Insurance Cases

G.R. No. L-6114

October 30, 1954

SOUTHERN LUZON EMPLOYEES' ASSOCIATION, plaintiff, vs. JUANITA GOLPEO, ET AL., defendants-appellants; AQUILINO MALOLES , ET AL., defendants-appellees; ELSIE HICBAN, ET AL., defendants; MARCELINO CONCEPCION, ET AL., intervenors-appellants. The plaintiff, Southern Luzon Employees' Association is composed of laborers and employees of Laguna tayabas Bus Co., and Batangas Transportation Company, and one of its purposes is mutual aid of its members and their defendants in case of death. Roman A. Concepcion was a member until his death on December 13, 1950. The association adopted on September 17, 1949 the following resolution: RESOLVED: That a family record card of each member be printed wherein the members will put down his dependents and/or beneficiaries. BE IT RESOLVED, FURTHER, that a member may, if he chooses, put down his common-law wife as his beneficiary and/or children had with her as the case may be; that in case of a widower, he may put down his legitimate children with the first marriage who are below 21 years of age, single, and may at the same time, also name his common-law wife, if he has any, as dependents and/or beneficiaries; and BE IT RESOLVED: That such person so named by the member will be sole persons to be recognized by the Association regarding claims for condolence contributions. In the form required by the association to be accomplished by its members, with reference to the death benefit, Roman A. Concepcion listed as his beneficiaries Aquilina Maloles, Roman M. Concepcion, Jr., Estela M. Concepcion, Rolando M. Concepcion and Robin M. Concepcion. After the death of Roman A. Concepcion, the association was able to collect voluntary contributions from its members amounting to P2,5055. Three sets of claimants presented themselves, namely, (1) Juanita Golpeo, legal wife of Roman A. Concepcion, and her children, named beneficiaries by the deceased; and (3) Elsie Hicban, another common law wife of Roman A. Concepcion, and her child. The plaintiff association was accordingly constrained to institute in the Court of First Instance of Laguna the present

action for interpleading against the three conflicting claimants as defendants. Marcelino and Josefina Concepcion, children of the deceased Roman A. Concepcion with Juanita Golpeo, intervened in their own rights, aligning themselves with the defendants, Juanita Golpeo and her minor children. After hearing, the court rendered a decision, declaring the defendants Aquilina Maloles and her children the sole beneficiaries of the sum of P2,505.00, and ordering the plaintiff to deliver said amount to them. From this decision only the defendants Juanita Golpeo and her minor children and the intervenors Marcelino and Josefina Concepcion have appealed to this court. The decision is based mainly on the theory that the contract between the plaintiff and the deceased Roman A. Concepcion partook of the nature of an insurance and that, therefore, the amount in question belonged exclusively to the beneficiaries, invoking the following pronouncements of this Court in the case of Del Val vs. Del Val, 29 Phil., 534: With the finding of the trial court that the proceeds of the lifeinsurance policy belongs exclusively to the defendant as his individual and separate property, we agree. That the proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate of the person whose life was insured, and that such proceeds are the separate and individual property of the beneficiary, and not of the heirs of the person whose life was insured, is the doctrine in America. We believe that the same doctrine obtains in these Islands by virtue of section 428 of the Code of Commerce, which reads: "The amounts which the underwriter must deliver to the person insured, in fulfillment of the contract, shall be the property creditors of any kind whatsoever of the person who effected the insurance in favor of the formers." It is claimed by the attorney for the plaintiffs that the section just quoted in subordinated to the provisions of the civil code as found in article 10035. This article reads: "An heir by force of law surviving with others of the same character to a succession must bring into the hereditary estate the property or securities he may bring into the hereditary estate the property or securities he may have been received from the deceased during the life of the same, by way of dowry, gift, or for any good consideration, in order to compute it in fixing the legal portions and in the amount of the division."

Counsel also claims that the proceed of the insurance policy were donation or gift made by the father during his lifetime to the defendant and that, as such, its ultimate destination is determined by those provisions of the Civil Code which relate to donations, especially article 819. This article provides that "gifts made to children which are not betterments shall be considered as part of their legal portion." We cannot agree with these contention. The contract of life insurance is a special contract and the destination of the proceeds thereof is determined by special laws which deal exclusively with that subject. The Civil Code has no provisions which relate directly and specifically to life-insurance contract or to the destination of life-insurance proceeds. That subject is regulate exclusively by the Code of Commerce which provides for the terms of the contract, the relations of the parties and the destination of the proceeds of the policy. (Supra, pp. 540-541.) It is argued for the appellants, however, that the Insurance Law is not applicable because the plaintiff is a mutual benefit association as defined in section 1628 of the Revised Administrative Code. This argument evidently ignore the fact that the trial court has no considered the plaintiff as a regular insurance company but merely ruled that the death benefit in question is analogous to an insurance. Moreover, section 1628 of the Revised Administrative Code defines a mutual benefit association as one, among others, "providing for any method of accident or life insurance among its members out of dues or assessments collected from the membership." The comparison made in the appealed decision is, therefore, well taken. Appellant also contend that the stipulation between the plaintiff and the deceased Roman A. Concepcion regarding the specification of the latter's beneficiaries, and the resolution of September 17, 1949, are void for the being contrary to law, moral or public policy. Specifically, the appellants cite article 2012 of the new Civil Code providing that "Any person who is forbidden from receiving any donation under article 739 cannot be named beneficiary of a life insurance policy and by the person who cannot make any donation to him, according to said article." Inasmuch as, according to article 739 of the new Civil Code, a donation is valid when made "between persons who are guilty or adultery or concubinage at the time of the donation," it is alleged that the defendant-appellee Aquilina Maloles, cannot be named a beneficiary, every assuming that the insurance law is applicable. Without considering the intimation in the brief for the defendant appellees that appellant Juanita Golpeo, by her silence and

actions, had acquiesced in the illicit relations between her husband and appellee Aquilina Maloles, appellant argument would certainly not apply to the children of Aquilina likewise named beneficiaries by the deceased Roman A. Concepcion. As a matter of a fact the new Civil Code recognized certain successional rights of illegitimate children. (Article 287.) The other contention advanced rather exhaustively by counsel for appellants, and the citations in support there of are either negative or rendered inapplicable by the decisive considerations already stated. In this connection it is noteworthy that the estate of the deceased Roman A. Concepcion was not entirely left without anything legally due it since it is an admitted fact that the sum of P2,500 was paid by Laguna Tayabas Bus Co., employer of the deceased to the appellants under the Workmen's Compensation Act. Wherefore, the appealed decision is affirmed, and it is so ordered without costs.

with a, rider for Accidental Death for the same amount Buenaventura C. Ebrado designated T. Ebrado as the revocable beneficiary in his policy. He to her as his wife. On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing branch of a tree. As the policy was in force, The Insular Life Assurance Co., Ltd. liable to pay the coverage in the total amount of P11,745.73, representing the face value of the policy in the amount of P5,882.00 plus the additional benefits for accidental death also in the amount of P5,882.00 and the refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums and interest thereon due for January and February, 1969, in the sum of P36.27. Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated beneficiary therein, although she admits that she and the insured Buenaventura C. Ebrado were merely living as husband and wife without the benefit of marriage. Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is the one entitled to the insurance proceeds, not the common-law wife, Carponia T. Ebrado. In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co., Ltd. commenced an action for Interpleader before the Court of First Instance of Rizal on April 29, 1970. After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-trial order was entered reading as follows: ñé+. £ªwph!1 G.R. No. L-44059 October 28, 1977 THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee, vs. CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendantsappellants. This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life insurance policy of a legally married man claim the proceeds thereof in case of death of the latter? On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., Policy No. 009929 on a whole-life for P5,882.00

During the pre-trial conference, the parties manifested to the court. that there is no possibility of amicable settlement. Hence, the Court proceeded to have the parties submit their evidence for the purpose of the pretrial and make admissions for the purpose of pretrial. During this conference, parties Carponia T. Ebrado and Pascuala Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was married to Pascuala Ebrado with whom she has six — (legitimate) namely; Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed Ebrado; 2) that during the lifetime of the deceased, he was insured with Insular Life Assurance Co. Under Policy No. 009929 whole life plan, dated September

1, 1968 for the sum of P5,882.00 with the rider for accidental death benefit as evidenced by Exhibits A for plaintiffs and Exhibit 1 for the defendant Pascuala and Exhibit 7 for Carponia Ebrado; 3) that during the lifetime of Buenaventura Ebrado, he was living with his common-wife, Carponia Ebrado, with whom she had 2 children although he was not legally separated from his legal wife; 4) that Buenaventura in accident on October 21, 1969 as evidenced by the death Exhibit 3 and affidavit of the police report of his death Exhibit 5; 5) that complainant Carponia Ebrado filed claim with the Insular Life Assurance Co. which was contested by Pascuala Ebrado who also filed claim for the proceeds of said policy 6) that in view ofthe adverse claims the insurance company filed this action against the two herein claimants Carponia and Pascuala Ebrado; 7) that there is now due from the Insular Life Assurance Co. as proceeds of the policy P11,745.73; 8) that the beneficiary designated by the insured in the policy is Carponia Ebrado and the insured made reservation to change the beneficiary but although the insured made the option to change the beneficiary, same was never changed up to the time of his death and the wife did not have any opportunity to write the company that there was reservation to change the designation of the parties agreed that a decision be rendered based on and stipulation of facts as to who among the two claimants is entitled to the policy. Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda from the receipt of this order. SO ORDERED. On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T. Ebrado disqualified from becoming beneficiary of the insured Buenaventura Cristor Ebrado and directing the payment of the insurance proceeds to the estate of the deceased insured. The trial court held: ñé+.£ªwph!1 It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction for adultery or concubinage is not essential in order to establish the disqualification mentioned therein. Neither is it also necessary that a

finding of such guilt or commission of those acts be made in a separate independent action brought for the purpose. The guilt of the donee (beneficiary) may be proved by preponderance of evidence in the same proceeding (the action brought to declare the nullity of the donation). It is, however, essential that such adultery or concubinage exists at the time defendant Carponia T. Ebrado was made beneficiary in the policy in question for the disqualification and incapacity to exist and that it is only necessary that such fact be established by preponderance of evidence in the trial. Since it is agreed in their stipulation above-quoted that the deceased insured and defendant Carponia T. Ebrado were living together as husband and wife without being legally married and that the marriage of the insured with the other defendant Pascuala Vda. de Ebrado was valid and still existing at the time the insurance in question was purchased there is no question that defendant Carponia T. Ebrado is disqualified from becoming the beneficiary of the policy in question and as such she is not entitled to the proceeds of the insurance upon the death of the insured. From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the Appellate Court certified the case to Us as involving only questions of law. We affirm the judgment of the lower court. 1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code (PD No. 612, as amended) does not contain any specific provision grossly resolutory of the prime question at hand. Section 50 of the Insurance Act which provides that "(t)he insurance shag be applied exclusively to the proper interest of the person in whose name it is made" 1 cannot be validly seized upon to hold that the mm includes the beneficiary. The word "interest" highly suggests that the provision refers only to the "insured" and not to the beneficiary, since a contract of insurance is personal in character. 2 Otherwise, the prohibitory laws against illicit relationships especially on property and descent will be rendered nugatory, as the same could easily be circumvented by modes of insurance. Rather, the general rules of civil law should be applied to resolve this void in the Insurance Law. Article 2011 of the New Civil Code states: "The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by this

