COURT OF APPEALS AND MEDARDA V. LEUTERIO FACTS
M. Reinsurance (Sections 95-98) Digested by: Archie Necesario
Phil American Life Insurance vs Auditor General Facts:
On January 1, 1950, Philippine American Life Insurance Company (Philamlife), a domestic life insurance corporation, and American International Reinsurance Company (AIRCO) a corporation organized under the laws of the Republic of Panama, entered into a reinsurance treaty. On their agreement,
“Philamlife agrees to reinsure with AIRCO the entire first excess of such life insurance on the lives of persons as may be written by the Philamlife under direct application over and above its maximum limit of retention for life insurance, and AIRCO binds itself to accept such reinsurances on the same terms. It is also stipulated that when new policies are applied for and issued Philamlife can cede automatically any amount, within the limits.”
On July 16, 1959, the Philippine government enacted the Margin Law which provides for the payment of margin fee for all sales of foreign exchange. Pursuant to the law, the Central Bank of the Philippines collected the sum of P268,747.48 as foreign exchange margin on Philamlife remittances to Airco.
Philamlife subsequently filed with the Central Bank a claim for the refund of the above sum of P268,747.48.
The ground therefor was that the reinsurance premiums so remitted were paid pursuant to the reinsurance treaty, and, therefore, were pre-existing obligations expressly exempt by the Margin Law from the margin fee.
Auditor General ruled that "[r]emittance of premia on insurance policies issued or renewed on or after July 16, 1959, or even if issued or renewed before the said date, but their reinsurance was effected, only thereafter, are not exempt from the margin fee, even if the reinsurance treaty under which they are
reinsured was approved by the Central Bank before July 16, 1959.
Issue:
Whether or not Philamlife is exempt from paying the margin fee by virtue of the pre-existing obligation made by the reinsurance treaty.
Ruling:
There should not be any misapprehension as to the distinction between a reinsurance treaty, on the one hand, and a reinsurance policy or a reinsurance cession, on the other. The concept of one and the other is well expressed thus:
. . . A reinsurance policy is thus a contract of indemnity one insurer makes with another to protect the first insurer from a risk it has already assumed. . . . In contradistinction a reinsurance treaty is merely an agreement between two insurance companies whereby one agrees to cede and the other to accept reinsurance business pursuant to provisions specified in the treaty. The practice of issuing policies by insurance companies includes, among other things, the issuance of reinsurance policies on standard risks and also on substandard risks under special arrangements. The lumping of the different agreements under a contract has resulted in the term known to the insurance world as "treaties."
Such a treaty is, in fact, an agreement between insurance companies to cover the different situations described. Reinsurance treaties and reinsurance policies are not synonymous. Treaties are contracts for insurance; reinsurance policies or cessions . . . are contracts of insurance.
Nothing in that treaty, however, obligates Philamlife to remit to AIRCO a fixed, certain, and obligatory sum by way of reinsurance premiums. All that the reinsurance treaty provides on this point is that Philamlife "agrees to reinsure." The treaty speaks of a probability; not a reality. For, without reinsurance, no premium is due.
Of course, the reinsurance treaty lays down the duty to remit premiums — if any reinsurance is effected upon the covenants in that treaty written. So it is that the reinsurance treaty per se cannot give rise to a contractual obligation calling for the payment of foreign exchange "issued, approved and outstanding as of the date this Act [Republic Act 2609] takes effect."
For an exemption to come into play, there must be a reinsurance policy or, as in the reinsurance treaty provided, a "reinsurance cession" which may be automatic or facultative.
Philamlife's obligation to remit reinsurance premiums becomes fixed and definite upon the execution of the reinsurance cession. Because, for every life insurance policy ceded to Airco, Philamlife agrees to pay premium. 12It is only after a reinsurance cession is made that payment of reinsurance premium may be
exacted, as it is only after Philamlife seeks to remit that reinsurance premium that the obligation to pay the margin fee arises.
Upon the premise that the margin fee of P268,747.48 was collected on remittances made on reinsurance effected on or after the Margin Law took effect, refund thereof does not come within the coverage of the exemption circumscribed in Section 3 of the said law.
The petition for review is hereby denied, and the ruling of the Auditor General denying refund is hereby affirmed.
Digested by: Sharmine M. Odchigue
Fieldmen’s Ins. Co. v. Asian Surety and Ins. Co.
