Insurance Code Chapter VII

CHAPTER VII — MUTUAL BENEFIT ASSOCIATIONS AND TRUSTS FOR CHARITABLE USES

Title I MUTUAL BENEFIT ASSOCIATIONS

SECTION 390. Any society, association or corporation, without capital stock, formed or organized not for profit but mainly for the purpose of paying sick benefits to members, or of furnishing financial support to members while out of employment, or of paying to relatives of deceased members of fixed or any sum of money, irrespective of whether such aim or purpose is carried out by means of fixed dues or assessments collected regularly fr. the members, or of providing, by the issuance of certificates of insurance, payment of its members of accident or life insurance benefits out of such fixed & regular dues or assessments, but in no case shall include any society, association, or corporation w/ such mutual benefit features & w/c shall be carried out purely fr. voluntary contributions collected not regularly & or no fixed amount fr. whomsoever may contribute, shall be known as a mutual benefit association within the intent of this Code.

Any society, association, or corporation principally organized as labor union shall be governed by the Labor Code notwithstanding any mutual benefit feature provisions in its charter as incident to its organization.

In no case shall a mutual benefit association be organized & authorized to transact business as a charitable or benevolent organization, & whenever it has this feature as incident to its existence, the corresponding charter provision shall be revised to conform w/ the provision of this section. Mutual benefit association, already licensed to transact business as such on the date this Code becomes effective, having charitable or benevolent feature shall abandon such incidental purpose upon effectivity of this Code if they desire to continue operating as such mutual benefit associations. (As amended by Presidential Decree No. 1455)

SECTION 391. A mutual benefit association, before it may transact as such, must first secure a license fr. the Commissioner. The application for such license shall be filed w/ the Commissioner together w/ certified true copies of the articles of incorporation or the constitution & by‑laws of the association, & all amendments thereto, & such other documents or testimonies as the Commissioner may require.

No license shall be granted to a mutual benefit association until the Commissioner shall have been satisfied by such examination as may make & such evidence as he may require that the association is qualified under existing laws to operate & transact business as such. The Commissioner may refuse to issue a license to any mutual benefit association if, in his judgment, such refusal will best promote the interest of the members of such association & of the people of this country. Any license issued shall expire on the last day of June of the year following its issuance &, upon proper application, may be renewed if the association is continuing to comply w/ existing laws, rules & regulations, orders, instructions, rulings & decisions of the Commissioner. Every association receiving any such license shall be subject to the supervision of the Commissioner; Provided, That no such license shall be granted to any such association if such association has no actuary.

All mutual benefit association existing & licensed as such under the provisions of Article Eight, Chapter Forty‑One of the Revised Administrative Code, as amended by Act No. 3612, shall, upon effectivity of this Code, surrender their respective licenses to the Commissioner & apply for new licenses under the provisions of this code if they still desire to continue operating as such mutual benefit associations.

SECTION 392. No mutual benefit association shall be issued a license to operate as such unless it has constituted & established a Guaranty Fund by depositing w/ the Commissioner an initial minimum amount of ten thousand pesos in cash, or in government securities w/ a total value equal to such amount, to answer for any valid benefit claim of any of its members.

All moneys received by the Commissioner for this purpose must be deposited by him in interest‑bearing deposits w/ any bank or banks authorized to transact business in the Philippines for the account of the particular association constituting the Guaranty Fund.

Any accrual to such fund, be it interest earned or dividend additions on moneys or securities so deposited, may, w/ the prior approval of the Commissioner, be withdrawn by the association if there is no pending benefit claim against it, including interest thereon or dividend additions thereto.

The Commissioner, prior to or after licensing a mutual benefit association, may require such association to increase its Guaranty Fund fr. the initial minimum amount required to an amount equal to at least ten per centum of its assets, if such assets exceed one hundred thousand pesos, but in no case shall such increase exceed the maximum amount of capital investment required of a domestic insurance company under section two hundred & three of this Code. (As amended by Presidential Decree No. 1455)

SECTION 393. Every mutual benefit association licensed to do business as such shall issue membership certificates to its members specifying the benefits to w/c such members are entitled.

Such certificates, together w/ the articles of incorporation of the association or its constitution & by‑laws, & all existing laws as may be pertinent shall constitute the agreement, as of the date of its issuance, between the association & the member. The membership certificate shall be in a form previously approved by the Commissioner.

