G.R. No.

198174

September 2, 2013

ALPHA INSURANCE AND SURETY CO., PETITIONER,

vs.
ARSENIA SONIA CASTOR, RESPONDENT.
DECISION

In view [of] the foregoing, we regret that we cannot act favorably on your claim.
In letters dated July 12, 2007 and August 3, 2007, respondent reiterated her claim and argued
that the exception refers to damage of the motor vehicle and not to its loss. However,
petitioners denial of respondents insured claim remains firm.
Accordingly, respondent filed a Complaint for Sum of Money with Damages against petitioner
before the Regional Trial Court (RTC) of Quezon City on September 10, 2007.

PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing
the Decision1 dated May 31, 2011 and Resolution2 dated August 10, 2011 of the Court of
Appeals (CA) in CA-G.R. CV No. 93027.

In a Decision dated December 19, 2008, the RTC of Quezon City ruled in favor of respondent
in this wise:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendant ordering the latter as follows:

The facts follow.

On February 21, 2007, respondent entered into a contract of insurance, Motor Car Policy No.
MAND/CV-00186, with petitioner, involving her motor vehicle, a Toyota Revo DLX DSL. The
contract of insurance obligates the petitioner to pay the respondent the amount of Six
Hundred Thirty Thousand Pesos (P630,000.00) in case of loss or damage to said vehicle
during the period covered, which is from February 26, 2007 to February 26, 2008.
On April 16, 2007, at about 9:00 a.m., respondent instructed her driver, Jose Joel Salazar
Lanuza (Lanuza), to bring the above-described vehicle to a nearby auto-shop for a tune-up.
However, Lanuza no longer returned the motor vehicle to respondent and despite diligent
efforts to locate the same, said efforts proved futile. Resultantly, respondent promptly reported
the incident to the police and concomitantly notified petitioner of the said loss and demanded
payment of the insurance proceeds in the total sum of P630,000.00.
In a letter dated July 5, 2007, petitioner denied the insurance claim of respondent, stating
among others, thus:
Upon verification of the documents submitted, particularly the Police Report and your Affidavit,
which states that the culprit, who stole the Insure[d] unit, is employed with you. We would like
to invite you on the provision of the Policy under Exceptions to Section-III, which we quote:

To pay plaintiff the amount of P466,000.00 plus legal interest of 6% per annum from the time
of demand up to the time the amount is fully settled;
To pay attorneys fees in the sum of P65,000.00; and
To pay the costs of suit.
All other claims not granted are hereby denied for lack of legal and factual basis.3
Aggrieved, petitioner filed an appeal with the CA.
On May 31, 2011, the CA rendered a Decision affirming in toto the RTC of Quezon Citys
decision. The fallo reads:
WHEREFORE, in view of all the foregoing, the appeal is DENIED. Accordingly, the Decision,
dated December 19, 2008, of Branch 215 of the Regional Trial Court of Quezon City, in Civil
Case No. Q-07-61099, is hereby AFFIRMED in toto.
SO ORDERED.4
Petitioner filed a Motion for Reconsideration against said decision, but the same was denied in
a Resolution dated August 10, 2011.

1.) The Company shall not be liable for:

xxxx
(4) Any malicious damage caused by the Insured, any member of his family or by "A PERSON
IN THE INSUREDS SERVICE."

Hence, the present petition wherein petitioner raises the following grounds for the allowance
of its petition:

1
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WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND

GROSSLY OR GRAVELY ABUSED ITS DISCRETION WHEN IT ADJUDGED IN FAVOR OF
THE PRIVATE RESPONDENT AND AGAINST THE PETITIONER AND RULED THAT
EXCEPTION DOES NOT COVER LOSS BUT ONLY DAMAGE BECAUSE THE TERMS OF
THE INSURANCE POLICY ARE [AMBIGUOUS] EQUIVOCAL OR UNCERTAIN, SUCH THAT
THE PARTIES THEMSELVES DISAGREE ABOUT THE MEANING OF PARTICULAR
PROVISIONS, THE POLICY WILL BE CONSTRUED BY THE COURTS LIBERALLY IN
FAVOR OF THE ASSURED AND STRICTLY AGAINST THE INSURER.
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS, IT ERRED AND
COMMITTED GRAVE ABUSE OF DISCRETION WHEN IT [AFFIRMED] IN TOTO THE
JUDGMENT OF THE TRIAL COURT.5
Simply, the core issue boils down to whether or not the loss of respondents vehicle is
excluded under the insurance policy.
We rule in the negative.
Significant portions of Section III of the Insurance Policy states:

Loss or Damage in respect of any claim or series of claims arising out of one event, the first
amount of each and every loss for each and every vehicle insured by this Policy, such amount
being equal to one percent (1.00%) of the Insureds estimate of Fair Market Value as shown in
the Policy Schedule with a minimum deductible amount of Php3,000.00;
Consequential loss, depreciation, wear and tear, mechanical or electrical breakdowns, failures
or breakages;
Damage to tires, unless the Schedule Vehicle is damaged at the same time;
Any malicious damage caused by the Insured, any member of his family or by a person in the
Insureds service.6
In denying respondents claim, petitioner takes exception by arguing that the word "damage,"
under paragraph 4 of "Exceptions to Section III," means loss due to injury or harm to person,
property or reputation, and should be construed to cover malicious "loss" as in "theft." Thus, it
asserts that the loss of respondents vehicle as a result of it being stolen by the latters driver
is excluded from the policy.
We do not agree.

SECTION III LOSS OR DAMAGE

The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or
damage to the Schedule Vehicle and its accessories and spare parts whilst thereon:
(a)by accidental collision or overturning, or collision or overturning consequent upon
mechanical breakdown or consequent upon wear and tear;
(b)by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft;
(c)by malicious act;
(d)whilst in transit (including the processes of loading and unloading) incidental to such transit
by road, rail, inland waterway, lift or elevator.
xxxx
EXCEPTIONS TO SECTION III
The Company shall not be liable to pay for:

Ruling in favor of respondent, the RTC of Quezon City scrupulously elaborated that theft
perpetrated by the driver of the insured is not an exception to the coverage from the insurance
policy, since Section III thereof did not qualify as to who would commit the theft. Thus:
Theft perpetrated by a driver of the insured is not an exception to the coverage from the
insurance policy subject of this case. This is evident from the very provision of Section III
"Loss or Damage." The insurance company, subject to the limits of liability, is obligated to
indemnify the insured against theft. Said provision does not qualify as to who would commit
the theft. Thus, even if the same is committed by the driver of the insured, there being no
categorical declaration of exception, the same must be covered. As correctly pointed out by
the plaintiff, "(A)n insurance contract should be interpreted as to carry out the purpose for
which the parties entered into the contract which is to insure against risks of loss or damage to
the goods. Such interpretation should result from the natural and reasonable meaning of
language in the policy. Where restrictive provisions are open to two interpretations, that which
is most favorable to the insured is adopted." The defendant would argue that if the person
employed by the insured would commit the theft and the insurer would be held liable, then this
would result to an absurd situation where the insurer would also be held liable if the insured
would commit the theft. This argument is certainly flawed. Of course, if the theft would be
committed by the insured himself, the same would be an exception to the coverage since in
that case there would be fraud on the part of the insured or breach of material warranty under
Section 69 of the Insurance Code.7

2
INSURANCE - FIRST

Moreover, contracts of insurance, like other contracts, are to be construed according to the
sense and meaning of the terms which the parties themselves have used. If such terms are
clear and unambiguous, they must be taken and understood in their plain, ordinary and
popular sense.8 Accordingly, in interpreting the exclusions in an insurance contract, the terms
used specifying the excluded classes therein are to be given their meaning as understood in
common speech.9

used. In the case of property insurance policies, the evident intention of the contracting
parties, i.e., the insurer and the assured, determine the import of the various terms and
provisions embodied in the policy. However, when the terms of the insurance policy are
ambiguous, equivocal or uncertain, such that the parties themselves disagree about the
meaning of particular provisions, the policy will be construed by the courts liberally in favor of
the assured and strictly against the insurer.10

Adverse to petitioners claim, the words "loss" and "damage" mean different things in common
ordinary usage. The word "loss" refers to the act or fact of losing, or failure to keep
possession, while the word "damage" means deterioration or injury to property.1wphi1

Lastly, a contract of insurance is a contract of adhesion. So, when the terms of the insurance
contract contain limitations on liability, courts should construe them in such a way as to
preclude the insurer from non-compliance with his obligation. Thus, in Eternal Gardens
Memorial Park Corporation v. Philippine American Life Insurance Company,11 this Court ruled

Therefore, petitioner cannot exclude the loss of respondents vehicle under the insurance
policy under paragraph 4 of "Exceptions to Section III," since the same refers only to
"malicious damage," or more specifically, "injury" to the motor vehicle caused by a person
under the insureds service. Paragraph 4 clearly does not contemplate "loss of property," as
what happened in the instant case.
Further, the CA aptly ruled that "malicious damage," as provided for in the subject policy as
one of the exceptions from coverage, is the damage that is the direct result from the deliberate
or willful act of the insured, members of his family, and any person in the insureds service,
whose clear plan or purpose was to cause damage to the insured vehicle for purposes of
defrauding the insurer, viz.:
This interpretation by the Court is bolstered by the observation that the subject policy appears
to clearly delineate between the terms "loss" and "damage" by using both terms throughout
the said policy. x x x
xxxx
If the intention of the defendant-appellant was to include the term "loss" within the term
"damage" then logic dictates that it should have used the term "damage" alone in the entire
policy or otherwise included a clear definition of the said term as part of the provisions of the
said insurance contract. Which is why the Court finds it puzzling that in the said policys
provision detailing the exceptions to the policys coverage in Section III thereof, which is one
of the crucial parts in the insurance contract, the insurer, after liberally using the words "loss"
and "damage" in the entire policy, suddenly went specific by using the word "damage" only in
the policys exception regarding "malicious damage." Now, the defendant-appellant would like
this Court to believe that it really intended the word "damage" in the term "malicious damage"
to include the theft of the insured vehicle.

