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2 Phil Health Care Providers vs. CIR

2 Phil Health Care Providers vs. CIR

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Published by: Izobelle Pulgo on Jul 14, 2011
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Izobe||e 1Ŧ Þu|go IN5UkANCL 1

SÞLClAL ll8S1 ulvlSlCn

ÞnILIÞÞINL nLAL1n CAkL ÞkCVIDLk5ţ INCŦţ Þet|t|onerţ vsŦ CCMMI55ICNLk CI
IN1LkNAL kLVLNULţ kespondentŦ

CŦ8Ŧ noŦ 167330ţ SepLember 18ţ 2009

8 L S C L u 1 l C n

CC8CnAţ !Ŧť

A81lCLL ll
ueclaraLlon of Þrlnclples and SLaLe Þollcles

SecLlon 13Ŧ1he SLaLe shall proLecL and promoLe Lhe rlahL Lo healLh of Lhe people and
lnsLlll healLh consclousness amona LhemŦ

A81lCLL xlll
Soclal !usLlce and Puman 8lahLs

SecLlon 11Ŧ1he SLaLe shall adopL an lnLearaLed and comprehenslve approach Lo
healLh developmenL whlch shall endeavor Lo make essenLlal aoodsţ healLh and oLher
soclal servlces avallable Lo all Lhe people aL affordable cosLŦ 1here shall be prlorlLv for
Lhe needs of Lhe underprlvlleaed slckţ elderlvţ dlsabledţ womenţ and chlldrenŦ 1he
SLaLe shall endeavor Lo provlde free medlcal care Lo paupersŦ ż1Ž

lor resoluLlon are a moLlon for reconslderaLlon and supplemenLal moLlon for
reconslderaLlon daLed !ulv 10ţ 2008 and !ulv 14ţ 2008ţ respecLlvelvţ flled bv
peLlLloner Þhlllpplne PealLh Care Þrovldersţ lncŦ ż2Ž

We recall Lhe facLs of Lhls caseţ as followsť

ÞeLlLloner ls a domesLlc corporaLlon whose prlmarv purpose ls ºżLŽo
esLabllshţ malnLalnţ conducL and operaLe a prepald aroup pracLlce healLh care
dellverv svsLem or a healLh malnLenance oraanlzaLlon Lo Lake care of Lhe slck and
dlsabled persons enrolled ln Lhe healLh care plan and Lo provlde for Lhe
admlnlsLraLlveţ leaalţ and flnanclal responslblllLles of Lhe oraanlzaLlonŦ" lndlvlduals
enrolled ln lLs healLh care proarams pav an annual membershlp fee and are enLlLled
Lo varlous prevenLlveţ dlaanosLlc and curaLlve medlcal servlces provlded bv lLs dulv
llcensed phvslclansţ speclallsLs and oLher professlonal Lechnlcal sLaff parLlclpaLlna ln
Lhe aroup pracLlce healLh dellverv svsLem aL a hosplLal or cllnlc ownedţ operaLed or
accredlLed bv lLŦ

xxx xxx xxx

Cn !anuarv 27ţ 2000ţ respondenL Commlssloner of lnLernal 8evenue żCl8Ž senL
peLlLloner a formal demand leLLer and Lhe correspondlna assessmenL noLlces
demandlna Lhe pavmenL of deflclencv Laxesţ lncludlna surcharaes and lnLeresLţ for
Lhe Laxable vears 1996 and 1997 ln Lhe LoLal amounL of Þ224ţ702ţ641Ŧ18Ŧ xxxx

1he deflclencv żdocumenLarv sLamp Lax (uS1)Ž assessmenL was lmposed on
peLlLloner's healLh care aareemenL wlLh Lhe members of lLs healLh care proaram
pursuanL Lo SecLlon 183 of Lhe 1997 1ax Code xxxx

xxx xxx xxx
ÞeLlLloner proLesLed Lhe assessmenL ln a leLLer daLed lebruarv 23ţ 2000Ŧ As
respondenL dld noL acL on Lhe proLesLţ peLlLloner flled a peLlLlon for revlew ln Lhe
CourL of 1ax Appeals (C1A) seeklna Lhe cancellaLlon of Lhe deflclencv vA1 and uS1
assessmenLsŦ

Cn Aprll 3ţ 2002ţ Lhe C1A rendered a declslonţ Lhe dlsposlLlve porLlon of whlch readť

WPL8LlC8Lţ ln vlew of Lhe foreaolnaţ Lhe lnsLanL ÞeLlLlon for 8evlew ls ÞA81lALL?
C8An1LuŦ ÞeLlLloner ls herebv C8uL8Lu Lo ÞA? Lhe deflclencv vA1 amounLlna Lo
Þ22ţ034ţ831Ŧ73 lncluslve of 23Ʒ surcharae plus 20Ʒ lnLeresL from !anuarv 20ţ 1997
unLll fullv pald for Lhe 1996 vA1 deflclencv and Þ31ţ094ţ163Ŧ87 lncluslve of 23Ʒ
surcharae plus 20Ʒ lnLeresL from !anuarv 20ţ 1998 unLll fullv pald for Lhe 1997 vA1
deflclencvŦ Accordlnalvţ vA1 8ullna noŦ ż231ŽŴ88 ls declared vold and wlLhouL force
and effecLŦ 1he 1996 and 1997 deflclencv uS1 assessmenL aaalnsL peLlLloner ls herebv
CAnCLLLLu Anu SL1 ASluLŦ 8espondenL ls C8uL8Lu Lo uLSlS1 from collecLlna Lhe
sald uS1 deflclencv LaxŦ

SC C8uL8LuŦ

8espondenL appealed Lhe C1A declslon Lo Lhe żCourL of Appeals (CA)Ž lnsofar as lL
cancelled Lhe uS1 assessmenLŦ Pe clalmed LhaL peLlLloner's healLh care aareemenL
was a conLracL of lnsurance sub[ecL Lo uS1 under SecLlon 183 of Lhe 1997 1ax CodeŦ

Cn AuausL 16ţ 2004ţ Lhe CA rendered lLs declslonŦ lL held LhaL peLlLloner's healLh
care aareemenL was ln Lhe naLure of a nonŴllfe lnsurance conLracL sub[ecL Lo uS1Ŧ

WPL8LlC8Lţ Lhe peLlLlon for revlew ls C8An1LuŦ 1he ueclslon of Lhe CourL of 1ax
Appealsţ lnsofar as lL cancelled and seL aslde Lhe 1996 and 1997 deflclencv
documenLarv sLamp Lax assessmenL and ordered peLlLloner Lo deslsL from collecLlna
Lhe same ls 8LvL8SLu and SL1 ASluLŦ

8espondenL ls ordered Lo pav Lhe amounLs of Þ33ţ746ţ332Ŧ19 and Þ68ţ430ţ238Ŧ73 as
deflclencv uocumenLarv SLamp 1ax for 1996 and 1997ţ respecLlvelvţ plus 23Ʒ
surcharae for laLe pavmenL and 20Ʒ lnLeresL per annum from !anuarv 27ţ 2000ţ
pursuanL Lo SecLlons 248 and 249 of Lhe 1ax Codeţ unLll Lhe same shall have been
fullv paldŦ

SC C8uL8LuŦ

ÞeLlLloner moved for reconslderaLlon buL Lhe CA denled lLŦ Penceţ peLlLloner flled Lhls
caseŦ

xxx xxx xxx

ln a declslon daLed !une 12ţ 2008ţ Lhe CourL denled Lhe peLlLlon and afflrmed Lhe
CA's declslonŦ We held LhaL peLlLloner's healLh care aareemenL durlna Lhe perLlnenL
perlod was ln Lhe naLure of nonŴllfe lnsurance whlch ls a conLracL of lndemnlLvţ clLlna
8lue Cross PealLhcareţ lncŦ vŦ Cllvares ż3Ž and Þhllamcare PealLh SvsLemsţ lncŦ vŦ CAŦ
ż4Ž We also ruled LhaL peLlLloner's conLenLlon LhaL lL ls a healLh malnLenance
oraanlzaLlon (PMC) and noL an lnsurance companv ls lrrelevanL because conLracLs
beLween companles llke peLlLloner and Lhe beneflclarles under Lhelr plans are
LreaLed as lnsurance conLracLsŦ Moreoverţ uS1 ls noL a Lax on Lhe buslness
LransacLed buL an exclse on Lhe prlvlleaeţ opporLunlLv or faclllLv offered aL exchanaes
for Lhe LransacLlon of Lhe buslnessŦ

unable Lo accepL our verdlcLţ peLlLloner flled Lhe presenL moLlon for
reconslderaLlon and supplemenLal moLlon for reconslderaLlonţ asserLlna Lhe
followlna araumenLsť

