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Steamship Mutual thereafter filed a case against SECOND ASSIGNMENT OF ERROR

FIRST DIVISION White Gold for collection of sum of money to recover


the latters unpaid balance. White Gold on the other THE COURT A QUO ERRED WHEN IT RULED THAT
hand, filed a complaint before the Insurance THE RECORD IS BEREFT OF ANY EVIDENCE THAT
[G.R. No. 154514. July 28, 2005] Commission claiming that Steamship Mutual violated RESPONDENT STEAMSHIP IS ENGAGED IN
Sections 186[4] and 187[5] of the Insurance Code, INSURANCE BUSINESS.
while Pioneer violated Sections 299,[6] 300[7] and
301[8] in relation to Sections 302 and 303, thereof. THIRD ASSIGNMENT OF ERROR
WHITE GOLD MARINE SERVICES, The Insurance Commission dismissed the
INC., petitioner, vs. PIONEER INSURANCE complaint. It said that there was no need for THE COURT A QUO ERRED WHEN IT RULED, THAT
AND SURETY CORPORATION AND THE Steamship Mutual to secure a license because it was RESPONDENT PIONEER NEED NOT SECURE A
STEAMSHIP MUTUAL UNDERWRITING not engaged in the insurance business. It explained LICENSE WHEN CONDUCTING ITS AFFAIR AS AN
ASSOCIATION (BERMUDA) that Steamship Mutual was a Protection and AGENT/BROKER OF RESPONDENT STEAMSHIP.
LTD., respondents. Indemnity Club (P & I Club). Likewise, Pioneer need
not obtain another license as insurance agent and/or FOURTH ASSIGNMENT OF ERROR
DECISION a broker for Steamship Mutual because Steamship
Mutual was not engaged in the insurance business. THE COURT A QUO ERRED IN NOT REVOKING THE
QUISUMBING, J.:
Moreover, Pioneer was already licensed, hence, a LICENSE OF RESPONDENT PIONEER AND [IN NOT
separate license solely as agent/broker of Steamship REMOVING] THE OFFICERS AND DIRECTORS OF
This petition for review assails RESPONDENT PIONEER.[9]
[1] Mutual was already superfluous.
the Decision dated July 30, 2002 of the Court of
Appeals in CA-G.R. SP No. 60144, affirming The Court of Appeals affirmed the decision of the
Simply, the basic issues before us are (1) Is
the Decision[2] dated May 3, 2000 of the Insurance Insurance Commissioner. In its decision, the appellate
Steamship Mutual, a P & I Club, engaged in the
Commission in I.C. Adm. Case No. RD-277. Both court distinguished between P & I Clubs vis--
insurance business in the Philippines? (2) Does
decisions held that there was no violation of the vis conventional insurance. The appellate court also
Pioneer need a license as an insurance agent/broker
Insurance Code and the respondents do not need held that Pioneer merely acted as a collection agent
for Steamship Mutual?
license as insurer and insurance agent/broker. of Steamship Mutual.
The parties admit that Steamship Mutual is a P &
The facts are undisputed. In this petition, petitioner assigns the following
I Club. Steamship Mutual admits it does not have a
errors allegedly committed by the appellate court,
White Gold Marine Services, Inc. (White Gold) license to do business in the Philippines although
procured a protection and indemnity coverage for its Pioneer is its resident agent. This relationship is
FIRST ASSIGNMENT OF ERROR reflected in the certifications issued by the Insurance
vessels from The Steamship Mutual Underwriting
Association (Bermuda) Limited (Steamship Mutual) Commission.
through Pioneer Insurance and Surety Corporation THE COURT A QUO ERRED WHEN IT RULED THAT
RESPONDENT STEAMSHIP IS NOT DOING Petitioner insists that Steamship Mutual as a P &
(Pioneer). Subsequently, White Gold was issued a
BUSINESS IN THE PHILIPPINES ON THE GROUND I Club is engaged in the insurance business. To
Certificate of Entry and Acceptance.[3] Pioneer also
THAT IT COURSED . . . ITS TRANSACTIONS buttress its assertion, it cites the definition of a P & I
issued receipts evidencing payments for the
THROUGH ITS AGENT AND/OR BROKER HENCE AS Club in Hyopsung Maritime Co., Ltd. v. Court of
coverage. When White Gold failed to fully pay its
AN INSURER IT NEED NOT SECURE A LICENSE TO Appeals[10] as an association composed of
accounts, Steamship Mutual refused to renew the
ENGAGE IN INSURANCE BUSINESS IN THE shipowners in general who band together for the
coverage.
PHILIPPINES. specific purpose of providing insurance cover on a
mutual basis against liabilities incidental to
shipowning that the members incur in favor of third The same provision also provides, the fact that The records reveal Steamship Mutual is doing
parties. It stresses that as a P & I Club, Steamship no profit is derived from the making of insurance business in the country albeit without the requisite
Mutuals primary purpose is to solicit and provide contracts, agreements or transactions, or that no certificate of authority mandated by Section 187[20] of
protection and indemnity coverage and for this separate or direct consideration is received therefor, the Insurance Code. It maintains a resident agent in
purpose, it has engaged the services of Pioneer to act shall not preclude the existence of an insurance the Philippines to solicit insurance and to collect
as its agent. business.[12] payments in its behalf. We note that Steamship
Mutual even renewed its P & I Club cover until it was
Respondents contend that although Steamship The test to determine if a contract is an insurance
cancelled due to non-payment of the calls. Thus, to
Mutual is a P & I Club, it is not engaged in the contract or not, depends on the nature of the promise, continue doing business here, Steamship Mutual or
insurance business in the Philippines. It is merely an the act required to be performed, and the exact nature through its agent Pioneer, must secure a license from
association of vessel owners who have come together of the agreement in the light of the occurrence, the Insurance Commission.
to provide mutual protection against liabilities contingency, or circumstances under which the
incidental to shipowning.[11] Respondents performance becomes requisite. It is not by what it is Since a contract of insurance involves public
aver Hyopsung is inapplicable in this case because called.[13] interest, regulation by the State is necessary. Thus,
the issue in Hyopsung was the jurisdiction of the court no insurer or insurance company is allowed to engage
Basically, an insurance contract is a contract of
over Hyopsung. in the insurance business without a license or a
indemnity. In it, one undertakes for a consideration to certificate of authority from the Insurance
Is Steamship Mutual engaged in the insurance indemnify another against loss, damage or liability Commission.[21]
business? arising from an unknown or contingent event.[14]
Does Pioneer, as agent/broker of Steamship
Section 2(2) of the Insurance Code enumerates In particular, a marine insurance undertakes to Mutual, need a special license?
what constitutes doing an insurance business or indemnify the assured against marine losses, such as
transacting an insurance business. These are: the losses incident to a marine adventure.[15] Section Pioneer is the resident agent of Steamship
99[16] of the Insurance Code enumerates the coverage Mutual as evidenced by the certificate of
(a) making or proposing to make, as insurer, any of marine insurance. registration[22] issued by the Insurance Commission. It
insurance contract; has been licensed to do or transact insurance
Relatedly, a mutual insurance company is a business by virtue of the certificate of
cooperative enterprise where the members are both
(b) making, or proposing to make, as surety, any authority[23] issued by the same agency. However, a
the insurer and insured. In it, the members all Certification from the Commission states that Pioneer
contract of suretyship as a vocation and not as contribute, by a system of premiums or assessments,
merely incidental to any other legitimate business does not have a separate license to be an
to the creation of a fund from which all losses and agent/broker of Steamship Mutual.[24]
or activity of the surety; liabilities are paid, and where the profits are divided
among themselves, in proportion to their Although Pioneer is already licensed as an
(c) doing any kind of business, including a reinsurance interest.[17] Additionally, mutual insurance insurance company, it needs a separate license to act
business, specifically recognized as constituting associations, or clubs, provide three types of as insurance agent for Steamship Mutual. Section
the doing of an insurance business within the coverage, namely, protection and indemnity, war 299 of the Insurance Code clearly states:
meaning of this Code; risks, and defense costs.[18]
SEC. 299 . . .
