South Sea Surety and Insurance Company, Inc. vs. Court of Appeals

Under Section 306 of the Insurance Code, an insurer that delivers a policy to an insurance agent or broker is deemed to have authorized that agent or broker to receive premium on its behalf; payment to such agent or broker before loss satisfies the premium-payment condition precedent under Section 77.

Valenzuela Hardwood and Industrial Supply, Inc. contracted Seven Brothers Shipping Corporation to load and ship its lauan round logs, and procured marine cargo insurance from South Sea Surety and Insurance Company, Inc. The dispute implicated the Insurance Code's requirements that premium payment be a condition precedent to a valid and binding policy and that an insurer delivering a policy to an agent or broker be deemed to authorize that agent or broker to receive premium.

On 16 January 1984, Valenzuela Hardwood and Industrial Supply, Inc. ("Hardwood") entered into an agreement with Seven Brothers Shipping Corporation whereby the latter undertook to load on board its vessel M/V Seven Ambassador Hardwood's 940 lauan round logs at the port of Maconacon, Isabela for shipment to Manila. On 20 January 1984, Hardwood insured the logs against loss and/or damage with South Sea Surety and Insurance Company, Inc. for P2,000,000.00, and South Sea issued Marine Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on that date.

On 24 January 1984, Hardwood gave a check in payment of the premium on the insurance policy to Mr. Victorio Chua. Chua was an administrative assistant for the past ten years and an agent for less than ten years of Columbia Insurance Brokers, Ltd.; he was paid a salary as administrative assistant and a commission as agent based on the premiums he turned over to the broker. The marine cargo insurance policy for Hardwood's logs was delivered to Chua on 21 January 1984 at his office to be delivered to Hardwood. Chua testified that it was only in the morning of 30 January 1984, or five days after the vessel sank, when his messenger tendered the check to South Sea.

On 25 January 1984, M/V Seven Ambassador sank, resulting in the loss of Hardwood's insured logs. On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the premium and documentary stamps due on the policy was tendered to the insurer but was not accepted. Instead, South Sea cancelled the insurance policy it issued as of the date of inception for non-payment of the premium due in accordance with Section 77 of the Insurance Code.

On 2 February 1984, Hardwood demanded from South Sea payment of the proceeds of the policy, but South Sea denied liability under the policy. Hardwood likewise filed a formal claim with Seven Brothers Shipping Corporation for the value of the lost logs, but Seven Brothers denied the claim. Litigation followed.

Both the trial court and the Court of Appeals found that Chua acted as an agent of South Sea when he received the check for the insurance premium. The Court of Appeals found that the policy was delivered to Chua on 21 January 1984 and that, at the time the insured logs were lost, Hardwood had already delivered the premium check to Chua.

• Section 77 — Premium Payment: Petitioner argued that the Court of Appeals disregarded Section 77 of the Insurance Code, under which no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium has been paid, and that South Sea had cancelled the policy as of inception for non-payment.
• Agency of Victorio Chua: Petitioner maintained that the Court of Appeals erred in holding Victorio Chua to have been an authorized representative of the insurer; Chua was an administrative assistant and agent of Columbia Insurance Brokers, Ltd., paid a salary and commission, and therefore acted as an agent of the insured under Section 301 of the Insurance Code.

• Section 306 — Authority to Receive Premium: Respondent Hardwood claimed that the second paragraph of Section 306 of the Insurance Code provides that any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium due on the policy at the time of its issuance or delivery or which becomes due thereon.
• Factual Findings: Respondent Hardwood pointed out that it is not the function of the Supreme Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties, particularly where the findings of both the trial court and the appellate court on the matter coincide.

• Premium Payment under Section 77: Whether the Court of Appeals disregarded Section 77 of the Insurance Code in holding South Sea Surety and Insurance Company, Inc. liable despite the alleged non-payment of the premium.
• Agency of Victorio Chua: Whether Victorio Chua, in receiving the check for the insurance premium prior to the occurrence of the risk insured against, acted as an agent of South Sea Surety and Insurance Company, Inc., such that payment to him was payment to the insurer.

• Premium Payment under Section 77: No. The Court of Appeals did not disregard Section 77; it correctly recognized that premium payment is a condition precedent to the validity and binding effect of the policy, subject to the life or industrial life grace-period and written-acknowledgment exceptions, and proceeded to determine whether the premium had been paid.
• Agency of Victorio Chua: Yes. Under Section 306 of the Insurance Code, South Sea's delivery of the policy to Victorio Chua deemed Chua authorized to receive the premium on South Sea's behalf; payment to Chua before the loss was payment to the insurer.