Code." When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is governed by the general rules of the civil law regulating contracts. 3 And under Article 2012 of the same Code, "any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a fife insurance policy by the person who cannot make a donation to him. 4 Common-law spouses are, definitely, barred from receiving donations from each other. Article 739 of the new Civil Code provides: ñé+.£ªwph!1 The following donations shall be void: 1. Those made between persons who were guilty of adultery or concubinage at the time of donation; Those made between persons found guilty of the same criminal offense, in consideration thereof; 3. Those made to a public officer or his wife, descendants or ascendants by reason of his office. In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the donee may be proved by preponderance of evidence in the same action. 2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy which the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of the new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012 cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary in the life insurance policy of the person who cannot make the donation.5 Under American law, a policy of life insurance is considered as a testament and in construing it, the courts will, so far as possible treat it as a will and determine the effect of a clause designating the beneficiary by rules under which wins are interpreted. 6 3. Policy considerations and dictates of morality rightly justify the institution of a barrier between common law spouses in record to Property relations since such hip ultimately encroaches upon the nuptial and filial rights of the legitimate family There is every reason to hold that the bar in

donations between legitimate spouses and those between illegitimate ones should be enforced in life insurance policies since the same are based on similar consideration As above pointed out, a beneficiary in a fife insurance policy is no different from a donee. Both are recipients of pure beneficence. So long as manage remains the threshold of family laws, reason and morality dictate that the impediments imposed upon married couple should likewise be imposed upon extra-marital relationship. If legitimate relationship is circumscribed by these legal disabilities, with more reason should an illicit relationship be restricted by these disabilities. Thus, in Matabuena v. Cervantes, 7 this Court, through Justice Fernando, said: ñé+.£ªwph!1 If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that court (Court of Appeals), 'to prohibit donations in favor of the other consort and his descendants because of and undue and improper pressure and influence upon the donor, a prejudice deeply rooted in our ancient law;" por-que no se enganen desponjandose el uno al otro por amor que han de consuno' (According to) the Partidas (Part IV, Tit. XI, LAW IV), reiterating the rationale 'No Mutuato amore invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De donat, inter virum et uxorem); then there is very reason to apply the same prohibitive policy to persons living together as husband and wife without the benefit of nuptials. For it is not to be doubted that assent to such irregular connection for thirty years bespeaks greater influence of one party over the other, so that the danger that the law seeks to avoid is correspondingly increased. Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would not be just that such donations should subsist, lest the condition 6f those who incurred guilt should turn out to be better.' So long as marriage remains the cornerstone of our family law, reason and morality alike demand that the disabilities attached to marriage should likewise attach to concubinage. It is hardly necessary to add that even in the absence of the above pronouncement, any other conclusion cannot stand the test of scrutiny. It would be to indict the frame of the Civil Code for a failure to apply a laudable rule to a situation which in its essentials cannot be distinguished. Moreover, if it is at all to be differentiated the policy of the law which embodies a deeply rooted notion of what is just

and what is right would be nullified if such irregular relationship instead of being visited with disabilities would be attended with benefits. Certainly a legal norm should not be susceptible to such a reproach. If there is every any occasion where the principle of statutory construction that what is within the spirit of the law is as much a part of it as what is written, this is it. Otherwise the basic purpose discernible in such codal provision would not be attained. Whatever omission may be apparent in an interpretation purely literal of the language used must be remedied by an adherence to its avowed objective. 4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739 may effectuate. More specifically, with record to the disability on "persons who were guilty of adultery or concubinage at the time of the donation," Article 739 itself provides: ñé+.£ªwph!1 In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilty of the donee may be proved by preponderance of evidence in the same action. The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. In fact, it cannot even be from the aforequoted provision that a prosecution is needed. On the contrary, the law plainly states that the guilt of the party may be proved "in the same acting for declaration of nullity of donation. And, it would be sufficient if evidence preponderates upon the guilt of the consort for the offense indicated. The quantum of proof in criminal cases is not demanded. In the caw before Us, the requisite proof of common-law relationship between the insured and the beneficiary has been conveniently supplied by the stipulations between the parties in the pre-trial conference of the case. It case agreed upon and stipulated therein that the deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six legitimate children; that during his lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado, with whom he has two children. These stipulations are nothing less thanjudicial admissions which, as a consequence, no longer require proof and cannot be contradicted. 8 A fortiori, on the basis of these admissions, a judgment may be validly rendered without going through the rigors of a trial for the sole purpose of proving the illicit liaison between the insured and the beneficiary. In fact, in that pretrial, the parties even agreed "that a decision

be rendered based on this agreement and stipulation of facts as to who among the two claimants is entitled to the policy." ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared disqualified to be the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the proceeds of the policy are hereby held payable to the estate of the deceased insured. Costs against Carponia T. Ebrado. SO ORDERED.

xxxx

G.R. No. 198174

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

September 2, 2013

ALPHA INSURANCE AND SURETY vs. ARSENIA SONIA CASTOR, RESPONDENT.

CO., PETITIONER,

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision 1 dated May 31, 2011 and Resolution 2 dated August 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 93027. 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: 1.) The Company shall not be liable for:

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, petitioner’s denial of respondent’s 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. 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: 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 attorney’s 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 City’s 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. Hence, the present petition wherein petitioner raises the following grounds for the allowance of its petition:

by fire, external explosion, housebreaking or theft;

self-ignition

or

lightning

or

burglary,

(c) by malicious act; (d)

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 respondent’s vehicle is excluded under the insurance policy. We rule in the negative. Significant portions of Section III of the Insurance Policy states: 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)

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: 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 Insured’s 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 Insured’s service.6 In denying respondent’s 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 respondent’s vehicle as a result of it being stolen by the latter’s driver is excluded from the policy. We do not agree.

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 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 Adverse to petitioner’s 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.1âwphi1 Therefore, petitioner cannot exclude the loss of respondent’s 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 insured’s 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 insured’s 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 policy’s provision detailing the exceptions to the policy’s 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 policy’s exception regarding "malicious damage." Now, the defendantappellant 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. The Court does not find the particular contention to be well taken. 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 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

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 noncompliance with his obligation. Thus, in Eternal Gardens Memorial Park Corporation v. Philippine American Life Insurance Company, 11 this Court ruled – 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 latter’s 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 noncompliance 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. SO ORDERED.

G.R. No. 115278 May 23, 1995 FORTUNE INSURANCE AND vs. COURT OF APPEALS and PHILIPPINES, respondents.

SURETY

CO.,

PRODUCERS

INC., petitioner,

BANK

OF

THE

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 "A1," 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 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 dismissed forthwith. SO ORDERED.

counterclaims

are

accordingly

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 decision 4 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:

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

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. The Labor Code is a special law specifically dealing with/and specifically designed to protect labor and therefore its definition as to employer-employee

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 employer-employee 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-ofcontrol 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 "laboronly" 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 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 "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 In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the insurance policy. 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. No pronouncement as to costs. SO ORDERED. 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. 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. 186. 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 Vice-President 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 letterscomplaint 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 premature because:

no legal basis

and is

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

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 latter’s unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission claiming that Steamship Mutual violated Sections 186 4 and 1875 of the Insurance Code, while Pioneer violated Sections 299,63007 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.

G.R. No. 154514. July 28, 2005 WHITE GOLD MARINE SERVICES, INC., Petitioners, vs. PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA) LTD., Respondents.

The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the appellate court distinguished between P & I Clubs vis-àvis conventional insurance. The appellate court also held that Pioneer merely acted as a collection agent of Steamship Mutual. In this petition, petitioner assigns the following errors allegedly committed by the appellate court, FIRST ASSIGNMENT OF ERROR

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.

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.

The facts are undisputed.

SECOND ASSIGNMENT OF ERROR

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

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

(a) making or proposing to make, as insurer, any insurance contract;

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.

(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;

FOURTH ASSIGNMENT OF ERROR

(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;

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 Appeals 10 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 Mutual’s 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 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 in Hyopsung 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:

(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

Finally, White Gold seeks revocation of Pioneer’s certificate of authority and removal of its directors and officers. Regrettably, we are not the forum for these issues. 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 petitioner’s prayer for the revocation of Pioneer’s Certificate of Authority and removal of its directors and officers, is DENIED. Costs against respondents. SO ORDERED. 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.

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:

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.

SEC. 299 . . .

The Case

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. . .

Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, seeking to nullify the January 23, 2003 Decision 2 and 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.

‘7. Petitioner’s (Sun Life’s) alleged claim for refund is subject to administrative routinary investigation/examination by respondent’s (CIR’s) 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.

