452

SUPREME COURT REPORTS ANNOTATED

Agents Who Sell Insurance Policies
ANNOTATION

AGENTS WHO SELL INSURANCE POLICIES

By
LOHEL A. MARTIREZ
1. Introduction, p. 452
2. Scope, p. 454
3.
4.
5.
6.

The Insurance Agent, p. 454

Types of Insurance Field Organization, p. 458
Employer-Employee Relations, p. 461
Useful Pointers, p. 462

1. Introduction
The case under Annotation is entitled, GREAT PACIFIC
LIFE ASSURANCE CORPORATION, Petitioner, - versus HONORATO
JUDICO
and
NATIONAL
LABOR
RELATIONS COMMISSION, Respondents. G.R. No.
73887, promulgated December 21, 1989 (SECOND
DIVISION).
The herein Petitioner happens to be one of the larger life
insurance companies in the Philippines. It is engaged not
only in sales and servicing of Ordinary Life Insurance
Business, but also in what is called, Industrial Life
Insurance Business. In this latter type of business, those
people selling and doing the servicing are called, Debit
Agents. Premiums are usually paid either daily, weekly,
semi-monthly, or monthly as the case may be.
Apart from these debit agents, they also have hired
those ordinary agents, meaning, agents selling ordinary life
insurance

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business thereby collecting premiums at least on a
Quarterly, or on Semi-annual or Annual basis. In both
cases, the debit agent and the ordinary agent first secure a
License or Certificate of Authority from the Insurance
Commission renewable every 30th day of June.
The usual and general, or the customary practice among
life insurance companies, is to recruit, train, develop and
hire agents (duly licensed) on COMMISSION BASIS. And I
mean, purely commission basis. The agents income would
depend upon the volume of his production for the month,
for the quarter, or for the entire year. Life Insurance
commissions reach up to sixty (60%) percent for the 1 st
year, 10 to 15 percent on the second year and 5% on the 3rd
up to the 10th policy year. Apart from that, the life
insurance company offers Incentive Commissions or,
Bonus Commissions and other production and persistency
of sales benefits to their deserving agents. Their sales
supervisors or agency managers receive Overriding
Commissionsall on the actual understanding that their
efforts as an individual or as a team in the sales force are
being compensated not as employees of the life insurance
firm but as independent contractors (licensed agents).
However, life companies are free to enter into varied types
of contracts including those towards their representative
in the field. So much so, that, what GREPALIFE did
actually enter into with Mr. Honorato Judico, the herein
private respondent, was interpreted to be that having the
color of Employer-Employee relationships. That was one of
the oversights of Grepalife so to speak in not carefully
wording their contract on the matter. This will serve as a
lesson to other life insurance companies hiring debit
agents.
It would seem now, that any life insurance company
desiring to engage in industrial life insurance business
selling must be careful in their contract provisions with
their debit agents. That, the insurer must avoid giving out
definite work assignments; avoid giving definite place of
work in the office; avoid giving out definite amount of
money for services rendered, and refrain from requiring the

debit agent from making regular report to the company

regarding his duties so that there will be no employeremployee relationship between the parties! Rare indeed,
were debit agents in the category of herein private
respondent even within the framework of the sales team of
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Agents Who Sell Insurance Policies

Grepalife. The overwhelming majority of the industrial life

sales force didnt think themselves as regular employees,
but simply as Field Representatives (agents). The majority
didnt think themselves (except Mr. Judico) as like those
working in Grepalifes Home Office or Branch Offices who
receive salaries/wages on a monthly basis. Following the
decision, Great Pacific Life must be having the largest
payroll within the life insurance industry. I never thought
of it. Having been engaged in the life insurance business
myself for the past 26 years, I looked at agents in the
industry simply as agents, field representative,
insurance counsellor insurance field UNDERWRITER.
And thats all to it under ordinary circumstances. This has
to be commented upon further later.
2. Scope
The case covered certiorari, Art. 281 of the Labor Code
and other pertinent provisions thereof; Insurance Code
provisions on agency; Employer-employee relations, illegal
dismissal among others.
3. The Insurance Agent
Since insurance is a special law, the law that governs
Insurance Agents, sales agencies and technical services is
the INSURANCE CODE with the Civil Code having
suppletory role. Below, are the pertinent legal provisions
upon which additional annotations be based as we go along.
SECTION 299. No insurance company doing business in the
Philippines, nor any agent thereof, shall pay any commission or
other compensation to any person for services in obtaining

