TRAVELLERS INSURANCE & SURETY CORPORATION, petitioner, vs.HON. COURT OF APPEALS and VICENTE MENDOZA, respondents.

The petition herein seeks the review and reversal of the decision 1 of respondent Court of Appeals 2 affirming in toto the judgment 3 of the Regional Trial Court 4 in an action for damages 5 filed by private respondent Vicente Mendoza, Jr. as heir of his mother who was killed in a vehicular accident.

Before the trial court, the complainant lumped the erring taxicab driver, the owner of the taxicab, and the alleged insurer of the vehicle which featured in the vehicular accident into one complaint. The erring taxicab was allegedly covered by a third-party liability insurance policy issued by petitioner Travellers Insurance & Surety Corporation.

The evidence presented before the trial court established the following facts:

At about 5:30 o'clock in the morning of July 20, 1980, a 78-year old woman by the name of Feliza Vineza de Mendoza was on her way to hear mass at the Tayuman Cathedral. While walking along Tayuman corner Gregorio Perfecto Streets, she was bumped by a taxi that was running fast. Several persons witnessed the accident, among whom were Rolando Marvilla, Ernesto Lopez and Eulogio Tabalno. After the bumping, the old woman was seen sprawled on the pavement. Right away, the good Samaritan that he was, Mavilla ran towards the old woman and held her on his lap to inquire from her what had happened, but obviously she was already in shock and could not talk. At this moment, a private jeep stopped. With the driver of that vehicle, the two helped board the old woman on the jeep and brought her to the Mary Johnston Hospital in Tondo.

. . . Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street from Pritil, Tondo, to Rizal Avenue and vice-versa, also witnessed the incident. It was on his return trip from Rizal Avenue when Lopez saw the plaintiff and his brother who were crying near the scene of the accident. Upon learning that the two were the sons of the old woman, Lopez told them what had happened. The Mendoza brothers were then able to trace their mother at the Mary Johnston Hospital where they were advised by the attending physician that they should bring the patient to the National Orthopedic Hospital because of her fractured bones. Instead, the victim was brought to the U.S.T. Hospital where she expired at 9:00 o'clock that same morning. Death was caused by "traumatic shock" as a result of the severe injuries she sustained . . .

. . . The evidence shows that at the moment the victim was bumped by the vehicle, the latter was running fast, so much so that because of the strong impact the old woman was thrown away and she fell on the pavement. . . . In truth, in that related criminal case against defendant Dumlao . . . the trial court found as a fact that therein accused "was driving the subject taxicab in a careless, reckless and imprudent manner and at a speed greater than what was reasonable and proper without taking the necessary precaution to avoid accident to persons . . . considering the condition of the traffic at the place at the time aforementioned" . . . Moreover, the driver fled from the scene of the accident and without rendering assistance to the victim. . . .

. . . Three (3) witnesses who were at the scene at the time identified the taxi involved, though not necessarily the driver thereof. Marvilla saw a lone taxi speeding away just after the bumping which, when it passed by him, said witness noticed to be a Lady Love Taxi with Plate No. 438, painted maroon, with baggage bar attached on the baggage compartment and with an antenae [sic] attached at the right rear side. The same descriptions were revealed by Ernesto Lopez, who further described the taxi to have . . . reflectorized decorations on the edges of the glass at the back . . . A third witness in the person of Eulogio Tabalno . . . made similar descriptions although, because of the fast speed of the taxi, he was only able to detect the last digit of the plate number which is "8". . . . [T]he police proceeded to the garage of Lady Love Taxi and then and there they took possession of such a taxi and later impounded it in the impounding area of the agency concerned. . . . [T]he eyewitnesses . . . were unanimous in pointing to that Lady Love Taxi with Plate No. 438, obviously the vehicle involved herein.