"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.

‘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.

"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 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.

‘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.’

"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 ofP61,485,834.51 representing P31,485,834.51 of erroneously paid premium tax for the third quarter of 1997 andP30,000[,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:

‘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.

"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: ‘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.’ "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 legislature’s recognition that these companies must be earning profits. "Notwithstanding these arguments, the CTA denied the CIR’s motion for reconsideration. "Thwarted anew but nonetheless undaunted, the CIR comes to this court via this petition on the sole ground that: ‘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 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 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 We shall tackle the issues seriatim. The Court’s 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. 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 memberpolicyholders.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 memberpolicyholders who are each entitled to one vote;13 and who, in turn, elect from among themselves the members of its board of trustees. 14Being 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. 20Pursuant to Section 225 of Canada’s 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 member-policyholders,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.26Rather, 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.29Sustaining 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 member-policyholder 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. 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 nature 42 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 Philippines 48 do not apply. Let us trace the Code’s 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 country’s 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.56 The 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 abovementioned 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 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 member-policyholders. 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 enterprise 63 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 welldefined. Exemption when granted cannot prevail over administrative convenience. 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. 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.

G.R. No. 181132

June 5, 2009

HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA PANGILINAN MARAMAG,Petitioners, vs. EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN DE GUZMAN MARAMAG, TRISHA ANGELIE MARAMAG, THE INSULAR LIFE ASSURANCE COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE CORPORATION, Respondents. This is a petition 1 for review on certiorari under Rule 45 of the Rules, seeking to reverse and set aside the Resolution2 dated January 8, 2008 of the Court of Appeals (CA), in CA-G.R. CV No. 85948, dismissing petitioners’ appeal for lack of jurisdiction. The case stems from a petition 3 filed against respondents with the Regional Trial Court, Branch 29, for revocation and/or reduction of insurance

proceeds for being void and/or inofficious, with prayer for a temporary restraining order (TRO) and a writ of preliminary injunction. The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto Maramag (Loreto), while respondents were Loreto’s illegitimate family; (2) Eva de Guzman Maramag (Eva) was a concubine of Loreto and a suspect in the killing of the latter, thus, she is disqualified to receive any proceeds from his insurance policies from Insular Life Assurance Company, Ltd. (Insular)4 and Great Pacific Life Assurance Corporation (Grepalife);5(3) the illegitimate children of Loreto—Odessa, Karl Brian, and Trisha Angelie—were entitled only to one-half of the legitime of the legitimate children, thus, the proceeds released to Odessa and those to be released to Karl Brian and Trisha Angelie were inofficious and should be reduced; and (4) petitioners could not be deprived of their legitimes, which should be satisfied first. In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among others, that part of the insurance proceeds had already been released in favor of Odessa, while the rest of the proceeds are to be released in favor of Karl Brian and Trisha Angelie, both minors, upon the appointment of their legal guardian. Petitioners also prayed for the total amount of P320,000.00 as actual litigation expenses and attorney’s fees. In answer,6 Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa, Karl Brian, and Trisha Angelie as his legitimate children, and that they filed their claims for the insurance proceeds of the insurance policies; that when it ascertained that Eva was not the legal wife of Loreto, it disqualified her as a beneficiary and divided the proceeds among Odessa, Karl Brian, and Trisha Angelie, as the remaining designated beneficiaries; and that it released Odessa’s share as she was of age, but withheld the release of the shares of minors Karl Brian and Trisha Angelie pending submission of letters of guardianship. Insular alleged that the complaint or petition failed to state a cause of action insofar as it sought to declare as void the designation of Eva as beneficiary, because Loreto revoked her designation as such in Policy No. A001544070 and it disqualified her in Policy No. A001693029; and insofar as it sought to declare as inofficious the shares of Odessa, Karl Brian, and Trisha Angelie, considering that no settlement of Loreto’s estate had been filed nor had the respective shares of the heirs been determined. Insular further claimed that it was bound to honor the insurance policies designating the children of Loreto with Eva as beneficiaries pursuant to Section 53 of the Insurance Code.

In its own answer7 with compulsory counterclaim, Grepalife alleged that Eva was not designated as an insurance policy beneficiary; that the claims filed by Odessa, Karl Brian, and Trisha Angelie were denied because Loreto was ineligible for insurance due to a misrepresentation in his application form that he was born on December 10, 1936 and, thus, not more than 65 years old when he signed it in September 2001; that the case was premature, there being no claim filed by the legitimate family of Loreto; and that the law on succession does not apply where the designation of insurance beneficiaries is clear. As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to petitioners, summons by publication was resorted to. Still, the illegitimate family of Loreto failed to file their answer. Hence, the trial court, upon motion of petitioners, declared them in default in its Order dated May 7, 2004. During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues raised in their respective answers be resolved first. The trial court ordered petitioners to comment within 15 days. In their comment, petitioners alleged that the issue raised by Insular and Grepalife was purely legal – whether the complaint itself was proper or not – and that the designation of a beneficiary is an act of liberality or a donation and, therefore, subject to the provisions of Articles 752 8 and 7729 of the Civil Code. In reply, both Insular and Grepalife countered that the insurance proceeds belong exclusively to the designated beneficiaries in the policies, not to the estate or to the heirs of the insured. Grepalife also reiterated that it had disqualified Eva as a beneficiary when it ascertained that Loreto was legally married to Vicenta Pangilinan Maramag. On September 21, 2004, the trial court issued a Resolution, the dispositive portion of which reads – WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life and Grepalife is granted with respect to defendants Odessa, Karl Brian and Trisha Maramag. The action shall proceed with respect to the other defendants Eva Verna de Guzman, Insular Life and Grepalife. SO ORDERED.10

In so ruling, the trial court ratiocinated thus – Art. 2011 of the Civil Code provides that the contract of insurance is governed by the (sic) special laws. Matters not expressly provided for in such special laws shall be regulated by this Code. The principal law on insurance is the Insurance Code, as amended. Only in case of deficiency in the Insurance Code that the Civil Code may be resorted to. (Enriquez v. Sun Life Assurance Co., 41 Phil. 269.) The Insurance Code, as amended, contains a provision regarding to whom the insurance proceeds shall be paid. It is very clear under Sec. 53 thereof that the insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made, unless otherwise specified in the policy. Since the defendants are the ones named as the primary beneficiary (sic) in the insurances (sic) taken by the deceased Loreto C. Maramag and there is no showing that herein plaintiffs were also included as beneficiary (sic) therein the insurance proceeds shall exclusively be paid to them. This is because the beneficiary has a vested right to the indemnity, unless the insured reserves the right to change the beneficiary. (Grecio v. Sunlife Assurance Co. of Canada, 48 Phil. [sic] 63). Neither could the plaintiffs invoked (sic) the law on donations or the rules on testamentary succession in order to defeat the right of herein defendants to collect the insurance indemnity. The beneficiary in a contract of insurance is not the donee spoken in the law of donation. The rules on testamentary succession cannot apply here, for the insurance indemnity does not partake of a donation. As such, the insurance indemnity cannot be considered as an advance of the inheritance which can be subject to collation (Del Val v. Del Val, 29 Phil. 534). In the case of Southern Luzon Employees’ Association v. Juanita Golpeo, et al., the Honorable Supreme Court made the following pronouncements[:] "With the finding of the trial court that the proceeds to the Life Insurance Policy belongs exclusively to the defendant as his individual and separate property, we agree that the proceeds of an insurance policy belong exclusively to the beneficiary and not to the estate of the person whose life was insured, and that such proceeds are the separate and individual property of the beneficiary and not of the heirs of the person whose life was insured, is the doctrine in America. We believe that the same doctrine obtains in these Islands by virtue of Section 428 of the Code of Commerce x x x." In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no sufficient cause of action against defendants Odessa,

Karl Brian and Trisha Angelie Maramag for the reduction and/or declaration of inofficiousness of donation as primary beneficiary (sic) in the insurances (sic) of the late Loreto C. Maramag. However, herein plaintiffs are not totally bereft of any cause of action. One of the named beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is his concubine Eva Verna De Guzman. Any person who is forbidden from receiving any donation under Article 739 cannot be named beneficiary of a life insurance policy of the person who cannot make any donation to him, according to said article (Art. 2012, Civil Code). If a concubine is made the beneficiary, it is believed that the insurance contract will still remain valid, but the indemnity must go to the legal heirs and not to the concubine, for evidently, what is prohibited under Art. 2012 is the naming of the improper beneficiary. In such case, the action for the declaration of nullity may be brought by the spouse of the donor or donee, and the guilt of the donor and donee may be proved by preponderance of evidence in the same action (Comment of Edgardo L. Paras, Civil Code of the Philippines, page 897). Since the designation of defendant Eva Verna de Guzman as one of the primary beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is void under Art. 739 of the Civil Code, the insurance indemnity that should be paid to her must go to the legal heirs of the deceased which this court may properly take cognizance as the action for the declaration for the nullity of a void donation falls within the general jurisdiction of this Court.11 Insular12 and Grepalife13 filed their respective motions for reconsideration, arguing, in the main, that the petition failed to state a cause of action. Insular further averred that the proceeds were divided among the three children as the remaining named beneficiaries. Grepalife, for its part, also alleged that the premiums paid had already been refunded. Petitioners, in their comment, reiterated their earlier arguments and posited that whether the complaint may be dismissed for failure to state a cause of action must be determined solely on the basis of the allegations in the complaint, such that the defenses of Insular and Grepalife would be better threshed out during trial.1avvphi1 On June 16, 2005, the trial court issued a Resolution, disposing, as follows: WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration filed by defendants Grepalife and Insular Life are hereby GRANTED. Accordingly, the portion of the Resolution of this Court dated 21 September 2004 which ordered the prosecution of the case against

defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET ASIDE, and the case against them is hereby ordered DISMISSED.

Court engage in the examination and determination of what were the facts and their probative value, or the truth thereof, when it premised the dismissal on allegations of the defendants in their answer – which had not been proven?