insurance, unless such person shall have first procured from the
Commissioner a license to act as an insurance agent of such
company or as an insurance broker as hereinafter provided.
No person shall act as an insurance agent or as an insurance
broker in the solicitation or procurement of application for
insurance, or receive for services in obtaining insurance, any
commission or other compensation from any insurance company
doing business in the Philippines or any agent thereof, without first
procuring a license so to act from the Commissioner, which must be
renewed annually on the
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first day of January, or within six months thereafter. Such license
shall be issued by the Commissioner only upon the written
application of the person desiring it, such application if for a license
to act as insurance agent being approved and countersigned by the
company such person desires to represent, and shall be upon a form
prescribed by the Commissioner giving such information as he may
require and upon payment of the corresponding fee hereinafter
prescribed. The Commissioner shall satisfy himself as to the
competence and trustworthiness of the applicant and shall have the
right to refuse to issue or renew and to suspend or revoke any such
license in this discretion. No such license shall be valid after the
thirtieth day of June of the year following its issuance unless it is
renewed. (As amended by PD 1455)

In addition to the above requirements, the applicant for

issuance of an insurance license must be (a) resident of the
Philippines, (b) be trustworthy, and (c) pass the written
examination conducted by the Insurance Commission,
unless exempted from taking the same. However, in case
the applicant is a partnership, association or corporation,
such applicant must be domiciled in the Philippines and
empowered under its articles to transact the kind of
insurance applied for. The individual to be named in the
license applied for must also possess the above
qualifications.
That Mr. Honorato Judico was an agent under the
preceding legal provision of the Insurance Code was settled
when the Court said that, x x x private respondent Judico
was an agent of the petitioner is unquestionable. The

agreement of agency entered into between the petitioner

and the private respondent to become a debit agent
attached to the industrial life agency in Cebu City, to
sell/service industrial life plans and policy holders, were
just the usual contracts of field selling, salesmanship, and
field underwriting in the ordinary meaning of the word
underwriter. People hired as employees of any category
are not asked to sign an agency agreement by a life
insurance company for that matter.
This is further bolstered by Section 300 of the Insurance
Code, as to agents who sell insurance policies. It says:
Any person who for compensation solicits or obtains insurance on
behalf of any insurance company, transmits for a person other than
himself an application for a policy or contract of insurance to or
from
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Agents Who Sell Insurance Policies

such company or offers or assumes to act in the negotiating of such

insurance shall be an insurance agent within the intent of this
section and shall thereby become liable to all the duties,
requirements, liabilities and penalties to which an insurance agent
is subject.

The compensation of an insurance AGENT is called,

commission, that is apart from other fringe benefits being
given out or announced by the insurance company. A life
insurance is different from any other business agent since
his acts are properly supervised not only by the principalinsurance company but more importantly by the Insurance
Commission, he, being a PROFESSIONAL in his own line.
He is beyond any ordinary type of an employee. He is more
than a regular employee seeking regular employment, and
his job is much tougher because it is imbued with high
social expectation and public trust since his daily work
pertains to that of a fiduciary relationship between himself,
the insurer and the insured. That is why, he is being
compensated even more than an ordinary rank-and-file
employee. An insurance agent pays licensing fees and
professional taxes and must have to take and pass the
written examinations for licensure. Not to mention the

