Philamcare Health Systems Inc. vs.

Court of Appeals [GR 125678, 18 March 2002]

April 1990, Ernani had fever and was feeling very weak. Trinos was constrained to bring him back to the Chinese General Hospital where he died on the same day. On 24 July 1990, Trinos instituted with the Regional Trial Court of Manila, Branch 44, an action for damages against Philamcare and its president, Dr. Benito Reverente (Civil Case 90 53795). She asked for reimbursement of her expenses plus moral damages and attorneys fees. After trial, the lower court ruled against Philamcare and Reverente, ordering them to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same; the reduced amount of moral damages of P10,000.00 to Trinos; the reduced amount of P10,000.00 as exemplary damages to Trinos; and the attorneys fees of P20,000.00, plus costs of suit. On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved Reverente. Philamcares motion for reconsideration was denied. Hence, Philamcare brought the petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the incontestability clause under the Insurance Code does not apply. Issue [1]: Whether a health care agreement between Philamcare and Ernani Trinos is an insurance contract. Held [1]: YES. 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. An insurance contract exists where the following elements concur: (1) The insured has an insurable interest; (2) The insured is subject to a risk of loss by the happening of the designated peril; (3) The insurer assumes the risk; (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. Section 3 of the Insurance Code

Facts: Ernani Trinos, deceased husband of Julita Trinos, applied for a health care coverage with 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? (If Yes, give details). The application was approved for a period of one year from 1 March 1988 to 1 March 1989. Accordingly, he was issued Health Care Agreement P010194. Under the agreement, Trinos husband was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of out-patient benefits such as annual physical examinations, preventive health care and other out-patient services. Upon the termination of the agreement, the same was extended for another year from 1 March 1989 to 1 March 1990, then from 1 March 1990 to 1 June 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability. During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning 9 March 1990. While her husband was in the hospital, Trinos tried to claim the benefits under the health care agreement. However, Philamcare denied her claim saying that the Health Care Agreement was void. According to Philamcare, 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, Trinos 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, Trinos brought her husband home again. In the morning of 13

states that any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of himself. Section 10 provides that Every person has an insurable interest in the life and health: (1) of himself, of his spouse and of his children; (2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; (3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and (4) of any person upon whose life any estate or interest vested in him depends. Herein, the insurable interest of Trinos husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from sickness, injury or other stipulated contingent, the health care provider must pay for the same to the extent agreed upon under the contract. Issue [2]: Whether answers made in good faith, where matters of opinion or judgment are called for, without intent to deceive will avoid a policy when they were untrue. Held [2]: NO. 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, although 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. The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract. 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, Philamcare is liable for claims made under the contract. Having assumed a responsibility under the agreement, Philamcare 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. Issue [3]: Whether rescission must be exercised before commencement of an action on the contract. Held [3]: YES. Under Section 27 of the Insurance Code, a concealment entitles the injured party to rescind a contract of insurance. The right to rescind should be exercised previous to the commencement of an action on the contract. Herein, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following 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 of the above pre-conditions was fulfilled in this case. When the terms

of insurance contract contain limitations on liability, courts should construe them in such a way as to preclude the insurer from non-compliance with his obligation. 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. By reason of the exclusive control of the insurance company over the terms and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health Care Agreements. Issue [4]: Whether the membership of the late Trinos is now

