Opinion ID: 1863497
Heading Depth: 1
Heading Rank: 1

Heading: The Bad Faith Claim Against Blue Cross

Text: The Gonzalezes argue that on their bad faith claim against Blue Cross they presented evidence creating genuine issues of material fact for a jury to decide and, therefore, that the trial judge erred by granting Blue Cross's motion for summary judgment. A summary judgment is proper only where there is no genuine issue of material fact and the moving party is entitled to a judgment as a matter of law. Rule 56, Ala. R. Civ. P. On a motion for summary judgment, the burden is on the moving party to make a prima facie showing that there is no genuine issue of material fact to be considered by the jury. Brantley v. Proactive Ins. Corp., 632 So.2d 969 (Ala.1994). When the moving party has made this prima facie showing, the burden shifts to the nonmoving party to present substantial evidence creating a genuine issue of material fact. Id.; § 12-21-12, Ala. Code 1975. [S]ubstantial evidence is evidence of such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved. West v. Founders Life Assurance Co. of Florida, 547 So.2d 870, 871 (Ala.1989). In determining whether a summary judgment was proper, this Court must view the evidence in a light most favorable to the nonmoving party. Brantley, at 970. This Court first recognized an actionable tort for an insurer's bad faith refusal to pay an insurance claim in Chavers v. National Security Fire & Cas. Ins. Co., 405 So.2d 1 (Ala.1981). Bad faith is the intentional failure by an insurer to perform the duty of good faith and fair dealing implied by law. Koch v. State Farm Fire & Cas. Co., 565 So.2d 226, 229 (Ala.1990). In Chavers the Court held: [A]n actionable tort arises [from] an insurer's intentional refusal to settle a direct claim where there is either `(1) no lawful basis for the refusal coupled with actual knowledge of that fact or (2) intentional failure to determine whether or not there was any lawful basis for such refusal.' 405 So.2d at 7. The Gonzalezes' bad faith claim rests on the second tier of the Chavers test, which was clarified in Gulf Atlantic Life Ins. Co. v. Barnes, 405 So.2d 916, 924 (Ala. 1981): The second tier of the test is an elaboration on the first. The trier of fact, by finding, on the part of the insurer, an `intentional failure to determine whether or not there was any lawful basis for refusal,' may use that fact as an element of proof that no lawful basis for refusal ever existed. The relevant question before the trier of fact would be whether a claim was properly investigated and whether the results of the investigation were subjected to a cognitive evaluation and review. Implicit in that test is the conclusion that the knowledge or reckless disregard of the lack of a legitimate or reasonable basis may be inferred and imputed to an insurance company when there is a reckless indifference to facts or to proof submitted by the insured. The elements of a bad faith claim were summarized in National Security Fire & Cas. Co. v. Bowen, 417 So.2d 179 (Ala.1982), as follows: An insurer is liable for its refusal to pay a direct claim when there is no lawful basis for the refusal coupled with actual knowledge of that fact. Chavers v. National Security Fire [& Cas.] Co., [405 So.2d 1 (Ala.1981)]. No lawful basis `means that the insurer lacks a legitimate or arguable reason for failing to pay the claim.' Gulf Atlantic Life Ins. Co. v. Barnes, [405 So.2d 916 (Ala.1981)]. When a claim is `fairly debatable,' the insurer is entitled to debate it, whether the debate concerns a matter of fact or law. Ibid. Under those authorities the plaintiff in a `bad faith refusal' case has the burden of proving: (a) an insurance contract between the parties and a breach thereof by the defendant; (b) an intentional refusal to pay the insured's claim; (c) the absence of any reasonably legitimate or arguable reason for that refusal (the absence of a debatable reason); (d) the insurer's actual knowledge of the absence of any legitimate or arguable reason; (e) if intentional failure to determine the existence of a lawful basis is relied upon, the plaintiff must prove the insurer's intentional failure to determine whether there is a legitimate or arguable reason to refuse to pay the claim. In short, plaintiff must go beyond a mere showing of nonpayment and prove a bad faith nonpayment, a nonpayment without any reasonable ground for dispute. Or, stated differently, the plaintiff must show that the insurance company had no legal or factual defense to the insurance claim. The `debatable reason' under (c) above means an arguable reason, one that is open to debate or question. 417 So.2d at 183. In Blackburn v. Fidelity & Deposit Co., 667 So.2d 661, 668 (Ala.1995), we stated: In bad faith cases involving an insurer's refusal to pay an insurance claim, this Court has established the `directed verdict on the contract claim' standard. In National Savings Life Ins. Co. v. Dutton, 419 So.2d 1357, 1362 (Ala.1982), we stated: `In the normal case in order for a plaintiff to make out a prima facie case of bad faith refusal to pay an insurance claim, the proof offered must show that the plaintiff is entitled to a directed verdict on the contract claim, and, thus, entitled to recover on the contract claim as a matter of law. Ordinarily, if the evidence produced by either side creates a fact issue with regard to the validity of the claim and, thus, the legitimacy of the denial thereof, the tort claim must fail and should not be submitted to the jury.' However, in Thomas v. Principal Financial Group, 566 So.2d 735 (Ala.1990), we noted that the `directed verdict on the contract claim' test was not applicable