insurance
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G.R. No. L-15895 November 29, 1920
RAFAEL ENRIQUEZ, as admiis!ra!or o" !#e es!a!e o" !#e $a!e %oa&'i (a.)errer, plaintiff-appellant,
vs.
*UN LIFE A**URAN+E +(AN F +ANA/A, defendant-appellee.
Jose A. Espiritu for appellant.Cohn, Fisher and DeWitt for appellee.
(AL+L(, J.:
This is an action brought by the plaintiff ad administrator of the estate of the late
Joaquin Ma. Herrer to recover from the defendant life insurance company the sum of
pesos 6,000 paid by the deceased for a life annuity. The trial court gave udgment for
the defendant. !laintiff appeals.
The undisputed facts are these" #n $eptember %&, '('), Joaquin Herrer madeapplication to the $un *ife +ssurance ompany of anada through its office in
Manila for a life annuity. To days later he paid the sum of !6,000 to the manager of
the companys Manila office and as given a receipt reading as follos"
M+/*+, . 1., 26 de septiembre, 1917 .
!2#3$#/+* 244!T !esos 6,000
2ecibi la suma de seis mil pesos de 5on Joaquin Herrer de Manila como prima dela
2enta 3italicia solicitada por dicho 5on Joaquin Herrer hoy, sueta al eamen
medico y aprobacion de la #ficina entral de la ompa7ia.
The application as immediately forarded to the head office of the company at
Montreal, anada. #n /ovember %6, '('), the head office gave notice of acceptance
by cable to Manila. 89hether on the same day the cable as received notice as sent
by the Manila office of Herrer that the application had been accepted, is a disputed
point, hich ill be discussed later.: #n 5ecember &, '('), the policy as issued at
Montreal. #n 5ecember ';, '('), attorney +urelio +. Torres rote to the Manila
office of the company stating that Herrer desired to ithdra his application. The
folloing day the local office replied to Mr. Torres, stating that the policy had been
issued, and called attention to the notification of /ovember %6, '('). This letter as
received by Mr. Torres on the morning of 5ecember %', '('). Mr. Herrer died on
5ecember %0, '(').
+s above suggested, the issue of fact raised by the evidence is hether Herrer
received notice of acceptance of his application. To resolve this question, e propose
to go directly to the evidence of record.
The chief cler< of the Manila office of the $un *ife +ssurance ompany of anada
at the time of the trial testified that he prepared the letter introduced in evidence as
4hibit =, of date /ovember %6, '('), and handed it to the local manager, Mr. 4. 4.
9hite, for signature. The itness admitted on cross-eamination that after preparing
the letter and giving it to he manager, he ne nothing of hat became of it. The localmanager, Mr. 9hite, testified to having received the cablegram accepting the
application of Mr. Herrer from the home office on /ovember %6, '('). He said that
on the same day he signed a letter notifying Mr. Herrer of this acceptance. The
itness further said that letters, after being signed, ere sent to the chief cler< and
placed on the mailing des< for transmission. The itness could not tell if the letter
had every actually been placed in the mails. Mr. Tuason, ho as the chief cler<, on
/ovember %6, '('), as not called as a itness. 1or the defense, attorney Manuel
Torres testified to having prepared the ill of Joaquin Ma. Herrer, that on this
occasion, Mr. Herrer mentioned his application for a life annuity, and that he said
that the only document relating to the transaction in his possession as the
provisional receipt. 2afael 4nrique>, the administrator of the estate, testified that he
had gone through the effects of the deceased and had found no letter of notification
from the insurance company to Mr. Herrer.
#ur deduction from the evidence on this issue must be that the letter of /ovember
%6, '('), notifying Mr. Herrer that his application had been accepted, as prepared
and signed in the local office of the insurance company, as placed in the ordinary
channels for transmission, but as far as e <no, as never actually mailed and thus
as never received by the applicant.
/ot forgetting our conclusion of fact, it net becomes necessary to determine the la
hich should be applied to the facts. n order to reach our legal goal, the obvious
signposts along the ay must be noticed.
?ntil quite recently, all of the provisions concerning life insurance in the !hilippines
ere found in the ode of ommerce and the ivil ode. n the ode of the
ommerce, there formerly eisted Title 3 of @oo< and $ection of Title
of @oo< , hich dealt ith insurance contracts. n the ivil ode there formerly
eisted and presumably still eist, hapters and 3, entitled insurance contracts
and life annuities, respectively, of Title A of @oo< 3. #n the after July ', '('B,
there as, hoever, in force the nsurance +ct. /o. %&%). hapter 3 of this +ct
concerns life and health insurance. The +ct epressly repealed Title 3 of @oo<
and $ection of Title of @oo< of the code of ommerce. The la of
insurance is consequently no found in the nsurance +ct and the ivil ode.
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9hile, as ust noticed, the nsurance +ct deals ith life insurance, it is silent as to the
methods to be folloed in order that there may be a contract of insurance. #n the
other hand, the ivil ode, in article ';0%, not only describes a contact of life
annuity mar<edly similar to the one e are considering, but in to other articles,
gives strong clues as to the proper disposition of the case. 1or instance, article '6 of
the ivil ode provides that Cn matters hich are governed by special las, any
deficiency of the latter shall be supplied by the provisions of this ode.C #n the
supposition, therefore, hich is incontestable, that the special la on the subect of
insurance is deficient in enunciating the principles governing acceptance, the subect-matter of the ivil code, if there be any, ould be controlling. n the ivil ode is
found article '%6% providing that Consent is shon by the concurrence of offer and
acceptance ith respect to the thing and the consideration hich are to constitute the
contract. +n acceptance made by letter shall not bind the person ma<ing the offer
ecept from the time it came to his <noledge. The contract, in such case, is
presumed to have been entered into at the place here the offer as made.C This
latter article is in opposition to the provisions of article B& of the ode of ommerce.
f no mista<e has been made in announcing the successive steps by hich e reach a
conclusion, then the only duty remaining is for the court to apply the la as it is
found. The legislature in its isdom having enacted a ne la on insurance, and
epressly repealed the provisions in the ode of ommerce on the same subect, and
having thus left a void in the commercial la, it ould seem logical to ma<e use of
the only pertinent provision of la found in the ivil code, closely related to the
chapter concerning life annuities.
The ivil ode rule, that an acceptance made by letter shall bind the person ma<ing
the offer only from the date it came to his <noledge, may not be the best epression
of modern commercial usage. $till it must be admitted that its enforcement avoids
uncertainty and tends to security. /ot only this, but in order that the principle may
not be ta<en too lightly, let it be noticed that it is identical ith the principles
announced by a considerable number of respectable courts in the ?nited $tates. The
courts ho ta<e this vie have epressly held that an acceptance of an offer of
insurance not actually or constructively communicated to the proposer does not ma<e
a contract. #nly the mailing of acceptance, it has been said, completes the contract of
insurance, as the lous poenitentiae is ended hen the acceptance has passed beyond
the control of the party. 8 Joyce, The *a of nsurance, pp. %=B, %&&.:
n resume, therefore, the la applicable to the case is found to be the second
paragraph of article '%6% of the ivil ode providing that an acceptance made by
letter shall not bind the person ma<ing the offer ecept from the time it came to his
<noledge. The pertinent fact is, that according to the provisional receipt, three
things had to be accomplished by the insurance company before there as a contract"
8': There had to be a medical eamination of the applicantD 8%: there had to be
approval of the application by the head office of the companyD and 8=: this approval
had in some ay to be communicated by the company to the applicant. The further
admitted facts are that the head office in Montreal did accept the application, did
cable the Manila office to that effect, did actually issue the policy and did, through
its agent in Manila, actually rite the letter of notification and place it in the usual
channels for transmission to the addressee. The fact as to the letter of notification
thus fails to concur ith the essential elements of the general rule pertaining to the
mailing and delivery of mail matter as announced by the +merican courts, namely,
hen a letter or other mail matter is addressed and mailed ith postage prepaid there
is a rebuttable presumption of fact that it as received by the addressee as soon as itcould have been transmitted to him in the ordinary course of the mails. @ut if any
one of these elemental facts fails to appear, it is fatal to the presumption. 1or
instance, a letter ill not be presumed to have been received by the addressee unless
it is shon that it as deposited in the post-office, properly addressed and stamped.
8!ee %% .J., (6, and &( *. 2. +. E/. $.F, pp. &B;, et seq., notes.:
9e hold that the contract for a life annuity in the case at bar as not perfected
because it has not been proved satisfactorily that the acceptance of the application
ever came to the <noledge of the applicant.la"ph#l.net
Judgment is reversed, and the plaintiff shall have and recover from the defendant the
sum of !6,000 ith legal interest from /ovember %0, '(';, until paid, ithoutspecial finding as to costs in either instance. $o ordered.
$apa, C.J., Araullo, A%ane&a and 'illamor, JJ., onur.
Johnson, J., dissents.
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G.R. No. L-059 !ober 28, 19
3)E IN*ULAR LIFE A**URAN+E +(AN, L3/., plaintiff-appellee,
vs.
+ARNIA 3. E4RA/ ad A*+UALA /A. /E E4RA/, defendants-
appellants.
(AR3IN, J .6
This is a novel question in insurance la" an a common-la ife named as
beneficiary in the life insurance policy of a legally married man claim the proceeds
thereof in case of death of the latterG
#n $eptember ', '(6;, @uenaventura ristor 4brado as issued by The *ife
+ssurance o., *td., !olicy /o. 00((%( on a hole-life for !B,;;%.00 ith a, rider
for +ccidental 5eath for the same amount @uenaventura . 4brado designated T.4brado as the revocable beneficiary in his policy. He to her as his ife.
#n #ctober %', '(6(, @uenaventura . 4brado died as a result of an t hen he as
hit by a failing branch of a tree. +s the policy as in force, The nsular *ife
+ssurance o., *td. liable to pay the coverage in the total amount of !'',)&B.)=,
representing the face value of the policy in the amount of !B,;;%.00 plus the
additional benefits for accidental death also in the amount of !B,;;%.00 and the
refund of !';.00 paid for the premium due /ovember, '(6(, minus the unpaid
premiums and interest thereon due for January and 1ebruary, '(6(, in the sum of
!=6.%).
arponia T. 4brado filed ith the insurer a claim for the proceeds of the !olicy asthe designated beneficiary therein, although she admits that she and the insured
@uenaventura . 4brado ere merely living as husband and ife ithout the benefit
of marriage.
!ascuala 3da. de 4brado also filed her claim as the ido of the deceased insured.
$he asserts that she is the one entitled to the insurance proceeds, not the common-
la ife, arponia T. 4brado.
n doubt as to hom the insurance proceeds shall be paid, the insurer, The nsular
*ife +ssurance o., *td. commenced an action for nterpleader before the ourt of
1irst nstance of 2i>al on +pril %(, '()0.
+fter the issues have been oined, a pre-trial conference as held on July ;, '()%,
after hich, a pre-trial order as entered reading as follos" &().*+"ph#1
5uring the pre-trial conference, the parties manifested to the court.
that there is no possibility of amicable settlement. Hence, the ourt
proceeded to have the parties submit their evidence for the purpose
of the pre-trial and ma<e admissions for the purpose of pretrial.
5uring this conference, parties arponia T. 4brado and !ascuala
4brado agreed and stipulated" ': that the deeased uena%entura Ebrado "as married to -asuala Ebrado "ith "hom she has si /
0leitimate namel34 5ernando, Cresenio, Elsa, Erlinda,
Feliardo and 5elen, all surnamed EbradoD %: that during the
lifetime of the deceased, he as insured ith nsular *ife
+ssurance o. ?nder !olicy /o. 00((%( hole life plan, dated
$eptember ', '(6; for the sum of !B,;;%.00 ith the rider for
accidental death benefit as evidenced by 4hibits + for plaintiffs
and 4hibit ' for the defendant !ascuala and 4hibit ) for
arponia 4bradoD =: that durin the lifetime of uena%entura
Ebrado, he "as li%in "ith his ommon"ife, Carponia Ebrado,
"ith "hom she had 2 hildren althouh he "as not leall3
separated from his leal "ifeD &: that @uenaventura in accident on
#ctober %', '(6( as evidenced by the death 4hibit = and affidavit
of the police report of his death 4hibit BD B: that complainant
arponia 4brado filed claim ith the nsular *ife +ssurance o.
hich as contested by !ascuala 4brado ho also filed claim for
the proceeds of said policy 6: that in vie ofthe adverse claims the
insurance company filed this action against the to herein
claimants arponia and !ascuala 4bradoD ): that there is no due
from the nsular *ife +ssurance o. as proceeds of the policy
!'',)&B.)=D ;: that the beneficiary designated by the insured in the
policy is arponia 4brado and the insured made reservation to
change the beneficiary but although the insured made the option to
change the beneficiary, same as never changed up to the time of
his death and the ife did not have any opportunity to rite the
company that there as reservation to change the designation of
the parties agreed that a decision be rendered based on and
stipulation of facts as to ho among the to claimants is entitled to
the policy.
?pon motion of the parties, they are given ten 8'0: days to file
their simultaneous memoranda from the receipt of this order.
$# #254245.
