G.R. No. 137172 - UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

On April 15, 1991, petitioner UCPB General Insurance Co., Inc. issued five fire insurance policies covering various properties of respondent Masagana Telamart, Inc. for the period from May 22, 1991 to May 22, 1992.
In March 1992, petitioner evaluated the policies and determined that renewal was not advisable; accordingly, it communicated its intention not to renew.
Petitioner notified the respondent’s broker, Zuellig Insurance Brokers, Inc., of its decision not to renew the policies.
On April 6, 1992, petitioner sent a written notice of non-renewal to the respondent at the address stated in the policies.

On June 13, 1992, a fire razed the insured property of the respondent which was covered by three of the policies issued by petitioner.
On July 13, 1992, respondent presented five manager’s checks totaling P225,753.95 to petitioner’s cashier, purporting to pay the premium for the renewal of the policies for the period May 22, 1992 to May 22, 1993.
Despite the tender of payment, no notice of loss was previously filed by the respondent under the policies prior to July 14, 1992.
On July 14, 1992, respondent formally filed its claim for indemnification of the insured property and, concurrently, petitioner returned the tendered checks and rejected the claim on two grounds:

The insurance policies had expired and were not properly renewed.
The fire occurred prior to the tender of the premium, thus negating any effective renewal.

On July 21, 1992, respondent filed a civil complaint with the Regional Trial Court (RTC), Branch 58 in Makati City, seeking recovery of P18,645,000.00, which represented the face value of the fire insurance policies, along with attorney’s fees, litigation expenses, and costs.
The RTC rendered a decision on March 10, 1993, in favor of the respondent. The ruling:

Authorized the respondent to deposit the P225,753.95 premium with the Court as full payment for renewal, thereby declaring the replacement-renewal policies effective for the period May 22, 1992 to May 22, 1993.
Declared certain policies in force for specified durations, and ordered petitioner to deliver the renewal policies forthwith.
Ordered petitioner to pay respondent the indemnity amount, attorney’s fees (initially calculated at 25% of the total amount), litigation expenses of P25,000.00, and other costs.

It deleted one of the declarations regarding the effective period of certain policies.
It reduced the award for attorney’s fees from 25% to 10% of the total amount due.

Petitioner elevated the case via certiorari to challenge the Court of Appeals’ decision, arguing that the renewal of the policies was not valid given the sequence of events.
The principal issue was whether there existed an implied credit arrangement that allowed the policies to be extended or renewed despite the premium for renewal being tendered after the occurrence of the fire.
The Supreme Court scrutinized the circumstances in light of the provisions of the Insurance Code, particularly the requirement that an insurance policy (other than life) only becomes binding upon actual receipt of premium payment.

Whether the fire insurance policies covering the period May 22, 1991 to May 22, 1992 had in effect expired or were validly renewed by reason of an implied credit arrangement through which the premium could be paid after the loss.

Whether the tender of renewal premium on July 13, 1992—after the fire had occurred on June 13, 1992—could be deemed as constituting a valid renewal of the policy.
Whether the absence of a timely notice of loss by the respondent further precluded the possibility of renewing the policy on an implied credit basis.
Whether the parties can legally consent to an extension of the credit period for premium payment, thereby binding the insurer prior to the actual payment of the renewal premium.