Pool of Machinery Insurers v. CA
41 non-life insurance corporations entered, upon issuance by them of all risk insurance policies, entered into a quota share reinsurance treaty with Munich which required them to form a pool. Eventually, the pool of machinery insurers was assessed by the CIR to pay corporate income tax for being an informal partnership. The petitioners contended, however, that they cannot be an informal partnership on the basis that: 1) there was no common fund 2) the board of the pool did not exercise control of the funds; and 3) the pool itself is not engaged in reinsurance and hence could not have derived income for itself.
Whether or not petitioners have formed an informal partnership
Yes. The Court held that the petitioners formed an informal partnership. It has fulfilled the requisites of Art. 1767 concerning the creation of partnerships. The pool agreement covers all the insurance businesses under the treaty. Contrary to the petitioners’ claim, the pool has a common fund consisting of money and valuables which pays for the administration and operation expenses of the pool. The pool functions through an executive board which resembles the board of directors of a corporation. Lastly, while the pool itself does not issue any insurance policy which derives profit, the pool is indispensible to the businesses of the companies without which they would not receive premiums. Therefore, profit is the main motivation of forming the pool.