Most insurance lawyers can tell a new client that the fact an insurance company refuses to pay a claim it should have paid does not make the insurance company liable for a bad faith insurance claim. The 1998, Texas Supreme Court case, Provident American Inc. v. Castanden, helps explain this.
Denise Castaneda sought damages from Provident 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 was legally insufficient to support the jury’s verdict, this court reversed and rendered judgment that Castaneda take nothing.
Denise Castaneda’s father, Guillermo Castaneda, Sr., applied for medical insurance with Provident 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 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 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, which were denied. Provident 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, alleging violations of the DTPA and the Texas Insurance Code, and Guillermo Castaneda, Sr. sued on behalf of Guillermo, Jr. Denise Castaneda proceeded to trial, and the district court submitted three liability questions based on the Insurance Code and on the DTPA. The jury answered “yes” to each and found that Provident 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. The trial court rendered judgment on the verdict, trebling the damages and adding a twelve percent penalty on the lost benefits.
This court ruled that none of the evidence regarding the manner in which Provident handled the claim nor the reasons for its denial of the claim amount to evidence that Provident took “advantage of the lack of knowledge, ability, experience, or capacity” of Castaneda to a grossly unfair degree or that its conduct resulted in a “gross disparity between value received and consideration paid,” which were the definitions of unconscionability. The only additional argument Castaneda made regarding unconscionability is that her father paid the specified premium for this policy but that the policy was valueless because her claim was denied. Of course, if the policy did cover her claim, she was entitled to recover policy benefits, and the policy was not “valueless.” If the policy did not cover this claim, it was still not valueless because it covered a myriad of other illnesses Castaneda could have contracted while the policy was in effect. Likewise, there is no evidence to support the findings which inquired if Provident had made representations that goods or services had characteristics they did not have or were of a particular quality, or that an agreement conferred rights that it did not contain.
In sum, there was no support in the evidence for any of the extra-contractual claims on which Denise Castaneda obtained findings. Castaneda did not plead and did not obtain a determination from the trial court that Provident was liable for breach of the insurance contract. Accordingly, there is no basis on which Castaneda may recover based on this record.
A complete reading of this case is worthwhile to someone in this type of situation.
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