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G.R. No.

82036 May 22, 1997

The petition herein seeks the review and reversal of the decision 1 of respondent Court of
Appeals 2 affirming in totothe judgment 3 of the Regional Trial Court 4 in an action for damages 5 filed by
private respondent Vicente Mendoza, Jr. as heir of his mother who was killed in a vehicular accident.
Before the trial court, the complainant lumped the erring taxicab driver, the owner of the taxicab, and
the alleged insurer of the vehicle which featured in the vehicular accident into one complaint. The
erring taxicab was allegedly covered by a third-party liability insurance policy issued by petitioner
Travellers Insurance & Surety Corporation.
The evidence presented before the trial court established the following facts:
At about 5:30 o'clock in the morning of July 20, 1980, a 78-year old woman by the
name of Feliza Vineza de Mendoza was on her way to hear mass at the Tayuman
Cathedral. While walking along Tayuman corner Gregorio Perfecto Streets, she was
bumped by a taxi that was running fast. Several persons witnessed the accident,
among whom were Rolando Marvilla, Ernesto Lopez and Eulogio Tabalno. After the
bumping, the old woman was seen sprawled on the pavement. Right away, the good
Samaritan that he was, Mavilla ran towards the old woman and held her on his lap to
inquire from her what had happened, but obviously she was already in shock and
could not talk. At this moment, a private jeep stopped. With the driver of that vehicle,
the two helped board the old woman on the jeep and brought her to the Mary
Johnston Hospital in Tondo.
. . . Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street
from Pritil, Tondo, to Rizal Avenue and vice-versa, also witnessed the incident. It was
on his return trip from Rizal Avenue when Lopez saw the plaintiff and his brother who
were crying near the scene of the accident. Upon learning that the two were the sons
of the old woman, Lopez told them what had happened. The Mendoza brothers were
then able to trace their mother at the Mary Johnston Hospital where they were
advised by the attending physician that they should bring the patient to the National
Orthopedic Hospital because of her fractured bones. Instead, the victim was brought
to the U.S.T. Hospital where she expired at 9:00 o'clock that same morning. Death
was caused by "traumatic shock" as a result of the severe injuries she sustained . . .
. . . The evidence shows that at the moment the victim was bumped by the vehicle,
the latter was running fast, so much so that because of the strong impact the old

woman was thrown away and she fell on the pavement. . . . In truth, in that related
criminal case against defendant Dumlao . . . the trial court found as a fact that therein
accused "was driving the subject taxicab in a careless, reckless and imprudent
manner and at a speed greater than what was reasonable and proper without taking
the necessary precaution to avoid accident to persons . . . considering the condition
of the traffic at the place at the time aforementioned" . . . Moreover, the driver fled
from the scene of the accident and without rendering assistance to the victim. . . .
. . . Three (3) witnesses who were at the scene at the time identified the taxi involved,
though not necessarily the driver thereof. Marvilla saw a lone taxi speeding away just
after the bumping which, when it passed by him, said witness noticed to be a Lady
Love Taxi with Plate No. 438, painted maroon, with baggage bar attached on the
baggage compartment and with an antenae [sic] attached at the right rear side. The
same descriptions were revealed by Ernesto Lopez, who further described the taxi to
have . . . reflectorized decorations on the edges of the glass at the back . . . A third
witness in the person of Eulogio Tabalno . . . made similar descriptions although,
because of the fast speed of the taxi, he was only able to detect the last digit of the
plate number which is "8". . . . [T]he police proceeded to the garage of Lady Love
Taxi and then and there they took possession of such a taxi and later impounded it in
the impounding area of the agency concerned. . . . [T]he eyewitnesses . . . were
unanimous in pointing to that Lady Love Taxi with Plate No. 438, obviously the
vehicle involved herein.
. . . During the investigation, defendant Armando Abellon, the registered owner of
Lady Love Taxi bearing No. 438-HA Pilipinas Taxi 1980, certified to the fact "that the
vehicle was driven last July 20, 1980 by one Rodrigo Dumlao. . ." . . . It was on the
basis of this affidavit of the registered owner that caused the police to apprehend
Rodrigo Dumlao, and consequently to have him prosecuted and eventually convicted
of the offense . . . . . . . [S]aid Dumlao absconded in that criminal case, specially at
the time of the promulgation of the judgment therein so much so that he is now a
fugitive from justice. 6
Private respondent filed a complaint for damages against Armando Abellon as the owner of the Lady
Love Taxi and Rodrigo Dumlao as the driver of the Lady Love taxicab that bumped private
respondent's mother. Subsequently, private respondent amended his complaint to include petitioner
as the compulsory insurer of the said taxicab under Certificate of Cover No. 1447785-3.
After trial, the trial court rendered judgment in favor of private respondent, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more
particularly the "Heirs of the late Feliza Vineza de Mendoza," and against defendants
Rodrigo Dumlao, Armando Abellon and Travellers Insurance and Surety Corporation,
by ordering the latter to pay, jointly and severally, the former the following amounts:

(a) The sum of P2,924.70, as actual and compensatory damages,
with interest thereon at the rate of 12% per annum from October 17,
1980, when the complaint was filed, until the said amount is fully
(b) P30,000.00 as death indemnity;
(c) P25,000.00 as moral damages;
(d) P10,000.00 as by way of corrective or exemplary damages; and
(e) Another P10,000.00 by way of attorney's fees and other litigation
Defendants are further ordered to pay, jointly and severally, the costs of this suit.
Petitioner appealed from the aforecited decision to the respondent Court of Appeals. The decision of
the trial court was affirmed by respondent appellate court. Petitioner's Motion for Reconsideration 8 of
September 22, 1987 was denied in a Resolution 9 dated February 9, 1988.
Hence this petition.
Petitioner mainly contends that it did not issue an insurance policy as compulsory insurer of the Lady
Love Taxi and that, assuming arguendo that it had indeed covered said taxicab for third-party liability
insurance, private respondent failed to file a written notice of claim with petitioner as required by
Section 384 of P.D. No. 612, otherwise known as the Insurance Code.
We find the petition to be meritorious.
When private respondent filed his amended complaint to implead petitioner as party defendant and
therein alleged that petitioner was the third-party liability insurer of the Lady Love taxicab that fatally
hit private respondent's mother, private respondent did not attach a copy of the insurance contract to
the amended complaint. Private respondent does not deny this omission.
It is significant to point out at this juncture that the right of a third person to sue the insurer depends
on whether the contract of insurance is intended to benefit third persons also or only the insured.
[A] policy . . . whereby the insurer agreed to indemnify the insured "against all sums .
. . which the Insured shall become legally liable to pay in respect of: a. death of or
bodily injury to any person . . . is one for indemnity against liability; from the fact then
that the insured is liable to the third person, such third person is entitled to sue the

The right of the person injured to sue the insurer of the party at fault (insured),
depends on whether the contract of insurance is intended to benefit third persons
also or on the insured And the test applied has been this: Where the contract
provides for indemnity against liability to third persons, then third persons to whom
the insured is liable can sue the insurer. Where the contract is for indemnity against
actual loss or payment, then third persons cannot proceed against the insurer, the
contract being solely to reimburse the insured for liability actually discharged by him
thru payment to third persons, said third persons' recourse being thus limited to the
insured alone. 10
Since private respondent failed to attach a copy of the insurance contract to his complaint, the trial
court could not have been able to apprise itself of the real nature and pecuniary limits of petitioner's
liability. More importantly, the trial court could not have possibly ascertained the right of private
respondent as third person to sue petitioner as insurer of the Lady Love taxicab because the trial
court never saw nor read the insurance contract and learned of its terms and conditions.
Petitioner, understandably, did not volunteer to present any insurance contract covering the Lady
Love taxicab that fatally hit private respondent's mother, considering that petitioner precisely
presented the defense of lack of insurance coverage before the trial court. Neither did the trial court
issue a subpoena duces tecum to have the insurance contract produced before it under pain of
We thus find hardly a basis in the records for the trial court to have validly found petitioner liable
jointly and severally with the owner and the driver of the Lady Love taxicab, for damages accruing to
private respondent.
Apparently, the trial court did not distinguish between the private respondent's cause of action
against the owner and the driver of the Lady Love taxicab and his cause of action against petitioner.
The former is based on torts and quasi-delicts while the latter is based on contract. Confusing these
two sources of obligations as they arise from the same act of the taxicab fatally hitting private
respondent's mother, and in the face of overwhelming evidence of the reckless imprudence of the
driver of the Lady Love taxicab, the trial court brushed aside its ignorance of the terms and
conditions of the insurance contract and forthwith found all three — the driver of the taxicab, the
owner of the taxicab, and the alleged insurer of the taxicab — jointly and severally liable for actual,
moral and exemplary damages as well as attorney's fees and litigation expenses. This is clearly a
misapplication of the law by the trial court, and respondent appellate court grievously erred in not
having reversed the trial court on this ground.
While it is true that where the insurance contract provides for indemnity against
liability to third persons, such third persons can directly sue the insurer, however, the
direct liability of the insurer under indemnity contracts against third-party liability does
not mean that the insurer can be held solidarily liable with the insured and/or the
other parties found at fault. The liability of the insurer is based on contract; that of the
insured is based on tort. 11

Applying this principle underlying solidary obligation and insurance contracts, we ruled in one
case that:
In solidary obligation, the creditor may enforce the entire obligation against one of the
solidary debtors. On the other hand, insurance is defined as "a contract whereby one
undertakes for a consideration to indemnify another against loss, damage or liability
arising from an unknown or contingent event."
In the case at bar, the trial court held petitioner together with respondents Sio Choy
and San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount
of P29,103.00, with the qualification that petitioner's liability is only up to P20,000.00.
In the context of a solidary obligation, petitioner may be compelled by respondent
Vallejos to pay the entire obligation of P29,103.00, notwithstanding the qualification
made by the trial court. But, how can petitioner be obliged to pay the entire obligation
when the amount stated in its insurance policy with respondent Sio Choy for
indemnity against third-party liability is only P20,000.00? Moreover, the qualification
made in the decision of the trial court to the effect that petitioner is sentenced to pay
up to P20,000.00 only when the obligation to pay P29,103.00 is made solidary is an
evident breach of the concept of a solidary obligation. 12
The above principles take on more significance in the light of the counter-allegation of petitioner that,
assuming arguendo that it is the insurer of the Lady Love taxicab in question, its liability is limited to
only P50,000.00, this being its standard amount of coverage in vehicle insurance policies. It bears
repeating that no copy of the insurance contract was ever proffered before the trial court by the
private respondent, notwithstanding knowledge of the fact that the latter's complaint against
petitioner is one under a written contract. Thus, the trial court proceeded to hold petitioner liable for
an award of damages exceeding its limited liability of P50,000.00. This only shows beyond doubt
that the trial court was under the erroneous presumption that petitioner could be found liable absent
proof of the contract and based merely on the proof of reckless imprudence on the part of the driver
of the Lady Love taxicab that fatally hit private respondent's mother.
Petitioner did not tire in arguing before the trial court and the respondent appellate court that,
assuming arguendo that it had issued the insurance contract over the Lady Love taxicab, private
respondent's cause of action against petitioner did not successfully accrue because he failed to file
with petitioner a written notice of claim within six (6) months from the date of the accident as required
by Section 384 of the Insurance Code.
At the time of the vehicular incident which resulted in the death of private respondent's mother,
during which time the Insurance Code had not yet been amended by Batas Pambansa (B.P.) Blg.
874, Section 384 provided as follows:
Any person having any claim upon the policy issued pursuant to this chapter shall,
without any unnecessary delay, present to the insurance company concerned a
written notice of claim setting forth the amount of his loss, and/or the nature, extent

otherwise the claimant's right of action shall prescribe" [emphasis ours].. with the indispensable requirement of having filed the written claim mandated by Section 384 of the insurance Code before and after its amendment. In the landmark case of Summit Guaranty and Insurance Co. [N]o steps were taken to process the claim and no rejection of said claim was ever made even if private respondent had already complied with all the requirements. with the Commissioner or the Courts within one year from denial of the claim. v. We explained: It is very obvious that petitioner company is trying to use Section 384 of the Insurance Code as a cloak to hide itself from its liabilities. otherwise. fair and equitable settlement of claims. The facts of these cases evidently reflect the deliberate efforts of petitioner company to prevent the filing of a formal action against it.and duration of the injuries sustained as certified by a duly licensed physician. the beneficiary or the third person interested under the insurance policy. as in the instant case. Absent such written claim filed by the person suing under an insurance contract. Inc. no cause of action accrues under such insurance contract. . . In violation of its duties to adopt and implement reasonable standards for the prompt investigation of claims and to effectuate prompt. 14 It is significant to note that the aforecited Section 384 was amended by B.P. . otherwise the claimant's right of action shall prescribe [emphasis supplied]. the beneficiary or any person claiming under an insurance contract. and there can be no opportunity for the insurer to even reject a claim if none has been filed in the first place. Action or suit for recovery of damage due to loss or injury must be brought in proper cases. with the Commission or the Courts within one year from date of accident. This ruling is premised upon the compliance by the persons suing under an insurance contract. 874 to categorically provide that "action or suit for recovery of damage due to loss or injury must be brought in proper cases. 15 We have certainly ruled with consistency that the prescriptive period to bring suit in court under an insurance policy. De Guzman. begins to run from the date of the insurer's rejection of the claim filed by the insured. This Court has made the observation that some insurance companies have been inventing excuses to avoid their just obligations and it is only the State that can give the protection which the insuring public needs from possible abuses of the insurers. Bearing in mind that if it succeeds in doing so until one year lapses from the date of the accident it could set up the defense of prescription. and with manifest bad faith. petitioner company made private respondents believe that their claims would be settled in order that the latter will not find it necessary to immediately bring suit. . . 13 we ruled that the one year prescription period to bring suit in court against the insurer should be counted from the time that the insurer rejects the written claim filed therewith by the insured. petitioner company devised means and ways of stalling the settlement proceeding . . Blg. Notice of claim must be filed within six months from date of the accident. the claim shall be deemed waived. considering that it is the rejection of that claim that triggers the running of the one-year prescriptive period to bring suit in court.

petitioner. SO ORDERED. Chia Yu. . respondent.. The decision of the Court of Appeals in CA-G. as essential elements. WHEREFORE. Even if there were such a contract. . G. vs. No. thus. attorney's fees and litigation expenses in Civil Case No. the instant petition is HEREBY GRANTED. 135486 are REVERSED and SET ASIDE insofar as Travelers Insurance & Surety Corporation was found jointly and severally liable to pay actual.R. to comply with its duty. 135486. Alpha Insurance and Surety Co. moral and exemplary damages. He is deemed.. that no written claim was filed by private respondent and rejected by petitioner. J. INC. Ltd. This is because. there was no real necessity for bringing suit. et al. 16 When petitioner asseverates. not only a legal right of the plaintiff and a correlative obligation of the defendant but also an act or omission of the defendant in violation of said legal right. 09416 and the decision of the Regional Trial Court in Civil Case No. this Court ruled: The plaintiff's cause of action did not accrue until his claim was finally rejected by the insurance company. 2005 GULF RESORTS. The complaint against Travellers Insurance & Surety Corporation in said case is hereby ordered dismissed.The one-year period should instead be counted from the date of rejection by the insurer as this is the time when the cause of action accrues. private respondent's cause of action can not prevail because he failed to file the written claim mandated by Section 384 of the Insurance Code. viz: Since a cause of action requires. PHILIPPINE CHARTER INSURANCE CORPORATION.. under this legal provision.R.: . In Eagle Star Insurance Co. . the cause of action does not accrue until the party obligated refuses. DECISION PUNO. and private respondent does not dispute such asseveration through a denial in his pleadings.. we are constrained to rule that respondent appellate court committed reversible error in finding petitioner liable under an insurance contract the existence of which had not at all been proven in court. 156167 May 16. death indemnity. No pronouncement as to costs. before such final rejection. to have waived his rights as against petitioner-insurer. expressly or impliedly. The philosophy of the above pronouncement was pointed out in the case of ACCFA vs. vs. CV No.

