The Business of Insurance
the majority of cases have adopted the view that a contract for the payment of
Sec. 2 (2), Insurance Code
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 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.
In the application of the provisions of this Code 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 be deemed
conclusive to show that the making thereof does not constitute the doing or
transacting of an insurance business.
What constitutes doing or transacting an insurance business
1 Name or designation by insurer not controlling
The name by which a company or association or its certificates or policies are
designated, are not determinative of the question of whether the organization is an
insurance company or association, or
is engaged in an insurance business, or its contracts are in the nature of insurance
policies. Basically, insurance, whether fire, marine, or any other form, is that which
the law defines it to be. (43 Am. Jur. 2d. 68.)
2 Acts deemed included by law
The Code enumerates the acts which are deemed included in the term "doing an
insurance business" or "transacting an insurance business." (Sec. 2[2].) The fact
that no profit is derived from the making of insurance contracts or that no separate
or direct consideration is received therefor (ibid.), indeed, the fact that the contract
states that it is not an insurance policy, is not conclusive to show that the making
thereof does not constitute the doing or transacting of an insurance business.
(a) A company may be found to be engaged in an insurance business even though
it expressly disclaims any intention to sell insurance. (43 Am. Jur. 2d. 69.) Thus, it
has been held that a newspaper which in order to increase its circulation, promises
to pay a certain amount to the heirs of one who meets death by accident while
pursuing his ordinary avocation, provided a copy of the paper or a coupon taken
from it is found in his possession at the time of the accident, carries an accident
insurance business which is unauthorized under a charter empowering it to publish
a newspaper. (Commonwealth vs. Philadelphia Inquirer, 3 Pa Dist. 742,15 Pa Co
463.)
(b) While there are few cases in which a different conclusion has been reached,
burial or funeral expenses at the death of the holder is a contract of life insurance
subject to the insurance laws. (43 Am. Jur. 2d. 72.) It has, for example, been ruled
that a contract by an individual engaged in the undertaking business, to furnish
burial in consideration of payment of varying amounts during life according to the
holder's age and the service to be rendered, is within the operation of the statute
governing the transaction of insurance business. (Comm. vs. Luquire Burial Asso.,
104 F2 d 89; State vs. Willet, 86 NE 68; Heaton vs. Goodposter, 200 SW 2d. 120.)
(c) An agreement, however, to service and repair, at a flat monthly fee, any burned
out and defective parts of fluorescent fixtures has been held not to constitute an
insurance contract since any element of warranty or guaranty in the agreement is
merely incidental to the servicing business. (Higger vs. Rodziminsky, Inc., 19 NYS
2d 69.) Any such warranty is not generally considered insurance if it excludes
losses by external accidental causes. On the other hand, a tire manufacturer was
held to be engaged in the insurance business when it promised to repair or replace
the tire if any defects were discovered or accidental losses incurred within a stated
period. (D.L. Bickelhaupt, op. cit., p. 38.)
3 Principal object and purpose test to determine nature of contract
Many of the cases are extremely difficult to reconcile. Obviously, it is not the purpose of
insurance law to regulate all contracts involving assumption or distribution of risk. It is,
therefore, important to distinguish insurance contracts from other contracts of contingent
obligations, such as contracts of guarantee or contracts for services to be rendered on the
happening of some future, uncertain event.
Under the so-called "principal object and purpose test," if
the principal object and purpose is "indemnity/ the contract constitutes insurance, but if it is
"service," risk transfer and distribution being merely incidental, then the arrangement is not
insurance and, therefore, not subject to laws regulating insurance, (see Jordan vs. Group
Health Association, 107 F. 2d 239; California Physician's Service vs. Garrison, 172 P. 2d 4.)
Applying this test, a corporation such as a health maintenance organization (HMO), whether
or not organized for profit, whose main object is to provide the members of a group with
health care services, rather than the assumption of insurance risk is not engaged in insurance
business. The basic distinction between medical service corporations and ordinary health
and accident insurers is that the former, undertake to provide prepaid medical services (at
reduced cost, not to distribute risk like an insurer) through participating physicians, thus
relieving subscribers of any further financial burden, while the latter undertake to indemnify
an insured for medical expenses up to, but not beyond, the schedule of rates contained in
the policy. Even if the former assumes the risk of paying the cost of these services that may
be more than a member has prepaid, it nevertheless cannot be considered as being engaged
in the insurance business because any indemnification resulting from the payment for
services even if rendered in case of emergency would still be incidental to main purpose of
providing and arranging for health care services. (Philippine Health Care Provider, Inc. vs.
Comm.
of Internal Revenue, 600 SCRA 413 [2009].
Cases
33 White Gold Marine v Pioneer Insurance, GR 154514, 28 July 2005
White Gold procured a protection and indemnity coverage for its vessels from
The Steamship Mutual through Pioneer Insurance and Surety Corporation.
White Gold was issued a Certificate of Entry and Acceptance. Pioneer also
issued receipts. 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 unpaid balance. White Gold on the other hand,
filed a complaint before the Insurance Commission claiming that Steamship
Mutual and Pioneer violated provisions of the Insurance Code.
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 and that it was a P & I club. Pioneer was not required
to obtain another license as insurance agent because Steamship Mutual was
not engaged in the insurance business.
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.
Issues:
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? - YES!
Ruling:
1. YES! White Gold insists that Steamship Mutual as a P & I Club is engaged in
the insurance business.
To buttress its assertion, it cites the definition 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.