(a) 1he uS1 under SecLlon 183 of Lhe naLlonal lnLernal 8evenue of 1997 ls
lmposed onlv on a companv enaaaed ln Lhe buslness of fldellLv bonds and
oLher lnsurance pollclesŦ ÞeLlLlonerţ as an PMCţ ls a servlce provlderţ noL
an lnsurance companvŦ
(b) 1he CourLţ ln dlsmlsslna Lhe appeal ln Cl8 vŦ Þhlllpplne naLlonal 8ankţ
afflrmed ln effecL Lhe CA's dlsposlLlon LhaL healLh care servlces are noL ln
Lhe naLure of an lnsurance buslnessŦ
(c) SecLlon 183 should be sLrlcLlv consLruedŦ
(d) LealslaLlve lnLenL Lo exclude healLh care aareemenLs from lLems sub[ecL Lo
uS1 ls clearţ especlallv ln Lhe llahL of Lhe amendmenLs made ln Lhe uS1
law ln 2002Ŧ
(e) Assumlna arauendo LhaL peLlLloner's aareemenLs are conLracLs of
lndemnlLvţ Lhev are noL Lhose conLemplaLed under SecLlon 183Ŧ
(f) Assumlna arauendo LhaL peLlLloner's aareemenLs are akln Lo healLh
lnsuranceţ healLh lnsurance ls noL covered bv SecLlon 183Ŧ
(a) 1he aareemenLs do noL fall under Lhe phrase ºoLher branch of lnsurance"
menLloned ln SecLlon 183Ŧ
(h) 1he !une 12ţ 2008 declslon should onlv applv prospecLlvelvŦ
(l) ÞeLlLloner avalled of Lhe Lax amnesLv beneflLs under 8A ż3Ž 9480 for Lhe
Laxable vear 2003 and all prlor vearsŦ 1hereforeţ Lhe quesLloned
assessmenLs on Lhe uS1 are now rendered mooL and academlcŦ ż6Ž

Cral araumenLs were held ln 8aaulo ClLv on Aprll 22ţ 2009Ŧ 1he parLles submlLLed
Lhelr memoranda on !une 8ţ 2009Ŧ

ln lLs moLlon for reconslderaLlonţ peLlLloner reveals for Lhe flrsL Llme LhaL lL avalled of
a Lax amnesLv under 8A 9480 ż7Ž (also known as Lhe º1ax AmnesLv AcL of 2007") bv
fullv pavlna Lhe amounL of Þ3ţ127ţ149Ŧ08 represenLlna 3Ʒ of lLs neL worLh as of Lhe
vear endlna uecember 31ţ 2003Ŧ ż8Ž

We flnd merlL ln peLlLloner's moLlon for reconslderaLlonŦ

ÞeLlLloner was formallv realsLered and lncorporaLed wlLh Lhe SecurlLles and Lxchanae
Commlsslon on !une 30ţ 1987Ŧ ż9Ž lL ls enaaaed ln Lhe dlspensaLlon of Lhe followlna
medlcal servlces Lo lndlvlduals who enLer lnLo healLh care aareemenLs wlLh lLť

ÞrevenLlve medlcal servlces such as perlodlc monlLorlna of healLh problemsţ famllv
plannlna counsellnaţ consulLaLlon and advlces on dleLţ exerclse and oLher healLhv
hablLsţ and lmmunlzaLlonŤ

ulaanosLlc medlcal servlces such as rouLlne phvslcal examlnaLlonsţ xŴravsţ urlnalvslsţ
fecalvslsţ compleLe blood counLţ and Lhe llke and

CuraLlve medlcal servlces whlch perLaln Lo Lhe performlna of oLher remedlal and
LherapeuLlc processes ln Lhe evenL of an ln[urv or slckness on Lhe parL of Lhe enrolled
memberŦ ż10Ž

lndlvlduals enrolled ln lLs healLh care proaram pav an annual membershlp feeŦ
Membershlp ls on a vearŴLoŴvear baslsŦ 1he medlcal servlces are dlspensed Lo
enrolled members ln a hosplLal or cllnlc ownedţ operaLed or accredlLed bv peLlLlonerţ
Lhrouah phvslclansţ medlcal and denLal pracLlLloners under conLracL wlLh lLŦ lL
Izobe||e 1Ŧ Þu|go IN5UkANCL 2
neaoLlaLes wlLh such healLh care pracLlLloners reaardlna pavmenL schemesţ flnanclna
and oLher procedures for Lhe dellverv of healLh servlcesŦ LxcepL ln cases of
emeraencvţ Lhe professlonal servlces are Lo be provlded onlv bv peLlLlonerƌs
phvslclansţ lŦeŦ Lhose dlrecLlv emploved bv lL ż11Ž or whose servlces are conLracLed bv
lLŦ ż12Ž ÞeLlLloner also provldes hosplLal servlces such as room and board
accommodaLlonţ laboraLorv servlcesţ operaLlna roomsţ xŴrav faclllLles and aeneral
nurslna careŦ ż13Ž lf and when a member avalls of Lhe beneflLs under Lhe aareemenLţ
peLlLloner pavs Lhe parLlclpaLlna phvslclans and oLher healLh care provlders for Lhe
servlces renderedţ aL preŴaareed raLesŦ ż14Ž

1o avall of peLlLloner's healLh care proaramsţ Lhe lndlvldual members are requlred Lo
slan and execuLe a sLandard healLh care aareemenL embodvlna Lhe Lerms and
condlLlons for Lhe provlslon of Lhe healLh care servlcesŦ 1he same aareemenL
conLalns Lhe varlous healLh care servlces LhaL can be enaaaed bv Lhe enrolled
memberţ lŦeŦţ prevenLlveţ dlaanosLlc and curaLlve medlcal servlcesŦ LxcepL for Lhe
curaLlve aspecL of Lhe medlcal servlce offeredţ Lhe enrolled member mav acLuallv
make use of Lhe healLh care servlces belna offered bv peLlLloner aL anv LlmeŦ

PLAL1P MAln1LnAnCL C8CAnlZA1lCnS A8L nC1 LnCACLu ln 1PL lnSu8AnCL
8uSlnLSS

We sald ln our !une 12ţ 2008 declslon LhaL lL ls lrrelevanL LhaL peLlLloner ls an PMC
and noL an lnsurer because lLs aareemenLs are LreaLed as lnsurance conLracLs and Lhe
uS1 ls noL a Lax on Lhe buslness buL an exclse on Lhe prlvlleaeţ opporLunlLv or faclllLv
used ln Lhe LransacLlon of Lhe buslnessŦ ż13Ž

ÞeLlLlonerţ howeverţ submlLs LhaL lL ls of crlLlcal lmporLance Lo characLerlze Lhe
buslness lL ls enaaaed lnţ LhaL lsţ Lo deLermlne wheLher lL ls an PMC or an lnsurance
companvţ as Lhls dlsLlncLlon ls lndlspensable ln Lurn Lo Lhe lssue of wheLher or noL lL
ls llable for uS1 on lLs healLh care aareemenLsŦ ż16Ž

A second hard look aL Lhe relevanL law and [urlsprudence convlnces Lhe CourL LhaL
Lhe araumenLs of peLlLloner are merlLorlousŦ

SecLlon 183 of Lhe naLlonal lnLernal 8evenue Code of 1997 (nl8C of 1997) provldesť

SecLlon 183Ŧ SLamp Lax on fldellLv bonds and oLher lnsurance pollclesŦ Ŷ Cn all
pollcles of lnsurance or bonds or obllaaLlons of Lhe naLure of lndemnlLv for lossţ
damaaeţ or llablllLv made or renewed bv anv personţ assoclaLlon or companv or
corporaLlon LransacLlna Lhe buslness of accldenLţ fldellLvţ emplover's llablllLvţ plaLeţ
alassţ sLeam bollerţ buralarţ elevaLorţ auLomaLlc sprlnklerţ or oLher branch of
lnsurance (excepL llfeţ marlneţ lnlandţ and flre lnsurance)ţ and all bondsţ
underLaklnasţ or recoanlzancesţ condlLloned for Lhe performance of Lhe duLles of anv
offlce or poslLlonţ for Lhe dolna or noL dolna of anvLhlna Lhereln speclfledţ and on all
obllaaLlons auaranLeelna Lhe valldlLv or leaallLv of anv bond or oLher obllaaLlons
lssued bv anv provlnceţ clLvţ munlclpallLvţ or oLher publlc bodv or oraanlzaLlonţ and
on all obllaaLlons auaranLeelna Lhe LlLle Lo anv real esLaLeţ or auaranLeelna anv
mercanLlle credlLsţ whlch mav be made or renewed bv anv such personţ companv or
corporaLlonţ Lhere shall be collecLed a documenLarv sLamp Lax of flfLv cenLavos
(Þ0Ŧ30) on each four pesos (Þ4Ŧ00)ţ or fracLlonal parL Lhereofţ of Lhe premlum
charaedŦ

lL ls a cardlnal rule ln sLaLuLorv consLrucLlon LhaL no wordţ clauseţ senLenceţ provlslon
or parL of a sLaLuLe shall be consldered surplusaae or superfluousţ meanlnalessţ vold
and lnslanlflcanLŦ 1o Lhls endţ a consLrucLlon whlch renders everv word operaLlve ls
preferred over LhaL whlch makes some words ldle and nuaaLorvŦ ż17Ž 1hls prlnclple ls
expressed ln Lhe maxlm uL maals valeaL quam pereaLţ LhaL lsţ we choose Lhe
lnLerpreLaLlon whlch alves effecL Lo Lhe whole of Lhe sLaLuLe Ŷ lLs everv wordŦ ż18Ž

lrom Lhe lanauaae of SecLlon 183ţ lL ls evldenL LhaL Lwo requlslLes musL concur
before Lhe uS1 can applvţ namelvť (1) Lhe documenL musL be a pollcv of lnsurance or
an obllaaLlon ln Lhe naLure of lndemnlLv and (2) Lhe maker should be LransacLlna Lhe
buslness of accldenLţ fldellLvţ emplover's llablllLvţ plaLeţ alassţ sLeam bollerţ buralarţ
elevaLorţ auLomaLlc sprlnklerţ or oLher branch of lnsurance (excepL llfeţ marlneţ
lnlandţ and flre lnsurance)Ŧ

