EN BANC
[G.R. No. L-1669. August 31, 1950. ]
PAZ LOPEZ DE CONSTANTINO, Plaintiff-Appellant, v. ASIA LIFE INSURANCE COMPANY, Defendant-Appellee.
[G.R. No. L-1670. August 31, 1950].
AGUSTINA PERALTA, Plaintiff-Appellant, v. ASIA LIFE INSURANCE COMPANY, Defendant-Appellee.
Mariano Lozada, for appellant Constantino.
Cachero & Madarang, for appellant Peralta.
Dewitt, Perkins & Ponce Enrile, for Appellee.
Ramirez & Ortigas and Padilla, Carlos & Fernando, as amici curiae.
SYLLABUS
1. INSURANCE; EFFECT OF NON-PAYMENT OF PREMIUM DUE TO WAR; LIFE INSURANCE; FORFEITURE OF POLICY. — When
the life insurance policy provides that non-payment of premiums will cause its forfeiture, war doe not excuse non-payment, and does not avoid forfeiture.
2. ID.; EFFECT OF WAR ON NON-PAYMENT OF PREMIUMS; COURT REJECTS CONNECTICUT AND NEW YORK RULES AND ADOPTS UNITED STATES RULE. — Rejecting the Connecticut Rule, and the New York Rule, the court adopts the Unites States Rule about the effects of war upon non-payment of premiums.
3. ID.; LIFE INSURANCE; PERIODIC PAYMENT OF PREMIUMS IS NOT AN ACTIONABLE OBLIGATION. — The periodic payment of premiums in life insurances policies is not an obligation of the insured enforceable by action.
the life insurance policy provides that non-payment of premiums will cause its forfeiture, war doe not excuse non-payment, and does not avoid forfeiture.
2. ID.; EFFECT OF WAR ON NON-PAYMENT OF PREMIUMS; COURT REJECTS CONNECTICUT AND NEW YORK RULES AND ADOPTS UNITED STATES RULE. — Rejecting the Connecticut Rule, and the New York Rule, the court adopts the Unites States Rule about the effects of war upon non-payment of premiums.
3. ID.; LIFE INSURANCE; PERIODIC PAYMENT OF PREMIUMS IS NOT AN ACTIONABLE OBLIGATION. — The periodic payment of premiums in life insurances policies is not an obligation of the insured enforceable by action.
D E C I S I O N
BENGZON, J.:
These two cases, appealed from the Court of First Instance of Manila, call for decision of the question whether the beneficiary in a life insurance policy may recover the amount thereof although the insured died after repeatedly failing to pay the stipulated premiums, such failure having been caused by the last war in the Pacific.
The facts are these:chanrob1es virtual 1aw library
First case. In consideration of the sum of P176.04 as annual premium duly paid to it, the Asia Life Insurance Company (a foreign corporation incorporated under the laws of Delaware, U. S. A.) , issued on September 27, 1941, its Policy No. 93912 for P3,000, whereby it insured the life of Arcadio Constantino for a term of twenty years. The first premium covered the period up to September 26, 1942. The plaintiff Paz Lopez de Constantino was regularly appointed beneficiary. The policy contained these stipulations, among others:jgc:chanrobles.com.ph
"This POLICY OF INSURANCE is issued in consideration of the written and printed application herefor, a copy of which is attached hereto and is hereby made a part hereof, and of the payment in advance during the lifetime and good health of the Insured of the annual premium of One Hundred fifty-eight and 4/100 pesos Philippine currency 1 and of the payment of a like amount upon each twenty-seventh day of September hereafter during the term of Twenty years or until the prior death of the Insured. (Emphasis supplied.)
"All premium payments are due in advance and any unpunctuality in making any such payment shall cause this policy to lapse unless and except as kept in force by the Grace Period condition or under Option 4 below. (Grace of 31 days.)"
After that first payment, no further premiums were paid. The insured died on September 22, 1944.
It is admitted that the defendant, being an American corporation, had to close its branch office in Manila by reason of the Japanese occupation, i. e. from January 2 1942, until the year 1945.
Second case. On August 1, 1938, the defendant Asia Life Insurance Company issued its Policy No. 78145 (Joint Life 20-Year Endowment Participating with Accident Indemnity), covering the lives of the spouses Tomas Ruiz and Agustina Peralta, for the sum of P3,000, The annual premium stipulated in the policy was regularly paid from August 1, 1938, up to and including September 30, 1941. Effective August 1, 1941 the mode of payment of premiums was changed from annual to quarterly, so that quarterly premiums were paid, the last having been delivered on November 18, 1941, said payment covering the period up to January 31, 1942. No further payments were handed to the insurer. Upon the Japanese occupation, the insured and the insurer became separated by the lines of war, and it was impossible and illegal for them to deal with each other. Because the insured had borrowed on the policy an amount of P234.00 in January, 1941, the cash surrender value of the policy was sufficient to maintain the policy in force only up to September 7, 1942. Tomas Ruiz died on February 16, 1945. The plaintiff Agustina Peralta is his beneficiary. Her demand for payment met with defendant’s refusal, grounded on non-payment of the premiums.
