Cases in Insurance
Moreover, Pioneer was already licensed, hence, a separate
THIRD MEETING
I. Doing an Insurance Business (Principle of Subrogation)
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 latter’s unpaid balance. White Gold on the other hand, filed a complaint before the Insurance
Commission claiming that Steamship Mutual violated Sections 1864 and 1875 of the Insurance Code,
while Pioneer violated Sections 299,6 3007 and 3018 in relation to Sections 302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no need for Steamship
Mutual to secure a license because it was not engaged in the insurance business. It explained that
Steamship Mutual was a Protection and Indemnity Club (P & I Club). Likewise, Pioneer need not obtain
another license as insurance agent and/or a broker for Steamship Mutual because Steamship Mutual
was not engaged in the insurance business.
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-à-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 Mutual’s primary purpose is
to solicit and provide protection and indemnity coverage and for this purpose, it has engaged the
services of Pioneer to act as its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the insurance
business in the Philippines. It is merely an association of vessel owners who have come together to
provide mutual protection against liabilities incidental to shipowning.11 Respondents aver Hyopsung is
inapplicable in this case because the issue in Hyopsung was the jurisdiction of the court over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance business" or
"transacting an insurance business". These are:
(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 Pioneer’s certificate of authority and removal of its directors and
officers. Regrettably, we are not the forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the Court of
Appeals affirming the Decision dated May 3, 2000 of the Insurance Commission is hereby REVERSED
AND SET ASIDE. The Steamship Mutual Underwriting Association (Bermuda) Ltd., and Pioneer Insurance
and Surety Corporation are ORDERED to obtain licenses and to secure proper authorizations to do
business as insurer and insurance agent, respectively. The petitioner’s prayer for the revocation of
Pioneer’s Certificate of Authority and removal of its directors and officers, is DENIED. Costs against
respondents.
SO ORDERED.
II. Public interest in the Insurance Business
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
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 of P11,835.50 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 twenty-five 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 adjudicatory authority 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.
III. Insurance versus Health Maintenance Organizations (HMOs)
G.R. No. 167330 September 18, 2009
PHILIPPINE HEALTH CARE PROVIDERS, INC., Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
RESOLUTION
CORONA, J.:
ARTICLE II
Declaration of Principles and State Policies
Section 15. The State shall protect and promote the right to health of the people and instill health
consciousness among them.
ARTICLE XIII
Social Justice and Human Rights
Section 11. The State shall adopt an integrated and comprehensive approach to health development
which shall endeavor to make essential goods, health and other social services available to all the people
at affordable cost. There shall be priority for the needs of the underprivileged sick, elderly, disabled,
women, and children. The State shall endeavor to provide free medical care to paupers.1
For resolution are a motion for reconsideration and supplemental motion for reconsideration dated July
10, 2008 and July 14, 2008, respectively, filed by petitioner Philippine Health Care Providers, Inc.2
We recall the facts of this case, as follows:
Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and
operate a prepaid group practice health care delivery system or a health maintenance organization to
take care of the sick and disabled persons enrolled in the health care plan and to provide for the
administrative, legal, and financial responsibilities of the organization." Individuals enrolled in its health
care programs pay an annual membership fee and are entitled to various preventive, diagnostic and
curative medical services provided by its duly licensed physicians, specialists and other professional
technical staff participating in the group practice health delivery system at a hospital or clinic owned,
operated or accredited by it.
xxx xxx xxx
On January 27, 2000, respondent Commissioner of Internal Revenue [CIR] sent petitioner a formal
demand letter and the corresponding assessment notices demanding the payment of deficiency taxes,
including surcharges and interest, for the taxable years 1996 and 1997 in the total amount of
₱224,702,641.18. xxxx
The deficiency [documentary stamp tax (DST)] assessment was imposed on petitioner’s health care
agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax Code
xxxx
xxx xxx xxx insurance which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v.
Olivares3 and Philamcare Health Systems, Inc. v. CA.4 We also ruled that petitioner’s contention that it
is a health maintenance organization (HMO) and not an insurance company is irrelevant because
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on
contracts between companies like petitioner and the beneficiaries under their plans are treated as
the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the
insurance contracts. Moreover, DST is not a tax on the business transacted but an excise on the
cancellation of the deficiency VAT and DST assessments.
privilege, opportunity or facility offered at exchanges for the transaction of the business.

On April 5, 2002, the CTA rendered a decision, the dispositive portion of which read:
Unable to accept our verdict, petitioner filed the present motion for reconsideration and supplemental
motion for reconsideration, asserting the following arguments:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Petitioner
is hereby ORDERED to PAY the deficiency VAT amounting to ₱22,054,831.75 inclusive of 25% surcharge
(a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only on a
plus 20% interest from January 20, 1997 until fully paid for the 1996 VAT deficiency and
company engaged in the business of fidelity bonds and other insurance policies. Petitioner, as
₱31,094,163.87 inclusive of 25% surcharge plus 20% interest from January 20, 1998 until fully paid
an HMO, is a service provider, not an insurance company.
for the 1997 VAT deficiency. Accordingly, VAT Ruling No. [231]-88 is declared void and without force
and effect. The 1996 and 1997 deficiency DST assessment against petitioner is hereby CANCELLED AND
SET ASIDE. Respondent is ORDERED to DESIST from collecting the said DST deficiency tax. (b) The Court, in dismissing the appeal in CIR v. Philippine National Bank, affirmed in effect
the CA’s disposition that health care services are not in the nature of an insurance business.
SO ORDERED.
(c) Section 185 should be strictly construed.
Respondent appealed the CTA decision to the [Court of Appeals (CA)] insofar as it cancelled the DST
assessment. He claimed that petitioner’s health care agreement was a contract of insurance subject to (d) Legislative intent to exclude health care agreements from items subject to DST is clear,
DST under Section 185 of the 1997 Tax Code. especially in the light of the amendments made in the DST law in 2002.

On August 16, 2004, the CA rendered its decision. It held that petitioner’s health care agreement was (e) Assuming arguendo that petitioner’s agreements are contracts of indemnity, they are not
in the nature of a non-life insurance contract subject to DST. those contemplated under Section 185.

WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals, insofar as (f) Assuming arguendo that petitioner’s agreements are akin to health insurance, health
it cancelled and set aside the 1996 and 1997 deficiency documentary stamp tax assessment and ordered insurance is not covered by Section 185.
petitioner to desist from collecting the same is REVERSED and SET ASIDE.
(g) The agreements do not fall under the phrase "other branch of insurance" mentioned in
Respondent is ordered to pay the amounts of ₱55,746,352.19 and ₱68,450,258.73 as deficiency Section 185.
Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and
20% interest per annum from January 27, 2000, pursuant to Sections 248 and 249 of the Tax Code,
(h) The June 12, 2008 decision should only apply prospectively.
until the same shall have been fully paid.

(i) Petitioner availed of the tax amnesty benefits under RA5 9480 for the taxable year 2005
SO ORDERED.
and all prior years. Therefore, the questioned assessments on the DST are now rendered moot
and academic.6
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case.
Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their memoranda on
xxx xxx xxx June 8, 2009.

