Case Title: Nationwide Mutual Insurance Co. v. St. John

Citation: 

Docket Number: 990161

State: virginia

Court: Virginia Supreme Court

Date: 2000-01-14T00:00:00Z

Document:
Present:  All the Justices 
 
NATIONWIDE MUTUAL INSURANCE COMPANY 
 
v.  Record No. 990161     OPINION BY JUSTICE ELIZABETH B. LACY 
 
 
 
January 14, 2000 
JOEL ST. JOHN 
 
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND 
Theodore J. Markow, Judge 
 
 
In this appeal we consider whether the trial court 
properly determined that an insurance company did not act in 
good faith under Code § 8.01-66.1(A). 
I. 
 
Joel St. John, a twelve-year-old boy, had his nose, knee, 
neck, and back injured in an automobile accident on May 17, 
1994.  His mother scheduled an appointment with his family 
physician and with a chiropractor who had treated Joel's 
father.  On May 24, 1994, Joel was treated by his family 
physician for his knee and nose injuries.  The next day Joel 
was examined by Dr. David M. deBarros, the chiropractor.  Dr. 
deBarros' examination disclosed objective findings of 
fixations of the spine, positive findings of a shoulder 
depression indicating either a muscle tear or nerve 
compression or stretching, a positive Schepelmann's test which 
showed pain while flexing the head to the right, and a 
vertebra that had moved out of position, called a T-12 
subluxation.  According to Dr. deBarros, all these injuries 
were caused by the automobile accident. 
 
Initially Joel was treated for these conditions three 
times a week, and then twice a week for four weeks.  Following 
reevaluation on August 8, 1994, his treatments were reduced to 
once a week.  Joel was periodically reevaluated and his 
treatment continued at a frequency consistent with his 
condition at the time of reevaluation.  Joel was dismissed 
from Dr. deBarros' care on April 5, 1995. 
 
Joel was an insured under an automobile liability 
insurance policy issued to his father by Nationwide Mutual 
Insurance Company (Nationwide).  A medical expense claim of 
$1,960 for Joel's treatment was submitted to Nationwide.  
Nationwide referred the claim to Dr. James W. Walker, a 
chiropractor, for review and evaluation of Joel's medical 
records.  Based on Dr. Walker's review, Nationwide paid 
$378.50 for medical expenses incurred prior to June 15, 1994, 
and disallowed all expenses incurred after that date. 
 
Joel, by his mother as next friend, filed suit against 
Nationwide in the General District Court of the City of 
Richmond seeking recovery of the medical costs for the ten 
months of chiropractic care disallowed by Nationwide.  
Nationwide removed the case to the Circuit Court of the City 
of Richmond.  The jury returned a verdict in favor of Joel for 
 
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$1,581.50, approximately the amount of the unpaid balance of 
the chiropractic medical bills.  Citing Code § 8.01-66.1(A), 
Joel asked the trial court to double the amount of the damages 
and award attorneys' fees because Nationwide acted in bad 
faith when it refused to pay for chiropractic care incurred 
after June 15, 1994.*  The trial court determined that 
Nationwide's refusal was not made in good faith and entered 
judgment against Nationwide for $3,162.00 in damages plus 
attorneys' fees of $1,500.  Nationwide filed an appeal 
asserting that the trial court erred in holding that 
Nationwide did not act in good faith under § 8.01-66.1(A). 
                     
* Code § 8.01-66.1(A) provides: 
Whenever any insurance company licensed in 
this Commonwealth to write insurance as defined in 
§ 38.2-124 denies, refuses or fails to pay to its 
insured a claim of $2,500 or less in excess of the 
deductible, if any, under the provisions of a 
policy of motor vehicle insurance issued by such 
company to the insured and it is subsequently 
found by the judge of a court of proper 
jurisdiction that such denial, refusal or failure 
to pay was not made in good faith, the company 
shall be liable to the insured in an amount double 
the amount otherwise due and payable under the 
provisions of the insured's policy of motor 
vehicle insurance, together with reasonable 
attorney's fees and expenses. 
The provisions of this subsection shall be 
construed to include an insurance company's 
refusal or failure to pay medical expenses to 
persons covered under the terms of any medical 
payments coverage extended under a policy of motor 
vehicle insurance, when the amount of the claim 
therefor is $2,500 or less and the refusal was not 
made in good faith. 
 