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#n $eptember %B, '()%, the trial court rendered udgment declaring among others,
arponia T. 4brado disqualified from becoming beneficiary of the insured
@uenaventura ristor 4brado and directing the payment of the insurance proceeds to
the estate of the deceased insured. The trial court held" &().*+"ph#1
t is patent from the last paragraph of +rt. )=( of the ivil ode
that a criminal conviction for adultery or concubinage is not
essential in order to establish the disqualification mentioned
therein. /either is it also necessary that a finding of such guilt or commission of those acts be made in a separate independent action
brought for the purpose. The guilt of the donee 8beneficiary: may
be proved by preponderance of evidence in the same proceeding
8the action brought to declare the nullity of the donation:.
t is, hoever, essential that such adultery or concubinage eists at
the time defendant arponia T. 4brado as made beneficiary in the
policy in question for the disqualification and incapacity to eist
and that it is only necessary that such fact be established by
preponderance of evidence in the trial. $ince it is agreed in their
stipulation above-quoted that the deceased insured and defendant
arponia T. 4brado ere living together as husband and ife
ithout being legally married and that the marriage of the insured
ith the other defendant !ascuala 3da. de 4brado as valid and
still eisting at the time the insurance in question as purchased
there is no question that defendant arponia T. 4brado is
disqualified from becoming the beneficiary of the policy in
question and as such she is not entitled to the proceeds of the
insurance upon the death of the insured.
1rom this udgment, arponia T. 4brado appealed to the ourt of +ppeals, but on
July '', '()6, the +ppellate ourt certified the case to ?s as involving only
questions of la.
9e affirm the udgment of the loer court.
'. t is quite unfortunate that the nsurance +ct 82+ %=%), as amended: or even the
ne nsurance ode 8!5 /o. 6'%, as amended: does not contain any specific
provision grossly resolutory of the prime question at hand. $ection B0 of the
nsurance +ct hich provides that C8t:he insurance shag be applied eclusively to the
proper interest of the person in hose name it is madeC 1 cannot be validly sei>ed
upon to hold that the mm includes the beneficiary. The ord CinterestC highly
suggests that the provision refers only to the CinsuredC and not to the beneficiary,
since a contract of insurance is personal in character. 2 #therise, the prohibitory
las against illicit relationships especially on property and descent ill be rendered
nugatory, as the same could easily be circumvented by modes of insurance. 2ather,
the general rules of civil la should be applied to resolve this void in the nsurance
*a. +rticle %0'' of the /e ivil ode states" CThe contract of insurance is
governed by special las. $atters not epressl3 pro%ided for in suh speial la"s
shall be reulated b3 this Code.C 9hen not otherise specifically provided for by the
nsurance *a, the contract of life insurance is governed by the general rules of the
civil la regulating contracts. 7 +nd under +rticle %0'% of the same ode, Cany
person ho is forbidden from receiving any donation under +rticle )=( cannot be
named beneficiary of a fife insurance policy by the person ho cannot ma<e adonation to him. ommon-la spouses are, definitely, barred from receiving
donations from each other. +rticle )=( of the ne ivil ode provides" &().*+"ph#1
The folloing donations shall be void"
'. 8hose made bet"een persons "ho "ere uilt3 of adulter3 or
onubinae at the time of donation4
Those made beteen persons found guilty of the same criminal
offense, in consideration thereofD
=. Those made to a public officer or his ife, descendants or ascendants by reason of his office.
n the case referred to in /o. ', the action for declaration of nullity
may be brought by the spouse of the donor or doneeD and the uilt
of the donee ma3 be pro%ed b3 preponderane of e%idene in the
same ation.
%. n essence, a life insurance policy is no different from a civil donation insofar as
the beneficiary is concerned. @oth are founded upon the same consideration"
liberality. + beneficiary is li<e a donee, because from the premiums of the policy
hich the insured pays out of liberality, the beneficiary ill receive the proceeds or
profits of said insurance. +s a consequence, the proscription in +rticle )=( of thene ivil ode should equally operate in life insurance contracts. The mandate of
+rticle %0'% cannot be laid aside" any person ho cannot receive a donation cannot
be named as beneficiary in the life insurance policy of the person ho cannot ma<e
the donation.5 ?nder +merican la, a policy of life insurance is considered as a
testament and in construing it, the courts ill, so far as possible treat it as a ill and
determine the effect of a clause designating the beneficiary by rules under hich
ins are interpreted.
=. !olicy considerations and dictates of morality rightly ustify the institution of a
barrier beteen common la spouses in record to !roperty relations since such hip
ultimately encroaches upon the nuptial and filial rights of the legitimate family There
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is every reason to hold that the bar in donations beteen legitimate spouses and
those beteen illegitimate ones should be enforced in life insurance policies since
the same are based on similar consideration +s above pointed out, a beneficiary in a
fife insurance policy is no different from a donee. @oth are recipients of pure
beneficence. $o long as manage remains the threshold of family las, reason and
morality dictate that the impediments imposed upon married couple should li<eise
be imposed upon etra-marital relationship. f legitimate relationship is
circumscribed by these legal disabilities, ith more reason should an illicit
relationship be restricted by these disabilities. Thus, in $atabuena %.
Cer%antes,
this ourt, through Justice 1ernando, said" &().*+"ph#1
f the policy of the la is, in the language of the opinion of the
then Justice J.@.*. 2eyes of that court 8ourt of +ppeals:, to
prohibit donations in favor of the other consort and his descendants
because of and undue and improper pressure and influence upon
the donor, a preudice deeply rooted in our ancient laDC por-que
no se enganen desponandose el uno al otro por amor que han de
consuno 8+ccording to: the !artidas 8!art 3, Tit. A, *+9 3:,
reiterating the rationale /o Mutuato amore invicem spoliarentur
the !andects 8@<, %&, Titl. ', 5e donat, inter virum et uorem:D
then there is very reason to apply the same prohibitive policy to
persons living together as husband and ife ithout the benefit of
nuptials. 1or it is not to be doubted that assent to such irregular
connection for thirty years bespea<s greater influence of one party
over the other, so that the danger that the la see<s to avoid is
correspondingly increased. Moreover, as already pointed out by
?lpian 8in his lib. =% ad $abinum, fr. ':, it ould not be ust that
such donations should subsist, lest the condition 6f those ho
incurred guilt should turn out to be better. $o long as marriage
remains the cornerstone of our family la, reason and morality
ali<e demand that the disabilities attached to marriage should
li<eise attach to concubinage.
t is hardly necessary to add that even in the absence of the above
pronouncement, any other conclusion cannot stand the test of
scrutiny. t ould be to indict the frame of the ivil ode for a
failure to apply a laudable rule to a situation hich in its essentials
cannot be distinguished. Moreover, if it is at all to be differentiated
the policy of the la hich embodies a deeply rooted notion of
hat is ust and hat is right ould be nullified if such irregular
relationship instead of being visited ith disabilities ould be
attended ith benefits. ertainly a legal norm should not be
susceptible to such a reproach. f there is every any occasion here
the principle of statutory construction that hat is ithin the spirit
of the la is as much a part of it as hat is ritten, this is it.
#therise the basic purpose discernible in such codal provision
ould not be attained. 9hatever omission may be apparent in an
interpretation purely literal of the language used must be remedied
by an adherence to its avoed obective.
&. 9e do not thin< that a conviction for adultery or concubinage is eacted before the
disabilities mentioned in +rticle )=( may effectuate. More specifically, ith record
to the disability on Cpersons ho ere guilty of adultery or concubinage at the timeof the donation,C +rticle )=( itself provides" &().*+"ph#1
n the case referred to in /o. ', the action for declaration of nullity
may be brought by the spouse of the donor or doneeD and the uilt3
of the donee ma3 be pro%ed b3 preponderane of e%idene in the
same ation.
The underscored clause neatly conveys that no criminal conviction for the offense is
a condition precedent. n fact, it cannot even be from the aforequoted provision that a
prosecution is needed. #n the contrary, the la plainly states that the guilt of the
party may be proved Cin the same acting for declaration of nullity of donation. +nd,
it ould be sufficient if evidence preponderates upon the guilt of the consort for theoffense indicated. The quantum of proof in criminal cases is not demanded.
n the ca before ?s, the requisite proof of common-la relationship beteen the
insured and the beneficiary has been conveniently supplied by the stipulations
beteen the parties in the pre-trial conference of the case. t case agreed upon and
stipulated therein that the deceased insured @uenaventura . 4brado as married to
!ascuala 4brado ith hom she has si legitimate childrenD that during his lifetime,
the deceased insured as living ith his common-la ife, arponia 4brado, ith
hom he has to children. These stipulations are nothing less than udiial
admissions hich, as a consequence, no longer require proof and cannot be
contradicted. 8 + fortiori, on the basis of these admissions, a udgment may be
validly rendered ithout going through the rigors of a trial for the sole purpose of
proving the illicit liaison beteen the insured and the beneficiary. n fact, in that
pretrial, the parties even agreed Cthat a decision be rendered based on this agreement
and stipulation of facts as to ho among the to claimants is entitled to the policy.C
+#25/*I, the appealed udgment of the loer court is hereby affirmed.
arponia T. 4brado is hereby declared disqualified to be the beneficiary of the late
@uenaventura . 4brado in his life insurance policy. +s a consequence, the proceeds
of the policy are hereby held payable to the estate of the deceased insured. osts
against arponia T. 4brado.
$# #254245.
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G.R. No. L-1978 %'e 20, 19
FILIINA* +(AIA /E *EGUR*, E3 AL., petitioners and appellees,
vs.
)N. FRAN+I*+ . (AN/ANA*, i #is a:ai!; as Is'rae+ommissioer, respondent and appellant.
AGRI+UL3URAL FIRE IN*URAN+E < *URE3 +., IN+., E3
AL., intervenors and appellees.
Jalandoni and Jamir for petitioner and appellees.
:ffie of the !oliitor ;eneral Arturo A. Alafri, 1st Assistant !oliitor ;eneral
Esmeraldo <mali and !oliitor Comrade 8. =imaoo for inter%enors and appellees.
+N+E+IN, C.J.:
This is a special civil action for a declaratory relief Thirty-nine 8=(: non-life
insurance companies instituted it, in the ourt of 1irst nstance of Manila, to secure a
declaration of legality of +rticle %% of the onstitution of the !hilippine 2ating
@ureau, of hich they are members, inasmuch as respondent nsurance
ommissioner assails its validity upon the ground that it constitutes an illegal or undue restraint of trade. $ubsequently to the filing of the petition, tenty 8%0: other
non-life insurance companies, li<eise, members of said @ureau, ere alloed to
intervene in support of the petition. +fter appropriate proceedings, said court
rendered udgment declaring that the aforementioned +rticle %% is neither contrary to
la nor against public policy, and that, accordingly, petitioners herein, as ell as the
intervenors and other members of the aforementioned @ureau, may lafully observe
and enforce said +rticle, and are bound to comply ith the provisions thereof,
ithout special pronouncement as to costs. Hence this appeal by respondent
nsurance ommissioner, ho insists that the +rticle in question constitutes an
illegal or undue restraint of trade and, hence, null and void.
The record discloses that on March '', '(60, respondent rote to said @ureau, acommunication epressing his doubts of the validity of said +rticle %%, reading"
n respect to the classes of insurance specified in the #bects of the
@ureau' and for !hilippine business only, the members of this @ureau agree
not to represent nor to effect reinsurance ith, nor to accept reinsurance
from, any ompany, @ody, or ?nderriter licensed to do business in the
!hilippines not a Member in good standing of this @ureau.
and requesting that said provision, be, accordingly, repealed. #n +pril '', '(60,
respondent rote another letter to the @ureau inquiring on the action ta<en on the
subect-matter of his previous communication. n reply thereto, the @ureau advised
respondent that the suggestion to delete said +rticle %% as still under consideration
by a committee of said @ureau. $oon thereafter, or on May (, '(6', the latter as
advised by respondent that, being an illegal agreement or combination in restraint of
trade, said +rticle should not be given force and effectD that failure to comply ith
this requirement ould compel respondent to suspend the license issued to the
@ureauD and that the latter should circulari>e all of its members on this matter and
advise them that Cviolation of this requirement by any member of the @ureauC ould
also compel respondent Cto suspend the certificate of authority of the company
concerned to do business in the !hilippinesC. Thereupon, or on May '6, '(6', the
present action as commenced.
@riefly, appellant maintains that, since, in the aforementioned +rticle %%, members of
the @ureau Cagree not to represent nor to effect reinsurance ith, nor to accept
reinsurance from any company, body, or underriter, licensed to do business in the
!hilippines not a member in good standing of the @ureauC, said provision is illegal as
a combination in restraint of trade. +s early as +ugust '0, '('6, this ourt had had
occasion to declare that the test on hether a given agreement constitutes an
unlaful machination or a combination in restraint of trade
... is, hether, under the particular circumstances of the case and the nature
of the particular contract involved in it, the contract is, or is not,
unreasonable. 81erra>ini vs. sell, =& !hil. 6(), )'%-'=.:
This vie as reiterated in :llendorf %s. Abrahamson 8=; !hil. B;B: and >ed =ine
8ransportation Co. %s. ahrah $otor Co. 86) !hil. )):, in the folloing language"
...The general tendency, e believe, of modern authority, is to ma<e the test
hether the restraint is reasonably necessary for the protection of the
contracting parties. f the contract is reasonably necessary to protect the
interest of the parties, it ill be upheld.