liability against petitioner and the Trial Court ordered the petition to pay the full value of the insurance. Issue: Whether or not the insurance corporation is exempted to pay based on the exception clause in the insurance policy. Held: The Supreme Court held that the insurance corporation has the burden of proof to show that the loss comes within the purview of the exception or limitation set-up. But the insurance corporation cannot use a witness to prove that the fire was caused by the NPA rebels on the basis that the witness learned this from others. Such testimony is considered hearsay and may not be received as proof of the truth of what he has learned. The petitioner, failing to prove the exception, cannot rely upon on exemption or exception clause in the fire insurance policy. The petition was granted. PHILIPPINE HEALTH CARE PROVIDERS, INC. vs. COMMISSIONER OF INTERNAL REVENUE G.R. No. 167330, June 12, 2008 FACTS: Petitioner is a domestic corporation whose primary purpose is to establish, maintain, conduct and operate a prepaid group practice health care delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the health care plan and to provide for the administrative, legal, and financial responsibilities of the organization. Individuals enrolled in its health care programs pay an annual membership fee and are entitled to various preventive, diagnostic and curative medical services provided by its duly licensed physicians, specialists and other professional technical staff participating in the group practice health delivery system at a hospital or clinic owned, operated or accredited by it. On January 27, 2000, respondent CIR sent petitioner a formal demand letter and the corresponding assessment notices demanding the payment of deficiency taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the total amount of P224,702,641.18. The deficiency DST assessment was imposed on petitioner's health care agreement with the members of its health care program pursuant to Section 185 of the 1997 Tax Code.

incontestable. Held [4]: YES. Under the title Claim procedures of expenses, Philamcare 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. EXEMPTION SHOULD BE PROVEN IN ORDER TO QUALIFY UNDEREXCEPTION CLAUSE OF INSURANCE POLICY COUNTRY BANKERS INSURANCE CORP. VS. LIANGA COMMUNITY MULTI-PURPOSE COOPERATIVE, G.R. No.136914, January 25, BAY & INC. 2002

Facts: Country Bankers Insurance Corp. (CBIC) insured the building of respondent Lianga Bay and Community Multi-Purpose Corp., Inc. against fire, loss, damage, or liability during the period starting June 20, 1990 for the sum of Php.200,000.00. On July 1, 1989 at about 12:40 in the morning a fire occurred. The respondent filed the insurance claim but the petition denied the same on the ground that the building was set on fire by two NPA rebels and that such loss was an excepted risk under par.6 of the conditions of the insurance policy that the insurance does not cover any loss or damage occasioned by among others, mutiny, riot, military or any uprising. Respondent filed an action for recovery of loss, damage or

Petitioner protested the assessment in a letter dated February 23, 2000 and filed a petition for review in the CTA seeking the cancellation of the deficiency VAT and DST assessments.On April 5, 2002, the CTA rendered a decision, partially granted petitioners petition. Respondent: Respondent appealed the CTA decision to the CA insofar as it cancelled the DST assessment. He claimed that petitioner's health care agreement was a contract of insurance subject to DST under Section 185 of the 1997 Tax Code. The same was granted by CA since petitioner's health care agreement was in the nature of a non-life insurance contract subject to DST. Petitioner essentially argues that its health care agreement is not a contract of insurance but a contract for the provision on a prepaid basis of medical services, including medical check-up, that are not based on loss or damage. Petitioner also insists that it is not engaged in the insurance business. It is a health maintenance organization regulated by the Department of Health, not an insurance company under the jurisdiction of the Insurance Commission. For these reasons, petitioner asserts that the health care agreement is not subject to DST. ISSUE: Whether or not a health care agreement is in the nature of an insurance contract and therefore subject to the documentary stamp tax (DST) imposed under Sec. 185 of R.A. 8424. RULING:Yes. Under the law, 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 . The event insured against must be designated in the contract and must either be unknown or contingent Petitioner's health care agreement is primarily a contract of indemnity. And in the recent case of Blue Cross Healthcare, Inc. v. Olivares, this Court ruled that a health care agreement is in the nature of a non-life insurance policy. Under the health care agreement, the rendition of hospital, medical and professional services to the member in case of sickness, injury or emergency or his availment of so-called "out-patient services is the contingent event which gives rise to liability on the part of the member. In case of exposure of the member to liability, he would be entitled to indemnification by petitioner.

