VOL.

504, OCTOBER 9, 2006

53

Republic vs. Del Monte Motors, Inc.

G.R. No. 156956. October 9, 2006.*

REPUBLIC OF THE PHILIPPINES, Represented by EDUARDO T. MALINIS in His Capacity as Insurance

Commissioner, petitioner, vs. DEL MONTE MOTORS, INC., respondent.

Insurance; Statutes; Statutory Construction; Basic is the statutory construction rule that provisions of a
statute should be construed in accordance with the purpose for which it was enacted; Thus, a single
claimant may not lay stake on the securities to the exclusion of all others.—Basic is the statutory
construction rule that provisions of a statute should be construed in accordance with the purpose for
which it was enacted. That is, the securities are held as a contingency fund to answer for the claims
against the insurance company by all its policy holders and their beneficiaries. This step is taken in the
event that the company becomes insolvent or otherwise unable to satisfy the claims against it. Thus, a
single claimant may not lay stake on the securities to the exclusion of all others. The other parties may
have their own claims against the insurance company under other insurance contracts it has entered
into.

Same; Same; Same; The insurance commissioner has been given a wide latitude of discretion to regulate
the insurance industry so as to protect the insuring public; An implied trust is created by the law for the
benefit of all claimants under subsisting insurance contracts issued by the insurance company.—The
insurance commissioner has been given a wide latitude of discretion to regulate the insurance industry
so as to protect the insuring public. The law specifically confers custody over the securities upon the
commissioner, with whom these investments are required to be deposited. An implied trust is created
by the law for the benefit of all claimants under subsisting insurance contracts issued by the insurance
company.

Same; Same; Same; Court has recognized that the construction of a statute by administrative agencies is
entitled to great respect and should ordinarily be controlling, unless clearly shown to be in sharp conflict
with the governing statute or the Constitution and other laws.—The emergence of the multifarious
needs of modern society necessitates the establishment of diverse administrative agencies. In
addressing these needs, the administrative agencies charged with applying and implementing particular
statutes have accumulated experience and specialized capabilities. Thus, in a long line of cases, this
Court has recognized that their construction of a statute is entitled to great respect and should
ordinarily be controlling, unless clearly shown to be in sharp conflict with the governing statute or the
Constitution and other laws.

Same; Same; Same; Trial court erred in issuing the Writ of Garnishment against the security deposit of
Capital Insurance and Surety Co. (CISCO).—Clearly, then, the trial court erred in issuing the Writ of
Garnishment against the security deposit of CISCO. It follows that without the issuance of a valid order,
the insurance commissioner, could not have been in contempt of court.

PETITION for review on certiorari of an order of the Regional Trial Court of Quezon City, Br. 221.
The facts are stated in the opinion of the Court.

     The Solicitor General for petitioner.

     Eduardo B. Francisco for respondent.

PANGANIBAN, C.J.:

The securities required by the Insurance Code to be deposited with the Insurance Commissioner are
intended to answer for the claims of all policy holders in the event that the depositing insurance
company becomes, insolvent or otherwise unable to satisfy their claims. The security deposit must be
ratably distributed among all the insured who are entitled to their respective shares; it cannot be
garnished or levied upon by a single claimant, to the detriment of the others.

The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to reverse the January 16,
2003 Order2 of the Regional Court (RTC) of Quezon City (Branch 221) in Civil Case No. Q-97-30412. The
RTC found Insurance Commissioner Eduardo T. Malinis guilty of indirect contempt for refusing to
comply with the December 18, 2002 Resolution3 of the lower court. The January 16, 2003 Order states
in full:

“On January 8, 2003, [respondent] filed a Motion to Cite Commissioner Eduardo T. Malinis of the Office
of the Insurance Commission in Contempt of Court because of his failure and refusal to obey the lawful
order of this court embodied in a Resolution dated De-cember 18, 2002 directing him to allow the
withdrawal of the security deposit of Capital Insurance and Surety Co. (CISCO) in the amount of
P11,835,375.50 to be paid to Sheriff Manuel Paguyo in the satisfaction of the Notice of Garnishment
pursuant to a Decision of this Court which has become final and executory.

“During the hearing of the Motion set last January 10, 2003, Commissioner Malinis or his counsel or his
duly authorized representative failed to appear despite notice in utter disregard of the order of this
Court. However, Commissioner Malinis filed on January 15, 2003 a written Comment reiterating the
same grounds already passed upon and rejected by this Court. This Court finds no lawful justification or
excuse for Commissioner Malinis’ refusal to implement the lawful orders of this Court.