rigid agency requirements of the insurance company. So

that, a top-calibre life insurance agent wont accept fixed
salaries or wages. A professional life insurance salesman
(agent) earns more than an ordinary office or factory
employee. A fixed salary or compensation is not his cake.
That is why his income is limited only by his ability to
marshal his work in the field. Much more for debit agents
who I know in the industry. Agentsso calledwho expect
salary have no business working in the field force or in the
production or sales department of the life insurance
company. We, at the Philippine Prudential Life Insurance
Company and in other life insurance companies I know
from their top executives down the line, hire sales agents
(with various categories or names, such as Counsellors)
such nice sounding names, but PURELY ON
COMMISSION scheme, and they are very happy with the
arrangement.
In the instant case under annotation it seems clear
now that Mr. Judico was both an agent and a regular
employee! In life insurance business its either you are an
employee or an agent. You cant be both. And I would like to
refer to the Supreme Court
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decision in Insular Life Assurance Co. Ltd., vs. NLRC and
Melecio Basiao, G.R. No. 84484, promulgated November 15,
1989 when it ruled that private respondent therein was not
an employee but a commission agent, an independent
contractor. And all life insurance companies in the
Philippines have almost similar basic sales or agency
agreements. The job of the life insurance agent is to SELL
LIFE INSURANCE. Of course, the life insurance company
must have to lay down rules for selling, assign certain
areas of operation or territories, require production reports
monthly, quarterly, semi-annually and annually, and even
deduct withholding tax from commissions earned. Agents
either debit agents or ordinary agents DO NOT receive
commissions from the insured. The insurance company
pays them their corresponding commissions under a prearranged schedule of commission percentages. But only, the
basis is the amount of premiums paid. It does not mean

however, that the so-called investor or policyholder is the

one paying commission. Not at all. Because the receipt
issued to the policyholder is in full payment and the full
amount of actual premium set forth in the policy are
completely credited to the said policyholder. For example, if
the insured paid P5,000.00 annual premium and the agent
is entitled to 60% as 1st year commissions, said agent will
receive P3,000.00 less withholding tax, and the balance
remitted to the insurer together with a signed commission
voucher. The insurer then issues its Official Receipt for the
whole P5,000,000, not P2,000. Thats how we operate in our
relationship with our agents and our insureds. It is not
correct to say that those commissions received are not paid
by the insurance companies because they do. As mentioned
earlier the so-called investor or the person insured IS NOT
PAYING anything to the agent. If the agent was allowed to
deduct his commission in advance it was simply a facility
being allowed by the insurer to avoid doublework. Because
the general rule under the agency agreement is that all
premium payments must be remitted in full without any
deductions. Now, if the insurance company felt that it
would be to the advantage of the agent but will not
prejudice the rights of the insured under the policy, there is
nothing wrong with it if the agent is given the privilege to
deduct his commission in advance provided he remits the
balance. In life insurance practice, an insurance agent dont
want to be controlled. Thats borne out
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by actual observance and practice in the field, since before

and up to today. Anybody who purports to be a life
insurance agent of any life insurance company hereabout
or anywhere in the world that subjected himself to the
control of the insurer, is no agent in the true sense of the
word. Supervision is apt.
4. Types of Insurance Field Organization
Well-respected text writers Robert I. Mehr and Robert W.
Osler, in their work, MODERN LIFE INSURANCE wrote

with convincing observations which I quote below for

purposes of enlightnment.
The field organization of a life insurance company is
under the direction of the home office agency department.
For the organization of the field forces, one of two systems
may be used: the general agency system or the branch
office system. While a company rarely organize its field
forces any more under a pure general agency or branch
office system, before adaptations of the two systems can be
understood, it is necessary to know the nature of each.
General Agency System
Under the pure general agency system, a contract is signed
with an individual giving him exclusive rights to represent
the company and solicit new business in a specific territory.
The contract calls for a fixed scale of commission payments
and sometimes a collection fee to be paid to the general
agent. The general agent is empowered to appoint
subagents, or what are known as special agents or simply
agents, within the territory and to make contracts with
them under which he agrees to pay them a certain portion
of the commission he receives from the company. The
difference between what the general agent receives from
his company and the amount he pays his agents is known
as his override or overriding commission.
It should be noted that agents contracts are made with
the general agent and not with the company. In the pure
general agency contract, the company, theoretically, has no
control over the contracts made by the general agent with
his agents, although in actual practice the company usually
specifies the form
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of contract to be used and reserves the right to reject
agency appointments.
In the pure general agency contract, the company does
not obligate itself to pay any part of the cost of establishing
the agency, of operating it, or of developing the territory.
On the other hand, it assumes no authority over the
methods of operation except within the broad limits of

