Parsaie v. United Olympic Life Insurance

United States Court of Appeals,
Fifth Circuit.

No. 93-2337.

Parvin PARSAIE, Plaintiff-Appellant,

Jaime Parsaie, Plaintiff,

v.

UNITED OLYMPIC LIFE INSURANCE COMPANY, Defendant-Appellee.

Aug. 19, 1994.

Appeal from the United States District Court for the Southern
District of Texas.

Before REAVLEY and DAVIS, Circuit Judges, and ROSENTHAL,1 District
Judge.

W. EUGENE DAVIS, Circuit Judge:

This action stems from the defendant insurer's denial of

health insurance benefits to the plaintiff. The district court

granted summary judgment in favor of the defendant based in part on

its affirmative defense of misrepresentation. Because a genuine

issue of material fact exists regarding whether plaintiff possessed

the requisite intent to deceive, we vacate the district court's

judgment and remand for further proceedings.

I.

In May 1990, plaintiff, Parvin Parsaie, obtained a health

insurance policy from defendant, United Olympic Life Insurance

Company ("United Olympic"). Her application falsely indicated that

she had not been diagnosed or treated for disease of or injury to

1
District Judge of the Southern District of Texas, sitting
by designation.

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her reproductive system within the last five years and that she was

not taking any medication for a medical condition. Mrs. Parsaie

maintains that she understood very little English and "could not

and did not read the application," but rather signed the

application at the insistence of the soliciting agent.

Mrs. Parsaie was hospitalized in July 1990, and incurred

medical and hospital costs totalling $125,258.01. She then filed

a claim with United Olympic for that amount. United Olympic

investigated the claim and determined that Mrs. Parsaie had

misrepresented her medical condition in her application. As a

result, the company denied her claim, rescinded the policy, and

refunded her premiums.

Based on the denial of her claim and the rescission of the

policy, Mrs. Parsaie filed suit alleging that United Olympic

improperly rescinded the insurance policy and breached its common

law duty of good faith and fair dealing. She also alleged

violations of the DTPA and the Texas Insurance Code, as well as

negligence claims. The district court granted summary judgment in

favor of United Olympic based in part on its affirmative defense of

misrepresentation, and Mrs. Parsaie now appeals.

II.

A.

We review a grant of summary judgment de novo, applying the

same standards as the district court. See Jackson v. Federal

Deposit Ins. Corp., 981 F.2d 730, 732 (5th Cir.1992). In ruling on

United Olympic's affirmative defense of misrepresentation, the

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district court correctly held that, under Texas law, an insurer may

rescind a policy based on the insured's misrepresentations only if

the insurer can prove the insured's intent to deceive. The Texas

Supreme Court has recently reaffirmed this rule. See Union Bankers

Ins. Co. v. Shelton, --- S.W.2d ----, 1994 WL 278131 (Tex.1994).

The district court determined in this case that United Olympic's

summary judgment evidence failed to establish that Mrs. Parsaie

intentionally misrepresented her medical history. United Olympic,

however, argued that the language of its insurance policy allowed

it to avoid coverage for unintentional misrepresentations. The

district court agreed and granted summary judgment on that basis.

On appeal, United Olympic concedes that the district court

erred in granting it summary judgment on the breach of contract

claim without requiring it to demonstrate Mrs. Parsaie's intent to

deceive. As a result, United Olympic has abandoned its argument

that it could rescind Mrs. Parsaie's policy without showing her

intent to deceive. Rather the company argues that the summary

judgment evidence established Mrs. Parsaie's intent to deceive, and

that therefore we should affirm the district court's judgment.

Although United Olympic has established that Mrs. Parsaie made

material misrepresentations, Mrs. Parsaie's affidavit creates a

question of fact as to whether those misrepresentations were

intentional. Mrs. Parsaie stated:

When I signed the Application/Enrollment form I did not intend
to misrepresent any facts to United Olympic Insurance Co. nor
did I intend to deceive or mislead the insurance company.

