G. R. No. 19638. June 20, 1966
FILIPINAS COMPANIA DE SEGUROS, ET AL., PETITIONERS AND APPELLEES, VS. HON. FRANCISCO Y. MANDANAS, IN HIS CAPACITY AS INSURANCE COMMISSIONER, RESPONDENT AND APPELLANT AGRICULTURA…
BENGZON, C.J.:
Thirty-nine (39) non-life insurance companies instituted it, in the
Court of First Instance of Manila,to secure a declaration of legality
of Article 22 of the Constitution of the Philippine Rating Bureau, of
which they are members, inasmuch as respondent Insurance Commissioner
assails its validity upon the ground that it constitutes an illegal or
undue restraintof trade. Subsequently to the filing of the petition,
twenty (20) other non-life insurance companies, likewise, members of
said Bureau, were allowed to intervene in support of the petition.
After appropriate proceedings, said court rendered judgment declaring
that the aforementioned Article 22 is neither contrary to law nor
against public policy, and that, accordingly, petitioners herein, as
well as the intervenors and other members of the aforementioned Bureau,
may lawfully observe and enforce said Article, and are bound to comply
with the provisions thereof, without special pronouncement as to costs.
Hence this appeal by respondent Insurance Commissioner, who insists
that the Article in question constitutes an illegal or undue restraint
of trade and, hence, null and void.
The record discloses that on March 11, 1960, respondent
wrote to said Bureau, a communication expressing his doubts of the
validity of said Article 22, reading:
“In respect to the classes of insurance specified in the Objects of the Bureau[1]
and for Philippine business only, the members of this Bureau agree not
to represent nor to effect reinsurance with, nor to accept reinsurance
from, any Company, Body, or Underwriter licensed to do business in the
Philippines not a Member in good standing of this Bureau”.
and
requesting that said provision, be, accordingly, repealed. On April 11,
1960, respondent wrote another letter to the Bureau inquiring on the
action taken on the subject-matter of his previous communication. In
reply thereto, the Bureau advised respondent that the suggestion to
delete said Article 22 was still under consideration by a committee of
said Bureau. Soon thereafter, or on May 9, 1961, the latter was advised
by respondent that, being an illegal agreement or combination in
restraint of trade, said Article should not be given force and effect;
that failure to comply with this requirement would compel respondent to
suspend the license issued to the Bureau;and that the latter should
circularize all of its members on this matter and advise them that
“violation of this requirement by any member of the Bureau” would also
compel respondent “to suspend the certificate of authority of the
company concerned to do business in the Philippines”. Thereupon, or on
May 16, 1961, the present action was commenced.
Briefly,
appellant maintains that, since, in the aforementioned Article 22,
members of the Bureau “agree not to represent nor to effect reinsurance
with, nor to accept reinsurance from any company, body, or underwriter,
licensed to do business in the Philippines not a member in good
standing of the Bureau”, said provision is illegal as a combination in
restraint of trade. As early as August 10, 1916, this Court had had
occasion to declare that the test on whether a given agreement
constitutes an unlawful machination or a combination in restraint of
trade
“*** is, whether, under the particular
circumstances of the case and the nature of the particular contract
involved in it, the contract is, or is not, unreasonable.” (Ferrazini
vs. Gsell, 34 Phil. 697, 712-13.)
This view was reiterated in Ollendorf vs. Abrahamson (38 Phil., 585)
and Red Line Transportation Co. vs. Bachrach Motor Co. (67 Phil., 77),
in the following language:
“*** The general tendency, we believe, of modern
authority, is to make the test whether the restraint is reasonably
necessary for the protection of the contracting parties. If the
contract is reasonably necessary to protect the interest of the
parties, it will be upheld.“* * * * * * *
“***
we adopt the modern rule that the validity of restraints upon trade or
employment is to be determined by the intrinsic reasonableness of the
teatrietion in each case, rather than by any fixed rule, and that such restrictions
may be upheld when not contrary to the public welfare and not greater
than is necessary to afford a fair and reasonable protection to the
party in whose favor it is imposed“. (Ollendorf vs. Abrahamson, 38 Phil., 585.)“*** The test of validity is whether under the particular circumstances
of the case and considering the nature of the particular contract
involved^ public interest and welfare are not involved and the
restraint is noC only reasonably necessary for the protection of the
contracting parties but will not affect public interest or service”.
(Red Line Transportation Co. vs. Bachrach Motor Co., 67 Phil. 77.)
(See, also, Del Castillo vs. Richmond, 45 Phil. 483.)
The issue in the case at bar hinges, therefore, on the purpose or
effect of the disputed provision. The only evidence on this point is
the uncontradicted testimony of Salvador Estrada, Chairman of the
Bureau when it was first organized and when he took the witness stand.
