I.

GENERAL PROVISIONS
A. Origin/ history of insurance; insurance laws adopted by the
Philippines
B. Organizational structure/ powers/ jurisdiction of the Insurance
Commission (Secs. 437-439)
CHAPTER X
THE INSURANCE COMMISSIONER
TITLE l
ADMINISTRATIVE AND ADJUDICATORY POWERS

SEC. 437. The Insurance Commissioner shall be appointed by the President of the Republic of the
Philippines for a term of six (6) years without reappointment and who shall serve as such until the
successor shall have been appointed and qualified. If the Insurance Commissioner is removed before the
expiration of his term of office, the reason for the removal must be published.
The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance
companies and other insurance matters, mutual benefit associations, and trusts for charitable uses are
faithfully executed and to perform the duties imposed upon him by this Code, and shall, notwithstanding
any existing laws to the contrary, have sole and exclusive authority to regulate the issuance and sale of
variable contracts as defined in Section 238 hereof and to provide for the licensing of persons selling such
contracts, and to issue such reasonable rules and regulations governing the same.
The Commissioner may issue such rulings, instructions, circulars, orders and decisions as may be
deemed necessary to secure the enforcement of the provisions of this Code, to ensure the efficient
regulation of the insurance industry in accordance with global best practices and to protect the insuring
public. Except as otherwise specified, decisions made by the Commissioner shall be appealable to the
Secretary of Finance.
In addition to the foregoing, the Commissioner shall have the following powers and functions:
(a) Formulate policies and recommendations on issues concerning the insurance industry, advise
Congress and other government agencies on all aspects of the insurance industry and propose legislation
and amendments thereto;
(b) Approve, reject, suspend or revoke licenses or certificates of registration provided for by this Code;
(c) Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant
thereto;
(d) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide
guidance on and supervise compliance with such rules, regulations and orders;
(e) Enlist the aid and support of, and/or deputize any and all enforcement agencies of the government in
the implementation of its powers and functions under this Code;

(f) Issue cease and desist orders to prevent fraud or injury to the insuring public;
(g) Punish for contempt of the Commissioner, both direct and indirect, in accordance with the pertinent
provisions of and penalties prescribed by the Rules of Court;
(h) Compel the officers of any registered insurance corporation or association to call meetings of
stockholders or members thereof under its supervision;
(i) Issue subpoena duces tecum and summon witnesses to appear in any proceeding of the Commission
and, in appropriate cases, order the examination, search and seizure of all documents, papers, files and
records, tax returns, and books of accounts of any entity or person under investigation as may be
necessary for the proper disposition of the cases before it, subject to the provisions of existing laws;
(j) Suspend or revoke, after proper notice and hearing, the license or certificate of authority of any entity
or person under its regulation, upon any of the grounds provided by law;
(k) Conduct an examination to determine compliance with laws and regulations if the circumstances so
warrant as determined by appropriate rules and regulations;
(l) Investigate not oftener than once a year from the last date of examination to determine whether an
institution is conducting its business on a safe and sound basis: Provided, That, the
deficiencies/irregularities found by or discovered by an audit shall be immediately addressed;
(m) Inquire into the solvency and liquidity of the institutions under its supervision and enforce prompt
corrective action;
(n) To retain and utilize, in addition to its annual budget, all fees, charges and other income derived from
the regulation of insurance companies and other supervised persons or entities;
(o) To fix and assess fees, charges and penalties as the Commissioner may find reasonable in the
exercise of regulation; and
(p) Exercise such other powers as may be provided by law as well as those which may be implied from,
or which are necessary or incidental to the express powers granted the Commission to achieve the
objectives and purposes of this Code.
The Commission shall indemnify the Commissioner, Deputy Commissioner, and other officials of the
Commission, including personnel performing supervision and examination functions, for all costs and
expenses reasonably incurred by such persons in connection with any civil or criminal actions, suits or
proceedings to which they may be made a party to by the reason of the performance of their duties and
functions, unless they are finally adjudged in such actions, suits or proceedings to be liable for negligence
or misconduct.
In the event of settlement or compromise, indemnification shall be provided only in connection with such
matters covered by the settlement as to which the Commission is advised by external counsel that the
persons to be indemnified did not commit any negligence or misconduct:

The costs and expenses incurred in defending the aforementioned action, suit or proceeding may be
paid by the Commission in advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the Commissioner, Deputy Commissioner, officer or employee to
repay the amount advanced should it ultimately be determined by the Commission that the person is not
entitled to be indemnified.
SEC. 438. 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 or irregularities, and/or conducting business in an unsafe or unsound manner as may be
determined by the Insurance Commissioner, the following:
(a) Fines not less than Five thousand pesos (P5,000.00) and not more than Two hundred thousand
pesos (P200,000.00); and
(b) Suspension, or after due hearing, removal of directors and/or officers and/or agents.
SEC. 439. 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 sued under any contract of 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, cost and attorneys fees, being claimed or
sued upon any kind of insurance, bond, reinsurance contract, or membership certificate does not exceed
in any single claim Five million pesos (P5,000,000.00).
The power of the Commissioner does not cover the relationship between the insurance company and its
agents/brokers but is limited to adjudicating claims and complaints filed by the insured against the
insurance company.
The Commissioner may authorize any officer or group of officers under him to conduct investigation,
inquiry and/or hearing and decide claims and he may issue rules governing the conduct of adjudication
and resolution of cases. The Rules of Court shall have suppletory application.
The party filing an action pursuant to the provisions of this section thereby submits his person to the
jurisdiction of the Commissioner. The Commissioner shall acquire jurisdiction over the person of the
impleaded party or parties in accordance with and pursuant to the provisions of the Rules of Court.
The authority to adjudicate granted to the Commissioner under this section shall be concurrent with that
of the civil courts, but the filing of a complaint with the Commissioner shall preclude the civil courts from
taking cognizance of a suit involving the same subject matter.
Any decision, order or ruling rendered by the Commissioner after a hearing shall have the force and
effect of a judgment. Any party may appeal from a final order, ruling or decision of the Commissioner by
filing with the Commissioner within thirty (30) days from receipt of copy of such order, ruling or decision a
notice of appeal to the Court of Appeals in the manner provided for in the Rules of Court for appeals from
the Regional Trial Court to the Court of Appeals.

For the purpose of any proceeding under this section, the Commissioner, or any officer thereof
designated by him is empowered to administer oaths and affirmation, subpoena witnesses, compel their
attendance, take evidence, and require the production of any books, papers, documents, or contracts or
other records which are relevant or material to the inquiry.
A full and complete record shall be kept of all proceedings had before the Commissioner, or the officers
thereof designated by him, and all testimony shall be taken down and transcribed by a stenographer
appointed by the Commissioner.
In order to promote party autonomy in the resolution of cases, the Commissioner shall establish a system
for resolving cases through the use of alternative dispute resolution.

