Professional Documents
Culture Documents
Insurance Laws and Jurisprudence
Insurance Laws and Jurisprudence
INTRODUCTION
A. OVERVIEW
In a contemporary age where people travel through air and water, use
electronic machines, build high structures, cook with gas stove, and work in a heavy
equipment factory exposure to loss of something as valuable as life is inevitable. In
one way or another, Insurance has been part of an average modern day individual.
With the increase of hazard in almost every aspect of ones life, may it be in business,
property rights and interest, health, etc., a person finds it necessary to ensure the
return of something that may have been lost due to some unforeseeable or certain
events. It has been a common practice of an individual to safeguard his interests
even if it means paying for such protection. While most people own at least one
insurance policy, a great number of individuals do not know or understand what it
truly means or how it operates.
In an uncertain world, death is one of the few things that life considers
certain. Risk of dying depends on the lifestyle of an individual. The wife of a pilot
concerns herself and prays hard for a safe journey of her husband during flight. The
mother of a soldier could not sleep because of the peril that his son might come
home injured if he did not arrive dead from a battle. The son of a construction
worker longs for a harmless days work of his father. These people may be challenged
with greater danger than a regular student who comes to and from school everyday.
However, what are the chances that this student would get hit by a car while crossing
the street? Or even be struck by a lightning in the comforts of his home? One could
not be more optimistic than truthful. Risk is everywhere that is certain. With the
ever increasing probability of hazard in a modern society, people tend to cope up
with these threats by making sure that they are protected from great loss when these
tragedies happen.
1
How does one become protected when the life of a loved one has been taken?
As the population grows, more individuals are bound to grasp the importance
of insurance being a predestined fraction of a progressive society. Thus, the state
necessitates itself to promulgate laws in order to regulate the affairs of Insurance
companies and to make sure that the public is not only protected from risks but also
from fraudulent machinations that puts up a facade of a legitimate insurer.
This paper will extensively discuss the concept of Insurance and the laws that
the legislatures enacted in order to better understand the rights and obligations of
the parties in an insurance contract.
The study has three main parts, to wit: principles of insurance; special laws
governing insurance with the corresponding Supreme Court decisions relating to
such laws; and the summary of the paper. The paper shall also discuss pertinent
information on what the readers should know regarding the topic including its
history and how it developed throughout the years emphasizing on its evolution in
the domestic territory.
2
The researchers will limit its discussion on Philippine legislations and decisions
only. Due to the number of legislations relating to insurance, the authors picked,
among others, those which are more basic and general for academic purposes, to wit:
The provisions of the New Civil and other laws insofar as it may be applied in the
contract of insurance shall likewise be discussed in this paper.
C. OBJECTIVES
The main objective of the paper is to discuss the concept of insurance and its
governing laws giving emphasis on its salient features and characteristics. The
importation of the Supreme Court decisions is basically to enable the readers to fully
understand insurance laws and to facilitate in their minds a working idea on what
insurance is all about. At the end of the study, the authors shall give a summary or
insight of what has been discussed hoping to impart upon the readers a better
understanding on Philippine Insurance Laws and jurisprudence and its importance
to the society.
3
II. FUNDAMENTALS AND PRINCIPLES OF
INSURANCE
A. HISTORY
Many insurance book authors suggest that the birth of insurance dates back as
early as time. During primitive economies where people engage in barter or trade
and the use of a financial instrument was still inexistent, insurance is in a form of
agreements of mutual aid. If one family's house is destroyed the neighbours are
committed to help rebuild. Granaries housed another primitive form of insurance to
indemnify against famines. Often informal or formally intrinsic to local religious
customs, this type of insurance has survived to the present day in some countries
where modern money economy with its financial instruments is not widespread. 1
1
http://en.wikipedia.org/wiki/insurance
2
Encyclopedia Britannica, 15th Ed., Vol. 6, page 336
3
Ibid page 337.
4
associations in the world. It started in the late 1680s when Edward Lloyd kept a
coffeehouse in Tower Street, London, England. Merchants assembled there to
transact business informally. It became a popular meeting place for underwriters
those who would accept insurance on ships for the payment of premium. Since then,
Edward Lloyd turned his humble shop into an enormous marketplace for
underwriters and insurers.4 At present, Lloyds of London is the most distinguished
insurance establishment in the world.5
In the Philippines, insurance was inexistent during the Pre-Spanish Era, every
loss was borne by the person or family who suffered the misfortune. When the
Spaniards came, insurance was first introduced in the country. Lloyds of London
appointed a company named Strachman, Murray & Co., Inc as its representative in
the Philippines. From then on, life and non-life insurance were introduced in the
Philippines with the entry of Sun Life Assurance of Canada and Yek Tong Lin
Insurance Co in the early 1900s. Throughout this period, insurance was governed by
the Spanish Code of Commerce. However, the latter was repealed by the Insurance
Act (Act 2427) which took effect on July 1, 1915 during the American Regime. 6
4
Encyclopedia Britannica, 15th Ed., Vol. 7, page 426
5
Ibid. page 427
6
http://www.batasnatin.com/law-library/mercantile-law/insurance/1573-history-of-insurance-in-the-
philippines.html
7
Ibid.
5
B. Concept
The insured entities are therefore protected from risk for a fee, with the
fee being dependent upon the frequency and severity of the event occurring. In
order to be insurable, the risk insured against must meet certain characteristics
in order to be an insurable risk. Insurance is a commercial enterprise and a major
part of the financial services industry, but individual entities can also self-insure
through saving money for possible future losses.8
Since the Insurance Code is adopted from the Insurace Act, which was
generally taken to the letter of the California Law on Insurance, the local courts
therefore apply the fundamental construction laid down by the California Courts
insofar as it may be applied in the local setting. Such principle is in accordance
with the well-entrenched rule in statutory construction that when a statute has
been adopted from some other state, and said statute has previously been
construed by the courts of such state or country. The statute is usually deemed to
have been adopted with the construction so given. In case of doubt or ambiguities
in the interpretation of contracts, the construction shall always be in strictly
against the party that caused them. More often than not, the insurance policy is
prepared by the insurer. Thus, the ambiguities shall be construed against it and
in favour of the insured.
