TOPIC: CONCEALMENT: TEST OF MATERIALITY

PHILAMCARE HEALTH SYSTEMS, INC. vs. COURT OF APPEALS and JULITA

TRINOS

FACTS:
Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health
care coverage with petitioner Philamcare Health Systems, Inc. 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?
The application was approved for a period of one year from March 1, 1988 to
March 1, 1989 but extended until June 1, 1990.
During the period of his coverage, Ernani suffered a heart attack and was confined
at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While her
husband was in the hospital, respondent tried to claim the benefits under the health
care agreement. However, petitioner denied her claim saying that the Health Care
Agreement was void. According to petitioner, there was a concealment regarding
Ernanis medical history. Doctors at the MMC allegedly discovered at the time of Ernanis
confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in
the application form. Thus, respondent paid the hospitalization expenses herself,
amounting to about P76,000.00.
After her husband was discharged from the MMC, he was attended by a physical
therapist at home. Later, he was admitted at the Chinese General Hospital. Due to
financial difficulties, however, respondent brought her husband home again. In the
morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent
was constrained to bring him back to the Chinese General Hospital where he died on
the same day.
Respondent then filed a case in RTC an action for damages against petitioner and
asked for the reimbursement of her expenses for the hospitalization. Petitioner
contended that the respondent is not entitled since there was a concealment upon the
application and that it was stated in their contract that “ 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. “

ISSUE: Whether or not, the insurer is entitled to the claims on the health care coverage
because of the alleged concealment on the application.

RULING: Yes, the insurer is entitled to claim from the health care coverage.
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. An undisclosed or
misrepresented information is deemed material if its revelation would have resulted in
the declination of the applicant by Philamcare or the assessment of a higher
Membership Fee for the benefit or benefits applied for.

The answer assailed by petitioner was in response to the question relating to the
medical history of the applicant. This largely depends on opinion rather than fact,
especially coming from respondents 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. Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or

judgment of the insured will not avoid the policy if there is no actual fraud in inducing the
acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise
the rule although the statement is material to the risk, if the statement is obviously of the
foregoing character, since in such case the insurer is not justified in relying upon such
statement, but is obligated to make further inquiry. There is a clear distinction between
such a case and one in which the insured is fraudulently and intentionally states to be
true, as a matter of expectation or belief, that which he then knows, to be actually
untrue, or the impossibility of which is shown by the facts within his knowledge, since in
such case the intent to deceive the insurer is obvious and amounts to actual fraud.

Concealment as a defense for the health care provider or insurer 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. 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.
Topic: CANCELLATION: UNILATERAL CANCELLATION BY THE INSURER

MALAYAN INSURANCE CO., INC. (MICO), vs. GREGORIA CRUZ ARNALDO

FACTS:
On June 7, 1981, the petitioner MALAYAN INSURANCE CO., INC. (hereinafter called
(MICO) issued to the private respondent, Coronacion Pinca, Fire Insurance Policy No.
F-001-17212 on her property for the amount of P14, 000.00 effective July 22, 1981, until
July 22, 1982.
On October 15, 1981, MICO allegedly cancelled the policy for non-payment, of the
premium and sent the corresponding notice to Pinca.
On December 24, 1981, payment of the premium for Pinca was received by Domingo
Adora, agent of MICO.
On January 15, 1982, Adora remitted this payment to MICO, together with other
payments.
On January 18, 1982, Pinca's property was completely burned.
On February 5, 1982, Pinca's payment was returned by MICO to Adora on the ground
that her policy had been cancelled earlier. But Adora refused to accept it.
On April 25, 1982, it filed a motion for reconsideration, which was denied on June 4,
1982. Insurance Commission sustained the claim.

ISSUE: Whether or not the policy is deemed cancelled.

RULING:
No, the policy was not cancelled. The Supreme Court ruled that MICO's contention that
there was no existing insurance at the time of the loss sustained by Pinca because her
policy never became effective for non-payment of premium is incorrect. Payment was in
fact made, rendering the policy operative as of June 22, 1981, and removing it from the
provisions of Article 77, Thereafter, the policy could be cancelled on any of the
supervening grounds enumerated in Article 64 (except "nonpayment of premium")
provided the cancellation was made in accordance therewith and with Article 65.

Section 64 reads as follows:

SEC. 64. No policy of insurance other than life shall be cancelled by the insurer
except upon prior notice thereof to the insured, and no notice of cancellation shall be
effective unless it is based on the occurrence, after the effective date of the policy, of
one or more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts increasing the hazard insured against;
(c) discovery of fraud or material misrepresentation;
(d) discovery of willful, or reckless acts or commissions increasing the hazard
insured against;
(e) physical changes in the property insured which result in the property becoming
uninsurable;or
(f) a determination by the Commissioner that the continuation of the policy would
violate or would place the insurer in violation of this Code.
As for the method of cancellation, Section 65 provides as follows:
SEC. 65. All notices of cancellation mentioned in the preceding section shall be in
writing, mailed or delivered to the named insured at the address shown in the policy,
and shall state (a) which of the grounds set forth in section sixty-four is relied upon and
(b) that, upon written request of the named insured, the insurer will furnish the facts on
which the cancellation is based.

A valid cancellation must, therefore, require concurrence of the following conditions:

(1) There must be prior notice of cancellation to the insured;
(2) The notice must be based on the occurrence, after the effective date of the
policy, of one or more of the grounds mentioned;
(3) The notice must be (a) in writing, (b) mailed, or delivered to the named insured,
(c) at the address shown in the policy;
(4) It must state (a) which of the grounds mentioned in Section 64 is relied upon and
(b) that upon written request of the insured, the insurer will furnish the facts on which
the cancellation is based.

MICO's claims it cancelled the policy in question on October 15, 1981, for non-payment
of premium. To support this assertion, it presented one of its employees, who testified
that "the original of the endorsement and credit memo" — presumably meaning the
alleged cancellation — "were sent the assured by mail through our mailing section".
However, there is no proof that the notice, assuming it complied with the other
requisites mentioned above, was actually mailed to and received by Pinca. All MICO's
offers to show that the cancellation was communicated to the insured is its employee's
testimony that the said cancellation was sent "by mail through our mailing section."
without more. The petitioner then says that its "stand is enervated (sic) by the legal
presumption of regularity and due performance of duty."(not realizing perhaps that
"enervated" means "debilitated" not "strengthened").

On the other hand, there is the flat denial of Pinca, who says she never received the
claimed cancellation and who, of course, did not have to prove such denial Considering
the strict language of Section 64 that no insurance policy shall be cancelled except
upon prior notice, it behooved MICO's to make sure that the cancellation was actually
sent to and received by the insured. The presumption cited is unavailing against the
positive duty enjoined by Section 64 upon MICO and the flat denial made by the private
respondent that she had received notice of the claimed cancellation.