Makati Tuscany v CA G.R. No. 95546 November 6, 1992

J. Bellosillo

Facts:

American International Underwriters issued a policy in favor of Makati Tuscany Condominium Corporation with a total premium of P466,103.05. The company issued a replacement policy. Premium was again paid. In 1984, the policy was again renewed and private respondent issued to petitioner another policy. The petitioner paid 152,000 pesos then refused to furnish the balance.

The company filed an action to recover the unpaid balance of P314,103.05.

The condominium administration explained that it discontinued the payment of premiums because the policy did not contain a credit clause in its favor and that the acceptance of premiums didn’t waive any of the company rights to deny liability on any claim under the policy arising before such payments or after the expiration of the credit clause of the policy and prior to premium payment, loss wasn’t covered.

Petitioner sought for a refund.  The trial court dismissed the complaint and counterclaim owing to the argument that payment of the premiums of the policies were made during the lifetime or term of said policies, so risk attached under the policies.

The Court of Appeals ordered petitioner to pay the balance of the premiums owing to the reason that it was part of an indivisible obligation.

Petitioner now asserts that its payment by installment of the premiums for the insurance policies invalidated them because of the provisions of Sec. 77 of the Insurance Code disclaiming liability for loss for occurring before payment of premiums.

Issue: 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

Held: Judgment affirmed.

Ratio:

Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.

Petitioner concluded 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 contract of insurance is valid and binding unless the premium thereof has been paid, notwithstanding any agreement to the contrary. As a consequence, petitioner seeks a refund of all premium payments made on the alleged invalid insurance policies.

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 policies to be binding and effective notwithstanding the staggered payment of the premiums. The initial insurance contract entered into in 1982 was renewed in 1983, then in 1984. In those three (3) years, the insurer accepted all the installment payments. Such acceptance of payments speaks loudly of the insurer's intention to honor the policies it issued to petitioner.

Quoting the CA decision:

“While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the validity of the contract, we are not prepared to rule that the request to make installment payments duly approved by the insurer, would prevent the entire contract of insurance from going into effect despite payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension. So is an understanding to allow insured to pay premiums in installments not so proscribed.

The reliance by petitioner on Arce vs. Capital Surety and Insurance Co. is unavailing because the facts therein are substantially different from those in the case at bar. In Arce, no payment was made by the insured at all despite the grace period given. Here, petitioner paid the initial installment and thereafter made staggered payments resulting in full payment of the 1982 and 1983 insurance policies. For the 1984 policy, petitioner paid two (2) installments although it refused to pay the balance.

It appearing from the peculiar circumstances that the parties actually intended to make three (3) insurance contracts valid, effective and binding, petitioner may not be allowed to renege on its obligation to pay the balance of the premium after the expiration of the whole term. Moreover, as correctly observed by the appellate court, where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums paid if the insurer was exposed to the risk insured for any period, however brief or momentary.