8
http://en.wikipedia.org/wiki/Insurance
6
C. Characteristics and Elements of Insurance Contract
Since insurance is a contract, it must also have all the three basic elements
of a contract consent, object and consideration. The parties who give their
consent are the insured and the insurer. The object of the contract pertains to the
transfer or distribution of the risk of loss, damage, liability or disability from the
insured to the insurer. The element of risk insured against must be present and
shall be explicitly stated in the policy. The Insurance Code provides that a risk is
any contingent or unknown event, whether past or future which may indemnify a
person. The consideration of an insurance contract is the payment of premium
which the insured gives the insurer. In addition thereto, insurable interest is also
a key element that is worthy to note and understand in studying the law on
insurance. It means that the insured possesses an interest of some kind
susceptible of pecuniary estimation. It will be further discussed in Chapter III.
7
D. Parties
In a contract of insurance, there are two parties involved. These are the
following:
1. Insurer the one who undertakes to indemnify the insured against
loss, damage or liability arising from any unknown or contingent event.
However, there may exist a third person who may not be a party to the
contract but is nevertheless mentioned and included in the insurance policy. The
beneficiary is the one who is called to receive the insurance benefit. More often
than not, the insured or the owner of the policy and the beneficiary are one and
the same. While, most of the insured name themselves as the beneficiary, that is
not always the case as when the policy holders may institute any person to benefit
from the insurance proceeds so long as the requirement provided for in the Code
have been met.
8
excluded from the policy obligate the insurer to pay the entire policy amount to
the beneficiary.9
9
Adjusting Today The Extended Period of Indemnity Endorsement, William G. Rake SPPA Adjusters International
10
West's Encyclopedia of American Law, edition 2. 2008 The Gale Group, Inc
11
Copyright 1981-2005 by Gerald N. Hill and Kathleen T. Hill (http://legal- dictionary.thefreedictionary.com)
9
E. Classification of Insurance
Insurance contracts are classified in the Insurance Code as follows:
1. Life Insurance
a. Individual (Section 179 183, 227)
b. Group Life (Section 50 - 228)
c. Industrial Life (Sec 229 - 231)
The Insurance Act of July 1 1915 created the Office of the Insurance
Commissioner and made the Insular Treasurer as Insurance Commissioner ex-
officio. It was only in 1949 through RA 275 that the Office of the Insurance
Commissioner became an independent office and on Nov 20 1972, PD63 was
promulgated amending certain sections of the Insurance Act.12
12
http://www. insurance.gov.ph
10
1) It shall be the duty of the Insurance Commission to see that all laws
relating to insurance and insurance companies are faithfully executed
and to perform the duties imposed upon it by this Act.
11
insurance companies or agents may also be filed with the Commission. Decisions
or orders of the Commission may be appealed to the Appellate Courts.
13
Insurance Code of the Philippines, Annotated 2006 Edition, De Leon, pp. 710-711
12
require the production of any books, papers relevant to the inquiry. From there,
he may issue such rulings, instructions, circulars, orders and decisions as he may
deem necessary to secure the enforcement of the provisions of the Code.
Court action may most often be used in private action against the
Commissioners ruling through mandamus or injunction may be petitioned to
enforce the rulings or orders by the Commission.
The validity of an insureds claim under a specific policy, its amount and
all such other matters as might involve the interpretation and instruction of the
insurance policy, are issues which only a regular court of justice may resolve and
settle.
13
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 the Code.
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, Expression unius est exclusion alterius.
The three cited cases exemplifies the extent of the powers of the Insurance
Commissioner, the adjudication of claims and complaints against insurance
companies. That it is an administrative agency of government which is regulatory
and quasi judicial in its functions.
15
III. INSURANCE LAWS AND JURISPRUDENCE
16
As mentioned earlier, there are only two parties in the insurance contract
the insurer and the insured. An insurer may be natural or juridical person (i.e.
partnership, association, corporation, etc.). The law however provides that before
a person transact or engage in insurance business, the approval of the Insurance
Commissioner must first be solicited. An application for the issuance of
Certificate of Authority must be filed before the Commission. The latter may
grant the application if it sees that all the requirements have been met or
otherwise deny the same.
Under Sec. 8 of the Insurance Code, anyone except a public enemy may be
insured. The word enemy denotes a nation to which the Philippines is currently
at war with. The reason for the importation of such exception is the fact that the
purpose of war is to cripple the power and exhaust the resources of the enemy,
and it is inconsistent that one country should destroy its enemy, and repay in
insurance the value of what has been destroyed.14
Sec. 10 speaks only of insurable interest in life insurance. The persons who
intend to take hold of an insurance policy must have an insurable interest in the
14
6 Couch, Cyc. of Ins. Law, pp. 5352-5353, G.R. No. L-2294
17
subject matter of the contract. In general, a person is deemed to have an
insurable interest in the subject matter insured where he has a relation or
connection with or concern in it that he will derive pecuniary benefit or
advantage from its preservation and will suffer pecuniary loss from its
destruction, termination or, injury by the happening of the event insured against.
It therefore follows that when a policy is issued to a person without interest, the
contract becomes a wagering policy and is void being against public policy. In
designating a beneficiary, it is not necessary that the beneficiary has an insurable
interest.
While there are only two parties in the contract of insurance, there are
instances when the insured designates a beneficiary other than himself.