(d) doing or proposing to do any business in substance A P & I Club is a form of insurance against third
equivalent to any of the foregoing in a manner party liability, where the third party is anyone other
than the P & I Club and the members.[19] By definition No person shall act as an insurance agent or as an insurance
designed to evade the provisions of this Code. broker in the solicitation or procurement of applications for
then, Steamship Mutual as a P & I Club is a mutual
insurance association engaged in the marine insurance, or receive for services in obtaining insurance,
... any commission or other compensation from any insurance
insurance business.
company doing business in the Philippines or any agent
thereof, without first procuring a license so to act from the DECISION After her husband was discharged from the MMC, he
Commissioner, which must be renewed annually on the was attended by a physical therapist at home. Later, he was
first day of January, or within six months thereafter. . . YNARES-SANTIAGO, J.: admitted at the Chinese General Hospital. Due to financial
difficulties, however, respondent brought her husband
Finally, White Gold seeks revocation of Pioneers Ernani Trinos, deceased husband of respondent Julita home again. In the morning of April 13, 1990, Ernani had
certificate of authority and removal of its directors and Trinos, applied for a health care coverage with petitioner fever and was feeling very weak. Respondent was
officers. Regrettably, we are not the forum for these Philamcare Health Systems, Inc. In the standard application constrained to bring him back to the Chinese General
issues. form, he answered no to the following question: Hospital where he died on the same day.
WHEREFORE, the petition is PARTIALLY Have you or any of your family members ever consulted or On July 24, 1990, respondent instituted with the
GRANTED. The Decision dated July 30, 2002 of the been treated for high blood pressure, heart trouble, Regional Trial Court of Manila, Branch 44, an action for
Court of Appeals affirming the Decision dated May 3, diabetes, cancer, liver disease, asthma or peptic ulcer? (If damages against petitioner and its president, Dr. Benito
2000 of the Insurance Commission is hereby Yes, give details).[1] Reverente, which was docketed as Civil Case No. 90-
REVERSED AND SET ASIDE. The Steamship Mutual 53795. She asked for reimbursement of her expenses plus
Underwriting Association (Bermuda) Ltd., and Pioneer The application was approved for a period of one year moral damages and attorneys fees. After trial, the lower
Insurance and Surety Corporation are ORDERED to from March 1, 1988 to March 1, 1989. Accordingly, he was court ruled against petitioners, viz:
obtain licenses and to secure proper authorizations to issued Health Care Agreement No. P010194. Under the
do business as insurer and insurance agent, agreement, respondents husband was entitled to avail of WHEREFORE, in view of the forgoing, the Court renders
respectively. The petitioners prayer for the revocation hospitalization benefits, whether ordinary or emergency, judgment in favor of the plaintiff Julita Trinos, ordering:
of Pioneers Certificate of Authority and removal of its listed therein. He was also entitled to avail of out-patient
directors and officers, is DENIED. Costs against benefits such as annual physical examinations, preventive 1. Defendants to pay and reimburse the medical and
respondents. health care and other out-patient services. hospital coverage of the late Ernani Trinos in the amount of
P76,000.00 plus interest, until the amount is fully paid to
SO ORDERED. Upon the termination of the agreement, the same was plaintiff who paid the same;
Davide, Jr., C.J., (Chairman), Ynares-Santiago, extended for another year from March 1, 1989 to March 1,
Carpio, and Azcuna, JJ., concur. 1990, then from March 1, 1990 to June 1, 1990. The 2. Defendants to pay the reduced amount of moral damages
amount of coverage was increased to a maximum sum of of P10,000.00 to plaintiff;
P75,000.00 per disability.[2]
During the period of his coverage, Ernani suffered a 3. Defendants to pay the reduced amount of P10,000.00 as
heart attack and was confined at the Manila Medical Center exemplary damages to plaintiff;
FIRST DIVISION (MMC) for one month beginning March 9, 1990. While her
husband was in the hospital, respondent tried to claim the 4. Defendants to pay attorneys fees of P20,000.00, plus
benefits under the health care agreement. However, costs of suit.
petitioner denied her claim saying that the Health Care
[G.R. No. 125678. March 18, 2002] Agreement was void. According to petitioner, there was a SO ORDERED.[3]
concealment regarding Ernanis medical history. Doctors at
the MMC allegedly discovered at the time of Ernanis On appeal, the Court of Appeals affirmed the decision
confinement that he was hypertensive, diabetic and of the trial court but deleted all awards for damages and
PHILAMCARE HEALTH SYSTEMS, asthmatic, contrary to his answer in the application
INC., petitioner, vs. COURT OF APPEALS and absolved petitioner Reverente.[4] Petitioners motion for
form. Thus, respondent paid the hospitalization expenses reconsideration was denied.[5]Hence, petitioner brought the
JULITA TRINOS, respondents. herself, amounting to about P76,000.00. instant petition for review, raising the primary argument
that a health care agreement is not an insurance contract;
hence the incontestability clause under the Insurance him, may be insured against. Every person has an insurable We hereby declare and agree that all statement and answers
Code[6]does not apply. interest in the life and health of himself. Section 10 contained herein and in any addendum annexed to this
provides: application are full, complete and true and bind all parties
Petitioner argues that the agreement grants living in interest under the Agreement herein applied for, that
benefits, such as medical check-ups and hospitalization there shall be no contract of health care coverage unless
Every person has an insurable interest in the life and health:
which a member may immediately enjoy so long as he is and until an Agreement is issued on this application and the
alive upon effectivity of the agreement until its expiration full Membership Fee according to the mode of payment
one-year thereafter. Petitioner also points out that only (1) of himself, of his spouse and of his children;
applied for is actually paid during the lifetime and good
medical and hospitalization benefits are given under the health of proposed Members; that no information acquired
agreement without any indemnification, unlike in an (2) of any person on whom he depends wholly or
in part for education or support, or in by any Representative of PhilamCare shall be binding upon
insurance contract where the insured is indemnified for his PhilamCare unless set out in writing in the application; that
loss. Moreover, since Health Care Agreements are only for whom he has a pecuniary interest;
any physician is, by these presents, expressly authorized to
a period of one year, as compared to insurance contracts disclose or give testimony at anytime relative to any
which last longer,[7] petitioner argues that the (3) of any person under a legal obligation to him
for the payment of money, respecting information acquired by him in his professional capacity
incontestability clause does not apply, as the same requires upon any question affecting the eligibility for health care
an effectivity period of at least two years. Petitioner further property or service, of which death or
illness might delay or prevent the coverage of the Proposed Members and that the acceptance
argues that it is not an insurance company, which is of any Agreement issued on this application shall be a
governed by the Insurance Commission, but a Health performance; and
ratification of any correction in or addition to this
Maintenance Organization under the authority of the application as stated in the space for Home Office
Department of Health. (4) of any person upon whose life any estate or
Endorsement.[11] (Underscoring ours)
interest vested in him depends.
