Petitioners Kiril Ivanov, Nicole Busse, Tricia Kerns, Teresa Chun, and Michael Shawn-Chun, along with plaintiffs Richard Tyler and Natalya Gladysh, filed a class action against Farmers Insurance Company and related entities, seeking payment for denied Personal Injury Protection (PIP) medical expenses under Oregon's PIP statutes (ORS 742.518 to 742.540). They requested a declaratory judgment asserting that Farmers could not deny PIP benefits based on generalized criteria nor without a contemporaneous physical examination by a Farmers-selected physician.
Farmers responded with a motion for summary judgment, arguing that the plaintiffs, whose PIP claims were denied, bore the burden of proving medical necessity under ORS 742.524. Farmers contended that plaintiffs failed to provide adequate medical opinion evidence to support their claims. In contrast, plaintiffs argued that Farmers' denial processes violated insurance contracts and PIP statutes by relying on non-specific criteria and not conducting independent medical examinations (IMEs). They maintained that the medical bills submitted should be deemed sufficient evidence for their claims.
The trial court granted Farmers' summary judgment, dismissing all of plaintiffs' claims. However, the Supreme Court of Oregon reversed the Court of Appeals' decision and the circuit court's judgment, remanding the case for further proceedings, with Chief Justice De Muniz issuing the opinion and Justice Balmer concurring in part and dissenting in part.
The trial court ruled that the PIP statutes do not mandate a contemporaneous medical examination (IME) prior to denying claims and that the insured must demonstrate the medical reasonableness and necessity of their expenses in any dispute. The Court of Appeals upheld this ruling on narrower grounds, requiring plaintiffs to prove their claims were medically reasonable and necessary, noting that without expert medical opinion, plaintiffs lacked evidence for the trier of fact to infer that the expenses were necessary.
The plaintiffs, who were Oregon residents insured by Farmers, submitted claims for medical expenses after automobile accidents, which Farmers denied. Subsequently, the plaintiffs filed a lawsuit against Farmers, alleging breach of contract, fraud, and other claims related to Farmers' denial process, asserting that Farmers employed a cost containment policy that relied on automated reviews using generalized criteria rather than assessing individual circumstances. They contended that this approach aimed to unjustifiably deny valid PIP claims.
In addition to monetary damages, the plaintiffs sought declaratory relief to prevent Farmers from denying claims based on generalized criteria and required that determinations of medical necessity be made by examining physicians. Farmers moved for summary judgment, arguing that the primary issue was a legal question under ORS 742.524(1)(a) and did not contest its use of the automated review process. However, Farmers failed to demonstrate that its claims review process complied with contractual and statutory PIP requirements for the plaintiffs' specific claims. Instead, Farmers contended that the burden was on the plaintiffs to prove the medical necessity of their claims.
Plaintiffs' complaint contests the claims review process of Farmers, asserting it does not comply with the contractual and statutory requirements of Personal Injury Protection (PIP) as outlined in Oregon law. Specifically, ORS 742.524(1) mandates that PIP benefits cover reasonable and necessary medical expenses up to $15,000 incurred within one year of an injury. These expenses are presumed reasonable unless the insurer notifies the provider of a denial within 60 days of receiving the claim. Also, during the first 50 days after a claim is received, insurers may ask for additional information from healthcare providers, who must respond within 10 business days or risk delaying the 60-day period for claim denial. The PIP statutes aim to provide prompt reimbursement for motor vehicle accident-related losses without regard to fault, requiring insurers to pay benefits promptly after proof of loss is submitted. In the event of a denied claim, insured individuals can opt for binding arbitration or file a civil lawsuit, with the possibility of recovering attorney fees if they prevail. Farmers bears the burden of proving there are no genuine material facts at issue for summary judgment. According to Farmers, plaintiffs must first demonstrate the necessity of their claimed medical expenses to challenge the PIP processing practices in this civil action.