SECTION 394. A mutual benefit association may, by reinsurance agreement, cede in whole or in part any individual risk or risks under certificates of insurance issued by it, only to a life insurance company authorized to transact business or to a professional reinsurer authorized to accept life risks in the Philippines; Provided, That copy of the draft of such reinsurance agreement shall be submitted to the Commissioner for his approval. The association may take credit for the reserves on such ceded risks to the extent reinsured.

SECTION 395. The constitution or by‑laws of a mutual benefit association must distinctly state the purpose for w/c dues &/or assessments are made & collected & the portion thereof w/c may be used for expenses.

Death benefit & other relief funds shall be created & used exclusively for paying benefits due the members under their respective membership certificates. A general fund shall likewise be created & used for expenses of administration of the association.

SECTION 396. Every outstanding membership certificate must have, after three full years of being continuously in force, an equity value equivalent to at least fifty per centum of the total membership dues collected thereon.

SECTION 397. Every mutual benefit association must accumulate & maintain, out of the periodic dues collected fr. its members, sufficient reserves for the payment of claims or obligations for w/c it shall hold funds in securities satisfactory to the Commissioner consisting of bonds of the Government of the Philippines, or any of its political subdivisions & instrumentalities, or in such other good securities as may be approved by the Commissioner.

The reserve liability shall be established in accordance w/ acturial procedures & shall be approved by the Commissioner.

The articles of incorporation or the constitution & by‑laws of a mutual benefit association must provide that if its reserve as to all or any class of certificates becomes impaired, its board of directors or trustees may require that there shall be paid by the members to the association the amount of the members’ equitable proportion of such deficiency as ascertained by said board & that if the payment be not made it shall stand as an indebtedness against the membership certificates of the defaulting members & draw interest not to exceed five per centum per annum compounded annually.

SECTION 398. A mutual benefit association may invest such portion of its funds as shall not be required to meet pending claims & other obligations in any of the classes of investments or types of securities in w/c life insurance companies doing business in the Philippines may invest.

It may also grant loans to members on the security of a pledge or chattel mortgage of personal properties of the borrowers, or in the absence thereof, on the security of the membership certificate of the borrowing members, in w/c event such loan shall become a first lien on the proceed thereof.

SECTION 399. The Commissioner or any of his duly designated representatives, shall have the power of visitation, audit & examination into the affairs, financial condition, & methods of doing business of all mutual benefit associations, & he shall cause such examination to be made at least once every two years or whenever it may be deemed proper & necessary. Free access to the books, records & documents of the association shall be accorded to the Commissioner, to his representatives, in such manner that the Commissioner or his representatives may readily verify or determine the true affairs, financial condition, & method of doing business of such association. In the course of such examination, the Commissioner or his duly designated representatives shall have authority to administer oaths & take testimony or other evidence on any matter relating to the affairs of the association.

All minutes of the proceedings of the board of directors or trustees of the association, & those of the regular or special meetings of the members, shall be take, & a copy thereof, in English or in Pilipino, shall be submitted to the Commissioner’s representatives or examiners in the course of such examination.

A copy of the findings of such examination, together w/ the recommendations of the Commissioner, shall be furnished the association for its information & compliance, & the same shall be taken up immediately in the meetings of the board of directors or trustees & of the members of the association.

SECTION 400. Every mutual benefit association shall, annually on or before the thirtieth day of April of each year, render to the Commissioner an annual statement in such form & details as may be prescribed by the Commissioner, signed & sworn to by the president, secretary, treasurer, & actuary of the association, showing the exact condition of its affairs on the preceding thirty‑first day of December.

SECTION 401. No money, aid or benefit to be paid, provided or tendered by any mutual benefit association, shall be liable to attachment, garnishment, or other process, or be seized, taken, appropriated, or applied by any legal or equitable process to pay any debt of liability of a member or beneficiary, or any other person who may have a right thereunder, either before or after payment.

SECTION 402. Any member of a mutual benefit association shall have the right at all times to change the beneficiary or beneficiaries or add another beneficiary or other beneficiaries in accordance w/ the rules & regulations of the association unless he has expressly waived this right in the membership certificate. Every association may, under such rules as it may adopt, limit the scope of beneficiaries & provide that no beneficiary shall have or obtain any vested interest in the proceeds of any certificate until the certificate has become due & payable under the terms of the membership certificate.

