THIRD DIVISION
G.R. No. 190702, February 27, 2017
JAIME T. GAISANO, Petitioner, v. DEVELOPMENT INSURANCE AND SURETY CORPORATION, Respondent.
D E C I S I O N
JARDELEZA, J.:
This is a petition for review on certiorari1 seeking to nullify the Court of Appeals' (CA) September 11, 2009 Decision2 and November 24, 2009 Resolution3 in CA-G.R. CV No. 81225. The CA reversed the September 24, 2003 Decision4 of the Regional Trial Court (RTC) in Civil Case No. 97-85464. The RTC granted Jaime T. Gaisano's (petitioner) claim on the proceeds of the comprehensive commercial vehicle policy issued by Development Insurance and Surety Corporation (respondent), viz.:ChanRoblesVirtualawlibrary
IN VIEW OF THE FOREGOING, the decision appealed from is reversed, and the defendant-appellant ordered to pay the plaintiff-appellee the sum of P55,620.60 with interest at 6 percent per annum from the date of the denial of the claim on October 9, 1996 until payment.
SO ORDERED.5chanroblesvirtuallawlibrary
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured 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.In Tibay v. Court of Appeals,49 we emphasized the importance of this rule. We explained that in an insurance contract, both the insured and insurer undertake risks. On one hand, there is the insured, a member of a group exposed to a particular peril, who contributes premiums under the risk of receiving nothing in return in case the contingency does not happen; on the other, there is the insurer, who undertakes to pay the entire sum agreed upon in case the contingency happens. This risk-distributing mechanism operates under a system where, by prompt payment of the premiums, the insurer is able to meet its legal obligation to maintain a legal reserve fund needed to meet its contingent obligations to the public. The premium, therefore, is the elixir vitae or source of life of the insurance business:ChanRoblesVirtualawlibrary
In the desire to safeguard the interest of the assured, it must not be ignored that the contract of insurance is primarily a risk-distributing device, a mechanism by which all members of a group exposed to a particular risk contribute premiums to an insurer. From these contributory funds are paid whatever losses occur due to exposure to the peril insured against. Each party therefore takes a risk: the insurer, that of being compelled upon the happening of the contingency to pay the entire sum agreed upon, and the insured, that of parting with the amount required as premium. without receiving anything therefor in case the contingency does not happen. To ensure payment tor these losses, the law mandates all insurance companies to maintain a legal reserve fund in favor of those claiming under their policies. It should be understood that the integrity of this fund cannot be secured and maintained if by judicial fiat partial offerings of premiums were to be construed as a legal nexus between the applicant and the insurer despite an express agreement to the contrary. For what could prevent the insurance applicant from deliberately or willfully holding back full premium payment and wait for the risk insured against to transpire and then conveniently pass on the balance of the premium to be deducted from the proceeds of the insurance? x x xHere, there is no dispute that the check was delivered to and was accepted by respondent's agent, Trans-Pacific, only on September 28, 1996. No payment of premium had thus been made at the time of the loss of the vehicle on September 27, 1996. While petitioner claims that Trans-Pacific was informed that the check was ready for pick-up on September 27, 1996, the notice of the availability of the check, by itself, does not produce the effect of payment of the premium. Trans-Pacific could not be considered in delay in accepting the check because when it informed petitioner that it will only be able to pick-up the check the next day, petitioner did not protest to this, but instead allowed Trans-Pacific to do so. Thus, at the time of loss, there was no payment of premium yet to make the insurance policy effective.x x x
And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business because by law the insurer must maintain a legal reserve fund to meet its contingent obligations to the public, hence, the imperative need for its prompt payment and full satisfaction. It must be emphasized here that all actuarial calculations and various tabulations of probabilities of losses under the risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon this bedrock insurance firms are enabled to other the assurance of security to the public at favorable rates. x x x50 (Citations omitted.)
It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an agreement to extend the period to pay the premium. But are there exceptions to Section 77?In UCPB General Insurance Co., Inc., we summarized the exceptions as follows: (1) in case of life or industrial life policy, whenever the grace period provision applies, as expressly provided by Section 77 itself; (2) where the insurer acknowledged in the policy or contract of insurance itself the receipt of premium, even if premium has not been actually paid, as expressly provided by Section 78 itself; (3) where the parties agreed that premium payment shall be in installments and partial payment has been made at the time of loss, as held in Makati Tuscany Condominium Corp. v. Court of Appeals;53 (4) where the insurer granted the insured a credit term for the payment of the premium, and loss occurs before the expiration of the term, as held in Makati Tuscany Condominium Corp.; and (5) where the insurer is in estoppel as when it has consistently granted a 60 to 90-day credit term for the payment of premiums.
The answer is in the affirmative.
The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy whenever the grace period provision applies.
