Constantino vs.

Asia Life Insurance Company

FACTS: law applicable to the situation. The Lower court
ruled in favor of ALIC.
The instant case involves two consolidated cases.
The first case involves insurance policy entered into
Issue:
between Asia life insurance Company (insurance
company incorporated in Delaware) and Arcadio May a beneficiary in a life insurance policy recover
Constantino whereby it insured the life of the latter the amount thereof although the insured died after
for 20 years, for 3 thousand pesos with Paz repeatedly failing to pay the stipulated premiums,
Constantino as beneficiary. First premium covered such failure being caused by war?
the period up to Sept. 26, 1942. No further
premiums were paid after the first premium and Held:
Arcadio died on Sept. 22, 1944.
No. The beneficiary can no longer recover because
The second case involves the insurance policy the policies in question stipulate that "all premium
covering the lives of Spouses Tomas Ruiz and payments are due in advance and any unpunctuality
Agustina Peralta for the sum of P3k for 20 years. in making any such payment shall cause this policy to
The annual premium stipulated was regularly paid lapse." Wherefore, it would seem that pursuant to
from Aug. 1, 1938 up to and including Sept. 30, 1940. the express terms of the policy, non-payment of
Last payment covered the period until Jan. 31, 1942.
premium produces its avoidance.
Tomas Ruiz died on Feb. 16, 1945 with Agustina
Peralta as his beneficiary
The conditions of contracts of Insurance, when
plainly expressed in a policy, are binding upon the
Both policies contained this provision: All premiums
are due in advance and any unpunctuality in parties and should be enforced by the courts, if the
making such payment shall cause this policy to evidence brings the case clearly within their meaning
lapse unless and except as kept in force by the and intent. It tends to bring the law itself into
grace period condition. disrepute when, by astute and subtle distinctions, a
plain case is attempted to be taken without the
Due to Jap occupation, ALIC closed its branch office operation of a clear, reasonable and material
in Manila from Jan. 2 1942-1945.
obligation of the contract.
Due to Jap occupation, it became impossible and
illegal for the insured to deal with ALIC. Aside from Forfeitures of insurance policies are not favored, but
this the insured borrowed from the policy P234.00 courts cannot for that reason alone refuse to
such that the cash surrender value of the policy was enforce an insurance contract according to its
sufficient to maintain the policy in force only up to meaning.
Sept. 7, 1942.
Paz Constantino and Agustina Peralta claim as In determining the effect of non-payment of
beneficiaries, that they are entitled to receive the premiums occasioned by war, the American cases
proceeds of the policies less all sums due for may be divided into three groups, the so-called
premiums in arrears. They also allege that non- Connecticut Rule, the New York Rule, or the United
payment of the premiums were caused by the States Rule.
closing of ALICs offices during the war and the
impossible circumstances by the war, therefore, they
The first holds the view that "there are two elements
should be excused and the policies should not be
in the consideration for which the annual premium is
forfeited.
paid First, the mere protection for the year, and
Defendant on the other hand asserts that the second, the privilege of renewing the contract for
policies had lapsed for non-payment of premiums, in each succeeding year by paying the premium for
accordance with the contract of the parties and the that year at the time agreed upon. According to this
view of the contract, the payment of premiums is a
condition precedent, the non-performance would be the good risks are never heard from; only the bad
illegal necessarily defeats the right to renew the are sought to be revived, where the person insured
contract." is either dead or dying. Those in health can get the
new policies cheaper than to pay arrearages on the
The second rule, apparently followed by the greater
old. To enforce a revival of the bad cases, whilst the
number of decisions, hold that "war between states
in which the parties reside merely suspends the company necessarily lose the cases which are
contracts of the life insurance, and that, upon tender desirable, would be manifestly unjust. The nature of
of all premiums due by the insured or his the business, as a whole, must be looked at to
representatives after the war has terminated, the understand the general equities of the parties.
contract revives and becomes fully operative."
After perusing the Insurance Act, we are firmly
The United States rule declares that the contract is persuaded that the non-payment of premiums is
not merely suspended, but is abrogated by reason of such a vital defense of insurance companies that
non-payments is peculiarly of the essence of the since the very beginning, said Act no. 2427 expressly
contract. It additionally holds that it would be unjust preserved it, by providing that after the policy shall
to allow the insurer to retain the reserve value of the have been in force for two years, it shall become
policy, which is the excess of the premiums paid over incontestable (i.e. the insurer shall have no defense)
the actual risk carried during the years when the except for fraud, non-payment of premiums, and
policy had been in force. This rule was announced in military or naval service in time of war (sec. 184 [b],
the well-known Statham6 case which, in the opinion Insurance Act). And when Congress recently
of Professor Vance, is the correct rule. amended this section (Rep. Act No. 171), the
defense of fraud was eliminated, while the defense
In support of US rule: of nonpayment of premiums was preserved. Thus
the fundamental character of the undertaking to pay
The truth is, that the doctrine of the revival of
premiums and the high importance of the defense of
contracts suspended during the war is one based on
non-payment thereof, was specifically recognized.
considerations of equity and justice, and cannot be
invoked to revive a contract which it would be unjust In keeping with such legislative policy, we feel no
or inequitable to revive. hesitation to adopt the United States Rule, which is
in effect a variation of the Connecticut rule for the
In contrast with the New York Rule:
sake of equity. In this connection, it appears that the
In the case of Life insurance, besides the materiality first policy had no reserve value, and that the
of time in the performance of the contract, another equitable values of the second had been practically
strong reason exists why the policy should not be returned to the insured in the form of loan and
revived. The parties do not stand on equal ground advance for premium.
in reference to such a revival. It would operate
most unjustly against the company. The business of
insurance is founded on the law of average; that of
life insurance eminently so. The average rate of
mortality is the basis on which it rests. By spreading
their risks over a large number of cases, the
companies calculate on this average with reasonable
certainty and safety. If every policy lapsed by reason
of the war should be revived, and all the back
premiums should be paid, the companies would
have the benefit of this average amount of risk. But