No.

19 Perfection of Insurance Contract

by Valero OE

Philamcare v CA (G.R. No. 125678. March 18, 2002)

Facts: Ernani Trinos applied for a health care coverage with Philam. He answered no to a question asking if he
or his family members were treated to heart trouble, asthma, diabetes, etc.The application was approved for 1
year. He was also given hospitalization benefits and out-patient benefits. After the period expired, he was given
an expanded coverage for Php 75,000. During the period, he suffered from heart attack and was confined at
MMC. The wife tried to claim the benefits but the petitioner denied it saying that he concealed his medical
history by answering no to the aforementioned question. She had to pay for the hospital bills amounting to
76,000. Her husband subsequently passed away. She filed a case in the trial court for the collection of the
amount plus damages. She was awarded 76,000 for the bills and 40,000 for damages. The CA affirmed but
deleted awards for damages. Hence, this appeal.
Issue: WON a health care agreement is not an insurance contract; hence the incontestability clause under the
Insurance Code does not apply.
Held: No. Petitioner claimed that it granted benefits only when the insured is alive during the one-year duration.
It contended that there was no indemnification unlike in insurance contracts. It supported this claim by saying
that it is a health maintenance organization covered by the DOH and not the Insurance Commission. Lastly, it
claimed that the Incontestability clause didnt apply because two-year and not one-year effectivity periods were
required.
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.

(1)

Section 3 states: every person has an insurable interest in the life and health:
of himself, of his spouse and of his children.

In this case, the husbands health was the insurable interest. The health care agreement was in the nature
of non-life insurance, which is primarily a contract of indemnity. The provider must pay for the medical
expenses resulting from sickness or injury. While petitioner contended that the husband concealed material fact
of his sickness, the contract stated that: that any physician is, by these presents, expressly authorized to disclose
or give testimony at anytime relative to any information acquired by him in his professional capacity upon any
question affecting the eligibility for health care coverage of the Proposed Members. This meant that the
petitioners required him to sign authorization to furnish reports about his medical condition. The contract also
authorized Philam to inquire directly to his medical history. Hence, the contention of concealment isnt valid.
They cant also invoke the Invalidation of agreement clause where failure of the insured to disclose
information was a grounds for revocation simply because the answer assailed by the company was the heart
condition question based on the insureds opinion. He wasnt a medical doctor, so he cant accurately gauge his
condition.
Henrick v Fire- in such case the insurer is not justified in relying upon such statement, but is
obligated to make further inquiry. Fraudulent intent must be proven to rescind the contract. This was
incumbent upon the provider. 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.
Section 27 of the Insurance Code- a concealment entitles the injured party to rescind a contract of
insurance.
As to cancellation procedure- Cancellation requires certain 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 were fulfilled by the provider.
As to incontestability- The trial court said 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.

No. 19 Perfection of Insurance Contract

by Valero OE