Opinion
No. CV-21-00657-PHX-MTL
2024-01-03
Sharon FINKELSTEIN, Plaintiff, v. PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant.
Erin Rose Ronstadt, Kyle James Shelton, Ronstadt Law PLLC, Phoenix, AZ, Nicolet Lyon, Pro Hac Vice, Ronstadt Law PLLC, St. Paul, MN, for Plaintiff. Enrique D. Arana, Pro Hac Vice, Raina Shipman, Pro Hac Vice, Carlton Fields PA, Miami, FL, Marvin Derek Harris, Pro Hac Vice, Carlton Fields PA, West Palm Beach, FL, Matthew J. Conigliaro, Pro Hac Vice, Carlton Fields PA, Tampa, FL, Robert Matthew Kort, Lewis Roca LLC, Phoenix, AZ, for Defendant.
Erin Rose Ronstadt, Kyle James Shelton, Ronstadt Law PLLC, Phoenix, AZ, Nicolet Lyon, Pro Hac Vice, Ronstadt Law PLLC, St. Paul, MN, for Plaintiff.
Enrique D. Arana, Pro Hac Vice, Raina Shipman, Pro Hac Vice, Carlton Fields PA, Miami, FL, Marvin Derek Harris, Pro Hac Vice, Carlton Fields PA, West Palm Beach, FL, Matthew J. Conigliaro, Pro Hac Vice, Carlton Fields PA, Tampa, FL, Robert Matthew Kort, Lewis Roca LLC, Phoenix, AZ, for Defendant.
ORDER
Michael T. Liburdi, United States District Judge.
This action involves breach of contract and bad faith claims arising out of a long-term care insurance contract. (Doc. 25.) Before the Court are the Plaintiff's Motion
for Partial Summary Judgment as to the breach of contract claim (Doc. 271) and Defendant's Motion for Summary Judgment as to both claims (Doc. 272). The motions are fully briefed, and the Court held oral argument on December 7, 2023. The Court rules as follows.
I. BACKGROUND
Defendant Prudential Insurance Company of America ("Defendant") issued a long-term care insurance policy (the "Policy") with Plaintiff Sharon Finkelstein ("Plaintiff") in 2003. (Doc. 25-1 at 5.) In 2008, Plaintiff suffered a concussion that caused dizziness, blurred vision, and nausea. (Doc. 272-2 at 9-10.) Plaintiff received treatment and diagnostic imaging, which revealed an Arnold-Chiari malformation, a congenital anatomical abnormality found where the brain and spinal cord meet. (Id. at 10-11; Doc. 272-4 at 13-14.) Plaintiff in 2008 also began seeing Dr. Constantine Moschonas, a neurologist. (Doc. 272-4 at 15.) Dr. Moschonas diagnosed Plaintiff in 2010 with Meniere's disease, a condition that affects hearing, balance, and causes vertigo. (Doc. 272-4 at 4, 18.)
Plaintiff filed a claim under the Policy that Defendant approved in May 2009 with an effective date of March 22, 2009. (Doc. 272-3 at 1.) At that time, she was 48 years old. (Doc. 300-6 at 1.) After the approval, Plaintiff appealed and requested that Defendant reset her eligibility date to September 16, 2008, the date when she went to the emergency room for a serious fall and suffered a concussion (Id. at 3; Doc. 272-2 at 9-10.) After review, Defendant reset Plaintiff's eligibility date to October 27, 2008. (Doc. 272-3 at 8.)
To qualify for benefits, Plaintiff "must [first] be assessed by an Assessor and confirmed as having a Chronic Illness or Disability." (Doc. 25-1 at 15.) The Policy defines an "Assessor" as "[a] Licensed Health Care Practitioner who is qualified to evaluate conditions relevant to [the insured's] functional or cognitive ability. Qualifications are based on training and experience, and may include health care industry, state or national standards." (Id. at 9.) The Policy defines Chronic Illness or Disability two ways:
Chronic Illness Or Disability — An illness or disability in which there is:
1) A loss of the ability to perform, without Substantial Assistance, at least two Activities of Daily Living for a period of at least 90 consecutive days; or
2) A severe Cognitive Impairment, which requires Substantial Supervision to protect you from threats to health or safety.
(Id. at 10.)
The Policy also defines "Substantial Assistance" two ways:
Substantial Assistance —
1) The physical assistance of another person without which you would not be able to perform an Activity of Daily Living; or
2) The constant presence of another person within arm's reach that is necessary to prevent, by physical intervention, injury to you while you are performing an Activity of Daily Living.
(Id. at 12.)
In addition, the Policy identifies six "Activities of Daily Living" ("ADLs"): bathing, continence, dressing, eating, toileting, and transferring. (Id. at 9.)
Plaintiff's Policy includes a cash benefit rider, which pays out cash "in lieu of the Home and Community-Based Care benefit" and does not require Plaintiff to incur charges or submit bills. (Id. at 26 (emphasis removed).) Under the cash benefit rider, the exclusion of a "Close Relative" providing care does not apply. (Id. at 27.) Since her claim was approved in 2009, Defendant reassessed Plaintiff's claim at least fifteen times. (Doc. 272-29 at 1.) Throughout the years, these medical assessments noted similar symptoms (dizziness, nausea, severe headaches, balance issues, vertigo) and limitations with completing ADLs (needing assistance with bathing, dressing, toileting, and transferring). (Doc. 300-1 at 1, 20, 24, 29-37, 41, 43, 61; Doc. 300-6 at 4.) Plaintiff's records also included notes about her long-distance travels to places such as Hawaii in 2011 and Israel in 2012. (Doc. 300-1 at 19, 21, 44, 61.)
Defendant conducted surveillance of Plaintiff over multiple days in 2009 and 2012. (Id. at 25-28, 54-60, 64-76.) The 2009 surveillance found Plaintiff using a walker and placing a recycling container to the street, using a walker to take the bus to go shopping, putting the walker in a shopping cart and using that cart for support, pushing the walker with one hand and holding a cell phone in the other, placing her walker in the trunk of the car, and walking from the trunk to the passenger seat. (Id. at 25, 28.) The 2012 surveillance found Plaintiff as a passenger in a car, using her walker with her left hand and pulling a piece of luggage with her right, walking quickly while pushing the walker into a store, pushing a shopping cart while grocery shopping, folding up her walker and placing it in the back seat of a car, bending over when getting out of a car, and sitting and vacuuming the inside of a car. (Id. at 57, 65-66.) In the surveillance in 2009 and 2012, Plaintiff is observed performing these activities either by herself or with someone nearby. (Id. at 25-28, 54-60, 64-71.)
