Philamcare Health Systems v. CA

2. Philamcare Health Systems v. CA, GR No.
125678, March 18, 2002
Facts:
Ernani Trinos, deceased husband of respondent Julita Trino, applied for a health
care coverage with petitioner Philamcare Health Systems, Inc. Under the approved
agreement, Ernani was entitled to avail of hospitalization benefits, whether ordinary or
emergency, and to avail of “out-patient benefits” such as annual physical examinations,
preventive health care and other out-patient services for one year. In the standard
application form, he answered no to the following question:
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).
The agreement was extended for another year and the amount of coverage was
increased to a maximum of P75,000 per disability.
During the period of his coverage, Ernani suffered a heart attack and was
confined at the Manila Medical Center for a month. Respondent then tries to claim the
benefits but was denied, saying that the Health Care Agreement was void. According to
petitioner, there was concealment regarding Ernani’s medical history since it was
allegedly discovered by the doctors at the hospital that Ernani was hypertensive,
diabetic. And asthmatic, contrary to his answer in the application for. Respondent then
paid the expenses.
He was discharged and was attended by a physical therapist at home. Later he

was admitted to the Chinese General Hospital but was brought home again due to
financial difficulties. Respondent was again brought back to the Chinese General
Hospital as he had fever and was feeling very weak. He died.
Respondent then instituted an action for damages at the RTC and the Court ruled
against the Philamcare. The CA affirmed the decision of the trial court. Among others,
petitioner contends that only medical and hospitalization benefits are given under the
agreement without any indemnification, unlike in an insurance contract where the
insured is indemnified for his loss.
Issue:
Whether or not the contract is a contract of indemnity.
Ruling:
The health agreement was in the nature of non-life insurance, which is primarily
a contract of indemnity. Once the member incurs 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.
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. 8
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:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support,
or in whom he has a pecuniary interest;
(3) 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
(4) of any person upon whose life any estate or interest vested in him depends.
Petitioner cannot also rely on the invalidation of agreement on the allegation that
respondent failed to disclose his medical history. The Court said that the answer to that
in the application form largely depends on opinion rather than fact, especially coming
from respondent’s husband who was not a medical doctor. Where matters of opinion or
judgment are called for, answers made in good faith and without intent to deceive will
not avoid a policy even though they are untrue. So, only when there is bad faith can it
amount to actual fraud.
Concealment as a defense is borne by the provider or insurer and should be

established by satisfactory and convincing evidence. In any case, with or without the
authority to investigate, petitioner is liable for claims made under the contract. Having
assumed a responsibility under the agreement, petitioner is bound to answer the same
to the extent agreed upon. In the end, the liability of the health care provider attaches
once the member is hospitalized for the disease or injury covered by the agreement or
whenever he avails of the covered benefits which he has prepaid.
Under 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. 17 In this case, no rescission was made.
Besides, 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.
Being a contract of adhesion, the terms of an insurance contract are to be

construed strictly against the party which prepared the contract – the insurer. 20 By
reason of the exclusive control of the insurance company over the terms and
phraseology of the insurance contract, ambiguity must be strictly interpreted against the
insurer and liberally in favor of the insured, especially to avoid forfeiture. 21 This is
equally applicable to Health Care Agreements. The phraseology used in medical or
hospital service contracts, such as the one at bar, must be liberally construed in favor of
the subscriber, and if doubtful or reasonably susceptible of two interpretations the
construction conferring coverage is to be adopted, and exclusionary clauses of doubtful
import should be strictly construed against the provider. 22
Anent the incontestability of the membership of respondent’s husband, we quote

with approval the following findings of the trial court:
(U)nder 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.23
Finally, petitioner alleges that respondent was not the legal wife of the deceased
member considering that at the time of their marriage, the deceased was previously
married to another woman who was still alive. The health care agreement is in the
nature of a contract of indemnity. Hence, payment should be made to the party who
incurred the expenses. It is not controverted that respondent paid all the hospital and
medical expenses. She is therefore entitled to reimbursement.

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2. Philamcare Health Systems v. CA, GR No.

125678, March 18, 2002

He was discharged and was attended by a physical therapist at home. Later he

Whether or not the contract is a contract of indemnity.

1. The insured has an insurable interest;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses

5. In consideration of the insurer’s promise, the insured pays a premium. 8

Every person has an insurable interest in the life and health:

(1) of himself, of his spouse and of his children;

Concealment as a defense is borne by the provider or insurer and should be

1. Prior notice of cancellation to insured;

Being a contract of adhesion, the terms of an insurance contract are to be

Anent the incontestability of the membership of respondent’s husband, we quote

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