. . . During the investigation, defendant Armando Abellon, the registered owner of Lady Love Taxi bearing No. 438-HA Pilipinas Taxi 1980, certified to the fact "that the vehicle was driven last July 20, 1980 by one Rodrigo Dumlao. . ." . . . It was on the basis of this affidavit of the registered owner that caused the police to apprehend Rodrigo Dumlao, and consequently to have him prosecuted and eventually convicted of the offense . . . . . . . [S]aid Dumlao absconded in that criminal case, specially at the time of the promulgation of the judgment therein so much so that he is now a fugitive from justice. 6

Private respondent filed a complaint for damages against Armando Abellon as the owner of the Lady Love Taxi and Rodrigo Dumlao as the driver of the Lady Love taxicab that bumped private respondent's mother. Subsequently, private respondent amended his complaint to include petitioner as the compulsory insurer of the said taxicab under Certificate of Cover No. 1447785-3.

After trial, the trial court rendered judgment in favor of private respondent, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more particularly the "Heirs of the late Feliza Vineza de Mendoza," and against defendants Rodrigo Dumlao, Armando Abellon and Travellers Insurance and Surety Corporation, by ordering the latter to pay, jointly and severally, the former the following amounts:

(a) The sum of P2,924.70, as actual and compensatory damages, with interest thereon at the rate of 12% per annum from October 17, 1980, when the complaint was filed, until the said amount is fully paid;

(b) P30,000.00 as death indemnity;

(c) P25,000.00 as moral damages;

(d) P10,000.00 as by way of corrective or exemplary damages; and

(e) Another P10,000.00 by way of attorney's fees and other litigation expenses.

Defendants are further ordered to pay, jointly and severally, the costs of this suit.

SO ORDERED. 7

Petitioner appealed from the aforecited decision to the respondent Court of Appeals. The decision of the trial court was affirmed by respondent appellate court. Petitioner's Motion for Reconsideration 8 of September 22, 1987 was denied in a Resolution 9 dated February 9, 1988.

Hence this petition.

Petitioner mainly contends that it did not issue an insurance policy as compulsory insurer of the Lady Love Taxi and that, assuming arguendo that it had indeed covered said taxicab for third-party liability insurance, private respondent failed to file a written notice of claim with petitioner as required by Section 384 of P.D. No. 612, otherwise known as the Insurance Code.

We find the petition to be meritorious.

I

When private respondent filed his amended complaint to implead petitioner as party defendant and therein alleged that petitioner was the third-party liability insurer of the Lady Love taxicab that fatally hit private respondent's mother, private respondent did not attach a copy of the insurance contract to the amended complaint. Private respondent does not deny this omission.

It is significant to point out at this juncture that the right of a third person to sue the insurer depends on whether the contract of insurance is intended to benefit third persons also or only the insured.

[A] policy . . . whereby the insurer agreed to indemnify the insured "against all sums . . . which the Insured shall become legally liable to pay in respect of: a. death of or bodily injury to any person . . . is one for indemnity against liability; from the fact then that the insured is liable to the third person, such third person is entitled to sue the insurer.

The right of the person injured to sue the insurer of the party at fault (insured), depends on whether the contract of insurance is intended to benefit third persons also or on the insured And the test applied has been this: Where the contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable can sue the insurer. Where the contract is for indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him thru payment to third persons, said third persons' recourse being thus limited to the insured alone. 10

Since private respondent failed to attach a copy of the insurance contract to his complaint, the trial court could not have been able to apprise itself of the real nature and pecuniary limits of petitioner's liability. More importantly, the trial court could not have possibly ascertained the right of private respondent as third person to sue petitioner as insurer of the Lady Love taxicab because the trial court never saw nor read the insurance contract and learned of its terms and conditions.

Petitioner, understandably, did not volunteer to present any insurance contract covering the Lady Love taxicab that fatally hit private respondent's mother, considering that petitioner precisely presented the defense of lack of insurance coverage before the trial court. Neither did the trial court issue a subpoena duces tecum to have the insurance contract produced before it under pain of contempt.

We thus find hardly a basis in the records for the trial court to have validly found petitioner liable jointly and severally with the owner and the driver of the Lady Love taxicab, for damages accruing to private respondent.

