Philamcare Health Systems, Inc. vs. Ca (2002)

PHILAMCARE HEALTH SYSTEMS, INC. vs.
CA (2002)
FACTS
 Ernani Trinos, deceased husband of Julita Trinos, applied for a health care
coverage with Philamcare Health Systems, Inc. In the standard application form,
he answered “NO” to the following question:
o Have you or any of your family members ever consulted or been treated
for high blood pressure, heart trouble, diabetes, cancer, liver disease,
asthma or peptic ulcer? (If Yes, give details).
 Ernani’s entitlement under HCA:
 Hospitalization benefits, whether ordinary or emergency, listed
therein;
 “Out-patient benefits" such as annual physical examinations,
preventive health care and others.
 Ernani suffered a heart attack and was confined at the Manila Medical Center
(MMC) for one month beginning March 9, 1990. Julita then tried to claim the
benefits under the Health Care Agreement. However, Philamcare Health
Systems denied her claim saying that the Health Care Agreement was void,
given that there was a concealment regarding Ernani’s medical history. Doctors
at the MMC allegedly discovered at the time of Ernani’s confinement that he was
hypertensive, diabetic and asthmatic, contrary to his answer in the application
form. Julita paid the hospitalization expenses herself, amounting to about
P76,000.00.
 Ernani was discharged at MMC and then again he was admitted at the Chinese
General Hospital. Julita brought her husband home due to financial difficulties.
One morning, Ernani had fever and was feeling very weak, constraining Julita to
bring him back to the Chinese General Hospital where he died on the same day.
 On July 24, 1990, respondent instituted with the Regional Trial Court of Manila an
action for damages against Philamcare Health Inc. and its president, Dr. Benito
Reverente. She asked for reimbursement of her expenses plus moral damages
and attorney’s fees.
 After trial, the lower court ruled against Philam, ordered defendants to pay and
reimburse the medical and hospital coverage of the late Ernani. CA affirmed.
ISSUES
1. Whether health care agreements are considered insurance contracts, and if not,
consequently, then the “incontestability clause” should not apply.
2. Whether there was concealment of material facts on the part of Ernani that rendered
the HCA void by virtue of the "Invalidation of agreement" contained in the contract.
3. Suppose there was concealment, what are the steps that Philamcare should have
taken?
RULING
1. YES, it is an insurance contract.
 Section 2 (1) of the Insurance Code defines a contract of insurance as “an
agreement whereby one undertakes for a consideration to indemnify another
against loss, damage or liability arising from an unknown or contingent event.”
 An insurance contract exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated
peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk; and
5. In consideration of the insurer’s promise, the insured pays a premium.
 Section 3 of the Insurance Code states that any contingent or unknown event,
whether past or future, which may damnify a person having an insurable interest
against him, may be insured against. Every person has an insurable interest in
the life and health of himself.
 Section 10 provides:
1. Every person has an insurable interest in the life and health:
2. of himself, of his spouse and of his children;
3. of any person on whom he depends wholly or in part for education or support,
or in whom he has a pecuniary interest;
4. of any person under a legal obligation to him for the payment of money,
respecting property or service, of which death or illness might delay or prevent
the performance; and
5. of any person upon whose life any estate or interest vested in him depends.
 In the case at bar, the insurable interest of respondent’s husband in obtaining the
health care agreement was his own health. The health care agreement was in
the nature of non-life insurance, which is primarily a contract of indemnity—upon
incurring hospital, medical or any other expense arising from sickness, injury or
other stipulated contingent, the health care provider must pay for the same to the
extent agreed upon under the contract.
2. NONE, there was no concealment of material facts.
 Petitioner cannot rely on the stipulation regarding "Invalidation of agreement"
which reads: “Failure to disclose or misrepresentation of any material information
by the member in the application or medical examination, whether intentional or
unintentional, shall automatically invalidate the Agreement from the very
beginning and liability of Philamcare shall be limited to return of all Membership
Fees paid.”
 The above-mentioned question, relating to the medical history of the applicant,
largely depends on opinion rather than fact, especially considering that the
respondent’s husband was not a medical doctor.
 When matters of opinion or judgment are called for, answers can be made in
good faith and without intent to deceive even though they prove to be are untrue.
The insurer in this case is not justified in relying upon the reply to such a
statement, but should have instead made further inquiry to ensure the same.
 The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract. Concealment as a defense to avoid liability
is an affirmative defense, and the duty to establish such defense by satisfactory
and convincing evidence rests upon the provider or insurer.
3. Philamcare should have followed Section 27 of the Insurance Code: "a concealment
entitles the injured party to rescind a contract of insurance."
 The right to rescind should be exercised previous to the commencement of an
action on the contract. In this case, no rescission was made.
 The cancellation of health care agreements as in insurance policies require the
concurrence of the following conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after effective date of the policy of
one or more of the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured at the address shown in
the policy;
4. Must state the grounds relied upon provided in Section 64 of the Insurance
Code and upon request of insured, to furnish facts on which cancellation is
based,
None of the above pre-conditions was fulfilled in this case.
 When the terms of an insurance contract contain limitations on liability, the courts
should construe them in such a way to preclude the insurer from non-compliance
with the obligation. Being a contract of adhesion, it should be construed strictly
against the party that prepared it.
 Anent the incontestability of the membership of respondent’s husband, we note
that under the title Claim procedures of expenses, the defendant Philamcare
Health Systems Inc. had twelve months from the date of issuance of the
Agreement within which to contest the membership of the patient if he had
previous ailment of asthma, and six months from the issuance of the agreement
if the patient was sick of diabetes or hypertension. The periods having expired,
the defense of concealment or misrepresentation no longer lie.

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