In a decision dated June 12, 2008, the Court denied the petition and affirmed the CA’s decision. We
held that petitioner’s health care agreement during the pertinent period was in the nature of non-life
In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax amnesty
under RA 94807 (also known as the "Tax Amnesty Act of 2007") by fully paying the amount of
₱5,127,149.08 representing 5% of its net worth as of the year ending December 31, 2005.8
We find merit in petitioner’s motion for reconsideration.
Petitioner was formally registered and incorporated with the Securities and Exchange Commission on
June 30, 1987.9 It is engaged in the dispensation of the following medical services to individuals who
enter into health care agreements with it:
Preventive medical services such as periodic monitoring of health problems, family planning
counseling, consultation and advices on diet, exercise and other healthy habits, and immunization;
Diagnostic medical services such as routine physical examinations, x-rays, urinalysis, fecalysis,
complete blood count, and the like and
Curative medical services which pertain to the performing of other remedial and therapeutic processes
in the event of an injury or sickness on the part of the enrolled member.10
Individuals enrolled in its health care program pay an annual membership fee. Membership is on a year-
to-year basis. The medical services are dispensed to enrolled members in a hospital or clinic owned,
operated or accredited by petitioner, through physicians, medical and dental practitioners under
contract with it. It negotiates with such health care practitioners regarding payment schemes, financing
and other procedures for the delivery of health services. Except in cases of emergency, the professional
services are to be provided only by petitioner's physicians, i.e. those directly employed by it11 or whose
services are contracted by it.12 Petitioner also provides hospital services such as room and board
accommodation, laboratory services, operating rooms, x-ray facilities and general nursing care.13 If and
when a member avails of the benefits under the agreement, petitioner pays the participating physicians
and other health care providers for the services rendered, at pre-agreed rates.14
To avail of petitioner’s health care programs, the individual members are required to sign and execute
a standard health care agreement embodying the terms and conditions for the provision of the health
care services. The same agreement contains the various health care services that can be engaged by
the enrolled member, i.e., preventive, diagnostic and curative medical services. Except for the curative
aspect of the medical service offered, the enrolled member may actually make use of the health care
services being offered by petitioner at any time.
Health Maintenance Organizations Are Not Engaged In The Insurance Business
We said in our June 12, 2008 decision that it is irrelevant that petitioner is an HMO and not an insurer
because its agreements are treated as insurance contracts and the DST is not a tax on the business but
an excise on the privilege, opportunity or facility used in the transaction of the business.15
Petitioner, however, submits that it is of critical importance to characterize the business it is engaged
in, that is, to determine whether it is an HMO or an insurance company, as this distinction is
indispensable in turn to the issue of whether or not it is liable for DST on its health care agreements.16
A second hard look at the relevant law and jurisprudence convinces the Court that the arguments of
petitioner are meritorious.
Section 185 of the National Internal Revenue Code of 1997 (NIRC of 1997) provides:
Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of
insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability made
or renewed by any person, association or company or corporation transacting the business
of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic
sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance), and all
bonds, undertakings, or recognizances, conditioned for the performance of the duties of any office or
position, for the doing or not doing of anything therein specified, and on all obligations guaranteeing
the validity or legality of any bond or other obligations issued by any province, city, municipality, or
other public body or organization, and on all obligations guaranteeing the title to any real estate, or
guaranteeing any mercantile credits, which may be made or renewed by any such person, company or
corporation, there shall be collected a documentary stamp tax of fifty centavos (₱0.50) on each four
pesos (₱4.00), or fractional part thereof, of the premium charged. (Emphasis supplied)
It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a
statute shall be considered surplusage or superfluous, meaningless, void and insignificant. To this end,
a construction which renders every word operative is preferred over that which makes some words idle
and nugatory.17 This principle is expressed in the maxim Ut magis valeat quam pereat, that is, we
choose the interpretation which gives effect to the whole of the statute – its every word.18
From the language of Section 185, it is evident that two requisites must concur before the DST can
apply, namely: (1) the document must be a policy of insurance or an obligation in the nature of
indemnity and (2) the maker should be transacting the business of accident, fidelity, employer’s
liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch
of insurance (except life, marine, inland, and fire insurance).
Petitioner is admittedly an HMO. Under RA 7875 (or "The National Health Insurance Act of 1995"), an
HMO is "an entity that provides, offers or arranges for coverage of designated health services needed
by plan members for a fixed prepaid premium."19 The payments do not vary with the extent, frequency
or type of services provided.
The question is: was petitioner, as an HMO, engaged in the business of insurance during the pertinent
taxable years? We rule that it was not.
Section 2 (2) of PD20 1460 (otherwise known as the Insurance Code) enumerates what constitutes
"doing an insurance business" or "transacting an insurance business:"
 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.
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
therefore, shall not be deemed conclusive to show that the making thereof does not constitute the doing
or transacting of an insurance business.
Various courts in the United States, whose jurisprudence has a persuasive effect on our
decisions,21 have determined that HMOs are not in the insurance business. One test that they have
applied is whether the assumption of risk and indemnification of loss (which are elements of an
insurance business) are the principal object and purpose of the organization or whether they are merely
incidental to its business. If these are the principal objectives, the business is that of insurance. But if
they are merely incidental and service is the principal purpose, then the business is not insurance.
Applying the "principal object and purpose test,"22 there is significant American case law supporting the
argument that a corporation (such as an HMO, whether or not organized for profit), whose main object
is to provide the members of a group with health services, is not engaged in the insurance business.
The rule was enunciated in Jordan v. Group Health Association23 wherein the Court of Appeals of the
District of Columbia Circuit held that Group Health Association should not be considered as engaged in
insurance activities since it was created primarily for the distribution of health care services rather than
the assumption of insurance risk.
xxx Although Group Health’s activities may be considered in one aspect as creating security against
loss from illness or accident more truly they constitute the quantity purchase of well-rounded,
continuous medical service by its members. xxx The functions of such an organization are not
identical with those of insurance or indemnity companies. The latter are concerned primarily, if
not exclusively, with risk and the consequences of its descent, not with service, or its extension in kind,
quantity or distribution; with the unusual occurrence, not the daily routine of living. Hazard is
predominant. On the other hand, the cooperative is concerned principally with getting service
rendered to its members and doing so at lower prices made possible by quantity purchasing
and economies in operation. Its primary purpose is to reduce the cost rather than the risk of
medical care; to broaden the service to the individual in kind and quantity; to enlarge the
number receiving it; to regularize it as an everyday incident of living, like purchasing food
and clothing or oil and gas, rather than merely protecting against the financial loss caused
by extraordinary and unusual occurrences, such as death, disaster at sea, fire and tornado. It
is, in this instance, to take care of colds, ordinary aches and pains, minor ills and all the temporary
bodily discomforts as well as the more serious and unusual illness. To summarize, the distinctive
features of the cooperative are the rendering of service, its extension, the bringing of
physician and patient together, the preventive features, the regularization of service as well
as payment, the substantial reduction in cost by quantity purchasing in short, getting the
medical job done and paid for; not, except incidentally to these features, the indemnification
for cost after the services is rendered. Except the last, these are not distinctive or generally
characteristic of the insurance arrangement. There is, therefore, a substantial difference between
