Romes v. Garrison Property and Casualty Insurance Company

• Court: District Court, D. Arizona
• Decided: June 25, 2024
• Docket: 2:24-cv-00176
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Ramona Romes, No. CV-24-00176-PHX-SMB

10 Plaintiff, ORDER

11 v.

12 Garrison Property and Casualty Insurance Company, 13 Defendant. 14 15 Pending before the Court is Plaintiff’s Motion to Certify Questions to the Arizona 16 Supreme Court (Doc. 21). Defendant filed a response (Doc. 24), to which Plaintiff replied 17 (Doc. 25). The Court exercises its discretion to resolve this Motion without oral argument. 18 See LRCiv 7.2(f) (“The Court may decide motions without oral argument.”). After 19 considering the parties’ arguments and relevant case law, the Court will deny the Motion. 20 I. BACKGROUND 21 This case arises from an insurance coverage dispute. (Doc. 1-1.) On August 3, 22 2021, Plaintiff was involved in a car accident. (Doc. 13 at 3 ¶¶ 7–9.) The non-party that 23 hit Plaintiff was insured, and her policy paid its available bodily injury liability limits of 24 $100,000 to Plaintiff. (Id. at 4 ¶ 14.) Plaintiff asserts that this amount was insufficient to 25 cover her injuries. (Id. ¶ 18.) In turn, Plaintiff filed a claim with her own insurer, Garrison 26 Property and Casualty Insurance Company (“USAA”) for Underinsured Motorist Benefits 27 (“UIM”). (Id. at 6 ¶ 24.) Plaintiff paid for UIM coverage through her policy. (Id. at 5 28 ¶ 19.) After reviewing Plaintiff’s documentation to support $30,039.26 in medical 1 expenses and $15,681.82 in lost wages, USAA reduced these charges to $19,178.87 and 2 $15,681.82, respectively. (Id. at 6–8, ¶¶ 13, 29, 34.) Then, Defendant offered $5,000 in 3 UIM benefits to Plaintiff. (Id. at 6 ¶ 26.) Plaintiff alleges although USAA acknowledged 4 that it was “required to pay for all compensatory damages,” they improperly and unlawfully 5 failed to fully cover her medical expenses and lost wages. (Id. ¶ 27.) Plaintiff further 6 alleges that USAA’s calculations are unsupported and are an “attempt to low-ball, 7 undervalue and underpay UM and/or UIM benefits owed to its insureds.” (Id. at 8 ¶ 32.) 8 Ultimately, Plaintiff asserts that “it is per se unlawful to calculate compensatory damages 9 for incurred medical expenses by using amounts less than the billed charges and calculating 10 lost earnings using post-tax wages.” (Doc. 21 at 5.) 11 On December 18, 2023, Plaintiff filed her Complaint in Maricopa County Superior 12 Court, seeking a declaratory judgment and alleging breach of contract and bad faith. (Doc. 13 1-1.) She also seeks to represent a class of insureds that also received allegedly unlawfully 14 calculated reduced medical expenses or reduced lost wages. (Id. at 12 ¶ 60.) Defendant 15 then removed this action to federal court (Doc. 1), and Plaintiff eventually filed a Second 16 Amended Complaint (Doc. 13). Now, Plaintiff seeks to certify two questions to the 17 Arizona Supreme Court. (Doc. 21.) 18 II. LEGAL STANDARD 19 Arizona law provides a mechanism to certify questions of law to the Arizona 20 Supreme Court. Ariz. R. Sup. Ct. 27. The applicable statute states:

21 The supreme court may answer questions of law certified to it by ... a United 22 States district court . . . when requested by the certifying court if there are involved in any proceedings before the certifying court questions of law of 23 this state which may be determinative of the cause then pending in the 24 certifying court and as to which it appears to the certifying court there is no controlling precedent in the decisions of the supreme court and the 25 intermediate appellate courts of this state. 26 27 Ariz. Rev. Stat. § 12-1861. Certification of a question is not obligatory merely 28 because state law is unsettled. McKesson v. Doe, 592 U.S. 1, 5 (2020). Rather, the decision 1 to rule on the question or certify it falls within the Court’s discretion. Lehman Bros. v. 2 Schein, 416 U.S. 386, 390–91 (1974). If the Court chooses to rule on the question, it “must 3 predict how the highest state court would decide the issue using intermediate appellate 4 court decisions, decisions from other jurisdictions, statutes, treatises, and restatements as 5 guidance.” Ariz. Elec. Power Coop. v. Berkeley, 59 F.3d 988, 991 (9th Cir. 1995). 6 Therefore, the Court looks to factors such as the complexity of the issue, the availability of 7 precedent from lower courts or other jurisdictions, and the magnitude of disagreement on 8 the issue to determine whether certification is appropriate. See id.; see also Rigden v. 9 United States, 795 F.2d 727, 735 n.6 (9th Cir.1986). 10 III. DISCUSSION 11 At this juncture, Plaintiff seeks to certify two questions to the Arizona 12 Supreme Court:

13 (1) When determining compensatory damages, what is the proper method for 14 calculating incurred expenses for reasonable and necessary medical care, treatment, and services already incurred? 15 (2) When determining compensatory damages, what is the proper method for 16 calculating past lost earnings?

