G.R. No. 125678, March 18, 2002 (YNARES-SANTIAGO, J.

PHILAMCARE HEALTH SYSTEMS, INC., petitioner,

vs.
COURT OF APPEALS and JULITA TRINOS, respondents.

FACTS:

Ernani Trinos applied for a health care coverage with Philamcare Health
Systems, Inc. Ernani answered ‘No’ to the question in the application ‘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?’,. Under the agreement, Ernani is entitled to avail of
hospitalization benefits and out-patient benefits. The coverage was approved
for a period of one year from March 1, 1988 to March 1, 1989. The
agreement was however extended yearly until June 1, 1990 which
increased the amount of coverage to a maximum sum of P75,000 per
disability.

During the period of said coverage, Ernani suffered a heart attack and was
confined at the Manila Medical Center (MMC) for one month. While in the
hospital, his wife Julita tried to claim the benefits under the health care
agreement. However, the Philamcare denied her claim alleging that the
agreement was void because Ernani concealed his medical history. Doctors
at the MMC allegedly discovered at the time of Ernani’s confinement that
he was hypertensive, diabetic and asthmatic, contrary to his answer in
the application form. Thus, Julita paid for all the hospitalization expenses
herself, amounting to about P76,000.00.s

In the morning of April 13, 1990, Ernani had fever and was feeling very
weak. Respondent was constrained to bring him back to the Chinese General
Hospital where he died on the same day.

Julita filed an action for damages and reimbursement of her expenses plus
moral damages, attorney’s fees against Philamcare and its president, Dr.
Benito Reverente. The Regional Trial Court of Manila rendered judgment in
favor of Julita. On appeal, the decision of the trial court was affirmed but
deleted all awards for damages and absolved petitioner Reverente. Hence,
this petition for review

Petitioner argues that the agreement grants "living benefits," such as

medical check-ups and hospitalization which a member may immediately
enjoy so long as he is alive upon effectivity of the agreement until its
expiration one-year thereafter. Petitioner also points out that only medical
and hospitalization benefits are given under the agreement without any
indemnification, unlike in an insurance contract where the insured is
indemnified for his loss.
ISSUES:

(1) Whether or not the health care agreement is not an insurance contract

(2) Whether or not there is concealment of material fact made by Ernani

Whether or not Philamcare can avoid the health coverage agreement.

HELD:

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.
Elements of an Insurance Contract
An insurance contract exists where the following elements concur:
(a) The insured has an insurable interest;
(b) The insured is subject to a risk of loss by the happening of the
designated peril;
(c) The insurer assumes the risk;
(d) 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
(e) In consideration of the insurer’s promise, the insured pays a premium.

Section 3 of the Insurance Code states that any contingent or unknown

event, whether past or future, which my damnify a person having an
insurable interest, or create a liability against him, may be insured against.

(damnify=to cause injuries or loss to;physically to damage)

The insurable interest of respondent’s 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.

(2) NO. The answer assailed by petitioner was in response to the question
relating to the medical history of the applicant. This largely depends on
opinion rather than fact, especially coming from respondent’s husband who
was not a medical doctor. 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.

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, petitioner is liable for claims made under the
contract. Having assumed a responsibility under the agreement, petitioner is
bound to answer 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 wherever he avails of the
covered benefits which he has prepaid.

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.
The incontestability clause provides that a life-insurance policy shall
be incontestable after two years from the date of issuance, regardless of any mistake,
fraud, concealment or misrepresentation.

Adhesion Contract — a contract (also known as a contract of adhesion) between two

parties, where the terms and conditions are drafted by the party with superior
bargaining power (typically a business) and the other party (typically a consumer) has
little or no ability to negotiate more favorable terms, and, as a result, the consumer is
placed in a "take-it-or-leave it" position. The courts carefully scrutinize adhesion
contracts and will sometimes void certain provisions on the basis that the provisions are
unconscionable or the product of unequal bargaining power.