 60- to 90-day credit term and were duly accepted
loss. We said therein, thus:
and received by Petitioner's cashier.
We hold that the subject policies are valid even if the premiums were paid on
The instant case has to rise or fall on the core issue of whether Section 77 of the installments. The records clearly show that the petitioners and private respondent
Insurance Code of 1978 (P.D. No. 1460) must be strictly applied to Petitioner's advantage intended subject insurance policies to be binding and effective notwithstanding the
despite its practice of granting a 60- to 90-day credit term for the payment of premiums. staggered payment of the premiums. The initial insurance contract entered into in 1982
was renewed in 1983, then in 1984. In those three years, the insurer accepted all the
Section 77 of the Insurance Code of 1978 provides: 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
SECTION 77. An insurer is entitled to payment of the premium as soon as the thing equity and fairness would not allow the insurer to continue collecting and accepting the
insured is exposed to the peril insured against. Notwithstanding any agreement to the premiums, although paid on installments, and later deny liability on the lame excuse
contrary, no policy or contract of insurance issued by an insurance company is valid that the premiums were not prepaid in full.
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. Not only that. In Tuscany, we also quoted with approval the following pronouncement of
the Court of Appeals in its Resolution denying the motion for reconsideration of its
This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) decision:
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 R.A. No. 3540, While the import of Section 77 is that prepayment of premiums is strictly required as a
approved on 21 June 1963, which read: 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
SECTION 72. An insurer is entitled to payment of premium as soon as the thing insured contract of insurance from going into effect despite payment and acceptance of the
is exposed to the peril insured against, unless there is clear agreement to grant the initial premium or first installment. Section 78 of the Insurance Code in effect allows
insured credit extension of the premium due. No policy issued by an insurance waiver by the insurer of the condition of prepayment by making an acknowledgment in
company is valid and binding unless and until the premium thereof has been paid. the insurance policy of receipt of premium as conclusive evidence of payment so far as
(Italic supplied) 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,
It can be seen at once that Section 77 does not restate the portion of Section 72 expressly
and such an agreement is not contrary to morals, good customs, public order or public
permitting an agreement to extend the period to pay the premium. But are there
policy (De Leon, The Insurance Code, p. 175). So is an understanding to allow insured
exceptions to Section 77?
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
The answer is in the affirmative. accepted.

The first exception is provided by Section 77 itself, and that is, in case of a life or By the approval of the aforequoted findings and conclusion of the Court of
industrial life policy whenever the grace period provision applies. Appeals, Tuscany has provided a fourth exception to Section 77, namely, that the insurer
may grant credit extension for the payment of the premium. This simply means that if the
The second is that covered by Section 78 of the Insurance Code, which provides: 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
SECTION 78. Any acknowledgment in a policy or contract of insurance of the receipt of though the premium is paid after the loss but within the credit term.
premium is conclusive evidence of its payment, so far as to make the policy binding,
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance The following are the established facts:
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 On July 21, 1960, upon defendant's application, plaintiff issued in its favor Fire Insurance
the parties. Article 1306 of the Civil Code provides: Policy No. 9749 for P500,000.00 whereby plaintiff insured defendant's building, machinery
and equipment for a term of one year from July 21, 1960 to July 21, 1961 against loss by
ARTICLE 1306. The contracting parties may establish such stipulations clauses, terms fire. The premium and other charges including the margin fee surcharge of P590.76 and
and conditions as they may deem convenient, provided they are not contrary to law, the documentary stamps in the amount of P156.60 affixed on the Policy, amounted to
morals, good customs, public order, or public policy. P10,593.36.

Finally in the instant case, it would be unjust and inequitable if recovery on the policy It is undisputed that defendant did not pay the premium stipulated in the Policy when it
would not be permitted against Petitioner, which had consistently granted a 60- to 90-day was issued nor at any time thereafter.
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 On April 19, 1961, or before the expiration of the one-year term, plaintiff notified
such practice. Estoppel then is the fifth exception to Section 77. defendant, through its Indorsement No. F-6963/61, of the cancellation of the Policy
allegedly upon request of defendant. The latter has denied having made such a request. In
WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED and SET said Indorsement, plaintiff credited defendant with the amount of P3,110.25 for the
ASIDE, and a new one is hereby entered DENYING the instant petition for failure of unexpired period of 94 days, and claimed the balance of P7,483.11 representing ,learned
Petitioner to sufficiently show that a reversible error was committed by the Court of premium from July 21, 1960 to 18th April 1961 or, say 271 days." On July 6, 1961,
Appeals in its challenged decision, which is hereby AFFIRMED in toto. plaintiff demanded in writing for the payment of said amount. Defendant, through counsel,
disclaimed any liability in its reply- letter of August 15, 1961, contending, in essence, that
No pronouncement as to cost. it need not pay premium "because the Insurer did not stand liable for any indemnity
during the period the premiums were not paid."
SO ORDERED.
On January 30, 1962, plaintiff commenced action in the Court of First Instance of Manila,
Branch IV (Civil Case No. 49468), to recover the amount of P7,483.11 as "earned
premium." Defendant controverted basically on the theory that its failure "to pay the
G.R. No. L-25317 August 6, 1979 premium after the issuance of the policy put an end to the insurance contract and
rendered the policy unenforceable."
PHILIPPINE PHOENIX SURETY & INSURANCE COMPANY, Plaintiff-Appellee,
vs. WOODWORKS, INC., Defendant-Appellant. On September 13, 1962, judgment was rendered in plaintiff's favor "ordering defendant to
pay plaintiff the sum of P7,483.11, with interest thereon at the rate of 6%, per annum
Zosimo Rivas for appellant. from January 30, 1962, until the principal shall have been fully paid, plus the sum of
Manuel O. Chan for appellee. P700.00 as attorney's fees of the plaintiff, and the costs of the suit." From this adverse
Decision, defendant appealed to the Court of Appeals which, as heretofore stated, certified
MELENCIO-HERRERA, J.: the case to us on a question of law.

