Philam Insurance Co., Inc. vs. Parc Chateau Condominium Unit Owners Association Inc.

An insurance policy is void and ineffective for non-payment of premium where the policy's installment provision expressly states that failure to pay any installment on the due date automatically voids the policy, and the insurer cannot recover unpaid premiums on such void policy.

Petitioner Philam Insurance Co., Inc. (now Chartis Philippines Insurance, Inc.) is an insurance company that submitted a proposal to respondent Parc Chateau Condominium Unit Owners Association, Inc. (Parc Association) to provide fire and comprehensive general liability insurance for its condominium building. Eduardo B. Colet is the president of Parc Association. The dispute centers on whether a valid insurance contract was perfected and whether Philam could recover unpaid premiums when Parc Association's board disapproved the terms and made no payments under a negotiated 90-day installment plan.

On October 7, 2003, petitioner Philam Insurance Co., Inc. submitted a proposal to respondent Parc Chateau Condominium Unit Owners Association, Inc. to cover fire and comprehensive general liability insurance for its condominium building. Respondent Eduardo B. Colet, as Parc Association's president, informed Philam through a letter dated November 24, 2003 that its board of directors had selected Philam to provide the insurance requirements. Philam then issued Fire and Lightning Insurance Policy No. 0601502995 for ₱900 million and Comprehensive General Liability Insurance Policy No. 0301003155 for ₱1 Million, both covering November 30, 2003 to November 30, 2004.

The parties negotiated a 90-day payment term for the insurance premium worth ₱791,427.50, including taxes. This was embodied in a Jumbo Risk Provision, which scheduled installment payments due on November 30, 2003, December 30, 2003, and January 30, 2004. The provision stated that if any scheduled payment was not received in full on or before the due dates, the insurance would cease at 4 p.m. of that date, and the policy would automatically become void and ineffective.

Parc Association's board of directors found the terms unacceptable and did not pursue the transaction, verbally informing Philam's insurance agent of its decision. Since no premiums were paid, Philam made oral and written demands upon Parc Association, which refused to pay, alleging that the agent had been informed of the decision not to take up the coverage. Philam sent demand letters claiming ₱363,215.21 in unpaid premiums based on a Short Scale Rate Period and subsequently cancelled the policies.

On June 3, 2005, Philam filed a complaint against Parc Association and Colet for recovery of the unpaid premium, plus attorney's fees and costs of suit in the Metropolitan Trial Court (MeTC) of Makati, Branch 65. The MeTC dismissed the case, finding that non-payment of premium meant an element of the insurance contract was lacking. Philam appealed to the RTC, which affirmed the MeTC, holding there was no valid insurance contract and no express or implied waiver of premium payment. The RTC found that the Jumbo Risk Provision required full payment and automatically voided the policy upon default. The Court of Appeals affirmed, ruling that none of the exceptions to Section 77 of the Insurance Code applied, as no premium was ever paid and the Jumbo Risk Provision expressly cut off the inception of the policy upon default.

• Intention to be bound: Petitioner argued that respondents' request for terms of payment after the policies were issued, and the grant of said request, constituted the intention of the parties to be bound by the insurance contract.
• Applicability of Fourth Exception: Petitioner maintained that the 90-day payment term was a credit extension, bringing the case under the fourth exception to Section 77 of the Insurance Code as explained in the Makati Tuscany case.
• Perfected Contract: Petitioner insisted that negotiations pertained only to the terms of payment of an already agreed-upon premium, not the reduction of the premium amount, and thus did not negate the existence of a perfected insurance contract.

• No New Issues: Respondent argued that petitioner did not raise new issues before the Court and that the issues had already been resolved by the lower courts.
• No Meeting of the Minds: Respondent averred that the board of directors disapproved the terms and conditions of the proposal, meaning there was no meeting of the minds and no insurance contract initiated.
• No Juridical Tie / No Risk: Respondent argued that non-payment of premium meant no juridical tie was created and the insured was not exposed to any insurable risk, making it unjust to allow petitioner to recover premiums on a contract that was never effective.