ÞeLlLloner ls admlLLedlv an PMCŦ under 8A 7873 (or º1he naLlonal PealLh lnsurance
AcL of 1993")ţ an PMC ls ºan enLlLv LhaL provldesţ offers or arranaes for coveraae of
deslanaLed healLh servlces needed bv plan members for a flxed prepald premlumŦ"
ż19Ž 1he pavmenLs do noL varv wlLh Lhe exLenLţ frequencv or Lvpe of servlces
provldedŦ

1he quesLlon lsť was peLlLlonerţ as an PMCţ enaaaed ln Lhe buslness of lnsurance
durlna Lhe perLlnenL Laxable vears? We rule LhaL lL was noLŦ

SecLlon 2 (2) of Þu ż20Ž 1460 (oLherwlse known as Lhe lnsurance Code) enumeraLes
whaL consLlLuLes ºdolna an lnsurance buslness" or ºLransacLlna an lnsurance
buslnessť"

(a) maklna or proposlna Lo makeţ as lnsurerţ anv lnsurance conLracLŤ
(b) maklna or proposlna Lo makeţ as sureLvţ anv conLracL of sureLvshlp as a
vocaLlon and noL as merelv lncldenLal Lo anv oLher lealLlmaLe buslness or
acLlvlLv of Lhe sureLvŤ
(c) dolna anv klnd of buslnessţ lncludlna a relnsurance buslnessţ speclflcallv
recoanlzed as consLlLuLlna Lhe dolna of an lnsurance buslness wlLhln Lhe
meanlna of Lhls CodeŤ
(d) dolna or proposlna Lo do anv buslness ln subsLance equlvalenL Lo anv of
Lhe foreaolna ln a manner deslaned Lo evade Lhe provlslons of Lhls CodeŦ

ln Lhe appllcaLlon of Lhe provlslons of Lhls Codeţ Lhe facL LhaL no proflL ls derlved
from Lhe maklna of lnsurance conLracLsţ aareemenLs or LransacLlons or LhaL no
separaLe or dlrecL conslderaLlon ls recelved Lhereforeţ shall noL be deemed
concluslve Lo show LhaL Lhe maklna Lhereof does noL consLlLuLe Lhe dolna or
LransacLlna of an lnsurance buslnessŦ

varlous courLs ln Lhe unlLed SLaLesţ whose [urlsprudence has a persuaslve effecL on
our declslonsţ ż21Ž have deLermlned LhaL PMCs are noL ln Lhe lnsurance buslnessŦ
Cne LesL LhaL Lhev have applled ls wheLher Lhe assumpLlon of rlsk and
lndemnlflcaLlon of loss (whlch are elemenLs of an lnsurance buslness) are Lhe
prlnclpal ob[ecL and purpose of Lhe oraanlzaLlon or wheLher Lhev are merelv
lncldenLal Lo lLs buslnessŦ lf Lhese are Lhe prlnclpal ob[ecLlvesţ Lhe buslness ls LhaL of
lnsuranceŦ 8uL lf Lhev are merelv lncldenLal and servlce ls Lhe prlnclpal purposeţ Lhen
Lhe buslness ls noL lnsuranceŦ

Applvlna Lhe ºprlnclpal ob[ecL and purpose LesLţ" ż22Ž Lhere ls slanlflcanL Amerlcan
case law supporLlna Lhe araumenL LhaL a corporaLlon (such as an PMCţ wheLher or
noL oraanlzed for proflL)ţ whose maln ob[ecL ls Lo provlde Lhe members of a aroup
wlLh healLh servlcesţ ls noL enaaaed ln Lhe lnsurance buslnessŦ

1he rule was enunclaLed ln !ordan vŦ Croup PealLh AssoclaLlon ż23Ž whereln Lhe
CourL of Appeals of Lhe ulsLrlcL of Columbla ClrculL held LhaL Croup PealLh
AssoclaLlon should noL be consldered as enaaaed ln lnsurance acLlvlLles slnce lL was
creaLed prlmarllv for Lhe dlsLrlbuLlon of healLh care servlces raLher Lhan Lhe
assumpLlon of lnsurance rlskŦ

xxx AlLhouah Croup PealLh's acLlvlLles mav be consldered ln one aspecL as creaLlna
securlLv aaalnsL loss from lllness or accldenL more Lrulv Lhev consLlLuLe Lhe quanLlLv
purchase of wellŴroundedţ conLlnuous medlcal servlce bv lLs membersŦ xxx 1he
funcLlons of such an oraanlzaLlon are noL ldenLlcal wlLh Lhose of lnsurance or
lndemnlLv companlesŦ 1he laLLer are concerned prlmarllvţ lf noL excluslvelvţ wlLh rlsk
and Lhe consequences of lLs descenLţ noL wlLh servlceţ or lLs exLenslon ln klndţ
quanLlLv or dlsLrlbuLlonŤ wlLh Lhe unusual occurrenceţ noL Lhe dallv rouLlne of llvlnaŦ
Pazard ls predomlnanLŦ Cn Lhe oLher handţ Lhe cooperaLlve ls concerned prlnclpallv
wlLh aeLLlna servlce rendered Lo lLs members and dolna so aL lower prlces made
posslble bv quanLlLv purchaslna and economles ln operaLlonŦ lLs prlmarv purpose ls Lo
reduce Lhe cosL raLher Lhan Lhe rlsk of medlcal careŤ Lo broaden Lhe servlce Lo Lhe
lndlvldual ln klnd and quanLlLvŤ Lo enlarae Lhe number recelvlna lLŤ Lo reaularlze lL as
an evervdav lncldenL of llvlnaţ llke purchaslna food and cloLhlna or oll and aasţ raLher
Lhan merelv proLecLlna aaalnsL Lhe flnanclal loss caused bv exLraordlnarv and unusual
occurrencesţ such as deaLhţ dlsasLer aL seaţ flre and LornadoŦ lL lsţ ln Lhls lnsLanceţ Lo
Lake care of coldsţ ordlnarv aches and palnsţ mlnor llls and all Lhe Lemporarv bodllv
dlscomforLs as well as Lhe more serlous and unusual lllnessŦ 1o summarlzeţ Lhe
dlsLlncLlve feaLures of Lhe cooperaLlve are Lhe renderlna of servlceţ lLs exLenslonţ Lhe
brlnalna of phvslclan and paLlenL LoaeLherţ Lhe prevenLlve feaLuresţ Lhe reaularlzaLlon
of servlce as well as pavmenLţ Lhe subsLanLlal reducLlon ln cosL bv quanLlLv
purchaslna ln shorLţ aeLLlna Lhe medlcal [ob done and pald forŤ noLţ excepL
lncldenLallv Lo Lhese feaLuresţ Lhe lndemnlflcaLlon for cosL afLer Lhe servlces ls
renderedŦ LxcepL Lhe lasLţ Lhese are noL dlsLlncLlve or aenerallv characLerlsLlc of Lhe
lnsurance arranaemenLŦ 1here lsţ Lhereforeţ a subsLanLlal dlfference beLween
conLracLlna ln Lhls wav for Lhe renderlna of servlceţ even on Lhe conLlnaencv LhaL lL
be neededţ and conLracLlna merelv Lo sLand lLs cosL when or afLer lL ls renderedŦ

1haL an lncldenLal elemenL of rlsk dlsLrlbuLlon or assumpLlon mav be presenL should
noL ouLwelah all oLher facLorsŦ lf aLLenLlon ls focused onlv on LhaL feaLureţ Lhe llne
beLween lnsurance or lndemnlLv and oLher Lvpes of leaal arranaemenL and economlc
funcLlon becomes falnLţ lf noL exLlncLŦ 1hls ls especlallv Lrue when Lhe conLracL ls for
Lhe sale of aoods or servlces on conLlnaencvŦ 8uL obvlouslv lL was noL Lhe purpose of
Lhe lnsurance sLaLuLes Lo reaulaLe all arranaemenLs for assumpLlon or dlsLrlbuLlon of
rlskŦ 1haL vlew would cause Lhem Lo enaulf pracLlcallv all conLracLsţ parLlcularlv
condlLlonal sales and conLlnaenL servlce aareemenLsŦ 1he fallacv ls ln looklna onlv aL
Lhe rlsk elemenLţ Lo Lhe excluslon of all oLhers presenL or Lhelr subordlnaLlon Lo lLŦ
1he quesLlon Lurnsţ noL on wheLher rlsk ls lnvolved or assumedţ buL on wheLher LhaL
or someLhlna else Lo whlch lL ls relaLed ln Lhe parLlcular plan ls lLs prlnclpal ob[ecL
purposeŦ ż24Ž (Lmphasls supplled)

ln Callfornla Þhvslclans' Servlce vŦ Carrlsonţ ż23Ž Lhe Callfornla courL felL LhaLţ afLer
scruLlnlzlna Lhe plan of operaLlon as a whole of Lhe corporaLlonţ lL was servlce raLher
Lhan lndemnlLv whlch sLood as lLs prlnclpal purposeŦ

