Court: District Court, E.D. Washington; May 23, 2014; Federal District Court
The court reviewed cross-motions for summary judgment and related motions concerning Plaintiff Robert Merrill's claims against Crown Life Insurance Co. following a skiing accident that resulted in a fractured eye socket and subsequent vision impairment. After the accident in January 2011, Merrill experienced double vision, leading to surgery which partially improved his condition. Although he returned to work in February, by June he could no longer perform his orthodontic duties competently and eventually sold his practice in November 2011.
Crown Life determined that Merrill was totally disabled from the date he sold his practice but denied total disability coverage for the period he continued working, awarding only proportional benefits instead. This denial included the significant "Professional Overhead Expense" benefits. Merrill's lawsuit claims breach of contract, bad faith, and violations of the Washington Insurance Fair Conduct Act and Consumer Protection Act due to Crown Life's denial.
The court granted partial summary judgment to Merrill on his breach of contract and one claim under the Consumer Protection Act while granting Crown Life summary judgment on the remaining CPA claims. Genuine issues of material fact remain unresolved regarding Merrill's bad faith and IFCA claims. The court noted that both disability income and overhead expense policies included provisions for partial benefits in cases of income loss due to injury.
Plaintiff continued to perform his pre-accident duties, such as creating treatment plans and adjusting wires, until May 2011, when his brother observed declining work quality, including misaligned brackets that required removal and excessive glue. After discussing these concerns, Plaintiff acknowledged that his vision problems were impacting his work. Subsequently, they agreed that Plaintiff's brother would handle initial bracket installations, while Plaintiff would focus on less visually demanding tasks. This shift resulted in a reduction of Plaintiff's share of partnership profits from 50% to 33%. On June 10, 2011, Plaintiff filed claims for disability benefits with Crown Life, citing double vision as a barrier to performing precise orthodontic tasks. On June 21, 2011, during a recorded statement, he clarified his request for proportionate disability benefits and outlined his diminished role. Despite attempts to adapt, Plaintiff reported ongoing difficulties and, on September 12, 2011, informed Crown Life of his decision to sell his practice interest, declaring himself totally disabled. He expressed realization that he had been in denial about his condition and acknowledged that his reduced income was due to his brother's support rather than his own contributions. He indicated that his inability to fulfill his standard duties would activate the involuntary sale/purchase clause in their partnership agreement and noted that preparations for the sale were underway.
Plaintiff sold his business interest to his brother on November 1, 2011, and retired from orthodontics. Following this, on November 16, 2011, Crown Life initiated an investigation into Plaintiff's claims, which included interviewing Plaintiff, his brother, and his employees, and preparing a report that indicated further steps, such as reviewing medical records and conducting an independent medical examination. On December 13, 2011, Crown Life informed Plaintiff that he did not qualify for total disability benefits from the date of his accident to the date of the sale but was eligible for partial benefits under the "income replacement benefits" riders of his disability policies. As a result, Crown Life paid him $25,200 and $9,000 for the months of April through November 2011. Crown Life also stated it would continue assessing Plaintiff’s total disability status after the sale of his business. Regarding claims for professional overhead expense benefits, Crown Life awarded Plaintiff two months of proportionate benefits totaling $24,000 despite noting he was not totally disabled during his employment. This payment was made "in an effort to be as fair as possible," concluding that no further payments would be made.
On December 19, 2011, Dr. Erin Herlihy diagnosed Plaintiff with incomitant microstrabismus, limiting his visual capabilities and indicating it was unlikely he could perform orthodontic duties. Plaintiff shared these findings with Crown Life. On February 28, 2012, an independent medical examination by Dr. Jeffrey Colburn confirmed that Plaintiff had reached "maximum medical improvement" without further treatment options to restore his vision for orthodontic work. Plaintiff submitted Dr. Colburn’s report to Crown Life on March 29, 2012. On April 30, 2012, Crown Life deemed Plaintiff totally disabled as of November 2011 when he ceased working and sold his practice. Plaintiff appealed this decision on May 16, 2012, asserting he should have been classified as totally disabled from the date of his injury, arguing that "total disability" under his policies meant he could either perform his occupational duties or not at all.
