REAGAN WILSON, Plaintiff and Appellant, v. 21ST CENTURY INSURANCE COMPANY, Defendant and Respondent.
No. S141790
Supreme Court of California
Nov. 29, 2007.
42 Cal. 4th 713 | 68 Cal. Rptr. 3d 746 | 171 P.3d 1082
WERDEGAR, J.
Hall & Bailey, Donald R. Hall; The Ehrlich Law Firm and Jeffrey Isaac Ehrlich for Plaintiff and Appellant.
Horvitz & Levy, Barry R. Levy, Bradley S. Pauley; Lewis Brisbois Bisgaard & Smith and N. David Lyons for Defendant and Respondent.
Robie & Matthai, James R. Robie, Kyle Kveton and Steven S. Fleischman for State Farm Mutual Automobile Insurance Company, United Services Automobile Association, Infinity Insurance Company, Farmers Insurance Exchange, Fire Insurance Exchange, Truck Insurance Exchange and Mid-Century Insurance Company as Amici Curiae on behalf of Defendant and Respondent.
OPINION
WERDEGAR, J.—In this first party insurance bad faith action, the question on review is whether summary judgment was properly granted for the insurer. Eight months after plaintiff Reagan Wilson was injured in an automobile accident by a drunk driver, her insurer, defendant 21st Century Insurance Company (21st Century), rejected her demand for payment of the $100,000 policy limit on her underinsured motorist coverage. Although Wilson‘s treating physician had opined that the 21-year-old woman had “degenerative disk changes as a result of occult disk injury at the levels in her neck from her high speed motor vehicle accident,” and that these spinal changes were atypical for her age and “almost certainly” caused by the automobile accident, 21st Century rejected the claim on the asserted ground that she had suffered only soft tissue injuries in the collision and had “preexisting” degenerative disk disease. Because, based on the undisputed facts in the summary judgment record, a jury could reasonably find 21st Century reached this medical conclusion without a good faith investigation of the claim and without a reasonable basis for genuine dispute, we agree with the Court of Appeal that summary judgment on plaintiff‘s bad faith cause of action was improper.
FACTUAL AND PROCEDURAL BACKGROUND
“Because this case comes before us after the trial court granted a motion for summary judgment, we take the facts from the record that was before the
The summary judgment record reflects the following facts:
On November 22, 2000, an intoxicated driver made a left turn directly in front of the vehicle Wilson was driving, resulting in a collision. She was treated at an emergency room in Monterey for bruises and a wrist injury; she also complained of pain in her chest and upon moving her neck. Several days later she told Dr. Douglas Jackson in Santa Barbara, where she was attending college, that she was still feeling pain in her neck and left shoulder, as well as in her left wrist. A “limited” cervical spine X-ray ordered by Dr. Jackson was evaluated as “normal,” with “[m]ild straightening of lordosis” but “no fracture, degenerative change or soft tissue swelling.”1 Dr. Jackson prescribed physical therapy for the neck pain.
On January 29, 2001, Wilson was examined by Edward Southern, an orthopedist in Long Beach. She reported continued neck, back and arm pain. Not having the prior film before him, 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.” Dr. Southern ordered a magnetic resonance imaging scan (MRI) to determine whether the “obviously degenerative motion segment within her cervical spine” was causing the arm pain. If the MRI was “markedly abnormal,” Dr. Southern noted, Wilson might have to delay her planned departure for a period of study in Australia.
Dr. Southern‘s clinical impression was as follows: “A young woman involved in a high speed motor vehicle accident with changes now in the cervical spine which are atypical for a patient of her age and are almost certainly due to the history of trauma. She probably has degenerative disk
The MRI showed “mild desiccated discs at C2-3, C3-4, C4-5, C5-6 and C6-7,” “mild dextroscoliosis” and “2mm or less posterior disc bulges at C4-5, C5-6 and C6-7,” while “the central canal and neural foramina are patent at these levels.”3 “No significant disc pathology” was found at other levels.
