115 OG No.

26, 6255 (July 1, 2019)

SECOND DIVISION

[ G.R. No. 194126, October 17, 2018 ]

INDUSTRIAL PERSONNEL AND MANAGEMENT SERVICES, INC., PETITIONER, V.

COUNTRY BANKERS INSURANCE CORPORATION, RESPONDENT.

DECISION

CAGUIOA, J:

Before this Court is a Petition for Review on Certiorari[1] (Petition) under Rule 45 of the Rules
of Court filed by petitioner Industrial Personnel and Management Services, Inc. (IPAMS)
assailing the Decision[2] dated October 14, 2010 (assailed Decision) of the Court of Appeals (CA)
Eleventh Division in CA-G.R. SP No. 114683, which reversed and set aside the following
rulings:

1. the Resolution[3] dated June 26, 2007 and Order[4] dated December 4, 2007 issued by the
Insurance Commission (IC);

2. the Decision[5] dated September 17, 2008 and Resolution[6] dated April 29, 2009 issued by
the Department of Finance (DOF); and

3. the Decision[7] dated January 8, 2010 and Resolution[8] dated June 1, 2010 issued by the
Office of the President (OP).

These issuances upheld the ruling of the IC that respondent Country Bankers Corporation
(Country Bankers) shall be subjected to disciplinary action pursuant to Section 241 (now Section
247) and Section 247 (now Section 254) of the Insurance Code, as amended,[9] if respondent
Country Bankers does not settle the subject claims presented by petitioner IPAMS.

The Facts and Antecedent Proceedings

As narrated by the CA in its assailed Decision, the essential facts and antecedent proceedings of
the instant case are as follows:

In 2000, Industrial Personnel and Management Services, Inc. (IPAMS) began recruiting
registered nurses for work deployment in the United States of America (U.S.). It takes eighteen
(18) to twenty four (24) months for the entire immigration process to complete. As the process
requires huge amounts of money, such amounts are advanced [to] the nurse applicants.

By reason of the advances made to the nurse applicants, the latter were required to post surety
bond. The purpose of the bond is to guarantee the following during its validity period: (a) that
they will comply with the entire immigration process, (b) that they will complete the documents
required, and (c) that they will pass all the qualifying examinations for the issuance of
immigration visa. The Country Bankers Insurance Corporation (Country Bankers for brevity)
and IPAMS agreed to provide bonds for the said nurses. [Under the agreement of IPAMS and
Country Bankers, the latter will provide surety bonds and the premiums therefor were paid by
IPAMS on behalf of the nurse applicants.[10]]

[The surety bonds issued specifically state that the liability of the surety company, i.e.,
respondent Country Bankers, "shall be limited only to actual damages arising from Breach of
Contract by the applicant."[11]]

A Memorandum of Agreement (MOA) was executed by the said parties on February 1, 2002
[which stipulated the various requirements for collecting claims from Country Bankers, namely:

B. REQUIREMENTS FOR CLAIM

Requirements are as follows:

SURETY BOND:

A. 1st demand letter requiring his/her to submit complete documents.

B. 2nd Demand letter (follow up of above).
C. Affidavit stating reason of any violation to be executed by responsible
officer of Recruitment Agency;
D. Statement of Account (detailed expenses).
E. Transmittal Claim Letter.[12] (Emphasis and underscoring in the original)]

[On the basis of the MOA, IPAMS submitted its claims under the surety bonds issued by
Country Bankers. For its part, Country Bankers, upon receipt of the documents enumerated
under the MOA, paid the claims to IPAMS.[13]] According to IPAMS, starting 2004, some of its
claims were not anymore settled by Country Bankers.

[In 2004, Country Bankers was not able to pay six (6) claims of IPAMS. The claims were not
denied by Country Bankers, which instead asked for time within which to pay the claims, as it
alleged to be cash strapped at that time. Thereafter, the number of unpaid claims increased. By
February 16, 2007, the total amount of unpaid claims was P11,309,411.56.

