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Passenger personal accident insurance for public-utility vehicles

column-dennis funaAS public transportation in the Philippines continues to evolve, it has become very important for all public-utility vehicles (PUVs) to have sufficient insurance coverage for the protection of the riding public in the event of accidents, and for the alleviation of the difficulty encountered in paying hospitalization claims and death benefits to their passengers.

In fact, Section 374 of the amended Insurance Code states: “It shall be unlawful for any land-transportation operator or owner of a motor vehicle to operate the same in public highways, unless there is in force, in relation thereto, a policy of insurance or guaranty in cash or surety bond issued in accordance with the provisions of this chapter to indemnify the death, bodily injury and/or damage to property of a third party or passenger, as the case may be, arising from the use thereof.”

Likewise, Section 5 (b) of Commonwealth Act 146, as amended by Executive Order 202, empowers the Land Transportation Franchising and Regulatory Board (LTFRB) “[t]o issue, amend, revise, suspend or cancel Certificates of Public Convenience or permits authorizing the operation of public land-transportation services [that are] provided by motorized vehicles, and to prescribe the appropriate terms and conditions therefor.”

These provisions provide the legal justification for the implementation of the Passenger Personal Accident Insurance Program (PPAIP), which was first initiated through LTFRB Memorandum Circular (MC) 99-011 (then referred to as Passenger Accident Insurance Coverage), then through MC 2001-001 and 2001-010.

With the issuance of MC 2001- 001, a two-group system was adopted in order to implement the PPAIP, with each group made up of at least 10 insurance companies. Several measures were also instituted to address complaints of proliferation of fake insurance policies; predatory pricing among competing insurance firms; proliferation of fixers in the premises of the LTFRB who endorse certain insurance companies; and the moonlighting of LTFRB personnel who induce operators to secure their policies from favored companies.

No violation

IN Eastern Assurance & Surety Corp. v LTFRB (GR 149717, October 7, 2003), the Supreme Court (SC) ruled that MC 2001-001 does not violate the constitutional proscription against monopolies and unfair competition. It observed that “intense competition has led insurance companies/agents offering insurance policies for PUVs to resort to ruinous tactics to sell their services. Notorious agents of these companies have engaged in predatory pricing—selling the compulsory insurance coverage at a discount of 60 percent to 80 percent off the market rate. The huge coverage and liability under the ‘no-fault clause’ of passenger accident insurance are grossly disproportionate to the small premiums actually being paid.”

While recognizing that there is, indeed, a monopoly of two, the SC ruled that, “in authorizing and regulating the two insurance monopolies, the LTFRB acted within its prerogatives in promoting public interest and protecting the riding public. After all, the consortia are open to all insurance companies, including [the] petitioner. There is no discrimination against any legitimate insurer. On the whole, the public is given protection without unfair competition or undue restraint of trade. As the Court of Appeals pointed out, the two consortia are not engaged in the insurance business; they merely serve as [the] ‘service arms’ of their respective members.”

In a subsequent challenge to the minimum-capitalization requirement for participants, the SC, in LTFRB, et al. v Stronghold Insurance Co. (GR 200740, October 2, 1013), noted “that, as of the end of last year [2012], [the] LTFRB had issued a total of 260,026 franchises to bus, jeepney and taxi operators covering 312,703 units. These units transport millions of Filipino commuters all over the country who avail [themselves] of their services, day and night, all year round. The sheer scale of these beneficiaries of [the] LTFRB’s insurance program and their constant exposure to accident-related risks furnish reasonable basis for [the] LTFRB’s capitalization scheme. It ensures the operation of a financially sound mandatory passenger-insurance system.”

Two consortia

UNDER the current PPAIP setup, the LTFRB and the insurers signed a memorandum of agreement (MOA) that expires every two years. The MOA for 2011 to 2013 expired on November 17, 2013. Under the current PPAIP scheme, two consortia of insurance companies will be accredited. Each consortium will have at least 10 insurance companies, and a lead insurer will be chosen by the consortium’s members. At the option of its members, the consortium may be managed by a management company. The issuance of Certificates of Cover under the PPAIP shall be on a “free market” basis, meaning a PUV operator has the right to choose from any of the accredited providers in obtaining the passenger-insurance coverage.

The insurance coverage under the PPAIP shall be “all risk-no fault”, meaning it shall cover all “authorized” PUVs, even if, among others: a) the proximate cause is the mechanical failure of the insured vehicle; b) the proximate cause is due to negligence, fault of the driver or other vehicle(s), or mechanical failure of the latter, or due to force majeure or acts of God; and c) the enrolled driver of the insured vehicle at the time of the accident is either unauthorized, under the influence of liquor, under the influence of legal or prohibited drugs, or reckless or negligent.

The values of the premiums imposed and collected by the insurance companies are subject to the approval of the Insurance Commission. Recently, the premiums for the PPAIP were increased. As a consequence, and due to the personal initiative of Insurance Commissioner Emmanuel F. Dooc, the benefits for each covered passenger and enrolled driver or conductor were also significantly augmented. From the previous P75,000 for the accidental-death benefit, it was doubled to P150,000. Also, in the event of dismemberment or loss of two or more limbs, the previous mandatory claimable amount was increased to P75,000.

Atty. Dennis B. Funa is the Insurance Commission’s deputy commissioner for legal services. Send comments to [email protected]

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