Insurance Claims And Punitive Damages

Insurance lawyers who seek punitive damages in bad faith cases need to be able to determine when they apply. A 1995, Beaumont Court of Appeals case is a good one to read for this issue. The style of the case is, Liberty Mutual Fire Insurance Company v. Crane. Here is some of the relevant information from this case.
A claimant seeking these damages must establish:
1. That there was an absence of a reasonable basis for denying or delaying payment of the benefits of the policy.
2. That the carrier knew or should have known that there was not a reasonable basis for denying the claim or delaying payment of the claim.
As explained by the Texas Supreme Court in other cases the bad faith cause of action does not focus on whether the claim is valid. Coverage is not the issue in a bad faith claim. On the contrary, the focus in a bad faith cause of action is on the reasonableness of the insurer’s conduct in rejecting the claim. As applied to the instant case, that simply means that the mere fact that the settlement agreement covers Donald Crane’s carpal tunnel syndrome surgery does not necessarily mean that the carrier has also breached the duty of good faith and fair dealing.
The court’s focus should be on the relationship of the evidence supporting the bad faith claim to the elements of bad faith. Evidence presented must be such as to permit the logical inference that the insurer had no reasonable basis to delay or deny payment of claims, and that it knew or should have known it had no reasonable basis for its actions.
In light of those standards, the court looks at what evidence Donald Crane brought forward to support his claim of bad faith and, more specifically, his claim that Liberty had no reasonable basis to deny his claim. He offered, among other things, the expert opinion of Dr. Gunderson, the physician who was actually selected by the insurance company to handle medical care related to Crane’s injury and to handle future medical for settlement agreement purposes. In Dr. Gunderson’s opinion, Donald Crane did, indeed, have carpal tunnel syndrome; moreover, Dr. Gunderson found the condition to be related to the injury in question. Dr. Gunderson affirmatively stated this opinion in the February 3, 1992, letter which he wrote to Liberty. Furthermore, Crane offered evidence of three EMG (nerve conduction) tests performed upon him in April, October, and December 1991 by two physicians other than Dr. Gunderson. All three EMG tests revealed that Crane suffered from carpal tunnel syndrome, and all three tests were authorized and paid for by Liberty. In addition, Crane testified by deposition in September 1991 that he began experiencing numbness and tingling in his right hand shortly after the accident and that he continued to experience those symptoms thereafter. Based upon the foregoing EMG tests, Dr. Gunderson’s letter, as well as his deposition testimony, and Donald Crane’s own deposition testimony, the carrier was put on notice that Crane was afflicted with carpal tunnel syndrome and that the condition resulted from the accident on December 19, 1990. With that information in hand, there was, at that point, no bona fide controversy regarding the insurer’s liability; the carrier’s own expert stated that the carpal tunnel syndrome was related to the accident and recommended surgery to correct the problem.
The jury concluded that the carrier had no reasonable basis for denying the claim, and further concluded that Liberty knew that it did not. The circumstantial evidence in the case regarding the conduct of Liberty, through its adjusters, John Ledbetter and Lisa Gilbert, supports the jury’s findings on that issue. Once Dr. Gunderson requested authorization for carpal tunnel syndrome surgery on Crane, Liberty assigned a new adjuster to the case, John Ledbetter, who was more experienced in dealing with CTS, at least the most common form of CTS stemming from repetitive trauma. Ledbetter was not a medical doctor. Although Ledbetter had in hand the three EMG tests, Dr. Gunderson’s written opinion as to the causal relationship between the injury and Crane’s CTS, Dr. Gunderson’s request for authorization for the carpal tunnel surgery, and Crane’s own deposition testimony, that body of evidence was not enough.
