Philippine Deposit Insurance Corporation (PDIC) Faqs

Philippine Deposit Insurance Corporation (PDIC) Faqs you should know to protect your monetary interest in banks.

What is the Philippine Deposit Insurance Corporation (PDIC)?

PDIC is a government instrumentality created in 1963 by virtue of Republic Act 3591 to insure the deposits of all banks which are entitled to the benefits of insurance. The latest amendments to RA 3591 are contained in RA 9576 signed into law on April 29, 2009. RA 9576 increased the maximum deposit insurance coverage to P500,000.00. The new law also includes important provisions to ensure that the PDIC remains financially and institutionally strong to fulfill its mandate under its Charter.

The PDIC now has the authority to determine which deposit products are covered by insurance. The PDIC is also authorized to conduct independent special examination of banks and may inquire into or examine deposit accounts of ailing banks in the event there is a finding of unsafe and unsound banking practices.

Part of the financial strengthening measures for the PDIC, on the other hand, include exemption from taxes and the authority to issue sovereign bonds, debentures and other debt issuances.

The PDIC is an attached agency of the Department of Finance.

What is PDIC’s overall mandate?

PDIC exists to provide permanent and continuing deposit insurance coverage for the depositing public to help promote public confidence and stability in the economy. It ensures prompt payment of insured deposits, exercises complementary supervision of banks, adopts responsive resolution methods, and applies efficient management of receivership and liquidation functions.

What are the functions of PDIC?

• Deposit Insurer
• Co-regulator of Banks
• Receiver and Liquidator of Closed Banks

What is PDIC’s maximum deposit insurance coverage?

Effective June 1, 2009, the maximum deposit insurance coverage is P500,000 per depositor. All deposit accounts by a depositor in a closed bank maintained in the same right and capacity shall be added together.

Under R.A. No. 9576, the PDIC may propose to adjust the MDIC, subject to the approval of the President of the Philippines, in case of a condition that threatens the monetary and financial stability of the banking system that may have systemic consequences.

What is an insured deposit?

The term ‘insured deposit’ means the amount due to any bona fide depositor for legitimate deposits in an insured bank net of any obligation of the depositor to the insured bank as of date of closure, but not to exceed P500,000.00.

A joint account shall be insured separately from any individually-owned deposit account.

R.A. No. 9576 stipulates that PDIC will NOT pay deposit insurance for the following accounts or transactions:

• Investment products such as bonds, securities and trust accounts;
• Deposit accounts which are unfunded, fictitious or fraudulent;
• Deposit products constituting or emanating from unsafe and unsound banking practices;
• Deposits that are determined to be proceeds of an unlawful activity as defined under the Anti-Money Laundering Law.

Are all banks members of PDIC?

Membership of banks to PDIC is mandatory; hence, all operating banks are members of PDIC.

What are deposits?

• unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account, or issued in accordance with Bangko Sentral rules and regulations and other applicable laws, together with such other obligations of a bank, which, consistent with banking usage and practices, the Board of Directors shall determine and prescribe by regulations to be deposit liabilities of the bank: Provided, That any obligation of a bank which is payable at the office of the bank located outside of the Philippines shall  NOT be a deposit for any of the purposes of this Act or included as part of the total deposits or of insured deposit: Provided, further, That, subject to the approval of the Board of Directors, any insured bank which is incorporated under the laws of the Philippines which maintains a branch outside the Philippines may elect to include for insurance its deposit obligations payable only at such branch.

What types of deposits are insured by PDIC?

Except for the exclusions stipulated in RA 9576, deposits of all commercial banks, savings and mortgage banks, rural banks, private development banks, cooperative banks, savings and loan associations, as well as branches and agencies in the Philippines of foreign banks and all other corporations authorized to perform banking functions in the Philippines, are insured with PDIC. As for Philippine banks with branches outside the country, RA 9576 stipulates that subject to the approval of the Board of Directors, any insured bank with branch outside the Philippines may elect to include for insurance its deposit obligations payable at such branch.

Foreign currency deposits are also insured by PDIC pursuant to RA 6426 (“An act instituting a foreign currency deposit system in the Philippines, and for other purposes”) and Central Bank (CB) Circular No. 1389. Depositors may receive payment in the same currency in which the insured deposit is denominated.

Exclusions from deposit insurance coverage as stipulated in R.A. No. 9576:

• Investment products such as bonds, securities and trust accounts;
• Deposit accounts which are unfunded, fictitious or fraudulent;
• Deposit products constituting or emanating from unsafe and unsound banking practices;
• Deposits that are determined to be proceeds of an unlawful activity as defined under the Anti-Money Laundering Law.

What specific risks to a bank does PDIC cover?

PDIC covers only the risk of a bank closure ordered by the Monetary Board. Thus, bank losses due to theft, fire, closure by reason of strike or existence of public disorder, revolution or civil war, are not covered by PDIC.

Can PDIC insurance coverage be increased by having several accounts in the same name in an insured bank?

No. Deposit insurance coverage is not determined on a per-account basis. The type of account (whether checking, savings, time or other form of deposit) has no bearing on the amount of insurance coverage.

If the deposit account in a closed bank is more than P500,000.00, what happens to the excess of the maximum amount of insured deposit?

If the closed bank is not rehabilitated or taken over by another bank, amount in excess of the P500,000 coverage can still be claimed upon the final liquidation of the remaining assets of the closed bank.

The claim may be filed with the Liquidator of the closed bank but payment of the said claim will depend on the bank's available assets to settle its preferred claims (Government taxes, labor claims, secured credits and trust funds) and approval of the Liquidation Court. The schedule of payment beyond the P500,000.00 maximum insurance shall be based on priorities set by law.

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Insurance Case Digest: Capital Insurance & Surety Co. Inc. v. Plastic Era Co. Inc (1975)

G.R.No. L-22375    July 18, 1975
Lessons Applicable: Estoppel and credit extension (Insurance)

Laws Applicable: Article 1249 of the New Civil Code

FACTS:

• December 17, 1960: Capital Insurance & Surety Co., Inc. delivered to the respondent Plastic Era Manufacturing Co., Inc. its open Fire Policy insuring its building, equipments, raw materials, products and accessories located at Sheridan Street, Mandaluyong, Rizal between December 15, 1960 1 pm - December 15, 1961 1 pm up to P100,000 but Plastic Era did not pay the premium
• January 8, 1961: Plastic Era delivered to Capital Insurance its partial payment through check P1,000 postdated January 16, 1961
• February 20, 1961: Capital Insurance tried to deposit the check but it was dishonored due to lack of funds.  According to the records, on January 19, 1961 Plastic Era has had a bank balance of P1,193.41
• January 18, 1961: Plastic Era's properties were destroyed by fire amounting to a loss of P283,875.  The property was also insured to Philamgen Insurance Company for P200K.
• Capital Insurance refused Plastic Era's claim for failing to pay the insurance premium
• CFI: favored Capital Insurance
• CA: affirmed

ISSUE: W/N there was a valid insurance contract because there was an extention of credit despite failing to encash the check payment

HELD: YES. Affirmed

• Article 1249 of the New Civil Code
• The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired
• Capital Insurance accepted the promise of Plastic Era to pay the insurance premium within 30 days from the effective date of policy. Considering that the insurance policy is silent as to the mode of payment, Capital Insurance is deemed to have accepted the promissory note in payment of the premium. This rendered the policy immediately operative on the date it was delivered.
• By accepting its promise to pay the insurance premium within thirty (30) days from the effectivity date of the policy — December 17, 1960 Capital Insurance had in effect extended credit to Plastic Era.
• Where credit is given by an insurance company for the payment of the premium it has no right to cancel the policy for nonpayment except by putting the insured in default and giving him personal notice
• Having held the check for such an unreasonable period of time, Capital Insurance was estopped from claiming a forfeiture of its policy for non-payment even if the check had been dishonored later.

