Provident American Ins. Co. v. Castaneda

• Decision Date: 29 April 1999
• Docket Number: No. 96-0249,96-0249
• Citation: 1999 WL 2507,988 S.W.2d 189
• Parties: 42 Tex. Sup. Ct. J. 215, 610 Tex. Sup. Ct. J. 610 PROVIDENT AMERICAN INSURANCE COMPANY, Petitioner, v. Denise CASTANEDA, Respondent.
• Court: Texas Supreme Court

Page 189

988 S.W.2d 189

42 Tex. Sup. Ct. J. 215, 610 Tex. Sup. Ct. J. 610

PROVIDENT AMERICAN INSURANCE COMPANY, Petitioner, v. Denise CASTANEDA, Respondent.

No. 96-0249.

Supreme Court of Texas.

Argued on Jan. 8, 1998.

Decided Dec. 31, 1998.

Rehearing Overruled April 29, 1999.

Scott P. Stolley, Dallas, Julie Caruthers Parsley, Austin, Colbert N. Coldwell, El Paso, for Petitioner.

Timothy Patton, San Antonio, Ben Langford, El Paso, for Respondent.

Justice OWEN delivered the opinion of the Court, in which Chief Justice PHILLIPS, Justice HECHT, Justice BAKER, and Justice ABBOTT joined, and in which Justice ENOCH joined in all but part V.

Denise Castaneda seeks damages from Provident American Insurance Company for alleged violations of the Insurance Code and the Deceptive Trade Practices Act arising out of the denial of her claim for benefits under a health insurance policy and the manner in which her claim was handled. Because the evidence is legally insufficient to support the jury's verdict, we reverse and render judgment that Castaneda take nothing.

I

Denise Castaneda's father, Guillermo Castaneda, Sr., applied for medical insurance with Provident American Insurance Company in May 1991. He sought a policy that would cover the entire family including his daughter Denise, who was twenty-one years old at the time, her sister, and their brother Guillermo, Jr. During the application process, Guillermo Castaneda, Sr. failed to disclose that just two days before he applied for the policy, Guillermo, Jr. had received medical attention from a physician for jaundice, anemia, and suspected hepatitis. Denise had received medical treatment for jaundice and hepatitis several years prior to the date her father applied for health insurance.

Provident American issued a policy to the family effective June 17, 1991. The policy contained two limitations that are relevant here: (1) it did not cover expenses resulting from a sickness that "manifests" within thirty days of the policy's effective date; and (2) it excluded diseases or disorders of certain internal organs, including the gallbladder, unless the loss occurred more than six months after the policy's effective date.

Less than thirty days after the issuance of the policy, the family learned that Denise's uncle had been diagnosed with hemolytic spherocytosis (HS), a hereditary condition that causes misshapen blood cells. The spleen destroys these cells, which causes the sufferer to exhibit anemia, jaundice, and, in 90% of the cases, gallstones. The treatment for this condition is to remove the spleen and, if gallstones are present, the gallbladder. Because the disease is hereditary, it was suggested that the Castanedas be tested for HS. Denise and Guillermo, Jr. had exhibited yellow skin all of their lives, and on July 20, 1991, the third day after the thirty-day period expired, they were taken to a physician who diagnosed them that same day with HS and referred them to a blood specialist. They saw the hematologist two days later, and he concurred in the HS diagnosis. Two weeks later, Denise and Guillermo, Jr. each had their spleen and gallbladder surgically removed.

The Castanedas submitted claims to Provident American, which were denied. Provident American first asserted the six-month policy exclusion for disorders of the gallbladder but later denied the claims on the basis that HS had manifested within thirty days of the policy's effective date.

Denise Castaneda sued Provident American, alleging violations of the DTPA and of article 21.21 of the Texas Insurance Code, and Guillermo Castaneda, Sr. sued on behalf of Guillermo, Jr. The two suits were consolidated, but Guillermo Castaneda, Sr. later nonsuited his claims. Denise Castaneda proceeded to trial, and the district court submitted three liability questions based on article 21.21 of the Insurance Code and on the DTPA. ¹ The jury answered "yes" to each and found that Provident American had engaged in knowing conduct. The jury awarded $50,000 for Denise Castaneda's loss of credit reputation and loss of benefits, collectively, but found no mental anguish damages. The jury also awarded reasonable attorney's fees of 33% of Castaneda's recovery. The trial court rendered judgment on the verdict, trebling the damages and adding a twelve percent penalty on the lost benefits.

