Universe Life Ins. Co. v. Giles
| Citation | 881 S.W.2d 44 |
| Decision Date | 16 August 1994 |
| Docket Number | No. 06-93-00110-CV,06-93-00110-CV |
| Parties | The UNIVERSE LIFE INSURANCE COMPANY, AIA Service Corporation, and AIA Insurance, Inc., Appellants, v. Ida M. GILES, Appellee. |
| Court | Court of Appeals of Texas |
Robert H. Renneker, Dallas, for appellants.
Jesse L. Nickerson, III, Paris, John R. Mercy, Atchley, Russell, Waldrop, Hlavinka, Texarkana, for appellee.
Before CORNELIUS, C.J., and BLEIL and GRANT, JJ.
The Universe Life Insurance Company, AIA Service Corporation, and AIA Insurance, Inc. appeal from a judgment awarding damages to Ida Giles, who was a health insurance policyholder. Appellants, hereafter referred to as the company, contend that the trial court erred by entering judgment because the evidence was factually and legally insufficient to support the jury's finding that it had breached its duty of good faith and fair dealing and acted with malice, gross negligence, or conscious indifference, or to support the finding that Giles was entitled to $75,000.00 for mental anguish. The company further argues that certain jury instructions were improperly made, that all claims were preempted by ERISA, that exemplary damages of $500,000.00 are excessive as a matter of law, that notice was not adequately provided, and that the evidence shows that Giles had accepted a settlement offer by the company. We resolve most issues in favor of Giles, but modify the judgment because the exemplary damages are excessive as a matter of law. As modified, we affirm.
This case involves the purchase of health insurance by Ida Giles from the company, her hospitalization for cardiac problems and a bypass operation several months later, and the company's refusal to pay because her heart problems were a preexisting condition. The following is a timetable of relevant activities:
June 1, 1991 Effective date of policy issued by AIA
August 20, 1991 Giles undergoes double bypass surgery
November 3, 1991 Claim for benefits covering surgery and hospitalization in an amount of about $38,000.00 (total medical expenses eventually totaled about $50,000.00) denied due to a preexisting condition
November 27, 1991 Giles' primary physician informs the company that his records, by mistake, indicated a two- or three-year history of recurrent chest pain and hypertension; in actuality she had a two- or three-week history of chest pain and no hypertension 1
December 5, 1991 Claim reopened and review
December 12, 1991 Reply to physician setting forth basis for denial of claim based upon records of B.C. Muthappa, M.D., and Blackmon's Pharmacy
December 18, 1991 Muthappa reports to company that he had treated Giles since September 1990 and that before the problems leading to surgery he had never treated her for a heart problem or hypertension 2
December 26, 1992 After review of Muthappa's letter and the claim, company still denied the claim Ultimately the company denied Giles' claim for two stated reasons. First, she was on a drug called Mevacor, a drug used to decrease cholesterol levels in the blood. The company equated the prescription for this drug with treatment for heart disease, notwithstanding the prescribing physician's affirmation that the medication was not for heart disease. Second, the medical records of C. Fagg Sanford, M.D., reflected that Giles had experienced recurrent chest pain and hypertension for two to three years. However, when Sanford became aware that this misstatement was being used by the company to deny Giles' claim, he informed the company that the onset of her chest pain was two or three weeks.
After multiple efforts to change the company's mind, Giles retained an attorney, who sent a demand letter to the company on June 25, 1992. The company sent a letter to Giles in late July stating that they would reverse their decision. Partial payment was made to the providers on July 28, 1992. Suit was filed on November 13, 1992.
The company contends that the trial court erred in holding that it breached its duty of good faith and fair dealing and in awarding punitive damages because the evidence is factually and legally insufficient to support a finding that it had breached the duty of good faith and fair dealing or that it had acted with malice, gross negligence, or conscious indifference to Giles' rights.
In reviewing a no evidence point, we consider only the evidence and inferences that tend to support the finding and disregard all evidence and inferences to the contrary. Havner v. E-Z Mart Stores, Inc., 825 S.W.2d 456, 458 (Tex.1992). If there is any evidence of probative force to support the finding, we overrule the point and uphold the finding. In re King's Estate, 150 Tex. 662, 244 S.W.2d 660 (1951). In reviewing a factual insufficiency point, we consider and weigh all of the evidence and set aside the finding only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex.1986).