It must be remembered that an insurance contract is a contract of adhesion which must be

construed liberally in favor of the insured and strictly against the insurer in order to safeguard
the latters interest. Thus, in Malayan Insurance Corporation v. Court of Appeals, this Court
held that:
Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is
prepared by the insurer. A contract of insurance, being a contract of adhesion, par excellence,
any ambiguity therein should be resolved against the insurer; in other words, it should be
construed liberally in favor of the insured and strictly against the insurer. Limitations of liability
should be regarded with extreme jealousy and must be construed in such a way as to
preclude the insurer from non-compliance with its obligations.
In the more recent case of Philamcare Health Systems, Inc. v. Court of Appeals, we reiterated
the above ruling, stating that:
When the terms of insurance contract contain limitations on liability, courts should construe
them in such a way as to preclude the insurer from non-compliance with his obligation. Being
a contract of adhesion, the terms of an insurance contract are to be construed strictly against
the party which prepared the contract, the insurer. By reason of the exclusive control of the
insurance company over the terms and phraseology of the insurance contract, ambiguity must
be strictly interpreted against the insurer and liberally in favor of the insured, especially to
avoid forfeiture.12
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED.
Accordingly, the Decision dated May 31, 2011 and Resolution dated August 10, 2011 of the
Court of Appeals are hereby AFFIRMED.

The Court does not find the particular contention to be well taken.
SO ORDERED.
True, it is a basic rule in the interpretation of contracts that the terms of a contract are to be
construed according to the sense and meaning of the terms which the parties thereto have

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INSURANCE - FIRST

FACTS:Arsenia Sonia Castor (Castor) obtained a Motor Car Policy for her Toyota Revo DLX

preclude the insurer from non-compliance with his obligation. Thus, in Eternal Gardens

DSL with Alpha Insurance and Surety Co (Alpha). The contract of insurance obligates the

Memorial Park Corporation vs. Philippine American Life Insurance Company, this Court ruled

petitioner to pay the respondent the amount of P630,000 in case of loss or damage to said

that it must be remembered that an insurance contract is a contract of adhesion which must

vehicle during the period covered.

be construed liberally in favor of the insured and strictly against the insurer in order to

On April 16, 2007, respondent instructed her driver, Jose Joel Salazar Lanuza to bring the

safeguard the latters interest.

vehicle to nearby auto-shop for a tune up. However, Lanuza no longer returned the motor
vehicle and despite diligent efforts to locate the same, said efforts proved futile. Resultantly,
respondent promptly reported the incident to the police and concomitantly notified petitioner of
the said loss and demanded payment of the insurance proceeds.
Alpha, however, denied the demand of Castor claiming that they are not liable since the culprit
who stole the vehicle is employed with Castor. Under the Exceptions to Section III of the
Policy, the Company shall not be liable for (4) any malicious damage caused by the insured,
any member of his family or by A PERSON IN THE INSUREDS SERVICE.
Castor filed a Complaint for Sum of Money with Damages against Alpha before the Regional
Trial Court of Quezon City. The trial court rendered its decision in favor of Castor which
decision is affirmed in toto by the Court of Appeals. Hence, this Petition for Review on
Certiorari.
ISSUE:Whether or not the loss of respondents vehicle is excluded under the insurance policy
HELD:NO. The words loss and damage mean different things in common ordinary usage.
The word loss refers to the act or fact of losing, or failure to keep possession, while the word
damage means deterioration or injury to property. Therefore, petitioner cannot exclude the
loss of Castors vehicle under the insurance policy under paragraph 4 of Exceptions to
Section III, since the same refers only to malicious damage, or more specifically, injury to
the motor vehicle caused by a person under the insureds service. Paragraph 4 clearly does
not contemplate loss of property.
A contract of insurance is a contract of adhesion. So, when the terms of the insurance
contract contain limitations on liability, courts should construe them in such a way as to

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G.R. No. 115278 May 23, 1995

FORTUNE INSURANCE AND SURETY CO., INC., petitioner,
vs.
COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.

DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review on certiorari is whether the
petitioner is liable under the Money, Security, and Payroll Robbery policy it issued to the
private respondent or whether recovery thereunder is precluded under the general exceptions
clause thereof. Both the trial court and the Court of Appeals held that there should be
recovery. The petitioner contends otherwise.
This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by
private respondent Producers Bank of the Philippines (hereinafter Producers) against
petitioner Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for
recovery of the sum of P725,000.00 under the policy issued by Fortune. The sum was
allegedly lost during a robbery of Producer's armored vehicle while it was in transit to transfer
the money from its Pasay City Branch to its head office in Makati. The case was docketed as
Civil Case No. 1817 and assigned to Branch 146 thereof.
After joinder of issues, the parties asked the trial court to render judgment based on the
following stipulation of facts:
1. The plaintiff was insured by the defendants and an
insurance policy was issued, the duplicate original of
which is hereto attached as Exhibit "A";
2. An armored car of the plaintiff, while in the process
of transferring cash in the sum of P725,000.00 under
the custody of its teller, Maribeth Alampay, from its
Pasay Branch to its Head Office at 8737 Paseo de
Roxas, Makati, Metro Manila on June 29, 1987, was
robbed of the said cash. The robbery took place while
the armored car was traveling along Taft Avenue in
Pasay City;
3. The said armored car was driven by Benjamin
Magalong Y de Vera, escorted by Security Guard
Saturnino Atiga Y Rosete. Driver Magalong was

assigned by PRC Management Systems with the

plaintiff by virtue of an Agreement executed on August
7, 1983, a duplicate original copy of which is hereto
attached as Exhibit "B";
4. The Security Guard Atiga was assigned by Unicorn
Security Services, Inc. with the plaintiff by virtue of a
contract of Security Service executed on October 25,
1982, a duplicate original copy of which is hereto
attached as Exhibit "C";
5. After an investigation conducted by the Pasay
police authorities, the driver Magalong and guard
Atiga were charged, together with Edelmer Bantigue Y
Eulalio, Reynaldo Aquino and John Doe, with violation
of P.D. 532 (Anti-Highway Robbery Law) before the
Fiscal of Pasay City. A copy of the complaint is hereto
attached as Exhibit "D";
6. The Fiscal of Pasay City then filed an information
charging the aforesaid persons with the said crime
before Branch 112 of the Regional Trial Court of
Pasay City. A copy of the said information is hereto
attached as Exhibit "E." The case is still being tried as
of this date;
7. Demands were made by the plaintiff upon the
defendant to pay the amount of the loss of
P725,000.00, but the latter refused to pay as the loss
is excluded from the coverage of the insurance policy,
attached hereto as Exhibit "A," specifically under page
1 thereof, "General Exceptions" Section (b), which is
marked as Exhibit "A-1," and which reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in
report of
xxx xxx xxx
(b) any loss caused by any
dishonest, fraudulent or criminal
act of the insured or any

5
INSURANCE - FIRST

officer, employee, partner,

director, trustee or authorized
representative of the Insured
whether acting alone or in
conjunction with others. . . .
8. The plaintiff opposes the contention of the
defendant and contends that Atiga and Magalong are
not its "officer, employee, . . . trustee or authorized
representative . . . at the time of the robbery. 1
On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive
portion thereof reads as follows:
WHEREFORE, premises considered, the Court finds for plaintiff and
against defendant, and
(a) orders defendant to pay
plaintiff the net amount of
P540,000.00 as liability under
Policy No. 0207 (as mitigated by
the P40,000.00 special clause
deduction and by the recovered
sum of P145,000.00), with interest
thereon at the legal rate, until fully
paid;
(b) orders defendant to pay
plaintiff the sum of P30,000.00 as
and for attorney's fees; and
(c) orders defendant to pay costs
of suit.
All other claims and counterclaims are accordingly dismissed forthwith.
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or representatives of
Producers. It Said:
The Court is satisfied that plaintiff may not be said to have selected and
engaged Magalong and Atiga, their services as armored car driver and as

