G.R. No. L-3032 – 87 Phil. 460 – Mercantile Law – Insurance Law – Characteristics of an Insurance Contract – Premium Payments – Insurance Contract in Times of War – US Rule (Statham Rule) – Time is of the essence
In February 1934, Juan Carrero was issued an insurance policy by The Manufacturers Life Insurance Co. (Manulife). Carrero incurred a $5,500.00 loan from Manulife in 1941. However, during the Japanese occupation from 1942 to 1944, Carrero was not able to pay his premium to Manulife. In February 1945, Carrero died. His widow Victoria Hidalgo filed an insurance claim but Manulife refused due to Carrero’s nonpayment.
ISSUE: Whether or not Hidalgo’s insurance policy has been forfeited considering that nonpayment was due to the war.
HELD: Yes. The case of Constantino vs Asia Life has been reiterated in this case. It must be conceded that promptness of payment is essential in the business of life insurance. It is on this basis that insurance companies are enabled to offer assurance at the favorable rates they do. Forfeiture for non-payment is a necessary means of protecting themselves from embarrassment. Unless it were enforceable, the business would be thrown into utter confusion.
This case, therefore, is one in which time is material and of the essence of the contract. Non-payment at the day involves absolute forfeiture if such be the terms of the contract, as is the case here. Courts cannot with safety vary the stipulation of the parties by introducing equities for the relief of the insured against their own negligence.
The United States rule (Statham case) declares that the contract is not merely suspended, but is abrogated by reason of non-payment of premium, since the time of the payment is peculiarly of the essence of the contract. It additionally holds that it would be unjust to allow the insurer to retain the reserve value of the policy, which is the excess of the premiums paid over the actual risk carried during the years when the policy had been in force. The consequence of war should not prejudice the insured, neither should they bear own on the insurer.