UCPB v.

MASAGANA TELAMART
Davide, Jr., C.J. | April 4, 2001
Topic: Premium payment
Nature: Motion for Reconsideration

PARTIES:
UCPB GENERAL INSURANCE CO., INC., petitioner, vs. MASAGANA TELAMART, INC.,
respondent.

DISPUTED MATTER:
Validity of 60- to 90-credit term practice for the payment of premiums

SUMMARY:
Masagana had policies with UCPB, which insured its warehouses. After the coverage period of
their insurance policy, two of their properties burned down. Masagana paid UCPB to renew their
insurance policy, after which they demanded indemnification for the insured properties. UCPB
refused, prompting Masagana to file a complaint. The SC initially reversed the RTC and CA’s
ruling, holding that the supposed implied credit arrangement through actual payment of premium at
a later date and after the occurrence of the risk was invalid. Upon motion of reconsideration,
however, the SC reversed its ruling, holding that UCPB was barred by estoppel through the
established credit practice and that the same was an exception to Section 77 regarding premium
payment as requisite for a valid policy.

FACTS:
● Masagana Telamart obtained from UCPB 5 insurance policies on its properties in
Pasay and Manila.
o All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M.
of 22 May 1991 to 4:00 P.M. of 22 May 1992."
o On June 13, 1992, Masagana’s properties located at Pasay City were
razed by fire.
o On July 13, 1992, Masagana tendered, and UCPB accepted, 5 Equitable
Bank Manager's Checks in the total amount of P225,753.45 as renewal
premium payments for which Official Receipt Direct Premium No. 62926
was issued by UCPB.
o On July 14, 1992, Masagana made its formal demand for indemnification
for the burned insured properties. On the same day, UCPB returned the
 checks stating in its letter that it was rejecting Masagana's claim on the
following grounds:
a) Said policies expired last May 22, 1992 and were not renewed for
another term;
b) Defendant had put plaintiff and its alleged broker on notice of non-
renewal earlier; and
c) The properties covered by the said policies were burned in a fire that
took place last June 13, 1992, or before tender of premium payment.
● Masagana raised the matter to the RTC, which ruled in its favor.
o RTC released a decision allowing Masagana to consign the sum of
P225,753.95 as full payment of the premiums for the renewal of the five
insurance policies on their properties;
(b) declaring the replacement-renewal policies effective and binding from
22 May 1992 until 22 May 1993; and
(c) ordering UCPB to pay Masagana P18,645,000.00 as indemnity for the
burned properties covered by the renewal-replacement policies
● UCPB raised the matter to the CA, which affirmed the RTC’s decision with the
following modifications:
o (1) deletion of the trial court's declaration that three of the policies were in
force from August 1991 to August 1992; and
o (2) reduction of the award of the attorney's fees from 25% to 10% of the
total amount due the Respondent.
● The SC decided on the first
o CA: Disagreed with UCPB that Masagana’s tender of payment on June 13
did not result in the renewal of the policies merely because they were
made beyond the effective date of renewal.
▪ The CA and the RTC found sufficient proof that Masagana, which
had procured coverage from UCPB for years, had been granted a
60 to 90-day credit term for the renewal of the policies.
▪ CA held that no timely notice of non-renewal was made by UCPB,
as Masagana
o MAIN ISSUE: W/N fire insurance policies issued by petitioner to the
respondent covering the period from May 22, 1991 to May 22, 1992 had
been extended or renewed by an implied credit arrangement though
actual payment of premium was tendered on a later date and after the
occurrence of the risk insured against – NO.
o Respondent filed a Motion for Reconsideration.
▪ Alleged in the motion that the SC made findings of facts no in
accord with RTC and CA.
▪ Disagree with the ruling that parties may neither agree expressly
or impliedly on the extension of credit or time to pay the premium
nor consider a policy binding before actual payment.
 ▪ Asserts estoppel applies to UCPB.
o UCPB filed an opposition to the MR.
▪ Both RTC and CA overlooked the fact that on 6 April 1992 UCPB
sent by ordinary mail to Masagana a notice of non-renewal and
sent by personal delivery a copy thereof to Masagana's broker,
Zuellig. Masagana was fully aware of the notice.
ISSUES/HELD:
WON Sec. 77 of the Insurance Code of 1978 must be strictly applied to UCPB’s
advantage despite the practice of a 60- to 90-day credit term for premium
payment – NO.
Section 77 of the Insurance Code of 1978 provides:
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.
Section 77 does not restate the portion of Section 72 expressly permitting an agreement
to extend the period to pay the premium.