• Premium Payment under Section 77: Section 77 provides that an insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against, and that, 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 industrial life policy whenever the grace period provision applies. The Court noted that payment of the premium is a condition precedent to, and essential for, the efficaciousness of the contract, with only two statutorily provided exceptions: (a) life or industrial life (health) insurance when a grace period applies, and (b) when the insurer makes a written acknowledgment of receipt of premium, which is conclusive evidence of payment under Sections 77 and 78 of the Insurance Code. Contrary to petitioner's suggestion, the Court of Appeals made no pronouncement to the contrary; it expressly stated that Section 77 requires determining whether, at the time of the loss, the premium had already been paid.
• Agency of Victorio Chua: The sole question raised in the petition was evidentiary: whether Victorio Chua, in receiving the check for the insurance premium prior to the occurrence of the risk insured against, acted as an agent of petitioner. The Court of Appeals, like the trial court, found in the affirmative. Petitioner insisted that Chua was an administrative assistant and agent of Columbia Insurance Brokers, Ltd., paid a salary and commission, and therefore acted as an agent of the insured under Section 301 of the Insurance Code. Respondent Hardwood invoked the second paragraph of Section 306, under which any insurance company that delivers to an insurance agent or insurance broker a policy or contract of insurance is deemed to have authorized such agent or broker to receive on its behalf payment of any premium due at the time of issuance or delivery or which becomes due thereon. Chua testified that the marine cargo insurance policy for Hardwood's logs was delivered to him on 21 January 1984 at his office to be delivered to Hardwood. Because South Sea delivered the policy to Chua, he was deemed authorized by South Sea to receive the premium due on its behalf. When the insured logs were lost, Hardwood had already paid the premium to South Sea's agent, making South Sea liable to pay the insurance proceeds under the policy it issued. The Court saw no valid reason to discard the factual conclusions of the appellate court, particularly where the findings of both the trial court and the appellate court on the matter coincided, and reiterated that it is not its function to assess and evaluate all over again the evidence adduced by the parties.

• Premium Payment as Condition Precedent — Under Section 77 of the Insurance Code, an insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against, and no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium has been paid, except in the case of a life or industrial life policy whenever the grace period provision applies. The Court recognized a second statutory exception: when the insurer makes a written acknowledgment of receipt of premium, which is conclusive evidence of payment under Sections 77 and 78. In this case, the Court of Appeals did not disregard Section 77; it applied the rule by determining whether the premium had been paid at the time of loss.
• Delivery of Policy to Agent or Broker as Authority to Receive Premium — Under the second paragraph of Section 306 of the Insurance Code, any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance is deemed to have authorized such agent or broker to receive on its behalf payment of any premium due on the policy at the time of its issuance or delivery or which becomes due thereon. Because South Sea delivered the policy to Victorio Chua, Chua was deemed authorized to receive the premium on South Sea's behalf; payment to Chua before the loss was payment to the insurer.
• Review of Coincident Factual Findings — The Supreme Court will not assess and evaluate all over again the testimonial and documentary evidence adduced by the parties, particularly where the findings of both the trial court and the appellate court on the matter coincide. The Court applied this principle to decline to disturb the lower courts' finding that Chua acted as the insurer's agent.

• "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." — This is the Court's quotation of Section 77 of the Insurance Code, stating the premium-payment condition precedent and its statutory exception for life or industrial life policies with a grace period.
• "Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy of contract of insurance at the time of its issuance or delivery or which becomes due thereon." — This is the Court's quotation of the second paragraph of Section 306 of the Insurance Code, the provision on which the ruling rests: delivery of the policy to the agent or broker confers authority to receive premium on the insurer's behalf.
• "When the appellant South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine cargo insurance policy for the plaintiffs logs, he is deemed to have been authorized by the South Sea Surety and Insurance Co., Inc. to receive the premium which is due on its behalf." — This passage from the Court of Appeals, quoted in the Supreme Court's resolution, applies Section 306 to the facts and supplies the basis for holding South Sea liable.
• "We see no valid reason to discard the factual conclusions of the appellate court. Just as so correctly pointed out by private respondent, it is not the function of this Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties particularly where, such as here, the findings of both the trial court and the appellate court on the matter coincide." — This passage states the standard of review that led the Supreme Court to accept the lower courts' finding that Chua acted as the insurer's agent.

• Home Insurance Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24 — Cited by the Court of Appeals in absolving the shipping corporation from liability; the appellate court relied on it for the proposition that a common carrier undertaking to carry a special or chartered cargo for a special person only becomes a private carrier, and that as a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent is valid. The Supreme Court did not disturb that absolution in the portion of the resolution before it.

• Section 77, Insurance Code — Provides that an insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against, and that no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium has been paid, except in the case of a life or industrial life policy whenever the grace period provision applies. The Court held that the Court of Appeals did not disregard this provision; it correctly treated premium payment as a condition precedent and determined whether payment had been made.
• Section 78, Insurance Code — Mentioned by the Court as providing that a written acknowledgment of receipt of premium by the insurer is conclusive evidence of premium payment. The Court identified this as one of the statutory exceptions to the premium-payment condition precedent.
• Section 301, Insurance Code — Defines an insurance broker as any person who, for compensation, commission, or other thing of value, acts or aids in soliciting, negotiating, or procuring the making of any insurance contract or in placing risk or taking out insurance on behalf of an insured other than himself. Petitioner invoked this provision to argue that Victorio Chua acted as an agent of the insured; the Court instead applied Section 306.
• Section 306, Insurance Code — Its second paragraph provides that any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance is deemed to have authorized such agent or broker to receive on its behalf payment of any premium due on the policy at the time of its issuance or delivery or which becomes due thereon. The Court applied this provision to hold that South Sea's delivery of the policy to Victorio Chua authorized Chua to receive the premium on South Sea's behalf.

Feliciano, Romero, Melo and Francisco, JJ., concur.