Month: January 2020

Classes of Insurance Digest

Philamcare Health Systems, Inc. vs. Court of Appeals and Julita Trinos

G.R. No. 125678, March 18, 2002

FACTS:

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner 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?” Under the agreement, respondent’s 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 March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990.

During the period of his coverage, Ernani suffered a heart attack and was confined for one month beginning March 9, 1990.  While her husband was in the hospital, respondent tried to claim the benefits under the health care agreement.  However, petitioner denied her claim saying that the Health Care Agreement was void.  According to petitioner, there was a concealment regarding Ernani’s 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, respondent paid the hospitalization expenses herself, amounting to about P76,000.00. After her husband was discharged, he was attended by a physical therapist at home. He died afterwards. On July 24, 1990, respondent instituted an action for damages against petitioner and its president.

ISSUE:

Was there an insurable interest in obtaining the health care agreement?

HELD:

Section 3 of the Insurance Code 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:

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.

In the case at bar, 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.

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. In this case, 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. The phraseology used in medical or hospital service contracts, such as the one at bar, must be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of doubtful import should be strictly construed against the provider.

 

Blue Cross Health Care, Inc. vs. Neomi and Danilo Olivares

G.R. No. 169737, February 12, 2008

FACTS:

Respondent Neomi T. Olivares applied for a health care program with petitioner Blue Cross Health Care, Inc., a health maintenance firm. For the period October 16, 2002 to October 15, 2003, she paid the amount of P11,117. For the same period, she also availed of the additional service of limitless consultations. The application was approved on October 22, 2002. In the health care agreement, ailments due to “pre-existing conditions” were excluded from the coverage. On November 30, 2002, or barely 38 days from the effectivity of her health insurance, respondent Neomi suffered a stroke. During her confinement, she underwent several laboratory tests. She incurred hospital expenses amounting to P34,217.20. Consequently, she requested from the representative of petitioner at Medical City a letter of authorization in order to settle her medical bills. But petitioner refused to issue the letter and suspended payment pending the submission of a certification from her attending physician that the stroke she suffered was not caused by a pre-existing condition. She was discharged from the hospital on December 3, 2002. On December 5, 2002, she demanded that petitioner pay her medical bill. When petitioner still refused, she and her husband, respondent Danilo Olivares, were constrained to settle the bill. They thereafter filed a complaint for collection of sum of money against petitioner.

ISSUE:

Was Neomi’s stroke caused by a pre-existing condition and therefore excluded from the coverage of the health care agreement?

HELD:

The health care agreement defined a “pre-existing condition” as “a disability which existed before the commencement date of membership whose natural history can be clinically determined, whether or not the Member was aware of such illness or condition.” Under this provision, disabilities which existed before the commencement of the agreement are excluded from its coverage if they become manifest within one year from its effectivity. Stated otherwise, petitioner is not liable for pre-existing conditions if they occur within one year from the time the agreement takes effect. In this case, petitioner never presented any evidence to prove that respondent Neomi’s stroke was due to a pre-existing condition. It merely speculated that Dr. Saniel’s report would be adverse to Neomi, based on her invocation of the doctor-patient privilege. This was a disputable presumption at best.

Furthermore, as already stated, limitations of liability on the part of the insurer or health care provider must be construed in such a way as to preclude it from evading its obligations. Accordingly, they should be scrutinized by the courts with “extreme jealousy” and “care” and with a “jaundiced eye.” Since petitioner had the burden of proving exception to liability, it should have made its own assessment of whether respondent Neomi had a pre-existing condition when it failed to obtain the attending physician’s report. It could not just passively wait for Dr. Saniel’s report to bail it out. The mere reliance on a disputable presumption does not meet the strict standard required under our jurisprudence.

 

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 Commissioner of Internal Revenue 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.  Petitioner protested the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT and DST assessments. The CTA rendered a decision ordering petitioner to pay the deficiency VAT but cancelled the payment of DST assessments. On appeal, the CA held that petitioner’s health care agreement was in the nature of a non-life insurance contract subject to DST.

ISSUE:

Is a health care agreement is subject to DST?

HELD:

The DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments. It is an excise upon the privilege, opportunity, or facility offered at exchanges for the transaction of the business. In particular, the DST under Section 185 of the 1997 Tax Code is imposed on the privilege of making or renewing any policy of insurance (except life, marine, inland and fire insurance), bond or obligation in the nature of indemnity for loss, damage, or liability.

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.

Contrary to petitioner’s claim, its health care agreement is not a contract for the provision of medical services. Petitioner does not actually provide medical or hospital services but merely arranges for the same and pays for them up to the stipulated maximum amount of coverage. It is also incorrect to say that the health care agreement is not based on loss or damage because, under the said agreement, petitioner assumes the liability and indemnifies its member for hospital, medical and related expenses (such as professional fees of physicians). The term “loss or damage” is broad enough to cover the monetary expense or liability a member will incur in case of illness or injury. Furthermore, the fact that petitioner must relieve its member from liability by paying for expenses arising from the stipulated contingencies belies its claim that its services are prepaid. The expenses to be incurred by each member cannot be predicted beforehand, if they can be predicted at all. Petitioner assumes the risk of paying for the costs of the services even if they are significantly and substantially more than what the member has “prepaid.” 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. This is insurance.

Moreover, 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.

The Supreme Court affirmed the CA decision.

 

Philippine Health Care Providers, Inc. vs. Commissioner of Internal Revenue

G.R. No. 167330, September 18, 2009

FACTS:

For resolution are a motion for reconsideration and supplemental motion for reconsideration dated July 10, 2008 and July 14, 2008, respectively, filed by petitioner Philippine Health Care Providers, Inc. On January 27, 2000, respondent Commissioner of Internal Revenue (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 documentary stamp tax (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.

In a decision dated June 12, 2008, the Court affirmed the CA’s decision. It held that petitioner’s health care agreement during the pertinent period was in the nature of non-life insurance which is a contract of indemnity. Moreover, the Supreme Court held that 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. Unable to accept the verdict, petitioner filed the present motion for reconsideration and supplemental motion for reconsideration.

ISSUE:

Was it the Legislative’s intent to exclude health care agreements from items subject to DST especially in the light of the amendments made in the DST law in 2002?

HELD:

From the language of Section 185, it is evident that two requisites must concur before the DST can apply, namely: (1) the document must be a policy of insurance or an obligation in the nature of indemnity and (2) the maker should be transacting the business of accident, fidelity, employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic sprinkler, or other branch of insurance (except life, marine, inland, and fire insurance).

Petitioner is admittedly an HMO. Under RA 7875 (or The National Health Insurance Act of 1995), an HMO is “an entity that provides, offers or arranges for coverage of designated health services needed by plan members for a fixed prepaid premium.” Thus petitioner, as an HMO, is not engaged in the business of insurance during the pertinent taxable years. 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.

Furthermore, militating in convincing fashion against the imposition of DST on petitioner’s health care agreements under Section 185 of the NIRC of 1997 is the provision’s legislative history. When the law imposing the DST was first passed, HMOs were yet unknown in the Philippines. However, when the various amendments to the DST law were enacted, they were already in existence in the Philippines and the term had in fact already been defined by RA 7875. If it had been the intent of the legislature to impose DST on health care agreements, it could have done so in clear and categorical terms. It had many opportunities to do so. But it did not. The fact that the NIRC contained no specific provision on the DST liability of health care agreements of HMOs at a time they were already known as such, belies any legislative intent to impose it on them. As a matter of fact, petitioner was assessed its DST liability only on January 27, 2000, after more than a decade in the business as an HMO.