company policy, and no authority or part in the selection,

training, supervision, or disciplining of the agency force
appointed by the general agent over the personnel of his
agency office. The general agent is responsible for collecting
premiums, being obligated under his contract to submit
only the net to the company. He is responsible also for the
collection of interest on loans as well as the servicing of
policyholders and, in fact, of every and all company
operations within the territory granted in his contract.
It will be seen, then, that the general agent is an
independent operator and that a general agency is an
independent business owned and operated by the general
agent under his contractual arrangement with the home
office. He pays all his expenses; he finances agents when
financing is required; he pays all clerical salaries for the
agency and all furniture, fixture, and rental expenses
involved. The only control the company has over him is its
right to void his contract. Usually such cancellation can be
for violation of contract terms or without cause upon due
notice from either party.
Branch Office System
The branch office system is the direct counter-type of the
general
agency
system.
The
branch
manager,
corresponding in function to the general agent, is not an
independent operator and his office is not an independent
business. He is a salaried employee of the home office,
hired to manage a particular territory. He may receive
commissions in addition to his salary; but this does not
alter his status as an employee. He appoints and
supervises the agency force on behalf of the company.
Sometimes he supervises the clerical personnel of the
agency; although in larger branch offices it is the practice
for the company to employ a cashier as the manager of
routine business and collections. The cashier may or may
not be subject to the
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Agents Who Sell Insurance Policies

authority of the branch manager.

In the branch office system, the company pays all

expenses of operation, trains the agents or supplies the

branch manager with the facilities for training them, issues
contracts for subagents, and passes upon the qualifications
of new agents whom the branch manager may propose.
Branch offices are sometimes called managerial agencies,
and the branch office system is sometimes called the
managerial or manager system.
Selling Without Agents
Several insurers write insurance without the use of agents.
A number of assessment insurance societies also write life
insurance by mail. (pp. 650-652)
It may be mentioned, that, aside from what Mehr and
Osler explained, under Philippine setting, there are many
agents who do not belong to any general agency, but are
appointed or hired by the home office-direct. At any rate,
the private respondent Mr. Judico, having been promoted
to Zone Supervisor didnt belong to any branch office of
managerial system of life insurance selling.
As such, he was bound by the Insurance Code to observe
the following, under Section 305 of the Insurance Code:
(a) not to willfully violate any provision of the
Insurance Code;
(b) not to intentionally make a material misstatement
in the application to qualify for license;
(c) not to obtain or attempt to obtain a license fraud or
misrepresentation;
(d) not to be guilty of fraudulent or dishonest practices;
(e) not to misappropriate or convert to his own use or
to illegally withhold moneys to be held by him in a
fiduciary capacity;
(f) to demonstrate trustworthiness and competence in
transacting business; in such manner as to
safeguard the public;
(g) not to misrepresent the terms and conditions of
policies or contracts of insurance which he seeks to
sell or has sold;
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461