CASES:

Republic vs Del Monte Motors, 504 SCRA 53- duty to hold security deposit

Philamlife vs. Ansaldo, 234 SCRA 509- lack of jurisdiction on issues between
insurance company and its agents
C. DEFINITION OF INSURANCE (Sec. 2)

SEC. 2. Whenever used in this Code, the following terms shall have the respective meanings hereinafter
set forth or indicated, unless the context otherwise requires:
(a) A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event.
A contract of suretyship shall be deemed to be an insurance contract, within the meaning of this Code,
only if made by a surety who or which, as such, is doing an insurance business as hereinafter provided.
(b) The term doing an insurance business or transacting an insurance business, within the meaning of
this Code, shall include:
(1) Making or proposing to make, as insurer, any insurance contract;
(2) 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;
(3) 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;
(4) Doing or proposing to do any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code.
In the application of the provisions of this Code, the fact that no profit is derived from the making of
insurance contracts, agreements or transactions or that no separate or direct consideration is received

therefor, shall not be deemed conclusive to show that the making thereof does not constitute the doing or
transacting of an insurance business.
(c) As used in this Code, the term Commissioner means the Insurance Commissioner.

1. Elements, nature and characteristics- 2012 BAR

DISTINGUISHING ELEMENTS OF AN INSURANCE CONTRACT
1. The insured possesses an insurable interest susceptible of pecuniary estimation;
2. The insured is subject to a risk of loss through the destruction or impairment of
that interest by the happening of designated perils;
3. The insurer assumes that risk of loss;
4. Such assumption is part of a general scheme to distribute actual losses among a
large group or substantial number of persons bearing somewhat similar risks; and
5. The insured makes a ratable contribution (premium) to a general insurance fund.

A contract possessing only the first 3 elements above is a risk-shifting

device. If all the elements, it is a risk-distributing device. (The Insurance
Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance Code of the Philippines
Annotated, Hector de Leon, 2002 ed.)
1. Consensual it is perfected by the meeting of the minds of the parties.

2. Voluntary the parties may incorporate such terms and conditions as they may deem
convenient.
3. Aleatory it depends upon some contingent event.
4. Unilateral imposes legal duties only on the insurer who promises to indemnify in case of
loss.
1
2
7

Conditional It is subject to conditions the principal one of which is the happening of the
event insured against.

Contract of indemnity Except life and accident insurance, a contract of insurance is a contract of
indemnity whereby the insurer promises to make good only the loss of the insured.
Personal each party having in view the character, credit and conduct of the other.

2. Doing an insurance business

CASES:

Philamlife vs. Ansaldo, 234 SCRA 509

CIR VS Phil. American Accident Insurance, 453 SCRA 668
White Gold Marine Services vs. Pioneer Insurance, 446 SCRA 448- 2005 BAR

3. Suretyship, when deemed to be one of insurance (Secs. 177-180)

TITLE 4
SURETYSHIP
SEC. 177. A contract of suretyship is an agreement whereby a party called the surety guarantees the
performance by another party called the principal or obligor of an obligation or undertaking in favor of a
third party called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued
by any company by virtue of and under the provisions of Act No. 536, as amended by Act No. 2206.
SEC. 178. The liability of the surety or sureties shall be joint and several with the obligor and shall be
limited to the amount of the bond. It is determined strictly by the terms of the contract of suretyship in
relation to the principal contract between the obligor and the obligee.
SEC. 179. The surety is entitled to payment of the premium as soon as the contract of suretyship or bond
is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding
unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in
which case the bond becomes valid and enforceable irrespective of whether or not the premium has been
paid by the obligor to the surety: Provided, That if the contract of suretyship or bond is not accepted by, or
filed with the obligee, the surety shall collect only a reasonable amount, not exceeding fifty percent (50%)
of the premium due thereon as service fee plus the cost of stamps or other taxes imposed for the
issuance of the contract or bond:Provided, however, That if the nonacceptance of the bond be due to the
fault or negligence of the surety, no such service fee, stamps or taxes shall be collected.
In the case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls due until
the contract of suretyship is cancelled by the obligee or by the Commissioner or by a court of competent
jurisdiction, as the case may be.
SEC. 180. Pertinent provisions of the Civil Code of the Philippines shall be applied in a suppletory
character whenever necessary in interpreting the provisions of a contract of suretyship.

G.R. No. 156956

October 9, 2006

REPUBLIC OF THE PHILIPPINES, by EDUARDO T. MALINIS, in His Capacity as Insurance

Commissioner,petitioner,
vs.
DEL MONTE MOTORS, INC., respondent.

DECISION

PANGANIBAN, CJ.:
The securities required by the Insurance Code to be deposited with the Insurance Commissioner are intended to
answer for the claims of all policy holders in the event that the depositing insurance company becomes insolvent or
otherwise unable to satisfy their claims. The security deposit must be ratably distributed among all the insured who
are entitled to their respective shares; it cannot be garnished or levied upon by a single claimant, to the detriment of
the others.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse the January 16, 2003
Order2 of the Regional Court (RTC) of Quezon City (Branch 221) in Civil Case No. Q-97-30412. The RTC found
Insurance Commissioner Eduardo T. Malinis guilty of indirect contempt for refusing to comply with the December 18,
2002 Resolution3 of the lower court. The January 16, 2003 Order states in full:
"On January 8, 2003, [respondent] filed a Motion to Cite Commissioner Eduardo T. Malinis of the Office of
the Insurance Commission in Contempt of Court because of his failure and refusal to obey the lawful order
of this court embodied in a Resolution dated December 18, 2002 directing him to allow the withdrawal of the
security deposit of Capital Insurance and Surety Co. (CISCO) in the amount of P11,835,375.50 to be paid to
Sheriff Manuel Paguyo in the satisfaction of the Notice of Garnishment pursuant to a Decision of this Court
which has become final and executory.
"During the hearing of the Motion set last January 10, 2003, Commissioner Malinis or his counsel or his duly
authorized representative failed to appear despite notice in utter disregard of the order of this Court.
However, Commissioner Malinis filed on January 15, 2003 a written Comment reiterating the same grounds
already passed upon and rejected by this Court. This Court finds no lawful justification or excuse for
Commissioner Malinis' refusal to implement the lawful orders of this Court.
"Wherefore, premises considered and after due hearing, Commissioner Eduardo T. Malinis is hereby
declared guilty of Indirect Contempt of Court pursuant to Section 3 [of] Rule 71 of the 1997 Rules of Civil
Procedure for willfully disobeying and refusing to implement and obey a lawful order of this Court."4
The Facts
On January 15, 2002, the RTC rendered a Decision in Civil Case No. Q-97-30412, finding the defendants (Vilfran
Liner, Inc., Hilaria Villegas and Maura Villegas) jointly and severally liable to pay Del Monte Motors,
Inc.,P11,835,375.50 representing the balance of Vilfran Liner's service contracts with respondent. The trial court
further ordered the execution of the Decision against the counterbond posted by Vilfran Liner on June 10, 1997, and
issued by Capital Insurance and Surety Co., Inc. (CISCO).