Farmers contends that the plaintiffs' medical bills do not adequately demonstrate medical necessity, a position it has maintained throughout the trial and appeals. However, this argument misinterprets ORS 742.524(1)(a), which creates a presumption that medical expenses claimed under Personal Injury Protection (PIP) are reasonable and necessary when submitted by a healthcare provider. This presumption shifts the burden of proof to the insurer, Farmers, requiring them to demonstrate that the medical expenses are not reasonable or necessary once a claim is submitted. While Farmers may deny a claim, the plaintiffs challenge not the validity of these denials but the adequacy of Farmers' investigation prior to issuing them.
The obligation of good faith in contractual relationships, as reiterated in Best v. U.S. National Bank, obligates Farmers to conduct a reasonable investigation before denying claims, as mandated by ORS 746.230(1), which prohibits denying claims without such investigation. Therefore, it is Farmers’ responsibility to show that its denials were based on reasonable investigations, contrary to earlier findings that placed the burden on the plaintiffs to establish medical necessity. At the time Farmers processed the claims, they were presumed medically necessary, meaning plaintiffs were not required to prove this necessity. Consequently, Farmers must demonstrate that its claim review methods complied with both statutory and common-law duties without violating ORS 746.230(1)(d).
Farmers failed to provide evidence supporting the validity of its claims review process or demonstrating a reasonable investigation of the claims submitted. Consequently, the plaintiffs were not required to present evidence of medical necessity beyond the existing presumption regarding their medical bills to counter Farmers' motion for summary judgment. The court clarified that its decision does not determine the legal sustainability of Farmers' claim denials for the plaintiffs, which remains to be resolved at trial. The trial court had previously ruled that PIP statutes do not mandate an independent medical examination (IME) in every claim investigation, a position the current court partly agrees with but corrects by rejecting the view that the presumption in ORS 742.524(1) only applies if an insurer denies a claim beyond 60 days. While an IME is not always required, it may be necessary for a reasonable investigation depending on the specifics of a claim. Since the summary judgment record did not question the legitimacy of Farmers' claims review process, Farmers was not entitled to summary judgment. Both the trial court and Court of Appeals were incorrect in ruling in Farmers' favor, leading to the reversal of their decisions and remanding the case for further proceedings. Additionally, one concurring and dissenting judge expressed agreement with the majority's reversal but criticized their interpretation of the trial court issues, emphasizing that the plaintiffs' claims centered on the absence of a contemporaneous physical examination when benefits were denied, which Farmers contested in their summary judgment motion.
The trial court's grant of Farmers' motion for summary judgment is affirmed, with dissent expressed towards the majority's opposing decision. The dissenting opinion emphasizes that the court's judgment should be upheld based on the trial court's original reasoning, rather than the rationale provided by the Court of Appeals. The case exemplifies common issues in class action lawsuits against large insurers, where plaintiffs must balance the need for detailed allegations against the requirement for generality suitable for class certification. Defendants aim to identify clear issues for summary judgment, often focusing selectively on complaint allegations. The trial judge faces the challenge of managing complex, evolving complaints while ensuring the focus remains on pertinent legal issues. The dissent criticizes the majority for addressing a different legal issue than that originally presented, highlighting that the plaintiffs' main argument pertained to the review methodology of Farmers rather than specific claim denials. The Court of Appeals erred in concluding that plaintiffs could not rely on the statutory presumption of reasonableness due to denied claims, as the plaintiffs were contesting the review process itself.
Disagreement with the majority's position centers on the legal issues adjudicated in the trial court. The majority mischaracterizes the core issue as whether Farmers correctly argued that plaintiffs needed to prove the medical reasonableness and necessity of their claims. In contrast, the primary dispute was whether Farmers was obligated to support its claim denials with a medical examination by a qualified professional. This was the focus of the trial court's summary judgment decision.
The plaintiffs alleged that Farmers had a policy of underpaying 'reasonable and necessary' PIP medical expenses, violating statutory and contractual obligations, and implemented this policy through cost containment programs that arbitrarily determined the necessity and reasonableness of medical services. Their claims were rooted in Farmers' claims review processes, particularly regarding Farmers’ alleged scheme to deny legitimate medical costs without conducting a contemporaneous physical examination.