to decide every bad faith claim. Citing Continental Assurance Co. v. Kountz, 461 So.2d 802 (Ala.1984), and Gulf Atlantic Life Ins. Co. v. Barnes, 405 So.2d 916 (Ala.1981), we held that even if an insured was not entitled to a directed verdict on the contract claim, the bad faith claim could be submitted to the jury if `the insurer either intentionally or recklessly failed to properly investigate the claim or subject the results to a cognitive evaluation and review.' Thomas, supra, at 744. Thus, the issue before this Court is whether the Gonzalezes presented substantial evidence that Blue Cross failed to properly investigate the Gonzalezes' claims or to subject the results of its investigation to a cognitive evaluation and review. The policy issued to the Gonzalezes specifically requires that coverage be in effect for 365 days before maternity benefits will be provided. As previously noted, the effective date of the policy in this case was March 1, 1993, so the waiting period for maternity benefits expired on February 28, 1994. Mrs. Gonzalez gave birth on February 24, 1994, before the expiration of the waiting period. However, the policy also specifies that maternity benefits would be provided when the pregnancy terminates before [the] expected delivery date which, if carried to full term, would have occurred after the expiration of the 365-day waiting period. Thus, because the actual birth of the Gonzalezes' baby came before the expiration of the waiting period, the maternity care services rendered to Mrs. Gonzalez would be covered under the policy only if the expected delivery date was after the expiration of the waiting period on February 28, 1994. The record shows that on November 1, 1993, Blue Cross requested the records of Mrs. Gonzalez's ultrasound examination that had been performed on September 8, 1993, by Dr. Ryan, in order to determine the applicability of the waiting period. It is undisputed that Blue Cross received both the computer printout indicating the results of that examination and showing an expected delivery date of February 26, 1994, and the accompanying report from Dr. Ryan stating that the clinical expected delivery date was February 27, 1994. In addition, Mrs. Gonzalez's Hospital Admission Summary, Delivery and Newborn Record from Brookwood Medical Center also lists the expected delivery date as February 27, 1994, and it states the gestational age as approximately 39.2 weeks and states that the baby was nine-pounds, five-ounces and that the pregnancy was considered full-term. (C.R. 110) Each of these documents, all of which show the dates of actual delivery and expected delivery to be before the expiration of the waiting period, was sufficient to establish an arguable or debatable reason for denying the claim. The Gonzalezes counter by arguing that there is no evidence that the information in Mrs. Gonzalez's file was actually considered by Blue Cross medical review personnel until after the claim was initially rejected on March 31, 1994. The Gonzalezes correctly argue that Blue Cross cannot defeat a bad faith claim by advancing reasons for the denial, no matter how valid, that were discovered only after it had rejected an investigation of the claim. Whether an insurance company is justified in denying a claim under a policy must be judged by what was before it at the time the decision was made. Dutton, 419 So.2d at 1362. However, Blue Cross records show that Mrs. Gonzalez's file, which included the ultrasound results and Dr. Ryan's report, both of which indicated due dates that would come before the expiration of the waiting period, had been forwarded for medical review as of November 29, 1993. (C.R. 452) In addition, the record also shows that at least by January 25, 1994, Blue Cross was aware that Mrs. Gonzalez's expected delivery date was February 26, 1994, and it also shows that by January 25 Blue Cross had already determined that the exclusion (for the case of a baby born during the waiting period whose full-term delivery would have come after the waiting period had ended) could be applicable. (C.R. 449.) The Gonzalezes next argue that Blue Cross failed to properly evaluate their claim, arguing that when Blue Cross rejected their claim it had not yet discovered or considered the information from Drs. May and McClelland that indicated an expected delivery date outside the waiting period. Blue Cross did not receive this information until Mr. Gonzalez submitted it with his letter dated June 13, 1994, several months after Blue Cross had initially denied the claim. However, the record indicates no reason for Blue Cross to believe that the information already in its possession was incorrect or incomplete. Even assuming that Blue Cross had considered the records submitted by Drs. May and McClelland and had then denied the claim, the ultrasound results and the hospital delivery records in Blue Cross's possession showing that both the actual and the expected delivery dates were before the expiration of the waiting period still would provide at least an arguable or debatable basis for Blue Cross to deny the claim; and once Mr. Gonzalez submitted the conflicting information regarding the expected date of delivery, Blue Cross agreed to reopen the file and to review its determination that it had a valid reason to deny the claim. Thus, the Gonzalezes cannot complain that Blue Cross did not properly investigate the claim once it received evidence indicating that the denial of benefits might have been incorrect. See King v. National Foundation Life Ins. Co., 541 So.2d 502, 505 (Ala.1989). We conclude that the trial court properly entered the summary judgment in favor of Blue Cross on the claim of bad faith.