Title
Chartis Philippines Insurance, Inc. vs. Cyber City Teleservices, Ltd.
Case
G.R. No. 234299
Decision Date
Mar 3, 2021
Chartis sued CCTL for unpaid insurance premiums; SC ruled policies valid despite non-payment, citing credit terms exception under Insurance Code.

Case Summary (G.R. No. 234299)

Key Dates

• June 21, 2004 – JLT applied for quotations for two insurance policies.
• September–October 2004 – Quotations issued.
• January 20, 2005 – Placing Instructions transmitted; Chartis issued two policies (Nos. 130100284 and 130100285).
• January 20, 2005–January 20, 2006 – Policy coverage period; 90-day premium payment term from inception.
• June 15, 2005 – Chartis cancelled policies for nonpayment and computed “time-on-risk” earned premiums.
• January 20, 2006 – Chartis filed suit for unpaid premiums, taxes, attorney’s fees, and costs.
• September 30, 2011 – RTC granted summary judgment in favor of Chartis.
• February 20, 2017 – CA reversed RTC, dismissed Chartis’s complaint.
• March 3, 2021 – Supreme Court decision.

Applicable Law

• 1987 Constitution of the Philippines (applicable to decisions after 1990).
• Insurance Code (P.D. 612, as amended by R.A. 3540 and R.A. 10607).
• Civil Code (Articles 1182, 2208).
• Bureau of Internal Revenue regulations on documentary stamp tax (BIR M.O. No. 15-2001; RR No. 9-2000).
• Bangko Sentral ng Pilipinas Circular No. 799 (adjusted legal interest rates).
• Governing jurisprudence: Velasco v. Apostol, Philippine Phoenix v. Woodworks, Makati Tuscany Condominium v. CA, UCPB Gen. Ins. v. Masagana Telamart, Spouses Tibay v. CA, Gaisano v. Development Insurance, Nacar v. Gallery Frames.

Facts

  1. Chartis offered professional indemnity and fidelity insurance.
  2. On JLT’s behalf, CCTL accepted quotations and Placing Instructions confirming Chartis “on risk” as of January 20, 2005, with a 90-day credit term for premiums of US$45,060 (fidelity) and US$56,325 (professional indemnity). Aggregate indemnity limit: US$2,000,000 per policy.
  3. Chartis paid documentary stamp tax (DST) and issued policies.
  4. JLT requested successive credit extensions up to June 15, 2005; CCTL made no premium payments.
  5. Chartis cancelled policies June 15, 2005, calculated “time-on-risk” earned premiums, and demanded payment by letters of August–November 2005. No payment ensued.
  6. Chartis filed suit for unpaid premiums, DST, attorney’s fees, and costs. CCTL counterclaimed, asserting no binding contract under Section 77 of the Insurance Code (nonpayment of premiums).

Procedural History

• RTC (Branch 139, Makati): Granted Chartis’s motion for summary judgment, finding a valid insurance contract by credit extension exception to Section 77. Ordered CCTL to pay earned premiums (US$47,304.00), DST, 12% legal interest from filing, attorney’s fees (₱100,000), and costs (₱60,713.32). Dismissed CCTL’s counterclaim.
• CA: Partly granted CCTL’s appeal; vacated and set aside RTC order; dismissed Chartis’s complaint. Held Section 77 precluded binding contract without paid premium and no exception applied. Invalidated prorated/time-on-risk provisions and Section 78 acknowledgment. Denied bad faith or damages.
• Supreme Court: Granted Chartis’s petition for certiorari; reinstated RTC decision with modifications.

Issues

  1. Is Chartis entitled to payment of premiums despite nonpayment?
  2. Are the “time-on-risk” provisions contrary to law or public policy?
  3. Is CCTL obligated to reimburse Chartis for DST?
  4. Appropriate interest rate and award of attorney’s fees.

Constitutional and Statutory Framework

• Section 2(1), P.D. 612: Insurance contract defined by insurer’s undertaking “for a consideration (the premium)” to indemnify.
• Section 77, P.D. 612 (as amended): No policy valid and binding unless premium paid, except life/industrial policies under grace period or 90-day broker credit extension.
• Section 78, P.D. 612: Policy acknowledgment of premium receipt binds parties.
• Section 79, P.D. 612: Unearned premium return provisions (pro rata or short-rate).
• Section 80, P.D. 612: Earned premiums demandable for any period insurer at risk.
• Article 2208, Civil Code: Attorney’s fees allowable when compelled to protect interests or where defendant acts in bad faith.
• BSP Circular No. 799: Adjusted legal interest rate at 6% p.a. from July 1, 2013.

Supreme Court’s Analysis

  1. Entitlement to Premiums by Credit Extension Exception
    – Historical evolution: Act No. 2427 (1914) entitled insurer to premiums upon peril exposure; R.A. 3540 (1963) explicitly required prepayment absent clear credit extension agreement; P.D. 612 (1974) reaffirmed payment requirement but exceptions include life policies and credit extensions.
    – Jurisprudential exceptions: life policy grace period; Section 78 acknowledgment; installment payment with partial payment before loss (Makati Tuscany); insurer-granted credit term before loss (Makati Tuscany; UCPB Masagana Telamart); estoppel via consistent credit terms.
    – R.A. 10607 (2013) expressly authorizes 90-day broker credit extensions.
    – Premium “paid” need not mean cash transfer; credit agreement creates debtor-creditor relation, insurer is “on risk,” entitlement to premium arises upon exposure.
    – Here, Placing Instructions and email extensions constitute clear agreement that Chartis was on risk from January 20, 2005; CCTL obligated to pay within 90 days; no payment—contract valid and binding.

  2. Validity of “Time-on-Risk” Provisions
    – Sections 79–80 authorize return of unearned premiums pro rata or short-rate if policy surrendered. Conversely, earned premiums (time-on-risk) are demandable for period insurer at risk.
    – Parties may agree on short-rate or pro rata. Subject policies provide

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