This case was certified to this Tribunal by the Court of Appeals in its Resolution of October The errors assigned read:
4, 1965 on a pure question of law and "because the issues raised are practically the same
as those in CA-G.R. No. 32017-R" between the same parties, which case had been 1. The lower court erred in sustaining that Fire Insurance Policy, Exhibit A, was a binding
forwarded to us on April 1, 1964. The latter case, "Philippine Phoenix Surety & Insurance contract even if the premium stated in the policy has not been paid.
Inc. vs. Woodworks, Inc.," docketed in this Court as L-22684, was decided on August 31,
1967 and has been reported in 20 SCRA 1270. 2. That the lower court erred in sustaining that the premium in Insurance Policy, Exhibit B,
became an obligation which was demandable even after the period in the Policy has
Specifically, this action is for recovery of unpaid premium on a fire insurance policy issued expired.
by plaintiff, Philippine Phoenix Surety & Insurance Company, in favor of defendant
Woodworks, Inc.
3. The lower court erred in not deciding that a premium not paid is not a debt enforceable some agreement obviating the necessity for prepayment." To constitute an extension of
by action of the insurer. credit there must be a clear and express agreement therefor."

We find the appeal meritorious. From the Policy provisions, we fail 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
Insurance is "a contract whereby one undertakes for a consideration to indemnify another from the circumstances of the unconditional delivery of the Policy without prepayment of
against loss, damage or liability arising from an unknown or contingent event." The the premium, yet it is obvious that defendant had not accepted the insurer's offer to
consideration is the "premium". "The premium must be paid at the time and in the way extend credit, which is essential for the validity of such agreement.
and manner specified in the policy and, if not so paid, the policy will lapse and be forfeited
by its own terms." An acceptance of an offer to allow credit, if one was made, is as essential to make a valid
agreement for credit, to change a conditional delivery of an insurance policy to an
The provisions on premium in the subject Policy read: unconditional delivery, as it is to make any other contract. Such an acceptance could not
be merely a mental act or state of mind, but would require a promise to pay made known
in some manner to defendant.
THIS POLICY OF INSURANCE WITNESSETH, THAT in consideration of - MESSRS.
WOODWORKS, INC. - hereinafter called the Insured, paying to the PHILIPPINE PHOENIX
SURETY AND INSURANCE, INC., hereinafter called the Company, the sum of - PESOS NINE In this respect, the instant case differs from that involving the same parties
THOUSAND EIGHT HUNDRED FORTY SIX ONLY - the Premium for the first period entitled Philippine Phoenix Surety & Insurance Inc. vs. Woodworks, Inc., where recovery of
hereinafter mentioned. ... 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
xxx xxx xxx
partial payment of premiums has been made whatsoever.

THE COMPANY HEREBY AGREES with the Insured ... that if the Property above described,
Since the premium had not been paid, the policy must be deemed to have lapsed.
or any part thereof, shall be destroyed or damaged by Fire or Lightning after payment of
Premium, at any time between 4:00 o'clock in the afternoon of the TWENTY FIRST day of
JULY One Thousand Nine Hundred and SIXTY and 4:00 o'clock in the afternoon of the The non-payment of premiums does not merely suspend but put, an end to an insurance
TWENTY FIRST day of JULY One Thousand Nine Hundred and SIXTY ONE. ... (Emphasis contract, since the time of the payment is peculiarly of the essence of the contract.
supplied)
... the rule is that under policy provisions that upon the failure to make a payment of a
Paragraph "2" of the Policy further contained the following condition: 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.
2. No payment in respect of any premium shall be deemed to be payment to the Company
This is true, for instance, in the case of life, health and accident, fire and hail insurance
unless a printed form of receipt for the same signed by an Official or duly-appointed Agent
policies.
of the Company shall have been given to the Insured.