...e adopt the modern rule that the validity of restraints upon trade or
employment is to be determined by the intrinsi reasonableness of the
restriction in each case, rather than by any fied rule, and that
suchrestritions ma3 be upheld "hen not ontrar3 to the publi "elfare and
not reater than is neessar3 to afford a fair and reasonable protetion to
the part3 in "hose fa%or it is imposed . 8#llendorf vs. +brahamson, =; !hil.
B;B.:
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...The test of validity is hether under the particular circumstances of the
case and considering the nature of the particular contract involved, public
interest and elfare are not involved and the restraint is not only reasonably
necessary for the protection of the contracting parties but ill not affect the
public interest or service. 82ed *ine Transportation o. vs. @achrach Motor
o., 6) !hil. )).: 8$ee also, 5el astillo vs. 2ichmond, &B !hil. &;=.:
The issue in the case at bar hinges, therefore, on the purpose or effect of the disputed
provision. The only evidence on this point is the uncontradicted testimony of $alvador 4strada, hairman of the @ureau hen it as first organi>ed and hen he
too< the itness stand. @riefly stated, he declared that the purpose of +rticle %% is to
maintain a high degree or standard of ethical practice, so that insurance companies
may earn and maintain the respect of the public, because the intense competition
beteen the great number of non-life insurance companies operating in the
!hilippines is conducive to unethical practices, oftentimes ta<ing the form of
underratingD that to achieve this purpose it is highly desirable to have cooperative
action beteen said companies in the compilation of their total eperience in the
business, so that the @ureau could determine more accurately the proper rate of
premium to be charged from the insuredD that, several years ago, the very nsurance
ommissioner had indicated to the @ureau the necessity of doing something to
combat underrating, for, otherise, he ould urge the amendment of the la so that
appropriate measures could be ta<en therefor by his officeD that much of the or< of
the @ureau has to do ith rate-ma<ing and policy-ordingD that rate-ma<ing is
actually dependent very much on statisticsD that, unli<e life insurance companies,
hich have tables of mortality to guide them in the fiing of rates, non-life insurance
companies have, as yet, no such guidesD that, accordingly, non-life insurance
companies need an adequate record of losses and premium collections that ill
enable them to determine the amount of ris< involved in each type of ris< and, hence,
to determine the rates or premiums that should be charged in insuring every type of
ris<D that this information cannot be compiled ithout full cooperation on the part of
the companies concerned, hich cannot be epected from non-members of the
@ureau, over hich the latter has no controlD and that, in addition to submitting
information about their respective eperience, said @ureau members must, li<eise,
share in the rather appreciable epenses entailed in compiling the aforementioned
data and in analy>ing the same.1?"ph@1.&t
9e find nothing unlaful, or immoral, or unreasonable, or contrary to public policy
either in the obectives thus sought to be attained by the @ureau, or in the means
availed of to achieve said obectives, or in the consequences of the accomplishment
thereof. The purpose of said +rticle %% is not to eliminate competition, but
to promote ethial praties among non-life insurance companies, although,
incidentally it may discourage, and hence, eliminate unfair competition, through
underrating, hich in itself is eventually inurious to the public. ndeed, in the ords
of Mr. Justice @randeis"
... the legality of an agreement or regulation cannot be determined by so
simple a test, as hether it restrains competition. 4very agreement
concerning trade, every regulation of trade, restrains. To bind, to restrain, is
of their very essence. 8he true test of lealit3 is "hether the restraint
imposed is suh as merel3 reulates and promotes ompetition, or hether
it is such as may suppress or even destroy competition. Todetermine that
Buestion the ourt must ordinaril3 onsider the fats peuliar to the
business to "hih the restraint is applied D its condition before and after the
restraint as imposedD the nature of the restraint, and its effect, actual or
probable. 8@oard of Trade of hicago vs. ?.$., %&6 ?.$. %=', 6% *. ed. 6;=
E'(';F.:
Thus, in !uar nstitute, n. %s. <.!. 8%() ?.$. BB=:, the 1ederal $upreme ourt
added"
8he restritions imposed b3 the !herman At are not mehanial or
artifiial. We ha%e repeatedl3 said that the3 set up the essential standard of
reasonableness. !tandard :il Co. %s. <nited !tates , %%' ?.$. ', BB *. ed.
6'(, =' $. t. B0%, =& *.2.+. 8/.$.: ;=&, +nn. as. '('%5, )=&D <nited
!tates %s. Amerian 8obao Co., %%' ?.$. '06, BB *. ed. 66=, =' $. t.
6=%. They are aimed at contracts and combinations hich Cby reason of
intent or the inherent nature of the contemplated acts, preudice the public
interests by undul3restraining competition or undul3 obstructing the course
of trade.C ash %s. <nited !tates, %%( ?.$. =)=, =)6, B) *. ed. '%=%, '%=B,
== $. t. );0D <nited !tates %s. Amerian =inseed :il Co. , %6% ?.$. =)',
=;;, =;(, 6) *. ed. '0=B, '0&0, '0&', &= $. t. 60). 5esigned to
frustrate unreasonable restraints, the3 do not pre%ent the adoption of
reasonable means to protet interstate ommere from destruti%e or
inurious praties and to promote ompetition upon a sound basis.
'oluntar3 ation to end abuses and to foster fair ompetiti%e opportunities
in the publi interest ma3 be more effeti%e than leal proesses . +nd
cooperative endeavor may appropriately have ider obectives than merely
the removal of evils hich are infractions of positive la.
Hence, the ity 1iscal of Manila refused to prosecute criminally in Manila 1ire
nsurance +ssociation for folloing a policy analogous to that incorporated in the
provision disputed in this case and the action of said official as sustained by the
$ecretary of Justice, upon the ground that"
... combinations among insurance companies or their agents to fi and
control rates of insurance do not constitute indictable conspiracies, provided
no unlaful means are used in accomplishing their purpose 8&' .J. '6'D
+etna ns. o. vs. ommonealth, '06 y. ;6&, B' $9 6%&D Kueen ns.
o. vs. $tate, ;6 Te. %B0, %& $9 =()D Joyce on nsurance, par. =%(-a:.
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ndeed, Mr. 4stradas testimony shos that the limitation upon reinsurance contained
in the aforementioned +rticle %% does not affect the public at all, for, hether there is
reinsurance or not, the liability of the insurer in favor of the insured is the same.
@esides, there are sufficient foreign reinsurance companies operating in the
!hilippines from hich non-members of the @ureau may secure reinsurance. 9hat is
more, "hate%er the ureau ma3 do in the matter of ratefiin is not deisi%e insofar
as the publi is onerned, for no insurane ompan3 in the -hilippines ma3 hare
a rate of premium that has not been appro%ed b3 the nsurane Commissioner .
n fact, respondents ircular /o. B&, dated 1ebruary %6' '(B&, provides"
. /on-life nsurance company or roup +ssociation of such companies.
E%er3 non-life insurance company or group or association of such
companies doing business in the !hilippines shall file "ith the nsurane
Commissioner for appro%al eneral basi shedules sho"in the premium
rates on all lasses of ris ecept marine, as distinguished from inland
marine insurable by such insurance company or association of insurance
companies in this country.
+n insurance company or group of such companies may satisfy its
obligation to ma<e such filings by becoming a member of or subscriber to a
rating organi>ation hich ma<es such filing and by authori>ing the
insurance commissioner to accept such filings of the rating organi>ation on
such companys or groups behalf.
. 2equiring !revious +pplication to and +pproval by the nsurance
ommissioner before any hange in the 2ates $chedules filed ith Him
$hall Ta<e 4ffect.
/o change in the schedules filed in compliance ith the requirements of thenet preceding paragraph shall be made ecept upon application duly filed
ith and approved by the nsurance ommissioner. $aid application shall
state the changes proposed and the date of their effectivityD all changes
finally approved by the nsurance ommissioner shall be incorporated in
the old schedules or otherise indicated as ne in the ne schedules.
3. 4mpoering the nsurance ommissioner to nvestigate +ll /on-*ife
nsurance 2ates.
8he nsurane Commissioner shall ha%e po"er to eamine an3 or all
rates established by non-life insurance companies or group or association of
such insurance companies in the country. $hould any rate appear, in the
opinion of the nsurance ommissioner, unreasonably high or not adequate
to the financial safety or soundness to the company charging the same, or
pre-udicial to policy-holders, the ommissioner shall, in such case, hold a
hearing andLor conduct an investigation. !hould the result of suh hearin
andor in%estiation sho" that the rate is unreasonabl3 hih or lo" that it is
not adeBuate to the finanial safet3 and soundness of the ompan3 harin
the same, or is preudiial to poli3holders, the nsurane Commissioner
shall diret a re%ision of the said rate in aordane "ith his findins. +ny
insurance company or group or association of insurance companies may be
required to publish the schedule of rates hich may have been revised in
accordance hereith.
The decision of the nsurance ommissioner shall be appealable ithin thirty days
after it has been rendered to the $ecretary of 1inance.
3. !rohibiting /on-life nsurance ompanies and their +gents from
nsuring +ny !roperty in this ountry at a 2ate 5ifferent from that in the
$chedulesD ?nethical !ractices.
o insurane ompan3 shall enae or partiipate in the insurane of an3
propert3 loated in the -hilippines ... unless the shedule of rates under
"hih suh propert3 is insured has been filed and appro%ed in aordane
"ith the pro%isions of this Cirular . ... . 84mphasis ours.:
#n the same date, the onstitution of the @ureau, containing a provision
substantially identical to the one no under consideration, as approved. +rticle % of
said onstitution reads"
%. #@J4T$
The obects of the @ureau shall be"
a. To establish rates in respect of 1ire, 4arthqua<e, 2iot and ivil
ommotion, +utomobile and 9or<mens ompensation, and henever
applicable, Marine nsurance business.
c. To file the rates referred to above, tariff rules, and all other conditions or
data hich may in any ay affect premium rates ith the #ffice of the
nsurance ommissioner on behalf of members for appro%al . 84mphasis
ours.:
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n compliance ith the aforementioned ircular /o. B&, in +pril, '(B&, the @ureau
applied for the license required therein, and submitted ith its application a copy of
said onstitution. #n +pril %;, '(B&, respondents office issued to the @ureau the
license applied for, certifying not only that it had complied ith the requirements of
ircular /o. B&, but, also, that the license empoered it Cto engage in the ma<ing of
rates or policy conditions to be used by insurance companies in the !hilippinesC.
$ubsequently, thereafter, the @ureau applied for and as granted yearly the requisite
license to operate in accordance ith the provisions of its onstitution. 5uring all
this time, respondents office did not question, but impliedly ac<noledged, the
legality of +rticle %%. t as not until March '', '(60, that it assailed its validity.
2espondents contention is anchored mainly on !aramount 1amous *as<y orp. vs.
?.$., %;% ?.$. =0, but the same is not in point, not only because it refers to the
conditions under hich movie film producers and distributors determine the terms
under hich theaters or ehibitors may be alloed to run movie films thereby
placing the ehibitors under the control of the producers or distributors and giving
the ehibitors, in effect, no choice as to hat films and hose films they ill sho
but, also, because there is, in the film industry, no agency or officer ith poers
or functions comparable to those in the nsurance ommissioner, as regards the
regulation of the business concerned and of the transactions involved therein.
9herefore, the decision appealed from should be, as it is hereby affirmed, ithout
costs. t is so ordered.
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=G.R. No. 1551. %'$; 28, 2005>
?)I3E GL/ (ARINE *ERI+E*, IN+., petitioner , vs. INEERIN*URAN+E AN/ *URE3 +RRA3IN AN/ 3)E*3EA(*)I (U3UAL UN/ER?RI3ING A**+IA3IN@4ER(U/A L3/., respondents.
/ E + I * I NQUI*U(4ING, J .6
This petition for revie assails the /eisioE'F dated July =0, %00% of the ourt
of +ppeals in +-.2. $! /o. 60'&&, affirming the /eisioE%F dated May =, %000 of
the nsurance ommission in .. +dm. ase /o. 25-%)). @oth decisions held that
there as no violation of the nsurance ode and the respondents do not need license
as insurer and insurance agentLbro<er.
The facts are undisputed.
9hite old Marine $ervices, nc. 89hite old: procured a protection andindemnity coverage for its vessels from The $teamship Mutual ?nderriting
+ssociation 8@ermuda: *imited 8$teamship Mutual: through !ioneer nsurance and
$urety orporation 8!ioneer:. $ubsequently, 9hite old as issued a ertificate of
4ntry and +cceptance.E=F !ioneer also issued receipts evidencing payments for the
coverage. 9hen 9hite old failed to fully pay its accounts, $teamship Mutual
refused to rene the coverage.
$teamship Mutual thereafter filed a case against 9hite old for collection of
sum of money to recover the latters unpaid balance. 9hite old on the other hand,
filed a complaint before the nsurance ommission claiming that $teamship Mutual
violated $ections ';6E&F and ';)EBF of the nsurance ode, hile !ioneer violated
$ections %((,
E6F
=00
E)F
and =0'
E;F
in relation to $ections =0% and =0=, thereof.
