When most people think of insurance, they think of the policies they use in their everyday life through an auto policy, homeowners/renters insurance or health insurance. More likely than not, they pay the premiums and do not read the fine print. Regardless, if the fine print is read, the policyholder feels the insurance provides peace of mind. It is the idea something bad may not happen now, but it will eventually. And when it does happen, I better be protected. To the “Average Joe”, the premium is a small price to pay for the idea of security.
And when that awful event happens that could potentially change your life forever, you want to hear a voice on the other end of the phone reassuring you that everything will be fine. You usually have to fill out some paperwork and cooperate, but it is a small price to pay for security (just like your premiums).
But what happens when you follow your insurance company’s instructions, show proof of your injury, and yet there is a delay in resolving your claim? Can you sue the insurance company for bad faith? Can an insurance company force you to accept a settlement? Can an insurance company force you to submit for an exam in exchange for paying an insurance policy’s limits? How much power does an insurance company have over a policyholder?
What is an Independent Medical Examination?
Sometimes insurance companies need additional information in order to reach a decision as to how to handle or resolve a claim. For example, a person may have suffered physical injuries, which should be healed, but the injured party still claims they are in pain. The insurance company will request that the claimant submit to an independent medical examination (“IME”) for an evaluation. The IME provides an opportunity to get insurance professionals, employers, attorneys and physicians on the same page. Furthermore, the exams frequently assist in resolving the claim in a timely and efficient manner.
The IME is performed by an impartial, third-party contractor who is qualified to provide medical examinations. Unlike a regular or family physician, these doctors are consultants and are contracted to supply an objective medical evaluation.
An insurance company would request a claimant submit to an IME because there is a dispute or need to clarify the cause, extent and medical treatment of a work-related or other injury where liability is an issue.
When Does an Insurance Claim Become a “Bad Faith” Claim?
Insurance “Bad Faith” is a legal term, which describes a claim that an insured person may have against an insurance company for its “bad acts.” Generally, insurance companies owe a duty of “good faith and fair dealing” to the people they insure. This duty is often referred to as the “implied covenant of good faith and fair dealing” which automatically exists by operation of law in every insurance contract.
If an insurance company violates that covenant, the policyholder may sue the company for a “bad faith” claim in addition to a standard breach of contract claim. The distinction between “bad faith” and a breach of contract is significant because as a matter of public policy, punitive damages are not available for contract claims, but are available for bad faith claims. The result is a plaintiff in an insurance bad faith case may be able to recover an amount larger than the original face value of the policy, if the insurance company’s conduct was particularly egregious.
Charissa Schultz v. GEICO Casualty Company (2018 CO 87)
On November 5, 2018, the Colorado Supreme Court ruled on the Charissa Schultz v. GEICO Casualty Company matter. Plaintiff Charissa Schultz was involved in a car accident in February 2015. As a result of the accident, Schultz underwent multiple knee replacement surgeries.
The other driver’s insurance company settled with Schultz for its $25,000 policy limit, and Schultz made a demand for uninsured/underinsured motorist (“UM/UIM”) benefits under her GEICO policy, which also had a $25,000 policy limit. In connection with this demand, Schultz provided defendant GEICO with medical authorizations to allow it to obtain the medical records associated with her claim.
In April 2017, after years of correspondence and review of an MRI performed on Schultz in April 2015, GEICO offered Schultz its full policy limit and did so without requesting she undergo an IME. In fact, the claim lots show that at the time GEICO offered the full policy, an IME would not be necessary. A few months later, Schultz filed a lawsuit asserting claims for bad faith breach of an insurance contract and unreasonable delay in the payment of covered benefits. GEICO denied liability and disputed the extent and cause of Schultz’s claimed injuries. GEICO also claimed the causation surrounding the knee replacement surgeries was “fairly debatable” because Schultz had pre-existing arthritis, which GEICO claimed may have contributed as to why she needed the knee surgeries after the accident.
In an effort to support its defenses, GEICO requested Schultz undergo an IME. Schultz objected and argued her physical condition was no longer in controversy since she had already undergone the knee surgery. GEICO also argued that while it had decided to pay the policy for the UM/UIM claim, it alleged the question of causation was unresolved and was a “live issue” which it had the right to explore. The district court agreed with GEICO and ordered Schultz to undergo the IME. Schultz filed an appeal to the Colorado Supreme Court.
The Colorado Supreme Court noted there was a “significant disparity in bargaining power” between Schultz and GEICO. In order for Schultz to prevail on a claim of bad faith, the Court noted the insured “must establish that the insurer (i.e.: GEICO), acted reasonably and with knowledge of or reckless disregard for the fact that no reasonable basis existed for denying the claim.” (Travelers Ins. Cov. V. Savio (Colo. 1985) 706 P.2d 1258, 1274. The “reasonableness” of the insurer’s conduct is determined objectively and is “based on proof of industry standards.” Therefore, all plaintiff needs to do is demonstrate it acted reasonably. However, the insurance company may present all of the information that it considered at the time it made the decision to delay or deny the claim.” Therefore, the best way to defend a bad faith claim is by attempting to show that it acted reasonably, an insurer may present all the information that it considered at the time it made the decision to delay or deny the claim.
The Colorado Supreme Court relied on the case of State Farm Mut. Auto. Ins. Co. v. Reyher (Colo. 2011) 266 P.2d 967, which states that in order to defend against a bad faith claim by attempting to show that it acted reasonably, an insurer may present all of the information that it considered at the time it made the decision to delay or deny the claim. In this case, GEICO took approximately two years after receipt of the claim to decide to pay the UM/UIM policy limits to Ms. Schultz, but it took two years to do so. Furthermore, the decision for Schultz to submit to an IME was after GEICO arrived at its decision to pay the policy limits. Therefore, there was no point for her to submit to an IME if the limits were going to be paid anyway. The Court found making her submit to an IME when decisions regarding liability and payment were already made was an invasion of her privacy. It would be one thing if GEICO had ordered her to submit to an IME while the case was still new. However, to state after two years that she needed to submit to an exam even though they were going to pay the policy was akin to trying to find a reason to justify their decision. And since the Court stated in Reyher that all decisions were to be made on the information before it, to make Schultz jump through these extra hoops was seen as an unreasonable delay and thus evidence of bad faith.
While GEICO agreed to pay the policy for the UM/UIM claim, it became a “bad faith” claim because it did not make a decision in a reasonable time, nor did it make the decision based on the evidence before it at the time of the claim. It is one thing to question causation at the onset of a claim, but to wait several months can be seen as an unreasonable delay and result in a legal action for bad faith and breach of contract. It is important to retain an attorney who is up to date on current case law pertaining to bad faith litigation, who understands the complexities of bad faith lawsuits and the required elements to assert proper defenses; including avoiding what can be seen as an “unreasonable delay.”
About the Author: Jenny A. Silverstein is an associate in the San Francisco office of Tyson & Mendes. She specializes in insurance defense. Contact Jenny at 628-253-5070 or firstname.lastname@example.org