In fact, if the peril insured against had occurred, plaintiff, as insurer, would have had a
Paragraph "10" of the Policy also provided:
valid defense against recovery under the Policy it had issued. Explicit in the Policy itself is
plaintiff's agreement to indemnify defendant for loss by fire only "after payment of
10. This insurance may be terminated at any time at the request of the Insured, in which premium," supra. Compliance by the insured with the terms of the contract is a condition
case the Company will retain the customary short period rate for the time the policy has precedent to the right of recovery.
been in force. This insurance may also at any time be terminated at the option of the
Company, on notice to that effect being given to the Insured, in which case the Company
The burden is on an insured to keep a policy in force by the payment of premiums, rather
shall be liable to repay on demand a ratable proportion of the premium for the unexpired
than on the insurer to exert every effort to prevent the insured from allowing a policy to
term from the date of the cancelment.
elapse through a failure to make premium payments. The continuance of the insurer's
obligation is conditional upon the payment of premiums, so that no recovery can be had
Clearly, the Policy provides for pre-payment of premium. Accordingly; "when the policy is upon a lapsed policy, the contractual relation between the parties having ceased.
tendered the insured must pay the premium unless credit is given or there is a waiver, or
Moreover, "an insurer cannot treat a contract as valid for the purpose of collecting On April 6, 1998, the NLRC affirmed with modification the decision of the Labor Arbiter.
premiums and invalid for the purpose of indemnity." The NLRC found the herein private respondents constructively dismissed and ordered
Radon Security to pay them their separation pay, in lieu of reinstatement with backwages,
The foregoing findings are buttressed by section 77 of the Insurance Code (Presidential as well as their monetary benefits limited to three years, plus attorney's fees equivalent to
Decree No. 612, promulgated on December 18, 1974), which now provides that no 10% of the entire amount, with Radon Security and Ever Emporium, Inc. adjudged jointly
contract of insurance issued by an insurance company is valid and binding unless and until and severally liable.
the premium thereof has been paid, notwithstanding any agreement to the contrary.
Radon Security duly moved for reconsideration, but this was denied by the NLRC in its
WHEREFORE, the judgment appealed from is reversed, and plaintiff's complaint hereby Resolution dated June 22, 1998.
dismissed.
Radon Security then filed a Petition for Certiorari docketed as G.R. No. 134891 with this
[G.R. NO. 151133 : June 30, 2008] Court, but we dismissed this petition in our Resolution of August 31, 1998.

AFP GENERAL INSURANCE CORPORATION, Petitioner, v. NOEL MOLINA, JUANITO When the Decision dated April 6, 1998 of the NLRC became final and executory, private
ARQUEZA, LEODY VENANCIO, JOSE OLAT, ANGEL CORTEZ, PANCRASIO SIMPAO, respondents filed an Urgent Motion for Execution. As a result, the NLRC Research and
CONRADO CALAPON AND NATIONAL LABOR RELATIONS COMMISSION (FIRST Information Unit submitted a Computation of the Monetary Awards in accordance with the
DIVISION), Respondents. NLRC decision. Radon Security opposed said computation in its Motion for Recomputation.

