Premium in Insurance

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When insurer is entitled to premium – The insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against.[1]

Payment of premium required for validity of contract of insurance; Exceptions – Notwithstanding any agreement to the contrary, a policy or contract of insurance is valid and binding only if the premium thereof has been paid except:[2]

  • In the case of a life or an industrial life policy whenever the grace period provision applies;[3] or
  • Whenever under the broker and agency agreements with duly licensed intermediaries, a 90-day credit extension is given.[4]

UCPB General Insurance v. Masagana Telemart, Inc.
G.R. No. 137172, 15 June 1999

Masagana obtained 5 insurance policies over some goods from UCPB. The latter decided not to renew the policies. After the period of coverage expired, the goods were lost to a fire. A month after, Masagana paid the renewal thru checks. A day after, UCPB General Insurance returned the checks. Consequently, Masagana Telemart filed this Complaint to recover at least Php18.6 Million representing the face value of the policies.

HELD: UCPB was not liable since the policy was not renewed. For a non-life insurance policy to be valid, the premium must be paid. In the case at bar, the premium was not paid. Consequently, the policy had lapsed.

UCPB General Insurance v. Masagana Telemart, Inc.
G.R. No. 137172, 04 April 2001 (En Banc)

HELD: On motion for reconsideration, UCPB was held liable. UCPB was estopped since it has been its practice to grant and extend the insurance to Masagana despite failing to pay the renewal.

(Note: Because of this case, there are now five exceptions to the premium requirement in Sec. 77: (1) life and industrial life policy whenever the grace period applies; (2) acknowledgment of receipt; (3) if parties agreed to payment in installments and partial payment has been paid; (4) if a credit extension has been granted; and (5) estoppel.)

DISSENT: (J. Vitug) An essential element of an insurance is its synallagmatic nature, a highly reciprocal contract where rights and obligations correspond. There being no premium paid, no policy is valid and binding.

DISSENT: (J. Pardo) The purported credit was a mere verbal agreement, hence it cannot amend the insurance policy. In the absence of definite agreement of grant of credit and even partial payment of premium, the renewal never acquired the force of law.

Insurance premiums allowed to be paid through salary deductions – Government and GOCC employees are allowed to pay their insurance premiums and loan obligations through salary deduction, so long as the treasurer, cashier, paymaster or official of the entity employing the government employee is authorized, notwithstanding the provisions of any existing law, rules and regulations to the contrary, to make deductions from the salary, wage or income of the latter pursuant to the agreement between the insurer and the government employee and to remit such deductions to the insurer concerned, and collect such reasonable fee for its services.[5]

Acknowledgment in policy of receipt of premium conclusive evidence of its payment – An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive evidence of its payment insofar as to make the policy binding despite any contrary stipulation therein.[6]

When insured is entitled to return of premium – Except if the policy is annulled, rescinded or if a claim is denied by reason of fraud,[7] an insured is entitled to a return of premium as follows:[8]

  • To the whole premium if no part of his interest in the thing insured be exposed to any of the perils insured against;[9]
  • Where the insurance is made for a definite period of time and the insured surrenders his policy, to such portion of the premium corresponding the unexpired time, at a pro rata rate, unless a short period rate has been agreed upon and appears on the face of the policy, after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued: Provided, That no holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient cause as otherwise provided by law;[10]
  • When the contract is voidable, and subsequently annulled under the provisions of the Civil Code;[11]
  • On account of the fraud or misrepresentation of the insurer, or of his agent, or on account of facts, or the existence of which the insured was ignorant of without his fault;[12] or
  • When by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy.[13]

Insurer not liable for return of premiums if insurer already exposed of risk despite short period – The insurer is not liable for the return of premiums if a peril insured against has existed and the insurer has been liable for such risk regardless if such has been only for a short period of time insofar as that particular risk is concerned.[14]

Insured entitled to ratable return of premium in case of over insurance; Except life insurance – In case of an over insurance by several insurers other than life, the insured is entitled to a ratable return of the premium, proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk.[15]

Verendia v. Court of Appeals
G.R. No. 75605, 22 January 1993

Verendia insured his residential building with Fidelity. When fire gutted the building, Fortune refused to pay claiming that Verendia was guilty of over-insurance (property is worth Php40,300 but insured for Php900,000) and malicious misrepresentation pointing to a different person who was not the actual lessee.

HELD: Fidelity was not liable. Verendia used a false lease contract to support his claim under the fire policy. Hence, the terms of he policy should overinsurance be strictly construed against the insured. Verendia reprehensibly disregarded that insurance contracts are uberrimae fidae and demand the most abundant good faith.

Insurers allowed to contract and accept payments in addition to regular premium – For the purpose of paying future premiums on the policy or to increase the benefits thereof, insurers are allowed to contract and accept payments in addition to the regular premium.[16]

[1] P.D. 612 (Insurance Code), as amended, Section 77.

[2] Ibid. Section 77.

[3] Ibid.

[4] Ibid. “No credit extension to a duly licensed intermediary should exceed ninety (90) days from date of issuance of the policy” (Ibid.).

[5] INSURANCE CODE, as amended. Section 78.

[6] Ibid. Section 79.

[7] Ibid. Paragraph 2, Section 82.

[8] Ibid. Section 80.

[9] Ibid. Section 80 (a).

[10] Ibid. Section 80 (b).

[11] Ibid. Paragraph 1, Section 82.

[12] Ibid. Paragraph 1, Section 82.

[13] Ibid.

[14] INSURANCE CODE, as amended. Section 81.

[15] Ibid. Section 83.

[16] Ibid. Section 84.

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