Section 2 (1) of the Insurance Code defines a contract
of insurance as an agreement whereby one undertakes for a In addition to the above condition, petitioner
In the case at bar, the insurable interest of respondents
consideration to indemnify another against loss, damage or additionally required the applicant for authorization to
husband in obtaining the health care agreement was his
liability arising from an unknown or contingent event. An inquire about the applicants medical history, thus:
own health. The health care agreement was in the nature of
insurance contract exists where the following elements
non-life insurance, which is primarily a contract of
concur: I hereby authorize any person, organization, or entity that
indemnity.[9] Once the member incurs hospital, medical or
any other expense arising from sickness, injury or other has any record or knowledge of my health and/or that of
1. The insured has an insurable interest;
stipulated contingent, the health care provider must pay for __________ to give to the PhilamCare Health Systems,
2. The insured is subject to a risk of loss by the the same to the extent agreed upon under the contract. Inc. any and all information relative to any hospitalization,
happening of the designated peril; consultation, treatment or any other medical advice or
Petitioner argues that respondents husband concealed examination. This authorization is in connection with the
3. The insurer assumes the risk; a material fact in his application. It appears that in the application for health care coverage only. A photographic
4. Such assumption of risk is part of a general application for health coverage, petitioners required copy of this authorization shall be as valid as the
scheme to distribute actual losses among a respondents husband to sign an express authorization for original.[12] (Underscoring ours)
large group of persons bearing a similar risk; any person, organization or entity that has any record or
and knowledge of his health to furnish any and all information Petitioner cannot rely on the stipulation regarding
relative to any hospitalization, consultation, treatment or Invalidation of agreement which reads:
5. In consideration of the insurers promise, the any other medical advice or examination.[10] Specifically,
insured pays a premium.[8] the Health Care Agreement signed by respondents husband Failure to disclose or misrepresentation of any material
Section 3 of the Insurance Code states that any states: information by the member in the application or medical
contingent or unknown event, whether past or future, which examination, whether intentional or unintentional, shall
may damnify a person having an insurable interest against automatically invalidate the Agreement from the very
beginning and liability of Philamcare shall be limited to the agreement, petitioner is bound to answer the same to reasonably susceptible of two interpretations the
return of all Membership Fees paid. An undisclosed or the extent agreed upon. In the end, the liability of the health construction conferring coverage is to be adopted, and
misrepresented information is deemed material if its care provider attaches once the member is hospitalized for exclusionary clauses of doubtful import should be strictly
revelation would have resulted in the declination of the the disease or injury covered by the agreement or whenever construed against the provider.[22]
applicant by Philamcare or the assessment of a higher he avails of the covered benefits which he has prepaid.
Membership Fee for the benefit or benefits applied for.[13] Anent the incontestability of the membership of
Under Section 27 of the Insurance Code, a respondents husband, we quote with approval the following
concealment entitles the injured party to rescind a contract findings of the trial court:
The answer assailed by petitioner was in response to
of insurance. The right to rescind should be exercised
the question relating to the medical history of the
previous to the commencement of an action on the (U)nder the title Claim procedures of expenses, the
applicant. This largely depends on opinion rather than fact,
contract.[17] In this case, no rescission was made. Besides, defendant Philamcare Health Systems Inc. had twelve
especially coming from respondents husband who was not
the cancellation of health care agreements as in insurance months from the date of issuance of the Agreement within
a medical doctor. Where matters of opinion or judgment are
policies require the concurrence of the following which to contest the membership of the patient if he had
called for, answers made in good faith and without intent to
conditions: previous ailment of asthma, and six months from the
deceive will not avoid a policy even though they are
untrue.[14]Thus, issuance of the agreement if the patient was sick of diabetes
1. Prior notice of cancellation to insured; or hypertension. The periods having expired, the defense of
concealment or misrepresentation no longer lie.[23]
(A)lthough false, a representation of the expectation,
intention, belief, opinion, or judgment of the insured will 2. Notice must be based on the occurrence after effective
date of the policy of one or more of the grounds mentioned; Finally, petitioner alleges that respondent was not the
not avoid the policy if there is no actual fraud in inducing
the acceptance of the risk, or its acceptance at a lower rate legal wife of the deceased member considering that at the
of premium, and this is likewise the rule although the 3. Must be in writing, mailed or delivered to the insured at time of their marriage, the deceased was previously married
statement is material to the risk, if the statement is the address shown in the policy; to another woman who was still alive. The health care
obviously of the foregoing character, since in such case the agreement is in the nature of a contract of
4. Must state the grounds relied upon provided in Section indemnity. Hence, payment should be made to the party
insurer is not justified in relying upon such statement, but is
obligated to make further inquiry. There is a clear 64 of the Insurance Code and upon request of insured, to who incurred the expenses. It is not controverted that
distinction between such a case and one in which the furnish facts on which cancellation is based.[18] respondent paid all the hospital and medical expenses. She
insured is fraudulently and intentionally states to be true, as is therefore entitled to reimbursement. The records
a matter of expectation or belief, that which he then knows, None of the above pre-conditions was fulfilled in this adequately prove the expenses incurred by respondent for
to be actually untrue, or the impossibility of which is case. When the terms of insurance contract contain the deceaseds hospitalization, medication and the
shown by the facts within his knowledge, since in such case limitations on liability, courts should construe them in such professional fees of the attending physicians.[24]
the intent to deceive the insurer is obvious and amounts to a way as to preclude the insurer from non-compliance with WHEREFORE, in view of the foregoing, the petition
actual fraud.[15] (Underscoring ours) his obligation.[19] Being a contract of adhesion, the terms of is DENIED. The assailed decision of the Court of Appeals
an insurance contract are to be construed strictly against the dated December 14, 1995 is AFFIRMED.
The fraudulent intent on the part of the insured must party which prepared the contract the insurer.[20] By reason
be established to warrant rescission of the insurance of the exclusive control of the insurance company over the SO ORDERED.
contract.[16] Concealment as a defense for the health care terms and phraseology of the insurance contract, ambiguity Davide, Jr., C.J., (Chairman), Puno, and Kapunan,
provider or insurer to avoid liability is an affirmative must be strictly interpreted against the insurer and liberally JJ., concur.
defense and the duty to establish such defense by in favor of the insured, especially to avoid
satisfactory and convincing evidence rests upon the forfeiture.[21] This is equally applicable to Health Care
provider or insurer. In any case, with or without the Agreements. The phraseology used in medical or hospital
authority to investigate, petitioner is liable for claims made service contracts, such as the one at bar, must be liberally
under the contract. Having assumed a responsibility under construed in favor of the subscriber, and if doubtful or
Republic of the Philippines We recall the facts of this case, as follows: On April 5, 2002, the CTA rendered a decision, the
SUPREME COURT dispositive portion of which read:
Manila Petitioner is a domestic corporation whose primary
purpose is "[t]o establish, maintain, conduct and WHEREFORE, in view of the foregoing, the instant
SPECIAL FIRST DIVISION operate a prepaid group practice health care delivery Petition for Review is PARTIALLY GRANTED.
system or a health maintenance organization to take Petitioner is hereby ORDERED to PAY the deficiency
G.R. No. 167330 September 18, 2009 care of the sick and disabled persons enrolled in the VAT amounting to P22,054,831.75 inclusive of 25%
health care plan and to provide for the administrative, surcharge plus 20% interest from January 20, 1997
PHILIPPINE HEALTH CARE PROVIDERS, legal, and financial responsibilities of the until fully paid for the 1996 VAT deficiency
INC., Petitioner, organization." Individuals enrolled in its health care and P31,094,163.87 inclusive of 25% surcharge plus
vs. programs pay an annual membership fee and are 20% interest from January 20, 1998 until fully paid for
COMMISSIONER OF INTERNAL entitled to various preventive, diagnostic and curative the 1997 VAT deficiency. Accordingly, VAT Ruling
REVENUE, Respondent. medical services provided by its duly licensed No. [231]-88 is declared void and without force and
physicians, specialists and other professional effect. The 1996 and 1997 deficiency DST
RESOLUTION technical staff participating in the group practice assessment against petitioner is hereby CANCELLED
health delivery system at a hospital or clinic owned, AND SET ASIDE. Respondent is ORDERED to
CORONA, J.: operated or accredited by it. DESIST from collecting the said DST deficiency tax.