DECISION On February 5, 1999, the Labor Arbiter issued a Writ of Execution incorporating the
computation of the NLRC Research and Information Unit. That same date, the Labor
Arbiter dismissed the Motion for Recomputation filed by Radon Security. By virtue of the
QUISUMBING, J.:
writ of execution, the NLRC Sheriff issued a Notice of Garnishment against
the supersedeas bond.
This is a Petition for Review on Certiorari of the Decision dated August 20, 2001 of the
Court of Appeals in CA-G.R. SP No. 58763 which dismissed herein petitioner's special civil
Both Ever Emporium, Inc. and Radon Security moved to quash the writ of execution.
action for certiorari . Before the appellate court, petitioner AFP General Insurance
Corporation (AFPGIC) sought to reverse the Resolution dated October 5, 1999 of the
National Labor Relations Commission (NLRC) in NLRC NCR CA-011705-96 for having been On March 30, 1999, the Labor Arbiter denied both motions, and Radon Security appealed
issued with grave abuse of discretion. The NLRC affirmed the Order dated March 30, 1999 to the NLRC.
of Labor Arbiter Edgardo Madriaga in NLRC NCR Case No. 02-00672-90 which had denied
AFPGIC's Omnibus Motion to Quash Notice/Writ of Garnishment and Discharge AFPGIC's On April 14, 1999, AFPGIC entered the fray by filing before the Labor Arbiter an Omnibus
appeal bond for failure of Radon Security & Allied Services Agency (Radon Security) to pay Motion to Quash Notice/Writ of Garnishment and to Discharge AFPGIC's Appeal Bond on
the premiums on said bond. Equally challenged is the Resolution dated December 14, the ground that said bond "has been cancelled and thus non-existent in view of the failure
2001 of the appellate court in CA-G.R. SP No. 58763 which denied herein petitioner's of Radon Security to pay the yearly premiums."
motion for reconsideration.
On April 30, 1999, the Labor Arbiter denied AFPGIC's Omnibus Motion for lack of
The facts of this case are not disputed. merit. The Labor Arbiter pointed out that the question of non-payment of premiums is a
dispute between the party who posted the bond and the insurer; to allow the bond to be
The private respondents are the complainants in a case for illegal dismissal, docketed as cancelled because of the non-payment of premiums would result in a factual and legal
NLRC NCR Case No. 02-00672-90, filed against Radon Security & Allied Services Agency absurdity wherein a surety will be rendered nugatory by the simple expedient of non-
and/or Raquel Aquias and Ever Emporium, Inc. In his Decision dated August 20, 1996, the payment of premiums.
Labor Arbiter ruled that the private respondents were illegally dismissed and ordered
Radon Security to pay them separation pay, backwages, and other monetary claims. The petitioner then appealed the Labor Arbiter's order to the NLRC. The appeals of Radon
Security and AFPGIC were jointly heard as NLRC NCR CA-011705-96.
Radon Security appealed the Labor Arbiter's decision to public respondent NLRC and
posted a supersedeas bond, issued by herein petitioner AFPGIC as surety. The appeal was On October 5, 1999, the NLRC disposed of NLRC NCR CA-011705-96 in this wise:
docketed as NLRC NCR CA-011705-96.
WHEREFORE, premises considered, the appeals under consideration are hereby v. Cruz Arnaldo, which reiterated that an insurer may cancel an insurance policy for non-
DISMISSED for lack of merit. payment of premium. Hence, according to petitioner, the Court of Appeals committed a
reversible error in not holding that under Section 77 of the Insurance Code, the surety
SO ORDERED. bond between it and Radon Security was not valid and binding for non-payment of
premiums, even as against a third person who was intended to benefit therefrom.
In dismissing the appeal of AFPGIC, the NLRC pointed out that AFPGIC's theory that the
bond cannot anymore be proceeded against for failure of Radon Security to pay the The private respondents adopted in toto the ratiocinations of the Court of Appeals that
premium is untenable, considering that the bond is effective until the finality of the inasmuch as a supersedeas bond was posted for the benefit of a third person to guarantee
decision. The NLRC stressed that a contrary ruling would allow respondents to simply stop that the money judgment will be satisfied in case it is affirmed on appeal, the third person
paying the premium to frustrate satisfaction of the money judgment. who stands to benefit from said bond is entitled to notice of its cancellation for any reason.
Likewise, the NLRC should have been notified to enable it to take the proper action under
the circumstances. The respondents submit that from its very nature, a supersedeas bond
AFPGIC then moved for reconsideration, but the NLRC denied the motion in its
remains effective and the surety liable thereon until formally discharged from said liability.
Resolution dated February 29, 2000.
To hold otherwise would enable a losing party to frustrate a money judgment by the
simple expedient of ceasing to pay premiums.
AFPGIC then filed a special civil action for certiorari, docketed as CA-G.R. SP No. 58763,
with the Court of Appeals, on the ground that the NLRC committed a grave abuse of
We find merit in the submissions of the private respondents.
discretion in affirming the Order dated March 30, 1999 of the Labor Arbiter.

