FACTS:
Respondent issued a comprehensive commercial vehicle policy to petitioner over the 1992 Mitsubishi Montero (vehicle) owned by petitioner for a period of one year commencing on September 27, 1996.
Petitioner’s company, Noah’s Ark, issued a Far East Bank check dated September 27, 1996 payable to Trans-Pacific on the same day. The check represents payment for the insurance policies, with P55,620.60 for the premium and other charges over the vehicle. However, nobody from Trans-Pacific picked up the check that day (September 27) because its president and general manager was celebrating his birthday. It informed Noah’s Ark that its messenger would get the check the next day.
In the evening of September 27, 1996, while under the official custody of Noah’s Ark marketing manager Pacquing as a service company vehicle, the vehicle was stolen in the vicinity of SM Megamall.
Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28. It issued an official receipt, acknowledging the receipt of the premium and other charges over the vehicle. The check was deposited with Metrobank for encashment on October 1, 1996.
On the same date, petitioner was informed of the vehicle’s loss. Thereafter, petitioner filed a claim with respondent for the insurance proceeds of P1,500,000.00. After investigation, respondent denied petitioner’s claim on the ground that there was no insurance contract.
Petitioner filed a complaint to collect the insurance proceeds from respondent.
The RTC ruled in favor of petitioner. It considered the premium paid as of September 27, even if the check was received only on September 28. Thus, petitioner was awarded an indemnity of P1,500,000.00 and attorney’s fees of P50,000.00.
After respondent’s MR was denied, it appealed to the CA.
The CA granted respondent’s appeal. It found that the premium was not yet paid at the time of the loss on September 27, but only a day after or on September 28, 1996, when the check was picked up by Trans-Pacific.
Hence petitioner filed this petition.
ISSUE:
Whether or not there is a binding insurance contract between petitioner and respondent.
RULING:
We deny the petition.
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. Just like any other contract, it requires a cause or consideration. The consideration is the premium, which must be paid at the time and in the way and manner specified in the policy. If not so paid, the policy will lapse and be forfeited by its own terms.
The law, however, limits the parties’ autonomy as to when payment of premium may be made for the contract to take effect. The general rule in insurance laws is that unless the premium is paid, the insurance policy is not valid and binding.
Section 77 of the Insurance Code provides:
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.
Here, there is no dispute that the check was delivered to and was accepted by respondent’s agent, Trans-Pacific, only on September 28, 1996. No payment of premium had thus been made at the time of the loss of the vehicle on September 27, 1996.
Thus, at the time of loss, there was no payment of premium yet to make the insurance policy effective.
Thus, we find that petitioner is not entitled to the insurance proceeds because no insurance policy became effective for lack of premium payment.
The consequence of this declaration is that petitioner is entitled to a return of the premium paid for the vehicle in the amount of P55,620.60 under the principle of unjust enrichment.
There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental principles of justice, equity and good conscience.