Burgess v. Mid-Century Ins. Co., MID-CENTURY

• Decision Date: 23 April 1992
• Docket Number: MID-CENTURY,No. 91CA0002,91CA0002
• Parties: Doris BURGESS, Plaintiff-Appellee and Cross-Appellant, v.INSURANCE COMPANY, Defendant-Appellant and Cross-Appellee. . I
• Court: Colorado Court of Appeals

Page 325

841 P.2d 325

Doris BURGESS, Plaintiff-Appellee and Cross-Appellant, v. MID-CENTURY INSURANCE COMPANY, Defendant-Appellant and Cross-Appellee.

No. 91CA0002.

Colorado Court of Appeals Div. I.

April 23, 1992.

As Modified on Denial of Rehearing

June 18, 1992.

Certiorari Denied Dec. 1, 1992.

Melat, Pressman, Ezell & Higbie, Alan Higbie, Robert J. Frank, Colorado Springs, for plaintiff-appellee and cross-appellant.

Retherford Mullen Rector & Johnson, Neil C. Bruce, Amelia L. Klemme, Colorado Springs, for defendant-appellant and cross-appellee.

Opinion by Judge TURSI.

Defendant, Mid-Century Insurance Company, appeals the judgment entered on a jury verdict in favor of plaintiff, Doris Burgess, on her breach of contract claim under the terms of Colorado's no-fault statute, on her bad faith claim, and on her claim for exemplary damages. Plaintiff cross-appeals the trial court's order reducing the damages awarded on the statutory willful and wanton claim. We affirm in part and reverse in part.

Plaintiff was injured in a car accident on August 5, 1986. She was insured under a no-fault policy issued by defendant.

Plaintiff immediately sought medical treatment and submitted claims for daily chiropractic treatments to defendant. Defendant timely paid these benefits and continued to do so after the results of an independent medical evaluation (IME) conducted by an orthopedic surgeon in September 1986 confirmed their reasonableness and necessity.

In March of 1987, defendant requested plaintiff to submit to a second IME. This physician concluded that continued chiropractic treatments were unnecessary. Consequently, defendant advised plaintiff on April 8 that it would not pay PIP benefits for any further treatments.

Plaintiff testified that because of the denial of treatment she suffered without medical attention until she sought and received treatment from an osteopathic physician in early September 1987. When his billings for two treatments were submitted to defendant, plaintiff was again advised that defendant would not pay benefits in light of its earlier denial based on the second IME. However, after plaintiff retained counsel, defendant advised that it would pay for a third IME if she made herself available.

On April 11, 1988, defendant reconsidered its previous denial and agreed to pay the osteopath's two billings. Benefits for these two bills were issued and accepted and defendant further authorized payment for osteopathic treatment for the following six months.

In May 1988, plaintiff submitted to a third IME with an orthopedic physician, who ultimately opined that biofeedback and muscle strengthening treatments were necessary, but that continued osteopathic treatments were not. Based on this evaluation, defendant advised plaintiff on September 12, 1988 that it would pay only for treatment recommended by the orthopedic physician.

At trial, the jury found that the defendant's late payment of benefits in the amount of $219 was willful and wanton pursuant to § 10-4-708, C.R.S. (1991 Cum.Supp.). Hence, the jury and found in plaintiff's favor on her exemplary damages claim, awarding $38,000 therefor. It also awarded compensatory damages of $50,000 to plaintiff on her claim that defendant had acted in bad faith, and awarded punitive damages thereon in the amount of $35,000. The trial court reduced the jury's exemplary damages award on the statutory claim to comport with the statutory allowance of treble the compensatory damages and awarded prejudgment interest thereon. It also assessed interest on the unpaid benefits in controversy at the statutory rate of 18% and awarded attorney fees on plaintiff's statutory claim. Finally, it assessed prejudgment interest on the bad faith punitive damage award.

I.

Defendant first contends that the trial court erred in denying its motion for a directed verdict on plaintiff's claims that it had acted willfully and wantonly under § 10-4-708, C.R.S. (1991 Cum.Supp.) and in bad faith. It specifically contends that the evidence was insufficient as a matter of law to establish that defendant acted unreasonably in its investigation of plaintiff's claims before denying them. We disagree.

A motion for directed verdict can be granted only if the evidence, when considered in a light most favorable to the non-moving party, compels the conclusion that reasonable persons could not disagree and that no evidence, or legitimate inference therefrom, has been presented upon which a jury's verdict against the moving party could be sustained. Romero v. Denver & Rio Grande Western Ry. Co., 183 Colo. 32, 514 P.2d 626 (1973); Pierce v. Capitol Life Insurance Co., 806 P.2d 388 (Colo.App.1990). In the absence of such overwhelming evidence, conflicting evidence is properly submitted to the jury. Converse v. Zinke, 635 P.2d 882 (Colo.1981).