The policy provides in part:jgc:chanrobles.com.ph
"This POLICY OF INSURANCE is issued in consideration of the written and printed application herefor, a copy of which is attached hereto and is hereby made a part hereof, and of the payment in advance during the life time and good health of the Insured of the annual premium of Two hundred and 43/100 pesos Philippine currency and of the payment of a like amount upon each first day of August hereafter during the term of Twenty years or until the prior death of either of the Insured. (Emphasis supplied.)
"All premium payments are due in advance and any unpunctuality in making any such payment shall cause this policy to lapse unless and except as kept in force by the Grace Period condition or under Option 4 below. (Grace of 31 days.) . . ."cralaw virtua1aw library
Plaintiffs maintain that, as beneficiaries, they are entitled to receive the proceeds of the policies minus all sums due for premiums in arrears. They allege that non-payment of the premiums was caused by the closing of defendant’s offices in Manila during the Japanese occupation and the impossible circumstances created by war.
Defendant on the other hand asserts that the policies had lapsed for non-payment of premiums, in accordance with the contract of the parties and the law applicable to the situation.
The lower court absolved the defendant. Hence this appeal.
The controversial point has never been decided in this jurisdiction. Fortunately, this court has had the benefit of extensive and exhaustive memoranda including those of amici curiae. The matter has received careful consideration, inasmuch as it affects the interest of thousands of policy-holders and the obligations of many insurance companies operating in this country.
Since the year 1917, the Philippine law on Insurance was found in Act No. 2427, as amended, and the Civil Code. 2 Act No. 2427 was largely copied from the Civil Code of California. 3 And this court has heretofore announced its intention to supplement the statutory laws with general principles prevailing on the subject in the United States. 4
In Young v. Midland Textile Insurance Co. (30 Phil., 617), we said that "contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The parties have a right to impose such reasonable conditions at the time of the making of the contract as they may deem wise and necessary. The rate of premium is measured by the character of the risk assumed. The insurance company, for a comparatively small consideration, undertakes to guarantee the insured against loss or damage, upon the terms and conditions agreed upon, and upon no other, and when called upon to pay, in case of loss, the insurer, therefore, may justly insist upon a fulfillment of these terms. If the insured cannot bring himself within the conditions of the policy, he is not entitled to recover for the loss. The terms of the policy constitute the measure of the insurer’s liability, and in order to recover the insured must show himself within those terms; and if it appears that the contract has been terminated by a violation, on the part of the insured, of its conditions, then there can be no right of recovery. The compliance of the insured with the terms of the contract is a condition precedent to the right of recovery."cralaw virtua1aw library
Recall of the above pronouncements is appropriate because the policies in question stipulate that "all premium payments are due in advance and any unpunctuality in making any such payment shall cause this policy to lapse." Wherefore, it would seem that pursuant to the express terms of the policy, non-payment of premium produces its avoidance.
"The conditions of contracts of insurance, when plainly expressed in a policy, are binding upon the parties and should be enforced by the courts, if the evidence brings the case clearly within their meaning and intent. It tends to bring the law itself into disrepute when, by astute and subtle distinctions, a plain case is attempted to be taken without the operation of a clear, reasonable, and material obligation of the contract. Mack v. Rochester German Ins. Co., 106 N. Y., 560, 564." (Young v. Midland Textile Insurance Co., 30 Phil., 617, 622.)
In Glaraga v. Sun Life Ass. Co. (49 Phil., 737), this court held that a life policy was avoided because the premium had not been paid within the time fixed, since by its express terms, non-payment of any premium when due or within the thirty-day period of grace, ipso facto caused the policy to lapse. This goes to show that although we take the view that insurance policies should be conserved 5 and should not lightly be thrown out, still we do not hesitate to enforce the agreement of the parties.
"Forfeitures of insurance policies are not favored, but courts cannot for that reason alone refuse to enforce an insurance contract according to its meaning." (45 C. J. S., p. 150.) .
Nevertheless, it is contended for plaintiff that inasmuch as the non-payment of premium was the consequence of war, it should be excused and should not cause the forfeiture of the policy.