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II. 
We begin by addressing the legal principles relevant to 
our review of the trial court's judgment in this case.  First, 
although we have not previously considered the principles to 
be applied by a trial judge when considering whether an 
insurer acted in bad faith within the meaning of § 8.01-
66.1(A), we have addressed that issue in the context of 
§ 38.2-209.  That section allows an insured to recover costs 
and reasonable attorneys' fees in a declaratory judgment 
action brought by the insured against the insurer, if the 
trial court determines that the insurer was not acting in good 
faith when it denied coverage or refused payment under the 
policy.  In CUNA Mutual Insurance Co. v. Norman, 237 Va. 33, 
38, 375 S.E.2d 724, 726-27 (1989), we observed that § 38.2-209 
was intended to be both remedial and punitive and concluded 
that a standard of reasonableness should be applied in 
evaluating the conduct of the insurer.  See also Scottsdale 
Ins. Co. v. Glick, 240 Va. 283, 397 S.E.2d 105 (1990).  The 
parties suggest that this standard should be applied in this 
case.  We agree. 
Section 8.01-66.1(A), like § 38.2-209, is a remedial 
statute.  It is limited to claims of $2,500 or less.  Without 
the statutory authorization for recovery of multiplied 
damages, together with attorneys' fees and expenses, the 
 
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expense of litigation to recover such claims would preclude 
that course of action in many cases.  Section 8.01-66.1(A) 
operates as a punitive statute in the same manner as § 38.2-
209 because both punish an insurer whose bad faith dealings 
force an insured to incur the expense of litigation.  
Considering the similar purposes of the two statutes, we 
conclude that the standard of reasonableness enunciated in 
CUNA should be utilized when applying § 8.01-66.1(A). 
The standard of reasonableness requires the consideration 
of the following issues when determining whether an insurer 
acted in bad faith under § 8.01-66.1(A): 
whether reasonable minds could differ in the 
interpretation of policy provisions defining 
coverage and exclusions; whether the insurer had 
made a reasonable investigation of the facts and 
circumstances underlying the insured's claim; 
whether the evidence discovered reasonably supports 
a denial of liability; whether it appears that the 
insurer's refusal to pay was used merely as a tool 
in settlement negotiations; and whether the defense 
the insurer asserts at trial raises an issue of 
first impression or a reasonably debatable question 
of law or fact. 
 
CUNA, 237 Va. at 38, 375 S.E.2d at 727. 
 
Next, while the parties agreed on the reasonableness 
standard, they disagreed on the quantum of proof required to 
prevail under this standard.  Nationwide asserts that State 
Farm Mutual Automobile Insurance v. Floyd, 235 Va. 136, 366 
S.E.2d 93 (1988), imposes a clear and convincing evidentiary 
 
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standard on the insured in this case.  We disagree with 
Nationwide. 
 
Nothing in Floyd suggests that the principles established 
in that case are appropriate for application in this case.  In 
Floyd, an insured was required to show by clear and convincing 
evidence that its insurer acted in bad faith when it failed to 
settle a previous tort action resulting in a judgment in 
excess of the policy limits against the insured.  Id. at 144, 
366 S.E.2d at 98.  However, the action in Floyd was a common 
law breach of contract action, not a claim under a remedial 
statute allowing recovery of additional damages for refusal to 
pay claims based on the bad faith of the insurer.  
Furthermore, to recover in the breach of contract action, the 
insured had to show that the insurer "acted in furtherance of 
its own interest, with intentional disregard of the financial 
interest of the insured."  Id. at 144, 366 S.E.2d at 97.  Such 
a showing is significantly different than the reasonableness 
analysis to be applied to determinations of bad faith in this 
case. 
The higher evidentiary standard of clear and convincing 
evidence applied in Floyd is inconsistent with the remedial 
purpose of § 8.01-66.1(A) and, absent legislative directive 
otherwise, an insured's evidentiary burden under this remedial 
statute is the preponderance of the evidence standard. 
 
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A third principle relevant to our review is that the 
facts are reviewed in the light most favorable to the party 
prevailing below.  The trial court's judgment will be upheld 
unless it appears from the evidence that the judgment is 
plainly wrong or without evidence to support it. § 8.01-680; 
RF&P Corporation v. Little, 247 Va. 309, 319, 440 S.E.2d 908, 
915 (1994).  We now apply these principles to the issue in 
this case. 
III. 
 