[34 SCRA 36]
Facts:
Between April 11, 1960 and January 9, 1961 — the Asian Surety & Insurance Company, Inc. (ceding company) and the Fieldmen's insurance Company, Inc.
(reinsuring company) entered into seven (7) reinsurance agreements or treaties 1 under the general terms of which the former, undertook to cede to the latter, a specified portion of the amount of insurance underwritten by ASIAN upon payment to FIELDMEN'S of a proportionate share of the gross rate of the premium applicable with respect to each cession after deducting a commission. Said agreements or treaties were to, take effect from certain specific dates and were to be in force until cancelled by either party upon previous notice of at least three (3) months by registered mail to the other party, the cancellation to take effect as of the 31st of December of the year in which the notice was given.
On September 19, 1961( 1st letter) FIELDMEN'S, by means of registered mail, served notice to ASIAN to be relieved from all participation in its various treaties with the latter effective December 31, 1961. This communication, although admittedly received by ASIAN on September 25, 1961, did not elicit any reply from ASIAN.
On December 7, 1961 (2nd letter) FIELDMEN'S sent another letter to ASIAN reiterated its position that it would consider itself "no longer at risk for any reinsurance and/or cession" given by ASIAN which might be in force on December 31, 1961.
Not having received any formal reply from ASIAN, FIELDMEN'S sent anew a letter on February 17, 1962 (3rd letter) reminding ASIAN of the December 7 letter regarding the cancellation of all the reinsurance treaties and cessions as of December 31, 1961. At the same time FIELDMEN'S requested ASIAN to submit its final accounting of all cessions made to the former for the preceding months when the reinsurance agreements were in force.
Meanwhile one of the risks reinsured with FIELDMENS under Cession No. 61-87, Policy No. RI-1236, issued in favor of the Government Service Insurance System, became a liability when the insured property was burned on February 16, 1962. Since the policy was issued on July 1, 1961, it was supposed to expire on July 1, 1962. 2 The next day, February 17, ASIAN immediately notified FIELDMEN'S of said fire loss. And on February 26, 1962 ASIAN sent its reply stating, among other things, as follows:
... we beg to reiterate that your letter of December 7, 1961, terminating said treaties by December 31, 1961, is not in accordance with the terms thereof, since there was no prior three months' notice.
However, considering the attitude express (sic) in your aforesaid letter of December 7, 1961, we are willing to waive provision that said treaties may be cancelled on December 31st of any year, and will consider them cancelled at the end of three (3) months from December 7, 1961, by which time we shall be able to render the final accounting you desire.
FIELDMEN'S, filed a petition for declaratory relief with the Court of First Instance of Manila to seek a declaration that all the reinsurance contracts entered into between them had terminated as of December 31, 1961 and to obtain an order directing ASIAN to render final accounting of the transactions between them with respect to said reinsurance treaties as of the cut-off date.
Trial Court declared six 3 of the seven 4 insurance agreements in question cancelled as of December 31, 1961 and upheld ASIAN'S position that all cessions of reinsurance made by it to FIELDMEN'S prior to the cancellation of the reinsurance treaties continued in full force and effect until expiry dates
Court of Appeals affirmed decision of RTC Issue:
Whether or not said cancellation had the effect of terminating also the liability of FIELDMEN'S as reinsurer with respect to policies or cessions issued prior to the termination of the principal reinsurance contracts or treaties.
Ruling: NO.
Of the six reinsurance contracts under consideration two contain provisions, which clearly and expressly recognize the continuing effectivity of policies ceded under them for reinsurance notwithstanding the cancellation of the contracts themselves.
Insofar as the two reinsurance agreements with the express stipulations aforequoted are concerned there is clearly no merit in FIELDMEN'S claim that their cancellation carried with it ipso facto the termination of all reinsurance cessions thereunder. Such cessions continued to be in force until their respective dates of expiration. Since it was
under one of said agreements, namely, the Facultative Obligatory Reinsurance Treaty-Fire, that the reinsurance cession corresponding to the GSIS policy had been made, FIELDMEN'S cannot avoid liability which arose by reason of the burning of the insured property.