contracting in this way for the rendering of service, even on the contingency that it be needed, and
contracting merely to stand its cost when or after it is rendered.
That an incidental element of risk distribution or assumption may be present should not outweigh all
other factors. If attention is focused only on that feature, the line between insurance or indemnity and
other types of legal arrangement and economic function becomes faint, if not extinct. This is especially
true when the contract is for the sale of goods or services on contingency. But obviously it was not the
purpose of the insurance statutes to regulate all arrangements for assumption or distribution of risk.
That view would cause them to engulf practically all contracts, particularly conditional sales and
contingent service agreements. The fallacy is in looking only at the risk element, to the exclusion
of all others present or their subordination to it. The question turns, not on whether risk is
involved or assumed, but on whether that or something else to which it is related in the
particular plan is its principal object purpose.24 (Emphasis supplied)
In California Physicians’ Service v. Garrison,25 the California court felt that, after scrutinizing the plan
of operation as a whole of the corporation, it was service rather than indemnity which stood as its
principal purpose.
There is another and more compelling reason for holding that the service is not engaged in the insurance
business. Absence or presence of assumption of risk or peril is not the sole test to be applied
in determining its status. The question, more broadly, is whether, looking at the plan of
operation as a whole, ‘service’ rather than ‘indemnity’ is its principal object and
purpose. Certainly the objects and purposes of the corporation organized and maintained by the
California physicians have a wide scope in the field of social service. Probably there is no more
impelling need than that of adequate medical care on a voluntary, low-cost basis for persons
of small income. The medical profession unitedly is endeavoring to meet that need.
Unquestionably this is ‘service’ of a high order and not ‘indemnity.’26 (Emphasis supplied)
American courts have pointed out that the main difference between an HMO and an insurance company
is that HMOs undertake to provide or arrange for the provision of medical services through participating
physicians while insurance companies simply undertake to indemnify the insured for medical expenses
incurred up to a pre-agreed limit. Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross and Blue
Shield of New Jersey27 is clear on this point:
The basic distinction between medical service corporations and ordinary health and accident insurers is
that the former undertake to provide prepaid medical services through participating
physicians, thus relieving subscribers of any further financial burden, while the latter only undertake
to indemnify an insured for medical expenses up to, but not beyond, the schedule of rates contained in
the policy.
xxx xxx xxx
The primary purpose of a medical service corporation, however, is an undertaking to provide physicians
who will render services to subscribers on a prepaid basis. Hence, if there are no physicians
participating in the medical service corporation’s plan, not only will the subscribers be
deprived of the protection which they might reasonably have expected would be
provided, but the corporation will, in effect, be doing business solely as a health and accident
indemnity insurer without having qualified as such and rendering itself subject to the more stringent
financial requirements of the General Insurance Laws….
A participating provider of health care services is one who agrees in writing to render health care
services to or for persons covered by a contract issued by health service corporation in return for which
the health service corporation agrees to make payment directly to the participating
provider.28 (Emphasis supplied)
Consequently, the mere presence of risk would be insufficient to override the primary purpose of the
business to provide medical services as needed, with payment made directly to the provider of these
services.29 In short, even if petitioner assumes the risk of paying the cost of these services even if
significantly more than what the member has prepaid, it nevertheless cannot be considered as being
engaged in the insurance business.
By the same token, any indemnification resulting from the payment for services rendered in case of
emergency by non-participating health providers would still be incidental to petitioner’s purpose of
providing and arranging for health care services and does not transform it into an insurer. To fulfill its
obligations to its members under the agreements, petitioner is required to set up a system and the
facilities for the delivery of such medical services. This indubitably shows that indemnification is not its
sole object.
In fact, a substantial portion of petitioner’s services covers preventive and diagnostic medical services
intended to keep members from developing medical conditions or diseases.30 As an HMO, it is its
obligation to maintain the good health of its members. Accordingly, its health care programs are
designed to prevent or to minimize the possibility of any assumption of risk on its part. Thus,
its undertaking under its agreements is not to indemnify its members against any loss or damage arising
from a medical condition but, on the contrary, to provide the health and medical services needed to
prevent such loss or damage.31
Overall, petitioner appears to provide insurance-type benefits to its members (with respect to
its curative medical services), but these are incidental to the principal activity of providing them
medical care. The "insurance-like" aspect of petitioner’s business is miniscule compared to its
noninsurance activities. Therefore, since it substantially provides health care services rather than
insurance services, it cannot be considered as being in the insurance business.
It is important to emphasize that, in adopting the "principal purpose test" used in the above-quoted
U.S. cases, we are not saying that petitioner’s operations are identical in every respect to those of the
HMOs or health providers which were parties to those cases. What we are stating is that, for the purpose
of determining what "doing an insurance business" means, we have to scrutinize the operations of the
business as a whole and not its mere components. This is of course only prudent and appropriate, taking
into account the burdensome and strict laws, rules and regulations applicable to insurers and other
entities engaged in the insurance business. Moreover, we are also not unmindful that there are other
American authorities who have found particular HMOs to be actually engaged in insurance activities.32
Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident
from the fact that it is not supervised by the Insurance Commission but by the Department of
Health.33 In fact, in a letter dated September 3, 2000, the Insurance Commissioner confirmed that
petitioner is not engaged in the insurance business. This determination of the commissioner must be
accorded great weight. It is well-settled that the interpretation of an administrative agency which is
tasked to implement a statute is accorded great respect and ordinarily controls the interpretation of
laws by the courts. The reason behind this rule was explained in Nestle Philippines, Inc. v. Court of
Appeals:34
The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or
modernizing society and the establishment of diverse administrative agencies for addressing and
satisfying those needs; it also relates to the accumulation of experience and growth of specialized
capabilities by the administrative agency charged with implementing a particular statute. In Asturias
Sugar Central, Inc. vs. Commissioner of Customs,35 the Court stressed that executive officials are
presumed to have familiarized themselves with all the considerations pertinent to the meaning and
purpose of the law, and to have formed an independent, conscientious and competent expert opinion
thereon. The courts give much weight to the government agency officials charged with the
implementation of the law, their competence, expertness, experience and informed judgment, and the
fact that they frequently are the drafters of the law they interpret.36
A Health Care Agreement Is Not An Insurance Contract Contemplated Under Section 185 Of
The NIRC of 1997
Section 185 states that DST is imposed on "all policies of insurance… or obligations of the nature of
indemnity for loss, damage, or liability…." In our decision dated June 12, 2008, we ruled that petitioner’s
health care agreements are contracts of indemnity and are therefore insurance contracts:
It is … incorrect to say that the health care agreement is not based on loss or damage because, under
the said agreement, petitioner assumes the liability and indemnifies its member for hospital, medical
and related expenses (such as professional fees of physicians). The term "loss or damage" is broad
enough to cover the monetary expense or liability a member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and professional services to the
member in case of sickness, injury or emergency or his availment of so-called "out-patient services"
(including physical examination, x-ray and laboratory tests, medical consultations, vaccine
administration and family planning counseling) is the contingent event which gives rise to liability on
the part of the member. In case of exposure of the member to liability, he would be entitled to
indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses
arising from the stipulated contingencies belies its claim that its services are prepaid. The expenses to
be incurred by each member cannot be predicted beforehand, if they can be predicted at all. Petitioner
assumes the risk of paying for the costs of the services even if they are significantly and substantially
more than what the member has "prepaid." Petitioner does not bear the costs alone but distributes or
spreads them out among a large group of persons bearing a similar risk, that is, among all the other
members of the health care program. This is insurance.37
We reconsider. We shall quote once again the pertinent portion of Section 185:
Section 185. Stamp tax on fidelity bonds and other insurance policies. – On all policies of
insurance or bonds or obligations of the nature of indemnity for loss, damage, or liability made
or renewed by any person, association or company or corporation transacting the business of accident,
fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other
branch of insurance (except life, marine, inland, and fire insurance), xxxx (Emphasis supplied)
In construing this provision, we should be guided by the principle that tax statutes are strictly construed
against the taxing authority.38 This is because taxation is a destructive power which interferes with the
personal and property rights of the people and takes from them a portion of their property for the
support of the government.39 Hence, tax laws may not be extended by implication beyond the clear
import of their language, nor their operation enlarged so as to embrace matters not specifically
provided.40
We are aware that, in Blue Cross and Philamcare, the Court pronounced that a health care agreement
is in the nature of non-life insurance, which is primarily a contract of indemnity. However, those cases
did not involve the interpretation of a tax provision. Instead, they dealt with the liability of a health
service provider to a member under the terms of their health care agreement. Such contracts, as
contracts of adhesion, are liberally interpreted in favor of the member and strictly against the HMO. For
this reason, we reconsider our ruling that Blue Cross and Philamcare are applicable here.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one
undertakes for a consideration to indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designed peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a
large group of persons bearing a similar risk and
5. In consideration of the insurer’s promise, the insured pays a premium.41
Do the agreements between petitioner and its members possess all these elements? They do not.
First. In our jurisdiction, a commentator of our insurance laws has pointed out that, even if a contract
contains all the elements of an insurance contract, if its primary purpose is the rendering of service, it
is not a contract of insurance:
It does not necessarily follow however, that a contract containing all the four elements mentioned above
would be an insurance contract. The primary purpose of the parties in making the contract may
negate the existence of an insurance contract. For example, a law firm which enters into contracts
with clients whereby in consideration of periodical payments, it promises to represent such clients in all
suits for or against them, is not engaged in the insurance business. Its contracts are simply for the
purpose of rendering personal services. On the other hand, a contract by which a corporation, in
consideration of a stipulated amount, agrees at its own expense to defend a physician against all suits
for damages for malpractice is one of insurance, and the corporation will be deemed as engaged in the
business of insurance. Unlike the lawyer’s retainer contract, the essential purpose of such a contract is
not to render personal services, but to indemnify against loss and damage resulting from the defense
of actions for malpractice.42 (Emphasis supplied)
Second. Not all the necessary elements of a contract of insurance are present in petitioner’s
agreements. To begin with, there is no loss, damage or liability on the part of the member that should
be indemnified by petitioner as an HMO. Under the agreement, the member pays petitioner a
predetermined consideration in exchange for the hospital, medical and professional services rendered
by the petitioner’s physician or affiliated physician to him. In case of availment by a member of the
benefits under the agreement, petitioner does not reimburse or indemnify the member as the latter
does not pay any third party. Instead, it is the petitioner who pays the participating physicians and
other health care providers for the services rendered at pre-agreed rates. The member does not make
any such payment.
In other words, there is nothing in petitioner's agreements that gives rise to a monetary liability on the
part of the member to any third party-provider of medical services which might in turn necessitate
indemnification from petitioner. The terms "indemnify" or "indemnity" presuppose that a liability or
claim has already been incurred. There is no indemnity precisely because the member merely avails of
medical services to be paid or already paid in advance at a pre-agreed price under the agreements.
Third. According to the agreement, a member can take advantage of the bulk of the benefits
anytime, e.g. laboratory services, x-ray, routine annual physical examination and consultations, vaccine
administration as well as family planning counseling, even in the absence of any peril, loss or damage
on his or her part.
Fourth. In case of emergency, petitioner is obliged to reimburse the member who receives care from a Section 116. There shall be levied, collected, and paid for and in respect to the several bonds,
non-participating physician or hospital. However, this is only a very minor part of the list of services debentures, or certificates of stock and indebtedness, and other documents, instruments, matters, and
available. The assumption of the expense by petitioner is not confined to the happening of a contingency things mentioned and described in this section, or for or in respect to the vellum, parchment, or paper
but includes incidents even in the absence of illness or injury. upon which such instrument, matters, or things or any of them shall be written or printed by any person
or persons who shall make, sign, or issue the same, on and after January first, nineteen hundred and
five, the several taxes following:
In Michigan Podiatric Medical Association v. National Foot Care Program, Inc.,43 although the health
care contracts called for the defendant to partially reimburse a subscriber for treatment received from
a non-designated doctor, this did not make defendant an insurer. Citing Jordan, the Court determined xxx xxx xxx
that "the primary activity of the defendant (was) the provision of podiatric services to subscribers in
consideration of prepayment for such services."44 Since indemnity of the insured was not the focal point
Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity for
of the agreement but the extension of medical services to the member at an affordable cost, it did not
loss, damage, or liability made or renewed by any person, association, company, or
partake of the nature of a contract of insurance.
corporation transacting the business of accident, fidelity, employer’s liability, plate glass,
steam boiler, burglar, elevator, automatic sprinkle, or other branch of insurance (except life,
Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that risk marine, inland, and fire insurance) xxxx (Emphasis supplied)
alone is sufficient to establish it. Almost anyone who undertakes a contractual obligation always bears
a certain degree of financial risk. Consequently, there is a need to distinguish prepaid service contracts
On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising and
(like those of petitioner) from the usual insurance contracts.
consolidating the laws relating to internal revenue. The aforecited pertinent portion of Section 116,
Article XI of Act No. 1189 was completely reproduced as Section 30 (l), Article III of Act No. 2339. The
Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health services: the very detailed and exclusive enumeration of items subject to DST was thus retained.
risk that it might fail to earn a reasonable return on its investment. But it is not the risk of the type
peculiar only to insurance companies. Insurance risk, also known as actuarial risk, is the risk that the
On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as Section
cost of insurance claims might be higher than the premiums paid. The amount of premium is calculated
1604 (l), Article IV of Act No. 2657 (Administrative Code). Upon its amendment on March 10, 1917, the
on the basis of assumptions made relative to the insured.45
pertinent DST provision became Section 1449 (l) of Act No. 2711, otherwise known as the
Administrative Code of 1917.
However, assuming that petitioner’s commitment to provide medical services to its members can be
construed as an acceptance of the risk that it will shell out more than the prepaid fees, it still will not
Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of 1939), which
qualify as an insurance contract because petitioner’s objective is to provide medical services at reduced
codified all the internal revenue laws of the Philippines. In an amendment introduced by RA 40 on
cost, not to distribute risk like an insurer.
October 1, 1946, the DST rate was increased but the provision remained substantially the same.

