Opinion ID: 2672440
Heading Depth: 2
Heading Rank: 1

Heading: It Was Error To Grant Summary Judgment To Geico.

Text: Under Alaska’s contract law, “the covenant of good faith and fair dealing . . . is implied in all contracts.”16 For insurance contracts, breach of this covenant by the insurer gives the insured a cause of action sounding in tort because of “[t]he special relationship between the insured and insurer in the insurance context”17 and because tort liability “provide[s] needed incentive to insurers to honor their implied covenant to their insureds.”18 “[W]ithout such a cause of action insurers can arbitrarily deny coverage and delay payment of a claim with no more penalty than interest on the amount owed.”19 Although we have declined to define the elements of the tort of bad faith in an insurance contract,20 our precedent makes clear that the element of breach at least requires the insured to show that the insurer’s actions were objectively unreasonable 16 State Farm Mut. Auto. Ins. Co. v. Weiford, 831 P.2d 1264, 1266 (Alaska 1992) (citing Alaska Pac. Assur. Co. v. Collins, 794 P.2d 936, 947 (Alaska 1990)). 17 State Farm Fire & Cas. Co. v. Nicholson, 777 P.2d 1152, 1156 (Alaska 1989). 18 Id. at 1157. 19 Ennen v. Integon Indem. Corp., 268 P.3d 277, 291 (Alaska 2012) (alteration in original) (quoting Nicholson, 777 P.2d at1156). We note that an insurer’s breach of the covenant of good faith and fair dealing gives the insured the ability to sue in tort as well as contract, with the distinction determining, among other things, which types of damages will be available. See Weiford, 831 P.2d at 1266. 20 See Hillman v. Nationwide Mut. Fire Ins. Co., 855 P.2d 1321, 1323 (Alaska 1993) (“We had no occasion to comprehensively define the elements of the tort of bad faith in a first-party insurance context in Nicholson; we have not done so in subsequent cases, see e.g., [Weiford]; nor do we do so now.”). -12- 6904 under the circumstances.21 Thus, in order to prevail on her bad-faith claim at trial, Lockwood will have to show that Geico’s delay in payment of her claims breached the covenant of good faith and fair dealing because it was “made without a reasonable basis.”22 The superior court in this case granted Geico’s motion for summary judgment, concluding that there was no genuine issue of material fact as to whether 21 See Hillman, 855 P.2d at 1324 (“[T]he tort of bad faith in first-party insurance cases . . . necessarily requires that the insurance company’s refusal to honor a claim be made without a reasonable basis.”). Whether the insured must also show some sort of culpable mental state in addition to objective unreasonableness in a bad-faith insurance tort action is a matter left open by our case law. See, e.g., Nicholson, 777 P.2d at 1154 n.3 (reviewing jury verdict finding breach of duty of good faith and fair dealing by insurer under first-party insurance contract where jury was instructed that “[b]ad faith does not mean bad judgment or negligence, but means having a dishonest purpose through some motive of self-interest or ill will, or having maliciousness or hostile feelings toward its insureds, or acting with reckless indifference to the interests or rights of its insureds,” but disposing of case on other grounds and not reviewing propriety of jury instruction); Ennen, 268 P.3d at 287-88 (upholding bench trial decision that insurer tortiously breached duty of good faith and fair dealing owed to insured where insurer engaged in no “ ‘intentional’ scheme to ‘deceive and deny [underinsured motorist] claims’ ” but nonetheless acted objectively unreasonably under the circumstances and was reckless with regard to its unreasonableness); cf. Jackson v. Am. Equity Ins. Co., 90 P.3d 136, 143-45 (Alaska 2004) (disapproving use of Nicholson jury instruction in bad-faith tort action against insurer for failure to settle third-party claim against insured within policy limits); Cont’l Ins. Co. v. Bayless & Roberts, Inc., 608 P.2d 281, 293 (Alaska 1980) (holding “that an insurer, defending an action against the insured, is bound to exercise that degree of care which a man of ordinary prudence would exercise in the management of his own affairs . . . irrespective of fraud or bad faith.” (citation omitted)). We decline to address this issue now because it is unnecessary for us to do so in the course of reversing the superior court’s grant of summary judgment. 