The nsurance ommission dismissed the complaint. t said that there as no
need for $teamship Mutual to secure a license because it as not engaged in the
insurance business. t eplained that $teamship Mutual as a !rotection and
ndemnity lub 8! N lub:. *i<eise, !ioneer need not obtain another license as
insurance agent andLor a bro<er for $teamship Mutual because $teamship Mutual
as not engaged in the insurance business. Moreover, !ioneer as already licensed,
hence, a separate license solely as agentLbro<er of $teamship Mutual as already
superfluous.
The ourt of +ppeals affirmed the decision of the nsurance ommissioner. n
its decision, the appellate court distinguished beteen ! N lubs %is
%is conventional insurance. The appellate court also held that !ioneer merely acted as
a collection agent of $teamship Mutual.
n this petition, petitioner assigns the folloing errors allegedly committed by
the appellate court,
12$T +$$/M4/T #1 422#2
TH4 #?2T + K?# 42245 9H4/ T 2?*45 TH+T 24$!#/54/T
$T4+M$H! $ /#T 5#/ @?$/4$$ / TH4 !H*!!/4$ #/ TH4
2#?/5 TH+T T #?2$45 . . . T$ T2+/$+T#/$ TH2#?H T$
+4/T +/5L#2 @2#42 H4/4 +$ +/ /$?242 T /445 /#T $4?24
+ *4/$4 T# 4/+4 / /$?2+/4 @?$/4$$ / TH4 !H*!!/4$.
$4#/5 +$$/M4/T #1 422#2
TH4 #?2T + K?# 42245 9H4/ T 2?*45 TH+T TH4 24#25 $
@4241T #1 +/I 4354/4 TH+T 24$!#/54/T $T4+M$H! $
4/+45 / /$?2+/4 @?$/4$$.
TH25 +$$/M4/T #1 422#2
TH4 #?2T + K?# 42245 9H4/ T 2?*45, TH+T 24$!#/54/T
!#/442 /445 /#T $4?24 + *4/$4 9H4/ #/5?T/ T$
+11+2 +$ +/ +4/TL@2#42 #1 24$!#/54/T $T4+M$H!.
1#?2TH +$$/M4/T #1 422#2
TH4 #?2T + K?# 42245 / /#T 243#/ TH4 *4/$4 #1
24$!#/54/T !#/442 +/5 E/ /#T 24M#3/F TH4 #1142$ +/5
524T#2$ #1 24$!#/54/T !#/442.
E(F
$imply, the basic issues before us are 8': s $teamship Mutual, a ! N lub,
engaged in the insurance business in the !hilippinesG 8%: 5oes !ioneer need a license
as an insurance agentLbro<er for $teamship MutualG
The parties admit that $teamship Mutual is a ! N lub. $teamship Mutual
admits it does not have a license to do business in the !hilippines although !ioneer is
its resident agent. This relationship is reflected in the certifications issued by the
nsurance ommission.
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!etitioner insists that $teamship Mutual as a ! N lub is engaged in the
insurance business. To buttress its assertion, it cites the definition of a ! N lub
in 53opsun $aritime Co., =td. %. Court of AppealsE'0F as an association composed of
shiponers in general ho band together for the specific purpose of providing
insurance cover on a mutual basis against liabilities incidental to shiponing that the
members incur in favor of third parties. t stresses that as a ! N lub, $teamship
Mutuals primary purpose is to solicit and provide protection and indemnity coverage
and for this purpose, it has engaged the services of !ioneer to act as its agent.
2espondents contend that although $teamship Mutual is a ! N lub, it is not
engaged in the insurance business in the !hilippines. t is merely an association of
vessel oners ho have come together to provide mutual protection against
liabilities incidental to shiponing. E''F 2espondents aver 53opsun is inapplicable in
this case because the issue in 53opsun as the urisdiction of the court
over 53opsun .
s $teamship Mutual engaged in the insurance businessG
$ection %8%: of the nsurance ode enumerates hat constitutes doing an
insurance business or transacting an insurance business. These are"
8a: ma<ing or proposing to ma<e, as insurer, any insurance contractD
8b: ma<ing, or proposing to ma<e, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the suretyD
8c: doing any <ind of business, including a reinsurance business, specifically
recogni>ed as constituting the doing of an insurance business ithin the
meaning of this odeD
8d: doing or proposing to do any business in substance equivalent to any of the
foregoing in a manner designed to evade the provisions of this ode.
. . .
The same provision also provides, the fact that no profit is derived from the
ma<ing of insurance contracts, agreements or transactions, or that no separate or
direct consideration is received therefor, shall not preclude the eistence of an
insurance business.E'%F
The test to determine if a contract is an insurance contract or not, depends on
the nature of the promise, the act required to be performed, and the eact nature of
the agreement in the light of the occurrence, contingency, or circumstances under
hich the performance becomes requisite. t is not by hat it is called.E'=F
@asically, an insurance contract is a contract of indemnity. n it, one underta<es
for a consideration to indemnify another against loss, damage or liability arising
from an un<non or contingent event.E'&F
n particular, a marine insurance underta<es to indemnify the assured against
marine losses, such as the losses incident to a marine adventure. E'BF $ection ((E'6F of
the nsurance ode enumerates the coverage of marine insurance.
2elatedly, a mutual insurance company is a cooperative enterprise here the
members are both the insurer and insured. n it, the members all contribute, by a
system of premiums or assessments, to the creation of a fund from hich all losses
and liabilities are paid, and here the profits are divided among themselves, in
proportion to their interest.E')F +dditionally, mutual insurance associations, or clubs,
provide three types of coverage, namely, protection and indemnity, ar ris<s, and
defense costs.E';F
+ ! N lub is a "orm o" is'rae against third party liability, here the
third party is anyone other than the ! N lub and the members. E'(F @y definition
then, $teamship Mutual as a ! N lub is a mutual insurance association engaged in
the marine insurance business.
The records reveal $teamship Mutual is doing business in the country albeit
ithout the requisite certificate of authority mandated by $ection ';)E%0F of the
nsurance ode. t maintains a resident agent in the !hilippines to solicit insurance
and to collect payments in its behalf. 9e note that $teamship Mutual even reneed
its ! N lub cover until it as cancelled due to non-payment of the calls. Thus, to
continue doing business here, $teamship Mutual or through its agent !ioneer, must
secure a license from the nsurance ommission.
$ince a contract of insurance involves public interest, regulation by the $tate is
necessary. Thus, no insurer or insurance company is alloed to engage in the
insurance business ithout a license or a certificate of authority from the nsurance
ommission.E%'F
5oes !ioneer, as agentLbro<er of $teamship Mutual, need a special licenseG
!ioneer is the resident agent of $teamship Mutual as evidenced by the
certificate of registrationE%%F issued by the nsurance ommission. t has been licensed
to do or transact insurance business by virtue of the certificate of authority E%=F issued
by the same agency. Hoever, a ertification from the ommission states that
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!ioneer does not have a separate license to be an agentLbro<er of $teamship Mutual.E%&F
+lthough !ioneer is already licensed as an insurance company, it needs a
separate license to act as insurance agent for $teamship Mutual. $ection %(( of the
nsurance ode clearly states"
$4. %(( . . .
/o person shall act as an insurance agent or as an insurance bro<er in the solicitation
or procurement of applications for insurance, or receive for services in obtaining
insurance, any commission or other compensation from any insurance company
doing business in the !hilippines or any agent thereof, ithout first procuring a
license so to act from the ommissioner, hich must be reneed annually on the
first day of January, or ithin si months thereafter. . .
1inally, 9hite old see<s revocation of !ioneers certificate of authority and
removal of its directors and officers. 2egrettably, e are not the forum for these
issues.
?)EREFRE, the petition is !+2T+**I 2+/T45. The 5ecision datedJuly =0, %00% of the ourt of +ppeals affirming the 5ecision dated May =, %000 of
the nsurance ommission is hereby 24342$45 +/5 $4T +$54. The $teamship
Mutual ?nderriting +ssociation 8@ermuda: *td., and !ioneer nsurance and $urety
orporation are #254245 to obtain licenses and to secure proper authori>ations to
do business as insurer and insurance agent, respectively. The petitioners prayer for
the revocation of !ioneers ertificate of +uthority and removal of its directors and
officers, is 54/45. osts against respondents.
* R/ERE/.
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=G.R. No. 1258. (ar# 18, 2002>
)ILA(+ARE )EAL3) **3E(*, IN+., petitioner , vs. +UR3 FAEAL* ad %ULI3A 3RIN*, respondents.
/ E + I * I N
NARE*-*AN3IAG, J.64rnani Trinos, deceased husband of respondent Julita Trinos, applied for a
health care coverage ith petitioner !hilamcare Health $ystems, nc. n the standard
application form, he ansered no to the folloing question"
Have you or any of your family members ever consulted or been treated for high
blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcerG
8f Ies, give details:.E'F
The application as approved for a period of one year from March ', '(;; to
March ', '(;(. +ccordingly, he as issued Health are +greement /o.
!0'0'(&. ?nder the agreement, respondents husband as entitled to avail of hospitali>ation benefits, hether ordinary or emergency, listed therein. He as also
entitled to avail of out-patient benefits such as annual physical eaminations,
preventive health care and other out-patient services.
?pon the termination of the agreement, the same as etended for another year
from March ', '(;( to March ', '((0, then from March ', '((0 to June ', '((0. The
amount of coverage as increased to a maimum sum of !)B,000.00 per disability.E%F
5uring the period of his coverage, 4rnani suffered a heart attac< and as
confined at the Manila Medical enter 8MM: for one month beginning March (,
'((0. 9hile her husband as in the hospital, respondent tried to claim the benefits
under the health care agreement. Hoever, petitioner denied her claim saying thatthe Health are +greement as void. +ccording to petitioner, there as a
concealment regarding 4rnanis medical history. 5octors at the MM allegedly
discovered at the time of 4rnanis confinement that he as hypertensive, diabetic and
asthmatic, contrary to his anser in the application form. Thus, respondent paid the
hospitali>ation epenses herself, amounting to about !)6,000.00.
+fter her husband as discharged from the MM, he as attended by a
physical therapist at home. *ater, he as admitted at the hinese eneral
Hospital. 5ue to financial difficulties, hoever, respondent brought her husband
home again. n the morning of +pril '=, '((0, 4rnani had fever and as feeling very
ea<. 2espondent as constrained to bring him bac< to the hinese eneral
Hospital here he died on the same day.
#n July %&, '((0, respondent instituted ith the 2egional Trial ourt of
Manila, @ranch &&, an action for damages against petitioner and its president, 5r.
@enito 2everente, hich as doc<eted as ivil ase /o. (0-B=)(B. $he as<ed for
reimbursement of her epenses plus moral damages and attorneys fees. +fter trial,
the loer court ruled against petitioners, %iG
9H4241#24, in vie of the forgoing, the ourt renders udgment in favor of the
plaintiff Julita Trinos, ordering"
'. 5efendants to pay and reimburse the medical and hospital coverage of the late
4rnani Trinos in the amount of !)6,000.00 plus interest, until the amount is fully
paid to plaintiff ho paid the sameD
%. 5efendants to pay the reduced amount of moral damages of !'0,000.00 to
plaintiffD
=. 5efendants to pay the reduced amount of !'0,000.00 as eemplary damages to
plaintiffD
&. 5efendants to pay attorneys fees of !%0,000.00, plus costs of suit.
$# #254245.E=F
#n appeal, the ourt of +ppeals affirmed the decision of the trial court but
deleted all aards for damages and absolved petitioner 2everente.E&F !etitioners
motion for reconsideration as denied.EBF Hence, petitioner brought the instant
petition for revie, raising the primary argument that a health care agreement is not
an insurance contractD hence the incontestability clause under the nsurance
odeE6F does not apply.
!etitioner argues that the agreement grants living benefits, such as medical
chec<-ups and hospitali>ation hich a member may immediately enoy so long as he
is alive upon effectivity of the agreement until its epiration one-year
thereafter. !etitioner also points out that only medical and hospitali>ation benefits are
given under the agreement ithout any indemnification, unli<e in an insurance
contract here the insured is indemnified for his loss. Moreover, since Health are
+greements are only for a period of one year, as compared to insurance contracts
hich last longer,E)F petitioner argues that the incontestability clause does not apply,
as the same requires an effectivity period of at least to years. !etitioner further
argues that it is not an insurance company, hich is governed by the nsurance
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ommission, but a Health Maintenance #rgani>ation under the authority of the
5epartment of Health.