Beneficiary is the term ordinarily used in referring to the person who is
designated in a contract of life, death or accidental insurance as the one who is
entitled to receive the insurance proceeds.15 Any person may be called to receive
the life insurance proceed as a beneficiary even though the latter has no insurable
interest in the life insured except those who are forbidden by law to receive
donations from the insured, such as:
The law provides that the insured may change the designation of the
beneficiary unless the former expressly waives such right, in which case the
designation shall be irrevocable and can only be modified upon the consent of the
latter. Should the insured discontinued paying premiums, the beneficiary may
15
44 AM Jur. 2nd. 639
18
continue paying it and is entitled to automatic extended term or paid up
insurance options. However, Sec. 12 provides that the interest of a beneficiary is
the principal accomplice, or accessory in wilfully bringing about the death of the
insured in which event, the nearest relative of the insured shall receive the
proceeds in the latter is not otherwise disqualified. This rule shall discourage any
attempt by the beneficiary on the life of the insured.
In property insurance, the person who sought protection from the insured
must positively ascertain the formers interest in the subject matter of the
contract, otherwise, the contract shall be void. A mere contingent or expected
benefit, uncoupled with actual or legal right will not support a contract of
insurance. Thus, an expectant heir cannot insure nor can a general creditor
insure the property of his debtor, even though destruction of said property is
worthless any judgment he might obtain.16
16
Martins Philippine Commercial Law, Vol. II p. 20, citing Vancouver Nat. Bank v. Law Union and Crowns Insurance
Co., 153 F. 440; Baldwin Insurance, Co. 60 Iowa 497, 15 N.W. 300
19
life or health insurance must be present when the insurance take effect, and when
the loss occurs, but need not exist in the meantime. On the other hand, the
interest in life and health insurance must exist when the insurance take effect,
but need not exist thereafter or when the loss occurs.
In property insurance, insurable interest should exist not only on the date
of the execution of the contract of insurance but on the date of the occurrence of
the risk or loss insured against. If a fire occurs after the sale or alienation of the
property insured, the former owner cannot collect on the policy17. In property
insurance, if the person insured did not have any interest at the time of the loss, it
follows that it did not sustain any damage that may be indemnified by the
insurer, hence, the payment of insurance proceed would defeat the very essence
of insurance.
Concealment
A neglect to communicate that which a party knows and ought to
communicate is called concealment. Whether concealment is intentional or
unintentional, the party injured is entitled to the rescission of insurance contract.
The parties to a contract is entitled to communicate to the other in good faith, all
the facts within its knowledge which are material to the contract, to which he has
no warranty and the other has no means of ascertaining. Materiality is to be
determined by the probable and reasonable influence of the facts upon the party
to whom the communication is due in forming the his estimate of disadvantages
of the proposed contract or in making his inquiries.
Reperesentation
Representation is defined as the statements given to the insurer to induce
the latter to enter in the contract of insurance. A representation may be oral or
written and may be made at the time or before the issuance of the policy. Any
alteration or withdrawal of the representation after the insurance has been
17
Ibid. page 21
20
effected cannot be made. On the other hand, misrepresentation is a statement
which the insured has knowledge of its untruthfulness or which the latter
positively states as true without knowing it to be true or which has the tendency
to mislead where such fact is material to the risk.
Policy
The written instrument in which a contract of insurance is set forth is
called the policy of insurance. It is a formal document which provides an evidence
of such contract. The policy must contain statements of offer, acceptance and
consideration.
The receipt of a policy by the insured without objection binds the acceptor
or insured to the terms thereof. It is his duty to read the policy and it will be
assumed that he did so. Where the holder, discovering a mistake, the agent
attaching a wrong rider to his application elects to retain the policy as issued, he
thereby accepts the terms.18
18
Ang Giok Chip vs. Springfield Fire and Marine Insurance co., 56 Phil. 375
21
themselves have used. If such terms are clear and unambiguous, they must be
taken and understood in their plain ordinary and popular sense19.
19
Pacific Banking Corporation vs. Court of Appeals, 168 SCRA 1988
22
Whereas the Code specifically provided for the information required to be
stated in the policy insurance. It includes the following:
1) The parties between whom the contract is made;
2) The amount to be insured;
3) The premium, or if the insurance is of a character where the exact
premium is only determinable upon the termination of the contract, a
statement of the basis and rated upon which the final premium is to be
determined;
4) The property or life insured;
5) The interest of the insured in property insured, if he is not the absolute
owner thereof;
6) The risks insured against; and
7) The period during which the insurance is to continue.
Under Sec. 52. Cover notes may be issued to bind insurance temporarily
pending the issuance of the policy. Within sixty days after the issue of the cover
note, a policy shall be issued in lieu thereof, including within its terms the
identical insurance bound under the cover note and the premium therefor.
Cover notes may be extended or renewed beyond such sixty days with the
written approval of the Commissioner if he determines that such extension is not
contrary to and is not for the purpose of violating any provisions of this Code.
The Commissioner may promulgate rules and regulations governing such
extensions for the purpose of preventing such violations and may by such rules
and regulations dispense with the requirement of written approval by him in the
case of extension in compliance with such rules and regulations.
Classes of Insurance
Marine Insurance
Marine Insurance cover the loss or damage of vessels at sea or on inland
waterways, and of cargo in transit, regardless of the method of transit. When the
owner of the cargo and the carrier are separate corporations, marine cargo
insurance typically compensates the owner of cargo for losses sustained from fire,
shipwreck, etc., but excludes losses that can be recovered from the carrier or the
carrier's insurance. Many marine insurance underwriters will include "time
element" coverage in such policies, which extends the indemnity to cover loss of
profit and other business expenses attributable to the delay caused by a covered
loss.20
Fire Insurance
It is a type of property insurance and as provided for in Sec. 167 of the
Insurance Code includes insurance against loss by fire, lightning, windstorm,
tornado and earthquakes and all allied risk, when such risks are covered by
20
www.wikipedia.com
24
extension to fire insurance policies or under separate policies. The loss or damage
must be caused directly by fire. The loss may not be due to fire but the proximate
cause thereof must be by reason of fire.
