Thursday, July 12, 2012

Tibay v CA G.R. No. 119655. May 24, 1996

J. Bellosillo:

Fortune Life issued a fire insurance Policy to Tibay on her two-storey residential building at Zobel Street, Makati City. The insurance was for P600,000.00 covering the period from January 23, 1987 to January 23, 1988.  On January 23 1987, Tibay only paid P600.00 of 3,000 peso premium and left a balance.
The insured building was completely destroyed by fire. Tibay then paid the balance. On the same day, she filed a claim on the policy.  Her claim was accordingly referred to the adjuster, Goodwill, which immediately wrote Violeta requesting her to furnish it with the necessary documents for the investigation and processing of her claim.  Petitioner complied, and she signed a non-waiver agreement.
Fortune denied the claim for violation of the Insurance Code. Tibay sued for damages in the amount of P600,000.00 representing the total coverage of the policy.
The trial court ruled for petitioners and made fortune liable for the total value of the insured building and personal properties. The Court of Appeals reversed the court by removing liability from Fortune after returning the premium.
Hence this petition for review.
The petitioner contended that Fortune remained liable under the subject fire insurance policy in spite of the failure of petitioners to pay their premium in full.

Issue: May a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium?

Held: No. Petition dismissed.

The pertinent provisions read:
2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the premium has been fully paid to and duly receipted by the Company in the manner provided herein.
This policy shall be deemed effective, valid and binding upon the Company only when the premiums therefor have actually been paid in full and duly acknowledged in a receipt signed by any authorized official of the company
Where the premium has only been partially paid and the balance paid only after the peril insured against has occurred, the insurance contract did not take effect and the insured cannot collect at all on the policy.  The Insurance Code which says that no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium has been paid.
What does “unless and until the premium thereof has been paid” mean?
Escosura v. San Miguel- the legislative practice was to interpret “with pay” in accordance to the intention of distinguish between full and partial payment, where the modifying term is used.
Petitioners used Philippine Phoenix v. Woodworks, where partial payment of the premium made the policy effective during the whole period of the policy.
The SC didn’t consider the 1967 Phoenix case as persuasive due to the different factual scenario.
In Makati Tuscany v CA, the parties mutually agreed that the premiums could be paid in installments, hence, this Court refused to invalidate the insurance policy.
Nothing in Article 77 of the Code suggested that the parties may not agree to allow payment of the premiums in installment, or to consider the contract as valid and binding upon payment of the first premium.
Phoenix and Tuscany demonstrated the waiver of prepayment in full by the insurer. In this case however, there was no waiver. There was a stipulation that the policy wasn’t in force until the premium has been fully paid and receipted.
There was no juridical tie of indemnification from the fractional payment of premium.  The insurance contract itself expressly provided that the policy would be effective only when the premium was paid in full. 
Verily, it is elemental law that the payment of premium is requisite to keep the policy of insurance in force.  If the premium is not paid in the manner prescribed in the policy as intended by the parties the policy is ineffective.  Partial payment even when accepted as a partial payment will not keep the policy alive.
South Sea v CA stipulated 2 exceptions to the requirement of payment of the entire premium as a prerequisite to the validity of the insurance contract.  These are when in case the insurance coverage relates to life or insurance when a grace period applies, and when the insurer makes a written acknowledgment of the receipt of premium to be conclusive evidence of payment.
Hence, in the absence of clear waiver of prepayment in full by the insurer, the insured cannot collect on the proceeds of the policy.
“The terms of the insurance policy constitute the measure of the insurer’s liability. In the absence of statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever conditions they deem best upon their obligations not inconsistent with public policy.”
J. Vitug
“All the calculations of the company are based on the hypothesis of prompt payments. They not only calculate on the receipt of the premiums when due, but on the compounding interest upon them. It is on this basis that they are enabled to offer assurance at the favorable rates they do.”
The failure of appellants to fully pay their premium prevented the contract of insurance from becoming binding an Fortune. This series of acts is tainted with misrepresentation and violates the uberrimae fidae principle of insurance contracts.
Tibay had entered into a "Non-Waiver Agreement" with the adjuster which permitted Fortune to claim non-payment of premium as a defense.
The law neither requires, nor measures the strength of the vinculum juris by any specific amount of premium payment. Payment on the premium, partly or in full, is made by the insured which the insurer accepts. In fine, it is either that a juridical tie exists (by such payment) or that it is not extant at all (by an absence thereof). Once the juridical relation comes into being, the full efficacy follows. This is a partially performed contract.
The non-payment of the balance shouldn’t result in an automatic cancellation of the contract; otherwise, the right to decide the effectivity of the contract would become potestative.
Instead, the parties should be able to demand from each other the performance of whatever obligations they had assumed or, if desired, sue timely for the rescission of the contract.
In the meanwhile, the contract endures, and an occurrence of the risk insured riggers the insurer's liability. Also, legal compensation arises where insurer's liability to the insured would simply be reduced by the balance of the premium.
It must here be noted that the insured had made, and the insurer had accepted partial premium payment on the policy weeks before the risk insured against took place. An insurance is an aleatory contract effective upon its perfection although the occurrence of a condition or event may later dictate the demandability of certain obligations. Fortune’s stipulation that insurance shall not "be . . . in force until the premium has been fully paid," and that it "shall be deemed effective, valid and binding upon the company only when the premiums therefor have actually been paid in full and duly acknowledged," override the efficaciousness of the insurance contract despite the payment and acceptance.
Article 78 of the Insurance Code “An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid“
Even if a portion was paid in the premium, the insurance coverage becomes effective and binding, any stipulation in the policy to the contrary notwithstanding.

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