EXCEPTIONS:
1. In case of a life or industrial life policy whenever the grace period provision
applies.
2. Any acknowledgment in a policy or contract of insurance of 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
premium is actually paid.
3. Makati Tuscany Condominium Corporation vs. CA: Section 77 may not apply if
the parties have agreed to the payment in installments of the premium and partial
payment has been made at the time of loss.
o  initial insurance contract entered into in 1982 was renewed in 1983, then
in 1984. In those three years, the insurer accepted all the installment
payments. Such acceptance of payments speaks loudly of the insurer's
intention to honor the policies it issued to petitioner.
4. Makati Tuscany Condominium Corporation vs. CA: Insurer may grant credit
extension for the payment of the premium.
o There is nothing in Section 77 which prohibits the parties in an insurance
contract to provide a credit term within which to pay the premiums. That
agreement is not against the law, morals, good customs, public order or
public policy.
5. Estoppel.
 o INSTANT CASE: It would be unjust and inequitable if recovery on the
policy would not be permitted against UCPB, which had consistently
granted a 60- to 90-day credit term for the payment of premiums despite
its full awareness of Section 77.

DISPOSITIVE:
WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED and SET
ASIDE, and a new one is hereby entered DENYING the instant petition for failure of
Petitioner to sufficiently show that a reversible error was committed by the Court of
Appeals in its challenged decision, which is hereby AFFIRMED in toto.
No pronouncement as to cost.
SO ORDERED.
SPOUSES TIBAY vs. COURT OF APPEALS
G.R. No. 119655

DOCTRINE:
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.

FACTS:
On January 22, 1987, private respondent Fortune Life and General Insurance Co., Inc.
(Fortune) issued fire insurance policy in favor of Violeta Tibay and/or Nicolas Roraldo on
their two-storey residential building in Makati City, together with all their personal effects
therein. The insurance was for P600,000.00 covering the period from January 23, 1987
to January 23, 1988. Of the total premium of P2,983.50, petitioner Violeta Tibay only
paid P600.00, thus leaving a considerable balance unpaid.

On March 8, 1987, the insured building was completely destroyed by fire. Two days
later, or on March 10, 1987, Violeta Tibay paid the balance of the premium. On the
same day, she filed with Fortune a claim on the fire insurance policy.

In a letter dated June 11, 1987, Fortune denied the claim of Violeta for violation of
“Policy Condition No. 2” and of Section 77 of the Insurance Code. Efforts to settle the
case before the Insurance Commission proved futile. Thus, petitioners sued Fortune for
damages in the amount of P600,000.00 representing the total coverage of the fire
insurance policy plus interests and damages.

The trial court ruled for petitioners and held Fortune liable. Upon appeal, the Court of
Appeals reversed the decision and declared that Fortune was not liable.

ISSUE:
May a fire insurance policy be valid, binding and enforceable upon mere partial payment
of premium? NO.

HELD:
Insurance is a contract whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event.
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.

In this case, the subject 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. This is fully supported by Sec. 77
of the Insurance Code which provides –

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.

While it maybe true that under Section 77 of the Insurance Code, the parties may not
agree to make the insurance contract valid and binding without payment of premiums,
there is nothing in said section which suggests that the parties may not agree to allow
payment of the premiums in installment, or to consider the contract as valid and binding
upon payment of the first premium. Otherwise we would allow the insurer to renege on
its liability under the contract, had a loss incurred before completion of payment of the
entire premium, despite its voluntary acceptance of partial payments, a result eschewed
by basic considerations of fairness and equity.

In this case, as expressly agreed upon in the contract, full payment must be made
before the risk occurs for the policy to be considered effective and in force. Thus, no
vinculum juris ever resulted from the fractional payment of premium.

