THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, PTITIONER-APPELLEE, VS. SOCIAL SECURITY COMMISSION, RESPONDENT-APPELLANT.

Philippine American Life Insurance versus Social Security Commission

The Case

This is a petition for prohibition filed by the Philippine American Life Insurance Company against the Social Security Commission. The insurer sought to stop the Commission from compelling it to remit social security contributions for its insurance agents, solicitors, and underwriters, and from prosecuting its officers for refusing to do so. The insurer's theory was simple: its agents are not its employees, and therefore they do not fall under the compulsory coverage of the Social Security System. The case matters because it settles two enduring procedural lessons — that a quasi-judicial body like the Social Security Commission is not inferior to a court of first instance, so prohibition does not lie against it, and that the exhaustion of administrative remedies is a condition precedent to judicial review of its decisions.

Procedural History

The Philippine American Life Insurance Company commenced the action for prohibition with preliminary injunction in the Court of First Instance of Manila. After appropriate proceedings, the trial court rendered judgment in favor of the insurer. It held that the agents, solicitors, and underwriters are not employees of the company and do not fall under compulsory coverage. It commanded the Social Security Commission to desist from taking criminal action against the company's officers and from requiring remittance of contributions. The Social Security Commission appealed directly to the Supreme Court, since only questions of law were involved.

Facts

On November 6, 1960, the Social Security System, with the approval of the Chairman of the Social Security Commission, issued Circular Number 34. The circular required all insurance firms to submit the names of their agents, solicitors, or underwriters who, pursuant to the Social Security Act, are employees of said firms and subject to compulsory coverage, and to pay the corresponding premiums based on the actual commissions received by each agent each month.

On February 11, 1961, the System sent the insurer a letter enclosing SSS Form R-1-A.1, advising that the insurance agents are considered its employees subject to compulsory coverage, and urging the company to accomplish and submit the form within ten days to avoid the penalties provided by law. The advice was reiterated on March 3, 1961. On March 7, 1961, the insurer objected, insisting that its agents are not its employees. On May 14, 1961, the System sent another letter with several copies of the form, requesting that these be accomplished and submitted to facilitate early adjudication of the coverage of its insurance agents.

Instead of complying, on May 30, 1961, the insurer commenced the action for prohibition in the Court of First Instance of Manila, seeking to restrain the Commission from compelling remittance of contributions and from prosecuting the company and its officers for refusal to make them. The lower court ruled for the insurer, and the Commission appealed to the Supreme Court.

Issues

• Whether or not the trial court had jurisdiction to hear and decide the case and to issue the writ of prohibition against the Social Security Commission.
• Whether or not the insurer had a cause of action against the Commission, considering the requirement of exhaustion of administrative remedies.
• Whether or not the insurance agents, solicitors, or underwriters of a life insurance company are its employees for purposes of compulsory coverage under the Social Security System.

Applicable Provisions

Section 5(a) of the Social Security Act, as amended, provides:

Any dispute arising under this Act with respect to coverage, entitlement to benefits, collection and settlement of premium contributions and penalties thereon, or any other matter related thereto, shall be cognizable by the Commission, and any case filed with the Commission with respect thereto shall be heard by the Commission, or any of its members, or by hearing officers duly authorized by the Commission, and decided within twenty days after the submission of the evidence. The filing, determination and settlement of claims shall be governed by the rules and regulations promulgated by the Commission.

This amendment, introduced by Republic Act Number 4857, confirms that any dispute over coverage is cognizable by the Commission, rendering the third issue moot.

Section 5(b) of the same Act, as discussed in the decision, provides that judicial review of any decision of the Commission shall be permitted only after the party aggrieved has exhausted his remedies before the Commission. This is the provision that defeats the insurer's action.

Section 5(c) of the same Act, as discussed in the decision, provides that decisions of the Commission may be reviewed both upon the law and the facts by the Court of Appeals, or, if the decision involves only questions of law, by the Supreme Court. This shows that the Commission is not inferior to a court of first instance.

Ruling

On the first issue, the Court held that the appeal of the Commission is well-founded. A writ of prohibition may be issued only by a superior court to an inferior court, corporation, board, or person, to prevent the latter from usurping or exercising a jurisdiction or power it does not have. Section 5(a) of the Act acknowledges in the Commission the power to determine and settle claims, which partakes of a quasi-judicial function. In the exercise of that function, the Commission is not inferior to courts of first instance, in much the same way as the Public Service Commission, as a board performing quasi-judicial functions, is not inferior to said courts. Hence, the lower court had no jurisdiction to issue the writ of prohibition prayed for.

On the second issue, the Court held that the insurer had no cause of action. Pursuant to Section 5(b) of the Act, judicial review of any decision of the Commission shall be permitted only after any party claiming to be aggrieved thereby has exhausted his remedies before the Commission. The insurer had not exhausted its remedies. It had not even appealed to the Commission from the action taken by the System in insisting upon the enforcement of Circular Number 34. The approval of the circular by the Chairman of the Commission was not a decision, because a decision connotes the adjudication or settlement of a controversy, and no controversy existed when the circular was signed. The issue did not arise until March 7, 1961, when the insurer objected. Even if the approval were regarded as a decision, the insurer still had to seek reconsideration, which it did not do. Prohibition does not lie except in the absence of appeal or any other plain, speedy, and adequate remedy in the ordinary course of law. The Court also found that the threat of criminal prosecution came not from the Commission but from the System, and that an appeal to the Commission, which had control over the System, would have been a plain, speedy, and adequate remedy.

On the third issue, the Court found it unnecessary to pass upon it, since the lower court had no jurisdiction and the insurer had no cause of action. The issue had also become moot on account of the approval of Republic Act Number 4857 on September 1, 1966, which amended Section 5(a) of the Act. Hence, there can be no question now that any dispute with respect to coverage is cognizable by the Commission.

Doctrine

A quasi-judicial body such as the Social Security Commission is not inferior to a court of first instance. A writ of prohibition may be issued only by a superior court to an inferior court, corporation, board, or person, so it cannot be issued by a court of first instance against the Commission in the exercise of the latter's quasi-judicial functions.

The doctrine of exhaustion of administrative remedies is a condition precedent to judicial review. Under Section 5(b) of the Social Security Act, judicial review of any decision of the Commission shall be permitted only after the party aggrieved has exhausted his remedies before the Commission, which includes seeking reconsideration of the decision complained of.

An approval of a circular by the chairman of a commission is not a decision, because a decision connotes the adjudication or settlement of a controversy. Where no controversy yet exists, there is nothing to review.

Any dispute with respect to coverage under the Social Security Act is cognizable by the Commission, as expressly provided by Section 5(a) of the Act, as amended.

Disposition

The Supreme Court reversed the decision of the lower court and entered another dismissing the complaint, with costs against the Philippine American Life Insurance Company.

Remember This

Memorize this line: prohibition lies only from a superior court to an inferior tribunal, and the Social Security Commission, acting quasi-judicially, is not inferior to a court of first instance. Examiners use this case to test the requisites of prohibition and the rule on exhaustion of administrative remedies before seeking judicial review of a quasi-judicial body's actions.