00 - on the Clubhouse only @ . Respondent contends that the rider limits its liability for loss to the two swimming pools of petitioner. "C". and 1987-88 (Exhs.800. 1989 to March 14. 1986-1987.500. 31944 covers all damages to the properties within its resort caused by earthquake. "E" and "F-1"). 1988 to March 14. INC. "earthquake shock endt. Exhibits "E" and "F-1" was deleted and the entry under Endorsements/Warranties at the time of issue read that plaintiff renewed its policy with AHAC (AIU) for the period of March 14. The facts as established by the court a quo. against respondent PHILIPPINE CHARTER INSURANCE CORPORATION.691. also Exhs. "2-B". computed as follows: Item - P7. pursuant to its earthquake shock endorsement rider.14 (Exhs. "D-1".700.00 other buildings include as follows: a) Tilter House - on the furniture.00 - - 393..00 - 0.100% - 116.658.000.551% . "G" also "G-1") and in said policy the earthquake endorsement clause as indicated in Exhibits "C-1". 1985-86.000.490%. "C-1". "1-B". "D". "Item 5" in those policies referred to the two (2) swimming pools only (Exhs. For review are the warring interpretations of petitioner and respondent on the scope of the insurance company’s liability for earthquake damage to petitioner’s properties. - 1. Petitioner assails the appellate court decision1 which dismissed its two appeals and affirmed the judgment of the trial court. etc. La Union and had its properties in said resort insured originally with the American Home Assurance Company (AHAC-AIU). Petitioner avers that. 1989 (Exhs. "6-A" and "6-B") as premium thereof.Before the Court is the petition for certiorari under Rule 45 of the Revised Rules of Court by petitioner GULF RESORTS.00 - on the two swimming pools.600. and affirmed by the appellate court are as follows: [P]laintiff is the owner of the Plaza Resort situated at Agoo.00 and paid P42. contained in the building above-mentioned@ . the risk of loss from earthquake shock was extended only to plaintiff’s two swimming pools. P19. "1". which read "Endorsement to Include Earthquake Shock (Exh. thus. 206-4568061-9 (Exh.392%.000. In the first four insurance policies issued by AHAC-AIU from 1984-85. that subsequently AHAC(AIU) issued in plaintiff’s favor Policy No. "C-1". "3-B" and "F-2"). Insurance Policy No. "3" and "4" respectively). 206-4182383-0 covering the period March 14. ‘D-1". 1990 under Policy No. only (against the peril of earthquake shock only) @ 0." (Item 5 only) (Exhs. "2". "E" and "F"." and "E" and two (2) swimming pools only (Exhs. "D-1. "6-B-1") in the amount of P10. "H") which carried the entry under "Endorsement/Warranties at Time of Issue".

00 – ES Doc.000.05 TOTAL 45.60 F/L – 2. 776.00 - 0. Tax 409. "H") provided that the policy wording and rates in said policy be copied in the policy to be issued by defendant.700. . lines air-con and operating equipment that plaintiff agreed to insure with defendant the properties covered by AHAC (AIU) Policy No.068.00 - 0. that defendant issued Policy No.540% P100. 1990 to March 14. 1991 for P10. 31944 to plaintiff covering the period of March 14.00 - for furniture. the following: Rate-Various Premium – P37.T.10 F.000.030.551% c) House Shed - P55. fixtures.159.000.420. defendant’s Policy No. 31944 (Exh. that in the computation of the premium. which is the policy in question. Stamps 3.00 for a total premium of P45.92. 206-4568061-9 (Exh.b) Power House - P41. "I").52 – Typhoon – 1.76 – EC – 393.92 (Exh. contained on the right-hand upper portion of page 7 thereof. "I").S.061.89 Prem.159.600.

1990. respondent. 4.9 Thus. representing continuing losses sustained by plaintiff on account of defendant’s refusal to pay the claims. 31944 issued by defendant. 31944 issued by defendant. On August 23.00. representing losses sustained by the insured properties. "6-C-1". "1-D". 5.779.000. petitioner filed its formal demand7 for settlement of the damage to all its properties in the Agoo Playa Resort. that is P393.3 On July 30.000. Bayne Adjusters and Surveyors. that in Exhibit "7-C" the word "included" above the underlined portion was deleted. 29 of the policy (Annex "B") until fully paid. "5-A". "F".00 per month. including the two swimming pools in its Agoo Playa Resort were damaged. "2-D". "6-D" and "7-C"). Inc.) Costs."6 On August 11.that the above break-down of premiums shows that plaintiff paid only P393. "G" and "H").00 as premium against earthquake shock (ES). 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiff’s properties covered by Policy No.11 Respondent filed its Answer with Special and Affirmative Defenses with Compulsory Counterclaims. "C". Bayne Adjusters and Surveyors. 1990. de Leon. all affected items have no coverage for earthquake shocks. through its Vice-President A. "4-B". "G" and "H") and in Policy No. respondent denied petitioner’s claim on the ground that its insurance policy only afforded earthquake shock coverage to the two swimming pools of the resort. 4 rendered a preliminary report5 finding extensive damage caused by the earthquake to the clubhouse and to the two swimming pools.) The sum of P428. on January 24.00 (Exhs. 31944 for damages on its properties. "E". "E".. through its adjuster. "D". the premium against the peril of earthquake shock is the same. "C". "D". 1991. Inc. 1990. "2-B" and "3-B-1" and "3-B-2".) The sum of P500. then assigned the investigation of the claim to an independent claims adjuster.8Petitioner and respondent failed to arrive at a settlement. 12 . "F". with interest thereon. that in all the six insurance policies (Exhs. Respondent instructed petitioner to file a formal claim. On August 7. by way of exemplary damages. the shock endorsement provide(sic): In consideration of the payment by the insured to the company of the sum included additional premium the Company agrees.842. "C" and "1-B". Mr. that this insurance covers loss or damage to shock to any of the property insured by this Policy occasioned by or through or in consequence of earthquake (Exhs.) The sum of P5.R. "G-2" and "5-C-1". "3A". "F-02" and "4-A-1".00 by way of attorney’s fees and expenses of litigation. as computed under par. 1990. petitioner filed a complaint10 with the regional trial court of Pasig praying for the payment of the following: 1. petitioner advised respondent that it would be making a claim under its Insurance Policy No.00. de Leon stated that "except for the swimming pools.) The sum of P500. 2.2 After the earthquake. that on July 16.427. issued by AHAC (Exhs. 3. requested petitioner to submit various documents in support of its claim. notwithstanding what is stated in the printed conditions of this policy due to the contrary.

THE TRIAL COURT ERRED IN DETERMINING PLAINTIFF-APPELLANT’S RIGHT TO RECOVER UNDER DEFENDANT-APPELLEE’S POLICY (NO. the language used in the policy in litigation is clear and unambiguous hence there is no need for interpretation or construction but only application of the provisions therein. where the language used in an insurance contract or application is such as to create ambiguity the same should be resolved against the party responsible therefor. THE CIRCUMSTANCES SURROUNDING THE ISSUANCE OF SAID POLICY AND THE ACTUATIONS OF THE PARTIES SUBSEQUENT TO THE EARTHQUAKE OF JULY 16. CONSIDERING ITS PROVISIONS. 1990. "F" and "G"). with interest at 6% per annum from the date of the filing of the Complaint until defendant’s obligation to plaintiff is fully paid. B. From the above observations the Court finds that only the two (2) swimming pools had earthquake shock coverage and were heavily damaged by the earthquake which struck on July 16. THE TRIAL COURT ERRED IN FINDING THAT PLAINTIFF-APPELLANT CAN ONLY RECOVER FOR THE DAMAGE TO ITS TWO SWIMMING POOLS UNDER ITS FIRE POLICY NO.000.00) representing damage to the two (2) swimming pools.e.000. by virtue of the contract of insurance. the Court does not agree that the action filed by plaintiff is baseless and highly speculative since such action is a lawful exercise of the plaintiff’s right to come to Court in the honest belief that their Complaint is meritorious. defendant is ordered to pay plaintiffs the sum of THREE HUNDRED EIGHTY SIX THOUSAND PESOS (P386. the insurance company which prepared the contract. 1994.00. "E". premises considered. As to the counterclaims of defendant. defendant must. EXH "I") BY LIMITING ITSELF TO A CONSIDERATION OF THE SAID POLICY ISOLATED FROM THE CIRCUMSTANCES SURROUNDING ITS ISSUANCE AND THE ACTUATIONS OF THE PARTIES AFTER THE EARTHQUAKE OF JULY 16. pay plaintiff said amount. the same premium it paid against earthquake shock only on the two swimming pools in all the policies issued by AHAC(AIU) (Exhibits "C". Defendant having admitted that the damage to the swimming pools was appraised by defendant’s adjuster at P386.00 against the peril of earthquake shock. .On February 21. To the mind of [the] Court. 31944. therefore. Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence.. Thus. petitioner filed an appeal with the Court of Appeals based on the following assigned errors:14 A. viz: The above schedule clearly shows that plaintiff paid only a premium of P393. The prayer. "D". of defendant for damages is likewise denied. 1990. i. 1990. No pronouncement as to costs. there is no basis for the grant of the other damages prayed for by plaintiff.13 Petitioner’s Motion for Reconsideration was denied. Because it is the finding of the Court as stated in the immediately preceding paragraph that defendant is liable only for the damage caused to the two (2) swimming pools and that defendant has made known to plaintiff its willingness and readiness to settle said liability. WHEREFORE. 31944. From this fact the Court must consequently agree with the position of defendant that the endorsement rider (Exhibit "7-C") means that only the two swimming pools were insured against earthquake shock. the lower court after trial ruled in favor of the respondent.

2002). Petitioner contends: . xxx We also find that the Court a quo was correct in not granting the plaintiff-appellant’s prayer for the imposition of interest – 24% on the insurance claim and 6% on loss of income allegedly amounting toP4. WHETHER THE COURT OF APPEALS CORRECTLY HELD THAT UNDER RESPONDENT’S INSURANCE POLICY NO.R. "G" and "H"). WITH INTEREST COMPUTED AT 24% PER ANNUM ON CLAIMS ON PROCEEDS OF POLICY. respondent filed a partial appeal. January 25. Since the defendant-appellant has expressed its willingness to pay the damage caused on the two (2) swimming pools.C.. We are not convinced that the last two (2) insurance contracts (Exhs. ARE INSURED AGAINST THE RISK OF EARTHQUAKE SHOCK.00. as the Court a quo and this Court correctly found it to be liable only. v. WHEREFORE. Therefore. 2002). covered an extended earthquake shock insurance on all the insured properties. after carefully perusing the documentary evidence of both parties. it then cannot be said that it was in default and therefore liable for interest. 136914. 31944. which the plaintiffappellant had with AHAC (AIU) and upon which the subject insurance contract with Philippine Charter Insurance Corporation is said to have been based and copied (Exh. ONLY THE TWO (2) SWIMMING POOLS. After review. July 18. THE TRIAL COURT ERRED IN NOT HOLDING THAT PLAINTIFF-APPELLANT IS ENTITLED TO THE DAMAGES CLAIMED. long-standing is the rule that the award thereof is subject to the sound discretion of the court.. B. ATTORNEY’S FEES AND EXPENSES OF LITIGATION. the appellate court affirmed the decision of the trial court and ruled. it is necessary for the court to make findings of facts and law that would bring the case within the exception and justify the grant of such award (Country Bankers Insurance Corp. On the other hand. Lianga Bay and Community Multi-Purpose Coop. No. 115838. "I"). it will not be disturbed on appeal (Castro et al. WHETHER THE COURT OF APPEALS CORRECTLY DENIED PETITIONER’S PRAYER FOR DAMAGES WITH INTEREST THEREON AT THE RATE CLAIMED.R. RATHER THAN ALL THE PROPERTIES COVERED THEREUNDER. Inc. in view of all the foregoing. assailing the lower court’s failure to award it attorney’s fees and damages on its compulsory counterclaim. We find that the Court a quo did not err in granting the same. Thus. if such discretion is well-exercised. et al. CA. No. both appeals are hereby DISMISSED and judgment of the Trial Court hereby AFFIRMED in toto. v.280. thus: However. holding that the plaintiff-appellant’s action is not baseless and highly speculative. No costs. G.000. being the award thereof an exception rather than a rule.15 Petitioner filed the present petition raising the following issues:16 A. Coming to the defendant-appellant’s prayer for an attorney’s fees. G.. Moreover.

such as to remove the two swimming pools from the coverage for the risk of fire. Second. that in their previous insurance policies. the parties’ contemporaneous and subsequent acts show that they intended to extend earthquake shock coverage to all insured properties. it is unbelievable for respondent to claim that it only made an inadvertent omission when it deleted the said qualification."17 Third. Inc. any ambiguity in the earthquake shock endorsement should be resolved in favor of petitioner and against respondent. Tenth. After the July 16. because the rider is the more deliberate expression of the agreement of the contracting parties. respondent assured petitioner that it was covered for earthquake shock. that the qualification referring to the two swimming pools had already been deleted in the earthquake shock endorsement. Respondent’s insurance adjuster. Typhoon Endorsement. Ninth. and there is no need for calibration of the evidence in order to establish the facts upon which this petition is based. it cannot deny that the insurance policy it issued to petitioner covered all of the properties within the resort. the unqualified and unrestricted nature of the earthquake shock endorsement is confirmed in the body of the insurance policy itself.. respondent made the following counter arguments: 18 . The premium for the earthquake shock coverage was already included in the premium paid for the policy. likewise requested petitioner to submit the necessary documents for its building claims and other repair costs. petitioner told respondent that it wanted an exact replica of its latest insurance policy from American Home Assurance Company (AHAC-AIU). Eleventh. Seventh. Eighth. Fourth. Bayne Adjusters and Surveyors. there is no basis for the appellate court to hold that the additional premium was not paid under the extended coverage.First. that the policy’s earthquake shock endorsement clearly covers all of the properties insured and not only the swimming pools. Extended Coverage Endt.Earthquake Shock Endt." and it should be interpreted as all inclusive.. It was respondent which caused the ambiguity when it made the policy in issue. It should not be used to limit the respondent’s liability for earthquake shock to the two swimming pools only. It used the words "any property insured by this policy. which covered all the resort’s properties for earthquake shock damage and respondent agreed. that it is proper for it to avail of a petition for review by certiorari under Rule 45 of the Revised Rules of Court as its remedy. On the other hand. 1990 earthquake. Sixth. the qualification of the endorsement limiting the earthquake shock endorsement should be interpreted as a caveat on the standard fire insurance policy. under the doctrine of equitable estoppel. When it secured an insurance policy from respondent. FEA Warranty & Annual Payment Agreement On Long Term Policies.. which states that it is "[s]ubject to: Other Insurance Clause. that the earthquake shock endorsement rider should be given precedence over the wording of the insurance policy. Thus. Fifth. limits were placed on the endorsements/warranties enumerated at the time of issue.

