Philamcare Health Systems, Inc. vs. Court of Appeals

A health care agreement is a contract of non-life insurance subject to the incontestability clause under the Insurance Code, and concealment cannot be predicated on answers to questions calling for an opinion or belief made in good faith and without intent to deceive.

Ernani Trinos applied for health care coverage with Philamcare Health Systems, Inc., answering "no" to a question regarding prior consultation or treatment for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma, or peptic ulcer. The application was approved and subsequently extended. During the coverage period, Ernani suffered a heart attack and was hospitalized. The health care provider denied the claim, asserting that the agreement was void due to concealment of his medical history, as attending physicians discovered he was hypertensive, diabetic, and asthmatic.

• Application for Coverage: Ernani Trinos applied for health care coverage with Philamcare Health Systems, Inc., answering "no" to a question in the standard application form regarding prior consultation or treatment for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma, or peptic ulcer. The application was approved for one year starting March 1, 1988. The agreement was subsequently extended multiple times until June 1, 1990, with the amount of coverage increased to a maximum of P75,000.00 per disability.
• Hospitalization and Claim: In March 1990, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month. Respondent Julita Trinos attempted to claim benefits under the health care agreement during the confinement. Philamcare denied the claim, declaring the agreement void due to concealment of Ernani's medical history, as doctors at the MMC allegedly discovered he was hypertensive, diabetic, and asthmatic, contrary to his answer in the application form.
• Death and Expenses: Respondent paid the hospitalization expenses at MMC amounting to approximately P76,000.00. Ernani was later confined at the Chinese General Hospital but was brought home due to financial difficulties. He died on April 13, 1990.

• Nature of Contract: Petitioner argued that a health care agreement is not an insurance contract because it grants "living benefits," such as medical check-ups and hospitalization, which a member immediately enjoys, without any indemnification for loss.
• Incontestability Clause: Petitioner maintained that the incontestability clause under the Insurance Code does not apply because health care agreements are only for a period of one year, whereas the clause requires an effectivity period of at least two years.
• Regulatory Jurisdiction: Petitioner contended that it is a Health Maintenance Organization under the authority of the Department of Health, not an insurance company governed by the Insurance Commission.
• Concealment: Petitioner asserted that respondent’s husband concealed a material fact in his application, triggering the "Invalidation of agreement" stipulation which automatically invalidates the agreement from the beginning and limits liability to the return of membership fees.

• Nature of Contract: Respondent countered that the health care agreement is in the nature of non-life insurance, primarily a contract of indemnity, subject to the provisions of the Insurance Code.
• Good Faith and Lack of Fraudulent Intent: Respondent argued that the negative answer in the application was made in good faith and without intent to deceive, as the question regarding medical history called for an opinion rather than a medical fact, especially from a non-physician.
• Incontestability: Respondent asserted that the incontestability period provided under the agreement itself had already lapsed, barring the defense of concealment or misrepresentation.
• Entitlement to Reimbursement: Respondent maintained that she was entitled to reimbursement of the medical expenses she actually paid, regardless of the validity of her marriage to the deceased, because the health care agreement is a contract of indemnity.

• Nature of Health Care Agreement: Whether a health care agreement is an insurance contract subject to the Insurance Code.
• Concealment: Whether the negative answer to a question regarding medical history constitutes concealment warranting the rescission of the agreement.
• Incontestability: Whether the incontestability clause applies to bar the defense of concealment.

• Nature of Health Care Agreement: A health care agreement is in the nature of non-life insurance, primarily a contract of indemnity. The elements of an insurance contract concur: the member has an insurable interest in his own health, is subject to a risk of loss from sickness or injury, the provider assumes the risk, the assumption is part of a general scheme to distribute losses among a large group, and the member pays a premium. Once the member incurs hospital or medical expenses arising from a covered contingency, the provider must pay to the extent agreed upon.
• Concealment: Rescission based on concealment was not justified. The question regarding prior consultation or treatment for specific illnesses calls for an opinion or judgment rather than a fact, especially coming from a layperson. An untrue answer to a matter of opinion made in good faith and without intent to deceive does not avoid a policy; the insurer is obligated to make further inquiry and cannot justifiably rely on such statements. Fraudulent intent must be established to warrant rescission, and the burden of proving this affirmative defense rests on the provider.
• Incontestability: The defense of concealment or misrepresentation was barred by the lapse of the contestability period provided in the agreement itself—twelve months for asthma and six months for diabetes or hypertension. Furthermore, cancellation of health care agreements, like insurance policies, requires prior written notice stating the grounds, which was not fulfilled. Being a contract of adhesion, the agreement's terms and exclusionary clauses must be construed strictly against the provider and liberally in favor of the subscriber.
• Entitlement to Reimbursement: The health care agreement being a contract of indemnity, payment must be made to the party who incurred the expenses. It was not controverted that respondent paid all hospital and medical expenses, entitling her to reimbursement regardless of the validity of her marriage to the deceased.

• Nature of Health Care Agreements — Health care agreements are in the nature of non-life insurance, primarily contracts of indemnity. The liability of the health care provider attaches once the member is hospitalized for a disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.
• Concealment Based on Matters of Opinion — Where matters of opinion or judgment are called for in an insurance application, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue. The insurer is not justified in relying upon such statements and is obligated to make further inquiry.
• Construal of Contracts of Adhesion in Insurance — Being a contract of adhesion, the terms of an insurance contract or health care agreement are to be construed strictly against the party which prepared the contract and liberally in favor of the insured or subscriber, especially to avoid forfeiture. Exclusionary clauses of doubtful import should be strictly construed against the provider.

• "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."
• "[I]n such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry."
• "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."

• Cha v. Court of Appeals, 270 SCRA 690 (1997) — Cited as controlling precedent establishing that a health care agreement is in the nature of non-life insurance, primarily a contract of indemnity.
• Great Pacific Life v. Court of Appeals, 316 SCRA 677 (1999) — Followed for the rule that fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract.
• Malayan Insurance v. Cruz Arnaldo, 154 SCRA 672 (1987) — Followed for the requisites of valid cancellation of insurance policies, which require prior notice and written grounds.
• Landicho v. GSIS, 44 SCRA 7 (1972) — Followed for the doctrine that terms of an insurance contract are to be construed strictly against the insurer.

• Section 2(1), Insurance Code — Defines a contract of insurance; applied to classify the health care agreement as an insurance contract based on the concurrence of its elements.
• Section 10, Insurance Code — Enumerates persons in whom one has an insurable interest in life and health; applied to recognize the member's insurable interest in his own health.
• Section 27, Insurance Code — Provides that concealment entitles the injured party to rescind a contract of insurance; applied in relation to the requirement that rescission must be exercised previous to the commencement of an action and the burden of proving concealment as an affirmative defense.
• Section 48, Insurance Code — Incontestability clause; applied by reference to the petitioner's argument, which was rejected in light of the specific incontestability periods provided in the agreement itself.
• Section 64, Insurance Code — Grounds for cancellation of insurance policies; applied to emphasize the pre-conditions for cancellation that petitioner failed to fulfill.

Davide, Jr., C.J., Puno, and Kapunan, JJ.