On April 18, 2002, CISCO opposed the Motion for Execution filed by respondent, claiming that the latter had no
record or document regarding the alleged issuance of the counterbond; thus, the bond was not valid and enforceable.
On June 13, 2002, the RTC granted the Motion for Execution and issued the corresponding Writ. Armed with this
Writ, Sheriff Manuel S. Paguyo proceeded to levy on the properties of CISCO. He also issued a Notice of
Garnishment on several depository banks of the insurance company. Moreover, he served a similar notice on the
Insurance Commission, so as to enforce the Writ on the security deposit filed by CISCO with the Commission in
accordance with Section 203 of the Insurance Code.
On December 18, 2002, after a hearing on all the pending Motions, the RTC ruled that the Notice of Garnishment
served by Sheriff Paguyo on the insurance commission was valid. The trial court added that the letter and spirit of the
law made the security deposit answerable for contractual obligations incurred by CISCO under the insurance
contracts the latter had entered into. The RTC resolved thus:
"Furthermore, the Commissioner of the Office of the Insurance Commission is hereby ordered to comply
with its obligations under the Insurance Code by upholding the integrity and efficacy of bonds validly issued
by duly accredited Bonding and Insurance Companies; and to safeguard the public interest by insuring the
faithful performance to enforce contractual obligations under existing bonds. Accordingly said office is
ordered to withdraw from the security deposit of Capital Insurance & Surety Company, Inc. the amount
ofP11,835.50 to be paid to Sheriff Manuel S. Paguyo in satisfaction of the Notice of Garnishment served on
August 16, 2002."5
On January 8, 2003, respondent moved to cite Insurance Commissioner Eduardo T. Malinis in contempt of court for
his refusal to obey the December 18, 2002 Resolution of the trial court.
Ruling of the Trial Court
The RTC held Insurance Commissioner Malinis in contempt for his refusal to implement its Order. It explained that
the commissioner had no legal justification for his refusal to allow the withdrawal of CISCO's security deposit.
Hence, this Petition.6
Issues
Petitioner raises this sole issue for the Court's consideration:
"Whether or not the security deposit held by the Insurance Commissioner pursuant to Section 203 of the
Insurance Code may be levied or garnished in favor of only one insured."7
The Court's Ruling
The Petition is meritorious.
Preliminary Issue:
Propriety of Review
Before discussing the principal issue, the Court will first dispose of the question of mootness.
Prior to the filing of the instant Petition, Insurance Commissioner Malinis sent the treasurer of the Philippines a letter
dated March 26, 2003, stating that the former had no objection to the release of the security deposit to Del Monte
Motors. Portions of the fund were consequently released to respondent in July, October, and December 2003. Thus,
the issue arises: whether these circumstances render the case moot.
Petitioner, however, contends that the partial releases should not be construed as an abandonment of its stand that
security deposits under Section 203 of the Insurance Code are exempt from levy and garnishment. The Republic
claims that the releases were made pursuant to the commissioner's power of control over the fund, not to the lower

court's Order of garnishment. Petitioner further invokes the jurisdiction of this Court to put to rest the principal issue of
whether security deposits made with the Insurance Commission may be levied and garnished.
The issue is not totally moot. To stress, only a portion of respondent's claim was satisfied, and the Insurance
Commission has required CISCO to replenish the latter's security deposit. Respondent, therefore, may one day
decide to further garnish the security deposit, once replenished. Moreover, after the questioned Order of the lower
court was issued, similar claims on the security deposits of various insurance companies have been made before the
Insurance Commission. To set aside the resolution of the issue will only postpone a task that is certain to crop up in
the future.
Besides, the business of insurance is imbued with public interest. It is subject to regulation by the State, with respect
not only to the relations between the insurer and the insured, but also to the internal affairs of insurance
companies.8 As this case is undeniably endowed with public interest and involves a matter of public policy, this Court
shall not shirk from its duty to educate the bench and the bar by formulating guiding and controlling principles,
precepts, doctrines and rules.9
Principal Issue:
Exemption of Security Deposit from Levy or Garnishment
Section 203 of the Insurance Code provides as follows:
"Sec. 203. Every domestic insurance company shall, to the extent of an amount equal in value to twentyfive per centum of the minimum paid-up capital required under section one hundred eighty-eight, invest its
funds only in securities, satisfactory to the Commissioner, consisting of bonds or other evidences of debt of
the Government of the Philippines or its political subdivisions or instrumentalities, or of government-owned
or controlled corporations and entities, including the Central Bank of the Philippines: Provided, That such
investments shall at all times be maintained free from any lien or encumbrance; and Provided, further, That
such securities shall be deposited with and held by the Commissioner for the faithful performance by the
depositing insurer of all its obligations under its insurance contracts. The provisions of section one
hundred ninety-two shall, so far as practicable, apply to the securities deposited under this section.
"Except as otherwise provided in this Code, no judgment creditor or other claimant shall have the right
to levy upon any of the securities of the insurer held on deposit pursuant to the requirement of the
Commissioner." (Emphasis supplied)
Respondent notes that Section 203 does not provide for an absolute prohibition on the levy and garnishment of the
security deposit. It contends that the law requires the deposit, precisely to ensure faithful performance of all the
obligations of the depositing insurer under the latter's various insurance contracts. Hence, respondent claims that the
security deposit should be answerable for the counterbond issued by CISCO.
The Court is not convinced. As worded, the law expressly and clearly states that the security deposit shall be (1)
answerable for all the obligations of the depositing insurer under its insurance contracts; (2) at all times free from any
liens or encumbrance; and (3) exempt from levy by any claimant.
To be sure, CISCO, though presently under conservatorship, has valid outstanding policies. Its policy holders have a
right under the law to be equally protected by its security deposit. To allow the garnishment of that deposit would
impair the fund by decreasing it to less than the percentage of paid-up capital that the law requires to be maintained.
Further, this move would create, in favor of respondent, a preference of credit over the other policy holders and
beneficiaries.
Our Insurance Code is patterned after that of California.10 Thus, the ruling of the state's Supreme Court on a similar
concept as that of the security deposit is instructive. Engwicht v. Pacific States Life Assurance Co.11 held that the
money required to be deposited by a mutual assessment insurance company with the state treasurer was "a trust
fund to be ratably distributed amongst all the claimants entitled to share in it. Such a distribution cannot be had
except in an action in the nature of a creditors' bill, upon the hearing of which, and with all the parties interested in the
fund before it, the court may make equitable distribution of the fund, and appoint a receiver to carry that distribution
into effect."12