Rather than accept the ample evidence of the relationship between the injury and the CTS and the necessity of surgery to correct the CTS, Ledbetter pressed on in dogged pursuit of a predetermined course of action to deny the claim. In view of the substantial evidence that he already had before him, which a reasonable insurer under similar circumstances would have deemed sufficient, he needed either a reversal by Dr. Gunderson of Gunderson’s opinion or an opposing opinion by other experts. He made repeated telephone calls to Dr. Gunderson to discuss the claim. When Dr. Gunderson remained firm in his opinion, the record shows that the adjuster next wrote a letter to a Dr. Thorpe, in which Ledbetter asked if carpal tunnel syndrome could result from the injury in question or whether it was more likely that the carpal tunnel syndrome stemmed from Crane’s repetitious use of his hands while working as a boilermaker. Dr. Thorpe did not reply directly to the questions posed in the letter, but merely stated in a handwritten comment on the letter, “No dx of carpal tunnel syndrome when I saw him.” The record shows that, unlike Dr. Gunderson, who saw Crane twenty times, Dr. Thorpe saw Crane only one time, did no diagnostic studies on him, and undertook no treatment.
Continuing to disregard the three positive EMGs, the testimony of Donald Crane, and the opinions and recommendations of its own expert, Dr. Gunderson, Ledbetter sought still another opinion–this time from a Dr. Epstein. Like Dr. Thorpe, Dr. Epstein saw Donald Crane one time for approximately five minutes and, likewise, did no diagnostic studies. In his opinion, at the time he examined Crane, Dr. Epstein was unsure that Crane had carpal tunnel syndrome. As Dr. Epstein stated:
I am aware of the electrodiagnostic abnormalities that have been determined.
Quite honestly, I’m not exactly clear why he has the right upper extremity complaints that he is telling us about…. [He should] be evaluated by a diagnostic neurologist…. [I]t would not be my advice that the man undergoes a carpal tunnel release surgery at this point in time….
The way that Mr. Crane related hitting his extremity on grating would not, in my opinion in all probability, yield a carpal tunnel syndrome.
At that point, Liberty had in hand its much sought-after medical opinion in opposition to that of Dr. Gunderson. With the contradictory opinion in hand, Liberty, no doubt, believed that it had acquired sufficient “reasonable basis” to deny the claim and thereby avoid any breach of its duty of good faith and fair dealing.
For some reason, the carrier determined that this “picture” was not complete. In this court’s opinion, however, and, in the jury’s opinion, it was. Since Liberty had tests indicating the presence of carpal tunnel syndrome in the right hand, had its own medical expert’s opinion that the carpal tunnel syndrome was related to the injury, and had the statement of the insured as to the onset of symptoms shortly after the injury, the insurance company had no reasonable basis for denying authorization for the surgery.
Instead of fulfilling its duty to pay the claim, however, the carrier made a predetermination that the claim must be denied and then set upon a course of action to secure additional opinions to substantiate that predetermined course of action. Once it secured those opinions, Liberty denied the claim. In reviewing the conduct of Liberty, the question ultimately comes down to this: Is it acceptable for an insurance company to continue to seek expert opinions under the buzz words of “clarification” and “investigation” until it finally secures one or two in opposition to its own experts? Or is there finally a point where it is patently unreasonable to deny the claim or to continue to delay payment? Surely, the intent of the Supreme Court in its pronouncements in other cases was not to allow prolonged “fishing expeditions” for expert opinions to continue until a party finds one in opposition to those which it already has in hand. If, indeed, that is the case, then no carrier will ever be found to have breached the duty of good and fair dealing, since it can always locate an expert opinion somewhere to support its predetermined course of action.
The evidence offered by Crane in support of his bad faith claim, as well as the evidence which was before Liberty when it denied or delayed payment on the claim, furnish a reasonable basis for the conclusion by the jury that there was no reasonable basis for the denial of the claim. This review of the relationship of the evidence supporting the bad faith claim to the elements of bad faith demonstrates that there is sufficient evidence to support both elements of the bad faith cause of action.
The evidence presented by Crane of an absence of a reasonable basis for denying the claim and Liberty’s knowledge of that fact, as well as the information before Liberty at the time it denied or delayed making a decision on the claim is both legally and factually sufficient.