Jurisprudence: G.R. No. L-22375

FIRST DIVISION


G.R. No. L-22375 July 18, 1975


THE CAPITAL INSURANCE & SURETY CO., INC., petitioner, 
vs.
PLASTIC ERA CO., INC., AND COURT OF APPEALS, respondents.


Salcedo, Del Rosario, Bito, Misa and Lozada for petitioner.


K.V. Faylona for Private respondent.





MARTIN, J.:


Petition for review of a decision of the Court of Appeals affirming the decision of the Court of First Instance of Manila in Civil Case No. 47934 entitled "Plastic Era Manufacturing Co., Inc. versus The Capital Insurance and Surety Co., Inc."


On December 17, 1960, petitioner Capital Insurance & Surety Co., Inc. (hereinafter referred to as Capital Insurance) delivered to the respondent Plastic Era Manufacturing Co., Inc., (hereinafter referred to as Plastic Era) its open Fire Policy No. 22760 1 wherein the former undertook to insure the latter's building, equipments, raw materials, products and accessories located at Sheridan Street, Mandaluyong, Rizal. The policy expressly provides that if the property insured would be destroyed or damaged by fire after the payment of the premiums, at anytime between the 15th day of December 1960 and one o'clock in the afternoon of the 15th day of December 1961, the insurance company shall make good all such loss or damage in an amount not exceeding P100,000.00. When the policy was delivered, Plastic Era failed to pay the corresponding insurance premium. However, through its duly authorized representative, it executed the following acknowledgment receipt:


This acknowledged receipt of Fire Policy) NO. 22760 Premium 
x x x x x) (I promise to pay)
(P2,220.00) (has been paid)
THIRTY DAYS AFTER on effective date ---------------------
(Date)


On January 8, 1961, in partial payment of the insurance premium, Plastic Era delivered to Capital Insurance, a check 2 for the amount of P1,000.00 postdated January 16, 1961 payable to the order of the latter and drawn against the Bank of America. However, Capital Insurance tried to deposit the check only on February 20, 1961 and the same was dishonored by the bank for lack of funds. The records show that as of January 19, 1961 Plastic Era had a balance of P1,193.41 with the Bank of America.


On January 18, 1961 or two days after the insurance premium became due, at about 4:00 to 5:00 o'clock in the morning, the property insured by Plastic Era was destroyed by fire. In due time, the latter notified Capital Insurance of the loss of the insured property by fire 3 and accordingly filed its claim for indemnity thru the Manila Adjustment Company. 4 The loss and/or damage suffered by Plastic Era was estimated by the Manila Adjustment Company to be P283,875. However, according to the records the same property has been insured by Plastic Era with the Philamgen Insurance Company for P200,000.00.


In less than a month Plastic Era demanded from Capital Insurance the payment of the sum of P100,000.00 as indemnity for the loss of the insured property under Policy No. 22760 but the latter refused for the reason that, among others, Plastic Era failed to pay the insurance premium.


On August 25, 1961, Plastic Era filed its complaint against Capital Insurance for the recovery of the sum of P100,000.00 plus P25,000.00 for attorney's fees and P20,000.00 for additional expenses. Capital Insurance filed a counterclaim of P25,000.00 as and for attorney's fees.


On November 15, 1961, the trial court rendered judgment, the dispositive portion of which reads as follows:


WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendant for the sum of P88,325.63 with interest at the legal rate from the filing of the complaint and to pay the costs.


From said decision, Capital Insurance appealed to the Court of Appeals.


On December 5, 1963, the Court of Appeals rendered its decision affirming that of the trial court. Hence, this petition for review by certiorari to this Court.


Assailing the decision of the Court of Appeals petitioner assigns the following errors, to wit:


1. THE COURT OF APPEALS ERRED IN SENTENCING PETITIONER TO PAY PLASTIC ERA THE SUM OF P88,325.63 PLUS INTEREST, AND COST OF SUIT, ALTHOUGH PLASTIC ERA NEVER PAID PETITIONER THE INSURANCE PREMIUM OF P2,220.88.


2. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER SHOULD HAVE INSTITUTED AN ACTION FOR RESCISSION OF THE INSURANCE CONTRACT ENTERED INTO BETWEEN IT AND PLASTIC ERA BEFORE PETITIONER COULD BE RELIEVED OF RESPONSIBILITY UNDER ITS FIRE INSURANCE POLICY.


3. WE HAVE SHOWN ABOVE THAT PLASTIC ERA'S ACTION WAS UNWARRANTED AND THAT THE PETITIONER SHOULD HAVE BEEN ABSOLVED FROM THE COMPLAINT, AND CONSEQUENTLY, THE LOWER COURT SHOULD HAVE AWARDED PETITIONER A REASONABLE SUM AND AS ATTORNEY'S FEES P25,000.00.


The pivotal issue in this petition is whether or not a contract of insurance has been duly perfected between the petitioner, Capital Insurance, and respondent Plastic Era. Necessarily, the issue calls for a correct interpretation of the insurance policy which states:


This Policy of Insurance Witnesseth That in consideration of PLASTIC ERA MANUFACTURING COMPANY, INC. hereinafter called the Insured, paying to the Capital Insurance & Surety Co., Inc., hereinafter called the Company, the sum of PESOS TWO THOUSAND ONE HUNDRED EIGHTY EIGHT the premium for the first period hereinafter mentioned, for insuring against Loss or Damage by only Fire or Lightning, as hereinafter appears, the Property hereinafter described and contained, or described herein and not elsewhere, in the several sums following namely: PESOS ONE HUNDRED THOUSAND ONLY, PHILIPPINE CURRENCY; ... THE COMPANY HEREBY AGREES with the Insured but subject to the terms and conditions endorsed or otherwise expressed hereon, which are to be taken as part of this Policy), that if the Property described, or any part thereof, shall be destroyed or damaged by Fire or Lightning after payment of the Premiums, at anytime between the 15th day of December One Thousand Nine Hundred and Sixty and 1 'clock in the afternoon of the 15th day of December One Thousand Nine Hundred and Sixty-One of the last day of any subsequent period in respect of which the insured, or a successor in interest to whom the insurance is by an endorsement hereon declared to be or is otherwise continued, shall pay to the Company and the Company shall accept the sum required for the renewal of this Policy, the Company will pay or make good all such loss or Damage, to an amount not exceeding during any one period of the insurance in respect of the several matters specified, the sum; set opposite thereto respectively, and not exceeding the whole sum of PESOS, ONE HUNDRED THOUSAND ONLY, PHIL. CUR....


In clear and unequivocal terms the insurance policy provides that it is only upon payment of the premiums by Plastic Era that Capital Insurance agrees to insure the properties of the former against loss or damage in an amount not exceeding P100,000.00.