Professor Vance of Yale, in his standard treatise on Insurance, says that in determining the effect of non-payment of premiums occasioned by war, the American cases may be divided into three groups, according as they support the so-called Connecticut Rule, the New York Rule, or the United States Rule.
The first holds the view that "there are two elements in the consideration for which the annual premium is paid — First, the mere protection for the year, and, second, the privilege of renewing the contract for each succeeding year by paying the premium for that year at the time agreed upon. According to this view of the contract, the payment of premiums is a condition precedent, the non-performance of which, even when performance would be illegal, necessarily defeats the right to renew the contract."cralaw virtua1aw library
The second rule, apparently followed by the greater number of decisions, holds that "war between states in which the parties reside merely suspends the contracts of life insurance, and that, upon tender of all premiums due by the insured or his representative after the war has terminated, the contract revives and becomes fully operative."cralaw virtua1aw library
The United States rule declares that the contract is not merely suspended, but is abrogated by reason of nonpayment of premiums, since the time of the payments is peculiarly of the essence of the contract. It additionally holds that it would be unjust to allow the insurer to retain the reserve value of the policy, which is the excess of the premiums paid over the actual risk carried during the years when the policy had been in force. This rule was announced in the well-known Statham 6 case which, in the opinion of Professor Vance, is the correct rule. 7
The appellants and some amici curi
The facts are these:chanrob1es virtual 1aw library
First case. In consideration of the sum of P176.04 as annual premium duly paid to it, the Asia Life Insurance Company (a foreign corporation incorporated under the laws of Delaware, U. S. A.) , issued on September 27, 1941, its Policy No. 93912 for P3,000, whereby it insured the life of Arcadio Constantino for a term of twenty years. The first premium covered the period up to September 26, 1942. The plaintiff Paz Lopez de Constantino was regularly appointed beneficiary. The policy contained these stipulations, among others:jgc:chanrobles.com.ph
"This POLICY OF INSURANCE is issued in consideration of the written and printed application herefor, a copy of which is attached hereto and is hereby made a part hereof, and of the payment in advance during the lifetime and good health of the Insured of the annual premium of One Hundred fifty-eight and 4/100 pesos Philippine currency 1 and of the payment of a like amount upon each twenty-seventh day of September hereafter during the term of Twenty years or until the prior death of the Insured. (Emphasis supplied.)
x x x
"All premium payments are due in advance and any unpunctuality in making any such payment shall cause this policy to lapse unless and except as kept in force by the Grace Period condition or under Option 4 below. (Grace of 31 days.)"
After that first payment, no further premiums were paid. The insured died on September 22, 1944.
It is admitted that the defendant, being an American corporation, had to close its branch office in Manila by reason of the Japanese occupation, i. e. from January 2 1942, until the year 1945.
Second case. On August 1, 1938, the defendant Asia Life Insurance Company issued its Policy No. 78145 (Joint Life 20-Year Endowment Participating with Accident Indemnity), covering the lives of the spouses Tomas Ruiz and Agustina Peralta, for the sum of P3,000, The annual premium stipulated in the policy was regularly paid from August 1, 1938, up to and including September 30, 1941. Effective August 1, 1941 the mode of payment of premiums was changed from annual to quarterly, so that quarterly premiums were paid, the last having been delivered on November 18, 1941, said payment covering the period up to January 31, 1942. No further payments were handed to the insurer. Upon the Japanese occupation, the insured and the insurer became separated by the lines of war, and it was impossible and illegal for them to deal with each other. Because the insured had borrowed on the policy an amount of P234.00 in January, 1941, the cash surrender value of the policy was sufficient to maintain the policy in force only up to September 7, 1942. Tomas Ruiz died on February 16, 1945. The plaintiff Agustina Peralta is his beneficiary. Her demand for payment met with defendant’s refusal, grounded on non-payment of the premiums.
The policy provides in part:jgc:chanrobles.com.ph
"This POLICY OF INSURANCE is issued in consideration of the written and printed application herefor, a copy of which is attached hereto and is hereby made a part hereof, and of the payment in advance during the life time and good health of the Insured of the annual premium of Two hundred and 43/100 pesos Philippine currency and of the payment of a like amount upon each first day of August hereafter during the term of Twenty years or until the prior death of either of the Insured. (Emphasis supplied.)
x x x
"All premium payments are due in advance and any unpunctuality in making any such payment shall cause this policy to lapse unless and except as kept in force by the Grace Period condition or under Option 4 below. (Grace of 31 days.) . . ."cralaw virtua1aw library
Plaintiffs maintain that, as beneficiaries, they are entitled to receive the proceeds of the policies minus all sums due for premiums in arrears. They allege that non-payment of the premiums was caused by the closing of defendant’s offices in Manila during the Japanese occupation and the impossible circumstances created by war.
