Health Insurance Attorney

Burleson insurance attorneys who handle health insurance situations need to read this 1989 opinion from the Houston Court of Appeals [14th Dist.]. It is styled Paramount National Life Insurance v. Williams.
On March 5, 1981, insurance agent Cliff Cox met with Frankie Williams and her husband Willie and took an application for a hospital insurance policy to be issued by Paramount. Mrs. Williams was sixty-four and had a long history of medical problems which the couple described to Cox. Cox told the Williamses he needed to know only about the preceding five years. He filled out the application and had them read and sign it. Paramount approved the application and issued the policy on March 20, 1981. Mrs. Williams was hospitalized in July 1981 and again in December 1981. She filed two claims totaling over $40,000 in connection with these hospitalizations. Paramount denied the claims and cancelled the policy on the grounds that Mrs. Williams had failed to disclose her full medical history on the insurance application and that the conditions for which she was being treated were preexisting conditions. The company refunded her premiums. Mrs. Williams then sued Paramount for breach of contract, breach of the duty of good faith and fair dealing, fraud and violations of both the Texas Insurance Code and the Texas Deceptive Trade Practices Act.
Paramount denies there was a breach of contract. It alleged that it rejected Mrs. Williams’ two hospital claims on the basis that the conditions for which she was being treated (primarily colon-related) did not comply with the definition of sickness under the policy as well as her failure to disclose preexisting medical conditions. Paramount claims that certain language in the documents relating to the policy puts the applicant on notice that accurate and complete information is required. On her application Mrs. Williams stated she was in good health and free from any physical or mental defects and her only prior medical problems were a kidney stone in 1952 and a cancerous uterus in 1975, both with full recovery. However, the evidence showed Mrs. Williams had experienced numerous physical and mental problems, including the removal of a kidney stone, colitis, possible diverticulitis, recurring pneumonia and schizophrenia. Paramount’s president testified that had the company been aware of Mrs. Williams’ complete medical history, the policy would not have been issued.
Although Paramount feels it had legitimate reasons to deny Mrs. Williams’ claims and, therefore, did not breach the insurance contract, the primary issue is what occurred when agent Cox took the application for the policy. Mrs. Williams does not contest Paramount’s description of her medical history. She contends she disclosed it all to Cox but that he told her he needed to know only about the preceding five years. He then filled out the application with the information he deemed pertinent, and Mrs. Williams initialed the answers and signed it.
Mrs. Williams was sixty-four when she applied for the policy. Two of her physicians testified that the Williamses were not well-educated people. Neither doctor thought the couple understood much when the doctors tried to explain her treatment. It is therefore unreasonable to expect Mrs. Williams to comprehend the limit of the authority of the agent who takes her application for a policy with a specific insurance company, particularly when that company refers to him in its documents as its agent. A statement in the Confirmation of Presentation that the company “is not bound by any knowledge of or statements made by or to the agent” does little to negate the apparent authority with which the company had clothed the agent.
Mrs. Williams contends an investigation by Paramount would have disclosed that any problem with Mrs. Williams’ application was not due to her failure to make a full disclosure but to its agent’s failure to complete the application accurately and fully. She also argues there was no reasonable basis for denying the July and December hospitalization claims because they were not caused by preexisting conditions.
Actual damages for loss of credit or injury to credit reputation in an action for breach of contract may be recovered when there is evidence that loss of credit was a natural, probable and foreseeable consequence of the defendant’s breach. During his testimony, Mr. Williams identified notice letters from three different bill collectors regarding doctor and hospital bills arising out of the two hospitalizations. These letters are certainly evidence of injury to credit reputation, and the Court upheld the award of damages for this injury.
The Williams ultimately recovered all the losses they recovered including court costs and attorneys fees.

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