The crux of the problem then is whether at the time the insurance policy was delivered to Plastic Era on December 17, 1960, the latter was able to pay the stipulated premium. It appears on record that on the day the insurance policy was delivered, Plastic Era did not pay the Capital Insurance, but instead executed an acknowledgment receipt of Policy No. 22760. In said receipt Plastic Era promised to pay the premium within thirty (30) days from the effectivity date of the policy on December 17, 1960 and Capital Insurance accepted it. What then is the effect of accepting such acknowledgment receipt from the Plastic Era? Did the Capital Insurance mean to agree to make good its undertaking under the policy if the premium could be paid on or before January 16, 1961? And what would be the effect of the delivery to Capital Insurance on January 8, 1961 of a postdated check (January 16, 1961) in the amount of P1,000.00, payable to the order of the latter? Could not this have been considered a valid payment of the insurance premium? Pursuant to Article 1249 of the New Civil Code:


xxx xxx xxx


The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired.


xxx xxx xxx


In the meantime, the action derived from the original obligation shall be held in abeyance.


Under this provision the mere delivery of a bill of exchange in payment of a debt does not immediately effect payment. It simply suspends the action arising from the original obligation in satisfaction of which it was delivered, until payment is accomplished either actually or presumptively. 5 Tender of draft or check in order to effect payment that would extinguish the debtor's liability should be actually cashed. 6 If the delivery of the check of Plastic Era to Capital Insurance were to be viewed in the light of the foregoing, no payment of the premium had been effected, for it is only when the check is cashed that it is said to effect payment.


Significantly, in the case before Us the Capital Insurance accepted the promise of Plastic Era to pay the insurance premium within thirty (30) days from the effective date of policy. By so doing, it has implicitly agreed to modify the tenor of the insurance policy and in effect, waived the provision therein that it would only pay for the loss or damage in case the same occurs after the payment of the premium. Considering that the insurance policy is silent as to the mode of payment, Capital Insurance is deemed to have accepted the promissory note in payment of the premium. This rendered the policy immediately operative on the date it was delivered. The view taken in most cases in the United States:


... is that although one of conditions of an insurance policy is that "it shall not be valid or binding until the first premium is paid", if it is silent as to the mode of payment, promissory notes received by the company must be deemed to have been accepted in payment of the premium. In other words, a requirement for the payment of the first or initial premium in advance or actual cash may be waived by acceptance of a promissory note ... 7


Precisely, this was what actually happened when the Capital Insurance accepted the acknowledgment receipt of the Plastic Era promising to pay the insurance premium within thirty (30) days from December 17, 1960. Hence, when the damage or loss of the insured property occurred, the insurance policy was in full force and effect. The fact that the check issued by Plastic Era in partial payment of the promissory note was later on dishonored did not in any way operate as a forfeiture of its rights under the policy, there being no express stipulation therein to that effect.


In the absence of express agreement or stipulation to that effect in the policy, the non-payment at maturity of a note given for and accepted as premium on a policy does not operate to forfeit the rights of the insured even though the note is given for an initial premium, nor does the fact that the collection of the note had been enjoined by the insured in any way affect the policy. 8


... If the check is accepted as payment of the premium even though it turns out to be worthless, there is payment which will prevent forfeiture. 9


By accepting its promise to pay the insurance premium within thirty (30) days from the effectivity date of the policy — December 17, 1960 Capital Insurance had in effect extended credit to Plastic Era. The payment of the premium on the insurance policy therefore became an independent obligation the non-fulfillment of which would entitle Capital Insurance to recover. It could just deduct the premium due and unpaid upon the satisfaction of the loss under the policy. 10 It did not have the right to cancel the policy for nonpayment of the premium except by putting Plastic Era in default and giving it personal notice to that effect. This Capital Insurance failed to do.


... Where credit is given by an insurance company for the payment of the premium it has no right to cancel the policy for nonpayment except by putting the insured in default and giving him personal notice.... 11


On the contrary Capital Insurance had accepted a check for P1,000.00 from Plastic Era in partial payment of the premium on the insurance policy. Although the check was due for payment on January 16, 1961 and Plastic Era had sufficient funds to cover it as of January 19, 1961, Capital Insurance decided to hold the same for thirty-five (35) days before presenting it for payment. Having held the check for such an unreasonable period of time, Capital Insurance was estopped from claiming a forfeiture of its policy for non-payment even if the check had been dishonored later.


Where the check is held for an unreasonable time before presenting it for payment, the insurer may be held estopped from claiming a forfeiture if the check is dishonored. 12


Finally, it is submitted by petitioner that:


We are here concerned with a case of reciprocal obligations, and respondent having failed to comply with its obligation to pay the insurance premium due on the policy within thirty days from December 17, 1960, petitioner was relieved of its obligation to pay anything under the policy, without the necessity of first instituting an action for rescission of the contract of insurance entered into by the parties.


But precisely in this case, Plastic Era has complied with its obligation to pay the insurance premium and therefore Capital Insurance is obliged to make good its undertaking to Plastic Era.


WHEREFORE, finding no reversible error in the decision appealed from, We hereby affirm the same in toto. Costs against the petitioner.


SO ORDERED.


Castro, Makasiar, Esguerra and Muñoz Palma, JJ., concur.


Teehankee, J., is on leave.








Footnotes


1 Exhibit "A"


2 Exhibit 4.


3 Exhibit 1.


4 Exhibit 2.


5 U.S. vs. Badoya, 14 Phil. 397.


6 Hidalgo et al. vs. Tuazon, Inc., 101 Phil. 363.


7 Sec. 409, 29 Am. Jur., p. 346.


8 Hodgson v. Marine Ins. Co. (U.S.) 5 Cranch 100, 3 L Ed. 48; Massachusetts Ben L. Asso. v. Robinson, 104 Ga 256, 30 SE 918; Union Trust Co. v. Chicago Nat. L. Ins. Co., 267 Ill. App. 470; Iner-Southern L. Ins. Co. v. Duff, 184 Ky 227, 211 SW 738; Trade Ins. Co. v. Barracliff, 45 NJL 543; Arkansas Ins. Co. v. Cox, 21 Okla. 873, 98 P 552; 43 Am Jur 2d p. 633.


9 29 Am. Jur. p. 342.


10 29-A Am. Jur. New "Insurance", Sec. 587, op. 882 n2; 29-A Am. Jur. New "Insurance", Sec. 1541, p. 645 n20.


11 Fernum v. Phoenix Ins. Co., 83 Cal. 246, 23 p. 869; 43 Am. Jur. p. 579.


12 Dulberg v. Equitable Life Assur. Soc. 277 NY 17, 12 NE 2d 238; 43 Am. Jur. 2d p. 1059.

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

FACTS:

• 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. 

Jurisprudence: G.R. No. L-25317

FIRST DIVISION


G.R. No. L-25317 August 6, 1979


PHILIPPINE PHOENIX SURETY & INSURANCE COMPANY, plaintiff-appellee, 
vs.
WOODWORKS, INC., defendant-appellant.


Zosimo Rivas for appellant.


Manuel O. Chan for appellee.


MELENCIO-HERRERA, J.:


This case was certified to this Tribunal by the Court of Appeals in its Resolution of October 4, 1965 on a pure question of law and "because the issues raised are practically the same as those in CA-G.R. No. 32017-R" between the same parties, which case had been forwarded to us on April 1, 1964. The latter case, "Philippine Phoenix Surety & Insurance Inc. vs. Woodworks, Inc.," docketed in this Court as L-22684, was decided on August 31, 1967 and has been reported in 20 SCRA 1270.


Specifically, this action is for recovery of unpaid premium on a fire insurance policy issued by plaintiff, Philippine Phoenix Surety & Insurance Company, in favor of defendant Woodworks, Inc.