ARTICLE II xxx xxx xxx SO ORDERED.


Declaration of Principles and State Policies
On January 27, 2000, respondent Commissioner of Respondent appealed the CTA decision to the [Court
Section 15. The State shall protect and promote the Internal Revenue [CIR] sent petitioner a formal of Appeals (CA)] insofar as it cancelled the DST
right to health of the people and instill health demand letter and the corresponding assessment assessment. He claimed that petitioner’s health care
consciousness among them. notices demanding the payment of deficiency taxes, agreement was a contract of insurance subject to
including surcharges and interest, for the taxable DST under Section 185 of the 1997 Tax Code.
years 1996 and 1997 in the total amount
ARTICLE XIII
of P224,702,641.18. xxxx On August 16, 2004, the CA rendered its decision. It
Social Justice and Human Rights
held that petitioner’s health care agreement was in
The deficiency [documentary stamp tax (DST)] the nature of a non-life insurance contract subject to
Section 11. The State shall adopt an integrated and
assessment was imposed on petitioner’s health care DST.
comprehensive approach to health development
agreement with the members of its health care
which shall endeavor to make essential goods, health
program pursuant to Section 185 of the 1997 Tax WHEREFORE, the petition for review is GRANTED.
and other social services available to all the people at
Code xxxx The Decision of the Court of Tax Appeals, insofar as it
affordable cost. There shall be priority for the needs of
the underprivileged sick, elderly, disabled, women, cancelled and set aside the 1996 and 1997 deficiency
and children. The State shall endeavor to provide free xxx xxx xxx documentary stamp tax assessment and ordered
medical care to paupers.1 petitioner to desist from collecting the same is
Petitioner protested the assessment in a letter dated REVERSED and SET ASIDE.
For resolution are a motion for reconsideration and February 23, 2000. As respondent did not act on the
supplemental motion for reconsideration dated July protest, petitioner filed a petition for review in the Respondent is ordered to pay the amounts
10, 2008 and July 14, 2008, respectively, filed by Court of Tax Appeals (CTA) seeking the cancellation of P55,746,352.19 and P68,450,258.73 as deficiency
petitioner Philippine Health Care Providers, Inc.2 of the deficiency VAT and DST assessments. Documentary Stamp Tax for 1996 and 1997,
respectively, plus 25% surcharge for late payment
and 20% interest per annum from January 27, 2000, the CA’s disposition that health care services representing 5% of its net worth as of the year ending
pursuant to Sections 248 and 249 of the Tax Code, are not in the nature of an insurance business. December 31, 2005.8
until the same shall have been fully paid.
(c) Section 185 should be strictly construed. We find merit in petitioner’s motion for
SO ORDERED. reconsideration.
(d) Legislative intent to exclude health care
Petitioner moved for reconsideration but the CA agreements from items subject to DST is Petitioner was formally registered and incorporated
denied it. Hence, petitioner filed this case. clear, especially in the light of the with the Securities and Exchange Commission on
amendments made in the DST law in 2002. June 30, 1987.9 It is engaged in the dispensation of
xxx xxx xxx the following medical services to individuals who enter
(e) Assuming arguendo that petitioner’s into health care agreements with it:
In a decision dated June 12, 2008, the Court denied agreements are contracts of indemnity, they
the petition and affirmed the CA’s decision. We held are not those contemplated under Section Preventive medical services such as periodic
that petitioner’s health care agreement during the 185. monitoring of health problems, family planning
pertinent period was in the nature of non-life counseling, consultation and advices on diet, exercise
insurance which is a contract of indemnity, citing Blue (f) Assuming arguendo that petitioner’s and other healthy habits, and immunization;
Cross Healthcare, Inc. v. Olivares3 and Philamcare agreements are akin to health insurance,
Health Systems, Inc. v. CA.4We also ruled that health insurance is not covered by Section Diagnostic medical services such as routine physical
petitioner’s contention that it is a health maintenance 185. examinations, x-rays, urinalysis, fecalysis, complete
organization (HMO) and not an insurance company is blood count, and the like and
irrelevant because contracts between companies like (g) The agreements do not fall under the
petitioner and the beneficiaries under their plans are phrase "other branch of insurance" mentioned Curative medical services which pertain to the
treated as insurance contracts. Moreover, DST is not in Section 185. performing of other remedial and therapeutic
a tax on the business transacted but an excise on the processes in the event of an injury or sickness on the
privilege, opportunity or facility offered at exchanges (h) The June 12, 2008 decision should only part of the enrolled member.10
for the transaction of the business. apply prospectively.
Individuals enrolled in its health care program pay an
Unable to accept our verdict, petitioner filed the (i) Petitioner availed of the tax amnesty annual membership fee. Membership is on a year-to-
present motion for reconsideration and supplemental benefits under RA5 9480 for the taxable year year basis. The medical services are dispensed to
motion for reconsideration, asserting the following 2005 and all prior years. Therefore, the enrolled members in a hospital or clinic owned,
arguments: questioned assessments on the DST are now operated or accredited by petitioner, through
rendered moot and academic.6 physicians, medical and dental practitioners under
(a) The DST under Section 185 of the National contract with it. It negotiates with such health care
Internal Revenue of 1997 is imposed only on a Oral arguments were held in Baguio City on April 22, practitioners regarding payment schemes, financing
company engaged in the business of fidelity 2009. The parties submitted their memoranda on and other procedures for the delivery of health
bonds and other insurance policies. Petitioner, June 8, 2009. services. Except in cases of emergency, the
as an HMO, is a service provider, not an professional services are to be provided only by
insurance company. In its motion for reconsideration, petitioner reveals for petitioner's physicians, i.e. those directly employed by
the first time that it availed of a tax amnesty under RA it11 or whose services are contracted by it.12 Petitioner
(b) The Court, in dismissing the appeal in CIR 94807(also known as the "Tax Amnesty Act of 2007") also provides hospital services such as room and
v. Philippine National Bank, affirmed in effect by fully paying the amount of P5,127,149.08 board accommodation, laboratory services, operating
rooms, x-ray facilities and general nursing care.13 If
and when a member avails of the benefits under the Section 185. Stamp tax on fidelity bonds and other sprinkler, or other branch of insurance (except life,
agreement, petitioner pays the participating insurance policies. – On all policies of insurance or marine, inland, and fire insurance).
physicians and other health care providers for the bonds or obligations of the nature of indemnity for
services rendered, at pre-agreed rates.14 loss, damage, or liability made or renewed by any Petitioner is admittedly an HMO. Under RA 7875 (or
person, association or company or corporation "The National Health Insurance Act of 1995"), an
To avail of petitioner’s health care programs, the transacting the business of accident, fidelity, HMO is "an entity that provides, offers or arranges for
individual members are required to sign and execute employer’s liability, plate, glass, steam boiler, burglar, coverage of designated health services needed by
a standard health care agreement embodying the elevator, automatic sprinkler, or other branch of plan members for a fixed prepaid premium."19 The
terms and conditions for the provision of the health insurance (except life, marine, inland, and fire payments do not vary with the extent, frequency or
care services. The same agreement contains the insurance), and all bonds, undertakings, or type of services provided.
various health care services that can be engaged by recognizances, conditioned for the performance of the
the enrolled member, i.e., preventive, diagnostic and duties of any office or position, for the doing or not The question is: was petitioner, as an HMO, engaged
curative medical services. Except for the curative doing of anything therein specified, and on all in the business of insurance during the pertinent
aspect of the medical service offered, the enrolled obligations guaranteeing the validity or legality of any taxable years? We rule that it was not.