SO ORDERED.14 In granting the motions for reconsideration of Insular and Grepalife, the trial court considered the allegations of Insular that Loreto revoked the designation of Eva in one policy and that Insular disqualified her as a beneficiary in the other policy such that the entire proceeds would be paid to the illegitimate children of Loreto with Eva pursuant to Section 53 of the Insurance Code. It ruled that it is only in cases where there are no beneficiaries designated, or when the only designated beneficiary is disqualified, that the proceeds should be paid to the estate of the insured. As to the claim that the proceeds to be paid to Loreto’s illegitimate children should be reduced based on the rules on legitime, the trial court held that the distribution of the insurance proceeds is governed primarily by the Insurance Code, and the provisions of the Civil Code are irrelevant and inapplicable. With respect to the Grepalife policy, the trial court noted that Eva was never designated as a beneficiary, but only Odessa, Karl Brian, and Trisha Angelie; thus, it upheld the dismissal of the case as to the illegitimate children. It further held that the matter of Loreto’s misrepresentation was premature; the appropriate action may be filed only upon denial of the claim of the named beneficiaries for the insurance proceeds by Grepalife. Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for lack of jurisdiction, holding that the decision of the trial court dismissing the complaint for failure to state a cause of action involved a pure question of law. The appellate court also noted that petitioners did not file within the reglementary period a motion for reconsideration of the trial court’s Resolution, dated September 21, 2004, dismissing the complaint as against Odessa, Karl Brian, and Trisha Angelie; thus, the said Resolution had already attained finality. Hence, this petition raising the following issues: a. In determining the merits of a motion to dismiss for failure to state a cause of action, may the Court consider matters which were not alleged in the Complaint, particularly the defenses put up by the defendants in their Answer? b. In granting a motion for reconsideration of a motion to dismiss for failure to state a cause of action, did not the Regional Trial

c. x x x (A)re the members of the legitimate family entitled to the proceeds of the insurance for the concubine?15 In essence, petitioners posit that their petition before the trial court should not have been dismissed for failure to state a cause of action because the finding that Eva was either disqualified as a beneficiary by the insurance companies or that her designation was revoked by Loreto, hypothetically admitted as true, was raised only in the answers and motions for reconsideration of both Insular and Grepalife. They argue that for a motion to dismiss to prosper on that ground, only the allegations in the complaint should be considered. They further contend that, even assuming Insular disqualified Eva as a beneficiary, her share should not have been distributed to her children with Loreto but, instead, awarded to them, being the legitimate heirs of the insured deceased, in accordance with law and jurisprudence. The petition should be denied. The grant of the motion to dismiss was based on the trial court’s finding that the petition failed to state a cause of action, as provided in Rule 16, Section 1(g), of the Rules of Court, which reads – SECTION 1. Grounds. – Within the time for but before filing the answer to the complaint or pleading asserting a claim, a motion to dismiss may be made on any of the following grounds: xxxx (g) That the pleading asserting the claim states no cause of action. A cause of action is the act or omission by which a party violates a right of another.16 A complaint states a cause of action when it contains the three (3) elements of a cause of action—(1) the legal right of the plaintiff; (2) the correlative obligation of the defendant; and (3) the act or omission of the defendant in violation of the legal right. If any of these elements is absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action.17

When a motion to dismiss is premised on this ground, the ruling thereon should be based only on the facts alleged in the complaint. The court must resolve the issue on the strength of such allegations, assuming them to be true. The test of sufficiency of a cause of action rests on whether, hypothetically admitting the facts alleged in the complaint to be true, the court can render a valid judgment upon the same, in accordance with the prayer in the complaint. This is the general rule. However, this rule is subject to well-recognized exceptions, such that there is no hypothetical admission of the veracity of the allegations if:

SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy. Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the maturation of the policy. 20The exception to this rule is a situation where the insurance contract was intended to benefit third persons who are not parties to the same in the form of favorable stipulations or indemnity. In such a case, third parties may directly sue and claim from the insurer.21

1. the falsity of the allegations is subject to judicial notice; 2. such allegations are legally impossible; 3. the allegations refer to facts which are inadmissible in evidence; 4. by the record or document in the pleading, the allegations appear unfounded; or 5. there is evidence which has been presented to the court by stipulation of the parties or in the course of the hearings related to the case.18 In this case, it is clear from the petition filed before the trial court that, although petitioners are the legitimate heirs of Loreto, they were not named as beneficiaries in the insurance policies issued by Insular and Grepalife. The basis of petitioners’ claim is that Eva, being a concubine of Loreto and a suspect in his murder, is disqualified from being designated as beneficiary of the insurance policies, and that Eva’s children with Loreto, being illegitimate children, are entitled to a lesser share of the proceeds of the policies. They also argued that pursuant to Section 12 of the Insurance Code,19 Eva’s share in the proceeds should be forfeited in their favor, the former having brought about the death of Loreto. Thus, they prayed that the share of Eva and portions of the shares of Loreto’s illegitimate children should be awarded to them, being the legitimate heirs of Loreto entitled to their respective legitimes. It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment in light of Article 2011 of the Civil Code which expressly provides that insurance contracts shall be governed by special laws, i.e., the Insurance Code. Section 53 of the Insurance Code states—

Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not entitled to the proceeds thereof. Accordingly, respondents Insular and Grepalife have no legal obligation to turn over the insurance proceeds to petitioners. The revocation of Eva as a beneficiary in one policy and her disqualification as such in another are of no moment considering that the designation of the illegitimate children as beneficiaries in Loreto’s insurance policies remains valid. Because no legal proscription exists in naming as beneficiaries the children of illicit relationships by the insured,22 the shares of Eva in the insurance proceeds, whether forfeited by the court in view of the prohibition on donations under Article 739 of the Civil Code or by the insurers themselves for reasons based on the insurance contracts, must be awarded to the said illegitimate children, the designated beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has not designated any beneficiary, 23 or when the designated beneficiary is disqualified by law to receive the proceeds, 24 that the insurance policy proceeds shall redound to the benefit of the estate of the insured. In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In the same light, the Decision of the CA dated January 8, 2008 should be sustained. Indeed, the appellate court had no jurisdiction to take cognizance of the appeal; the issue of failure to state a cause of action is a question of law and not of fact, there being no findings of fact in the first place.25 WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners. SO ORDERED.

G.R. No. 167622

June 29, 2010

GREGORIO V. TONGKO, Petitioner, vs. THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE DIOS,Respondents. This resolves the Motion for Reconsideration 1 dated December 3, 2008 filed by respondent The Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) to set aside our Decision of November 7, 2008. In the assailed decision, we found that an employer-employee relationship existed between Manulife and petitioner Gregorio Tongko and ordered Manulife to pay Tongko backwages and separation pay for illegal dismissal. The following facts have been stated in our Decision of November 7, 2008, now under reconsideration, but are repeated, simply for purposes of clarity. The contractual relationship between Tongko and Manulife had two basic phases. The first or initial phase began on July 1, 1977, under a Career Agent’s Agreement (Agreement) that provided: It is understood and agreed that the Agent is an independent contractor and nothing contained herein shall be construed or interpreted as creating an employer-employee relationship between the Company and the Agent. xxxx a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and other products offered by the Company, and collect, in exchange for provisional receipts issued by the Agent, money due to or become due to the Company in respect of applications or policies obtained by or through the Agent or from policyholders allotted by the Company to the Agent for servicing, subject to subsequent confirmation of receipt of payment by the Company as evidenced by an Official Receipt issued by the Company directly to the policyholder.

xxxx The Company may terminate this Agreement for any breach or violation of any of the provisions hereof by the Agent by giving written notice to the Agent within fifteen (15) days from the time of the discovery of the breach. No waiver, extinguishment, abandonment, withdrawal or cancellation of the right to terminate this Agreement by the Company shall be construed for any previous failure to exercise its right under any provision of this Agreement. Either of the parties hereto may likewise terminate his Agreement at any time without cause, by giving to the other party fifteen (15) days notice in writing.2 Tongko additionally agreed (1) to comply with all regulations and requirements of Manulife, and (2) to maintain a standard of knowledge and competency in the sale of Manulife’s products, satisfactory to Manulife and sufficient to meet the volume of the new business, required by his Production Club membership.3 The second phase started in 1983 when Tongko was named Unit Manager in Manulife’s Sales Agency Organization. In 1990, he became a Branch Manager. Six years later (or in 1996), Tongko became a Regional Sales Manager.4 Tongko’s gross earnings consisted of commissions, persistency income, and management overrides. Since the beginning, Tongko consistently declared himself self-employed in his income tax returns. Thus, under oath, he declared his gross business income and deducted his business expenses to arrive at his taxable business income. Manulife withheld the corresponding 10% tax on Tongko’s earnings.5 In 2001, Manulife instituted manpower development programs at the regional sales management level. Respondent Renato Vergel de Dios wrote Tongko a letter dated November 6, 2001 on concerns that were brought up during the October 18, 2001 Metro North Sales Managers Meeting. De Dios wrote: The first step to transforming Manulife into a big league player has been very clear – to increase the number of agents to at least 1,000 strong for a start. This may seem diametrically opposed to the way Manulife was run when you first joined the organization. Since then, however, substantial changes have taken place in the organization, as these have been influenced by developments both from within and without the company. xxxx

The issues around agent recruiting are central to the intended objectives hence the need for a Senior Managers’ meeting earlier last month when Kevin O’Connor, SVP-Agency, took to the floor to determine from our senior agency leaders what more could be done to bolster manpower development. At earlier meetings, Kevin had presented information where evidently, your Region was the lowest performer (on a per Manager basis) in terms of recruiting in 2000 and, as of today, continues to remain one of the laggards in this area. While discussions, in general, were positive other than for certain comments from your end which were perceived to be uncalled for, it became clear that a one-on-one meeting with you was necessary to ensure that you and management, were on the same plane. As gleaned from some of your previous comments in prior meetings (both in group and one-onone), it was not clear that we were proceeding in the same direction. Kevin held subsequent series of meetings with you as a result, one of which I joined briefly. In those subsequent meetings you reiterated certain views, the validity of which we challenged and subsequently found as having no basis. With such views coming from you, I was a bit concerned that the rest of the Metro North Managers may be a bit confused as to the directions the company was taking. For this reason, I sought a meeting with everyone in your management team, including you, to clear the air, so to speak. This note is intended to confirm the items that were discussed at the said Metro North Region’s Sales Managers meeting held at the 7/F Conference room last 18 October. xxxx Issue # 2: "Some Managers are unhappy with their earnings and would want to revert to the position of agents." This is an often repeated issue you have raised with me and with Kevin. For this reason, I placed the issue on the table before the rest of your Region’s Sales Managers to verify its validity. As you must have noted, no Sales Manager came forward on their own to confirm your statement and it took you to name Malou Samson as a source of the same, an allegation that Malou herself denied at our meeting and in your very presence. This only confirms, Greg, that those prior comments have no solid basis at all. I now believe what I had thought all along, that these allegations were simply meant to muddle the issues surrounding the inability of your Region to meet its agency development objectives!

