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Insurance Case Digest: American Home Assurance Co. v. Chua (1999)

G.R. No. 130421  June 28, 1999

Lessons Applicable: Acknowledgement receipt (Insurance)
Laws Applicable: Section 29, Section 66,Section 75, Section 77,Section 78, Section 306 of the Insurance Code


  • April 5, 1990: Antonio Chua renewed the fire insurance for its stock-in-trade of his business, Moonlight Enterprises with American Home Assurance Companyby issuing a check of P2,983.50 to its agent James Uy who delivered the Renewal Certificate to him.
  • April 6, 1990: Moonlight Enterprises was completely razed by fire with an est. loss of P4,000,000 to P5,000,000
  • April 10, 1990: An official receipt was issued and subsequently, a policy was issued covering March 25 1990 to March 25 1991
  • Antonio Chua filed an insurance claim with American Home and 4 other co-insurers (Pioneer Insurance and Surety Corporation, Prudential Guarantee and Assurance, Inc. and Filipino Merchants Insurance Co)
  • American Home refused alleging the no premium was paid
  • RTC: favored Antonio Chua for paying by way of check a day before the fire occurred
  • CA: Affirmed 
1. W/N there was a valid payment of premium considering that the check was cashed after the occurrence of the fire since the renewal certificate issued containing the acknowledgement receipt
2. W/N Chua violated the policy by his submission of fraudulent documents and non-disclosure of the other existing insurance contracts or “other insurance clause"

HELD:petition is partly GRANTED modified by deleting the awards of P200,000 for loss of profit, P200,000 as moral damages and P100,000 as exemplary damages, and reducing the award of attorney’s fees from P50,000 to P10,000

1. YES. 

  • Section 77 of the Insurance Code
    • 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 life or an industrial life policy whenever the grace period provision applies
  • Section 66 of the Insurance Code - not applicable since not termination but renewal
  • renewal certificate issued contained the acknowledgment that premium had been paid 
  • Section 306 of the Insurance Code provides that any insurance company which delivers a policy or contract of insurance to an insurance agent or insurance broker shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon
  • best evidence of such authority is the fact that petitioner accepted the check and issued the official receipt for the payment.  It is, as well, bound by its agent’s acknowledgment of receipt of payment
  • Section 78 of the Insurance Code
    • An 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 the premium is actually paid.
  • This Section establishes a legal fiction of payment and should be interpreted as an exception to Section 77 
2. NO.
  • purpose for the “other insurance clause”  is to prevent an increase in the moral hazard
  • failure to disclose was not intentional and fraudulent
  • Section 75
    • A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy.
  • American Home is estopped because its loss adjusters had previous knowledge of the co-insurers 
    • The loss adjuster, being an employee of petitioner, is deemed a representative of the latter whose awareness of the other insurance contracts binds petitioner
  • no legal and factual basis for the award of P200,000 for loss of profit
  • no such fraud or bad faith = no moral damages
  • grant of attorney’s fees as part of damages is the exception rather than the rule
    • award attorney’s fees where it deems just and equitable that it be so granted
    • reduced to P10,000