11. American Home Assurance v.

Chua
June 28, 1999| Davide Jr., C. J.
Ch 4; Premium Payment

DOCTRINE: The general rule in insurance laws is that unless the premium is paid the insurance policy is not valid and binding. The only
exceptions are life and industrial life insurance. Whether payment was indeed made is a question of fact which is best determined by the
trial court.
SUMMARY: Moonlight Enterprises, respondent's business establishment, was razed by fire. Respondent then filed an insurance claim
with petitioner and four other coinsurers. Petitioner refused to honor the claim, thus prompting respondent to file an action. In its defense,
petitioner claimed that there was no existing insurance contract when the fire occurred since respondent did not pay the premium. It
alleged that even assuming there was a contract, respondent violated several conditions of the policy. The trial court ruled in favor of
respondent. This was affirmed in toto by the Court of Appeals. Its motion for reconsideration having been denied, petitioner filed this
petition. Petitioner accepted the check and issued an official receipt for the payment. Its agent acknowledged receipt of payment. An
acknowledgment of the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding. It cannot be said
that petitioner was deceived by respondent by the latter's nondisclosure of the other insurance contracts when petitioner actually had
prior knowledge thereof. However, loss of profit cannot be shouldered by petitioner whose obligation is limited to the object of insurance,
which was the stock-in-trade and not the expected loss in income or profit. The awards of moral and exemplary damages were also
deleted.

FACTS:
1. Chua obtained from American Home a fire insurance covering the stock-in-trade of his business
(Moonlight Enterprises). The insurance was due to expire on March 25, 1990.

2. April 5, 1990: Chua issued a check for P2,983.50 to American Home’s agent, James Uy, as payment for the
renewal of the policy. The official receipt was issued on April 10. In turn, the latter a renewal certificate.
A new insurance policy was issued where petitioner undertook to indemnify respondent for any damage
or loss arising from fire up to P200,000 March 20, 1990 to March 25, 1991.

3. April 6, 1990: Moonlight Enterprises was completely razed by fire. Total loss was estimated between
P4,000,000 and P5,000,000. Respondent filed an insurance claim with petitioner and four other co-
insurers, namely, Pioneer Insurance, Prudential Guarantee, Filipino Merchants and Domestic Insurance.
Petitioner refused to honor the claim hence, the respondent filed an action in the trial court.

4. American Home claimed there was no existing contract because respondent did not pay the premium.
Even with a contract, they contended that he was ineligible because of his fraudulent tax returns, his
failure to establish the actual loss and his failure to notify to petitioner of any insurance already effected.

5. The trial court ruled in favor of respondent because the respondent paid by way of check a day before the
fire occurred and that the other insurance companies promptly paid the claims. American homes was
made to pay 750,000 in damages.

6. The Court of Appeals found that respondent’s claim was substantially proved and petitioner’s unjustified
refusal to pay the claim entitled respondent to the award of damages.

7. American Home filed the petition reiterating its stand that there was no existing insurance contract
between the parties. It invoked Section 77 of the Insurance Code, which provides that no policy or contract
of insurance issued by an insurance company is valid and binding unless and until the premium thereof
has been paid and the case of Arce v. Capital Insurance that until the premium is paid there is no insurance.

ISSUES:
1. Whether there was a valid payment of premium, considering that respondent’s check was cashed after
the occurrence of the fire – Yes.
2. Whether respondent violated the policy by his submission of fraudulent documents and non-disclosure of
the other existing insurance contracts – No.
3. Whether respondent is entitled to the award of damages – Yes, but not all damages valid.

RULING:
1. RTC found, as affirmed by CA, that there was a valid check payment by respondent to petitioner. SC
respected this. The renewal certificate issued to respondent contained the acknowledgment that premium
had been paid.
 In the instant case, the best evidence of such authority is the fact that petitioner accepted the check
and issued the official receipt for the payment. It is, as well, bound by its agent’s acknowledgment of
receipt of payment.
 Section 78 of the Insurance Code explicitly provides:
An 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 the premium is actually paid.

2. Submission of the alleged fraudulent documents pertained to respondent’s income tax returns for 1987
to 1989. Respondent, however, presented a BIR certification that he had paid the proper taxes for the
said years. Since this is a question of fact, the finding is conclusive.

Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers, non-
disclosure is a violation that entitles the insurer to avoid the policy. The purpose for the inclusion of this
clause is to prevent an increase in the moral hazard. The relevant provision is Section 75, which provides
that:
A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach
of an immaterial provision does not avoid the policy.

Respondent acquired several co-insurers and he failed to disclose this information to petitioner.
Nonetheless, petitioner is estopped from invoking this argument due to the loss adjuster’s admission of
previous knowledge of the co-insurers.

It cannot be said that petitioner was deceived by respondent by the latter’s non-disclosure of the other
insurance contracts when petitioner actually had prior knowledge thereof. The loss adjuster, being an
employee of petitioner, is deemed a representative of the latter whose awareness of the other insurance
contracts binds petitioner.

3. Petitioner is liable to pay the loss. But there is merit in petitioner’s grievance against the damages and
attorney’s fees awarded. There was no basis for an award for loss of profit. This cannot be shouldered by
petitioner whose obligation is limited to the object of insurance.

There was no fraud to justify moral damages. Exemplary damages can’t be awarded because the
defendant never acted in a reckless manner to claim insurance. Attorney’s fees can’t be recovered as part
of damages because no premium should be placed on the right to litigate.

DISPOSITION: Petition is partly GRANTED modified by deleting the awards of P200,000 for loss of profit,
P200,000 as moral damages and P100,000 as exemplary damages, and reducing the award of attorney’s fees
from P50,000 to P10,000

NOTE/S: