5. PHILAMCARE HEALTH SYSTEMS V.

CA (2002) Doctrine: A Health Care Agreement entitling the policy-holder of hospitalization and out-patient benefits for a stipulated period is a contract of insurance having the elements of insurable interest (life/health of policy-holder), the contigent event to which insured has a risk of loss (hospital/medical expenses for sickness/injury), assumption of risk by the insurer (indemnification in case contingent event happens), being part of a general scheme to distribute the losses among a large group bearing similar risk and payment of premium. Facts:

1. Ernani Trinos, husband of Julia Trinos, was issued a Health Care Agreement (agreement) by
PHILAMCARE Health Systems under which he is entitled hospitalization and out-patient benefits for a period of one year. In his application, he answered NO to the 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) After the termination of the agreement, it was extended for another year, then for another year and the maximum sum covered was increased to P75,000 per disability. Ernani suffered a heart attack and was confined at Manila Medical Center and Julia tried to claim benefits under the agreement. PHILAMCARE denied her claim because the agreement is void due to the concealment by Ernani of his medical history as MMC doctors discovered that he was hypertensive, diabetic and asthmatic. Julia paid the expenses amounting to P76,000. After being discharged, Ernani was attended by a physical therapist and was confined in the Chinese General Hospital twice until he died in April 1990 while the agreement was, supposedly, still in force. Julia instituted action for damages against PHILAMCARE and its president. RTC: for Julia. CA: affirmed. PHILAMCARE: A health care agreement (HCA) is not an insurance contract a. Only medication and hospitalization benefits are given without indemnification b. HCA is only for a period of one year unlike insurance thus incontestability clause 1 does not apply as it requires at least a period of 2 years c. PHILAMCARE is not an insurance company under the Insurance Commission but a Health Maintenance Organization (HMO) under the DOH

2. 3.

4.
5. 6. 7.

8. 9.

ISSUE: Whether the HCA is an insurance contract (YES) HELD: HCA is in the nature of a non-life insurance , which is primarily a contract of indemnity. a. Sec. 2(1), IC: A "contract of insurance" is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. b. Elements: 1. The insured has an insurable interest > Ernanis own health (per Sec. 10(1) of IC, every person has an insurable interest in the life and health and life of himself, of his life and of his children) 2. The insured is subject to a risk of loss by the happening of the designated peril
1

A provision precluding the insurer from contesting the validity of the contract as such, the truthfulness of answers to questions propounded to applicant, and other matters ordinarily constituting defenses, such preclusions being subject to the terms of the provision and the reservations therein. 29A Am. Jur. Rev ed Ins. 1107

> hospital, medical or any other expense arising from sickness, injury or other stipulated contingent > Sec. 3, par.1, IC: Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of this chapter. 3. The insurer assumes the risk > health care provider must pay for the same to the extent agreed upon under the contract 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 insurers promise, the insured pays a premium c. On the alleged concealment by Ernani (NO CONCEALMENT) HCA contained stipulations to the effect that physicians are authorized to disclose/give testimony at anytime relative to any information acquired by him in his professional capacity re: eligibility of proposed healthcare member and that PHILAMCARE is entitled to records and info relative to any hospitalization, consultation, treatment or any other medical advice or examination And because the question propounded to Ernani is one of opinion and he answered NO in good faith, the insurer is no justified on relying on such statement but is required to make further inquiry. d. Assuming there was concealment, the insurer is entitled to rescind the contract (Sec.27,IC) BUT NO RESCISSION WAS MADE. Should be exercised prior to commencement of an action on the contract Following conditions must concur:
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

e. 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. On incontestability: Under title on Claim procedures of expenses of the HCA, the periods for which PHILAMCARE may contest have expired thus may no longer challenge the misrepresentation/concealment. g. Julia not the legal wife of Ernani at time of application HCA is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. f. Digest by: Justa Aurea G. Bautista (A2015)