Case Digest: National Leather Co. Inc., v. U. S. Life Insurance Co., G.R. No. L-2668, 30 Sep 1950

 [No. L-2668. September 30, 1950]

NATIONAL LEATHER Co., INC., plaintiff and appellant, vs. THE UNITED STATES LIFE INSURANCE Co., defendant and appellee.

The Parties:

1. National Leather Co., Inc., plaintiff-appellant, a Philippine corporation with offices in the city of Manila
2. Pedro Alejandrino, the person whose life was insured by plaintiff-appellant
3. The United States Life Insurance Co., defendant-appellant, a foreign life insurance company incorporated under the laws of New York, U.S.A., and licensed to do business in the Philippines (except during the period of the Japanese occupation) with main office in New York but with a branch office in Manila

Topic:

Would war be an excuse for non-payment of premium, or would war suspend an insurance contract? NO The nonpayment of premiums does not merely suspend but puts an end to an insurance contract, since the time of the payment is peculiarly of the essence of the contract. The rule is not affected by the fact that the nonpayment is due to war or that the insured has not been negligent.

Facts:

1. On April 14, 1939, plaintiff insured with the defendant the life of Pedro Alejandrino for $5,000 under a 10-year term non-participating policy in consideration of the payment to the defendant, in advance, of the sum of $23.11 as quarterly premium beginning April 14, 19391 and the payment of a like sum every quarter thereafter, also in advance, for a period of 10 years or until the prior death of said Pedro Alejandrino.

2. The stipulated quarterly premiums on the policy were regularly paid up to October 14, 1941, when the last quarterly premium payment was made, covering the period from that date to January 14, 1942.

3. Thereafter no more premiums were paid, it appearing that, because defendant was an American corporation, its branch office in Manila was closed when that city was occupied by the Japanese forces on January 2, 1942, and it had remained closed during the entire period of enemy occupation. It was not reopened until March, 1945.

4. Pedro Alejandrino died on September 23, 1943, that is, beyond the period covered by the premiums paid by the insured.

5. But just the same, after the liberation of Manila in 1945, plaintiff, as the beneficiary named in the policy made a claim for the proceeds thereof and tendered a check for P323.54, the total unpaid premiums from January 14, 1942, to October 14, 1943.

6. Defendant however, rejected the claim and returned the check on the ground that the policy had ceased to be in force as of January 14, 1942, for non-payment of the stipulated premiums.

7. The lower court affirmed the rejection of the insurer.

Issue:

Whether or not a life insurance policy lapses pursuant to its terms because of non-payment of the stipulated premium when such nonpayment occurred at a time when the insurer and the insured were separated by the lines of war.

Ruling:

Yes.

The nonpayment of premiums does not merely suspend but puts an end to an insurance contract, "since the time of the payment is peculiarly of the essence of the contract." The rule is not affected by the fact that the nonpayment is due to war or that the insured has not been negligent. There is, therefore, nothing to the argument that in this case plaintiff's failure to make premium payments after January 14, 1942, should be excused as being due, not to its own negligence, but to defendant's omission to make arrangements for the receipt of premiums that were to fall due during the period of enemy occupation.

We are firmly persuaded that the non-payment of premiums is such a vital defense of insurance companies that since the very beginning, said Act 2427 expressly preserved it, by providing that after the policy shall have been in force for two years, it shall become incontestable (i.e. the insurer shall have no defense) except for fraud, non-payment of premiums, and military or naval service in time of war (Sec. 184[b], Insurance Act). And when Congress recently amended this section (Rep. Act 171), the defense of fraud was eliminated, while the defense of non-payment of premiums was preserved. Thus the fundamental character of the undertaking to pay premiums and the high importance of the defense of non-payment thereof, was specifically recognized.