Nationwide asserts that its decision to deny payment of 
Joel's medical expenses incurred after June 15, 1994 was 
reasonable.  Nationwide contends that it conducted a 
reasonable investigation by engaging Dr. Walker to review the 
medical records connected with Joel's claim and that it was 
reasonably debatable whether Joel suffered any back or neck 
injury as a result of the accident. 
Dr. Walker, after reviewing Joel's medical records 
concluded that "it was difficult to draw any direct causal 
relationship between the vehicle accident and the diagnosis 
[of subluxation of T-12 alone]," that other objective findings 
were made by Dr. deBarros indicating a "sprain/strain" and 
that "since the doctor didn't keep very good records . . . it 
was legitimate to consider chiropractic care through June 15th 
of '94, but not care beyond that time."  Even though Dr. 
 
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Walker expressed some hesitation at this point concerning the 
relationship between the accident and the T-12 subluxation 
diagnosed by Dr. deBarros, Dr. Walker did not question Dr. 
deBarros' diagnosis that Joel had been injured and recommended 
payment for treatment Joel had received for those injuries. 
Dr. Walker's recommended limitation on the length of time 
for which payment should be made does not alter his conclusion 
that the payment by Nationwide for some treatment was 
appropriate.  Nationwide paid for at least a portion of the 
medical treatment bills, thereby acknowledging that Joel was 
injured in the accident.  Therefore, Nationwide's own actions 
contradict its assertion that whether Joel's injuries were 
caused by the May 14, 1994 accident was fairly debatable. 
Nationwide also argues that even if Joel was injured in 
the May 14, 1994 accident, his injuries were so minor that 
treatment after three weeks was medically unnecessary. 
However, Dr. Walker's recommended limitation on payment of 
post-June 15, 1994 medical bills was not based on his opinion 
that the treatment beyond June 15 was not medically necessary.  
Instead, it was based on the fact that Dr. Walker couldn't 
tell whether or not the treatment was required because Dr. 
deBarros "didn't keep very good records." 
The medical necessity of continued treatment was 
addressed in the pre-trial depositions of Dr. Walker and Dr. 
 
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deBarros which were admitted in evidence at trial.  Dr. Walker 
maintained his position that the lack of good record keeping 
was the basis for his decision not to recommend payment for 
treatment after June 15.  Dr. deBarros testified to a 
reasonable degree of medical certainty that Joel's injuries 
were caused by the May 14, 1994 accident, and that all the 
treatment administered to Joel for those injuries was 
reasonably necessary.  Dr. deBarros testified in detail 
regarding the periodic evaluations of Joel's condition, the 
conditions requiring treatment, and the necessity for that 
treatment until Joel was discharged from Dr. deBarros' care.  
This testimony was not contradicted by Dr. Walker. 
Thus, prior to trial, Nationwide had no medical evidence 
that the injuries were not caused by the May 14, 1994 
accident, no medical opinion that the medical treatment 
received by Joel after June 15, 1994 did not relate to 
injuries received in the accident, and no medical opinion that 
the post-June 15 treatment was not medically necessary and 
reasonable.  Nevertheless, Nationwide refused to pay the 
remaining balance of Joel's medical bills and thus forced the 
matter to proceed to a trial. 
Based on this review, we conclude that there is support 
in the record for the trial court's determination that 
Nationwide acted in bad faith in refusing to pay Joel's claim 
 
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for medical expenses incurred after June 15, 1994, and the 
trial court's judgment was not clearly erroneous.  We, 
therefore, will affirm the judgment of the trial court.  
Affirmed.
JUSTICE COMPTON, concurring in the result. 
 
 
On May 17, 1994, the 12-year-old plaintiff was injured 
while riding in a vehicle operated by his mother that collided 
with another vehicle.  In the collision, the plaintiff 
sustained a blow to his nose and one knee.  As a result of the 
accident, he developed tenderness in his neck and back. 
 
The plaintiff was entitled to medical payments coverage 
under a policy of automobile liability insurance issued by 
defendant Nationwide Mutual Insurance Company.  The policy 
contract provided that defendant would pay all reasonable and 
necessary expenses for, among other things, medical and 
chiropractic expenses resulting from the accident. 
 
A week after the accident, the plaintiff was treated by 
his "family doctor."  The next day, the plaintiff was examined 
by a chiropractor, who found the plaintiff had sustained 
muscular and soft-tissue injuries to his neck and back in the 
accident.  The plaintiff was treated by the chiropractor until 
he was released from treatment about 11 months following the 
accident.  The chiropractor was of the opinion, within a 
reasonable degree of medical certainty, that his treatment and 
 
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services rendered to the plaintiff were medically necessary as 
a result of the injuries plaintiff sustained in the accident. 
 