The controversy before the Court involves more than just the mere application of the
On August 20, 2001, the appellate court dismissed CA-G.R. SP No. 58763, disposing as
provisions of the Insurance Code to the factual circumstances. This instant case, after all,
follows:
traces its roots to a labor controversy involving illegally dismissed workers. It thus entails
the application of labor laws and regulations. Recall that the heart of the dispute is not an
WHEREFORE, the foregoing considered, the petition is denied due course and ordinary contract of property or life insurance, but an appeal bond required by both
accordingly DISMISSED. substantive and adjective law in appeals in labor disputes, specifically Article 223 of the
Labor Code, as amended by Republic Act No. 6715, and Rule VI, Section 6 of the Revised
SO ORDERED. NLRC Rules of Procedure. Said provisions mandate that in labor cases where the judgment
appealed from involves a monetary award, the appeal may be perfected only upon the
AFPGIC seasonably moved for reconsideration, but this was denied by the appellate court posting of a cash or surety bond issued by a reputable bonding company accredited by the
in its Resolution of December 14, 2001. NLRC. The perfection of an appeal by an employer "only" upon the posting of a cash or
surety bond clearly and categorically shows the intent of the lawmakers to make the
posting of a cash or surety bond by the employer to be the exclusive means by which an
Hence, the instant case anchored on the lone assignment of error that: employer's appeal may be perfected. Additionally, the filing of a cash or surety bond is a
jurisdictional requirement in an appeal involving a money judgment to the NLRC. In
THE COURT OF APPEALS SERIOUSLY ERRED IN SUSTAINING THE PUBLIC RESPONDENT addition, Rule VI, Section 6 of the Revised NLRC Rules of Procedure is a contemporaneous
NLRC ALTHOUGH THE LATTER GRAVELY ABUSED ITS DISCRETION WHEN IT ARBITRARILY construction of Article 223 by the NLRC. As an interpretation of a law by the implementing
IGNORED THE FACT THAT SUBJECT APPEAL BOND WAS ALREADY CANCELLED FOR NON- administrative agency, it is accorded great respect by this Court. Note that Rule VI,
PAYMENT OF PREMIUM AND THUS IT COULD NOT BE SUBJECT OF EXECUTION OR Section 6 categorically states that the cash or surety bond posted in appeals involving
GARNISHMENT. monetary awards in labor disputes "shall be in effect until final disposition of the case."
This could only be construed to mean that the surety bond shall remain valid and in force
The petitioner contends that under Section 64 of the Insurance Code, which is deemed until finality and execution of judgment, with the resultant discharge of the surety
written into every insurance contract or contract of surety, an insurer may cancel a policy company only thereafter, if we are to give teeth to the labor protection clause of the
upon non-payment of the premium. Said cancellation is binding upon the beneficiary as Constitution. To construe the provision any other way would open the floodgates to
the right of a beneficiary is subordinate to that of the insured. Petitioner points out that unscrupulous and heartless employers who would simply forego paying premiums on their
in South Sea Surety & Insurance Co., Inc. v. CA, this Court held that payment of premium surety bond in order to evade payment of the monetary judgment. The Court cannot be a
is a condition precedent to and essential for the efficaciousness of a contract of party to any such iniquity.
insurance. Hence, following UCPB General Ins. Co., Inc. v. Masagana Telamart, Inc., no
insurance policy, other than life, issued originally or on renewal is valid and binding until Moreover, the Insurance Code supports the private respondents' arguments. The
actual payment of the premium. The petitioner also points to Malayan Insurance Co., Inc. petitioner's reliance on Sections 64 and 77 of the Insurance Code is misplaced. The said
provisions refer to insurance contracts in general. The instant case pertains to a surety G.R. No. 130421 June 28, 1999
bond; thus, the applicable provision of the Insurance Code is Section 177, which
specifically governs suretyship. It provides that a surety bond, once accepted by the AMERICAN HOME ASSURANCE COMPANY, petitioner,
obligee becomes valid and enforceable, irrespective of whether or not the premium has vs.
been paid by the obligor. The private respondents, the obligees here, accepted the bond ANTONIO CHUA, respondent.
posted by Radon Security and issued by the petitioner. Hence, the bond is both valid and
enforceable. A verbis legis non est recedendum (from the language of the law there must
DAVIDE, JR. C.J.:
be no departure).

In this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure,
When petitioner surety company cancelled the surety bond because Radon Security failed
petitioner seeks the reversal of the decision of the Court of Appeals in CA-G.R. CV No.
to pay the premiums, it gave due notice to the latter but not to the NLRC. By its failure to
40751, which affirmed in toto the decision of the Regional Trial Court, Makati City, Branch
give notice to the NLRC, AFPGIC failed to acknowledge that the NLRC had jurisdiction not
150 (hereafter trial court), in Civil Case No. 91-1009.
only over the appealed case, but also over the appeal bond. This oversight amounts to
disrespect and contempt for a quasi-judicial agency tasked by law with resolving labor
disputes. Until the surety is formally discharged, it remains subject to the jurisdiction of Petitioner is a domestic corporation engaged in the insurance business. Sometime in 1990,
the NLRC. respondent obtained from petitioner a fire insurance covering the stock-in-trade of his
business, Moonlight Enterprises, located at Valencia, Bukidnon. The insurance was due to
expire on 25 March 1990.
Our ruling, anchored on concern for the employee, however, does not in any way seek to
derogate the rights and interests of the petitioner as against Radon Security. The former is
not devoid of remedies against the latter. Under Section 176 of the Insurance Code, the On 5 April 1990 respondent issued PCI Bank Check No. 352123 in the amount of
liability of petitioner and Radon Security is solidary in nature. There is solidary liability only P2,983.50 to petitioner's agent, James Uy, as payment for the renewal of the policy. In
when the obligation expressly so states, or when the law so provides, or when the nature turn, the latter delivered Renewal Certificate No. 00099047 to respondent. The check was
of the obligation so requires. Since the law provides that the liability of the surety drawn against a Manila bank and deposited in petitioner's bank account in Cagayan de Oro
company and the obligor or principal is joint and several, then either or both of them may City. The corresponding official receipt was issued on 10 April. Subsequently, a new
be proceeded against for the money award. insurance policy, Policy No. 206-4234498-7, was issued, whereby petitioner undertook to
indemnify respondent for any damage or loss arising from fire up to P200,000 for the
period 25 March 1990 to 25 March 1991.
The Labor Arbiter directed the NLRC Sheriff to garnish the surety bond issued by the
petitioner. The latter, as surety, is mandated to comply with the writ of garnishment, for
as earlier pointed out, the bond remains enforceable and under the jurisdiction of the On 6 April 1990 Moonlight Enterprises was completely razed by fire. Total loss was
NLRC until it is discharged. In turn, the petitioner may proceed to collect the amount it estimated between P4,000,000 and P5,000,000. Respondent filed an insurance claim with
paid on the bond, plus the premiums due and demandable, plus any interest owing from petitioner and four other co-insurers, namely, Pioneer Insurance and Surety Corporation,
Radon Security. This is pursuant to the principle of subrogation enunciated in Article Prudential Guarantee and Assurance, Inc., Filipino Merchants Insurance Co. and Domestic
2067 of the Civil Code which we apply to the suretyship agreement between AFPGIC and Insurance Company of the Philippines. Petitioner refused to honor the claim
Radon Security, in accordance with Section 178 of the Insurance Code. Finding no notwithstanding several demands by respondent, thus, the latter filed an action against
reversible error committed by the Court of Appeals in CA-G.R. SP No. 58763, we sustain petitioner before the trial court.
the challenged decision.
In its defense, petitioner claimed there was no existing insurance contract when the fire
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed Decision occurred since respondent did not pay the premium. It also alleged that even assuming
dated August 20, 2001 of the Court of Appeals in CA-G.R. SP No. 58763 and the there was a contract, respondent violated several conditions of the policy, particularly: (1)
Resolution dated December 14, 2001, of the appellate court denying the herein his submission of fraudulent income tax return and financial statements; (2) his failure to
petitioner's motion for reconsideration are AFFIRMED. Costs against the petitioner. establish the actual loss, which petitioner assessed at P70,000; and (3) his failure to notify
to petitioner of any insurance already effected to cover the insured goods. These
violations, petitioner insisted, justified the denial of the claim.
SO ORDERED.