Casualty Insurance
Sec. 174 of the Insurance Code provides for the coverage of casualty
insurance. It covers the 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 other types of insurance such as fire or marine. It
includes but not limited to, employers liability insurance, workmans
compensation insurance, public liability insurance, motor vehicle liability
insurance, personal accident and health insurance as written by non-life
insurance companies, and other substantially similar kinds of insurance. The law
covers all kinds of risks not falling under fire and marine insurance. The
legislation of Government Service Insurance Act and Social Security Act in effect
covers risks involving workmens compensation insurance insofar as
governmental and private employees are concerned.
Suretyship
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.
Life Insurance
Sec. 179 defines life insurance as an insurance on human lives and
appertaining thereto or connected therewith. Generally, a life insurance is
distinct and different from an accident insurance because the latter is written by
non life insurance companies. However, when one of the risk insured is death of
the insured by accident, then such accident insurance may be regarded as a life
insurance.
25
B. SOCIAL SECURITY ACT OF 1954
Sec. 2 of Republic Act No. 8282, otherwise known as the Social Security Act of
1997 provides for the policy of the state. To wit, It is the policy of the State to
establish, develop, promote and perfect a sound and viable tax-exempt social
security system suitable to the needs of the people throughout the Philippines which
shall promote social justice and provide meaningful protection to members and their
families against the hazards of disability, sickness, maternity, old age, death and
other contingencies resulting in loss of income or financial burden. Toward this end,
the State shall endeavor to extend social security protection to workers and their
beneficiaries. The law is passed to provide protection to the Filipino labourers in
case of damage, loss or liability and workmens compensation due to work related
hazards concerning private employees.
21
G.R. No. 164790, August 29, 2008
26
A Social Security Commission was also created to make sure that the goals of
the Act are met and to provide a quality service to the Filipino workers. The law gave
the Commission ample powers and functions to meet the needs of the workers and to
provide nationwide service on the laborers. These powers among others include the:
The law also provides for a list of individuals who are compulsory covered by the
SSS. The coverage of the following shall be compulsory:
27
1) All employees who are not over sixty (60) years of age and their employers:
Provided, That in the case of domestic helpers, their monthly income shall not be
less than One thousand pesos (P1,000.00) a month:
2) Spouses who devote full time to managing the household and family affairs,
unless they are also engaged in other vocation
3) Self-employed persons as may be determined by the Commission under such
rules and regulations as it may prescribe.
4) The coverage in the SSS shall be voluntary upon:
5) Spouses notwithstanding devotion to managing the household is also engaged in
other employment which is subject to mandatory coverage;
6) Filipinos recruited by foreign-based employers for employment abroad may be
covered by the SSS on a voluntary basis.
The effectivity of the coverage shall be on the first day of his operation and that of
the employee on the day of his employment: Provided, That the compulsory coverage of
the self-employed person shall take effect upon his registration with the SSS.
Retirement Benefit
The Retirement Benefit is granted when an employee retires from work upon
reaching the retirement age established in the collective bargaining agreement or
other applicable employment contract.
28
Death Benefit
Disability Benefit
The Disability Benefit is granted depending on the severity of the disability claim
which is to be determined by the Medical Director of the System and approved by the
Employees' Compensation Commission. Articles 191, 192 and 193 of the Philippine
Labor Code cover the different degrees of the disability and the benefits
accompanying them.22
Funeral Benefit
Sickness Benefit
A member who has already paid contributions for a period of three months prior
to the confine shall be entitled to the sickness benefit if confined for more than three
(3) days in a hospital or elsewhere with the approval of the SSS. A daily sickness
benefit equivalent to ninety percent (90%) of the average daily salary credit shall be
paid to the member for each day of compensable confinement or a fraction thereof
22
http://www.gopinoy.com/advice/employee-benefits/social-security-system-in-the-philippines.html
29
by his employer if employed , or the SSS if such person is unemployed or self-
employed.
Maternity leave benefit is given to a female member who has paid at least three
(3) monthly contributions in the twelve-month period immediately preceding the
semester of her childbirth or miscarriage. He member shall be paid a daily maternity
benefit equivalent to one hundred percent (100%) of her average daily salary credit
for sixty (60) days or seventy-eight (78) days in case of caesarian delivery.
The Act also provides for the non-transferability of benefit. Thus, Sec. 15 of the
Social Security Code states that:
In short, if there is a named beneficiary and the designation is not invalid (as it is
not so in this case), it is not the heirs of the employee who are entitled to receive the
benefits (unless they are the designated beneficiaries themselves). It is only when
there is no designated beneficiaries or when the designation is void, that the laws of
succession are applicable. And we have already held that the Social Security Act is
not a law of succession.23
23
SSS vs. Davac Et Al, G.R. No. L-21642 July 30, 1966
30
C. REVISED GOVERNMENT SERVICE INSURANCE ACT OF 1977
History and Related Laws of GSIS Act of 197724
Commonwealth Act 186 of November 14, 1936 created the GSIS as a social
insurance fund for all employees of the Philippine Government providing life
insurance; retirement insurance giving entitlement to a life annuity of five (5) years
and thereafter as long as the employee lives; disability benefit and survivors benefit.
Republic Act 4968 of June 17 1967 amended again CA 186 to further define
life insurance, retirement insurance, compulsory membership and rates of premium
contributions.
Republic Act 611 of Aug 4 1969 established the Philippine Medical Care Plan
and created the Philippine Medical Care Commission. The Plan consists of Program I
for the members of SSS and GSIS and Program II for those not covered in Program I.
Those beneficiaries under Program I are entitled to medical care benefits.
Presidential Decree 626 of January 1 1975 amended PD 492 or the Labor Code
of the Philippines to effect adjustments needed to coordinate grant of social security
benefits.
