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Is a Fire Insurance Policy Valid Upon Partial Payment of Premium?

No. And this is the story.

On January 22,1988, FL Gen. Ins. Co. (FLGI) issued a fire insurance policy in favor of spouses Oscar and Fely Ricas. Out of the total premium of P3,000, the Ricas only paid P600. The fire insurance policy covered their newly built two-story house together with all personal effects as well as their newly acquired SUV parked in their garage.

Two months later, the insured house/contents were razed by fire. Two days later, the Ricas paid the balance of the premium and filed a claim with FLGI on their fire insurance policy.

In a letter dated June 11,1988, FLGI denied the claim of the Ricas, citing violation of Policy Condition No. 2 and of Sec. 77 of the Insurance Code. The Insurance Commission was not able to settle the case between the parties. Hence, the Ricas sued FLGI for damages plus interest, moral damages, and attorney’s fees with the Regional Trial Court of Manila.

After trial on the merits, the trial court adjudged FLGI liable for the total value of the house and personal properties plus interest, and attorney’s fees.

But the Court of Appeals (CA) reversed the trial court’s decision by declaring FLGI not liable due to failure of the Ricas to pay the premium in full. After denial of their Motion for Reconsideration by the CA, the Ricas appealed to the Supreme Court (SC).

And the SC ruled in the following tenor:

“ xxx.

Precisely, the insurer and the insured expressly stipulated that (t)his policy including any renewal thereof and/or any indorsement thereon is not in force until the premium has been fully paid to and duly receipted by the Company x xx and that this policy shall be deemed effective, valid and binding upon the Company only when the premiums therefor have actually been paid in full and duly acknowledged.

Conformably with the aforesaid stipulations explicitly worded and taken in conjunction with Sec. 77 of the Insurance Code, the payment of partial premium by the assured in this particular instance should not be considered the payment required by law and the stipulation of the parties.  Rather, it must be taken in the concept of a deposit to be held in trust by the insurer until such time that the full amount has been tendered and duly receipted for.  In other words, as expressly agreed upon the contract, full payment must be made before the risk occurs for the policy to be considered effective and full force.

x xx

We are well aware of insurance companies falling into the despicable habit of collecting premiums promptly yet resorting to all kinds of excuses to deny or delay payment of just insurance claims.  But, in this case, the law is manifestly on the side of the insurer.  For as long as the current Insurance Code remains unchanged and partial payment of premium is not mentioned at all as among the exceptions provided in Secs. 77 and 78, no policy of insurance can ever pretend to be efficacious or effective until premium has been fully paid.

But had the parties stipulated that a contract was deemed perfected upon partial payment of the premium, the case would have been decided in favor of the insured.

Next story please.  And stay safe and sound.

For questions or comments, email the writer at atty.joeytbanday@gmail.com.

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