SECTIONS 80 to 83 of the Amended Insurance Code cover the rules on return of premiums. However, the law is silent with respect to the payment of interest, if any, on such amount. Therefore, we resort to the words of Philippine jurisprudence.
In Sun Life of Canada (Philippines) Inc. v Sandra Tan Kit et al. (G.R. No. 183272, October 15, 2014), the Supreme Court (SC) ruled that there is no factual and legal basis to impose compensatory interest in the refund of premiums absent the failure to comply with an obligation.
There are two kinds of interest—monetary and compensatory. Monetary interest refers to the compensation set by the parties for the use or forbearance of money. No such interest shall be due unless it has been expressly stipulated in writing. On the other hand, compensatory interest refers to the penalty or indemnity for damages imposed by law or by the courts. The interest mentioned in Articles 2209 and 2212 of the Civil Code applies to compensatory interest. As a form of damages, compensatory interest is due only when the obligor fails to comply with his obligation.
The court observed in Sandra Tan Kit that, simultaneous to its giving of notice to rescind the policy due to concealment, petitioner Sun Life tendered the refund of premium by attaching to the said notice a check representing the amount of refund. As a consequence of the rescission of the insurance contract on account of the insured’s concealment of material information in his insurance application, Sun Life refunded the insurance premiums paid. In case of failure to properly refund, the court added that the refund may be considered as a forbearance of credit, in which case the interest rate will be 6 percent per annum.
In Great Pacific Life Insurance Corp. v Court of Appeals et al. (G.R. No. L-57308, April 23, 1990), the Court ruled that in view of “the serious delay the private respondent’s claim has suffered on account of the petitioner’s intransigence in refusing to pay its just debt, the petitioner is ordered to pay legal rate of interest of 6 percent per annum on the premium of P1,416.60 refundable to the private respondent from the filing of the complaint until the judgment is fully paid.”
Incidentally, the premiums returned shall be excluded from the computation of the recipient’s gross income and shall be exempted from income taxation pursuant to Section 32 (B) (2) of the National Internal Revenue Code, which specified as an exclusion: “Amount Received by Insured as Return of Premium. The amount received by the insured, as a return of premiums paid by him under life insurance, endowment, or annuity contracts, either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract.”
On the other hand, interest on the payment of insurance proceeds is expressly allowed by the Amended Insurance Code under certain conditions. In Tio Khe Chio v Court of Appeals (279 Phil. 127 [1999]), the SC pointed to Sections 243 and 244 of the Insurance Code (now Sections 249 and 250 of the Amended Insurance Code), which explicitly provide for payment of interest when there is unjustified refusal or withholding of payment of the claim by the insurer, meaning the payment of insurance proceeds; and, to Article 2209 of the New Civil Code which, likewise, provides for payment of interest when the debtor is in delay.
Thus, Section 249 of the Amended Insurance Code provides: “Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent.”
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Dennis B. Funa is presently the deputy insurance commissioner for Legal Services of the Insurance Commission. E-mail: dennisfuna @yahoo.com.