Alcance y Limitaciones

Premium

It is an agreed price for assuming and carrying the risk – that is, the consideration paid an insurer for undertaking to indemnify the insured against a specified peril (De Leon, 2010).

Premium v. Assessment

PREMIUM ASSESSMENT

Levied and paid to meet anticipated losses

Collected to meet actual losses

Premium is not a debt Assessment when properly levied, unless otherwise expressly agreed, is a debt.

Instances when payment of premium becomes a debt or obligation

1. In fire, casualty and marine insurance, the premium payable becomes a debt as soon as the risk attaches.

2. In life insurance, the premium becomes a debt only when, in the case of the first premium, the contract has become binding, and in the case of subsequent premiums, when the insurer has continued the insurance after maturity of the premium, in consideration of the insured’s express or implied promise to pay (De Leon, 2010).

Payments in addition to regular premium

An insurer may 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 (Sec. 84, Insurance Code).

NOTE: This is a new provision under the Insurance Code of 2013.

Non-payment of balance of premiums does not cancel the policy

A contrary rule would place exclusively in the hands of the insured the right to decide whether the contract should stand or not (Philippine Phoenix Surety & Insurance, Co., Inc., v. Woodworks, Inc., G.R.

No. L-22684, Aug. 31, 1967).

Effects of non-payment of premiums

Non-payment of the first premium unless waived, prevents the contract from becoming binding notwithstanding the acceptance of the application or the issuance of the policy. But nonpayment of the balance of the premium due does not produce the cancellation of the contract.

Non-payment of the subsequent premiums does not affect the validity of the contracts unless, by express stipulation, it is provided that the policy shall in that event be suspended or shall lapse (De Leon, 2010).

NOTE: In case of individual life or endowment insurance and group life insurance, the policyholder is entitled to a grace period of either 30 days or 1 month within which the payment of any premium after the first may be made (Secs.

233[a], 234[a], Insurance Code).

In case of industrial life insurance, the grace period is 4 weeks, where premiums are payable monthly, either 30 days or 1 month (Sec. 236 [a], Insurance Code).

Q: If the applicant failed to pay premium and instead executed a promissory note in favor of the insurer payable within 30 days which was accepted by the latter, is the insurer liable in case of loss?

A: Yes, the insurer is liable because there has been a perfected insurance contract. The insurer accepted the promise of the applicant to pay the insurance premium within thirty 30 days from the effective date of policy. By so doing, it has implicitly agreed to modify the tenor of the insurance policy and in effect, waived any provision therein that it would only pay for the loss or damage in case the same occurs after the payment of the premium.

Considering that the insurance policy is silent as to the mode of payment, insurer is deemed to have accepted the promissory note in payment of the premium. This rendered the policy immediately operative on the date it was delivered (Capital Insurance & Surety Co. Inc. v. Plastic Era Co., Inc. G.R.

No. L-22375, July 18, 1975).

Rule on non-payment of premiums by reason of fortuitous event

GR: Non-payment of premiums does not merely suspend but put an end to an insurance contract since the time of the payment is peculiarly of the essence of the contract (De Leon, 2010).

XPN:

1. The insurer has become insolvent and has suspended business, or has refused without

justification a valid tender of premiums (Gonzales v. Asia Life Ins. Co., G.R. No. L-5188, Oct. 29, 1952).

2. Failure to pay was due to the wrongful conduct of the insurer.

3. The insurer has waived his right to demand payment (De Leon, 2010).

NOTE: But the insurer will not be deemed to have waived his privilege of forfeiture by mere inaction or silence if the ground be default in the payment of premiums, going as it does to the whole consideration inducing the insurer to enter into the contract (De Leon, 2010).

While the insured has the privilege of continuing the policy in force by making premium payments, the insurer cannot ordinarily force the insured to make these payments (De Leon, 2010).

Effect of acceptance of premium

Acceptance of premium within the stipulated period for payment thereof, including the agreed grace period, merely assures continued effectivity of the insurance policy in accordance with its terms (Stoke v.

Malayan Insurance Co., Inc., G.R. No. L-34768, Feb.

28, 1984).

Payment of the premium to agent of the insurance company is binding on it (Malayan Insurance v.

Arnalo 154 SCRA 672 and areola v. CA 236 SCRA 643).