security guard having been merely offered by PRC Management and by

Unicorn Security and which latter firms assigned them to plaintiff. The
wages and salaries of both Magalong and Atiga are presumably paid by
their respective firms, which alone wields the power to dismiss them.
Magalong and Atiga are assigned to plaintiff in fulfillment of agreements to
provide driving services and property protection as such in a context
which does not impress the Court as translating into plaintiff's power to
control the conduct of any assigned driver or security guard, beyond
perhaps entitling plaintiff to request are replacement for such driver guard.
The finding is accordingly compelled that neither Magalong nor Atiga were
plaintiff's "employees" in avoidance of defendant's liability under the
policy, particularly the general exceptions therein embodied.
Neither is the Court prepared to accept the proposition that driver
Magalong and guard Atiga were the "authorized representatives" of
plaintiff. They were merely an assigned armored car driver and security
guard, respectively, for the June 29, 1987 money transfer from plaintiff's
Pasay Branch to its Makati Head Office. Quite plainly it was teller
Maribeth Alampay who had "custody" of the P725,000.00 cash being
transferred along a specified money route, and hence plaintiff's then
designated "messenger" adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R.
CV No. 32946. In its decision4 promulgated on 3 May 1994, it affirmed in toto the appealed
decision.
The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga
were neither employees nor authorized representatives of Producers and ratiocinated as
follows:
A policy or contract of insurance is to be construed liberally in favor of the
insured and strictly against the insurance company (New Life Enterprises
vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court
of Appeals, 211 SCRA 554). Contracts of insurance, like other contracts,
are to be construed according to the sense and meaning of the terms
which the parties themselves have used. If such terms are clear and
unambiguous, they must be taken and understood in their plain, ordinary
and popular sense (New Life Enterprises Case, supra, p. 676; Sun
Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193).
The language used by defendant-appellant in the above quoted stipulation
is plain, ordinary and simple. No other interpretation is necessary. The
word "employee" must be taken to mean in the ordinary sense.

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INSURANCE - FIRST

The Labor Code is a special law specifically dealing with/and specifically

designed to protect labor and therefore its definition as to employeremployee relationships insofar as the application/enforcement of said
Code is concerned must necessarily be inapplicable to an insurance
contract which defendant-appellant itself had formulated. Had it intended
to apply the Labor Code in defining what the word "employee" refers to, it
must/should have so stated expressly in the insurance policy.
Said driver and security guard cannot be considered as employees of
plaintiff-appellee bank because it has no power to hire or to dismiss said
driver and security guard under the contracts (Exhs. 8 and C) except only
to ask for their replacements from the contractors. 5
On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial
court and the Court of Appeals erred in holding it liable under the insurance policy because
the loss falls within the general exceptions clause considering that driver Magalong and
security guard Atiga were Producers' authorized representatives or employees in the transfer
of the money and payroll from its branch office in Pasay City to its head office in Makati.
According to Fortune, when Producers commissioned a guard and a driver to transfer its
funds from one branch to another, they effectively and necessarily became its authorized
representatives in the care and custody of the money. Assuming that they could not be
considered authorized representatives, they were, nevertheless, employees of Producers. It
asserts that the existence of an employer-employee relationship "is determined by law and
being such, it cannot be the subject of agreement." Thus, if there was in reality an employeremployee relationship between Producers, on the one hand, and Magalong and Atiga, on the
other, the provisions in the contracts of Producers with PRC Management System for
Magalong and with Unicorn Security Services for Atiga which state that Producers is not their
employer and that it is absolved from any liability as an employer, would not obliterate the
relationship.
Fortune points out that an employer-employee relationship depends upon four standards: (1)
the manner of selection and engagement of the putative employee; (2) the mode of payment
of wages; (3) the presence or absence of a power to dismiss; and (4) the presence and
absence of a power to control the putative employee's conduct. Of the four, the right-of-control
test has been held to be the decisive factor. 6 It asserts that the power of control over
Magalong and Atiga was vested in and exercised by Producers. Fortune further insists that
PRC Management System and Unicorn Security Services are but "labor-only" contractors
under Article 106 of the Labor Code which provides:
Art. 106. Contractor or subcontractor. There is "labor-only" contracting
where the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment,
machineries, work premises, among others, and the workers recruited and

placed by such persons are performing activities which are directly related
to the principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer who
shall be responsible to the workers in the same manner and extent as if
the latter were directly employed by him.
Fortune thus contends that Magalong and Atiga were employees of Producers, following the
ruling in International Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only"
contractor is equivalent to a finding that there is an employer-employee relationship between
the owner of the project and the employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were not its employees
since it had nothing to do with their selection and engagement, the payment of their wages,
their dismissal, and the control of their conduct. Producers argued that the rule in International
Timber Corp. is not applicable to all cases but only when it becomes necessary to prevent any
violation or circumvention of the Labor Code, a social legislation whose provisions may set
aside contracts entered into by parties in order to give protection to the working man.
Producers further asseverates that what should be applied is the rule in American President
Lines vs. Clave, 8 to wit:
In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employee's conduct.
Since under Producers' contract with PRC Management Systems it is the latter which
assigned Magalong as the driver of Producers' armored car and was responsible for his
faithful discharge of his duties and responsibilities, and since Producers paid the monthly
compensation of P1,400.00 per driver to PRC Management Systems and not to Magalong, it
is clear that Magalong was not Producers' employee. As to Atiga, Producers relies on the
provision of its contract with Unicorn Security Services which provides that the guards of the
latter "are in no sense employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a theft or robbery
insurance policy which is a form of casualty insurance. Section 174 of the Insurance Code
provides:
Sec. 174. Casualty insurance is insurance covering loss or liability arising
from accident or mishap, excluding certain types of loss which by law or
custom are considered as falling exclusively within the scope of insurance
such as fire or marine. It includes, but is not limited to, employer's liability

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INSURANCE - FIRST

insurance, public liability insurance, motor vehicle liability insurance, plate

glass insurance, burglary and theft insurance, personal accident and
health insurance as written by non-life insurance companies, and other
substantially similar kinds of insurance. (emphases supplied)
Except with respect to compulsory motor vehicle liability insurance, the Insurance Code
contains no other provisions applicable to casualty insurance or to robbery insurance in
particular. These contracts are, therefore, governed by the general provisions applicable to all
types of insurance. Outside of these, the rights and obligations of the parties must be
determined by the terms of their contract, taking into consideration its purpose and always in
accordance with the general principles of insurance law. 9
It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to
defraud the insurer the moral hazard is so great that insurers have found it necessary to
fill up their policies with countless restrictions, many designed to reduce this hazard. Seldom
does the insurer assume the risk of all losses due to the hazards insured against." 10 Persons
frequently excluded under such provisions are those in the insured's service and
employment. 11 The purpose of the exception is to guard against liability should the theft be
committed by one having unrestricted access to the property. 12 In such cases, the terms
specifying the excluded classes are to be given their meaning as understood in common
speech. 13 The terms "service" and "employment" are generally associated with the idea of
selection, control, and compensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity therein should be
resolved against the insurer, 15 or it should be construed liberally in favor of the insured and
strictly against the insurer. 16 Limitations of liability should be regarded with extreme jealousy
and must be construed
in such a way, as to preclude the insurer from non-compliance with its obligation. 17 It goes
without saying then that if the terms of the contract are clear and unambiguous, there is no
room for construction and such terms cannot be enlarged or diminished by judicial
construction. 18
An insurance contract is a contract of indemnity upon the terms and conditions specified
therein. 19 It is settled that the terms of the policy constitute the measure of the insurer's
liability. 20 In the absence of statutory prohibition to the contrary, insurance companies have
the same rights as individuals to limit their liability and to impose whatever conditions they
deem best upon their obligations not inconsistent with public policy.
With the foregoing principles in mind, it may now be asked whether Magalong and Atiga
qualify as employees or authorized representatives of Producers under paragraph (b) of the
general exceptions clause of the policy which, for easy reference, is again quoted:
GENERAL EXCEPTIONS

The company shall not be liable under this policy in respect of

xxx xxx xxx
(b) any loss caused by any dishonest, fraudulent or
criminal act of the insured or any officer,employee,
partner, director, trustee or authorized
representative of the Insured whether acting alone or
in conjunction with others. . . . (emphases supplied)
There is marked disagreement between the parties on the correct meaning of the terms
"employee" and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt
from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of
persons granted or having unrestricted access to Producers' money or payroll. When it used
then the term "employee," it must have had in mind any person who qualifies as such as
generally and universally understood, or jurisprudentially established in the light of the four
standards in the determination of the employer-employee relationship, 21 or as statutorily
declared even in a limited sense as in the case of Article 106 of the Labor Code which
considers the employees under a "labor-only" contract as employees of the party employing
them and not of the party who supplied them to the employer. 22
Fortune claims that Producers' contracts with PRC Management Systems and Unicorn
Security Services are "labor-only" contracts.
Producers, however, insists that by the express terms thereof, it is not the employer
of Magalong. Notwithstanding such express assumption of PRC Management
Systems and Unicorn Security Services that the drivers and the security guards
each shall supply to Producers are not the latter's employees, it may, in fact, be that
it is because the contracts are, indeed, "labor-only" contracts. Whether they are is,
in the light of the criteria provided for in Article 106 of the Labor Code, a question of
fact. Since the parties opted to submit the case for judgment on the basis of their
stipulation of facts which are strictly limited to the insurance policy, the contracts
with PRC Management Systems and Unicorn Security Services, the complaint for
violation of P.D. No. 532, and the information therefor filed by the City Fiscal of
Pasay City, there is a paucity of evidence as to whether the contracts between
Producers and PRC Management Systems and Unicorn Security Services are
"labor-only" contracts.
But even granting for the sake of argument that these contracts were not "labor-only"
contracts, and PRC Management Systems and Unicorn Security Services were truly
independent contractors, we are satisfied that Magalong and Atiga were, in respect of the
transfer of Producer's money from its Pasay City branch to its head office in Makati, its

