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JAIME T. GAISANO v. DEVELOPMENT INSURANCE

FACTS:

Jaime T. Gaisano (petitioner) owned a vehicle covered by a comprehensive commercial vehicle policy issued by Development Insurance and Surety Corporation (respondent). Respondent's agent issued a statement of account to petitioner's company for the premium payment. On the evening of September 27, 1996, the vehicle was stolen. The loss was reported to the police. Unaware of the theft, respondent's agent picked up the check for the premium payment on September 28, and deposited it on October 1, 1996. On October 1, 1996, petitioner filed a claim for insurance proceeds, but respondent denied the claim, stating that there was no insurance contract. Petitioner filed a complaint, and the RTC ruled in his favor. The CA ordered respondent to return the premium. Petitioner filed a petition for review, arguing the existence of a valid insurance contract and seeking reimbursement of premiums paid. The main issue is whether there is a binding insurance contract.

ISSUES:

  1. Whether there is a binding insurance contract between petitioner and respondent.

RULING:

  1. The Supreme Court ruled that there was no binding insurance contract between petitioner and respondent because the premium for the policy was not paid at the time the insured event (theft) occurred. The Court emphasized that under Section 77 of the Insurance Code, 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 certain specific cases. Given that the premium payment was received only on September 28, 1996, and the loss occurred on September 27, 1996, the insurance policy was not in effect at the time of the loss. Exceptions to this rule were not applicable in this case.

  2. The Court ordered the respondent to return the premium amount of P55,620.60 to the petitioner, with 6% interest per annum from the date of extrajudicial demand (July 7, 1997) until the finality of the judgment, and thereafter, at the rate of 6% per annum until full satisfaction. The additional claim by the petitioner for the full premium amount of P140,893.50 was denied as it included payment for two other vehicles not affected by this ruling.

PRINCIPLES:

  1. Section 77 of the Insurance Code No policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid.

  2. Section 78 of the Insurance Code Any acknowledgment in a policy or contract of insurance of the receipt of premium shall be conclusive evidence of payment as far as to make the policy binding.

  3. Exceptions to Section 77 of the Insurance Code

    • (1) Life or industrial life policy with a grace period.

    • (2) Acknowledgment of premium receipt in the policy (Section 78).

    • (3) Stipulated installment payments with initial or partial payment made at the time of loss.

    • (4) Credit extension granted by the insurer for premium payment.

    • (5) Estoppel due to consistent practice of granting credit terms.

  4. Relativity of contracts Contracts bind only the parties who entered into it and cannot favor or prejudice a third person.

  5. Unjust Enrichment A person unjustly retains a benefit to the loss of another, or retains money or property against the principles of justice, equity, and good conscience.

  6. Interest for Return of Premium Legal interest of 6% per annum from the time of extrajudicial demand until the finality of judgment, and thereafter, the total amount shall earn interest at the rate of 6% per annum until full satisfaction.