member may actually make use of the health care bond or other obligations issued by any province, city,
services being offered by petitioner at any time. municipality, or other public body or organization, and Section 2 (2) of PD20 1460 (otherwise known as the
on all obligations guaranteeing the title to any real Insurance Code) enumerates what constitutes "doing
Health Maintenance Organizations Are Not estate, or guaranteeing any mercantile credits, which an insurance business" or "transacting an insurance
Engaged In The Insurance Business may be made or renewed by any such person, business:"
company or corporation, there shall be collected a
We said in our June 12, 2008 decision that it is documentary stamp tax of fifty centavos (P0.50) on a) making or proposing to make, as insurer,
irrelevant that petitioner is an HMO and not an insurer each four pesos (P4.00), or fractional part thereof, of any insurance contract;
because its agreements are treated as insurance the premium charged. (Emphasis supplied)
contracts and the DST is not a tax on the business b) making or proposing to make, as surety,
but an excise on the privilege, opportunity or facility It is a cardinal rule in statutory construction that no any contract of suretyship as a vocation and
used in the transaction of the business.15 word, clause, sentence, provision or part of a statute not as merely incidental to any other legitimate
shall be considered surplusage or superfluous, business or activity of the surety;
Petitioner, however, submits that it is of critical meaningless, void and insignificant. To this end, a
importance to characterize the business it is engaged construction which renders every word operative is
c) doing any kind of business, including a
in, that is, to determine whether it is an HMO or an preferred over that which makes some words idle and
reinsurance business, specifically recognized
insurance company, as this distinction is nugatory.17 This principle is expressed in the
as constituting the doing of an insurance
indispensable in turn to the issue of whether or not it maxim Ut magis valeat quam pereat, that is, we
business within the meaning of this Code;
is liable for DST on its health care agreements.16 choose the interpretation which gives effect to the
whole of the statute – its every word.18
d) doing or proposing to do any business in
A second hard look at the relevant law and substance equivalent to any of the foregoing in
jurisprudence convinces the Court that the arguments From the language of Section 185, it is evident
a manner designed to evade the provisions of
of petitioner are meritorious. that two requisites must concur before the DST can
this Code.
apply, namely: (1) the document must be a policy of
insurance or an obligation in the nature of
Section 185 of the National Internal Revenue Code of In the application of the provisions of this Code, the
1997 (NIRC of 1997) provides: indemnity and (2) the maker should be transacting
the business of accident, fidelity, employer’s liability, fact that no profit is derived from the making of
plate, glass, steam boiler, burglar, elevator, automatic insurance contracts, agreements or transactions or
that no separate or direct consideration is received risk and the consequences of its descent, not with function becomes faint, if not extinct. This is
therefore, shall not be deemed conclusive to show service, or its extension in kind, quantity or especially true when the contract is for the sale of
that the making thereof does not constitute the doing distribution; with the unusual occurrence, not the daily goods or services on contingency. But obviously it
or transacting of an insurance business. routine of living. Hazard is predominant. On the other was not the purpose of the insurance statutes to
hand, the cooperative is concerned principally regulate all arrangements for assumption or
Various courts in the United States, whose with getting service rendered to its members and distribution of risk. That view would cause them to
jurisprudence has a persuasive effect on our doing so at lower prices made possible by engulf practically all contracts, particularly conditional
decisions,21 have determined that HMOs are not in quantity purchasing and economies in operation. sales and contingent service agreements. The fallacy
the insurance business. One test that they have Its primary purpose is to reduce the cost rather is in looking only at the risk element, to the
applied is whether the assumption of risk and than the risk of medical care; to broaden the exclusion of all others present or their
indemnification of loss (which are elements of an service to the individual in kind and quantity; to subordination to it. The question turns, not on
insurance business) are the principal object and enlarge the number receiving it; to regularize it as whether risk is involved or assumed, but on
purpose of the organization or whether they are an everyday incident of living, like purchasing whether that or something else to which it is
merely incidental to its business. If these are the food and clothing or oil and gas, rather than related in the particular plan is its principal object
principal objectives, the business is that of insurance. merely protecting against the financial loss purpose.24 (Emphasis supplied)
But if they are merely incidental and service is the caused by extraordinary and unusual
principal purpose, then the business is not insurance. occurrences, such as death, disaster at sea, fire In California Physicians’ Service v. Garrison,25 the
and tornado. It is, in this instance, to take care of California court felt that, after scrutinizing the plan of
Applying the "principal object and purpose colds, ordinary aches and pains, minor ills and all the operation as a whole of the corporation, it was service
test,"22 there is significant American case law temporary bodily discomforts as well as the more rather than indemnity which stood as its principal
supporting the argument that a corporation (such as serious and unusual illness. To summarize, the purpose.
an HMO, whether or not organized for profit), whose distinctive features of the cooperative are the
main object is to provide the members of a group with rendering of service, its extension, the bringing of There is another and more compelling reason for
health services, is not engaged in the insurance physician and patient together, the preventive holding that the service is not engaged in the
business. features, the regularization of service as well as insurance business. Absence or presence of
payment, the substantial reduction in cost by assumption of risk or peril is not the sole test to
The rule was enunciated in Jordan v. Group Health quantity purchasing in short, getting the medical be applied in determining its status. The question,
Association23 wherein the Court of Appeals of the job done and paid for; not, except incidentally to more broadly, is whether, looking at the plan of
District of Columbia Circuit held that Group Health these features, the indemnification for cost after operation as a whole, ‘service’ rather than
Association should not be considered as engaged in the services is rendered. Except the last, these ‘indemnity’ is its principal object and
insurance activities since it was created primarily for are not distinctive or generally characteristic of purpose. Certainly the objects and purposes of the
the distribution of health care services rather than the the insurance arrangement. There is, therefore, a corporation organized and maintained by the
assumption of insurance risk. substantial difference between contracting in this way California physicians have a wide scope in the field of
for the rendering of service, even on the contingency social service. Probably there is no more impelling
xxx Although Group Health’s activities may be that it be needed, and contracting merely to stand its need than that of adequate medical care on a
considered in one aspect as creating security against cost when or after it is rendered. voluntary, low-cost basis for persons of small
loss from illness or accident more truly they constitute income. The medical profession unitedly is
the quantity purchase of well-rounded, continuous That an incidental element of risk distribution or endeavoring to meet that need. Unquestionably
medical service by its members. xxx The functions assumption may be present should not outweigh all this is ‘service’ of a high order and not
of such an organization are not identical with other factors. If attention is focused only on that ‘indemnity.’26 (Emphasis supplied)
those of insurance or indemnity companies. The feature, the line between insurance or indemnity and
latter are concerned primarily, if not exclusively, with other types of legal arrangement and economic
American courts have pointed out that the main directly to the participating provider.28 (Emphasis incidental to the principal activity of providing them
difference between an HMO and an insurance supplied) medical care. The "insurance-like" aspect of
company is that HMOs undertake to provide or petitioner’s business is miniscule compared to its
arrange for the provision of medical services through Consequently, the mere presence of risk would be noninsurance activities. Therefore, since it
participating physicians while insurance companies insufficient to override the primary purpose of the substantially provides health care services rather than
simply undertake to indemnify the insured for medical business to provide medical services as needed, with insurance services, it cannot be considered as being
expenses incurred up to a pre-agreed payment made directly to the provider of these in the insurance business.
