In Zubillaga v. Allstate Indemnity Company, 12 Cal.App.5th1017, the Court of Appeal of California, Fourth Appellate District reversed the trial court's grant of summary judgment to Allstate, finding there were triable issues of material fact regarding whether Allstate's coverage determination was made without a good faith investigation and without a reasonable basis for a genuine dispute.
Plaintiff had an automobile policy with Allstate that included UIM coverage with a $50,000 per person limit, to be reduced by any amounts paid by the owner or operator of the underinsured car, and provided for voluntary binding arbitration. Plaintiff was in a serious accident, for which the police determined the other driver was at fault. According to the police report, Plaintiff complained of pain to her face and arm, and did not report any back injury or back pain. Instead of following up with her own doctor, she saw a chiropractor – 39 times over the following four months. Plaintiff also saw an osteopath who determined a MRI of Plaintiff's cervical spine indicated multiple disc protrusions, which would likely require future medical treatment. Plaintiff's attorney made a demand on Allstate for $35,000 (the policy limit after deducting the other driver's $15,000 settlement), based on her current medical bills of $17,645.44 and lower back pain for the remainder of her life expectancy. Allstate offered to settle the matter for $9,367, which it calculated by taking its determination of the reasonable and customary amount for Plaintiff's medical bills ($14,367), adding $10,000 in general damages, then subtracting the $15,000 settlement from the other driver. The next day, Plaintiff served a formal offer to compromise (per Section 998) for $35,000; Plaintiff did not otherwise respond to Allstate's offer for more than four months, at which point Plaintiff's counsel formally rejected the offer and again demanded $35,000, providing two evaluations by a board certified orthopedic surgeon. These evaluations increased Plaintiff's medical expenses by $1,200, and did not reference any need for epidural steroid injections. Allstate increased its evaluation of the claim to $25,000 due to Plaintiff's continuing complaints of back pain; Allstate increased its settlement offer to $10,000. Plaintiff's counsel rejected this offer, renewed her $35,000 demand, demanded arbitration, and requested Allstate assign counsel to handle the claim. Allstate assigned counsel, and served written discovery. Plaintiff's responses to the written discovery reference a consultation with a board certified pain management specialist and anesthesiologist, and both he and the osteopath opined she will require epidural injections, anti-inflammatory and pain medication, and physical therapy. Plaintiff's counsel sent Allstate Plaintiff's medical records from the pain management specialist, who diagnosed Plaintiff with lumbar disc herniation and opined the information provided is consistent with the car accident as the cause of her pain. The specialist also opined Plaintiff would need lumbar epidural steroid injections, which would range from $15,000-20,000 for one to $45,000-60,000 for three. Allstate increased its valuation to $27,084, offering Plaintiff $12,084. Allstate also retained a board certified orthopedic surgeon to perform a defense medical examination, review the medical records, and determine if the injections were appropriate. The surgeon provided three reports, which disagree as to the necessity of the injections.
Plaintiff's counsel requested arbitration set for at least three months out, to accommodate Plaintiff being scheduled to receive an injection in the following weeks. Allstate responded, and requested any new records and bills for review and re-evaluation prior to the arbitration date. Allstate received additional medical records, supporting an additional claim of $6,850 in medical expenses for a steroid injection. With this new expense, Plaintiff's medical bills totaled $26,455.44; Allstate offered $14,500. Plaintiff's counsel provided a report from the doctor who administered the steroid injection, opining Plaintiff may need an additional three injections (costing $12,000 each) in conjunction with medications and physical therapy, each of which would likely cost $6,000 per year. Allstate did not have its expert review this report, but instead increased the valuation to $30,584, and offered $15,584.
During arbitration, Plaintiff produced an additional report from her doctor who had provided the injections, which had not been provided to Allstate before, that Plaintiff argued proved future injections were necessary and appropriate. The arbitrator found for Plaintiff, awarding her $35,000 ($21,205 in economic damages, and $13,795 in non-economic damages). Allstate paid the arbitration award.