Basic is the statutory construction rule that provisions of a statute should be construed in accordance with the
purpose for which it was enacted.13 That is, the securities are held as a contingency fund to answer for the claims
against the insurance company by all its policy holders and their beneficiaries. This step is taken in the event that the
company becomes insolvent or otherwise unable to satisfy the claims against it. Thus, a single claimant may not lay
stake on the securities to the exclusion of all others. The other parties may have their own claims against the
insurance company under other insurance contracts it has entered into.
Respondent's Inchoate Right
The right to lay claim on the fund is dependent on the solvency of the insurer and is subject to all other obligations of
the company arising from its insurance contracts. Thus, respondent's interest is merely inchoate. Being a mere
expectancy, it has no attribute of property. At this time, it is nonexistent and may never exist.14 Hence, it would be
premature to make the security deposit answerable for CISCO's present obligation to Del Monte Motors.
Moreover, since insolvency proceedings against CISCO have yet to be conducted, it would be impossible to establish
at this time which claimants are entitled to the security deposit and in what pro-rated amounts. Only after all other
claimants under subsisting policies issued by CISCO have been heard can respondent's share be determined.
Powers of the Commissioner
The Insurance Code has vested the Office of the Insurance Commission with
both regulatory and adjudicatoryauthority over insurance matters.15
The general regulatory authority of the insurance commissioner is described in Section 414 of the Code as follows:
"Sec. 414. The Insurance Commissioner shall have the duty to see that all laws relating to insurance,
insurance companies and other insurance matters, mutual benefit associations, and trusts for charitable
uses are faithfully executed and to perform the duties imposed upon him by this Code, and shall,
notwithstanding any existing laws to the contrary, have sole and exclusive authority to regulate the issuance
and sale of variable contracts as defined in section two hundred thirty-two and to provide for the licensing of
persons selling such contracts, and to issue such reasonable rules and regulations governing the same.
"The Commissioner may issue such rulings, instructions, circulars, orders and decisions as he may deem
necessary to secure the enforcement of the provisions of this Code, subject to the approval of the Secretary
of Finance. Except as otherwise specified, decisions made by the Commissioner shall be appealable to the
Secretary of Finance." (Emphasis supplied)
Pursuant to these regulatory powers, the commissioner is authorized to (1) issue (or to refuse to issue) certificates of
authority to persons or entities desiring to engage in insurance business in the Philippines;16 (2) revoke or suspend
these certificates of authority upon finding grounds for the revocation or suspension;17 (3) impose upon insurance
companies, their directors and/or officers and/or agents appropriate penalties -- fines, suspension or removal from
office -- for failing to comply with the Code or with any of the commissioner's orders, instructions, regulations or
rulings, or for otherwise conducting business in an unsafe or unsound manner.18
Included in the above regulatory responsibilities is the duty to hold the security deposits under Sections 19119 and 203
of the Code, for the benefit and security of all policy holders. In relation to these provisions, Section 192 of the
Insurance Code states:
"Sec. 192. The Commissioner shall hold the securities, deposited as aforesaid, for the benefit and security of
all the policyholders of the company depositing the same, but shall as long as the company is solvent,
permit the company to collect the interest or dividends on the securities so deposited, and, from time to
time, with his assent, to withdraw any of such securities, upon depositing with said Commissioner other like
securities, the market value of which shall be equal to the market value of such as may be withdrawn. In the
event of any company ceasing to do business in the Philippines the securities deposited as aforesaid shall
be returned upon the company's making application therefor and proving to the satisfaction of the
Commissioner that it has no further liability under any of its policies in the Philippines." (Emphasis supplied)

Undeniably, the insurance commissioner has been given a wide latitude of discretion to regulate the insurance
industry so as to protect the insuring public. The law specifically confers custody over the securities upon the
commissioner, with whom these investments are required to be deposited. An implied trust20 is created by the law for
the benefit of all claimants under subsisting insurance contracts issued by the insurance company.21
As the officer vested with custody of the security deposit, the insurance commissioner is in the best position to
determine if and when it may be released without prejudicing the rights of other policy holders. Before allowing the
withdrawal or the release of the deposit, the commissioner must be satisfied that the conditions contemplated by the
law are met and all policy holders protected.
Commissioner's Actions
Entitled to Great Respect
In this case, Commissioner Malinis refused to release the security deposit of CISCO. Believing that the funds were
exempt from execution as provided by law, he sought to protect other policy holders. His interpretation of the
provisions of the law carries great weight and consideration,22 as he is the head of a specialized body tasked with the
regulation of insurance matters and primarily charged with the implementation of the Insurance Code.
The emergence of the multifarious needs of modern society necessitates the establishment of diverse administrative
agencies. In addressing these needs, the administrative agencies charged with applying and implementing particular
statutes have accumulated experience and specialized capabilities. Thus, in a long line of cases, this Court has
recognized that their construction of a statute is entitled to great respect and should ordinarily be controlling, unless
clearly shown to be in sharp conflict with the governing statute or the Constitution and other laws.23
Clearly, then, the trial court erred in issuing the Writ of Garnishment against the security deposit of CISCO. It follows
that without the issuance of a valid order, the insurance commissioner could not have been in contempt of court.24
WHEREFORE, the Petition is GRANTED and the assailed Order SET ASIDE. No 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.
Ponce Enrile, Cayetano, Reyes and Manalastas for petitioners.
Oscar Z. Benares for private respondent.

QUIASON, J.:
This is a petition for certiorari and prohibition under Rule 65 of the Revised Rules of Court, with preliminary injunction
or temporary restraining order, to annul and set aside the Order dated November 6, 1986 of the Insurance
Commissioner and the entire proceedings taken in I.C. Special Case No. 1-86.
We grant the petition.
The instant case arose from a letter-complaint of private respondent Ramon M. Paterno, Jr. dated April 17, 1986, to
respondent Commissioner, alleging certain problems encountered by agents, supervisors, managers and public

consumers of the Philippine American Life Insurance Company (Philamlife) as a result of certain practices by said
company.
In a letter dated April 23, 1986, respondent Commissioner requested petitioner Rodrigo de los Reyes, in his capacity
as Philamlife's president, to comment on respondent Paterno's letter.
In a letter dated April 29, 1986 to respondent Commissioner, petitioner De los Reyes suggested that private
respondent "submit some sort of a 'bill of particulars' listing and citing actual cases, facts, dates, figures, provisions of
law, rules and regulations, and all other pertinent data which are necessary to enable him to prepare an intelligent
reply" (Rollo, p. 37). A copy of this letter was sent by the Insurance Commissioner to private respondent for his
comments thereon.
On May 16, 1986, respondent Commissioner received a letter from private respondent maintaining that his lettercomplaint 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 lettercomplaint.
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 letters-complaint and the legal standing of private respondent.