The court of appeals affirmed, except as to the twelve percent penalty. ² Regarding other points of error, the court of appeals concluded that the trial court had erroneously submitted at least one subpart of the first liability question (subpart A) ³ but held that this error was harmless because two other subparts (J and H) were properly submitted and supported by legally and factually sufficient evidence. ⁴ The court of appeals also held that the evidence was sufficient to support the award of $50,000 for loss of credit reputation and loss of benefits. ⁵ Provident American filed an application for writ of error with this Court, which we granted. Because there is no evidence to support a finding of liability based on any of the theories submitted to the jury, we do not reach the question of whether a trial court's judgment may be affirmed if a liability question includes a theory that is not legally cognizable but other viable theories are included within the same question. Likewise, we do not reach Provident American's complaint that attorney's fees were improperly based on a percentage of the recovery, an issue that we addressed in Arthur Andersen & Co. v. Perry Equipment Corp. ⁶ after the court of appeals' decision became final in this case.

II

We begin our review with the first question submitted to the jury. ⁷ The numerous subparts of Question 1 can be distilled into three categories: (1) whether Provident American denied the claim without a reasonable basis or after its liability had become reasonably clear, (2) whether there was a misrepresentation about the policy, and (3) whether Provident American engaged in unfair claims settlement practices. We first consider whether there was any evidence to support a finding that Provident American denied Castaneda's claim without a reasonable basis or after its liability had become reasonably clear.

III

The trial court submitted two instructions to the jury regarding Provident American's denial of the claim. Subpart J of Question 1 was based on article 21.21-2, section 2(b)(4) ⁸ and defined an unfair or deceptive act or practice as including: "[n]ot attempting in good faith to effectuate a prompt, fair, and equitable settlement of a claim when liability has become reasonably clear." ⁹ Subpart G of Question 1 was a hybrid theory that defined an unfair or deceptive act or practice as including: "[d]enying a claim or delaying payment on a claim without a reasonable basis or failing to determine whether there is any reasonable basis for the denial or delay." ¹⁰ This instruction embodied the pre-Giles ¹¹ common-law definition of bad faith, but the jury issue included producing cause, ¹² which is the causation element for an article 21.21 claim. ¹³ However, the parties agree that only statutory claims were tried and that no common-law bad faith claim was submitted. Provident American did not urge the trial court to exclude subpart G from the definitions of an "[u]nfair or deceptive act or practice" ¹⁴ and contends only that there is no evidence to support a jury finding based on this definition. Our no-evidence review of subpart G is governed by our pre-Giles decisions because this instruction was couched in the same terms as the pre-Giles definition of common-law bad faith. Thus, our decisions in Lyons v. Millers Casualty Insurance Co. ¹⁵ and National Union Fire Insurance Co. v. Dominguez ¹⁶ guide us in reviewing the record to see if there is any evidence that would support a jury finding based on subpart G.

To determine whether there is any evidence to support a jury finding under Subpart G or J, we must first identify the potential bases Provident American had for denying Castaneda's claim. ¹⁷ Then we must determine whether there is any evidence that no reasonable insurer could have denied payment of her claim and whether there is any evidence that liability had become reasonably clear. ¹⁸

A

At varying times, Provident American gave varying reasons for denying Denise Castaneda's claim, but all were grounded in a common nucleus of facts. Provident American cited a policy provision that excluded coverage for a sickness or disorder involving the gallbladder unless the loss occurred more than six months after the date the policy went into effect. ¹⁹ Provident American also relied on policy provisions that limited coverage to an illness or disease that first manifested more than thirty days after the policy went into effect. ²⁰ At least one Provident American employee thought that the claim also could have been denied based on the pre-existing condition provision of the policy, although that clause was never invoked. We conclude that, considering all the facts in existence at the time of the denial, there is no evidence that there was no reasonable basis for Provident American's denial of Castaneda's- neda's claim (subpart G) or that liability had become reasonably clear (subpart J).

We first consider denial based on manifestation of HS prior to the end of the thirty-day period. The parties dispute when Castaneda's illness manifested. Castaneda argues that there is some evidence that her hereditary illness first manifested after the thirty-day period, and Provident American contends that it manifested before the end of the thirty-day period. However, even if Castaneda were correct, evidence of coverage, standing alone, would not constitute evidence of bad faith denial. In State Farm Lloyds v. Nicolau, ²¹ we reconfirmed what we held in Transportation Insurance Co. v. Moriel, ²² National Union Fire Insurance Co. v. Dominguez, ²³ and other cases, which is that evidence showing only a bona fide...