The trial court, both parties, and plaintiffs considered the medical examination issue critical, especially after plaintiffs, in their class certification motion, identified it as the key question regarding whether Farmers needed an IME to deny a claim. Farmers' summary judgment motion contended that neither the PIP statutes nor the insurance contract mandated an IME before rejecting a claim. Plaintiffs countered that an IME was essential for Farmers to legitimately deny a claim and argued that an insurer could only challenge a medical bill's reasonableness or necessity if an IME had been conducted within the statutory review period.
Plaintiffs argued that Farmers' claim review practices violated their insurance policy, which purportedly requires acceptance of medical bills as reasonable and necessary unless an Independent Medical Examination (IME) is conducted. During oral arguments on summary judgment, plaintiffs' counsel suggested that all of Farmers' claims procedures were arbitrary, implying that claims could only be legitimately denied via an IME. However, this stance conflicted with the Fourth Amended Complaint, which alleged that denials without an IME were invalid, not that all denial bases were arbitrary. Counsel also indicated that the policy and statute mandated an IME prior to any claim denial. Farmers' counsel contended that whether an IME was necessary was a legal, not factual, issue, a position plaintiffs' counsel ultimately agreed with. The trial court recognized the dispute centered on the requirement of an IME under Oregon statutes or the insurance policy. In its opinion, the court stated that plaintiffs' argument necessitated that Farmers refute their evidence with a physician's opinion from an examination prior to denial, which the court rejected. Legally, the PIP statutes do not mandate a contemporaneous medical examination before denying claims related to the necessity of treatment or the reasonableness of medical bills.
Farmers' motion for summary judgment was granted by the trial court. Following this, plaintiffs filed an 'Opposition to Entry of Judgment,' objecting to the judgment's form. They clarified their two theories regarding class certification and summary judgment: (1) PIP claims cannot be denied as unnecessary without a contemporaneous physical examination (IME) by the defendants, and (2) such claims cannot be denied as unreasonable based on Farmers' fee schedules. Though plaintiffs acknowledged the trial court's ruling on the IME issue against them, they argued that the fee schedule claim remained unaddressed, contending that the trial court's order did not resolve all claims in the complaint. However, plaintiffs did not challenge the trial court's understanding of the IME issue.
In response to the plaintiffs' objections, the trial court issued a second opinion that addressed the fee schedule issue, clarifying that while the initial opinion focused on the IME issue, it intended to also address the fee schedule claim. The court concluded that, due to plaintiffs' failure to provide evidence supporting the reasonableness and necessity of the medical expenses beyond the bills, Farmers was entitled to summary judgment on that basis.
On appeal, plaintiffs maintained their position that the PIP statutes and Farmers' insurance policy prohibited denying medical expenses as 'unnecessary' without an IME. They alleged that Farmers had a scheme to avoid paying reasonable and necessary accident-related healthcare, which involved both the IME issue and the fee schedule issue. However, in a footnote in their opening brief, plaintiffs abandoned the fee schedule claim, opting not to discuss it further. They also conflated their assertion regarding the necessity of an IME with a claim that other denial methods were arbitrary. This indicates a misunderstanding, as arguing that all other methods of denial are arbitrary supports the assertion that only an IME can validly deny a claim. Consequently, the plaintiffs' IME claim was susceptible to Farmers' argument that neither the statutes nor the contract mandates an IME for claim denials.
Farmers' summary judgment motion effectively resolved the plaintiffs' claims regarding independent medical examinations (IMEs), while not necessarily impacting their fee schedule claims. The plaintiffs argued that defendants could not arbitrarily assess the reasonableness of medical expenses and that IMEs were the only acceptable method to evaluate such claims. They contended that since defendants did not conduct IMEs, their denials of personal injury protection (PIP) benefits were unjustified. In contrast, defendants asserted that the burden of proof regarding the reasonableness and necessity of medical expenses lay with the plaintiffs, who failed to provide sufficient evidence. They also argued that neither the PIP statutes nor the insurance policies mandated an IME prior to denying a claim, a position the trial court upheld.