$ection % 8': of the nsurance ode defines a contract of insurance as an
agreement hereby one underta<es for a consideration to indemnify another against
loss, damage or liability arising from an un<non or contingent event. +n insurance
contract eists here the folloing elements concur"
'. The insured has an insurable interestD
%. The insured is subect to a ris< of loss by the happening of the
designated perilD
=. The insurer assumes the ris<D
&. $uch assumption of ris< is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar ris<D and
B. n consideration of the insurers promise, the insured pays a premium.E;F
$ection = of the nsurance ode states that any contingent or un<non event,hether past or future, hich may damnify a person having an insurable interest
against him, may be insured against. 4very person has an insurable interest in the life
and health of himself. $ection '0 provides"
4very person has an insurable interest in the life and health"
8': of himself, of his spouse and of his childrenD
8%: of any person on hom he depends holly or in part for education or
support, or in hom he has a pecuniary interestD
8=: of any person under a legal obligation to him for the payment of money, respecting property or service, of hich death or illness
might delay or prevent the performanceD and
8&: of any person upon hose life any estate or interest vested in him
depends.
n the case at bar, the insurable interest of respondents husband in obtaining the
health care agreement as his on health. The health care agreement as in the
nature of non-life insurance, hich is primarily a contract of indemnity. E(F #nce the
member incurs hospital, medical or any other epense arising from sic<ness, inury
or other stipulated contingent, the health care provider must pay for the same to the
etent agreed upon under the contract.
!etitioner argues that respondents husband concealed a material fact in his
application. t appears that in the application for health coverage, petitioners required
respondents husband to sign an epress authori>ation for any person, organi>ation or
entity that has any record or <noledge of his health to furnish any and all
information relative to any hospitali>ation, consultation, treatment or any other
medical advice or eamination.E'0F $pecifically, the Health are +greement signed by
respondents husband states"
9e hereby declare and agree that all statement and ansers contained herein and in
any addendum anneed to this application are full, complete and true and bind all
parties in interest under the +greement herein applied for, that there shall be no
contract of health care coverage unless and until an +greement is issued on this
application and the full Membership 1ee according to the mode of payment applied
for is actually paid during the lifetime and good health of proposed MembersD that no
information acquired by any 2epresentative of !hilamare shall be binding upon
!hilamare unless set out in riting in the applicationD that any physician is, by
these presents, epressly authori>ed to disclose or give testimony at anytime relative
to any information acquired by him in his professional capacity upon any question
affecting the eligibility for health care coverage of the !roposed Members and that
the acceptance of any +greement issued on this application shall be a ratification of
any correction in or addition to this application as stated in the space for Home
#ffice 4ndorsement.E''F 8?nderscoring ours:
n addition to the above condition, petitioner additionally required the applicant
for authori>ation to inquire about the applicants medical history, thus"
hereby authori>e any person, organi>ation, or entity that has any record or
<noledge of my health andLor that of OOOOOOOOOO to give to the !hilamare Health
$ystems, nc. any and all information relative to any hospitali>ation, consultation,
treatment or any other medical advice or eamination. This authori>ation is in
connection ith the application for health care coverage only. + photographic copy
of this authori>ation shall be as valid as the original. E'%F 8?nderscoring ours:
!etitioner cannot rely on the stipulation regarding nvalidation of agreement
hich reads"
1ailure to disclose or misrepresentation of any material information by the member
in the application or medical eamination, hether intentional or unintentional, shall
automatically invalidate the +greement from the very beginning and liability of
!hilamcare shall be limited to return of all Membership 1ees paid. +n undisclosed or
misrepresented information is deemed material if its revelation ould have resulted
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in the declination of the applicant by !hilamcare or the assessment of a higher
Membership 1ee for the benefit or benefits applied for.E'=F
The anser assailed by petitioner as in response to the question relating to the
medical history of the applicant. This largely depends on opinion rather than fact,
especially coming from respondents husband ho as not a medical doctor. 9here
matters of opinion or udgment are called for, ansers made in good faith and
ithout intent to deceive ill not avoid a policy even though they are untrue.E'&F Thus,
8+:lthough false, a representation of the epectation, intention, belief, opinion, or
udgment of the insured ill not avoid the policy if there is no actual fraud in
inducing the acceptance of the ris<, or its acceptance at a loer rate of premium, and
this is li<eise the rule although the statement is material to the ris<, if the statement
is obviously of the foregoing character, since in such case the insurer is not ustified
in relying upon such statement, but is obligated to ma<e further inquiry. There is a
clear distinction beteen such a case and one in hich the insured is fraudulently
and intentionally states to be true, as a matter of epectation or belief, that hich he
then <nos, to be actually untrue, or the impossibility of hich is shon by the facts
ithin his <noledge, since in such case the intent to deceive the insurer is obvious
and amounts to actual fraud.E'BF8?nderscoring ours:
The fraudulent intent on the part of the insured must be established to arrant
rescission of the insurance contract. E'6F oncealment as a defense for the health care
provider or insurer to avoid liability is an affirmative defense and the duty to
establish such defense by satisfactory and convincing evidence rests upon the
provider or insurer. n any case, ith or ithout the authority to investigate,
petitioner is liable for claims made under the contract. Having assumed a
responsibility under the agreement, petitioner is bound to anser the same to the
etent agreed upon. n the end, the liability of the health care provider attaches once
the member is hospitali>ed for the disease or inury covered by the agreement or
henever he avails of the covered benefits hich he has prepaid.
?nder $ection %) of the nsurance ode, a concealment entitles the inured
party to rescind a contract of insurance. The right to rescind should be eercised
previous to the commencement of an action on the contract. E')F n this case, no
rescission as made. @esides, the cancellation of health care agreements as in
insurance policies require the concurrence of the folloing conditions"
'. !rior notice of cancellation to insuredD
%. /otice must be based on the occurrence after effective date of the policy of one or
more of the grounds mentionedD
=. Must be in riting, mailed or delivered to the insured at the address shon in the
policyD
&. Must state the grounds relied upon provided in $ection 6& of the nsurance ode
and upon request of insured, to furnish facts on hich cancellation is based. E';F
/one of the above pre-conditions as fulfilled in this case. 9hen the terms of
insurance contract contain limitations on liability, courts should construe them in
such a ay as to preclude the insurer from non-compliance ith his obligation.E'(F @eing a contract of adhesion, the terms of an insurance contract are to be
construed strictly against the party hich prepared the contract the insurer. E%0F @y
reason of the eclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against
the insurer and liberally in favor of the insured, especially to avoid forfeiture. E%'FThis
is equally applicable to Health are +greements. The phraseology used in medical or
hospital service contracts, such as the one at bar, must be liberally construed in favor
of the subscriber, and if doubtful or reasonably susceptible of to interpretations the
construction conferring coverage is to be adopted, and eclusionary clauses of
doubtful import should be strictly construed against the provider.E%%F
+nent the incontestability of the membership of respondents husband, e quote
ith approval the folloing findings of the trial court"
8?:nder the title laim procedures of epenses, the defendant !hilamcare Health
$ystems nc. had telve months from the date of issuance of the +greement ithin
hich to contest the membership of the patient if he had previous ailment of asthma,
and si months from the issuance of the agreement if the patient as sic< of diabetes
or hypertension. The periods having epired, the defense of concealment or
misrepresentation no longer lie.E%=F
1inally, petitioner alleges that respondent as not the legal ife of the deceased
member considering that at the time of their marriage, the deceased as previously
married to another oman ho as still alive. The health care agreement is in the
nature of a contract of indemnity. Hence, payment should be made to the party ho
incurred the epenses. t is not controverted that respondent paid all the hospital and
medical epenses.$he is therefore entitled to reimbursement. The records adequately
prove the epenses incurred by respondent for the deceaseds hospitali>ation,
medication and the professional fees of the attending physicians.E%&F
?)EREFRE, in vie of the foregoing, the petition is 54/45. The
assailed decision of the ourt of +ppeals dated 5ecember '&, '((B is +112M45.
* R/ERE/.
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G.R. No. 1770 *e:!ember 18, 2009
)ILIINE )EAL3) +ARE RI/ER*, IN+., !etitioner,
vs.
+((I**INER F IN3ERNAL REENUE, 2espondent.
2 4 $ # * ? T # /
+RNA, J.:
+2T*4
5eclaration of !rinciples and $tate !olicies
$ection 'B. The $tate shall protect and promote the right to health of the people and
instill health consciousness among them.
+2T*4 A
$ocial Justice and Human 2ights
$ection ''. The $tate shall adopt an integrated and comprehensive approach to healthdevelopment hich shall endeavor to ma<e essential goods, health and other social
services available to all the people at affordable cost. There shall be priority for the
needs of the underprivileged sic<, elderly, disabled, omen, and children. The $tate
shall endeavor to provide free medical care to paupers.'
1or resolution are a motion for reconsideration and supplemental motion for
reconsideration dated July '0, %00; and July '&, %00;, respectively, filed by
petitioner !hilippine Health are !roviders, nc.%
9e recall the facts of this case, as follos"
!etitioner is a domestic corporation hose primary purpose is CEtFo establish,maintain, conduct and operate a prepaid group practice health care delivery system
or a health maintenance organi>ation to ta<e care of the sic< and disabled persons
enrolled in the health care plan and to provide for the administrative, legal, and
financial responsibilities of the organi>ation.C ndividuals enrolled in its health care
programs pay an annual membership fee and are entitled to various preventive,
diagnostic and curative medical services provided by its duly licensed physicians,
specialists and other professional technical staff participating in the group practice
health delivery system at a hospital or clinic oned, operated or accredited by it.
#n January %), %000, respondent ommissioner of nternal 2evenue E2F sent
petitioner a formal demand letter and the corresponding assessment notices
demanding the payment of deficiency taes, including surcharges and interest, for
the taable years '((6 and '(() in the total amount of !%%&,)0%,6&'.';.
The deficiency Edocumentary stamp ta 85$T:F assessment as imposed on
petitionerPs health care agreement ith the members of its health care program
pursuant to $ection ';B of the '(() Ta ode
!etitioner protested the assessment in a letter dated 1ebruary %=, %000. +s
respondent did not act on the protest, petitioner filed a petition for revie in the
ourt of Ta +ppeals 8T+: see<ing the cancellation of the deficiency 3+T and 5$T
assessments.
#n +pril B, %00%, the T+ rendered a decision, the dispositive portion of hich read"
9H4241#24, in vie of the foregoing, the instant !etition for 2evie is
!+2T+**I 2+/T45. !etitioner is hereby #254245 to !+I the deficiency
3+T amounting to !%%,0B&,;='.)B inclusive of %BQ surcharge plus %0Q interest
from January %0, '(() until fully paid for the '((6 3+T deficiency
and !=',0(&,'6=.;) inclusive of %BQ surcharge plus %0Q interest from January %0,
'((; until fully paid for the '(() 3+T deficiency. +ccordingly, 3+T 2uling /o.
E%='F-;; is declared void and ithout force and effect. The '((6 and '(()
deficiency 5$T assessment against petitioner is hereby +/4**45 +/5 $4T
+$54. 2espondent is #254245 to 54$$T from collecting the said 5$T
deficiency ta.
$# #254245.
2espondent appealed the T+ decision to the Eourt of +ppeals 8+:F insofar as it
cancelled the 5$T assessment. He claimed that petitionerPs health care agreement
as a contract of insurance subect to 5$T under $ection ';B of the '(() Ta ode.
#n +ugust '6, %00&, the + rendered its decision. t held that petitionerPs health care
agreement as in the nature of a non-life insurance contract subect to 5$T.
9H4241#24, the petition for revie is 2+/T45. The 5ecision of the ourt of
Ta +ppeals, insofar as it cancelled and set aside the '((6 and '(() deficiency
documentary stamp ta assessment and ordered petitioner to desist from collecting
the same is 24342$45 and $4T +$54.
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2espondent is ordered to pay the amounts of !BB,)&6,=B%.'( and !6;,&B0,%B;.)= as
deficiency 5ocumentary $tamp Ta for '((6 and '((), respectively, plus %BQ
surcharge for late payment and %0Q interest per annum from January %), %000,
pursuant to $ections %&; and %&( of the Ta ode, until the same shall have been
fully paid.
$# #254245.
!etitioner moved for reconsideration but the + denied it. Hence, petitioner filed this
case.
n a decision dated June '%, %00;, the ourt denied the petition and affirmed the
+Ps decision. 9e held that petitionerPs health care agreement during the pertinent
period as in the nature of non-life insurance hich is a contract of indemnity,
citing lue Cross 5ealthare, n. %. :li%ares= and -hilamare 5ealth !3stems, n.
%. CA.&9e also ruled that petitionerPs contention that it is a health maintenance
organi>ation 8HM#: and not an insurance company is irrelevant because contracts
beteen companies li<e petitioner and the beneficiaries under their plans are treated
as insurance contracts. Moreover, 5$T is not a ta on the business transacted but an
ecise on the privilege, opportunity or facility offered at echanges for the
transaction of the business.
?nable to accept our verdict, petitioner filed the present motion for reconsideration
and supplemental motion for reconsideration, asserting the folloing arguments"
8a: The 5$T under $ection ';B of the /ational nternal 2evenue of '(() is
imposed only on a company engaged in the business of fidelity bonds and
other insurance policies. !etitioner, as an HM#, is a service provider, not an
insurance company.
8b: The ourt, in dismissing the appeal in C> %. -hilippine ational an ,
affirmed in effect the +Ps disposition that health care services are not in the
nature of an insurance business.
8c: $ection ';B should be strictly construed.
8d: *egislative intent to eclude health care agreements from items subect
to 5$T is clear, especially in the light of the amendments made in the 5$T
la in %00%.
8e: +ssuming aruendo that petitionerPs agreements are contracts of
indemnity, they are not those contemplated under $ection ';B.
