United States Court of Appeals,
Fifth Circuit.
No. 93-5435.
Michael HOGUE and Carol Hogue, Plaintiffs-Appellants,
v.
UNITED OLYMPIC LIFE INSURANCE COMPANY, Delaware Administrators, and Consultants & Administrators, Inc., Defendants-Appellees.
Dec. 7, 1994.
Appeal from the United States District Court for the Eastern District of Texas.
Before GARWOOD, JOLLY and STEWART, Circuit Judges.
STEWART, Circuit Judge:
Michael and Carol Hogue appeal the judgment of the district court dismissing their claims
resulting from the termination of their insurance policy with United Olympic Insurance Company.
For the following reasons, the judgment of the district court is affirmed.
BACKGROUND
Michael and Carol Hogue were insured by United Olympic Life Insurance Company ("United
Olympic"). Their policy was part of a large group of policies in what was called the "Med-
Preference" or "Med-Choice" Trust ("the Old Trust"). On July 1, 1990, the Hogues' health insurance
premiums were increased by 18 percent. At that time the Hogues' policy offered the following
benefits: United Olympic would pay 80 percent (co-payment) of the first $5,000 in claims after the
deductible, then pay 100 percent of any claims beyond that amount. By letter dated November 29,
1990, the Hogues were notified that their benefits were being reduced to a 60 percent co-payment
and $10,000 stop-loss. That change was to take effect on February 1, 1991. The premiums remained
the same. But another letter dated January 22, 1991, notified the Hogues that their premiums would
increase on March 1, 1991, by 413 percent. However, one month before the increase went into effect
the Hogues stopped paying their premiums; the policy lapsed on January 31, 1991, for nonpayment
of premiums.
It was later learned that United Olympic had decided to split the group of policyholders into two groups. Those who had filed claims equaling less than 80 percent of their premiums paid were
moved into a new trust. Those whose paid/loss ratios were more than 80 percent, which included
the Hogues, remained in the old trust. Everyone in the old trust was subjected to the large increase
in premiums.
After their insurance policy was cancelled, the Hogues sued United Olympic for
discrimination, misrepresentation, unconscionable acts, breach of contract, and for a declaratory
judgment that United Olympic was responsible for future medical costs. A request for a jury trial was
made, but was denied as untimely. A bench trial was held and the trial court found for United
Olympic.
DISCUSSION
Discrimination Claim
The Hogues contend that the district court erred in not finding that United Olympic had
discriminated against them by leaving them in the Old Trust when it was split up. Under Texas law,
it is unlawful to make or permit:
any unfair discrimination between individuals of the same class and of essentially the same hazard in the amount of premiums, policy fees, or rates charged for any policy or contract of accident or health insurance or in the benefits payable thereunder, or in any of the terms or conditions of such contract, or in any other manner whatsoever.
Tex.Ins.Code art. 21.21 § 4(7)(b). The Hogues argue that, by placing them in a trust based on
profitability, they were unlawfully discriminated against. We disagree.
In order to prevail on a claim of insurance discrimination, the Hogues had to show that other
individuals of the same class and hazards as them were charged lesser premiums or were given greater
benefits. Reeves v. New York Life Insurance Co., 421 S.W.2d 686, 688 (Tex.Civ.App.1967). No
evidence was offered about other insureds who might have been charged a greater rate or received
a greater benefit. The Hogues have thus failed to meet their burden of proof.
Unconscionability Claim
The Hogues contend that categorizing them into the Old Trust was unconscionable and thus
violated section 17.45(5) of the Texas Consumer Protection Act. Under Tex.Bus. & Com.Code §
17.45(5), an unconscionable act is one which "takes advantage of the lack of knowledge, ability, experience, or capacity of a person to a grossly unfair degree" or "results in a gross disparity between
the value received and consideration paid in a transaction involving the transfer of consideration."
After examining the record, we see no evidence that United Olympic performed any
unconscionable acts. At trial, United Olympic's actuarial expert testified that the trust was split
because the particular group of insurance policies was losing money. He stated that this action was
one in a series of actions that United Olympic undertook in order to preserve the viability of the
insurance policies in the trust. The uncontroverted evidence thus shows that United Olympic
operated based on actuarial considerations to shore up losses in an unprofitable insurance group.
There is no evidence that United Olympic tried to take advantage of the Hogues as contemplated by
the statute. There is also no evidence that United Olympic took more in consideration than the
Hogues paid in consideration. We therefore find the Hogues have failed t pro ve that United o
Olympic's actions were unconscionable.
Misrepresentation Claim
The Hogues contend that United Olympic made actionable misrepresentations in letters it sent
to them to persuade them to take out the insurance policy. A party makes an actionable
misrepresentation under Texas law by "[m]aking, issuing, circulating, or causing to be made, issued
or circulated any estimate, illustration, circular or statement misrepresenting the terms of any policy
issued or to be issued or the benefits or advantages promised thereby ... or making any misleading
representation or any misrepresentations as to the financial strength of the insurer." Texas.Ins.Code
art. 21.21 § 4(1). Puffing i.e. loose general statements made by the sellers is not actionable as a
misrepresentation. Presidio Enterprises v. Warner Brothers, 784 F.2d 674, 686 (5th Cir.1986). The
district court found that the letters were just puffing and after reading the letters, we agree.
