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    UCPB General Insurance v. Masagana Telamart With Opinions (Yu)

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    Peter Joshua Ortega
    This case concerns the validity of an insurance contract where the premiums were paid late. The Supreme Court had to determine whether Section 77 of the Insurance Code, requiring timely premium payment for a policy to be valid, should strictly apply despite the insurer's practice of granting credit terms for payment. In a 3-2 decision, the Court ruled Section 77 did not prohibit credit terms and estoppel prevented the insurer from avoiding the policy after consistently granting late payment credits in the past. The dissent argued the claim was fraudulent and no credit agreement was proven.

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    UCPB General Insurance v. Masagana Telamart With Opinions (Yu)

    Uploaded by

    Peter Joshua Ortega
    86 views3 pages
    This case concerns the validity of an insurance contract where the premiums were paid late. The Supreme Court had to determine whether Section 77 of the Insurance Code, requiring timely premium payment for a policy to be valid, should strictly apply despite the insurer's practice of granting credit terms for payment. In a 3-2 decision, the Court ruled Section 77 did not prohibit credit terms and estoppel prevented the insurer from avoiding the policy after consistently granting late payment credits in the past. The dissent argued the claim was fraudulent and no credit agreement was proven.

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    This case concerns the validity of an insurance contract where the premiums were paid late. The Supreme Court had to determine whether Section 77 of the Insurance Code, requiring timely premium payment for a policy to be valid, should strictly apply despite the insurer's practice of granting credit terms for payment. In a 3-2 decision, the Court ruled Section 77 did not prohibit credit terms and estoppel prevented the insurer from avoiding the policy after consistently granting late payment credits in the past. The dissent argued the claim was fraudulent and no credit agreement was proven.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    86 views3 pages

    UCPB General Insurance v. Masagana Telamart With Opinions (Yu)

    Uploaded by

    Peter Joshua Ortega
    This case concerns the validity of an insurance contract where the premiums were paid late. The Supreme Court had to determine whether Section 77 of the Insurance Code, requiring timely premium payment for a policy to be valid, should strictly apply despite the insurer's practice of granting credit terms for payment. In a 3-2 decision, the Court ruled Section 77 did not prohibit credit terms and estoppel prevented the insurer from avoiding the policy after consistently granting late payment credits in the past. The dissent argued the claim was fraudulent and no credit agreement was proven.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    UCPB General Insurance v.

    Masagana Telamart
    GR 137172 April 4, 2001
    Davide, CJ

    Topic: Characteristics/Nature of Insurance Contracts- Synallagmatic; Premium Payment


    Petitioner: UCPB General Insurance Co. Inc.
    Respoondent: Masagana Telamart Inc.

    Summary: This case is about the validity of an insurance contract for which premiums were belatedly paid.

    FACTS:
     Masagana obtained 5 insurance policies from UCPB on its properties in Pasay City and Manila.
     All 5 policies reflected the effectivity term: "from 4pm of 22 May 1991 to 4pm of 22 May 1992."
     On June 13, 1992, Masagana’s properties located at Taft Avenue, Pasay City were razed by fire.
     On July 13, 1992, Masagana tendered 5 checks amounting to P225k as renewal premium payments.
    UCPB accepted and issued a receipt for these.
     Masagana made a demand for indemnification for the burned insured properties, but UCPB refused
    to grant the claim, saying that a) the policies expired and were not renewed, b) UCPB gave them a
    notice of non-renewal, and c) the properties were burned before premium payment was tendered.
     Masagana filed a case for recovery.
     The RTC and CA ruled in favor of Masagana because:
    o The renewal clause of the insurance policy states that UCPB has to inform the insured of
    its intention not to renew 45 days before the expiration of the policy; if not, the insured
    shall be entitled to renew it. -> Here, there was no proof of UCPB’s claim that they sent a
    notice to Masagana by ordinary mail on April 6, 1992.
    o UCPB had a practice of granting a 60- to 90-day credit term for the renewal of the policies
    for years. Thus, the insurance policy was considered renewed and remained effective when
    the fire occurred because the premiums were paid within the accepted credit term.
    o UCPB unconditionally accepted and issued an official receipt for the premium payment in
    July.
     The SC reversed the ruling of the CA because:
    o Section 77 of the Insurance Code states: “… 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…”
    o Thus, parties cannot agree on the extension of credit or time to pay the premium nor
    consider a policy binding before actual payment.
     Masagana then filed a Motion for Reconsideration, which is this case.