If an insurance company delivers a policy to an insurance broker, it is deemed to have authorized him to receive the payment of the premium (Sec. 306, South Sea v. CA 244 SCRA 744; American Home Assurance v. Chua 309 SCRA 250).

An acknowledgment in a policy of the receipt of the premium is conclusive evidence of its payment for the purpose of making the policy binding despite a stipulation that it will not be binding until the premium is actually paid (Sec. 78; American Home v.

Chua, supra).

Effect of payment of premium by post-dated check Delivery of a promissory note or a check will not be sufficient to make the policy binding until the said note or check has been converted into cash. This is consistent with Article 1249 of the New Civil Code.

NOTE: Payment by means of a check or note, accepted by the insurer, bearing a date prior to the loss, assuming availability of the funds thereof, would be sufficient even if it remains unencashed at the time of the loss. The subsequent effects of encashment would retroact to the date of the instrument and its acceptance by the creditor.

Non-payment of the premium will not entitle the insurer to recover the premium from the insured The continuance of the insurer’s obligation is conditioned upon the payment of the premium, so that no recovery can be had upon a lapsed policy, the contractual relation between the parties having ceased. If the peril insured against had occurred, the insurer would have had a valid defense against recovery under the policy.

Q: Is the insurance company liable when a car, bought on installment basis, met an accident but the car is not yet fully paid? (2006 Bar Question)

A: Yes, when insured and insurer have agreed to the payment of premium by installments and partial payment has been made at the time of loss, then the insurer becomes liable. When the car loss happened on the 5th month, the six months agreed period of payment had not yet elapsed. The owner may recover from Peninsula Insurance Company, but the latter has the right to deduct the amount of unpaid premium from the insurance proceeds.

“Cash and carry” rule (2003 Bar Question)

GR: No policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid. Any agreement to the contrary is void.

XPN: A policy is valid and binding even when there is non-payment of premium:

1. In case of life or industrial life policy whenever the grace period provision applies, or whenever under the broker and agency agreements with duly licensed intermediaries, a ninety (90)-day credit extension is given. No credit extension to a duly licensed intermediary should exceed ninety (90) days from date of issuance of the policy (Sec. 77, Insurance Code).

2. When there is acknowledgment in a policy of a receipt of premium, which the law declares to be conclusive evidence of payment, even if there is stipulation therein that it shall not be binding until the premium is actually paid. This is without prejudice however to right of insurer to collect corresponding premium (Sec. 77, ibid).

3. When there is an agreement allowing the insured to pay the premium in installments and partial payment has been made at the time of loss (Makati Tuscany Condominium Corp. v. CA, G.R. No. 95546, Nov. 6, 1992).

4. When there is an agreement to grant the insured credit extension for the payment of the premium.

(Art. 1306, NCC), and loss occurs before the expiration of the credit term (UCPB General Insurance v. Masagana Telemart, G.R. No. 137172, Apr. 4, 2001).

5. When estoppel bars the insurer to invoke non-recovery on the policy.

6. When the public interest so requires, as determined by the Insurance Commissioner

EX: In compulsory motor vehicle insurance, if the policy was issued without payment of premium by the vehicle owner, the insurer will still be held liable. To rule otherwise would prejudice the 3^rd party victim.

NOTE: Under Section 77 as amended by RA 10607, a ninety (90)-day credit extension may be given whenever credit extension is given under the broker and agency agreements with duly licensed intermediaries. The requisites are as follows:

1. The credit extension must be provided for under the broker and agency agreements;

2. The credit extension to a duly licensed intermediary should not exceed ninety (90) days from date of issuance of the policy (Sundiang, 2014).

-Employees of the Republic of the Philippines, including its political subdivisions and instrumentalities, and government-owned or -controlled corporations, may pay their insurance premiums and loan obligations through salary deduction: Provided, That 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 (Sec. 78, Insurance Code).

This is a new provision.

Effect of acknowledgment of receipt of premium in policy

Conclusive evidence of its payment, in so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid (Sec. 79, Insurance Code).

When the policy contains such written acknowledgment, it is presumed that the insurer has waived the condition of prepayment. It hereby creates a legal fiction of payment. The presumption is however, extended only to the question of the binding effect of the policy.

As far as the payment of the premium itself is concerned, the acknowledgment is only a prima facie evidence of the fact of such payment. The insurer

may still dispute its acknowledgment but only for the purpose of recovering the premium due and unpaid.

Whether payment was indeed made is a question of fact.