Disorder in the court

Oh no, another billion-peso court case, another black eye on the judicial system!

The case involves a local firm called Steel Corp. of the Philippines, or SCP, which makes and exports galvanized steel sheets, claiming yearly exports of more than P1 billion. The company has been claiming insurance to replace its cold rolling mill at its factory in Batangas, damaged by fire in December 2009.

The equipment only happens to be a crucial part in the company’s core business, which is steel sheet manufacture. Thus, for the past two years, the factory has not been operating. To think, the company is even undergoing rehabilitation.

Last week, the company asked Court of Appeals Presiding Justice Andres Reyes Jr. for the inhibition of three appellate justices in the insurance claim case, complaining that the justices recently rendered a decision it described as “evident bad faith.”

Its request for inhibition specified the CA Fourteenth Division, chaired by Justice Fernanda Lampas Peralta, with Justices Priscilla Baltazar-Padilla and Agnes Reyes-Carpio as members.

The recent decision, which was an injunction order, in effect negated an earlier ruling by the RTC in Batangas that ordered five insurance companies to pay SCP some $42 million for the damage that the fire caused at its cold rolling mill.

The Batangas court ordered five insurance companies to cover the $42-million claim of SCP. They were Mapfre Insurance Corp., New India Assurance Co., Philippine Chapter Insurance Corp., Malayan Insurance Co., and Asia Insurance Philippines Corp.

Thus the five insurance companies ran to the CA, claiming that the payment of $42 million to the company, which happened to be their client, which in turn paid for huge amounts of premium that it bought from those insurance firms, would be “the death knell of the petitioners’ respective businesses and, without doubt, will spell the end of the whole insurance industry in the Philippines.”

Did the CA division really believe such an obviously baseless fear of the five insurance companies?

Really now, the fire insurance claim of the steel company amounted to about P1.8 billion. This amount, even by a huge stretch of the imagination, can hardly spell the end of our whole insurance industry.

Based on official insurance industry figures, as of end 2010, the total assets of the top 10 insurance companies here—only the top 10 firms, mind you, and not the whole industry—amounted to more than P400 billion.

How could anybody believe that the claim of P1.8 billion, which alongside P400 billion is not even one half of one percent, would kill the robust healthy insurance industry in the country?

As for the five insurance companies, they said that the payment of the insurance claim of SCP would mean the “death knell” of their business. It was precisely the risk that they took when they accepted huge payments of insurance premium from SCP.

We are talking here of insurance, a just-in-case product that businesses like SCP must buy—at huge costs, of course—because they want the insurance companies to absorb the risks of disasters like fire, flooding, and earthquake.

It is still part of their business, even if the insurance companies were to close shop by covering the claims of their clients.

They got hit, so be it. But it is their duty, at least according to the law, to pay for the legitimate claims of those companies that pay huge amounts of premium for the protection.

And so what kind of protection did SCP get from its insurers?

Besides, as the SCP noted in its letter to the CA presiding justice, the practice in the insurance industry is to spread out the risks through another business called re-insurance, which even our government-run GSIS, the insurer of all government assets, must practice. Reinsurance thus is another huge business in this country.

In fact, the law requires insurance companies to reinsure the risks.

The standard practice is to reinsure about 90 percent of the insurance amount. If such were the case in the SCP insurance policy, those five insurance companies would have to shoulder about P180 million of the total claim. What kind of insurance companies are they if this amount would already mean their “death knell?”

I wonder how officials of the Philippine Insurance Commission, which is under the Department of Finance, could sleep knowing that those five companies would close shop.

Thus, in its letter to the CA Presiding Justice, SCP accused the justices of “manifest partiality, evident bad faith and gross inexcusable negligence” in issuing the preliminary injunction against the payment of its insurance claims.

For one, SCP noted that the injunction was promulgated at 11:30 a.m. on Feb. 8, which was served personally upon the SCP lawyer at 3:15 p.m. In other words, it took less than 4 hours.

Who would have thought that our courts are that efficient?

Anyway, the company said in its letter that the injunction order was based solely on the allegation of the insurance companies—i.e., that the P1.8 billion payment would mean the collapse of the entire insurance industry—without the CA division even asking them for supporting evidence.

For those insurance companies, and even for the CA division, this fact would be hard to explain: One of the insurers of SCP, the one called Standard Insurance Co. Inc., already paid its corresponding share in the claim, and it did not go bankrupt.

On the contrary, the biggest loser in this case is the insured company, the very same SCP which, for the past several years, has been incurring huge losses. Its factory in Batangas, employing hundreds of workers, remains idle. It will be a stiff climb for the company to recover its local market share. Its export market is gone for good.

The thing is, SCP is under corporate rehabilitation. This is all dependent on the replacement of its cold rolling mill, an essential part in steel-sheet making.

While the insurance companies continue to earn a pile by selling insurance to companies like SCP, the steel factory is not operating and its workers are miserable. For the past two years! And perhaps for many more years to come!

That is the most likely effect of the court order.