The insurable interest of every member of petitioner's health care program in obtaining the health care agreement is his own health. Contracts between companies like petitioner and the beneficiaries under their plans are treated as insurance contracts. This is because petitioner does not bear the costs alone but distributes or spreads them out among a large group of persons bearing a similar risk, that is, among all the other members of the health care program and that is insurance. Further, DST is not a tax on the business transacted but an excise on the privilege, opportunity, or facility offered at exchanges for the transaction of the business. It is an excise on the facilities used in the transaction of the business, separate and apart from the business itself. Eternal Gardens Memorial Park Corp. v. Philippine American Life Insurance Corp. (2008) Exception to Perfection (Insurance) FACTS: December 10, 1980: Philippine American Life Insurance Company (Philamlife) entered into an agreement denominated as Creditor Group Life Policy No. P-19202 with Eternal Gardens Memorial Park Corporation (Eternal)Under the policy (renewable annually), the clients of Eternal who purchased burial lots from it on installment basis would be insured by Philamlife. amount of insurance coverage depended upon the existing balance . Eternal complied by submitting a letter dated December 29, 1982, a list of insurable balances of its lot buyers for October 1982 which includes John Chuang which was stamped as received by Philam Life. August 2, 1984, Chuang died with a balance of 100,000 php April 25, 1986: Philamlife had not furnished Eternal with any reply on its insurance claim so its demanded its claim. According to Philam Life, since the application was submitted only on November 15, 1984, after his death, Mr. John Uy Chuang was not covered under the Policy since his application was not approved. Moreover, the acceptance of the premiums are only in trust for and not a sign of approval.

RTC: favored Eternal CA: Reversed RTC

ISSUE: W/N Philam's inaction or non-approval meant the perfection of the insurance contract. HELD: YES. CA reversed

ISSUE: Whether or not Eulogio was able to reinstate the lapsed insurance policy before his death HELD: NO. The Court agrees with the RTC that the conditions for reinstatement under the Policy Contract and Application for Reinstatement were written in clear and simple language, which could not admit of any meaning or interpretation other than those that they so obviously embody. Violeta did not adduce any evidence that Eulogio might have failed to fully understand the import and meaning of the provisions of his Policy Contract and/or Application for Reinstatement both of which he voluntarily signed. While it is a cardinal principle of insurance law that a policy or contract of insurance is to be construed liberally in favor of the insured and strictly as against the insurer company, yet, contracts of insurance, like other contracts are to be construed according to the sense and meaning of the terms, which the parties themselves have used, if such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. WHEREFORE, premises considered, the Court DENIES the instant Petition for Review on Certiorari under Rule 45 of the Rules of Court. The Court AFFIRMS the Orders dated 10 April 2008 and 3 July 2008 of the RTC of Gapan City, Branch 34, in Civil Case No. 2177, denying petitioner Violeta R. Lalicans Notice of Appeal, on the ground that the Decision dated 30 August 2007 subject thereof, was already final and executor. No costs. Estoppel as applied to insurance contracts Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue GR no. 167330 September 18, 2009 FACTS This is based on a Motion for Reconsideration filed by the petitioner. Philippine Health Care Providers, Inc. is a domestic corporation primarily engaged in the business of providing prepaid group practice health care delivery system. On January 27, 2000, the Commissioner of Internal Revenue sent an assessment letter to the petitioner informing it and demanding payment of P224, 702, 614. 18 in back taxes, surcharge, and interests. The deficiency is composed mostly of unpaid documentary stamp tax (DST) imposed on the petitioners agreement with its members. Petitioner protested before the CIR but due to the latters inaction; it filed a petition for review before the Court of Tax Appeals. The CTA

construed in favor of the insured and in favor of the effectivity of the insurance contract Upon a partys purchase of a memorial lot on installment from Eternal, an insurance contract covering the lot purchaser is created and the same is effective, valid, and binding until terminated by Philamlife by disapproving the insurance application

Moreover, the mere inaction of the insurer on the insurance application must not work to prejudice the insured The termination of the insurance contract by the insurer must be explicit and unambiguous

