1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 NORTHERN DISTRICT OF CALIFORNIA 8 KELLIE LIM, 9 Case No. 22-cv-07493-RS Plaintiff, 10 v. ORDER GRANTING IN PART, 11 DENYING IN PART CROSS-MOTIONS THE LINCOLN NATIONAL LIFE FOR SUMMARY JUDGMENT 12 INSURANCE COMPANY,
13 Defendant.
14 I. INTRODUCTION 15 This is a dispute about insurance coverage. Plaintiff Dr. Kellie Lim avers that Defendant 16 Lincoln National Life Insurance Company breached the terms of her disability insurance policy 17 when it initially denied a claim for long-term benefits that she filed due to complications from her 18 status as a triple-amputee. Once Plaintiff filed this litigation—which also includes the claim that 19 Defendant violated the implied covenant of good faith and fair dealing—Defendant reversed 20 course and granted the sought-after benefits. 21 The parties now bring cross-motions for summary judgment. In its motion, Defendant 22 argues that Plaintiff’s breach of contract claim fails as a matter of law because she cannot show 23 damages caused by the alleged breach. Defendant separately argues that, under the breach of the 24 covenant of good faith and fair dealing rubric, Plaintiff’s bad faith claim fails because she cannot 25 show economic damages caused by the alleged bad faith and because its initial denial resulted 26 from a genuine dispute about its liability under the policy. Plaintiff, on the other hand, argues that 27 she can show damages and that no reasonable trier of fact could find Defendant acted in good faith 1 Defendant’s motion is granted in part and denied in part. 2 II. BACKGROUND 3 Plaintiff overcame tremendous challenges to become a board-certified physician. At eight 4 years old, she was diagnosed with meningococcal disease, a life-threatening infection that left her 5 in a coma. Complications from the infection led to amputation of her legs below the knees, her 6 right arm below the elbow, and all but the thumb and fourth finger of her left hand. Despite these 7 conditions, she learned to use prosthetics, completed high school and college, and eventually 8 attended medical school, where she graduated near the top of her class. After completing 9 residency at UCLA Medical Center, Plaintiff practiced as an attending physician for one year in 10 private practice before returning to UCLA Medical Center and practicing for eight more years. 11 Plaintiff’s employer offered a disability insurance policy, issued by Defendant, which 12 provided both short-term disability and long-term disability income protection. As a beneficiary, 13 Plaintiff could qualify for long-term disability coverage if she demonstrated that “as a result of 14 Injury or Sickness,” she was “unable to perform with reasonable continuity the Substantial and 15 Material Acts necessary to pursue h[er] Own Occupation in the usual and customary way,” nor 16 able to engage “in any occupation in which [s]he could reasonably be expected to perform 17 satisfactorily[.]” Conover Decl., Ex. 1, Dkt. No. 46-1 (the “Policy”) at LIN1985. 18 Throughout Plaintiff’s time as a physician, her conditions caused debilitating pain that she 19 managed through the use of prescription opiates. In 2020, new regulatory restrictions led doctors 20 to reduce Plaintiff’s dosage, causing her pain to increase. Then, on February 24, 2022, Plaintiff’s 21 right prosthetic leg broke. Belanger Decl., Ex. 2, Dkt. No. 52 (the “Claim File”) at LIN591. To 22 adjust to an old set of prosthesis, she took time off work and filed a short-term disability claim, 23 which Defendant approved on May 5, 2022. Id. at LIN505. In a letter, Defendant explained that 24 the benefits were only approved through March 30, 2022, and that determining her eligibility for 25 ongoing benefits would require updated medical records. Id. 26 Plaintiff returned to work on a part time basis from April until the end of June, when she 27 filed a claim for long-term disability benefits. Claim File at LIN605-606; Id. at LIN2044-45. On 1 July 12, Taylor Daigler, a Lincoln claims adjuster, conducted an initial interview with Plaintiff. 