limit. Somerset Orthopedic Associates, P.A. v. services.29 In short, even if petitioner assumes the risk
Horizon Blue Cross and Blue Shield of New of paying the cost of these services even if It is important to emphasize that, in adopting the
Jersey27 is clear on this point: significantly more than what the member has prepaid, "principal purpose test" used in the above-quoted
it nevertheless cannot be considered as being U.S. cases, we are not saying that petitioner’s
The basic distinction between medical service engaged in the insurance business. operations are identical in every respect to those of
corporations and ordinary health and accident the HMOs or health providers which were parties to
insurers is that the former undertake to provide By the same token, any indemnification resulting from those cases. What we are stating is that, for the
prepaid medical services through participating the payment for services rendered in case of purpose of determining what "doing an insurance
physicians, thus relieving subscribers of any further emergency by non-participating health providers business" means, we have to scrutinize the
financial burden, while the latter only undertake to would still be incidental to petitioner’s purpose of operations of the business as a whole and not its
indemnify an insured for medical expenses up to, but providing and arranging for health care services and mere components. This is of course only prudent and
not beyond, the schedule of rates contained in the does not transform it into an insurer. To fulfill its appropriate, taking into account the burdensome and
policy. obligations to its members under the agreements, strict laws, rules and regulations applicable to insurers
petitioner is required to set up a system and the and other entities engaged in the insurance business.
xxx xxx xxx facilities for the delivery of such medical services. Moreover, we are also not unmindful that there are
This indubitably shows that indemnification is not its other American authorities who have found particular
The primary purpose of a medical service corporation, sole object. HMOs to be actually engaged in insurance activities.32
however, is an undertaking to provide physicians who
will render services to subscribers on a prepaid In fact, a substantial portion of petitioner’s services Lastly, it is significant that petitioner, as an HMO, is
basis. Hence, if there are no physicians covers preventive and diagnostic medical services not part of the insurance industry. This is evident from
participating in the medical service corporation’s intended to keep members from developing medical the fact that it is not supervised by the Insurance
plan, not only will the subscribers be deprived of conditions or diseases.30 As an HMO, it is its Commission but by the Department of Health.33 In
the protection which they might reasonably have obligation to maintain the good health of its fact, in a letter dated September 3, 2000, the
expected would be provided, but the corporation members. Accordingly, its health care programs Insurance Commissioner confirmed that petitioner is
will, in effect, be doing business solely as a health are designed to prevent or to minimize not engaged in the insurance business. This
and accident indemnity insurer without having thepossibility of any assumption of risk on its determination of the commissioner must be accorded
qualified as such and rendering itself subject to the part. Thus, its undertaking under its agreements is great weight. It is well-settled that the interpretation of
more stringent financial requirements of the General not to indemnify its members against any loss or an administrative agency which is tasked to
Insurance Laws…. damage arising from a medical condition but, on the implement a statute is accorded great respect and
contrary, to provide the health and medical services ordinarily controls the interpretation of laws by the
A participating provider of health care services is one needed to prevent such loss or damage.31 courts. The reason behind this rule was explained
who agrees in writing to render health care services to in Nestle Philippines, Inc. v. Court of Appeals:34
or for persons covered by a contract issued by health Overall, petitioner appears to provide insurance-type
service corporation in return for which the health benefits to its members (with respect to The rationale for this rule relates not only to the
service corporation agrees to make payment its curative medical services), but these are emergence of the multifarious needs of a modern or
modernizing society and the establishment of diverse (including physical examination, x-ray and laboratory the government.39 Hence, tax laws may not be
administrative agencies for addressing and satisfying tests, medical consultations, vaccine administration extended by implication beyond the clear import of
those needs; it also relates to the accumulation of and family planning counseling) is the contingent their language, nor their operation enlarged so as to
experience and growth of specialized capabilities by event which gives rise to liability on the part of the embrace matters not specifically provided.40
the administrative agency charged with implementing member. In case of exposure of the member to
a particular statute. In Asturias Sugar Central, Inc. vs. liability, he would be entitled to indemnification by We are aware that, in Blue Cross and Philamcare, the
Commissioner of Customs,35 the Court stressed that petitioner. Court pronounced that a health care agreement is in
executive officials are presumed to have familiarized the nature of non-life insurance, which is primarily a
themselves with all the considerations pertinent to the Furthermore, the fact that petitioner must relieve its contract of indemnity. However, those cases did not
meaning and purpose of the law, and to have formed member from liability by paying for expenses arising involve the interpretation of a tax provision. Instead,
an independent, conscientious and competent expert from the stipulated contingencies belies its claim that they dealt with the liability of a health service provider
opinion thereon. The courts give much weight to the its services are prepaid. The expenses to be incurred to a member under the terms of their health care
government agency officials charged with the by each member cannot be predicted beforehand, if agreement. Such contracts, as contracts of adhesion,
implementation of the law, their competence, they can be predicted at all. Petitioner assumes the are liberally interpreted in favor of the member and
expertness, experience and informed judgment, and risk of paying for the costs of the services even if they strictly against the HMO. For this reason, we
the fact that they frequently are the drafters of the law are significantly and substantially more than what the reconsider our ruling that Blue
they interpret.36 member has "prepaid." Petitioner does not bear the Cross and Philamcare are applicable here.
costs alone but distributes or spreads them out
A Health Care Agreement Is Not An Insurance among a large group of persons bearing a similar risk, Section 2 (1) of the Insurance Code defines a contract
Contract Contemplated Under Section 185 Of The that is, among all the other members of the health of insurance as an agreement whereby one
NIRC of 1997 care program. This is insurance.37 undertakes for a consideration to indemnify another
against loss, damage or liability arising from an
Section 185 states that DST is imposed on "all We reconsider. We shall quote once again the unknown or contingent event. An insurance contract
policies of insurance… or obligations of the nature of pertinent portion of Section 185: exists where the following elements concur:
indemnity for loss, damage, or liability…." In our
decision dated June 12, 2008, we ruled that Section 185. Stamp tax on fidelity bonds and other 1. The insured has an insurable interest;
petitioner’s health care agreements are contracts of insurance policies. – On all policies of insurance or
indemnity and are therefore insurance contracts: bonds or obligations of the nature of indemnity for 2. The insured is subject to a risk of loss by
loss, damage, or liability made or renewed by any the happening of the designed peril;
It is … incorrect to say that the health care agreement person, association or company or corporation
is not based on loss or damage because, under the transacting the business of accident, fidelity, 3. The insurer assumes the risk;
said agreement, petitioner assumes the liability and employer’s liability, plate, glass, steam boiler, burglar,
indemnifies its member for hospital, medical and elevator, automatic sprinkler, or other branch of 4. Such assumption of risk is part of a general
related expenses (such as professional fees of insurance (except life, marine, inland, and fire scheme to distribute actual losses among a
physicians). The term "loss or damage" is broad insurance), xxxx (Emphasis supplied) large group of persons bearing a similar risk
enough to cover the monetary expense or liability a and
member will incur in case of illness or injury. In construing this provision, we should be guided by
the principle that tax statutes are strictly construed 5. In consideration of the insurer’s promise,
Under the health care agreement, the rendition of against the taxing authority.38 This is because taxation the insured pays a premium.41
hospital, medical and professional services to the is a destructive power which interferes with the
member in case of sickness, injury or emergency or personal and property rights of the people and takes
his availment of so-called "out-patient services" from them a portion of their property for the support of
Do the agreements between petitioner and its indemnify the member as the latter does not pay any consideration of prepayment for such
members possess all these elements? They do not. third party. Instead, it is the petitioner who pays the services."44 Since indemnity of the insured was not
participating physicians and other health care the focal point of the agreement but the extension of
First. In our jurisdiction, a commentator of our providers for the services rendered at pre-agreed medical services to the member at an affordable cost,
insurance laws has pointed out that, even if a contract rates. The member does not make any such payment. it did not partake of the nature of a contract of
contains all the elements of an insurance contract, if insurance.