In February 2001, Donald Hall, Wilson‘s attorney, told Paul Le, 21st Century‘s claims examiner, that his client wanted to make a claim on her underinsured motorist (UIM) coverage. In April, after Wilson reached a settlement with the other driver for his $15,000 liability coverage, Le asked Hall to send 21st Century a demand package so he could evaluate the UIM claim.
Hall sent Le a demand letter and documentation on June 28, 2001. The medical reports described above were attached. Hall told Le that after the accident Wilson had made a long-planned trip to Europe, which was “ruined” by her injuries. At the time of the demand letter, Hall wrote, she was studying in Australia but was still experiencing pain “on a regular basis.” He quoted Dr. Southern‘s opinion that Wilson had suffered degenerative disk changes as a result of the automobile accident. The general damages resulting from such an injury at Wilson‘s young age, Hall asserted, exceeded the $100,000 UIM policy limits. He requested that 21st Century pay Wilson $85,000, the UIM policy benefit remaining after Wilson‘s recovery of $15,000 from the other driver.
Le and Hall discussed the claim by telephone on July 6, 2001. According to Le‘s notes of the conversation, he asked Hall if there was any additional medical documentation for the claim. Hall said there was not, but that Dr. Southern‘s report indicated disk changes that would affect Wilson later in life. Le then asked, “Why is she in Australia if [her] inj[ury] [is] so severe?” and observed that Wilson “is young and may not experience any pain in future from deg[enerative] disk.” Le also noted his own opinion that the “MRI does not show bulge touching the nerves.”
By a memorandum dated July 9, 2001, Le sought and obtained the approval of his superior, Jay Boomer, to reject Wilson‘s UIM claim. In the
Before making the recommendation to reject Wilson‘s UIM claim, Le did not attempt to contact Dr. Southern and did not speak with any other medical practitioner about the claim.
21st Century rejected Wilson‘s UIM claim by a letter from Le to Hall dated July 17, 2001. After noting that “the X-rays” were “normal” and paraphrasing the conclusions of the January 2001 MRI report, Le stated: “Based on the above, we believe your client sustain [sic] soft tissue injury superimposed by a preexisting degenerative disc disease. Therefore, we believe that your client has been fully compensated for her injuries by the payment of the $15,000 policy limits from North Pointe Insurance plus our Medical Payment limits of $5,000.”
Soon after receiving 21st Century‘s rejection, Wilson initiated arbitration of the claim. In late 2001 and 2002, Wilson saw Dr. Southern and other physicians for her continuing neck pain. After a diskogram was performed in June 2002, one orthopedic surgeon recommended spinal fusion surgery. Wilson did not go through with the surgery at that time. In August 2002, she saw a neurosurgeon who recommended pain management instead of surgery; Wilson pursued that course, which to some extent alleviated the pain, through the remainder of 2002.
In 2002, after learning of the surgery recommendation (through deposing Wilson in preparation for arbitration), 21st Century retained independent physicians to examine Wilson and review her medical records. Stephen Nagelberg, the retained orthopedic surgeon, saw evidence on the diskogram of “bilateral leakage of C4-5, and a right-sided annular tear with leakage of C5-6.” In June 2003, Dr. Nagelberg reported to 21st Century that Wilson‘s neck pain was caused by these disk injuries, which resulted from the November 2000 automobile accident. He recommended surgery. Allan Chan, the claims examiner now handling the case, promptly prepared a revised evaluation of Wilson‘s claim and requested and received authorization to pay Wilson the $85,000 remainder of her UIM policy limit. 21st Century paid Wilson the $85,000 on July 23, 2003.
The Court of Appeal reversed, holding triable issues of fact existed as to whether 21st Century had thoroughly investigated and objectively evaluated Wilson‘s UIM claim before denying it. We granted 21st Century‘s petition for review.