2 Daigler’s notes from the call reflect that Plaintiff reported a decline in her workflow over the past 3 two or three years as well as chronic pain in her back and remaining fingers. The chief 4 complaints, according to Daigler’s testimony during a later deposition, were the back pain, trigger 5 finger pain, and the pain associated with learning to reuse her prosthesis. Conover Decl., Ex. 3, 6 Dkt. No. 46-1 (“Daigler Dep..”) at 22. Daigler recorded that Plaintiff’s pain was “not well 7 controlled.” Claim File at LIN2044. Although Plaintiff had a scribe to assist with using 8 computers to enter medical reports and records, Plaintiff told Daigler that she had to retype much 9 of the entries and also manipulate the mouse—activities that caused pain requiring repeated 10 steroid injections in her thumbs. She had also undergone repeated radiofrequency ablation in her 11 lower back and was had exhausted oral pain treatment medications. Less than two weeks after the 12 interview, Plaintiff completed a form that requested her to explain what prevented her from 13 engaging in “any gainful employment.” In addition to describing her amputations, she explained 14 that, “In the past 3-4 years, I have been experiencing worsening hip and back pain that has not 15 been adequately controlled. My pain management physicians greatly reduced my medications due 16 to CDC guidelines. I also developed thumb pain in December 2020 that has greatly reduced my 17 capacity to work.” Id. at LIN1928. 18 A few days later, Defendant referred Plaintiff’s claim to MLS Group of Companies, LLC, 19 a national peer review provider, for further evaluation. Dr. Michelle Alpert, a reviewer for MLS, 20 examined Plaintiff’s medical records and interviewed Dr. Goonjan Shah, Plaintiff’s pain 21 management specialist. According to Dr. Alpert’s summary of their conversation, “Dr. Shah 22 stated that [Plaintiff] has chronic pain which is controlled with her current medications. She does 23 have amputations but is functionally able to sustain physical activity.” Claim File at LIN1775. 24 Based on her conversation with Dr. Shah and her review of Plaintiff’s medical history, Dr. Alpert 25 determined that Plaintiff “continues to have the capacity for sustained physical activity” and that 26 “despite her chronic pain, she has capacity for sustained physical activity. She would only need 27 restrictions/limitations related to her amputations.” Id. at LIN1777. Notably, this report did not 1 discuss or address the finger pain that Plaintiff had complained about in her form and in her initial 2 call with Daigler; instead, the “primary impairing Diagnos[es]” that Dr. Alpert identified were 3 Plaintiff’s amputations. Id. at LIN1776. 4 Daigler thereafter requested an addendum to the initial report that could address Plaintiff’s 5 finger pain and any restrictions for using a computer; Dr. Alpert obliged, providing a supplemental 6 opinion on August 24, 2022 that Plaintiff “can perform frequent fingering, handling, gripping, 7 feeling, grasping, and keyboarding/mousing for up to 15 minutes at a time followed by a 3-minute 8 break throughout an 8 hour day.” Claim File at LIN1768. No additional documents or interviews 9 informed that opinion. 10 On September 1, 2022, after comparing Dr. Alpert’s recommended restrictions with the 11 vocational analysis of national requirements for physicians, Daigler recommended denying the 12 claim based on a finding that Plaintiff is not totally disabled. Id. at LIN2040. Forty-one minutes 13 later, her claims manager Jessica Belanger approved that recommendation, effectuating the denial 14 via a written letter. Id., see also id. at LIN154-158.
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1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 NORTHERN DISTRICT OF CALIFORNIA 8 KELLIE LIM, 9 Case No. 22-cv-07493-RS Plaintiff, 10 v. ORDER GRANTING IN PART, 11 DENYING IN PART CROSS-MOTIONS THE LINCOLN NATIONAL LIFE FOR SUMMARY JUDGMENT 12 INSURANCE COMPANY,
