G.R. No. 190702 February 27, 2017
Jaime T. Gaisano, Petitioner, vs. Development Insurance and Surety Corporation, Respondent.

FACTS

Petitioner Jaime T. Gaisano was the registered owner of a 1992 Mitsubishi Montero. Respondent Development Insurance and Surety Corporation issued a comprehensive commercial vehicle policy for the vehicle on September 27, 1996, effective for one year. The premium, along with premiums for two other vehicle policies, was to be paid through respondent’s agent, Trans-Pacific Underwriters Agency. On September 27, petitioner’s company, Noah’s Ark Merchandising, issued a check payable to the agent. The agent, however, did not collect the check that day as its manager was celebrating his birthday, and instead collected it on September 28. Tragically, the insured vehicle was stolen on the evening of September 27. The loss was reported to the police and later to the respondent insurer.
Petitioner filed a claim for the insurance proceeds. Respondent denied the claim, asserting that no valid insurance contract existed because the premium was not paid prior to the loss. Petitioner then filed a complaint for collection. The Regional Trial Court ruled in favor of petitioner, ordering respondent to pay the insurance proceeds. The Court of Appeals reversed this decision, holding that the insurance contract was not yet binding due to non-payment of the premium at the time of loss, but ordered respondent to return the premium amount paid for the lost vehicle.

ISSUE

Whether a valid and binding insurance contract existed at the time of the loss, entitling petitioner to recover the insurance proceeds.

RULING

No. The Supreme Court denied the petition and affirmed the Court of Appeals’ decision. The ruling is anchored on Section 77 of the Insurance Code, which provides that no contract of insurance is valid and binding unless the premium is paid. The Court emphasized that the binding effect of an insurance contract is contingent upon the payment of the premium, regardless of its delivery. The exception, where the parties have agreed to grant credit extension for the premium, did not apply. Here, the check representing the premium was issued on September 27 but was only received by the agent on September 28, a day after the loss occurred. Consequently, the premium was not paid at the time the risk attached. The fact that the check was later honored is immaterial, as payment is deemed made only upon delivery to the insurer or its authorized agent. Since the premium was unpaid when the vehicle was stolen, the policy had not taken effect. Therefore, petitioner is not entitled to the insurance proceeds. However, consistent with the principle of solutio indebiti, respondent was correctly ordered to return the premium it received for the lost vehicle, with legal interest. The Court found no basis to order the return of premiums for the other two unrelated policies, as those contracts remained valid and were not contested.