DISCUSSION
“A trial court properly grants a motion for summary judgment only if no issues of triable fact appear and the moving party is entitled to judgment as a matter of law. (
The law implies in every contract, including insurance policies, a covenant of good faith and fair dealing. “The implied promise requires each contracting party to refrain from doing anything to injure the right of the other to receive the agreement‘s benefits. To fulfill its implied obligation, an insurer must give at least as much consideration to the interests of the insured as it gives to its own interests. When the insurer unreasonably and in bad faith withholds payment of the claim of its insured, it is subject to liability in tort.” (Frommoethelydo v. Fire Ins. Exchange (1986) 42 Cal.3d 208, 214-215 [228 Cal.Rptr. 160, 721 P.2d 41].)
I. Lack of Thorough Investigation and Fair Evaluation
While an insurance company has no obligation under the implied covenant of good faith and fair dealing to pay every claim its insured makes, the insurer cannot deny the claim “without fully investigating the grounds for its denial.” (Frommoethelydo v. Fire Ins. Exchange, supra, 42 Cal.3d at
Applying these principles to the facts in the summary judgment record, we agree with the Court of Appeal that plaintiff has demonstrated a triable issue of fact as to whether 21st Century‘s decision to deny her UIM claim in July 2001 was made unreasonably and in bad faith.4 Wilson complained of neck pain after the accident and in subsequent weeks and months. On examination of the patient and her X-ray, Dr. Southern, an orthopedist, concluded a segment of her cervical spine was “obviously degenerative,” that such a change was unusual at her age, and was probably due to her recent automobile accident. The MRI he ordered confirmed bulging disks in the vertebrae of her neck. Wilson was continuing to feel neck pain in June 2001 when, through her attorney, she made the UIM claim.
Despite his receipt of this information, 21st Century‘s claims examiner asserted in his internal denial memo that it was “unlikely” the disk bulges were caused by the accident and that because Wilson was “on vacation” in Australia her claims of severe pain should be “discount[ed].” Having received approval to deny the claim, he then did so on the ground that Wilson‘s pain was due only to “soft tissue injury superimposed by a preexisting degenerative disc disease.”
Unfortunately for 21st Century‘s summary judgment position, a jury could reasonably find that nothing in the material the claims examiner had received justified these conclusions. 21st Century directs us to no medical report or opinion on the basis of which the claims examiner could reasonably have ignored or disbelieved Dr. Southern‘s conclusion that the changes in Wilson‘s cervical spine were probably caused by her recent trauma; as far as the record reveals, the claims examiner had no basis for his contrary
21st Century, of course, was not obliged to accept Dr. Southern‘s opinion without scrutiny or investigation. To the extent it had good faith doubts, the insurer would have been within its rights to investigate the basis for Wilson‘s claim by asking Dr. Southern to reexamine or further explain his findings, having a physician review all the submitted medical records and offer an opinion, or, if necessary, having its insured examined by other physicians (as it later did). What it could not do, consistent with the implied covenant of good faith and fair dealing, was ignore Dr. Southern‘s conclusions without any attempt at adequate investigation, and reach contrary conclusions lacking any discernable medical foundation. (Egan v. Mutual of Omaha Ins. Co., supra, 24 Cal.3d at p. 819; Mariscal v. Old Republic Life Ins. Co., supra, 42 Cal.App.4th at p. 1623.) A jury could reasonably find 21st Century did so here.6
On the subject of further investigation, 21st Century criticizes the Court of Appeal‘s statement that “when proper adjustment of a claim turns on a medical evaluation of the insured‘s condition an insurer breaches its duty to thoroughly investigate the claim if it fails to have the insured examined by a doctor of its choice or at least to consult with the insured‘s treating physician.” The appellate court, 21st Century argues, incorrectly held that the
II. The Genuine Dispute Rule
As discussed earlier, an insurer‘s denial of or delay in paying benefits gives rise to tort damages only if the insured shows the denial or delay was unreasonable. (Frommoethelydo v. Fire Ins. Exchange, supra, 42 Cal.3d at pp. 214-215.) As a close corollary of that principle, it has been said that “an insurer denying or delaying the payment of policy benefits due to the existence of a genuine dispute with its insured as to the existence of coverage liability or the amount of the insured‘s coverage claim is not liable in bad faith even though it might be liable for breach of contract.” (Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co. (2001) 90 Cal.App.4th 335, 347 [108 Cal.Rptr.2d 776].) This “genuine dispute” or “genuine issue” rule was originally invoked in cases involving disputes over policy interpretation, but in recent years courts have applied it to factual disputes as well. (See id. at p. 348; Fraley v. Allstate Ins. Co. (2000) 81 Cal.App.4th 1282, 1292-1293 [97 Cal.Rptr.2d 386]; Guebara v. Allstate Ins. Co. (9th Cir. 2001) 237 F.3d 987, 992-994.)