13 Defendant.
14 I. INTRODUCTION 15 This is a dispute about insurance coverage. Plaintiff Dr. Kellie Lim avers that Defendant 16 Lincoln National Life Insurance Company breached the terms of her disability insurance policy 17 when it initially denied a claim for long-term benefits that she filed due to complications from her 18 status as a triple-amputee. Once Plaintiff filed this litigation—which also includes the claim that 19 Defendant violated the implied covenant of good faith and fair dealing—Defendant reversed 20 course and granted the sought-after benefits. 21 The parties now bring cross-motions for summary judgment. In its motion, Defendant 22 argues that Plaintiff’s breach of contract claim fails as a matter of law because she cannot show 23 damages caused by the alleged breach. Defendant separately argues that, under the breach of the 24 covenant of good faith and fair dealing rubric, Plaintiff’s bad faith claim fails because she cannot 25 show economic damages caused by the alleged bad faith and because its initial denial resulted 26 from a genuine dispute about its liability under the policy. Plaintiff, on the other hand, argues that 27 she can show damages and that no reasonable trier of fact could find Defendant acted in good faith 1 Defendant’s motion is granted in part and denied in part. 2 II. BACKGROUND 3 Plaintiff overcame tremendous challenges to become a board-certified physician. At eight 4 years old, she was diagnosed with meningococcal disease, a life-threatening infection that left her 5 in a coma. Complications from the infection led to amputation of her legs below the knees, her 6 right arm below the elbow, and all but the thumb and fourth finger of her left hand. Despite these 7 conditions, she learned to use prosthetics, completed high school and college, and eventually 8 attended medical school, where she graduated near the top of her class. After completing 9 residency at UCLA Medical Center, Plaintiff practiced as an attending physician for one year in 10 private practice before returning to UCLA Medical Center and practicing for eight more years. 11 Plaintiff’s employer offered a disability insurance policy, issued by Defendant, which 12 provided both short-term disability and long-term disability income protection. As a beneficiary, 13 Plaintiff could qualify for long-term disability coverage if she demonstrated that “as a result of 14 Injury or Sickness,” she was “unable to perform with reasonable continuity the Substantial and 15 Material Acts necessary to pursue h[er] Own Occupation in the usual and customary way,” nor 16 able to engage “in any occupation in which [s]he could reasonably be expected to perform 17 satisfactorily[.]” Conover Decl., Ex. 1, Dkt. No. 46-1 (the “Policy”) at LIN1985. 18 Throughout Plaintiff’s time as a physician, her conditions caused debilitating pain that she 19 managed through the use of prescription opiates. In 2020, new regulatory restrictions led doctors 20 to reduce Plaintiff’s dosage, causing her pain to increase. Then, on February 24, 2022, Plaintiff’s 21 right prosthetic leg broke. Belanger Decl., Ex. 2, Dkt. No. 52 (the “Claim File”) at LIN591. To 22 adjust to an old set of prosthesis, she took time off work and filed a short-term disability claim, 23 which Defendant approved on May 5, 2022. Id. at LIN505. In a letter, Defendant explained that 24 the benefits were only approved through March 30, 2022, and that determining her eligibility for 25 ongoing benefits would require updated medical records. Id. 26 Plaintiff returned to work on a part time basis from April until the end of June, when she 27 filed a claim for long-term disability benefits. Claim File at LIN605-606; Id. at LIN2044-45. On 1 July 12, Taylor Daigler, a Lincoln claims adjuster, conducted an initial interview with Plaintiff. 2 Daigler’s notes from the call reflect that Plaintiff reported a decline in her workflow over the past 3 two or three years as well as chronic pain in her back and remaining fingers. The chief 4 complaints, according to Daigler’s testimony during a later deposition, were the back pain, trigger 5 finger pain, and the pain associated with learning to reuse her prosthesis. Conover Decl., Ex. 3, 6 Dkt. No. 46-1 (“Daigler Dep..”) at 22. Daigler recorded that Plaintiff’s pain was “not well 7 controlled.” Claim File at LIN2044. Although Plaintiff had a scribe to assist with using 8 computers to enter medical reports and records, Plaintiff told Daigler that she had to retype much 9 of the entries and also manipulate the mouse—activities that caused pain requiring repeated 10 steroid injections in her thumbs. She had also undergone repeated radiofrequency ablation in her 11 lower back and was had exhausted oral pain treatment medications. Less than two weeks after the 12 interview, Plaintiff completed a form that requested her to explain what prevented her from 13 engaging in “any gainful employment.” In addition to describing her amputations, she explained 14 that, “In the past 3-4 years, I have been experiencing worsening hip and back pain that has not 15 been adequately controlled. My pain management physicians greatly reduced my medications due 16 to CDC guidelines. I also developed thumb pain in December 2020 that has greatly reduced my 17 capacity to work.” Id. at LIN1928. 