Briefly stated, he declared that the purpose of Article 22 is to
maintain a high degree or standard of ethical practice, so that
insurance companies may earn and maintain the respect of the public,
because the intense competition between the great number of non-life
insurance companies operating in the Philippines is conducive to
unethical practices, oftentimes taking the form of underrating; that to
achieve this purpose it is highly desirable to have cooperative action
between said companies in the compilation of their total experience in
the business, so that the Bureau could determine more accurately the
proper rate of premium to be chafed from the insured; that, several
years ago, the very Insurance Commissioner had indicated to the Bureau
the necessity of doing something to combat underrating, for, otherwise,
he would urge the amendment of the law so that appropriate measures
could be taken therefor by his office; that much of the work of the
Bureau has to do with rate-making and policy wording; that rate-making
is actually dependent very much on statistics; that, unlike life
insurance companies, which have tables of mortality to guide them in
the fixing of rates, non-life insurance companies have, as yet, no such
guides; that, accordingly, non-life insurance companies need an
adequate record of losses and premium collections that will enable them
to determine the amount of risk involved in each type of risk and,
hence, to determine the rates or premiums that should be charged in
insuring every type of risk; that this information cannot be compiled
without full cooperation on the part of the companies concerned, which
cannot be expected from non-members of the Bureau, over which the
latter has no control; and that, in addition to submitting information
about their respective experience, said Bureau members must, likewise,
share in the rather appreciable expenses entailed in compiling the
aforementioned data and in analyzing the same.
We find nothing unlawful, or immoral, or unreasonable, or contrary
to public policy either in the objectives thus sought to be attained by
the Bureau, or in the means availed of to achieve said objectives, or
in the consequences of the accomplishment thereof. The purpose of said
Article 22 is not to eliminate competition, but to promote ethical practices among non-life insurance companies, although, incidentally, it may discourage, and, hence, eliminate unfair
competition, through underrating, which, in itself, is eventually
injurious to the public. Indeed, in the words of Mr. Justice Brandeis:
“*** the legality of an agreement or regulation cannot be
determined by so simple a test, as whether it restrains competition.
Every agreement concerning trade, every regulation of trade, restrains.
To bind, to restrain, is of their very essence. The true test of
legality is whether the restraint imposed is such as merely regulates
and perhaps thereby promotes competition, or whether it is such as may suppress or even destroy competition. To determine that Question the court toust ordinarily consider the facts peculiar to the baalness to which the restraint is applied;
its condition before and after the restraint was imposed; the nature of
the restraint, and its effect, actual or probable.” (Board of Trade of
Chicago vs. U.S., 246 U.S.231, 62-Led. 683 [1918].)
Thus, in Sugar Institute, Inc. vs. U.S. (297 U.S. 553), the Federal Supreme Court added:
“The restrictions imposed by the Sherman Act are not
mechanical or artificial. We have repeatedly said that they set up the
essential standard of reasonableness. Standard Oil Co. vs. United States, 221 U.S. 1, 55 L. ed. 619, 31 S. Ct. 502, 34 L.R.A. (N.S.) 834, Ann. Cas. 1912D, 734, United States vs.
American Tobacco Co., 221 U.S. 106, 55 L. ed. 663, 31 S. Ct. 632. They
are aimed at contracts and combinations which by reason of intent or
the inherent nature of the contemplated acts, prejudice the public
interests by unduly restraining competition or unduly obstructing the course of trade.’ Nash vs.
United States, 229 U.S. 373, 376, 57 L. ed. 1232, 1235, 33 S. Ct. 780;
United States vs. American Linseed oil Co., 262 U.S. 371, 388, 389, 67
L. ed. 1035, 1040, 1041, 43 S. ct. 607. Designed to frustrate unreasonable
restraints, they do not prevent the adoption of reasonable means to
protect interstate commerce from destructive or injurious practices and
to promote competition upon a sound basis. Voluntary action to end
abuses and to foster fair competitive opportunities in the public
interest may be more effective than legal processes. And
cooperative endeavor may appropriately have wider objectives than
merely the removal of evils which are infractions of positive law”.
Hence, the City Fiscal of Manila refused to prosecute criminally the
Manila Fire Insurance Association for following a policy analogous to
that incorporated in the provision disputed in this case and the action
of said official was sustained by the Secretary of Justice, upon the
ground that:
“*** combinations among insurance companies or their
agents to fix and control rates of insurance do not constitute
indictable conspiracies, provided no unlawful means are used in
accomplishing their purpose (41 C.J. 161; Aetna Ins. Co. vs.
Commonwealth, 106 Ky. 664, 51 SW 624; Queen Ins. Co. vs. State, 86 Tex.
250, 24 SW 397; I Joyce on Insurance, par. 329-a)”.
Indeed, Mr. Estrada’s testimony shows that the limitation upon
reinsurance contained In the aforementioned Article 22 does not affect
the public at all, for, whether there is reinsurance or not, the
liability of the insurer in favor of the insured is the same. Besides,
there are sufficient foreign reinsurance companies operating in the
Philippines from which non-members of the Bureau may secure
reinsurance. What is more, whatever the Bureau may do in the matter
of rate-fixing is not decisive insofar as the public is concerned, for
no insurance company in the Philippines may charge a rate of premium
that has not been approved by the, Insurance Commissioner.
