Commercial Law•Insurance•Law School Notes

Malayan Insurance Co., v. Cruz Arnaldo

May 27, 2023 by RedTint No Comments

Topic: Payment through Agent

FACTS

Malayan Insurance Company (MICO) issued to Coranacion Pinca Fire Insurance Policy on her property for the amount of P100K effective July 22, 1981 to July 22, 1982. On October 15, 1981, MICO cancelled the policy for non-payment of the premium and sent the corresponding notice to Pinca.

On December 24, 1981, Pinca paid the premium to Dominador Adora, MICO’s agent. The payment was remitted by Adora to MICO on January 15, 1982.

On January 18, 1982, Pinca’s property was completely burned. On February 5, the payment made by Pinca was returned by MICO to Adora, which Adora refused, on the ground that her policy was cancelled.

Pinca made demands for payment, which MICO rejected. With that, Pinca went to the Insurance Commission.

MICO’s arguments that there was no payment of premium and that the policy had been cancelled before the occurrence of the loss and (2) that Adora was not authorized to accept the premium payment because six months had elapsed since the issuance of the insurance policy and such acceptance was prohibited by the policy itself.

ISSUE/S

(1) Was MICO correct that the policy was cancelled before the occurrence of the loss because there was no payment of premium?

(2) WON Pinca’s payment is valid, and of Adora’s authority to receive it.

YES. MICO’s acknowledgment of Adora as its agent defeats its contention that he was not authorized to receive the premium payment on its behalf. It is clearly provided in Section 306 of the Insurance Code that:

“SEC. 306. x x x x x x x x x

“Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon.”

And it is a well-known principle under the law of agency that: “Payment to an agent having authority to receive or collect payment is equivalent to payment to the principal himself; such payment is complete when the money delivered is into the agent’s hands and is a discharge of the indebtedness owing to the principal.”

While contending that acceptance of the premium payment was prohibited by the policy, it at the same time insists that the policy never came into force because the premium had not been paid. One surely cannot have his cake and eat it too.

RULING

NO. The payment was made on December 24, 1981 and the fire occurred on January 18, 1982.

Section 306 of the Insurance Code:

SEC. 306. x x x x x x x x x “Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon.”

Also, under the law of agency:

“Payment to an agent having authority to receive or collect payment is equivalent to payment to the principal himself; such payment is complete when the money delivered is into the agent’s hands and is a discharge of the indebtedness owing to the principal.”

Regarding payment of premiums, Secs 64 and 65 of the Insurance Code provide:

“Section 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following:

“(a) Nonpayment of premium;

“(b) Conviction of a crime arising out of acts increasing the hazard insured against;

“(c) Discovery of fraud or material misrepresentation;

“(d) Discovery of willful or reckless acts or omissions increasing the hazard insured against;

“(e) Physical changes in the property insured which result in the property becoming uninsurable;

“(f) Discovery of other insurance coverage that makes the total insurance in excess of the value of the property insured; or

“(g) A determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code.

“Section 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, or to his broker provided the broker is authorized in writing by the policy owner to receive the notice of cancellation on his behalf, and shall state:

“(a) Which of the grounds set forth in Section 64 is relied upon; and

“(b) That, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based.

Based on the foregoing, a valid cancellation requires concurrence of the following conditions:

(5) There must be prior notice of cancellation to the insured;

(6) The notice must be based on the occurrence, after the effective date of the policy, of one or more of the grounds mentioned;

(7) The notice must be:

(d) In writing;

(e) Mailed or delivered to the named insured;

(f) At the address shown in the policy;

(8) It must state:

(d) That upon written request of the insured, the insurer will furnish the facts on which the cancellation is based.

All MICO offers to show that the cancellation was communicated to Pinca was its employee’s testimony that the said cancellation was sent by mail through their mailing section. It stands to reason that if Pinca had really received the said notice, she would not have made payment on the original policy on December 24, 1981. Instead, she would have asked for a new insurance, effective on that date and until one year later, and so taken advantage of the extended period. The Court finds that if she did pay on that date, it was because she honestly believed that the policy issued on June 7, 1981, was still in effect and she was willing to make her payment retroact to July 22,1981, its stipulated commencement date.

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Malayan Insurance Co., v. Cruz Arnaldo

FACTS

ISSUE/S

RULING

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