IPAMS took the matter up with the General Manager of Country Bankers, Mr. Ignacio Ong
(Ong). In response, Country Bankers, through its letter[14] dated November 14, 2005 signed by
Mr. Ong, acknowledged the obligations of Country Bankers, apologized for the delay in the
payment of claims, and proposed to amortize the settlement of claims by paying a semi-monthly
amount of P850,000.00. In addition, Country Bankers promised to pay future claims within a
ninety (90)-day period. That commitment made by Country Bankers was not fulfilled and
IPAMS had to deal with Country Bankers' new General Manager, Ms. Tess Valeriano
(Valeriano). Ms. Valeriano assured IPAMS that the obligations of Country Bankers would be
paid promptly.
However, the counsel of Country Bankers, Atty. Marisol Caleja, started to oppose the payment
of claims and insisted on the production of official receipts of IPAMS on the expenses it incurred
for the application of nurses. IPAMS opposed this, saying that the Country Bankers' insistence
on the production of official receipts was contrary to, and not contemplated in, the MOA and was
an impossible condition considering that the U.S. authorities did not issue official receipts. In
lieu of official receipts, IPAMS submitted statements of accounts, as provided in the MOA.[15]]

Then, [in a letter[16] dated August 22, 2006,] Country Bankers limited the authority of its agent
[assigned to the accounts of IPAMS,] Mr. Jaime C. Lacaba [(Lacaba),] to transact business with
IPAMS.

[Due to the unwillingness of Country Bankers to settle the claims of IPAMS, the latter sought the
intervention of the IC, through a letter-complaint dated February 9, 2007.[17] ]

Country Bankers on the other hand alleged that until the third quarter of 2006, it never received
any complaint from IPAMS. Due to remarkable high loss ratio of IPAMS, the latter's accounts
were evaluated and audited by the Country Bankers. The IPAMS was informed of the same
problem. Instead of complying with the requirements for claim processes, IPAMS insisted that
the supporting documents cannot be produced.

[The] [c]ontending parties went to a series of conferences to settle the differences but to no avail.
The [IC] therefore ordered the parties to submit [their] respective Position Papers.[18] On June 26,
2007, the Claims Division of the [IC] [issued] a [R]esolution[19] declaring the following:

"IN VIEW OF THE FOREGOING, this Commission believes and so holds that there is no
ground for the refusal of CBIC to pay the claims of IPAMS. Its failure to settle the claim after
having entered into an Agreement with the complainant, IPAMS, demonstrates respondent's bad
faith in the fulfillment of their obligation, to the prejudice of the complainant.

Accordingly, we find the insurance company liable to settle the subject claim otherwise, this
Commission shall be constrained to take disciplinary action pursuant to Sections 241 and 247 of
the Insurance Code, as amended." (Underscoring supplied)

The move by Country Bankers to reconsider the above resolution was denied by the [IC] in an
[O]rder[20] dated December 4, 2007.

Country Bankers made an appeal before the [DOF]. The [DOF] decided to affirm the assailed
orders of the [IC]. The dispositive portion of the said [D]ecision[21] [dated September 30, 2008]
reads:

"WHEREFORE, foregoing premises considered, the questioned Resolution of the Commission

dated June 26, 2007, as reiterated in its Order dated December 7, 2007, is hereby AFFIRMED
and that the same be implemented in accordance with Sec. 241, in relation to Sec. 247 of the
Insurance Code and other pertinent rules and regulations on the matter."
A motion to reconsider the x x x aforementioned decision was filed but was denied [by the DOF
in its Resolution[22] dated] April 29, 2009.

On appeal to the [OP], the ruling of the [DOF] was affirmed in a [D]ecision[23] docketed as O.P.
Case No. 09-E-190 and dated January 8, 2010[:

WHEREFORE, herein appeal is DISMISSED for lack of merit. The Decision of the Secretary of
Finance dated September 17, 2008 and its Resolution dated April 29, 2009 are hereby
AFFIRMED.][24]

A subsequent motion to reconsider the same was denied by the said office in its
[R]esolution[25] dated June 1, 2010.