17 (Doc. 21 at 1–2.) Plaintiff contends that both questions are unresolved threshold 18 legal issues that determine the amount of compensatory damages that Plaintiff is legally 19 entitled to recover. (Id. at 7.) Defendant counters that the questions do not raise unsettled 20 questions because Arizona courts routinely reject post-tort billed medical expenses as 21 damages and leaves the final calculation to the jury. (Doc. 24 at 3–6.) Defendant also 22 asserts that the second question is unnecessary because the appropriate recovery for past 23 lost wages is also a question of fact for the jury. (Id. at 14.) 24 A. The First Question 25 The Court begins with the general principles of tort damages set forth by the Arizona 26 Supreme Court. “In an action for personal injuries, the law does not fix precise rules for 27 the measure of damages but leaves their assessment to a jury’s good sense and unbiased 28 judgment.” Meyer v. Ricklick, 409 P.2d 280, 282 (Ariz. 1965). In applying this principle, 1 the Meyer court further held that a jury can limit their verdict through finding that “the 2 medical expenses [plaintiff] allegedly incurred were not proven as reasonable” and “that 3 [plaintiff’s] loss of earnings were not as much as she asserted,” and even “that some part 4 of such medical expense and loss of earnings” may have been due to a plaintiff’s 5 preexisting medical conditions or a prior accident. Id. This, of course, directly contradicts 6 Plaintiff’s contention that a tort victim or underinsured motorist is entitled to their full 7 billed medical expenses as a matter of law. Under this fundamental principle of Arizona 8 tort law, it is up to the jury to hear evidence and weigh the reasonability of the claimed 9 damages. The jury makes the ultimate determination on whether any claimed medical 10 expenses and their impact on compensatory damages are reasonable. 11 This rule regarding reasonability has never been called into question. Instead, it has 12 been reaffirmed and shaped by numerous Arizona Court of Appeals cases. The most salient 13 of these cases is Larsen v. Decker, 995 P.2d 281 (Ariz. Ct. App. 2000). The Larsen court 14 held that a plaintiff cannot solely rely on medical records and bills to establish the 15 reasonableness of medical expenses. Id. at 285–86. Instead, a plaintiff must provide “other 16 evidence”—such as expert testimony or direct plaintiff testimony—to establish the 17 reasonableness of the claim medical bills. Id. (citing Patterson v. Horton, 929 P.2d 1125, 18 1130 (Wash. Ct. App. 1997)). In other words, without additional evidence supporting 19 reasonableness, medical bills cannot even be presented to the jury, and therefore the jury 20 cannot consider them when calculating damages. 21 This rule was recently reaffirmed in Benedict v. Total Transit, Inc., 499 P.3d 339 22 (Ariz. Ct. App. 2021). There, the court affirmed the trial court’s decision to allow a 23 plaintiff’s neurology expert to testify that plaintiff’s medical charges were reasonable. Id. 24 at 346. The court reasoned that prior case law, namely Larsen, established that plaintiffs 25 must offer “other evidence” that the expenses were reasonable, and that the expert’s 26 testimony provided this “other evidence” that a plaintiff must provide. Id. Additionally, 27 the court noted that the expert was “aware of amounts billed for various procedures and 28 treatments” and that it was within the jury’s discretion to decide how much weight to give 1 this testimony. Id. This analysis bolstered both the Meyer tort principles and Larsen’s 2 “other evidence” rule. 3 The Arizona Court of Appeals again affirmed this principle in Fadely v. Encompass 4 Health Calley of Sun Rehabilitation Hospital, 515 P.3d 701 (Ariz. Ct. App. 2022). Citing 5 Larsen, the court held that to admit the plaintiff’s medical bills, the plaintiff “needed to 6 establish (1) a casual connection between the medical bills and [Defendant’s] negligent 7 conduct, (2) the treatment was necessary, and (3) the expenses were reasonable.” Id. at 8 709. The Fadely court used this standard to reverse the trial court’s decision admitting the 9 bills. Id. The court reasoned that the plaintiff had not offered any evidence to link these 10 bills to the defendant’s wrongful conduct or established which treatments shown in the bills 11 addressed the plaintiff’s new injuries “versus her preexisting comorbidities.” Id. 12 Therefore, the court held that the bills failed the causation prong. Id. Although the analysis 13 focused on causation, it reaffirms the point that only reasonable medical expenses are 14 recoverable. Those are the expenses that Plaintiff can admit with the requisite support, and 15 ultimately recover if awarded by the jury. In other words, if a plaintiff cannot even admit 16 medical bills at trial without support for their reasonableness, those same bills cannot serve 17 as acceptable stand-ins for damage amounts that fall outside the jury’s reach. 