Issue # 3: "Sales Managers are doing what the company asks them to do but, in the process, they earn less."

Managers in Metro North. I will hold you solely responsible for meeting the objectives of these remaining groups.

xxxx

xxxx

All the above notwithstanding, we had your own records checked and we found that you made a lot more money in the Year 2000 versus 1999. In addition, you also volunteered the information to Kevin when you said that you probably will make more money in the Year 2001 compared to Year 2000. Obviously, your above statement about making "less money" did not refer to you but the way you argued this point had us almost believing that you were spouting the gospel of truth when you were not. x x x

The above changes can end at this point and they need not go any further. This, however, is entirely dependent upon you. But you have to understand that meeting corporate objectives by everyone is primary and will not be compromised. We are meeting tough challenges next year, and I would want everybody on board. Any resistance or holding back by anyone will be dealt with accordingly.6

xxxx

Subsequently, de Dios wrote Tongko another letter, dated December 18, 2001, terminating Tongko’s services:

All of a sudden, Greg, I have become much more worried about your ability to lead this group towards the new direction that we have been discussing these past few weeks, i.e., Manulife’s goal to become a major agency-led distribution company in the Philippines. While as you claim, you have not stopped anyone from recruiting, I have never heard you proactively push for greater agency recruiting. You have not been proactive all these years when it comes to agency growth.

It would appear, however, that despite the series of meetings communications, both one-on-one meetings between yourself and Kevin O’Connor, some of them with me, as well as group meetings your Sales Managers, all these efforts have failed in helping you align directions with Management’s avowed agency growth policy.

xxxx

On account thereof, Management is exercising its prerogative under Section 14 of your Agents Contract as we are now issuing this notice of termination of your Agency Agreement with us effective fifteen days from the date of this letter.7

I cannot afford to see a major region fail to deliver on its developmental goals next year and so, we are making the following changes in the interim: 1. You will hire at your expense a competent assistant who can unload you of much of the routine tasks which can be easily delegated. This assistant should be so chosen as to complement your skills and help you in the areas where you feel "may not be your cup of tea." You have stated, if not implied, that your work as Regional Manager may be too taxing for you and for your health. The above could solve this problem. xxxx 2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North Star Branch (NSB) in autonomous fashion. x x x I have decided to make this change so as to reduce your span of control and allow you to concentrate more fully on overseeing the remaining groups under Metro North, your Central Unit and the rest of the Sales

and SVP with your

xxxx

Tongko responded by filing an illegal dismissal complaint with the National Labor Relations Commission (NLRC) Arbitration Branch. He essentially alleged – despite the clear terms of the letter terminating his Agency Agreement – that he was Manulife’s employee before he was illegally dismissed.8 Thus, the threshold issue is the existence of an employment relationship. A finding that none exists renders the question of illegal dismissal moot; a finding that an employment relationship exists, on the other hand, necessarily leads to the need to determine the validity of the termination of the relationship. A. Tongko’s Case for Employment Relationship Tongko asserted that as Unit Manager, he was paid an annual over-rider not exceeding P50,000.00, regardless of production levels attained and exclusive of commissions and bonuses. He also claimed that as Regional Sales Manager, he was given a travel and entertainment allowance of P36,000.00 per year in addition to his overriding commissions; he was tasked with numerous administrative functions and supervisory authority

over Manulife’s employees, aside from merely selling policies and recruiting agents for Manulife; and he recommended and recruited insurance agents subject to vetting and approval by Manulife. He further alleges that he was assigned a definite place in the Manulife offices when he was not in the field – at the 3rd Floor, Manulife Center, 108 Tordesillas corner Gallardo Sts., Salcedo Village, Makati City – for which he never paid any rental. Manulife provided the office equipment he used, including tables, chairs, computers and printers (and even office stationery), and paid for the electricity, water and telephone bills. As Regional Sales Manager, Tongko additionally asserts that he was required to follow at least three codes of conduct.9 B. Manulife’s Case – Agency Relationship with Tongko Manulife argues that Tongko had no fixed wage or salary. Under the Agreement, Tongko was paid commissions of varying amounts, computed based on the premium paid in full and actually received by Manulife on policies obtained through an agent. As sales manager, Tongko was paid overriding sales commission derived from sales made by agents under his unit/structure/branch/region. Manulife also points out that it deducted and withheld a 10% tax from all commissions Tongko received; Tongko even declared himself to be self-employed and consistently paid taxes as such— i.e., he availed of tax deductions such as ordinary and necessary trade, business and professional expenses to which a business is entitled. Manulife asserts that the labor tribunals have no jurisdiction over Tongko’s claim as he was not its employee as characterized in the four-fold test and our ruling in Carungcong v. National Labor Relations Commission.10

insurance company; if evidence exists showing that the company promulgated rules or regulations that effectively controlled or restricted an insurance agent’s choice of methods or the methods themselves in selling insurance, an employer-employee relationship would be present. The determination of the existence of an employer-employee relationship is thus on a case-to-case basis depending on the evidence on record. 2. Manulife had the power of control over Tongko, sufficient to characterize him as an employee, as shown by the following indicators: 2.1 Tongko undertook to comply with Manulife’s rules, regulations and other requirements, i.e., the different codes of conduct such as the Agent Code of Conduct, the Manulife Financial Code of Conduct, and the Financial Code of Conduct Agreement; 2.2 The various affidavits of Manulife’s insurance agents and managers, who occupied similar positions as Tongko, showed that they performed administrative duties that established employment with Manulife;12 and 2.3 Tongko was tasked to recruit some agents in addition to his other administrative functions. De Dios’ letter harped on the direction Manulife intended to take, viz., greater agency recruitment as the primary means to sell more policies; Tongko’s alleged failure to follow this directive led to the termination of his employment with Manulife.

The Conflicting Rulings of the Lower Tribunals The Motion for Reconsideration The labor arbiter decreed that no employer-employee relationship existed between the parties. However, the NLRC reversed the labor arbiter’s decision on appeal; it found the existence of an employer-employee relationship and concluded that Tongko had been illegally dismissed. In the petition for certiorari with the Court of Appeals (CA), the appellate court found that the NLRC gravely abused its discretion in its ruling and reverted to the labor arbiter’s decision that no employer-employee relationship existed between Tongko and Manulife.

Manulife disagreed with our Decision and filed the present motion for reconsideration on the following GROUNDS:

In our Decision of November 7, 2008, we reversed the CA ruling and found that an employment relationship existed between Tongko and Manulife. We concluded that Tongko is Manulife’s employee for the following reasons:

1. The November 7[, 2008] Decision violates Manulife’s right to due process by: (a) confining the review only to the issue of "control" and utterly disregarding all the other issues that had been joined in this case; (b) mischaracterizing the divergence of conclusions between the CA and the NLRC decisions as confined only to that on "control"; (c) grossly failing to consider the findings and conclusions of the CA on the majority of the material evidence, especially [Tongko’s] declaration in his income tax returns that he was a "business person" or "self-employed"; and (d) allowing [Tongko] to repudiate his sworn statement in a public document.

1. Our ruling in the first Insular11 case did not foreclose the possibility of an insurance agent becoming an employee of an

2. The November 7[, 2008] Decision contravenes settled rules in contract law and agency, distorts not only the legal relationships of

Our Decision of November 7, 2008

agencies to sell but also distributorship and franchising, and ignores the constitutional and policy context of contract law vis-àvis labor law.

the present case and to add to the uncertainties that now exist in considering the legal relationship between the insurance company and its "agents."

3. The November 7[, 2008] Decision ignores the findings of the CA on the three elements of the four-fold test other than the "control" test, reverses well-settled doctrines of law on employer-employee relationships, and grossly misapplies the "control test," by selecting, without basis, a few items of evidence to the exclusion of more material evidence to support its conclusion that there is "control."

The main issue of whether an agency or an employment relationship exists depends on the incidents of the relationship. The Labor Code concept of "control" has to be compared and distinguished with the "control" that must necessarily exist in a principal-agent relationship. The principal cannot but also have his or her say in directing the course of the principalagent relationship, especially in cases where the company-representative relationship in the insurance industry is an agency.