Defendant on the other hand asserts that the policies had lapsed for non-payment of premiums, in accordance with the contract of the parties and the law applicable to the situation.
The lower court absolved the defendant. Hence this appeal.
The controversial point has never been decided in this jurisdiction. Fortunately, this court has had the benefit of extensive and exhaustive memoranda including those of amici curiae. The matter has received careful consideration, inasmuch as it affects the interest of thousands of policy-holders and the obligations of many insurance companies operating in this country.
Since the year 1917, the Philippine law on Insurance was found in Act No. 2427, as amended, and the Civil Code. 2 Act No. 2427 was largely copied from the Civil Code of California. 3 And this court has heretofore announced its intention to supplement the statutory laws with general principles prevailing on the subject in the United States. 4
In Young v. Midland Textile Insurance Co. (30 Phil., 617), we said that "contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The parties have a right to impose such reasonable conditions at the time of the making of the contract as they may deem wise and necessary. The rate of premium is measured by the character of the risk assumed. The insurance company, for a comparatively small consideration, undertakes to guarantee the insured against loss or damage, upon the terms and conditions agreed upon, and upon no other, and when called upon to pay, in case of loss, the insurer, therefore, may justly insist upon a fulfillment of these terms. If the insured cannot bring himself within the conditions of the policy, he is not entitled to recover for the loss. The terms of the policy constitute the measure of the insurer’s liability, and in order to recover the insured must show himself within those terms; and if it appears that the contract has been terminated by a violation, on the part of the insured, of its conditions, then there can be no right of recovery. The compliance of the insured with the terms of the contract is a condition precedent to the right of recovery."cralaw virtua1aw library
Recall of the above pronouncements is appropriate because the policies in question stipulate that "all premium payments are due in advance and any unpunctuality in making any such payment shall cause this policy to lapse." Wherefore, it would seem that pursuant to the express terms of the policy, non-payment of premium produces its avoidance.
"The conditions of contracts of insurance, when plainly expressed in a policy, are binding upon the parties and should be enforced by the courts, if the evidence brings the case clearly within their meaning and intent. It tends to bring the law itself into disrepute when, by astute and subtle distinctions, a plain case is attempted to be taken without the operation of a clear, reasonable, and material obligation of the contract. Mack v. Rochester German Ins. Co., 106 N. Y., 560, 564." (Young v. Midland Textile Insurance Co., 30 Phil., 617, 622.)
In Glaraga v. Sun Life Ass. Co. (49 Phil., 737), this court held that a life policy was avoided because the premium had not been paid within the time fixed, since by its express terms, non-payment of any premium when due or within the thirty-day period of grace, ipso facto caused the policy to lapse. This goes to show that although we take the view that insurance policies should be conserved 5 and should not lightly be thrown out, still we do not hesitate to enforce the agreement of the parties.
"Forfeitures of insurance policies are not favored, but courts cannot for that reason alone refuse to enforce an insurance contract according to its meaning." (45 C. J. S., p. 150.) .
Nevertheless, it is contended for plaintiff that inasmuch as the non-payment of premium was the consequence of war, it should be excused and should not cause the forfeiture of the policy.
Professor Vance of Yale, in his standard treatise on Insurance, says that in determining the effect of non-payment of premiums occasioned by war, the American cases may be divided into three groups, according as they support the so-called Connecticut Rule, the New York Rule, or the United States Rule.
The first holds the view that "there are two elements in the consideration for which the annual premium is paid — First, the mere protection for the year, and, second, the privilege of renewing the contract for each succeeding year by paying the premium for that year at the time agreed upon. According to this view of the contract, the payment of premiums is a condition precedent, the non-performance of which, even when performance would be illegal, necessarily defeats the right to renew the contract."cralaw virtua1aw library
The second rule, apparently followed by the greater number of decisions, holds that "war between states in which the parties reside merely suspends the contracts of life insurance, and that, upon tender of all premiums due by the insured or his representative after the war has terminated, the contract revives and becomes fully operative."cralaw virtua1aw library
The United States rule declares that the contract is not merely suspended, but is abrogated by reason of nonpayment of premiums, since the time of the payments is peculiarly of the essence of the contract. It additionally holds that it would be unjust to allow the insurer to retain the reserve value of the policy, which is the excess of the premiums paid over the actual risk carried during the years when the policy had been in force. This rule was announced in the well-known Statham 6 case which, in the opinion of Professor Vance, is the correct rule. 7
The appellants and some amici curi