24
http:www.gsis.gov.ph
31
Presidential Decree 1368 of May 1 1978 amended Book IV of the Labor Code
of the Philippines and defined the coverage of the Employees Compensation
program. Presidential Decree 1519 of 11 June 1978 revised the Philippine Medical
Care Act to provide total medical services to the people of the Philippines through a
comprehensive and coordinated care plan. The plan covers legal dependents of SSS
and GSIS members.
Republic Act 7699 of May 1 1994 also known as Portability Law which allows
the addition of all creditable services or periods of contributions made continuously
or in the aggregate of a worker under either the GSIS or SSS for eligibility and
computation of benefits.
32
Contributions to the System shall be mandatory from both the employee and
the Agency-employer in equal amounts ranging from 9-12% of the average monthly
compensation of the employee. The Agency contribution is part of their annual
appropriations which is to be remitted to GSIS together with the salary deducted
from the employee.
1) Monthly pension equivalent to 37.5% of monthly compensation after 15 years of service and
adjusted 2.5% for every year if service in excess of 15 years payable for life after 60 years of age.
2) Separation benefits cash payment equivalent to average monthly compensation for each year
of service when employee resigns after less than 15 years of service.
3) Permanent Disability Benefits a member who suffers permanent disability for reasons not due
to his grave misconduct, notorious negligence, habitual intoxication or willful intention to kill
himself or another, shall receive a monthly income benefit for life equal to the basic monthly
pension.
4) Permanent Partial Disability Benefit if the disability is partial he shall receive a cash payment in
accordance with a schedule of disabilities prescribed by GSIS e.g. loss of any finger, toe, arm, leg,
ears, etc.
5) Temporary Partial Disability Benefit An employee is entitled to 75% of his current daily
compensation for each day of temporary disability but not exceeding 120 days in one calendar
year.
6) Survivorship Benefits when a member or pensioner dies, the beneficiaries shall be entitled to
receive 50% of the basic monthly pension.
33
Funds of the GSIS
All contributions payable to the System together with the earnings and
accruals thereon shall constitute the GSIS Social Insurance Fund. It shall be used to
finance the benefits administered by the GSIS under this Act. The funds shall not be
used for purposes other than what are provided for under this Act. No portion of the
General Fund of the national government and its political subdivisions,
instrumentalities and other agencies including government owned and controlled
corporations except as maybe allowed by this Act. A maximum expense loading of
12% of the yearly revenues from all sources may be disbursed for administrative and
operational expenses except as maybe otherwise approved by the President of the
Philippines.
The funds which are not needed to meet the current obligations maybe
invested under such terms and conditions and rules and regulations as maybe
prescribed by the Board. Provided, that investments shall satisfy the requirements of
liquidity, safety and security in order to ensure the actuarial solvency of the funds of
the GSIS.
1) To formulate, adopt, amend and rescind such rules and regulations as maybe necessary to carry
out the provisions and purposes of this Act as well as the effective exercise of the powers and
functions and the discharge of the duties and responsibilities of the GSIS, its officers and
employees.
2) To invest the funds of the GSIS, directly or indirectly.
3) To acquire, utilize or dispose of in any manner recognized by law, real or personal property in
the Philippines or elsewhere necessary to carry out the purposes of this Act.
4) To invest, own or otherwise participate in equity in any establishment, firm or entity.
5) To be able to float proper instrument to liquefy long term maturity by pooling funds for short
term secondary market.
34
Social Security Guaranteed by GSIS
On January 25, 2008, GSIS President and General Manager Winston Garcia
announced the availability of $5 Billion for investment in fixed income, equities and
properties here and abroad apparently to prove to its members the liquidity of the
system and its capability to meet its obligations. Two years later, members to the
System, public school teacher, retirees and pensioners were up in arms against
policies implemented by the Board of Trustees which they branded as anti-member.
GSIS Policy and Procedural Guidelines No. 171-0325 amended the definition of
Creditable Service under RA 8291 which provides :the computation of service for
determining the amount of benefits payable shall be from the date of original
appointment/election. In its guidelines GSIS defined Creditable Service as the
computed period of service of a regular member while in government service where
the corresponding compulsory premium contributions were actually paid and
remitted to the GSIS for such period. The situation gives rise to the non inclusion of
the years of service when an employee was still contractual with unpaid premium.
25
http://noynoyaquino.org.ph
35
Another provision of the GSIS Act that is sought to be amended is Section 3526
which provides for a twelve percent (12%) maximum expense loading of the yearly
revenues for administrative and operational expenses. The amendment is reduction
to eight (8%) in order to safeguard the mandated contribution of government
employer to the system.
The reduction of the operational expenses for the system would release more
of the Depositors Insurance Funds for investments that can generate more benefits
for its depositors and government employee-members.
The GSIS Act empowers the Board of Trustee to decide on how the funds of
the GSIS shall be invested provided that it shall satisfy the requirements of liquidity
safety/security and yield in order to ensure actuarial solvency of the funds of the
GSIS. Yet, in the case GSIS vs Court of Appeals and Jose Salonga, the GSIS was
rebuked by the High Court for its failure to exercise due diligence in ascertaining the
real owners of the mortgaged properties in consideration of P14.360 M loan granted.
The Court emphasized that the funds of the GSIS come from the monthly
contributions of its members, Thus, its business is to keep in trust money belonging
to its members being allowed to engage in financing, the GSIS should therefore
exercise care and prudence in investing its funds such as in granting loans.
26
Ibid.
36
otherwise clearly provided, the pension should inure wholly to the benefit of the
pensioner.
The latest GSIS enactment, RA 8291, 29 provides for a more detailed and
wider range of exemptions under Section 39, Aside from exempting benefits from
judicial processes, it likewise unconditionally exempts benefits from quasi-judicial
and administrative processes, including COA disallowances, as well as all financial
obligations of the member, the latter includes any pecuniary accountability of the
member which arose out of the exercise or performance of his official functions or
duties or incurred relative to his position or work, The only exception to such
pecuniary accountability is when the same is in favor of the GSIS.