Hence, [the] instant [P]etition [for Review filed by respondent Country Bankers before the CA
under Rule 43 of the Rules of Court.][26]

The Ruling of the CA

In its assailed Decision, the CA granted the Rule 43 Petition filed by respondent Country
Bankers, reversing and setting aside the rulings of the IC, DOF, and OP, the dispositive portion
of which states:

WHEREFORE, premises considered, the petition is GRANTED and the following issuances

are hereby REVERSED and SET ASIDE:

1. June 1, 2010 decision of the Office of the President in O.P. Case No. 09-E-190;
2. January 8, 2010 decision of the Office of the President in O.P. Case No. 09-E-
190;
3. Department of Finance resolution dated April 29, 2009;
4. Department of Finance decision dated September 17, 2008;
5. Insurance Commission order dated December 4, 2007; and the
6. Insurance Commission resolution dated June 26, 2007.

SO ORDERED.[27] (Emphasis in the original)

The CA held that respondent Country Bankers was justified in delaying the payment of the
claims to petitioner IPAMS because of the purported lack of submission by petitioner IPAMS of
official receipts and other "competent proof[28] on the expenses incurred by petitioner IPAMS in
its recruitment of nurse applicants. The CA held that Section 241 (now Section 247) of the
Insurance Code, which defines an unfair claim settlement practice, and Section 247 (now Section
254), which provides for the suspension or revocation of the insurer's authority to conduct
business, should not be made to apply to respondent Country Bankers because of the failure of
petitioner IPAMS to provide competent proof of its claims.

Instead of filing a motion for reconsideration, petitioner IPAMS decided to directly file the
instant Petition[29] dated November 2, 2010 on November 4, 2010 before the Court.
On April 4, 2011, respondent Country Bankers filed its Comment (To Petition for Review
on Certiorari dated November 2, 2010).[30] On August 18, 2011, petitioner IPAMS filed its
Reply.[31]

Issue

Stripped to its core, the present Petition asks the Court to resolve whether the CA erred in issuing
its assailed Decision which reversed and set aside the rulings of the IC, DOF, and OP, which
found that respondent Country Bankers has no ground to refuse the payment of petitioner
IPAMS' claims and shall accordingly be subjected to disciplinary action pursuant to Sections 241
(now Section 247) and 247 (now Section 254) of the Insurance Code if the latter does not settle
the subject claims of petitioner IPAMS.

The Court's Ruling

The appeal is partly meritorious.

In reversing and setting aside the rulings of the IC, DOF, and OP, the CA, in the main, found that
as provisions of applicable law are deemed written into contracts, Article 2199 of the Civil
Code[32] should be applied regarding the MOA between petitioner IPAMS and respondent
Country Bankers. The CA reasoned that since "[c]ompetent proof x x x must be presented to
justify award for actual damages,"[33] respondent Country Bankers was correct in not paying the
subject claims of petitioner IPAMS because the latter failed to present official receipts and other
"competent" evidence establishing the actual costs and expenses incurred by petitioner IPAMS.

Apparently, the CA concurred with the reason posited by respondent Country Bankers for not
paying the claims presented by petitioner IPAMS, i.e., the failure of petitioner IPAMS to present
official receipts of expenses it incurred. Consequently, the CA found that mere Statements of
Accounts with detailed expenses, without accompanying official receipts or any other
"competent" evidence, cannot prove actual expenses. Hence, respondent Country Bankers was
supposedly justified in not paying the claims of petitioner IPAMS.

Autonomy of Contracts

At the onset, it is important to note that according to the autonomy characteristic of contracts, the
contracting parties may establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law, morals, good customs, public
order, or public policy.[34]

The stipulation of the MOA at issue is the provision enumerating requirements (Requirements
for Claim Clause) that must be presented by petitioner IPAMS in order to make a valid claim
against the surety bond. To reiterate, the Requirements for Claim Clause provides:

B. REQUIREMENTS FOR CLAIM

Requirements are as follows:

SURETY BOND:

F. 1st demand letter requiring his/her to submit complete documents.

G. 2nd Demand letter (follow up of above).
H. Affidavit stating reason of any violation to be executed by responsible office of Recruitment
Agency;
I. Statement of Account (detailed expenses).
J. Transmittal Claim Letter.[35] (Emphasis and underscoring in the original)

Petitioner IPAMS and respondent Country Bankers in essence made a stipulation to the effect
that mere demand letters, affidavits, and statements of accounts are enough proof of actual
damages — that more direct and concrete proofs of expenditures by the petitioner such as
official receipts have been dispensed with in order to prove actual losses.