1here ls anoLher and more compelllna reason for holdlna LhaL Lhe servlce ls noL
enaaaed ln Lhe lnsurance buslnessŦ Absence or presence of assumpLlon of rlsk or perll
ls noL Lhe sole LesL Lo be applled ln deLermlnlna lLs sLaLusŦ 1he quesLlonţ more
broadlvţ ls wheLherţ looklna aL Lhe plan of operaLlon as a wholeţ 'servlce' raLher Lhan
'lndemnlLv' ls lLs prlnclpal ob[ecL and purposeŦ CerLalnlv Lhe ob[ecLs and purposes of
Izobe||e 1Ŧ Þu|go IN5UkANCL 3
Lhe corporaLlon oraanlzed and malnLalned bv Lhe Callfornla phvslclans have a wlde
scope ln Lhe fleld of soclal servlceŦ Þrobablv Lhere ls no more lmpelllna need Lhan
LhaL of adequaLe medlcal care on a volunLarvţ lowŴcosL basls for persons of small
lncomeŦ 1he medlcal professlon unlLedlv ls endeavorlna Lo meeL LhaL needŦ
unquesLlonablv Lhls ls 'servlce' of a hlah order and noL 'lndemnlLvŦ' ż26Ž (Lmphasls
supplled)

Amerlcan courLs have polnLed ouL LhaL Lhe maln dlfference beLween an PMC and an
lnsurance companv ls LhaL PMCs underLake Lo provlde or arranae for Lhe provlslon of
medlcal servlces Lhrouah parLlclpaLlna phvslclans whlle lnsurance companles slmplv
underLake Lo lndemnlfv Lhe lnsured for medlcal expenses lncurred up Lo a preŴaareed
llmlLŦ SomerseL CrLhopedlc AssoclaLesţ ÞŦAŦ vŦ Porlzon 8lue Cross and 8lue Shleld of
new !ersev ż27Ž ls clear on Lhls polnLť

1he baslc dlsLlncLlon beLween medlcal servlce corporaLlons and ordlnarv healLh and
accldenL lnsurers ls LhaL Lhe former underLake Lo provlde prepald medlcal servlces
Lhrouah parLlclpaLlna phvslclansţ Lhus rellevlna subscrlbers of anv furLher flnanclal
burdenţ whlle Lhe laLLer onlv underLake Lo lndemnlfv an lnsured for medlcal expenses
up Loţ buL noL bevondţ Lhe schedule of raLes conLalned ln Lhe pollcvŦ

xxx xxx xxx

1he prlmarv purpose of a medlcal servlce corporaLlonţ howeverţ ls an underLaklna Lo
provlde phvslclans who wlll render servlces Lo subscrlbers on a prepald baslsŦ Penceţ
lf Lhere are no phvslclans parLlclpaLlna ln Lhe medlcal servlce corporaLlon's planţ noL
onlv wlll Lhe subscrlbers be deprlved of Lhe proLecLlon whlch Lhev mlahL reasonablv
have expecLed would be provldedţ buL Lhe corporaLlon wlllţ ln effecLţ be dolna
buslness solelv as a healLh and accldenL lndemnlLv lnsurer wlLhouL havlna quallfled as
such and renderlna lLself sub[ecL Lo Lhe more sLrlnaenL flnanclal requlremenLs of Lhe
Ceneral lnsurance LawsŧŦ

A parLlclpaLlna provlder of healLh care servlces ls one who aarees ln wrlLlna Lo render
healLh care servlces Lo or for persons covered bv a conLracL lssued bv healLh servlce
corporaLlon ln reLurn for whlch Lhe healLh servlce corporaLlon aarees Lo make
pavmenL dlrecLlv Lo Lhe parLlclpaLlna provlderŦ ż28Ž (Lmphasls supplled)

ConsequenLlvţ Lhe mere presence of rlsk would be lnsufflclenL Lo overrlde Lhe
prlmarv purpose of Lhe buslness Lo provlde medlcal servlces as neededţ wlLh
pavmenL made dlrecLlv Lo Lhe provlder of Lhese servlcesŦ ż29Ž ln shorLţ even lf
peLlLloner assumes Lhe rlsk of pavlna Lhe cosL of Lhese servlces even lf slanlflcanLlv
more Lhan whaL Lhe member has prepaldţ lL neverLheless cannoL be consldered as
belna enaaaed ln Lhe lnsurance buslnessŦ

8v Lhe same Lokenţ anv lndemnlflcaLlon resulLlna from Lhe pavmenL for servlces
rendered ln case of emeraencv bv nonŴparLlclpaLlna healLh provlders would sLlll be
lncldenLal Lo peLlLloner's purpose of provldlna and arranalna for healLh care servlces
and does noL Lransform lL lnLo an lnsurerŦ 1o fulflll lLs obllaaLlons Lo lLs members
under Lhe aareemenLsţ peLlLloner ls requlred Lo seL up a svsLem and Lhe faclllLles for
Lhe dellverv of such medlcal servlcesŦ 1hls lndublLablv shows LhaL lndemnlflcaLlon ls
noL lLs sole ob[ecLŦ

ln facLţ a subsLanLlal porLlon of peLlLloner's servlces covers prevenLlve and dlaanosLlc
medlcal servlces lnLended Lo keep members from developlna medlcal condlLlons or
dlseasesŦ ż30Ž As an PMCţ lL ls lLs obllaaLlon Lo malnLaln Lhe aood healLh of lLs
membersŦ Accordlnalvţ lLs healLh care proarams are deslaned Lo prevenL or Lo
mlnlmlze Lhe posslblllLv of anv assumpLlon of rlsk on lLs parLŦ 1husţ lLs underLaklna
under lLs aareemenLs ls noL Lo lndemnlfv lLs members aaalnsL anv loss or damaae
arlslna from a medlcal condlLlon buLţ on Lhe conLrarvţ Lo provlde Lhe healLh and
medlcal servlces needed Lo prevenL such loss or damaaeŦ ż31Ž

Cverallţ peLlLloner appears Lo provlde lnsuranceŴLvpe beneflLs Lo lLs members (wlLh
respecL Lo lLs curaLlve medlcal servlces)ţ buL Lhese are lncldenLal Lo Lhe prlnclpal
acLlvlLv of provldlna Lhem medlcal careŦ 1he ºlnsuranceŴllke" aspecL of peLlLloner's
buslness ls mlnlscule compared Lo lLs nonlnsurance acLlvlLlesŦ 1hereforeţ slnce lL
subsLanLlallv provldes healLh care servlces raLher Lhan lnsurance servlcesţ lL cannoL
be consldered as belna ln Lhe lnsurance buslnessŦ

lL ls lmporLanL Lo emphaslze LhaLţ ln adopLlna Lhe ºprlnclpal purpose LesL" used ln Lhe
aboveŴquoLed uŦSŦ casesţ we are noL savlna LhaL peLlLloner's operaLlons are ldenLlcal
ln everv respecL Lo Lhose of Lhe PMCs or healLh provlders whlch were parLles Lo
Lhose casesŦ WhaL we are sLaLlna ls LhaLţ for Lhe purpose of deLermlnlna whaL ºdolna
an lnsurance buslness" meansţ we have Lo scruLlnlze Lhe operaLlons of Lhe buslness
as a whole and noL lLs mere componenLsŦ 1hls ls of course onlv prudenL and
approprlaLeţ Laklna lnLo accounL Lhe burdensome and sLrlcL lawsţ rules and
reaulaLlons appllcable Lo lnsurers and oLher enLlLles enaaaed ln Lhe lnsurance
buslnessŦ Moreoverţ we are also noL unmlndful LhaL Lhere are oLher Amerlcan
auLhorlLles who have found parLlcular PMCs Lo be acLuallv enaaaed ln lnsurance
acLlvlLlesŦ

LasLlvţ lL ls slanlflcanL LhaL peLlLlonerţ as an PMCţ ls noL parL of Lhe lnsurance
lndusLrvŦ 1hls ls evldenL from Lhe facL LhaL lL ls noL supervlsed bv Lhe lnsurance
Commlsslon buL bv Lhe ueparLmenL of PealLhŦ ż33Ž ln facLţ ln a leLLer daLed
SepLember 3ţ 2000ţ Lhe lnsurance Commlssloner conflrmed LhaL peLlLloner ls noL
enaaaed ln Lhe lnsurance buslnessŦ 1hls deLermlnaLlon of Lhe commlssloner musL be
accorded areaL welahLŦ lL ls wellŴseLLled LhaL Lhe lnLerpreLaLlon of an admlnlsLraLlve
aaencv whlch ls Lasked Lo lmplemenL a sLaLuLe ls accorded areaL respecL and
ordlnarllv conLrols Lhe lnLerpreLaLlon of laws bv Lhe courLsŦ 1he reason behlnd Lhls
rule was explalned ln nesLle Þhlllpplnesţ lncŦ vŦ CourL of Appealsť ż34Ž

