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Insurance Case Digest: Philippine Phoenix Surety & Insurance Co. v. Woodworks Inc (1979)

G.R. No. L-25317 August 6, 1979
Lessons Applicable: Estoppel and credit extension (Insurance)
Laws Applicable: Section 77 of the Insurance Code

  • July 21, 1960: Woodworks, Inc. was issued a fire policy for its building machinery and equipment by Philippine Phoenix Surety & Insurance Co. for P500K covering July 21, 1960 to July 21, 1961.  Woodworks did not pay the premium totalling to P10,593.36.
  • April 19, 1961: It was alleged that Woodworks notified Philippine Phoenix the cancellation of the Policy so Philippine Phoenix credited P3,110.25 for the unexpired period of 94 days and demanded in writing the payment of P7,483.11 
  • Woodworks refused stating that it need not pay premium "because the Insurer did not stand liable for any indemnity during the period the premiums were not paid." 
  • Philippine Phoenix filed with the CFI to recover its earned premium of P7,483.11
    • Woodworks: to pay the premium after the issuance of the policy put an end to the insurance contract and rendered the policy unenforceable
  • CFI: favored Philippine Phoenix
ISSUE: W/N there was a valid insurance contract despite no premium payment was paid

HELD: NO. Reversed

  • Policy provides for pre-payment of premium. To constitute an extension of credit there must be a clear and express agreement therefor and there nust be acceptance of the extension - none here
  • Since the premium had not been paid, the policy must be deemed to have lapsed.
  • failure to make a payment of a premium or assessment at the time provided for, the policy shall become void or forfeited, or the obligation of the insurer shall cease, or words to like effect, because the contract so prescribes and because such a stipulation is a material and essential part of the contract. This is true, for instance, in the case of life, health and accident, fire and hail insurance policies
  • Explicit in the Policy itself is plaintiff's agreement to indemnify defendant for loss by fire only "after payment of premium" Compliance by the insured with the terms of the contract is a condition precedent to the right of recovery.
  • The burden is on an insured to keep a policy in force by the payment of premiums, rather than on the insurer to exert every effort to prevent the insured from allowing a policy to elapse through a failure to make premium payments.