18 A few days later, Defendant referred Plaintiff’s claim to MLS Group of Companies, LLC, 19 a national peer review provider, for further evaluation. Dr. Michelle Alpert, a reviewer for MLS, 20 examined Plaintiff’s medical records and interviewed Dr. Goonjan Shah, Plaintiff’s pain 21 management specialist. According to Dr. Alpert’s summary of their conversation, “Dr. Shah 22 stated that [Plaintiff] has chronic pain which is controlled with her current medications. She does 23 have amputations but is functionally able to sustain physical activity.” Claim File at LIN1775. 24 Based on her conversation with Dr. Shah and her review of Plaintiff’s medical history, Dr. Alpert 25 determined that Plaintiff “continues to have the capacity for sustained physical activity” and that 26 “despite her chronic pain, she has capacity for sustained physical activity. She would only need 27 restrictions/limitations related to her amputations.” Id. at LIN1777. Notably, this report did not 1 discuss or address the finger pain that Plaintiff had complained about in her form and in her initial 2 call with Daigler; instead, the “primary impairing Diagnos[es]” that Dr. Alpert identified were 3 Plaintiff’s amputations. Id. at LIN1776. 4 Daigler thereafter requested an addendum to the initial report that could address Plaintiff’s 5 finger pain and any restrictions for using a computer; Dr. Alpert obliged, providing a supplemental 6 opinion on August 24, 2022 that Plaintiff “can perform frequent fingering, handling, gripping, 7 feeling, grasping, and keyboarding/mousing for up to 15 minutes at a time followed by a 3-minute 8 break throughout an 8 hour day.” Claim File at LIN1768. No additional documents or interviews 9 informed that opinion. 10 On September 1, 2022, after comparing Dr. Alpert’s recommended restrictions with the 11 vocational analysis of national requirements for physicians, Daigler recommended denying the 12 claim based on a finding that Plaintiff is not totally disabled. Id. at LIN2040. Forty-one minutes 13 later, her claims manager Jessica Belanger approved that recommendation, effectuating the denial 14 via a written letter. Id., see also id. at LIN154-158. When Daigler called Plaintiff to discuss the 15 denial, Plaintiff expressed frustration and asked about the appeal process; she learned she would 16 have 60 days to file an appeal, at which point board-certified physicians would review the claim. 17 In a subsequent email, she complained that the peer reviewer “did not comment on my hand issues 18 and only concentrated on my lower extremity amputations” and “did not contact my primary care 19 physician for her opinion regarding my disability.” Id. at LIN132. 20 On November 28, 2022, Plaintiff sued Defendant. Two weeks later, Belanger reviewed 21 Plaintiff’s file, reopened her claim, and approved her request for long term disability benefits. 22 Belanger explained that this decision was reached after she “reviewed information received from 23 atty following claim decision.” Claim File at LIN2038. Thereafter, Defendant paid the sought- 24 after benefits, including those which would have been paid sooner, but for the initial denial. 25 In this litigation, Dr. Shah has refuted Dr. Alpert’s report as “inaccurate.” Conover Decl., 26 Dkt. No. 46-1, Ex. 7 (hereafter “Shah Declaration”) at ¶ 2. According to Dr. Shah’s sworn 27 declaration, he “did not tell Dr. Alpert that Dr. Lim’s chronic pain was ‘well-controlled’ by her 1 current treatment. In fact, Dr. Lim’s chronic pain was not well-controlled as she consistently 2 reported pain scores of 5 and above. I would only consider a patient’s pain well-controlled if the 3 patient were to consistently report pain scores of 2 and below.” Id. ¶ 3. He further swore that he 4 “did not tell Dr. Alpert that Dr. Lim was ‘functionally able to sustain activity.’ This is not 5 terminology I employ when discussing a patient’s physical capabilities. This expression lacks 6 clarity, and its intended meaning concerning Dr. Lim’s physical capabilities remains uncertain.” 