SECTION 403. Any chapter affiliate independently licensed as a mutual benefit association may consolidate or merge w/ any other similar chapter affiliate or w/ the mother association.

SECTION 404. Any mutual benefit association may be converted into & licensed as a mutual life insurance company by complying w/ the requirements of the pertinent provisions of this Code & submitting the specific plan for such conversion to the Commissioner for his approval. Such plan, as approved, shall then be submitted to the members either in the regular meeting or in a special meeting called for the purpose for their adoption. The affirmative vote of at least two‑thirds of all the members shall be necessary in order to consider such plan as adopted.

No such conversion shall take effect unless & until approved by the Commissioner.

SECTION 405. No mutual benefit association shall be dissolved without first notifying the Commissioner & furnishing him w/ a certified copy of the resolution authorizing the dissolution, duly adopted by the affirmative vote of two‑thirds of the members at a meeting called for that purpose, the financial statements as of the date of the resolution, & such other papers or documents as may be required by the Commissioner.

No dissolution shall proceed until & unless approved by the Commissioner & all proceedings in connection therewith shall be witnessed & attested by his duly designated representative.

No mutual benefit association shall be officially declared as dissolved until after the Commissioner so certifies that all outstanding claims against the association have been duly settled & liquidated.

SECTION 406. The Commissioner shall after notice & hearing, have the power either to suspend or revoke the licensed issued to a mutual benefit association if he finds that the association has:

(a) failed to comply w/ any provision of this Code;

(b) failed to comply w/ any other law or regulation obligatory upon it;

(c) failed to comply w/ any order, ruling, instruction, requirement, or recommendation of the Commissioner;

(d) exceeded its power to the prejudice of its members;

(e) conducted its business fraudulently or hazardously;

(f) rendered its affairs & condition to one of insolvency; or

(g) failed to carry out its aims & purposes for w/c it was organized due to any cause.

After receipt of the order fr. the Commissioner suspending or revoking the license, the association must immediately exert efforts to remove such cause or causes w/c brought about the order, &, upon proper showing, may apply w/ the Commissioner for the lifting of the order & restoration or revival of the license so revoked or suspended.

SECTION 407. For failure to remove such cause or causes w/c brought about the suspension or revocation of the license of a mutual benefit association, the Commissioner shall apply under this Code for an order fr. the proper court to liquidate such association.

The provisions of titles fourteen & fifteen, chapter three, pertaining to the appointment of a conservator & proceedings upon insolvency of an insurance company, shall, insofar as practicable, apply to mutual benefit associations.

SECTION 408. To secure the enforcement of any provision under this title, the Commissioner may issue such rules, rulings, instructions, orders & circulars, subject to the approval of the Secretary of Finance.

SECTION 409. The violation of any provision of this title shall subject the person violating or the officer of the association responsible therefor to a fine of not exceeding one thousand pesos, or imprisonment of not exceeding three years, or both such fine & imprisonment, at the discretion of the court.

Title II TRUSTS FOR CHARITABLE USES

SECTION 410. The term “trust for charitable uses”, within the intent of this Code, shall include, all the real or personal properties or funds, as well as those acquired w/ the fruits or income therefr. or in exchange or substitution thereof, given to or received by any person, corporation, association, foundation, or entity, except the National Government, it instrumentalities or political subdivisions, for charitable, benevolent, educational, pious, religious, or other uses for the benefit of the public at large or a particular portion thereof or for the benefit of an indefinite number of persons.

SECTION 411. The term “trustee” shall include any individual, corporation, association, foundation, or entity, except the National Government, its instrumentalities or political subdivisions, in charge of, or acting for, or concerned w/ the administration of, the trust referred to in the section immediately preceding & w/ the proper application of trust property.

SECTION 412. The term “trust property” shall include all real or personal properties or funds pertaining to the trust as well as those acquired w/ the fruits or income therefr. or in exchange or substitution thereof.

SECTION 413. All trustees shall, before entering in the performance of the duties of their trust, obtain a certificate of registration fr. the Commissioner.

Trustees who are already discharging the duties of their trust on the date this Code becomes effective may continue as such, subject to the provisions of this Code.

All provisions of this Code governing mutual benefit associations & such other provisions herein, whenever practicable & necessary, shall be applicable to trusts for charitable uses.