4. The November 7[, 2008] Decision is judicial legislation, beyond the scope authorized by Articles 8 and 9 of the Civil Code, beyond the powers granted to this Court under Article VIII, Section 1 of the Constitution and contravenes through judicial legislation, the constitutional prohibition against impairment of contracts under Article III, Section 10 of the Constitution.

a. The laws on insurance and agency

5. For all the above reasons, the November 7[, 2008] Decision made unsustainable and reversible errors, which should be corrected, in concluding that Respondent Manulife and Petitioner had an employer-employee relationship, that Respondent Manulife illegally dismissed Petitioner, and for consequently ordering Respondent Manulife to pay Petitioner backwages, separation pay, nominal damages and attorney’s fees.13 THE COURT’S RULING A. The Insurance and the Civil Codes; the Parties’ Intent and Established Industry Practices We cannot consider the present case purely from a labor law perspective, oblivious that the factual antecedents were set in the insurance industry so that the Insurance Code primarily governs. Chapter IV, Title 1 of this Code is wholly devoted to "Insurance Agents and Brokers" and specifically defines the agents and brokers relationship with the insurance company and how they are governed by the Code and regulated by the Insurance Commission. The Insurance Code, of course, does not wholly regulate the "agency" that it speaks of, as agency is a civil law matter governed by the Civil Code. Thus, at the very least, three sets of laws – namely, the Insurance Code, the Labor Code and the Civil Code – have to be considered in looking at the present case. Not to be forgotten, too, is the Agreement (partly reproduced on page 2 of this Dissent and which no one disputes) that the parties adopted to govern their relationship for purposes of selling the insurance the company offers. To forget these other laws is to take a myopic view of

The business of insurance is a highly regulated commercial activity in the country, in terms particularly of who can be in the insurance business, who can act for and in behalf of an insurer, and how these parties shall conduct themselves in the insurance business. Section 186 of the Insurance Code provides that "No person, partnership, or association of persons shall transact any insurance business in the Philippines except as agent of a person or corporation authorized to do the business of insurance in the Philippines." Sections 299 and 300 of the Insurance Code on Insurance Agents and Brokers, among other provisions, provide: Section 299. No insurance company doing business in the Philippines, nor any agent thereof, shall pay any commission or other compensation to any person for services in obtaining insurance, unless such person shall have first procured from the Commissioner a license to act as an insurance agent of such company or as an insurance broker as hereinafter provided. 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 x x x The Commissioner shall satisfy himself as to the competence and trustworthiness of the applicant and shall have the right to refuse to issue or renew and to suspend or revoke any such license in his discretion.1avvphi1.net Section 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiating of such insurance shall be an insurance agent within the intent of this section and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance agent is subject.

The application for an insurance agent’s license requires a written examination, and the applicant must be of good moral character and must not have been convicted of a crime involving moral turpitude. 14 The insurance agent who collects premiums from an insured person for remittance to the insurance company does so in a fiduciary capacity, and an insurance company which delivers an insurance policy or contract to an authorized agent is deemed to have authorized the agent to receive payment on the company’s behalf.15 Section 361 further prohibits the offer, negotiation, or collection of any amount other than that specified in the policy and this covers any rebate from the premium or any special favor or advantage in the dividends or benefit accruing from the policy. Thus, under the Insurance Code, the agent must, as a matter of qualification, be licensed and must also act within the parameters of the authority granted under the license and under the contract with the principal. Other than the need for a license, the agent is limited in the way he offers and negotiates for the sale of the company’s insurance products, in his collection activities, and in the delivery of the insurance contract or policy. Rules regarding the desired results (e.g., the required volume to continue to qualify as a company agent, rules to check on the parameters on the authority given to the agent, and rules to ensure that industry, legal and ethical rules are followed) are built-in elements of control specific to an insurance agency and should not and cannot be read as elements of control that attend an employment relationship governed by the Labor Code. On the other hand, the Civil Code defines an agent as a "person [who] binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter." 16 While this is a very broad definition that on its face may even encompass an employment relationship, the distinctions between agency and employment are sufficiently established by law and jurisprudence. Generally, the determinative element is the control exercised over the one rendering service. The employer controls the employee both in the results and in the means and manner of achieving this result. The principal in an agency relationship, on the other hand, also has the prerogative to exercise control over the agent in undertaking the assigned task based on the parameters outlined in the pertinent laws. Under the general law on agency as applied to insurance, an agency must be express in light of the need for a license and for the designation by the insurance company. In the present case, the Agreement fully serves as grant of authority to Tongko as Manulife’s insurance agent. 17 This agreement is supplemented by the company’s agency practices and usages, duly accepted by the agent in carrying out the agency. 18 By authority of the Insurance Code, an insurance agency is for compensation,19 a matter the Civil Code Rules on Agency presumes in the absence of proof to the contrary. 20 Other than the compensation, the principal is bound to advance to, or to reimburse, the agent the agreed

sums necessary for the execution of the agency. 21 By implication at least under Article 1994 of the Civil Code, the principal can appoint two or more agents to carry out the same assigned tasks, 22 based necessarily on the specific instructions and directives given to them. With particular relevance to the present case is the provision that "In the execution of the agency, the agent shall act in accordance with the instructions of the principal."23 This provision is pertinent for purposes of the necessary control that the principal exercises over the agent in undertaking the assigned task, and is an area where the instructions can intrude into the labor law concept of control so that minute consideration of the facts is necessary. A related article is Article 1891 of the Civil Code which binds the agent to render an account of his transactions to the principal. B. The Cited Case The Decision of November 7, 2008 refers to the first Insular and Grepalife cases to establish that the company rules and regulations that an agent has to comply with are indicative of an employer-employee relationship.24 The Dissenting Opinions of Justice Presbitero Velasco, Jr. and Justice Conchita Carpio Morales also cite Insular Life Assurance Co. v. National Labor Relations Commission (second Insular case) 25 to support the view that Tongko is Manulife’s employee. On the other hand, Manulife cites the Carungcong case and AFP Mutual Benefit Association, Inc. v. National Labor Relations Commission (AFPMBAI case) 26 to support its allegation that Tongko was not its employee. A caveat has been given above with respect to the use of the rulings in the cited cases because none of them is on all fours with the present case; the uniqueness of the factual situation of the present case prevents it from being directly and readily cast in the mold of the cited cases. These cited cases are themselves different from one another; this difference underscores the need to read and quote them in the context of their own factual situations. The present case at first glance appears aligned with the facts in the Carungcong, the Grepalife, and the second Insular Life cases. A critical difference, however, exists as these cited cases dealt with the proper legal characterization of a subsequent management contract that superseded the original agency contract between the insurance company and its agent. Carungcong dealt with a subsequent Agreement making Carungcong a New Business Manager that clearly superseded the Agreement designating Carungcong as an agent empowered to solicit applications for insurance. The Grepalife case, on the other hand, dealt with the proper legal characterization of the appointment of the Ruiz brothers to positions higher than their original position as insurance agents. Thus, after analyzing the duties and functions of the Ruiz brothers, as these were enumerated in their contracts, we concluded that the

company practically dictated the manner by which the Ruiz brothers were to carry out their jobs. Finally, the second Insular Life case dealt with the implications of de los Reyes’ appointment as acting unit manager which, like the subsequent contracts in the Carungcong and the Grepalife cases, was clearly defined under a subsequent contract. In all these cited cases, a determination of the presence of the Labor Code element of control was made on the basis of the stipulations of the subsequent contracts. In stark contrast with the Carungcong, the Grepalife, and the second Insular Life cases, the only contract or document extant and submitted as evidence in the present case is the Agreement – a pure agency agreement in the Civil Code context similar to the original contract in the first Insular Life case and the contract in the AFPMBAI case. And while Tongko was later on designated unit manager in 1983, Branch Manager in 1990, and Regional Sales Manager in 1996, no formal contract regarding these undertakings appears in the records of the case. Any such contract or agreement, had there been any, could have at the very least provided the bases for properly ascertaining the juridical relationship established between the parties. These critical differences, particularly between the present case and the Grepalife and the second Insular Life cases, should therefore immediately drive us to be more prudent and cautious in applying the rulings in these cases. C. Analysis of the Evidence c.1. The Agreement The primary evidence in the present case is the July 1, 1977 Agreement that governed and defined the parties’ relations until the Agreement’s termination in 2001. This Agreement stood for more than two decades and, based on the records of the case, was never modified or novated. It assumes primacy because it directly dealt with the nature of the parties’ relationship up to the very end; moreover, both parties never disputed its authenticity or the accuracy of its terms.

By the Agreement’s express terms, Tongko served as an "insurance agent" for Manulife, not as an employee. To be sure, the Agreement’s legal characterization of the nature of the relationship cannot be conclusive and binding on the courts; as the dissent clearly stated, the characterization of the juridical relationship the Agreement embodied is a matter of law that is for the courts to determine. At the same time, though, the characterization the parties gave to their relationship in the Agreement cannot simply be brushed aside because it embodies their intent at the time they entered the Agreement, and they were governed by this understanding throughout their relationship. At the very least, the provision on the absence of employer-employee relationship between the parties can be an aid in considering the Agreement and its implementation, and in appreciating the other evidence on record. The parties’ legal characterization of their intent, although not conclusive, is critical in this case because this intent is not illegal or outside the contemplation of law, particularly of the Insurance and the Civil Codes. From this perspective, the provisions of the Insurance Code cannot be disregarded as this Code (as heretofore already noted) expressly envisions a principal-agent relationship between the insurance company and the insurance agent in the sale of insurance to the public.1awph!1 For this reason, we can take judicial notice that as a matter of Insurance Codebased business practice, an agency relationship prevails in the insurance industry for the purpose of selling insurance. The Agreement, by its express terms, is in accordance with the Insurance Code model when it provided for a principal-agent relationship, and thus cannot lightly be set aside nor simply be considered as an agreement that does not reflect the parties’ true intent. This intent, incidentally, is reinforced by the system of compensation the Agreement provides, which likewise is in accordance with the production-based sales commissions the Insurance Code provides. Significantly, evidence shows that Tongko’s role as an insurance agent never changed during his relationship with Manulife. If changes occurred at all, the changes did not appear to be in the nature of their core relationship. Tongko essentially remained an agent, but moved up in this role through Manulife’s recognition that he could use other agents approved by Manulife, but operating under his guidance and in whose commissions he had a share. For want of a better term, Tongko perhaps could be labeled as a "lead agent" who guided under his wing other Manulife agents similarly tasked with the selling of Manulife insurance. Like Tongko, the evidence suggests that these other agents operated under their own agency agreements. Thus, if Tongko’s compensation scheme changed at all during his relationship with Manulife, the change was solely for purposes of crediting him with his share in the commissions the agents under his wing generated. As an agent who was recruiting and guiding other insurance agents, Tongko likewise moved up in terms of the reimbursement of expenses he incurred in the course of his lead agency, a prerogative he enjoyed pursuant to Article 1912 of the Civil Code. Thus, Tongko received greater reimbursements for his expenses and was even

allowed to use Manulife facilities in his interactions with the agents, all of whom were, in the strict sense, Manulife agents approved and certified as such by Manulife with the Insurance Commission.

exists on this point in the records of the case. In fact, what the evidence shows is Tongko’s full conformity with, and action as, an independent agent until his relationship with Manulife took a bad turn.