As to why the parties agreed on the sufficiency of the listed requirements under the MOA goes
into the motives of the parties, which is not hard to understand, considering that the covered
transactions, i.e., the processing of applications of nurses in the U.S., are generally not subject to
the issuance of official receipts by the U.S. government and its agencies.[36]

Considering the foregoing, the question is crystallized: Can the parties stipulate on the
requirements that must be presented in order to claim against a surety bond? And the answer is a
definite YES, pursuant to the autonomy characteristic of contracts, they can. In an insurance
contract, founded on the autonomy of contracts, the parties are generally not prevented from
imposing the terms and conditions that determine the contract's obligatory force.[37]

Thus, the view posited by the CA that the Requirements for Claim Clause is contrary to law
because it is incongruent with Article 2199 of the Civil Code and, therefore, an exception to the
rule on autonomy of contracts is erroneous. A more thorough examination of Article 2199 does
not support the CA's view.

Article 2199 of the Civil Code states:

Article 2199. Except as provided by law or by stipulation, one is entitled to an adequate

compensation only for such pecuniary loss suffered by him as he has duly proved. Such
compensation is referred to as actual or compensatory damages. (Emphasis and underscoring
supplied)

The law is clear and unequivocal when it states that one is entitled to adequate compensation for
pecuniary loss only for such losses as he has duly proved EXCEPT: (1) when the law provides
otherwise, or (2) by stipulation of the parties. Otherwise stated, the amount of actual damages
is limited to losses that were actually incurred and proven, except when the law provides
otherwise, or when the parties stipulate that actual damages are not limited to the actual losses
incurred or that actual damages are to be proven by specific documents agreed upon.

The submission of official receipts and other

pieces of evidence as a prerequisite for the
payment of claims is excused by stipulation of
the parties; and in lieu thereof, the presentation
of statement of accounts with detailed expenses,
demand letters, and affidavits is, by express
stipulation, sufficient evidence for the payment
of claims.

To reiterate, Article 2199 of the Civil Code explicitly provides that the prerequisite of proof for
the recovery of actual damages is not absolute. This was illustrated in People of the Philippines
v. Jonjie Eso y Hungoy, et al.,[38] wherein this Court held that the requirement of providing actual
proof found under Article 2199 for the recovery of actual and compensatory damages (in that
case, funeral expenses) may. be dispensed with, considering that there was a stipulation to that
effect made by the parties.

In the instant case, it is not disputed by any party that in the MOA entered into by the petitioner
IPAMS and respondent Country Bankers, the parties expressly agreed upon a list of requirements
to be fulfilled by the petitioner in order to claim from respondent Country Bankers under the
surety bond.

Hence, it is crystal clear that the petitioner IPAMS and respondent Country Bankers, by express
stipulation, agreed that in order for the former to have a valid claim under the surety bond, the
only requirements that need to be submitted are the two demand letters, an Affidavit stating
reason of any violation to be executed by responsible officer of the Recruitment Agency, a
Statement of Account detailing the expenses incurred, and the Transmittal Claim
Letter. Evidently, the parties did not include as preconditions for the payment of claims the
submission of official receipts or any other more direct or concrete piece of evidence to
substantiate the expenditures of petitioner IPAMS. If the parties truly had the intention of
treating the submission of official receipts as a requirement for the payment of claims, they
would have included such requirement in the MOA. But they did not.

It is elementary that when the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and there can be no evidence on such terms
other than the contents of the written agreement.[39] Further, when the terms of the contract are
clear and leave no doubt upon the intention of the contracting parties, the stipulations of the
parties are controlling.[40]

In the case at hand, respondent Country Banker failed to present any compelling evidence that
convinces the Court that the parties had the intention of adding requirements other than the five
requirements for payment of claims enumerated in the Requirements for Claim Clause. On the
contrary, several circumstances show that the submission of official receipts was really NOT
intended by the parties to be a precondition for the payment of claims.