“Wherefore, premises considered and after due hearing, Commissioner Eduardo T. Malinis is hereby
declared guilty of Indirect Contempt of Court pursuant to Section 3 [of] Rule 71 of the 1997 Rules of Civil
Procedure for willfully disobeying and refusing to implement and obey a lawful order of this Court.”4

The Facts

On January 15, 2002, the RTC rendered a Decision in Civil Case No. Q-97-30412, finding the
defendants (Vilfran Liner, Inc., Hilaria Villegas and Maura Villegas) jointly and severally liable to pay
Del Monte Motors, Inc., P11,835,375.50 representing the balance of Vilfran Liner’s service contracts
with respondent. The trial court further ordered the execution of the Decision against the counterbond
posted by Vilfran Liner on June 10, 1997, and issued by Capital Insurance and Surety Co., Inc. (CISCO).
On April 18, 2002, CISCO opposed the Motion for Execution filed by respondent, claiming that the
latter had no record or document regarding the alleged issuance of the counterbond; thus, the
bond was not valid and enforceable.

granted the Motion for Execution and issued the corresponding Writ.
On June 13, 2002, the RTC

Armed with this Writ, Sheriff Manuel S. Paguyo proceeded to levy on the properties of CISCO. He
also issued a Notice of Garnishment on several depository banks of the insurance company.
Moreover, he served a similar notice on the Insurance Commission, so as to enforce the Writ on the
security deposit filed by CISCO with the Commission in accordance with Section 203 of the Insurance
Code.

On December 18, 2002, after a hearing on all the pending Motions, the RTC ruled that the Notice of
Garnishment served by Sheriff Paguyo on the insurance commission was valid. The trial court added
that the letter and spirit of the law made the security deposit answerable for contractual obligations
incurred by CISCO under the insurance contracts the latter had entered into. The RTC resolved thus:

“Furthermore, the Commissioner of the Office of the Insurance Commission is hereby ordered to comply
with its obligations under the Insurance Code by upholding the integrity and efficacy of bonds validly
issued by duly accredited Bonding and Insurance Companies; and to safeguard the public interest by
insuring the faithful performance to enforce contractual obligations under existing bonds. Accordingly
said office is ordered to withdraw from the security deposit of Capital Insurance & Surety Company, Inc.
the amount of P11,835.50 to be paid to Sheriff Manuel S. Paguyo in satisfaction of the Notice of
Garnishment served on August 16, 2002.”5

On January 8, 2003, respondent moved to cite Insurance Commissioner Eduardo T. Malinis in contempt
of court for his refusal to obey the December 18, 2002 Resolution of the trial court.
Ruling of the Trial Court

The RTC held Insurance Commissioner Malinis in contempt for his refusal to implement its Order. It
explained that the commissioner had no legal justification for his refusal to allow the
withdrawal of CISCO’S security deposit. Hence, this Petition.6

Issues
Petitioner raises this sole issue for the Court’s consideration:

“Whether or not the security deposit held by the Insurance Commissioner pursuant to Section 203 of
the Insurance Code may be levied or garnished in favor of only one insured.”7

The Court’s Ruling

The Petition is meritorious.

Preliminary Issue:

Propriety of Review
Before discussing the principal issue, the Court will first dispose of the question of mootness.

Prior to the filing of the instant Petition, Insurance Commissioner Malinis sent the treasurer of the
Philippines a letter dated March 26, 2003, stating that the former had no objection to the release of the
security deposit to Del Monte Motors. Portions of the fund were consequently released to respondent
in July, October, and December 2003. Thus, the issue arises: whether these circumstances render the
case moot.

Petitioner, however, contends that the partial releases should not be construed as an abandonment of
its stand that security deposits under Section 203 of the Insurance Code are exempt
from levy and garnishment. The Republic claims that the releases were made pursuant to
the commissioner’s power of control over the fund, not to the lower court’s Order of garnishment.
Petitioner further invokes the jurisdiction of this Court to put to rest the principal issue of whether
security deposits made with the Insurance Commission may be levied and garnished.

The issue is not totally moot. To stress, only a portion of respondent’s claim was satisfied, and the
Insurance Commission has required CISCO to replenish the latter’s security deposit. Respondent,
therefore, may one day decide to further garnish the security deposit, once replenished. Moreover,
after the questioned Order of the lower court was issued, similar claims on the security deposits of
various insurance companies have been made before the Insurance Commission. To set aside the
resolution of the issue will only postpone a task that is certain to crop up in the future.