18 In addition to being applied by Arizona state courts, Arizona federal courts have 19 also routinely applied this principle. Plaintiff points out that these federal cases are not 20 controlling precedent. (Doc. 25 at 6.) Although they are not controlling, they remain 21 persuasive authority and provide examples of federal judges analyzing Arizona case law. 22 In fact, many federal cases apply Larsen and its progeny. See, e.g., Kinsel v. BMW of N. 23 Am. LLC, No. CV-20-08296-PCT-DJH, 2024 WL 113305, at *1–2 (applying Fadely and 24 requiring a causal connection between the records and the auto accident to admit medical 25 records and bills); Simington v. Silver Spur MHP LLC, No. CV-20-01789-PHX-ESW, 26 2022 WL 16550396, at *1 (D. Ariz. Oct. 31, 2022) (citing Larsen for the rule that a plaintiff 27 must show that expenses were reasonable and necessary, but denying testimony about the 28 expenses on another ground); Lind v. United States, No. CV 13-32-TUC-JAS, 2017 WL 1 10237337, at *7–8 (D. Ariz. Sept. 22, 2017) (favorably citing and applying Larsen). 2 Of all the federal cases, Wikler v. Privilege Underwriters Inc., No. CV-17-02664- 3 PHX-GMS, 2019 WL 1294749 (D. Ariz. Mar. 21, 2019) is the most directly on point. The 4 plaintiffs in Wikler argued that their billed medical costs were fully and automatically 5 compensable under their UIM policy. See id. at *4. The court, citing Larsen, rejected this 6 argument and held that the plaintiffs were required to prove that the costs were “reasonable 7 and necessary.” Id. The court also reasoned that the billed rates, even if they were the 8 standard rates of the relevant regulatory authorities, were not reasonable per se in a tort 9 context with compensatory damages. Id. Therefore, the court determined that whether the 10 bills were “reasonable and necessary” remained a “jury question.” Id. at *5. This Court 11 agrees with Wikler’s analysis and application of relevant Arizona law. 12 Here, Plaintiff alleges that Defendant’s practice is to reduce billed medical charges 13 to the “usual and customary charges—a health insurance industry term used to determine 14 the amount a health insurer allows when paying medical providers. In other words, even 15 when [Defendant] agrees the contract requires payment for medical care, [Defendant] pays 16 less than the charges billed to the insured.” (Doc. 13 at 2–3 ¶ 4.) Plaintiff further asserts 17 that Defendant cherry-picked statements from her medical records to claim she had 18 recovered from her alleged traumatic brain injury and simply discarded other billed charges 19 without considering all available evidence. (Id. at 9 ¶ 38.) Therefore, Plaintiff seeks a 20 declaratory judgment that “she is entitled to her full compensatory damages under Arizona 21 law rather than the Reduced Medical Expenses . . . calculated by Defendant USAA.” (Id. 22 at 11 ¶ 48.) 23 As expressed through the case law, post-tort billed medical expenses are not an 24 appropriate measure of damages. Other evidence, often through the form of testimony, is 25 needed to establish the reasonableness and necessity of the billed charges—often through 26 exploring their causal connection to the alleged injury. Upon hearing this evidence, the 27 jury can ultimately decide which charges were in fact reasonable and necessary and reflect 28 that judgment in their award of compensatory damages. After all, a plaintiff’s recovery in 1 a tort suit is designed to be limited to the harm actually caused by the tortfeasor. Any rule 2 that automatically entitles a plaintiff to the full “billed charges” of medical care violates 3 this principle. Plaintiff is also correct that under Arizona law, a tortfeasor is liable for all 4 harm that he or she causes. But the mere submission of a medical bill is insufficient proof 5 of a harm. It is up to the jury to weigh the evidence and decide what charges, if any, warrant 6 compensatory damages. 7 In short, there is no per se rule establishing a floor of recovery based solely on the 8 billed medical expenses in Arizona. Defendant is permitted to challenge the 9 reasonableness of the medical expenses and how they are linked to the claimed injuries. If 10 Plaintiff can show through “other evidence” that the medical expenses were “reasonable 11 and necessary results of the auto accident” then the jury can consider these expenses in 12 their potential award of damages. Larsen, 995 P.2d at 285–86. Accordingly, the Court 13 will not certify this question to the Arizona Supreme Court. 