1he raLlonale for Lhls rule relaLes noL onlv Lo Lhe emeraence of Lhe mulLlfarlous
needs of a modern or modernlzlna socleLv and Lhe esLabllshmenL of dlverse
admlnlsLraLlve aaencles for addresslna and saLlsfvlna Lhose needsŤ lL also relaLes Lo
Lhe accumulaLlon of experlence and arowLh of speclallzed capablllLles bv Lhe
admlnlsLraLlve aaencv charaed wlLh lmplemenLlna a parLlcular sLaLuLeŦ ln AsLurlas
Suaar CenLralţ lncŦ vsŦ Commlssloner of CusLomsţ ż33Ž Lhe CourL sLressed LhaL
execuLlve offlclals are presumed Lo have famlllarlzed Lhemselves wlLh all Lhe
conslderaLlons perLlnenL Lo Lhe meanlna and purpose of Lhe lawţ and Lo have formed
an lndependenLţ consclenLlous and compeLenL experL oplnlon LhereonŦ 1he courLs
alve much welahL Lo Lhe aovernmenL aaencv offlclals charaed wlLh Lhe
lmplemenLaLlon of Lhe lawţ Lhelr compeLenceţ experLnessţ experlence and lnformed
[udamenLţ and Lhe facL LhaL Lhev frequenLlv are Lhe drafLers of Lhe law Lhev lnLerpreLŦ

A PLAL1P CA8L AC8LLMLn1 lS nC1 An lnSu8AnCL CCn18AC1 CCn1LMÞLA1Lu
unuL8 SLC1lCn 183 Cl 1PL nl8C Cl 1997

SecLlon 183 sLaLes LhaL uS1 ls lmposed on ºall pollcles of lnsuranceŧ or obllaaLlons of
Lhe naLure of lndemnlLv for lossţ damaaeţ or llablllLvŧŦ" ln our declslon daLed !une
12ţ 2008ţ we ruled LhaL peLlLloner's healLh care aareemenLs are conLracLs of
lndemnlLv and are Lherefore lnsurance conLracLsť

lL ls ŧ lncorrecL Lo sav LhaL Lhe healLh care aareemenL ls noL based on loss or damaae
becauseţ under Lhe sald aareemenLţ peLlLloner assumes Lhe llablllLv and lndemnlfles
lLs member for hosplLalţ medlcal and relaLed expenses (such as professlonal fees of
phvslclans)Ŧ 1he Lerm ƍloss or damaaeƍ ls broad enouah Lo cover Lhe moneLarv
expense or llablllLv a member wlll lncur ln case of lllness or ln[urvŦ
under Lhe healLh care aareemenLţ Lhe rendlLlon of hosplLalţ medlcal and professlonal
servlces Lo Lhe member ln case of slcknessţ ln[urv or emeraencv or hls avallmenL of
soŴcalled ƍouLŴpaLlenL servlcesƍ (lncludlna phvslcal examlnaLlonţ xŴrav and laboraLorv
LesLsţ medlcal consulLaLlonsţ vacclne admlnlsLraLlon and famllv plannlna counsellna)
ls Lhe conLlnaenL evenL whlch alves rlse Lo llablllLv on Lhe parL of Lhe memberŦ ln case
of exposure of Lhe member Lo llablllLvţ he would be enLlLled Lo lndemnlflcaLlon bv
peLlLlonerŦ

lurLhermoreţ Lhe facL LhaL peLlLloner musL relleve lLs member from llablllLv bv pavlna
for expenses arlslna from Lhe sLlpulaLed conLlnaencles belles lLs clalm LhaL lLs servlces
are prepaldŦ 1he expenses Lo be lncurred bv each member cannoL be predlcLed
beforehandţ lf Lhev can be predlcLed aL allŦ ÞeLlLloner assumes Lhe rlsk of pavlna for
Lhe cosLs of Lhe servlces even lf Lhev are slanlflcanLlv and subsLanLlallv more Lhan
whaL Lhe member has ƍprepaldŦƍ ÞeLlLloner does noL bear Lhe cosLs alone buL
dlsLrlbuLes or spreads Lhem ouL amona a larae aroup of persons bearlna a slmllar rlskţ
LhaL lsţ amona all Lhe oLher members of Lhe healLh care proaramŦ 1hls ls lnsuranceŦ

We reconslderŦ We shall quoLe once aaaln Lhe perLlnenL porLlon of SecLlon 183ť

SecLlon 183Ŧ SLamp Lax on fldellLv bonds and oLher lnsurance pollclesŦ Ŷ Cn all
pollcles of lnsurance or bonds or obllaaLlons of Lhe naLure of lndemnlLv for lossţ
damaaeţ or llablllLv made or renewed bv anv personţ assoclaLlon or companv or
corporaLlon LransacLlna Lhe buslness of accldenLţ fldellLvţ emplover's llablllLvţ plaLeţ
alassţ sLeam bollerţ buralarţ elevaLorţ auLomaLlc sprlnklerţ or oLher branch of
lnsurance (excepL llfeţ marlneţ lnlandţ and flre lnsurance)ţ xxxx (Lmphasls supplled)

ln consLrulna Lhls provlslonţ we should be aulded bv Lhe prlnclple LhaL Lax sLaLuLes
are sLrlcLlv consLrued aaalnsL Lhe Laxlna auLhorlLvŦ ż38Ž 1hls ls because LaxaLlon ls a
desLrucLlve power whlch lnLerferes wlLh Lhe personal and properLv rlahLs of Lhe
people and Lakes from Lhem a porLlon of Lhelr properLv for Lhe supporL of Lhe
aovernmenLŦ ż39Ž Penceţ Lax laws mav noL be exLended bv lmpllcaLlon bevond Lhe
clear lmporL of Lhelr lanauaaeţ nor Lhelr operaLlon enlaraed so as Lo embrace maLLers
noL speclflcallv provldedŦ ż40Ž

We are aware LhaLţ ln 8lue Cross and Þhllamcareţ Lhe CourL pronounced LhaL a healLh
care aareemenL ls ln Lhe naLure of nonŴllfe lnsuranceţ whlch ls prlmarllv a conLracL of
lndemnlLvŦ Poweverţ Lhose cases dld noL lnvolve Lhe lnLerpreLaLlon of a Lax provlslonŦ
lnsLeadţ Lhev dealL wlLh Lhe llablllLv of a healLh servlce provlder Lo a member under
Lhe Lerms of Lhelr healLh care aareemenLŦ Such conLracLsţ as conLracLs of adheslonţ
are llberallv lnLerpreLed ln favor of Lhe member and sLrlcLlv aaalnsL Lhe PMCŦ lor Lhls
reasonţ we reconslder our rullna LhaL 8lue Cross and Þhllamcare are appllcable hereŦ

SecLlon 2 (1) of Lhe lnsurance Code deflnes a conLracL of lnsurance as an aareemenL
wherebv one underLakes for a conslderaLlon Lo lndemnlfv anoLher aaalnsL lossţ
damaae or llablllLv arlslna from an unknown or conLlnaenL evenLŦ An lnsurance
conLracL exlsLs where Lhe followlna elemenLs concurť

1Ŧ 1he lnsured has an lnsurable lnLeresLŤ
2Ŧ 1he lnsured ls sub[ecL Lo a rlsk of loss bv Lhe happenlna of Lhe deslaned
perllŤ
Izobe||e 1Ŧ Þu|go IN5UkANCL 4
3Ŧ 1he lnsurer assumes Lhe rlskŤ
4Ŧ Such assumpLlon of rlsk ls parL of a aeneral scheme Lo dlsLrlbuLe acLual
losses amona a larae aroup of persons bearlna a slmllar rlsk and
3Ŧ ln conslderaLlon of Lhe lnsurer's promlseţ Lhe lnsured pavs a premlumŦ

uo Lhe aareemenLs beLween peLlLloner and lLs members possess all Lhese elemenLs?
1hev do noLŦ

llrsLŦ ln our [urlsdlcLlonţ a commenLaLor of our lnsurance laws has polnLed ouL LhaLţ
even lf a conLracL conLalns all Lhe elemenLs of an lnsurance conLracLţ lf lLs prlmarv
purpose ls Lhe renderlna of servlceţ lL ls noL a conLracL of lnsuranceť

lL does noL necessarllv follow howeverţ LhaL a conLracL conLalnlna all Lhe four
elemenLs menLloned above would be an lnsurance conLracLŦ 1he prlmarv purpose of
Lhe parLles ln maklna Lhe conLracL mav neaaLe Lhe exlsLence of an lnsurance conLracLŦ
lor exampleţ a law flrm whlch enLers lnLo conLracLs wlLh cllenLs wherebv ln
conslderaLlon of perlodlcal pavmenLsţ lL promlses Lo represenL such cllenLs ln all sulLs
for or aaalnsL Lhemţ ls noL enaaaed ln Lhe lnsurance buslnessŦ lLs conLracLs are slmplv
for Lhe purpose of renderlna personal servlcesŦ Cn Lhe oLher handţ a conLracL bv
whlch a corporaLlonţ ln conslderaLlon of a sLlpulaLed amounLţ aarees aL lLs own
expense Lo defend a phvslclan aaalnsL all sulLs for damaaes for malpracLlce ls one of
lnsuranceţ and Lhe corporaLlon wlll be deemed as enaaaed ln Lhe buslness of
lnsuranceŦ unllke Lhe lawver's reLalner conLracLţ Lhe essenLlal purpose of such a
conLracL ls noL Lo render personal servlcesţ buL Lo lndemnlfv aaalnsL loss and damaae
resulLlna from Lhe defense of acLlons for malpracLlceŦ ż42Ž (Lmphasls supplled)