On October 27, respondent Commissioner notified both parties of the hearing of the case on November 5, 1986.
On November 3, Manuel Ortega filed a Motion to Quash Subpoena/Notice on the following grounds;
1. The Subpoena/Notice has no legal basis and is premature because:
(1) No complaint sufficient in form and contents has been filed;
(2) No summons has been issued nor
received by the respondent De los Reyes,
and hence, no jurisdiction has been acquired
over his person;
(3) No answer has been filed, and hence, the
hearing scheduled on November 5, 1986 in
the Subpoena/Notice, and wherein the
respondent is required to appear, is
premature and lacks legal basis.
II. The Insurance Commission has no jurisdiction over;
(1) the subject matter or nature of the action; and
(2) over the parties involved (Rollo, p. 102).
In the Order dated November 6, 1986, respondent Commissioner denied the Motion to Quash. The dispositive portion
of said Order reads:
NOW, THEREFORE, finding the position of complainant thru counsel tenable and considering the
fact that the instant case is an informal administrative litigation falling outside the operation of the
aforecited memorandum circular but cognizable by this Commission, the hearing officer, in open
session ruled as it is hereby ruled to deny the Motion to Quash Subpoena/Notice for lack of merit
(Rollo, p. 109).
Hence, this petition.
II
The main issue to be resolved is whether or not the resolution of the legality of the Contract of Agency falls within the
jurisdiction of the Insurance Commissioner.
Private respondent contends that the Insurance Commissioner has jurisdiction to take cognizance of the complaint in
the exercise of its quasi-judicial powers. The Solicitor General, upholding the jurisdiction of the Insurance
Commissioner, claims that under Sections 414 and 415 of the Insurance Code, the Commissioner has authority to
nullify the alleged illegal provisions of the Contract of Agency.
III
The general regulatory authority of the Insurance Commissioner is described in Section 414 of the Insurance Code,
to wit:

The Insurance Commissioner shall have the duty to see that all laws relating to insurance,
insurance companies and other insurance matters, mutual benefit associations and trusts for
charitable uses are faithfully executed and to perform the duties imposed upon him by this Code, . .
.
On the other hand, Section 415 provides:
In addition to the administrative sanctions provided elsewhere in this Code, the Insurance
Commissioner is hereby authorized, at his discretion, to impose upon insurance companies, their
directors and/or officers and/or agents, for any willful failure or refusal to comply with, or violation of
any provision of this Code, or any order, instruction, regulation or ruling of the Insurance
Commissioner, or any commission of irregularities, and/or conducting business in an unsafe and
unsound manner as may be determined by the the Insurance Commissioner, the following:
(a) fines not in excess of five hundred pesos a day; and
(b) suspension, or after due hearing, removal
of directors and/or officers and/or agents.
A plain reading of the above-quoted provisions show that the Insurance Commissioner has the authority to regulate
the business of insurance, which is defined as follows:
(2) The term "doing an insurance business" or "transacting an insurance business," within the
meaning of this Code, shall include
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of the surety; (c) doing any kind of
business, including a reinsurance business, specifically recognized as constituting the doing of an
insurance business within the meaning of this Code; (d) doing or proposing to do any business in
substance equivalent to any of the foregoing in a manner designed to evade the provisions of this
Code. (Insurance Code, Sec. 2[2]; Emphasis supplied).
Since the contract of agency entered into between Philamlife and its agents is not included within the meaning of an
insurance business, Section 2 of the Insurance Code cannot be invoked to give jurisdiction over the same to the
Insurance Commissioner. Expressio unius est exclusio alterius.
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.
G.R. No. 141658

March 18, 2005

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
THE PHILIPPINE AMERICAN ACCIDENT INSURANCE COMPANY, INC., THE PHILIPPINE AMERICAN
ASSURANCE COMPANY, INC., and THE PHILIPPINE AMERICAN GENERAL INSURANCE CO.,
INC.,Respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review1 assailing the Decision2 of 7 January 2000 of the Court of Appeals in CA-G.R.
SP No. 36816. The Court of Appeals affirmed the Decision3 of 5 January 1995 of the Court of Tax Appeals ("CTA") in
CTA Cases Nos. 2514, 2515 and 2516. The CTA ordered the Commissioner of Internal Revenue ("petitioner") to
refund a total of P29,575.02 to respondent companies ("respondents").
Antecedent Facts
Respondents are domestic corporations licensed to transact insurance business in the country. From August 1971 to
September 1972, respondents paid the Bureau of Internal Revenue under protest the 3% tax imposed on lending

investors by Section 195-A4 of Commonwealth Act No. 466 ("CA 466"), as amended by Republic Act No. 6110 ("RA
6110") and other laws. CA 466 was the National Internal Revenue Code ("NIRC") applicable at the time.
Respondents paid the following amounts: P7,985.25 from Philippine American ("PHILAM") Accident Insurance
Company; P7,047.80 from PHILAM Assurance Company; and P14,541.97 from PHILAM General Insurance
Company. These amounts represented 3% of each companys interest income from mortgage and other loans.
Respondents also paid the taxes required of insurance companies under CA 466.
On 31 January 1973, respondents sent a letter-claim to petitioner seeking a refund of the taxes paid under protest.
When respondents did not receive a response, each respondent filed on 26 April 1973 a petition for review with the
CTA. These three petitions, which were later consolidated, argued that respondents were not lending investors and
as such were not subject to the 3% lending investors tax under Section 195-A.
The CTA archived respondents case for several years while another case with a similar issue was pending before the
higher courts. When respondents case was reinstated, the CTA ruled that respondents were entitled to their refund.
The Ruling of the Court of Tax Appeals
The CTA held that respondents are not taxable as lending investors because the term "lending investors" does not
embrace insurance companies. The CTA traced the history of the tax on lending investors, as follows:
Originally, a person who was engaged in lending money at interest was taxed as a money lender. [Sec.
1464(x), Rev. Adm. Code] The term money lenders was defined as including "all persons who make a
practice of lending money for themselves or others at interest." [Sec. 1465(v), id.] Under this law, an
insurance company was not considered a money lender and was not taxable as such. To quote from an old
BIR Ruling:
"The lending of money at interest by insurance companies constitutes a necessary incident of their
regular business. For this reason, insurance companies are not liable to tax as money lenders or
real estate brokers for making or negotiating loans secured by real property. (Ruling, February 28,
1920; BIR 135.2)" (The Internal Revenue Law, Annotated, 2nd ed., 1929, by B.L. Meer, page 143)
The same rule has been applied to banks.
"For making investments on salary loans, banks will not be required to pay the money lenders tax
imposed by this subsection, for the reason that money lending is considered a mere incident of the
banking business. [See Ruling No. 43, (October 8, 1926) 25 Off. Gaz. 1326)" (The Internal
Revenue Law, Annotated, id.)
The term "money lenders" was later changed to "lending investors" but the definition of the term remains the
same. [Sec. 1464(x), Rev. Adm. Code, as finally amended by Com. Act No. 215, and Sec. 1465(v) of the
same Code, as finally amended by Act No. 3963] The same law is embodied in the present National Internal
Revenue Code (Com. Act No. 466) without change, except in the amount of the tax. [See Secs. 182(A) (3)
(dd) and 194(u), National Internal Revenue Code.]
It is a well-settled rule that an administrative interpretation of a law which has been followed and applied for
a long time, and thereafter the law is re-enacted without substantial change, such administrative
interpretation is deemed to have received legislative approval. In short, the administrative interpretation
becomes part of the law as it is presumed to carry out the legislative purpose.5