Besides, the business of insurance is imbued with public interest. It is subject to regulation by the State,
with respect not only to the relations between the insurer and the insured, but also to the internal
affairs of insurance companies.8 As this case is undeniably endowed with public interest and involves a
matter of public policy, this Court shall not shirk from its duty to educate the bench and the bar by
formulating guiding and controlling principles, precepts, doctrines and rules.9

Principal Issue:

Exemption of Security Deposit from Levy or Garnishment

Section 203 of the Insurance Code provides as follows:

“Sec. 203. Every domestic insurance company shall, to the extent of an amount equal in value to
25% of the minimum paid-up capital required under section 188, invest its funds only in securities,
satisfactory to the Commissioner, consisting of bonds or other evidences of debt of the Government of
the Philippines or its political subdivisions or instrumentalities, or of government-owned or controlled
corporations and entities, including the Central Bank of the Philippines: Provided, That such investments
shall at all times be maintained free from any lien or encumbrance; and Provided, further, That such
securities shall be deposited with and held by the Commissioner for the faithful performance by the
depositing insurer of all its obligations under its insurance contracts. The provisions of section one
hundred ninety-two shall, so far as practicable, apply to the securities deposited under this section.

“Except as otherwise provided in this Code, no judgment creditor or other claimant shall have the
right to levy upon any of the securities of the insurer held on deposit pursuant to the
requirement of the Commissioner.” (Emphasis supplied)

Respondent notes that Section 203 does not provide for an absolute prohibition on the levy and
garnishment of the security deposit. It contends that the law requires the deposit, precisely to ensure
faithful performance of all the obligations of the depositing insurer under the latter’s various insurance
contracts. Hence, respondent claims that the security deposit should be answerable for the
counterbond issued by CISCO.

The Court is not convinced. As worded, the law expressly and clearly states that the security
deposit shall be (1) answerable for all the obligations of the depositing insurer under its insurance
contracts; (2) at all times free from any liens or encumbrance; and (3) exempt from levy by any claimant.

To be sure, CISCO, though presently under conservatorship, has valid outstanding policies. Its policy
holders have a right under the law to be equally protected by its security deposit. To allow the
garnishment of that deposit would impair the fund by decreasing it to less than the
percentage of paid-up capital that the law requires to be maintained. Further, this move would create,
in favor of respondent, a preference of credit over the other policy holders and beneficiaries.

Our Insurance Code is patterned after that of California.10 Thus, the ruling of the state’s Supreme
Court on a similar concept as that of the security deposit is instructive. Engwicht v. Pacific States Life
Assurance Co.11 held that the money required to be deposited by a mutual assessment insurance
company with the state treasurer was “a trust fund to be ratably distributed amongst all the claimants
entitled to share in it. Such a distribution cannot be had except in an action in the nature of a
creditors’ bill, upon the hearing of which, and with all the parties interested in the fund before it, the
court may make equitable distribution of the fund, and appoint a receiver to carry that distribution into
effect.”12

Basic is the statutory construction rule that provisions of a statute should be construed in accordance
with the purpose for which it was enacted. That is, the securities are held as a contingency fund to
answer for the claims against the insurance company by all its policy holders and their beneficiaries. This
step is taken in the event that the company becomes insolvent or otherwise unable to satisfy the claims
against it. Thus, a single claimant may not lay stake on the securities to the
exclusion of all others. The other parties may have their own claims against the insurance
company under other insurance contracts it has entered into.

Respondent’s Inchoate Right

The right to lay claim on the fund is dependent on the solvency of the insurer and
is subject to all other obligations of the company arising from its insurance
contracts. Thus, respondent’s interest is merely inchoate. Being a mere expectancy, it has no
attribute of property. At this time, it is nonexistent and may never exist.14 Hence, it would be
premature to make the security deposit answerable for CISCO’S present obligation to Del Monte
Motors.

Moreover, since insolvency proceedings against CISCO have yet to be conducted, it would be impossible
to establish at this time which claimants are entitled to the security deposit and in what pro-rated
amounts. Only after all other claimants under subsisting policies issued by CISCO have been heard can
respondent’s share be determined.