In this case, plaintiff claims that defendant acted willfully, wantonly, and in bad faith when it denied her claims for treatment without first investigating or considering the opinions of plaintiff and her treating doctors regarding the reasonableness and necessity of treatment.

At trial, the evidence established that the defendant initially denied plaintiff's claim for treatment based upon the results of an independent medical examination and its assumption that plaintiff and her treating doctors considered the underlying treatment to be both necessary and reasonable. Because plaintiff's expert conceded that such an assumption was reasonable, defendant maintains that there is no evidence to support plaintiff's claim that defendant conducted an unreasonable investigation. We reject this analysis.

An insured may recover for an insurer's bad faith breach of an insurance contract if she proves by a preponderance of the evidence that the insurer's conduct was unreasonable and that the insurer either knew that its conduct was unreasonable or recklessly disregarded the fact that its conduct was unreasonable. Travelers Insurance Co. v. Savio, 706 P.2d 1258 (Colo.1985); Bucholtz v. Safeco Insurance Co., 773 P.2d 590 (Colo.App.1988). The reasonableness of an insurer's conduct is based upon objective standards of conduct in the insurance industry. Travelers Insurance Co. v. Savio, supra.

Although an insurer possesses wide latitude to investigate claims and to resist false or unfounded efforts to obtain insurance funds, Travelers Insurance Co. v. Savio, supra, bad faith conduct occurs when an insurer intentionally denies a claim without a reasonable basis. Brandon v. Sterling Colorado Beef Co., 827 P.2d 559 (Colo.App.1991). It may occur when an insurer acts unreasonably when investigating an injury justifying PIP recovery. Williams v. Farmers Insurance Group, Inc., 781 P.2d 156 (Colo.App.1989), aff'd, 805 P.2d 419 (Colo.1991); see § 10-3-1104(1)(h)(IV), C.R.S. (1987 Repl.Vol. 4A) (It is an unfair or deceptive act if an insurer willfully refuses to pay claims without conducting a reasonable investigation based upon all available information).

Willful and wanton conduct in the context of § 10-4-708 is established when an insurer acts without justification and in disregard of plaintiff's rights. Tam v. Shelter Mutual Insurance Co., 786 P.2d 501 (Colo.App.1989), rev'd on other grounds, 811 P.2d 388 (Colo.1991); see Wilson v. State Farm Mutual Automobile Insurance Co., 934 F.2d 261 (10th Cir.1991).

Here, the evidence at trial established the existence of an industry standard customarily followed by defendant when conducting an investigation regarding the reasonableness and necessity of a plaintiff's treatment.

Plaintiff's industry expert testified that it is reasonable for an insurer to assume that the insured and her treating doctors consider medical treatments to be reasonable and necessary, but that such an assumption does not substitute for a reasonable investigation, which requires consultations with these individuals regarding the reasonableness and necessity of treatments.

Defendant's adjuster also testified that defendant customarily solicits and considers information from the attending physician as part of a reasonable investigation, including diagnosis, prognosis, and treatment plans, as an aid in making its determination regarding the reasonableness and necessity of treatment. Notwithstanding these standards, it is undisputed that defendant neglected to solicit an authorized physician's report from the osteopath before his bills were denied and that it denied benefits before considering the report which he authored.

Therefore, viewing the evidence in the light most favorable to plaintiff, we conclude that sufficient evidence existed to support plaintiff's claims that defendant acted willfully, wantonly, and unreasonably when it deviated from its customary investigation procedures by failing to solicit and consider information from the osteopath. Under these circumstances, the trial court properly submitted plaintiff's claims to the jury. See Brewer v. American & Foreign Insurance Co., 837 P.2d 236 (Colo.App.1992).

II.

Defendant also urges us to find reversible error based on the jury instructions. We decline to do so.

A.

The trial court gave to the jury an instruction which incorporates within the definition of "unreasonable conduct" an insurer's alleged failure to investigate. Defendant contends that there is no evidence to support such an instruction. However, our holding above is dispositive of this contention.

B.

Defendant also contends the trial court erred in rejecting defendant's requested instructions setting forth its theory concerning its latitude to investigate and challenge certain claims.

The form of instructions given at trial is a matter within the discretion of the trial court. So long as the jury is adequately instructed on the law, the trial court does not abuse its discretion when refusing instructions even though they may be correct in legal effect. See States v. R.D. Werner Co., Inc., 799 P.2d 427 (Colo.App.1990).

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