G.R. No. L-19638 June 20, 1966
FILIPINAS COMPAÑIA DE SEGUROS, ET AL., petitioners and appellees, vs. HON. FRANCISCO Y. MANDANAS, in his capacity as Insurance Commissioner, respondent and appellant. AGRICULTURAL FIRE INSURANCE & SURETY CO., INC., ET AL., intervenors and appellees.

FACTS

Thirty-nine non-life insurance companies, members of the Philippine Rating Bureau, filed a special civil action for declaratory relief in the Court of First Instance of Manila to secure a declaration of the legality of Article 22 of the Bureau’s Constitution. Twenty other non-life insurance company members later intervened in support. The respondent Insurance Commissioner assailed the validity of Article 22, contending it constituted an illegal restraint of trade. Article 22 states that members agree not to represent, effect reinsurance with, or accept reinsurance from any company, body, or underwriter licensed to do business in the Philippines that is not a member in good standing of the Bureau. The Insurance Commissioner demanded its repeal, threatening to suspend the Bureau’s license and the certificates of authority of member companies if not complied with. The lower court declared Article 22 neither contrary to law nor against public policy, upholding its legality. The Insurance Commissioner appealed.

ISSUE

Whether Article 22 of the Constitution of the Philippine Rating Bureau, which restricts reinsurance transactions to its members in good standing, constitutes an illegal or undue restraint of trade and is therefore null and void.

RULING

The Supreme Court affirmed the lower court’s decision, declaring Article 22 legal. The Court applied the test of reasonableness to determine if an agreement is an unlawful restraint of trade. The uncontradicted testimony of the Bureau’s Chairman established that the purpose of Article 22 was to maintain high ethical standards and combat unethical practices like underrating, facilitated through cooperative compilation of statistical data for accurate rate-making. The Court found the restraint reasonable, necessary for the protection of the contracting parties, and not contrary to public welfare. The restriction was designed to promote ethical competition, not suppress it. Furthermore, the public interest was safeguarded because insurance rates required approval by the Insurance Commissioner, and the reinsurance restriction did not affect the insurer’s liability to the insured. The Court also noted the Insurance Commissioner had previously licensed the Bureau under a constitution containing a similar provision, implying prior acknowledgment of its legality. The appealed decision was affirmed without costs.