Defendant also ordered independent medical examinations ("IMEs") of Plaintiff in 2010 and 2012. (Doc. 300-1 at 29-37, 62.) In 2010, Dr. Spector, a neurologist, conducted an in-person IME and concluded that Plaintiff's "self-reported symptoms are supported by the results of the clinical examination." (Id. at 29, 35.) Dr. Spector found that "[s]he is unable to ambulate independently" and lifting, bending, and squatting are "fully restricted" because of "disequilibrium." (Id.) Defendant approved Plaintiff's eligibility in April 2010 based on this neurologist's IME. (Id. at 38.) In December 2012, Defendant ordered another IME that was conducted by Dr. Spector in early 2013. (Id. at 62, 77.) In an April 2019 letter to Plaintiff, Defendant stated that even though Dr. Spector concluded that Plaintiff could "perform all of the Activities of Daily Living without human assistance," it found Plaintiff eligible for benefits "considering the totality of the information" regarding her condition and needs. (Id.)
After paying cash benefits of about $9,000 per month for around twelve years, Defendant denied Plaintiff's claim on February 3, 2021, and ceased paying benefits under the Policy. (Doc. 272-2 at 16; Doc. 272-12 at 1-2.)
Defendant terminated Plaintiff's benefits after an investigation that began under Defendant's Fraud, Waste, and Abuse ("FWA") program in 2020. (Doc. 272-5 at 4-5; Doc. 272-27 at 4-5.) Defendant's FWA analytic model identified Plaintiff's claim for review based on "red flags," including Plaintiff's young age (compared to the average beneficiary age of 81), severity of Plaintiff's diagnosis, and Plaintiff's use of the cash benefit rider for home care. (Doc. 272-27 at 4-11.) The FWA program found alleged inconsistencies with Plaintiff's reported ADL limitations and her social media posts, including snorkeling in Australia. (Doc. 272-28 at 4-7.) Defendant ordered their vendors to further investigate Plaintiff's social media history and conduct surveillance of Plaintiff. (Id. at 5, 9.) Plaintiff's social media history revealed that she traveled about once a month visiting family and friends across the country and the world. (Doc. 272-13 at 5-20; Doc. 272-2 at 21-41.) As a result, Defendant flagged Plaintiff's claim as a priority for CHCS Services, Inc., Defendant's eligibility administrator. (Doc. 272-5 at 9, 13, 16, 17; Doc. 272-6 at 7-8.) Defendant asked CHCS Services to perform a benefits eligibility assessment at Plaintiff's next reassessment and requested that she complete a daily activities questionnaire. (Doc. 272-6 at 7-8; Doc. 272-24 at 7-19.)
In September 2020, a registered nurse, Nurse Arroyo, performed a virtual benefits eligibility assessment on Plaintiff. (Doc. 272-8 at 1.) Nurse Arroyo found that Plaintiff needs "hands-on assistance, from another person" with dressing. (Id. at 10.) The nurse concluded that Plaintiff could perform walking, transferring, continence, and bathing "with no assistance with adaptive equipment in place." (Id. at 9-12.) As for toileting, the nurse documented that Plaintiff "[p]erforms activity with no assistance with adaptive equipment in place" but also noted that "her husband provides hands on assistance with transferring and hygiene for safety." (Id. at 11.)
In November 2020, Defendant's vendor performed surveillance on Plaintiff. The surveillance showed Plaintiff helping her husband move a mattress, boarding a bus and lifting a walker on her own, holding a phone with one hand and pushing a walker with the other, browsing a clothing rack and not holding onto a walker that was next to her, looking down and picking up an item off the floor while holding onto a walker, shopping for groceries on her own where she looked down at shelves and reached overhead, and picking up 12-packs of soda on her own from the floor onto a walker. (Doc. 272-2 at 43, 44, 48, 50, 52, 54-57; Doc. 272-13 at 33-36, 39-42, 46, 51-54.)
In December 2020, Plaintiff completed the daily activity questionnaire. (Doc. 272-24 at 7-19.) She reported that she needs assistance with bathing, dressing, grooming, shopping, and preparing meals. (Id. at 10-11.) Plaintiff also reported receiving assistance from her family members. (Id. at 10.)
CHCS Services reviewed Plaintiff's benefits eligibility assessment and daily activity questionnaire as well as other medical records, surveillance, and investigation information. (Doc. 272-5 at 10-11, 14; Doc. 272-6 at 9.) The medical records included Plaintiff's recent visits with her neurologist, Dr. Moschonas, her primary care physician, Dr. Webb, and her endocrine specialist, Dr. Bailey. In November 2020, Dr. Moschonas indicated that Plaintiff's Meniere's disease was "under good control" but also noted that Plaintiff experienced "frequent or severe headaches, tingling, dizziness, and difficulty with gait or walking." (Doc. 280-2 at 7.) Records from Plaintiff's visit with Dr. Bailey in November 2020 note that Plaintiff denied a whole host of symptoms including headaches, tinnitus, fatigue, and numbness. (Doc. 280-2 at 13.) Records from Plaintiff's visit with Dr. Webb in June 2020 and November 2020 deny experiencing similar symptoms. (Doc. 280-2 at 21-22, 25.) CHCS Services claims processor and case manager initially reviewed Plaintiff's claim. (See Doc. 272-6, Doc. 272-9.)
The claims processor requested a physician activities questionnaire from Dr. Webb. (Doc. 272-6 at 9; Doc. 272-29 at 1.) On January 12, 2021, Dr. Webb certified Plaintiff as Chronically Ill or Disabled. (Doc. 271-13.) Dr. Webb found that Plaintiff needed hands-on assistance with bathing and dressing and stand-by assistance with continence, toileting, and transferring. (Id. at 1-2.) The case manager, Nurse Knox, asked CHCS Services' medical director,
Dr. Nye, to review Plaintiff's claim because Plaintiff's paperwork showed conflicting evidence. (Doc. 272-9 at 9.)
On January 14, 2021, Dr. Nye completed an initial review of Plaintiff's claim. (Doc. 272-11.) Dr. Nye reviewed Plaintiff's benefits eligibility assessment, medical records, and surveillance. (Id.) His summary of Nurse Arroyo's assessment indicated that Plaintiff was independent with all ADLs including dressing. (Id. at 1.) Dr. Nye concluded that Plaintiff's "medical issues do not prevent [Plaintiff] from performing her Activities of Daily Living independently-as confirmed by surveillance demonstrating independence with ambulation, transferring, mobilization, sufficiently enough to deduce that no assistance would be required for bathing or dressing." (Doc. 272-11 at 1-3.) His assessment, however, did not include Dr. Webb's physician activities questionnaire nor an analysis of Dr. Moschonas' records. (Id.) On January 24, 2021, Dr. Nye added an addendum to his assessment after receiving some additional medical records. (Id. at 3-5.) The addendum added an analysis of Dr. Webb's January 12, 2021 assessment and Plaintiff's visit to Dr. Moschonas on November 13, 2020. (Id. at 3-4.) Dr. Nye still concluded that Plaintiff had "no evidence of a functional impairment which requires assistance with 2 or more Activities of Daily Living." (Id. at 5.)
