Thursday, July 12, 2012

UCPB v Masagana G.R. No. 137172. April 4, 2001

C.J. Davide

In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision[1] of the Court of Appeals, which affirmed with modification the judgment of the trial court (a) allowing Respondent to consign the sum of P225,753.95 as full payment of the premiums for the renewal of the five insurance policies on Respondent’s properties; (b) declaring the replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering Petitioner to pay Respondent P18,645,000.00 as indemnity 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 in force from August 1991 to August 1992; and (2) reduction of the award of the attorney’s fees from 25% to 10% of the total amount due the Respondent.
Masagana obtained from UCPB five (5) insurance policies on its Manila properties.
The policies were effective from May 22, 1991 to May 22, 1992. On June 13, 1992, Masagana’s properties were razed by fire.  On July 13, 1992, plaintiff tendered five checks for P225,753.45 as renewal premium payments. A receipt was issued.  On July 14, 1992, Masagana made its formal demand for indemnification for the burned insured properties. UCPB then rejected Masagana’s claims under the argument that the fire took place before the tender of payment.
Hence Masagana filed this case.
The Court of Appeals disagreed with UCPB’s argument that Masagana’s  tender of payment of the premiums on 13 July 1992 did not result in the renewal of the policies, having been made beyond the effective date of renewal as provided under Policy Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in advance of the end of the policy period mails or delivers to the assured at the address shown in the policy notice of its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of coverages, the assured shall be entitled to renew the policy upon payment of the premium due on the effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists that Masagana, which had procured insurance coverage from UCPB for a number of 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.  Most of the premiums have been paid for more than 60 days after the issuance. Also, no timely notice of non-renewal was made by UCPB.
The Supreme Court ruled against UCPB in the first case on the issue of whether the fire insurance policies issued by petitioner to the respondent covering the period from May 22, 1991 to May 22, 1992 had been extended or renewed by an implied credit arrangement though actual payment of premium was tendered on a later date and after the occurrence of the risk insured against.
UCPB filed a motion for reconsideration.
The Supreme Court, upon observing the facts, affirmed that there was no valid notice of non-renewal of the policies in question, as there is no proof at all that the notice sent by ordinary mail was received by Masagana. Also, the premiums were paid within the grace period.

Issue: Whether Section 77 of the Insurance Code of 1978 must be strictly applied to Petitioner’s advantage despite its practice of granting a 60- to 90-day credit term for the payment of premiums.

Held: No. Petition denied.

Section 77 of the Insurance Code provides:  No policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid…
An exception to this section is Section 78 which provides:  Any 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 premium is actually paid.
Makati Tuscany v Court of Appeals- 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 loss.
Section 78 allows waiver by the insurer of the condition of prepayment and makes the policy binding despite the fact that premium is actually unpaid.  Section 77 does not expressly prohibit an agreement granting credit extension. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted.
The Tuscany case has provided another exception to Section 77 that the insurer may grant credit extension for the payment of the premium.  If the 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 though the premium is paid after the loss but within the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance 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 the parties.
It would be unjust if recovery on the policy would not be permitted against Petitioner, which had consistently granted a 60- to 90-day credit term for the payment of premiums.  Estoppel bars it from taking refuge since Masagana relied in good faith on such practice.  Estoppel then is the fifth exception.

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