In sum, an examination of petitioner’s agreements with its members leads us to conclude that it is not
Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD 1158
an insurance contract within the context of our Insurance Code.
(NIRC of 1977) as Section 234. Under PDs 1457 and 1959, enacted on June 11, 1978 and October 10,
1984 respectively, the DST rate was again increased.1avvphi1
There Was No Legislative Intent To Impose DST On Health Care Agreements Of HMOs
Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977 was
Furthermore, militating in convincing fashion against the imposition of DST on petitioner’s health care renumbered as Section 198. And under Section 23 of EO47 273 dated July 25, 1987, it was again
agreements under Section 185 of the NIRC of 1997 is the provision’s legislative history. The text of renumbered and became Section 185.
Section 185 came into U.S. law as early as 1904 when HMOs and health care agreements were not
even in existence in this jurisdiction. It was imposed under Section 116, Article XI of Act No. 1189
On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect to the
(otherwise known as the "Internal Revenue Law of 1904")46 enacted on July 2, 1904 and became
rate of tax.
effective on August 1, 1904. Except for the rate of tax, Section 185 of the NIRC of 1997 is a verbatim
reproduction of the pertinent portion of Section 116, to wit:
Notwithstanding the comprehensive amendment of the NIRC of 1977 by RA 8424 (or the NIRC of 1997),
the subject legal provision was retained as the present Section 185. In 2004, amendments to the DST
ARTICLE XI
provisions were introduced by RA 924348 but Section 185 was untouched.
Stamp Taxes on Specified Objects
On the other hand, the concept of an HMO was introduced in the Philippines with the formation of
Bancom Health Care Corporation in 1974. The same pioneer HMO was later reorganized and renamed
Integrated Health Care Services, Inc. (or Intercare). However, there are those who claim that Health
Maintenance, Inc. is the HMO industry pioneer, having set foot in the Philippines as early as 1965 and
having been formally incorporated in 1991. Afterwards, HMOs proliferated quickly and currently, there
are 36 registered HMOs with a total enrollment of more than 2 million.49
We can clearly see from these two histories (of the DST on the one hand and HMOs on the other) that
when the law imposing the DST was first passed, HMOs were yet unknown in the Philippines. However,
when the various amendments to the DST law were enacted, they were already in existence in the
Philippines and the term had in fact already been defined by RA 7875. If it had been the intent of the
legislature to impose DST on health care agreements, it could have done so in clear and categorical
terms. It had many opportunities to do so. But it did not. The fact that the NIRC contained no specific
provision on the DST liability of health care agreements of HMOs at a time they were already known as
such, belies any legislative intent to impose it on them. As a matter of fact, petitioner was assessed
its DST liability only on January 27, 2000, after more than a decade in the business as an
HMO.50
Considering that Section 185 did not change since 1904 (except for the rate of tax), it would be safe to
say that health care agreements were never, at any time, recognized as insurance contracts or deemed
engaged in the business of insurance within the context of the provision.
The Power To Tax Is Not The Power To Destroy
As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that security against its abuse is to be found only in the
responsibility of the legislature which imposes the tax on the constituency who is to pay it.51 So potent
indeed is the power that it was once opined that "the power to tax involves the power to destroy." 52
Petitioner claims that the assessed DST to date which amounts to ₱376 million53 is way beyond its net
worth of ₱259 million.54 Respondent never disputed these assertions. Given the realities on the ground,
imposing the DST on petitioner would be highly oppressive. It is not the purpose of the government to
throttle private business. On the contrary, the government ought to encourage private
enterprise.55 Petitioner, just like any concern organized for a lawful economic activity, has a right to
maintain a legitimate business.56 As aptly held in Roxas, et al. v. CTA, et al.:57
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised
with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly,
equally and uniformly, lest the tax collector kill the "hen that lays the golden egg." 58
Legitimate enterprises enjoy the constitutional protection not to be taxed out of existence. Incurring
losses because of a tax imposition may be an acceptable consequence but killing the business of an
entity is another matter and should not be allowed. It is counter-productive and ultimately subversive
of the nation’s thrust towards a better economy which will ultimately benefit the majority of our
people.59
Petitioner’s Tax Liability Was Extinguished Under The Provisions Of RA 9840
Petitioner asserts that, regardless of the arguments, the DST assessment for taxable years 1996 and
1997 became moot and academic60 when it availed of the tax amnesty under RA 9480 on December
10, 2007. It paid ₱5,127,149.08 representing 5% of its net worth as of the year ended December 31,
2005 and complied with all requirements of the tax amnesty. Under Section 6(a) of RA 9480, it is
entitled to immunity from payment of taxes as well as additions thereto, and the appurtenant civil,
criminal or administrative penalties under the 1997 NIRC, as amended, arising from the failure to pay
any and all internal revenue taxes for taxable year 2005 and prior years.61
Far from disagreeing with petitioner, respondent manifested in its memorandum:
Section 6 of [RA 9840] provides that availment of tax amnesty entitles a taxpayer to immunity from
payment of the tax involved, including the civil, criminal, or administrative penalties provided under the
1997 [NIRC], for tax liabilities arising in 2005 and the preceding years.
In view of petitioner’s availment of the benefits of [RA 9840], and without conceding the merits of this
case as discussed above, respondent concedes that such tax amnesty extinguishes the tax
liabilities of petitioner. This admission, however, is not meant to preclude a revocation of the
amnesty granted in case it is found to have been granted under circumstances amounting to tax fraud
under Section 10 of said amnesty law.62 (Emphasis supplied)
Furthermore, we held in a recent case that DST is one of the taxes covered by the tax amnesty program
under RA 9480.63 There is no other conclusion to draw than that petitioner’s liability for DST for the
taxable years 1996 and 1997 was totally extinguished by its availment of the tax amnesty under RA
9480.
Is The Court Bound By A Minute Resolution In Another Case?
Petitioner raises another interesting issue in its motion for reconsideration: whether this Court is bound
by the ruling of the CA64 in CIR v. Philippine National Bank65 that a health care agreement of Philamcare
Health Systems is not an insurance contract for purposes of the DST.
In support of its argument, petitioner cites the August 29, 2001 minute resolution of this Court
dismissing the appeal in Philippine National Bank (G.R. No. 148680).66 Petitioner argues that the
dismissal of G.R. No. 148680 by minute resolution was a judgment on the merits; hence, the Court
should apply the CA ruling there that a health care agreement is not an insurance contract.
It is true that, although contained in a minute resolution, our dismissal of the petition was a disposition
of the merits of the case. When we dismissed the petition, we effectively affirmed the CA ruling being
questioned. As a result, our ruling in that case has already become final.67 When a minute resolution
denies or dismisses a petition for failure to comply with formal and substantive requirements, the
challenged decision, together with its findings of fact and legal conclusions, are deemed sustained.68 But
what is its effect on other cases?
With respect to the same subject matter and the same issues concerning the same parties, it
constitutes res judicata.69 However, if other parties or another subject matter (even with the same
parties and issues) is involved, the minute resolution is not binding precedent. Thus, in CIR v. Baier-
Nickel,70 the Court noted that a previous case, CIR v. Baier-Nickel71 involving the same parties and
the same issues, was previously disposed of by the Court thru a minute resolution dated February 17,
2003 sustaining the ruling of the CA. Nonetheless, the Court ruled that the previous case "ha(d) no
bearing" on the latter case because the two cases involved different subject matters as they were
concerned with the taxable income of different taxable years.72
Besides, there are substantial, not simply formal, distinctions between a minute resolution and a
decision. The constitutional requirement under the first paragraph of Section 14, Article VIII of the
Constitution that the facts and the law on which the judgment is based must be expressed clearly and
distinctly applies only to decisions, not to minute resolutions. A minute resolution is signed only by the
clerk of court by authority of the justices, unlike a decision. It does not require the certification of the
Chief Justice. Moreover, unlike decisions, minute resolutions are not published in the Philippine Reports.
Finally, the proviso of Section 4(3) of Article VIII speaks of a decision.73 Indeed, as a rule, this Court
lays down doctrines or principles of law which constitute binding precedent in a decision duly signed by
the members of the Court and certified by the Chief Justice.
Accordingly, since petitioner was not a party in G.R. No. 148680 and since petitioner’s liability for DST
on its health care agreement was not the subject matter of G.R. No. 148680, petitioner cannot
successfully invoke the minute resolution in that case (which is not even binding precedent) in its favor.
Nonetheless, in view of the reasons already discussed, this does not detract in any way from the fact
that petitioner’s health care agreements are not subject to DST.
A Final Note
Taking into account that health care agreements are clearly not within the ambit of Section 185 of the
NIRC and there was never any legislative intent to impose the same on HMOs like petitioner, the same
should not be arbitrarily and unjustly included in its coverage.
It is a matter of common knowledge that there is a great social need for adequate medical services at
a cost which the average wage earner can afford. HMOs arrange, organize and manage health care
treatment in the furtherance of the goal of providing a more efficient and inexpensive health care system
made possible by quantity purchasing of services and economies of scale. They offer advantages over
the pay-for-service system (wherein individuals are charged a fee each time they receive medical
services), including the ability to control costs. They protect their members from exposure to the high
cost of hospitalization and other medical expenses brought about by a fluctuating economy. Accordingly,
they play an important role in society as partners of the State in achieving its constitutional mandate
of providing its citizens with affordable health services.
The rate of DST under Section 185 is equivalent to 12.5% of the premium charged.74 Its imposition will
elevate the cost of health care services. This will in turn necessitate an increase in the membership
fees, resulting in either placing health services beyond the reach of the ordinary wage earner or driving
the industry to the ground. At the end of the day, neither side wins, considering the indispensability of
the services offered by HMOs.
WHEREFORE, the motion for reconsideration is GRANTED. The August 16, 2004 decision of the Court
of Appeals in CA-G.R. SP No. 70479 is REVERSED and SET ASIDE. The 1996 and 1997 deficiency DST
assessment against petitioner is hereby CANCELLED and SET ASIDE. Respondent is ordered to desist
from collecting the said tax.
No costs.
SO ORDERED.
G.R. No. 167330 June 12, 2008
PHILIPPINE HEALTH CARE PROVIDERS, INC., petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
CORONA, J.:
Is a health care agreement in the nature of an insurance contract and therefore subject to the
documentary stamp tax (DST) imposed under Section 185 of Republic Act 8424 (Tax Code of 1997)?
This is an issue of first impression. The Court of Appeals (CA) answered it affirmatively in its August 16,
2004 decision1 in CA-G.R. SP No. 70479. Petitioner Philippine Health Care Providers, Inc. believes
otherwise and assails the CA decision in this petition for review under Rule 45 of the Rules of Court.
Petitioner is a domestic corporation whose primary purpose is "[t]o establish, maintain, conduct and
operate a prepaid group practice health care delivery system or a health maintenance organization to
take care of the sick and disabled persons enrolled in the health care plan and to provide for the
administrative, legal, and financial responsibilities of the organization."2 Individuals enrolled in its health
care programs pay an annual membership fee and are entitled to various preventive, diagnostic and
curative medical services provided by its duly licensed physicians, specialists and other professional
technical staff participating in the group practice health delivery system at a hospital or clinic owned,
operated or accredited by it.3
The pertinent part of petitioner's membership or health care agreement4 provides:
VII BENEFITS
Subject to paragraphs VIII [on pre-existing medical condition] and X [on claims for (b) The confinement shall be in a Participating Hospital and the accommodation shall
reimbursement] of this Agreement, Members shall have the following Benefits under this be in accordance with the Member[']s benefit classification.
Agreement:
(c) Professional services shall be provided only by the [petitioner's] Physicians or
In-Patient Services. In the event that a Member contract[s] sickness or suffers injury which Participating Physicians.
requires confinement in a participating Hospital[,] the services or benefits stated below shall
be provided to the Member free of charge, but in no case shall [petitioner] be liable to pay
(d) If discharge from the Hospital has been authorized by [petitioner's] attending
more than P75,000.00 in benefits with respect to anyone sickness, injury or related causes. If
Physician or Participating Physician and the Member shall fail or refuse to do so,
a member has exhausted such maximum benefits with respect to a particular sickness, injury
[petitioner] shall not be responsible for any charges incurred after discharge has been
or related causes, all accounts in excess of P75,000.00 shall be borne by the enrollee. It is[,]
authorized.
however, understood that the payment by [petitioner] of the said maximum in In-Patient
Benefits to any one member shall preclude a subsequent payment of benefits to such member
in respect of an unrelated sickness, injury or related causes happening during the remainder Out-Patient Services. A Member is entitled free of charge to the following services or benefits
of his membership term. which shall be rendered or administered either in [petitioner's] Clinic or in a Participating
Hospital under the direction or supervision of [petitioner's] Physician, Participating Physician
or [petitioner's] Medical Coordinator.
(a) Room and Board

