G.R. No. 44588 May 9, 1989
LAURA VELASCO and GRETA ACOSTA, petitioners, vs. HON. SERGIO A. F. APOSTOL and MAHARLIKA INSURANCE CO., INC., respondents.

FACTS

Petitioners Laura Velasco and Greta Acosta were injured in a vehicular collision on November 27, 1973, involving a taxicab driven by Dominador Santos. They filed a damages suit against the driver, the vehicle owner, and later impleaded Maharlika Insurance Co., Inc., alleging the taxicab was insured. The trial court found the taxicab driver solely negligent and held the owners solidarily liable for damages. However, it exonerated Maharlika Insurance, finding the insurance policy was not in force at the time of the accident due to non-payment of the initial premium and concealment of a material fact by the insured.
Petitioners elevated the case, arguing the respondent judge erred in considering the defense of late premium payment, claiming it was waived during pre-trial. They contended the pre-trial order only framed the issue of whether Maharlika was liable under the policy, not the specific matter of premium payment. Additionally, they asserted a credit extension for the premium had been agreed upon, making the policy effective despite the accident preceding payment.

ISSUE

Whether the trial court correctly held that the insurance policy was not in force, thereby absolving Maharlika Insurance from liability.

RULING

The Supreme Court affirmed the trial court’s decision. On procedure, the Court ruled the issue of premium payment was not waived. The pre-trial order stating the issue as “whether defendant Maharlika Insurance Co. Inc. is liable under the insurance policy” necessarily included the foundational question of the policy’s validity, which hinges on premium payment. This was integral to the insurer’s defense. Furthermore, evidence on non-payment was admitted without objection, conferring jurisdiction on the court to try the issue.
On the substantive insurance law, the Court found no valid contract existed at the time of the accident. Under the governing Insurance Act ( Act No. 2427 ), an insurer’s liability for loss attaches only upon payment of the premium, unless a clear credit extension is granted. Petitioners failed to prove such an agreement. The purported unconditional delivery of the policy was negated by the insured’s concealment of the accident when paying the premium days later, demonstrating bad faith and a lack of credit arrangement. Since no premium was paid or validly credited before the loss, no risk had attached. The subsequent payment, made with knowledge of the loss, could not retroactively create coverage. The Court noted the principle of utmost good faith was violated, but no contract existed to rescind.