Verily, it is elemental law that the payment of premium is requisite to keep the policy of
insurance in force. If the premium is not paid in the manner prescribed in the policy as
intended by the parties the policy is ineffective. Partial payment even when accepted
as a partial payment will not keep the policy alive even for such fractional part of
the year as the part payment bears to the whole payment.
The case of South Sea Surety and Insurance Company, Inc. v. Court of Appeals,
speaks only of two (2) statutory exceptions to the requirement of payment of the entire
premium as a prerequisite to the validity of the insurance contract. These exceptions
are: (a) in case the insurance coverage relates to life or industrial life (health) insurance
when a grace period applies, and (b) when the insurer makes a written acknowledgment
of the receipt of premium, this acknowledgment being declared by law to, be then
conclusive evidence of the premium payment.
PEDRO ARCE vs.THE CAPITAL INSURANCE & SURETY CO., INC.,
G.R. No. L-28501

DOCTRINE:
SEC. 72. An insurer is entitled to payment of premium as soon as the thing
insured is exposed to the perils insured against, unless there is clear agreement to
grant credit extension for the premium due. No policy issued by an insurance company
is valid and binding unless and until the premium thereof has been paid "

FACTS:
The INSURED was the owner of a residential house in Tondo, Manila, which had
been insured with the COMPANY since 1961 under Fire Policy No. 24204. On
November 27, 1965, the COMPANY sent to the INSURED Renewal Certificate No.
47302 to cover the period December 5, 1965 to December 5, 1966. The COMPANY
also requested payment of the corresponding premium in the amount of P 38.10.

Anticipating that the premium could not be paid on time, the INSURED, thru his
wife, promised to pay it on January 4, 1966. The COMPANY accepted the promise but
the premium was not paid on January 4, 1966. On January 8, 1966, the house of the
INSURED was totally destroyed by fire.

On January 10, 1966, INSURED's wife presented a claim for indemnity to the
COMPANY. She was told that no indemnity was due because the premium on the
policy was not paid. Nonetheless the COMPANY tendered a check for P300.00 as
financial aid which was received by the INSURED's daughter, Evelina R. Arce. the
COMPANY reiterated that the check was given "not as an obligation, but as a
concession" because the renewal premium had not been paid, The INSURED cashed
the check but then sued the COMPANY on the policy.

ISSUE:
Whether or not Pedro Arce can claim for indemnity against Capital Insurance
even if he has not fully paid the premium on the policy?

RULING:
Sec. 72 of the Insurance Act, as amended by R.A. No. 3540 reads:

SEC. 72. An insurer is entitled to payment of premium as soon as the

thing insured is exposed to the perils insured against, unless there is clear
 agreement to grant credit extension for the premium due. No policy issued
by an insurance company is valid and binding unless and until the
premium thereof has been paid "

Morever, the parties in this case had stipulated:

IT IS HEREBY DECLARED AND AGREED that notwithstanding anything

to the contrary contained in the within policy, this insurance will be
deemed valid and binding upon the Company only when the premium and
documentary stamps therefor have actually been paid in full and duly
acknowledged in an official receipt signed by an authorized
official/representative of the Company, " 

It is obvious from both the Insurance Act, as amended, and the stipulation of the
parties that time is of the essence in respect of the payment of the insurance premium
so that if it is not paid the contract does not take effect unless there is still another
stipulation to the contrary. In the instant case, the INSURED was given a grace period
to pay the premium but the period having expired with no payment made, he cannot
insist that the COMPANY is nonetheless obligated to him.

We commiserate with the INSURED. We are aware that many insurance

companies have fallen into the condemnable practice of collecting premiums promptly
but resort to all kinds of excuses to deny or delay payment of just claims. Unhappily the
instant case is one where the insurer has the law on its side.
 Makati Tuscany Condominium Corp. v. CA, G.R. No. 95546, November 6,
1992
 
Summary:

A m e r i c a n H o m e A s s u r a n c e C o . , issued in favor of Makati Tuscany

Condominium Corporation insurance policies for 2 years. The premiums were paid by
Tuscany on installments. The policy was again renewed however Tuscany thereafter
refused to pay the balance of the premium. AHAC filed an action to recover the unpaid
balance. Tuscany claimed that the policy was never binding and valid, and no risk
attached to the policy.