8
INSURANCE - FIRST

"authorized representatives" who served as such with its teller Maribeth Alampay. Howsoever
viewed, Producers entrusted the three with the specific duty to safely transfer the money to its
head office, with Alampay to be responsible for its custody in transit; Magalong to drive the
armored vehicle which would carry the money; and Atiga to provide the needed security for
the money, the vehicle, and his two other companions. In short, for these particular tasks, the
three acted as agents of Producers. A "representative" is defined as one who represents or
stands in the place of another; one who represents others or another in a special capacity, as
an agent, and is interchangeable with "agent." 23

ISSUE: W/N the driver and security guard are employees under the general exception

HELD: YES. Petition is granted.

exempt from protection and coverage losses arising from dishonest, fraudulent, or
criminal acts of persons granted or having unrestricted access to Producers' money or

In view of the foregoing, Fortune is exempt from liability under the general exceptions clause
of the insurance policy.

payroll. When it used then the term "employee," it must have had in mind any person
who qualifies as such as generally and universally understood, or jurisprudentially

WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals
in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional
Trial Court of Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The complaint
in Civil Case No. 1817 is DISMISSED.

established in the light of the four standards in the determination of the employeremployee relationship, 21 or as statutorily declared even in a limited sense as in the
case of Article 106 of the Labor Code which considers the employees under a "labor-

No pronouncement as to costs.
SO ORDERED.

only" contract as employees of the party employing them and not of the party who
supplied them to the employer

in transit from Pasay City City to its Makati head office.

The armored car was driven by Benjamin Magalong Y de Vera, escorted bySecurity
Guard Saturnino Atiga Y Rosete.

the armored vehicle which would carry the money; and Atiga to provide the needed

Producers Bank of the Philippines insured with Fortune Insurance and Surety
Co. P725,000 which was lost during a robbery of Producer's armored vehicle while it was

Producers entrusted the three with the specific duty to safely transfer the money to its
head office, with Alampay to be responsible for its custody in transit; Magalong to drive

FACTS:

It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and

security for the money, the vehicle, and his two other companions.

A "representative" is defined as one who represents or stands in the place of another;

one who represents others or another in a special capacity, as an agent, and is
interchangeable with "agent."

After an investigation conducted by the Pasay police authorities, the driverMagalong and
guard Atiga were charged, together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino
and John Doe, with violation of P.D. 532 (Anti-Highway Robbery Law)

Upon claiming, Fortune refused stating that it is not liable since under the
general exceptions of the policy:

any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer,
employee, partner, director, trustee or authorized representative of the Insured whether
acting alone or in conjunction with others. . . .

RTC: favored Producers Bank since Driver and Security Guard were merely assigned

CA: Affirmed RTC

9
INSURANCE - FIRST

G.R. No. 76452 July 26, 1994

PHILIPPINE AMERICAN LIFE INSURANCE COMPANY and RODRIGO DE LOS
REYES, petitioners,
vs.
HON. ARMANDO ANSALDO, in his capacity as Insurance Commissioner, and RAMON
MONTILLA PATERNO, JR.,respondents.
QUIASON, J.:
This is a petition for certiorari and prohibition under Rule 65 of the Revised Rules of Court,
with preliminary injunction or temporary restraining order, to annul and set aside the Order
dated November 6, 1986 of the Insurance Commissioner and the entire proceedings taken in
I.C. Special Case No. 1-86.
We grant the petition.
The instant case arose from a letter-complaint of private respondent Ramon M. Paterno, Jr.
dated April 17, 1986, to respondent Commissioner, alleging certain problems encountered by
agents, supervisors, managers and public consumers of the Philippine American Life
Insurance Company (Philamlife) as a result of certain practices by said company.
In a letter dated April 23, 1986, respondent Commissioner requested petitioner Rodrigo de los
Reyes, in his capacity as Philamlife's president, to comment on respondent Paterno's letter.
In a letter dated April 29, 1986 to respondent Commissioner, petitioner De los Reyes
suggested that private respondent "submit some sort of a 'bill of particulars' listing and citing
actual cases, facts, dates, figures, provisions of law, rules and regulations, and all other
pertinent data which are necessary to enable him to prepare an intelligent reply" (Rollo, p. 37).
A copy of this letter was sent by the Insurance Commissioner to private respondent for his
comments thereon.
On May 16, 1986, respondent Commissioner received a letter from private respondent
maintaining that his letter-complaint of April 17, 1986 was sufficient in form and substance,
and requested that a hearing thereon be conducted.
Petitioner De los Reyes, in his letter to respondent Commissioner dated June 6, 1986,
reiterated his claim that private respondent's letter of May 16, 1986 did not supply the
information he needed to enable him to answer the letter-complaint.
On July 14, a hearing on the letter-complaint was held by respondent Commissioner on the
validity of the Contract of Agency complained of by private respondent.

In said hearing, private respondent was required by respondent Commissioner to specify the
provisions of the agency contract which he claimed to be illegal.
On August 4, private respondent submitted a letter of specification to respondent
Commissioner dated July 31, 1986, reiterating his letter of April 17, 1986 and praying that the
provisions on charges and fees stated in the Contract of Agency executed between Philamlife
and its agents, as well as the implementing provisions as published in the agents' handbook,
agency bulletins and circulars, be declared as null and void. He also asked that the amounts
of such charges and fees already deducted and collected by Philamlife in connection
therewith be reimbursed to the agents, with interest at the prevailing rate reckoned from the
date when they were deducted.
Respondent Commissioner furnished petitioner De los Reyes with a copy of private
respondent's letter of July 31, 1986, and requested his answer thereto.
Petitioner De los Reyes submitted an Answer dated September 8, 1986, stating inter alia that:
(1) Private respondent's letter of August 11, 1986 does not contain any of
the particular information which Philamlife was seeking from him and
which he promised to submit.
(2) That since the Commission's quasi-judicial power was being invoked
with regard to the complaint, private respondent must file a verified formal
complaint before any further proceedings.
In his letter dated September 9, 1986, private respondent asked for the resumption of the
hearings on his complaint.
On October 1, private respondent executed an affidavit, verifying his letters of April 17, 1986,
and July 31, 1986.
In a letter dated October 14, 1986, Manuel Ortega, Philamlife's Senior Assistant VicePresident and Executive Assistant to the President, asked that respondent Commission first
rule on the questions of the jurisdiction of the Insurance Commissioner over the subject matter
of the letters-complaint and the legal standing of private respondent.
On October 27, respondent Commissioner notified both parties of the hearing of the case on
November 5, 1986.
On November 3, Manuel Ortega filed a Motion to Quash Subpoena/Notice on the following
grounds;
1. The Subpoena/Notice has no legal basis and is premature because:

10
INSURANCE - FIRST

(1) No complaint sufficient in form and contents has

been filed;
(2) No summons has been issued nor received by the
respondent De los Reyes, and hence, no jurisdiction has
been acquired over his person;
(3) No answer has been filed, and hence, the hearing
scheduled on November 5, 1986 in the Subpoena/Notice,
and wherein the respondent is required to appear, is
premature and lacks legal basis.
II. The Insurance Commission has no jurisdiction over;
(1) the subject matter or nature of the action; and
(2) over the parties involved (Rollo, p. 102).
In the Order dated November 6, 1986, respondent Commissioner denied the Motion to Quash.
The dispositive portion of said Order reads:
NOW, THEREFORE, finding the position of complainant thru counsel
tenable and considering the fact that the instant case is an informal
administrative litigation falling outside the operation of the aforecited
memorandum circular but cognizable by this Commission, the hearing
officer, in open session ruled as it is hereby ruled to deny the Motion to
Quash Subpoena/Notice for lack of merit (Rollo, p. 109).
Hence, this petition.
II
The main issue to be resolved is whether or not the resolution of the legality of the Contract of
Agency falls within the jurisdiction of the Insurance Commissioner.
Private respondent contends that the Insurance Commissioner has jurisdiction to take
cognizance of the complaint in the exercise of its quasi-judicial powers. The Solicitor General,
upholding the jurisdiction of the Insurance Commissioner, claims that under Sections 414 and
415 of the Insurance Code, the Commissioner has authority to nullify the alleged illegal
provisions of the Contract of Agency.
III

The general regulatory authority of the Insurance Commissioner is described in Section 414 of
the Insurance Code, to wit:
The Insurance Commissioner shall have the duty to see that all laws
relating to insurance, insurance companies and other insurance matters,
mutual benefit associations and trusts for charitable uses are faithfully
executed and to perform the duties imposed upon him by this Code, . . .
On the other hand, Section 415 provides:
In addition to the administrative sanctions provided elsewhere in this
Code, the Insurance Commissioner is hereby authorized, at his discretion,
to impose upon insurance companies, their directors and/or officers and/or
agents, for any willful failure or refusal to comply with, or violation of any
provision of this Code, or any order, instruction, regulation or ruling of the
Insurance Commissioner, or any commission of irregularities, and/or
conducting business in an unsafe and unsound manner as may be
determined by the the Insurance Commissioner, the following:
(a) fines not in excess of five hundred pesos a day; and
(b) suspension, or after due hearing, removal of directors and/or
officers and/or agents.
A plain reading of the above-quoted provisions show that the Insurance Commissioner has
the authority to regulate the business of insurance, which is defined as follows:
(2) The term "doing an insurance business" or "transacting an insurance
business," within the meaning of this Code, shall include
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as
a vocation and not as merely incidental to any other legitimate business or
activity of the surety; (c) doing any kind of business, including a
reinsurance business, specifically recognized as constituting the doing of
an insurance business within the meaning of this Code; (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. (Insurance Code, Sec. 2[2]; Emphasis supplied).
Since the contract of agency entered into between Philamlife and its agents is not included
within the meaning of an insurance business, Section 2 of the Insurance Code cannot be
invoked to give jurisdiction over the same to the Insurance Commissioner. Expressio unius est
exclusio alterius.