22 Hillman, 855 P.2d at 1324. -13- 6904 Geico acted unreasonably by delaying payment on Lockwood’s uninsured motorist benefits. We conclude that summary judgment was improperly granted in this case. Looking at the circumstances of this case as a whole and viewing the evidence and reasonable inferences therefrom in a light most favorable to the non­ moving party, we conclude that there is a genuine issue of material fact as to Geico’s reasonableness in delaying payment on Lockwood’s uninsured motorist claim. First, Geico initially offered to settle Lockwood’s uninsured motorist claim in June 2007 for just $750. Geico based this offer solely on Lockwood’s childcare expenses and not on her medical condition, the connection of that condition to the car accident, her expected medical bills, general damages, or lost wages. After exhaustion of her medical payment benefits, Lockwood was continuing to incur medical expenses and suffer lost wages and other non-economic general damages. Under these circumstances, in conjunction with the other factors discussed below, a genuine issue of material fact exists as to whether an offer of $750 was unreasonable behavior on the part of an insurer subject to the duty of good faith and fair dealing.23 Second, Geico decided in May 2008 not to pay any of Lockwood’s medical bills after exhaustion of the medical payments benefits without a total settlement of the uninsured motorist claim. Drawing all reasonable inferences in favor of Lockwood, a genuine issue of material fact exists as to whether the basis for Geico’s decision was unconnected to Lockwood’s actual medical condition but rather motivated by the exhaustion of the medical payments benefits. If Geico had legitimate concerns about the extent of Lockwood’s injuries, an inference can be drawn that a reasonable insurer would advise her of those concerns with specificity and either ask Lockwood for more medical 23 Cf. Weiford, 831 P.2d at 1268-69 (concluding that an initial settlement offer of $5,000, which was low in the context of the damages and ultimate outcome in that case, “might support a fact finder’s conclusion that [the insurer] was guilty of bad faith”). -14- 6904 information or ask for an independent medical exam. Geico took no such actions at the time it demanded a global settlement. This could raise the question whether Geico’s decision to condition additional medical payments on a global settlement actually was connected to Lockwood’s medical situation and the accident. Third, Geico denied any further payment under the uninsured motorist policy and declined to make any further attempts to reach a settlement, based solely on its unsubstantiated doubts about the necessity of medical care for injuries sustained in the accident. Lockwood presented evidence in her deposition, affidavit, and medical records that she experienced ongoing, life-changing pain as a result of the accident and having to cease treatment.24 Geico noted that she had had a prior back injury 25 and expressed concern that her medical bills were “high” in the context of this accident. But other than asserting these doubts, Geico did nothing to reduce the alleged medical uncertainty about the cause of Lockwood’s pain or to clarify the necessity of further treatment from the chiropractor. Geico did not request a second medical opinion or an independent medical exam until 2010, about three years after it stopped paying Lockwood’s medical bills. Indeed, Geico’s staff did not cite a medical basis of any kind to call into question the chiropractor’s treatment for Lockwood’s injuries in 2007. Geico did not seek to use the voluntary-arbitration clause present in the insurance contract to resolve the issue of medical uncertainty. Nor did Geico inform Lockwood what she would have to do to resolve the medical uncertainty to Geico’s satisfaction. Geico took none of these 24 She explained in her deposition that her back pain has “definitely cut[] down on” her “every day activities” and “changed . . . [her] way of life.” She claimed that even daily activities were difficult: “[f]olding laundry, after a while I’m in pain, I can’t finish it.” Three years after the accident, she described her back as “hurt[ing] about six out of seven days a week.” She reported that she finds “it difficult to roll over in bed without pain” and that her “lower back pain is worse than [her] neck pain.” 25 A doctor had pronounced her prior back injury stable as of 2006. -15- 6904 affirmative steps to clarify the alleged medical uncertainty after Lockwood presented all requested information to Geico.26 Taking these circumstances and all reasonable inferences that may be drawn from the facts favorable to Lockwood, we conclude that a genuine issue of material fact exists as to whether Geico acted unreasonably by delaying payment on Lockwood’s uninsured motorist benefits. Geico argues that it had several reasonable bases to delay payment in this case: the severity of the car accident