Opinion ID: 786763
Heading Depth: 3
Heading Rank: 5

Heading: The insurer failed to conduct a thorough investigation;

Text: 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.