As found by the OP in its Decision dated January 8, 2010, respondent Country Bankers "knew as
a matter of IPAMS' regular course of business that these covered transactions are generally not
issued official receipts by US government and its agencies and the US based professional
organizations and institutions involved to complete the requirements for the issuance of an
immigrant visa."[41]

Further, as found by the IC in its Resolution dated June 26, 2007, which the CA did not
controvert in its assailed Decision, respondent Country Bankers had previously admitted liability
and promised to make payment on similar claims under the surety agreement even without the
submission of official receipts.[42] In fact, respondent Country Bankers had previously paid
similar claims made by petitioner IPAMS on the basis of the same set of documents, even
without the submission of official receipts and other pieces of evidence.

As the contemporaneous and subsequent acts of the contracting parties shall be principally
considered in determining the intention of the parties,[43] and that, by virtue of estoppel, an
admission or representation is rendered conclusive upon the person making it and cannot be
denied or disproved as against the person relying thereon,[44] the prior actuations of respondent
Country Bankers clearly establish that it did not intend the submission of official receipts to be a
prerequisite for the payment of claims. Respondent Country Bankers is therefore estopped from
claiming that the submission of official receipts and other "competent proof” is a further
requirement for the payment of claims.

Hence, the Court finds that, by stipulation of petitioner IPAMS and respondent Country Bankers
in their MOA, the parties waived the requirement of actually proving the expenses incurred by
petitioner IPAMS through the submission of official receipts and other documentary evidence.
Thus, respondent Country Bankers was not justified in denying the payment of claims presented
by petitioner IPAMS based on the lack of official receipts.

Under the Insurance Code, all defects in the

proof of loss, which the insured might remedy,
are waived as grounds for objection when the
insurer omits to specify to him without
unnecessary delay.

While placing utmost concentration on Article 2199 of the Civil Code in ruling that competent
proof is required for the payment of the subject claims, the assailed Decision of the CA failed to
take into consideration the applicable provisions of the Insurance Code.

The subject agreement of the parties indubitably contemplates a surety agreement,[45] which is

governed mainly by the Insurance Code, considering that a contract of suretyship shall be
deemed an insurance contract within the contemplation of the Insurance Code if made by a
surety which is doing an insurance business.[46] In this case, the surety, i.e., respondent Country
Bankers, is admittedly an insurance company engaged in the business of insurance. In fact, the
CA itself in its assailed Decision mentioned that a contract of suretyship is defined and covered
by the Insurance Code.[47]

Moreover, the Insurance Code[48] specifically provides applicable provisions on suretyship,

stating that pertinent provisions of the Civil Code shall only apply suppletorily whenever
necessary in interpreting the provisions of a contract of suretyship.[49] Jurisprudence also holds
that a specific law should prevail over a law of general character.[50]

Hence, in the resolution of the instant case, the CA erred in not considering the applicable
provisions under the Insurance Code on the required proof of loss and when such requirement is
waivable.

Therefore, Section 92[51] of the Insurance Code must be taken into consideration. The said
provision states that all defects in the proof of loss, which the insured might remedy, are waived
as grounds for objection when the insurer omits to specify to him without unnecessary delay. It
is the duty of the insurer to indicate the defects on the proofs of loss given, so that the
deficiencies may be supplied by the insured. When the insurer recognizes his liability to pay the
claim, there is waiver by the insurer of any defect in the proof of loss.[52]

In the instant case, it must be emphasized that respondent Country Bankers, through its General
Manager, Mr. Ong, issued a letter dated November 14, 2005 which readily acknowledged the
obligations of Country Bankers under the surety agreement, apologized for the delay in the
payment of claims, and proposed to amortize the settlement of claims by paying a semi-monthly
amount of P850,000.00.[53] In addition, Country Bankers promised to pay future claims within a
90-day period:

First of all, allow us to apologize for the delay in our response to you considering that we still
had to do some reconciliation of our records with that of Mr. Lacaba. After evaluating the total
number of claims filed by IPAMS, we have come up with the final figure of P20,575,492.25.

In this regard, we wish to propose to amortize the settlement of the said amount by paying you
the semi-monthly amount of P850,000.00 until the entire amount of P20,575,492.25 is fully paid.
With respect to future claims (after the cut-off date, October 28, 2005), we shall see to it that
they are settled within the 90 days time frame allowed us.[54]

It bears stressing that respondent Country Bankers, after undergoing an evaluation of the total
number of claims of petitioner IPAMS, undertook the settlement of such claims
even WITHOUT the submission of official receipts.