its primary purpose is the rendering of service, it is not In other words, there is nothing in petitioner's
a contract of insurance: agreements that gives rise to a monetary liability on Fifth. Although risk is a primary element of an
the part of the member to any third party-provider of insurance contract, it is not necessarily true that risk
It does not necessarily follow however, that a contract medical services which might in turn necessitate alone is sufficient to establish it. Almost anyone who
containing all the four elements mentioned above indemnification from petitioner. The terms "indemnify" undertakes a contractual obligation always bears a
would be an insurance contract. The primary or "indemnity" presuppose that a liability or claim has certain degree of financial risk. Consequently, there is
purpose of the parties in making the contract may already been incurred. There is no indemnity a need to distinguish prepaid service contracts (like
negate the existence of an insurance contract. For precisely because the member merely avails of those of petitioner) from the usual insurance
example, a law firm which enters into contracts with medical services to be paid or already paid in contracts.
clients whereby in consideration of periodical advance at a pre-agreed price under the agreements.
payments, it promises to represent such clients in all Indeed, petitioner, as an HMO, undertakes a business
suits for or against them, is not engaged in the Third. According to the agreement, a member can risk when it offers to provide health services: the risk
insurance business. Its contracts are simply for the take advantage of the bulk of the benefits that it might fail to earn a reasonable return on its
purpose of rendering personal services. On the other anytime, e.g. laboratory services, x-ray, routine investment. But it is not the risk of the type peculiar
hand, a contract by which a corporation, in annual physical examination and consultations, only to insurance companies. Insurance risk, also
consideration of a stipulated amount, agrees at its vaccine administration as well as family planning known as actuarial risk, is the risk that the cost of
own expense to defend a physician against all suits counseling, even in the absence of any peril, loss or insurance claims might be higher than the premiums
for damages for malpractice is one of insurance, and damage on his or her part. paid. The amount of premium is calculated on the
the corporation will be deemed as engaged in the basis of assumptions made relative to the insured.45
business of insurance. Unlike the lawyer’s retainer Fourth. In case of emergency, petitioner is obliged to
contract, the essential purpose of such a contract is reimburse the member who receives care from a non- However, assuming that petitioner’s commitment to
not to render personal services, but to indemnify participating physician or hospital. However, this is provide medical services to its members can be
against loss and damage resulting from the defense only a very minor part of the list of services available. construed as an acceptance of the risk that it will shell
of actions for malpractice.42 (Emphasis supplied) The assumption of the expense by petitioner is not out more than the prepaid fees, it still will not qualify
confined to the happening of a contingency but as an insurance contract because petitioner’s
Second. Not all the necessary elements of a contract includes incidents even in the absence of illness or objective is to provide medical services at reduced
of insurance are present in petitioner’s agreements. injury. cost, not to distribute risk like an insurer.
To begin with, there is no loss, damage or liability on
the part of the member that should be indemnified by In Michigan Podiatric Medical Association v. National In sum, an examination of petitioner’s agreements
petitioner as an HMO. Under the agreement, the Foot Care Program, Inc.,43 although the health care with its members leads us to conclude that it is not an
member pays petitioner a predetermined contracts called for the defendant to partially insurance contract within the context of our Insurance
consideration in exchange for the hospital, medical reimburse a subscriber for treatment received from a Code.
and professional services rendered by the petitioner’s non-designated doctor, this did not make defendant
physician or affiliated physician to him. In case of an insurer. Citing Jordan, the Court determined that There Was No Legislative Intent To Impose DST
availment by a member of the benefits under the "the primary activity of the defendant (was) the On Health Care Agreements Of HMOs
agreement, petitioner does not reimburse or provision of podiatric services to subscribers in
Furthermore, militating in convincing fashion against On February 27, 1914, Act No. 2339 (the Internal Notwithstanding the comprehensive amendment of
the imposition of DST on petitioner’s health care Revenue Law of 1914) was enacted revising and the NIRC of 1977 by RA 8424 (or the NIRC of 1997),
agreements under Section 185 of the NIRC of 1997 is consolidating the laws relating to internal revenue. the subject legal provision was retained as the
the provision’s legislative history. The text of Section The aforecited pertinent portion of Section 116, Article present Section 185. In 2004, amendments to the
185 came into U.S. law as early as 1904 when HMOs XI of Act No. 1189 was completely reproduced as DST provisions were introduced by RA 924348 but
and health care agreements were not even in Section 30 (l), Article III of Act No. 2339. The very Section 185 was untouched.
existence in this jurisdiction. It was imposed under detailed and exclusive enumeration of items subject
Section 116, Article XI of Act No. 1189 (otherwise to DST was thus retained. On the other hand, the concept of an HMO was
known as the "Internal Revenue Law of introduced in the Philippines with the formation of
1904")46enacted on July 2, 1904 and became On December 31, 1916, Section 30 (l), Article III of Bancom Health Care Corporation in 1974. The same
effective on August 1, 1904. Except for the rate of tax, Act No. 2339 was again reproduced as Section 1604 pioneer HMO was later reorganized and renamed
Section 185 of the NIRC of 1997 is a verbatim (l), Article IV of Act No. 2657 (Administrative Code). Integrated Health Care Services, Inc. (or Intercare).
reproduction of the pertinent portion of Section 116, to Upon its amendment on March 10, 1917, the pertinent However, there are those who claim that Health
wit: DST provision became Section 1449 (l) of Act No. Maintenance, Inc. is the HMO industry pioneer,
2711, otherwise known as the Administrative Code of having set foot in the Philippines as early as 1965 and
ARTICLE XI 1917. having been formally incorporated in 1991.
Stamp Taxes on Specified Objects Afterwards, HMOs proliferated quickly and currently,
Section 1449 (1) eventually became Sec. 222 of there are 36 registered HMOs with a total enrollment
Section 116. There shall be levied, collected, and paid Commonwealth Act No. 466 (the NIRC of 1939), of more than 2 million.49
for and in respect to the several bonds, debentures, which codified all the internal revenue laws of the
or certificates of stock and indebtedness, and other Philippines. In an amendment introduced by RA 40 on We can clearly see from these two histories (of the
documents, instruments, matters, and things October 1, 1946, the DST rate was increased but the DST on the one hand and HMOs on the other) that
mentioned and described in this section, or for or in provision remained substantially the same. when the law imposing the DST was first passed,
respect to the vellum, parchment, or paper upon HMOs were yet unknown in the Philippines. However,
which such instrument, matters, or things or any of Thereafter, on June 3, 1977, the same provision with when the various amendments to the DST law were
them shall be written or printed by any person or the same DST rate was reproduced in PD 1158 enacted, they were already in existence in the
persons who shall make, sign, or issue the same, on (NIRC of 1977) as Section 234. Under PDs 1457 and Philippines and the term had in fact already been
and after January first, nineteen hundred and five, the 1959, enacted on June 11, 1978 and October 10, defined by RA 7875. If it had been the intent of the
several taxes following: 1984 respectively, the DST rate was again legislature to impose DST on health care agreements,
increased.1avvphi1 it could have done so in clear and categorical terms. It
xxx xxx xxx had many opportunities to do so. But it did not. The
Effective January 1, 1986, pursuant to Section 45 of fact that the NIRC contained no specific provision on
Third xxx (c) on all policies of insurance or bond or PD 1994, Section 234 of the NIRC of 1977 was the DST liability of health care agreements of HMOs
obligation of the nature of indemnity for loss, renumbered as Section 198. And under Section 23 of at a time they were already known as such, belies any
damage, or liability made or renewed by any EO47 273 dated July 25, 1987, it was again legislative intent to impose it on them. As a matter of
person, association, company, or corporation renumbered and became Section 185. fact, petitioner was assessed its DST liability only
transacting the business of accident, fidelity, on January 27, 2000, after more than a decade in
employer’s liability, plate glass, steam boiler, On December 23, 1993, under RA 7660, Section 185 the business as an HMO.50
burglar, elevator, automatic sprinkle, or other was amended but, again, only with respect to the rate
branch of insurance (except life, marine, inland, of tax. Considering that Section 185 did not change since
and fire insurance) xxxx (Emphasis supplied) 1904 (except for the rate of tax), it would be safe to
say that health care agreements were never, at any
time, recognized as insurance contracts or deemed nation’s thrust towards a better economy which will Furthermore, we held in a recent case that DST is
engaged in the business of insurance within the ultimately benefit the majority of our people.59 one of the taxes covered by the tax amnesty program
context of the provision. under RA 9480.63 There is no other conclusion to
Petitioner’s Tax Liability Was Extinguished Under draw than that petitioner’s liability for DST for the
The Power To Tax Is Not The Power To Destroy The Provisions Of RA 9840 taxable years 1996 and 1997 was totally extinguished
by its availment of the tax amnesty under RA 9480.