7 Id. ¶ 4. Moreover, Dr. Shah also made clear that he never said Dr. Lim “would only need 8 restrictions and limitations to her amputations” and stated that the subject of restrictions and 9 limitations never arose during his call with Dr. Alpert. Id. ¶ 5. In fact, he still “believe[s] that Dr. 10 Lim is unable to maintain full-time employment consistently,” as he did when he spoke with Dr. 11 Alpert. Id. ¶ 6. 12 III. LEGAL STANDARD 13 A. Summary Judgment 14 Summary judgment is appropriate when the pleadings, discovery, and affidavits show “that 15 there is no genuine dispute as to any material fact and the movant is entitled to judgment as a 16 matter of law.” Fed. R. Civ. P. 56(a). A genuine issue of material fact is one that could 17 reasonably be resolved in favor of the nonmoving party, and which could “affect the outcome of 18 the suit.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The moving party bears the 19 burden of proof to “make a showing sufficient to establish . . . the existence of an element 20 essential to that party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317 (1986). If the movant 21 succeeds in demonstrating the absence of a genuine issue of material fact, the burden then shifts to 22 the nonmoving party to “set forth specific facts showing that there is a genuine issue for trial.” Id. 23 at 322 n.3; see also Fed. R. Civ. P. 56(c)(1)(B). 24 Evidence must be viewed in the light most favorable to the nonmoving party and all 25 justifiable inferences must be drawn in its favor. See Anderson, 477 U.S. at 255. It is not the task 26 of the court to scour the record in search of a genuine issue of triable fact. Keenan v. Allan, 91 27 F.3d 1275, 1279 (9th Cir. 1996) (citation omitted). Rather, the nonmoving party has the burden of 1 identifying, with reasonable particularity, the evidence that precludes summary judgment. Id. If 2 the nonmoving party fails to make this showing, “the moving party is entitled to a judgment as a 3 matter of law.” Celotex, 477 U.S. at 322. 4 B. Breach of Contract 5 “[T]he elements of a cause of action for breach of contract are (1) the existence of the 6 contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) 7 the resulting damages to the plaintiff.” Oasis W. Realty, LLC v. Goldman, 51 Cal. 4th 811, 821 8 (2011) (citing Reichert v. Gen. Ins. Co. of Am., 68 Cal. 2d 822, 830 (1968)). California law 9 provides that damages in a breach of contract case are “the amount which will compensate the 10 party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course 11 of things, would be likely to result therefrom.” Calif. Civil Code § 3300. 12 C. Breach of Covenant of Good Faith and Fair Dealing 13 “There is an implied covenant of good faith and fair dealing in every contract that neither 14 party will do anything which will injure the right of the other to receive the benefits of the 15 agreement. This principle is applicable to policies of insurance.” Amadeo v. Principal Mut. Life 16 Ins. Co., 290 F.3d 1152, 1158 (9th Cir. 2002) (quoting Comunale v. Traders & General Ins. Co., 17 50 Cal. 2d 654, 657 (1958)). “The responsibility of the insurer to act in good faith ‘is not the 18 requirement mandated by the terms of the policy itself’ but is imposed by law, breach of which 19 sounds in tort notwithstanding that the denial of benefits may also constitute breach of the 20 contract.” Id. (citing Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 575 (1973)). “To fulfill its 21 implied obligation, an insurer must give at least as much consideration to the interests of the 22 insured as it gives to its own interests.” Wilson v. 21st Century Ins. Co., 42 Cal. 4th 713, 720 23 (2007), as modified (Dec. 19, 2007). 24 Under California law, to prove a breach of good faith and fair dealing claim involving 25 insurance, a plaintiff must satisfy five elements: “(1) the insured suffers loss covered under an 26 insurance policy; (2) the insurer was notified of the loss; (3) the insurer unreasonably fails or 27 delays payment of the policy benefit; (4) the insured is harmed; and (5) the insurer’s failure or 1 delay is a substantial factor in causing the insured’s harm.” Teleflex Med. Inc. v. Nat’l Union Fire 2 Ins. Co. of Pittsburgh, PA, 851 F.3d 976, 988 n.4 (9th Cir. 2017). “The key to a bad faith claim is 3 whether or not the insurer’s denial of coverage was reasonable.” Guebara v. Allstate Ins. Co., 237 4 F.3d 987, 992 (9th Cir.2001). “[A]n insurer is not entitled to judgment as a matter of law where, 5 viewing the facts in the light most favorable to the plaintiff, a jury could conclude that the insurer 6 acted unreasonably.” Amadeo, 290 F.3d at 1162. 