The central legal question for consideration is whether the PIP statutes or the relevant insurance policies require an insurer to conduct an IME before denying a claim. The conclusion is that the statutes do not establish an IME as a prerequisite for every valid denial of a PIP medical expense claim, a view supported by the majority's interpretation. According to ORS 742.520(4), insurers must promptly pay PIP benefits after proof of loss is submitted, and ORS 742.524(1)(a) states that medical expenses are presumed reasonable unless the provider is notified of a denial within 60 days. The statutes also allow insurers to inquire about claims before facing the presumption of reasonableness. Furthermore, ORS 746.230(1)(d) defines it as an unfair claim settlement practice for an insurer to deny a claim without conducting a reasonable investigation. The statutes emphasize the requirement for prompt payment of valid claims and establish penalties for insurers that fail to do so, without implying that an IME is necessary prior to claim denial.
The prohibition against unfair claim settlement practices outlines an insurer's obligations before denying a claim, specifically mandating a "reasonable investigation based on all available information." While an Independent Medical Examination (IME) may be part of this investigation, it is not a blanket requirement for denial, nor is it mandated by the insurance policy, which aligns with statutory definitions of Personal Injury Protection (PIP) benefits. The policy's provision allowing insurers to require an IME does not imply that one is necessary before every claim denial. Consequently, the trial court correctly granted summary judgment in favor of Farmers, as neither the statutes nor the policy necessitate an IME in all cases.
However, the majority disagreed with this conclusion, remanding the case to examine whether Farmers violated ORS 746.230(1)(d) by denying claims without reasonable investigation. It is possible for some plaintiffs to prove that the methods Farmers employed failed to provide the necessary investigation, resulting in improper denials. The varied protocols and review methods used by Farmers imply that class certification will hinge on these differences rather than a singular issue regarding IMEs. The trial court will need to assess the case under ORCP 32A and ORCP 32B standards, considering the diverse procedures rather than simply whether an IME is required for every denial. The majority affirms that while an IME is not universally required, it may be necessary as part of a reasonable investigation depending on the specifics of each claim.
Uncertainty exists regarding the viability of proceeding with a class action in this case. The author agrees with the majority's legal conclusions concerning ORS 742.524(1)(a) but dissents from the decision to reverse the trial court's judgment. The trial court adjudicated the case based on Farmers' motion for summary judgment, without addressing the plaintiffs' motion for class certification. During this process, neither party raised concerns about the individual legal claims outlined in the plaintiffs' complaint, and these issues remained unexamined on review.
The plaintiffs differentiated between two groups: those whose PIP benefits were denied due to a lack of medical necessity and those denied benefits because the fees charged were deemed unreasonable, allegedly exceeding Farmers' fee schedules. Although plaintiffs asserted that the use of fee schedules was improper and established a specific damages subclass, they later abandoned these claims on appeal. This abandonment does not affect the core issue before the court, as the fee schedule claims were distinct from claims related to medical necessity.
It is noted that an insurer's obligation to pay PIP benefits is not mitigated by the potential existence of a tort claim against any individual. Furthermore, the legislative distinction between conclusive presumptions, rebuttable presumptions, and permissive inferences has been eliminated in Oregon's statutes, leaving only rebuttable presumptions. The plaintiffs did not submit a cross-motion for summary judgment, nor did they assert any entitlement to a decision beyond having their claims adjudicated by a trier of fact. The trial court issued two letter opinions pertaining to different issues, namely the "IME issue" and the "fee schedule" issue.
Plaintiffs have abandoned the fee schedule issue on appeal, focusing solely on the trial court's decision regarding the Independent Medical Examination (IME) requirement. Farmers' summary judgment motion was mischaracterized; it was based not only on plaintiffs' failure to prove medical necessity but also on the necessity of an IME under Oregon law prior to any claim denial. Farmers maintained this position throughout the appeal and highlighted that plaintiffs raised new arguments not presented in the trial court. Additionally, plaintiffs' claims may be interpreted as asserting that the IME is required before any claim denial and that all other denial methods were arbitrary and inconsistent with Farmers' obligations. Plaintiffs lost both claims at the trial level but only appealed the IME issue.