With respect to the other four agreements, it would seem that the petition for declaratory relief is moot, and that no useful purpose would be served by defining the respective rights and obligations of the parties thereunder. The said agreements have been cancelled, and it does not appear that any claim by or liability in favor of the insured has actually arisen under any of the reinsurance cessions made prior to such cancellation.
WHEREFORE, the decision appealed from is affirmed insofar as it refers to the Facultative-Obligatory, Reinsurance Treaty and the Personal Accident Reinsurance Treaty are concerned, and modified with respect to the others by declaring the issues concerning them as moot and academic
Digested by: Kristine Oja
Equitable Ins. & Casualty Co. v. Rural Insurance Facts:
On November 11, 1957, plaintiff(Equitable) and defendant (Rural Insurance) entered into a reciprocal facultative reinsurance agreement. Pursuant to said agreement, plaintiff reinsured for P2,000.00 with defendant the stock covered by fire insurance Policy No. 5880 and also for P2,000.00 the stock covered by fire insurance Policy No. 6026.
Stocks covered by Insurance Policy Nos. 5880 and 6026 were subsequently burned and the share of the loss assumed by defendant as per reinsurance agreement was computed at P2,024.87 and P1,334.80 respectively.
Notwithstanding repeated demands, defendant refused and failed to pay plaintiff, and that for defendant's failure to pay its share of the losses assumed by it, plaintiff has been compelled to institute an action in court.
The defendant moved for the dismissal of the case contending that the complaint states no cause of action, the matter not having been referred to the decision of two arbitrators or umpire, which, it is claimed, is the condition precedent agreed upon in Article VIII of the Reinsurance Agreement entered into between the parties, to wit: .
ARTICLE VIII
In the event of any question arising as to the meaning of, or any way connected with or relating to this Agreement, whether before or after its termination, the parties shall endeavor to arrive at a satisfactory compromise by amicable settlement rather than by court action. The dispute shall be
referred to the decision of two arbitrators, of whom one shall be appointed in writing by each of the parties within thirty (30) days after having been required so to do by the other party in writing, and in case of disagreement between the arbitrators, to the decision of the umpire to be appointed by them in writing before entering on the reference. Each party shall submit its case with all particulars within thirty days after their appointment. The seat of arbitration shall be in Manila, Philippines, and the expenses of arbitration shall be borne in equal proportion by the parties. The decision of the arbitrators or umpire, as the case may be, shall be final and binding on both the Company and the Reinsurer. The arbitrators and umpire shall not be bound by the strict rules of evidence and by judicial formalities in making the award.
The court rendered its decision in favor of plaintiff, hence this appeal.
Issue:
1. WON the trial court erred in failing to rule that plaintiff-appellee has no causes of action against it, the matter not having been referred to the decision of two arbitrators or umpire, which, it is claimed, is the condition precedent agreed upon in Article VIII of the Reinsurance Agreement
2. WON the trial court erred in failing to rule that in a facultative obligation the right to choose an alternative remedy lies only with the debtor, who in this case is the herein defendant-appellant", and in support thereof, cites Article 1206 of the new Civil Code.
Held:
As to the first issue, the court finds no merit in this contention. Under the abovequoted provision of the Reinsurance Agreement, it would seem clear that the requirement of submitting for decision to two arbitrators or an umpire the matter of losses by fire or the liability of the parties thereto arises only if and when the same is disputed by one of the parties. It does not appear in the instant case that appellant did dispute appellee's claims. Consequently, appellant may not invoke said provision in avoidance of its liability to appellee.
It is true that paragraph (Article VIII) of said Reciprocal Facultative Reinsurance Agreement required that 'in the event of any question arising as to the meaning of, or any way connected with or relating to this Agreement, whether before or after its termination, the parties shall endeavor to arrive at a satisfactory compromise by amicable settlement rather than by court action'; and that the dispute should be referred to the decision of two arbitrators and umpire, as provided, therein. However, in this particular case, there is absolutely no dispute between the two parties, because in the stipulation of facts, the defendant has admitted that plaintiff has paid its liability to the insured as per its fire insurance policies specified in the
two causes of action of the complaint. Defendant has, likewise, admitted its liability as reinsurer under the Reciprocal Facultative Reinsurance Agreement (Annex
"A" to the complaint) to pay to the plaintiff its proportional shares, the amounts of which are not disputed. Indeed, according to the complaint as admitted by the defendant, statements of account as to the amounts of its share as reinsurer and, for all that appears, said defendant has never questioned the correctness of said amounts. It is, likewise, admitted by the defendant in the stipulation of facts, that because of its failure to pay said amounts, the plaintiff, on April 11, 1959, complained to the Assistant Insurance Commissioner, for official intervention, but said defendant has continued to ignore plaintiff's demands for reimbursement under the reinsurance policies.