The following are the established facts:


On July 21, 1960, upon defendant's application, plaintiff issued in its favor Fire Insurance Policy No. 9749 for P500,000.00 whereby plaintiff insured defendant's building, machinery and equipment for a term of one year from July 21, 1960 to July 21, 1961 against loss by fire. The premium and other charges including the margin fee surcharge of P590.76 and the documentary stamps in the amount of P156.60 affixed on the Policy, amounted to P10,593.36.


It is undisputed that defendant did not pay the premium stipulated in the Policy when it was issued nor at any time thereafter.


On April 19, 1961, or before the expiration of the one-year term, plaintiff notified defendant, through its Indorsement No. F-6963/61, of the cancellation of the Policy allegedly upon request of defendant. 1 The latter has denied having made such a request. In said Indorsement, plaintiff credited defendant with the amount of P3,110.25 for the unexpired period of 94 days, and claimed the balance of P7,483.11 representing ,learned premium from July 21, 1960 to 18th April 1961 or, say 271 days." On July 6, 1961, plaintiff demanded in writing for the payment of said amount. 2 Defendant, through counsel, disclaimed any liability in its reply- letter of August 15, 1961, contending, in essence, that it need not pay premium "because the Insurer did not stand liable for any indemnity during the period the premiums were not paid." 3


On January 30, 1962, plaintiff commenced action in the Court of First Instance of Manila, Branch IV (Civil Case No. 49468), to recover the amount of P7,483.11 as "earned premium." Defendant controverted basically on the theory that its failure "to pay the premium after the issuance of the policy put an end to the insurance contract and rendered the policy unenforceable." 4


On September 13, 1962, judgment was rendered in plaintiff's favor "ordering defendant to pay plaintiff the sum of P7,483.11, with interest thereon at the rate of 6%, per annum from January 30, 1962, until the principal shall have been fully paid, plus the sum of P700.00 as attorney's fees of the plaintiff, and the costs of the suit." From this adverse Decision, defendant appealed to the Court of Appeals which, as heretofore stated, certified the case to us on a question of law.


The errors assigned read:


1. The lower court erred in sustaining that Fire Insurance Policy, Exhibit A, was a binding contract even if the premium stated in the policy has not been paid.


2. That the lower court erred in sustaining that the premium in Insurance Policy, Exhibit B, became an obligation which was demandable even after the period in the Policy has expired.


3. The lower court erred in not deciding that a premium not paid is not a debt enforceable by action of the insurer.


We find the appeal meritorious.


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." 5 The consideration is the "premium". "The premium 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." 6


The provisions on premium in the subject Policy read:


THIS POLICY OF INSURANCE WITNESSETH, THAT in consideration of — MESSRS. WOODWORKS, INC. — hereinafter called the Insured, paying to the PHILIPPINE PHOENIX SURETY AND INSURANCE, INC., hereinafter called the Company, the sum of — PESOS NINE THOUSAND EIGHT HUNDRED FORTY SIX ONLY — the Premium for the first period hereinafter mentioned. ...


xxx xxx xxx


THE COMPANY HEREBY AGREES with the Insured ... that if the Property above described, or any part thereof, shall be destroyed or damaged by Fire or Lightning after payment of Premium, at any time between 4:00 o'clock in the afternoon of the TWENTY FIRST day of JULY One Thousand Nine Hundred and SIXTY and 4:00 o'clock in the afternoon of the TWENTY FIRST day of JULY One Thousand Nine Hundred and SIXTY ONE. ... (Emphasis supplied)


Paragraph "2" of the Policy further contained the following condition:


2. No payment in respect of any premium shall be deemed to be payment to the Company unless a printed form of receipt for the same signed by an Official or duly-appointed Agent of the Company shall have been given to the Insured.


Paragraph "10" of the Policy also provided:


10. This insurance may be terminated at any time at the request of the Insured, in which case the Company will retain the customary short period rate for the time the policy has been in force. This insurance may also at any time be terminated at the option of the Company, on notice to that effect being given to the Insured, in which case the Company shall be liable to repay on demand a ratable proportion of the premium for the unexpired term from the date of the cancelment.


Clearly, the Policy provides for pre-payment of premium. Accordingly; "when the policy is tendered the insured must pay the premium unless credit is given or there is a waiver, or some agreement obviating the necessity for prepayment." 7 To constitute an extension of credit there must be a clear and express agreement therefor." 8


From the Policy provisions, we fail to find any clear agreement that a credit extension was accorded defendant. And even if it were to be presumed that plaintiff had extended credit from the circumstances of the unconditional delivery of the Policy without prepayment of the premium, yet it is obvious that defendant had not accepted the insurer's offer to extend credit, which is essential for the validity of such agreement.


An acceptance of an offer to allow credit, if one was made, is as essential to make a valid agreement for credit, to change a conditional delivery of an insurance policy to an unconditional delivery, as it is to make any other contract. Such an acceptance could not be merely a mental act or state of mind, but would require a promise to pay made known in some manner to defendant. 9


In this respect, the instant case differs from that involving the same parties entitled Philippine Phoenix Surety & Insurance Inc. vs. Woodworks, Inc., 10 where recovery of the balance of the unpaid premium was allowed inasmuch as in that case "there was not only a perfected contract of insurance but a partially performed one as far as the payment of the agreed premium was concerned." This is not the situation obtaining here where no partial payment of premiums has been made whatsoever.


Since the premium had not been paid, the policy must be deemed to have lapsed.


The non-payment of premiums does not merely suspend but put, an end to an insurance contract, since the time of the payment is peculiarly of the essence of the contract. 11


... the rule is that under policy provisions that upon the 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. 12


In fact, if the peril insured against had occurred, plaintiff, as insurer, would have had a valid defense against recovery under the Policy it had issued. Explicit in the Policy itself is plaintiff's agreement to indemnify defendant for loss by fire only "after payment of premium," supra. 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. The continuance of the insurer's obligation is conditional upon the payment of premiums, so that no recovery can be had upon a lapsed policy, the contractual relation between the parties having ceased. 13


Moreover, "an insurer cannot treat a contract as valid for the purpose of collecting premiums and invalid for the purpose of indemnity." 14


The foregoing findings are buttressed by section 77 of the Insurance Code (Presidential Decree No. 612, promulgated on December 18, 1974), which now provides that no contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, notwithstanding any agreement to the contrary.


WHEREFORE, the judgment appealed from is reversed, and plaintiff's complaint hereby dismissed.


Teehankee (Chairman), Fernandez, Guerrero and De Castro, JJ., concur.


Makasiar, J., is on leave.





#Footnotes


1 Exhibits "E" and "F", parag. 6, Complaint.


2 Exhibit "C".


3 Exhibit "D".


4 Parag. 7, Answer.


5 Sec. 2, Act No. 2427 (The Insurance Law).


6 Glaraga vs. Sun Life Assurance Co., 49 Phil. 737 (1926).


7 Couch on Insurance, 2nd Vol. I, p. 376, par. (9:4).


8 Rogers vs. Great-West L.A. Co. CA 8 Minn 158 F 2d 474.


9 Gillen v. Bayfield, 329 Mo. 681, 46 S.W. 2d 571, cited in Insurance Law and Practice by John Alan Appleman, Vol. 14, p. 270.


10 20 SCRA 1270 (1967).