Nurse Knox reviewed and agreed with Dr. Nye's assessment. (Doc. 272-9 at 12-13). Nurse Knox also sent Plaintiff's case file to her supervisor, who agreed with the determination. (Id. a 10-11.) As a result, CHCS Services determined that Plaintiff was no longer eligible for benefits under the Policy. (Doc. 272-5 at 18-19.) CHCS Services sent Plaintiff a letter dated February 3, 2021, informing her that she was no longer eligible for benefits. (Doc. 272-12.) Plaintiff did not appeal the determination or provide supplemental documentation. (Doc. 272-2 at 62-63.)
Plaintiff alleges that Defendant terminated her benefits without a reasonable investigation and in breach of the Policy. Plaintiff further alleges that Defendant has "a corporate scheme" to eliminate its now-discontinued long-term care insurance plans. Plaintiff seeks compensatory damages that she alleges are owed under the policy, punitive damages, attorneys' fees, and costs.
II. LEGAL STANDARD
Summary judgment is appropriate when the evidence, viewed in the light most favorable to the non-moving party, demonstrates "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A genuine issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party," and material facts are those "that might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). At the summary judgment stage, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Id. at 255, 106 S.Ct. 2505 (citations omitted); see also Jesinger v. Nev. Fed. Credit Union, 24 F.3d 1127, 1131 (9th Cir. 1994) (holding that the court determines whether there is a genuine issue for trial but does not weigh the evidence or determine the truth of matters asserted).
Where, as here, the "parties submit cross-motions for summary judgment, each motion must be considered on its own merits." Fair Hous. Council of Riverside Cnty. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001) (citations and internal quotations omitted). The summary judgment
standard operates differently depending on whether the moving or non-moving party has the burden of proof. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). When the movant bears the burden of proof on a claim at trial, the movant "must establish beyond controversy every essential element" of the claim based on the undisputed material facts to be entitled to summary judgment. S. Cal. Gas Co. v. City of Santa Ana, 336 F.3d 885, 888 (9th Cir. 2003). If the movant fails to make this showing, summary judgment is inappropriate, even if the non-moving party has not introduced contradictory evidence in response. When, on the other hand, the non-movant bears the burden of proof on a claim at trial, the movant may prevail either by citing evidence negating an essential element of the non-movant's claim or by showing that the non-movant's proffered evidence is insufficient to establish an essential element of the non-movant's claim. See Celotex, 477 U.S. at 322-23, 106 S.Ct. 2548; 10A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2727.1 (4th ed. 2022).
III. DISCUSSION
Plaintiff alleges the following claims for relief: (1) Breach of Contract against Defendant and (2) Breach of the Covenant of Good Faith and Fair Dealing. (Doc. 25.) Plaintiff moves for summary judgment on Count I. (Doc. 271.) Defendant moves for summary judgment on both Counts I and II. (Doc. 272.)
A. Count I: Breach of Contract
The breach of contract claim involves two issues: (1) the interpretation of the Policy language and (2) Plaintiff's eligibility under the Policy.
i. Policy Interpretation
The Parties disagree about the interpretation of the Policy's language. Plaintiff argues the definition of "Substantial Assistance" is ambiguous and disagrees with the application of "consecutive" in the Chronic Illness or Disability definition. (Doc. 271 at 6-12.) Defendant argues that the Policy language is clear. (Doc. 288 at 15-18.) Defendant also argues that Plaintiff did not plead ambiguity in her Amended Complaint, and as a result, Plaintiff is precluded from using this argument because she did not put Defendant on notice. (Id. at 15.) In her Reply, Plaintiff argues that she pleaded breach of contract in her complaint and that the Policy's ambiguity was introduced by Defendant during discovery. (Doc. 320 at 2-5.)
Insurance policy interpretation is a matter of law for the Court to decide. McHugh v. United Servs. Auto. Ass'n., 164 F.3d 451, 454 (9th Cir. 1999). Under Arizona law, courts give words in insurance policies "their plain and ordinary meaning, examining the policy from the viewpoint of an individual untrained in law or business." Teufel v. Am. Fam. Mut. Ins. Co., 244 Ariz. 383, 385, 419 P.3d 546 (2018) (cleaned up). Arizona courts apply "a rule of common sense" to the policy terms. State Farm Mut. Auto. Ins. Co. v. Wilson, 162 Ariz. 251, 257, 782 P.2d 727 (1989). If a policy provides "conflicting reasonable interpretations, it is ambiguous," and courts will interpret the language by examining "the transaction as a whole." Teufel, 244 Ariz. at 385, 419 P.3d 546. Any remaining ambiguity is construed against the insurer. Walker v. Auto-Owners Ins. Co., 254 Ariz. 17, 20, 517 P.3d 617 (2022).
As an initial matter, the Court disagrees with Defendant's contention that Plaintiff is barred from arguing the Policy's ambiguity. Defendant relies on Rindlisbacher v. Steinway & Sons Inc., 497 F.
Supp. 3d 479, 489-90 (D. Ariz. 2020), aff'd sub nom. Rindlisbacher v. Steinway, Inc., No. 20-17331, 2021 WL 6067258 (9th Cir. Dec. 20, 2021), for the proposition that Plaintiff cannot raise unpleaded facts for the first time in a summary judgment motion. (Doc. 288 at 15.) In Rindlisbacher, the court held that "vague and generic allegations" in the complaint were insufficient to put defendant on notice of which discovery facts would be at issue. Id. at 489-90 (citing Pickern v. Pier 1 Imps. (U.S.), Inc., 457 F.3d 963, 968-69 (9th Cir. 2006) (affirming district court's holding that plaintiff's new factual allegations of Americans with Disabilities Act violations outside of a failure to provide a ramp would not be considered because defendant lacked notice)).
Here, Defendant argues that, because Plaintiff used the words "clear Policy" when describing the claim for relief, she is now alleging ambiguity for the first time. (Id.; Doc. 25 at ¶¶ 130, 133, 228.) Parties "may rely on additional facts not included in the complaint, but which support the same theory of liability alleged in the complaint, when responding to summary judgment." California Clovis, LLC v. Sierra Vista Realty LLC, 634 F. Supp. 3d 881, 892 (E.D. Cal. 2022). Plaintiff's Amended Complaint requests relief for a breach of contract claim—specifically, a breach of the Policy. (Doc. 25 at ¶¶ 222-43.) Plaintiff pleaded that Defendant "misapplied the Policy terms in adjusting [Plaintiff's] claim." (Id. at ¶ 229.) Plaintiff also identified terms that Defendant allegedly violated, including the definitions of Chronic Illness or Disability and Substantial Assistance. (Id. at ¶¶ 17, 20, 228.) In her summary judgment motion, Plaintiff alleges ambiguity because she finds that Defendant presents two different interpretations of Substantial Assistance. (Doc. 271 at 6-8.) Given that Defendant maintains and applies the Policy, it cannot be prejudiced by Plaintiff's contentions regarding the interpretation of key policy terms identified in her Amended Complaint.