The letters make statements that United Olympic is a good insurance company that is able and
willing to undertake the commitment of the Hogues insurance. There are no promises or any other
statements in the letters that would indicate that United Olympic would not raise their premiums,
cancel their policy or do anything else to that effect. We find that the statements in the letters were
just "puffery" and are not actionable under Tex.Ins.Code art. 21.21. Continuing Responsibility for Medical Payments
The Hogues contend that United Olympic is still responsible for any claim that arose while
the policy was still in force. They rely on the last sentence of Tex.Ins.Code art. 3.70-3(B)(6) which
states that: "Cancellation shall be without prejudice to any claim originating prior to the effective
date of cancellation." The Hogues contend that this section of the insurance code restricts United
Olympic from cancelling the insurance policy and thus ceasing to pay benefits.
However Tex.Ins.Code art. 3.70-8 states that "[n]othing in this act shall apply to or affect
... (3) any blanket or group insurance policy." A group insurance policy is a policy issued by an
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United States Court of Appeals,
Fifth Circuit.
No. 93-5435.
Michael HOGUE and Carol Hogue, Plaintiffs-Appellants,
v.
UNITED OLYMPIC LIFE INSURANCE COMPANY, Delaware Administrators, and Consultants & Administrators, Inc., Defendants-Appellees.
Dec. 7, 1994.
Appeal from the United States District Court for the Eastern District of Texas.
Before GARWOOD, JOLLY and STEWART, Circuit Judges.
STEWART, Circuit Judge:
Michael and Carol Hogue appeal the judgment of the district court dismissing their claims
resulting from the termination of their insurance policy with United Olympic Insurance Company.
For the following reasons, the judgment of the district court is affirmed.
BACKGROUND
Michael and Carol Hogue were insured by United Olympic Life Insurance Company ("United
Olympic"). Their policy was part of a large group of policies in what was called the "Med-
Preference" or "Med-Choice" Trust ("the Old Trust"). On July 1, 1990, the Hogues' health insurance
premiums were increased by 18 percent. At that time the Hogues' policy offered the following
benefits: United Olympic would pay 80 percent (co-payment) of the first $5,000 in claims after the
deductible, then pay 100 percent of any claims beyond that amount. By letter dated November 29,
1990, the Hogues were notified that their benefits were being reduced to a 60 percent co-payment
and $10,000 stop-loss. That change was to take effect on February 1, 1991. The premiums remained
the same. But another letter dated January 22, 1991, notified the Hogues that their premiums would
increase on March 1, 1991, by 413 percent. However, one month before the increase went into effect
the Hogues stopped paying their premiums; the policy lapsed on January 31, 1991, for nonpayment
of premiums.
It was later learned that United Olympic had decided to split the group of policyholders into two groups. Those who had filed claims equaling less than 80 percent of their premiums paid were
moved into a new trust. Those whose paid/loss ratios were more than 80 percent, which included
the Hogues, remained in the old trust. Everyone in the old trust was subjected to the large increase
in premiums.
After their insurance policy was cancelled, the Hogues sued United Olympic for
discrimination, misrepresentation, unconscionable acts, breach of contract, and for a declaratory
judgment that United Olympic was responsible for future medical costs. A request for a jury trial was
made, but was denied as untimely. A bench trial was held and the trial court found for United
Olympic.
DISCUSSION
Discrimination Claim
The Hogues contend that the district court erred in not finding that United Olympic had
discriminated against them by leaving them in the Old Trust when it was split up. Under Texas law,
it is unlawful to make or permit:
any unfair discrimination between individuals of the same class and of essentially the same hazard in the amount of premiums, policy fees, or rates charged for any policy or contract of accident or health insurance or in the benefits payable thereunder, or in any of the terms or conditions of such contract, or in any other manner whatsoever.
Tex.Ins.Code art. 21.21 § 4(7)(b). The Hogues argue that, by placing them in a trust based on
profitability, they were unlawfully discriminated against. We disagree.
In order to prevail on a claim of insurance discrimination, the Hogues had to show that other
individuals of the same class and hazards as them were charged lesser premiums or were given greater
benefits. Reeves v. New York Life Insurance Co., 421 S.W.2d 686, 688 (Tex.Civ.App.1967). No
evidence was offered about other insureds who might have been charged a greater rate or received
a greater benefit. The Hogues have thus failed to meet their burden of proof.
Unconscionability Claim
The Hogues contend that categorizing them into the Old Trust was unconscionable and thus
violated section 17.45(5) of the Texas Consumer Protection Act. Under Tex.Bus. & Com.Code §
17.45(5), an unconscionable act is one which "takes advantage of the lack of knowledge, ability, experience, or capacity of a person to a grossly unfair degree" or "results in a gross disparity between
the value received and consideration paid in a transaction involving the transfer of consideration."