Facts:

Respondent American Home Assurance Co. (AHAC) represented by American

International Underwriters Inc. (Phils.) issued in favor of petitioner an insurance policy
covering the latter’s building and premises from 01 March 1982-01 March 1983 with a
total premium of P466,103.05. It was paid on installments from March 1982-November
1982 which AHAC accepted.
It was renewed on February 1983 for the period of March 1983-March 1984 and the
premium of the same amount was paid in installments again which AHAC accepted.
On January 1984, it was again renewed for the period of March 1984-March 1985.
Here, petitioner only made 2 installment payments – first one for P52,000 and the
second one for P100,000. After that, petitioner refused to pay the balance of the
premium.
AHAC filed an action to recover the unpaid balance of P314,103.05.
Petitioner admitted that there was an existing insurance policy and reasoned out that he
discontinued the payment of premiums because the policy didn’t contain a credit clause
in its favor. It further claimed that the policy was never binding and valid and no risk
attached to the policy. It further sought he refund of all the premium payments he made
from 1982-1985.
The trial court dismissed the complaint and stated that Makati Tuscany Condo Corp.’s
premium payments cannot be refunded because there was a risk attached under the
policies; and in view of the reservation in the receipts by AHAC, AHAC has no right to
demand payment and Makati Tuscany Condo Corp is justified in not paying it.
Both appealed and Makati Tuscany Condo Corp was ordered to pay the balance of the
premiums due on the existing policy with legal interest .
Petitioner now asserts that its payment by installment of the premium invalidated
insurance policies from 1982-1984 because of Sec. 77 of the Insurance Code which
provides:
Sec. 77. An insurer is entitled to the payment of the premium as soon as the
thing 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.
Issue:

Whether payment by installment of the premiums due on an insurance policy invalidates

the contract of insurance in view of Sec. 77 of the Insurance Code.
Held:

NO.
 
Doctrine: Waiver of the condition of prepayment of the premium:
  
While the import of Section 77 is that prepayment of premiums is strictly required as a
condition to the validity of the contract, Section 78 of the I n s u r a n c e C o d e i n
effect allows waiver by the insurer of the condition of prepayment by
m a k i n g a n acknowledgment in the insurance policy of receipt of premium as
conclusive evidence of payment so far as to make the policy binding despite the fact
that premium is actually unpaid. 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 an agreement is not contrary
to morals, good customs, public order or public policy.

 
The Court held that the subject policies are valid even if the premiums were paid on
installments. It was clearly shown that petitioner and private respondent intended the
policies to be binding and effective notwithstanding the payment on installment of the
premiums. The contracts were even renewed and the insurance company also
accepted that way of paying the premiums. It would defy the basic principles of equity
and fairness if the insurer would be allowed to accept payments and later on deny
liability because the premiums were not paid in full.
As correctly stated by the Court of Appeals –
While the import of Section 77 is that prepayment of premiums is strictly required
as a condition to the validity of the contract, We are not prepared to rule that the
request to make installment payments duly approved by the insurer, would
prevent the entire contract of insurance from going into effect despite payment
and acceptance of the initial premium or first installment.
xxx
Section 77 merely precludes the parties from stipulating that the policy is valid
even if the premiums are not paid, but does not expressly prohibit an agreement
granting credit extension, and such an agreement is not contrary to morals, good
customs, public order, or public policy (De Leon, the Insurance Code, at p. 175)
xxx
At the very least, both parties should be deemed in estoppel to question the
arrangement they have voluntarily accepted.
It appearing from the circumstances that the parties actually intended to make the 3
insurance contracts valid and binding, petitioner must pay the balance. Also, where the
risk is entire and contract is indivisible, the insured is not entitled to a refund of the
premiums already paid if the insurer was exposed to the risk insured for any period,
however brief or momentary.
 GSIS vs. Prudential Guarantee & Assurance Inc., G.R. Nos. 165585 & 176982
FACTS:
 NEA entered into a Memorandum of agreement with GSIS insuring all real and
personal properties mortgaged to it by electrical cooperatives under an IAR
policy.

 95% of the sum insured under the IAR policy was reinsured by GSIS with PGAI
for a year where GSIS agreed to pay PGAI reinsurance premiums per quarter.

