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Collateral source rule does not
apply to contracts of indemnity
Category: Opinion 13 Jan 2015
Written by Dennis B. Funa
THE collateral source rule provides that “if
an injured person receives compensation for
his injuries from a source wholly
independent of the tortfeasor, the payment
should not be deducted from the damages
which he would otherwise collect from the
tortfeasor” (Black’s Law Dictionary, sixth
edition).
A legal concept found in tort law, the Illinois Supreme Court has described the
collateral source rule as “an established exception to the general rule that
damages in negligence actions must be compensatory” (Wills v. Foster Jr.,
229 Ill. 2d 393, 2008). The Rule does not allow the wrongdoer or the tortfeasor
to benefit “from the expenditures made by the injured party or take advantage
of contracts or other relations that may exist between the injured party and
third persons” (Wills v. Foster). Thus, “the tortfeasor is required to bear the
cost for the full value of his or her negligent conduct even if it results in a
windfall for the innocent plaintiff” (Mitchell v. Haldar, 883 A.2d 32, 37-38 [Del.
2005]).
In Mitsubishi Motors Philippines Salaried Employees Union v. Mitsubishi
Motors Philippines Corp. (MMPC) (G.R. 175773, June 17, 2013), the dispute
was on whether an insured may recover from an insurance clause in a
Collective Bargaining Agreement (CBA) the full amount of hospital bills that
was already paid by a Health Maintenance Organization (HMO) or by an
insurance company offering health insurance. The collateral source rule was
invoked to justify a second recovery from the insurance clause of the CBA.
The Supreme Court ruled that the collateral source rule intended “to place the
responsibility for losses on the party causing them” (Erillo, Joseph M., The
Collateral Source Rules in Contract Cases, 46 San Diego L. Rev. 705, 2009).
Thus, the Rule has “no application to cases involving no-fault insurances
under which the insured is indemnified for losses by insurance companies,
regardless of who was at fault in the incident generating the losses” (Black’s
Law Dictionary). Accordingly, the company obligated to provide health
insurance under the CBA “cannot be obliged to pay the hospitalization
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expenses of the dependents of its employees which had already been paid by
separate health insurance providers of said dependents.”
It was also noted that “the conditions set forth in the CBA provision indicate an
intention to limit MMPC’s liability only to actual expenses incurred by the
employees’ dependents, that is, excluding the amounts paid by dependents’
other health insurance providers.”
The Supreme Court furthermore added that the payment of amount already
paid under other insurance policies would constitute double recovery which is
not allowed under the law. Thus the Court explained: “Being in the nature of a
nonlife insurance contract and essentially a contract of indemnity, the CBA
provision obligates MMPC to indemnify the covered employees’ medical
expenses incurred by their dependents but only up to the extent of the
expenses actually incurred. This is consistent with the principle of indemnity
which proscribes the insured from recovering greater than the loss. Indeed, to
profit from a loss will lead to unjust enrichment and therefore should not be
countenanced.”
In Philamcare Health Systems Inc. v. Court of Appeals (G.R. 125678, March
18, 2002), the Supreme Court stated that a “health-care agreement was in the
nature of nonlife 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.” (citing Cha v.
Court of Appeals, 270 SCRA 690; see Blue Cross Healthcare Inc. v. Olivares,
G.R. 169737, February 12, 2008).
However, seven years later, in Philippine Health Care Providers Inc. v.
Commissioner of Internal Revenue (G. R. 167330, September 18, 2009,
Resolution of a Motion for Reconsideration), the Court would categorically rule
that HMOs are not engaged in the insurance business.
Against this backdrop, a clarification needs to be made on the nature of HMOs
vis-à-vis the insurance business.
****
Dennis B. Funa is the Insurance Commission’s deputy commissioner for legal
services. Send comments to dennisfuna@yahoo.com.
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