11 National Leather Co., Inc., vs. U.S. Life Insurance Co., 87 Phil. 410 (1950).


12 Mutual Fire Co. vs. Maple, 60 Or 359, 119 p. 484; 43 Am. Jur. 2d., pp. 630-631.


13 Insurance Law & Practice by John Alan Appleman, Vol. 14, p. 381.


14 Insurance Law & Practice by John Alan Appleman, Vol. 15, p. 331.

Jurisprudence: G.R. No. 183526

THIRD DIVISION

G.R. No. 183526               August 25, 2009

VIOLETA R. LALICAN, Petitioner,

vs.

THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS REPRESENTED BY THE PRESIDENT VICENTE R. AVILON, Respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

Challenged in this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court are the Decision2 dated 30 August 2007 and the Orders dated 10 April 20083 and 3 July 20084 of the Regional Trial Court (RTC) of Gapan City, Branch 34, in Civil Case No. 2177. In its assailed Decision, the RTC dismissed the claim for death benefits filed by petitioner Violeta R. Lalican (Violeta) against respondent Insular Life Assurance Company Limited (Insular Life); while in its questioned Orders dated 10 April 2008 and 3 July 2008, respectively, the RTC declared the finality of the aforesaid Decision and denied petitioner’s Notice of Appeal.

The factual and procedural antecedents of the case, as culled from the records, are as follows:

Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio).

During his lifetime, Eulogio applied for an insurance policy with Insular Life. On 24 April 1997, Insular Life, through Josephine Malaluan (Malaluan), its agent in Gapan City, issued in favor of Eulogio Policy No. 9011992,5 which contained a 20-Year Endowment Variable Income Package Flexi Plan worth P500,000.00,6 with two riders valued at P500,000.00 each.7 Thus, the value of the policy amounted to P1,500,000.00. Violeta was named as the primary beneficiary.

Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a quarterly basis in the amount of P8,062.00, payable every 24 April, 24 July, 24 October and 24 January of each year, until the end of the 20-year period of the policy. According to the Policy Contract, there was a grace period of 31 days for the payment of each premium subsequent to the first. If any premium was not paid on or before the due date, the policy would be in default, and if the premium remained unpaid until the end of the grace period, the policy would automatically lapse and become void.8

Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he failed to pay the premium due on 24 January 1998, even after the lapse of the grace period of 31 days. Policy No. 9011992, therefore, lapsed and became void.

Eulogio submitted to the Cabanatuan District Office of Insular Life, through Malaluan, on 26 May 1998, an Application for Reinstatement9 of Policy No. 9011992, together with the amount of P8,062.00 to pay for the premium due on 24 January 1998. In a letter10 dated 17 July 1998, Insular Life notified Eulogio that his Application for Reinstatement could not be fully processed because, although he already deposited P8,062.00 as payment for the 24 January 1998 premium, he left unpaid the overdue interest thereon amounting to P322.48. Thus, Insular Life instructed Eulogio to pay the amount of interest and to file another application for reinstatement. Eulogio was likewise advised by Malaluan to pay the premiums that subsequently became due on 24 April 1998 and 24 July 1998, plus interest.

On 17 September 1998, Eulogio went to Malaluan’s house and submitted a second Application for Reinstatement11 of Policy No. 9011992, including the amount of P17,500.00, representing payments for the overdue interest on the premium for 24 January 1998, and the premiums which became due on 24 April 1998 and 24 July 1998. As Malaluan was away on a business errand, her husband received Eulogio’s second Application for Reinstatement and issued a receipt for the amount Eulogio deposited.

A while later, on the same day, 17 September 1998, Eulogio died of cardio-respiratory arrest secondary to electrocution.

Without knowing of Eulogio’s death, Malaluan forwarded to the Insular Life Regional Office in the City of San Fernando, on 18 September 1998, Eulogio’s second Application for Reinstatement of Policy No. 9011992 and P17,500.00 deposit. However, Insular Life no longer acted upon Eulogio’s second Application for Reinstatement, as the former was informed on 21 September 1998 that Eulogio had already passed away.

On 28 September 1998, Violeta filed with Insular Life a claim for payment of the full proceeds of Policy No. 9011992.

In a letter12 dated 14 January 1999, Insular Life informed Violeta that her claim could not be granted since, at the time of Eulogio’s death, Policy No. 9011992 had already lapsed, and Eulogio failed to reinstate the same. According to the Application for Reinstatement, the policy would only be considered reinstated upon approval of the application by Insular Life during the applicant’s "lifetime and good health," and whatever amount the applicant paid in connection thereto was considered to be a deposit only until approval of said application. Enclosed with the 14 January 1999 letter of Insular Life to Violeta was DBP Check No. 0000309734, for the amount of P25,417.00, drawn in Violeta’s favor, representing the full refund of the payments made by Eulogio on Policy No. 9011992.

On 12 February 1998, Violeta requested a reconsideration of the disallowance of her claim. In a letter13 dated 10 March 1999, Insular Life stated that it could not find any reason to reconsider its decision rejecting Violeta’s claim. Insular Life again tendered to Violeta the above-mentioned check in the amount of P25,417.00.

Violeta returned the letter dated 10 March 1999 and the check enclosed therein to the Cabanatuan District Office of Insular Life. Violeta’s counsel subsequently sent a letter14 dated 8 July 1999 to Insular Life, demanding payment of the full proceeds of Policy No. 9011992. On 11 August 1999, Insular Life responded to the said demand letter by agreeing to conduct a re-evaluation of Violeta’s claim.

Without waiting for the result of the re-evaluation by Insular Life, Violeta filed with the RTC, on 11 October 1999, a Complaint for Death Claim Benefit,15 which was docketed as Civil Case No. 2177. Violeta alleged that Insular Life engaged in unfair claim settlement practice and deliberately failed to act with reasonable promptness on her insurance claim. Violeta prayed that Insular Life be ordered to pay her death claim benefits on Policy No. 9011992, in the amount of P1,500,000.00, plus interests, attorney’s fees, and cost of suit.

Insular Life filed with the RTC an Answer with Counterclaim,16 asserting that Violeta’s Complaint had no legal or factual bases. Insular Life maintained that Policy No. 9011992, on which Violeta sought to recover, was rendered void by the non-payment of the 24 January 1998 premium and non-compliance with the requirements for the reinstatement of the same. By way of counterclaim, Insular Life prayed that Violeta be ordered to pay attorney’s fees and expenses of litigation incurred by the former.

Violeta, in her Reply and Answer to Counterclaim, asserted that the requirements for the reinstatement of Policy No. 9011992 had been complied with and the defenses put up by Insular Life were purely invented and illusory.

After trial, the RTC rendered, on 30 August 2007, a Decision in favor of Insular Life.