 GSIS failed, however, to pay for the fourth and last reinsurance premium despite
demands which prompted PGAI to file a complaint for sum of money against
GSIS alleging among others, that

 (b) the first three reinsurance premiums were paid to PGAI by GSIS and, in the
same vein, NEA paid the first three reinsurance premiums due to GSIS; (c) GSIS
failed to pay PGAI the fourth and last reinsurance premium due on December 5,
1999 xxx GSIS admitted that: xxx (b) it remitted to PGAI the first three
reinsurance premiums which were paid by NEA; and (c) it failed to remit the
fourth and last reinsurance premium to PGAI. It, however, denied, inter alia, that:
(a) it had acknowledged its obligation to pay the last quarter’s reinsurance
premium to PGAI xxx On January 11, 2002, the RTC observed that the
admissions of GSIS that it paid the first three quarterly reinsurance premiums to
PGAI affirmed the validity of the contract of reinsurance between them. As such,
GSIS cannot now renege on its obligation to remit the last and remaining
quarterly reinsurance premium. It further pointed out that while it is true that the
payment of the premium is a requisite for the validity of an insurance contract as
provided under Section 77 of Presidential Decree No. (PD) 612, otherwise known
as "The Insurance Code," it was held in Makati Tuscany Condominium Corp. v.
CA that insurance policies are valid even if the premiums were paid in
installments, as in this case. Thus, in view of the foregoing, the RTC ordered
GSIS to pay PGAI the last quarter reinsurance premium. CA sustained RTC’s
order with modification and GSIS’ motion for reconsideration.

ISSUE: WON PGAI is entitled to the payment of the fourth and last reinsurance
premium by GSIS
HELD:
YES. the non-payment of the last reinsurance premium merely rendered the contract
ineffective pursuant to Section 77 of PD 612 no longer involves any factual issue, but
stands solely as a mere question of law in the light of the foregoing admissions hence
allowing for a judgment on the pleadings. Besides, in the case of Makati Tuscany, the
Court already ruled that the non-payment of subsequent installment premiums would
not prevent the insurance contract from taking effect; that the parties intended to make
the insurance contract valid and binding is evinced from the fact that the insured paid –
and the insurer received – several reinsurance premiums due thereon, although the
former refused to pay the remaining balance, viz:
We hold that the subject policies are valid even if the premiums were paid on
installments. The records clearly show that petitioner and private respondent intended
subject insurance policies to be binding and effective notwithstanding the staggered
payment of the premiums. The initial insurance contract entered into in 1982 was
renewed in 1983, then in 1984. In those three (3) years, the insurer accepted all the
installment payments. Such acceptance of payments speaks loudly of the insurer’s
intention to honor the policies it issued to petitioner. Certainly, basic principles of equity
and fairness would not allow the insurer to continue collecting and accepting the
premiums, although paid on installments, and later deny liability on the lame excuse that
the premiums were not prepaid in full.

While the import of Section 77 is that prepayment of premiums is strictly required as a

condition to the validity of the contract, We are not prepared to rule that the request to
make installment payments duly approved by the insurer, would prevent the entire
contract of insurance from going into effect despite payment and acceptance of the
initial premium or first installment. Section 78 of the Insurance Code in effect allows
waiver by
the insurer of the condition of prepayment by making an acknowledgment in the
insurance policy of receipt of premium as conclusive evidence of payment so far as to
make the policy binding despite the fact that premium is actually unpaid. 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 an agreement is not contrary to morals, good customs, public order or public
policy (De Leon, the Insurance Code, at p. 175). So is an understanding to allow
insured to pay premiums in installments not so proscribed. At the very least, both
parties should be deemed in estoppel to question the arrangement they have voluntarily
accepted. [I]n the case before Us, petitioner paid the initial installment and thereafter
made staggered payments resulting in full payment of the 1982 and 1983 insurance
policies. For the 1984 policy, petitioner paid two (2) installments although it refused to
pay the balance.

It appearing from the peculiar circumstances that the parties actually intended to make
three (3) insurance contracts valid, effective and binding, petitioner may not be allowed
to renege on its obligation to pay the balance of the premium after the expiration of the
whole term of the third policy (No. AH-CPP-9210651) in March 1985. Moreover, as
correctly observed by the appellate court, where the risk is entire and the contract is
indivisible, the insured is not entitled to a refund of the premiums paid if the insurer was
exposed to the risk insured for any period, however brief or momentary.

