UCPB v. Masagana
UCPB v. Masagana
UCPB v. Masagana
FACTS:
Masagana obtained from UCPB five (5) insurance policies on its properties.
All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to 4:00 P.M.
of 22 May 1992."
On June 13, 1992, Masagana’s properties were razed by fire. On July 13, 1992, Masagana tendered, and
UCPB accepted, five (5) Equitable Bank Manager's Checks as renewal premium payments for which
Official Receipt was issued by UCPB. On July 14, 1992, Masagana made its formal demand for
indemnification for the burned insured properties. On the same day, UCPB returned the five (5)
manager's checks stating in its letter that it was rejecting Masagana's claim on the following grounds:
a) Said policies expired last May 22, 1992 and were not renewed for another term;
b) UCPB had put Masagana and its alleged broker on notice of non-renewal earlier; and
c) The properties covered by the said policies were burned in a fire that took place last June 13, 1992, or
before tender of premium payment."
The Court of Appeals disagreed with UCPB's stand that Masagana's tender of payment of the premiums
on 13 July 1992 did not result in the renewal of the policies, having been made beyond the effective
date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists that Masagana, which had
procured insurance coverage from UCPB for a number of years, had been granted a 60 to 90-day credit
term for the renewal of the policies. Such a practice had existed up to the time the claims were filed.
Most of the premiums have been paid for more than 60 days after the issuance. Also, no timely notice of
non-renewal was made by UCPB.
The Supreme Court ruled against Masagana in the first case on the issue of whether the fire insurance
policies issued by UCPB to the Masagana covering the period from May 22, 1991 to May 22, 1992 had
been extended or renewed by an implied credit arrangement though actual payment of premium was
tendered on a later date and after the occurrence of the risk insured against.
The Supreme Court, upon observing the facts, affirmed that there was no valid notice of non-renewal of
the policies in question, as there is no proof at all that the notice sent by ordinary mail was received by
Masagana. Also, the premiums were paid within the grace period.
ISSUE:
Whether Section 77 of the Insurance Code of 1978 (P.D. No. 1460) 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.
RULING:
SECTION 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.
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.
A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of
Appeals, wherein 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.
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.
Finally in the instant case, 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.