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Insurance Law - McGuire v Manurfacturer's Life Insurance

[G.R. No. L-3581. September 21, 1950.] payable to the plaintiff as beneficiary. The insured paid the premiums on said policy up to and
including that due on July 19, 1940. On June 22, 1940, the insured secured from the defendant a
JAMES MCGUIRE, Plaintiff-Appellee, v. THE MANUFACTURERS LIFE INSURANCE loan of $760 on said insurance policy. The insured failed to pay the loan with the interest thereon
CO., Defendant-Appellant. on January 1, 1941, when it became due, or on any other date thereafter. He likewise failed to
pay the premiums which fell due on July 19, 1941, as well as those payable thereafter.
Camus, Zavalla, Bautista & Nuevas, for Appellant. Paragraphs 6, 7, and 8 of the stipulation of facts read as follows:

Vicente C. Santos, for Appellee. "(6) That upon the default of the insured to pay the premiums due on July 19, 1941, and
subsequent ones, the defendant insurance company applied the stipulation contained in clause
SYLLABUS 8 (Automatic Premium Loan) of the provisions of the policy Exhibit A and said policy was carried
on under said nonforfeiture clause of the policy up to and including March 1, 1942, the date said
1. REMEDIAL LAW; STIPULATION OF FACTS, RELIEF FROM. — It is error for the trial court to policy lapsed, as shown in the letter of the defendant company of January 17, 1946, to plaintiff, a
set aside a stipulation of fact made by the parties in the absence of any petition for relief copy of which is hereto attached, marked Exhibit B and is made a part hereof;
therefrom on the ground of error or fraud.
"(7) That the insured Jaime McGuire died on August 4, 1943, in a motorcycle accident at
2. LIFE INSURANCE; REINSTATEMENT OF POLICY. — The stipulation in a life insurance Borongan, Samar, Philippines;
policy giving the insured the privilege to reinstate it upon written application within three years
from the date it lapses and upon of evidence of insurability satisfactory to the insurance "(8) That during the interim period between March 1, 1942, the date the policy lapsed, to August
company and the payment of all overdue premiums and any other indebtedness to the company, 4, 1943, the date of the death of the insured, the insured attempted to reinstate the policy under
does not give the insured absolute right to such reinstatement by the mere filing of an application the stipulation contained in clause 3 of the ’Provisions’ of the same but his attempts failed
n therefor. The company has the right to deny the reinstatement if it is not satisfied as to the because of his inability to communicate with defendant’s branch office at Manila due to the then
insurability of the insured and of the latter does not pay all overdue premiums and all other existence of war and the occupation of the Philippines by enemy forces from January 1, 1942, to
indebtedness to the company. After the death of the insured the insurance company cannot be February, 1945."
compelled to entertain an application for reinstatement of the policy because the conditions
precedent to reinstatement can no longer be determined and satisfied. Upon those facts the trial court rendered judgment in favor of the plaintiff, adjudging the
defendant to pay to him the sum of P20,000, minus the premiums due and unpaid up to the date
3. ID.; NONPAYMENT OF PREMIUMS TERMINATES CONTRACT OF INSURANCE. — As of the death of the insured, with legal interest thereon from the date of the filing of the complaint,
held in Lopez de Constantino v. Asia Life Insurance Company, and Peralta v. Asia Life and the costs.
Insurance Company, G.R. No. L-1669 and L-1670, the payment of premiums on a life insurance
policy is not suspended by war. The United States rule which declares that the contract of The trial court considered erroneous paragraph 6 of the stipulation of facts above quoted to the
insurance is not merely suspended, but it is abrogated by reason of nonpayment of premiums, effect that the policy in question lapsed on March 1, 1942, for failure to pay the premiums due
since the time of the payments is peculiarly of the essence of the contract, is adopted in this thereafter on account of the war, the trial court being of the opinion that the war legally
jurisdiction. suspended the obligation of the insured to pay the premiums up to the time of the death of the
insured, which occurred during said war, citing the decision of the Court of Appeals to that effect
in Gubagaras v. West Coast Life Insurance Company, CA- G. R. No. 1628, January 6, 1949.
DECISION
According to the complaint, plaintiff’s theory is that, although the policy lapsed on March 1, 1942,
the insured had the privilege of reinstating it so as to keep it in force up to the time of his death
OZAETA, J.: upon a written application within three years from the date of lapse and upon production of
evidence of insurability satisfactory to the company and the payment of all overdue premiums
and any other indebtedness to the company, but that the insured was unable to exercise that
This case was submitted to and decided by the Court of First Instance of Samar upon a privilege because of the war. Adopting another theory, the trial court held that it was
stipulation of facts, from which it appears that: unnecessary for the plaintiff to invoke the reinstatement clause of the policy because it had not
lapsed inasmuch as the failure to pay the premiums was due to the war.
On August 18, 1932, the defendant issued an insurance policy on the life of Jaime McGuire for
the sum of $5,000, and an additional sum of $5,000 as double indemnity accident benefit, Plaintiff’s theory is untenable. Even if the insured had applied for reinstatement within three
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Insurance Law - McGuire v Manurfacturer's Life Insurance
years after the policy had lapsed, his right thereto was not absolute under the terms of the policy
but discretionary on the part of the insurance company, which had the right to deny the
reinstatement if it was not satisfied as to the insurability of the insured and if the latter did not pay
all overdue premiums and all other indebtedness to the company. After the death of the insured
the insurance company could not be compelled to entertain an application for reinstatement of
the policy because the conditions precedent to reinstatement could no longer be determined and
satisfied.

Aside from the error of the trial court in motu proprio setting aside the stipulation of fact that the
policy had lapsed on March 1, 1942, its theory that the payment of premiums was legally
suspended during the war is contrary to the decision of this court of August 31, 1950, in Lopez
de Constantino v. Asia Life Insurance Company, and Peralta v. Asia Life Insurance Company, G.
R. Nos. L-1669 and L-1670, supra, p. 248. In those cases we rejected the New York rule which
holds that war between states in which the parties reside suspends the contract of life insurance
and that, upon tender of all premiums due by the insured or his representative after the war was
terminated, the contract revives and becomes fully operative; and adopted the United States rule
which declares that the contract is not merely suspended, but is abrogated by reason of
nonpayment of premiums, since the time of the payments is peculiarly of the essence of the
contract. Speaking through Mr. Justice Bengzon, this court, after a review of various pertinent
cases, further said:

"After pursuing the Insurance Act, we are firmly persuaded that the nonpayment of premiums is
such a vital defense of insurance companies that since the very beginning, said Act 2427
expressly preserved it, by providing that after the policy shall have been in force for two years, it
shall become incontestable (i. e., the insurer shall have no defense) except for fraud,
nonpayment of premiums, and military or naval service in time of war (sec. 184 [b], Insurance
Act). And when Congress recently amended this section (Rep. Act 171), the defense of fraud
was eliminated, while the defense of nonpayment of premiums was preserved. Thus the
fundamental character of the undertaking to pay premiums and the high importance of the
defense of nonpayment thereof, was specifically recognized."

We reiterate the doctrine laid down in the Asia Life Insurance Company cases above cited.

It appears that the insured in the present case has used up all the reserve value of the policy in
question thru loans in cash and the application of the nonforfeiture clause by keeping the policy
subsisting until March 1, 1942.

Reversing the judgment appealed from, we absolve the defendant- appellant from the complaint,
with costs.

Moran, C.J., Paras, Pablo, Bengzon, Tuason, Montemayor and Reyes, JJ., concur.