Case Summary (G.R. No. 137172)
Trial Court and Court of Appeals Rulings
Both tribunals found no valid notice of non‐renewal given within 45 days before policy expiry. They also recognized a longstanding practice whereby UCPB granted Masagana a 60–90-day credit term for premium payments. On that basis, the policies were deemed automatically renewed by operation of law; UCPB was ordered to pay P18,645,000 indemnity plus attorney’s fees (trial court: 25%; CA reduced to 10%).
Supreme Court’s Initial Decision (June 15, 1999)
The Court reversed and set aside the CA ruling. Citing Section 77 of the Insurance Code and binding precedents (Valenzuela, South Sea Surety, Tibay), it held that non‐life policies are not valid or binding unless premiums are actually paid before the insured peril occurs. An implied credit extension or post‐loss payment cannot renew coverage.
Motion for Reconsideration and Final Ruling (April 4, 2001)
Upon reconsideration, the Court granted Masagana’s motion and reinstated the CA decision. It accepted the existence of a 60–90-day credit arrangement, UCPB’s habitual acceptance of late premiums, and the absence of proof of proper notice of non-renewal. Consequently, the renewal policies were held valid on June 30, 1992, when the fire occurred.
Legal Analysis of Exceptions to Section 77
- Life and industrial life policies with statutory grace periods (Section 77 exception).
- Acknowledgment of premium in the policy or contract (Section 78), conclusively binding the insurer.
- Installment payment arrangements with insurer’s acceptance (Makati Tuscany).
- Parties’ freedom to stipulate credit terms under Civil Code Article 1306, so long as not contrary to public policy.
- Estoppel arising from UCPB’s consistent practice of granting credit and accepting late payments, on which Masagana reasonably relied.
Separate and Dissenting Opinions
• Justice Vitug (separate): Emphasized public‐interest basis of insurance regulation, the integrity of reserves, and the mandatory nature of Section 77. He would deny reconsideration and insist on actual pre-risk premium payment.
• Justice Pardo (dissent): Found Masagana’s lat
Case Syllabus (G.R. No. 137172)
Facts and Background
- Masagana Telamart, Inc. obtained five fire insurance policies from UCPB General Insurance Co., Inc. covering its properties in Pasay City and Manila from 4:00 P.M. of 22 May 1991 to 4:00 P.M. of 22 May 1992.
- On 13 June 1992, the insured premises at Taft Avenue, Pasay City were completely destroyed by fire.
- On 13 July 1992, Masagana tendered five Equitable Bank manager’s checks totaling ₱225,753.95 as renewal premiums; UCPB issued Official Receipt No. 62926 the same day.
- On 14 July 1992, Masagana formally demanded indemnification under the purportedly renewed policies.
- UCPB returned the checks (Exhibit R) on grounds that:
• The policies had expired on 22 May 1992 and were not renewed in time;
• Non-renewal notice had been sent earlier; and
• The fire occurred before tender of the premiums. - Masagana filed suit to compel renewal by operation of law and to recover ₱18,645,000.00 as indemnity, plus attorney’s fees and costs.
Findings of Trial Court and Court of Appeals
- The Trial Court allowed Masagana to consign the premium payment as full renewal, declared replacement-renewal policies effective from 22 May 1992 to 22 May 1993, and awarded ₱18,645,000.00 plus 25% attorney’s fees.
- The Court of Appeals affirmed with modification:
• Deleted the Trial Court’s declaration that three policies were in force from August 1991 to August 1992;
• Reduced attorney’s fees award to 10% of the total amount due. - Both courts found as proven:
• UCPB had habitually granted Masagana a 60–90 day credit term for premium payment, evidenced by Exhibits T–FF showing delayed payments;
• No valid proof of receipt of any timely notice of non-renewal within 45 days before policy expiration;
• UCPB accepted the late premium payment and even appointed adjusters to investigate the claim.
Issue
- Whether the fire insurance policies covering the period 22 May 1991 to 22 May 1992 were extended or renewed by an implied credit arrangement, despite the actual tender of premium payment on 13 July 1992—after the