Cavallo v. Phx. Health Plans, Inc.

• Decision Date: 23 February 2021
• Docket Number: No. 1 CA-CV 20-0167,1 CA-CV 20-0167
• Citation: 482 P.3d 404,250 Ariz. 525
• Parties: Matthew CAVALLO, et al., Plaintiffs/Appellants, v. PHOENIX HEALTH PLANS, INC., Defendant/Appellee.
• Court: Arizona Court of Appeals

250 Ariz. 525

482 P.3d 404

Matthew CAVALLO, et al., Plaintiffs/Appellants,

v.PHOENIX HEALTH PLANS, INC., Defendant/Appellee.

No. 1 CA-CV 20-0167

Court of Appeals of Arizona, Division 1.

FILED February 23, 2021

Dawson & Rosenthal, P.C., Sedona By Steven C. Dawson (argued), Anita Rosenthal, Sander Dawson, and Aaron Dawson, Counsel for Plaintiff/Appellant

Kutak Rock LLP, Scottsdale By Michael W. Sillyman, Paul S. Gerding, Jr., Jonathan S. Schultz (argued), and Jeffrey M. Giancana, Counsel for Defendant/Appellee

Presiding Judge Paul J. McMurdie delivered the Court's opinion, in which Judge Cynthia J. Bailey and Judge Lawrence F. Winthrop joined.

OPINION OF THE COURT

McMURDIE, Judge:

¶1 Matthew and Jocelyn Cavallo (the "Cavallos") appeal from a jury verdict in favor of Phoenix Health Plans, Inc. ("Phoenix Health") on their claim for insurance bad faith. We affirm the judgment and hold that: (1) an insurer sued for bad faith may assert a limited contract-based defense to show that its conduct did not violate its duty of good faith and fair dealing; and (2) when the jury finds a defendant not liable for an alleged tort, a presumably erroneous jury instruction related to damages is not per se reversible error.

FACTS AND PROCEDURAL BACKGROUND

¶2 In 2005, Mr. Cavallo was diagnosed with relapsing multiple sclerosis

("MS"), an autoimmune disease that attacks his central nervous system. To manage his condition, Mr. Cavallo regularly received Tysabri infusions, a controversial drug that helps prevent or reduce the number and severity of MS symptom relapse. One of Tysabri's side effects is the risk of relapse if the patient cannot receive another dose within 90 days.

¶3 In late 2015, Mr. Cavallo purchased from Phoenix Health a "Phoenix Choice Silver HMO + Dental/Vision" health plan (the "Plan"). The Plan included Tysabri

coverage but required prior authorization from Phoenix Health before it would cover the drug's cost and infusion. The Plan provided no out-of-network benefits, except under certain circumstances, e.g., when an insured could not obtain a medically necessary service in-network. On December 9, 2015, shortly before his new insurance plan became effective, Mr. Cavallo received an infusion of Tysabri.

¶4 On February 19, 2016, 72 days after Mr. Cavallo last received Tysabri

, the MS coordinator for his medical provider submitted a prior authorization request to Phoenix Health for Tysabri. She requested the infusion be given at a specific in-network facility certified to administer the drug. But a Phoenix Health representative incorrectly informed the MS coordinator that it was an out-of-network facility. The representative told her that the policy did not provide for out-of-network benefits and provided her with a list of in-network facilities. None of the facilities on the list was certified to provide Tysabri infusions.

¶5 The parties’ stories diverge regarding what happened over the ensuing weeks. It suffices to say that miscommunications and other issues triggered a series of back-and-forth exchanges among Mr. Cavallo, his medical provider, and Phoenix Health. The result of this communication quagmire is not in dispute. Phoenix Health did not approve the Tysabri

infusion for Cavallo until March 29, and he did not receive it until April 4, 117 days after his last infusion. During the delay, Mr. Cavallo experienced a significant MS symptom relapse.

¶6 The Cavallos sued Phoenix Health, asserting breach of contract, insurance bad faith, misrepresentation/false advertising, and loss of consortium. For the next several years, the parties engaged in extensive pre-trial litigation. The court eventually granted summary judgment on the Cavallos’ misrepresentation/false advertising claim. Shortly before trial, the Cavallos dismissed all remaining claims except Mr. Cavallo's insurance bad-faith claim and Mrs. Cavallo's claim for consortium loss.

¶7 Over 11 days in May and June 2019, the parties presented extensive fact and expert witness testimony and documentary evidence. The Cavallos primarily argued to the jury that Phoenix Health had unreasonably and intentionally denied and delayed Mr. Cavallo's claim for Tysabri

from February to late March, even after learning he experienced relapse symptoms. The Cavallos also alleged that Phoenix Health purposefully trained employees to tell providers and insureds that health plans like Mr. Cavallo's did not permit out-of-network benefits without mentioning the exceptions. The Cavallos claimed Phoenix Health designed overly complex systems for processing claims and trained employees to require an insured to identify an in-network facility before reviewing the claim. The Cavallos asserted these processes were designed to avoid paying for covered out-of-network services. Finally, the Cavallos alleged that Phoenix Health incentivized its employees to reduce costs by delaying and denying claims.