Several other cases involving benefit claims against the System has also
arisen wherein the Supreme Court had repeatedly invoked the nature of its function
in relation to the salutary intentions of the law in favor of the worker.
The High Court rules that disability should not be understood more on its
medical significance but on the loss of earning capacity.
37
Judicial precedents likewise show that disability is intimately related to
ones earning capacity. It has been a consistent pronouncement of this Court that
permanent total disability means disablement of an employee to earn wages in the
same kind of work, or work of a similar nature that she was trained for or
accustomed to perform, or any kind of work which a person of her mentality
attainment could do. It does not mean state of absolute helplessness, but inability
to do substantially all material acts necessary to prosecution of an occupation for
remuneration or profit in substantially customary and usual manner.
The Court has construed permanent total disability as the lack of ability
to follow continuously some substantially gainful occupation without serious
discomfort or pain and without material injury or danger to life. It is, therefore,
clear from established jurisprudence that the loss of ones earning capacity
determines the disability compensation one is entitled to.
One final note, the GSIS and ECC should be commended for their vigilance
against unjustified claims that will deplete the funds intended to be disbursed for the
benefit only of deserving disabled employees. Nevertheless, we should caution them
against a too strict interpretation of the rules lest it result in the withholding of full
assistance from those whose capabilities have been diminished, if not completely
impaired, as a consequence of their dedicated service in the government. A
humanitarian impulse, dictated by no less than the Constitution itself under the
social justice policy, calls for a liberal and sympathetic approach to the legitimate
appeals of disables public servants like the herein private respondent. Compassion
for them is not a doleout but a right.
In the case GSIS vs CA and Romeo Bella, the High Court clarified that if
the sickness of the employee made him unable to perform any gainful occupation for
a continuous period exceeding 120 days, thus entitles him to permanent total
disability benefits.
Clearly, the position taken by the GSIS and the ECC runs counter to the
avowed policy of the State to construe social legislations liberally in favor of the
beneficiaries. The Court takes this occasion to stress once more its abiding concern
38
for the welfare of the government workers, especially the humble rank and file,
whose patience, industry and dedication to duty have often gone unheralded, but
who, in spite of every little recognition, plod on dutifully to perform their appointed
tasks. It is for this reason that the sympathy of the law on social security is toward its
beneficiaries, and the law, by its own terms, requires a construction of utmost
liberality in their favor.
1) That it is the result of an occupational disease listed by ECC rules with the
conditions therein satisfied
2) If not so listed, that the risk of contracting the disease is increased by the
working conditions.
GSIS denied a claim for income benefits on the ground that end state renal
disease and diabetic nephropathy are not among the compensable occupational
diseases listed by ECC or PD 626. The claimant was a driver-mechanic and would
not be under tremendous tension and pressure in his work conditions. The Court in
this case (Barrios vs ECC and GSIS) stated the law does not require that the
connection be established with absolute certainty or that a direct causal relation be
shown. It is enough that the theory upon which the claim is based is probable.
Probability, not certainty is the touchstone. Under these circumstances, we must
apply the avowed policy of the State to construe social legislation liberally in favor of
the beneficiaries, in line with Art.166 of PD 626 which reads The State shall
39
promote and develop a tax-exempt employees compensation program whereby
employees and their dependents, in the event of work connected disability or death
may promptly secure adequate income benefit and medical or related benefits.
The GSIS must not therefore loss sight of its primary purpose to give full force
and effect to the policy of the State of giving maximum aid and protection to workers
in government.
40
D. PRE-NEED ACT (Republic Act No. 9829)
The Legislatures passed into law the Republic Act No. 9829 otherwise known
as the Pre-Need Code of the Philippines. It took effect last December 3, 2009, and
issued its Implementing Rules and Regulations 8 March 8, 2010.
The legislatures laid down the policies of the state in enacting the Pre-Need
Code. Thus, as provided for in Sec. 2 of the Code, the government seeks to (1)
standardize the institution of pre-need companies and secure their operations on
sound and stable basis for optimum advantage, and to (2) prevent such practices as
are prejudicial to plan holders and public interest.
To attain such policies, the law transferred the regulation and supervision of
all pre-need companies to the Insurance Commission (IC) from the Philippine
Securities and Exchange Commission (SEC). Such transfer is due to the recognition
of the pre-need contracts as an insurance product rather than securities. The IC is
given the authority to prescribe, pass upon and review the qualifications and
disqualifications of directors and officers of pre-need companies.
The law vested the Insurance Commission, among others, the following powers
and functions:
1) Approve, amend, renew or deny any license, registration or certificate
issued under this Code;
2) Fix and assess fees and/or charges as it may find reasonable in the exercise
of regulation;
3) Regulate, supervise and monitor the operations and management of pre-
need companies
4) Issue cease and desist orders, subpoena duces tecum and ad
testificandum, order the examination, search and seizure of documents,
papers, files, tax returns, books of accounts and other records, in whatever
form, of any entity or person under investigation;
41
5) Take over pre-need companies which fail to comply with this Code, related
laws, rules, regulations and orders issued pursuant thereto, either through
the appointment of a conservator, receiver or liquidator;
6) Formulate policies and recommendations on issues concerning the pre-
need industry, including proposed legislations;
Under the Pre-Need Code, a pre-need plan refers to any contract, agreement,
deed or plan for the benefit of a planholder, which provides for the performance of
future services payment of monetary considerations, or delivery of other benefits at
the time of actual need or agreed maturity date, in exchange for cash or installment
amounts. It includes life, pension, education, interment and any other plan,
instrument, contract or deed, as determined by the IC. A pre-need company is any
corporation registered with the SEC and licensed by the IC to sell or offer to sell pre-
need plans. It also covers schools, memorial chapels, banks, non-bank financial
institutions and other entities licensed by the IC to sell or offer to sell pre-need plans.