The genuine dispute 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. (Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co., supra, 90 Cal.App.4th at pp. 348-349;
Contending its denial of Wilson‘s claim rested on a genuine dispute as to the true value of the claim, 21st Century posits three grounds for factual dispute. First, 21st Century notes that the initial X-ray of Wilson‘s cervical spine, ordered by Dr. Jackson, was described by the radiologist as “normal” and as showing “no fracture, degenerative change or soft tissue swelling.” Wilson, of course, never claimed she had suffered a spinal fracture. She relied, in her attorney‘s June 2001 demand letter, on Dr. Southern‘s diagnosis of degenerative disk changes resulting from the accident. 21st Century, in response, did not take the position that Wilson had no degenerative changes to her cervical disks. Rather, it denied the claim on the ground that the disk damage was “preexisting.” As we have already explained, a jury could find that 21st Century lacked any factual basis for that conclusion and that in reaching it the company had unfairly ignored medical evidence submitted by its insured.8 As a dispute based on such an unreasonable position is not genuine, summary judgment was not proper on this ground.
Finally, 21st Century relies on Wilson‘s “extensive travels in 2001,” to wit, her trip to Europe after the accident and her period of study in Australia later in 2001. The claims examiner cited the Australia trip, but not that to Europe, as grounds for denial in his internal memo and in his telephone conversation with Wilson‘s attorney. As already explained, however, a jury could find 21st Century had no basis for concluding that Wilson‘s period of studying and traveling in Australia contradicted her claim of continuing significant neck pain and could therefore find that the examiner raised the Australia trip not in genuine dispute of her claim‘s value, but as a pretext or rationalization for denying it.9 Summary judgment was not proper on this ground either.
The dissenting opinion‘s argument for existence of a genuine dispute rests on an important misapprehension regarding the record. Plaintiff‘s June 2001 demand for the policy limits did not depend on anticipated future special damages for spinal surgery, as the dissent suggests by its emphasis on medical disagreement over whether surgery was recommended. (Dis. opn., post, at pp. 727-728.) Rather, plaintiff‘s demand rested largely on asserted general damages for the lifelong consequences of what Dr. Southern found to be probable degenerative disk changes. A jury could reasonably find that the
III. Other Issues
Turning from the question of a triable factual issue regarding its bad faith denial of the claim, 21st Century contends
CONCLUSION
The summary judgment record demonstrates the existence of triable issues of fact as to whether, before rejecting Wilson‘s UIM claim in July 2001, 21st Century thoroughly investigated and fairly evaluated the claim. Wilson presented sufficient evidence for a jury to find 21st Century‘s decision 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.‘” (Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co., supra, 90 Cal.App.4th at p. 346.) 21st Century was therefore not entitled to judgment as a matter of law on Wilson‘s bad faith cause of action, and the trial court erred in granting summary judgment to the insurer.
DISPOSITION
The judgment of the Court of Appeal is affirmed.
George, C. J., Kennard, J., Moreno, J., and Kline, J.,* concurred.
CHIN, J., Dissenting.—I cannot agree with the majority‘s conclusion that defendant 21st Century Insurance Company (21st Century) acted unreasonably and in bad faith when it delayed paying the policy limits on plaintiff‘s
*Presiding Justice of the Court of Appeal, First Appellate District, Division Two, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
It was not until after plaintiff returned from Europe, and before a planned trip to Australia, that she first sought the medical opinion of Dr. Southern, an orthopedist, for the cause of her continuing neck pain. Dr. Southern told plaintiff that if the magnetic resonance imaging scan he ordered was “markedly abnormal” she should postpone her trip to Australia. But when the results arrived he did not advise her to alter her plans, and she traveled in Australia for 10 months.
