Columbia Universal Life Ins. Co. v. Miles

• Citation: 923 S.W.2d 803
• Decision Date: 16 May 1996
• Docket Number: No. 08-94-00060-CV,08-94-00060-CV
• Parties: COLUMBIA UNIVERSAL LIFE INSURANCE CO., Appellant, v. Carl David MILES, Appellee.
• Court: Court of Appeals of Texas

Page 803

923 S.W.2d 803

COLUMBIA UNIVERSAL LIFE INSURANCE CO., Appellant, v. Carl David MILES, Appellee.

No. 08-94-00060-CV.

Court of Appeals of Texas,

El Paso.

May 16, 1996.

Rehearing Overruled June 20, 1996.

Robert E. Motsenbocker, Shafer, Davis, McCollum, Ashley, O'Leary & Stoker, Inc., Odessa, for Appellant.

Robert E. White, Childs, Bishop & White Law Offices, Odessa, for Appellee.

Before MCCLURE, CHEW and WOODARD, (sitting by assignment), JJ.

OPINION

McCLURE, Justice.

This appeal challenges the sufficiency of the evidence to support a jury finding that Appellant, Columbia Universal Life Ins. Co. ("Columbia"), canceled in bad faith the comprehensive health insurance policy issued to Appellee, Carl David Miles ("Miles"). We reverse and render judgment that Miles take nothing.

SUMMARY OF THE EVIDENCE

On November 23, 1987, Miles and his mother, Wanda Miles, met with Karen Poynor ("Poynor") to discuss a change in the health insurance coverage for Miles and his family. The Mileses claim that they wished to change coverage because they were dissatisfied with the handling of certain claims by their existing carrier. After considering several companies, the Mileses settled on Columbia. Poynor filled out the application by asking the Mileses the questions listed on the application form and by filling in the answers given by them. Considerable dispute exists as to what transpired during this process. Both Miles and his mother testified that the application process took over two hours, and that the health histories of Miles, his wife, Toni, and their daughter, Kira, were copiously related to Poynor. Specifically, they asserted that certain conditions from which Miles suffered were extensively explained to Poynor, and that they suggested that Poynor have Columbia contact Dr. John Bray for a more extensive explanation of the conditions. However, these conditions were not listed in the application as relevant medical history, and Columbia was not made aware of them by either Poynor or Miles. Miles stated that he signed the application without reading it, while Poynor testified that she listed the medical histories precisely as they were related to her. She denied ever being made aware that Miles suffered from any chronic condition.

Nine days after the application was completed, Columbia called Miles to conduct a personal history interview and to confirm the information in the application. During this interview, Columbia discovered that Kira had been treated for an ear infection. Beyond this fact, Miles represented to Columbia that the medical information in the application was complete and accurate. He did not mention at this time anything about his chronic conditions. The policy was issued on December 1, 1987. On January 22, 1988, Poynor delivered an amendment containing a rider excluding conditions related to Kira's ears. This amendment also required the insured to warrant that "since the date of the application no person to be insured under this policy has ... received treatment from or consulted any physician for any health condition not revealed in the application...." Miles claimed that he also signed this form without reading it. He did not inform Columbia that he had visited Dr. Bray for a sinus condition two days after the application was signed. Because he was under the impression that Columbia had contacted Dr. Bray and obtained his medical records, he did not feel obligated to discuss this condition over the telephone.

It is undisputed that Columbia did not know about Miles' entire medical history as required by the application, and that it issued a comprehensive health policy covering Miles and his family based solely on the information contained in the application and elicited through the personal history interview. Throughout his life, Miles has amassed an extensive medical history. At two years of age, he contracted what appeared to be polio after receiving the polio vaccine. As a result, blood tests were performed and it was discovered that he suffered from IGA immune deficiency ("IGA"). In 1967 or 1968, he was diagnosed with agammaglobulinemia. These conditions prevented his immune system from creating specific antibodies to ward off infections, and he suffered from chronic sinusitis. The conditions also made Miles susceptible to many different illnesses, and he received treatment for these conditions throughout his life. Because of the rarity of his affliction, he was studied at Duke and at Baylor Universities. His mother was a member of a national organization that provided support for and raised awareness of immune deficiency problems.