No other premium was paid for earthquake shock coverage on the other properties. Second.00 as premium for coverage of the swimming pools against earthquake shock. this qualification in the title was deleted. the riders of the old policy and the policy in issue are identical. petitioner did not inform respondent of its requirement that all of its properties must be included in the earthquake shock coverage. the use of the qualifier "ANY" instead of "ALL" to describe the property covered was done deliberately to enable the parties to specify the properties included for earthquake coverage. specially the enumeration of the items insured. J. Respondent complied with this requirement. in a letter19 by its representative Manuel C. Petitioner’s own evidence shows that it only required respondent to follow the exact provisions of its previous policy from AHAC-AIU. No additional premium was paid to warrant coverage of the other properties in the resort. in the last two policies. Although the first five policies contained the said qualification in their rider’s title. The amount was the same amount paid by petitioner for earthquake shock coverage on the two swimming pools from 19901991.First. Petitioner anchors its claims on AHAC-AIU’s inadvertent deletion of the phrase "Item 5 Only" after the descriptive name or title of the Earthquake Shock Endorsement. Third. In all of its seven insurance policies. As per its agreement with petitioner. nor did it broaden the scope of the endorsement whose descriptive title was merely enumerated. from which respondent’s policy was copied. and there was no increase in the premium paid. respondent did not do any act or give any assurance to petitioner as would estop it from maintaining that only the two swimming pools were covered for earthquake shock.00 – on the two swimming pools only (against the peril of earthquake shock only)" meant that only the swimming pools were insured for earthquake damage. categorically stated that its previous policy. Quijano. in order for the earthquake shock endorsement to be effective. The same phrase is used in toto in the policies from 1989 to 1990. the words of the . petitioner alleged that in its policies from 1984 through 1988. covered only earthquake shock for the two swimming pools. the deletion of the phrase pertaining to the limitation of the earthquake shock endorsement to the two swimming pools in the policy schedule did not expand the earthquake shock coverage to all of petitioner’s properties. Seventh. through Mr. petitioner’s payment of additional premium in the amount of P393. However. With regard to the issue under litigation. only the two swimming pools were insured against earthquake shock. AHAC-AIU." Fifth. Fourth. petitioner only paid P393. premiums must be paid for all the properties covered. The adjuster’s letter notifying petitioner to present certain documents for its building claims and repair costs was given to petitioner before the adjuster knew the full coverage of its policy. Baranda III. the phrase "Item 5 –P393. Any ambiguity in the policy can be easily resolved by looking at the other provisions. stated that such deletion was a mere inadvertence. respondent copied its policy from the AHAC-AIU policy provided by petitioner.000. AHAC-AIU. This inadvertence did not make the policy incomplete. From 1988 until 1990. none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended coverage against earthquake shock to petitioner’s insured properties other than on the two swimming pools. the provisions in its policy were practically identical to its earlier policies. In addition. Sixth. the only difference being the designation of the two swimming pools as "Item 3. Petitioner admitted that from 1984 to 1988. where only the two swimming pools were noted as covered for earthquake shock damage.00 shows that the policy only covered earthquake shock damage on the two swimming pools. in its Complaint. Respondent’s only deviation from the agreement was when it modified the provisions regarding the replacement cost endorsement.

We hold that the petition is devoid of merit. First. Since respondent was willing and able to pay for the damage caused on the two swimming pools. Before petitioner accepted the policy. Policy Condition No.00 0. directly or indirectly of any of the following occurrences. namely:-(a) Earthquake. under the breakdown for premium payments. and therefore. 23 Fourth. 31944. the rider attached to the policy.000. four key items are important in the resolution of the case at bar. The policy binds the petitioner. in the designation of location of risk.0022] xxx 3 Third. it cannot be considered to be in default.100%-E/S 393. It did not object to any deficiency nor did it institute any action to reform the policy." stated. AMOUNT RATES PREMIUM 393. it is not liable for interest. 6 stated: 6. titled "Extended Coverage Endorsement (To Include the Perils of Explosion. In Insurance Policy No. Aircraft. This insurance does not cover any loss or damage occasioned by or through or in consequence. there is no basis for petitioner to claim damages. Eighth. viz: ANNUAL PAYMENT AGREEMENT ON LONG TERM POLICIES . only the two swimming pools were specified as included.000.21 it was stated that: PREMIUM RECAPITULATION ITEM NOS. viz: ITEM 3 – 393.00 – On the two (2) swimming pools only (against the peril of earthquake shock only)20 Second. volcanic eruption or other convulsion of nature. Vehicle and Smoke). it had the opportunity to read its conditions.policy reflect the parties’ clear intention to limit earthquake shock coverage to the two swimming pools. attorney’s fees and litigation expenses.

. The policy cannot be construed piecemeal. . .24 Petitioner contends that pursuant to this rider. taken and interpreted together. the insured pays a premium. . Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk. damage or liability arising from an unknown or contingent event. and 5. indubitably show the intention of the parties to extend earthquake shock coverage to the two swimming pools only. The insurer assumes the risk. . and marine insurance. . . . casualty. All the provisions and riders. The insured has an insurable interest. In consideration of the insurer's promise. no qualifications were placed on the scope of the earthquake shock coverage. 4. additional premium the Company agrees. an insurance contract exists where the following elements concur: 1. . . . . that this insurance covers loss or damage (including loss or damage by fire) to any of the property insured by this Policy occasioned by or through or in consequence of Earthquake. The insured is subject to a risk of loss by the happening of the designated peril. It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance with each other. . . neither do particular words or phrases necessarily determine its character. notwithstanding what is stated in the printed conditions of this Policy to the contrary. Thus.27 In fire.26 (Emphasis ours) An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril. Certain stipulations cannot be segregated and then made to control. Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other provisions. Earthquake Endorsement In consideration of the payment by the Insured to the Company of the sum of P. the policy extended earthquake shock coverage to all of the insured properties.25 All its parts are reflective of the true intent of the parties. . .THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS INSURED IN EXCESS OF FIVE MILLION PESOS. the premium payable becomes a . Provided always that all the conditions of this Policy shall apply (except in so far as they may be hereby expressly varied) and that any reference therein to loss or damage by fire should be deemed to apply also to loss or damage occasioned by or through or in consequence of Earthquake. IN CONSIDERATION OF A DISCOUNT OF 5% OR 7 ½ % OF THE NET PREMIUM x x x POLICY HEREBY UNDERTAKES TO CONTINUE THE INSURANCE UNDER THE ABOVE NAMED x x x AND TO PAY THE PREMIUM. A careful examination of the premium recapitulation will show that it is the clear intent of the parties to extend earthquake shock coverage only to the two swimming pools. Thus. 3. Section 2(1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss. 2.

sir. yes. 1989. 1991 pp. Now Mr. More specifically Item 5 states the amount of P393. except on the two swimming pools. is that not correct? A. November 25. No. 23-26 Q. sir. As borne out by petitioner’s witnesses: CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN. Yes.28 In the subject policy. no premium payments were made with regard to earthquake shock coverage. Is Forte Insurance Agency a department or division of your company? A. Q. specifically shown in the warranty. November 25. 1984 to March 4. Q. Q.000. They are our insurance agency. Q. did you personally arrange for the procurement of this policy? A. they are separate entity. 1985 the coverage on earthquake shock was limited to the two swimming pools only? A.00 corresponding to the two swimming pools only? A. sir. sir. there is a provision here that it was only for item 5. Yes. And they are independent of your company insofar as operations are concerned? A. This is consistent with the history of petitioner’s previous insurance policies from AHAC-AIU. Yes. There is no mention of any premium payable for the other resort properties with regard to earthquake shock. But insofar as the procurement of the insurance policy is concerned they are of course subject to your instruction. Q. For the period from March 14. 1988 up to March 14. 12-13 Q. Did you also do this through your insurance agency? A. The final action is still with us although they can recommend what insurance to take. 1991 pp. sir. It is limited to the two swimming pools. . Yes. Mantohac.debt as soon as the risk attaches. If you are referring to Forte Insurance Agency. CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN. Yes. sir. will it be correct to state also that insofar as your insurance policy during the period from March 4.

We also hold that no significance can be placed on the deletion of the qualification limiting the coverage to the two swimming pools. I was contented already that the previous limitation pertaining to the two swimming pools was already removed. Are you referring to the insurance policy issued by American Home Assurance Company marked Exhibit "G"? Atty. No. I examined the policy and seeing that the warranty on the earthquake shock endorsement has no more limitation referring to the two swimming pools only. 1992 pp. clauses. 9-12 Atty. warranties or endorsements to which the policy is subject. paragraph 2 of the Insurance Code.Q. was very important because in April 1987 there was an earthquake tremor in La Union? A. is that correct? A. Typhoon Endorsement. underwriter for AHAC-AIU: DIRECT EXAMINATION OF JUAN BARANDA III30 TSN. Q. And you wanted to protect all your properties against similar tremors in the [future]. sir. this phrase is merely an enumeration of the descriptive titles of the riders. August 11. sir. sir. Q. after this policy was delivered to you did you bother to check the provisions with respect to your instructions that all properties must be covered again by earthquake shock endorsement? A. Mejia: . As explained by the testimony of Juan Baranda III. And that instruction. although we made an oral instruction to that effect of extending the coverage on (sic) the other properties of the company. Yes. The earthquake shock endorsement cannot stand alone. as required under Section 50. 1989. Now. FEA Warranty & Annual Payment Agreement on Long Term Policies" 29 to the insurance policy as proof of the intent of the parties to extend the coverage for earthquake shock. 1988 to March 14. We did not make any written instruction. However. Yes. Extended Coverage Endorsement. Q. Witness: A. In the procurement of the insurance police (sic) from March 14. Earthquake Shock Endorsement. Petitioner also cited and relies on the attachment of the phrase "Subject to: Other Insurance Clause. according to you. did you give written instruction to Forte Insurance Agency advising it that the earthquake shock coverage must extend to all properties of Agoo Playa Resort in La Union? A. Mejia: Yes.

MEJIA: What is your basis for stating that the coverage against earthquake shock as provided for in each of the six (6) policies extend to the two (2) swimming pools only? WITNESS: Because it says here in the policies.] I remember having gone over these policies at one point of time. E. For swimming pools we do cover earthquake shock. Is that for each of the six (6) policies namely: Exhibits C. G and H? A. ATTY. Q. ATTY. D. sir." sir. MEJIA: Witness referring to Exhibit C-1. on the basis on (sic) the wordings indicated in Exhibits C to H respectively what was the extent of the coverage [against] the peril of earthquake shock as provided for in each of the six (6) policies? xxx WITNESS: The extent of the coverage is only up to the two (2) swimming pools. sir. your Honor. sir. Now.We respectfully manifest that the same exhibits C to H inclusive have been previously marked by counsel for defendant as Exhibit[s] 1-6 inclusive. wach (sic) of these six (6) policies marked in evidence as Exhibits C to H respectively carries an earthquake shock endorsement[?] My question to you is. Yes. in the Clauses and Warranties: Item 5 only (Earthquake Shock Endorsement). WITNESS: We do not normally cover earthquake shock endorsement on stand alone basis. in the enumeration "Earthquake Shock Endorsement. Q. For building we covered it for full earthquake coverage which includes earthquake shock… COURT: . Did you have occasion to review of (sic) these six (6) policies issued by your company [in favor] of Agoo Playa Resort? WITNESS: Yes[. F.

1992 pp. September 7. they are normally affected by earthquake but not by fire. If you are going to do some computation based on the rates you will arrive at the same premiums. We are not only going to consider the two (2) swimming pools of the other as stated in the policy. Everytime (sic) there is a renewal if the intention of the insurer was to include the earthquake shock. I think there is a substantial increase in the premium. 4-6 ATTY. D. Plaintiff’s witness. Mantohac testified and he alleged that only Exhibits C. ANDRES: Would you as a matter of practice [insure] swimming pools for fire insurance? . the thing that comes to my mind is either insuring a swimming pool. August 11. foundations. CROSS-EXAMINATION OF JUAN BARANDA III TSN. your Honor. if we are going to look at the premium there has been no change with respect to the rates. I must say that the coverage was not broaden (sic) to include the other items. DIRECT EXAMINATION OF JUAN BARANDA III TSN. Based on it. there is no increase in the amount of the premium. sir. 23-25 Q. E and F inclusive [remained] its coverage against earthquake shock to two (2) swimming pools only but that Exhibits G and H respectively entend the coverage against earthquake shock to all the properties indicated in the respective schedules attached to said policies. earthquake shock cannot stand alone without the other half of it. If we are covering building or another we can issue earthquake shock solely but that the moment I see this. what can you say about that testimony of plaintiff’s witness? WITNESS: As I have mentioned earlier. As I see. Mr. I assure you that this one covers the two swimming pools with respect to earthquake shock endorsement. COURT: They are the same. 1992 pp.As far as earthquake shock endorsement you do not have a specific coverage for other things other than swimming pool? You are covering building? They are covered by a general insurance? WITNESS: Earthquake shock coverage could not stand alone. the premium rates? WITNESS: They are the same in the sence (sic). in the amount of the coverage.

sir. premium rates and so on. . It was inadvertent. what exactly did you tell Atty. That is why the phrase "earthquake shock to the two (2) swimming pools only" was placed. viz: CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN. it was inadvertent because of the previous policies that we have issued with no specific attachments. Witness. January 14. Q. Omlas (sic) to copy from Exhibit "H" for purposes of procuring the policy from Philippine Charter Insurance Corporation? A. ANDRES: Will you not also agree with me that these exhibits. You are referring to Exhibit "H" of course? A. Q. sir. to Exhibit "H". is it not? A. 5 only" meaning to (sic) the two (2) swimming pools was deleted from the policies issued by AIU. Just to be clear about this particular answer of yours Mr. sir. Yes. sir. . Respondent only insured the properties as intended by the petitioner. 4-5 Q. Yes. The Court also rejects petitioner’s contention that respondent’s contemporaneous and subsequent acts to the issuance of the insurance policy falsely gave the petitioner assurance that the coverage of the earthquake shock endorsement included all its properties in the resort. Exhibits G and H which you have pointed to during your direct-examination. we don’t. we do not cover.WITNESS: No. ANDRES: As an insurance executive will you not attach any significance to the deletion of the qualifying phrase for the policies? WITNESS: My answer to that would be. 1992 pp. I told him that the insurance that they will have to get will have the same provisions as this American Home Insurance Policy No. is it not? xxx ATTY. the phrase "Item no. Petitioner’s own witness testified to this agreement. 206-4568061-9. Being a company underwriter. the deletion of that particular phrase is inadvertent. ATTY.

