Velasco v Apostol G.R. No. L-44588 May 9, 1989

J. Regalado

Facts:

Plaintiffs Velasco and Acosta were riding in their Mercury car near Speaker Perez Street, Quezon City, toward the direction of Manila. An N/S taxicab driven by defendant Santos, crossed the center island towards their direction, and finally collided with their car. The taxicab tried to return to its original lane, but was unable to climb the island, and instead, backtracked, hitting again plaintiffs' car in the left near portion, causing the latter's back portion to turn toward the center hitting a jeepney on its right.

Maharlika Insurance Co., Inc. was impleaded as a defendant with an allegation that the N/S taxicab involved was insured against third party liability for P20,000.00 with private respondent at the time of the accident.

The company claimed that there was no cause of action against it because at the time of the accident, the alleged insurance policy was not in force due to non-payment of the premium. They alleged that even if the taxicab had been insured, the complaint would still be premature since the policy provides that the insurer would be liable only when the insured becomes legally liable.

The trial court rendered judgment in favor of the plaintiff affirming Santos’ negligence as the proximate cuase. Defendants were made to pay P17,061.95 for the repair of their car and 37,000 for other damages. Maharlika Insurance Co. was exonerated on the ground that the policy was not in force for failure of the defendants to pay the initial premium.

Petitioners appealed the case to the Supreme Court with the averment that only questions of law are involved.

Issue:

1. Whether defendant Maharlika Insurance Co. Inc. is liable under the insurance policy on account of the negligence of defendant Dominador Santos.

Held: No. Petition dismissed

Ratio:

1. Petitioners averred that the respondent had agreed to grant the then prospective insured a credit extension for the premium due.

The accident arose when the old insurance law, Act No. 2427 was in effect. The accident occurred on November 27, 1973 while the complaint was filed on July 20, 1974, both before effectivity of Presidential Decree No. 612.

The former insurance law, which applies to the case under consideration, provided that:

An insurer is entitled to the payment of premium as soon as the thing insured is exposed to the peril insured against, unless there is clear agreement to grant the insured credit extension of the premium due. No policy issued by an insurance company is valid and binding unless and until the premium thereof has been paid.

The insurance policy in question would be valid and binding even without the non-payment of the premium if there was a clear agreement to grant to the insured credit extension.

Petitioners claim that “a condition requiring pre-payment of the premium is waived by a parol agreement to that effect, acceptance of the premium after delivery of the policy, the unconditional delivery of the policy, the giving of credit for the premiums, ... or any other circumstances showing that pre-payment was not intended to be insisted upon.”

The accident for which respondent insurance company is sought to be held liable occurred on November 27, 1973 while the initial premium was paid only on December 11, 1973.

Petitioners still maintained that the policy is nevertheless binding because there was an implied agreement to grant a credit extension so as to make the policy effective.

This was not tenable, because the delivery of the policy was made on March 28, 1974. Also, the premium was had been paid, in fact, more than three months before such delivery.

The payment was accepted by the insurer without any knowledge that the risk insured had occurred since such fact was concealed by the insured and was not revealed to the insurer. The delivery of the policy was far from being unconditional. Had there really been a credit extension, the insured would not have had any apprehension or hesitation to inform the respondent insurance company at the time of or before the payment of the premium that an accident for which the insurer may be held liable had already happened.

Petitioners failed to point out "any other circumstances showing that prepayment of premium was not intended to be insisted upon." They have thus failed to discharge the burden of proving their allegation of the existence of the purported credit extension agreement.

Section 77 of the Insurance Code of 1978 has deleted the clause "unless there is clear agreement to grant the insured credit extension of the premium due" which was then involved in this controversy.

There is bad faith on the part of defendants due to a reprehensible disregard of the principle that insurance contracts are “uberrimae fidae and demand the most abundant good faith.”