8f: +ssuming aruendo that petitionerPs agreements are a<in to health
insurance, health insurance is not covered by $ection ';B.
8g: The agreements do not fall under the phrase Cother branch of insuranceC
mentioned in $ection ';B.
8h: The June '%, %00; decision should only apply prospectively.
8i: !etitioner availed of the ta amnesty benefits under 2+B (&;0 for the
taable year %00B and all prior years. Therefore, the questioned assessments
on the 5$T are no rendered moot and academic.6
#ral arguments ere held in @aguio ity on +pril %%, %00(. The parties submitted
their memoranda on June ;, %00(.
n its motion for reconsideration, petitioner reveals for the first time that it availed of
a ta amnesty under 2+ (&;0) 8also <non as the CTa +mnesty +ct of %00)C: by
fully paying the amount of !B,'%),'&(.0; representing BQ of its net orth as of the
year ending 5ecember =', %00B.;
9e find merit in petitionerPs motion for reconsideration.
!etitioner as formally registered and incorporated ith the $ecurities and 4change
ommission on June =0, '(;).( t is engaged in the dispensation of the folloing
medical services to individuals ho enter into health care agreements ith it"
reve!ive medical services such as periodic monitoring of health problems, family
planning counseling, consultation and advices on diet, eercise and other healthy
habits, and immuni>ationD
/iaBos!i medical services such as routine physical eaminations, -rays,
urinalysis, fecalysis, complete blood count, and the li<e and
+'ra!ive medical services hich pertain to the performing of other remedial and
therapeutic processes in the event of an inury or sic<ness on the part of the enrolled
member.'0
ndividuals enrolled in its health care program pay an annual membership fee.
Membership is on a year-to-year basis. The medical services are dispensed to
enrolled members in a hospital or clinic oned, operated or accredited by petitioner,
through physicians, medical and dental practitioners under contract ith it. t
negotiates ith such health care practitioners regarding payment schemes, financing
and other procedures for the delivery of health services. 4cept in cases of
emergency, the professional services are to be provided only by petitioners
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physicians, i.e. those directly employed by it'' or hose services are contracted by
it.'% !etitioner also provides hospital services such as room and board
accommodation, laboratory services, operating rooms, -ray facilities and general
nursing care.'= f and hen a member avails of the benefits under the agreement,
petitioner pays the participating physicians and other health care providers for the
services rendered, at pre-agreed rates.'&
To avail of petitionerPs health care programs, the individual members are required to
sign and eecute a standard health care agreement embodying the terms and
conditions for the provision of the health care services. The same agreement contains
the various health care services that can be engaged by the enrolled member, i.e.,
preventive, diagnostic and curative medical services. 4cept for the curative aspect
of the medical service offered, the enrolled member may actually ma<e use of the
health care services being offered by petitioner at any time.
)ea$!# (ai!eae rBaiCa!ios Are No! EBaBed I 3#e Is'rae 4'siess
9e said in our June '%, %00; decision that it is irrelevant that petitioner is an HM#
and not an insurer because its agreements are treated as insurance contracts and the
5$T is not a ta on the business but an ecise on the privilege, opportunity or facility
used in the transaction of the business.'B
!etitioner, hoever, submits that it is of critical importance to characteri>e the
business it is engaged in, that is, to determine hether it is an HM# or an insurance
company, as this distinction is indispensable in turn to the issue of hether or not it
is liable for 5$T on its health care agreements. '6
+ second hard loo< at the relevant la and urisprudence convinces the ourt that
the arguments of petitioner are meritorious.
$ection ';B of the /ational nternal 2evenue ode of '(() 8/2 of '(():
provides"
$ection ';B. !tamp ta on fidelit3 bonds and other insurane poliies . R a$$:o$iies o" is'rae or bonds or obligations o" !#e a!'re o" idemi!; "or $oss,damaBe, or $iabi$i!; made or reeDed b; a; :erso, assoia!io or om:a; oror:ora!io !rasa!iB !#e b'siess o" accident, fidelity, employerPs liability,
plate, glass, steam boiler, burglar, elevator, automatic sprin<ler, or o!#er bra# o" is'rae @ee:! $i"e, marie, i$ad, ad "ire is'rae, and all bonds,
underta<ings, or recogni>ances, conditioned for the performance of the duties of any
office or position, for the doing or not doing of anything therein specified, and on all
obligations guaranteeing the validity or legality of any bond or other obligations
issued by any province, city, municipality, or other public body or organi>ation, and
on all obligations guaranteeing the title to any real estate, or guaranteeing any
mercantile credits, hich may be made or reneed by any such person, company or
corporation, there shall be collected a documentary stamp ta of fifty centavos
8!0.B0: on each four pesos 8!&.00:, or fractional part thereof, of the premium
charged. 84mphasis supplied:
t is a cardinal rule in statutory construction that no ord, clause, sentence, provision
or part of a statute shall be considered surplusage or superfluous, meaningless, void
and insignificant. To this end, a construction hich renders every ord operative is
preferred over that hich ma<es some ords idle and nugatory.') This principle is
epressed in the maim <t mais %aleat Buam pereat , that is, e choose the
interpretation hich gives effect to the hole of the statute R its every ord.';
1rom the language of $ection ';B, it is evident that !Do re&'isi!es must concur
before the 5$T can apply, namely" 8': the document must be a :o$i; o" is'raeor a ob$iBa!io i !#e a!'re o" idemi!; ad 8%:!#e maer s#o'$d be!rasa!iB !#e b'siess o" accident, fidelity, employerPs liability, plate, glass,
steam boiler, burglar, elevator, automatic sprin<ler, or other branch
of is'rae 8ecept life, marine, inland, and fire insurance:.
!etitioner is admittedly an HM#. ?nder 2+ );)B 8or CThe /ational Health
nsurance +ct of '((BC:, an HM# is Can entity that provides, offers or arranges for
coverage of designated health services needed by plan members for a fied prepaid
premium.C'( The payments do not vary ith the etent, frequency or type of services
provided.
The question is" as petitioner, as an HM#, engaged in the business of insurance
during the pertinent taable yearsG 9e rule that it as not.
$ection % 8%: of !5%0 '&60 8otherise <non as the nsurance ode: enumerates
hat constitutes Cdoing an insurance businessC or Ctransacting an insurance
business"C
a: ma<ing or proposing to ma<e, as insurer, any insurance contractD
b: ma<ing or proposing to ma<e, as surety, any contract of suretyship as a
vocation and not as merely incidental to any other legitimate business or
activity of the suretyD
c: doing any <ind of business, including a reinsurance business, specifically
recogni>ed as constituting the doing of an insurance business ithin the
meaning of this odeD
d: doing or proposing to do any business in substance equivalent to any of
the foregoing in a manner designed to evade the provisions of this ode.
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n the application of the provisions of this ode, the fact that no profit is derived
from the ma<ing of insurance contracts, agreements or transactions or that no
separate or direct consideration is received therefore, shall not be deemed conclusive
to sho that the ma<ing thereof does not constitute the doing or transacting of an
insurance business.
3arious courts in the ?nited $tates, hose urisprudence has a persuasive effect on
our decisions,%' have determined that HM#s are not in the insurance business. #ne
test that they have applied is hether the assumption of ris< and indemnification of
loss 8hich are elements of an insurance business: are the principal obect and
purpose of the organi>ation or hether they are merely incidental to its business. f
these are the principal obectives, the business is that of insurance. @ut if they are
merely incidental and service is the principal purpose, then the business is not
insurance.
+pplying the Cprincipal obect and purpose test,C%% there is significant +merican case
la supporting the argument that a corporation 8such as an HM#, hether or not
organi>ed for profit:, hose main obect is to provide the members of a group ith
health services, is not engaged in the insurance business.
The rule as enunciated in Jordan %. ;roup 5ealth Assoiation%= herein the ourt
of +ppeals of the 5istrict of olumbia ircuit held that roup Health +ssociation
should not be considered as engaged in insurance activities since it as created
primarily for the distribution of health care services rather than the assumption of
insurance ris<.
+lthough roup HealthPs activities may be considered in one aspect as creating
security against loss from illness or accident more truly they constitute the quantity
purchase of ell-rounded, continuous medical service by its members. 3#e"'!ios o" s'# a orBaiCa!io are o! ide!ia$ Di!# !#ose o" is'rae oridemi!; om:aies. The latter are concerned primarily, if not eclusively, ith
ris< and the consequences of its descent, not ith service, or its etension in <ind,
quantity or distributionD ith the unusual occurrence, not the daily routine of living.
Ha>ard is predominant. !#e o!#er #ad, !#e oo:era!ive is oered:rii:a$$; Di!# Be!!iB servie redered !o i!s members ad doiB so a! $oDer:ries made :ossib$e b; &'a!i!; :'r#asiB ad eoomies i o:era!io. I!s:rimar; :'r:ose is !o red'e !#e os! ra!#er !#a !#e ris o" media$ are !obroade !#e servie !o !#e idivid'a$ i id ad &'a!i!; !o e$arBe !#e'mber reeiviB i! !o reB'$ariCe i! as a ever;da; iide! o" $iviB, $ie:'r#asiB "ood ad $o!#iB or oi$ ad Bas, ra!#er !#a mere$; :ro!e!iBaBais! !#e "iaia$ $oss a'sed b; e!raordiar; ad ''s'a$ o'rrees,s'# as dea!#, disas!er a! sea, "ire ad !orado. t is, in this instance, to ta<e care
of colds, ordinary aches and pains, minor ills and all the temporary bodily
discomforts as ell as the more serious and unusual illness. 3o s'mmariCe, !#e
dis!i!ive "ea!'res o" !#e oo:era!ive are !#e rederiB o" servie, i!s e!esio,!#e briBiB o" :#;siia ad :a!ie! !oBe!#er, !#e :reve!ive "ea!'res, !#ereB'$ariCa!io o" servie as De$$ as :a;me!, !#e s'bs!a!ia$ red'!io i os! b;&'a!i!; :'r#asiB i s#or!, Be!!iB !#e media$ Hob doe ad :aid "or o!,ee:! iide!a$$; !o !#ese "ea!'res, !#e idemi"ia!io "or os! a"!er !#eservies is redered. Ee:! !#e $as!, !#ese are o! dis!i!ive or Beera$$;#ara!eris!i o" !#e is'rae arraBeme!. There is, therefore, a substantial
difference beteen contracting in this ay for the rendering of service, even on the
contingency that it be needed, and contracting merely to stand its cost hen or after
it is rendered.
That an incidental element of ris< distribution or assumption may be present should
not outeigh all other factors. f attention is focused only on that feature, the line
beteen insurance or indemnity and other types of legal arrangement and economic
function becomes faint, if not etinct. This is especially true hen the contract is for
the sale of goods or services on contingency. @ut obviously it as not the purpose of
the insurance statutes to regulate all arrangements for assumption or distribution of
ris<. That vie ould cause them to engulf practically all contracts, particularly
conditional sales and contingent service agreements. 3#e "a$$a; is i $ooiB o$;a! !#e ris e$eme!, !o !#e e$'sio o" a$$ o!#ers :rese! or !#eir s'bordia!io!o i!. 3#e &'es!io !'rs, o! o D#e!#er ris is ivo$ved or ass'med, b'! o
D#e!#er !#a! or some!#iB e$se !o D#i# i! is re$a!ed i !#e :ar!i'$ar :$a is i!s:rii:a$ obHe! :'r:ose.%& 84mphasis supplied:
n California -h3siiansH !er%ie %. ;arrison,%B the alifornia court felt that, after
scrutini>ing the plan of operation as a hole of the corporation, it as service rather
than indemnity hich stood as its principal purpose.
There is another and more compelling reason for holding that the service is not
engaged in the insurance business. Absee or :resee o" ass'm:!io o" ris or:eri$ is o! !#e so$e !es! !o be a::$ied i de!ermiiB i!s s!a!'s. 3#e &'es!io,more broad$;, is D#e!#er, $ooiB a! !#e :$a o" o:era!io as a D#o$e, servieJra!#er !#a idemi!;J is i!s :rii:a$ obHe! ad :'r:ose. ertainly the obects
and purposes of the corporation organi>ed and maintained by the alifornia physicians have a ide scope in the field of social service. robab$; !#ere is omore im:e$$iB eed !#a !#a! o" ade&'a!e media$ are o a vo$'!ar;, $oD-os!basis "or :ersos o" sma$$ iome. 3#e media$ :ro"essio 'i!ed$; isedeavoriB !o mee! !#a! eed. U&'es!ioab$; !#is is servieJ o" a #iB# orderad o! idemi!;.J%6 84mphasis supplied:
+merican courts have pointed out that the main difference beteen an HM# and an
insurance company is that HM#s underta<e to provide or arrange for the provision
of medical services through participating physicians hile insurance companies
simply underta<e to indemnify the insured for medical epenses incurred up to a pre-
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agreed limit. !omerset :rthopedi Assoiates, -.A. %. 5orion lue Cross and lue
!hield of e" Jerse3%) is clear on this point"
The basic distinction beteen medical service corporations and ordinary health and
accident insurers is that the former underta<e to provide prepaid medical
services !#ro'B# :ar!ii:a!iB :#;siias, thus relieving subscribers of any further
financial burden, hile the latter only underta<e to indemnify an insured for medical
epenses up to, but not beyond, the schedule of rates contained in the policy.