14 A. The Second Question 15 Plaintiff’s second question follows a similar analysis. Here, Plaintiff alleges that 16 Defendant applied an arbitrary 15% reduction for projected income taxes from Plaintiff’s 17 wages. (Doc. 13 at 8 ¶ 35.) Plaintiff contends that when applying this rate, Defendant did 18 not know Plaintiff’s annual gross income, tax filing status, adjusted gross income, tax 19 credits received or deductions claimed, thereby making it impossible to determine her 20 correct effective tax rate. (Id.) Therefore, Plaintiff alleges that Defendant simply picked 21 an unsupported tax rate when reducing Plaintiff’s claimed damages. (Id.) Plaintiff seeks 22 declaratory judgment that “she is entitled to her full compensatory damages under Arizona 23 law rather than the. . . Reduced Lost Wages calculated by Defendant USAA.” (Id. at 11 24 ¶ 48.) 25 Plaintiff argues that under Arizona law, “gross pay—rather than net pay after 26 deducting taxes—is the proper measure on damages for calculating lost earnings.” (Doc. 27 21 at 13) (citing Mitchell v. Emblade, 298 P.2d 1034 (Ariz. 1956)). Plaintiff then points to 28 Seely v. McEvers, 564 P.2d 394 (Ariz. Ct. App. 1977), in which the Arizona Court of 1 Appeals reaffirmed this principle and held that “evidence of income taxes or deductions 2 should not be allowed for the purpose of reducing the amount of damages.” (Doc. 21 at 3 13) (citing Seely, 564 P.2d at 397). Defendant argues that Seely’s logic is limited to future 4 earnings—a reading supported by federal cases analyzing Seely. (Doc. 24 at 14–16.) The 5 Court agrees with Defendant. 6 Put simply, the relevant case law focuses on calculating tax consequences of future, 7 not past, earnings. In Seely, the Arizona Court of Appeals adopting the majority rule stating 8 that “income tax consequences should not be taken into consideration in arriving at 9 damages for loss of future earnings or for impairment of future earning capacity. Rather 10 the award of damages should be based upon a plaintiff’s gross earnings.” 564 P.2d at 397 11 (emphasis added). The court further held that “gross pay and not net or ‘take home’ pay is 12 the proper basis for computing loss of future earnings, and that evidence of income taxes 13 or deductions should not be allowed for the purpose of reducing the amount of damages.” 14 Id. (emphasis added). The court reasoned that in these circumstances “the amount of taxes 15 is too conjectural and would only unduly complicate and confuse the damages issue but 16 overshade the basic issue of liability.” Id. 17 A federal court analyzing Seely drew the same conclusion. See Walton v. 18 Bridgestone/Firestone, Inc., No. CV-05-3027-PHX-ROS, 2009 WL 2778441 (D. Ariz. 19 Jan. 16, 2009). The Walton court noted that calculation of future tax burdens is not useful 20 because future tax rates are difficult to predict. Id. at *3. However, the court contrasted 21 this scenario with tax rates that have been established for the earnings period in question. 22 Id. The Court agrees with this distinction. Calculating a plaintiff’s tax bracket from prior 23 years—in which all the data is readily available—is significantly less complicated than 24 projecting future tax liabilities. That is the situation Plaintiff is faced with here. 25 Considering these issues will not unduly complicate damages calculations or confuse the 26 issues. See Seely, 564 P.2d at 397. Much like billed medical charges, appropriate recovery 27 for past lost wages—including any tax consequences—is an appropriate question of fact 28 for the jury. There is no per se rule establishing a set recovery of past wages without any 1 || consideration of tax implications. The Court will not certify this question to the Arizona 2|| Supreme Court. 3 In short, measuring compensatory damages for incurred medical expenses or past lost wages remains within the province of the jury. The relevant case law is clear, and 5 || there is no unsettled question of law requiring the intervention of the Arizona Supreme || Court. 7\| IV. CONCLUSION 8 For the above reasons, 9 IT IS HEREBY ORDERED denying Plaintiff's Motion to Certify Questions to || the Arizona Supreme Court (Doc. 21). 11 Dated this 24th day of June, 2024. 12 _——= 13 ose 4 onorable Susan M, Brnovich 15 United States District Judge 16 17 18 19 20 21 22 23 24 25 26 27 28

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