I relied on Jamie Parsaie and Larry Siller to fill out and
complete the Application/Enrollment form for insurance and at

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 the time I signed my name, I had no knowledge that any
statement or response to questions on the application were
untrue, inaccurate or misleading.

Moreover, Shelton does not support United Olympic's argument that

a misrepresentation need not be intentional so long as it induces

the insurer to issue the policy. The material misrepresentation in

Shelton apparently induced the insurer to issue the policy, yet the

Texas Supreme Court remanded the case for resolution of a genuine

issue of material fact regarding the insured's intent to deceive.

Because a genuine issue of material fact is presented

regarding whether Mrs. Parsaie intended to deceive United Olympic,

we must vacate the district court's grant of summary judgment and

remand Mrs. Parsaie's breach of contract claim for further

proceedings.

B.

Mrs. Parsaie argues next that United Olympic breached its

common law duty of good faith and fair dealing. Under the common

law of Texas, an insurer breaches its duty of good faith and fair

dealing if it has no reasonable basis for denying a claim or

delaying a payment, or if it fails to determine whether there is a

reasonable basis for a denial or delay. See Plattenburg v.

Allstate Ins. Co., 918 F.2d 562, 563 (5th Cir.1990). The Texas

Supreme Court has held that an insurer is required "to investigate

claims thoroughly and in good faith, and to deny those claims only

after an investigation reveals that there is a reasonable basis to

do so." Viles v. Security Nat'l Ins. Co., 788 S.W.2d 566, 568

(Tex.1990).

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 Mrs. Parsaie argues that United Olympic did not have a

reasonable basis for denying her claims because it did not

investigate whether she intentionally misrepresented her medical

history. The district court, however, found that the comparison of

Mrs. Parsaie's application with her medical records gave United

Olympic a reasonable basis for believing that Mrs. Parsaie had

committed fraud.

Recently, in Union Bankers Insurance Co. v. Shelton, ---

S.W.2d ----, 1994 WL 278131 (Tex.), the Texas Supreme Court held

that "a cause of action for breach of the duty of good faith and

fair dealing exists when the insurer wrongfully cancels an

insurance policy without a reasonable basis." Id. at ----, 1994 WL

278131, at *6. In Shelton, as in this case, the insurance company

cancelled the insured's policy because of an undisclosed

pre-existing condition. The court found that the plaintiff had

presented evidence of the insurer's bad faith because "Union

Bankers failed to discuss the application, condition, or claim with

Mr. Shelton before making its final determination." Id. In light

of this decision, we vacate the district court's judgment on Mrs.

Parsaie's claim for breach of the duty of good faith and fair

dealing and remand for reconsideration.

C.

Finally, Mrs. Parsaie alleged DTPA and negligence claims.

The district court, relying on our decision in Royal Aviation, Inc.

v. Aetna Casualty & Surety Co., 770 F.2d 1298 (5th Cir.1985), held

that Mrs. Parsaie could not recover on these claims because the

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actions of the soliciting agent about which she complained could

not be imputed to the insurer. The district court noted that the

Texas Supreme Court had not addressed whether a distinction should

be made between soliciting and recording agents, and that the lower

courts in Texas were divided on the issue. The Texas Supreme

Court, however, has now addressed the issue. In Celtic Life

Insurance Co. v. Coats, --- S.W.2d ----, 1994 WL 278107 (Tex.1994),

the court stated that no distinction should be drawn between

recording agents and soliciting agents, and that the actions of

either may be imputed to the insurer. Id. at ----, 1994 WL 278107,

at *2. Consequently, we vacate the district court's judgment with

regard to Mrs. Parsaie's DTPA and negligence claims and remand for

further consideration in light of Coats.

III.

For the foregoing reasons, we vacate the district court's

judgment and remand for further consideration consistent with this

opinion.

VACATED and REMANDED.

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