Plaintiff contended that his total disability status was mischaracterized by Crown Life after his surgery, arguing that the determination was arbitrary since his impairment had not changed post-surgery. Crown Life denied Plaintiff's appeal on July 3, 2012, stating that he did not meet the criteria for total disability benefits prior to selling his practice, as he had been performing significant duties and earning income from February to November 2011. Although Plaintiff claimed total disability during this time, Crown Life maintained that he was not considered totally disabled under the policy terms. However, they acknowledged total disability status from November 2011 onward, having paid 50% income replacement benefits for a period and 100% thereafter, once he could no longer work. Regarding professional overhead expenses, Crown Life determined that Plaintiff did not incur a covered loss while employed, thus denying benefits after the sale of his practice. Plaintiff filed a lawsuit on February 6, 2013, which was removed to federal court on March 15, 2013, on diversity grounds. The summary judgment discussion outlines the standard for granting such motions, emphasizing the need for the moving party to show no genuine disputes in material facts, shifting the burden to the non-moving party to identify issues that warrant a jury's decision. Evidence must be substantial enough to support a reasonable jury finding for the plaintiff.
A fact is deemed "material" in summary judgment if it could influence the suit’s outcome, and a "genuine" dispute exists if reasonable evidence could favor the non-moving party. Courts must interpret facts and inferences in favor of the non-moving party, considering only admissible evidence. In the context of a breach of contract claim under Washington law, the plaintiff must demonstrate the existence of a valid contract, a breach of duty, and resulting damages. The plaintiff seeks summary judgment on the first two elements, while Crown Life seeks dismissal of the entire claim. The plaintiff alleges Crown Life improperly denied total disability benefits from January 14, 2011, to November 1, 2011, arguing the determination of total disability should focus solely on his ability to perform key job duties, irrespective of his employment status. Crown Life contends the denial was based on the plaintiff's actual performance of his occupational duties, not merely his income. Conflicting evidence exists, with the initial denial letter implying the decision hinged on income collection, while subsequent correspondence cited the performance of substantial duties as the basis for denial.
Crown Life's denial of coverage for the Plaintiff's total disability claim is challenged due to conflicting evidence regarding the Plaintiff's ability to perform his substantial duties. Crown Life acknowledged that as of November 1, 2011, the Plaintiff was totally disabled and unable to perform his regular occupation, contradicting its earlier assertion that he was not totally disabled before that date. The evidence shows no change in the Plaintiff's impairment level from when he returned to work until he sold his practice, indicating that the denial of total disability coverage from January 14, 2011, to November 1, 2011, was inconsistent with the policy's language.
Crown Life attempted to argue that the Plaintiff was capable of fulfilling his duties during that period, citing that he performed certain tasks, did not suffer a significant income drop, and lacked documentation of performance deficiencies. They also mentioned medical options that could address his condition. However, these arguments do not alter the fact that the Plaintiff's ability to perform his duties did not improve on November 1, 2011, when Crown Life conceded his total disability.
Crown Life's position that a claimant who remains employed cannot be considered "totally disabled" is unsupported by the policy language, which defines total disability based solely on the ability to perform one's regular occupation duties, irrespective of employment status or income. Since the current policy does not exclude those who work and earn income from qualifying for total disability benefits, the Plaintiff is entitled to judgment as a matter of law. The upcoming bench trial will address the issue of damages, as the Plaintiff's motion for summary judgment focused solely on liability.
Insurers in Washington are required by law to act in good faith and deal fairly with their insureds, as established in Smith v. Safeco Ins. Co. A breach of this duty can lead to a tort claim for bad faith, which necessitates proving duty, breach, causation, and damages. To establish bad faith, an insured must show the insurer's actions were "unreasonable, frivolous, or unfounded." The court determines reasonableness based on the insurer's conduct, not merely its policy interpretation, allowing for summary judgment only if there is no reasonable disagreement over the insurer's grounds for denial.
Crown Life sought summary judgment against a bad faith claim from the Plaintiff, arguing no reasonable fact finder would conclude its denial of total disability benefits was in bad faith. However, the court disagreed, noting that the Plaintiff's assertion—that Crown Life denied total disability from January to November 2011 to avoid paying significant professional overhead expenses—was supported by evidence. This denial potentially relieved Crown Life of about $204,000 in benefits, raising questions about whether the insurer prioritized its financial interests over the Plaintiff's.
Although Crown Life paid some benefits during a portion of this period, the court found this alone did not negate the possibility of bad faith. Ultimately, the court ruled that reasonable minds could differ on whether Crown Life had a legitimate basis for its partial denial of coverage, leading to a denial of summary judgment on the bad faith claim.