In June 2001, while plaintiff was still in Australia, her attorney sent a demand letter to 21st Century for a policy limits payment. The insurer invited plaintiff‘s attorney to submit any additional medical records that might cause it to revise its claim value assessment, but the attorney said that he had nothing more to submit. After 21st Century offered plaintiff her medical payment reimbursement of $5,000 and denied the policy limits demand, plaintiff initiated statutory arbitration in July 2001, under
Before the arbitration hearing, and after plaintiff returned from Australia in December 2001, she again saw Dr. Southern, who recommended a treatment regimen of physical therapy and antiinflammatory medications. He did not recommend surgery. It was not until plaintiff‘s June 2002 deposition in the arbitration proceeding, and for the first time in the two-year postaccident period, that plaintiff revealed that one of her doctors (Dr. Spencer) had recommended spinal fusion surgery. Following that recommendation, however, plaintiff sought another medical opinion from Dr. Szper (a neurosurgeon) who noted a “slight disc bulge” but found “nothing in my eyes which appears to be surgical.” Dr. Szper recommended against surgery, and suggested plaintiff undergo pain management instead.
In light of plaintiff‘s arbitration testimony that revealed the conflicting expert views, 21st Century promptly and reasonably sought an independent medical opinion to corroborate plaintiff‘s medical expert‘s opinions. The insurer‘s medical experts, Drs. Nagelberg and Chafetz, initially opined that surgery was not advisable, agreeing with at least one of plaintiff‘s own medical experts. It was not until after Dr. Nagelberg was given a full
I agree that we must evaluate the insurer‘s reasonableness under a “totality of the circumstances” standard. But contrary to the majority‘s view, the totality of the circumstances here shows that even plaintiff‘s experts had difficulty agreeing on the extent of her injury or the proper course of treatment.
If an insurance company reasonably and legitimately disputes coverage, summary judgment for the insurer is proper in a bad faith action even if it is later determined that the insurer did owe policy benefits. (Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co., supra, 90 Cal.App.4th at pp. 347-349 [tortious bad faith damages not imposed when insurer‘s initial failure to discharge contractual obligations was prompted by bad judgment or negligence]; see also Croskey et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2006) ¶ 12:837.1, pp. 12C-13.) In other words, a mistaken withholding of benefits or delay in payment is not bad faith where it is reasonable or based on a genuine dispute as to the insurer‘s liability. (See Rappaport-Scott v. Interinsurance Exchange of the Automobile Club (2007) 146 Cal.App.4th 831, 834–837 [53 Cal.Rptr.3d 245] [applying genuine dispute doctrine to preclude bad faith in underinsured motorist action]; see also Opsal v. United Services Auto. Assn. (1991) 2 Cal.App.4th 1197, 1205 [10 Cal.Rptr.2d 352] [before insurer can be found to have acted tortiously or in bad faith in refusing to bestow policy benefits, it must have done so “‘“without proper cause“‘“].) Given the fact that plaintiff‘s own experts could not agree on the extent of her injuries, 21st Century reasonably disputed the extent and severity of plaintiff‘s injuries.
The majority‘s holding can only drive up the cost of underinsured motorist insurance—contrary to the clear public policy of keeping the costs of such insurance low. (See, e.g., Yoshioka v. Superior Court (1997) 58 Cal.App.4th 972, 984 [68 Cal.Rptr.2d 553] [noting that uninsured (and hence, underinsured) motorist laws reflect the electorate‘s interest “in controlling the high costs of insurance“].) By allowing plaintiff to proceed with her lawsuit for bad faith even though a genuine dispute existed over the extent of her injuries
Accordingly, I dissent.
Baxter, J., concurred.
On December 19, 2007, the opinion was modified to read as printed above.