G.R. No. 234299, March 03, 2021
Chartis Philippines Insurance, Inc. (Now AIG Philippines Insurance, Inc.), Petitioner, vs. Cyber City Teleservices, Ltd., Respondent.

FACTS

Petitioner Chartis Philippines Insurance, Inc. (Chartis) is an insurance company. Respondent Cyber City Teleservices, Ltd. (CCTL) is a call center agency. Through its broker, Jardine Lloyd Thompson Insurance Brokers (JLT), CCTL applied for quotations for professional indemnity and fidelity insurance from Chartis. On January 20, 2005, JLT transmitted “Placing Instructions” to Chartis, stating CCTL’s acceptance of the terms, that Chartis was “on risk” effective that date, and that the premium payment terms were 90 days from policy inception. Chartis issued the two policies on the same day and paid the corresponding documentary stamp tax (DST). The premiums, however, were not paid. At JLT’s request, Chartis agreed to several extensions of the credit term, ultimately until June 15, 2005. No payment was made, prompting Chartis to issue notices of cancellation on June 15, 2005, and later to sue CCTL for payment of the premiums. In its Answer, CCTL argued that no valid insurance contract existed because no premium had been paid, invoking Section 77 of the Insurance Code. After Chartis presented its evidence, CCTL filed a Motion for Summary Judgment, contending that the only issue was the legal effect of non-payment under Section 77. The Regional Trial Court (RTC) granted the motion but ruled in favor of Chartis, holding that the grant of credit extension was an exception to Section 77 under the precedent of UCPB General Ins. Co., Inc. v. Masagana Telamart, Inc., and ordered CCTL to pay the earned premium, taxes, attorney’s fees, and costs. The Court of Appeals (CA) reversed the RTC, dismissing Chartis’ complaint. The CA held that none of the exceptions to Section 77 applied because there was no payment of premium at all, not even in installments, and that the Masagana exception was inapplicable as it involved payment after a loss occurred. Chartis filed the present Petition for Review on Certiorari.

ISSUE

Whether the Court of Appeals erred in ruling that no valid insurance contract existed due to non-payment of the premium, thereby absolving CCTL from liability for the payment of the earned premium and related charges.

RULING

The Supreme Court granted the petition, reversed the Decision of the Court of Appeals, and reinstated the Summary Judgment of the Regional Trial Court with modification regarding the interest rate. The Court held that a valid contract of insurance was perfected upon the concurrence of the offer (the quotations), acceptance (the Placing Instructions), and the cause or consideration (the premium and the promise to pay it). The agreement to pay the premium within a 90-day credit term and the subsequent extensions constituted a grant of credit, which is a recognized exception to the requirement under Section 77 of the Insurance Code that the premium must be paid for the policy to be valid. The Court cited UCPB General Ins. Co., Inc. v. Masagana Telamart, Inc., which held that Section 77 does not expressly prohibit an agreement granting credit extension, and that such an agreement is sanctioned by Section 78, which provides that an acknowledgment in a policy of the receipt of premium is conclusive evidence of its payment. The policies issued contained the phrase “In consideration of the payment of the Premium,” which operates as an acknowledgment of receipt. Furthermore, the Court ruled that Chartis is entitled to recover the “earned premium” corresponding to the “time-on-risk” or the period from January 20, 2005, to June 15, 2005, during which the insurance coverage was in effect and Chartis was exposed to peril. The cancellation of the policies did not extinguish CCTL’s obligation to pay for the coverage it enjoyed during that period. The award of attorney’s fees and costs of suit was sustained. However, the legal interest was modified to six percent (6%) per annum from the date of judicial demand until full payment, in accordance with prevailing jurisprudence.