Apparently, the trial court did not distinguish between the private respondent's cause of action against the owner and the driver of the Lady Love taxicab and his cause of action against petitioner. The former is based on torts and quasi-delicts while the latter is based on contract. Confusing these two sources of obligations as they arise from the same act of the taxicab fatally hitting private respondent's mother, and in the face of overwhelming evidence of the reckless imprudence of the driver of the Lady Love taxicab, the trial court brushed aside its ignorance of the terms and conditions of the insurance contract and forthwith found all three — the driver of the taxicab, the owner of the taxicab, and the alleged insurer of the taxicab — jointly and severally liable for actual, moral and exemplary damages as well as attorney's fees and litigation expenses. This is clearly a misapplication of the law by the trial court, and respondent appellate court grievously erred in not having reversed the trial court on this ground.

While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against third-party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort. 11

Applying this principle underlying solidary obligation and insurance contracts, we ruled in one case that:

In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors. On the other hand, insurance is defined as "a contract whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event."

In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00, with the qualification that petitioner's liability is only up to P20,000.00. In the context of a solidary obligation, petitioner may be compelled by respondent Vallejos to pay the entire obligation of P29,103.00, notwithstanding the qualification made by the trial court. But, how can petitioner be obliged to pay the entire obligation when the amount stated in its insurance policy with respondent Sio Choy for indemnity against third-party liability is only P20,000.00? Moreover, the qualification made in the decision of the trial court to the effect that petitioner is sentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is made solidary is an evident breach of the concept of a solidary obligation. 12

The above principles take on more significance in the light of the counter-allegation of petitioner that, assuming arguendo that it is the insurer of the Lady Love taxicab in question, its liability is limited to only P50,000.00, this being its standard amount of coverage in vehicle insurance policies. It bears repeating that no copy of the insurance contract was ever proffered before the trial court by the private respondent, notwithstanding knowledge of the fact that the latter's complaint against petitioner is one under a written contract. Thus, the trial court proceeded to hold petitioner liable for an award of damages exceeding its limited liability of P50,000.00. This only shows beyond doubt that the trial court was under the erroneous presumption that petitioner could be found liable absent proof of the contract and based merely on the proof of reckless imprudence on the part of the driver of the Lady Love taxicab that fatally hit private respondent's mother.

II

Petitioner did not tire in arguing before the trial court and the respondent appellate court that, assuming arguendo that it had issued the insurance contract over the Lady Love taxicab, private respondent's cause of action against petitioner did not successfully accrue because he failed to file with petitioner a written notice of claim within six (6) months from the date of the accident as required by Section 384 of the Insurance Code.

At the time of the vehicular incident which resulted in the death of private respondent's mother, during which time the Insurance Code had not yet been amended by Batas Pambansa (B.P.) Blg. 874, Section 384 provided as follows:

Any person having any claim upon the policy issued pursuant to this chapter shall, without any unnecessary delay, present to the insurance company concerned a written notice of claim setting forth the amount of his loss, and/or the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed within six months from date of the accident, otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be brought in proper cases, with the Commission or the Courts within one year from date of accident, otherwise the claimant's right of action shall prescribe [emphasis supplied].

In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De Guzman, 13 we ruled that the one year prescription period to bring suit in court against the insurer should be counted from the time that the insurer rejects the written claim filed therewith by the insured, the beneficiary or the third person interested under the insurance policy. We explained:

It is very obvious that petitioner company is trying to use Section 384 of the Insurance Code as a cloak to hide itself from its liabilities. The facts of these cases evidently reflect the deliberate efforts of petitioner company to prevent the filing of a formal action against it. Bearing in mind that if it succeeds in doing so until one year lapses from the date of the accident it could set up the defense of prescription, petitioner company made private respondents believe that their claims would be settled in order that the latter will not find it necessary to immediately bring suit. In violation of its duties to adopt and implement reasonable standards for the prompt investigation of claims and to effectuate prompt, fair and equitable settlement of claims, and with manifest bad faith, petitioner company devised means and ways of stalling the settlement proceeding . . . [N]o steps were taken to process the claim and no rejection of said claim was ever made even if private respondent had already complied with all the requirements. . . .