    ISSUE/HELD:
    W/N Section 77 of the Insurance Code must be strictly applied to UCPB’s advantage, despite its
    practice of granting a 60- to 90-day credit term for the payment of premiums. -> No!
     While Section 77 is strictly worded, it does have certain exceptions:
    1. In case of a life or industrial life policy whenever the grace period provision applies (Sec 77)
    2. Any acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive
    evidence of its payment, notwithstanding any stipulation that it shall not be binding until premium
    is actually paid. (Sec 78)
    3. If the parties have agreed to the payment in installments of the premium and partial payment has
    been made at the time of loss. (Makati Tuscany Condominium Corporation vs. Court of Appeals)
    4. When the insurer grants credit extension for the payment of the premium. (Tuscany)
    5. Estoppel
     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.
     It would be unjust and inequitable if recovery on the policy would not be permitted against UCPB,
    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
    Masagana relied in good faith on such practice.

    RULING:
    Decision reconsidered and set aside. CA decision reinstated. UCPB to pay Masagana.

    Separate Opinion
    Vitug, J.

     An insurance contract is synallagmatic-> a highly reciprocal contract where the rights and
    obligations of the parties correlate and mutually correspond. The insurer assumes the risk of loss
    which an insured might suffer in consideration of premium payments under a risk-distributing
    device. Such assumption of risk is a component of a general scheme to distribute actual losses
    among a group of persons, bearing similar risks, who make ratable contributions to a fund from
    which the losses incurred due to exposures to the peril insured against are assured and compensated.
     The law mandates that insurance companies should retain an amount sufficient to guarantee the
    security of its policyholders. The integrity of this legal reserve is threatened and undermined if a
    credit arrangement on the payment of premium were to be sanctioned.
     The provision that Section 77 amended used to state that requirement of paying the premiums holds
    “unless there is a clear agreement to grant the insured credit extension of the premium due..” But
    the new law deleted this phrase and replaced it with “notwithstanding agreement to the contrary..”
    Hence, under the present law, the policy is not valid and binding unless and until the premium is
    paid. If the insurer wants to favor the insured by making the policy binding notwithstanding the
    non-payment of premium, a mere credit agreement would not be sufficient. The remedy would be
    for the insurer to acknowledge in the policy that premiums were paid although they were not, in
    which case the policy becomes binding because such acknowledgment is a conclusive evidence of
    payment of premium (Section 78).
     Estoppel cannot create a contract of insurance. The premium payment (even if just partial) is
    essential to the creation of the vinculum juris between the insured and the insurer. Such payment
    puts the contract into full binding force, thereby entitling and obligating the parties by their
    agreement.
    Dissenting Opinion
    Pardo, J.

    I. Respondent’s claim was fraudulent


     The fire totally destroyed the property on June 13, 1992; but the written notice of loss was given
    only more than a month later, on July 14, 1992, the day after respondent surreptitiously paid the
    overdue premiums and before giving written notice of the occurrence of the fire. Masagana very
    well knew that the policy was not renewed on time.
     Masagana deviated from its previous practice of coursing its premium payments through its
    brokers. This time, Masagana went directly to petitioner and paid through its cashier with
    manager's checks. Naturally, the cashier routinely accepted the premium payment because he
    had no written notice of the occurrence of the fire.

    II. There is no proof of the purported credit agreement.


     The president of Masagana admitted that the insurance policy did not contain
    any proviso pertaining to the grant of credit within which to pay the premiums. Respondent
    Masagana merely deduced that a credit agreement existed based on previous years' practice that
    they had of delayed payments accepted by the insurer as reflected on the face of the receipts issued
    by UCPB evidencing the payment of premiums.
     A verbal understanding of Masagana cannot amend an insurance policy. In insurance practice,
    amendments or even corrections to a policy are done by written endorsements or tickets appended
    to the policy.
     Further, since Masagana pays to brokers, what has been established was the grant of credit to the
    insurance brokers, not to the assured.
     Estoppel will not lie in this case. While the contracting parties are free to enter into stipulations so
    long as they are not contrary to law or public policy, the law is clear in providing that the
    acknowledgment must be contained in the policy or contract of insurance. Anything short of it
    would not fall under the exception so provided in Section 78.

    III. The parties themselves stipulated the strict premium payment policy.
     The policy provides: “This policy including any renewal and/or endorsement thereon is not in force
    until the premium has been fully paid and duly receipted by the Company in the manner provided
    therein.”

    IV. Masagana has not made any partial premium payments.

    V. The absence of a notice of non-renewal does not result to an automatic renewal of the policy.
     Even in the absence of notice of non-renewal, the assured would be bound by the law that a non-
    life insurance policy takes effect only on the date payment of the premium was made.
     It is elemental law that the payment of premium is a mandatory requisite to make the policy of
    insurance effective. If the premium is not paid in the manner prescribed in the policy as intended
    by the parties, the policy is void and ineffective.

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