VIOLETA LALICAN vs. THE INSULAR LIFE ASSURANCE COMPANY LIMITED G.R. No. 183526, August 25, 2009, 597 SCRA 159 FACTS: Eulogio, the husband of herein petitioner, applied for an insurance policy the value of which is P1,500,000.00. Under the policy terms, Eulogio is obliged to pay the premiums on a quarterly basis, until the end of the 20-year period of the policy. It was likewise stated therein that the insured has 31-day grace period for the payment of each premium subsequent to the first and that default in any payment of said premiums shall result in the automatic lapse of the said policy. Eulogio failed to pay a premium even after the lapse of the 31-day grace period. Hence, the policy lapsed and became void. He filed an Application for Reinstatement of said policy and paying the amount of the premium due. However, Insular Life notified him that they could not fully process his application because the amount he paid is inadequate to cover the accrued interests. Hence, he again applied for the reinstatement of said policy this time, together with the required amount. The husband of the insurance agent was the one who received his application because the agent was away at that time. Within the same day, the insured died. This fact was unknown to the agent who then submitted Eulogios application for reinstatement to the Insular Life Regional Office. Violeta then filed a claim for payment of the full proceeds of the policy. However, the company said that she is not entitled to the insurance proceeds because they claimed that the policy was not reinstated during her husbands lifetime and good health.

rendered a decision partially granting the petition for review. The petitioner was ordered to pay P53M instead of the original P225M. Furthermore, the CIR was ordered to desist from collecting DST tax Respondent CIR appealed the decision before the Court of Appeals. According to him, the petitioners healthcare agreement is a contract of insurance and as such, is subject to DST under Section 185 of the 1997 Tax Code. The CA rendered a decision reversing the earlier decision of the CTA. It ordered the petitioner to pay P123M in DST. Petitioner appealed the decision before the Supreme Court which affirmed the CAs decision. The SC held that the petioners health care agreement during the pertinent period was in the nature of non-life insurance which is a contact of indemnity. The Court further ruled that contracts between companies like petitioner and its beneficiaries under their plans are treated as insurance contract. The petitioner filed a motion for reconsideration. ISSUE Whether or not the health care agreement between petitioner and its beneficiaries is an insurance contract. RULING The Supreme Court ruled in favor of the petitioner and granted the motion for reconsideration. The Court ruled that the health care agreement between the petitioners and its beneficiaries is not a contract of insurance. The Court based its decision on the fact that the HMO agreement does not qualify as an insurance business based on the principal object and purpose test. The test is based on Section 2 (2) of the Insurance Code. Accordingly, an enterprise is considered engaged in an insurance business when the principal object of the enterprise is the assumption of risk and the indemnification of loss. If the enterprise assumes risk and indemnifies beneficiaries for losses, then it is an insurance company. American courts have pointed out that the main difference between an HMO and an insurance company is that HMOs undertake to provide or arrange for the provision of medical services through participating physicians while insurance companies simply undertake to indemnify the insured for medical expenses incurred up to a pre-agreed limit.

A substantial portion of petitioners services covers preventive and diagnostic medical services intended to keep members from developing medical conditions or diseases. As an HMO, it is its obligation to maintain the good health of its members. Accordingly, its health care programs are designed to prevent or to minimize the possibility of any assumption of risk on its part. Thus, its undertaking under its agreements is not to indemnify its members against any loss or damage arising from a medical condition but, on the contrary, to provide the health and medical services needed to prevent such loss or damage. Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its curative medical services), but these are incidental to the principal activity of providing them medical care. The insurance-like aspect of petitioners business is miniscule compared to its noninsurance activities. Therefore, since it substantially provides health care services rather than insurance services, it cannot be considered as being in the insurance business. Lastly, it is significant that petitioner, as an HMO, is not part of the insurance industry. This is evident from the fact that it is not supervised by the Insurance Commission but by the Department of Health. In fact, in a letter dated September 3, 2000, the Insurance Commissioner confirmed that petitioner is not engaged in the insurance business. This determination of the commissioner must be accorded great weight. It is well-settled that the interpretation of an administrative agency which is tasked to implement a statute is accorded great respect and ordinarily controls the interpretation of laws by the courts.