The Securities and Exchange Commission shall not approve any pre-need
company for the application of its incorporation unless a favourable
recommendation was given by the Insurance Commission. The law sets forth the
requisites for the incorporation of pre-need companies. Such regulations are
imported to provide better security to the plan holders and standardize the growth
of pre-need companies.
The minimum paid-up capital of P100 million Pesos is required of any pre-
need company wishing to incorporate. The existing pre-need companies should
comply with the following minimum unimpaired paid-up capital: (a) 100 Million
Pesos for companies selling at least three types of plan; (b) 75 Million Pesos for
companies selling two types of plan; and (c) 50 Million Pesos for companies selling a
single type of plan. A plan may be educational, pension, life or memorial. Mindful of
their key role in the pre-need industry, the law requires existing pre-need companies
42
with traditional education plans to have a minimum unimpaired paid-up capital of
P100 million.27
Directors
Similar to the fit and proper rule that the Bangko Sentral applies to bank
directors and officers, this power will enable the IC to maintain the quality of
management of pre-need companies and afford better protection to plan holders and
beneficiaries. In addition, the law requires pre-need companies to elect into their
board of directors at least two independent directors or 20 percent of the members
of the board, whichever is higher. To avoid conflicts of interest, the law prohibits
directors and officers, in their personal capacity or acting as agents, to have direct or
indirect investments in excess of P5 million in any corporation or undertaking in
which the pre-need companys trust fund has an investment or financial interest. The
prohibition also applies to their relatives within the fourth degree of consanguinity
or affinity while the director or officer concerned holds that position in the company.
It is in the establishment and handling of the trust fund that the Pre-need Code takes
to heart the protection of the interests of planholders. A trust fund is a fund created
from the planholders payments to pay for the cost of benefits and services,
termination values payable to planholders, and other costs necessary to ensure the
delivery of benefits or services as provided for in the contracts.
Registration
27
www.bakermckenzie.com/RRManilaRegulationPreNeedCompaniesNov10
43
this Code. The Commission shall promulgate rules governing the registration of pre-
need plans and the required documents which include, among others, the viability
study with certification, under oath, of a pre-need actuary accredited by the
Commission. Said rules shall further set forth the conditions under which such
registration may be denied, revoked, suspended or withdrawn, and the remedies of
pre-need companies in such instances.
Investment
Claims Settlement
The Pre-Need Code protect plan holders against Unfair Claims Settlement
Practices. The law prohibits the pre-need companies from refusing without just
cause to pay or settle any claims arising under coverages provided by its plans nor
shall any such. Any of the following acts by a pre-need company, if committed
without just cause, shall constitute unfair claims settlement practices:
Trust funds
A pre-need company is required to create a trust fund for each type of pre-
need plan that the company is authorized to sell. The Insurance Commission may
approve the request of the company to entrust the management of the trust fund to
reputable banks trust department or other entities authorized by the government.
To ensure the accomplishment of the objective of the trust fund, the law
provides that its assets shall at all times remain for the sole benefit of the
planholders. No part of the assets can be used for or diverted to any purpose other
than for the exclusive benefit of the stockholder. Neither can the assets be touched to
45
satisfy the claims of the companys creditors, nor can they be considered part of the
assets of the company that is subject to distribution in case the company files for
insolvency.29
Any person, after notice and hearing who is found guilty of any unlawful
practices or committed any violations of the Pre-Need Code may be
Administratively, Civilly or Criminally charged as the case may be. The Commission
may impose any or all of the sanctions for the following offenses:
3) The refusal to permit any lawful examination into its affairs; and
The unauthorized sale of pre-need plans shall subject the issuer to a fine as
follows:
1) First violation thirty percent (30%) of the aggregate gross pre-need price
of the plans sold;
2) Second violation forty percent (40%) of the aggregate gross pre-need price
of the plans sold; and
29
http://business.inquirer.net/money/columns/view/20091217-242576/New-law-for-pre-need-plans
46
3) Third violation suspension or revocation of license
The following acts are considered criminal acts and are penalized by the
Code depending on the gravity of the offense:
47
E. HOME INSURANCE GUARANTY ACT OF 2000
48
The guaranty programs of the Corporation which are available to banks,
government and financial institutions, housing developers, and building and loan
associations are:
49
addition, the Corporation may charge and collect such fees and amounts as may
be reasonable for appraisal of a project offered for guaranty.
Under HIGC rules Section 1(b), Rule II the type of dispute over which the
HGIC has jurisdiction include:
51
The Supreme Court ruled, the HIGC went beyond the authority by the law
when it promulgated the revised rules of procedure. There was a clear attempt to
unduly expand the provisions of Presidential Decree 902-A. As provided in the
law, insofar as the associations franchise or corporate existence is involved, it is
only the State, not the general public or other entity that could question this.
The appellate court correctly held that: The inclusion of the phrase GENERAL
PUBLIC OR OTHER ENTITY is a matter which HIGC cannot legally do The
rule-making power of a public administrative body is a delegated legislative
power, which it may not use either to abridge the authority given it by Congress
or the Constitution or to enlarge its power beyond the scope intended.
Constitutional and statutory provisions control what rules and regulations may
be promulgated by such a body, as well as with respect to what fields are subject
to regulation by it. It may not make rules and regulations which are inconsistent
with the provisions of the Constitution or a statute, particularly the statute it is
administering or which created it, or which are in derogation of, or defeat, the
purpose of a statute.
52
or the making of a direct loan; increased the deposit insurance coverage from
P40,000 to P 100,000 per depositor.