The RTC found that Policy No. 9011992 had indeed lapsed and Eulogio needed to have the same reinstated:

[The] arguments [of Insular Life] are not without basis. When the premiums for April 24 and July 24, 1998 were not paid by [Eulogio] even after the lapse of the 31-day grace period, his insurance policy necessarily lapsed. This is clear from the terms and conditions of the contract between [Insular Life] and [Eulogio] which are written in [the] Policy provisions of Policy No. 9011992 x x x.17

The RTC, taking into account the clear provisions of the Policy Contract between Eulogio and Insular Life and the Application for Reinstatement Eulogio subsequently signed and submitted to Insular Life, held that Eulogio was not able to fully comply with the requirements for the reinstatement of Policy No. 9011992:

The well-settled rule is that a contract has the force of law between the parties. In the instant case, the terms of the insurance contract between [Eulogio] and [Insular Life] were spelled out in the policy provisions of Insurance Policy No. 9011992. There is likewise no dispute that said insurance contract is by nature a contract of adhesion[,] which is defined as "one in which one of the contracting parties imposes a ready-made form of contract which the other party may accept or reject but cannot modify." (Polotan, Sr. vs. CA, 296 SCRA 247).

x x x x

The New Lexicon Webster’s Dictionary defines ambiguity as the "quality of having more than one meaning" and "an idea, statement or expression capable of being understood in more than one sense." In Nacu vs. Court of Appeals, 231 SCRA 237 (1994), the Supreme Court stated that[:]

"Any ambiguity in a contract, whose terms are susceptible of different interpretations as a result thereby, must be read and construed against the party who drafted it on the assumption that it could have been avoided by the exercise of a little care."

In the instant case, the dispute arises from the afore-quoted provisions written on the face of the second application for reinstatement. Examining the said provisions, the court finds the same clearly written in terms that are simple enough to admit of only one interpretation. They are clearly not ambiguous, equivocal or uncertain that would need further construction. The same are written on the very face of the application just above the space where [Eulogio] signed his name. It is inconceivable that he signed it without reading and understanding its import.1avvphi1

Similarly, the provisions of the policy provisions (sic) earlier mentioned are written in simple and clear layman’s language, rendering it free from any ambiguity that would require a legal interpretation or construction. Thus, the court believes that [Eulogio] was well aware that when he filed the said application for reinstatement, his lapsed policy was not automatically reinstated and that its approval was subject to certain conditions. Nowhere in the policy or in the application for reinstatement was it ever mentioned that the payment of premiums would have the effect of an automatic and immediate renewal of the lapsed policy. Instead, what was clearly stated in the application for reinstatement is that pending approval thereof, the premiums paid would be treated as a "deposit only and shall not bind the company until this application is finally approved during my/our" lifetime and good health[.]"

Again, the court finds nothing in the aforesaid provisions that would even suggest an ambiguity either in the words used or in the manner they were written. [Violeta] did not present any proof that [Eulogio] was not conversant with the English language. Hence, his having personally signed the application for reinstatement[,] which consisted only of one page, could only mean that he has read its contents and that he understood them. x x x

Therefore, consistent with the above Supreme Court ruling and finding no ambiguity both in the policy provisions of Policy No. 9011992 and in the application for reinstatement subject of this case, the court finds no merit in [Violeta’s] contention that the policy provision stating that [the lapsed policy of Eulogio] should be reinstated during his lifetime is ambiguous and should be construed in his favor. It is true that [Eulogio] submitted his application for reinstatement, together with his premium and interest payments, to [Insular Life] through its agent Josephine Malaluan in the morning of September 17, 1998. Unfortunately, he died in the afternoon of that same day. It was only on the following day, September 18, 1998 that Ms. Malaluan brought the said document to [the regional office of Insular Life] in San Fernando, Pampanga for approval. As correctly pointed out by [Insular Life] there was no more application to approve because the applicant was already dead and no insurance company would issue an insurance policy to a dead person.18 (Emphases ours.)

The RTC, in the end, explained that:

While the court truly empathizes with the [Violeta] for the loss of her husband, it cannot express the same by interpreting the insurance agreement in her favor where there is no need for such interpretation. It is conceded that [Eulogio’s] payment of overdue premiums and interest was received by [Insular Life] through its agent Ms. Malaluan. It is also true that [the] application for reinstatement was filed by [Eulogio] a day before his death. However, there is nothing that would justify a conclusion that such receipt amounted to an automatic reinstatement of the policy that has already lapsed. The evidence suggests clearly that no such automatic renewal was contemplated in the contract between [Eulogio] and [Insular Life]. Neither was it shown that Ms. Malaluan was the officer authorized to approve the application for reinstatement and that her receipt of the documents submitted by [Eulogio] amounted to its approval.19 (Emphasis ours.)

The fallo of the RTC Decision thus reads:

WHEREFORE, all the foregoing premises considered and finding that [Violeta] has failed to establish by preponderance of evidence her cause of action against the defendant, let this case be, as it is hereby DISMISSED.20

On 14 September 2007, Violeta filed a Motion for Reconsideration21 of the afore-mentioned RTC Decision. Insular Life opposed22 the said motion, averring that the arguments raised therein were merely a rehash of the issues already considered and addressed by the RTC. In an Order23 dated 8 November 2007, the RTC denied Violeta’s Motion for Reconsideration, finding no cogent and compelling reason to disturb its earlier findings. Per the Registry Return Receipt on record, the 8 November 2007 Order of the RTC was received by Violeta on 3 December 2007.

In the interim, on 22 November 2007, Violeta filed with the RTC a Reply24 to the Motion for Reconsideration, wherein she reiterated the prayer in her Motion for Reconsideration for the setting aside of the Decision dated 30 August 2007. Despite already receiving on 3 December 2007, a copy of the RTC Order dated 8 November 2007, which denied her Motion for Reconsideration, Violeta still filed with the RTC, on 26 February 2008, a Reply Extended Discussion elaborating on the arguments she had previously made in her Motion for Reconsideration and Reply.

On 10 April 2008, the RTC issued an Order,25 declaring that the Decision dated 30 August 2007 in Civil Case No. 2177 had already attained finality in view of Violeta’s failure to file the appropriate notice of appeal within the reglementary period. Thus, any further discussions on the issues raised by Violeta in her Reply and Reply Extended Discussion would be moot and academic.

Violeta filed with the RTC, on 20 May 2008, a Notice of Appeal with Motion,26 praying that the Order dated 10 April 2008 be set aside and that she be allowed to file an appeal with the Court of Appeals.

In an Order27 dated 3 July 2008, the RTC denied Violeta’s Notice of Appeal with Motion given that the Decision dated 30 August 2007 had long since attained finality.

Violeta directly elevated her case to this Court via the instant Petition for Review on Certiorari, raising the following issues for consideration:

1. Whether or not the Decision of the court a quo dated August 30, 2007, can still be reviewed despite having allegedly attained finality and despite the fact that the mode of appeal that has been availed of by Violeta is erroneous?

2. Whether or not the Regional Trial Court in its original jurisdiction has decided the case on a question of law not in accord with law and applicable decisions of the Supreme Court?

Violeta insists that her former counsel committed an honest mistake in filing a Reply, instead of a Notice of Appeal of the RTC Decision dated 30 August 2007; and in the computation of the reglementary period for appealing the said judgment. Violeta claims that her former counsel suffered from poor health, which rapidly deteriorated from the first week of July 2008 until the latter’s death just shortly after the filing of the instant Petition on 8 August 2008. In light of these circumstances, Violeta entreats this Court to admit and give due course to her appeal even if the same was filed out of time.

Violeta further posits that the Court should address the question of law arising in this case involving the interpretation of the second sentence of Section 19 of the Insurance Code, which provides:

Section. 19. x x x [I]nterest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.

On the basis thereof, Violeta argues that Eulogio still had insurable interest in his own life when he reinstated Policy No. 9011992 just before he passed away on 17 September 1998. The RTC should have construed the provisions of the Policy Contract and Application for Reinstatement in favor of the insured Eulogio and against the insurer Insular Life, and considered the special circumstances of the case, to rule that Eulogio had complied with the requisites for the reinstatement of Policy No. 9011992 prior to his death, and that Violeta is entitled to claim the proceeds of said policy as the primary beneficiary thereof.

