Philippine Insurance Law

The Law

A “Contract of Insurance” is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.

Discussion of the Law

The essential elements of an insurance contract are:
(a) Insurable interest;
(b) Existence of risk;
(c) Assumption of such risk by the insurer;
(d) Said assumption being part of a general scheme to distribute actual losses among those bearing similar risks;
(e) Payment of premium.

Application of the Law

Case: American-Fortune Life and General Insurance Co., Inc. (Am-Fortune) issued Fire Insurance Policy No. 136171 in favor of Mr. John Michael Roxas on his five-star hotel building in Makati City, together with all its effects therein. The insurance was for P8M covering the period from 23 January 2008 to 23 January 2009. On 23 January 2008, of the total premium of P10,000 Mr. Roxas only paid P5,000.00 thus leaving a considerable balance unpaid.
On 8 March 2008, the insured building was completely destroyed by fire. On March 10, 2008 Mr. Roxas paid the balance of the premium. On the same day, Mr. Roxas filed with Am-Fortune a claim on the fire insurance policy.

Am-Fortune denied the claim of Mr. Roxas, for the premium has not yet been fully paid in violation of Policy Condition No. 2 of the Contract which states:

1. ‘This policy of insurance witnesseth, that only after payment to the Company in accordance with Policy Condition No. 2 of the total premiums by the insured as stipulated above for the period aforementioned for insuring against Loss or Damage by Fire or Lightning as herein appears, the Property herein described x x x

2. This policy including any renewal thereof and/or any endorsement thereon is not in force until the premium has been fully paid to and duly receipted by the Company in the manner provided herein.

Any supplementary agreement seeking to amend this condition prepared by agent, broker or Company official, shall be deemed invalid and of no effect.’
Is Mr. Roxas entitled to claim under the fire insurance policy?

Legal Opinion:

No, Mr. Roxas is not entitled to claim under the fire insurance policy. This is fully supported by Section 77 of the Insurance Code which provides –
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.

The rule that contracts of insurance will be construed in favor of the insured and most strongly against the insurer should not be permitted to have the effect of making a plain agreement ambiguous and then construe it in favor of the insured. In addition, it is elemental law that the payment of premium is requisite to keep the policy of insurance in force. If the premium is not paid in the manner prescribed in the policy as intended by the parties the policy is ineffective. Partial payment even when accepted as a partial payment will not keep the policy alive even for such fractional part of the year as the part payment bears to the whole payment.

References:

P.D. 1460, Insurance Code

3 Basic Commercial Laws with Introductory Features by Jose N. Nolledo, 1995 Edition.

Sps. Tibay et al. vs. Court of Appeals et al., G.R. No. 119655, May 24, 1996.