G.R. No. 125678 . March 18, 2002.
PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs. COURT OF APPEALS and JULITA TRINOS, respondents.

FACTS

Ernani Trinos, the deceased husband of respondent Julita Trinos, applied for and was issued a Health Care Agreement (No. P010194) by petitioner Philamcare Health Systems, Inc., covering the period from March 1, 1988 to March 1, 1989, which was later extended. In his application, he answered “no” to a question asking if he or any family members had ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma, or peptic ulcer. During the coverage period, Ernani suffered a heart attack and was hospitalized. Petitioner denied Julita Trinos’s claim for benefits, asserting the agreement was void due to concealment of Ernani’s medical history, as doctors allegedly discovered he was hypertensive, diabetic, and asthmatic. Julita Trinos paid the hospitalization expenses herself and, after Ernani’s subsequent death, filed an action for damages. The Regional Trial Court ruled in her favor, ordering reimbursement and damages. The Court of Appeals affirmed the decision but deleted the awards for damages and absolved petitioner’s president. Petitioner filed this petition, arguing primarily that a health care agreement is not an insurance contract and thus the incontestability clause under the Insurance Code does not apply.

ISSUE

Whether a health care agreement is a contract of insurance, and consequently, whether the incontestability clause and related provisions of the Insurance Code apply to it.

RULING

Yes. The Supreme Court ruled that the health care agreement is in the nature of a non-life insurance contract, which is primarily a contract of indemnity. The elements of an insurance contract are present: the insured has an insurable interest in his own health; he is subject to a risk of loss from designated perils; the insurer assumes the risk; this assumption is part of a general scheme to distribute losses; and the insured pays a premium. The Court rejected petitioner’s arguments distinguishing the agreement based on “living benefits,” lack of indemnification, one-year duration, and its classification as a Health Maintenance Organization. The Court held that once a member incurs covered medical expenses, the provider must pay to the extent agreed upon.
Regarding concealment, the Court found the answer in the application pertained to medical history, which largely depends on opinion, especially from a layperson. For such representations of opinion or judgment made in good faith without intent to deceive, the policy will not be avoided. The fraudulent intent of the insured must be established to rescind the contract, and the burden of proof rests on the insurer. Furthermore, the Court applied the incontestability clause under Section 48 of the Insurance Code, noting the agreement had been in force for more than two years from its original issuance, during which time petitioner had the right to investigate the member’s health. Petitioner’s failure to investigate bars it from using concealment as a defense. Finally, the Court held that respondent, having paid all the hospital and medical expenses, was entitled to reimbursement as the contract was one of indemnity. The petition was denied and the Court of Appeals decision was affirmed.