In fact, respondent Country Bankers raised up the issue on the missing official receipts and other
evidence to prove the expenses incurred by petitioner IPAMS only when the latter requested the
intervention of the IC in 2007. If respondent Country Bankers truly believed that the submission
of official receipts was critical in providing proof as to petitioner IPAMS' claims, then it would
have raised the issue on the lack of official receipts at the earliest possible opportunity. This only
shows that the argument of respondent Country Bankers on the lack of official receipts was
a mere afterthought to evade its obligation to pay the claims presented by petitioner IPAMS.

While not denying the existence of the said letter, respondent Country Bankers attempts to
downplay it by arguing that the claims covered by the letter and the claims raised by petitioner
IPAMS before the IC are different and distinct from each other. Such argument deserves scant
consideration.
While the claims in the said letter may be different from the specific claims presented
before the IC, both sets of claims were similarly made under the same suretyship
agreement between the parties. Thus, the fact still remains that respondent Country Bankers
had previously acknowledged the validity of a set of claims under a surety bond within the
purview of the Requirements for Claim Clause despite the lack of official receipts and other
pieces of evidence aside from the required documents enumerated in the MOA. To be sure, it
must also be pointed out that the representations of respondent Country Bankers in the said letter
likewise refer to future and similar claims of petitioner IPAMS. Hence, respondent Country
Bankers' attempt to downplay the ramifications of its letter dated November 14, 2005 is puerile.

Also, it must be emphasized that the IC, after holding a series of conferences between the parties
and after the assessment of the respective position papers and evidence from both parties, made
the factual finding in its Resolution dated June 26, 2007 that respondent Country Bankers
committed certain acts constituting a waiver of its right to require the presentation of additional
documents to prove the expenses incurred by petitioner IPAMS, such as the issuance of the letter
dated November 14, 2005 and the acceptance by respondent Country Bankers of reimbursement
from the nurse applicants of petitioner IPAMS on the basis of the Statements of Accounts
presented, even without any official receipt attached.[55] In fact, the records show that
respondent Country Bankers does not deny the fact that it accepted the reimbursements
from the nurse applicants based on the Statements of Accounts of petitioner IPAMS.[56]

Furthermore, the DOF likewise factually determined that respondent Country Bankers, through
its new General Manager, Ms. Valeriano, had assured IPAMS that the obligations of Country
Bankers would be paid promptly, again, even without the submission of official receipts and
other pieces of evidence.[57] The DOF similarly found that the proposal by respondent Country
Bankers to amortize the settlement of petitioner IPAMS' claims by paying the latter the semi-
monthly amount of P850,000.00 and respondent Country Bankers' acceptance of reimbursements
from the nurse applicants based on the mere Statements of Accounts submitted by petitioner
IPAMS are tantamount to an acknowledgment on the part of respondent Country Bankers of its
liability for claims under the surety bonds.

Moreover, the OP also factually found that respondent Country Bankers "knew as a matter of
IPAMS' regular course of business that these covered transactions are generally not issued
official receipts by US government and its agencies and the US based professional organizations
and institutions involved to complete the requirements for the issuance of an immigrant visa."[58]

These factual findings of three separate administrative agencies, which were not at all reversed
or refuted by the CA in its assailed Decision, should not be perturbed by the Court without any
compelling countervailing reason. The Court has continuously adopted the policy of respecting
the findings of facts of specialized administrative agencies.

In Villafor v. Court of Appeals,[59] the Court held that the findings of fact of an administrative
agency must be respected as long as they are supported by substantial evidence, even if such
evidence might not be overwhelming or even preponderant, because it is not the task of an
appellate court to weigh once more the evidence submitted before the administrative body and to
substitute its own judgment for that of the administrative agency in respect of sufficiency of
evidence.[60]

Hence, considering that the IC, through the Insurance Commissioner, is particularly tasked by
the Insurance Code to issue such rulings, instructions, circulars, orders and decisions as may be
deemed necessary to secure the enforcement of the provisions of the law, to ensure the efficient
regulation of the insurance industry, and considering that there are no compelling reasons
provided by respondent Country Bankers to overthrow the IC's factual findings, the Court
upholds the findings of the IC, as concurred in by both the DOF and OP, that respondent Country
Bankers committed certain acts constituting a waiver of its right to require the presentation of
additional documents to prove the expenses incurred by petitioner IPAMS.

