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452 SUPREME COURT REPORTS ANNOTATED

Agents Who Sell Insurance Policies

ANNOTATION

AGENTS WHO SELL INSURANCE POLICIES

By LOHEL A. MARTIREZ

§ Introduction, p. 452

§ Scope, p. 454

1.

2.

3.

4.

5.

6.

§ 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 agentÊs 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 Commissions‰·all 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 „employer- employee‰ 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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Grepalife. The overwhelming majority of the industrial life sales force didnÊt think themselves as „regular employees‰, but simply as Field Representatives (agents). The majority didnÊt think themselves (except Mr. Judico) as like those working in GrepalifeÊs 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 thatÊs 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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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 principal- insurance 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 wonÊt 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. Agents·so called·who 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 canÊt 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 pre- arranged 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. ThatÊs 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 donÊt want to be „controlled‰. ThatÊs 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 agentsÊ 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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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 didnÊt 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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(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 principalÊs 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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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 employeeÊs 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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