11
INSURANCE - FIRST

With regard to private respondent's contention that the quasi-judicial power of the Insurance
Commissioner under Section 416 of the Insurance Code applies in his case, we likewise rule
in the negative. Section 416 of the Code in pertinent part, provides:

WHEREFORE, the petition is GRANTED. The Order dated November 6, 1986 of the
Insurance Commission is SET ASIDE.
SO ORDERED.

The Commissioner shall have the power to adjudicate claims and

complaints involving any loss, damage or liability for which an insurer may
be answerable under any kind of policy or contract of insurance, or for
which such insurer may be liable under a contract of suretyship, or for
which a reinsurer may be used under any contract or reinsurance it may
have entered into, or for which a mutual benefit association may be held
liable under the membership certificates it has issued to its members,
where the amount of any such loss, damage or liability, excluding interest,
costs and attorney's fees, being claimed or sued upon any kind of
insurance, bond, reinsurance contract, or membership certificate does not
exceed in any single claim one hundred thousand pesos.
A reading of the said section shows that the quasi-judicial power of the Insurance
Commissioner is limited by law "to claims and complaints involving any loss, damage or
liability for which an insurer may be answerable under any kind of policy or contract of
insurance, . . ." Hence, this power does not cover the relationship affecting the insurance
company and its agents but is limited to adjudicating claims and complaints filed by the
insured against the insurance company.
While the subject of Insurance Agents and Brokers is discussed under Chapter IV, Title I of
the Insurance Code, the provisions of said Chapter speak only of the licensing requirements
and limitations imposed on insurance agents and brokers.
The Insurance Code does not have provisions governing the relations between insurance
companies and their agents. It follows that the Insurance Commissioner cannot, in the
exercise of its quasi-judicial powers, assume jurisdiction over controversies between the
insurance companies and their agents.
We have held in the cases of Great Pacific Life Assurance Corporation v. Judico, 180 SCRA
445 (1989), and Investment Planning Corporation of the Philippines v. Social Security
Commission, 21 SCRA 904 (1962), that an insurance company may have two classes of
agents who sell its insurance policies: (1) salaried employees who keep definite hours and
work under the control and supervision of the company; and (2) registered representatives,
who work on commission basis.
Under the first category, the relationship between the insurance company and its agents is
governed by the Contract of Employment and the provisions of the Labor Code, while under
the second category, the same is governed by the Contract of Agency and the provisions of
the Civil Code on the Agency. Disputes involving the latter are cognizable by the regular
courts.

FACTS:

Ramon M. Paterno, Jr. sent a letter dated April 17, 1986 to Insurance
Commissioner alleging certain problems encountered by agents, supervisors, managers
and public consumers of the Philippine American Life Insurance Company (Philamlife)

During the hearing Ramon stated that the contract of agency is illegal

Philamlife through its president De los Reyes contended that the

InsuranceCommissioner as a quasi-judicial body cannot rule on the matter

ISSUE:
1. W/N the Insurance Commissioner has the authority to regulate the business of insurance
2. W/N the business of insurance covers the contract of agency
HELD: petition is GRANTED
1. YES.
Insurance Code
Sec. 414
Sec. 414. The Insurance Commissioner shall have the duty to see that all laws relating to
insurance, insurance companies and other insurance matters, mutual benefit associations,
and trusts for charitable uses are faithfully executed and to perform the duties imposed upon
him by this Code, and shall, notwithstanding any existing laws to the contrary, 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, and to issue such reasonable rules and regulations governing the same.
The Commissioner may issue such rulings, instructions, circulars, orders and decision as he
may deem necessary to secure the enforcement of the provisions of this Code, subject to the
approval of the Secretary of Finance. Except as otherwise specified, decisions made by the
Commissioner shall be appealable to the Secretary of Finance.
Sec. 415
Sec. 415. In addition to the administrative sanctions provided elsewhere in this Code, the
InsuranceCommissioner is hereby authorized, at his discretion, to impose upon the
insurance companies, their directors and/or officers and/or agents, for any willful failure or
refusal to comply with, or violation of any provision of this Code, or any order, instruction,

12
INSURANCE - FIRST

regulation, or ruling of the InsuranceCommissioner, or any commission or irregularities, and/or

conducting business in an unsafe or unsound manner as may be determined by the
Insurance Commissioner, the following:
(a) fines not in excess of five hundred pesos a day; and
(b) suspension, or after due hearing, removal of directors and/or officers and/or agents.

Insurance Commissioner has the authority to regulate the business of insurance

2. NO.

power does not cover the relationship affecting the insurance company and its agents
but is limited to adjudicating claims and complaints filed by the insured against the
insurance company

While the subject of Insurance Agents and Brokers is discussed under Chapter IV, Title I
of the Insurance Code, the provisions of said Chapter speak only of the licensing
requirements and limitations imposed on insurance agents and brokers.

Great Pacific Life Assurance Corporation v. Judico, 180 SCRA 445 (1989):

insurance company may have two classes of agents who sell its insurance policies:

(1) salaried employees who keep definite hours and work under the control and
supervision of the company - governed by the Contract of Employmentand the provisions
of the Labor Code

(2) registered representatives, who work on commission basis. - governed bythe

Contract of Agency and the provisions of the Civil Code on the Agency

13
INSURANCE - FIRST

G.R. No. 154514. July 28, 2005

In this petition, petitioner assigns the following errors allegedly committed by the appellate
court,

WHITE GOLD MARINE SERVICES, INC., Petitioners,

vs.
PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL
UNDERWRITING ASSOCIATION (BERMUDA) LTD., Respondents.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision1 dated July 30, 2002 of the Court of Appeals in
CA-G.R. SP No. 60144, affirming the Decision2 dated May 3, 2000 of the Insurance
Commission in I.C. Adm. Case No. RD-277. 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.

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 . . . 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.
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.
THIRD ASSIGNMENT OF ERROR

The facts are undisputed.

White Gold Marine Services, Inc. (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).
Subsequently, White Gold was issued a Certificate of Entry and Acceptance.3 Pioneer also
issued receipts evidencing payments for the coverage. When White Gold failed to fully pay its
accounts, Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to
recover the latters unpaid balance. White Gold on the other hand, filed a complaint before the
Insurance Commission claiming that Steamship Mutual violated Sections 1864 and 1875 of the
Insurance Code, while Pioneer violated Sections 299,6 3007 and 3018 in relation to Sections
302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no need for
Steamship Mutual to secure a license because it was not engaged in the insurance business.
It explained that Steamship Mutual was a Protection and Indemnity Club (P & I Club).
Likewise, 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.
Moreover, Pioneer was already licensed, hence, a separate license solely as agent/broker of
Steamship Mutual was already superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the
appellate court distinguished between P & I Clubs vis--vis conventional insurance. The
appellate court also held that Pioneer merely acted as a collection agent of Steamship Mutual.

THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED
NOT SECURE A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF
RESPONDENT STEAMSHIP.
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.9
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the
insurance business in the Philippines? (2) Does Pioneer need a license as an insurance
agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club. 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.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business.
To buttress its assertion, it cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd.
v. 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." It stresses
that as a P & I Club, Steamship Mutuals primary purpose is to solicit and provide protection

14
INSURANCE - FIRST

and indemnity coverage and for this purpose, it has engaged the services of Pioneer to act as
its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the
insurance business in the Philippines. It is merely an association of vessel owners who have
come together to provide mutual protection against liabilities incidental to
shipowning.11 Respondents aver Hyopsung is inapplicable in this case because the issue
inHyopsung was the jurisdiction of the court over Hyopsung.
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". These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not
as merely incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized as
constituting the doing of an insurance business within the meaning of this Code;
(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 same provision also provides, the fact that no profit is derived from the making of
insurance contracts, agreements or transactions, or that no separate or direct consideration is
received therefor, shall not preclude the existence of an insurance business.12
The test to determine if a contract is an insurance contract or not, depends on the nature of
the promise, the act required to be performed, and the exact nature of the agreement in the
light of the occurrence, contingency, or circumstances under which the performance becomes
requisite. It is not by what it is called.13
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a
consideration to indemnify another against loss, damage or liability arising from an unknown
or contingent event.14
In particular, a marine insurance undertakes to indemnify the assured against marine losses,
such as the losses incident to a marine adventure.15 Section 9916 of the Insurance Code
enumerates the coverage of marine insurance.