The Court now turns to the Policy interpretation. To support her argument for ambiguity, Plaintiff identifies extrinsic evidence rather than the words within the Policy. (Doc. 271 at 6-11.) For example, Plaintiff identifies Defendant's forms certifying her benefits which state she needs hands-on or stand-by assistance with two or more ADLs "most or every time the ADL is performed." (Doc. 271 at 6-7; Doc. 271-6 at 1, 3, 7.) Plaintiff also identifies testimony from Turley v. Prudential Ins. Co. of Am., No. CGC-20-587222, 2021 Cal. Super. LEXIS 153890 (Cal. App. Dep't Super. Ct. March 31, 2021), a similar California breach-of-contract case against Defendant, where Defendant testified that "substantial" from the term "substantial supervision" means "more than half the time." (Doc. 271 at 8; Doc 271-9 at 10-11.) Similarly, Plaintiff identifies Watts v. Prudential Ins. Co. of Am., No. 2:04CV2491, 2005 WL 2035034, at *8-*9 (W.D. La. Aug. 22, 2005), where the court found the word "substantial" in "substantial supervision" ambiguous because the policy there provided conflicting interpretations by defining substantial supervision as "continual oversight," implying 24-hour care. (Doc. 271 at 9-10.) Defendant argues that the Policy's plain language holds. (Doc. 288 at 13-15.)
The Court finds the Policy unambiguous because the Policy itself does not provide "conflicting reasonable interpretations." See Teufel, 244 Ariz. at 385, 419 P.3d 546. The Parties agree that under the Chronic Illness or Disability definition that Plaintiff does not have a cognitive impairment, so only the first definition applies. (Doc. 25 at ¶ 179; Doc. 288 at 2.) Under the Policy, Chronic Illness or Disability is defined
as "[a]n illness or disability in which there is ... [a] loss of the ability to perform, without Substantial Assistance, at least two [ADLs] for a period of at least 90 consecutive days." (Doc. 25-1 at 10.) (emphasis added). Plaintiff argues that "without Substantial Assistance" and "at least 90 consecutive days" from the definition means that Substantial Assistance is not required "all of the time." (Doc. 271 at 2; Doc. 320 at 5.) The Court agrees.
Here, the second portion of the Substantial Assistance definition applies in Plaintiff's case. (Doc. 271-13 at 1-2; Doc. 272-15 at 3.) The Policy defines Substantial Assistance as "[t]he constant presence of another person within arm's reach that is necessary to prevent, by physical intervention, injury to you while you are performing an [ADL]." (Doc. 25-1 at 12.) (emphasis added). The word "while" in the definition is key. By applying the plain and ordinary meaning, see Teufel, 244 Ariz. at 386, 419 P.3d 546, the insured needs someone within arm's reach during the time that or when the insured is performing the ADL. See While, Merriam-Webster, https://www.merriam-webster.com/dictionary/while (last visited December 18, 2023) (defining the conjunction form of "while" as "during the time that"); When, Merriam-Webster, https://www.merriam-webster.com/dictionary/when (last visited December 18, 2023) (defining the conjunction form of "when" as "during the time that"). As such, under a rule of common sense, see Wilson, 162 Ariz. at 257, 782 P.2d 727, no one is required to be "within arm's reach" if the insured is not performing an ADL. Meaning, the definition for Chronic Illness or Disability does not require an insured to need Substantial Assistance all the time. This interpretation aligns with the plain meaning of "substantial," too. See Substantial, Black's Law Dictionary (11th ed. 2019) (defining in part as "Considerable in extent, amount, or value; large in volume or number "); see also Watts, 2005 WL 2035034, at *7-*9 (concluding that "substantial" plainly cannot mean 24-hour, continuous care).
As for the phrase "for a period of at least 90 consecutive days," under the plain and ordinary meaning of "consecutive," the insured must meet the definition requirements over a period of ninety days in a row. See Consecutive, Merriam-Webster, https://www.merriam-webster.com/dictionary/consecutive (last visited December 18, 2023) (defining "consecutive" as "following one after the other in order"); see also Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 69 (2012) ("Words are to be understood in their ordinary, everyday meanings."). This 90 consecutive day requirement, however, does not mean an insured needs hands-on or stand-by assistance all the time—only when performing an ADL, as explained supra. The insured therefore satisfies the definition of Chronic Illness or Disability when she has an illness or disability that results in the her loss of the ability to perform ADLs without the constant presence of another person within arm's reach that is necessary by physical intervention to prevent an injury when the insured is performing an ADL for at a period of at least ninety days in a row.
Plaintiff next argues that the Policy's plain language is inconsistent with federal and state law. Specifically, Plaintiff argues that the Policy's inclusion of the word "consecutive" in the phrase "a period of 90 consecutive days" violates the law. (Doc. 271 at 14-17.) She argues that the Court should issue declaratory relief and interpret the policy so that it is consistent with the Internal Revenue Code, I.R.S. Notice 97-31, and Arizona law. (Id. at 14-15.) The Policy states that it "is intended to be a Qualified Long Term Care Insurance Contract as defined by the Internal Revenue Code Section 7702B(b)" and that "the provision will be automatically nullified without any further action by [Defendant]" if the Policy does not comply with the requirements under § 7702B. (Doc. 25-1 at 23.) A long-term care insurance plan is a "qualified long-term care insurance contract" if it meets the requirements under 23 U.S.C. § 7702B(b)(1). As part of the requirements, the insurance provided "is coverage of qualified long-term care services." Id. § 7702B(b)(1)(A). Under the statute, "qualified long-term care services" mean services "required by a chronically ill individual." Id. § 7702B(c)(1)(A).
Under § 7702B(c)(2), a chronically ill individual is defined in part as someone "being unable to perform (without substantial assistance from another individual) at least 2 activities of daily living for a period of at least 90 days due to a loss of functional capacity." 26 U.S.C. § 7702B(c)(2)(A)(i). Section § 7702B(c)(2) code does not require the inability to perform to be "at least 90 consecutive days." The federal tax code, however, provides a minimum standard for what qualifies as long-term care insurance. See Long Term Care Insurance Model Regulation § 30 drafting note (Nat'l Ass'n of Ins. Comm'rs 2017) ("[B]enefit triggers requiring greater degrees of impairment than the minimum standard established by federal tax law are permitted only to the extent otherwise consistent with this regulation and the model act."). The I.R.S. Notice does not require that insurers use the "ADL Trigger" definitions either. See I.R.S. Notice 97-31, 1997-1 C.B. 417 ("For purposes of the ADL Triger, [insurance companies] may rely on all or any of the following safe-harbor definitions...." (emphasis added)).
The analogous Arizona Statute, A.R.S. § 20-1691, provides that a chronically ill individual "means any individual who has been certified by a licensed health care practitioner as meeting the definition of illness established by title III of the health insurance portability and accountability act of 1996 (P.L. 104-191; 110 Stat. 1936)," codified as 26 U.S.C. § 7702B. The Arizona Administrative Code provides standards for benefit triggers. Relevant here are R20-6-1020(A) and R20-6-1021(A)-(B).