The primary purpose of a medical service corporation, hoever, is an underta<ing to
provide physicians ho ill render services to subscribers on a prepaid
basis. )ee, i" !#ere are o :#;siias :ar!ii:a!iB i !#e media$ servieor:ora!ioJs :$a, o! o$; Di$$ !#e s'bsribers be de:rived o" !#e :ro!e!ioD#i# !#e; miB#! reasoab$; #ave e:e!ed Do'$d be :rovided, b'! !#eor:ora!io Di$$, i e""e!, be doiB b'siess so$e$; as a #ea$!# ad aide!idemi!; is'rer ithout having qualified as such and rendering itself subect to
the more stringent financial requirements of the eneral nsurance *asS.
+ participating provider of health care services is one ho agrees in riting to render
health care services to or for persons covered by a contract issued by health service
corporation in return "or D#i# !#e #ea$!# servie or:ora!io aBrees !o mae:a;me! dire!$; !o !#e :ar!ii:a!iB :rovider.%; 84mphasis supplied:
onsequently, the mere presence of ris< ould be insufficient to override the
primary purpose of the business to provide medical services as needed, ith payment
made directly to the provider of these services. %( n short, even if petitioner assumes
the ris< of paying the cost of these services even if significantly more than hat the
member has prepaid, it nevertheless cannot be considered as being engaged in the
insurance business.
@y the same to<en, any indemnification resulting from the payment for services
rendered in case of emergency by non-participating health providers ould still be
incidental to petitionerPs purpose of providing and arranging for health care services
and does not transform it into an insurer. To fulfill its obligations to its members
under the agreements, petitioner is required to set up a system and the facilities for
the delivery of such medical services. This indubitably shos that indemnification is
not its sole obect.
n fact, a substantial portion of petitionerPs services covers preventive and diagnostic
medical services intended to <eep members from developing medical conditions or
diseases.=0 +s an HM#, it is its obligation to maintain the good health of its
members. AordiB$;, i!s #ea$!# are :roBrams are desiBed !o :reve! or !o
miimiCe !#e :ossibi$i!; o" a; ass'm:!io o" ris o i!s :ar!. Thus, its
underta<ing under its agreements is not to indemnify its members against any loss or
damage arising from a medical condition but, on the contrary, to provide the health
and medical services needed to prevent such loss or damage.='
#verall, petitioner appears to provide insurance-type benefits to its members 8ith
respect to its 'ra!ive medical services:, but these are incidental to the principal
activity of providing them medical care. The Cinsurance-li<eC aspect of petitionerPs
business is miniscule compared to its noninsurance activities. Therefore, since it
substantially provides health care services rather than insurance services, it cannot be
considered as being in the insurance business.
t is important to emphasi>e that, in adopting the Cprincipal purpose testC used in the
above-quoted ?.$. cases, e are not saying that petitionerPs operations are identical
in every respect to those of the HM#s or health providers hich ere parties to
those cases. 9hat e are stating is that, for the purpose of determining hat Cdoing
an insurance businessC means, e have to scrutini>e the operations of the business as
a hole and not its mere components. This is of course only prudent and appropriate,
ta<ing into account the burdensome and strict las, rules and regulations applicable
to insurers and other entities engaged in the insurance business. Moreover, e are
also not unmindful that there are other +merican authorities ho have found
particular HM#s to be actually engaged in insurance activities.=%
*astly, it is significant that petitioner, as an HM#, is not part of the insurance
industry. This is evident from the fact that it is not supervised by the nsurance
ommission but by the 5epartment of Health.== n fact, in a letter dated $eptember =,
%000, the nsurance ommissioner confirmed that petitioner is not engaged in the
insurance business. This determination of the commissioner must be accorded great
eight. t is ell-settled that the interpretation of an administrative agency hich is
tas<ed to implement a statute is accorded great respect and ordinarily controls the
interpretation of las by the courts. The reason behind this rule as eplained
in estle -hilippines, n. %. Court of Appeals"=&
The rationale for this rule relates not only to the emergence of the multifarious needsof a modern or moderni>ing society and the establishment of diverse administrative
agencies for addressing and satisfying those needsD it also relates to the accumulation
of eperience and groth of speciali>ed capabilities by the administrative agency
charged ith implementing a particular statute. n Asturias !uar Central, n. %s.
Commissioner of Customs,=Bthe ourt stressed that eecutive officials are presumed
to have familiari>ed themselves ith all the considerations pertinent to the meaning
and purpose of the la, and to have formed an independent, conscientious and
competent epert opinion thereon. The courts give much eight to the government
agency officials charged ith the implementation of the la, their competence,
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epertness, eperience and informed udgment, and the fact that they frequently are
the drafters of the la they interpret.=6
A )ea$!# +are ABreeme! Is No! A Is'rae +o!ra! +o!em:$a!ed Uder*e!io 185 " 3#e NIR+ o" 199
$ection ';B states that 5$T is imposed on Call policies of insuranceS or obligations
of the nature of indemnity for loss, damage, or liabilityS.C n our decision dated
June '%, %00;, e ruled that petitionerPs health care agreements are contracts of
indemnity and are therefore insurance contracts"
t is S incorrect to say that the health care agreement is not based on loss or damage
because, under the said agreement, petitioner assumes the liability and indemnifies
its member for hospital, medical and related epenses 8such as professional fees of
physicians:. The term Closs or damageC is broad enough to cover the monetary
epense or liability a member ill incur in case of illness or inury.
?nder the health care agreement, the rendition of hospital, medical and professional
services to the member in case of sic<ness, inury or emergency or his availment of
so-called Cout-patient servicesC 8including physical eamination, -ray and
laboratory tests, medical consultations, vaccine administration and family planning
counseling: is the contingent event hich gives rise to liability on the part of the
member. n case of eposure of the member to liability, he ould be entitled to
indemnification by petitioner.
1urthermore, the fact that petitioner must relieve its member from liability by paying
for epenses arising from the stipulated contingencies belies its claim that its
services are prepaid. The epenses to be incurred by each member cannot be
predicted beforehand, if they can be predicted at all. !etitioner assumes the ris< of
paying for the costs of the services even if they are significantly and substantially
more than hat the member has Cprepaid.C !etitioner does not bear the costs alone
but distributes or spreads them out among a large group of persons bearing a similar
ris<, that is, among all the other members of the health care program. This is
insurance.=)
9e reconsider. 9e shall quote once again the pertinent portion of $ection ';B"
$ection ';B. !tamp ta on fidelit3 bonds and other insurane poliies . R a$$:o$iies o" is'rae or bondsor ob$iBa!ios o" !#e a!'re o" idemi!; "or $oss,damaBe, or $iabi$i!; made or reneed by any person, association or company or
corporation transacting the business of accident, fidelity, employerPs liability, plate,
glass, steam boiler, burglar, elevator, automatic sprin<ler, or other branch of
insurance 8ecept life, marine, inland, and fire insurance:, 84mphasis supplied:
n construing this provision, e should be guided by the principle that ta statutes
are strictly construed against the taing authority.=; This is because taation is a
destructive poer hich interferes ith the personal and property rights of the
people and ta<es from them a portion of their property for the support of the
government.=(Hence, ta las may not be etended by implication beyond the clear
import of their language, nor their operation enlarged so as to embrace matters not
specifically provided.&0
9e are aare that, in lue Cross and -hilamare, the ourt pronounced that a health
care agreement is in the nature of non-life insurance, hich is primarily a contract of
indemnity. Hoever, those cases did not involve the interpretation of a ta provision.
nstead, they dealt ith the liability of a health service provider to a member under
the terms of their health care agreement. $uch contracts, as contracts of adhesion, are
liberally interpreted in favor of the member and strictly against the HM#. 1or this
reason, e reconsider our ruling that lue Crossand -hilamare are applicable here.
$ection % 8': of the nsurance ode defines a contract of insurance as an agreement
hereby one underta<es for a consideration to indemnify another against loss,
damage or liability arising from an un<non or contingent event. +n insurance
contract eists here the folloing elements concur"
'. The insured has an insurable interestD
%. The insured is subect to a ris< of loss by the happening of the designed
perilD
=. The insurer assumes the ris<D
&. $uch assumption of ris< is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar ris< and
B. n consideration of the insurerPs promise, the insured pays a premium.&'
5o the agreements beteen petitioner and its members possess all these elementsG
They do not.
First . n our urisdiction, a commentator of our insurance las has pointed out that,
even if a contract contains all the elements of an insurance contract, if its primary
purpose is the rendering of service, it is not a contract of insurance"
t does not necessarily follo hoever, that a contract containing all the four
elements mentioned above ould be an insurance contract. 3#e :rimar; :'r:ose o" !#e :ar!ies i maiB !#e o!ra! ma; eBa!e !#e eis!ee o" a is'raeo!ra!. 1or eample, a la firm hich enters into contracts ith clients hereby
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in consideration of periodical payments, it promises to represent such clients in all
suits for or against them, is not engaged in the insurance business. ts contracts are
simply for the purpose of rendering personal services. #n the other hand, a contract
by hich a corporation, in consideration of a stipulated amount, agrees at its on
epense to defend a physician against all suits for damages for malpractice is one of
insurance, and the corporation ill be deemed as engaged in the business of
insurance. ?nli<e the layerPs retainer contract, the essential purpose of such a
contract is not to render personal services, but to indemnify against loss and damage
resulting from the defense of actions for malpractice.&% 84mphasis supplied:
!eond . /ot all the necessary elements of a contract of insurance are present in
petitionerPs agreements. To begin ith, there is no loss, damage or liability on the
part of the member that should be indemnified by petitioner as an HM#. ?nder the
agreement, the member pays petitioner a predetermined consideration in echange
for the hospital, medical and professional services rendered by the petitionerPs
physician or affiliated physician to him. n case of availment by a member of the
benefits under the agreement, petitioner does not reimburse or indemnify the
member as the latter does not pay any third party. nstead, it is the petitioner ho
pays the participating physicians and other health care providers for the services
rendered at pre-agreed rates. The member does not ma<e any such payment.
n other ords, there is nothing in petitioners agreements that gives rise to amonetary liability on the part of the member to any third party-provider of medical
services hich might in turn necessitate indemnification from petitioner. The terms
CindemnifyC or CindemnityC presuppose that a liability or claim has already been
incurred. There is no indemnity precisely because the member merely avails of
medical services to be paid or already paid in advance at a pre-agreed price under the
agreements.
8hird . +ccording to the agreement, a member can ta<e advantage of the bul< of the
benefits anytime, e..laboratory services, -ray, routine annual physical eamination
and consultations, vaccine administration as ell as family planning counseling,
even in the absence of any peril, loss or damage on his or her part.
Fourth. n case of emergency, petitioner is obliged to reimburse the member ho
receives care from a non-participating physician or hospital. Hoever, this is only a
very minor part of the list of services available. The assumption of the epense by
petitioner is not confined to the happening of a contingency but includes incidents
even in the absence of illness or inury.
n $ihian -odiatri $edial Assoiation %. ational Foot Care -roram,
n.,&= although the health care contracts called for the defendant to partially
reimburse a subscriber for treatment received from a non-designated doctor, this did
not ma<e defendant an insurer. iting Jordan, the ourt determined that Cthe primary
activity of the defendant 8as: the provision of podiatric services to subscribers in
consideration of prepayment for such services.C&& $ince indemnity of the insured as
not the focal point of the agreement but the etension of medical services to the
member at an affordable cost, it did not parta<e of the nature of a contract of
insurance.
Fifth. +lthough ris< is a primary element of an insurance contract, it is not
necessarily true that ris< alone is sufficient to establish it. +lmost anyone ho
underta<es a contractual obligation alays bears a certain degree of financial ris<.
onsequently, there is a need to distinguish prepaid service contracts 8li<e those of
petitioner: from the usual insurance contracts.
ndeed, petitioner, as an HM#, underta<es a business ris< hen it offers to provide
health services" the ris< that it might fail to earn a reasonable return on its
investment. @ut it is not the ris< of the type peculiar only to insurance companies.
nsurance ris<, also <non as actuarial ris<, is the ris< that the cost of insurance
claims might be higher than the premiums paid. The amount of premium is
calculated on the basis of assumptions made relative to the insured.&B
Hoever, assuming that petitionerPs commitment to provide medical services to its
members can be construed as an acceptance of the ris< that it ill shell out more than
the prepaid fees, it still ill not qualify as an insurance contract because petitionerPsobective is to provide medical services at reduced cost, not to distribute ris< li<e an
insurer.
n sum, an eamination of petitionerPs agreements ith its members leads us to
conclude that it is not an insurance contract ithin the contet of our nsurance
ode.