The trial court ruled in favor of respondent. It found that respondent paid by way of check
a day before the fire occurred. The check, which was deposited in petitioner's bank
account, was even acknowledged in the renewal certificate issued by petitioner's agent. It
declared that the alleged fraudulent documents were limited to the disparity between the
official receipts issued by the Bureau of Internal Revenue (BIR) and the income tax returns and cites the case of Arce v.  Capital Insurance & Surety Co.,  Inc., where we ruled
for the years 1987 to 1989. All the other documents were found to be genuine. that unless and until the premium is paid there is no insurance.
Nonetheless, it gave credence to the BIR certification that respondent paid the
corresponding taxes due for the questioned years. Petitioner emphasizes that when the fire occurred on 6 April 1990 the insurance contract
was not yet subsisting pursuant to Article 1249 of the Civil Code, which recognizes that a
As to respondent's failure to notify petitioner of the other insurance contracts covering the check can only effect payment once it has been cashed. Although respondent testified that
same goods, the trial court held that petitioner failed to show that such omission was he gave the check on 5 April to a certain James Uy, the check, drawn against a Manila
intentional and fraudulent. Finally, it noted that petitioner's investigation of respondent's bank and deposited in a Cagayan de Oro City bank, could not have been cleared by 6
claim was done in collaboration with the representatives of other insurance companies who April, the date of the fire. In fact, the official receipt issued for respondent's check
found no irregularity therein. In fact, Pioneer Insurance and Surety Corporation and payment was dated 10 April 1990, four days after the fire occurred.
Prudential Guarantee and Assurance, Inc. promptly paid the claims filed by respondent.
Citing jurisprudence, petitioner also contends that respondent's non-disclosure of the other
The trial court decreed as follows: insurance contracts rendered the policy void. It underscores the trial court's neglect in
considering the Commission on Audit's certification that the BIR receipts submitted by
WHEREFORE, judgment is hereby rendered in favor of [respondent] and against the respondent were, in effect, fake since they were issued to other persons. Finally, petitioner
[petitioner] ordering the latter to pay the former the following: argues that the award of damages was excessive and unreasonable considering that it did
not act in bad faith in denying respondent's claim.
1. P200,000.00, representing the amount of the insurance, plus legal interest from
the date of filing of this case; Respondent counters that the issue of non-payment of premium is a question of fact which
can no longer be assailed. The trial court's finding on the matter, which was affirmed by
the Court of Appeals, is conclusive.
2. P200,000.00 as moral damages;

Respondent refutes the reason for petitioner's denial of his claim. As found by the trial
3. P200,000.00 as loss of profit;
court, petitioner's loss adjuster admitted prior knowledge of respondent's existing
insurance contracts with the other insurance companies. Nonetheless, the loss adjuster
4. P100,000.00 as exemplary damages; recommended the denial of the claim, not because of the said contracts, but because he
was suspicious of the authenticity of certain documents which respondent submitted in
5. P50,000.00 as attorney's fees; and filing his claim.