No. But as testified to by the representative of Bayne Adjusters and Surveyors. Q.000. Inc. petitioner puts much stress on the letter of respondent’s independent claims adjuster. sir.] Mr. I did not discover any difference inasmuch (sic) as I was assured already that the policy wordings and rates were copied from the insurance policy I sent them but it was only when this case erupted that we discovered some discrepancies. Bayne Adjusters and Surveyors. 12-14 Atty. sir. Yes. Finally. Mejia: Q. January 26. Will it be correct to state[. Yes. I remember that when I returned to the office after the inspection.) TSN. Umlas were not proved. 22-26 Q. And at that time did you notice any discrepancy or difference between the policy wordings as well as scope of coverage of Exhibits "I" and "H" respectively? A. Inc. about that time. With respect to the items declared for insurance coverage did you notice any discrepancy at any time between those indicated in Exhibit "I" and those indicated in Exhibit "H" respectively? A.. CROSS EXAMINATION OF LEOPOLDO MANTOHAC TSN. 1992 pp. Inc. 1993 pp. Do you recall the circumstances that led to your discussion regarding the extent of coverage of the policy issued by Philippine Charter Insurance Corporation? A. He assured me that with regards to the insurance premium rates that they will be charging will be limited to this one. Umlas categorically denied having given such assurances. 1990 or thereabout? A. respondent never meant to lead petitioner to believe that the endorsement for earthquake shock covered properties other than the two swimming pools.00 on the two (2) swimming pools only against the peril of earthquake shock which I understood before that this provision will have to be placed here because this particular provision under the peril of earthquake shock only is requested because this is an insurance policy and therefore cannot be insured against fire. With regard to the wordings I did not notice any difference because it was exactly the same P393. Atty. I got a photocopy of the insurance coverage policy and it was indicated under Item 3 specifically that the coverage is .Q. Witness. The verbal assurances allegedly given by respondent’s representative Atty. January 14. viz: DIRECT EXAMINATION OF ALBERTO DE LEON (Bayne Adjusters and Surveyors. that you made a comparison of the provisions and scope of coverage of Exhibits "I" and "H" sometime in the third week of March. Q. sir. I (sic) can even be lesser. all the provisions here will be the same except that of the premium rates? A. so this has to be placed. So.

may we know from you Engr. Thus. We cannot apply the general rule on contracts of adhesion to the case at bar. we have called on lower courts to remain careful in scrutinizing the factual circumstances behind each case to determine the efficacy of the claims of contending parties.only for earthquake shock. the courts have held that in these type of contracts. who were acute businessmen of experience. were presumed to have assented to the assailed documents with full knowledge. From the inception of the policy. I remember I had a talk with Atty. et al.32Consequently. while the other party merely affixes his signature or his "adhesion" thereto. 20-21 Q. Umlas (sic). Through the years. Petitioner cannot rely on the general rule that insurance contracts are contracts of adhesion which should be liberally construed in favor of the insured and strictly against the insurer company which usually prepares it. if any. is reflective of petitioner’s knowledge. National Merchandising Corporation. the weaker party's participation being reduced to the alternative to take it or leave it. usually a corporation. In sum. Then. petitioner had required the respondent to copyverbatim the provisions and terms of its latest insurance policy from AHACAIU. these contracts are viewed as traps for the weaker party whom the courts of justice must protect.33 The case law will show that this Court will only rule out blind adherence to terms where facts and circumstances will show that they are basically one-sided. because upon my examination of the policy I found out that under Item 3 it was specific on the wordings that on the two swimming pools only. 34 Thus. there is no ambiguity in the terms of the contract and its riders. and I relayed to him what I had found out in the policy and he confirmed to me indeed only Item 3 which were the two swimming pools have coverage for earthquake shock. xxx Q. Omlas (sic) what kind of policy you would want for those facilities in Agoo Playa? . or construed liberally in favor of the insured. 31 A contract of adhesion is one wherein a party. the parties do not bargain on equal footing. any ambiguity therein is resolved against the insurer. In Development Bank of the Philippines v. Leopoldo Mantohac. a direct participant in securing the insurance policy of petitioner. prepares the stipulations in the contract. and secondly. when I examined the summary of premium payment only Item 3 which refers to the swimming pools have a computation for premium payment for earthquake shock and all the other items have no computation for payment of premiums.35 the parties.viz: DIRECT EXAMINATION OF LEOPOLDO MANTOHAC36 TSN. Did you indicate to Atty.. The testimony of Mr. de Leon your basis. I based my statement on my findings. Now. then enclosed in parenthesis (against the peril[s] of earthquake shock only). September 23. for stating that except for the swimming pools all affected items have no coverage for earthquake shock? xxx A. 1991 pp. Petitioner cannot claim it did not know the provisions of the policy.

INC.A. SO ORDERED. ADVATECH INDUSTRIES. the judgment of the Court of Appeals is affirmed. G. vs.. When I examined the policy of the Philippine Charter Insurance Corporation I specifically told him that the policy and wordings shall be copied from the AIU Policy No.. It is true that there was variance in some terms. (ORD). Q. Yes. 206-4568061-9. Witness to ensure that the provisions which you wanted in the American Home Insurance policy are to be incorporated in the PCIC policy? A. No. 2064568061-9 in drafting its Insurance Policy No. What steps did you take? A. No costs. sir. LEP INTERNATIONAL PHILIPPINES. 2011 NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS. specifically in the replacement cost endorsement. Petitioner. The petition for certiorari is dismissed. INC.37 IN VIEW WHEREOF.). MARINA . Did you take any step Mr. Q.R. sir. NYK-FILJAPAN SHIPPING CORP. 171468 August 24. INC.. copied AIU Policy No. LEP PROFIT INTERNATIONAL. we cannot apply the "fine print" or "contract of adhesion" rule in this case as the parties’ intent to limit the coverage of the policy to the two swimming pools only is not ambiguous. Respondent. in compliance with the condition set by the petitioner.. DMT CORP. but the principal provisions of the policy remained essentially similar to AHAC-AIU’s policy.. I told him that I will agree to that renewal of this policy under Philippine Charter Insurance Corporation as long as it will follow the same or exact provisions of the previous insurance policy we had with American Home Assurance Corporation. INC. Yes. Consequently. 31944.

..).R.. Petitioner.. to withdraw the shipment and deliver the same to petitioner New World’s job site in Makati City. NYK issued a bill of lading.. declaring that it received the goods in good condition. 174241 NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS. NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72 that it also owned and operated. ACX Ruby encountered typhoon Kadiang whose captain filed a sea protest on arrival at the Manila South Harbor on October 5. DECISION ABAD.). From there. (LEP Profit) in Chicago.. Illinois..: These consolidated petitions involve a cargo owner’s right to recover damages from the loss of insured goods under the Carriage of Goods by Sea Act and the Insurance Code.. Eventually. two vans bore signs of external damage while the third van appeared unscathed. Seaboard–Eastern Insurance Company (Seaboard). No. Inc. (Advatech) three emergency generator sets worth US$721. revealed that all three sets suffered . United States. INC. An examination of the three generator sets in the presence of petitioner New World’s representatives. SERBROS CARRIER CORPORATION. INC.. where it was loaded on S/S California Luna V59.. Federal Builders (the project contractor) and surveyors of petitioner New World’s insurer... DMT shipped the generator sets by truck from Wisconsin. California.PORT SERVICES.00. The Facts and the Case Petitioner New World International Development (Phils. the Manila South Harbor arrastre or cargo-handling operator...-x G. and SEABOARD-EASTERN INSURANCE CO.. x . 1993. 1993 customs authorities allowed petitioner’s customs broker. Marina Port Services. the shipment went by train to Oakland. INC... Advatech Industries. received the shipment on October 7.. on October 20. however. owned and operated by NYK Fil-Japan Shipping Corporation (NYK) for delivery to petitioner New World in Manila.. Inc. vs. Serbros Carrier Corporation (Serbros). Respondent.. INC... J. Upon inspection of the three container vans separately carrying the generator sets. (New World) bought from DMT Corporation (DMT) through its agent. to LEP Profit International. Inc. 1993 respecting the loss and damage that the goods on board his vessel suffered. Inc.... The shipment remained at Pier 3’s Container Yard under Marina’s care pending clearance from the Bureau of Customs. On its journey to Manila. SEABOARD-EASTERN INSURANCE CO.. (Marina).500. Respondents..

The RTC held that the one-year period should be counted from the date the goods were delivered to the arrastre operator and not from the date they were delivered to petitioner’s job site. according to the RTC. DMT. Further. Likewise. insisting that the insurance policy did not include the submission of such a list in connection with an insurance claim. 2006. 2006 the CA rendered an amended decision. Inc. LEP International Philippines. however. both denied liability for the loss. Seaboard required petitioner New World to submit to it an itemized list of the damaged units. New World demanded recompense for its loss from respondents NYK. (LEP). 1994 when the deadline for filing the action (on or before October 7. the RTC held that the latter cannot be faulted for denying the claim against it since New World refused to submit the itemized list that Seaboard needed for assessing the damage to the shipment. LEP Profit. For these reasons. 1994) had already lapsed. considering a) that the submission of the itemized listing is an unreasonable imposition and b) that the one-year prescriptive period under the COGSA did not affect New World’s right under the insurance policy since it was the Insurance Code that governed the relation between the insurer and the insured. parts. The RTC ruled. New World filed its complaint on October 11. petitioner New World sent it a formal claim dated November 16. Replying on February 14. ACX Ruby. the belated filing of the complaint prejudiced Seaboard’s right to pursue a claim against NYK in the event of subrogation.1 As regards petitioner New World’s claim against Seaboard. Seaboard chose to file a motion for reconsideration of that decision. for the processing of the claim. Advatech. 1994.extensive damage and could no longer be repaired.R. the Court of Appeals (CA) rendered judgment on January 31. to exercise the degree of diligence required of it in the face of a foretold raging typhoon in its path. in Civil Case 94-2770. 1993. 171468. The CA held that petitioner New World can still recoup its loss from Seaboard’s marine insurance policy. and accessories. that petitioner New World filed its claim against the vessel owner NYK beyond the one year provided under the Carriage of Goods by Sea Act (COGSA). While LEP and NYK acknowledged receipt of the demand. Branch 62. its insurer. Since Seaboard covered the goods with a marine insurance policy. On August 17. But petitioner New World did not submit what was required of it. 1994 petitioner New World filed an action for specific performance and damages against all the respondents before the Regional Trial Court (RTC) of Makati City. Marina. On appeal. The latter failed. 2001 the RTC rendered a decision absolving the various respondents from liability with the exception of NYK. On October 11. Seaboard refused to process the claim. Although petitioner New World promptly filed a petition for review of the CA decision before the Court in G. On August 16. The CA held that the submission of the itemized listing was a reasonable requirement that Seaboard asked of New World. reversing itself as regards the claim against Seaboard. with corresponding values. and Serbros. the CA held that the one-year prescriptive period for maritime claims . Reacting to this. The RTC found that the generator sets were damaged during transit while in the care of NYK’s vessel. 2 affirming the RTC’s rulings except with respect to Seaboard’s liability.

LEP Profit. 4 As found by the RTC and the CA. The . Advatech. NYK failed to discharge this burden. as insurer and subrogee of New World’s right against the vessel owner. petitioner instituted a second petition for review before the Court in G.applied to Seaboard. and Serbros who were at one time or another involved in handling the shipment. LEP Profit. 174241 -One. The Court’s Rulings In G. Marina. But the issue regarding which of the parties to a dispute incurred negligence is factual and is not a proper subject of a petition for review on certiorari. the Court will not disturb the finding of the RTC.3 Consequently. New World’s failure to comply promptly with what was required of it prejudiced such right. and 2) whether or not the CA erred in failing to rule that the one-year COGSA prescriptive period for marine claims does not apply to petitioner New World’s prosecution of its claim against Seaboard.R. Instead of filing a motion for reconsideration. LEP. That the loss was occasioned by a typhoon. 174241. and after the disastrous typhoon. Advatech. LEP. whether or not the CA erred in affirming the RTC’s release from liability of respondents DMT. The Issues Presented The issues presented in this case are as follows: a) In G. the vessel owner. affirmed by the CA. its insurer. 174241. an exempting cause under Article 1734 of the Civil Code. and b) In G.R. 1) whether or not the CA erred in ruling that Seaboard’s request from petitioner New World for an itemized list is a reasonable imposition and did not violate the insurance contract between them. rendering such respondents solidarily liable with NYK.R. during. In G. 171468 -Petitioner New World asserts that the roles of respondents DMT. And petitioner New World has been unable to make out an exception to this rule. The latter had the burden of proving that the typhoon was the proximate and only cause of loss and that it exercised due diligence to prevent or minimize such loss before. that the generator sets were totally damaged during the typhoon which beset the vessel’s voyage from Hong Kong to Manila and that it was her negligence in continuing with that journey despite the adverse condition which caused petitioner New World’s loss.R. assailing the CA’s amended decision. does not automatically relieve the common carrier of liability. The Court does not regard as substantial the question of reasonableness of Seaboard’s additional requirement of an itemized listing of the damage that the generator sets suffered. Marina and Serbros in handling and transporting its shipment from Wisconsin to Manila collectively resulted in the damage to the same. 171468.R.

if Seaboard had processed that claim and paid the same. Seaboard’s own marine surveyor attended the inspection of the generator sets. Petitioner New World should not be made to suffer for Advatech’s shortcomings. Inc.7 Notably. it appears from the exchanges of communications between Seaboard and Advatech that submission of the requested itemized listing was incumbent on the latter as the seller DMT’s local agent. Seaboard would have been subrogated to petitioner New World’s right to recover from NYK.record shows that petitioner New World complied with the documentary requirements evidencing damage to its generator sets. its insurer. The Court cannot read a requirement in the policy that was not there. Regarding prescription of claims. and (8) Copies of Received Formal Claim from the following: a) LEP International Philippines. (4) the Delivery of Waybill Receipts 1135. or vessels unseaworthiness. b) Marina Port Services..8 Being a contract of adhesion. Two. an insurance policy is construed strongly against the insurer who prepared it. The policy covered all losses during the voyage whether or not arising from a marine peril. . parts. delay in voyage. But. Seaboard made an unreasonable demand on February 14. Section 3(6) of the COGSA provides that the carrier and the ship shall be discharged from all liability in case of loss or damage unless the suit is brought within one year after delivery of the goods or the date when the goods should have been delivered. and c) Serbros Carrier Corporation. namely. The record shows that petitioner New World filed its formal claim for its loss with Seaboard. (1) copy of the Supplier’s Invoice KL2504. the common carrier. (5) original copy of Marine Insurance Policy MA-HO-000266. 1222. What is more. and accessories. In the ordinary course. as early as November 16. But whose fault was it that the suit against NYK. (2) copy of the Packing List. and 1224. was not brought to court on time? The last day for filing such a suit fell on October 7. 5 Here. Inc.6 But Seaboard had been unable to show that petitioner New World’s loss or damage fell within some or one of the enumerated exceptions. a remedy it had the right to take. among others. Such a policy insured against all causes of conceivable loss or damage except when otherwise excluded or when the loss or damage was due to fraud or intentional misconduct committed by the insured. Seaboard cannot pretend that the above documents are inadequate since they were precisely the documents listed in its insurance policy. 1994. And it could have then filed the suit as a subrogee. 1993 or about 11 months before the suit against NYK would have fallen due. 1994 for an itemized list of the damaged units. (7) Consumption Report from the Customs Examiner. with corresponding values when it appeared settled that New World’s loss was total and when the insurance policy did not require the production of such a list in the event of a claim.. the policy enumerated certain exceptions like unsuitable packaging. inherent vice. (3) copy of the Bill of Lading 01130E93004458. The marine open policy that Seaboard issued to New World was an all-risk policy. as discussed above. Seaboard had been unable to explain how it could not verify the damage that New World’s goods suffered going by the documents that it already submitted. Further. (6) copies of Damage Report from Supplier and Insurance Adjusters.