This Court has made the observation that some insurance companies have been inventing excuses to avoid their just obligations and it is only the State that can give the protection which the insuring public needs from possible abuses of the insurers. 14

It is significant to note that the aforecited Section 384 was amended by B.P. Blg. 874 to categorically provide that "action or suit for recovery of damage due to loss or injury must be brought in proper cases, with the Commissioner or the Courts within one year from denial of the claim, otherwise the claimant's right of action shall prescribe" [emphasis ours]. 15

We have certainly ruled with consistency that the prescriptive period to bring suit in court under an insurance policy, begins to run from the date of the insurer's rejection of the claim filed by the insured, the beneficiary or any person claiming under an insurance contract. This ruling is premised upon the compliance by the persons suing under an insurance contract, with the indispensable requirement of having filed the written claim mandated by Section 384 of the insurance Code before and after its amendment. Absent such written claim filed by the person suing under an insurance contract, no cause of action accrues under such insurance contract, considering that it is the rejection of that claim that triggers the running of the one-year prescriptive period to bring suit in court, and there can be no opportunity for the insurer to even reject a claim if none has been filed in the first place, as in the instant case.

The one-year period should instead be counted from the date of rejection by the insurer as this is the time when the cause of action accrues. . . .

In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this Court ruled:

The plaintiff's cause of action did not accrue until his claim was finally rejected by the insurance company. This is because, before such final rejection, there was no real necessity for bringing suit.

The philosophy of the above pronouncement was pointed out in the case of ACCFA vs. Alpha Insurance and Surety Co., viz:

Since a cause of action requires, as essential elements, not only a legal right of the plaintiff and a correlative obligation of the defendant but also an act or omission of the defendant in violation of said legal right, the cause of action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its duty. 16

When petitioner asseverates, thus, that no written claim was filed by private respondent and rejected by petitioner, and private respondent does not dispute such asseveration through a denial in his pleadings, we are constrained to rule that respondent appellate court committed reversible error in finding petitioner liable under an insurance contract the existence of which had not at all been proven in court. Even if there were such a contract, private respondent's cause of action can not prevail because he failed to file the written claim mandated by Section 384 of the Insurance Code. He is deemed, under this legal provision, to have waived his rights as against petitioner-insurer.

WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 09416 and the decision of the Regional Trial Court in Civil Case No. 135486 are REVERSED and SET ASIDE insofar as Travelers Insurance & Surety Corporation was found jointly and severally liable to pay actual, moral and exemplary damages, death indemnity, attorney's fees and litigation expenses in Civil Case No. 135486. The complaint against Travellers Insurance & Surety Corporation in said case is hereby ordered dismissed.

No pronouncement as to costs.

SO ORDERED.

Gulf Resorts Inc. vs. Philippine Charter Insurance Corporation [G.R. No. 156167 May 16, 2005]

Post under case digests, Commercial Law at Saturday, March 03, 2012 Posted by Schizophrenic Mind

Facts: Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said resort insured originally with the American Home Assurance Company (AHAC). In the first 4 policies issued, the risks of loss from earthquake shock was extended only to petitioner’s two swimming pools. Gulf Resorts agreed to insure with Phil Charter the properties covered by the AHAC policy provided that the policy wording and rates in said policy be copied in the policy to be issued by Phil Charter. Phil Charter issued Policy No. 31944 to Gulf Resorts covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium of P45,159.92. the break-down of premiums shows that Gulf Resorts paid only P393.00 as premium against earthquake shock (ES). In Policy No. 31944 issued by defendant, the shock endorsement provided that “In consideration of the payment by the insured to the company of the sum included additional premium the Company agrees, notwithstanding what is stated in the printed conditions of this policy due to the contrary, that this insurance covers loss or damage to shock to any of the property insured by this Policy occasioned by or through or in consequence of earthquake (Exhs. "1-D", "2-D", "3-A", "4-B", "5-A", "6-D" and "7-C"). In Exhibit "7-C" the word "included" above the underlined portion was deleted. On July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiff’s properties covered by Policy No. 31944 issued by defendant, including the two swimming pools in its Agoo Playa Resort were damaged. 