6. Cost of suit. To bolster his argument, respondent cites Section 66 of the Insurance Code, which requires
the insurer to give a notice to the insured of its intention to terminate the policy forty-five
On appeal, the assailed decision was affirmed in toto by the Court of Appeals. The Court of Appeals days before the policy period ends. In the instant case, petitioner opted not to terminate
found that respondent's claim was substantially proved and petitioner's unjustified refusal to pay the the policy. Instead, it renewed the policy by sending its agent to respondent, who was
claim entitled respondent to the award of damages. issued a renewal certificate upon delivery of his check payment for the renewal of
premium. At this precise moment the contract of insurance was executed and already in
effect. Respondent also claims that it is standard operating procedure in the provinces to
Its motion for reconsideration of the judgment having been denied, petitioner filed the petition in this
case. Petitioner reiterates its stand that there was no existing insurance contract between the parties. It pay insurance premiums by check when collected by insurance agents.
invokes Section 77 of the Insurance Code, which provides:
On the issue of damages, respondent maintains that the amounts awarded were
An insurer is entitled to payment of the premium as soon as the thing insured is reasonable. He cites numerous trips he had to make from Cagayan de Oro City to Manila
exposed to the peril insured against. Notwithstanding any agreement to the to follow up his rightful claim. He imputes bad faith on petitioner who made enforcement
contrary, no policy or contract of insurance issued by an insurance company is valid of his claim difficult in the hope that he would eventually abandon it. He further
and binding unless and until the premium thereof has been paid, except in the case emphasizes that the adjusters of the other insurance companies recommended payment of
of life or an industrial life policy whenever the grace period provision applies. his claim, and they complied therewith.

In its reply, petitioner alleges that the petition questions the conclusions of law made by
the trial court and the Court of Appeals.
Petitioner invokes respondent's admission that his check for the renewal of the policy was According to the trial court the renewal certificate issued to respondent contained the
received only on 10 April 1990, taking into account that the policy period was 25 March acknowledgment that premium had been paid. It is not disputed that the check drawn by
1990 to 25 March 1991. The official receipt was dated 10 April 1990. Anent respondent's respondent in favor of petitioner and delivered to its agent was honored when presented
testimony that the check was given to petitioner's agent, a certain James Uy, the latter and petitioner forthwith issued its official receipt to respondent on 10 April 1990. Section
points out that even respondent was not sure if Uy was indeed its agent. It faults 306 of the Insurance Code provides that any insurance company which delivers a policy or
respondent for not producing Uy as his witness and not taking any receipt from him upon contract of insurance to an insurance agent or insurance broker shall be deemed to have
presentment of the check. Even assuming that the check was received a day before the authorized such agent or broker to receive on its behalf payment of any premium which is
concurrence of the fire, there still could not have been payment until the check was due on such policy or contract of insurance at the time of its issuance or delivery or which
cleared. becomes due thereon. In the instant case, the best evidence of such authority is the fact
that petitioner accepted the check and issued the official receipt for the payment. It is, as
Moreover, petitioner denies respondent's allegation that it intended a renewal of the well, bound by its agent's acknowledgment of receipt of payment.
contract for the renewal certificate clearly specified the following conditions:
Sec. 78 of the Insurance Code explicitly provides:
Subject to the payment by the assured of the amount due prior to renewal date, the
policy shall be renewed for the period stated. 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,
Any payment tendered other than in cash is received subject to actual cash notwithstanding any stipulation therein that it shall not be binding until the premium
collection. is actually paid.

Subject to no loss prior to premium and payment. If there be any loss, is not This Section establishes a legal fiction of payment and should be interpreted as an
covered [sic]. exception to Section 77.

Petitioner asserts that an insurance contract can only be enforced upon the payment of Is respondent guilty of the policy violations imputed against him? We are not convinced by
the premium, which should have been made before the renewal period. petitioner's arguments. The submission of the alleged fraudulent documents pertained to
respondent's income tax returns for 1987 to 1989. Respondent, however, presented a BIR
certification that he had paid the proper taxes for the said years. The trial court and the
Finally, in assailing the excessive damages awarded to respondent petitioner stresses that
Court of Appeals gave credence to the certification and it being a question of fact, we hold
the policy in issue was limited to a liability of P200,000; but the trial court granted the
that said finding is conclusive.
following monetary awards: P200,000 as actual damages; P200,000 as moral damages;
P100,000 as exemplary damages; and P50,000 as attorney's fees.
Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-
insurers, non-disclosure thereof is a violation that entitles the insurer to avoid the policy.
The following issues must be resolved:  first, whether there was a valid payment of
This condition is common in fire insurance policies and is known as the "other insurance
premium, considering that respondent's check was cashed after the occurrence of the
clause." The purpose for the inclusion of this clause is to prevent an increase in the moral
fire; second, whether respondent violated the policy by his submission of fraudulent
hazard. We have ruled on its validity and the case of Geagonia v. Court of Appeals clearly
documents and non-disclosure of the other existing insurance contracts; and finally,
illustrates such principle. However, we see an exception in the instant case.
whether respondent is entitled to the award of damages.