A. A long-term care insurance policy shall condition the payment of benefits on a determination of the insured's ability to perform activities of daily living and on cognitive impairment. Except as otherwise provided in R20-6-1021, eligibility for the payment of benefits shall not be more restrictive than requiring either a deficiency in the ability to perform not more than three of the activities of daily living or the presence of cognitive impairment.
Ariz. Admin. Code R20-6-1020(A) (emphasis added). Regulation R20-6-1020(A) prohibits insurers from conditioning payment of benefits on a limitation of more than three ADLs, rather than the "at least two" under 26 U.S.C. § 7702B(c)(2)(A)(i). This regulation does not restrict insurers from adjusting the "at least 90 days" requirement. Ariz. Admin. Code R20-6-1020(A).
Arizona Administrative Code R20-6-1021(A)-(B) also does not restrict the insurer from adding language to the "at least 90 day" requirement, but instead provides a minimum requirement, like the federal code.
A. A qualified long-term care insurance contract shall pay only for qualified long-term care services received by a chronically ill individual provided under a plan of care prescribed by a licensed health care practitioner, which is not subject to approval or modification by the insurer.
B. A qualified long-term care insurance contract shall condition the payment of benefits on a certified determination of the insured's inability to perform activities of daily living for an expected period of at least 90 days due to a loss of functional capacity or to severe cognitive impairment.
Ariz. Admin. Code R20-6-2021(A)-(B) (emphasis added). The plain language of R20-6-2021(B) means that a qualified long-term care insurance contract may require the inability to perform for more than 90 days, but not anything less than that.
By adding the word "consecutive" to the "at least 90 days" minimum, Defendant creates an eligibility limitation because the Policy requires the inability to perform for a period of 90 days in a row. The Arizona Administrative Code allows long-term care insurance policies to include coverage or eligibility limitations if it meets the regulations. See Rowe ex rel. Rowe v. Bankers Life & Cas. Co., 572 F. Supp. 2d 1138, 1146 (D. Ariz. 2008), clarified on denial of reconsideration (Sept. 17, 2008) (finding part of an insurance policy as an impermissible exclusion or limitation of coverage because the policy did not include the "Limitations or Conditions on Eligibility for Benefits" clause as required under Arizona Administrative Code R20-6-1004(B)(2)). "A long-term care insurance policy ... containing any limitations or conditions for eligibility... shall describe the limitations ... in a separate paragraph of the policy ... and shall label the paragraph 'Limitations or Conditions on Eligibility for Benefits.'" Ariz. Admin. Code R20-6-1004(B)(2). Here, the Policy explains in a separate paragraph labeled "Limitations or Conditions on Eligibility for Benefits" that the insured must qualify under Defendant's definition of Chronic Illness or Disability. (Doc. 25-1 at 15.) The Policy then provides this definition again. (Id.) Therefore, Defendant's Policy definition meets both federal and state requirements.
ii. Plaintiff's Eligibility
The Court finds a genuine issue of material fact exists regarding Plaintiff's eligibility under the Policy. Defendant argues that Plaintiff has asymptomatic days in a row, and on those days, Plaintiff performs ADLs independently. (Doc 272 at 11.) Plaintiff agrees that she experiences asymptomatic days but disagrees that precludes her from qualifying under the Policy. (Doc. 296 at 1-2.) A dispute exists over whether Plaintiff can perform ADLs without Substantial Assistance.
The facts that Plaintiff frequently travels internationally and pursues activities like snorkeling do not necessarily mean that she does not need assistance with bathing, continence, dressing, eating, toileting, and transferring. Also, the surveillance presented does not show Plaintiff engaged in all ADLs. The surveillance only documents Plaintiff "transferring" independently. Under the Policy, transferring means "[s]ufficient mobility to move into or out of a bed, chair or wheelchair or to move from place to place, either by walking, using a wheelchair or by other means." (Doc. 25-1 at 9.) Defendant's November 2020 surveillance over the course of two days shows multiple examples of Plaintiff walking with the support of her walker without anyone within arm's reach. (Doc. 272-2 at 43-44, 48, 50-52, 55-56; Doc. 272-13 at 33-57.) The surveillance also contradicts testimony from Plaintiff stating she is unable to look down because this makes her dizzy; however, this does not mean that Plaintiff can perform her other ADLs (bathing, continence, dressing, eating, toileting) independently.
Defendant identifies testimony from Plaintiff's medical providers and experts
including Drs. Moschonas, Webb, Samakar, and Heffez to show Plaintiff's condition as "intermittent" and that she can go periods of time without symptoms. (Doc. 272 at 11-13.) Defendant offers Plaintiff's benefits eligibility assessment from September 2020. There, Nurse Arroyo found that Plaintiff needs "hands-on assistance, from another person" with dressing. (Doc. 272-8 at 10.) The nurse found Plaintiff did not require assistance with bathing, continence, eating, or transferring. (Id. at 10-12.) Nurse Arroyo, however, provided a conflicting assessment about toileting. She documented that Plaintiff "[p]erforms activity with no assistance with adaptive equipment in place" but also noted that "her husband provides hands on assistance with transferring and hygiene for safety." (Id. at 11.) As part of the assessment, Nurse Arroyo had Plaintiff simulate the various ADLs. (See Doc. 272-8.)
Plaintiff presents Dr. Webb's January 12, 2021 evaluation—requested by Defendant —indicating Plaintiff needs some form of assistance with five ADLs. (Doc. 271-13 at 1-5.) Dr. Webb determined that Plaintiff needs hands-on assistance with bathing and dressing and stand-by assistance with continence, toileting, and transferring. (Id. at 1-2.) Furthermore, Dr. Webb asserted that in his professional opinion Plaintiff "is a chronically ill individual" because she "is unable to perform, without substantial assistance from another person, at least two (2) Activities of Daily Living" for "a period of at least 90 consecutive days due to a loss of functional capacity." (Id. at 3.) During his deposition, Dr. Webb explained that he completed the assessment using Plaintiff's reported statements and that he did not ask Plaintiff to demonstrate or simulate any ADLs. (Doc. 272-16 at 11-15.)
Plaintiff also presents evidence from Dr. Moschonas. According to Dr. Moschonas, when Plaintiff experiences symptoms she is at risk of falling and injuring herself, and she cannot predict when her symptoms will occur. (Doc. 262-2 at 4, 7.) Because she cannot predict when her symptoms will occur, even on asymptomatic days, Plaintiff needs at least stand-by assistance with her ADLs. (Doc. 272-15 at 3.)