Petitioner advised respondent that it would be making a claim under its Insurance Policy 31944 for damages on its properties. Respondent denied petitioner’s claim on the ground that its insurance policy only afforded earthquake shock coverage to the two swimming pools of the resort. The trial court ruled in favor of respondent. In its ruling, the schedule clearly shows that petitioner paid only a premium of P393.00 against the peril of earthquake shock, the same premium it had paid against earthquake shock only on the two swimming pools in all the policies issued by AHAC. 

Issue: Whether or not the policy covers only the two swimming pools owned by Gulf Resorts and does not extend to all properties damaged therein

Held: YES. All the provisions and riders taken and interpreted together, indubitably show the intention of the parties to extend earthquake shock coverage to the two swimming pools only. An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril. In fire, casualty and marine insurance, the premium becomes a debt as soon as the risk attaches. In the subject policy, no premium payments were made with regard to earthquake shock coverage except on the two swimming pools. There is no mention of any premium payable for the other resort properties with regard to earthquake shock. This is consistent with the history of petitioner’s insurance policies with AHAC.

NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner, vs.NYK-FILJAPAN SHIPPING CORP., LEP PROFIT INTERNATIONAL, INC. (ORD), LEP INTERNATIONAL PHILIPPINES, INC., DMT CORP., ADVATECH INDUSTRIES, INC., MARINA PORT SERVICES, INC., SERBROS CARRIER CORPORATION, and SEABOARD-EASTERN INSURANCE CO., INC., Respondents.

D E C I S I O N

ABAD, J.:

These consolidated petitions involve a cargo owner’s right to recover damages from the loss of insured goods under the Carriage of Goods by Sea Act and the Insurance Code.

The Facts and the Case

Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT Corporation (DMT) through its agent, Advatech Industries, Inc. (Advatech) three emergency generator sets worth US$721,500.00.

DMT shipped the generator sets by truck from Wisconsin, United States, to LEP Profit International, Inc. (LEP Profit) in Chicago, Illinois. From there, the shipment went by train to Oakland, California, where it was loaded on S/S California Luna V59, owned and operated by NYK Fil-Japan Shipping Corporation (NYK) for delivery to petitioner New World in Manila. NYK issued a bill of lading, declaring that it received the goods in good condition.

NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72 that it also owned and operated. On its journey to Manila, however, ACX Ruby encountered typhoon Kadiang whose captain filed a sea protest on arrival at the Manila South Harbor on October 5, 1993 respecting the loss and damage that the goods on board his vessel suffered.

Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargo-handling operator, received the shipment on October 7, 1993. Upon inspection of the three container vans separately carrying the generator sets, two vans bore signs of external damage while the third van appeared unscathed. The shipment remained at Pier 3’s Container Yard under Marina’s care pending clearance from the Bureau of Customs. Eventually, on October 20, 1993 customs authorities allowed petitioner’s customs broker, Serbros Carrier Corporation (Serbros), to withdraw the shipment and deliver the same to petitioner New World’s job site in Makati City.

An examination of the three generator sets in the presence of petitioner New World’s representatives, Federal Builders (the project contractor) and surveyors of petitioner New World’s insurer, Seaboard–Eastern Insurance Company (Seaboard), revealed that all three sets suffered extensive damage and could no longer be repaired. For these reasons, New World demanded recompense for its loss from respondents NYK, DMT, Advatech, LEP Profit, LEP International Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK acknowledged receipt of the demand, both denied liability for the loss.

Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it a formal claim dated November 16, 1993. Replying on February 14, 1994, Seaboard required petitioner New World to submit to it an itemized list of the damaged units, parts, and accessories, with corresponding values, for the processing of the claim. But petitioner New World did not submit what was required of it, insisting that the insurance policy did not include the submission of such a list in connection with an insurance claim. Reacting to this, Seaboard refused to process the claim.

On October 11, 1994 petitioner New World filed an action for specific performance and damages against all the respondents before the Regional Trial Court (RTC) of Makati City, Branch 62, in Civil Case 94-2770.

