Velasco vs. Apostol;  G.R. No. 44588. May 9, 1989


In  November 27, 1973, petitioners Laura Velasco and Greta Acosta while riding in their Mercury car and driven by their driver Guarra collided with N/S taxicab driven by defendant Dominador Santos registered in the name of Alice Artuz c/o Norberto Santos. In July 20, l974,  petitioners sued Santos, Artuz and N. Santos for actual, moral and exemplary  damages plus attorney’s fees. Maharlika Insurance Co., Inc. was impleaded as a defendant with an allegation that the N/S taxicab involved was insured against third party liability for P20,000.00 at the time of the accident. 

Both the accident and filing of the suit happened before effectivity on December 18, 1974 of Presidential Decree No. 612, the subsequent insurance law which repealed its predecessor.

Maharlika Insurance Co., Inc. claimed that there was no cause of action against it because at the time of the accident, the alleged insurance policy was not in force due to non-payment of the premium thereon. The initial premium was paid on December 11, 1973.  It further averred that even if the taxicab had been insured, the complaint would still be premature since the policy provides that the insurer would be liable only when the insured becomes legally liable. 

The trial court rendered judgment in favor of the plaintiffs on grounds of Negligence. Santos, Artuz and N. Santos were adjudged jointly and severally liable to petitioners. However, Maharlika Insurance Co. was exonerated on the ground that the policy was not in force for failure of the therein defendants to pay the initial premium and for their concealment of a material fact.

Petitioners maintain that in spite of this late payment, the policy is nevertheless binding because there was an implied agreement to grant a credit extension so as to make the policy effective. To them, the subsequent acceptance of the premium and delivery of the policy estops the respondent company from asserting that the policy is ineffective. 


WON the insurance policy is still valid and binding notwithstanding the non-payment of the premium if there was a clear agreement to grant to the insured credit extension.


NO, as earlier stated, the accident for which the respondent insurance company is sought to be held liable occurred on November 27, 1973 while the initial premium was paid only on December 11, 1973. Payment was accepted by the insurer without any knowledge that the risk insured against had already occurred since such a fact was concealed by the insured and was not revealed to the insurer.  Thus, the delivery of the policy was far from being unconditional. Had there really been a credit extension, the insured would not have had any apprehension or hesitation to inform the respondent insurance company at the time of or before the payment of the premium that an accident for which the insurer may be held liable had already happened

In the present law, Section 77 of the Insurance Code of 1978  has deleted the clause “unless there is clear agreement to grant the insured credit extension of the premium due” which was then involved in this controversy.

The fact withheld could not in any event have influenced the respondent company in entering into the supposed contract or in estimating the character of the risk or in fixing the rate premium, for the simple reason that no such contract existed between the defendants and the company at the time of the accident. Accordingly, there was nothing to rescind at that point in time.

Old Rule: 

“An insurer is entitled to the payment of premium as soon as the thing insured is exposed to the peril insured against, unless there is clear agreement to grant the insured credit extension of the premium due. No policy issued by an insurance company is valid and binding unless and until the premium thereof has been paid.” 

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