Viewing the facts in the light most favorable to the Plaintiff, the record fails to show that Plaintiff does not have "[a] loss of the ability to perform, without Substantial Assistance, at least two Activities of Daily Living for a period of at least 90 consecutive days." (See Doc. 25-1 at 10.) The Court therefore finds a genuine dispute of material facts and denies Defendant's motion for summary judgment as to the breach of contract claim (Doc. 272).
iii. Plaintiff's Other Arguments
Plaintiff argues that, if the Court finds that Defendant's interpretation holds, (1) public policy prohibits Defendant's interpretation, (2) Defendant waived the right to enforce this interpretation and should be estopped from using it, (3) Defendant cannot defeat Plaintiff's reasonable expectations, (4) Defendant violated Arizona Administrative Code R20-6-1021(D) by "rescinding" Dr. Webb's certified determination, (5) Defendant falsely testified about Plaintiff's appeal rights, and (6) Defendant's interpretation of the Policy is an anticipatory breach. (Doc. 271 at 11-13, 19-21). Defendant argues that (1) as a matter of public policy, Plaintiff's interpretation, would "do violence to the nature of the transaction as a whole," (2) Plaintiff did not plead waiver, estoppel, reasonable expectations, regulation violation, and the appeals violation, and (3) Plaintiff's anticipatory repudiation fails as a matter of law. (Doc. 288 at 17-20, 24-25.)
a. Public Policy
Plaintiff argues that Defendant's interpretation of requiring assistance "all of the time" defeats insurance coverage for an
insured with a variable condition. (Doc. 271 at 11.) The Court finds Plaintiff's public policy argument moot because, as discussed, the Policy requires Plaintiff to need assistance only when she is performing an ADL.
b. Waiver and Estoppel
The Court finds that because Plaintiff failed to plead waiver and estoppel in the Amended Complaint (Doc. 25), she is precluded from arguing it for the first time in her motion for summary judgment. See Rindlisbacher, 497 F. Supp. 3d at 489-90. Plaintiff never alleged in her Amended Complaint that Defendant previously accepted a deficient performance from Plaintiff so that Defendant waives its right to enforce its interpretation of "Substantial Assistance." See Am. Cont' Life Ins. Co. v. Ranier Constr. Co., Inc., 125 Ariz. 53, 55, 607 P.2d 372 (1980) ("Waiver by conduct must be established by evidence of acts inconsistent with an intent to assert the right."). Instead, Plaintiff pleaded that Defendant "failed to apply" or "misapplied" the Policy terms. (Doc. 25 at ¶¶ 228-29.) In fact, she pleaded that she was eligible under the Policy, meaning that she was performing as the Policy required. (See id. at ¶¶ 222-243.) The Court therefore dismisses Plaintiff's waiver and estoppel claim.
c. Reasonable Expectations
Defendant argues that Plaintiff did not plead the reasonable expectations doctrine in her Amended Complaint. Plaintiff, however, pleaded that she "reasonably expected that she met the requirements for benefits under the Policy" and proceeded to outline how she met the Policy requirements. (Doc. 25 at ¶¶ 224-243.) Even still, Plaintiff's reasonable expectations argument fails as a matter of law.
Under Arizona law, terms in a Policy can frustrate the insured's reasonable expectations in four situations:
1. Where the contract terms, although not ambiguous to the court, cannot be understood by the reasonably intelligent consumer who might check on his or her rights, the court will interpret them in light of the objective, reasonable expectations of the average insured;
2. Where the insured did not receive full and adequate notice of the term in question, and the provision is either unusual or unexpected, or one that emasculates apparent coverage;
3. Where some activity which can be reasonably attributed to the insurer would create an objective impression of coverage in the mind of a reasonable insured;
4. Where some activity reasonably attributable to the insurer has induced a particular insured reasonably to believe that he has coverage, although such coverage is expressly and unambiguously denied by the policy.
First Am. Title Ins. Co. v. Action Acquisitions, LLC, 218 Ariz. 394, 401, 187 P.3d 1107 (2008). The fourth situation is relevant here.
Plaintiff argues that Defendant's new Policy interpretation requiring Substantial Assistance all the time defeats Plaintiff's reasonable expectations. (Doc. 271 at 13.) A review of the record, however, reveals that Defendant's interpretation does not require an insured to need assistance "all of the time" with ADLs. For instance, Defendant's forms certifying Plaintiff's eligibility state she only needs hands-on or stand-by assistance with two or more ADLs "most or every time the ADL is performed and this need for substantial assistance is expected to last for at least 90 consecutive days." (Doc. 271-6 at 1, 4, 7 (emphasis in original).) In addition,
Defendant relied on these forms at oral argument to explain its interpretation of the Policy as such. Therefore, because the issue here is whether Plaintiff is still eligible under the Policy terms, the reasonable expectations doctrine does not apply.
d. Certification Determination
Plaintiff argues that by not accepting Dr. Webb's certification of Plaintiff as chronically ill on January 12, 2021, that Defendant violated Arizona Administrative Code R20-6-1021(D), (Doc. 271 at 17-18.) Defendant argues that Plaintiff never pleaded this in her Amended Complaint and that R20-6-1021(D) does not apply in this circumstance. (Doc. 288 at 22-23.)
The Court agrees that Plaintiff did not put Defendant on notice that it may have violated R20-6-1021(D), (see Doc. 25.), and is precluded from arguing it now. See Rindlisbacher, 497 F. Supp. 3d at 489-90. Even still, R20-6-1021(D) concerns when an insurer may perform a certification determination and does not apply in this circumstance.
Certified determinations required under subsection (B) may be performed at the direction of the carrier as is reasonably necessary with respect to a specific claim, except that when a licensed health care practitioner has certified that an insured is unable to perform activities of daily living for an expected period of at least 90 days due to a loss of functional capacity and the insured is in claim status, the certified determination may not be rescinded and additional certified determinations may not be performed until after the expiration of the 90-day period.
Ariz. Admin. Code R20-6-1021(D). The regulation provides that an insurer cannot perform a redetermination if a licensed health professional certified the insured within the last 90 days. Here, Defendant reassessed Plaintiff after she was assessed the previous year, so Defendant was outside the 90-day period for a new certification determination. (See Doc. 272-29 at 1.) Therefore, Defendant did not violate R20-6-1021(D) regarding Dr. Webb's physician assessment questionnaire.
e. Appeal Rights
Plaintiff argues that Defendant falsely testified about Plaintiff's appeal rights, and thus, breached the contract. (Doc. 271 at 18.) Defendant argues that Plaintiff did not plead this argument in her Amended Complaint and that she does not provide any authority that deposition testimony would breach contract terms. (Doc. 288 at 23-24.) The Court finds Defendant did not breach the contract as to Plaintiff's appeal rights because her Policy discloses her rights, and the claim letter also notified her of these rights.