• Propriety of Rule 45 Petition: Whether the issues raised by petitioner in its Rule 45 petition involve questions of law or questions of fact.
• Perfection of Insurance Contract: Whether respondents' request for terms of payment and petitioner's grant thereof constitute the parties' intention to be bound by a perfected insurance contract.
• Applicability of Fourth Exception: Whether the fourth exception to Section 77 of the Insurance Code, regarding credit term extension, applies to the case.

• Propriety of Rule 45 Petition: No. The issues presented are factual in nature, requiring an evaluation of the evidence on record, which is improper in a petition for review on certiorari under Rule 45.
• Perfection of Insurance Contract: No. The lower courts consistently found no perfected insurance contract due to the absence of premium payment, and the Court is not a trier of facts to re-evaluate this finding.
• Applicability of Fourth Exception: No. The Jumbo Risk Provision expressly rendered the policy void upon failure to pay an installment on the due date, meaning there was no credit extension to consider as the policy's inception was cut off by default.

• Propriety of Rule 45 Petition: Under Rule 45, only questions of law may be raised. A question of law arises when there is doubt as to what the law is on a certain state of facts, while a question of fact arises when the doubt concerns the truth or falsity of the alleged facts. Determining the parties' intention regarding the request for terms of payment required reading transcripts and reviewing documentary evidence, which is an evaluation of evidence. Thus, the issues are factual and not proper for a Rule 45 petition.
• Perfection of Insurance Contract: The Court is not a trier of facts; evaluation of evidence is the function of the trial court. Both the trial courts and the appellate court consistently found that there was no perfected insurance contract because of the absence of premium payment. The Court found no reversible error in these factual findings.
• Applicability of Fourth Exception: The fourth exception from Makati Tuscany provides that if the insurer grants a credit term for premium payment, the general rule requiring prior payment may not apply. However, the Jumbo Risk Provision clearly indicated that failure to pay any scheduled installment on the due date would render the policy void and ineffective as of 4 p.m. of that date. Because Parc Association failed to pay on the first due date, the policy became void. There was no credit extension to consider because the provision expressly cut off the inception of the policy in case of default.

• Non-payment of Premium as Bar to Valid Insurance Contract — Under Section 77 of the Insurance Code, no insurance contract is valid and binding unless and until the premium has been paid. Non-payment of premium prevents an insurance contract from becoming binding even if the policy is issued, unless payment is waived or an exception applies.
• Question of Law vs. Question of Fact — A question of law arises when there is doubt as to what the law is on a certain state of facts. A question of fact exists when the doubt arises as to the truth or falsity of the alleged facts. If the resolution of an issue requires an examination of the probative value of the evidence, it is a question of fact, which is improper in a Rule 45 petition.

• "A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts." — This passage provides the standard test for distinguishing questions of law from questions of fact, which determined that the petition was improper under Rule 45.
• "Hence, there is no credit extension to consider as the Jumbo Risk Provision itself expressly cuts off the inception of the insurance policy in case of default." — This explains why the fourth exception to Section 77 did not apply, as the policy's own terms voided it immediately upon non-payment of the first installment.

• UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc., 408 Phil. 423 (2001) — Cited to identify the exceptions to the general rule in Section 77 of the Insurance Code regarding the payment of premiums.
• Makati Tuscany Condominium Corporation vs. Court of Appeals, 289 Phil. 942 (1992) — Cited for the exceptions regarding installment payments with partial payment at the time of loss, and when the insurer grants a credit term for premium payment.
• Century Iron Works, Inc. vs. Biñas, 711 Phil. 576 (2013) — Cited for the distinction between a question of law and a question of fact.

• Section 77, Presidential Decree No. 612 (Insurance Code of the Philippines) — States the general rule that no insurance contract is valid and binding unless and until the premium has been paid, subject to specific exceptions.
• Section 78, Presidential Decree No. 612 (Insurance Code of the Philippines) — Provides that an acknowledgment in a policy of the receipt of premium is conclusive evidence of its payment, making the policy binding. This exception was found inapplicable because no premium was ever paid or acknowledged.
• Rule 45, Rules of Court — Limits petitions for review on certiorari to questions of law only.

Carpio (Senior Associate Justice, Chairperson), Caguioa, and Hernando, JJ.