On August 12, 2004 Republic Act 9302 took effect and amended the PDIC
charter increased the maximum deposit insurance coverage from P100,000 to
P250,000. The increase in coverage at the time it came into effect provided full
protection to 96% of all deposit accounts, almost all or 99% of deposit accounts in
rural banks were backed by full insurance coverage and some 95% of deposit
accounts in commercial banks were fully insured. In addition, the amendment
provided for other penalties for unsafe and unsound practices among bank owners
and officials. The new law also commits to every depositor continued protection
guaranteed by deposit insurance s PDICs authority to terminate the insurance status
of banks has been revoked. This provision imposes much greater risk on the deposit
insurance fund.
Republic Act 9576 came into effect after its approval on April 29, 2008. This
amendment to the PDIC charter doubled the maximum deposit coverage from
P250,000 to P500,000 for each depositor, it likewise granted PDIC institutional and
financial strengthening increases to support the increase of deposit insurance.
PDIC Charter
Towards this end, the government must extend all means and mechanisms
necessary for the PDIC to fulfill its vital task of promoting and safeguarding the
interest of the depositing public by way of providing permanent and continuing
insurance coverage or all insured deposits and in helping develop a sound and stable
banking system at all times.
Clearly, PDIC is mandated to insure the interests of the depositing public and
ensure the institutional and financial stability of our banking system.
30
http://www.pdic.gov.ph
54
bank, it shall be disclosed that an insured bank or its directors or agents
have committed are committing or about to commit unsafe or unsound
practices in conducting the business of the bank, or have violated, are
violating or about to violate any provisions of any law or regulation to
which the insured bank is subject, the Board of Directors shall submit the
report of the examination to the Monetary Board to secure corrective
action thereon. If no such corrective action is taken by the Monetary Board
within forty-five (45) days from the submission of the report, the Board of
Directors shall, motu proprio, institute corrective action which it deems
necessary. The Board of Directors may thereafter issue a cease and desist
order and require the bank or its directors or agents concerned to correct
the practices or violations within forty-five (45) days. However, if the
practice or violation is likely to cause insolvency or substantial dissipation
of assets or earnings of the bank, or is likely to seriously weaken the
condition of the bank or otherwise seriously prejudice the interests of its
depositors and the Corporation, the period to take corrective action shall
not be more than fifteen (15) days. The order may also include the
imposition of fines provided in Section 21 of the Charter.
3) Conduct examination of banks with prior approval of the Monetary Board
or conduct a special examinations as concurred by a majority of the Board
of Directors in coordination with the Bangko Sentral if there is a
threatened or impending closure of a bank or may inquire into or examine
deposit accounts and all information related thereto in case there is a
funding of unsafe or unsound banking practice.
4) To act as receiver and shall control, manage and administer the affairs of
the closed bank.
5) Financial assistance When the Corporation has determined that an
insured bank is in danger of closing and in order to prevent such closing
the Corporation, in the discretion of its Board of Directors, is authorized to
make loans to, or purchase the assets of, or assume liabilities of, or make
deposits in such insured bank, upon such terms and condition as the
Board of Directors may prescribe, when in the opinion of the Board of
55
Directors, the continued operation of such bank is essential to provide
adequate banking service in the community or maintain financial stability
in the economy.
To carry out the purpose of this Act, the permanent insurance fund shall be
Three Billion Pesos (P 3,000,000,000.00). The Deposit Insurance Fund shall be the
capital account of the Corporation and shall consist of the following:
Whenever an insured bank shall have been closed by the Monetary Board
pursuant to Section 30 of R.A. 7633, payment of the insured deposits on such closed
bank shall be made by the Corporation as soon as possible either by (1)by cash or
(2)by making available to each depositor a transferred deposit in another insured
bank in an amount equal to insured deposit of such depositor. Provided however,
That the Corporation, in its discretion, may require proof of claims to be filed before
paying the insured deposits, and that in any case where the Corporation is not
satisfied as to the viability of a claim for an insured deposit, it may require final
determination of a court of competent jurisdiction before paying such claim:
Provided, further, That failure to settle the claim, within six(6) months from the date
of filing of claim for insured deposit where such failure was due to grave abuse of
discretion, gross negligence, bad faith, or malice, shall, upon conviction, subject the
directors, officers or employees of the Corporation responsible for the delay, to
imprisonment from six (6) months to one (1) year.
56
PDIC vs Legacy Banks
The complaint by PDIC alleges that the P10M cash advances given to the three
corporations were in violation of existing banking regulations and with preconceived
plans defraud PCRBI. It also asserted that de los Angeles should be made personally
liable for the cash advances extended by PCRBI to defendant Corporations under the
doctrine of piercing the veil of corporate function. De los Angeles controlled all three
corporations and used such control to siphon off funds of PCRBI to the prejudice of
its creditors and depositors.
The cash advances were highly irregular, improper and fraudulent in violation
of PCRBIs Manual of Operation which provides that only officers and employees of
PCRBI are entitled to cash advances subject to 30 day liquidation. Such cash
advances are in reality loans granted to directors, officers, stockholders and related
interests. The grant of such is restricted under Section 36 of the General Banking
Law which provides that no bank director or officer shall directly or indirectly
borrow from the bank except with the written approval of the majority of all the
directors of the bank, excluding the director concerned. There is however nothing in
the records of PCRBI that would show that the said requirement was complied with.
31
Manila Bulletin, May 05, 2009
57
The Legacy Group controversy involves 12 Legacy banks, several corporations
and an estimated P14 Billion in 135,000 accounts.
The payout from PDIC will easily inundate its Deposit Insurance Fund
with no recoveries as it discovered overstatements in the Legacy bank books, and
because it has been hit hard, it is also now going to go after the more gullible
investors who are induced to part with their saving by the big schemers and
racketeers. The PDIC will now refuse to provide insurance to bank accounts that are
opened up in banks that initially had been granted authority by the Bangko Sentral
to offer their products and services. If the intent of the law is to protect the public
and maintain the stability of the banking and financial institutions, the regulatory
and supervisory function of PDIC should instead be strengthened and directed
against the likes of de Los Angeles to be able to preempt fraud against the small
depositors.
58
III. SUMMARY
59