Powers of the Commissioner

The Insurance Code has vested the Office of the Insurance Commission with both regulatory
and adjudicatory authority over insurance matters.15

The general regulatory authority of the insurance commissioner is described in Section 414 of the Code
as follows:

“Sec. 414. The Insurance Commissioner shall have the duty to see that all laws relating to insurance,
insurance companies and other insurance matters, mutual benefit associations, and trusts for
charitable uses are faithfully executed and to perform the duties imposed upon him by this Code,
and shall, notwithstanding any existing laws to the contrary, have sole and exclusive
authority to regulate the issuance and sale of variable contracts as defined in section 232 and to
provide for the licensing of persons selling such contracts, and to issue such reasonable
rules and regulations governing the same.

“The Commissioner may issue such rulings, instructions, circulars, orders and decisions as he may
deem necessary to secure the enforcement of the provisions of this Code, subject to the approval of the
Secretary of Finance. Except as otherwise specified, decisions made by the Commissioner shall be
appealable to the Secretary of Finance.” (Emphasis supplied)

Pursuant to these regulatory powers, the commissioner is authorized to (1) issue (or
to refuse to issue) certificates of authority to persons or entities desiring to engage in insurance
business in the Philippines;16 (2) revoke or suspend these certificates of authority upon finding grounds
for the revocation or suspension;17 (3) impose upon insurance companies, their directors and/or
officers and/or agents appropriate penalties—fines, suspension or removal from office—for failing to
comply with the Code or with any of the commissioner’s orders, instructions, regulations or rulings, or
for otherwise conducting business in an unsafe or unsound manner.18

Included in the above regulatory responsibilities is the duty to hold the security
deposits under Sections 19119 and 203 of the Code, for the benefit and security
of all policy holders. In relation to these provisions, Section 192 of the Insurance Code states:
“Sec. 192. The Commissioner shall hold the securities, deposited as aforesaid, for the benefit and
security of all the policyholders of the company depositing the same, but shall as long as the company is
solvent, permit the company to collect the interest or dividends on the securities so deposited, and,
from time to time, with his assent, to withdraw any of such securities, upon depositing with said
Commissioner other like securities, the market value of which shall be equal to the market value of such
as may be withdrawn. In the event of any company ceasing to do business in the Philippines the
securities deposited as aforesaid shall be returned upon the company’s making application therefor and
proving to the satisfaction of the Commissioner that it has no further liability under any of its policies in
the Philippines.” (Emphasis supplied)

Undeniably, the insurance commissioner has been given a wide latitude of

discretion to regulate the insurance industry so as to protect the insuring public .
The law specifically confers custody over the securities upon the commissioner, with whom these
investments are required to be deposited. An implied trust20 is created by the law for the benefit of all
claimants under subsisting insurance contracts issued by the insurance company.21

As the officer vested with custody of the security deposit, the insurance
commissioner is in the best position to determine if and when it may be released without prejudicing
the rights of other policy holders. Before allowing the withdrawal or the release of the deposit, the
commissioner must be satisfied that the conditions contemplated by the law are met and all policy
holders protected.

Commissioner’s Actions Entitled to Great Respect

In this case, Commissioner Malinis refused to release the security deposit

of CISCO. Believing that the funds were exempt from execution as provided by law, he sought to
protect other policy holders. His interpretation of the provisions of the law carries great weight and
consideration, as he is the head of a specialized body tasked with the regulation of
insurance matters and primarily charged with the implementation of the Insurance Code.

The emergence of the multifarious needs of modern society necessitates the establishment of diverse
administrative agencies. In addressing these needs, the administrative agencies charged with applying
and implementing particular statutes have accumulated experience and specialized capabilities. Thus, in
a long line of cases, this Court has recognized that their construction of a statute is entitled to great
respect and should ordinarily be controlling, unless clearly shown to be in sharp conflict with the
governing statute or the Constitution and other laws.

Clearly, then, the trial court erred in issuing the Writ of Garnishment against the security deposit of
CISCO. It follows that without the issuance of a valid order, the insurance commissioner, could not have
been in contempt of court.24

WHEREFORE, the Petition is GRANTED and the assailed Order SET ASIDE. No costs.

SO ORDERED.
     Ynares-Santiago, Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.

Petition granted.

Note.—A meaning that does not appear nor is intended or reflected in the very language of the statute
cannot be placed therein by construction. (Government Service Insurance System vs. Commission on
Audit, 441 SCRA 532 [2004])

——o0o—— Republic vs. Del Monte Motors, Inc., 504 SCRA 53, G.R. No. 156956 October 9, 2006