Miles began seeing Dr. Bray for his immune deficiency problems in 1983 and treatment continued through the time that the dispute between Columbia and Miles arose. In 1986, Dr. Bray recommended that Miles receive a gamma globulin treatment, but Miles refused because of cost. ¹ In 1987, Miles' daughter received a live polio vaccine, and Dr. Bray insisted that Miles take the gamma globulin treatment in light of possible exposure to polio. He received the treatment as an outpatient at Women's and Children's Hospital in Odessa. This treatment was not reflected in the application. Indeed, the only mention in the application of a possible problem linked to the immune deficiency condition was in answer to a question inquiring about disorders of the nose or throat. While Miles responded that he received medication from Dr. Bray for a sinus infection, he did not relate the sinus infection to the chronic immune deficiency condition.

In May 1989, Miles was treated by Dr. Rex Reynolds for a hemogenic bladder related to his immune deficiency condition. He filed a claim with Columbia for the expense. Columbia requested a claimant statement from Miles; however, he delayed forwarding this statement to Columbia until it had made a third request. The bulk of the delay in processing the claim resulted from the tardiness of the statement from Miles. After the statement was received, Columbia requested Dr. Bray's medical records relating to Miles because Dr. Bray was listed as the referring physician. Upon receiving these records, Columbia learned for the first time that Miles suffered from IGA and agammaglobulinemia.

The claims department forwarded Miles' claims file to the underwriting department to reunderwrite the policy. Columbia's underwriting manual specified that applicants with agammaglobulinemia were not insurable. Columbia consulted with its medical and legal experts concerning Miles' conditions and the omissions of any mention of those conditions in the application, the telephone interview, and the amendment to the policy. Based on the opinions of these experts and based on Miles' conditions, the lack of any mention of them, and the fact that Miles had been denied coverage for it by another insurance company, Columbia concluded that Miles had intentionally concealed his conditions to induce Columbia to provide coverage. On this basis, Columbia decided to rescind the policy and refund all premiums Miles had paid to date. However, Columbia reached this conclusion without ever contacting Miles or Poynor to discuss the situation and confirm its conclusion.

Columbia's attorney wrote to Miles informing him of Columbia's intention to rescind the policy, and offering Miles an opportunity to agree to the rescission and an immediate refund of his premiums in exchange for a release of all claims Miles might have had against Columbia. Miles refused the offer. Columbia then filed a declaratory judgment action in Harris County to determine its rights under the policy and to effectuate a rescission. Specifically, it sought a judicial determination of Miles' intent to deceive Columbia concerning his immune deficiency problem. Miles filed a breach of contract and bad faith action in Ector County. These actions were consolidated in Ector County, and the breach of contract claim was abandoned.

Columbia appeals an adverse judgment in six points of error. The first point of error challenges the legal sufficiency of the evidence to show Columbia acted in bad faith. The next four challenge elements of the damage award. The final point of error asserts that the trial court erred in allowing evidence of Columbia's net worth to be presented to the jury.

BAD FAITH CLAIMS AND LEGAL SUFFICIENCY: WHAT COUNTS AS

EVIDENCE THESE DAYS?

The Texas Supreme Court first extended the cause of action for breach of the duty of good faith and fair dealing to insurance companies in 1987. In Arnold v. National County Mutual Fire Insurance Co., 725 S.W.2d 165 (Tex.1987), the Supreme Court stated that a cause of action for breach of the duty of good faith and fair dealing exists when "it is alleged that there is no reasonable basis for denial of a claim or delay in payment or a failure on the part of the insurer to determine whether there is any reasonable basis for the denial or delay." [Emphasis added]. Id. at 167. ² This cause of action contained two elements, stated in the alternative. The first element looked to the basis upon which the insurer acted and asked whether a reasonable insurer would have acted upon that basis in a similar manner. Arnold, 725 S.W.2d at 167. This inquiry did not depend on the ultimate legitimacy of the basis, but it instead looked to the reasonableness of any reliance on it. See, e.g., Aetna Casualty & Sur. Co. v. Garza, 906 S.W.2d 543, 549-50 (Tex.App.--San Antonio 1995, no writ) (stating that "the tort of bad faith is not to be confused with negligence, the duty owed by an insurer to its insured is stated in familiar negligence terms: the insurer owes that degree of care and diligence in handling the insured's claim which a person of ordinary care and prudence would exercise in the management of his own business"). Much of the confusion surrounding this element stems from the fact that bad faith is largely a state of mind. However, the "no reasonable basis" standard...