As to the second issue, the court finds no connection whatsoever between Article 1206 of the Civil Code and the agreement subject of this action, except the word
"facultative" used in both. The term "facultative" is used in reinsurance contracts, and it is so used in this particular case, merely to define the right of the reinsurer to accept or not to accept participation in the risk insured. But once the share is accepted, as it was in the case at bar, the obligation is absolute and the liability assumed thereunder can be discharged by one and only way — payment of the share of the losses.
There is no alternative nor substitute prestation.
Judgment appealed from was affirmed, with costs against the defendant-appellant.
Digested by: Gayle Opsima
IVOR ROBERT DAYTON GIBSON, petitioner, vs.
HON. PEDRO A. REVILLA, in his official capacity as Presiding Judge of Branch XII, Court of First Instance of Rizal, and LEPANTO CONSOLIDATED
MINING COMPANY, respondents [G.R. No. L-41432 1979 Jul 30]
Facts:
Lepanto Consolidated Mining Company filed a complaint against Malayan Insurance Company, Inc.The civil suit thus instituted by Lepanto against Malayan was founded on the fact that Malayan issued a Marine Open Policy covering all shipments of copper, gold and silver concentrates in bulk from Poro, San Fernando, La Union to Tacoma, Washington or to other places in the United States.
Thereafter, Malayan obtained reinsurance abroad through Sedgwick, Collins & Co., Limited, a London insurance brokerage. The Memorandum of Insurance issued by Sedgwick to Malayan listed three groups of underwriters or reinsurers – Lloyds 62.808%, Companies (I.L.U.) 34.705%, Other Companies 2.487%.
At the top of the list of underwriting members of Lloyds is Syndicate No. 448, assuming 2.48% of the
risk assumed by the reinsurer, which syndicate number petitioner Ivor Robert Dayton Gibson claims to be himself.
Petitioner Ivor Robert Dayton Gibson filed a motion to intervene as defendant, which motion was denied by the lower court.
Issue:
whether the lower court committed, reversible error in refusing the intervention of petitioner Ivor Robert Dayton Gibson in the suit between Lepanto and Malayan
Ruling:
We rule that the respondent Judge committed no error of law in denying petitioner's Motion to Intervene. And neither has he abused his discretion in his denial of petitioner's Motion for Intervention.
We agree with the holding of the respondent Court that since movant Ivor Robert Dayton Gibson appears to be only one of several re-insurers of the risks and liabilities assumed by Malayan Insurance Company, Inc., it is highly probable that other re-insurers may likewise intervene. If petitioner is allowed to intervene, We hold that there is good and sufficient basis for the Court a quo to declare that the trial between Lepanto and Malayan would be definitely disrupted and would certainly unduly delay the proceedings between the parties especially at the stage where Lepanto had already rested its case and that the issues would also be compounded as more parties and more matters will have to be litigated. In other words, the Court's discretion is justified and reasonable.
We also hold that respondent Judge committed no reversible error in further sustaining the fourth ground of Lepanto's Opposition to the Motion to Intervene that the rights, if any, of petitioner are not prejudiced by the present suit and will be fully protected in a separate action against him and his co-insurers by Malayan.
Petitioner's contention that he has to pay once Malayan is finally adjudged to pay Lepanto because of the very nature of a contract of reinsurance and considering that the re-insurer is obliged 'to pay as may be paid thereon' (referring to the original policies), although this is subject to other stipulations and conditions of the reinsurance contract, is without merit. The general rule in the law of reinsurance is that the re-insurer is entitled to avail itself of every defense
Petitioner's contention that he has to pay once Malayan is finally adjudged to pay Lepanto because of the very nature of a contract of reinsurance and considering that the re-insurer is obliged 'to pay as may be paid thereon' (referring to the original policies), although this is subject to other stipulations and conditions of the reinsurance contract, is without merit. The general rule in the law of reinsurance is that the re-insurer is entitled to avail itself of every defense