On August 16, 2001 the RTC rendered a decision absolving the various respondents from liability with the exception of NYK. The RTC found that the generator sets were damaged during transit while in the care of NYK’s vessel, ACX Ruby. The latter failed, according to the RTC, to exercise the degree of diligence required of it in the face of a foretold raging typhoon in its path.

The RTC ruled, however, that petitioner New World filed its claim against the vessel owner NYK beyond the one year provided under the Carriage of Goods by Sea Act (COGSA). New World filed its complaint on October 11, 1994 when the deadline for filing the action (on or before October 7, 1994) had already lapsed. The RTC held that the one-year period should be counted from the date the goods were delivered to the arrastre operator and not from the date they were delivered to petitioner’s job site.1

As regards petitioner New World’s claim against Seaboard, its insurer, the RTC held that the latter cannot be faulted for denying the claim against it since New World refused to submit the itemized list that Seaboard needed for assessing the damage to the shipment. Likewise, the belated filing of the complaint prejudiced Seaboard’s right to pursue a claim against NYK in the event of subrogation.

On appeal, the Court of Appeals (CA) rendered judgment on January 31, 2006,2 affirming the RTC’s rulings except with respect to Seaboard’s liability. The CA held that petitioner New World can still recoup its loss from Seaboard’s marine insurance policy, considering a) that the submission of the itemized listing is an unreasonable imposition and b) that the one-year prescriptive period under the COGSA did not affect New World’s right under the insurance policy since it was the Insurance Code that governed the relation between the insurer and the insured.

Although petitioner New World promptly filed a petition for review of the CA decision before the Court in G.R. 171468, Seaboard chose to file a motion for reconsideration of that decision. On August 17, 2006 the CA rendered an amended decision, reversing itself as regards the claim against Seaboard. The CA held that the submission of the itemized listing was a reasonable requirement that Seaboard asked of New World. Further, the CA held that the one-year prescriptive period for maritime claims applied to Seaboard, as insurer and subrogee of New World’s right against the vessel owner. New World’s failure to comply promptly with what was required of it prejudiced such right.

Instead of filing a motion for reconsideration, petitioner instituted a second petition for review before the Court in G.R. 174241, assailing the CA’s amended decision.

The Issues Presented

The issues presented in this case are as follows:

a) In G.R. 171468, whether or not the CA erred in affirming the RTC’s release from liability of respondents DMT, Advatech, LEP, LEP Profit, Marina, and Serbros who were at one time or another involved in handling the shipment; and

b) In G.R. 174241, 1) whether or not the CA erred in ruling that Seaboard’s request from petitioner New World for an itemized list is a reasonable imposition and did not violate the insurance contract between them; and 2) whether or not the CA erred in failing to rule that the one-year COGSA prescriptive period for marine claims does not apply to petitioner New World’s prosecution of its claim against Seaboard, its insurer.

The Court’s Rulings

In G.R. 171468 --

Petitioner New World asserts that the roles of respondents DMT, Advatech, LEP, LEP Profit, Marina and Serbros in handling and transporting its shipment from Wisconsin to Manila collectively resulted in the damage to the same, rendering such respondents solidarily liable with NYK, the vessel owner.

But the issue regarding which of the parties to a dispute incurred negligence is factual and is not a proper subject of a petition for review on certiorari. And petitioner New World has been unable to make out an exception to this rule.3 Consequently, the Court will not disturb the finding of the RTC, affirmed by the CA, that the generator sets were totally damaged during the typhoon which beset the vessel’s voyage from Hong Kong to Manila and that it was her negligence in continuing with that journey despite the adverse condition which caused petitioner New World’s loss.

That the loss was occasioned by a typhoon, an exempting cause under Article 1734 of the Civil Code, does not automatically relieve the common carrier of liability. The latter had the burden of proving that the typhoon was the proximate and only cause of loss and that it exercised due diligence to prevent or minimize such loss before, during, and after the disastrous typhoon.4 As found by the RTC and the CA, NYK failed to discharge this burden.

In G.R. 174241 --

One. The Court does not regard as substantial the question of reasonableness of Seaboard’s additional requirement of an itemized listing of the damage that the generator sets suffered. The record shows that petitioner New World complied with the documentary requirements evidencing damage to its generator sets.