Trans-Asia Shipping Lines. and formally rejected it. That would have at least given petitioner New World a clear signal that it needed to promptly file its suit directly against NYK and the others. 11 Pursuant to the Court’s ruling in Eastern Shipping Lines.). the insurer has 30 days after proof of loss is received and ascertainment of the loss or damage within which to pay the claim.00 with double interest plus attorney’s fees as discussed above. is not allowed to recover against respondents DMT Corporation. LEP Profit International. Notably.R. Seaboard already incurred delay when it failed to settle petitioner New World’s claim as Section 243 required. 10 the Court regarded as proper an award of 10% of the insurance proceeds as attorney’s fees.. If such ascertainment is not had within 60 days from receipt of evidence of loss. v. Inc. pursuant to Presidential Decree 116. under Section 243. Marina Port Services.500. the insurer has 90 days to pay or settle the claim. 171468 and AFFIRMS the Court of Appeals decision of January 31.. v..12 a 12% interest per annum from the finality of judgment until full satisfaction of the claim should likewise be imposed. Section 241 of the Insurance Code provides that no insurance company doing business in the Philippines shall refuse without just cause to pay or settle claims arising under coverages provided by its policies. The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of 12% per annum provided in Central Bank Circular 416. And. Seaboard should pay interest on the proceeds of the policy for the duration of the delay until the claim is fully satisfied at the rate of twice the ceiling prescribed by the Monetary Board. . Advatech Industries. Inc. It should have examined the same. the fault for the delayed court suit could be brought to Seaboard’s doorstep.Besides. 1avvphi1 Petitioner New World is entitled to the value stated in the policy which is commensurate to the value of the three emergency generator sets or US$721. when petitioner New World declined to comply with the demand for the list. Inc. Inc. the interim period equivalent to a forbearance of credit. Under Section 244. Such amount is fair considering the length of time that has passed in prosecuting the claim. Inc. Court of Appeals.. found it unsubstantiated by documents if that were the case. Inc. In Prudential Guarantee and Assurance. Inc. Inc. And. and Serbros Carrier Corporation. 2006 insofar as petitioner New World International Development (Phils. WHEREFORE. LEP International Philippines. 9 Section 244 of the Insurance Code also provides for an award of attorney’s fees and other expenses incurred by the assured due to the unreasonable withholding of payment of his claim. a prima facie evidence of unreasonable delay in payment of the claim is created by the failure of the insurer to pay the claim within the time fixed in Section 243. the Court DENIES the petition in G. Consequently. Seaboard against whom a formal claim was pending should not have remained obstinate in refusing to process that claim. in case the insurer refuses or fails to pay within the prescribed time. the insured shall be entitled to interest on the proceeds of the policy for the duration of delay at the rate of twice the ceiling prescribed by the Monetary Board. Ultimately.

from finality of judgment. 2000 of the Insurance Commission in I. 60144. with 24% interest per annum for the duration of delay in accordance with Sections 243 and 244 of the Insurance Code and attorney’s fees equivalent to 10% of the insurance proceeds. US$721. July 28. (White Gold) procured a protection and indemnity coverage for its vessels from The Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual) through Pioneer Insurance and Surety Corporation (Pioneer). 154514. When White Gold failed to fully pay its accounts. Inc. Petitioners. G.With respect to G. to pay petitioner New World International Development (Phils. 2005 WHITE GOLD MARINE SERVICES. Inc. No.R. Seaboard shall also pay. DECISION QUISUMBING.. Adm. 174241.).R. Subsequently. a 12% interest per annum on the total amount due to petitioner until its full satisfaction.3 Pioneer also issued receipts evidencing payments for the coverage. vs. PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD. SP No. The Court DIRECTS Seaboard-Eastern Insurance Company. J. The facts are undisputed. affirming the Decision2 dated May 3.00 under Policy MA-HO-000266.: This petition for review assails the Decision1 dated July 30. Both decisions held that there was no violation of the Insurance Code and the respondents do not need license as insurer and insurance agent/broker. Steamship Mutual refused to renew the coverage. White Gold Marine Services. 2002 of the Court of Appeals in CA-G.C. 2006. .500. SO ORDERED. White Gold was issued a Certificate of Entry and Acceptance. Inc.. INC. the Court GRANTS the petition and REVERSES and SETS ASIDE the Court of Appeals Amended Decision of August 17. Respondents. RD-277.R. Case No.

. THAT RESPONDENT PIONEER NEED NOT SECURE A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP. a P & I Club. White Gold on the other hand. The Court of Appeals affirmed the decision of the Insurance Commissioner. THIRD ASSIGNMENT OF ERROR THE COURT A QUO ERRED WHEN IT RULED.Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the latter’s unpaid balance. engaged in the insurance business in the Philippines? (2) Does Pioneer need a license as an insurance agent/broker for Steamship Mutual? . filed a complaint before the Insurance Commission claiming that Steamship Mutual violated Sections 186 4 and 1875 of the Insurance Code. The Insurance Commission dismissed the complaint. ITS TRANSACTIONS THROUGH ITS AGENT AND/OR BROKER HENCE AS AN INSURER IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE PHILIPPINES. In this petition. FOURTH ASSIGNMENT OF ERROR THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER AND [IN NOT REMOVING] THE OFFICERS AND DIRECTORS OF RESPONDENT PIONEER. In its decision. It said that there was no need for Steamship Mutual to secure a license because it was not engaged in the insurance business. petitioner assigns the following errors allegedly committed by the appellate court. while Pioneer violated Sections 299. It explained that Steamship Mutual was a Protection and Indemnity Club (P & I Club). The appellate court also held that Pioneer merely acted as a collection agent of Steamship Mutual. SECOND ASSIGNMENT OF ERROR THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY EVIDENCE THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS. thereof. the basic issues before us are (1) Is Steamship Mutual. Pioneer need not obtain another license as insurance agent and/or a broker for Steamship Mutual because Steamship Mutual was not engaged in the insurance business. the appellate court distinguished between P & I Clubs vis-à-vis conventional insurance. Moreover. . hence. Likewise. FIRST ASSIGNMENT OF ERROR THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . 9 Simply.63007 and 3018 in relation to Sections 302 and 303. a separate license solely as agent/broker of Steamship Mutual was already superfluous. Pioneer was already licensed.

Steamship Mutual admits it does not have a license to do business in the Philippines although Pioneer is its resident agent.. This relationship is reflected in the certifications issued by the Insurance Commission. contingency. shall not preclude the existence of an insurance business. (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 Code. any insurance contract..13 . any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety. as insurer.. It is merely an association of vessel owners who have come together to provide mutual protection against liabilities incidental to shipowning. the fact that no profit is derived from the making of insurance contracts. Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business. depends on the nature of the promise. Is Steamship Mutual engaged in the insurance business? Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance business" or "transacting an insurance business". It is not by what it is called. as surety.The parties admit that Steamship Mutual is a P & I Club. it is not engaged in the insurance business in the Philippines. or circumstances under which the performance becomes requisite. v. Respondents contend that although Steamship Mutual is a P & I Club.12 The test to determine if a contract is an insurance contract or not. Ltd. Court of Appeals10 as "an association composed of shipowners in general who band together for the specific purpose of providing insurance cover on a mutual basis against liabilities incidental to shipowning that the members incur in favor of third parties. or that no separate or direct consideration is received therefor. (b) making. it cites the definition of a P & I Club in Hyopsung Maritime Co. The same provision also provides. it has engaged the services of Pioneer to act as its agent. 11 Respondents aver Hyopsung is inapplicable in this case because the issue in Hyopsung was the jurisdiction of the court over Hyopsung. and the exact nature of the agreement in the light of the occurrence. agreements or transactions. . the act required to be performed. specifically recognized as constituting the doing of an insurance business within the meaning of this Code. Steamship Mutual’s primary purpose is to solicit and provide protection and indemnity coverage and for this purpose. These are: (a) making or proposing to make. including a reinsurance business. (c) doing any kind of business. To buttress its assertion. or proposing to make." It stresses that as a P & I Club.

It maintains a resident agent in the Philippines to solicit insurance and to collect payments in its behalf. namely. provide three types of coverage. 14 In particular. We note that Steamship Mutual even renewed its P & I Club cover until it was cancelled due to non-payment of the calls. no insurer or insurance company is allowed to engage in the insurance business without a license or a certificate of authority from the Insurance Commission. In it. the members all contribute. it needs a separate license to act as insurance agent for Steamship Mutual. or receive for services in obtaining insurance. war risks. It has been licensed to do or transact insurance business by virtue of the certificate of authority23 issued by the same agency. or clubs.15 Section 9916 of the Insurance Code enumerates the coverage of marine insurance. any commission or other compensation from any insurance company doing business in the Philippines . a Certification from the Commission states that Pioneer does not have a separate license to be an agent/broker of Steamship Mutual.Basically. a marine insurance undertakes to indemnify the assured against marine losses. an insurance contract is a contract of indemnity. Since a contract of insurance involves public interest. by a system of premiums or assessments. However. need a special license? Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration22 issued by the Insurance Commission."19 By definition then. Relatedly. Thus. in proportion to their interest. as agent/broker of Steamship Mutual. The records reveal Steamship Mutual is doing business in the country albeit without the requisite certificate of authority mandated by Section 18720 of the Insurance Code.18 A P & I Club is "a form of insurance against third party liability. Section 299 of the Insurance Code clearly states: SEC. must secure a license from the Insurance Commission. In it. where the third party is anyone other than the P & I Club and the members. Steamship Mutual as a P & I Club is a mutual insurance association engaged in the marine insurance business. 299 . to continue doing business here. 21 Does Pioneer. damage or liability arising from an unknown or contingent event.17 Additionally. a mutual insurance company is a cooperative enterprise where the members are both the insurer and insured. Steamship Mutual or through its agent Pioneer. and where the profits are divided among themselves. protection and indemnity. . No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance. one undertakes for a consideration to indemnify another against loss. such as the losses incident to a marine adventure. and defense costs. to the creation of a fund from which all losses and liabilities are paid. regulation by the State is necessary. . mutual insurance associations. Thus.24 Although Pioneer is already licensed as an insurance company.

Finally.. or within six months thereafter. G. WHEREFORE. 2000 of the Insurance Commission is hereby REVERSED AND SET ASIDE. respondent. without first procuring a license so to act from the Commissioner. The Steamship Mutual Underwriting Association (Bermuda) Ltd. MALINIS. SO ORDERED. in His Capacity as Insurance Commissioner. .. and Pioneer Insurance and Surety Corporation are ORDERED to obtain licenses and to secure proper authorizations to do business as insurer and insurance agent. . Regrettably. we are not the forum for these issues. 156956 October 9. is DENIED. vs. No. the petition is PARTIALLY GRANTED.R.or any agent thereof. . INC. The petitioner’s prayer for the revocation of Pioneer’s Certificate of Authority and removal of its directors and officers. White Gold seeks revocation of Pioneer’s certificate of authority and removal of its directors and officers. respectively. 2002 of the Court of Appeals affirming the Decision dated May 3. by EDUARDO T. The Decision dated July 30. which must be renewed annually on the first day of January.petitioner. DEL MONTE MOTORS. 2006 REPUBLIC OF THE PHILIPPINES. Costs against respondents.

. (CISCO) in the amount of P11. The security deposit must be ratably distributed among all the insured who are entitled to their respective shares. 2002.. Commissioner Malinis filed on January 15. it cannot be garnished or levied upon by a single claimant.835. Inc.835. This Court finds no lawful justification or excuse for Commissioner Malinis' refusal to implement the lawful orders of this Court. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court. 2003. Commissioner Malinis or his counsel or his duly authorized representative failed to appear despite notice in utter disregard of the order of this Court. [respondent] filed a Motion to Cite Commissioner Eduardo T.P11. 2003. "Wherefore.50 representing the balance of Vilfran Liner's service contracts with respondent. The January 16. to the detriment of the others. Inc.375. 2002 directing him to allow the withdrawal of the security deposit of Capital Insurance and Surety Co.375. the RTC rendered a Decision in Civil Case No. 2002 Resolution 3 of the lower court. 2003 a written Comment reiterating the same grounds already passed upon and rejected by this Court. Hilaria Villegas and Maura Villegas) jointly and severally liable to pay Del Monte Motors. CJ. Malinis of the Office of the Insurance Commission in Contempt of Court because of his failure and refusal to obey the lawful order of this court embodied in a Resolution dated December 18. premises considered and after due hearing.: The securities required by the Insurance Code to be deposited with the Insurance Commissioner are intended to answer for the claims of all policy holders in the event that the depositing insurance company becomes insolvent or otherwise unable to satisfy their claims. Q-97-30412."4 The Facts On January 15. "During the hearing of the Motion set last January 10. finding the defendants (Vilfran Liner. 2003 Order2 of the Regional Court (RTC) of Quezon City (Branch 221) in Civil Case No. The RTC found Insurance Commissioner Eduardo T. Malinis is hereby declared guilty of Indirect Contempt of Court pursuant to Section 3 [of] Rule 71 of the 1997 Rules of Civil Procedure for willfully disobeying and refusing to implement and obey a lawful order of this Court. Malinis guilty of indirect contempt for refusing to comply with the December 18. seeking to reverse the January 16. 2003 Order states in full: "On January 8. Q-97-30412. Commissioner Eduardo T.50 to be paid to Sheriff Manuel Paguyo in the satisfaction of the Notice of Garnishment pursuant to a Decision of this Court which has become final and executory. The trial court further ordered the execution of the Decision against the . However.DECISION PANGANIBAN.