The Petition lacks merit.

At the outset, the Court notes that the elevation of the case to us via the instant Petition for Review on Certiorari is not justified. Rule 41, Section 1 of the Rules of Court,28 provides that no appeal may be taken from an order disallowing or dismissing an appeal. In such a case, the aggrieved party may file a Petition for Certiorari under Rule 65 of the Rules of Court.29

Furthermore, the RTC Decision dated 30 August 2007, assailed in this Petition, had long become final and executory. Violeta filed a Motion for Reconsideration thereof, but the RTC denied the same in an Order dated 8 November 2007. The records of the case reveal that Violeta received a copy of the 8 November 2007 Order on 3 December 2007. Thus, Violeta had 15 days30 from said date of receipt, or until 18 December 2007, to file a Notice of Appeal. Violeta filed a Notice of Appeal only on 20 May 2008, more than five months after receipt of the RTC Order dated 8 November 2007 denying her Motion for Reconsideration.

Violeta’s claim that her former counsel’s failure to file the proper remedy within the reglementary period was an honest mistake, attributable to the latter’s deteriorating health, is unpersuasive.

Violeta merely made a general averment of her former counsel’s poor health, lacking relevant details and supporting evidence. By Violeta’s own admission, her former counsel’s health rapidly deteriorated only by the first week of July 2008. The events pertinent to Violeta’s Notice of Appeal took place months before July 2008, i.e., a copy of the RTC Order dated 8 November 2007, denying Violeta’s Motion for Reconsideration of the Decision dated 30 August 2007, was received on 3 December 2007; and Violeta’s Notice of Appeal was filed on 20 May 2008. There is utter lack of proof to show that Violeta’s former counsel was already suffering from ill health during these times; or that the illness of Violeta’s former counsel would have affected his judgment and competence as a lawyer.

Moreover, the failure of her former counsel to file a Notice of Appeal within the reglementary period binds Violeta, which failure the latter cannot now disown on the basis of her bare allegation and self-serving pronouncement that the former was ill. A client is bound by his counsel’s mistakes and negligence.31

The Court, therefore, finds no reversible error on the part of the RTC in denying Violeta’s Notice of Appeal for being filed beyond the reglementary period. Without an appeal having been timely filed, the RTC Decision dated 30 August 2007 in Civil Case No. 2177 already became final and executory.

A judgment becomes "final and executory" by operation of law. Finality becomes a fact when the reglementary period to appeal lapses and no appeal is perfected within such period. As a consequence, no court (not even this Court) can exercise appellate jurisdiction to review a case or modify a decision that has become final.32 When a final judgment is executory, it becomes immutable and unalterable. It may no longer be modified in any respect either by the court, which rendered it or even by this Court. The doctrine is founded on considerations of public policy and sound practice that, at the risk of occasional errors, judgments must become final at some definite point in time.33

The only recognized exceptions to the doctrine of immutability and unalterability are the correction of clerical errors, the so-called nunc pro tunc entries, which cause no prejudice to any party, and void judgments.34 The instant case does not fall under any of these exceptions.

Even if the Court ignores the procedural lapses committed herein, and proceeds to resolve the substantive issues raised, the Petition must still fail.

Violeta makes it appear that her present Petition involves a question of law, particularly, whether Eulogio had an existing insurable interest in his own life until the day of his death.

An insurable interest is one of the most basic and essential requirements in an insurance contract. In general, an insurable interest is that interest which a person is deemed to have in the subject matter insured, where he has a relation or connection with or concern in it, such that the person will derive pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against.35 The existence of an insurable interest gives a person the legal right to insure the subject matter of the policy of insurance.36 Section 10 of the Insurance Code indeed provides that every person has an insurable interest in his own life.37 Section 19 of the same code also states that an interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.38

Upon more extensive study of the Petition, it becomes evident that the matter of insurable interest is entirely irrelevant in the case at bar. It is actually beyond question that while Eulogio was still alive, he had an insurable interest in his own life, which he did insure under Policy No. 9011992. The real point of contention herein is whether Eulogio was able to reinstate the lapsed insurance policy on his life before his death on 17 September 1998.

The Court rules in the negative.

Before proceeding, the Court must correct the erroneous declaration of the RTC in its 30 August 2007 Decision that Policy No. 9011992 lapsed because of Eulogio’s non-payment of the premiums which became due on 24 April 1998 and 24 July 1998. Policy No. 9011992 had lapsed and become void earlier, on 24 February 1998, upon the expiration of the 31-day grace period for payment of the premium, which fell due on 24 January 1998, without any payment having been made.

That Policy No. 9011992 had already lapsed is a fact beyond dispute. Eulogio’s filing of his first Application for Reinstatement with Insular Life, through Malaluan, on 26 May 1998, constitutes an admission that Policy No. 9011992 had lapsed by then. Insular Life did not act on Eulogio’s first Application for Reinstatement, since the amount Eulogio simultaneously deposited was sufficient to cover only the P8,062.00 overdue premium for 24 January 1998, but not the P322.48 overdue interests thereon. On 17 September 1998, Eulogio submitted a second Application for Reinstatement to Insular Life, again through Malaluan, depositing at the same time P17,500.00, to cover payment for the overdue interest on the premium for 24 January 1998, and the premiums that had also become due on 24 April 1998 and 24 July 1998. On the very same day, Eulogio passed away.

To reinstate a policy means to restore the same to premium-paying status after it has been permitted to lapse.39 Both the Policy Contract and the Application for Reinstatement provide for specific conditions for the reinstatement of a lapsed policy.

The Policy Contract between Eulogio and Insular Life identified the following conditions for reinstatement should the policy lapse:

10. REINSTATEMENT

You may reinstate this policy at any time within three years after it lapsed if the following conditions are met: (1) the policy has not been surrendered for its cash value or the period of extension as a term insurance has not expired; (2) evidence of insurability satisfactory to [Insular Life] is furnished; (3) overdue premiums are paid with compound interest at a rate not exceeding that which would have been applicable to said premium and indebtedness in the policy years prior to reinstatement; and (4) indebtedness which existed at the time of lapsation is paid or renewed.40

Additional conditions for reinstatement of a lapsed policy were stated in the Application for Reinstatement which Eulogio signed and submitted, to wit:

I/We agree that said Policy shall not be considered reinstated until this application is approved by the Company during my/our lifetime and good health and until all other Company requirements for the reinstatement of said Policy are fully satisfied.

I/We further agree that any payment made or to be made in connection with this application shall be considered as deposit only and shall not bind the Company until this application is finally approved by the Company during my/our lifetime and good health. If this application is disapproved, I/We also agree to accept the refund of all payments made in connection herewith, without interest, and to surrender the receipts for such payment.41 (Emphases ours.)

In the instant case, Eulogio’s death rendered impossible full compliance with the conditions for reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to file his Application for Reinstatement and deposit the amount for payment of his overdue premiums and interests thereon with Malaluan; but Policy No. 9011992 could only be considered reinstated after the Application for Reinstatement had been processed and approved by Insular Life during Eulogio’s lifetime and good health.