The CTA held that the practice of lending money at interest is part of the insurance business. CA 466 already taxes
the insurance business. The CTA pointed out that the law recognizes and even regulates this practice of lending
money by insurance companies.
The CTA observed that CA 466 also treated differently insurance companies from lending investors in regard to fixed
taxes. Under Section 182(A)(3)(gg), insurance companies were subject to the same fixed tax as banks and finance
companies. The CTA reasoned that insurance companies were grouped with banks and finance companies because
the latters lending activities were also integral to their business. In contrast, lending investors were taxed at a
different fixed tax under Section 182(A)(3)(dd) of CA 466. The CTA stated that "insurance companies xxx had never
been required by respondent [CIR] to pay the fixed tax imposed on lending investors xxx."6
The dispositive portion of the Decision of 5 January 1995 of the Court of Tax Appeals ("CTA Decision") reads:
WHEREFORE, premises considered, petitioners Philippine American Accident Insurance Co., Philippine
American Assurance Co., and Philippine American General Insurance Co., Inc. are not taxable on their
lending transactions independently of their insurance business. Accordingly, respondent is hereby ordered to
refund to petitioner[s] the sum of P7,985.25, P7,047.80 and P14,541.97 in CTA Cases No. 2514, 2515 and
2516, respectively representing the fixed and percentage taxes when (sic) paid by petitioners as lending
investor from August 1971 to September 1972.
No pronouncement as to cost.
SO ORDERED.7
Dissatisfied, petitioner elevated the matter to the Court of Appeals.8
The Ruling of the Court of Appeals
The Court of Appeals ruled that respondents are not taxable as lending investors. In its Decision of 7 January 2000
("CA Decision"), the Court of Appeals affirmed the ruling of the CTA, thus:
WHEREFORE, premises considered, the petition is DISMISSED, hereby AFFIRMING the decision, dated
January 5, 1995, of the Court of Tax Appeals in CTA Cases Nos. 2514, 2515 and 2516.
SO ORDERED.9
Petitioner appealed the CA Decision to this Court.
The Issues
Petitioner raises the sole issue:
WHETHER RESPONDENT INSURANCE COMPANIES ARE SUBJECT TO THE 3% PERCENTAGE TAX
AS LENDING INVESTORS UNDER SECTIONS 182(A)(3)(DD) AND 195-A, RESPECTIVELY IN RELATION
TO SECTION 194(U), ALL OF THE NIRC.10
The Ruling of the Court
The petition lacks merit.
On the Additional Issue Raised by Petitioner

Section 182(A)(3)(dd) of CA 466 imposes an annual fixed tax on lending investors, depending on their location.11 The
sole question before the CTA was whether respondents were subject to the percentage tax on lending investors
under Section 195-A. Petitioner raised for the first time the issue of the fixed tax in the Petition for Review12 petitioner
filed before the Court of Appeals.
Ordinarily, a party cannot raise for the first time on appeal an issue not raised in the trial court.13 The Court of Appeals
should not have taken cognizance of the issue on respondents supposed liability under Section 182(A)(3)(dd).
However, we cannot entirely fault the Court of Appeals or petitioner. Even if the percentage tax on lending investors
was the sole issue before it, the CTA ordered petitioner to refund to the PHILAM companies "the fixed and
percentage taxes [t]hen paid by petitioners as lending investor."14 Although the amounts for refund consisted only of
what respondents paid as percentage taxes, the CTA Decision also ordered the refund to respondents of the fixed tax
on lending investors. Respondents in their pleadings deny any liability under Section 182(A)(3)(dd), on the same
ground that they are not lending investors.
The question of whether respondents should pay the fixed tax under Section 182(A)(3)(dd) revolves around the same
issue of whether respondents are taxable as lending investors. In similar circumstances, the Court has held that an
appellate court may consider an unassigned error if it is closely related to an error that was properly assigned.15 This
rule properly applies to the present case. Thus, we shall consider and rule on the issue of whether respondents are
subject to the fixed tax under Section 182(A)(3)(dd).
Whether Insurance Companies are
Taxable as Lending Investors
Invoking Sections 195-A and 182(A)(3)(dd) in relation to Section 194(u) of CA 466, petitioner argues that insurance
companies are subject to two fixed taxes and two percentage taxes. Petitioner alleges that:
As a lending investor, an insurance company is subject to an annual fixed tax of P500.00 and
anotherP500.00 under Section 182 (A)(3)(dd) and (gg) of the Tax Code. As an underwriter, an insurance
company is subject to the 3% tax of the total premiums collected and another 3% on the gross receipts as a
lending investor under Sections 255 and 195-A, respectively of the same Code. xxx16
Petitioner also contends that the refund granted to respondents is in the nature of a tax exemption, and cannot be
allowed unless granted explicitly and categorically.
The rule that tax exemptions should be construed strictly against the taxpayer presupposes that the taxpayer is
clearly subject to the tax being levied against him. Unless a statute imposes a tax clearly, expressly and
unambiguously, what applies is the equally well-settled rule that the imposition of a tax cannot be presumed.17Where
there is doubt, tax laws must be construed strictly against the government and in favor of the taxpayer.18This is
because taxes are burdens on the taxpayer, and should not be unduly imposed or presumed beyond what the
statutes expressly and clearly import.19
Section 182(A)(3)(dd) of CA 466 also provides:
Sec. 182. Fixed taxes. (A) On business xxx
xxx
(3) Other fixed taxes. The following fixed taxes shall be collected as follows, the amount stated being for
the whole year, when not otherwise specified;
xxx

(dd) Lending investors

1. In chartered cities and first class municipalities, five hundred pesos;
2. In second and third class municipalities, two hundred and fifty pesos;
3. In fourth and fifth class municipalities and municipal districts, one hundred and twenty-five pesos;
Provided, That lending investors who do business as such in more than one province shall pay a
tax of five hundred pesos.
Section 195-A of CA 466 provides:
Sec. 195-A. Percentage tax on dealers in securities; lending investors. Dealers in securities and lending
investors shall pay a tax equivalent to three per centum on their gross income.
Neither Section 182(A)(3)(dd) nor Section 195-A mentions insurance companies. Section 182(A)(3)(dd) provides for
the taxation of lending investors in different localities. Section 195-A refers to dealers in securities and lending
investors. The burden is thus on petitioner to show that insurance companies are lending investors for purposes of
taxation.
In this case, petitioner does not dispute that respondents are in the insurance business. Petitioner merely alleges that
the definition of lending investors under CA 466 is broad enough to encompass insurance companies. Petitioner
insists that because of Section 194(u), the two principal activities of the insurance business, namely, underwriting and
investment, are separately taxable.20
Section 194(u) of CA 466 states:
(u) "Lending investor" includes all persons who make a practice of lending money for themselves or others
at interest.
xxx
As can be seen, Section 194(u) does not tax the practice of lending per se. It merely defines what lending investors
are. The question is whether the lending activities of insurance companies make them lending investors for purposes
of taxation.
We agree with the CTA and Court of Appeals that it does not. Insurance companies cannot be considered lending
investors under CA 466, as amended.
Definition of Lending
Investors under CA 466 Does
Not Include Insurance
Companies.
The definition in Section 194(u) of CA 466 is not broad enough to include the business of insurance companies. The
Insurance Code of 197821 is very clear on what constitutes an insurance company. It provides that an insurer or
insurance company "shall include all individuals, partnerships, associations or corporations xxx engaged as principals
in the insurance business, excepting mutual benefit associations."22 More specifically, respondents fall under the
category of insurance corporations as defined in Section 185 of the Insurance Code, thus:

