Medical treatment

Recent Cases of Bad Faith Concerning the Reasonableness of Medical Treatment | Cozen O’Connor

In two recent cases, courts have shown great deference to physicians treating patients in determining the reasonableness of medical treatment. This deference seems to reflect a reluctance of the courts to decide what health care is appropriate for a patient.

In Peterson v. Western National Mut. Ins. Co., 946 NW2d 903 (Minn. 2020), the policyholder was involved in a low-speed motor vehicle accident. Following the accident, she went to a chiropractor for body aches and headaches. She settled with the other driver and her insurer also paid the no-fault benefits of her policy. For two to three years after the accident, the insured underwent various treatments for her headaches. Eventually, she tried Botox injections, which she found effective. The insured’s attending physician indicated that the insured would need Botox injections of $2,500 per treatment for the rest of her life. As a result, the insured asked her insurer to pay the full $250,000 coverage limit for underinsured motorists on her policy and then sued.

After Peterson sued, his insurer retained an attorney and retained the services of a board-certified neurologist to perform an independent medical examination. The board-certified neurologist concluded that the insured’s headaches were likely caused by depression, even though the physician was not qualified to diagnose a psychiatric disorder. The Minnesota Supreme Court summarily reviewed the evidence and generally agreed with the insured’s attending physician that the insured’s headaches changed in intensity and frequency after the accident. Identifier. at 914.

Under Minnesota Stat. § 604.18, the insured is required to show that there was no reasonable ground to deny the benefits of the insurance policy, and that the insurer knew that there was no reasonable ground to deny the benefits or acted in reckless disregard for the lack of a reasonable basis to deny benefits. The court explained that the proper inquiry to determine reasonableness is whether “a reasonable insurer in the circumstances would not have denied the insured the benefits of the insurance policy.” Identifier. at 910. The insurer argued that it had a reasonable basis to deny the insured’s claim for benefits because it relied on the opinion of an independent medical examiner and the advice of an experienced litigator. The Minnesota Supreme Court disagreed, stating that “it is not always reasonable to rely on an independent physician.” Identifier. at 914. The court noted that the trial court relied on the insured’s adjuster who was of the opinion that a reasonable insurer would have overruled the independent medical examiner’s opinion. The court further noted that the independent medical examiner’s opinion contradicted the findings of the insured’s treating physician and that the independent medical examiner was not a headache specialist. Identifier. at 915.

The Minnesota Supreme Court also agreed with the trial court that the evidence demonstrated reckless inferences to fact, noting that the insured’s adjuster was of the view that the adjuster ignored “clear evidence.” in the insured’s medical records in support of her claim. Identifier. at 916. The court also credited expert testimony that the insurer did not investigate the claim with an open mind, but rather formed an early opinion that the claim had no merit because the vehicle damage was minor. The trial court awarded nearly $200,000 in costs and attorneys’ fees.

The dissenting judges disagreed with the majority opinion in peterson, explaining that the insurer “has sought advice from two of its experienced adjusters, an internal claims review committee, a board-certified neurologist and an experienced personal injury attorney. All agreed that, under the police, she was not entitled to underinsured motorist benefits. Identifier. at 919 (Anderson, J., dissenting). The dissent warned that if the insured’s bad faith claim did not fail in law, then “any bodily injury verdict in an uninsured or underinsured motorist case that significantly exceeds the amount of the carrier’s last offer…carries with it the seeds of a bad faith claim. Identifier. at 921. In other words, the dissent warns that the precedent set by peterson is likely to open the floodgates of bad faith in Minnesota.

Likewise, in Ghazarian vs. Magellan Health, Inc., 53 Cal. App. 5th 171 (Cal. Ct. App. 2020), the dispute centered on the appropriate number of hours of applied behavior analysis (ABA) therapy for a child with autism. Before the child turned seven, he was approved for 157 hours of ABA therapy per month. After he turned seven, the insurer said only 81 hours per month were medically necessary. The California Court of Appeals overturned an order granting summary judgment in favor of the insurer, finding there were factual issues amenable to trial regarding the reasonableness of medical necessity standards of the insurer.

The court explained that there can be bad faith when an insurer “applies a standard of medical necessity that is very different from the medical standards of the community…”. Identifier. at 184. Under California law, good faith “requires an interpretation of medical necessity consistent with community medical standards that will minimize the patient’s coverage uncertainty in accepting treatment recommended by their physician.” Identifier. The court then turned to “the standards established by the Behavior Analyst Certification Board (BACB)” which state: “[ABA] treatment should be clinically based needs of the individual and not constrained by age….” Identifier. at 185. The court also noted, however, that the BACB is a private organization established to grant national credentials to ABA professionals, and was therefore neither neutral nor local. The court reviewed the insurer’s guidelines on medical necessity and found there was no explanation or evidence to support the reasonableness of the insurer’s guidelines. Ghazarian is notable because the court showed deference to a private organization of professionals in determining the medical necessity of the services provided by the same professionals.

Although the courts have made it clear that an insured’s treating physician does not have the final say in determining medical necessity, the insured’s treating physician will be given great deference. Like the dissenting judges in peterson explained, making this type of credibility determination loses sight of the main issue – whether it is “reasonable” for an insurer to deny a claim for certain medical care. A claims practitioner should therefore consider that a court can assess the credibility of the treating physician and independent medical examiner to determine what is “reasonable”.