Relevant herein is the following pronouncement of the Court in Andres v. The Crown Life Insurance Company,42 citing McGuire v. The Manufacturer's Life Insurance Co.43:

"The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon written application does not give the insured absolute right to such reinstatement by the mere filing of an application. The insurer has the right to deny the reinstatement if it is not satisfied as to the insurability of the insured and if the latter does not pay all overdue premium and all other indebtedness to the insurer. After the death of the insured the insurance Company cannot be compelled to entertain an application for reinstatement of the policy because the conditions precedent to reinstatement can no longer be determined and satisfied." (Emphases ours.)

It does not matter that when he died, Eulogio’s Application for Reinstatement and deposits for the overdue premiums and interests were already with Malaluan. Insular Life, through the Policy Contract, expressly limits the power or authority of its insurance agents, thus:

Our agents have no authority to make or modify this contract, to extend the time limit for payment of premiums, to waive any lapsation, forfeiture or any of our rights or requirements, such powers being limited to our president, vice-president or persons authorized by the Board of Trustees and only in writing.44 (Emphasis ours.)

Malaluan did not have the authority to approve Eulogio’s Application for Reinstatement. Malaluan still had to turn over to Insular Life Eulogio’s Application for Reinstatement and accompanying deposits, for processing and approval by the latter.

The Court agrees with the RTC that the conditions for reinstatement under the Policy Contract and Application for Reinstatement were written in clear and simple language, which could not admit of any meaning or interpretation other than those that they so obviously embody. A construction in favor of the insured is not called for, as there is no ambiguity in the said provisions in the first place. The words thereof are clear, unequivocal, and simple enough so as to preclude any mistake in the appreciation of the same.

Violeta did not adduce any evidence that Eulogio might have failed to fully understand the import and meaning of the provisions of his Policy Contract and/or Application for Reinstatement, both of which he voluntarily signed. While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insured and strictly as against the insurer company, yet, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms, which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense.45

Eulogio’s death, just hours after filing his Application for Reinstatement and depositing his payment for overdue premiums and interests with Malaluan, does not constitute a special circumstance that can persuade this Court to already consider Policy No. 9011992 reinstated. Said circumstance cannot override the clear and express provisions of the Policy Contract and Application for Reinstatement, and operate to remove the prerogative of Insular Life thereunder to approve or disapprove the Application for Reinstatement. Even though the Court commiserates with Violeta, as the tragic and fateful turn of events leaves her practically empty-handed, the Court cannot arbitrarily burden Insular Life with the payment of proceeds on a lapsed insurance policy. Justice and fairness must equally apply to all parties to a case. Courts are not permitted to make contracts for the parties. The function and duty of the courts consist simply in enforcing and carrying out the contracts actually made.46

Policy No. 9011992 remained lapsed and void, not having been reinstated in accordance with the Policy Contract and Application for Reinstatement before Eulogio’s death. Violeta, therefore, cannot claim any death benefits from Insular Life on the basis of Policy No. 9011992; but she is entitled to receive the full refund of the payments made by Eulogio thereon.

WHEREFORE, premises considered, the Court DENIES the instant Petition for Review on Certiorari under Rule 45 of the Rules of Court. The Court AFFIRMS the Orders dated 10 April 2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in Civil Case No. 2177, denying petitioner Violeta R. Lalican’s Notice of Appeal, on the ground that the Decision dated 30 August 2007 subject thereof, was already final and executory. No costs.

SO ORDERED.

MINITA V. CHICO-NAZARIO

Associate Justice

Acting Chairperson

WE CONCUR:

CONCHITA CARPIO MORALES*

Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice ANTONIO EDUARDO B. NACHURA

Associate Justice

DIOSDADO M. PERALTA

Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

MINITA V. CHICO-NAZARIO**

Associate Justice

Acting Chairperson, Third Division

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO

Chief Justice

Footnotes

* Per Special Order No. 679 dated 3 August 2009, signed by Chief Justice Reynato S. Puno, designating Associate Justice Conchita Carpio Morales to replace Associate Justice Consuelo Ynares-Santiago, who is on official leave.

** Per Special Order No. 681 dated 3 August 2009, signed by Chief Justice Reynato S. Puno, designating Associate Justice Minita V. Chico-Nazario as Acting Chairperson to replace Associate Justice Consuelo Ynares-Santiago, who is on official leave.

1 Rollo, pp. 22-35.

2 Penned by Judge Celso O. Baguio; rollo, pp. 7-15.

3 Rollo, pp. 16-17.

4 Id. at 18-19. The date of promulgation of the assailed second Order was erroneously stated in the Petition as 9 July 2008.

5 Records, Folder 1, p. 57.

6 An endowment policy is one under the terms of which the insurer binds himself to pay a fixed sum to the insured if the latter survives for a specified period (maturity date stated in the policy), or, if he dies within such period, to some other person indicated. (De Leon, The Insurance Code of the Philippines Annotated [2002 ed.], p. 438). Under Section 180 of the Insurance Code, endowment contracts shall be considered life insurance contracts for purposes of said code.

7 A rider is a printed or typed stipulation contained on a slip of paper attached to the policy and forming an integral part thereof. (De Leon, The Insurance Code of the Philippines Annotated [2002 ed.], p. 186).

8 Records, Folder 1, p. 44.

9 Id. at 58.

10 Id. at 60.

11 Id. at 59.

12 Id. at 61-63.

13 Id. at 67-68.

14 Id. at 8-10.

15 Rollo, pp. 42-46.

16 Id. at 82-88.

17 Id. at 73.

18 Id. at 74-76.

19 Id. at 76.

20 Id.

21 Records, Folder 2, pp. 388-392.

22 Id. at 394-400.

23 Id. at 401-402.

24 Id. at 403-405.

25 Rollo, pp. 16-17.

26 Id. at 38-39.

27 Id. at 18-19.

28 As amended by A.M. No. 07-7-12, effective 4 December 2007.

29 Section 1(c), Rule 41 of the Rules of Court, as amended, provides:

SECTION 1. Subject of appeal. – An appeal may be taken from a judgment or final order that completely disposes of the case, or of a particular matter therein when declared by these Rules to be appealable.

No appeal may be taken from:

x x x x

(c) An order disallowing or dismissing an appeal;

30 Neypes v. Court of Appeals, G.R. No. 141524, 14 September 2005, 469 SCRA 633, 639.

31 Casolita, Sr. v. Court of Appeals, 341 Phil. 251, 259 (1997).

32 Social Security System v. Isip, G.R. No. 165417, 3 April 2007, 520 SCRA 310, 314-315.

33 Id. at 315.

34 Id.

35 See 44 C.J.S. 870, cited in De Leon, The Insurance Code of the Philippines Annotated (2002 ed.), p. 85.

36 De Leon, The Insurance Code of the Philippines Annotated (2002 ed.), p. 86.

37 Sec. 10. Every person has an insurable interest in the life and health:

(a) Of himself, of his spouse and of his children; (Emphasis ours.)

38 Sec. 19. An interest in property insured must exist when the insurance takes effect, and when the loss occurs, but not exist in the meantime; and interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs. (Emphasis ours.)

39 De Leon, The Insurance Code of the Philippines Annotated (2002 ed.), p. 538.

40 Records, Folder 1, pp. 45-46.

41 Id. at 58.

42 102 Phil. 919, 925 (1958).

43 87 Phil 370, 373 (1950).

44 Records, Folder 1, p. 44.

45 Pacific Banking Corporation, v. Court of Appeals, G.R. No. L-41014, 28 November 1988, 168 SCRA 1, 13.

46 Union Manufacturing, Co., Inc. v. Phil. Guaranty Co., Inc., 150-C Phil. 69, 73 (1972).