Professional Documents
Culture Documents
NO 167330 (2009)
FACTS: Petitioner Philhealth is a domestic corporation whose primary purpose is to establish,
maintain, conduct, and operate and prepaid group practice health care delivery system or a
health maintenance organization (HMO) to take care of the sick and disabled persons enrolled
in the healthcare plan and to provide for the administrative, legal and financial responsibilities of
the organization
1. In January 2000, CIR sent a demand letter for the payment of deficiency taxes for the
taxable years of 1996 and 1997. The deficiency assessment (Documentary Stamp Tax
or DST) was imposed on petitioners health care agreement with the members of its
healthcare program pursuant to Sec 185 of the 1997 Tax Code
2. Philhealth protested the assessment. Since CIR did not act on the protest, Philhealth
filed a petition for review before the CTA seeking the cancellation of the deficiency VAT
and DST assessments
3. CTA held in favor of Philhealth and enjoined CIR from collecting the DST assessment.
4. On appeal, CA reversed the CTA decision and held that petitioners health care
agreement was in the nature of a non-life insurance contract subject to DST
ISSUES:
1. WON Philhealth is an insurance company
2. WON as an HMO, Philhealth was engaged in the business of insurance during the
pertinent taxable years
HELD:
FIRST ISSUE: No. Sec 2(1) 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 if the
following elements concur:
(a) The insured has an insurable interest
(b) The insured is subject to a risk of loss by the happening of the designated peril
(c) The insurer assumes the risk
(d) 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
(e) In consideration of the insurers promise, the insured pays a premium.
Philhealth is not an insurance company for the following reasons:
1. Not all necessary elements of an insurance contract are present in Philhealths
agreements. There is no loss, damage, or liability on the part of the member that should
be indemnified by Philhealth as an HMO
2. 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.
3. According to the agreement, a member can take advantage of the bulk of the benefits
anytime, even in the absence of any peril, loss or damage on his part
4. The assumption of the expense is not confined to the happening of contingency but
includes incidents even the in the absence of illness or injury
SECOND ISSUE: No. Sec 2(2) of the Insurance Code enumerated what constitutes doing an
insurance business or transacting an insurance business.
Various courts in the US, whose jurisprudence has a persuasive effect on our decisions, 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 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 an 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, an HMO, whose main object is to provide the
members of a group with health services, is not engaged in the insurance business.
SAN MIGUEL V. LAW UNION ROCK INSURANCE CO, 40 PHIL 674 (1920)
FACTS: Dunn owned a parcel of land which he mortgaged to petitioner San Miguel in order a
secure a debt for P10,000, with the following conditions:
a. Dunn shall insure the property at his own expense in companies to be selected
by San Miguel;
b. San Miguel shall receive the proceeds of the insurance in case of loss, and retain
only such amount as to cover the debt
1. Dunn also authorized San Miguel to effect the insurance itself. Accordingly, Brias (GM of
San Miguel) insured the property with respondent Law Union Rock Insurance to the
extent of P15,000. Brias informed the insurer that his interest in the property was merely
that of a mortgagee
2. Law Union, in turn, insured the property for P7,500 and procured another policy for the
same amount from Filipinas Cia de Seguros. Both policies were under the name of San
Miguel and made no reference to any other interest in the property. The premiums were
paid by San Miguel and charged to Dunn
3. Subsequently, Dunn sold the property to Harding. However, no assignments of the
policies were made, as required by the policies of both insurers
4. The property was subsequently destroyed by fire. Petitioner, as such, filed an action to
recover on the policies. Harding was made a defendant because by virtue of the sale,
he had become the owner of the property
5. The insurance companies argued that they were not liable to Harding and maintained
that they were only liable to San Miguel to the extent of the amount of the credit.
Harding was not entitled to any of the proceeds in excess of the mortgage credit
because he was not privy to the insurance contract
ISSUE: WON the insurance companies are liable to Harding for the balance of the proceeds of
the two policies
HELD: No. Under the Insurance Act, the measure of insurable interest in the property is ht
extent to which the insured might be damnified by the loss or injury thereof. It also provided that
the insurance shall be applied to the proper interest of the person in whose name it is made.
San Miguel, as the mortgagee of the property, had insurable interest therein but it could not, in
any event, recover upon the two companies an amount in excess of the mortgage credit.
Neither Harding nor Dunn could recover from the two policies. With respect to Harding, when he
acquired the property, no change or assignment of the policies had been undertaken. Had the
policies been worded differently so as to protect the owner, Dunn or Harding would have been
entitled to recover from the insurance.
If during the negotiation for the policies, the parties had agreed to cover the owners interest,
and the policies were written in the form in which they were now issued, the court would have
been able to order the contract be reformed to give effect to the intention of the parties. But in
the case at bar, there was no clear proof that the policies failed to reflect the real agreement of
the parties that would justify the reformation of the contracts.