G.R. No. 119655 Case Digest

G.R. No. 119655 May 24, 1996

Sps. Antonio A Tibay, etc.

vs Court of Appeals and Fortunate Life and General Insurance Co., Inc.

Ponente: Bellosillo

Facts:

January 22, 1987 Fortune Life issued a fire insurance policy in favor of Violeta Tibay and/or Nicolas Roraldo on their two-storey residential building located in Makati City, together with all their personal effects therein. The insurance was for P600k covering the period of Jan 23 19887 to Jan 23 1988. On Jan 23 1987 Violeta paid P600 of the premium of P2, 983.50 leaving a considerable balance unpaid.

On March 8, 1987, the insured building was completely destroyed by fire. Two days later Violeta paid the balance of the premium and filed, on the same day, a claim on the fire insurance policy. Fortune denied the claim. Violeta then filed for damages against Fortune representing the amount of the insurance policy plus interest and attorney's fees.

RTC adjudged Fortune liable for the claim of Violeta. On appeal, CA reversed the decision of the RTC declaring Fortune not liable. Hence this petition.

Issue: May a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium?

Ruling:

We find no merit, hence, we affirm the CA.

In a contract of insurance, the consideration is the premium which must be paid at the time and in the way and manner specified in the policy, and if not so paid, the policy will lapse and be forfeited by its own terms.

Clearly the Policy provides for payment of premium in full. Accordingly, where the premium has only been partially paid and the balance paid only after the peril insured against has occurred, the insurance contract did not take effect and the insured cannot collect at all on the policy.

Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy despite partial payment of the premium due and the express stipulation thereof to the contrary, petitioners rely heavily on the 1967 case of Philippine Phoenix and Insurance Co., Inc. v. Woodworks, Inc. where the Court through Mr. Justice Arsenio P. Dizon sustained the ruling of the trial court that partial payment of the premium made the policy effective during the whole period of the policy. In that case, the insurance company commenced action against the insured for the unpaid balance on a fire insurance policy. In its defense the insured claimed that non-payment of premium produced the cancellation of the insurance contract.

The 1967 Phoenix case is not persuasive; neither is it decisive of the instant dispute. For one, the factual scenario is different. In Phoenix it was the insurance company that sued for the balance of the premium, i.e., it recognized and admitted the existence of an insurance contract with the insured. In the case before us, there is, quite unlike in Phoenix, a specific stipulation that (t)his policy . . . is not in force until the premium has been fully paid and duly receipted by the Company . . . Resultantly, it is correct to say that in Phoenix a contract was perfected upon partial payment of the premium since the parties had not otherwise stipulated that prepayment of the premium in full was a condition precedent to the existence of a contract.

In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the remainder of the premium without any other precondition to its enforceability as in the instant case, the insurer in effect had shown its intention to continue with the existing contract of insurance, as in fact it was enforcing its right to collect premium, or exact specific performance from the insured. This is not so here. By express agreement of the parties, no vinculum juris or bond of law was to be established until full payment was effected prior to the occurrence of the risk insured against.

The insurance contract itself expressly provided that the policy would be effective only when the premium was paid in full. It would have been altogether different were it not so stipulated. Ergo, petitioners had absolute freedom of choice whether or not to be insured by FORTUNE under the terms of its policy and they freely opted to adhere thereto.

It must be emphasized here that all actuarial calculations and various tabulations of probabilities of losses under the risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon this bedrock insurance firms are enabled to offer the assurance of security to the public at favorable rates. But once payment of premium is left to the whim and caprice of the insured, as when the courts tolerate the payment of a mere P600.00 as partial undertaking out of the stipulated total premium of P2,983.50 and the balance to be paid even after the risk insured against has occurred, as petitioners have done in this case, on the principle that the strength of the vinculum juris is not measured by any specific amount of premium payment, we will surely wreak havoc on the business and set to naught what has taken actuarians centuries to devise to arrive at a fair and equitable distribution of risks and benefits between the insurer and the insured.

The terms of the insurance policy constitute the measure of the insurer's liability. In the absence of statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever conditions they deem best upon their obligations not inconsistent with public policy.

Petition is denied.