Relatedly, a mutual insurance company is a cooperative enterprise where the members are
both the insurer and insured. In it, the members all contribute, by a system of premiums or
assessments, to the creation of a fund from which all losses and liabilities are paid, and where
the profits are divided among themselves, in proportion to their interest.17 Additionally, mutual
insurance associations, or clubs, provide three types of coverage, namely, protection and
indemnity, war risks, and defense costs.18
A P & I Club is "a form of insurance against third party liability, where the third party is
anyone other than the P & I Club and the members."19 By definition then, Steamship Mutual
as a P & I Club is a mutual insurance association engaged in the marine insurance business.
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. It maintains
a resident agent in the Philippines to solicit insurance and to collect payments in its behalf. We
note that Steamship Mutual even renewed its P & I Club cover until it was cancelled due to
non-payment of the calls. Thus, to continue doing business here, Steamship Mutual or
through its agent Pioneer, must secure a license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary.
Thus, 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.21
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of
registration22 issued by the Insurance Commission. It has been licensed to do or transact
insurance business by virtue of the certificate of authority23 issued by the same agency.
However, a Certification from the Commission states that Pioneer does not have a separate
license to be an agent/broker of Steamship Mutual.24
Although Pioneer is already licensed as an insurance company, it needs a separate license to
act as insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly
states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or
procurement of applications for insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company doing business in the
Philippines or any agent thereof, without first procuring a license so to act from the
Commissioner, which must be renewed annually on the first day of January, or within six
months thereafter. . .

15
INSURANCE - FIRST

Finally, White Gold seeks revocation of Pioneers certificate of authority and removal of its
directors and officers. Regrettably, we are not the forum for these issues.

make, as insurer, any insurance contract; 2) making or proposing to make, as surety, any

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of
the Court of Appeals affirming the Decision dated May 3, 2000 of the Insurance Commission
is hereby REVERSED AND SET ASIDE. The Steamship Mutual Underwriting Association
(Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are ORDERED to obtain
licenses and to secure proper authorizations to do business as insurer and insurance agent,
respectively. The petitioners prayer for the revocation of Pioneers Certificate of Authority and
removal of its directors and officers, is DENIED. Costs against respondents.

business or activity of the surety; 3) doing any kind of business, including a reinsurance

SO ORDERED.

business undertook to indemnify Petitioner White Gold against marine losses as enumerated

contract of suretyship as a vocation and not as merely incidental to any other legitimate
business, specifically recognized as constituting the doing of an insurance business withinthe
meaning of this code; 4) doing or proposing to do any business in substance to any of the
foregoing in a manner designed to evade the provision of this code.
Taking all of these in to consideration, Steamship Mutual engaged in marine insurance
under sec. 99 of the Insurance Code. It is immaterial whether profit is derived from making

Facts: Petitioner White Gold bought a protection and indemnity coverage for its ships from

insurance contract and that no separate or direct consideration is received since these does

Steamship Mutual through RespondentPioneer. Certificates and receipts thus were given.

not preclude the existence of an insurance business.

However, Petitioner failed to fulfill its payments thus Steamship refused to renew its coverage.
Steamship then filed for collection against Petitioner for recovery of unpaid balance.

NOTES:

Thereafter, Petitioner also filed a complaint against Steamship and Respondent before the
Insurance Commission for violations (186,187 for Steamship and 299,300,301 in relation to

*Mutual Insurance company- cooperative enterprise where the members are both

302 and 303 for Respondent) of the Insurance Code-license requirements as an Insurance

the insurer and insured.

company for the former and as insurance agent for the latter. Said commission dismissed the
complaint which decision was affirmed by the CA.

*Protection and Indemnity Club- a form of insurance against third party liability where the third
party is anyone other than the P & I Club and its members.

Issue: Whether or not Steamship Mutual is a Protection and Indemnity Club engaged in the
insurance business in the Philippines
Held: Steamship Mutual as a P & I Club is a mutual insurance company engaged in the
marine insurance business.
An insurance contract is a contract of indemnity. This means that one party undertakes for a
consideration to indemnify another party against loss, damage, or liability arising from an
unknown or contingent event. While to determine if a contract is an insurance contract we can
look at the nature of the promise, the act to be performed, exact nature of the agreement in
view of the entire occurrence, contingency or circumstance where the performance is
mandated. The label is not controlling. While under Section 2(2) ofthe Insurance Code the
phrase doing an insurance business constitutes the following: 1) making or proposing to

16
INSURANCE - FIRST

G.R. No. 158085 October 14, 2005

REPUBLIC OF THE PHILIPPINES, Represented by the COMMISSIONER OF INTERNAL
REVENUE, Petitioner,
vs.
SUNLIFE ASSURANCE COMPANY OF CANADA, Respondent.
DECISION
PANGANIBAN, J.:
aving satisfactorily proven to the Court of Tax Appeals, to the Court of Appeals and to this
Court that it is a bona fide cooperative, respondent is entitled to exemption from the payment
of taxes on life insurance premiums and documentary stamps. Not being governed by the
Cooperative Code of the Philippines, it is not required to be registered with the Cooperative
Development Authority in order to avail itself of the tax exemptions. Significantly, neither the
Tax Code nor the Insurance Code mandates this administrative registration.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to nullify the
January 23, 2003 Decision2and the April 21, 2003 Resolution3 of the Court of Appeals (CA) in
CA-GR SP No. 69125. The dispositive portion of the Decision reads as follows:
"WHEREFORE, the petition for review is hereby DENIED."4
The Facts
The antecedents, as narrated by the CA, are as follows:
"Sun Life is a mutual life insurance company organized and existing under the laws of
Canada. It is registered and authorized by the Securities and Exchange Commission and the
Insurance Commission to engage in business in the Philippines as a mutual life insurance
company with principal office at Paseo de Roxas, Legaspi Village, Makati City.
"On October 20, 1997, Sun Life filed with the [Commissioner of Internal Revenue] (CIR) its
insurance premium tax return for the third quarter of 1997 and paid the premium tax in the
amount of P31,485,834.51. For the period covering August 21 to December 18, 1997,
petitioner filed with the CIR its [documentary stamp tax (DST)] declaration returns and paid
the total amount of P30,000,000.00.

cooperative companies and are exempt from the payment of premium tax and DST. This
pronouncement was later affirmed by this court in [CIR] v. Insular Life Assurance Company,
Ltd. Sun Life surmised that[,] being a mutual life insurance company, it was likewise exempt
from the payment of premium tax and DST. Hence, on August 20, 1999, Sun Life filed with the
CIR an administrative claim for tax credit of its alleged erroneously paid premium tax and DST
for the aforestated tax periods.
"For failure of the CIR to act upon the administrative claim for tax credit and with the 2-year
period to file a claim for tax credit or refund dwindling away and about to expire, Sun Life filed
with the CTA a petition for review on August 23, 1999. In its petition, it prayed for the issuance
of a tax credit certificate in the amount of P61,485,834.51 representingP31,485,834.51 of
erroneously paid premium tax for the third quarter of 1997 and P30,000[,000].00 of DST on
policies of insurance from August 21 to December 18, 1997. Sun Life stood firm on its
contention that it is a mutual life insurance company vested with all the characteristic features
and elements of a cooperative company or association as defined in [S]ection 121 of the Tax
Code. Primarily, the management and affairs of Sun Life were conducted by its members;
secondly, it is operated with money collected from its members; and, lastly, it has for its
purpose the mutual protection of its members and not for profit or gain.
"In its answer, the CIR, then respondent, raised as special and affirmative defenses the
following:
7. Petitioners (Sun Lifes) alleged claim for refund is subject to administrative routinary
investigation/examination by respondents (CIRs) Bureau.
8. Petitioner must prove that it falls under the exception provided for under Section 121 (now
123) of the Tax Code to be exempted from premium tax and be entitled to the refund sought.
9. Claims for tax refund/credit are construed strictly against the claimants thereof as they are
in the nature of exemption from payment of tax.
10. In an action for tax credit/refund, the burden is upon the taxpayer to establish its right
thereto, and failure to sustain this burden is fatal to said claim x x x.
11. It is incumbent upon petitioner to show that it has complied with the provisions of Section
204[,] in relation to Section 229, both in the 1997 Tax Code.
"On November 12, 2002, the CTA found in favor of Sun Life. Quoting largely from its earlier
findings in Insular Life Assurance Company, Ltd. v. [CIR], which it found to be on all fours with
the present action, the CTA ruled:

"On December 29, 1997, the [Court of Tax Appeals] (CTA) rendered its decision in Insular Life
Assurance Co. Ltd. v. [CIR], which held that mutual life insurance companies are purely

17
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The [CA] has already spoken. It ruled that a mutual life insurance company is a purely
cooperative company[;] thus, exempted from the payment of premium and documentary
stamp taxes. Petitioner Sun Life is without doubt a mutual life insurance company. x x x.
xxxxxxxxx
Being similarly situated with Insular, Petitioner at bar is entitled to the same interpretation
given by this Court in the earlier cases of The Insular Life Assurance Company, Ltd. vs. [CIR]
(CTA Case Nos. 5336 and 5601) and by the [CA] in the case entitled [CIR] vs. The Insular Life
Assurance Company, Ltd., C.A. G.R. SP No. 46516, September 29, 1998. Petitioner Sun Life
as a mutual life insurance company is[,] therefore[,] a cooperative company or association and
is exempted from the payment of premium tax and [DST] on policies of insurance pursuant to
Section 121 (now Section 123) and Section 199[1]) (now Section 199[a]) of the Tax Code.

