## Facts

- Ida M. Giles purchased a health insurance policy issued by Universe Life Insurance Company.
- About three months later, Giles underwent heart surgery and submitted the resulting medical bills for coverage.
- Universe denied the claim, asserting Giles’s heart condition was excluded as a preexisting condition.
- The denial was based on a typographical error and misunderstanding in Giles’s medical records.
- Giles and her physicians provided corrected information showing the condition was not preexisting.
- Despite the clarification, Universe continued to deny or delay payment for months and reversed course only after Giles retained counsel, paying most charges.
- Giles alleged financial hardship, collection pressure from medical providers, and emotional distress resulting from the prolonged denial.

## Issues

1. What standard governs common-law insurer bad faith for denying or delaying payment: a subjective “actual belief” approach or an objective test tied to whether coverage was “reasonably clear.”
2. Whether there was legally sufficient evidence that Universe lacked a reasonable basis to continue denying or delaying the claim after receiving clarifying information.
3. Whether the evidence supported the jury’s awards for mental anguish and exemplary damages based on the insurer’s claim-handling conduct.

## Decision

- The Supreme Court of Texas affirmed the court of appeals’ judgment (including the reduction of exemplary damages to $300,000).
- The court clarified that bad faith is governed by an objective standard: an insurer breaches its duty by denying or delaying payment when it knew or should have known that coverage was reasonably clear.
- The evidence permitted a finding that, after the medical-record error was corrected, a reasonable insurer would have recognized coverage was reasonably clear and promptly paid.
- The court held the evidence was sufficient to support mental-anguish damages tied to the denial and resulting financial and collection pressures.
- The court left intact the exemplary damages as reduced, concluding the record could support a finding meeting then-applicable standards for such damages.

## Legal Principles

- An insurer breaches the duty of good faith and fair dealing by denying or delaying payment if it knew or should have known that it was reasonably clear the claim was covered.
- The bad-faith inquiry is objective: whether a reasonable insurer under similar circumstances would have denied or delayed payment.
- A later-asserted arguable reason for denial does not automatically defeat bad faith when the insurer’s investigation or evaluation was unreasonable in light of available information.
- Deficient investigation and unreasonable claim evaluation may support extra-contractual liability when they cause denial or delay after coverage becomes reasonably clear.
- Mental-anguish and exemplary damages may be recoverable when supported by evidence linking the insurer’s bad-faith handling to the insured’s distress and the conduct satisfies applicable exemplary-damages standards.

## Conclusion

The court affirmed liability and damages (as modified) and aligned Texas common-law bad faith with an objective “reasonably clear” standard, holding insurers responsible for continuing to deny or delay payment when a reasonable insurer would have recognized the claim was covered.


Universe Life Ins. Co. v. Giles, 950 S.W.2d 48 (Tex. 1997)