Sunday, March 11, 2012

Philamlife vs. Auditor General [GR. 19255 January 18, 1968]

Facts: On January 1950, Philippine American Life Insurance Co.(PHILAM) and, foreign corporation, American International Reinsurance Co.(AIRCO) entered into a reinsurance treaty where PHILAM agreed to reinsure with AIRCO the excess of life insurance on the lives of persons written by PHILAM. In their agreement it is also stipulated that even though PHILAM is already on a risk for its maximum retention under policies previously issued, when new policies are applied for and issued they can cede automatically any amount, within the limits specified. 

No question ever arose with respect to the remittances made by Philamlife to Airco before July 16, 1959, the date of approval of the Margin Law. 

Subsequently, the Central Bank of the Philippines collected the sum of P268,747.48 as foreign exchange margin on Philamlife remittances to Airco made subsequent to July 16, 1959. 

PHILAM then filed with the CB a claim for refund for the same amount arguing that the reinsurance premiums remitted were paid on January 1950 and is therefore exempt from the 25% foreign exchange margin fee. The Acting legal counsel of the Monetary board resolved that reinsurance contracts entered into and approved by the Central Bank before July 17, 1959 are exempt from the payment of the 25% foreign exchange margin, even if remittances thereof are made after July 17, 1959. 

Still the Auditor of the CB denied PHILAM’s claim for refund and reconsideration was denied, hence the petition. 

Issue: Whether PHILAM’s claim was covered by the exemption 

HeldThe Court held in the negative stating that 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. 

To distinguish, a reinsurance policy is a contract of indemnity one insurer makes with another to protect the first insurer from a risk it has already assumed. On the other hand, a reinsurance treaty is merely an agreement between two insurance companies whereby one agrees to surrender and the other to accept reinsurance business pursuant to provisions specified in the treaty. Treaties are contracts for insurance; reinsurance policies or cessions are contracts of insurance. 

Although the reinsurance treaty precedes the Margin Law by over nine years nothing in that treaty obligates PHILAM 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 PHILAM "agrees to reinsure." The treaty speaks of a probability; not a reality. 

PHILAM’s obligation to remit reinsurance premiums becomes fixed and definite upon the execution of the reinsurance cession. Because, for every life insurance policy surrendered to AIRCO, PHILAM agrees to pay premium. It is only after a reinsurance cession is made that payment of reinsurance premium may be exacted, as it is only after PHILAM seeks to remit that reinsurance premium that the obligation to pay the margin fee arises.

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