That Tongko assumed a leadership role but nevertheless wholly remained an agent is the inevitable conclusion that results from the reading of the Agreement (the only agreement on record in this case) and his continuing role thereunder as sales agent, from the perspective of the Insurance and the Civil Codes and in light of what Tongko himself attested to as his role as Regional Sales Manager. To be sure, this interpretation could have been contradicted if other agreements had been submitted as evidence of the relationship between Manulife and Tongko on the latter’s expanded undertakings. In the absence of any such evidence, however, this reading – based on the available evidence and the applicable insurance and civil law provisions – must stand, subject only to objective and evidentiary Labor Code tests on the existence of an employer-employee relationship.

Another interesting point the dissent raised with respect to the Agreement is its conclusion that the Agreement negated any employment relationship between Tongko and Manulife so that the commissions he earned as a sales agent should not be considered in the determination of the backwages and separation pay that should be given to him. This part of the dissent is correct although it went on to twist this conclusion by asserting that Tongko had dual roles in his relationship with Manulife; he was an agent, not an employee, in so far as he sold insurance for Manulife, but was an employee in his capacity as a manager. Thus, the dissent concluded that Tongko’s backwages should only be with respect to his role as Manulife’s manager.

In applying such Labor Code tests, however, the enforcement of the Agreement during the course of the parties’ relationship should be noted. From 1977 until the termination of the Agreement, Tongko’s occupation was to sell Manulife’s insurance policies and products. Both parties acquiesced with the terms and conditions of the Agreement. Tongko, for his part, accepted all the benefits flowing from the Agreement, particularly the generous commissions. Evidence indicates that Tongko consistently clung to the view that he was an independent agent selling Manulife insurance products since he invariably declared himself a business or self-employed person in his income tax returns. This consistency with, and action made pursuant to the Agreement were pieces of evidence that were never mentioned nor considered in our Decision of November 7, 2008. Had they been considered, they could, at the very least, serve as Tongko’s admissions against his interest. Strictly speaking, Tongko’s tax returns cannot but be legally significant because he certified under oath the amount he earned as gross business income, claimed business deductions, leading to his net taxable income. This should be evidence of the first order that cannot be brushed aside by a mere denial. Even on a layman’s view that is devoid of legal considerations, the extent of his annual income alone renders his claimed employment status doubtful. 27 Hand in hand with the concept of admission against interest in considering the tax returns, the concept of estoppel – a legal and equitable concept 28 – necessarily must come into play. Tongko’s previous admissions in several years of tax returns as an independent agent, as against his belated claim that he was all along an employee, are too diametrically opposed to be simply dismissed or ignored. Interestingly, Justice Velasco’s dissenting opinion states that Tongko was forced to declare himself a business or selfemployed person by Manulife’s persistent refusal to recognize him as its employee.29 Regrettably, the dissent has shown no basis for this conclusion, an understandable omission since no evidence in fact

The conclusion with respect to Tongko’s employment as a manager is, of course, unacceptable for the legal, factual and practical reasons discussed in this Resolution. In brief, the factual reason is grounded on the lack of evidentiary support of the conclusion that Manulife exercised control over Tongko in the sense understood in the Labor Code. The legal reason, partly based on the lack of factual basis, is the erroneous legal conclusion that Manulife controlled Tongko and was thus its employee. The practical reason, on the other hand, is the havoc that the dissent’s unwarranted conclusion would cause the insurance industry that, by the law’s own design, operated along the lines of principal-agent relationship in the sale of insurance. c.2. Other Evidence of Alleged Control A glaring evidentiary gap for Tongko in this case is the lack of evidence on record showing that Manulife ever exercised means-and-manner control, even to a limited extent, over Tongko during his ascent in Manulife’s sales ladder. In 1983, Tongko was appointed unit manager. Inexplicably, Tongko never bothered to present any evidence at all on what this designation meant. This also holds true for Tongko’s appointment as branch manager in 1990, and as Regional Sales Manager in 1996. The best evidence of control – the agreement or directive relating to Tongko’s duties and responsibilities – was never introduced as part of the records of the case. The reality is, prior to de Dios’ letter, Manulife had practically left Tongko alone not only in doing the business of selling insurance, but also in guiding the agents under his wing. As discussed below, the alleged directives covered by de Dios’ letter, heretofore quoted in full, were policy directions and targeted results that the company wanted Tongko and the other sales groups to realign with in their own selling activities. This is the reality that the parties’ presented evidence consistently tells us. What, to Tongko, serve as evidence of labor law control are the codes of conduct that Manulife imposes on its agents in the sale of insurance. The

mere presentation of codes or of rules and regulations, however, is not per se indicative of labor law control as the law and jurisprudence teach us. As already recited above, the Insurance Code imposes obligations on both the insurance company and its agents in the performance of their respective obligations under the Code, particularly on licenses and their renewals, on the representations to be made to potential customers, the collection of premiums, on the delivery of insurance policies, on the matter of compensation, and on measures to ensure ethical business practice in the industry. The general law on agency, on the other hand, expressly allows the principal an element of control over the agent in a manner consistent with an agency relationship. In this sense, these control measures cannot be read as indicative of labor law control. Foremost among these are the directives that the principal may impose on the agent to achieve the assigned tasks, to the extent that they do not involve the means and manner of undertaking these tasks. The law likewise obligates the agent to render an account; in this sense, the principal may impose on the agent specific instructions on how an account shall be made, particularly on the matter of expenses and reimbursements. To these extents, control can be imposed through rules and regulations without intruding into the labor law concept of control for purposes of employment. From jurisprudence, an important lesson that the first Insular Life case teaches us is that a commitment to abide by the rules and regulations of an insurance company does not ipso facto make the insurance agent an employee. Neither do guidelines somehow restrictive of the insurance agent’s conduct necessarily indicate "control" as this term is defined in jurisprudence. Guidelines indicative of labor law "control," as the first Insular Life case tells us, should not merely relate to the mutually desirable result intended by the contractual relationship; they must have the nature of dictating the means or methods to be employed in attaining the result, or of fixing the methodology and of binding or restricting the party hired to the use of these means. In fact, results-wise, the principal can impose production quotas and can determine how many agents, with specific territories, ought to be employed to achieve the company’s objectives. These are management policy decisions that the labor law element of control cannot reach. Our ruling in these respects in the first Insular Life case was practically reiterated in Carungcong. Thus, as will be shown more fully below, Manulife’s codes of conduct, 30 all of which do not intrude into the insurance agents’ means and manner of conducting their sales and only control them as to the desired results and Insurance Code norms, cannot be used as basis for a finding that the labor law concept of control existed between Manulife and Tongko. The dissent considers the imposition of administrative and managerial functions on Tongko as indicative of labor law control; thus, Tongko as manager, but not as insurance agent, became Manulife’s employee. It

drew this conclusion from what the other Manulife managers disclosed in their affidavits (i.e., their enumerated administrative and managerial functions) and after comparing these statements with the managers in Grepalife. The dissent compared the control exercised by Manulife over its managers in the present case with the control the managers in the Grepalife case exercised over their employees by presenting the following matrix:31

Duties of Manulife’s Duties of Grepalife’s Managers/Supervisors Manager to render or - train understudies for the position of recommend district manager prospective agents to be licensed, trained and contracted to sell Manulife products and who will be part of my Unit

Manulife’s authority over Tongko and the performance of his end of the relationship with Manulife. We could not deny though that Tongko remained, first and foremost, an insurance agent, and that his additional role as Branch Manager did not lessen his main and dominant role as insurance agent; this role continued to dominate the relations between Tongko and Manulife even after Tongko assumed his leadership role among agents. This conclusion cannot be denied because it proceeds from the undisputed fact that Tongko and Manulife never altered their July 1, 1977 Agreement, a distinction the present case has with the contractual changes made in the second Insular Life case. Tongko’s results-based commissions, too, attest to the primacy he gave to his role as insurance sales agent. The dissent apparently did not also properly analyze and appreciate the great qualitative difference that exists between:

to coordinate activities of the agents under [the managers’] Unit in [the agents’] daily, weekly and monthly selling activities, making sure that their respective sales targets are met;

- properly account, record and document the company’s funds, spot-check and audit the work of the zone supervisors, x x x follow up the submission of weekly remittance reports of the debit agents and zone supervisors

- direct and supervise the sales activities of the debit agents under him, x x x undertake and discharge the functions of absentee debit agents, spot-check the - to conduct periodic record of debit agents, and insure proper training sessions for documentation of sales and collections of [the] agents to debit agents. further enhance their sales skill; and to assist [the] agents with their sales activities by way of joint fieldwork, consultations and one-on-one evaluation and analysis of particular accounts Aside from these affidavits however, no other evidence exists regarding the effects of Tongko’s additional roles in Manulife’s sales operations on the contractual relationship between them. To the dissent, Tongko’s administrative functions as recruiter, trainer, or supervisor of other sales agents constituted a substantive alteration of



the Manulife managers’ role is to coordinate activities of the agents under the managers’ Unit in the agents’ daily, weekly, and monthly selling activities, making sure that their respective sales targets are met.



the District Manager’s duty in Grepalife is to properly account, record, and document the company's funds, spot-check and audit the work of the zone supervisors, conserve the company's business in the district through "reinstatements," follow up the submission of weekly remittance reports of the debit agents and zone supervisors, preserve company property in good condition, train understudies for the position of district managers, and maintain his quota of sales (the failure of which is a ground for termination).



the Zone Supervisor’s (also in Grepalife) has the duty to direct and supervise the sales activities of the debit agents under him, conserve company property through "reinstatements," undertake and discharge the functions of absentee debit agents, spot-check the records of debit agents, and insure proper documentation of sales and collections by the debit agents.