They argued that Steamship Mutuals primary purpose is to solicit and
provide protection and indemnity coverage and for this purpose, it has
engaged the services of Pioneer to act as its agent.
Respondents contended 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.
Is Steamship Mutual engaged in the insurance business?
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. 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
187 of the Insurance Code. It maintains a resident agent in the
Philippines to solicit insurance and to collect payments in its behalf.
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.
2. YES! Pioneer is the resident agent of Steamship Mutual as evidenced by the
certificate of registration issued by the Insurance Commission.
It has been licensed to do or transact insurance business by virtue of the
certificate of authority 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.
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 xxx

34 Philamlife v Arnaldo, GR 76452, 26 July 1994
One Ramon Paterno complained about the unfair practices committed by the
company against its agents, employees and consumers.
The Commissioner called for a hearing where Paterno was required to specify
which acts were illegal. Paterno then specified that the fees and charges
stated in the Contract of Agency between Philam and its agents be declared
void.
Philam, on the other hand, averred that there Paterno must submit a verified
formal complaint and that his letter didnt contain information Philam was
seeking from him.
Philam then questioned the Insurance Commissions jurisdiction over the
matter and submitted a motion to quash. The commissioner denied this.
Hence this petition.
Issue: Whether or not the resolution of the legality of the Contract of Agency falls
within the jurisdiction of the Insurance Commissioner
Ruling: NO! According to the Insurance code, the Insurance Commissioner was
authorized to suspend, directors, officers, and agents of insurance companies. In
general, he was tasked to regulate the insurance business, which includes:
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 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])
The contract of agency between Philamlife and its agents wasnt included in
the Commissoners power to regulate the business. Hence, the Insurance
commissioner wasnt vested with jurisidiction under the rule expresio unius
est exclusion alterius.
The respondent contended that the commissioner had the quasi-judicial
power to adjudicate under Section 416 of the Code. It stated:
SEC. 416. 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. xxx
This was, however, regarding complaints filed by the insured against the
Insurance company.
Also, the insurance code only discusses the licensing requirements for agents
and brokers. The Insurance Code does not have provisions governing the
relations between insurance companies and their agents.
Investment Planning Corporation of the Philippines v. Social Security
Commission:
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.
The agents under the 2nd sentence are governed by the Civil Code laws on
agency. This means that the regular courts have jurisdiction over this
category.
35 Philippine Health Care Provider v Commissioner of lntemal Revenue, GR
167330, 18 September 2009
Petitioner is a domestic corporation whose primary purpose is to establish,
maintain, conduct and operate a prepaid group practice health care delivery
system or a health maintenance organization to take care of the sick and
disabled persons enrolled in the health care plan and to provide for the
administrative, legal, and financial responsibilities of the organization.
On January 27, 2000, respondent CIR sent petitioner a formal demand letter
and the corresponding assessment notices demanding the payment of
deficiency taxes, including surcharges and interest, for the taxable years 1996
and 1997 in the total amount of P224,702,641.18. The deficiency assessment
was imposed on petitioners health care agreement with the members of its
health care program pursuant to Section 185 of the 1997 Tax Code. Petitioner
protested the assessment in a letter dated February 23, 2000.
As respondent did not act on the protest, petitioner filed a petition for review
in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency
VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision, ordering the petitioner to PAY
the deficiency VAT amounting to P22,054,831.75 inclusive of 25% surcharge
plus 20% interest from January 20, 1997 until fully paid for the 1996 VAT
deficiency and P31,094,163.87 inclusive of 25% surcharge plus 20% interest
from January 20, 1998 until fully paid for the 1997 VAT deficiency.
Accordingly, VAT Ruling No. [231]-88 is declared void and without force and
effect. The 1996 and 1997 deficiency DST assessment against petitioner
wasCANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST
from collecting the said DST deficiency tax.
Respondent appealed the CTA decision to the (CA) insofar as it cancelled the
DST assessment. He claimed that petitioners health care agreement was a
contract of insurance subject to DST under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision which held that petitioners
health care agreement was in the nature of a non-life insurance contract
subject to DST. Respondent is ordered to pay the deficiency Documentary
Stamp Tax. Petitioner moved for reconsideration but the CA denied it.
Issue:
Whether Philippine Health Care Providers, Inc. engaged in insurance business.
Ruling:
NO! Health Maintenance Organizations are not engaged in the insurance
business. The SC said in its June 12, 2008 decision that it is irrelevant that
petitioner is an HMO and not an insurer because its agreements are treated
as insurance contracts and the DST is not a tax on the business but an excise
on the privilege, opportunity or facility used in the transaction of the business.
Petitioner, however, submits that it is of critical importance to characterize the
business it is engaged in, that is, to determine whether it is an HMO or an
insurance company, as this distinction is indispensable in turn to the issue of
whether or not it is liable for DST on its health care agreements. Petitioner is
admittedly an HMO.
Under RA 7878 an HMO is an entity that provides, offers or arranges for
coverage of designated health services needed by plan members for a fixed
prepaid premium.
The payments do not vary with the extent, frequency or type of services
provided. Section 2 (2) of PD 1460 enumerates what constitutes doing an
insurance business or transacting an insurance business which are making
or proposing to make, as insurer, any insurance contract; 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; 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; 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.
Overall, petitioner appears to provide insurance-type benefits to its members
(with respect to its curative medical services), but these are incidental to the
principal activity of providing them medical care. The insurance-like aspect
of petitioners business is miniscule compared to its noninsurance activities.
Therefore, since it substantially provides health care services rather than
insurance services, it cannot be considered as being in the insurance
business.