¶8 Phoenix Health denied these allegations and alleged that its processing of Mr. Cavallo's claim was reasonable under the circumstances, including that: (1) the representative who initially communicated with Mr. Cavallo's medical provider made a good-faith mistake regarding the requested facility's network status; (2) Mr. Cavallo's medical provider canceled the February 19 prior authorization request a few days after it was made; and (3) Mr. Cavallo's medical provider failed to provide information necessary to initiate and timely process Mr. Cavallo's claim. It also argued that Mr. Cavallo unreasonably failed to mitigate his damages by declining to accept a low-cost (approximately $150) dose of Tysabri

from his medical provider once it obtained approval for Mr. Cavallo to participate in a free-drug program.

¶9 The jury returned a defense verdict, and the court entered final judgment on all claims. The Cavallos moved for a new trial, arguing the superior court's decisions to give two jury instructions and exclude exhibits were erroneous and prejudicial. The court denied the motion, opining that the instructions were neither wrong nor prejudicial and the exhibits were correctly excluded. The Cavallos appealed, and we have jurisdiction under A.R.S. § 12-2101(A)(1) and -2101(A)(5).

DISCUSSION

¶10 On appeal, the Cavallos raise the same arguments they presented in their motion for a new trial.¹ The Cavallos first contend that two instructions the court gave the jury—one concerning "waiver" and the other concerning "mitigation of damages"—misstated the law, misled the jury, and prejudiced their case. Next, the Cavallos assert the court committed reversible error by improperly excluding documentary exhibits from evidence. The Cavallos conclude these alleged errors, whether viewed in isolation or cumulatively, require that we reverse the jury verdict and remand for a new trial.

A. The Objected-to Instructions Did Not Cause Reversible Error.

¶11 The superior court must give a requested jury instruction if (1) "the evidence presented supports the instruction," (2) the instruction correctly states the law, and (3) the instruction pertains to an important issue that is not dealt with by other instructions. Czarnecki v. Volkswagen of Am. , 172 Ariz. 408, 411, 837 P.2d 1143, 1146 (App. 1991). "We review a court's decision to give a jury instruction for abuse of discretion," but review de novo "whether the given instruction correctly states the law." State v. Solis , 236 Ariz. 285, 286, ¶ 6, 339 P.3d 668, 669 (App. 2014). We also consider the "jury instructions as a whole to determine whether the jury was properly guided in its deliberations." Powers v. Taser Int'l, Inc. , 217 Ariz. 398, 400, ¶ 12, 174 P.3d 777, 779 (App. 2007). To determine whether prejudicial error occurred, "we may consider the jury instructions as given, the evidence at trial, the parties’ theories, and the parties’ arguments to the jury." State v. Felix , 237 Ariz. 280, 285, ¶ 16, 349 P.3d 1117, 1122 (App. 2015).

¶12 "An instruction will only warrant reversal if it was both harmful to the complaining party and directly contrary to the rule of law." Powers , 217 Ariz. at 400, ¶ 12, 174 P.3d at 779. "We will not overturn a jury verdict on the basis of an improper instruction ‘unless there is substantial doubt whether the jury was properly guided in its deliberations. " Id. (quoting Barnes v. Outlaw , 188 Ariz. 401, 405, 937 P.2d 323, 327 (App. 1996), aff'd in part and rev'd in part on other grounds , 192 Ariz. 283, 964 P.2d 484 (1998) ). "Prejudice ‘will not be presumed but must affirmatively appear from the record.’ " Skydive Ariz., Inc. v. Hogue , 238 Ariz. 357, 367, ¶ 37, 360 P.3d 153, 163 (App. 2015) (quoting Walters v. First Fed. Sav. & Loan Ass'n of Phoenix , 131 Ariz. 321, 326, 641 P.2d 235, 240 (1982) ).

1. The Court Did Not Abuse Its Discretion by Giving the Waiver Instruction Because It Did Not Misstate the Law or Mislead the Jury.

¶13 The superior court gave the jury the following instruction on waiver over the Cavallos’ objection:

A party to a contract may waive the other party's duty to perform. "Performance" refers to what a party agreed to do as his part of the contract. Waiver is either the express, voluntary, and intentional relinquishment of a known right, or it is conduct that is inconsistent with an intent to assert the right. By accepting performance known to be deficient, a party has waived the right to reject the contract on the basis of that performance. If Mr. Cavallo has waived a promised performance, then [Phoenix Health] is no longer bound to perform on that promise and Mr. Cavallo is not entitled to damages for that particular non-performance. [Phoenix Health] has the burden of proving waiver.

The instruction correctly described waiver as it is typically invoked to defend a claim for breach of contract. See United Cal. Bank v. Prudential Ins. Co. of Am. , 140 Ariz. 238, 283, 681 P.2d 390, 435 (App. 1983) ; see also Rev. Ariz. Jury Instr. ("RAJI") (Civil) Contract 13 (6th ed. 2015). However, the Cavallos argue that the...