that “did not involve a heavy impact,” Lockwood’s “high” medical bills in light of “a diagnosis of a neck strain,” and the fact that “Lockwood had recently treated with her chiropractor for more than a year, with similar complaints.” Whether or not Geico’s arguments ultimately prevail at trial, they are insufficient to justify summary judgment. We conclude that, under the three circumstances discussed above, there is a genuine issue of material fact on the questions whether Geico had a reasonable basis for delaying payment of Lockwood’s uninsured motorist benefits and whether Geico breached its duty of good faith and fair dealing. We therefore reverse the superior court’s grant of summary judgment and remand for further proceedings.27 B. It Was An Abuse Of Discretion To Deny Lockwood’s Motion To Compel Discovery Of Geico’s Manuals. After its in camera review, the superior court concluded that the claims function chapter of Geico’s manual requires “the GEICO claims examiners to deal with 26 See Wilson v. 21st Century Ins. Co., 171 P.3d 1082, 1084-89 (Cal. 2007) (affirming reversal of summary judgment for the insurer in a bad-faith insurance tort suit where the insurer delayed payment for two years as a result of its failure to launch a timely investigation to support its medical assertions of a preexisting injury). 27 This does not imply that Geico’s delay of payment was necessarily unreasonable and thus will constitute bad faith in a trial on the merits. That question can be answered only by the ultimate finder of fact. -16- 6904 insurance issues ethically, fairly, and promptly. . . . This hardly novel concept does not justify the release of proprietary information . . . .” As a result, the superior court denied Lockwood’s motion to compel discovery of Geico’s manuals, concluding that the manuals would not “directly lead to any admissible evidence regarding any complaints concerning payments from different available coverages.” On appeal, Lockwood argues that Geico’s manuals are relevant and discoverable under Alaska Civil Rule 26(b)(1) because (1) the “relevancy standard is to be broadly construed at the discovery stage” and (2) “the court impliedly noted that the materials were relevant to [Geico]’s handling of Lockwood’s approved [uninsured motorist] claim.” Geico replies that, despite the superior court’s direction that Lockwood narrow her discovery, she only requested “generic” documents and “failed to articulate the relevance of her demand.” We conclude that the superior court abused its discretion by not compelling relevant discovery. Alaska Civil Rule 26(b)(1) provides: Parties may obtain discovery regarding any matter, not privileged which is relevant to the subject matter involved in the pending action . . . . The information sought need not be admissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence. As we have stated, our “discovery rules are to be broadly construed and ‘relevance for purposes of discovery is broader than for purposes of trial.’ ”28 28 Lee v. State, 141 P.3d 342, 347 (Alaska 2006) (quoting Hazen v. Municipality of Anchorage, 718 P.2d 456, 461 (Alaska 1986)) (holding that the superior court did not abuse its discretion by granting discovery of corporate documents and information about companies’ technologies and employees because they related to liability and a defense); see also Langdon v. Champion, 752 P.2d 999, 1004 (Alaska 1988) (construing the attorney-client privilege narrowly in light of “ ‘our commitment to liberal pre-trial discovery’ ” (quoting United Servs. Auto. Ass’n v. Werley, 526 P.2d (continued...) -17- 6904 After conducting an in camera review of the materials, we conclude that the claims handling chapter of Geico’s manual contains information that is arguably relevant to Lockwood’s claims. In particular, the portions of the manual that address professional ethics, settlement practices, and negotiations may prove relevant to Lockwood’s badfaith claim. These portions shed light on Geico’s standard practices and could lead to admissible evidence as to what a typical investigation entails and whether the Geico adjusters followed standard procedures.29 We therefore conclude that, under our broad discovery rules, Lockwood is entitled to discover portions of Geico’s manuals relevant to Geico’s claims-handling practices. Finally, we note that Lockwood offered to stipulate to a protective order and that Geico requested a confidentiality agreement and protective order to protect confidential information in the manual if the superior court were to compel discovery. The superior court, at its discretion, may issue a protective order to protect confidential information in the materials.