SECTION 185. Corporations formed or organized to save any person or persons or other corporations
harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to
indemnify or to compensate any person or persons or other corporations for any such loss, damage, or
liability, or to guarantee the performance of or compliance with contractual obligations or the payment of
debts of others shall be known as "insurance corporations."
Plainly, insurance companies and lending investors are different enterprises in the eyes of the law. Lending investors
cannot, for a consideration, hold anyone harmless from loss, damage or liability, nor provide compensation or
indemnity for loss. The underwriting of risks is the prerogative of insurers, the great majority of which are incorporated
insurance companies23 like respondents.
Granting of Mortgage and
other Loans are Investment
Practices that are Part of the
Insurance Business.
True, respondents granted mortgage and other kinds of loans. However, this was not done independently of
respondents insurance business. The granting of certain loans is one of several means of investment allowed to
insurance companies. No less than the Insurance Code mandates and regulates this practice.24
Unlike the practice of lending investors, the lending activities of insurance companies are circumscribed and strictly
regulated by the State. Insurance companies cannot freely lend to "themselves or others" as lending investors
can,25 nor can insurance companies grant simply any kind of loan. Even prior to 1978, the Insurance Code prescribed
strict rules for the granting of loans by insurance companies.26 These provisions on mortgage, collateral and policy
loans were reiterated in the Insurance Code of 1978 and are still in force today.
Petitioner concedes that respondents investment practices are as much a part of the insurance business as the task
of underwriting. Nevertheless, petitioner argues that such investment practices are separately taxable under CA 466.
The CTA and the Court of Appeals found that the investment of premiums and other funds received by respondents
through the granting of mortgage and other loans was necessary to respondents business and hence, should not
be taxed separately.
Insurance companies are required by law to possess and maintain substantial legal reserves to meet their obligations
to policyholders.27 This obviously cannot be accomplished through the collection of premiums alone, as the legal
reserves and capital and surplus insurance companies are obligated to maintain run into millions of pesos. As such,
the creation of "investment income" has long been held to be generally, if not necessarily,essential to the business of
insurance.28
The creation of investment income in the manner sanctioned by the laws on insurance is thus part of the business of
insurance, and the fruits of these investments are essentially income from the insurance business. This is particularly
true if the invested assets are held either as reserved funds to provide for policy obligations or as capital and surplus
to provide an extra margin of safety which will be attractive to insurance buyers.29
The Court has also held that when a company is taxed on its main business, it is no longer taxable further for
engaging in an activity or work which is merely a part of, incidental to and is necessary to its main
business.30Respondents already paid percentage and fixed taxes on their insurance business. To require them to pay
percentage and fixed taxes again for an activity which is necessarily a part of the same business, the law must
expressly require such additional payment of tax. There is, however, no provision of law requiring such additional
payment of tax.

Sections 195-A and 182(A)(3)(dd) of CA 466 do not require insurance companies to pay double percentage and fixed
taxes. They merely tax lending investors, not lending activities. Respondents were not transformed into lending
investors by the mere fact that they granted loans, as these investments were part of, incidental and necessary to
their insurance business.
Different Tax Treatment of
Insurance Companies and
Lending Investors.
Section 182(A)(3) of CA 466 accorded different tax treatments to lending investors and insurance companies. The
relevant portions of Section 182 state:
Sec. 182. Fixed taxes. (A) On business xxx
(3) Other fixed taxes. The following fixed taxes shall be collected as follows, the amount stated being for
the whole year, when not otherwise specified;
xxx
(dd) Lending investors
1. In chartered cities and first class municipalities, five hundred pesos;
2. In second and third class municipalities, two hundred and fifty pesos;
3. In fourth and fifth class municipalities and municipal districts, one hundred and twenty-five pesos;
Provided, That lending investors who do business as such in more than one province shall pay a
tax of five hundred pesos.
xxx
(gg) Banks, insurance companies, finance and investment companies doing business in the Philippines and
franchise grantees, five hundred pesos.
xxx (Emphasis supplied.)
The separate provisions on lending investors and insurance companies demonstrate an intention to treat these
businesses differently. If Congress intended insurance companies to be taxed as lending investors, there would be no
need for Section 182(A)(3)(gg). Section 182(A)(3)(dd) would have been sufficient. That insurance companies were
included with banks, finance and investment companies also supports the CTAs conclusion that insurance
companies had more in common with the latter enterprises than with lending investors. As the CTA pointed out, banks
also regularly lend money at interest, but are not taxable as lending investors.
We find no merit in petitioners contention that Congress intended to subject respondents to two percentage taxes
and two fixed taxes. Petitioners argument goes against the doctrine of strict interpretation of tax impositions.
Petitioners argument is likewise not in accord with existing jurisprudence. In Commissioner of Internal Revenue v.
Michel J. Lhuillier Pawnshop, Inc.,31 the Court ruled that the different tax treatment accorded to pawnshops and
lending investors in the NIRC of 1977 and the NIRC of 1986 showed "the intent of Congress to deal with both
subjects differently." The same reasoning applies squarely to the present case.