When the plaintiff's parents submitted a claim to 
defendant for reimbursement of medical expenses under the 
medical payments provision of the policy, defendant referred 
the claim to another chiropractor to review the plaintiff's 
medical records and to render an opinion on the medical 
necessity of the plaintiff's treatment as it related to the 
accident.  Following this review, the chiropractor opined that 
based on the medical records he "couldn't draw a direct causal 
relationship between the accident" and the diagnosis made by 
plaintiff's chiropractor of "T-12 subluxation."  Preferring to 
err on the side of the plaintiff, even though he felt the 
medical records were unclear, the defendant's chiropractor 
advised that the medical care rendered for only about one 
month after the accident "could be considered" as related to 
the accident. 
 
The defendant's refusal to pay the full amount of medical 
expenses claimed generated this lawsuit.  In January 1998, 
plaintiff, through his mother as next friend, filed this 
action seeking recovery of $1,960, alleging breach of contract 
and "breach of the defendant's duty to deal with the plaintiff 
fairly and in good faith." 
 
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In an October 1998 jury trial, the breach of contract 
claim was litigated.  At that time, defendant had paid $378.50 
of the plaintiff's claim. 
 
The sole issue presented to the jury was whether 
defendant had breached its contract with plaintiff.  More 
specifically, the jury had to determine whether the treatment 
and services rendered by the plaintiff's chiropractor were 
medically necessary as a result of the injuries plaintiff 
sustained in the accident. 
 
The jury found in favor of the plaintiff and fixed the 
contract damages at $1,581.50, the amount claimed reduced by 
the sum defendant had paid. 
 
Following discharge of the jury, the plaintiff moved the 
trial court to "award double damages and reasonable attorney's 
fees and cost," relying on Code § 8.01-66.1(A).  Without 
taking additional evidence and following oral argument, the 
court granted the motion, finding "that defendant's denial of 
payment was not in good faith."  The defendant appeals that 
portion of the October 1998 judgment order which found 
defendant failed to act in good faith. 
 
When an insurer under these circumstances "denies, 
refuses or fails to pay its insured a claim of $2,500 or 
less," Code § 8.01-66.1(A) authorizes the trial court, upon a 
finding "that such denial, refusal or failure to pay was not 
 
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made in good faith," to find the insurer liable for "double 
the amount otherwise due and payable" under the policy's 
provisions, "together with reasonable attorney's fees and 
expenses." 
 
In evaluating the performance of an insurer when there is 
a claim that it acted in bad faith in withholding payment to 
an insured, courts should apply a "reasonableness standard."  
CUNA Mut. Ins. Co. v. Norman, 237 Va. 33, 38, 375 S.E.2d 724, 
726-27 (1989). 
 
In actions against insurers based upon breach of contract 
for failure to use good faith, we have held "that bad faith 
must be proved by clear and convincing evidence in cases of 
this kind."  State Farm Mut. Auto. Ins. Co. v. Floyd, 235 Va. 
136, 144, 366 S.E.2d 93, 98 (1988).  This is because the 
concept of "'bad faith' runs counter to the presumption that 
contracting parties have acted in good faith."  Id.
 
Contrary to the plaintiff's contention, it makes no sense 
in this insurance contract action alleging bad faith to adopt 
a preponderance-of-the-evidence standard of proof.  Bad faith 
means the same in any insurance contract context, no matter 
under what circumstances the lack of good faith is sought to 
be proved. 
 
Applying the foregoing principles, I would hold, however, 
that the trial court did not err in finding bad faith in this 
 
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case, given the record with which it was presented.  The two 
chiropractors testified by video deposition.  The deposition 
of the defendant's chiropractor was taken about three weeks 
before trial.  The deposition of plaintiff's chiropractor was 
taken two weeks prior to trial.  Thus, well in advance of 
trial, defendant was armed with the information that the 
plaintiff's witness would give an unqualified opinion of 
medical necessity while its own witness would give an 
inconclusive opinion on the subject.  In effect, prior to 
trial defendant's representatives knew, or should have known, 
that it had no evidence to rebut the plaintiff's evidence on 
the only issue in the case. 
 
Additionally, when the plaintiff made his post-verdict 
motion, there was no request from the insurer to offer 
evidence on the charge of bad faith, an allegation that had 
been made when the action was filed.  The court was not 
presented with any testimony on the subject of reasonableness 
from a claims supervisor or claims adjuster upon how the 
insurer finally evaluated the claim, given the medical 
testimony, or upon the insurer's reasoning to support its 
decision to deny the claim and to force the plaintiff to 
trial. 
 
Therefore, I would affirm the judgment of the trial 
court. 
 
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