The Policy states the insured "ha[s] 60 calendar days from the date [she] receive[s] the decision to submit a written appeal, along with any justification or documentation to support [her] request, to [Defendant] at the address specified on the explanation of benefits (two years if [Defendant] denied a claim for which service was already provided)." (Doc. 25-1 at 19.) The denial letter also states Plaintiff has "the right to appeal this decision." (Doc. 272-12 at 1.) A review of the deposition testimony also does not definitively say Plaintiff does not have any appeal rights, only that the one appeal process being discussed meant she had 60 days to appeal that denial. (Doc. 271-4 at 25-26.) Plaintiff did not provide, and the Court could not find, whether Defendant discussed the two-year appeal deadline for services and whether that applied to her claim. Therefore, Defendant did not breach the contract as a matter of Plaintiff's appeal rights. f. Anticipatory Repudiation
Plaintiff's anticipatory repudiation argument fails as a matter of law. "A party that repudiates its contract obligations on the basis of an alleged 'contract interpretation' may be guilty of a form of anticipatory breach." Snow v. W. Sav. & Loan Ass'n, 152 Ariz. 27, 33, 730 P.2d 204 (1986) (quoting United California Bank v. Prudential Ins. Co. of Am., 140 Ariz. 238, 278, 681 P.2d 390 (App. 1983)). When one of the parties, however, offers to perform in accordance with its own interpretation that alone is not an anticipatory breach. Id. Rather, the offer must also include a "clear manifestation of intention not to perform in accordance with any other interpretation." Id. "However, if one party clearly insists upon a performance to which [it] is not entitled, that is a repudiation." United California Bank, 140 Ariz. at 279, 681 P.2d 390 (holding anticipatory breach when a party repeatedly refused to make a loan without first securing an infact first lien that was not part of the contract terms).
Here, Plaintiff argues that Defendant changed its interpretation of Chronic Illness or Disability by interpreting the Policy to require Plaintiff needing Substantial Assistance "all of the time." (Doc. 271 at 20.) As discussed, Defendant's interpretation does not require Plaintiff to need Substantial Assistance all the time. In fact, Defendant provided benefits to Plaintiff under the "most or all of the time" interpretation for about twelve years. Now, Defendant finds Plaintiff no longer eligible under the Policy terms. (See Doc. 272-11.) Also, nothing in the record indicates that Defendant expressed "a clear manifestation not to perform." See Snow, 152 Ariz. at 33, 730 P.2d 204. Rather, the Policy is still in effect—Defendant still accepts Plaintiff's premium and has not prevented her from filing a new claim or appealing Defendant's determination. (Doc. 272-5 at 7-8; Doc. 272-25 at 2.) Therefore, Defendant did not anticipatory repudiate the contract as a matter of law. See New York Life Ins. Co. v. Viglas, 297 U.S. 672, 676-677, 56 S.Ct. 615, 80 L.Ed. 971 (1936) (holding breach but not anticipatory repudiation when insurer denied disability benefits while awaiting proof of continuing disability); Amritt v. Pennsylvania Life Ins. Co., 105 F. Supp. 2d 1322, 1324-25 (S.D. Fla. 2000) (holding no anticipatory repudiation, when insurer discontinued disability payments on the belief insured was not disabled, because insured continues to pay premiums and insurer agrees to pay benefits if insured became disabled).
The Court therefore denies Plaintiff's motion for summary judgment of the anticipatory repudiation claim as a matter of law (Doc. 271).
B. Count II: Breach of the Covenant of Good Faith and Fair Dealing
Defendant argues that it acted reasonably in terminating Plaintiff's benefits, and at the least, its acts were "fairly debatable." (Doc. 272 at 17.) Defendant argues that, after discovering her social media posts, the investigation into Plaintiff's condition was objectively reasonable and that it did not consciously engage in any unreasonable conduct. (Id. at 19, 22.) Plaintiff argues that Defendant engaged in "a corporate scheme meant to augment company profits at the expense of its vulnerable and disabled long-term care insurance policyholders." (Doc. 296 at 17.) Plaintiff contends that her claim was unreasonably targeted by Defendant's algorithm. (Doc. 296 at 18-20). Plaintiff also argues that Defendant "cherry-picked" medical records and the benefits eligibility assessment. (Id. at 21.) Finally, Plaintiff argues that Defendant's referral of Plaintiff's claim to the Arizona Department of Insurance for
fraud was unsubstantiated and fell below industry standards. (Id. at 14.)
An insurer breaches the implied covenant of good faith and fair dealing and acts in bad faith when it, "intentionally denies, fails to process or pay a claim without a reasonable basis." Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, 237, 995 P.2d 276 (2000). A plaintiff must show that (1) "the insurer acted unreasonably toward its insured," and (2) "the insurer acted knowing that it was acting unreasonably or acted with such reckless disregard that such knowledge may be imputed to it." Trus Joist Corp. v. Safeco Ins. Co. of Am., 153 Ariz. 95, 104, 735 P.2d 125 (App. 1986) (emphasis in original). An insurer may defend a fairly debatable claim if it exercises reasonable care and good faith. Tritschler v. Allstate Ins. Co., 213 Ariz. 505, 516, 144 P.3d 519 (App. 2006) (citing Zilisch, 196 Ariz. at 237, 995 P.2d 276). An insurer's belief in fair debatability is a question of fact for the jury. Id. at 516, 144 P.3d 519. At the summary judgment stage, whether the insurer acted knowingly or with reckless disregard as to the reasonableness of its actions, the appropriate inquiry is whether sufficient evidence exists from "which reasonable jurors could conclude that in the investigation, evaluation, and processing of the claim, the insurer ... either knew or was conscious of the fact that its conduct was unreasonable." Christie's Cabaret of Glendale LLC v. United Nat'l Ins. Co., 562 F. Supp. 3d 106, 122 (D. Ariz. 2021) (quoting Zilisch, 196 Ariz. at 238, 995 P.2d 276).
As an initial matter, the Court finds Plaintiff's allegations that Defendant engaged in "a corporate scheme" as conclusory and irrelevant to Defendant's treatment of Plaintiff's long-term care claim. "The evolution of the law of bad faith has not reached the point where it is wrong for an insurance company to make a profit, much less follow good business practices," like discussing the status of claims in meetings and emails and keeping statistics with regards to the bottom line. Knoell v. Metropolitan Life Ins. Co., 163 F. Supp. 2d 1072, 1078 (D. Ariz. 2001).
Plaintiff presents evidence that Defendant's long-term care business experienced a 2018 quarterly loss of $1.4 billion compared to a prior year's quarter that profited $35 million and Defendant established the FWA program the following year in 2019. (Doc. 296 at 4; Doc. 263-1 at 18.) Plaintiff also supports the idea of a corporate scheme by highlighting that Defendant terminated seven claims in 2020 for an impact of $9 million. (Id.) According to data from Plaintiff's expert Mr. Flood, however, these seven claims likely make up less than 0.2% of Defendant's long-term care claims. (Doc. 263-1 at 18 (stating that in 2018 about 2% of the approximately 211,000 policies in-force were in claim status).) Since the inception of the FWA program in 2019 and 2021, only 37 policies were removed with a total impact of $10.73 million—meaning that of the 211,000 policies in-force in 2018 less than 0.02% were removed as a result of the FWA program. (Doc. 263-1 at 15, 18.) Of note, Plaintiff's policy is not included in the policy termination total, because her policy is still inforce. (Doc. 272-5 at 7-8; Doc. 272-25 at 2, 88-89.) Plaintiff claims that Defendant "concealed its involvement in targeted claims through undocumented meetings and 'workflows' to control from behind the scenes how the claims were handled." (Doc. 296 at 2.) Plaintiff cites deposition testimony of FWA team members and emails between them and CHCS Services for support. (See Doc. 296 at 11-12; Doc. 296-7; Doc. 296-8; Doc. 296-13.) Nothing in the testimony or emails, however, indicates that this communication was purposefully concealed as part of some scheme. Without
other evidence, the argument that Defendant engaged in "a corporate scheme" is speculative, and therefore, Plaintiff cannot incorporate the allegation of a scheme into her bad faith claim.