was deemed exempt from premium and documentary stamp taxes, because its affairs are
managed and conducted by its members with money collected from among themselves, solely
for their own protection, and not for profit. Its members or policyholders constituted both
insurer and insured who contribute, by a system of premiums or assessments, to the creation
of a fund from which all losses and liabilities were paid. The dividends it distributed to them
were not profits, but returns of amounts that had been overcharged them for insurance.
For having satisfactorily shown with substantial evidence that it had erroneously paid and
seasonably filed its claim for premium and documentary stamp taxes, respondent was entitled
to a refund, the CA ruled.
Hence, this Petition.6
The Issues

"Seeking reconsideration of the decision of the CTA, the CIR argued that Sun Life ought to
have registered, foremost, with the Cooperative Development Authority before it could enjoy
the exemptions from premium tax and DST extended to purely cooperative companies or
associations under [S]ections 121 and 199 of the Tax Code. For its failure to register, it could
not avail of the exemptions prayed for. Moreover, the CIR alleged that Sun Life failed to prove
that ownership of the company was vested in its members who are entitled to vote and elect
the Board of Trustees among [them]. The CIR further claimed that change in the 1997 Tax
Code subjecting mutual life insurance companies to the regular corporate income tax rate
reflected the legislatures recognition that these companies must be earning profits.
"Notwithstanding these arguments, the CTA denied the CIRs motion for reconsideration.
"Thwarted anew but nonetheless undaunted, the CIR comes to this court via this petition on
the sole ground that:

Petitioner raises the following issues for our consideration:

"I. "Whether or not respondent is a purely cooperative company or association under Section
121 of the National Internal Revenue Code and a fraternal or beneficiary society, order or
cooperative company on the lodge system or local cooperation plan and organized and
conducted solely by the members thereof for the exclusive benefit of each member and not for
profit under Section 199 of the National Internal Revenue Code.
"II. "Whether or not registration with the Cooperative Development Authority is a sine qua
non requirement to be entitled to tax exemption.
"III. "Whether or not respondent is exempted from payment of tax on life insurance premiums
and documentary stamp tax."7

The Tax Court erred in granting the refund[,] because respondent does not fall under the
exception provided for under Section 121 (now 123) of the Tax Code to be exempted from
premium tax and DST and be entitled to the refund.
"The CIR repleads the arguments it raised with the CTA and proposes further that the [CA]
decision in [CIR] v. Insular Life Assurance Company, Ltd. is not controlling and cannot
constitute res judicata in the present action. At best, the pronouncements are merely
persuasive as the decisions of the Supreme Court alone have a universal and mandatory
effect."5
Ruling of the Court of Appeals
In upholding the CTA, the CA reasoned that respondent was a purely cooperative corporation
duly licensed to engage in mutual life insurance business in the Philippines. Thus, respondent

We shall tackle the issues seriatim.

The Courts Ruling
The Petition has no merit.
First Issue: Whether Respondent Is a Cooperative
The Tax Code defines a cooperative as an association "conducted by the members thereof
with the money collected from among themselves and solely for their own protection and not
for profit."8 Without a doubt, respondent is a cooperative engaged in a mutual life insurance
business.

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First, it is managed by its members. Both the CA and the CTA found that the management
and affairs of respondent were conducted by its member-policyholders.9
A stock insurance company doing business in the Philippines may "alter its organization and
transform itself into a mutual insurance company."10 Respondent has been mutualized or
converted from a stock life insurance company to a nonstock mutual life insurance
corporation11 pursuant to Section 266 of the Insurance Code of 1978.12 On the basis of its
bylaws, its ownership has been vested in its member-policyholders who are each entitled to
one vote;13 and who, in turn, elect from among themselves the members of its board of
trustees.14 Being the governing body of a nonstock corporation, the board exercises corporate
powers, lays down all corporate business policies, and assumes responsibility for the
efficiency of management.15
Second, it is operated with money collected from its members. Since respondent is composed
entirely of members who are also its policyholders, all premiums collected obviously come
only from them.16
The member-policyholders constitute "both insurer and insured"17 who "contribute, by a
system of premiums or assessments, to the creation of a fund from which all losses and
liabilities are paid."18 The premiums19 pooled into this fund are earmarked for the payment of
their indemnity and benefit claims.
Third, it is licensed for the mutual protection of its members, not for the profit of anyone.
As early as October 30, 1947, the director of commerce had already issued a license to
respondent -- a corporation organized and existing under the laws of Canada -- to engage in
business in the Philippines.20 Pursuant to Section 225 of Canadas Insurance Companies Act,
the Canadian minister of state (for finance and privatization) also declared in its Amending
Letters Patent that respondent would be a mutual company effective June 1, 1992.21 In the
Philippines, the insurance commissioner also granted it annual Certificates of Authority to
transact life insurance business, the most relevant of which were dated July 1, 1997 and July
1, 1998.22
A mutual life insurance company is conducted for the benefit of its memberpolicyholders,23 who pay into its capital by way of premiums. To that extent, they are
responsible for the payment of all its losses.24 "The cash paid in for premiums and the
premium notes constitute their assets x x x."25 In the event that the company itself fails before
the terms of the policies expire, the member-policyholders do not acquire the status of
creditors.26 Rather, they simply become debtors for whatever premiums that they have
originally agreed to pay the company, if they have not yet paid those amounts in full, for
"[m]utual companies x x x depend solely upon x x x premiums."27 Only when the premiums will
have accumulated to a sum larger than that required to pay for company losses will the
member-policyholders be entitled to a "pro rata division thereof as profits."28

Contributing to its capital, the member-policyholders of a mutual company are obviously also
its owners.29 Sustaining a dual relationship inter se, they not only contribute to the payment of
its losses, but are also entitled to a proportionate share30 and participate alike31 in its profits
and surplus.
Where the insurance is taken at cost, it is important that the rates of premium charged by a
mutual company be larger than might reasonably be expected to carry the insurance, in order
to constitute a margin of safety. The table of mortality used will show an admittedly higher
death rate than will probably prevail; the assumed interest rate on the investments of the
company is made lower than is expected to be realized; and the provision for contingencies
and expenses, made greater than would ordinarily be necessary.32 This course of action is
taken, because a mutual company has no capital stock and relies solely upon its premiums to
meet unexpected losses, contingencies and expenses.
Certainly, many factors are considered in calculating the insurance premium. Since they vary
with the kind of insurance taken and with the group of policyholders insured, any excess in the
amount anticipated by a mutual company to cover the cost of providing for the insurance over
its actual realized cost will also vary. If a member-policyholder receives an excess payment,
then the apportionment must have been based upon a calculation of the actual cost of
insurance that the company has provided for that particular member-policyholder. Accordingly,
in apportioning divisible surpluses, any mutual company uses a contribution method that aims
to distribute those surpluses among its member-policyholders, in the same proportion as they
have contributed to the surpluses by their payments.33
Sharing in the common fund, any member-policyholder may choose to withdraw dividends in
cash or to apply them in order to reduce a subsequent premium, purchase additional
insurance, or accelerate the payment period. Although the premium made at the beginning of
a year is more than necessary to provide for the cost of carrying the insurance, the memberpolicyholder will nevertheless receive the benefit of the overcharge by way of dividends, at the
end of the year when the cost is actually ascertained. "The declaration of a dividend upon a
policy reduces pro tanto the cost of insurance to the holder of the policy. That is its purpose
and effect."34
A stipulated insurance premium "cannot be increased, but may be lessened annually by so
much as the experience of the preceding year has determined it to have been greater than the
cost of carrying the insurance x x x."35 The difference between that premium and the cost of
carrying the risk of loss constitutes the so-called "dividend" which, however, "is not in any real
sense a dividend."36 It is a technical term that is well understood in the insurance business to
be widely different from that to which it is ordinarily attached.
The so-called "dividend" that is received by member-policyholders is not a portion of profits
set aside for distribution to the stockholders in proportion to their subscription to the capital
stock of a corporation.37 One, a mutual company has no capital stock
to which subscription is necessary; there are no stockholders to speak of, but only members.