7 D. Punitive Damages 8 “[T]he conduct required to award punitive damages for the tortious breach of contract is of 9 a different dimension than that required to find bad faith.” Shade Foods, Inc. v. Innovative Prod. 10 Sales & Mktg., Inc., 78 Cal. App. 4th 847, 890, as modified on denial of reh’g (Mar. 29, 2000) 11 (citing Tomaselli v. Transamerica Ins. Co., 25 Cal. App. 4th 1269, 1286 (1994)) (alterations 12 omitted). “[T]he evidence in support of the award of punitive damages must satisfy a distinct and 13 far more stringent standard.” Id. By statute, that standard requires the plaintiff to prove “by clear 14 and convincing evidence that the defendant has been guilty of oppression, fraud, or malice.” 15 Calif. Civil Code § 3294(a). Malice means “conduct which is intended by the defendant to cause 16 injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and 17 conscious disregard of the rights or safety of others.” Calif. Civil Code § 3294(c)(1). Oppression 18 means “despicable conduct that subjects a person to cruel and unjust hardship in conscious 19 disregard of that person’s rights.” Calif. Civil Code § 3294(c)(2). Despicable conduct has been 20 described as “[having] the character of outrage frequently associated with crime.” Taylor v. 21 Superior Court, 24 Cal. 3d 890, 894 (1979). 22 IV. DISCUSSION 23 A. Breach of Contract Claim 24 Defendant declares that Plaintiff’s breach of contract claim must fail because her long-term 25 disability claim was ultimately approved; Defendant has paid and continues to pay her benefits in 26 full. Because she received the benefits due under the contract, Defendant argues that Plaintiff 27 cannot demonstrate any damages resulting from the alleged breach. 1 Plaintiff does not dispute that Defendant has paid and continues to pay her claim. Instead, 2 she raises the specter of additional damages stemming from the Defendant’s initial failure to 3 pay—namely the attorney’s fees incurred as a result of this litigation. For support, she relies on 4 Brandt v. Superior Court, where the California Supreme Court held that, “when an insurer’s 5 tortious conduct reasonably compels the insured to retain an attorney to obtain the benefits due 6 under a policy, it follows that the insurer should be liable in a tort action for that expense. The 7 attorney’s fees are an economic loss—damages—proximately caused by the tort.” 37 Cal. 3d 813, 8 817 (1985). 9 Plaintiff conflates her claims. Brandt construed attorney’s fees to constitute damages in 10 the context of a breach of good faith and fair dealing claim—i.e., a tort claim—not a breach of 11 contract claim. See id. (“What we consider here is attorney’s fees that are recoverable as damages 12 resulting from a tort in the same way that medical fees would be part of the damages in a personal 13 injury action.”). While the money Plaintiff has spent on legal counsel may be relevant to her own 14 bad faith claim, it does not demonstrate the essential damages component of her contract claim. 15 Plaintiff also contends that she can show contract damages because of the withheld 16 benefits on which she could have collected interest during the three-month duration of 17 Defendant’s initial refusal to pay. True, “when the insurer has received all information needed to 18 determine liability for a claim, and the insurer determines that liability exists and fails to make 19 payment of benefits to the insured within 30 calendar days after the insurer has received that 20 information, any delayed payment shall bear interest, beginning the 31st calendar day, at the rate 21 of 10 percent per year.” Cal. Ins. Code § 10111.2(c). This provision is inapplicable to Plaintiff’s 22 case, however, as the insurer did not “determine[] that liability exists” until after she filed suit. 23 Upon reversing its earlier denial of benefits, Defendant began paying out her claim within the 24 required 30 calendar days. This satisfied the requirements of Section 10111.2(c) such that no 25 interest was necessary. Plaintiff therefore cannot satisfy the damages element by reference to that 26 section of the insurance laws. 27 Plaintiff’s final attempt to prove contract damages is her citation to Section 3287 of the 1 California Civil Code, which provides that “any person who is entitled to recover damages certain, 2 or capable of being made certain by calculation[,]” and whose entitlement vested upon a particular 3 day, “is entitled also to recover interest thereon from that day[.]” Cal. Civ. Code § 3287(a). This 4 argument is “misplaced.” See Onder v. Allstate Ins. Co., No. 02-cv-213-IEG, 2002 WL 1354826 5 (S.D. Cal. 2002). As that district court observed, “Plaintiffs cannot use section 3287, which 6 pertains to damages, to show that there is a genuine issue of material fact with respect to the 7 breach of contract claim itself.” Id. “Rather, plaintiffs must first show that they are entitled to 8 damages by establishing that defendants breached a provision of the insurance contract[.]” Id.; see 9 also Sampson v. Century Indem. Co., 8 Cal. 2d 476, 479 (1937) (highlighting that a company is 10 not liable for interest absent a provision for payment of interest in an insurance policy). 