(a) Gold Plan Standard Annual Physical Examination on the anniversary date of
(b) Services of physician and/or surgeon or specialist
membership, to be done at [petitioner's] designated hospital/clinic, to wit:

(c) Use of operating room and recovery room

(i) Taking a medical history

(d) Standard Nursing Services

(ii) Physical examination

(e) Drugs and Medication for use in the hospital except those which are used to
(iii) Chest x-ray
dissolve blood clots in the vascular systems (i.e., trombolytic agents)

(iv) Stool examination

(f) Anesthesia and its administration

(v) Complete Blood Count

(g) Dressings, plaster casts and other miscellaneous supplies

(vi) Urinalysis
(h) Laboratory tests, x-rays and other necessary diagnostic services

(vii) Fasting Blood Sugar (FBS)

(i) Transfusion of blood and other blood elements

(viii) SGPT
Condition for in-Patient Care. The provision of the services or benefits mentioned in the
immediately preceding paragraph shall be subject to the following conditions:
(ix) Creatinine
(a) The Hospital Confinement must be approved by [petitioner's] Physician,
Participating Physician or [petitioner's] Medical Coordinator in that Hospital prior to (x) Uric Acid
confinement.
(xi) Resting Electrocardiogram
 (xii) Pap Smear (Optional for women 40 years and above) (iv) Emergency medicines needed for the immediate

(b) Platinum Family Plan/Gold Family Plan and Silver Annual Physical Examination. relief of symptoms

The following tests are to be done as part of the Member[']s Annual check-up program (v) Minor surgery not requiring confinement
at [petitioner's] designated clinic, to wit:
Emergency Care. Subject to the conditions and limitations in this Agreement and those
1) Routine Physical Examination specified below, a Member is entitled to receive emergency care [in case of emergency. For
this purpose, all hospitals and all attending physician(s) in the Emergency Room automatically
become accredited. In participating hospitals, the member shall be entitled to the following
2) CBC (Complete Blood Count)
services free of charge: (a) doctor's fees, (b) emergency room fees, (c) medicines used for
immediate relief and during treatment, (d) oxygen, intravenous fluids and whole blood and
* Hemoglobin * Hematocrit human blood products, (e) dressings, casts and sutures and (f) x-rays, laboratory and
diagnostic examinations and other medical services related to the emergency treatment of the
* Differential * RBC/WBC patient.]5 Provided, however, that in no case shall the total amount payable by [petitioner] for
said Emergency, inclusive of hospital bill and professional fees, exceed P75,000.00.

3) Chest X-ray
If the Member received care in a non-participating hospital, [petitioner] shall reimburse
[him]6 80% of the hospital bill or the amount of P5,000.00[,] whichever is lesser, and 50% of
4) Urinalysis the professional fees of non-participating physicians based on [petitioner's] schedule of fees
provided that the total amount[,] inclusive of hospital bills and professional fee shall not exceed
5) Fecalysis P5,000.00.

(c) Preventive Health Care, which shall include: On January 27, 2000, respondent Commissioner of Internal Revenue sent petitioner a formal demand
letter and the corresponding assessment notices demanding the payment of deficiency taxes, including
surcharges and interest, for the taxable years 1996 and 1997 in the total amount of P224,702,641.18.
(i) Periodic Monitoring of Health Problems The assessment represented the following:

(ii) Family planning counseling

Value Added Tax (VAT) DST
1996 P 45,767,596.23 P 55,746,352.19
(iii) Consultation and advices on diet, exercise and other healthy habits
1997 54,738,434.03 68,450,258.73
P 100,506,030.26 P 124,196,610.92
(iv) Immunization but excluding drugs for vaccines used

The deficiency DST assessment was imposed on petitioner's health care agreement with the members
(d) Out-Patient Care, which shall include:
of its health care program pursuant to Section 185 of the 1997 Tax Code which provides:

