



In re National Health Ins. Co.






NUMBER 13-03-00252-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI - EDINBURG
 


IN RE NATIONAL HEALTH INSURANCE COMPANY, Relator.


On Relator's Petition for Writ of Mandamus.

O P I N I O N


Before Justices Hinojosa, Yañez, and Garza
Opinion by Justice Hinojosa



 Relator, National Health Insurance Company ("NHIC"), has filed a petition for writ of mandamus, requesting
that this Court order respondent, the Honorable Daniel T. Robles, presiding judge of the Cameron County
Court at Law Number Three, to vacate his order denying relator's request to depose the real parties in interest,
Irma Saldivar ("Irma") and Candido Saldivar ("Candido"), concerning their use of alcohol, illegal drugs, or
narcotics.  The real parties in interest have filed a response, and relators have filed a reply.  See Tex. R. App.
P. 52.4, 52.5.    Without hearing oral argument, we grant relator's petition for writ of mandamus.  See Tex. R.
App. P. 52.8(c).
 On February 10, 2000, Irma applied for a health insurance policy from NHIC.  Irma signed the written
application, requesting that her husband, Candido, and her children be included in the policy.  In the
application, Irma specifically stated that neither she nor Candido had symptoms of drug or chemical abuse. 
After she submitted the written application, a NHIC representative spoke with Irma by telephone and verified
the statements made in the application.  During this taped conversation, Irma stated that neither she nor
Candido had ever abused alcohol, illegal drugs, or narcotics.  
 On March 30, 2000, during the application process, and before NHIC had determined whether to insure the
Saldivar family, Candido was hospitalized for "GI bleeding."  The hospital records of that hospitalization
reflect that Candido smokes approximately one-half pack of cigarettes per week, drinks heavily, and
occasionally uses marihuana and cocaine.  NHIC subsequently issued a policy covering Irma and her children,
but refused to issue coverage for Candido.
 The Saldivars filed suit against NHIC, alleging NHIC had failed to timely issue an insurance policy covering
Candido.  The Saldivars assert they incurred medical bills for Candido's hospitalization that are not covered by
the insurance policy NHIC issued to Irma.  They claim that if NHIC had processed Irma's application more
expeditiously, Candido's hospitalization would have been covered.  The Saldivars contend NHIC violated
articles 21.21 and 21.55 of the Texas Insurance Code.
 As a defense, NHIC claims the Saldivars cannot establish that any alleged wrongdoing by NHIC is the
proximate cause of their damages.  To that extent, NHIC seeks to establish that the Saldivars used illegal
drugs and that they purposefully concealed such use during the policy application process.  NHIC contends
that even if the application had been processed more expeditiously, it would not have issued an insurance
policy covering Candido because of his illegal drug use.  Further, NHIC contends that even if such a policy
had been issued, once it was determined that Candido used illegal drugs and that such use was concealed
during the application process, it would have cancelled Candido's coverage.
 On April 2, 2003, relator took the depositions of Irma and Candido.  Relator asked Candido and Irma about
their use of illegal drugs.  Relator specifically asked about Candido's drug use, as reflected in the hospital
records.    The Saldivars were also asked about their representation to NHIC that neither had used any illegal
drug, clearly contradicting statements made by Candido and included in his medical records.  Counsel for the
Saldivars instructed his clients not to answer these questions, asserting the questions were improper and
constituted harassment.  Because the Saldivars refused to answer any questions concerning illegal drug use,
NHIC filed a motion to compel and to reconvene the depositions.  On April 23, 2003, respondent denied
NHIC's motion.  On April 24, 2003, NHIC filed a petition for writ of mandamus in this Court.
 Mandamus will issue only to correct a clear abuse of discretion when there is no adequate remedy by appeal. 
Walker v. Packer, 827 S.W.2d 833, 839 (Tex. 1992).  A trial court abuses its discretion when it does not
follow guiding rules and principles and reaches an arbitrary and unreasonable decision.  Id. at 839-40;
Republic Royalty Co. v. Evins, 931 S.W.2d 338, 342 (Tex. App.-Corpus Christi 1996, orig. proceeding).  An
appeal will not be an adequate remedy where the party's ability to present a viable claim or defense at trial is
vitiated or severely compromised by the trial court's discovery error. Walker, 827 S.W.2d at 843.  Similarly, a
denial of discovery going to the heart of a party's case may render the appellate remedy inadequate.  Id.  
 Misrepresentations contained in the insurance application process constitute defenses to coverage or
insurability and allow rescission of coverage.  See Mayes v. Mass. Mut. Life Ins. Co., 608 S.W.2d 612, 616
(Tex. 1980); Koral Indus., Inc. v. Security-Conn. Life Ins. Co., 788 S.W.2d 136, 141 (Tex. App.-Dallas), writ
denied per curiam, 802 S.W.2d 650 (Tex. 1990).  A misrepresentation on an application defense is valid both
to any claim for breach of contract as well as extra-contractual claims.  See Koral, 788 S.W.2d at 147-48 (if a
policy is properly avoided or rescinded, it would be ludicrous to nevertheless hold that the insurance company
denied a claim based on the policy when its liability under the policy had become reasonably clear, because
there can be no liability whatsoever under an avoided or rescinded policy).
 The Saldivars contend that NHIC failed to timely process their application for insurance, and that if it had
done so, Candido's medical expenses would have been covered.  Under the Texas Insurance Code, the
Saldivars must prove that NHIC's conduct, i.e., its failure to timely process the application for insurance, was
the cause in fact of their actual damages.  Blanchard v. State Farm Lloyds, 206 F. Supp. 2d 840, 847 (S.D.
Tex. 2001) (citing Provident Am. Ins. Co. v. Castaneda, 988 S.W.2d 189, 192 (Tex. 1999)). 
 NHIC's underwriting guidelines provide that illegal drug abuse or addiction constitutes a "Risk Not
Acceptable," and that applications with any "Risk Not Acceptable" conditions will be cancelled and refunded
without question.  Therefore, if NHIC is able to prove that Irma made material misrepresentations regarding
Candido's drug and alcohol use during the application process, NHIC may be able to show that it would not
have issued policy coverage to Candido; and even if it had issued the policy, coverage would have been
rescinded once the use of illegal drugs was discovered.  
 A party may obtain discovery regarding any matter that is not privileged and relevant to the subject matter of
the pending action, whether it is related to the claim or defense of the party seeking discovery or the claim or
defense of any other party.  Tex. R. Civ. P. 192.3(a).  It is not a ground for objection that the information
sought will be inadmissible at trial if the information sought appears reasonably calculated to lead to the
discovery of admissible evidence.  Id.  
 We conclude that the information sought by NHIC regarding the Saldivars' illegal drug use and failure to
reveal said drug use is relevant to NHIC's misrepresentation defense.  Accordingly, we hold the trial court
abused its discretion when it refused to reconvene the depositions and refused to compel the Saldivars to
provide evidence going to the very heart of NHIC's defense.
 We conditionally grant relator's petition for writ of mandamus.  The writ will issue only if respondent fails to
vacate his order of April 24, 2003, and fails to grant relator's motion to compel and to reconvene the
Saldivars' depositions.


FEDERICO G. HINOJOSA
Justice


Opinion delivered and filed this the
26th day of June, 2003.