SecondŦ noL all Lhe necessarv elemenLs of a conLracL of lnsurance are presenL ln
peLlLloner's aareemenLsŦ 1o bealn wlLhţ Lhere ls no lossţ damaae or llablllLv on Lhe
parL of Lhe member LhaL should be lndemnlfled bv peLlLloner as an PMCŦ under Lhe
aareemenLţ Lhe member pavs peLlLloner a predeLermlned conslderaLlon ln exchanae
for Lhe hosplLalţ medlcal and professlonal servlces rendered bv Lhe peLlLloner's
phvslclan or afflllaLed phvslclan Lo hlmŦ ln case of avallmenL bv a member of Lhe
beneflLs under Lhe aareemenLţ peLlLloner does noL relmburse or lndemnlfv Lhe
member as Lhe laLLer does noL pav anv Lhlrd parLvŦ lnsLeadţ lL ls Lhe peLlLloner who
pavs Lhe parLlclpaLlna phvslclans and oLher healLh care provlders for Lhe servlces
rendered aL preŴaareed raLesŦ 1he member does noL make anv such pavmenLŦ

ln oLher wordsţ Lhere ls noLhlna ln peLlLlonerƌs aareemenLs LhaL alves rlse Lo a
moneLarv llablllLv on Lhe parL of Lhe member Lo anv Lhlrd parLvŴprovlder of medlcal
servlces whlch mlahL ln Lurn necesslLaLe lndemnlflcaLlon from peLlLlonerŦ 1he Lerms
ºlndemnlfv" or ºlndemnlLv" presuppose LhaL a llablllLv or clalm has alreadv been
lncurredŦ 1here ls no lndemnlLv preclselv because Lhe member merelv avalls of
medlcal servlces Lo be pald or alreadv pald ln advance aL a preŴaareed prlce under
Lhe aareemenLsŦ

1hlrdŦ Accordlna Lo Lhe aareemenLţ a member can Lake advanLaae of Lhe bulk of Lhe
beneflLs anvLlmeţ eŦaŦ laboraLorv servlcesţ xŴravţ rouLlne annual phvslcal examlnaLlon
and consulLaLlonsţ vacclne admlnlsLraLlon as well as famllv plannlna counsellnaţ even
ln Lhe absence of anv perllţ loss or damaae on hls or her parLŦ
lourLhŦ ln case of emeraencvţ peLlLloner ls obllaed Lo relmburse Lhe member who
recelves care from a nonŴparLlclpaLlna phvslclan or hosplLalŦ Poweverţ Lhls ls onlv a
verv mlnor parL of Lhe llsL of servlces avallableŦ 1he assumpLlon of Lhe expense bv
peLlLloner ls noL conflned Lo Lhe happenlna of a conLlnaencv buL lncludes lncldenLs
even ln Lhe absence of lllness or ln[urvŦ

ln Mlchlaan ÞodlaLrlc Medlcal AssoclaLlon vŦ naLlonal looL Care Þroaramţ lncŦţ ż43Ž
alLhouah Lhe healLh care conLracLs called for Lhe defendanL Lo parLlallv relmburse a
subscrlber for LreaLmenL recelved from a nonŴdeslanaLed docLorţ Lhls dld noL make
defendanL an lnsurerŦ ClLlna !ordanţ Lhe CourL deLermlned LhaL ºLhe prlmarv acLlvlLv
of Lhe defendanL (was) Lhe provlslon of podlaLrlc servlces Lo subscrlbers ln
conslderaLlon of prepavmenL for such servlcesŦ" ż44Ž Slnce lndemnlLv of Lhe lnsured
was noL Lhe focal polnL of Lhe aareemenL buL Lhe exLenslon of medlcal servlces Lo Lhe
member aL an affordable cosLţ lL dld noL parLake of Lhe naLure of a conLracL of
lnsuranceŦ

llfLhŦ AlLhouah rlsk ls a prlmarv elemenL of an lnsurance conLracLţ lL ls noL necessarllv
Lrue LhaL rlsk alone ls sufflclenL Lo esLabllsh lLŦ AlmosL anvone who underLakes a
conLracLual obllaaLlon alwavs bears a cerLaln dearee of flnanclal rlskŦ ConsequenLlvţ
Lhere ls a need Lo dlsLlnaulsh prepald servlce conLracLs (llke Lhose of peLlLloner) from
Lhe usual lnsurance conLracLsŦ

lndeedţ peLlLlonerţ as an PMCţ underLakes a buslness rlsk when lL offers Lo provlde
healLh servlcesť Lhe rlsk LhaL lL mlahL fall Lo earn a reasonable reLurn on lLs
lnvesLmenLŦ 8uL lL ls noL Lhe rlsk of Lhe Lvpe pecullar onlv Lo lnsurance companlesŦ
lnsurance rlskţ also known as acLuarlal rlskţ ls Lhe rlsk LhaL Lhe cosL of lnsurance
clalms mlahL be hlaher Lhan Lhe premlums paldŦ 1he amounL of premlum ls
calculaLed on Lhe basls of assumpLlons made relaLlve Lo Lhe lnsuredŦ ż43Ž

Poweverţ assumlna LhaL peLlLloner's commlLmenL Lo provlde medlcal servlces Lo lLs
members can be consLrued as an accepLance of Lhe rlsk LhaL lL wlll shell ouL more
Lhan Lhe prepald feesţ lL sLlll wlll noL quallfv as an lnsurance conLracL because
peLlLloner's ob[ecLlve ls Lo provlde medlcal servlces aL reduced cosLţ noL Lo dlsLrlbuLe
rlsk llke an lnsurerŦ

ln sumţ an examlnaLlon of peLlLloner's aareemenLs wlLh lLs members leads us Lo
conclude LhaL lL ls noL an lnsurance conLracL wlLhln Lhe conLexL of our lnsurance
CodeŦ

1PL8L WAS nC LLClSLA1lvL ln1Ln1 1C lMÞCSL uS1 Cn PLAL1P CA8L AC8LLMLn1S
Cl PMCS

lurLhermoreţ mlllLaLlna ln convlnclna fashlon aaalnsL Lhe lmposlLlon of
uS1 on peLlLloner's healLh care aareemenLs under SecLlon 183 of Lhe nl8C of 1997 ls
Lhe provlslon's lealslaLlve hlsLorvŦ 1he LexL of SecLlon 183 came lnLo uŦSŦ law as earlv
as 1904 when PMCs and healLh care aareemenLs were noL even ln exlsLence ln Lhls
[urlsdlcLlonŦ lL was lmposed under SecLlon 116ţ ArLlcle xl of AcL noŦ 1189 (oLherwlse
known as Lhe ºlnLernal 8evenue Law of 1904") ż46Ž enacLed on !ulv 2ţ 1904 and
became effecLlve on AuausL 1ţ 1904Ŧ LxcepL for Lhe raLe of Laxţ SecLlon 183 of Lhe
nl8C of 1997 ls a verbaLlm reproducLlon of Lhe perLlnenL porLlon of SecLlon 116ţ Lo
wlLť

A81lCLL xl
SLamp 1axes on Speclfled Cb[ecLs

SecLlon 116Ŧ 1here shall be levledţ collecLedţ and pald for and ln respecL Lo
Lhe several bondsţ debenLuresţ or cerLlflcaLes of sLock and lndebLednessţ and oLher
documenLsţ lnsLrumenLsţ maLLersţ and Lhlnas menLloned and descrlbed ln Lhls
secLlonţ or for or ln respecL Lo Lhe vellumţ parchmenLţ or paper upon whlch such
lnsLrumenLţ maLLersţ or Lhlnas or anv of Lhem shall be wrlLLen or prlnLed bv anv
person or persons who shall makeţ slanţ or lssue Lhe sameţ on and afLer !anuarv flrsLţ
nlneLeen hundred and flveţ Lhe several Laxes followlnať

xxx xxx xxx

1hlrd xxx (c) on all pollcles of lnsurance or bond or obllaaLlon of Lhe naLure of
lndemnlLv for lossţ damaaeţ or llablllLv made or renewed bv anv personţ assoclaLlonţ
companvţ or corporaLlon LransacLlna Lhe buslness of accldenLţ fldellLvţ emplover's
llablllLvţ plaLe alassţ sLeam bollerţ buralarţ elevaLorţ auLomaLlc sprlnkleţ or oLher
branch of lnsurance (excepL llfeţ marlneţ lnlandţ and flre lnsurance) xxxx (Lmphasls
supplled)

Cn lebruarv 27ţ 1914ţ AcL noŦ 2339 (Lhe lnLernal 8evenue Law of 1914) was enacLed
revlslna and consolldaLlna Lhe laws relaLlna Lo lnLernal revenueŦ 1he aforeclLed
perLlnenL porLlon of SecLlon 116ţ ArLlcle xl of AcL noŦ 1189 was compleLelv
reproduced as SecLlon 30 (l)ţ ArLlcle lll of AcL noŦ 2339Ŧ 1he verv deLalled and
excluslve enumeraLlon of lLems sub[ecL Lo uS1 was Lhus reLalnedŦ

Cn uecember 31ţ 1916ţ SecLlon 30 (l)ţ ArLlcle lll of AcL noŦ 2339 was aaaln
reproduced as SecLlon 1604 (l)ţ ArLlcle lv of AcL noŦ 2637 (AdmlnlsLraLlve Code)Ŧ
upon lLs amendmenL on March 10ţ 1917ţ Lhe perLlnenL uS1 provlslon became
SecLlon 1449 (l) of AcL noŦ 2711ţ oLherwlse known as Lhe AdmlnlsLraLlve Code of
1917Ŧ