Plaintiff sued Allstate for breach of contract and bad faith, claiming Allstate "did not fairly investigate her claim and should have paid her the UIM policy limits sooner." The trial court granted Allstate's motion for summary judgment as to Plaintiff's bad faith cause of action on the genuine dispute doctrine, finding "Defendant Allstate was permitted to rely on its expert's opinion, who had a history of all of Plaintiff's treating doctors [ . . . ] to determine that her treatment was excessive and she did not need the expensive steroid injections."
The Court reviewed California law regarding the implied covenant of good faith and fair dealing, including that an insurer cannot ignore available evidence supporting a claim in favor of facts justifying denial. However, an insurer is not liable for a failure to pay or delay in paying policy benefits where there is a genuine dispute as to coverage, which applies to both legal and factual disputes. An insurer is only entitled to a grant of summary judgment on this basis "where the summary judgment record demonstrates the absence of triable issues [citation] as to whether the disputed position upon which the insurer denied the claim was reached reasonably and in good faith. [Citation.]." Determining whether a dispute is legitimate is an objective standard, and must be evaluated as of the time the decisions were made, and not in light of any subsequent events showing error. Additionally, there may be a basis for application of the genuine dispute doctrine where the insurer relies on the advice of experts – although reliance on expert advice does "not automatically insulate an insurer from a bad faith claim."
The Court noted the problem with Allstate's reliance on its expert: the expert rendered his opinions in October and November 2012, yet Allstate continued to rely on the opinions through arbitration in September 2013, without consulting him again or conducting further investigation, particularly as to the injections Plaintiff was receiving.
Because it never asked Legome [Allstate's expert] to review Soni's [the doctor administering the injections] epidural treatments and recommendations, Allstate's continued reliance upon Legome's opinions as the basis for disputing the medical necessity or reasonable value of those treatments and recommendations may have been unreasonable. And, leaving aside Legome's reports and opinions, Allstate has not directed us to any other medical reports or opinions that could reasonably support its ongoing denial of plaintiff's claim.
Of course, Allstate was not obliged to accept Soni's treatments and recommendations "without scrutiny or investigation." [Citation.] To the extent it had good faith doubts, Allstate had the right to further investigate the basis for plaintiff's claim by having Legome reexamine his 2012 opinions, having another physician review all of plaintiff's medical records and offer opinions, or, if necessary, having plaintiff further examined by Legome or another defense doctor.
What Allstate could not do, consistent with the implied covenant of good faith and fair dealing, was to ignore Soni's treatments and recommendations, without adequately investigating them. [Citation.] To be clear, we are not saying Allstate breached the implied covenant. We are saying a reasonable jury could conclude it did so. Allstate's assertion it reasonably continued to rely on Legome's opinions, or that it had inadequate time to have him reexamine those opinions or conduct further investigation, merely inform our conclusion plaintiff has demonstrated triable issues of material fact that cannot be resolved by summary judgment.
For these same reasons, the court erred by granting summary judgment based upon the genuine dispute doctrine. Again, the genuine dispute rule does not relieve an insurer from its obligation to thoroughly and fairly investigate the insured's claim, and a genuine dispute exists only where the insurer's position is maintained in good faith and on reasonable grounds. Once more, an insurer is not entitled to judgment as a matter of law where, viewing the facts in the light most favorable to the plaintiff, a jury could conclude that the insurer acted unreasonably. [Citation.]
Considering the objective facts known to Allstate at the time its final decision to deny plaintiff's $35,000 demand was made, and viewing the evidence in the light most favorable to plaintiff as required, we are convinced "'a jury could conclude that the insurer acted unreasonably.'" [Citation.] Specifically, there is sufficient evidence for a jury to find Allstate's continued insistence she did not need expensive epidural injections was, "'"prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement."'" [Citation.]
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