3#ere ?as No LeBis$a!ive I!e! 3o Im:ose /*3 )ea$!# +are ABreeme!s" )(s
1urthermore, militating in convincing fashion against the imposition of 5$T on
petitionerPs health care agreements under $ection ';B of the /2 of '(() is the
provisionPs legislative history. The tet of $ection ';B came into ?.$. la as early as
'(0& hen HM#s and health care agreements ere not even in eistence in this
urisdiction. t as imposed under $ection ''6, +rticle A of +ct /o. '';(
8otherise <non as the Cnternal 2evenue *a of '(0&C: &6 enacted on July %, '(0&
and became effective on +ugust ', '(0&. 4cept for the rate of ta, $ection ';B of
the /2 of '(() is a verbatim reproduction of the pertinent portion of $ection ''6,
to it"
+2T*4 A
*!am: 3aes on $pecified #bects
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$ection ''6. There shall be levied, collected, and paid for and in respect to the
several bonds, debentures, or certificates of stoc< and indebtedness, and other
documents, instruments, matters, and things mentioned and described in this section,
or for or in respect to the vellum, parchment, or paper upon hich such instrument,
matters, or things or any of them shall be ritten or printed by any person or persons
ho shall ma<e, sign, or issue the same, on and after January first, nineteen hundred
and five, the several taes folloing"
Third @ o a$$ :o$iies o" is'rae or bod or ob$iBa!io o" !#e a!'re o" idemi!; "or $oss, damaBe, or $iabi$i!; made or reeDed b; a; :erso,assoia!io, om:a;, or or:ora!io !rasa!iB !#e b'siess o" aide!,"ide$i!;, em:$o;erJs $iabi$i!;, :$a!e B$ass, s!eam boi$er, b'rB$ar, e$eva!or,a'!oma!i s:ri$e, or o!#er bra# o" is'rae @ee:! $i"e, marie, i$ad,ad "ire is'rae 84mphasis supplied:
#n 1ebruary %), '('&, +ct /o. %==( 8the nternal 2evenue *a of '('&: as
enacted revising and consolidating the las relating to internal revenue. The
aforecited pertinent portion of $ection ''6, +rticle A of +ct /o. '';( as
completely reproduced as $ection =0 8l:, +rticle of +ct /o. %==(. The very
detailed and eclusive enumeration of items subect to 5$T as thus retained.
#n 5ecember =', '('6, $ection =0 8l:, +rticle of +ct /o. %==( as again
reproduced as $ection '60& 8l:, +rticle 3 of +ct /o. %6B) 8+dministrative ode:.
?pon its amendment on March '0, '('), the pertinent 5$T provision became
$ection '&&( 8l: of +ct /o. %)'', otherise <non as the +dministrative ode of
'(').
$ection '&&( 8': eventually became $ec. %%% of ommonealth +ct /o. &66 8the
/2 of '(=(:, hich codified all the internal revenue las of the !hilippines. n an
amendment introduced by 2+ &0 on #ctober ', '(&6, the 5$T rate as increased
but the provision remained substantially the same.
Thereafter, on June =, '()), the same provision ith the same 5$T rate as
reproduced in !5 ''B; 8/2 of '()): as $ection %=&. ?nder !5s '&B) and '(B(,
enacted on June '', '(); and #ctober '0, '(;& respectively, the 5$T rate as again
increased.1a%%phi1
4ffective January ', '(;6, pursuant to $ection &B of !5 '((&, $ection %=& of the
/2 of '()) as renumbered as $ection '(;. +nd under $ection %= of 4#&) %)=
dated July %B, '(;), it as again renumbered and became $ection ';B.
#n 5ecember %=, '((=, under 2+ )660, $ection ';B as amended but, again, only
ith respect to the rate of ta.
/otithstanding the comprehensive amendment of the /2 of '()) by 2+ ;&%&
8or the /2 of '(():, the subect legal provision as retained as the present $ection
';B. n %00&, amendments to the 5$T provisions ere introduced by 2+ (%&= &; but
$ection ';B as untouched.
#n the other hand, the concept of an HM# as introduced in the !hilippines ith
the formation of @ancom Health are orporation in '()&. The same pioneer HM#
as later reorgani>ed and renamed ntegrated Health are $ervices, nc. 8or
ntercare:. Hoever, there are those ho claim that Health Maintenance, nc. is the
HM# industry pioneer, having set foot in the !hilippines as early as '(6B and having
been formally incorporated in '(('. +fterards, HM#s proliferated quic<ly and
currently, there are =6 registered HM#s ith a total enrollment of more than %
million.&(
9e can clearly see from these to histories 8of the 5$T on the one hand and HM#s
on the other: that hen the la imposing the 5$T as first passed, HM#s ere yet
un<non in the !hilippines. Hoever, hen the various amendments to the 5$T la
ere enacted, they ere already in eistence in the !hilippines and the term had in
fact already been defined by 2+ );)B. f it had been the intent of the legislature toimpose 5$T on health care agreements, it could have done so in clear and
categorical terms. t had many opportunities to do so. @ut it did not. The fact that the
/2 contained no specific provision on the 5$T liability of health care agreements
of HM#s at a time they ere already <non as such, belies any legislative intent to
impose it on them. As a ma!!er o" "a!, :e!i!ioer Das assessed i!s /*3 $iabi$i!;o$; o %a'ar; 2, 2000, a"!er more !#a a deade i !#e b'siess as a)(.B0
onsidering that $ection ';B did not change since '(0& 8ecept for the rate of ta:, it
ould be safe to say that health care agreements ere never, at any time, recogni>ed
as insurance contracts or deemed engaged in the business of insurance ithin the
contet of the provision.
3#e oDer 3o 3a Is No! 3#e oDer 3o /es!ro;
+s a general rule, the poer to ta is an incident of sovereignty and is unlimited in
its range, ac<noledging in its very nature no limits, so that security against its abuse
is to be found only in the responsibility of the legislature hich imposes the ta on
the constituency ho is to pay it.B' $o potent indeed is the poer that it as once
opined that Cthe poer to ta involves the poer to destroy.CB%
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!etitioner claims that the assessed 5$T to date hich amounts to !=)6 millionB= is
ay beyond its net orth of!%B( million.B& 2espondent never disputed these
assertions. iven the realities on the ground, imposing the 5$T on petitioner ould
be highly oppressive. t is not the purpose of the government to throttle private
business. #n the contrary, the government ought to encourage private
enterprise.BB !etitioner, ust li<e any concern organi>ed for a laful economic
activity, has a right to maintain a legitimate business.B6 +s aptly held in >oas, et al.
%. C8A, et al."B)
The poer of taation is sometimes called also the poer to destroy. Therefore itshould be eercised ith caution to minimi>e inury to the proprietary rights of a
tapayer. t must be eercised fairly, equally and uniformly, lest the ta collector <ill
the Chen that lays the golden egg.CB;
*egitimate enterprises enoy the constitutional protection not to be taed out of
eistence. ncurring losses because of a ta imposition may be an acceptable
consequence but <illing the business of an entity is another matter and should not be
alloed. t is counter-productive and ultimately subversive of the nationPs thrust
toards a better economy hich ill ultimately benefit the maority of our people.B(
e!i!ioerJs 3a Liabi$i!; ?as E!iB'is#ed Uder 3#e rovisios " RA 980
!etitioner asserts that, regardless of the arguments, the 5$T assessment for taable
years '((6 and '(() became moot and academic60 hen it availed of the ta amnesty
under 2+ (&;0 on 5ecember '0, %00). t paid!B,'%),'&(.0; representing BQ of its
net orth as of the year ended 5ecember =', %00B and complied ith all
requirements of the ta amnesty. ?nder $ection 68a: of 2+ (&;0, it is entitled to
immunity from payment of taes as ell as additions thereto, and the appurtenant
civil, criminal or administrative penalties under the '(() /2, as amended, arising
from the failure to pay any and all internal revenue taes for taable year %00B and
prior years.6'
1ar from disagreeing ith petitioner, respondent manifested in its memorandum"
$ection 6 of E2+ (;&0F provides that availment of ta amnesty entitles a tapayer to
immunity from payment of the ta involved, including the civil, criminal, or
administrative penalties provided under the '(() E/2F, for ta liabilities arising in
%00B and the preceding years.
n vie of petitionerPs availment of the benefits of E2+ (;&0F, and ithout
conceding the merits of this case as discussed above, res:ode! oedes !#a!s'# !a ames!; e!iB'is#es !#e !a $iabi$i!ies o" :e!i!ioer . This admission,
hoever, is not meant to preclude a revocation of the amnesty granted in case it is
found to have been granted under circumstances amounting to ta fraud under
$ection '0 of said amnesty la.6%84mphasis supplied:
1urthermore, e held in a recent case that 5$T is one of the taes covered by the ta
amnesty program under 2+ (&;0.6= There is no other conclusion to dra than that
petitionerPs liability for 5$T for the taable years '((6 and '(() as totally
etinguished by its availment of the ta amnesty under 2+ (&;0.
Is 3#e +o'r! 4o'd 4; A (i'!e Reso$'!io I Ao!#er +aseK
!etitioner raises another interesting issue in its motion for reconsideration" hether
this ourt is bound by the ruling of the +6& in C> %. -hilippine ational
an 6B that a health care agreement of !hilamcare Health $ystems is not an insurance
contract for purposes of the 5$T.
n support of its argument, petitioner cites the +ugust %(, %00' minute resolution of
this ourt dismissing the appeal in -hilippine ational an 8.2. /o.
'&;6;0:.66 !etitioner argues that the dismissal of .2. /o. '&;6;0 by minute
resolution as a udgment on the meritsD hence, the ourt should apply the + ruling
there that a health care agreement is not an insurance contract.
t is true that, although contained in a minute resolution, our dismissal of the petition
as a disposition of the merits of the case. 9hen e dismissed the petition, e
effectively affirmed the + ruling being questioned. +s a result, our ruling in that
case has already become final.6) 9hen a minute resolution denies or dismisses a
petition for failure to comply ith formal and substantive requirements, the
challenged decision, together ith its findings of fact and legal conclusions, are
deemed sustained.6; @ut hat is its effect on other casesG
9ith respect to the same subect matter and the same issues concerning the same
parties, it constitutes res udiata.6( Hoever, if other parties or another subect
matter 8even ith the same parties and issues: is involved, the minute resolution is
not binding precedent. Thus, in C> %. aieriel ,)0 the ourt noted that a previous
case, C> %. aieriel )' ivo$viB !#e same :ar!ies ad !#e same iss'es , as
previously disposed of by the ourt thru a minute resolution dated 1ebruary '), %00=
sustaining the ruling of the +. /onetheless, the ourt ruled that !#e :revio's ase#a@d o beariB on the latter case because the to cases involved different
subect matters as they ere concerned ith the taable income of different taable
years.)%
@esides, there are substantial, not simply formal, distinctions beteen a minute
resolution and a decision. The constitutional requirement under the first paragraph of
$ection '&, +rticle 3 of the onstitution that the facts and the la on hich the
udgment is based must be epressed clearly and distinctly applies only to decisions,
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not to minute resolutions. + minute resolution is signed only by the cler< of court by
authority of the ustices, unli<e a decision. t does not require the certification of the
hief Justice. Moreover, unli<e decisions, minute resolutions are not published in the
!hilippine 2eports. 1inally, the proviso of $ection &8=: of +rticle 3 spea<s of a
decision.)= ndeed, as a rule, this ourt lays don doctrines or principles of la
hich constitute binding precedent in a decision duly signed by the members of the
ourt and certified by the hief Justice.
+ccordingly, since petitioner as not a party in .2. /o. '&;6;0 and since
petitionerPs liability for 5$T on its health care agreement as not the subect matter of .2. /o. '&;6;0, petitioner cannot successfully invo<e the minute resolution in
that case 8hich is not even binding precedent: in its favor. /onetheless, in vie of
the reasons already discussed, this does not detract in any ay from the fact that
petitionerPs health care agreements are not subect to 5$T.
A Fia$ No!e
Ta<ing into account that health care agreements are clearly not ithin the ambit of
$ection ';B of the /2 and there as never any legislative intent to impose the
same on HM#s li<e petitioner, the same should not be arbitrarily and unustly
included in its coverage.
t is a matter of common <noledge that there is a great social need for adequate
medical services at a cost hich the average age earner can afford. HM#s arrange,
organi>e and manage health care treatment in the furtherance of the goal of providing
a more efficient and inepensive health care system made possible by quantity
purchasing of services and economies of scale. They offer advantages over the pay-
for-service system 8herein individuals are charged a fee each time they receive
medical services:, including the ability to control costs. They protect their members
from eposure to the high cost of hospitali>ation and other medical epenses brought
about by a fluctuating economy. +ccordingly, they play an important role in society
as partners of the $tate in achieving its constitutional mandate of providing its
citi>ens ith affordable health services.
The rate of 5$T under $ection ';B is equivalent to '%.BQ of the premium
charged.)& ts imposition ill elevate the cost of health care services. This ill in turn
necessitate an increase in the membership fees, resulting in either placing health
services beyond the reach of the ordinary age earner or driving the industry to the
ground. +t the end of the day, neither side ins, considering the indispensability of
the services offered by HM#s.
?)EREFRE, the motion for reconsideration is GRAN3E/. The +ugust '6,
%00& decision of the ourt of +ppeals in +-.2. $!
/o. )0&)( is REER*E/ and *E3 A*I/E. The '((6 and '(() deficiency 5$T
assessment against petitioner is hereby +AN+ELLE/ and *E3A*I/E. 2espondent is ordered to desist from collecting the said ta.
/o costs.
* R/ERE/.
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