Summary: UCPB General Insurance vs. Masagana Telamart Inc. (GR 137172, 14 April 2001)

UCPB General Insurance vs. Masagana Telamart Inc.
[GR 137172, 14 April 2001]
Resolution En Banc, Davide Jr (CJ): 9 concur, 2 file separate dissenting opinions to which 3 joined

Facts: In the Supreme Court's decision of 15 June 1999, it reversed and set aside the decision of the Court of Appeals, which affirmed with modification the judgment of the trial court (a) allowing Masagana to consign the sum of P225,753.95 as full payment of the premiums for the renewal of the five insurance policies on Masagana's properties; (b) declaring the replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering UCPBGen to pay Masagana 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 Masagana. Masagana seasonably filed a motion for the reconsideration of the adverse verdict.

Issue: Whether there are exceptions to Section 77, to allow Masagana to recover from UCPBGen.

Held: YES. 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 that "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, 5 wherein the Court 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. Further, in Tuscany, the Court also quoted with approval the following pronouncement of the Court of Appeals in its Resolution denying the motion for reconsideration of its decision that "While 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 does 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 also 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. 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. Herein, it would be unjust and inequitable if recovery on the policy would not be permitted against UCPBGen, 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. Estoppel then is the fifth exception to Section 77.

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