19
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And, two, the amount they receive does not partake of the nature of a profit or income. The
quasi-appearance of profit will not change its character. It remains an overpayment, a benefit
to which the member-policyholder is equitably entitled.38
Verily, a mutual life insurance corporation is a cooperative that promotes the welfare of its own
members. It does not operate for profit, but for the mutual benefit of its member-policyholders.
They receive their insurance at cost, while reasonably and properly guarding and maintaining
the stability and solvency of the company.39 "The economic benefits filter to the cooperative
members. Either equally or proportionally, they are distributed among members in correlation
with the resources of the association utilized."40
It does not follow that because respondent is registered as a nonstock corporation and thus
exists for a purpose other than profit, the company can no longer make any profits. 41 Earning
profits is merely its secondary, not primary, purpose. In fact, it may not lawfully engage in any
business activity for profit, for to do so would change or contradict its nature42 as a non-profit
entity.43 It may, however, invest its corporate funds in order to earn additional income for
paying its operating expenses and meeting benefit claims. Any excess profit it obtains as an
incident to its operations can only be used, whenever necessary or proper, for the furtherance
of the purpose for which it was organized.44
Second Issue: Whether CDA Registration Is Necessary
Under the Tax Code although respondent is a cooperative, registration with the Cooperative
Development Authority (CDA)45 is not necessary in order for it to be exempt from the payment
of both percentage taxes on insurance premiums, under Section 121; and documentary stamp
taxes on policies of insurance or annuities it grants, under Section 199.
First, the Tax Code does not require registration with the CDA. No tax provision requires a
mutual life insurance company to register with that agency in order to enjoy exemption from
both percentage and documentary stamp taxes.
A provision of Section 8 of Revenue Memorandum Circular (RMC) No. 48-91 requires the
submission of the Certificate of Registration with the CDA,46 before the issuance of a tax
exemption certificate. That provision cannot prevail over the clear absence of an equivalent
requirement under the Tax Code. One, as we will explain below, the Circular does not apply to
respondent, but only to cooperatives that need to be registered under the Cooperative
Code. Two, it is a mere issuance directing all internal revenue officers to publicize a new tax
legislation. Although the Circular does not derogate from their authority to implement the law,
it cannot add a registration requirement,47 when there is none under the law to begin with.
Second, the provisions of the Cooperative Code of the Philippines48 do not apply. Let us trace
the Codes development in our history.

As early as 1917, a cooperative company or association was already defined as one

"conducted by the members thereof with money collected from among themselves and solely
for their own protection and not profit."49 In 1990, it was further defined by the Cooperative
Code as a "duly registered association of persons, with a common bond of interest, who have
voluntarily joined together to achieve a lawful common social or economic end, making
equitable contributions to the capital required and accepting a fair share of the risks and
benefits of the undertaking in accordance with universally accepted cooperative principles."50
The Cooperative Code was actually an offshoot of the old law on cooperatives. In 1973,
Presidential Decree (PD) No. 175 was
signed into law by then President Ferdinand E. Marcos in order to strengthen the cooperative
movement.51 The promotion of cooperative development was one of the major programs of
the "New Society" under his administration. It sought to improve the countrys trade and
commerce by enhancing agricultural production, cottage industries, community development,
and agrarian reform through cooperatives.52
The whole cooperative system, with its vertical and horizontal linkages -- from the market
cooperative of agricultural products to cooperative rural banks, consumer cooperatives and
cooperative insurance -- was envisioned to offer considerable economic opportunities to
people who joined cooperatives.53 As an effective instrument in redistributing income and
wealth,54 cooperatives were promoted primarily to support the agrarian reform program of the
government.55
Notably, the cooperative under PD 175 referred only to an organization composed primarily of
small producers and consumers who voluntarily joined to form a business enterprise that they
themselves owned, controlled, and patronized.56The Bureau of Cooperatives Development -under the Department of Local Government and Community Development (later Ministry of
Agriculture)57 -- had the authority to register, regulate and supervise only the following
cooperatives: (1) barrio associations involved in the issuance of certificates of land transfer;
(2) local or primary cooperatives composed of natural persons and/or barrio associations; (3)
federations composed of cooperatives that may or may not perform business activities; and
(4) unions of cooperatives that did not perform any business activities.58 Respondent does not
fall under any of the above-mentioned types of cooperatives required to be registered under
PD 175.
When the Cooperative Code was enacted years later, all cooperatives that were registered
under PD 175 and previous laws were also deemed registered with the CDA.59 Since
respondent was not required to be registered under the old law on cooperatives, it followed
that it was not required to be registered even under the new law.
Furthermore, only cooperatives to be formed or organized under the Cooperative Code
needed registration with the CDA.60 Respondent already existed before the passage of the
new law on cooperatives. It was not even required to organize under the Cooperative Code,
not only because it performed a different set of functions, but also because it did not operate

20
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to serve the same objectives under the new law -- particularly on productivity, marketing and
credit extension.61
The insurance against losses of the members of a cooperative referred to in Article 6(7) of the
Cooperative Code is not the same as the life insurance provided by respondent to memberpolicyholders. The former is a function of a service cooperative,62 the latter is not. Cooperative
insurance under the Code is limited in scope and local in character. It is not the same as
mutual life insurance.
We have already determined that respondent is a cooperative. The distinguishing feature of a
cooperative enterprise63 is the mutuality of cooperation among its member-policyholders
united for that purpose.64 So long as respondent meets this essential feature, it does not even
have to use65 and carry the name of a cooperative to operate its mutual life insurance
business. Gratia argumenti that registration is mandatory, it cannot deprive respondent of its
tax exemption privilege merely because it failed to register. The nature of its operations is
clear; its purpose well-defined. Exemption when granted cannot prevail over administrative
convenience.

It is worthy to note that while RA 8424 amending the Tax Code has deleted the income tax of
10 percent imposed upon the gross investment income of mutual life insurance companies -domestic68 and foreign69 -- the provisions of Section 121 and 199 remain unchanged.70
Having been seasonably filed and amply substantiated, the claim for exemption in the amount
of P61,485,834.51, representing percentage taxes on insurance premiums and documentary
stamp taxes on policies of insurance or annuities that were paid by respondent in 1997, is in
order. Thus, the grant of a tax credit certificate to respondent as ordered by the appellate
court was correct.
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision and Resolution are
AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Facts: On December 29, 1997, the [Court of Tax Appeals] (CTA) rendered its decision in
Insular Life Assurance Co. Ltd. v. [CIR], which held that mutual life insurance companies are

Third, not even the Insurance Code requires registration with the CDA. The provisions of this
Code primarily govern insurance contracts; only if a particular matter in question is not
specifically provided for shall the provisions of the Civil Code on contracts and special laws
govern.66
True, the provisions of the Insurance Code relative to the organization and operation of an
insurance company also apply to cooperative insurance entities organized under the
Cooperative Code.67 The latter law, however, does not apply to respondent, which already
existed as a cooperative company engaged in mutual life insurance prior to the laws passage
of that law. The statutes prevailing at the time of its organization and mutualization were the
Insurance Code and the Corporation Code, which imposed no registration requirement with
the CDA.
Third Issue: Whether Respondent Is Exempted from Premium Taxes and DST
Having determined that respondent is a cooperative that does not have to be registered with
the CDA, we hold that it is entitled to exemption from both premium taxes and documentary
stamp taxes (DST).
The Tax Code is clear. On the one hand, Section 121 of the Code exempts cooperative
companies from the 5 percent percentage tax on insurance premiums. On the other hand,
Section 199 also exempts from the DST, policies of insurance or annuities made or granted by
cooperative companies. Being a cooperative, respondent is thus exempt from both types of
taxes.

purely cooperative companies and are exempt from the payment of premium tax and DST.
This pronouncement was later affirmed by this court in [CIR] v. Insular Life Assurance
Company, Ltd. Sun Life surmised that[,] being a mutual life insurance company, it was
likewise exempt from the payment of premium tax and DST. Hence, on August 20, 1999, Sun
Life filed with the CIR an administrative claim for tax credit of its alleged erroneously paid
premium tax and DST for the aforestated tax periods.
For failure of the CIR to act upon the administrative claim for tax credit and with the 2-year
period to file a claim for tax credit or refund dwindling away and about to expire, Sun Life filed
with the CTA a petition for review. The CTA found in favor of Sun Life.
Seeking reconsideration of the decision of the CTA, the CIR argued that Sun Life ought to
have registered, foremost, with the Cooperative Development Authority before it could enjoy
the exemptions from premium tax and DST extended to purely cooperative companies or
associations under [S]ections 121 and 199 of the Tax Code. For its failure to register, it could
not avail of the exemptions prayed for. The CTA denied the CIRs motion for reconsideration.
Issue: Whether

or

not respondent is

exempted

from

payment

of

tax

on life

insurance premiums and documentary stamp tax

21
INSURANCE - FIRST

Held: YES. The Tax Code defines a cooperative as an association conducted by the
members thereof with the money collected from among themselves and solely for their own
protection and not for profit. Without a doubt, respondent is a cooperative engaged in a
mutual life insurance business.
First, it is managed by its members. Both the CA and the CTA found that the management
and affairs of respondent were conducted by its member-policyholders. SUNLIFE has been
mutualized or converted from a stock life insurance company to a nonstock mutuallife
insurance corporation pursuant to Section 266 of the InsuranceCode of 1978. On the basis of
its bylaws, its ownership has been vested in its member-policyholders who are each entitled to
one vote; and who, in turn, elect from among themselves the members of its board of
trustees.
Second, it is operated with money collected from its members. Since respondent is composed
entirely of members who are also its policyholders, all premiums collected obviously come
only from them. The member-policyholders constitute both insurer and insured who
contribute, by a system of premiums or assessments, to the creation of a fund from which all
losses and liabilities are paid.
Third, it is licensed for the mutual protection of its members, not for the profit of anyone. A
mutual life insurance company is conducted for the benefit of its member-policyholders, who
pay into its capital by way of premiums.
Under the Tax Code although respondent is a cooperative, registration with the Cooperative
Development Authority (CDA) is not necessary in order for it to be exempt from the payment
of both percentage taxes on insurance premiums, under Section 121; and documentary stamp
taxes on policies of insurance or annuities it grants, under Section 199.

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