G.R. No. L-57308. April 23, 1990.
GREAT PACIFIC LIFE INSURANCE CORPORATION, petitioner, vs. THE HON. COURT OF APPEALS and TEODORO CORTEZ, respondents.

FACTS

Private respondent Teodoro Cortez applied for and was approved for a 20-year endowment life insurance policy by petitioner Great Pacific Life Insurance Corporation. The policy, with an effective date of December 25, 1972, was delivered to Cortez on January 25, 1973. The soliciting agent, Margarita Siega, assured him that the first annual premium could be paid within a 30-day grace period from the delivery date. Cortez paid the full premium of P1,416.60 in three installments, completed on February 21, 1973, all within this grace period. These payments were acknowledged by the agent’s temporary receipts and later confirmed by the company’s official receipts issued in March 1973.
Subsequently, in a letter dated June 1, 1973, the insurer informed Cortez that his policy was not in force. The company demanded payment of an alleged premium balance and required a new medical examination to make the policy operative. In reaction, Cortez cancelled the policy and demanded a refund of his premium plus damages. Upon the company’s refusal, he filed a complaint for damages.

ISSUE

Whether Teodoro Cortez is entitled to a refund of the premium he paid and to an award of moral damages.

RULING

Yes. The Supreme Court affirmed the Court of Appeals’ decision, with modification, ordering the refund of the premium with interest and awarding moral damages. The legal logic is anchored on the principles of contract and insurance law. The policy became enforceable upon its delivery and the payment of the premium within the grace period expressly granted by the company’s authorized agent. The subsequent official confirmation of the installment payments through home office receipts constituted a ratification of the agent’s acts and unequivocally signified that the policy was in full force. The insurer’s unilateral declaration months later that the policy was ineffective, after having accepted the premiums, constituted a serious breach of contract.
Under the Insurance Code, an insured is entitled to a return of premium when the insurer never incurred any risk under the policy. Since the company repudiated the contract from its inception, it was never at risk and therefore had no right to retain the premium. Furthermore, the insurer’s actions constituted bad faith. By accepting payments, issuing confirmatory receipts, and then abruptly nullifying the coverage, the company inflicted moral shock, serious anxiety, and wounded feelings upon Cortez, who believed he had secured protection for his family. This justified the award of moral damages. The Court also imposed legal interest on the refundable premium from the filing of the complaint until full payment to compensate for the delay caused by the insurer’s unjust refusal.