Purisima vs. Securitx Pacific Assurance Corporation

A petition challenging the validity of administrative orders setting insurance capitalization requirements is rendered moot and academic by the enactment of a subsequent statute that supersedes those requirements, as courts may adjudicate only actual controversies, not academic questions.

The insurance industry in the Philippines is regulated by the Insurance Commission under the Department of Finance. The Secretary of Finance and the Insurance Commissioner exercise statutory authority to regulate the insurance business, including the setting of capitalization standards. The respondents are ten insurance and surety companies operating in the Philippines, members of the Philippine Insurers and Reinsurers Association, Inc. (PIRAI), who were subject to escalating minimum paid-up capital requirements imposed through Department Orders issued by the Secretary of Finance.

On September 1, 2006, Department Order No. 27-06 was issued, ordering the increase in the minimum paid-up capital stock requirement of life, non-life, and reinsurance companies. The Order superseded several memorandum circulars, suspended the adoption of the risk-based capital framework for non-life insurance, and integrated the compliance standards for fixed capitalization. Members of the Philippine Insurers and Reinsurers Association, Inc. (PIRAI) thereafter received a letter from the Deputy Insurance Commissioner reminding them that their paid-up capital must be at least equal to the amount scheduled by DO No. 27-06. When the companies still failed to comply with the minimum paid-up capital of ₱175 Million by the end of December 2011, Commissioner Emmanuel Dooc sent a further advisory.

This prompted ten insurance and surety companies — Securitx Pacific Assurance Corporation, Visayan Surety & Insurance Corporation, Finman General Assurance Corporation, Milestone Guaranty & Assurance Corporation, R&B Insurance Corporation, Industrial Insurance Company Incorporated, Philippine Phoenix Surety & Insurance Incorporated, Mercantile Insurance Company Incorporated, Great Domestic Insurance Company of the Philippines, Incorporated, and Insurance of the Philippine Islands Company Incorporated — to file a complaint against Secretary of Finance Cesar Purisima and Commissioner Dooc, seeking a Temporary Restraining Order and Writ of Preliminary Injunction. In their Complaint, respondents alleged that DO No. 27-06 was unconstitutional because it vested upon the Secretary of Finance the legislative power to increase the minimum paid-up capital stock requirement, thereby violating the doctrine of non-delegation of legislative power. Citing manpower problems and serious business losses, respondents sought the suspension of the Department Order and relevant circulars.

Petitioners, in their Answer, maintained that compliance with DO No. 27-06 was based on yearly assessment depending on the insurance company's net worth and equity structure, and that the Order was not oppressive because it was germane to the purpose of keeping the solvency of insurance companies and protecting the interest of the public. The RTC of Quezon City, Branch 98, initially denied the application for TRO and WPI on July 20, 2012, upholding the validity of the Department Orders as within the regulatory power granted by the Insurance Code. The presiding judge inhibited on August 31, 2012, and the case was re-raffled.

Respondents then filed a supplemental complaint in view of the passage of DO No. 15-2012, which required insurance companies to further increase their paid-up capital from ₱250 Million to ₱1 Billion beginning 2012. After re-raffle, the RTC, Branch 80, issued an Order on December 5, 2012 granting the application for a WPI. While the trial court recognized the constitutionality of the Department Orders, it found a need to determine the reasonableness of the minimum paid-up capital requirement, especially after Circular Letter No. 18-2012 excluded three respondents as having valid certificates of authority. Petitioners' Motion for Reconsideration was denied on February 15, 2013.

Petitioners elevated the matter to the Court of Appeals via a Petition for Certiorari, ascribing grave abuse of discretion to the RTC for issuing the injunctive writ. The CA, in its Decision dated May 15, 2015, denied the petition, holding that respondents had established a clear danger of closing down should the ₱1 Billion paid-up capital mandated under DO No. 15-2012 be implemented. Petitioners' Motion for Reconsideration was denied on February 29, 2016. Meanwhile, on August 15, 2013, R.A. No. 10607, the Amended Insurance Code, was signed into law, providing its own graduated capitalization requirements for insurance companies.

• Validity of Department Orders: Petitioners maintained that compliance with DO No. 27-06 was based on yearly assessment depending on the insurance company's net worth and equity structure, and that the Order was not oppressive because it was germane to the purpose of keeping the solvency of insurance companies and protecting the interest of the public.
• Regulatory Authority: Petitioners argued that the Insurance Code expressly grants the Secretary of Finance and the Insurance Commissioner the power to regulate the insurance business in the Philippines, thus the issuance of DO No. 27-06 and relevant memoranda was valid.
• Grave Abuse of Discretion: Petitioners ascribed grave abuse of discretion to the RTC in issuing the WPI, contending that the trial court erred in granting injunctive relief.

• Unconstitutionality — Non-Delegation Doctrine: Respondents alleged that DO No. 27-06 was unconstitutional because it vested upon the Secretary of Finance the legislative power to increase the minimum paid-up capital stock requirement, thereby violating the doctrine of non-delegation of legislative power.
• Oppressive Effect: Respondents, plagued with manpower problems and serious business losses, sought the suspension of the Department Order and relevant circulars, arguing that the escalating capitalization requirements threatened their continued operations.
• Danger of Closure: Respondents contended that they were in clear danger of closing down should the amount of the paid-up capital mandated under DO No. 15-2012 be implemented.