2003. . On June 13. Sheriff Manuel S. Inc. He also issued a Notice of Garnishment on several depository banks of the insurance company. so as to enforce the Writ on the security deposit filed by CISCO with the Commission in accordance with Section 203 of the Insurance Code. claiming that the latter had no record or document regarding the alleged issuance of the counterbond. 2002. On April 18. respondent moved to cite Insurance Commissioner Eduardo T. On December 18.counterbond posted by Vilfran Liner on June 10.6 Issues Petitioner raises this sole issue for the Court's consideration: "Whether or not the security deposit held by the Insurance Commissioner pursuant to Section 203 of the Insurance Code may be levied or garnished in favor of only one insured. CISCO opposed the Motion for Execution filed by respondent. It explained that the commissioner had no legal justification for his refusal to allow the withdrawal of CISCO's security deposit. Accordingly said office is ordered to withdraw from the security deposit of Capital Insurance & Surety Company.835. (CISCO). 2002. thus. Paguyo proceeded to levy on the properties of CISCO. after a hearing on all the pending Motions. the amount ofP11." 7 The Court's Ruling The Petition is meritorious.50 to be paid to Sheriff Manuel S. Hence. he served a similar notice on the Insurance Commission. Inc. Moreover. the bond was not valid and enforceable. 2002. The RTC resolved thus: "Furthermore.. The trial court added that the letter and spirit of the law made the security deposit answerable for contractual obligations incurred by CISCO under the insurance contracts the latter had entered into. 2002 Resolution of the trial court. and to safeguard the public interest by insuring the faithful performance to enforce contractual obligations under existing bonds. 1997. Armed with this Writ. the RTC granted the Motion for Execution and issued the corresponding Writ. 2002. the Commissioner of the Office of the Insurance Commission is hereby ordered to comply with its obligations under the Insurance Code by upholding the integrity and efficacy of bonds validly issued by duly accredited Bonding and Insurance Companies. Ruling of the Trial Court The RTC held Insurance Commissioner Malinis in contempt for his refusal to implement its Order. Paguyo in satisfaction of the Notice of Garnishment served on August 16. Malinis in contempt of court for his refusal to obey the December 18. the RTC ruled that the Notice of Garnishment served by Sheriff Paguyo on the insurance commission was valid. and issued by Capital Insurance and Surety Co."5 On January 8. this Petition.

further. That such investments shall at all times be maintained free from any lien or encumbrance. contends that the partial releases should not be construed as an abandonment of its stand that security deposits under Section 203 of the Insurance Code are exempt from levy and garnishment. only a portion of respondent's claim was satisfied. To set aside the resolution of the issue will only postpone a task that is certain to crop up in the future. including the Central Bank of the Philippines: Provided. not to the lower court's Order of garnishment. and the Insurance Commission has required CISCO to replenish the latter's security deposit. "Except as otherwise provided in this Code.8 As this case is undeniably endowed with public interest and involves a matter of public policy. or of government-owned or controlled corporations and entities. Portions of the fund were consequently released to respondent in July.Preliminary Issue: Propriety of Review Before discussing the principal issue. however. may one day decide to further garnish the security deposit. Every domestic insurance company shall. It is subject to regulation by the State. satisfactory to the Commissioner. The issue is not totally moot. Insurance Commissioner Malinis sent the treasurer of the Philippines a letter dated March 26. to the extent of an amount equal in value to twenty-five per centum of the minimum paid-up capital required under section one hundred eighty-eight. Respondent. this Court shall not shirk from its duty to educate the bench and the bar by formulating guiding and controlling principles. but also to the internal affairs of insurance companies. once replenished. Moreover. precepts. Prior to the filing of the instant Petition. the business of insurance is imbued with public interest. similar claims on the security deposits of various insurance companies have been made before the Insurance Commission. 2003. doctrines and rules. and Provided. after the questioned Order of the lower court was issued. so far as practicable. and December 2003. Thus. The Republic claims that the releases were made pursuant to the commissioner's power of control over the fund. with respect not only to the relations between the insurer and the insured. stating that the former had no objection to the release of the security deposit to Del Monte Motors. 9 Principal Issue: Exemption of Security Deposit from Levy or Garnishment Section 203 of the Insurance Code provides as follows: "Sec. Petitioner. To stress. invest its funds only in securities. the Court will first dispose of the question of mootness. That such securities shall be deposited with and held by the Commissioner for the faithful performance by the depositing insurer of all its obligations under its insurance contracts. apply to the securities deposited under this section. 203. Besides. Petitioner further invokes the jurisdiction of this Court to put to rest the principal issue of whether security deposits made with the Insurance Commission may be levied and garnished. The provisions of section one hundred ninety-two shall." (Emphasis supplied) . no judgment creditor or other claimant shall have the right to levy upon any of the securities of the insurer held on deposit pursuant to the requirement of the Commissioner. consisting of bonds or other evidences of debt of the Government of the Philippines or its political subdivisions or instrumentalities. therefore. October. the issue arises: whether these circumstances render the case moot.

upon the hearing of which. At this time. a preference of credit over the other policy holders and beneficiaries. Powers of the Commissioner The Insurance Code has vested the Office of the Insurance Commission with both regulatory and adjudicatoryauthority over insurance matters. (2) at all times free from any liens or encumbrance. the court may make equitable distribution of the fund. CISCO. respondent's interest is merely inchoate. it has no attribute of property. Pacific States Life Assurance Co.14 Hence. Respondent's Inchoate Right The right to lay claim on the fund is dependent on the solvency of the insurer and is subject to all other obligations of the company arising from its insurance contracts.11 held that the money required to be deposited by a mutual assessment insurance company with the state treasurer was "a trust fund to be ratably distributed amongst all the claimants entitled to share in it. though presently under conservatorship. this move would create. a single claimant may not lay stake on the securities to the exclusion of all others. it is nonexistent and may never exist. Thus. has valid outstanding policies. Hence. and appoint a receiver to carry that distribution into effect."12 Basic is the statutory construction rule that provisions of a statute should be construed in accordance with the purpose for which it was enacted. Our Insurance Code is patterned after that of California. Only after all other claimants under subsisting policies issued by CISCO have been heard can respondent's share be determined.15 . precisely to ensure faithful performance of all the obligations of the depositing insurer under the latter's various insurance contracts. As worded. and with all the parties interested in the fund before it. This step is taken in the event that the company becomes insolvent or otherwise unable to satisfy the claims against it. The Court is not convinced. the ruling of the state's Supreme Court on a similar concept as that of the security deposit is instructive.13 That is. Its policy holders have a right under the law to be equally protected by its security deposit.10 Thus. it would be premature to make the security deposit answerable for CISCO's present obligation to Del Monte Motors. Further. It contends that the law requires the deposit. the securities are held as a contingency fund to answer for the claims against the insurance company by all its policy holders and their beneficiaries. Thus. Such a distribution cannot be had except in an action in the nature of a creditors' bill. Engwicht v.Respondent notes that Section 203 does not provide for an absolute prohibition on the levy and garnishment of the security deposit. it would be impossible to establish at this time which claimants are entitled to the security deposit and in what pro-rated amounts. since insolvency proceedings against CISCO have yet to be conducted. The other parties may have their own claims against the insurance company under other insurance contracts it has entered into. the law expressly and clearly states that the security deposit shall be (1) answerable for all the obligations of the depositing insurer under its insurance contracts. To be sure. To allow the garnishment of that deposit would impair the fund by decreasing it to less than the percentage of paid-up capital that the law requires to be maintained. respondent claims that the security deposit should be answerable for the counterbond issued by CISCO. Being a mere expectancy. in favor of respondent. and (3) exempt from levy by any claimant. Moreover.

the insurance commissioner has been given a wide latitude of discretion to regulate the insurance industry so as to protect the insuring public. circulars. notwithstanding any existing laws to the contrary. Section 192 of the Insurance Code states: "Sec. mutual benefit associations. for the benefit and security of all the policyholders of the company depositing the same. subject to the approval of the Secretary of Finance. and shall. but shall as long as the company is solvent.21 As the officer vested with custody of the security deposit. 414. the insurance commissioner is in the best position to determine if and when it may be released without prejudicing the rights of other policy holders. permit the company to collect the interest or dividends on the securities so deposited. their directors and/or officers and/or agents appropriate penalties -. insurance companies and other insurance matters. Before allowing the withdrawal or the release of the deposit.The general regulatory authority of the insurance commissioner is described in Section 414 of the Code as follows: "Sec. The Insurance Commissioner shall have the duty to see that all laws relating to insurance. or for otherwise conducting business in an unsafe or unsound manner. 192. Commissioner's Actions Entitled to Great Respect . orders and decisions as he may deem necessary to secure the enforcement of the provisions of this Code." (Emphasis supplied) Pursuant to these regulatory powers. and to issue such reasonable rules and regulations governing the same. "The Commissioner may issue such rulings. In the event of any company ceasing to do business in the Philippines the securities deposited as aforesaid shall be returned upon the company's making application therefor and proving to the satisfaction of the Commissioner that it has no further liability under any of its policies in the Philippines.17 (3) impose upon insurance companies. have sole and exclusive authority to regulate the issuance and sale of variable contracts as defined in section two hundred thirty-two and to provide for the licensing of persons selling such contracts.16 (2) revoke or suspend these certificates of authority upon finding grounds for the revocation or suspension. The Commissioner shall hold the securities. with his assent. regulations or rulings. An implied trust20 is created by the law for the benefit of all claimants under subsisting insurance contracts issued by the insurance company. Except as otherwise specified. the market value of which shall be equal to the market value of such as may be withdrawn.for failing to comply with the Code or with any of the commissioner's orders. from time to time. and. with whom these investments are required to be deposited. the commissioner is authorized to (1) issue (or to refuse to issue) certificates of authority to persons or entities desiring to engage in insurance business in the Philippines. to withdraw any of such securities. decisions made by the Commissioner shall be appealable to the Secretary of Finance. the commissioner must be satisfied that the conditions contemplated by the law are met and all policy holders protected. for the benefit and security of all policy holders. suspension or removal from office -. instructions. deposited as aforesaid. and trusts for charitable uses are faithfully executed and to perform the duties imposed upon him by this Code. upon depositing with said Commissioner other like securities.fines.18 Included in the above regulatory responsibilities is the duty to hold the security deposits under Sections 19119 and 203 of the Code. In relation to these provisions. instructions." (Emphasis supplied) Undeniably. The law specifically confers custody over the securities upon the commissioner.

23 Clearly. 2009 PHILIPPINE HEALTH CARE PROVIDERS.24 WHEREFORE. It follows that without the issuance of a valid order. the trial court erred in issuing the Writ of Garnishment against the security deposit of CISCO. RESOLUTION .In this case. 22 as he is the head of a specialized body tasked with the regulation of insurance matters and primarily charged with the implementation of the Insurance Code. the administrative agencies charged with applying and implementing particular statutes have accumulated experience and specialized capabilities. the Petition is GRANTED and the assailed Order SET ASIDE. Commissioner Malinis refused to release the security deposit of CISCO. Respondent.R. SO ORDERED. No. Believing that the funds were exempt from execution as provided by law. His interpretation of the provisions of the law carries great weight and consideration. 167330 September 18. unless clearly shown to be in sharp conflict with the governing statute or the Constitution and other laws. COMMISSIONER OF INTERNAL REVENUE. No costs. Thus. vs. then. The emergence of the multifarious needs of modern society necessitates the establishment of diverse administrative agencies. G.. in a long line of cases. the insurance commissioner could not have been in contempt of court. this Court has recognized that their construction of a statute is entitled to great respect and should ordinarily be controlling. In addressing these needs. Petitioner. INC. he sought to protect other policy holders.

The State shall protect and promote the right to health of the people and instill health consciousness among them. respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal demand letter and the corresponding assessment notices demanding the payment of deficiency taxes.2 We recall the facts of this case. operated or accredited by it. and financial responsibilities of the organization. health and other social services available to all the people at affordable cost. There shall be priority for the needs of the underprivileged sick. xxx xxx xxx On January 27. 1 For resolution are a motion for reconsideration and supplemental motion for reconsideration dated July 10. 2008. legal. conduct and operate a prepaid group practice health care delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the health care plan and to provide for the administrative. including surcharges and interest.: ARTICLE II Declaration of Principles and State Policies Section 15. and children.CORONA.641. Inc. women. 2008 and July 14. The State shall adopt an integrated and comprehensive approach to health development which shall endeavor to make essential goods. respectively. for the taxable years 1996 and 1997 in the total amount of P224. maintain.702. as follows: Petitioner is a domestic corporation whose primary purpose is "[t]o establish. filed by petitioner Philippine Health Care Providers. J. ARTICLE XIII Social Justice and Human Rights Section 11. diagnostic and curative medical services provided by its duly licensed physicians.18. disabled." Individuals enrolled in its health care programs pay an annual membership fee and are entitled to various preventive. xxxx The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s health care agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax Code xxxx xxx xxx xxx . The State shall endeavor to provide free medical care to paupers. 2000. specialists and other professional technical staff participating in the group practice health delivery system at a hospital or clinic owned. elderly.

petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments. the petition for review is GRANTED.19 and P68. CA. [231]-88 is declared void and without force and effect. citing Blue Cross Healthcare. 2000. the Court denied the petition and affirmed the CA’s decision. The Decision of the Court of Tax Appeals. The 1996 and 1997 deficiency DST assessment against petitioner is hereby CANCELLED AND SET ASIDE. On August 16. the CTA rendered a decision.094. Inc. the instant Petition for Review is PARTIALLY GRANTED. Respondent is ORDERED to DESIST from collecting the said DST deficiency tax. Accordingly. He claimed that petitioner’s health care agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code. v. 2002. v. On April 5.258.73 as deficiency Documentary Stamp Tax for 1996 and 1997.831. VAT Ruling No. 1998 until fully paid for the 1997 VAT deficiency. plus 25% surcharge for late payment and 20% interest per annum from January 27. SO ORDERED.352. We held that petitioner’s health care agreement during the pertinent period was in the nature of non-life insurance which is a contract of indemnity.163. SO ORDERED.75 inclusive of 25% surcharge plus 20% interest from January 20. Olivares3 and Philamcare Health Systems. the dispositive portion of which read: WHEREFORE. Petitioner moved for reconsideration but the CA denied it. petitioner filed this case. Inc. 2004. respectively. WHEREFORE. insofar as it cancelled and set aside the 1996 and 1997 deficiency documentary stamp tax assessment and ordered petitioner to desist from collecting the same is REVERSED and SET ASIDE. 1997 until fully paid for the 1996 VAT deficiency and P31. until the same shall have been fully paid. 2008. Hence. It held that petitioner’s health care agreement was in the nature of a non-life insurance contract subject to DST.Petitioner protested the assessment in a letter dated February 23. Respondent is ordered to pay the amounts of P55. 2000.054. As respondent did not act on the protest. xxx xxx xxx In a decision dated June 12. in view of the foregoing.87 inclusive of 25% surcharge plus 20% interest from January 20. Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the DST assessment. Petitioner is hereby ORDERED to PAY the deficiency VAT amounting to P22.450. the CA rendered its decision.746.4We also ruled that petitioner’s contention that it is a health maintenance organization (HMO) and not an insurance company is irrelevant because contracts between companies like petitioner and the beneficiaries under their plans are treated as . pursuant to Sections 248 and 249 of the Tax Code.

(c) Section 185 should be strictly construed. Moreover. Petitioner. they are not those contemplated under Section 185. health insurance is not covered by Section 185. (i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the taxable year 2005 and all prior years.149. (d) Legislative intent to exclude health care agreements from items subject to DST is clear. not an insurance company. (g) The agreements do not fall under the phrase "other branch of insurance" mentioned in Section 185. petitioner reveals for the first time that it availed of a tax amnesty under RA 94807 (also known as the "Tax Amnesty Act of 2007") by fully paying the amount of P5. The parties submitted their memoranda on June 8. Therefore. Philippine National contracts. asserting the following arguments: (a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only on a company engaged in the business of fidelity bonds and other insurance policies.9 It is engaged in the dispensation of the following medical services to individuals who enter into health care agreements with it: . Petitioner was formally registered and incorporated with the Securities and Exchange Commission on June 30. especially in the light of the amendments made in the DST law in 2002. in dismissing the appeal in CIR v. (e) Assuming arguendo that petitioner’s agreements are contracts of indemnity. opportunity or facility offered at exchanges for the transaction of the business.6 Oral arguments were held in Baguio City on April 22. Unable to accept our verdict. In its motion for reconsideration. (h) The June 12.127. DST is not a tax on the business transacted but an excise on the privilege. petitioner filed the present motion for reconsideration and supplemental motion for reconsideration. affirmed in effect the CA’s disposition that health care services are not in the nature of an insurance business. 2008 decision should only apply prospectively. 8 We find merit in petitioner’s motion for reconsideration. (b) The Court. 1987. 2005. as an HMO. (f) Assuming arguendo that petitioner’s agreements are akin to health insurance.08 representing 5% of its net worth as of the year ending December 31. is a service provider. the questioned assessments on the DST are now rendered moot and academic. 2009. 2009.