As a general rule, the power to tax is an incident of Petitioner asserts that, regardless of the arguments,
sovereignty and is unlimited in its range, the DST assessment for taxable years 1996 and 1997 Is The Court Bound By A Minute Resolution In
acknowledging in its very nature no limits, so that became moot and academic60 when it availed of the Another Case?
security against its abuse is to be found only in the tax amnesty under RA 9480 on December 10, 2007. It
responsibility of the legislature which imposes the tax paid P5,127,149.08 representing 5% of its net worth Petitioner raises another interesting issue in its motion
on the constituency who is to pay it.51 So potent as of the year ended December 31, 2005 and for reconsideration: whether this Court is bound by
indeed is the power that it was once opined that "the complied with all requirements of the tax amnesty. the ruling of the CA64 in CIR v. Philippine National
power to tax involves the power to destroy."52 Under Section 6(a) of RA 9480, it is entitled to Bank65 that a health care agreement of Philamcare
immunity from payment of taxes as well as additions Health Systems is not an insurance contract for
Petitioner claims that the assessed DST to date which thereto, and the appurtenant civil, criminal or purposes of the DST.
amounts to P376 million53 is way beyond its net worth administrative penalties under the 1997 NIRC, as
of P259 million.54 Respondent never disputed these amended, arising from the failure to pay any and all In support of its argument, petitioner cites the August
assertions. Given the realities on the ground, internal revenue taxes for taxable year 2005 and prior 29, 2001 minute resolution of this Court dismissing
imposing the DST on petitioner would be highly years.61 the appeal in Philippine National Bank (G.R. No.
oppressive. It is not the purpose of the government to 148680).66 Petitioner argues that the dismissal of G.R.
throttle private business. On the contrary, the Far from disagreeing with petitioner, respondent No. 148680 by minute resolution was a judgment on
government ought to encourage private manifested in its memorandum: the merits; hence, the Court should apply the CA
enterprise.55 Petitioner, just like any concern ruling there that a health care agreement is not an
organized for a lawful economic activity, has a right to Section 6 of [RA 9840] provides that availment of tax insurance contract.
maintain a legitimate business.56 As aptly held amnesty entitles a taxpayer to immunity from payment
in Roxas, et al. v. CTA, et al.:57 of the tax involved, including the civil, criminal, or It is true that, although contained in a minute
administrative penalties provided under the 1997 resolution, our dismissal of the petition was a
The power of taxation is sometimes called also the [NIRC], for tax liabilities arising in 2005 and the disposition of the merits of the case. When we
power to destroy. Therefore it should be exercised preceding years. dismissed the petition, we effectively affirmed the CA
with caution to minimize injury to the proprietary rights ruling being questioned. As a result, our ruling in that
of a taxpayer. It must be exercised fairly, equally and In view of petitioner’s availment of the benefits of [RA case has already become final.67 When a minute
uniformly, lest the tax collector kill the "hen that lays 9840], and without conceding the merits of this case resolution denies or dismisses a petition for failure to
the golden egg."58 as discussed above, respondent concedes that comply with formal and substantive requirements, the
such tax amnesty extinguishes the tax liabilities challenged decision, together with its findings of fact
Legitimate enterprises enjoy the constitutional of petitioner. This admission, however, is not meant and legal conclusions, are deemed sustained.68 But
protection not to be taxed out of existence. Incurring to preclude a revocation of the amnesty granted in what is its effect on other cases?
losses because of a tax imposition may be an case it is found to have been granted under
acceptable consequence but killing the business of an circumstances amounting to tax fraud under Section With respect to the same subject matter and the same
entity is another matter and should not be allowed. It 10 of said amnesty law.62 (Emphasis supplied) issues concerning the same parties, it constitutes res
is counter-productive and ultimately subversive of the judicata.69 However, if other parties or another subject
matter (even with the same parties and issues) is
involved, the minute resolution is not binding A Final Note ASIDE. Respondent is ordered to desist from
precedent. Thus, in CIR v. Baier-Nickel,70 the Court collecting the said tax.
noted that a previous case, CIR v. Baier- Taking into account that health care agreements are
Nickel71 involving the same parties and the same clearly not within the ambit of Section 185 of the NIRC No costs.
issues, was previously disposed of by the Court thru and there was never any legislative intent to impose
a minute resolution dated February 17, 2003 the same on HMOs like petitioner, the same should SO ORDERED.
sustaining the ruling of the CA. Nonetheless, the not be arbitrarily and unjustly included in its coverage.
Court ruled that the previous case "ha(d) no
bearing" on the latter case because the two cases It is a matter of common knowledge that there is a
involved different subject matters as they were great social need for adequate medical services at a
concerned with the taxable income of different taxable cost which the average wage earner can afford.
years.72 HMOs arrange, organize and manage health care
treatment in the furtherance of the goal of providing a
Besides, there are substantial, not simply formal, more efficient and inexpensive health care system
distinctions between a minute resolution and a made possible by quantity purchasing of services and
decision. The constitutional requirement under the economies of scale. They offer advantages over the
first paragraph of Section 14, Article VIII of the pay-for-service system (wherein individuals are
Constitution that the facts and the law on which the charged a fee each time they receive medical
judgment is based must be expressed clearly and services), including the ability to control costs. They
distinctly applies only to decisions, not to minute protect their members from exposure to the high cost
resolutions. A minute resolution is signed only by the of hospitalization and other medical expenses brought
clerk of court by authority of the justices, unlike a about by a fluctuating economy. Accordingly, they
decision. It does not require the certification of the play an important role in society as partners of the
Chief Justice. Moreover, unlike decisions, minute State in achieving its constitutional mandate of
resolutions are not published in the Philippine providing its citizens with affordable health services.
Reports. Finally, the proviso of Section 4(3) of Article
VIII speaks of a decision.73Indeed, as a rule, this The rate of DST under Section 185 is equivalent to
Court lays down doctrines or principles of law which 12.5% of the premium charged.74 Its imposition will
constitute binding precedent in a decision duly signed elevate the cost of health care services. This will in
by the members of the Court and certified by the turn necessitate an increase in the membership fees,
Chief Justice. resulting in either placing health services beyond the
reach of the ordinary wage earner or driving the
Accordingly, since petitioner was not a party in G.R. industry to the ground. At the end of the day, neither
No. 148680 and since petitioner’s liability for DST on side wins, considering the indispensability of the
its health care agreement was not the subject matter services offered by HMOs.
of G.R. No. 148680, petitioner cannot successfully
invoke the minute resolution in that case (which is not WHEREFORE, the motion for reconsideration
even binding precedent) in its favor. Nonetheless, in is GRANTED. The August 16, 2004 decision of the
view of the reasons already discussed, this does not Court of Appeals in CA-G.R. SP
detract in any way from the fact that petitioner’s health No. 70479 is REVERSED and SET ASIDE. The 1996
care agreements are not subject to DST. and 1997 deficiency DST assessment against
petitioner is hereby CANCELLED and SET