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Insurance Case Digest: Constantino v. Asia Life Insurance Co. (1950)

G.R. No. L-1669             August 31, 1950
Lessons Applicable:  General Principles on Insurance (Insurance)

  • Case 1:
    • The life of Arcadio Constantino was insured with Asia Life Insurance Company (Asia) for a term of 20 years with Paz Lopez de Constantino as beneficiary.  The first premium covered the period up to September 26, 1942.  
    • After the first premium, no further premiums were paid. The insured died on September 22, 1944.
    • Asia Life Insurance Company, being an American Corp., had to close its branch office in Manila by reason of the Japanese occupation, i.e. from January 2, 1942, until the year 1945.
  • Case 2:
    • Spouses Tomas Ruiz and Agustina Peralta.  Their premium were initially annually but subsequently changed to quarterly.  The last quarterly premium was delivered on on November 18, 1941 and it covered the period until January 31, 1942. 
    • Upon the Japanese occupation, the insurer and insured were not able to deal with each other
    • Because the insured had borrowed on the policy P234.00 in January, 1941, the cash surrender value of the policy was sufficient to maintain the policy in force only up to September 7, 1942. 
    • Tomas Ruiz died on February 16, 1945 with Agustina Peralta as  beneficiary. Her demand for payment was refused on the ground of non-payment of the premiums.
  • Plaintiffs: As beneficiaries, they are entitled to receive the proceeds of the policies minus all sums due for premiums in arrears. The non-payment of the premiums was caused by the closing of Asia's offices in Manila during the Japanese occupation and the impossible circumstances created by war.
  • lower court: absolved Asia
ISSUE: W/N the insurers still have a right to claim.

HELD: YES. lower court affirmed.
  • it would seem that pursuant to the express terms of the policy, non-payment of premium produces its avoidance
  • Forfeitures of insurance policies are not favored, but courts cannot for that reason alone refuse to enforce an insurance contract according to its meaning.
  • Nevertheless, inasmuch as the non-payment of premium was the consequence of war, it should be excused and should not cause the forfeiture of the policy
  • 3 Rules in case of war:
    • Connecticut Rule
      • 2 elements in the consideration for which the annual premium is paid:
        • mere protection for the year
        • privilege of renewing the contract for each succeeding year by paying the premium for that year at the time agreed upon
      • payment of premiums is a condition precedent, the non-performance would be illegal necessarily defeats the right to renew the contract
    • New York Rule - greatly followed by a number of cases
      • war between states in which the parties reside merely suspends the contracts of the life insurance, and that, upon tender of all premiums due by the insured or his representatives after the war has terminated, the contract revives and becomes fully operative
    • United States Rule
      • contract is not merely suspended, but is abrogated by reason of non-payments is peculiarly of the essence of the contract
      • it would be unjust to allow the insurer to retain the reserve value of the policy, which is the excess of the premiums paid over the actual risk carried during the years when the policy had been in force
  • The business of insurance is founded on the law of average; that of life insurance eminently so
  • contract of insurance is sui generis
    • Whether the insured will continue it or not is optional with him. There being no obligation to pay for the premium, they did not constitute a debt.
  • It should be noted that the parties contracted not only for peacetime conditions but also for times of war, because the policies contained provisions applicable expressly to wartime days. The logical inference, therefore, is that the parties contemplated uninterrupted operation of the contract even if armed conflict should ensue.
  • the fundamental character of the undertaking to pay premiums and the high importance of the defense of non-payment thereof, was specifically recognized
  • adopt the United States Rule: first policy had no reserve value, and that the equitable values of the second had been practically returned to the insured in the form of loan and advance for premium