Accordingly, under Section 92 of the Insurance Code, the failure to attach official receipts and
other documents evidencing the expenses incurred by petitioner IPAMS, even assuming that it
can be considered a defect on the required proof of loss, is therefore considered waived as
ground for objecting the claims of petitioner IPAMS.

For the foregoing reasons, the ruling of the CA, which sets aside the rulings of the IC, DOF, and
OP, which found that respondent Country Bankers has no ground to refuse the payment of
petitioner IPAMS' claims and shall accordingly be subjected to disciplinary action pursuant to
Sections 241 (now Section 247) and 247 (now Section 254) of the Insurance Code if the latter
does not settle the subject claims of petitioner IPAMS, should be reversed.

Be that as it may, despite the reversal of the CA's assailed Decision, petitioner IPAMS' prayers
for (1) the suspension/revocation of the license of respondent Country Bankers due to its
commission of an unfair claim settlement practice for unreasonable delay in paying petitioner
IPAMS' claim for the total amount of P21,230,643.19; (2) awarding of a total amount of
P21,230,643.19 and 20% thereof; and (3) awarding of moral and exemplary damages, as well as
attorney's fees and judicial costs, are denied.

It must be stressed that the instant case resolved by the Court is not a claims adjudication case.
The subject Resolution and Order of the IC that was concurred in by the DOF and OP, which the
Court now reinstates, were issued in the IC's capacity as a regulator and not as an adjudicator of
claims, as admitted by the IC itself.[61] Hence, while the Court herein reinstates the IC's
Resolution finding that disciplinary action is warranted in the eventuality that respondent
Country Bankers continues to delay settling the claims of petitioner IPAMS, the matter should be
referred back to the IC so that it could determine the remaining amount and extent of the liability
that should be settled by respondent Country Bankers in order to avoid the IC's disciplinary
action.

WHEREFORE, in view of the foregoing, the appeal is hereby PARTIALLY GRANTED. The

Decision dated October 14, 2010 issued by the Court of Appeals in CA-G.R. SP No. 114683
is REVERSED AND SET ASIDE. The Resolution dated June 26, 2007 and Order dated
December 4, 2007 issued by the Insurance Commission, the Decision dated September 17, 2008
and Resolution dated April 29, 2009 issued by the Department of Finance, and the Decision
dated January 8, 2010 and Resolution dated June 1, 2010 issued by the Office of the President
are REINSTATED and AFFIRMED.

SO ORDERED.

Carpio (Chairperson), Perlas-Bernabe, A. Reyes, Jr., and J. Reyes, Jr.,[*] JJ., concur.

 SPECIAL FIRST DIVISION

[ 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 P224,702,641.18. 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

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, 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.

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 DST under Section 185 of the 1997 Tax Code.

On August 16, 2004, the CA rendered its decision. 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.
Petitioner moved for reconsideration but the CA denied it. Hence, petitioner filed this case.

xxx xxx xxx

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 insurance which is a contract of indemnity, citing Blue Cross Healthcare, Inc. v.
Olivares[3] 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 contracts between companies like petitioner and the beneficiaries under their
plans are treated as insurance contracts. 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.

Unable to accept our verdict, petitioner filed the present motion for reconsideration and
supplemental motion for reconsideration, asserting the following arguments:

(a) The DST under Section 185 of the National Internal Revenue of 1997 is imposed only on a
company engaged in the business of fidelity bonds and other insurance policies. Petitioner,
as an HMO, is a service provider, not an insurance company.
(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.
(c) Section 185 should be strictly construed.
(d) Legislative intent to exclude health care agreements from items subject to DST is clear,
especially in the light of the amendments made in the DST law in 2002.
(e) Assuming arguendo  that petitioner's agreements are contracts of indemnity, they are not
those contemplated under Section 185.
(f) Assuming arguendo  that petitioner's agreements are akin to health insurance, health
insurance is not covered by Section 185.
(g) The agreements do not fall under the phrase "other branch of insurance" mentioned in
Section 185.
(h) The June 12, 2008 decision should only apply prospectively.
(i) Petitioner availed of the tax amnesty benefits under RA[5] 9480 for the taxable year 2005
and all prior years. Therefore, the questioned assessments on the DST are now rendered
moot and academic.[6]

Oral arguments were held in Baguio City on April 22, 2009. The parties submitted their
memoranda on June 8, 2009.

