Opinion ID: 786763
Heading Depth: 2
Heading Rank: 2

Heading: Jury's Bad Faith Determination

Text: 33 A cause of action for breach of the implied covenant of good faith and fair dealing in the insurance context is characterized as insurance bad faith, for which a plaintiff may recover tort damages. The key to a bad faith claim [under California law] is whether or not the insurer's denial of coverage was reasonable.... [T]he reasonableness of an insurer's claims-handling conduct is ordinarily a question of fact. Amadeo v. Principal Mut. Life Ins. Co., 290 F.3d 1152, 1161 (9th Cir.2002) (citations and quotation marks omitted). Where there is a genuine issue of an insurer's liability under a policy, a court can conclude that an insurer's actions in denying the claim were not unreasonable as a matter of law. Chateau Chamberay Homeowners Ass'n v. Associated Int'l Ins. Co., 90 Cal.App.4th 335, 108 Cal.Rptr.2d 776, 784 (2001). The genuine issue rule in the context of bad faith claims allows a court to grant JMOL when it is undisputed or indisputable that the basis for the insurer's denial of benefits was reasonable.... [A]n 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. Amadeo, 290 F.3d at 1161-62 (citations omitted). 34 Though the existence of a genuine dispute will generally immunize an insurer from liability, a jury's finding that an insurer's investigation of a claim was biased may preclude a finding that the insurer was engaged in a genuine dispute, even if the insurer advances expert opinions concerning its conduct. See Chateau Chamberay, 108 Cal.Rptr.2d at 785 (an [insurer] expert's testimony [demonstrating a genuine dispute as to liability] will not automatically insulate an insurer from a bad faith claim based on a biased investigation); see also Guebara v. Allstate Ins. Co., 237 F.3d 987, 996 (9th Cir.2001) (Our decision does not eliminate bad faith claims based on an insurer's allegedly biased investigation. Expert testimony does not automatically insulate insurers from bad faith claims based on biased investigations.). An insurer's bias may be shown through the following factors: 35
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40 Chateau Chamberay, 108 Cal.Rptr.2d at 785; cf. Sprague v. Equifax, Inc., 166 Cal.App.3d 1012, 213 Cal.Rptr. 69, 79 (1985) (fraudulent termination exists if insurer arranges an inadequate medical examination, producing a false conclusion, which would form an apparently plausible basis for wrongfully terminating payments). 41 Substantial evidence was presented at trial that the jury could have relied upon in determining that Defendants engaged in a biased investigation. Frank Caliri testified that Paul Revere's letter terminating Hangarter's benefits was misleading, deceptive, and fell below industry standards as it incorrectly advised Hangarter about her rights under the policy. 7 The letter claimed that Hangarter was working, and therefore was in violation of the policy. This statement, as Paul Revere acknowledged in the same letter, was false because Hangarter had already sold her chiropractic business. Indeed, the letter went on to deny Hangarter any residual benefits, claiming that because she had sold her business and was not working, she was ineligible for them. Moreover, the letter made no mention of recovery or rehabilitation benefits, and when Hangarter specifically asked about such benefits before the letter was issued, she was erroneously told that she was ineligible for them. Finally, the termination letter incorrectly stated that the policy was governed by ERISA. If true, this would have meant that Hangarter had no available remedies under state law, including punitive damages. 8 42 Evidence was also presented that Defendants exhibited bias in selecting and retaining Dr. Swartz as the IME. Paul Revere used Dr. Swartz nineteen times from 1995 to 2000. Caliri testified that when an insurer use[s] the same [IME] on a continual basis, the medical examiner becomes biased because they lose their independence. Similarly, evidence showed that in thirteen out of thirteen cases involving claims for total disability, Dr. Swartz rejected the insured's claim that he or she was totally disabled. Moreover, Defendants' letter retaining Dr. Swartz, written by an in-house medical consultant who had never examined Hangarter, claimed that there were no objective findings for a disabling injury. Caliri testified that this letter bias[ed] and predispos[ed] the doctor against finding disabling injuries by telling him [Defendants'] opinion. 43 Additionally, Hangarter offered evidence that Defendants had developed and applied to her case file a comprehensive system for targeting and terminating expensive claims, such as those stemming from own occupation policies where the insured was a disabled professional who had been receiving benefits for months or years. Dr. William Feist testified that Defendants in the mid-to-late 1990s had instituted unethical policies such as round table claim reviews that were made with the goal of achieving a net termination ratio (the ratio of the value of terminated claims compared with new claims). 9 Caliri similarly testified that the round table process violated the insurance industry principle of looking at each policy claim objectively and on a case-by-case basis. 44 Viewing the evidence in Hangarter's favor, we conclude that the district court did not err in determining that the jury had substantial evidence before it to find that the Defendants engaged in a biased, and thus bad faith, investigation.