These job contents are worlds apart in terms of "control." In Grepalife, the details of how to do the job are specified and pre-determined; in the present case, the operative words are the "sales target," the methodology being left undefined except to the extent of being "coordinative." To be sure, a "coordinative" standard for a manager cannot be indicative of control; the standard only essentially describes what a Branch Manager is – the person in the lead who orchestrates activities within the group. To "coordinate," and thereby to lead and to orchestrate, is not so much a matter of control by Manulife; it is simply a statement of a branch manager’s role in relation with his agents from the point of view of Manulife whose business Tongko’s sales group carries.

A disturbing note, with respect to the presented affidavits and Tongko’s alleged administrative functions, is the selective citation of the portions supportive of an employment relationship and the consequent omission of portions leading to the contrary conclusion. For example, the following portions of the affidavit of Regional Sales Manager John Chua, with counterparts in the other affidavits, were not brought out in the Decision of November 7, 2008, while the other portions suggesting labor law control were highlighted. Specifically, the following portions of the affidavits were not brought out:32 1.a. I have no fixed wages or salary since my services are compensated by way of commissions based on the computed premiums paid in full on the policies obtained thereat; 1.b. I have no fixed working hours and employ my own method in soliticing insurance at a time and place I see fit; 1.c. I have my own assistant and messenger who handle my daily work load; 1.d. I use my own facilities, tools, materials and supplies in carrying out my business of selling insurance; xxxx 6. I have my own staff that handles the day to day operations of my office; 7. My staff are my own employees and received salaries from me; xxxx 9. My commission and incentives are all reported to the Bureau of Internal Revenue (BIR) as income by a self-employed individual or professional with a ten (10) percent creditable withholding tax. I also remit monthly for professionals. These statements, read with the above comparative analysis of the Manulife and the Grepalife cases, would have readily yielded the conclusion that no employer-employee relationship existed between Manulife and Tongko. Even de Dios’ letter is not determinative of control as it indicates the least amount of intrusion into Tongko’s exercise of his role as manager in guiding the sales agents. Strictly viewed, de Dios’ directives are merely operational guidelines on how Tongko could align his operations with Manulife’s redirected goal of being a "big league player." The method is to expand

coverage through the use of more agents. This requirement for the recruitment of more agents is not a means-and-method control as it relates, more than anything else, and is directly relevant, to Manulife’s objective of expanded business operations through the use of a bigger sales force whose members are all on a principal-agent relationship. An important point to note here is that Tongko was not supervising regular fulltime employees of Manulife engaged in the running of the insurance business; Tongko was effectively guiding his corps of sales agents, who are bound to Manulife through the same Agreement that he had with Manulife, all the while sharing in these agents’ commissions through his overrides. This is the lead agent concept mentioned above for want of a more appropriate term, since the title of Branch Manager used by the parties is really a misnomer given that what is involved is not a specific regular branch of the company but a corps of non-employed agents, defined in terms of covered territory, through which the company sells insurance. Still another point to consider is that Tongko was not even setting policies in the way a regular company manager does; company aims and objectives were simply relayed to him with suggestions on how these objectives can be reached through the expansion of a non-employee sales force. Interestingly, a large part of de Dios’ letter focused on income, which Manulife demonstrated, in Tongko’s case, to be unaffected by the new goal and direction the company had set. Income in insurance agency, of course, is dependent on results, not on the means and manner of selling – a matter for Tongko and his agents to determine and an area into which Manulife had not waded. Undeniably, de Dios’ letter contained a directive to secure a competent assistant at Tongko’s own expense. While couched in terms of a directive, it cannot strictly be understood as an intrusion into Tongko’s method of operating and supervising the group of agents within his delineated territory. More than anything else, the "directive" was a signal to Tongko that his results were unsatisfactory, and was a suggestion on how Tongko’s perceived weakness in delivering results could be remedied. It was a solution, with an eye on results, for a consistently underperforming group; its obvious intent was to save Tongko from the result that he then failed to grasp – that he could lose even his own status as an agent, as he in fact eventually did. The present case must be distinguished from the second Insular Life case that showed the hallmarks of an employer-employee relationship in the management system established. These were: exclusivity of service, control of assignments and removal of agents under the private respondent’s unit, and furnishing of company facilities and materials as well as capital described as Unit Development Fund. All these are obviously absent in the present case. If there is a commonality in these cases, it is in the collection of premiums which is a basic authority that can be delegated to agents under the Insurance Code. As previously discussed, what simply happened in Tongko’s case was the grant of an expanded sales agency role that recognized him as leader amongst agents in an area that Manulife defined. Whether this

consequently resulted in the establishment of an employment relationship can be answered by concrete evidence that corresponds to the following questions: 

as lead agent, what were Tongko’s specific functions and the terms of his additional engagement;



was he paid additional compensation as a so-called Area Sales Manager, apart from the commissions he received from the insurance sales he generated;



what can be Manulife’s basis to terminate his status as lead agent;



can Manulife terminate his role as lead agent separately from his agency contract; and



to what extent does Manulife control the means and methods of Tongko’s role as lead agent?

The answers to these questions may, to some extent, be deduced from the evidence at hand, as partly discussed above. But strictly speaking, the questions cannot definitively and concretely be answered through the evidence on record. The concrete evidence required to settle these questions is simply not there, since only the Agreement and the anecdotal affidavits have been marked and submitted as evidence. Given this anemic state of the evidence, particularly on the requisite confluence of the factors determinative of the existence of employeremployee relationship, the Court cannot conclusively find that the relationship exists in the present case, even if such relationship only refers to Tongko’s additional functions. While a rough deduction can be made, the answer will not be fully supported by the substantial evidence needed. Under this legal situation, the only conclusion that can be made is that the absence of evidence showing Manulife’s control over Tongko’s contractual duties points to the absence of any employer-employee relationship between Tongko and Manulife. In the context of the established evidence, Tongko remained an agent all along; although his subsequent duties made him a lead agent with leadership role, he was nevertheless only an agent whose basic contract yields no evidence of means-and-manner control. This conclusion renders unnecessary any further discussion of the question of whether an agent may simultaneously assume conflicting dual personalities. But to set the record straight, the concept of a single person having the dual role of agent and employee while doing the same task is a novel one in our jurisprudence, which must be viewed with caution especially when it is devoid of any jurisprudential support or precedent.

The quoted portions in Justice Carpio-Morales’ dissent, 33 borrowed from both the Grepalife and the second Insular Life cases, to support the duality approach of the Decision of November 7, 2008, are regrettably far removed from their context – i.e., the cases’ factual situations, the issues they decided and the totality of the rulings in these cases – and cannot yield the conclusions that the dissenting opinions drew. The Grepalife case dealt with the sole issue of whether the Ruiz brothers’ appointment as zone supervisor and district manager made them employees of Grepalife. Indeed, because of the presence of the element of control in their contract of engagements, they were considered Grepalife’s employees. This did not mean, however, that they were simultaneously considered agents as well as employees of Grepalife; the Court’s ruling never implied that this situation existed insofar as the Ruiz brothers were concerned. The Court’s statement – the Insurance Code may govern the licensing requirements and other particular duties of insurance agents, but it does not bar the application of the Labor Code with regard to labor standards and labor relations – simply means that when an insurance company has exercised control over its agents so as to make them their employees, the relationship between the parties, which was otherwise one for agency governed by the Civil Code and the Insurance Code, will now be governed by the Labor Code. The reason for this is simple – the contract of agency has been transformed into an employer-employee relationship. The second Insular Life case, on the other hand, involved the issue of whether the labor bodies have jurisdiction over an illegal termination dispute involving parties who had two contracts – first, an original contract (agency contract), which was undoubtedly one for agency, and another subsequent contract that in turn designated the agent acting unit manager (a management contract). Both the Insular Life and the labor arbiter were one in the position that both were agency contracts. The Court disagreed with this conclusion and held that insofar as the management contract is concerned, the labor arbiter has jurisdiction. It is in this light that we remanded the case to the labor arbiter for further proceedings. We never said in this case though that the insurance agent had effectively assumed dual personalities for the simple reason that the agency contract has been effectively superseded by the management contract. The management contract provided that if the appointment was terminated for any reason other than for cause, the acting unit manager would be reverted to agent status and assigned to any unit. The dissent pointed out, as an argument to support its employment relationship conclusion, that any doubt in the existence of an employeremployee relationship should be resolved in favor of the existence of the relationship.34This observation, apparently drawn from Article 4 of the Labor Code, is misplaced, as Article 4 applies only when a doubt exists in the "implementation and application" of the Labor Code and its implementing rules; it does not apply where no doubt exists as in a situation where the claimant clearly failed to substantiate his claim of

employment relationship by the quantum of evidence the Labor Code requires. On the dissent’s last point regarding the lack of jurisprudential value of our November 7, 2008 Decision, suffice it to state that, as discussed above, the Decision was not supported by the evidence adduced and was not in accordance with controlling jurisprudence. It should, therefore, be reconsidered and abandoned, but not in the manner the dissent suggests as the dissenting opinions are as factually and as legally erroneous as the Decision under reconsideration. In light of these conclusions, the sufficiency of Tongko’s failure to comply with the guidelines of de Dios’ letter, as a ground for termination of

Tongko’s agency, is a matter that the labor tribunals cannot rule upon in the absence of an employer-employee relationship. Jurisdiction over the matter belongs to the courts applying the laws of insurance, agency and contracts. WHEREFORE, considering the foregoing discussion, we REVERSE our Decision of November 7, 2008, GRANT Manulife’s motion for reconsideration and, accordingly, DISMISS Tongko’s petition. No costs. SO ORDERED.