Crown Life has filed for summary judgment regarding the Plaintiff's claim under the Washington Insurance Fair Conduct Act (IFCA), which pertains solely to first-party insurance contracts. IFCA allows for a private right of action against insurers that (1) unreasonably deny claims or (2) violate claims handling regulations established by the Washington State Office of the Insurance Commissioner. If a plaintiff succeeds under IFCA, they may recover treble damages, attorney’s fees, and litigation costs. The Plaintiff's IFCA claim is based on an alleged unreasonable denial of coverage for total disability benefits. Crown Life's motion for summary judgment on this claim is denied, consistent with the reasoning applied to the Plaintiff's common law bad faith claim.
Regarding the Consumer Protection Act (CPA) claims, both parties have filed cross-motions for summary judgment. To succeed, a plaintiff must show (1) an unfair or deceptive act in trade or commerce, (2) affecting public interest, (3) resulting in injury to business or property, and (4) a causal link between the act and the injury. Violations of insurance claims handling regulations automatically satisfy the first three elements of a CPA claim. The Plaintiff asserts Crown Life breached eight prohibited practices under WAC 284-30-330.
1. **Misrepresentation**: Crown Life allegedly mischaracterized the claim date in a letter; however, this was corrected and did not harm the Plaintiff, so it cannot support a CPA claim.
2. **Failure to Act Promptly**: The claim cites a four-month delay in coverage decisions after receiving medical records. The court found this delay reasonable, as Crown Life was still gathering necessary information, including the need for an independent medical examination. Therefore, this allegation also does not support a CPA claim.
Crown Life is accused of several violations related to insurance claim handling under WAC 284-30-330.
1. **Failure to Implement Investigation Standards**: The plaintiff claims Crown Life did not create a claims manual or investigation checklist, which is alleged to violate the regulation. However, Crown Life maintained a detailed claims journal reviewed by a supervisor, and the investigation was conducted promptly given the claim's complexity. Therefore, this violation cannot support a CPA claim.
2. **Timely Coverage Decisions**: The plaintiff asserts that Crown Life failed to affirm or deny coverage within a reasonable timeframe after receiving proof of loss documentation. This claim is dismissed for similar reasons as above regarding the previous alleged violation.
3. **Good Faith Settlement Efforts**: The plaintiff argues that by mid-December 2011, Crown Life's liability to pay total disability benefits was clear after additional medical records were submitted. However, full evaluation of the claim was only possible after receiving an independent medical examination report on March 29, 2011. Thus, this allegation also cannot support a CPA claim.
4. **Compelling Litigation for Benefits**: The plaintiff contends that Crown Life violated the regulation by compelling him to litigate to recover benefits that were ultimately higher than what was initially offered. Crown Life asserts there was no violation since the plaintiff was not entitled to total disability benefits during a specified period. However, as there are material questions regarding the reasonableness of Crown Life's conduct, the plaintiff is not entitled to summary judgment.
5. **Delaying Claims with Cumulative Information Requests**: The plaintiff claims Crown Life delayed the investigation by requiring an independent medical examination after receiving sufficient medical records. The court finds this argument unpersuasive, noting the independent examination provided necessary, non-cumulative information. Crown Life had a contractual right to request this examination, and thus this allegation does not support a CPA claim.
Failure to promptly provide a reasonable explanation for the denial of a claim or compromise settlement, as outlined in WAC 284-30-330(13), cannot support a CPA claim due to previously discussed reasons related to WAC 284-30-330(2), (5), and (6). Crown Life asserts it adequately provided a coverage decision after receiving necessary information to assess the claim.
Crown Life's motion to strike Robert Merrill's third declaration is based on alleged medical opinions and speculative testimony. The Court rejects these arguments, noting that while Merrill may not be qualified to make formal medical diagnoses, he can describe his visual experiences. His testimony regarding orthodontic work is also deemed to be based on personal knowledge.
Dr. Jonathan Trobe's declaration, submitted in response, is accepted by the Court as it complies with the expert witness report timeline.
The Court orders the following:
1. Defendant’s Motion to Expedite is granted.
2. Defendant’s Motion to Strike is denied.
3. Plaintiff's Motion for Partial Summary Judgment is granted in part, establishing liability for the breach of contract claim, but denied in other aspects.
4. Defendant’s Motion for Summary Judgment is granted in part and denied in part; it is denied regarding Plaintiff's bad faith and IFCA claims but granted concerning CPA claims, except for the violation of WAC 284-30-330(7).
Plaintiff's claims for violations of claims handling regulations are pursued under the CPA, rather than IFCA. The eligibility for income replacement benefits begins after a 90-day elimination period, with specific financial calculations provided for benefits during the defined period. The term strabismus is defined as a lack of parallelism of the eyes' visual axes.