• Mootness: Whether the petition has been rendered moot and academic by the supervening enactment of R.A. No. 10607.
• Propriety of the WPI: Whether the RTC properly issued the Writ of Preliminary Injunction enjoining the implementation of DO No. 27-06 and DO No. 15-2012.

• Mootness: Yes. The passage of R.A. No. 10607 on August 15, 2013 superseded the capitalization requirements in DO No. 27-06 and DO No. 15-2012, rendering the petition moot and academic.
• Propriety of the WPI: Not ruled upon. The Court abstained from ruling on the merits, the petition having been dismissed for mootness.

• Mootness: R.A. No. 10607, the Amended Insurance Code, was signed into law on August 15, 2013. Section 194 thereof provides new capitalization requirements for all life and non-life insurance companies: a paid-up capital of at least ₱1 Billion for new domestic insurance companies, and graduated net worth requirements for existing companies — ₱250 Million by June 30, 2013, an additional ₱300 Million by December 31, 2016, an additional ₱350 Million by December 31, 2019, and an additional ₱400 Million by December 31, 2022. Because this statutory framework directly governs the capitalization requirements that DO No. 27-06 and DO No. 15-2012 had sought to impose administratively, the issuance of those Department Orders as regards capitalization has been superseded and rendered moot. A case or issue is considered moot and academic when it ceases to present a justiciable controversy by virtue of supervening events, so that an adjudication would be of no practical value or use. The Constitution requires that the exercise of judicial power includes the duty to settle actual controversies involving legally demandable and enforceable rights; courts have no authority to pass upon issues through advisory opinions or to resolve hypothetical problems. Both parties recognized the mootness of the issues in their respective pleadings. Accordingly, the Court abstained from ruling on the merits.

• Propriety of the WPI: Because the petition was dismissed as moot and academic, the Court did not reach the substantive question of whether the RTC properly issued the WPI. The propriety of injunctive relief — which depends on the existence of a clear right to be protected and a material and substantial violation of that right — was not adjudicated, as the supervening legislation eliminated the justiciable controversy underlying the injunction.

• Moot and Academic Doctrine — A case or issue is considered moot and academic when it ceases to present a justiciable controversy by virtue of supervening events, so that an adjudication of the case or a declaration on the issue would be of no practical value or use. In this case, the enactment of R.A. No. 10607, which provided its own statutory capitalization requirements for insurance companies, superseded the administrative capitalization requirements in DO No. 27-06 and DO No. 15-2012, thereby eliminating any live controversy and rendering the petition moot.
• Actual Controversy Requirement — The exercise of judicial power requires an actual case calling for it; courts have no authority to pass upon issues through advisory opinions or to resolve hypothetical or feigned problems. An actual controversy involves a conflict of legal rights, an assertion of opposite legal claims susceptible of judicial resolution, as distinguished from a hypothetical or abstract dispute. There must be a contrariety of legal rights that can be interpreted and enforced on the basis of existing law and jurisprudence. The Court applied this principle to decline adjudication once the supervening statute removed the legal conflict.

• "A case or issue is considered moot and academic when it ceases to present a justiciable controversy by virtue of supervening events, so that an adjudication of the case or a declaration on the issue would be of no practical value or use." — This passage states the canonical definition of the moot and academic doctrine, which the Court applied to dismiss the petition upon the enactment of superseding legislation.
• "Thus, it is clear that the issuance of DO No. 27-06 and DO No. 15-2012 as regards the capitalization requirement has been rendered moot and academic by the passage of the aforementioned law." — This sentence constitutes the ratio decidendi, linking the supervening enactment of R.A. No. 10607 to the mootness of the administrative orders challenged in the petition.
• "The exercise of judicial power requires an actual case calling for it. The courts have no authority to pass upon issues through advisory opinions, or to resolve hypothetical or feigned problems or friendly suits collusively arranged between parties without real adverse interests." — This passage articulates the constitutional basis for the actual controversy requirement, grounding the Court's refusal to adjudicate the merits in the absence of a live dispute.

• Penafrancia Sugar Mill, Inc. vs. Sugar Regulatory Administration, 728 Phil. 535, 540 (2014) — Cited for the definition of the moot and academic doctrine: a case becomes moot when it ceases to present a justiciable controversy by virtue of supervening events.
• Republic of the Philippines vs. Principalia Management and Personnel Consultants, Inc., 768 Phil. 334, 343 (2015) — Cited for the constitutional requirement that judicial power extends only to actual controversies, not advisory opinions or academic questions; in turn citing Sps. Arevalo vs. Planters Development Bank, 686 Phil. 236, 248-249 (2012).

• Section 194, Republic Act No. 10607 (Amended Insurance Code) — Provides the new capitalization requirement for all life and non-life insurance companies: a minimum paid-up capital of ₱1 Billion for new domestic stock insurance companies, and graduated net worth increases for existing companies (₱250 Million by June 30, 2013; additional ₱300 Million by December 31, 2016; additional ₱350 Million by December 31, 2019; additional ₱400 Million by December 31, 2022). The Court held that this provision superseded the capitalization requirements in DO No. 27-06 and DO No. 15-2012, rendering the petition moot.
• Constitutional Provision on Judicial Power — The decision quotes the constitutional provision stating that judicial power includes the duty of courts to settle actual controversies involving rights which are legally demandable and enforceable. This provision was applied to justify the Court's abstention from ruling on the merits, as no actual controversy remained after the enactment of R.A. No. 10607.

Carpio, Senior Associate Justice (Chairperson), Caguioa, and Lazaro-Javier, JJ., concurred. Perlas-Bernabe, J., was on official leave.