SecLlon 1449 (1) evenLuallv became SecŦ 222 of CommonwealLh AcL noŦ 466 (Lhe
nl8C of 1939)ţ whlch codlfled all Lhe lnLernal revenue laws of Lhe ÞhlllpplnesŦ ln an
amendmenL lnLroduced bv 8A 40 on CcLober 1ţ 1946ţ Lhe uS1 raLe was lncreased buL
Lhe provlslon remalned subsLanLlallv Lhe sameŦ

1hereafLerţ on !une 3ţ 1977ţ Lhe same provlslon wlLh Lhe same uS1 raLe
was reproduced ln Þu 1138 (nl8C of 1977) as SecLlon 234Ŧ under Þus 1437 and
1939ţ enacLed on !une 11ţ 1978 and CcLober 10ţ 1984 respecLlvelvţ Lhe uS1 raLe was
aaaln lncreasedŦ

LffecLlve !anuarv 1ţ 1986ţ pursuanL Lo SecLlon 43 of Þu 1994ţ SecLlon 234
of Lhe nl8C of 1977 was renumbered as SecLlon 198Ŧ And under SecLlon 23 of LC ż47Ž
273 daLed !ulv 23ţ 1987ţ lL was aaaln renumbered and became SecLlon 183Ŧ

Cn uecember 23ţ 1993ţ under 8A 7660ţ SecLlon 183 was amended buLţ
aaalnţ onlv wlLh respecL Lo Lhe raLe of LaxŦ

noLwlLhsLandlna Lhe comprehenslve amendmenL of Lhe nl8C of 1977 bv
8A 8424 (or Lhe nl8C of 1997)ţ Lhe sub[ecL leaal provlslon was reLalned as Lhe presenL
SecLlon 183Ŧ ln 2004ţ amendmenLs Lo Lhe uS1 provlslons were lnLroduced bv 8A
9243 ż48Ž buL SecLlon 183 was unLouchedŦ

Cn Lhe oLher handţ Lhe concepL of an PMC was lnLroduced ln Lhe Þhlllpplnes wlLh
Lhe formaLlon of 8ancom PealLh Care CorporaLlon ln 1974Ŧ 1he same ploneer PMC
was laLer reoraanlzed and renamed lnLearaLed PealLh Care Servlcesţ lncŦ (or
lnLercare)Ŧ Poweverţ Lhere are Lhose who clalm LhaL PealLh MalnLenanceţ lncŦ ls Lhe
PMC lndusLrv ploneerţ havlna seL fooL ln Lhe Þhlllpplnes as earlv as 1963 and havlna
been formallv lncorporaLed ln 1991Ŧ AfLerwardsţ PMCs prollferaLed qulcklv and
currenLlvţ Lhere are 36 realsLered PMCs wlLh a LoLal enrollmenL of more Lhan 2
mllllonŦ ż49Ž

Izobe||e 1Ŧ Þu|go IN5UkANCL 5
We can clearlv see from Lhese Lwo hlsLorles (of Lhe uS1 on Lhe one hand and PMCs
on Lhe oLher) LhaL when Lhe law lmposlna Lhe uS1 was flrsL passedţ PMCs were veL
unknown ln Lhe ÞhlllpplnesŦ Poweverţ when Lhe varlous amendmenLs Lo Lhe uS1 law
were enacLedţ Lhev were alreadv ln exlsLence ln Lhe Þhlllpplnes and Lhe Lerm had ln
facL alreadv been deflned bv 8A 7873Ŧ lf lL had been Lhe lnLenL of Lhe lealslaLure Lo
lmpose uS1 on healLh care aareemenLsţ lL could have done so ln clear and caLeaorlcal
LermsŦ lL had manv opporLunlLles Lo do soŦ 8uL lL dld noLŦ 1he facL LhaL Lhe nl8C
conLalned no speclflc provlslon on Lhe uS1 llablllLv of healLh care aareemenLs of
PMCs aL a Llme Lhev were alreadv known as suchţ belles anv lealslaLlve lnLenL Lo
lmpose lL on LhemŦ As a maLLer of facLţ peLlLloner was assessed lLs uS1 llablllLv onlv
on !anuarv 27ţ 2000ţ afLer more Lhan a decade ln Lhe buslness as an PMCŦ ż30Ž

Conslderlna LhaL SecLlon 183 dld noL chanae slnce 1904 (excepL for Lhe raLe of Lax)ţ lL
would be safe Lo sav LhaL healLh care aareemenLs were neverţ aL anv Llmeţ
recoanlzed as lnsurance conLracLs or deemed enaaaed ln Lhe buslness of lnsurance
wlLhln Lhe conLexL of Lhe provlslonŦ

1PL ÞCWL8 1C 1Ax lS nC1 1PL ÞCWL8 1C uLS18C?

As a aeneral ruleţ Lhe power Lo Lax ls an lncldenL of soverelanLv and ls
unllmlLed ln lLs ranaeţ acknowledalna ln lLs verv naLure no llmlLsţ so LhaL securlLv
aaalnsL lLs abuse ls Lo be found onlv ln Lhe responslblllLv of Lhe lealslaLure whlch
lmposes Lhe Lax on Lhe consLlLuencv who ls Lo pav lLŦ ż31Ž So poLenL lndeed ls Lhe
power LhaL lL was once oplned LhaL ºLhe power Lo Lax lnvolves Lhe power Lo desLrovŦ"

ÞeLlLloner clalms LhaL Lhe assessed uS1 Lo daLe whlch amounLs Lo Þ376
mllllon ż33Ž ls wav bevond lLs neL worLh of Þ239 mllllonŦ ż34Ž 8espondenL never
dlspuLed Lhese asserLlonsŦ Clven Lhe reallLles on Lhe aroundţ lmposlna Lhe uS1 on
peLlLloner would be hlahlv oppresslveŦ lL ls noL Lhe purpose of Lhe aovernmenL Lo
LhroLLle prlvaLe buslnessŦ Cn Lhe conLrarvţ Lhe aovernmenL ouahL Lo encouraae
prlvaLe enLerprlseŦ ż33Ž ÞeLlLlonerţ [usL llke anv concern oraanlzed for a lawful
economlc acLlvlLvţ has a rlahL Lo malnLaln a lealLlmaLe buslnessŦ ż36Ž As apLlv held ln
8oxasţ eL alŦ vŦ C1Aţ eL alŦť ż37Ž

1he power of LaxaLlon ls someLlmes called also Lhe power Lo desLrovŦ 1herefore lL
should be exerclsed wlLh cauLlon Lo mlnlmlze ln[urv Lo Lhe proprleLarv rlahLs of a
LaxpaverŦ lL musL be exerclsed falrlvţ equallv and unlformlvţ lesL Lhe Lax collecLor klll
Lhe ºhen LhaL lavs Lhe aolden eaaŦ" ż38Ž

LealLlmaLe enLerprlses en[ov Lhe consLlLuLlonal proLecLlon noL Lo be Laxed
ouL of exlsLenceŦ lncurrlna losses because of a Lax lmposlLlon mav be an accepLable
consequence buL kllllna Lhe buslness of an enLlLv ls anoLher maLLer and should noL be
allowedŦ lL ls counLerŴproducLlve and ulLlmaLelv subverslve of Lhe naLlon's LhrusL
Lowards a beLLer economv whlch wlll ulLlmaLelv beneflL Lhe ma[orlLv of our peopleŦ
ż39Ž

ÞL1l1lCnL8'S 1Ax LlA8lLl1? WAS Lx1lnCulSPLu unuL8 1PL Þ8CvlSlCnS Cl 8A
9840

ÞeLlLloner asserLs LhaLţ reaardless of Lhe araumenLsţ Lhe uS1 assessmenL for Laxable
vears 1996 and 1997 became mooL and academlc ż60Ž when lL avalled of Lhe Lax
amnesLv under 8A 9480 on uecember 10ţ 2007Ŧ lL pald Þ3ţ127ţ149Ŧ08 represenLlna
3Ʒ of lLs neL worLh as of Lhe vear ended uecember 31ţ 2003 and complled wlLh all
requlremenLs of Lhe Lax amnesLvŦ under SecLlon 6(a) of 8A 9480ţ lL ls enLlLled Lo
lmmunlLv from pavmenL of Laxes as well as addlLlons LhereLoţ and Lhe appurLenanL
clvllţ crlmlnal or admlnlsLraLlve penalLles under Lhe 1997 nl8Cţ as amendedţ arlslna
from Lhe fallure Lo pav anv and all lnLernal revenue Laxes for Laxable vear 2003 and
prlor vearsŦ ż61Ž

lar from dlsaareelna wlLh peLlLlonerţ respondenL manlfesLed ln lLs memorandumť

SecLlon 6 of ż8A 9840Ž provldes LhaL avallmenL of Lax amnesLv enLlLles a Laxpaver Lo
lmmunlLv from pavmenL of Lhe Lax lnvolvedţ lncludlna Lhe clvllţ crlmlnalţ or
admlnlsLraLlve penalLles provlded under Lhe 1997 żnl8CŽţ for Lax llablllLles arlslna ln
2003 and Lhe precedlna vearsŦ

ln vlew of peLlLloner's avallmenL of Lhe beneflLs of ż8A 9840Žţ and wlLhouL concedlna
Lhe merlLs of Lhls case as dlscussed aboveţ respondenL concedes LhaL such Lax
amnesLv exLlnaulshes Lhe Lax llablllLles of peLlLlonerŦ 1hls admlsslonţ howeverţ ls noL
meanL Lo preclude a revocaLlon of Lhe amnesLv aranLed ln case lL ls found Lo have
been aranLed under clrcumsLances amounLlna Lo Lax fraud under SecLlon 10 of sald
amnesLv lawŦ ż62Ž (Lmphasls supplled)

lurLhermoreţ we held ln a recenL case LhaL uS1 ls one of Lhe Laxes covered bv Lhe Lax
amnesLv proaram under 8A 9480Ŧ ż63Ž 1here ls no oLher concluslon Lo draw Lhan LhaL
peLlLloner's llablllLv for uS1 for Lhe Laxable vears 1996 and 1997 was LoLallv
exLlnaulshed bv lLs avallmenL of Lhe Lax amnesLv under 8A 9480Ŧ

lS 1PL CCu81 8Cunu 8? A Mlnu1L 8LSCLu1lCn ln AnC1PL8 CASL?