In fact, respondent’s Circular No. 54, dated February 26, 1954, provides:
“II. Non-life Insurance company or Group Association of such companies.
“Every non-life insurance company or group or association of such
companies doing business in the Philippines shall file with the
Insurance Commissioner for approval general basic schedules showing the
premium rates on all classes of risk except marine, as distinguished
from inland marine, insurable by such insurance company or association
of insurance companies in this country.* * * * * * *
“An insurance company or group of such companies may satisfy its
obligation to make such filings by becoming a member of or subscriber
to a rating organization which makes such filing and by authorizing the
insurance commissioner to accept such filings of the rating
organization on such company’s or group’s behalf.“III. Requiring Previous Application to and Approval by the
Insurance Commissioner before any Change in the Rates Schedules filed
with Him Shall Take Effect.“No change in the schedules filed in compliance with the
requirements of the next preceding paragraph shall be made except upon
application duly filed with and approved by the Insurance Commissioner.
Said application shall state the changes proposed and the date of their
effectivity; all changes finally approved by the Insurance Commissioner
shall be incorporated in the old schedules or otherwise indicated as
new in the new schedules.“IV. Empowering the Insurance Commissioner to Investigate All Non-Life Insurance Rates.
“The Insurance Commissioner shall have power to examine any or all rates established
by non-life insurance companies or group or association of such
insurance companies in the country. Should any rate appear, in the
opinion of the Insurance Commissioner, unreasonably high or not
adequate to the financial safety or soundness to the company charging
same, or prejudicial to policy-holders, the Commissioner shall, in such
case, hold a hearing and/or conduct an investigation . Should the
result of such hearing and/or investigation show that the rate is
unreasonably high or so low that it is not adequate to the financial
safety and soundness of the company charging same, or is prejudicial to
policy-holders, the Insurance Commissioner shall direct a revision of
the said rate in accordance with his findings. Any insurance
company or group or association of insurance companies may be required
to publish the schedule of rates which may have been revised in
accordance herewith.“The decision of the Insurance Cooanissioner shall be appealable
within thirty days after it has been rendered to the Secretary of
Finance.“V. Prohibiting Non-life Insurance Companies and their Agents from
Insuring Any Property in this Country at a Rate Different from that in
the Schedules; Unethical Practices.“No insurance conipany shall engage or participate in the insurance
of any property located in the Philippines *** unless the schedule of
rates under which such property is insured has been filed and approved
in accordance with the provisions of this Circular, ***.” (Italics
ours.)
On the same date, the Constitution of the Bureau, containing a
provision substantially identical to the one now under consideration,
was approved. Article 2 of said Constitution reads:
“2. OBJECTS
The objects of the Bureau shall be:
“a. To
establish rates in respect of Fire, Earthquake. ..liot and Civil
Commotion, Automobile and Workmen’s Compensation, and whenever
applicable, Marine Insurance business.*******
“c.
To file the rates referred to above, tariff rules, and all other
conditions or data which may in any way affect premium rates with the
Office of the Insurance Commissioner on behalf of members for approval.” (Italics ours.)
In compliance with the aforementioned Circular No. 54,in April,
1954, the Bureau applied for the license required therein, and
submitted with its application a copy of said Constitution. On April
28, 1954, respondent’s office issued to the Bureau the license applied
for, certifying, not only that it had complied with the requirements of
Circular No. 54, but, also, that the License empowered it “to engage in
the making of rates or policy conditions to be used by insurance
companies in the Philippines”. Subsequently, thereafter, the Bureau
applied for and was granted yearly the requisite license to operate in
accordance with the provisions of its Constitution. During all this
time, respondents office did not question, but impliedly acknowledged,
the legality of Article 22. It was not until March 11, 1960, that it
assailed its validity.
Respondent’s contention is anchored mainly on Paramount Famous Lasky Corp. vs.
U.S., 282 U.S. 30, but the same is not in point, not only because it
refers to the conditions under which movie film producers and
distributors determine the terms under which theaters or exhibitors may
be allowed to run movie films – thereby placing the exhibitors under
the control of the producers or distributors and giving the exhibitors,
in effect, no choice as to what films and whose films they will show –
but, also, because there is, in the film industry,no agency or officer
with poweffi or functions comparable to those in the Insurance
Commissioner, as regards the re3ulation of the business concerned and
of the transactions involved therein.
WHEREFORE, the decision appealed from should be, as it is hereby affirmed, without costs. it is so ordered.
Concepcion, C.J., Reyes, Barrera, Dizon, Regala, Makalintal, Bengzon, Zaldivar, and Sanchez, JJ., concur.
[1] Fire, earthquake, riot and civil commotion, automobile, Workmen’s Compensation and Marine Insurance.