The Court also did not consider Plaintiff's allegations that Defendant acted in bad faith by referring Plaintiff's claim to the Arizona Department of Insurance for alleged fraud. (See Doc. 296 at 14.) Defendant's referral was after Plaintiff's claim denial in March 2021, (Doc. 272-23 at 5-6), and thus, irrelevant to the bad faith denial of Plaintiff's claim in February 2021. The Court instead considered evidence of Defendants investigation, evaluation, and processing of Plaintiff's specific claim and finds summary judgment improper.
Plaintiff offers evidence that Defendants may have engaged in an unreasonable investigation. See Hangarter v. Provident Life & Acc. Inc. Co., 373 F.3d 998, 1011 (9th Cir. 2004) (holding district court did not err in finding jury had substantial evidence to find bad faith, reasoning in part that defendants "developed and applied to [Plaintiff's] case file a comprehensive system of targeting and terminating expensive claims ... where the insured was a disabled professional who had been receiving benefits for months or years."). Defendant flagged Plaintiff's claim using factors that have existed since her claim was first approved back in 2009—she has always been relatively young compared to the average beneficiary, her claim was always for her low severity conditions (Chiari malformation and Menier's disease), and she always had the cash benefit rider. (Doc. 272-2 at 9-10; Doc. 272-4 at 4, 18; Doc. 25-1 at 26.) Then, after flagging her claim, Defendant investigated Plaintiff's social media to find she was traveling all over the world. (Doc. 272-28 at 4-7; Doc. 272-13 at 5-17; Doc. 272-2 at 21-41.) Plaintiff presents evidence that Defendant received documentation in 2011 and 2012 that she previously traveled to Hawaii and Israel. (Doc. 300-1 at 19, 21, 44, 61.)
Defendant also relied on 2020 surveillance that showed Plaintiff engaging in very similar activities captured by the 2009 and 2012 surveillance. These activities include Plaintiff using her walker to independently take a bus and go shopping, moving a mattress or recycling bin or suitcase while using her walker, lifting her walker or lifting groceries, holding a phone in one hand and pushing her walker with another, and so forth. (Doc. 300-1 at 25-28, 54-60, 64-70; Doc. 272-13 at 33-36, 39-42, 46, 51-54.) Defendant continued to find Plaintiff eligible for years after her initial application and the 2009 and 2012 surveillance. (Doc. 272-3 at 1; Doc. 300-1 at 115; Doc. 272-29 at 1.) Defendant's FWA program, however, used this evidence to refer Plaintiff's claim to CHCS Services for a reassessment. (Doc. 272-6 at 7-8.)
Furthermore, Dr. Nye's review that resulted in the denial of Plaintiff's claim seems inadequate. See Demetrulias v. Wal-Mart Stores Inc., 917 F. Supp. 2d 993, 1006 (D. Ariz. 2013) ("An insurer cannot reasonably and in good faith deny payments to its insured without thoroughly investigating the foundation for its denial.") (quoting Lennar Corp. v. Transamerica Ins. Co., 227 Ariz. 238, 246, 256 P.3d 635 (App. 2011)). First, Dr. Nye mischaracterized Nurse Arroyo's benefits eligibility assessment. His report summarizing her assessment says "[Plaintiff] was independent with dressing." (Doc. 272-11 at 1.) Nurse Arroyo, however, reported that Plaintiff needs hands-on assistance with dressing. (Doc. 272-8 at 10.) Dr. Nye did not acknowledge that Nurse Arroyo wrote conflicting information regarding toileting, but instead, concluded Plaintiff is independent with toileting. (Doc. 272-11 at 1; Doc 272-8 at 11.) In his addendum, Dr.
Nye seems to disregard Dr. Webb's physician assessment questionnaire requested by Defendant's claims processor and Dr. Moschonas' records because neither of these were from "current physical evaluations." (Doc. 272-11 at 3-5.) Dr. Nye instead relied on Nurse Arroyo's assessment, which was virtual, and surveillance footage, rather than documentation from treating physicians. (Id. at 1-2.) Viewed as a whole, Plaintiff presented enough evidence to raise an issue of material fact as to whether Dr. Nye's review was reasonable and adequate. See Demetrulias, 917 F. Supp. 2d at 1006-07 (finding evidence that the insurer's "examination of the medical records themselves was deficient").
Moreover, Defendant labelled Plaintiff's claim as a priority for CHCS Services and wanted to review CHCS Services' determination before issuing any decision to Plaintiff. (Doc. 296-12 at 3, 27.) Defendant continued ongoing discussions with CHCS Services while CHCS Services reassessed Plaintiff's claim. (See Doc. 296 at 11-12; Doc. 296-7; Doc. 296-8; Doc. 296-13.) Plaintiff also offers evidence that Defendant did not order an IME, even though it had previously done so in 2009 and 2012. (Doc. 296 at 13-14; Doc. 300-1 at 29-37, 62, 77; Doc. 272-1.) This evidence further supports that reasonable jurors could find that Defendant "either knew or was conscious of the fact that its conduct" in the investigation, evaluation and processing of the claim was unreasonable. See Zilisch, 196 Ariz. at 238-239, 995 P.2d 276 (holding sufficient evidence existed for jury to find insurer acted unreasonably and knew it, reasoning in part that insurer could have ordered an independent medical examination when it had doubts about the insured's injury even after four treating physicians described the injury as permanent); Merrick v. Paul Revere Life Ins. Co., 594 F. Supp. 2d 1168, 1171, 1182 (D. Nev. 2008) (factoring in reliance of in-house medical personnel rather than treating physicians into the bad faith analysis).
The Court acknowledges that Defendant provides evidence that may decrease the credibility of Plaintiff's self-reported symptoms and limitations to her treating medical professionals, but it is for the jury, not this Court, to weigh the competing factual accounts. See Jesinger, 24 F.3d at 1131. Viewing the facts in a light most favorable to Plaintiff, sufficient evidence exists for reasonable jurors to conclude that Defendant acted unreasonably toward Plaintiff and acted either knowingly or with reckless disregard as to the reasonableness of its actions. See Christie's Cabaret, 562 F. Supp. 3d at 122. The Court therefore denies Defendant's motion for summary judgment of the bad faith claim (Doc. 272).
IV. CONCLUSION
Accordingly,
IT IS ORDERED denying Plaintiff's Motion for Partial Summary Judgment on Count I (Doc. 271).
IT IS FURTHER ORDERED denying Defendant's Motion for Summary Judgment (Doc. 272).