In its motion for reconsideration, petitioner reveals for the first time that it availed of a tax
amnesty under RA 9480[7] (also known as the "Tax Amnesty Act of 2007") by fully paying the
amount of P5,127,149.08 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 it[11] 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 (P0.50) on each four pesos (P4.00), 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 PD[20] 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 Association[23] 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 Jersey[27] 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 non-participating physician or hospital. However, this is only a very minor part of the list
of services available. The assumption of the expense by petitioner is not confined to the
happening of a contingency but includes incidents even in the absence of illness or injury.

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 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 of the agreement but the extension of medical services to the
member at an affordable cost, it did not partake of the nature of a contract of insurance.

Fifth. Although risk is a primary element of an insurance contract, it is not necessarily true that
risk 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 (like those of petitioner) from the usual insurance contracts.

Indeed, petitioner, as an HMO, undertakes a business risk when it offers to provide health
services: the 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 cost of insurance claims might be higher than the premiums paid. The
amount of premium is calculated on the basis of assumptions made relative to the insured.[45]

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 qualify as an insurance contract because petitioner's objective is to provide medical
services at reduced cost, not to distribute risk like an insurer.

In sum, an examination of petitioner's agreements with its members leads us to conclude that it is
not an insurance contract within the context of our Insurance Code.

There Was No Legislative Intent To

Impose DST On Health Care
Agreements Of HMOs

Furthermore, militating in convincing fashion against the imposition of DST on petitioner's

health care agreements under Section 185 of the NIRC of 1997 is the provision's legislative
history. The text of 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 (otherwise known as the "Internal Revenue Law of 1904")[46] enacted
on July 2, 1904 and became 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:
 ARTICLE XI
Stamp Taxes on Specified Objects

Section 116. There shall be levied, collected, and paid for and in respect to the several bonds,
debentures, or certificates of stock and indebtedness, and other documents, instruments, matters,
and things mentioned and described in this section, or for or in respect to the vellum, parchment,
or paper 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:

xxx xxx xxx

Third xxx (c) on all policies of insurance or bond or obligation of the nature of indemnity
for loss, damage, or liability made or renewed by any person, association, company, or
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, marine, inland, and fire insurance) xxxx (Emphasis supplied)

On February 27, 1914, Act No. 2339 (the Internal Revenue Law of 1914) was enacted revising
and 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 very detailed and exclusive enumeration of items subject to DST was thus
retained.

On December 31, 1916, Section 30 (l), Article III of Act No. 2339 was again reproduced as
Section 1604 (l), Article IV of Act No. 2657 (Administrative Code). Upon its amendment on
March 10, 1917, the pertinent DST provision became Section 1449 (l) of Act No. 2711,
otherwise known as the Administrative Code of 1917.

Section 1449 (1) eventually became Sec. 222 of Commonwealth Act No. 466 (the NIRC of
1939), which codified all the internal revenue laws of the Philippines. In an amendment
introduced by RA 40 on October 1, 1946, the DST rate was increased but the provision remained
substantially the same.

Thereafter, on June 3, 1977, the same provision with the same DST rate was reproduced in PD
1158 (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.

Effective January 1, 1986, pursuant to Section 45 of PD 1994, Section 234 of the NIRC of 1977
was renumbered as Section 198. And under Section 23 of EO[47] 273 dated July 25, 1987, it was
again renumbered and became Section 185.

On December 23, 1993, under RA 7660, Section 185 was amended but, again, only with respect
to the rate of tax.
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 provisions were introduced by RA 9243[48] but Section 185 was
untouched.

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 P376 million[53] is way beyond
its net worth of P259 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 academic[60] when it availed of the tax amnesty under RA 9480 on
December 10, 2007. It paid P5,127,149.08 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 CA[64] in CIR v. Philippine National Bank[65] 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-Nickel[71] 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.