The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policy insured against all causes of conceivable loss or damage except when otherwise excluded or when the loss or damage was due to fraud or intentional misconduct committed by the insured. The policy covered all losses during the voyage whether or not arising from a marine peril.5

Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in voyage, or vessels unseaworthiness, among others.6 But Seaboard had been unable to show that petitioner New World’s loss or damage fell within some or one of the enumerated exceptions.

What is more, Seaboard had been unable to explain how it could not verify the damage that New World’s goods suffered going by the documents that it already submitted, namely, (1) copy of the Supplier’s Invoice KL2504; (2) copy of the Packing List; (3) copy of the Bill of Lading 01130E93004458; (4) the Delivery of Waybill Receipts 1135, 1222, and 1224; (5) original copy of Marine Insurance Policy MA-HO-000266; (6) copies of Damage Report from Supplier and Insurance Adjusters; (7) Consumption Report from the Customs Examiner; and (8) Copies of

Received Formal Claim from the following: a) LEP International Philippines, Inc.; b) Marina Port Services, Inc.; and c) Serbros Carrier Corporation.7 Notably, Seaboard’s own marine surveyor attended the inspection of the generator sets.

Seaboard cannot pretend that the above documents are inadequate since they were precisely the documents listed in its insurance policy.8 Being a contract of adhesion, an insurance policy is construed strongly against the insurer who prepared it. The Court cannot read a requirement in the policy that was not there.

Further, it appears from the exchanges of communications between Seaboard and Advatech that submission of the requested itemized listing was incumbent on the latter as the seller DMT’s local agent. Petitioner New World should not be made to suffer for Advatech’s shortcomings.

Two. Regarding prescription of claims, Section 3(6) of the COGSA provides that the carrier and the ship shall be discharged from all liability in case of loss or damage unless the suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.

But whose fault was it that the suit against NYK, the common carrier, was not brought to court on time? The last day for filing such a suit fell on October 7, 1994. The record shows that petitioner New World filed its formal claim for its loss with Seaboard, its insurer, a remedy it had the right to take, as early as November 16, 1993 or about 11 months before the suit against NYK would have fallen due.

In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would have been subrogated to petitioner New World’s right to recover from NYK. And it could have then filed the suit as a subrogee. But, as discussed above, Seaboard made an unreasonable demand on February 14, 1994 for an itemized list of the damaged units, parts, and accessories, with corresponding values when it appeared settled that New World’s loss was total and when the insurance policy did not require the production of such a list in the event of a claim.

Besides, when petitioner New World declined to comply with the demand for the list, Seaboard against whom a formal claim was pending should not have remained obstinate in refusing to process that claim. It should have examined the same, found it unsubstantiated by documents if that were the case, and formally rejected it. That would have at least given petitioner New World a clear signal that it needed to promptly file its suit directly against NYK and the others. Ultimately, the fault for the delayed court suit could be brought to Seaboard’s doorstep.

Section 241 of the Insurance Code provides that no insurance company doing business in the Philippines shall refuse without just cause to pay or settle claims arising under coverages provided by its policies. And, under Section 243, the insurer has 30 days after proof of loss is received and ascertainment of the loss or damage within which to pay the claim. If such ascertainment is not had within 60 days from receipt of evidence of loss, the insurer has 90 days to pay or settle the claim. And, in case the insurer refuses or fails to pay within the prescribed time, the insured shall be entitled to interest on the proceeds of the policy for the duration of delay at the rate of twice the ceiling prescribed by the Monetary Board.

Notably, Seaboard already incurred delay when it failed to settle petitioner New World’s claim as Section 243 required. Under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by the failure of the insurer to pay the claim within the time fixed in Section 243.

Consequently, Seaboard should pay interest on the proceeds of the policy for the duration of the delay until the claim is fully satisfied at the rate of twice the ceiling prescribed by the Monetary Board. The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of 12% per annum provided in Central Bank Circular 416, pursuant to Presidential Decree 116.9 Section 244 of the Insurance Code also provides for an award of attorney’s fees and other expenses incurred by the assured due to the unreasonable withholding of payment of his claim.

In Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc.,10 the Court regarded as proper an award of 10% of the insurance proceeds as attorney’s fees. Such amount is fair considering the length of time that has passed in prosecuting the claim.11 Pursuant to the Court’s ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,12 a 12% interest per annum from the finality of judgment until full satisfaction of the claim should likewise be imposed, the interim period equivalent to a forbearance of credit.1avvphi1

Petitioner New World is entitled to the value stated in the policy which is commensurate to the value of the three emergency generator sets or US$721,500.00 with double interest plus attorney’s fees as discussed above.

WHEREFORE, the Court DENIES the petition in G.R. 171468 and AFFIRMS the Court of Appeals decision of January 31, 2006 insofar as petitioner New World International Development (Phils.), Inc. is not allowed to recover against respondents DMT Corporation, Advatech Industries, Inc., LEP International Philippines, Inc., LEP Profit International, Inc., Marina Port Services, Inc. and Serbros Carrier Corporation.

With respect to G.R. 174241, the Court GRANTS the petition and REVERSES and SETS ASIDE the Court of Appeals Amended Decision of August 17, 2006. The Court DIRECTS Seaboard-Eastern Insurance Company, Inc. to pay petitioner New World International Development (Phils.), Inc. US$721,500.00 under Policy MA-HO-000266, with 24% interest per annum for the duration of delay in accordance with Sections 243 and 244 of the Insurance Code and attorney’s fees equivalent to 10% of the insurance proceeds. Seaboard shall also pay, from finality of judgment, a 12% interest per annum on the total amount due to petitioner until its full satisfaction.

SO ORDERED.

WHITE GOLD MARINE SERVICES, INC., Petitioners, vs.PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL UNDERWRITING

ASSOCIATION (BERMUDA) LTD., Respondents.

D E C I S I O N

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. Moreover, Pioneer was already licensed, hence, a separate license solely as agent/broker of Steamship Mutual was already superfluous.

The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the appellate court distinguished between P & I Clubs vis-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.

REPUBLIC OF THE PHILIPPINES, by EDUARDO T. MALINIS, in His Capacity as Insurance Commissioner, petitioner, vs.DEL MONTE MOTORS, INC., respondent.

D E C I S I O N

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 ActionsEntitled 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.

Republic v Del Monte G.R. No. 156956 October 9, 2006

C.J. Panganiban

Facts:Vilfran Liner lost in a case against Del Monte Motors. They were made to pay 11 million pesos for service contracts with Del Monte, and such was sourced from the counterbond posted by Vilfran. CISCO issued the counterbond. CISCO opposed but was rebuffed. The RTC released a motion for execution commanding the sheriff to levy the amount on the property of CISCO. To completely satisfy the amount, the Insurance Commissioner was also commanded to withdraw the security deposit filed by CISCO with the Commission according to Sec 203 of the Insurance Code.Insurance Commissioner Malinis was ordered by the RTC to withdraw the security bond of CISCO for the payment of the insurance indemnity won by Del Monte Motor against Vilfran Liner, the insured.Malinis didn’t obey the order, so the respondent moved to cite him in contempt of Court. The RTC ruled against Malinis because he didn’t have legal basis.

Issues:1. 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.2. Whether or not the Insurance Commissioner has power to withhold the release of the security deposit.

Held:  No. Yes.  Petition granted.

Ratio:1. Sec 203- 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.The court also claimed 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 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.”“Also, 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.”2. The Insurance Code has vested the Office of the Insurance Commission with both regulatory and adjudicatory authority over insurance matters.Under Sec  414 of the Insurance Code, "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.”“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; (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.”Included here is the duty to hold security deposits under Secs 191 and 202 of the Code for the benefit of policy holders. Sec 192, on the other hand, states:“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.”He has been given great discretion to regulate the business to protect the public. Also “An implied trust is created by the law for the benefit of all claimants under subsisting insurance contracts issued by the insurance company.” He believed that the security deposit was exempt from execution to protect the policy holders.