The second is that covered by Section 78 of the Insurance Code, which provides:ChanRoblesVirtualawlibrarySEC. 78. 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.A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals, wherein we ruled that 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. We said therein, thus:ChanRoblesVirtualawlibraryWe hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show that the petitioners 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 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. Certainly, basic principles of equity and fairness would not allow the insurer to continue collecting and accepting the premiums, although paid on installments, and later deny liability on the lame excuse that the premiums were not prepaid in full.Not only that. In Tuscany, we also quoted with approval the following pronouncement of the Court of Appeals in its Resolution denying the motion for reconsideration of its decision:ChanRoblesVirtualawlibraryWhile 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 docs not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy (De Leon,' The Insurance Code, p. 175). So is an understanding to allow insured to pay premiums in installments not so prescribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted.By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has provided a fourth exception to Section 77, namely, that the insurer may grant credit extension for the payment of the premium. This simply means that 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.
x x x
Finally in the instant case, it would be unjust and inequitable 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 despite its full awareness of Section 77. Estoppel bars it from taking refuge under said Section, since Respondent relied in good faith on such practice. Estoppel then is the fifth exception to Section 77.52 (Citations omitted.)
WHEREAS THE INSURED, by his corresponding proposal and declaration, and which shall be the basis of this Contract and deemed incorporated herein, has applied to the company for the insurance hereinafter contained, subject to the payment of the Premium as consideration for such insurance.57 (Emphasis supplied.)The policy states that the insured's application for the insurance is subject to the payment of the premium. There is no waiver of pre-payment, in full or in installment, of the premiums under the policy. Consequently, respondent cannot be placed in estoppel.
Endnotes:
* Designated as additional Member per Raffle dated February 6, 2017.
*** Designated as Fifth Member of the Third Division per Special Order No. 2417 dated January 4, 2017.
1Rollo, pp. 10-35.
2Id. at 37-44; penned by Associate Justice Mario L. Guariña III, and concurred in by Associate Justices Mariflor P. Punzalan Castillo and Jane Aurora C. Lantion.
3Id. at 36.
4 CA rollo, pp. 32-36.
5Rollo, pp. 43-44.
6 CA rollo, p. 32.
7Rollo, pp. 46-47.
8Id. at 38.
9 CA rollo, p. 32.
10Rollo, p. 52.
11Id. at 38; 48.
12Id. at 39; 48.
13Id. at 38-39; TSN, September 10, 1998, p. 17.
14Rollo, pp. 38-39.
15Id. at 54.
16Id. at 53.
17Id. at 39.
18Id. at 15.
19Id. at 39-40.
20Id. at 59.
21 Docketed as Civil Case No. 97-85464; RTC records, pp. 1-4.
22Id. at 14-19.
23Rollo, p. 40.
24Supra note 4.
25 CA rollo, pp. 34-35.
26Id. at 35-36.
27Id. at 36.
28Id. The dispositive portion reads:chanRoblesvirtualLawlibrary
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiff and against the defendant. Defendant is hereby ordered to pay plaintiff the following:chanRoblesvirtualLawlibrary
a) P1,500,000.00 as indemnification for the loss of the subject vehicle under the insurance policy;chanrobleslaw
b) P50,000.00 as attorney's fees. No pronouncement as to costs.
SO ORDERED.
29 CA rollo, p. 37.
30Id. at 13-14.
31Id. at 3; 15.
32Supra note 2.
33Rollo, p. 41.
34Id. at 42-43.
35Id. at 41-42.
36Id. at 43.
37Id. at 18.
38Id. at 20.
39Id. at 21.
40Id. at 22.
41Id. at 31.
42Id.
43Id. at 32.
44Id. at 83-84.
45 INSURANCE CODE, Sec. 2(1).
46Philippine Phoenix Surety & Insurance Company v. Woodworks, Inc., G.R. No. L-25317, August 6, 1979, 92 SCRA 419, 422.
47Id.
48American Home Assurance Company v. Chua, G.R. No. 130421, June 28, 1999, 309 SCRA 250, 259.
49 G.R. No. 119655, May 24, 1996, 257 SCRA 126.
50Id. at 140-141.
51 G.R. No. 137172, April 4, 2001, 356 SCRA 307.
52Id. at 316-318.
53 G.R. No. 95546, November 6, 1992, 215 SCRA 462.
54Rollo, p. 46.
55Id. at 42.
56 See Borromeo v. Court of Appeals. G.R. No. 169846, March 28, 2008, 550 SCRA 269, 282.
57 RTC records, p. 6-A.
58 See Flores v. Lindo, Jr., G.R. No. 183984, April 13, 2011, 648 SCRA 772, 782-783.
59Rollo, pp. 46-47.
60Nacar v. Gallery Frames, G.R. No. 189871, August 13, 2013, 703 SCRA 439, 453-459.