11 In sum, given that Defendant paid her claim and continues to do so, and that the contract 12 did not provide for interest payments on any delays, Plaintiff fails to show how she suffered 13 damages due to the alleged contractual breach—an essential element of her claim. Defendant’s 14 motion for summary judgment is therefore granted with respect to the alleged breach of contract. 15 B. Breach of Implied Covenant of Good Faith and Fair Dealing (Bad Faith) 16 1. Damages 17 Defendant seeks summary judgment on Plaintiff’s bad faith claim because it argues 18 Plaintiff cannot show economic damages resulting from the allegedly unfair dealing she 19 experienced. Plaintiff opposes the motion, pointing to the attorney’s fees and emotional distress 20 she incurred after filing suit to challenge the claim denial as the proximate result of Defendant’s 21 actions. 22 As just discussed, “[w]hen an insurer’s tortious conduct reasonably compels the insured to 23 retain an attorney to obtain the benefits due under a policy, it follows that the insurer should be 24 liable in a tort action for that expense. The attorney’s fees are an economic loss—damages— 25 proximately caused by the tort.” Brandt, 37 Cal. 3d at 817. “The fees recoverable, however, may 26 not exceed the amount attributable to the attorney’s efforts to obtain the rejected payment due on 27 the insurance contract.” Id. at 819. It follows that the fees Plaintiff incurred in the months leading 1 up to the eventual approval of her claim amount to economic damages. Moreover, the existence of 2 those damages unlocks her ability to claim emotional distress damages she described in her 3 complaint. See Waters v. United Servs. Auto. Assn., 41 Cal. App. 4th 1063, 1072 (1996). 4 (“[E]motional distress damages are recoverable in a bad faith action arising out of a third party 5 claim only when the insured establishes a loss of property.”) Because Plaintiff has made a 6 satisfactory showing, Defendant’s damages-based argument for summary judgment as to the bad 7 faith claim is denied. 8 2. Reasonableness 9 Both parties seek summary judgment on Plaintiff’s bad faith claim, arguing that 10 Defendant’s decision to deny her long-term disability benefits claim was either so reasonable or so 11 unreasonable that it may be decided as a matter of law; in other words, that her contractual right to 12 the claimed disability benefits was either undisputedly disputable or undisputedly undisputable. 13 As to the former, Defendant argues that the genuine issue rule warrants summary 14 adjudication in its favor. “The genuine issue rule in the context of bad faith claims allows a [trial] 15 court to grant summary judgment when it is undisputed or indisputable that the basis for the 16 insurer’s denial of benefits was reasonable—for example, where even under the plaintiff’s version 17 of the facts there is a genuine issue as to the insurer’s liability under California law.” Wilson, 42 18 Cal. 4th at 724 (internal quotation marks omitted). In other words, if the insurer denied a claim 19 due to “a genuine dispute with its insured as to the existence of coverage liability or the amount of 20 the insured’s coverage claim,” said insurer “is not liable in bad faith.” Id. at 723. 21 In Plaintiff’s view, however, no rational factfinder could construe the facts and conclude a 22 genuine dispute existed with respect to the validity of her claim. Rather, she contends that the 23 only reasonable inferences to be drawn from the record support concluding that the insurer denied 24 the claim without “fully inquir[ing] into possible bases that might support [it]” or “thoroughly 25 investigating the foundation for its denial.” Egan v. Mutual of Omaha Ins. Co., 24 Cal. 3d 809, 26 819 (1979). 