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Grant of summary judgment based on the genuine dispute doctrine was improper where a triable issue of fact existed as to whether an insurer thoroughly investigated and fairly evaluated claim by McCormick, Barstow, Sheppard, Wayte & Carruth LLP
Fresno Office
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January 22, 2008
Previously published on December 28, 2007
Wilson v. 21st Century Ins. Co., 42 Cal. 4th 713 (2007).
BACKGROUND FACTS
On November 22, 2000, a drunk driver made a left turn in front of a vehicle driven by college student Reagan Wilson, resulting in a collision. Wilson was treated at a local emergency room facility for bruises and an injury to her left wrist. She also complained of neck and chest pain. Several days later, after returning to college, Wilson told Dr. Douglas Jackson that she was still feeling pain in her neck, left shoulder and left wrist. Dr. Jackson ordered a limited cervical spine x-ray series that was evaluated as normal. Dr. Jackson prescribed physical therapy for the neck pain. On January 29, 2001, Wilson was examined by Dr. Edward Southern, an orthopedist. Dr. Southern ordered additional cervical spine x-rays which he found showed “reversal of the cervical lordosis with calcification of the anterior disk spaces at C4-5 and C5-6 with narrowing of the disk space more so at C5-6.” He also ordered an MRI. Dr. Southern ultimately concluded that the accident most certainly resulted in changes in the cervical spine which were atypical for a patient of Ms. Wilson’s age. He further concluded that she “probably had degenerative disk changes as a result of occult disk injury at the levels in the neck from her high speed motor vehicle accident.”
In February of 2001, Wilson’s attorney advised Paul Le, the 21st Century claims examiner, that Wilson wanted to make a claim on her underinsured motorist coverage. After Wilson reached a settlement with the other driver for his $15,000 liability coverage in April of 2001, Le asked Wilson’s attorney to send 21st Century a demand package so that he could evaluate the claim. On June 28, 2001, Wilson’s attorney sent Le a demand letter and supporting documentation, including the medical reports of Dr. Southern. Wilson’s attorney also advised Le that after the accident, Wilson had made a long-planned trip to Europe which was ruined by the injuries. Wilson’s attorney further advised that at the time of the demand letter Wilson was studying in Australia and was still experiencing pain on a regular basis. As such, Wilson’s attorney demanded that 21st Century pay Wilson $85,000, the UIM policy benefit remaining after offsetting Wilson’s recovery of $15,000 from the adverse driver.
On July 9, 2001, Le sought and obtained approval from his superior to reject the UIM claim on the grounds that Wilson had a pre-existing condition, that the MRI showed no encroachment of a neuro structure and that the insured was in Australia, indicating that her pain and suffering were not severe. Le made no attempt to contact Dr. Southern nor did he speak with any medical practitioners about the claim. By way of a letter from Le to Wilson’s attorney dated July 17, 2001, 21st Century rejected the claim and indicated that it was 21st Century’s belief that Ms. Wilson had sustained only soft tissue injury superimposed by a preexisting degenerative disk disease. Wilson initiated arbitration and was subsequently treated by Dr. Southern and other physicians for the continuing neck pain. Her doctors recommended spinal fusion surgery together with a course of pain management. After learning of the surgery recommendation through Wilson’s deposition, 21st Century retained independent physicians to examine Wilson and review her medical records. The retained orthopedic surgeon reported to 21st Century that Wilson’s neck pain was caused by disk injuries resulting from the accident. He also recommended surgery. A revised evaluation of the claim was conducted and on July 23, 2003, 21st Century paid Wilson the remaining $85,000 UIM policy benefit.
Wilson subsequently sued 21st Century alleging that its initial denial of benefits constituted a breach of the covenant of good faith and fair dealing and caused damages in the form of lost interest, attorney fees and costs, and general damages including emotional distress. 21st Century moved for summary judgment on the ground that its decision to deny the UIM demand was reasonable as a matter of law. The trial court granted the motion and Wilson appealed. The Court of Appeal reversed, holding that triable issues of fact existed as to whether 21st Century had thoroughly investigated and objectively evaluated the claim before denying it. The California Supreme Court granted 21st Century’s petition for review.
THE COURT’S RULING
In upholding the Court of Appeal’s decision, the California Supreme Court noted that 21st Century had failed to direct the court to a medical report or opinion that could have served as the basis upon which the claims examiner could have reasonably ignored or disbelieved Dr. Southern’s conclusion that the changes in Wilson’s spine were caused by the accident. The Court concluded that, based on the record, the claims examiner had no basis for reaching a contrary conclusion or in concluding that Wilson had a preexisting degenerative disk disease. As to the fact that Wilson was studying in Australia, the Supreme Court agreed with the Court of Appeal that it was just as possible to suffer from severe pain in Australia as it was to suffer such pain in Southern California.
The Court also noted that to the extent 21st Century had good faith doubts as to the value of Wilson’s claim, it would have been well within its rights to investigate the basis for the claim by asking Dr. Southern to reexamine Wilson or explain his findings, by having a physician review all of the submitted medical records and offer an opinion, or, if necessary, by having Wilson examined by its own physicians. However, the Court found that what 21st Century could not do was to ignore Dr. Southern’s conclusions without any attempt to adequately investigate the claim, and to reach contrary conclusions without any medical basis for doing so.
In so holding, the Court addressed the genuine dispute rule by noting that, generally, an insurer who denies or delays payment of policy benefits where there is a genuine dispute as to the existence or amount of coverage will not be liable for bad faith, even though it may be liable for breach of contract. However, the Court stated that the rule “does not relieve an insurer from its obligation to thoroughly and fairly investigate, process and evaluate the insured’s claim. A genuine dispute exists only where the insurer’s position is maintained in good faith and on reasonable grounds.” In the context of insurance bad faith, the Court noted that a dispute would not be legitimate unless it is founded on a basis that is reasonable under all of the circumstances.
The Court concluded that the summary judgment record demonstrated the existence of triable issues of fact as to whether 21st Century thoroughly investigated and fairly evaluated Wilson’s claim. Thus, the Court found that Wilson’s bad faith cause of action should have been presented to a jury.
THE EFFECT OF THE COURT’S RULING
This case will likely have an adverse impact on an insurer’s ability to obtain summary judgment based on the genuine dispute doctrine. Although this case arose in the context of a first-party underinsured motorist claim, it is likely to have broad-based application in all forms of bad faith litigation. As a result of this case, trial courts may be more inclined to find that a triable issue of fact exists as to whether an insurer properly, thoroughly and fairly investigated a claim prior to denial.
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The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance. |
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