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result, the company denied her claim, rescinded the policy, and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improperly rescinded the insurance policy and breached its common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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