Citing Section 29 of the Insurance Code, the trial court reasoned that respondent's failure
The general rule in insurance laws is that unless the premium is paid the insurance policy
to disclose was not intentional and fraudulent. The application of Section 29 is misplaced.
is not valid and binding. The only exceptions are life and industrial life insurance. Whether
Section 29 concerns concealment which is intentional. The relevant provision is Section 75,
payment was indeed made is a question of fact which is best determined by the trial court.
which provides that:
The trial court found, as affirmed by the Court of Appeals, that there was a valid check
payment by respondent to petitioner. Well-settled is the rule that the factual findings and
conclusions of the trial court and the Court of Appeals are entitled to great weight and A policy may declare that a violation of specified provisions thereof shall avoid it,
respect, and will not be disturbed on appeal in the absence of any clear showing that the otherwise the breach of an immaterial provision does not avoid the policy.
trial court overlooked certain facts or circumstances which would substantially affect the
disposition of the case. We see no reason to depart from this ruling. To constitute a violation the other existing insurance contracts must be upon the same
subject matter and with the same interest and risk. Indeed, respondent acquired several
co-insurers and he failed to disclose this information to petitioner. Nonetheless, petitioner
is estopped from must invoking this argument. The trial court cited the testimony of Article 2220 of the Civil Code, moral damages may be awarded in breaches of contracts
petitioner's loss adjuster who admitted previous knowledge of the co-insurers. Thus, where the defendant acted fraudulently or in bad faith. We find no such fraud or bad faith.
It must again be stressed that moral damages are emphatically not intended to enrich a
COURT: plaintiff at the expense of the defendant. Such damages are awarded only to enable the
injured party to obtain means, diversion or amusements that will serve to obviate the
moral suffering he has undergone, by reason of the defendant's culpable action. Its award
Q The matter of additional insurance of other companies, was that ever discussed in
is aimed at the restoration, within the limits of the possible, of the spiritual status quo
your investigation?
ante, and it must be proportional to the suffering inflicted. When awarded, moral damages
must not be palpably and scandalously excessive as to indicate that it was the result of
A Yes, sir. passion, prejudice or corruption on the part of the trial court judge.

Q In other words, from the start, you were aware the insured was insured with other The law is likewise clear that in contracts and quasi-contracts the court may award
companies like Pioneer and so on? exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive,
or malevolent manner. Nothing thereof can be attributed to petitioner which merely tried
A Yes, Your Honor. to resist what it claimed to be an unfounded claim for enforcement of the fire insurance
policy.
Q But in your report you never recommended the denial of the claim simply because of
the non-disclosure of other insurance? [sic] As to attorney's fees, the general rule is that attorney's fees cannot be recovered as part
of damages because of the policy that no premium should be placed on the right to
A Yes, Your Honor. litigate. In short, the grant of attorney's fees as part of damages is the exception rather
than the rule; counsel's fees are not awarded every time a party prevails in a suit. It can
be awarded only in the cases enumerated in Article 2208 of the Civil Code, and in all cases
Q In other words, to be emphatic about this, the only reason you recommended the it must be reasonable. Thereunder, the trial court may award attorney's fees where it
denial of the claim, you found three documents to be spurious. That is your only basis? deems just and equitable that it be so granted. While we respect the trial court's exercise
of its discretion in this case, the award of P50,000 is unreasonable and excessive. It
A Yes, Your Honor. [Emphasis supplied] should be reduced to P10,000.

Indubitably, it cannot be said that petitioner was deceived by respondent by the latter's WHEREFORE, the instant petition is partly GRANTED. The challenged decision of the Court
non-disclosure of the other insurance contracts when petitioner actually had prior of Appeals in CA-G.R. No. 40751 is hereby MODIFIED by a) deleting the awards of
knowledge thereof. Petitioner's loss adjuster had known all along of the other existing P200,000 for loss of profit, P200,000 as moral damages and P100,000 as exemplary
insurance contracts, yet, he did not use that as basis for his recommendation of denial. damages, and b) reducing the award of attorney's fees from P50,000 to P10,000.
The loss adjuster, being an employee of petitioner, is deemed a representative of the
latter whose awareness of the other insurance contracts binds petitioner. We, therefore, No pronouncement as to costs.
hold that there was no violation of the "other insurance" clause by respondent.

Petitioner is liable to pay its share of the loss. The trial court and the Court of Appeals
were correct in awarding P200,000 for this. There is, however, merit in petitioner's
grievance against the damages and attorney's fees awarded.

There is no legal and factual basis for the award of P200,000 for loss of profit. It cannot be
denied that the fire totally gutted respondent's business; thus, respondent no longer had
any business to operate. His loss of profit cannot be shouldered by petitioner whose
obligation is limited to the object of insurance, which was the stock-in-trade, and not the
expected loss in income or profit.

Neither can we approve the award of moral and exemplary damages. At the core of this
case is petitioner's alleged breach of its obligation under a contract of insurance. Under

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