We may vacate a damage award or suggest a remittitur only if the award is so factually insufficient or so against the great weight and preponderance of the evidence as to be manifestly unjust. Pope v. Moore, 711 S.W.2d 622, 624 (Tex.1986); see Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex.1986); In re King's Estate, 150 Tex. 662, 244 S.W.2d 660. We must carefully scrutinize punitive damages awards to ensure that they are supported by the evidence. When reviewing a challenge to the sufficiency of the evidence to support a punitive damages award, we should detail the evidence in an opinion and explain why the jury's finding is factually insufficient or is so against the great weight and preponderance of the evidence as to be manifestly unjust; a similar type of review is appropriate when we affirm such an award over a challenge that it is based on insufficient evidence or is against the great weight and preponderance of the evidence. Transportation Ins. Co. v. Moriel, 879 S.W.2d 10, 19-20 (Tex.1994). When conducting a factual sufficiency review of a punitive damages award, we must detail the relevant evidence in our opinion, explaining why that evidence either supports or does not support the punitive damages award in light of certain factors. Id. Those factors include: (1) the nature of the wrong, (2) the character of the conduct involved, (3) the degree of culpability of the wrongdoer, (4) the situation and sensibilities of the parties concerned, and (5) the extent to which such conduct offends a public sense of justice and propriety. Alamo Nat'l Bank v. Kraus, 616 S.W.2d 908, 910 (Tex.1981).
The trial court asked the jury whether the company failed to comply with its duty of good faith and fair dealing to Giles. The jury found that it did. The issue in a bad faith claim focuses not on whether the claim was valid but on the reasonableness of the insurer's conduct in rejecting the claim. A mere disagreement among experts about whether the cause of the loss is one covered by the policy will not support a judgment for bad faith. To recover, an insured claiming bad faith must prove that the insurer had no reasonable basis for denying or delaying payment of the claim and that it knew or should have known that fact. Aranda v. Insurance Co. of North Am., 748 S.W.2d 210, 213 (Tex.1988); Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex.1987).
The jury found a failure to comply with the duty of good faith and fair dealing. The trial court instructed the jury that a party fails to comply with its duty of good faith and fair dealing when, without a reasonable basis, it denies a claim or delays payment of a claim. The court further instructed the jury that the company had a duty to conduct a reasonable investigation, that it might be liable for damages for an unreasonable delay in payment, and that its reasonableness must be measured at the time it was confronted with the factual situation.
There is testimony that Giles was denied coverage because the company believed the claim was based upon a preexisting condition. Giles has effectively admitted that the company did not act in bad faith until one of her treating physicians corrected records showing that she had been treated for heart disease and extreme chest pains for a period of two to three years before the bypass surgery to read two to three weeks before the surgery. The company told Sanford on several occasions that his letter was a reason for denial of coverage, but then wrote him a letter after he corrected his statement saying that it was not the basis for the denial of Giles' claim. Nevertheless, the company thereafter continued to deny the claim based upon Sanford's records and even sued Sanford, claiming that he was the cause of the claim being denied. 3
The company also claimed that Giles' regular physician, B.C. Muthappa, M.D., had been treating her for a heart problem. This claim was categorically denied by Muthappa on December 18, 1991. Muthappa had prescribed the use of Mevacor to reduce Giles' cholesterol level. Even though Muthappa said Giles had not previously been treated for a heart condition, the company argued that the medication he prescribed is equivalent to treating heart disease. Under this analysis, any time a person undertook measures designed to prevent the possible onset of a disease or injury, that person might be said to have been treated for the eventual illness or injury. In addition, the testimony also shows that for a substantial amount of time the company refused to tell Giles why it denied her claim. 4 The jury had the right to conclude that the company's actions were not reasonable.
There is also no proof of any further investigation by the company beyond its original request for medical records, despite inconsistencies in the records provided. The company reached a...
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