Even the current tax law does not treat insurance companies as lending investors. Under Section 108(A)32 of the
NIRC of 1997, lending investors and non-life insurance companies, except for their crop insurances, are subject to
value-added tax ("VAT"). Life insurance companies are exempt from VAT, but are subject to percentage tax under
Section 123 of the NIRC of 1997.
Indeed, the fact that Sections 195-A and 182(A)(3)(dd) of CA 466 failed to mention insurance companies already
implies the latters exclusion from the coverage of these provisions. When a statute enumerates the things upon
which it is to operate, everything else by implication must be excluded from its operation and effect.33
Definition of Lending
Investors in CA 466 is Not
New.
Petitioner does not dispute that it issued a ruling in 1920 to the effect that the lending of money at interest was a
necessary incident of the insurance business, and that insurance companies were thus not subject to the tax on
money lenders. Petitioner argues only that the 1920 ruling does not apply to the instant case because RA 6110
introduced the definition of lending investors to CA 466 only in 1969.
The subject definition was actually introduced much earlier, at a time when lending investors were still referred to as
money lenders. Sections 45 and 46 of the Internal Revenue Law of 191434 ("1914 Tax Code") state:
SECTION 45. Amount of Tax on Business. Fixed taxes on business shall be collected as follows, the
amount stated being for the whole year, when not otherwise specified:
xxx
(x) Money lenders, eighty pesos;
xxx
SECTION 46. Words and Phrases Defined. In applying the provisions of the preceding section words and
phrases shall be taken in the sense and extension indicated below:
xxx
"Money lender" includes all persons who make a practice of lending money for themselves or others
at interest. (Emphasis supplied)
As can be seen, the definitions of "money lender" under the 1914 Tax Code and "lending investor" under CA 466 are
identical. The term "money lender" was merely changed to "lending investor" when Act No. 3963 amended the
Revised Administrative Code in 1932.35 This same definition of lending investor has since appeared in Section 194(u)
of CA 466 and later tax laws.
Note that insurance companies were not included among the businesses subject to an annual fixed tax under the
1914 Tax Code.36 That Congress later saw the need to introduce Section 182(A)(3)(gg) in CA 466 bolsters our view
that there was no legislative intent to tax insurance companies as lending investors. If insurance companies were
already taxed as lending investors, there would have been no need for a separate provision specifically requiring
insurance companies to pay fixed taxes.
The Court Accords Great
Weight to the Factual Findings
of the CTA.

Dedicated exclusively to the study and consideration of tax problems, the CTA has necessarily developed an
expertise in the subject of taxation that this Court has recognized time and again. For this reason, the findings of fact
of the CTA, particularly when affirmed by the Court of Appeals, are generally conclusive on this Court absent grave
abuse of discretion or palpable error,37 which are not present in this case.
WHEREFORE, we DENY the instant petition and AFFIRM the Decision of 7 January 2000 of the Court of Appeals in
CA-G.R. SP No. 36816.
SO ORDERED.
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.
DECISION
QUISUMBING, J.:
This petition for review assails the Decision1 dated July 30, 2002 of the Court of Appeals in CA-G.R. SP No. 60144,
affirming the Decision2 dated May 3, 2000 of the Insurance Commission in I.C. Adm. Case No. RD-277. Both
decisions held that there was no violation of the Insurance Code and the respondents do not need license as insurer
and insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage for its vessels from The
Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual) through Pioneer Insurance and
Surety Corporation (Pioneer). Subsequently, White Gold was issued a Certificate of Entry and Acceptance.3 Pioneer
also issued receipts evidencing payments for the coverage. When White Gold failed to fully pay its accounts,
Steamship Mutual refused to renew the coverage.
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the latters
unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission claiming that
Steamship Mutual violated Sections 1864 and 1875 of the Insurance Code, while Pioneer violated Sections
299,63007 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.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the appellate court
distinguished between P & I Clubs vis--vis conventional insurance. The appellate court also held that Pioneer merely
acted as a collection agent of Steamship Mutual.
In this petition, petitioner assigns the following errors allegedly committed by the appellate court,

FIRST ASSIGNMENT OF ERROR

THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING BUSINESS IN
THE PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS TRANSACTIONS THROUGH ITS AGENT
AND/OR BROKER HENCE AS AN INSURER IT NEED NOT SECURE A LICENSE TO ENGAGE IN INSURANCE
BUSINESS IN THE PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY EVIDENCE THAT
RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT SECURE A LICENSE
WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF RESPONDENT STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER AND [IN NOT
REMOVING] THE OFFICERS AND DIRECTORS OF RESPONDENT PIONEER. 9
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the insurance business in
the Philippines? (2) Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not have a license to do
business in the Philippines although Pioneer is its resident agent. This relationship is reflected in the certifications
issued by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To buttress its
assertion, it cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals10 as "an association
composed of shipowners in general who band together for the specific purpose of providing insurance cover on a
mutual basis against liabilities incidental to shipowning that the members incur in favor of third parties." It stresses
that as a P & I Club, Steamship Mutuals primary purpose is to solicit and provide protection 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:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to
any other legitimate business or activity of the surety;

(c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of
an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to
evade the provisions of this Code.
...
The same provision also provides, the fact that no profit is derived from the making of insurance contracts,
agreements or transactions, or that no separate or direct consideration is received therefor, shall not preclude the
existence of an insurance business.12
The test to determine if a contract is an insurance contract or not, depends on the nature of the promise, the act
required to be performed, and the exact nature of the agreement in the light of the occurrence, contingency, or
circumstances under which the performance becomes requisite. It is not by what it is called.13
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event.14
In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the losses
incident to a marine adventure.15 Section 9916 of the Insurance Code enumerates the coverage of marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer and
insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a fund from
which all losses and liabilities are paid, and where the profits are divided among themselves, in proportion to their
interest.17 Additionally, mutual insurance associations, or clubs, provide three types of coverage, namely, protection
and indemnity, war risks, and defense costs.18
A P & I Club is "a form of insurance against third party liability, where the third party is anyone other than the P & I
Club and the members."19 By definition then, Steamship Mutual as a P & I Club is a mutual insurance association
engaged in the marine insurance business.
The records reveal Steamship Mutual is doing business in the country albeit without the requisite certificate of
authority mandated by Section 18720 of the Insurance Code. It maintains a resident agent in the Philippines to solicit
insurance and to collect payments in its behalf. We note that Steamship Mutual even renewed its P & I Club cover
until it was cancelled due to non-payment of the calls. Thus, to continue doing business here, Steamship Mutual or
through its agent Pioneer, must secure a license from the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no insurer or
insurance company is allowed to engage in the insurance business without a license or a certificate of authority from
the Insurance Commission.21
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration22 issued by the
Insurance Commission. It has been licensed to do or transact insurance business by virtue of the certificate of
authority23 issued by the same agency. However, a Certification from the Commission states that Pioneer does not
have a separate license to be an agent/broker of Steamship Mutual.24
Although Pioneer is already licensed as an insurance company, it needs a separate license to act as insurance agent
for Steamship Mutual. Section 299 of the Insurance Code clearly states:

SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications
for insurance, or receive for services in obtaining insurance, any commission or other compensation from any
insurance company doing business in the Philippines or any agent thereof, without first procuring a license so to act
from the Commissioner, which must be renewed annually on the first day of January, or within six months thereafter. .
.
Finally, White Gold seeks revocation of Pioneers certificate of authority and removal of its directors and officers.
Regrettably, we are not the forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the Court of Appeals
affirming the Decision dated May 3, 2000 of the Insurance Commission is hereby REVERSED AND SET ASIDE. The
Steamship Mutual Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and Surety Corporation are
ORDERED to obtain licenses and to secure proper authorizations to do business as insurer and insurance agent,
respectively. The petitioners prayer for the revocation of Pioneers Certificate of Authority and removal of its directors
and officers, is DENIED. Costs against respondents. SO ORDERED.