TITLE 8

PREMIUM

Section 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to
the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium thereof has
been paid, except in the case of a life or an 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.

Section 78. 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.

 An insurance premium is the agreed price for assuming and carrying the risk that is the
consideration paid an insurer for undertaking to indemnify the insured against a specific peril.
o Where only one premium is paid for several things not separately valued, the insurance
contract is entire or indivisible.
 An assessment is a sum specifically levied by mutual insurance companies upon a fixed and
definite plan to pay losses and expenses.

Premium Assessment
Levied and paid to meet anticipated losses Collected to meet actual losses
1st payment is not enforceable against the insured Legally enforceable once levied
Not a debt Debt

 Payment of premium ordinarily is not a debt or obligation

o Fire, casualty, marine
 The premium becomes a debt as soon as the risk attaches and in suretyship as
soon as the contract bond is perfected and delivered to the obligor.
 The phrase “the thing insured is exposed to the peril insured against” assumes
that the contract is perfected which takes place when the applicant’s offer is
accepted by the insurer.
o Non- payment of the balance of the premium due does not produce the cancellation of
the contract of insurance in the sense that it can no longer be enforced
 A contrary rule would place exclusively in the hands of the insured the right to
decide whether the contract should stand or not
 Effect of non-payment of premium
 o As a GR, the time specified for the payment of premiums is of the essence of the
contract. The ability of the insurer to meet its contingent obligations to the public
depends upon the prompt payment of all premiums due
 1st premium- nonpayment of the 1st premium unless waived prevents the
contract from being binding despite the acceptance of the application nor
issuance of the policy
 But non payment of the balance of the premium does not produce the
cancellation of the contracts.
 Subsequent premiums
 Non payment does not affect the validity of the contracts unless by
express stipulation, it is provided that the policy shall in that event be
suspended.
 Excuses for non payment of premiums
o FE- even if it renders the payment of premium by the insured wholly impossible, it will
not prevent the forfeiture of the policy when the premium remains unpaid.
 Under this jurisdiction, the non payment of premium does not merely suspend
but puts an end to an insurance contract, since the time of payment is peculiarly
of the essence of the contract.
o Insolvency of the insurer or has suspended business or has refused without justification
to make a valid tender of payment
o Due to wrongful act of the insurer
o Waiver
 But the insurer will not be deemed to have waived his privilege 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 contract.
 Validity where credit extension is granted to insurer
o However, in one case the court ruled that section 77 merely precludes the parties from
stipulating that the policy is valid even if premiums are not paid but does not expressly
prohibit an agreement granting credit extension and such agreement is not contrary
morals, good customs, public policy.
 Where non policy is binding despite non payment
o Life/ Industrial life
o 90 day extension by broker or agency with duly licensed intermediaries
 If it exceeds, it wil be deemed to be only up to 90 days
o When there is acknowledgment despite the fact that there’s a stipulation that the policy
shall not be binding until premium is actually paid
o When there’ agreement to pay in installments or partially
o When there’s an agreement to grant the insured credit extension
o Estoppel

Section 79. An acknowledgment in a policy or contract of insurance or 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.

 Effect of acknowledgment of receipt of premium in policy

 o Waiver of condition of prepayment
 Where there’s an acknowledgment of receipt of premium, the insurer cant deny
liability even if the premium is actually unpaid and notwithstanding any
stipulation to the contrary
 Ratio: There’s a presumption of waiver
o It must be noted however, that the conclusive presumption extends only to the question
of binding effect of the policy. Thus, the insurer may still dispute its acknowledgment but
only for the purposes of recovering the premium.
 Effect of acceptance of premium
o It merely assures continued effectivity of the insurance policy in acc with its terms, but it
does not stop the insurer from interposing any valid defense under the terms of the
insurance policy, where such insurer is not guilty of any inequitable act or
representation.

Section 80. A person insured is entitled to a return of premium, as follows:

(a) To the whole premium if no part of his interest in the thing insured be exposed to any of the perils
insured against;

(b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to
such portion of the premium as corresponds with 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.

Section 81. If a peril insured against has existed, and the insurer has been liable for any period, however
short, the insured is not entitled to return of premiums, so far as that particular risk is concerned.

Section 82. A person insured is entitled to a return of the premium when the contract is voidable, and
subsequently annulled under the provisions of the Civil Code; or 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; or when by any default of the insured other than actual
fraud, the insurer never incurred any liability under the policy.

