FALCONE v. LIBERTY MUTUAL INSURANCE CO.

Citations: 391 P.3d 105; 2017 OK 11; 2017 WL 587321; 2017 Okla. LEXIS 12

Court: Supreme Court of Oklahoma; February 13, 2017; Oklahoma; State Supreme Court

Original Court Document: View Document

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Malinda Falcone initiated a legal claim against Liberty Mutual Insurance Company and LM General Insurance Company for payment of emergency room medical expenses incurred after an accident involving an uninsured driver. The accident occurred while she was a passenger in her mother's vehicle, which was struck when the driver ran a stop sign. Defendants disputed the necessity of referring Falcone to a level 2 trauma center and initially refused to pay the medical expenses amounting to $67,098.23, which included a $47,203 bill from the OU Medical Center.

Falcone alleged breach of the implied duty of good faith and fair dealing due to the defendants' failure to pay her medical bills. The trial court granted summary judgment in favor of the defendants and denied Falcone's motion for a new trial. However, the Supreme Court of Oklahoma held that the question of whether the defendants acted in bad faith was one for the jury to decide, concluding that the trial court erred by granting summary judgment. The case was reversed and remanded for further proceedings.

Liberty Mutual reviewed medical records with two expert witnesses regarding Falcone's trauma case. Dr. Tereshchenko concluded that Falcone did not meet L1 or L2 trauma criteria and deemed the CT scans unnecessary. Similarly, Dr. Stewart affirmed that Falcone did not meet L2 trauma guidelines and found no justification for an L2 trauma response at University Hospital, noting Falcone was discharged without a pain medication prescription. Consequently, Liberty Mutual denied payment for the L2 trauma charges, claiming they were unnecessary. 

Falcone filed a petition alleging breach of contract for failure to pay these charges as compensatory damages under the uninsured motorist (UM) provisions and claimed a breach of good faith and fair dealing. Liberty Mutual sought summary judgment, arguing that questioning the reasonableness of medical charges does not constitute bad faith. The court granted summary judgment in favor of Liberty Mutual, affirming that Oklahoma law permits insurers to challenge the reasonableness of medical charges without breaching their duty of good faith. The court noted the absence of binding precedent categorizing all emergency room charges as compensatory damages for UM claims and distinguished Falcone's reliance on a previous case concerning successive tortfeasors.

The court concluded that Liberty Mutual acted within its rights in evaluating the claim, and Falcone did not assert any other misconduct by Liberty Mutual. Initially, defendant's adjustor Dunlap estimated Falcone's claim between $37,855.23 and $42,855.25, based on expert opinions that the CT scans were not warranted. Dunlap's offer began at $37,855.23 and was later increased to $42,855.23.

Plaintiff's claim for breach of contract and bad faith arose after Defendant issued a check for $52,677.98 that Plaintiff did not cash. Following ten months of negotiations, where offers were approximately $15,000 less than Plaintiff's documented medical bills, Plaintiff filed a petition on August 4, 2014. An amendment on October 3, 2014, added LM General as a party. After the lawsuit commenced, Defendant issued a check for $100,000 on December 23, 2014, representing the uninsured motorist (UM) limits, more than a year post-incurrence of medical expenses. Throughout the negotiations, Defendant repeatedly offered lower amounts, asserting that certain treatments were unwarranted, which indicated potential bad faith. 

The court referenced established case law, particularly Christian v. American Home Assurance Company, which asserts an insurer's implied duty to act in good faith. A tort claim for bad faith arises only with clear evidence of unreasonable withholding of payment. The court determined that whether Defendant's actions constituted bad faith was a factual issue for a jury, particularly regarding the treatment costs from the L2 trauma center, which were beyond Plaintiff's control. The trial court's summary judgment favoring Defendant was deemed premature and was reversed, while the denial of Plaintiff's new trial motion was also reversed, remanding the case for further proceedings.

Gurich, V.C.J., concurs in part and dissents in part, agreeing with the majority's decision to remand the case to the trial court, which erred by sustaining the Defendants' Motions for Summary Judgment. The record indicates that Liberty Mutual acted in bad faith, necessitating a jury determination on Malinda Falcone's entitlement to actual and punitive damages. 

Relevant facts include that Falcone was a passenger in her mother’s car during an accident caused by uninsured driver Anthony Lewis on October 5, 2013. At the time, Falcone was covered under her mother’s LibertyGuard Auto Policy issued by LM General Insurance Company, wholly owned by Liberty Mutual. The policy included uninsured motorist coverage of up to $100,000 and $1,000 in Medical Payments Coverage.