RECIT-READY DIGEST:
PGAI filed a complaint for collection of a sum of money against GSIS when GSIS failed
to settle the 4th and last installment on the insurance premium with PGAI. In its Answer,
GSIS did not specifically deny the allegations of PGAI. PGAI filed a Motion for
Judgment on the Pleadings averring that GSIS essentially admitted the material
allegations of the complaint, such as the: existence of the MOA between NEA and
GSIS; existence of the reinsurance binder between GSIS and PGAI; remittance by
GSIS to PGAI of the first three quarterly reinsurance premiums; and failure/refusal of
GSIS to remit the fourth and last reinsurance premium.
RTC granted PGAI’s Motion for Judgment on the Pleadings. It observed that the
admissions of GSIS that it paid the first 3 quarterly reinsurance premiums to PGAI
affirmed the validity of the contract of reinsurance between them. As such, GSIS cannot
now renege on its obligation to remit the last and remaining quarterly reinsurance
premiums.
PGAI subsequently filed a Motion for Execution Pending Appeal which the RTC
granted.
CA affirmed the RTC’s ruling. GSIS elevated it to the SC
FACTS :
• National Electrification Administration (NEA) entered into a MOA w/ GSIS insuring all
the real and personal properties mortgaged in its favor by by electrical cooperatives
under an Industrial All Risks Policy (IAR policy)
• GSIS agreed to pay PGAI reinsurance per quarter
• GSIS failed to pay the fourth and last reinsurance to PGAI despite demands, which
prompted PGAI to file a Complaint for sum of money against GSIS w/ RTC 2
• In its complaint, PGAI alleged, among others, that:
a. after it had issued the IAR policy, it further reinsured the risks covered under the said
reinsurance with reputable reinsurers worldwide such as Lloyds of London,
Copenhagen Re, Cigna Singapore, CCR, Generali, and Arig;
b. the first three reinsurance premiums were paid to PGAI by GSIS and, in the same
vein, NEA paid the first three reinsurance premiums due to GSIS;
c. GSIS failed to pay PGAI the fourth and last reinsurance premium due on December
5, 1999;
d. the IAR policy remained in full force and effect for the entire insurable period and, in
fact, the losses/damages on various risks reinsured by PGAI were paid and accordingly
settled by it;
e. PGAI is under continuous pressure from its reinsurers in the international market to
settle the matter; and
f. GSIS acknowledged its obligation to pay the last reinsurance premium as it, in turn,
demanded from NEA the fourth and last reinsurance premium.
• In its Answer, GSIS admitted, among others, that:
a. its request for reinsurance cover was accepted by PGAI in a reinsurance binder;
b. it remitted to PGAI the first three reinsurance premiums which were paid by NEA; and
c. it failed to remit the fourth and last reinsurance premium to PGAI.
• It, however, denied, inter alia, that: a. it had acknowledged its obligation to pay the last
quarter’s reinsurance premium to PGAI; and b. the IAR policy remained in full force and
effect for the entire insurable period of March 5, 1999 to March 5, 2000.
• GSIS also proffered the following affirmative defenses:
a. the complaint states no cause of action against GSIS because the non-payment of
the last reinsurance premium only renders the reinsurance contract ineffective, and
does not give PGAI a right of action to collect;
b. pursuant to the regulations issued by the Commission on Audit, GSIS is prohibited
from advancing payments to PGAI occasioned by the failure of the principal insured,
NEA, to pay the insurance premium; and
c. PGAI’s cause of action lies against NEA since GSIS merely acted as a conduit.
• By way of counterclaim, GSIS prayed that PGAI be ordered to pay exemplary
damages, including litigation expenses, and costs of suit.
• On December 18, 2001, PGAI filed a Motion for Judgment on the Pleadings averring
that GSIS essentially admitted the material allegations of the complaint, such as the:
a. existence of the MOA between NEA and GSIS;
b. existence of the reinsurance binder between GSIS and PGAI;
c. remittance by GSIS to PGAI of the first three quarterly reinsurance premiums; and d.
failure/refusal of GSIS to remit the fourth and last reinsurance premium.
• GSIS opposed the foregoing motion by reiterating the allegations and defenses in its
Answer.
• RTC granted PGAI’s Motion for Judgment on the Pleadings. It observed that the
admissions of GSIS that it paid the first 3 quarterly reinsurance premiums to PGAI
affirmed the validity of the contract of reinsurance between them. As such, GSIS cannot
now renege on its obligation to remit the last and remaining quarterly reinsurance
premium.
• GSIS filed a notice of appeal. 3