After examining the record, we see no evidence that United Olympic performed any
unconscionable acts. At trial, United Olympic's actuarial expert testified that the trust was split
because the particular group of insurance policies was losing money. He stated that this action was
one in a series of actions that United Olympic undertook in order to preserve the viability of the
insurance policies in the trust. The uncontroverted evidence thus shows that United Olympic
operated based on actuarial considerations to shore up losses in an unprofitable insurance group.
There is no evidence that United Olympic tried to take advantage of the Hogues as contemplated by
the statute. There is also no evidence that United Olympic took more in consideration than the
Hogues paid in consideration. We therefore find the Hogues have failed t pro ve that United o
Olympic's actions were unconscionable.
Misrepresentation Claim
The Hogues contend that United Olympic made actionable misrepresentations in letters it sent
to them to persuade them to take out the insurance policy. A party makes an actionable
misrepresentation under Texas law by "[m]aking, issuing, circulating, or causing to be made, issued
or circulated any estimate, illustration, circular or statement misrepresenting the terms of any policy
issued or to be issued or the benefits or advantages promised thereby ... or making any misleading
representation or any misrepresentations as to the financial strength of the insurer." Texas.Ins.Code
art. 21.21 § 4(1). Puffing i.e. loose general statements made by the sellers is not actionable as a
misrepresentation. Presidio Enterprises v. Warner Brothers, 784 F.2d 674, 686 (5th Cir.1986). The
district court found that the letters were just puffing and after reading the letters, we agree.
The letters make statements that United Olympic is a good insurance company that is able and
willing to undertake the commitment of the Hogues insurance. There are no promises or any other
statements in the letters that would indicate that United Olympic would not raise their premiums,
cancel their policy or do anything else to that effect. We find that the statements in the letters were
just "puffery" and are not actionable under Tex.Ins.Code art. 21.21. Continuing Responsibility for Medical Payments
The Hogues contend that United Olympic is still responsible for any claim that arose while
the policy was still in force. They rely on the last sentence of Tex.Ins.Code art. 3.70-3(B)(6) which
states that: "Cancellation shall be without prejudice to any claim originating prior to the effective
date of cancellation." The Hogues contend that this section of the insurance code restricts United
Olympic from cancelling the insurance policy and thus ceasing to pay benefits.
However Tex.Ins.Code art. 3.70-8 states that "[n]othing in this act shall apply to or affect
... (3) any blanket or group insurance policy." A group insurance policy is a policy issued by an
employer, an association, or other qualified groups. Tex.Ins.Code art. 3.51-6 § 1(a)(1-5). Our
review of the evidence reveals that the Hogues initially bought their insurance coverage by becoming
a member of a consumer association which entitled them to be issued a group policy under the
association's banner. See Tex.Ins.Code art. 3.51-6 § 1(a)(2). United Olympic became the Hogues'
insurer when it assumed the responsibility for the policies after two previous insurance associations
failed. After United Olympic became insurer, the Hogues' policy and the other policies continued to
be administered as group insurance policies. Their policy book stated it was a group insurance policy
and t hey were given a group rate. We find that the Hogues policy was a group policy and thus
Tex.Ins.Code art. 3.70-3(B)(6) is inapplicable to this case.
Breach of the Duty of Good Faith
The Hogues contend that United Olympic breached its duty of good faith and fair dealing by
refusing to pay for medical bills after the policy had lapsed and by undertaking a subterfuge to render
them uninsurable. In Thrash v. State Farm Fire & Casualty Co., 992 F.2d 1354 (5th Cir.1993), this
court stated that an insurer breaches its duty of good faith and fair dealing "only when it lacks a
reasonable basis for denying or delaying payment of the claim when it knew or should have known
no such basis exists." Id. at 1358 (emphasis added). The evidence at trial showed that United
Olympic paid all claims as they became due. These claims amounted to approximately $26,500 while
the Hogues only paid $3,658.42 in premiums. Thus, United Olympic has fulfilled its duty of good
faith and fair dealing by paying all claims due while the policy was in effect. We find this contention to be without merit.
Jury Demand
The Hogues contend that the district court erred in finding that they had not made a timely
jury demand. The district court denied the Hogues jury request holding that the jury demand had not
been filed within ten days of removal as required by Fed.R.Civ.P. 81(c). The Hogues argue for the
first time on appeal that pursuant to Fed.R.Civ.P. 38(b), they only had to file a jury demand within
ten days after United Olympic filed its answer, which they did given the time allowances for filing by
mail. An issue not raised in the district court will not be considered on appeal unless the issue can
be resolved as a matter of law and unless failure to do so would result in grave injustice. Callejo v.
Bancomer, 764 F.2d 1101, 117 n. 20 (5th Cir.1985). Having reviewed the entire record and the
applicable law, we find no error in the district court's denial of the Hogues' jury demand.
CONCLUSION
For the foregoing reasons, the judgment of the district court is AFFIRMED.