ÞeLlLloner ralses anoLher lnLeresLlna lssue ln lLs moLlon for
reconslderaLlonť wheLher Lhls CourL ls bound bv Lhe rullna of Lhe CA ż64Ž ln Cl8 vŦ
Þhlllpplne naLlonal 8ank ż63Ž LhaL a healLh care aareemenL of Þhllamcare PealLh
SvsLems ls noL an lnsurance conLracL for purposes of Lhe uS1Ŧ

ln supporL of lLs araumenLţ peLlLloner clLes Lhe AuausL 29ţ 2001 mlnuLe
resoluLlon of Lhls CourL dlsmlsslna Lhe appeal ln Þhlllpplne naLlonal 8ank (CŦ8Ŧ noŦ
148680)Ŧ ż66Ž ÞeLlLloner araues LhaL Lhe dlsmlssal of CŦ8Ŧ noŦ 148680 bv mlnuLe
resoluLlon was a [udamenL on Lhe merlLsŤ henceţ Lhe CourL should applv Lhe CA rullna
Lhere LhaL a healLh care aareemenL ls noL an lnsurance conLracLŦ

lL ls Lrue LhaLţ alLhouah conLalned ln a mlnuLe resoluLlonţ our dlsmlssal of
Lhe peLlLlon was a dlsposlLlon of Lhe merlLs of Lhe caseŦ When we dlsmlssed Lhe
peLlLlonţ we effecLlvelv afflrmed Lhe CA rullna belna quesLlonedŦ As a resulLţ our
rullna ln LhaL case has alreadv become flnalŦ ż67Ž When a mlnuLe resoluLlon denles or
dlsmlsses a peLlLlon for fallure Lo complv wlLh formal and subsLanLlve requlremenLsţ
Lhe challenaed declslonţ LoaeLher wlLh lLs flndlnas of facL and leaal concluslonsţ are
deemed susLalnedŦ ż68Ž 8uL whaL ls lLs effecL on oLher cases?

WlLh respecL Lo Lhe same sub[ecL maLLer and Lhe same lssues concernlna Lhe same
parLlesţ lL consLlLuLes res [udlcaLaŦ ż69Ž Poweverţ lf oLher parLles or anoLher sub[ecL
maLLer (even wlLh Lhe same parLles and lssues) ls lnvolvedţ Lhe mlnuLe resoluLlon ls
noL blndlna precedenLŦ 1husţ ln Cl8 vŦ 8alerŴnlckelţ ż70Ž Lhe CourL noLed LhaL a
prevlous caseţ Cl8 vŦ 8alerŴnlckel ż71Ž lnvolvlna Lhe same parLles and Lhe same lssuesţ
was prevlouslv dlsposed of bv Lhe CourL Lhru a mlnuLe resoluLlon daLed lebruarv 17ţ
2003 susLalnlna Lhe rullna of Lhe CAŦ noneLhelessţ Lhe CourL ruled LhaL Lhe prevlous
case ºha(d) no bearlna" on Lhe laLLer case because Lhe Lwo cases lnvolved dlfferenL
sub[ecL maLLers as Lhev were concerned wlLh Lhe Laxable lncome of dlfferenL Laxable
vearsŦ ż72Ž

8esldesţ Lhere are subsLanLlalţ noL slmplv formalţ dlsLlncLlons beLween a
mlnuLe resoluLlon and a declslonŦ 1he consLlLuLlonal requlremenL under Lhe flrsL
paraaraph of SecLlon 14ţ ArLlcle vlll of Lhe ConsLlLuLlon LhaL Lhe facLs and Lhe law on
whlch Lhe [udamenL ls based musL be expressed clearlv and dlsLlncLlv applles onlv Lo
declslonsţ noL Lo mlnuLe resoluLlonsŦ A mlnuLe resoluLlon ls slaned onlv bv Lhe clerk
of courL bv auLhorlLv of Lhe [usLlcesţ unllke a declslonŦ lL does noL requlre Lhe
cerLlflcaLlon of Lhe Chlef !usLlceŦ Moreoverţ unllke declslonsţ mlnuLe resoluLlons are
noL publlshed ln Lhe Þhlllpplne 8eporLsŦ llnallvţ Lhe provlso of SecLlon 4(3) of ArLlcle
vlll speaks of a declslonŦ ż73Ž lndeedţ as a ruleţ Lhls CourL lavs down docLrlnes or
prlnclples of law whlch consLlLuLe blndlna precedenL ln a declslon dulv slaned bv Lhe
members of Lhe CourL and cerLlfled bv Lhe Chlef !usLlceŦ

Accordlnalvţ slnce peLlLloner was noL a parLv ln CŦ8Ŧ noŦ 148680 and slnce
peLlLloner's llablllLv for uS1 on lLs healLh care aareemenL was noL Lhe sub[ecL maLLer
of CŦ8Ŧ noŦ 148680ţ peLlLloner cannoL successfullv lnvoke Lhe mlnuLe resoluLlon ln
LhaL case (whlch ls noL even blndlna precedenL) ln lLs favorŦ noneLhelessţ ln vlew of
Lhe reasons alreadv dlscussedţ Lhls does noL deLracL ln anv wav from Lhe facL LhaL
peLlLloner's healLh care aareemenLs are noL sub[ecL Lo uS1Ŧ

A llnAL nC1L

1aklna lnLo accounL LhaL healLh care aareemenLs are clearlv noL wlLhln Lhe amblL of
SecLlon 183 of Lhe nl8C and Lhere was never anv lealslaLlve lnLenL Lo lmpose Lhe
same on PMCs llke peLlLlonerţ Lhe same should noL be arblLrarllv and un[usLlv
lncluded ln lLs coveraaeŦ

lL ls a maLLer of common knowledae LhaL Lhere ls a areaL soclal need for adequaLe
medlcal servlces aL a cosL whlch Lhe averaae waae earner can affordŦ PMCs arranaeţ
oraanlze and manaae healLh care LreaLmenL ln Lhe furLherance of Lhe aoal of
provldlna a more efflclenL and lnexpenslve healLh care svsLem made posslble bv
quanLlLv purchaslna of servlces and economles of scaleŦ 1hev offer advanLaaes over
Lhe pavŴforŴservlce svsLem (whereln lndlvlduals are charaed a fee each Llme Lhev
recelve medlcal servlces)ţ lncludlna Lhe ablllLv Lo conLrol cosLsŦ 1hev proLecL Lhelr
members from exposure Lo Lhe hlah cosL of hosplLallzaLlon and oLher medlcal
expenses brouahL abouL bv a flucLuaLlna economvŦ Accordlnalvţ Lhev plav an
lmporLanL role ln socleLv as parLners of Lhe SLaLe ln achlevlna lLs consLlLuLlonal
mandaLe of provldlna lLs clLlzens wlLh affordable healLh servlcesŦ

1he raLe of uS1 under SecLlon 183 ls equlvalenL Lo 12Ŧ3Ʒ of Lhe premlum charaedŦ
ż74Ž lLs lmposlLlon wlll elevaLe Lhe cosL of healLh care servlcesŦ 1hls wlll ln Lurn
necesslLaLe an lncrease ln Lhe membershlp feesţ resulLlna ln elLher placlna healLh
servlces bevond Lhe reach of Lhe ordlnarv waae earner or drlvlna Lhe lndusLrv Lo Lhe
aroundŦ AL Lhe end of Lhe davţ nelLher slde wlnsţ conslderlna Lhe lndlspensablllLv of
Lhe servlces offered bv PMCsŦ

WPL8LlC8Lţ Lhe moLlon for reconslderaLlon ls C8An1LuŦ 1he AuausL 16ţ 2004
declslon of Lhe CourL of Appeals ln CAŴCŦ8Ŧ SÞ noŦ 70479 ls 8LvL8SLu and SL1 ASluLŦ
1he 1996 and 1997 deflclencv uS1 assessmenL aaalnsL peLlLloner ls herebv
CAnCLLLLu and SL1 ASluLŦ 8espondenL ls ordered Lo deslsL from collecLlna Lhe sald
LaxŦ

no cosLsŦ


SC C8uL8LuŦ

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