27 Neither movant demonstrates that this matter warrants summary judgment, as neither has 1 shown the absence of a genuine dispute over a material fact. As to the Defendant’s motion, the 2 factual dispute over what Dr. Shah told Dr. Alpert, standing by itself, precludes summary 3 judgment. In the light most favorable to the nonmovant, Dr. Shah’s sworn declaration 4 demonstrates that Dr. Alpert mischaracterized the substance of her only interview with a care 5 provider about Plaintiff. Such a mischaracterization could amount to bad faith, especially in this 6 context, where Dr. Alpert did not conduct any other interviews. Moreover, the fact that Dr. Alpert 7 completely neglected to discuss Plaintiff’s finger pains in her first recommendation undermines 8 the notion that her denial was the result of careful inquiry. At bottom, Dr. Alpert’s 9 recommendation frames Plaintiff’s claim as one about her long-recognized amputee status, when, 10 in fact, Plaintiff complained of chronic pain that stemmed from new complications of that status, 11 including pain caused by new prosthetics and newly developing in her remaining fingers. That 12 Defendant quickly overturned Dr. Alpert’s recommendation upon hearing from counsel hardly 13 demonstrates that the denial was subject to a reasonable dispute—if anything, it suggests that 14 denial was plainly unreasonable in this context. 15 At the same time, however, it is far from clear on this record that Defendant acted in bad 16 faith. Construing Plaintiff’s motion in the light most favorable to the nonmovant, it is plausible 17 that Dr. Alpert misheard Dr. Shah (or even that Dr. Shah misremembers their conversation). As 18 for the finger pain, although Dr. Alpert addressed that aspect of Plaintiff’s claim only after being 19 admonished, the fact that she ultimately did so renders the denial more reasonable than it 20 otherwise would have been. In short, genuine dispute remains at the crux of this case—did 21 Defendant reasonably deny Plaintiff’s claim? On this record, that is a question “for the jury to 22 decide.” Tomaselli, 25 Cal. App. 4th at 1282. Inasmuch as the parties seek summary judgment on 23 the bad faith claim, both motions are denied. 24 C. Punitive Damages 25 Punitive damages in a tort action are authorized if the defendant shows, by clear and 26 convincing evidence, that the defendant is guilty of malice, fraud, oppression or despicable 27 conduct. See Calif. Civil Code §§ 3294(a), 3294(c)(1) and (2); see also Tomaselli, 25 Cal. App. 1 4th at 1287. Defendant argues that Plaintiff has not provided any evidence of this sort such that 2 summary judgment on her punitive damages claim is appropriate. Plaintiff counters by arguing 3 that she met this standard with evidence the Defendant had an annual incentive program that 4 linked claim handler compensation to the company’s bottom line. 5 Where an insurer’s bad faith was “part of a conscious course of conduct, firmly grounded 6 in established company policy,” punitive damages may be warranted. Neal v. Farmers Ins. 7 Exchange, 21 Cal. 3d 910, 987 (1978). Plaintiff, however, has failed to demonstrate as much. She 8 points to Defendant’s incentive program, but as other courts have recognized, that program is not 9 inherently suspect. See Till v. The Lincoln Nat’l Life Ins. Co., 182 F. Supp. 3d 1243, 1277 (M.D. 10 Ala. 2016) (rejecting argument that bonuses motivated Lincoln personnel to deny legitimate 11 claims), Irgon v. Lincoln Nat’l Corp., No. 12-cv-4731-FLW, 2014 WL 12718984, at *8 (D.N.J. 12 2014) (“[T]he compensation of Lincoln’s claims and appeal personnel is not tied to claims denials 13 or terminations of benefits.”). Evidence that this incentive program exists is neither clear nor 14 convincing proof that Defendant is guilty of malice, fraud, oppression, or despicable conduct. The 15 mere fact that Plaintiff’s claim would be particularly costly for Defendant is insufficient to 16 demonstrate the sort of malicious and despicable conduct that punitive damages are designed to 17 address. Defendant’s motion for summary judgment is therefore granted with respect to punitive 18 damages. 19 V. CONCLUSION 20 For the reasons explained above, Plaintiff’s motion for summary judgment is denied, and 21 Defendant’s motion for summary judgment is denied except with respect to the breach of contract 22 claim and the punitive damages sought; as to those two issues, Defendant’s motion for summary 23 judgment is granted. As a result, the breach of contract claim is dismissed, punitive damages are 24 foreclosed, and the tortious breach of the covenant of good faith and fair dealing claim survives. 25 26 IT IS SO ORDERED. 27 1 Dated: January 9, 2025 2 ICHARD SEEBORG 3 Chief United States District Judge A 5 6 7 8 9 10 11 e 12
2B 14
15 16 € 7 6 Zz 18 19 20 21 22 23 24 25 26 27 98 ORDER GRANTING IN PART, DENYING IN PART CROSS-MOTIONS FOR SUMMARY JUDGMENT CASE No. 22-cv-07493-RS