Diagnostic medical services such as routine physical examinations. the enrolled member may actually make use of the health care services being offered by petitioner at any time. i. x-rays. submits that it is of critical importance to characterize the business it is engaged in. The medical services are dispensed to enrolled members in a hospital or clinic owned. preventive. family planning counseling. through physicians. Except for the curative aspect of the medical service offered.14 To avail of petitioner’s health care programs. petitioner pays the participating physicians and other health care providers for the services rendered. those directly employed by it11 or whose services are contracted by it. however. that is. the professional services are to be provided only by petitioner's physicians.e.13 If and when a member avails of the benefits under the agreement. The same agreement contains the various health care services that can be engaged by the enrolled member.12 Petitioner also provides hospital services such as room and board accommodation. exercise and other healthy habits. diagnostic and curative medical services.16 A second hard look at the relevant law and jurisprudence convinces the Court that the arguments of petitioner are meritorious. operating rooms. Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides: .e. urinalysis. i. laboratory services. operated or accredited by petitioner. medical and dental practitioners under contract with it. and immunization.10 Individuals enrolled in its health care program pay an annual membership fee.Preventive medical services such as periodic monitoring of health problems. fecalysis.15 Petitioner. consultation and advices on diet. as this distinction is indispensable in turn to the issue of whether or not it is liable for DST on its health care agreements. Health Maintenance Organizations Are Not Engaged In The Insurance Business We said in our June 12. Except in cases of emergency. x-ray facilities and general nursing care. opportunity or facility used in the transaction of the business. complete blood count.. to determine whether it is an HMO or an insurance company. and the like and Curative medical services which pertain to the performing of other remedial and therapeutic processes in the event of an injury or sickness on the part of the enrolled member. It negotiates with such health care practitioners regarding payment schemes. at pre-agreed rates. Membership is on a year-to-year basis. 2008 decision that it is irrelevant that petitioner is an HMO and not an insurer because its agreements are treated as insurance contracts and the DST is not a tax on the business but an excise on the privilege. the individual members are required to sign and execute a standard health care agreement embodying the terms and conditions for the provision of the health care services. financing and other procedures for the delivery of health services.

an HMO is "an entity that provides. association or company or corporation transacting the business of accident. sentence. offers or arranges for coverage of designated health services needed by plan members for a fixed prepaid premium. meaningless. any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety. plate. a construction which renders every word operative is preferred over that which makes some words idle and nugatory.18 From the language of Section 185.00). company or corporation."19 The payments do not vary with the extent. glass. it is evident that two requisites must concur before the DST can apply. steam boiler. elevator. damage. employer’s liability. fidelity. marine. and on all obligations guaranteeing the title to any real estate. clause. void and insignificant.50) on each four pesos (P4. plate. Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates what constitutes "doing an insurance business" or "transacting an insurance business:" a) making or proposing to make. and fire insurance). municipality.Section 185. and on all obligations guaranteeing the validity or legality of any bond or other obligations issued by any province. marine. Petitioner is admittedly an HMO. we choose the interpretation which gives effect to the whole of the statute – its every word. that is. b) making or proposing to make. The question is: was petitioner. engaged in the business of insurance during the pertinent taxable years? We rule that it was not.17 This principle is expressed in the maxim Ut magis valeat quam pereat. conditioned for the performance of the duties of any office or position. and all bonds. specifically recognized as constituting the doing of an insurance business within the meaning of this Code. including a reinsurance business. city. inland. inland. – On all policies of insurance or bonds or obligations of the nature of indemnity for loss. or recognizances. burglar. as an HMO. Under RA 7875 (or "The National Health Insurance Act of 1995"). and fire insurance). provision or part of a statute shall be considered surplusage or superfluous. undertakings. steam boiler. or liability made or renewed by any person. frequency or type of services provided. which may be made or renewed by any such person. elevator. Stamp tax on fidelity bonds and other insurance policies. or other public body or organization. namely: (1) the document must be a policy of insurance or an obligation in the nature of indemnity and (2)the maker should be transacting the business of accident. automatic sprinkler. or other branch of insurance (except life. for the doing or not doing of anything therein specified. fidelity. there shall be collected a documentary stamp tax of fifty centavos (P0. any insurance contract. To this end. burglar. c) doing any kind of business. as surety. as insurer. . or other branch of insurance (except life. or guaranteeing any mercantile credits. automatic sprinkler. glass. of the premium charged. or fractional part thereof. (Emphasis supplied) It is a cardinal rule in statutory construction that no word. employer’s liability.

the bringing of physician and patient together. these are not distinctive or generally . quantity or distribution. The latter are concerned primarily. the fact that no profit is derived from the making of insurance contracts. Various courts in the United States. continuous medical service by its members. to broaden the service to the individual in kind and quantity. Its primary purpose is to reduce the cost rather than the risk of medical care. It is. its extension. On the other hand. fire and tornado. shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business. In the application of the provisions of this Code. or its extension in kind. if not exclusively.21 have determined that HMOs are not in the insurance business. ordinary aches and pains. not the daily routine of living. Group Health Association23 wherein the Court of Appeals of the District of Columbia Circuit held that Group Health Association should not be considered as engaged in insurance activities since it was created primarily for the distribution of health care services rather than the assumption of insurance risk. is not engaged in the insurance business. the regularization of service as well as payment. whether or not organized for profit). the preventive features. except incidentally to these features. not with service. such as death. with the unusual occurrence. One test that they have applied is whether the assumption of risk and indemnification of loss (which are elements of an insurance business) are the principal object and purpose of the organization or whether they are merely incidental to its business. the cooperative is concerned principally with getting service rendered to its members and doing so at lower prices made possible by quantity purchasing and economies in operation. xxx Although Group Health’s activities may be considered in one aspect as creating security against loss from illness or accident more truly they constitute the quantity purchase of well-rounded. The rule was enunciated in Jordan v. xxx The functions of such an organization are not identical with those of insurance or indemnity companies. Applying the "principal object and purpose test. to take care of colds."22 there is significant American case law supporting the argument that a corporation (such as an HMO. If these are the principal objectives. But if they are merely incidental and service is the principal purpose. the business is that of insurance. to regularize it as an everyday incident of living. in this instance. minor ills and all the temporary bodily discomforts as well as the more serious and unusual illness. to enlarge the number receiving it. whose main object is to provide the members of a group with health services. whose jurisprudence has a persuasive effect on our decisions. Hazard is predominant. then the business is not insurance.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 Code. the distinctive features of the cooperative are the rendering of service. To summarize. the substantial reduction in cost by quantity purchasing in short. like purchasing food and clothing or oil and gas. getting the medical job done and paid for. with risk and the consequences of its descent. Except the last. disaster at sea. the indemnification for cost after the services is rendered. rather than merely protecting against the financial loss caused by extraordinary and unusual occurrences. agreements or transactions or that no separate or direct consideration is received therefore. not.

That view would cause them to engulf practically all contracts.25 the California court felt that.A. and contracting merely to stand its cost when or after it is rendered. is whether.characteristic of the insurance arrangement. ‘service’ rather than ‘indemnity’ is its principal object and purpose. a substantial difference between contracting in this way for the rendering of service. Unquestionably this is ‘service’ of a high order and not ‘indemnity. therefore. v. xxx xxx xxx The primary purpose of a medical service corporation. The fallacy is in looking only at the risk element. The medical profession unitedly is endeavoring to meet that need. Absence or presence of assumption of risk or peril is not the sole test to be applied in determining its status. not only will the .24 (Emphasis supplied) In California Physicians’ Service v. looking at the plan of operation as a whole. while the latter only undertake to indemnify an insured for medical expenses up to. That an incidental element of risk distribution or assumption may be present should not outweigh all other factors. is an undertaking to provide physicians who will render services to subscribers on a prepaid basis. Hence. There is another and more compelling reason for holding that the service is not engaged in the insurance business. however. it was service rather than indemnity which stood as its principal purpose.’26 (Emphasis supplied) American courts have pointed out that the main difference between an HMO and an insurance company is that HMOs undertake to provide or arrange for the provision of medical services through participating physicians while insurance companies simply undertake to indemnify the insured for medical expenses incurred up to a pre-agreed limit. There is. but not beyond. The question turns. If attention is focused only on that feature. thus relieving subscribers of any further financial burden. This is especially true when the contract is for the sale of goods or services on contingency. the line between insurance or indemnity and other types of legal arrangement and economic function becomes faint. after scrutinizing the plan of operation as a whole of the corporation. even on the contingency that it be needed. But obviously it was not the purpose of the insurance statutes to regulate all arrangements for assumption or distribution of risk. Probably there is no more impelling need than that of adequate medical care on a voluntary. more broadly. P. The question. Somerset Orthopedic Associates. Horizon Blue Cross and Blue Shield of New Jersey27 is clear on this point: The basic distinction between medical service corporations and ordinary health and accident insurers is that the former undertake to provide prepaid medical services through participating physicians. particularly conditional sales and contingent service agreements. but on whether that or something else to which it is related in the particular plan is its principal object purpose. if there are no physicians participating in the medical service corporation’s plan. Certainly the objects and purposes of the corporation organized and maintained by the California physicians have a wide scope in the field of social service. low-cost basis for persons of small income. to the exclusion of all others present or their subordination to it. the schedule of rates contained in the policy. not on whether risk is involved or assumed. Garrison. if not extinct.

for the purpose of determining what "doing an insurance business" means. This indubitably shows that indemnification is not its sole object. we are also not unmindful that there are other American authorities who have found particular HMOs to be actually engaged in insurance activities. cases. we have to scrutinize the operations of the business as a whole and not its mere components. a substantial portion of petitioner’s services covers preventive and diagnostic medical services intended to keep members from developing medical conditions or diseases.S. To fulfill its obligations to its members under the agreements. In fact. in effect.28 (Emphasis supplied) Consequently. but the corporation will. petitioner appears to provide insurance-type benefits to its members (with respect to its curative medical services). to provide the health and medical services needed to prevent such loss or damage. it is its obligation to maintain the good health of its members. even if petitioner assumes the risk of paying the cost of these services even if significantly more than what the member has prepaid. By the same token. with payment made directly to the provider of these services. any indemnification resulting from the payment for services rendered in case of emergency by non-participating health providers would still be incidental to petitioner’s purpose of providing and arranging for health care services and does not transform it into an insurer. in adopting the "principal purpose test" used in the above-quoted U. It is important to emphasize that. This is of course only prudent and appropriate. A participating provider of health care services is one who agrees in writing to render health care services to or for persons covered by a contract issued by health service corporation in return for which the health service corporation agrees to make payment directly to the participating provider.subscribers be deprived of the protection which they might reasonably have expected would be provided. its health care programs are designed to prevent or to minimize the possibility of any assumption of risk on its part. we are not saying that petitioner’s operations are identical in every respect to those of the HMOs or health providers which were parties to those cases. 30 As an HMO. Therefore. but these are incidental to the principal activity of providing them medical care. The "insurance-like" aspect of petitioner’s business is miniscule compared to its noninsurance activities. on the contrary.29 In short. Accordingly.31 Overall.32 . taking into account the burdensome and strict laws. petitioner is required to set up a system and the facilities for the delivery of such medical services. Moreover. it nevertheless cannot be considered as being engaged in the insurance business. Thus. the mere presence of risk would be insufficient to override the primary purpose of the business to provide medical services as needed. be doing business solely as a health and accident indemnity insurer without having qualified as such and rendering itself subject to the more stringent financial requirements of the General Insurance Laws…. since it substantially provides health care services rather than insurance services. it cannot be considered as being in the insurance business. its undertaking under its agreements is not to indemnify its members against any loss or damage arising from a medical condition but. rules and regulations applicable to insurers and other entities engaged in the insurance business. What we are stating is that.

v. Inc. if they can be predicted at all. the Insurance Commissioner confirmed that petitioner is not engaged in the insurance business. medical consultations. or liability…. In Asturias Sugar Central. is not part of the insurance industry. experience and informed judgment. their competence. injury or emergency or his availment of so-called "out-patient services" (including physical examination. The reason behind this rule was explained in Nestle Philippines. the fact that petitioner must relieve its member from liability by paying for expenses arising from the stipulated contingencies belies its claim that its services are prepaid. The expenses to be incurred by each member cannot be predicted beforehand." Petitioner does not bear the costs alone but . This is evident from the fact that it is not supervised by the Insurance Commission but by the Department of Health.Lastly. vs. it also relates to the accumulation of experience and growth of specialized capabilities by the administrative agency charged with implementing a particular statute. This determination of the commissioner must be accorded great weight. x-ray and laboratory tests. medical and related expenses (such as professional fees of physicians). 36 A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section 185 Of The NIRC of 1997 Section 185 states that DST is imposed on "all policies of insurance… or obligations of the nature of indemnity for loss." In our decision dated June 12. medical and professional services to the member in case of sickness. it is significant that petitioner.33 In fact. Petitioner assumes the risk of paying for the costs of the services even if they are significantly and substantially more than what the member has "prepaid. Furthermore. under the said agreement. The term "loss or damage" is broad enough to cover the monetary expense or liability a member will incur in case of illness or injury. It is well-settled that the interpretation of an administrative agency which is tasked to implement a statute is accorded great respect and ordinarily controls the interpretation of laws by the courts. damage. 2008. petitioner assumes the liability and indemnifies its member for hospital. The courts give much weight to the government agency officials charged with the implementation of the law. we ruled that petitioner’s health care agreements are contracts of indemnity and are therefore insurance contracts: It is … incorrect to say that the health care agreement is not based on loss or damage because. Commissioner of Customs. in a letter dated September 3. and to have formed an independent. 2000. the rendition of hospital. vaccine administration and family planning counseling) is the contingent event which gives rise to liability on the part of the member. as an HMO. In case of exposure of the member to liability. and the fact that they frequently are the drafters of the law they interpret. conscientious and competent expert opinion thereon. Inc. Court of Appeals:34 The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing society and the establishment of diverse administrative agencies for addressing and satisfying those needs.35the Court stressed that executive officials are presumed to have familiarized themselves with all the considerations pertinent to the meaning and purpose of the law. expertness. Under the health care agreement. he would be entitled to indemnification by petitioner.

burglar. 2. that is. The insurer assumes the risk. Instead. The insured is subject to a risk of loss by the happening of the designed peril. or liability made or renewed by any person.38 This is because taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. employer’s liability. glass. In consideration of the insurer’s promise. association or company or corporation transacting the business of accident. marine. However.distributes or spreads them out among a large group of persons bearing a similar risk. fidelity. . among all the other members of the health care program.40 We are aware that. which is primarily a contract of indemnity. 37 We reconsider. tax laws may not be extended by implication beyond the clear import of their language. 41 Do the agreements between petitioner and its members possess all these elements? They do not. steam boiler. elevator. nor their operation enlarged so as to embrace matters not specifically provided. the Court pronounced that a health care agreement is in the nature of non-life insurance. – On all policies of insurance or bondsor obligations of the nature of indemnity for loss. damage or liability arising from an unknown or contingent event. damage. plate. Such contracts. as contracts of adhesion. and fire insurance). in Blue Cross and Philamcare. xxxx (Emphasis supplied) In construing this provision. are liberally interpreted in favor of the member and strictly against the HMO. 4. Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss. An insurance contract exists where the following elements concur: 1. 3. This is insurance. we reconsider our ruling that Blue Crossand Philamcare are applicable here. inland. The insured has an insurable interest.39Hence. or other branch of insurance (except life. automatic sprinkler. For this reason. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk and 5. We shall quote once again the pertinent portion of Section 185: Section 185. they dealt with the liability of a health service provider to a member under the terms of their health care agreement. Stamp tax on fidelity bonds and other insurance policies. those cases did not involve the interpretation of a tax provision. we should be guided by the principle that tax statutes are strictly construed against the taxing authority. the insured pays a premium.

