Opinion ID: 2637098
Heading Depth: 2
Heading Rank: 1

Heading: Lack of Thorough Investigation and Fair Evaluation

Text: 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 p. 215, 228 Cal.Rptr. 160, 721 P.2d 41.) To protect its insured's contractual interest in security and peace of mind, it is essential that an insurer fully inquire into possible bases that might support the insured's claim before denying it. ( Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 819,169 Cal.Rptr. 691, 620 P.2d 141.) By the same token, denial of a claim on a basis unfounded in the facts known to the insurer, or contradicted by those facts, may be deemed unreasonable. A trier of fact may find that an insurer acted unreasonably if the insurer ignores evidence available to it which supports the claim. The insurer may not just focus on those facts which justify denial of the claim. ( Mariscal v. Old Republic Life Ins. Co. (1996) 42 Cal.App.4th 1617, 1623, 50 Cal.Rptr.2d 224; see also Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal. App.4th 847, 880, 93 Cal.Rptr.2d 364.) 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 conclusion that such a causative link was unlikely. Nor is there any apparent medical basis for the claims examiner's assertion that Wilson had preexisting degenerative disc disease. No such diagnosis appears in the medical reports submitted to 21st Century, and we are directed to no evidence that the company's claims examiner had sufficient medical expertise to make such a diagnosis himself. [5] As to the fact that Wilson was studying in Australia (not on vacation, as the claims examiner baselessly asserted) in 2001, the Court of Appeal aptly observed that it is as possible to suffer `severe pain' in Australia as in Southern California. 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, 169 Cal.Rptr. 691, 620 P.2d 141; Mariscal v. Old Republic Life Ins. Co., supra, 42 Cal.App.4th at p. 1623, 50 Cal.Rptr.2d 224.) 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 failure to order an examination is bad faith in all cases, while regulations of the Insurance Commissioner indicate an insurer should ask for an independent examination only when it believes it reasonably necessary. (See Cal.Code Regs., tit. 10, § 2695.7, subd. (n).) We agree that, the critical issue being the reasonableness of the insurer's conduct under the facts of the particular case, stating a general rule as to how much or what type of investigation is needed to meet the insurer's obligations under the implied covenant is difficult. An insurer's good or bad faith must be evaluated in light of the totality of the circumstances surrounding its actions. ( Nager v. Allstate Ins. Co. (2000) 83 Cal.App.4th 284, 288, 99 Cal.Rptr.2d 348; Walbrook Ins. Co. v. Liberty Mutual Ins. Co. (1992) 5 Cal. App.4th 1445, 1455-1456, 7 Cal.Rptr.2d 513.) In some cases, review of the insured's submitted medical records might reveal an indisputably reasonable basis to deny the claim without further investigation. But as the Court of Appeal explained in passages following the statement 21st Century criticizes, and as we demonstrate above, under the facts of this case a triable issue of fact exists as to whether it was reasonable to deny Wilson's claim on the grounds stated without further medical investigation.