(i) Consultation, including specialist evaluation

Section 185. Stamp tax on fidelity bonds and other insurance policies. - On all policies of
insurance or bonds or obligations of the nature of indemnity for loss, damage, or
(ii) Treatment of injury or illness liability made or renewed by any person, association or company or corporation
transacting the business of accident, fidelity, employer's liability, plate, glass, steam boiler,
(iii) Necessary x-ray and laboratory examination burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine,
inland, and fire insurance), and all bonds, undertakings, or recognizances, conditioned for
the performance of the duties of any office or position, for the doing or not doing of anything
 therein specified, and on all obligations guaranteeing the validity or legality of any bond or
other obligations issued by any province, city, municipality, or other public body or
organization, and on all obligations guaranteeing the title to any real estate, or guaranteeing
any mercantile credits, which may be made or renewed by any such person, company or
corporation, there shall be collected a documentary stamp tax of fifty centavos (P0.50) on each
four pesos (P4.00), or fractional part thereof, of the premium charged. (emphasis supplied)
Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on
the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the
cancellation of the deficiency VAT and DST assessments.
On April 5, 2002, the CTA rendered a decision,7 the dispositive portion of which read:
WHEREFORE, in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED.
Petitioner is hereby ORDERED to PAY the deficiency VAT amounting to P22,054,831.75
inclusive of 25% surcharge plus 20% interest from January 20, 1997 until fully paid for the
1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge plus 20% interest from
January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT Ruling No.
[231]-88 is declared void and without force and effect. The 1996 and 1997 deficiency DST
assessment against petitioner is hereby CANCELLED AND SET ASIDE. Respondent is ORDERED
to DESIST from collecting the said DST deficiency tax.
SO ORDERED.8
Respondent appealed the CTA decision to the CA9 insofar as it cancelled the DST assessment. He
claimed that petitioner's health care agreement was a contract of insurance subject to DST under
Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision.10 It held that petitioner's health care agreement was
in the nature of a non-life insurance contract subject to DST:
WHEREFORE, the petition for review is GRANTED. The Decision of the Court of Tax Appeals,
insofar as it cancelled and set aside the 1996 and 1997 deficiency documentary stamp tax
assessment and ordered petitioner to desist from collecting the same is REVERSED and SET
ASIDE.
Respondent is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as
deficiency Documentary Stamp Tax for 1996 and 1997, respectively, plus 25% surcharge for
late payment and 20% interest per annum from January 27, 2000, pursuant to Sections 248
and 249 of the Tax Code, until the same shall have been fully paid.
SO ORDERED.11
Petitioner moved for reconsideration but the CA denied it. Hence, this petition.
Petitioner essentially argues that its health care agreement is not a contract of insurance but a contract
for the provision on a prepaid basis of medical services, including medical check-up, that are not based
on loss or damage. Petitioner also insists that it is not engaged in the insurance business. It is a health
maintenance organization regulated by the Department of Health, not an insurance company under the
jurisdiction of the Insurance Commission. For these reasons, petitioner asserts that the health care
agreement is not subject to DST.
We do not agree.
The DST is levied on the exercise by persons of certain privileges conferred by law for the creation,
revision, or termination of specific legal relationships through the execution of specific instruments.12 It
is an excise upon the privilege, opportunity, or facility offered at exchanges for the transaction of the
business.13 In particular, the DST under Section 185 of the 1997 Tax Code is imposed on the
privilege of making or renewing any policy of insurance (except life, marine, inland and fire
insurance), bond or obligation in the nature of indemnity for loss, damage, or liability.
Under the law, 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.14 The
event insured against must be designated in the contract and must either be unknown or contingent.15
Petitioner's health care agreement is primarily a contract of indemnity. And in the recent case of Blue
Cross Healthcare, Inc. v. Olivares,16 this Court ruled that a health care agreement is in the nature of a
non-life insurance policy.
Contrary to petitioner's claim, its health care agreement is not a contract for the provision of medical
services. Petitioner does not actually provide medical or hospital services but merely arranges for the
same17 and pays for them up to the stipulated maximum amount of coverage. It is also incorrect to say
that the health care agreement is not based on loss or damage because, under the said agreement,
petitioner assumes the liability and indemnifies its member for hospital, medical and related expenses
(such as professional fees of physicians). The term "loss or damage" is broad enough to cover the
monetary expense or liability a member will incur in case of illness or injury.
Under the health care agreement, the rendition of hospital, medical and professional services to the
member in case of sickness, injury or emergency or his availment of so-called "out-patient services"
(including physical examination, x-ray and laboratory tests, medical consultations, vaccine
administration and family planning counseling) is the contingent event which gives rise to liability on
the part of the member. In case of exposure of the member to liability, he would be entitled to
indemnification by petitioner.
Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses
arising from the stipulated contingencies belies its claim that its services are prepaid. The expenses to
be incurred by each member cannot be predicted beforehand, if they can be predicted at all. Petitioner
assumes the risk of paying for the costs of the services even if they are significantly and substantially
more than what the member has "prepaid." Petitioner does not bear the costs alone but distributes or
spreads them out among a large group of persons bearing a similar risk, that is, among all the other
members of the health care program. This is insurance.
Petitioner's health care agreement is substantially similar to that involved in Philamcare Health
Systems, Inc. v. CA.18 The health care agreement in that case entitled the subscriber to avail of the
hospitalization benefits, whether ordinary or emergency, listed therein. It also provided for "out-patient
benefits" such as annual physical examinations, preventive health care and other out-patient services.
This Court ruled in Philamcare Health Systems, Inc.:
[T]he insurable interest of [the subscriber] in obtaining the health care agreement was his own
health. The health care agreement was in the nature of non-life insurance, which is
primarily a contract of indemnity. Once the member incurs hospital, medical or any other
expense arising from sickness, injury or other stipulated contingency, the health care provider
must pay for the same to the extent agreed upon under the contract.19 (emphasis supplied)
Similarly, the insurable interest of every member of petitioner's health care program in obtaining the
health care agreement is his own health. Under the agreement, petitioner is bound to indemnify any
member who incurs hospital, medical or any other expense arising from sickness, injury or other
stipulated contingency to the extent agreed upon under the contract.
Petitioner's contention that it is a health maintenance organization and not an insurance company is
irrelevant. Contracts between companies like petitioner and the beneficiaries under their plans are
treated as insurance contracts.20
Moreover, DST is not a tax on the business transacted but an excise on the privilege, opportunity, or
facility offered at exchanges for the transaction of the business.21 It is an excise on the facilities
used in the transaction of the business, separate and apart from the business itself.22
WHEREFORE, the petition is hereby DENIED. The August 16, 2004 decision of the Court of Appeals in
CA-G.R. SP No. 70479 is AFFIRMED.
Petitioner is ordered to pay the amounts of P55,746,352.19 and P68,450,258.73 as deficiency
documentary stamp tax for 1996 and 1997, respectively, plus 25% surcharge for late payment and
20% interest per annum from January 27, 2000 until full payment thereof.
Costs against petitioner.
SO ORDERED.
G.R. No. 195872 March 12, 2014
FORTUNE MEDICARE, INC., Petitioner,
vs.
DAVID ROBERT U. AMORIN, Respondent.
DECISION
REYES, J.:
This is a petition for review on certiorari1 under Rule 45 of the Rules of Court, which challenges the
Decision2 dated September 27, 2010 and Resolution3 dated February 24, 2011 of the Court of Appeals
(CA) in CA-G.R. CV No. 87255.
The Facts
David Robert U. Amorin (Amorin) was a cardholder/member of Fortune Medicare, Inc. (Fortune Care),
a corporation engaged in providing health maintenance services to its members. The terms of Amorin's
medical coverage were provided in a Corporate Health Program Contract4 (Health Care Contract) which
was executed on January 6, 2000 by Fortune Care and the House of Representatives, where Amorin
was a permanent employee.
While on vacation in Honolulu, Hawaii, United States of America (U.S.A.) in May 1999, Amorin
underwent an emergency surgery, specifically appendectomy, at the St. Francis Medical Center, causing
him to incur professional and hospitalization expenses of US$7,242.35 and US$1,777.79, respectively.
He attempted to recover from Fortune Care the full amount thereof upon his return to Manila, but the
company merely approved a reimbursement of ₱12,151.36, an amount that was based on the average
cost of appendectomy, net of medicare deduction, if the procedure were performed in an accredited
hospital in Metro Manila.5 Amorin received under protest the approved amount, but asked for its
adjustment to cover the total amount of professional fees which he had paid, and eighty percent (80%)
of the approved standard charges based on "American standard", considering that the emergency
procedure occurred in the U.S.A. To support his claim, Amorin cited Section 3, Article V on Benefits and
Coverages of the Health Care Contract, to wit:
A. EMERGENCY CARE IN ACCREDITED HOSPITAL. Whether as an in-patient or out-patient, the
member shall be entitled to full coverage under the benefits provisions of the Contract at any
FortuneCare accredited hospitals subject only to the pertinent provision of Article VII
(Exclusions/Limitations) hereof. For emergency care attended by non affiliated physician
(MSU), the member shall be reimbursed 80% of the professional fee which should have been
paid, had the member been treated by an affiliated physician. The availment of emergency
care from an unaffiliated physician shall not invalidate or diminish any claim if it shall be shown
to have been reasonably impossible to obtain such emergency care from an affiliated physician.
B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL
1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost Dissatisfied, Amorin appealed the RTC decision to the CA.
including the professional fee (based on the total approved charges) to a member who receives
emergency care in a non-accredited hospital. The above coverage applies only to Emergency
The CA Ruling
confinement within Philippine Territory. However, if the emergency confinement occurs in a foreign
territory, Fortune Care will be obligated to reimburse or pay eighty (80%) percent of the approved
standard charges which shall cover the hospitalization costs and professional fees. x x x6 On September 27, 2010, the CA rendered its Decision12 granting the appeal. Thus, the dispositive
portion of its decision reads:
Still, Fortune Care denied Amorin’s request, prompting the latter to file a complaint7 for breach of
contract with damages with the Regional Trial Court (RTC) of Makati City. WHEREFORE, all the foregoing premises considered, the instant appeal is hereby GRANTED. The May
8, 2006 assailed Decision of the Regional Trial Court (RTC) of Makati City, Branch 66 is hereby
REVERSED and SET ASIDE, and a new one entered ordering Fortune Medicare, Inc. to reimburse
For its part, Fortune Care argued that the Health Care Contract did not cover hospitalization costs and
[Amorin] 80% of the total amount of the actual hospitalization expenses of $7,242.35 and professional
professional fees incurred in foreign countries, as the contract’s operation was confined to Philippine
fee of $1,777.79 paid by him to St. Francis Medical Center pursuant to Section 3, Article V of the
territory.8 Further, it argued that its liability to Amorin was extinguished upon the latter’s acceptance
Corporate Health Care Program Contract, or their peso equivalent at the time the amounts became due,
from the company of the amount of ₱12,151.36.
less the [P]12,151.36 already paid by Fortunecare.