Following the accident, Falcone was taken to OU Medical Center, where she was treated for injuries but not admitted. Her emergency room visit cost $47,203, including a charge for the hospital's "Trauma II" designation. She later incurred additional medical expenses totaling $67,098.23 for ongoing treatment for various injuries.

In February 2014, Falcone submitted a UM claim to Liberty Mutual for policy limits. Liberty Mutual investigated, but two out-of-state reviewers deemed the Level II trauma treatment unnecessary and disputed the need for CT scans. Based on these evaluations, Liberty Mutual initially refused to pay the trauma charge and offered to settle the claim for $37,855.23, which Falcone declined.

Ms. Falcone initially rejected an offer from Liberty Mutual, which subsequently increased its claim evaluation to $52,677.98, covering CT scan charges but excluding Trauma II charges. A check sent to Ms. Falcone on April 17, 2014, was never cashed. On July 26, 2014, Liberty Mutual notified her that $1,000 had been paid under the policy's med-pay coverage, which was now exhausted. On August 4, 2014, Ms. Falcone and her mother, Linda Smith, filed a lawsuit against Liberty Mutual for breach of contract and bad faith, and against Anthony Lewis for negligence. Mediation in December 2014 was unsuccessful, but Liberty Mutual later paid the $100,000 uninsured motorist (UM) limit to settle the contract claim. Linda Smith dismissed her breach of contract claim without prejudice on January 16, 2015. On August 25, 2016, Ms. Falcone informed the court of Anthony Lewis's death and dismissed her negligence claim against him without prejudice, leaving only her bad faith and punitive damages claims against Liberty Mutual.

On March 29, 2016, the trial court granted summary judgment for Liberty Mutual, ruling that the insurer did not act in bad faith by questioning the reasonableness of Ms. Falcone's emergency room charges instead of paying the full amount. Ms. Falcone's Motion for New Trial was denied on July 11, 2016, leading her to appeal and file a Motion to Retain, which was granted on August 22, 2016.

The document outlines the implied duty of insurers to act in good faith and deal fairly with the insured, detailing that bad faith involves unreasonable conduct and unjustified payment withholding. While insurers can deny claims with legitimate defenses, they must conduct reasonable investigations and pay claims promptly unless they have valid reasons to believe a claim is insufficient. The focus of a bad faith claim is on the insurer's knowledge and beliefs during the claim review process. The UM provision in the policy covers compensatory damages for bodily injuries from uninsured motor vehicles, while the med-pay provision covers reasonable medical expenses due to bodily injuries caused by an accident.

Liberty Mutual's med-pay provision allows for review of medical expenses deemed "reasonable" and "necessary," but such language is absent in its uninsured motorist (UM) provision. The UM provision mandates payment of compensatory damages that the insured is entitled to recover from an uninsured driver, without allowing Liberty Mutual to challenge the reasonableness or necessity of medical services. Liberty Mutual has not disputed that Ms. Falcone's emergency room visit was directly related to the accident, and she had no control over the medical decisions made by emergency room staff. There were no allegations of a supervening cause worsening her injuries. Oklahoma law states that the emergency room bill is part of her compensatory damages, and Liberty Mutual's actions are viewed as bad faith for withholding payment despite clear policy language and established law. On remand, Liberty Mutual's defense should be limited to the amount of damages owed, allowing Ms. Falcone to present evidence of bad faith conduct. A jury will determine the actual damages and whether punitive damages are warranted due to Liberty Mutual's reckless disregard for its duty to act in good faith regarding her emergency room bill. The total medical bills amount to $67,098.23, including significant expenses from the OU Medical Center. The negligence of the other driver, Mr. Lewis, is undisputed.

Detriment is defined as the loss or harm suffered by an injured party, with damages measured by the compensation necessary for all proximate detriment, as established in Chicago, R.I. P.R. Co. v. Wright. Compensatory damages, equated with actual damages, aim to reimburse the complainant for proven losses. The Tenth Circuit has determined that an insurance company's failure to adhere to its policy and Oklahoma law in coverage disputes can indicate bad faith, as seen in Haberman v. The Hartford Ins. Group. Under 23 O.S. 2011 §9.1(B)(2)(b), if a jury finds that an insurer has recklessly disregarded its duty of good faith, punitive damages may be awarded, not exceeding the greater of actual damages or $100,000. If the breach is intentional and malicious, under 23 O.S. 2011 §9.1(C)(2)(a-b), punitive damages may reach up to $500,000 or twice the actual damages, with malice defined as a conscious disregard for another’s rights, as illustrated in Alsobrook v. Nat'l Travelers Life Ins. Co.