it promises to represent such clients in all suits for or against them. a contract by which a corporation. this did not make defendant an insurer. In Michigan Podiatric Medical Association v. Fourth. However. damage or liability on the part of the member that should be indemnified by petitioner as an HMO. Its contracts are simply for the purpose of rendering personal services. The assumption of the expense by petitioner is not confined to the happening of a contingency but includes incidents even in the absence of illness or injury. agrees at its own expense to defend a physician against all suits for damages for malpractice is one of insurance. To begin with. Instead. petitioner does not reimburse or indemnify the member as the latter does not pay any third party. but to indemnify against loss and damage resulting from the defense of actions for malpractice. In case of availment by a member of the benefits under the agreement. routine annual physical examination and consultations.. On the other hand. petitioner is obliged to reimburse the member who receives care from a non-participating physician or hospital. Inc. The member does not make any such payment. loss or damage on his or her part. Citing Jordan. the essential purpose of such a contract is not to render personal services.g. there is no loss. x-ray. The primary purpose of the parties in making the contract may negate the existence of an insurance contract. even if a contract contains all the elements of an insurance contract. it is not a contract of insurance: It does not necessarily follow however. Unlike the lawyer’s retainer contract. medical and professional services rendered by the petitioner’s physician or affiliated physician to him. 42 (Emphasis supplied) Second. 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. the member pays petitioner a predetermined consideration in exchange for the hospital.First. In other words. For example. even in the absence of any peril. Under the agreement. is not engaged in the insurance business. there is nothing in petitioner's agreements that gives rise to a monetary liability on the part of the member to any third party-provider of medical services which might in turn necessitate indemnification from petitioner. Not all the necessary elements of a contract of insurance are present in petitioner’s agreements. that a contract containing all the four elements mentioned above would be an insurance contract. if its primary purpose is the rendering of service.laboratory services. it is the petitioner who pays the participating physicians and other health care providers for the services rendered at pre-agreed rates. In our jurisdiction. e. vaccine administration as well as family planning counseling. the Court . National Foot Care Program. Third.43 although the health care contracts called for the defendant to partially reimburse a subscriber for treatment received from a non-designated doctor. In case of emergency. in consideration of a stipulated amount. a commentator of our insurance laws has pointed out that. The terms "indemnify" or "indemnity" presuppose that a liability or claim has already been incurred. and the corporation will be deemed as engaged in the business of insurance. a law firm which enters into contracts with clients whereby in consideration of periodical payments. a member can take advantage of the bulk of the benefits anytime. According to the agreement. this is only a very minor part of the list of services available.

Although risk is a primary element of an insurance contract. There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs Furthermore. 1189 (otherwise known as the "Internal Revenue Law of 1904") 46 enacted on July 2. an examination of petitioner’s agreements with its members leads us to conclude that it is not an insurance contract within the context of our Insurance Code. and paid for and in respect to the several bonds. debentures. and things mentioned and described in this section. there is a need to distinguish prepaid service contracts (like those of petitioner) from the usual insurance contracts. In sum. or things or any of them shall be written or printed by any person or persons who shall make. undertakes a business risk when it offers to provide health services: the risk that it might fail to earn a reasonable return on its investment. as an HMO. it still will not qualify as an insurance contract because petitioner’s objective is to provide medical services at reduced cost. to wit: ARTICLE XI Stamp Taxes on Specified Objects Section 116. also known as actuarial risk. and other documents. or issue the same. Fifth. The amount of premium is calculated on the basis of assumptions made relative to the insured. assuming that petitioner’s commitment to provide medical services to its members can be construed as an acceptance of the risk that it will shell out more than the prepaid fees.S. the several taxes following: xxx xxx xxx . it did not partake of the nature of a contract of insurance. But it is not the risk of the type peculiar only to insurance companies. collected. or paper upon which such instrument. is the risk that the cost of insurance claims might be higher than the premiums paid. It was imposed under Section 116. 1904. instruments. Article XI of Act No. petitioner."44 Since indemnity of the insured was not the focal point of the agreement but the extension of medical services to the member at an affordable cost. or certificates of stock and indebtedness. Section 185 of the NIRC of 1997 is a verbatim reproduction of the pertinent portion of Section 116. Insurance risk. militating in convincing fashion against the imposition of DST on petitioner’s health care agreements under Section 185 of the NIRC of 1997 is the provision’s legislative history. it is not necessarily true that risk alone is sufficient to establish it. or for or in respect to the vellum. matters. not to distribute risk like an insurer. Except for the rate of tax. parchment. 45 However. There shall be levied. nineteen hundred and five.determined that "the primary activity of the defendant (was) the provision of podiatric services to subscribers in consideration of prepayment for such services. Almost anyone who undertakes a contractual obligation always bears a certain degree of financial risk. sign. The text of Section 185 came into U. 1904 and became effective on August 1. Consequently. law as early as 1904 when HMOs and health care agreements were not even in existence in this jurisdiction. Indeed. matters. on and after January first.

Article III of Act No. Article XI of Act No. it was again renumbered and became Section 185. under RA 7660. amendments to the DST provisions were introduced by RA 924348 but Section 185 was untouched. 2339. the same provision with the same DST rate was reproduced in PD 1158 (NIRC of 1977) as Section 234. again. there are those who claim that Health Maintenance. steam boiler. 2339 was again reproduced as Section 1604 (l). 1avvphi1 Effective January 1. 2339 (the Internal Revenue Law of 1914) was enacted revising and consolidating the laws relating to internal revenue. And under Section 23 of EO47 273 dated July 25. the concept of an HMO was introduced in the Philippines with the formation of Bancom Health Care Corporation in 1974. Section 30 (l). otherwise known as the Administrative Code of 1917. 466 (the NIRC of 1939). having set foot in the Philippines as early as 1965 and having been formally incorporated in 1991. automatic sprinkle. pursuant to Section 45 of PD 1994. plate glass. Act No. If it had been . the DST rate was again increased. Section 234 of the NIRC of 1977 was renumbered as Section 198. which codified all the internal revenue laws of the Philippines. burglar. 1914. Thereafter. On December 31. only with respect to the rate of tax. 49 We can clearly see from these two histories (of the DST on the one hand and HMOs on the other) that when the law imposing the DST was first passed. 1946. inland. Section 185 was amended but. Article III of Act No. The same pioneer HMO was later reorganized and renamed Integrated Health Care Services. enacted on June 11. company. on June 3. In an amendment introduced by RA 40 on October 1. (or Intercare).Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity for loss. On December 23. damage. Article IV of Act No. fidelity. there are 36 registered HMOs with a total enrollment of more than 2 million. employer’s liability. 2657 (Administrative Code). However. Upon its amendment on March 10. 2711. Inc. marine. The aforecited pertinent portion of Section 116. Under PDs 1457 and 1959. is the HMO industry pioneer. In 2004. Section 1449 (1) eventually became Sec. 1987. elevator. 1917. Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC of 1997). or other branch of insurance (except life. However. the DST rate was increased but the provision remained substantially the same. association. 1984 respectively. The very detailed and exclusive enumeration of items subject to DST was thus retained. or corporation transacting the business of accident. they were already in existence in the Philippines and the term had in fact already been defined by RA 7875. On the other hand. HMOs proliferated quickly and currently. the subject legal provision was retained as the present Section 185. 1978 and October 10. 1189 was completely reproduced as Section 30 (l). when the various amendments to the DST law were enacted. or liability made or renewed by any person. HMOs were yet unknown in the Philippines. 1977. the pertinent DST provision became Section 1449 (l) of Act No. Afterwards. 1986. 1916. and fire insurance) xxxx (Emphasis supplied) On February 27. Inc. 1993. 222 of Commonwealth Act No.

equally and uniformly. it could have done so in clear and categorical terms. has a right to maintain a legitimate business. It had many opportunities to do so. criminal or administrative penalties under the 1997 NIRC. It is not the purpose of the government to throttle private business. it would be safe to say that health care agreements were never. acknowledging in its very nature no limits. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. Given the realities on the ground. regardless of the arguments. 2007. so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who is to pay it."52 Petitioner claims that the assessed DST to date which amounts to P376 million53 is way beyond its net worth ofP259 million.56 As aptly held in Roxas. As a matter of fact.55 Petitioner. It paidP5.149. the DST assessment for taxable years 1996 and 1997 became moot and academic60 when it availed of the tax amnesty under RA 9480 on December 10. it is entitled to immunity from payment of taxes as well as additions thereto. On the contrary. It must be exercised fairly. 2000. But it did not. the power to tax is an incident of sovereignty and is unlimited in its range. lest the tax collector kill the "hen that lays the golden egg. imposing the DST on petitioner would be highly oppressive." 58 Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. at any time. just like any concern organized for a lawful economic activity. as amended. and the appurtenant civil.127. CTA.50 Considering that Section 185 did not change since 1904 (except for the rate of tax). et al.08 representing 5% of its net worth as of the year ended December 31. after more than a decade in the business as an HMO.59 Petitioner’s Tax Liability Was Extinguished Under The Provisions Of RA 9840 Petitioner asserts that. arising from the failure to pay any and all internal revenue taxes for taxable year 2005 and prior years. recognized as insurance contracts or deemed engaged in the business of insurance within the context of the provision. the government ought to encourage private enterprise. Under Section 6(a) of RA 9480.the intent of the legislature to impose DST on health care agreements. v. Incurring losses because of a tax imposition may be an acceptable consequence but killing the business of an entity is another matter and should not be allowed.:57 The power of taxation is sometimes called also the power to destroy. et al. The fact that the NIRC contained no specific provision on the DST liability of health care agreements of HMOs at a time they were already known as such. petitioner was assessed its DST liability only on January 27. 2005 and complied with all requirements of the tax amnesty.54 Respondent never disputed these assertions. belies any legislative intent to impose it on them. 61 . It is counter-productive and ultimately subversive of the nation’s thrust towards a better economy which will ultimately benefit the majority of our people. The Power To Tax Is Not The Power To Destroy As a general rule. 51 So potent indeed is the power that it was once opined that "the power to tax involves the power to destroy.

148680 by minute resolution was a judgment on the merits. if other parties or another subject matter (even with the same parties and issues) is involved. our ruling in that case has already become final. including the civil.69 However. the minute resolution is not binding precedent. 2003 sustaining the ruling of the CA. there are substantial. CIR v. No.62(Emphasis supplied) Furthermore. we held in a recent case that DST is one of the taxes covered by the tax amnesty program under RA 9480. 67 When a minute resolution denies or dismisses a petition for failure to comply with formal and substantive requirements. Is The Court Bound By A Minute Resolution In Another Case? Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is bound by the ruling of the CA64 in CIR v. In support of its argument.66 Petitioner argues that the dismissal of G. hence. 2001 minute resolution of this Court dismissing the appeal in Philippine National Bank (G.70 the Court noted that a previous case. criminal. although contained in a minute resolution. This admission. was previously disposed of by the Court thru a minute resolution dated February 17. distinctions between a minute resolution and a decision. we effectively affirmed the CA ruling being questioned. Philippine National Bank65 that a health care agreement of Philamcare Health Systems is not an insurance contract for purposes of the DST. BaierNickel. in CIR v.72 Besides. respondent concedes that such tax amnesty extinguishes the tax liabilities of petitioner. 148680). our dismissal of the petition was a disposition of the merits of the case. The constitutional requirement under the first paragraph of Section 14. is not meant to preclude a revocation of the amnesty granted in case it is found to have been granted under circumstances amounting to tax fraud under Section 10 of said amnesty law. for tax liabilities arising in 2005 and the preceding years. not simply formal. or administrative penalties provided under the 1997 [NIRC]. the Court ruled that the previous case "ha(d) no bearing" on the latter case because the two cases involved different subject matters as they were concerned with the taxable income of different taxable years. and without conceding the merits of this case as discussed above. together with its findings of fact and legal conclusions. Baier-Nickel71 involving the same parties and the same issues. It is true that.R. respondent manifested in its memorandum: Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity from payment of the tax involved. Article VIII of the .Far from disagreeing with petitioner. it constitutes res judicata. When we dismissed the petition. however. the challenged decision. petitioner cites the August 29. are deemed sustained. In view of petitioner’s availment of the benefits of [RA 9840].63 There is no other conclusion to draw than that petitioner’s liability for DST for the taxable years 1996 and 1997 was totally extinguished by its availment of the tax amnesty under RA 9480. the Court should apply the CA ruling there that a health care agreement is not an insurance contract. Thus. No.68 But what is its effect on other cases? With respect to the same subject matter and the same issues concerning the same parties. As a result. Nonetheless.R.

SP No. They protect their members from exposure to the high cost of hospitalization and other medical expenses brought about by a fluctuating economy. not to minute resolutions. No. the same should not be arbitrarily and unjustly included in its coverage. 148680 and since petitioner’s liability for DST on its health care agreement was not the subject matter of G. resulting in either placing health services beyond the reach of the ordinary wage earner or driving the industry to the ground. It does not require the certification of the Chief Justice. as a rule. Moreover.R.Constitution that the facts and the law on which the judgment is based must be expressed clearly and distinctly applies only to decisions. 148680. No. Finally. Nonetheless. organize and manage health care treatment in the furtherance of the goal of providing a more efficient and inexpensive health care system made possible by quantity purchasing of services and economies of scale. the proviso of Section 4(3) of Article VIII speaks of a decision. It is a matter of common knowledge that there is a great social need for adequate medical services at a cost which the average wage earner can afford. Accordingly. unlike decisions. At the end of the day.R. 70479 is REVERSED and SET ASIDE. 2004 decision of the Court of Appeals in CA-G.R. HMOs arrange. unlike a decision. 73 Indeed. minute resolutions are not published in the Philippine Reports. Accordingly. in view of the reasons already discussed. petitioner cannot successfully invoke the minute resolution in that case (which is not even binding precedent) in its favor. 74 Its imposition will elevate the cost of health care services. No costs. the motion for reconsideration is GRANTED. SO ORDERED. including the ability to control costs. This will in turn necessitate an increase in the membership fees. The rate of DST under Section 185 is equivalent to 12. considering the indispensability of the services offered by HMOs. this Court lays down doctrines or principles of law which constitute binding precedent in a decision duly signed by the members of the Court and certified by the Chief Justice. Respondent is ordered to desist from collecting the said tax. they play an important role in society as partners of the State in achieving its constitutional mandate of providing its citizens with affordable health services. The August 16. this does not detract in any way from the fact that petitioner’s health care agreements are not subject to DST. A minute resolution is signed only by the clerk of court by authority of the justices.5% of the premium charged. WHEREFORE. neither side wins. The 1996 and 1997 deficiency DST assessment against petitioner is hereby CANCELLED and SET ASIDE. since petitioner was not a party in G. They offer advantages over the pay-for-service system (wherein individuals are charged a fee each time they receive medical services). . A Final Note Taking into account that health care agreements are clearly not within the ambit of Section 185 of the NIRC and there was never any legislative intent to impose the same on HMOs like petitioner.