The RTC Ruling

SO ORDERED.13

On May 8, 2006, the RTC of Makati, Branch 66 rendered its Decision9 dismissing Amorin’s complaint.
Citing Section 3, Article V of the Health Care Contract, the RTC explained:
Taking the contract as a whole, the Court is convinced that the parties intended to use the Philippine
standard as basis. Section 3 of the Corporate Health Care Program Contract provides that:
xxxx
In so ruling, the appellate court pointed out that, first, health care agreements such as the subject
Health Care Contract, being like insurance contracts, must be liberally construed in favor of the
subscriber. In case its provisions are doubtful or reasonably susceptible of two interpretations, the
construction conferring coverage is to be adopted and exclusionary clauses of doubtful import should
be strictly construed against the provider.14 Second, the CA explained that there was nothing under
Article V of the Health Care Contract which provided that the Philippine standard should be used even
in the event of an emergency confinement in a foreign territory.15

Fortune Care’s motion for reconsideration was denied in a Resolution16 dated February 24, 2011. Hence,
On the basis of the clause providing for reimbursement equivalent to 80% of the professional fee which
the filing of the present petition for review on certiorari.
should have been paid, had the member been treated by an affiliated physician, the Court concludes
that the basis for reimbursement shall be Philippine rates. That provision, taken with Article V of the
health program contract, which identifies affiliated hospitals as only those accredited clinics, hospitals The Present Petition
and medical centers located "nationwide" only point to the Philippine standard as basis for
reimbursement.
Fortune Care cites the following grounds to support its petition:

The clause providing for reimbursement in case of emergency operation in a foreign territory equivalent
I. The CA gravely erred in concluding that the phrase "approved standard charges" is subject
to 80% of the approved standard charges which shall cover hospitalization costs and professional fees,
to interpretation, and that it did not automatically mean "Philippine Standard"; and
can only be reasonably construed in connection with the preceding clause on professional fees to give
meaning to a somewhat vague clause. A particular clause should not be studied as a detached and
isolated expression, but the whole and every part of the contract must be considered in fixing the II. The CA gravely erred in denying Fortune Care’s motion for reconsideration, which in effect
meaning of its parts.10 affirmed its decision that the American Standard Cost shall be applied in the payment of
medical and hospitalization expenses and professional fees incurred by the respondent.17
In the absence of evidence to the contrary, the trial court considered the amount of ₱12,151.36 already
paid by Fortune Care to Amorin as equivalent to 80% of the hospitalization and professional fees payable The Court’s Ruling
to the latter had he been treated in an affiliated hospital.11
The petition is bereft of merit.
The Court finds no cogent reason to disturb the CA’s finding that Fortune Care’s liability to Amorin under
the subject Health Care Contract should be based on the expenses for hospital and professional fees
which he actually incurred, and should not be limited by the amount that he would have incurred had
his emergency treatment been performed in an accredited hospital in the Philippines.
We emphasize that for purposes of determining the liability of a health care provider to its members,
jurisprudence holds that a health care agreement is in the nature of non-life insurance, which is
primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense
arising from sickness, injury or other stipulated contingent, the health care provider must pay for the
same to the extent agreed upon under the contract.18
To aid in the interpretation of health care agreements, the Court laid down the following guidelines in
Philamcare Health Systems v. CA19:
When the terms of insurance contract contain limitations on liability, courts should construe them in
such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of
adhesion, the terms of an insurance contract are to be construed strictly against the party which
prepared the contract – the insurer. By reason of the exclusive control of the insurance company over
the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the
insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to
Health Care Agreements. The phraseology used in medical or hospital service contracts, such as the
one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably
susceptible of two interpretations the construction conferring coverage is to be adopted, and
exclusionary clauses of doubtful import should be strictly construed against the provider.20 (Citations
omitted and emphasis ours)
Consistent with the foregoing, we reiterated in Blue Cross Health Care, Inc. v. Spouses Olivares21:
In Philamcare Health Systems, Inc. v. CA, we ruled that a health care agreement is in the nature of a
non-life insurance. It is an established rule in insurance contracts that when their terms contain
limitations on liability, they should be construed strictly against the insurer. These are contracts of
adhesion the terms of which must be interpreted and enforced stringently against the insurer which
prepared the contract. This doctrine is equally applicable to health care agreements.
xxxx
x x x [L]imitations of liability on the part of the insurer or health care provider must be construed in
such a way as to preclude it from evading its obligations. Accordingly, they should be scrutinized by the
courts with "extreme jealousy" and "care" and with a "jaundiced eye." x x x.22 (Citations omitted and
emphasis supplied)
In the instant case, the extent of Fortune Care’s liability to Amorin under the attendant circumstances
was governed by Section 3(B), Article V of the subject Health Care Contract, considering that the
appendectomy which the member had to undergo qualified as an emergency care, but the treatment
was performed at St. Francis Medical Center in Honolulu, Hawaii, U.S.A., a non-accredited hospital. We
restate the pertinent portions of Section 3(B):
B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL
1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost
including the professional fee (based on the total approved charges) to a member who receives
emergency care in a non-accredited hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the emergency confinement occurs in foreign
territory, Fortune Care will be obligated to reimburse or pay eighty (80%) percent of the approved
standard charges which shall cover the hospitalization costs and professional fees. x x x23 (Emphasis
supplied)
The point of dispute now concerns the proper interpretation of the phrase "approved standard charges",
which shall be the base for the allowable 80% benefit. The trial court ruled that the phrase should be
interpreted in light of the provisions of Section 3(A), i.e., to the extent that may be allowed for
treatments performed by accredited physicians in accredited hospitals. As the appellate court however
held, this must be interpreted in its literal sense, guided by the rule that any ambiguity shall be strictly
construed against Fortune Care, and liberally in favor of Amorin.
The Court agrees with the CA. As may be gleaned from the Health Care Contract, the parties thereto
contemplated the possibility of emergency care in a foreign country. As the contract recognized Fortune
Care’s liability for emergency treatments even in foreign territories, it expressly limited its liability only
insofar as the percentage of hospitalization and professional fees that must be paid or reimbursed was
concerned, pegged at a mere 80% of the approved standard charges.
The word "standard" as used in the cited stipulation was vague and ambiguous, as it could be susceptible
of different meanings. Plainly, the term "standard charges" could be read as referring to the
"hospitalization costs and professional fees" which were specifically cited as compensable even when
incurred in a foreign country. Contrary to Fortune Care’s argument, from nowhere in the Health Care
Contract could it be reasonably deduced that these "standard charges" referred to the "Philippine
standard", or that cost which would have been incurred if the medical services were performed in an
accredited hospital situated in the Philippines. The RTC ruling that the use of the "Philippine standard"
could be inferred from the provisions of Section 3(A), which covered emergency care in an accredited
hospital, was misplaced. Evidently, the parties to the Health Care Contract made a clear distinction
between emergency care in an accredited hospital, and that obtained from a non-accredited
hospital.1âwphi1 The limitation on payment based on "Philippine standard" for services of accredited
physicians was expressly made applicable only in the case of an emergency care in an accredited
hospital.
The proper interpretation of the phrase "standard charges" could instead be correlated with and
reasonably inferred from the other provisions of Section 3(B), considering that Amorin’s case fell under
the second case, i.e., emergency care in a non-accredited hospital. Rather than a determination of
Philippine or American standards, the first part of the provision speaks of the full reimbursement of "the
total hospitalization cost including the professional fee (based on the total approved charges) to a
member who receives emergency care in a non-accredited hospital" within the Philippines. Thus, for
emergency care in non-accredited hospitals, this cited clause declared the standard in the determination
of the amount to be paid, without any reference to and regardless of the amounts that would have been
payable if the treatment was done by an affiliated physician or in an affiliated hospital. For treatments
in foreign territories, the only qualification was only as to the percentage, or 80% of that payable for
treatments performed in non-accredited hospital.

All told, in the absence of any qualifying word that clearly limited Fortune Care's liability to costs that
are applicable in the Philippines, the amount payable by Fortune Care should not be limited to the cost
of treatment in the Philippines, as to do so would result in the clear disadvantage of its member. If, as
Fortune Care argued, the premium and other charges in the Health Care Contract were merely
computed on assumption and risk under Philippine cost and, that the American cost standard or any
foreign country's cost was never considered, such limitations should have been distinctly specified and
clearly reflected in the extent of coverage which the company voluntarily assumed. This was what
Fortune Care found appropriate when in its new health care agreement with the House of
Representatives, particularly in their 2006 agreement, the provision on emergency care in non-
accredited hospitals was modified to read as follows:

However, if the emergency confinement occurs in a foreign territory, Fortunecare will be obligated to
reimburse or pay one hundred (100%) percent under approved Philippine Standard covered charges
for hospitalization costs and professional fees but not to exceed maximum allowable coverage, payable
in pesos at prevailing currency exchange rate at the time of availment in said territory where he/she is
confined. x x x24

Settled is the rule that ambiguities in a contract are interpreted against the party that caused the
ambiguity. "Any ambiguity in a contract whose terms are susceptible of different interpretations must
be read against the party who drafted it."25

WHEREFORE, the petition is DENIED. The Decision dated September 27, 2010 and Resolution dated
February 24, 2011 of the Court of Appeals in CA-G.R. CV No. 87255 are AFFIRMED.

SO ORDERED.