A person insured is not entitled to a return of premium if the policy is annulled, rescinded or if a claim
is denied by reason of fraud.

Section 83. 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.

 When recovery is proper

o When no part has been exposed to perils
o Where acceptance was absent and there was payment of premium
o When loss occurs before effectivity
 Ratio: Contrary to dictates of honesty and fair dealings
 o When the insurance is for a definite time and the insured surrender his policy before th
termination
 Not applicable when:
 Not for definite period
 Short period has been agreed upon (portion stipulated will govern)
 Life insurance
 What should be returned is the unearned portion in proportion to the unexpired
period and retaining only the earned portion to the portion expired.
o When the contract is voidable and was annulled because of fraus or misrepresentation
of the insurer or agent
o When the contract was voidable due existence of facts by whc the insured was
ignorant without his fault
o When insurer never incurred liability because of default other than actual fraud
o When there’s over insurance
o Recission due to insurer’s breach of contract
 Fees like docu stamps and taxes are not recoverable
 Where parties become public enemies, justice requires that premiums be paid after the
declaration of war between the belligerent states be returned.
 Where risk has attached
o GR: In absence of stipulation, there will already be liability when a risk attached
 If divisible
 When contract is voidable
o Fraud of insurer- return of premium
o On account of facts to which the insured was ignorant- return
o Fraud on insured- No return
 When there’s over insurance
o In case of over insurance by double insurance, the insurer is not liable for the total
amount of insurance taken, his liability being limited only to the amount of the insurable
interest of the property insures
 In short, he is not entitled to that portion of the premium corresponding to the
excess of the insurance over the insurable interest of the insured.
 There would be a proportioning
 Basis of the right to recover
o Insurer could have been called to pay the whole
o Insurer could have been called to pay a part
 Right to recover premum as to life
o Not allowed if the insured surrenders his policy, because life insu is not a divisible
contract and each installment is part of the consideration of the entire life insurance.
o What the insured may receive is the cash surrender value after 3 annual premiums shall
have been paid

Section 84. 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.
 TITLE 9
LOSS

Section 85. An agreement not to transfer the claim of the insured against the insurer after the loss has
happened, is void if made before the loss except as otherwise provided in the case of life insurance.

 Claim
o It is a demand for the satisfaction of a loss suffered within the purview of an insured’s
policy. Itt may be through the party insured, the insurer with right of subrogation or non
party but with right against the insured.
 Effect of non agreement to transfer after a loss
o Void
o If before, policy can’t be transferred without the consent except in life
o Ratio:
 It hinders free transmission of property
 The transfer only involves money claim and not moral hazard
o Expn:
 Transfer of fire insurance to any person or company who acts a san agent for or
otherwise represents the issuing company insofar as it may affect other
creditors.

Section 86. Unless otherwise provided by the policy, an insurer is liable for a loss of which a peril insured
against was the proximate cause, although a peril not contemplated by the contract may have been a
remote cause of the loss; but he is not liable for a loss of which the peril insured against was only a
remote cause.

 Loss- It is the injury, damage or liability sustained by the insured due to the peril or event
 Extent
o Total
o Partial
o Constructive Total
 It is satisfied by payment of loss, restoration, substitution
 The cause of loss must be the proximate cause
o The insurer assumes liability only for a loss proximately caused by perils although it may
be a remote cause
 Hostile v Friendly fires
o Under this principle, when it is from friendly, the policy shall not be construed to protect
the insured from injury consequent upon his negligent use or management of fire, so
long as it is confined to place where it ought to be.

Section 87. An insurer is liable where the thing insured is rescued from a peril insured against that would
otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a peril not insured
against, which permanently deprives the insured of its possession, in whole or in part; or where a loss is
caused by efforts to rescue the thing insured from a peril insured against.

 Liability under this article

o Where the loss took place while being rescued from peril insured against
 o Where the loss is caused by efforts to rescue the thing insured

Section 88. Where a peril is especially excepted in a contract of insurance, a loss, which would not have
occurred but for such peril, is thereby excepted although the immediate cause of the loss was a peril
which was not excepted.

 The insurer is not liable if the proximate cause of the loss is a peril excepted from the policy
although the immediate cause is a peril not excepted.

Section 89. An insurer is not liable for a loss caused by the willful act or through the connivance of the
insured; but he is not exonerated by the negligence of the insured, or of the insurance agents or others.

 The insurer is not liable for a loss caused by the intentional acts
 If there’s negligence
o Ordinary- not liable
o Gross- Liable