• PGAI subsequently filed a Motion for Execution Pending Appeal based on the
following reasons:
a. GSIS’ appeal was patently dilatory since it already acknowledged the validity of
PGAI’s claim;
b. GSIS posted no valid defense as its Answer raised no genuine issues; and
c. PGAI would suffer serious and irreparable injury as it may be blacklisted as a
consequence of the nonpayment of premiums due.
RTC granted PGAI’s motion.
• CA dismissed the appeal and the MR. o CA ruled that judgment on the pleadings was
proper since GSIS did not specifically deny the genuineness, due execution, and
perfection of its reinsurance contract with PGAI. o In fact, PGAI even settled
reinsurance claims during the covering period rendering the reinsurance contract not
only perfected but partially executed as well. ISSUE/S and HELD WON CA erred in
sustaining RTC order rendering judgment on the pleadings – NO RATIO
• CA rightfully affirmed RTC’s order which rendered judgment on the pleadings
• Judgment on the pleadings is appropriate when an answer fails to tender an issue, or
otherwise admits the material allegations of the adverse party’s pleading. In this
relation, jurisprudence dictates that an answer fails to tender an issue if it does not
comply with the requirements of a specific denial as set out in Sections 8 and 10, Rule 8
of the Rules, resulting in the admission of the material allegations of the adverse party’s
pleadings.
As such, it is a form of judgment that is exclusively based on the submitted pleadings
without the introduction of evidence as the factual issues remain uncontroverted.
 In this case, records disclose that in its Answer, GSIS admitted the material allegations
of PGAI’s complaint warranting the grant of the relief prayed for. In particular, GSIS
admitted that:
a. it made a request for reinsurance cover which PGAI accepted in a reinsurance binder
effective for one year;
b. it remitted only the first three reinsurance premium payments to PGAI;
c. it failed to pay PGAI the fourth and final reinsurance premium installment; and (it
received demand letters from PGAI.
It also did not refute the allegation of PGAI that it settled reinsurance claims during the
reinsured period.
On the basis of these admissions, the Court finds that the CA did not err in affirming the
propriety of a judgment on the pleadings.
• GSIS’ affirmative defense that the non-payment of the last reinsurance premium
merely rendered the contract ineffective pursuant to Section 77 of PD 612 no longer
involves any factual issue, but stands solely as a mere question of law in the light of the
foregoing admissions, hence allowing for a judgment on the pleadings.
• Besides, in the case of Makati Tuscany, the Court already ruled that the non-payment
of subsequent installment premiums would not prevent the insurance contract from
taking effect; that the parties intended to make the insurance contract valid and binding
is evinced from the fact that the insured paid – and the insurer received – several
reinsurance premiums due thereon, although the former refused to 4 pay the remaining
balance o While the import of Section 77 is that prepayment of premiums is strictly
required as a condition to the validity of the contract, We are not prepared to rule that
the request to make installment payments duly approved by the insurer, would prevent
the entire contract of insurance from going into effect despite payment and acceptance
of the initial premium or first installment .
It appearing from the peculiar circumstances that the parties actually intended to make
three (3) insurance contracts valid, effective and binding, petitioner may not be allowed
to renege on its obligation to pay the balance of the premium after the expiration of the
whole term of the third policy. Moreover, as correctly observed by the appellate court,
where the risk is entire and the contract is indivisible, the insured is not entitled to a
refund of the premiums paid if the insurer was exposed to the risk insured for any
period, however brief or momentary.
DISPOSTION
WHEREFORE, the petition in G.R. No. 165585 is PARTLY GRANTED.
The Decision dated May 26, 2004 and Resolution dated October 6, 2004 of the Court of
Appeals in CA-G.R. SP No. 69289 are MODIFIED only insofar as it upheld the validity
of Prudential Guarantee and Assurance, Inc.’s execution pending appeal In this respect,
the Order dated February 14, 2002 of the Regional Trial Court of Makati, Branch 149 as
well as all other issuances related thereto are set aside.
On the other hand, the petition in G.R. No. 176982 is DENIED. The Decision dated
October 30, 2006 and Resolution dated March 12, 2007 in CA-G.R. CV No. 73965 are
hereby AFFIRMED.