(h) must pass the written examination prescribed, if

not otherwise exempt from taking the same.
Not only that, he (the agent) is prohibited from practicing
rebating, twisting, knocking and overloading
towards the insureds, as against the law and good customs
in insurance.
Vance has this to say about General Agents and Their
Powers which in one way or another may help add more
weight to what I have been saying all along on how it came
about that Mr. Judico was able to convince the Court of his
arguments in this case.
The term general agent vaguely indicates an agent
who is authorized to transact all of his principals business
of a particular kind or in a particular place. (Tiffany,
Agency, 2d Ed. 1924, p. 49 et seq; 44 C.J.S. 822) So if an
agent is authorized to pass upon and accept risks, to agree
upon the terms of insurance, and to execute and deliver
policies in accordance therewith, he will be considered
general agent. (Pitney vs. Glens Falls Ins. Co., 1875, 65 NY.
6) It follows xxx that in making a contract of insurance
such a general agent has always apparent authority to take
from or add to the printed form of policy such terms as may
be agreed upon, or discarding the printed form altogether,
he may bind his principal by a parol agreement. (Bauble vs.
Aetna Ins. Co., 1873 Fed. Cas. No. 1,111.2 Dill 150) But this
was not exactly the same situation with the private
respondent but at the looks of it a plain debit agent who
through hard work was promoted to Zone Supervisor, hence
cannot bind the company and had no power comparable to
that of a general agent. The point is, that the private
respondent simply was qualified for commissions with no
employer-employee relationships attached. He was not
even empowered to pass upon the insurability of an
applicant. If a general agent is not considered an employee
of the insurance company how much more for an ordinary
sales agent?
5. Employer-Employee Relations
It must be remembered that life insurance companies to do
not hire agents for a piece of work nor for a definite
period as those found in other industries or businesses.
The contract of agency entered into in life insurance is
terminated at the option

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Agents Who Sell Insurance Policies

of either party with previous notice or, when the license so

to act was not renewed or was revoked by the Insurance
Commission.
The Court have repeatedly declared:To determine the
existence of an employer-employee relationship, the Court
has invariably applied the following four-fold test: (1) the
selection and engagement of the employee; (2) the payment
of wages (3) the power of dismissal; and (4) the power to
control the employees conduct. The power to terminate the
relationship was mutually vested upon the parties. Either
may terminate the business arrangement at will, with or
without cause.
Under the control test, an employer-employee
relationship exists if the employee was engaged not only
as to the result of the work done but also as to the means
and methods by which the same is to be accomplished.
Otherwise, no such relationship exists. Among the four (4)
requisites of the four-fold test, Control is deemed the most
important that the other requisites may even be
disregarded. (Sara vs. Agarrado, 166 SCRA 625) (35 Am.
Jur. 445) (AlsocitedinShipside, Inc. vs. NLRC, 118 SCRA
99; Viana vs. Al-Lagadan, 99 Phil. 408; SSS vs. CA, 39
SCRA 629; Mafinco Trading Corp. vs. Ople, 70 SCRA 139)
But then, since the Court have spoken, we have to abide
by that interpretation.
6. Useful Pointers
(a) Regular and Casual Employment.The provisions of
written agreement to the contrary notwithstanding and
regardless of the oral agreement of the parties, an
employment shall be deemed to be regular where the
employee has been engaged to perform activities which are
usually necessary and desirable in the usual business or
trade of the employer, except where the employment has
been fixed for a specific project or undertaking the
completion or termination of which has been determined at
the time of the engagement of the employee or where the
work or services to be performed is seasonal in nature and

the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not
covered by the preceding paragraph. Provided, That, any
employee who has rendered at least one year of service,
whether such service is continuous or broken, shall be
considered a regular employee
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with respect to the activity in which he is employed and his
employment shall continue while such actually exists.
(ART. 280 Labor Code)
Probationary employment.Probationary employment
shall not exceed six (6) months from the date the employee
started working, unless it is covered by an apprenticeship
agreement stipulating a longer period. The services of an
employee who has been engaged on a probationary basis
may be terminated for a just cause or when he fails to
qualify as a regular employee in accordance with
reasonable standards made known by the employer to the
employee at the time of his engagement. An employee who
is allowed to work after a probationary period shall be
considered a regular employee. (ART. 281 Labor Code as
amended) (b) By the contract of agency a person binds
himself to render some service or to do something in
representation or on behalf of another, with the consent or
authority of the latter. (Article 1868 N.C.C.)
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