Lucas v. State Farm Fire & Cas. Co., 23416

• Decision Date: 28 May 1998
• Docket Number: No. 23416,23416
• Citation: 963 P.2d 357,131 Idaho 674
• Parties: Walter LUCAS and Deborah Lucas, husband and wife, Plaintiffs-Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, a corporation; State Farm Mutual Automobile Insurance Company, a corporation; An Association Which Includes State Farm Fire And Casualty Company, a corporation, and State Farm Mutual Automobile Insurance Company, a corporation, Defendants-Respondents. Boise, December 1997 Term
• Court: Idaho Supreme Court

Page 357

963 P.2d 357

131 Idaho 674

Walter LUCAS and Deborah Lucas, husband and wife, Plaintiffs-Appellants, v. STATE FARM FIRE AND CASUALTY COMPANY, a corporation; State Farm Mutual Automobile Insurance Company, a corporation; An Association Which Includes State Farm Fire And Casualty Company, a corporation, and State Farm Mutual Automobile Insurance Company, a corporation, Defendants-Respondents.

No. 23416.

Supreme Court of Idaho,

Boise, December 1997 Term.

May 28, 1998.

Rehearing Denied Sept. 28, 1998.

Harris & Sutton, Boise, for Appellants. Jim C. Harris argued.

Elam & Burke, P.A., Boise, for Respondents. Bobbi K. Dominick argued.

WALTERS, Justice.

Following an auto accident involving Walter Lucas, Walter and Deborah Lucas (Lucas) filed an action against their insurance company, State Farm, seeking damages for bad faith, breach of contract and fraud. On State Farm's motion for partial summary judgment, the district court ruled that because there was conflicting medical evidence, Lucas's claim was "fairly debatable," and thus granted summary judgment to State Farm. We vacate the judgment and remand the case for further proceedings.

I. FACTS AND PROCEDURAL BACKGROUND

On June 19, 1992, State Farm Fire and Casualty Company (State Farm) issued a binder to Lucas for a policy of automobile insurance. The policy provided "medical payments coverage" (MPC) for reasonable medical expenses for bodily injury caused by an accident, with a limit of $50,000. The policy further provided, "[w]e (State Farm) will pay reasonable medical expenses, for bodily injury caused by accident, for services furnished within three years of the date of the accident." (Original italicized.)

On July 6, 1992, Walter Lucas was involved in an automobile accident with another driver who was insured by American National At the time of the accident, Lucas suffered from back and neck pain, but was not taken to the hospital by the paramedics. However, later that day, Lucas went to St. Alphonsus Regional Medical Center, where he was seen in the emergency room by Dr. Glen Bothwell. After examining Lucas, obtaining a history and having cervical and chest x-rays taken, Dr. Bothwell diagnosed Lucas with "acute cervical spine strain" but noted that the cervical spine films appeared normal. At this same visit, the x-ray report noted a pre-existing arthritic condition in Lucas's cervical spine.

Property and Casualty Insurance Company of Missouri (ANPAC). The next day on July 7, 1992, Lucas reported the accident to State Farm, and Barbara J. Dion, a claim representative for State Farm's sister company, State Farm Mutual Automobile Company, was assigned to the claim.

Four days later, on July 10, 1992, Lucas visited his family physician, Dr. Douglas H. Orchard, for follow up treatment of his injuries. After cervical x-rays, Dr. Orchard diagnosed Lucas with a slight narrowing of the C5-6 disk space with minimal retrolisthesis. On July 31, 1992, Lucas was seen by Dr. Brenda Adams who diagnosed Lucas with a "cervical strain with some ulnar nerve radiculopathy."

As Lucas's neck pain persisted, Lucas was referred by Dr. Orchard to Dr. Michael O'Brien, a neurologist, who saw Lucas initially on September 21, 1992, and continued to treat Lucas until the end of October. Dr. O'Brien diagnosed Lucas with cervical strain, tardy ulnar palsy, scoliosis and the absence of a platysmas muscle in the neck area. Dr. O'Brien attributed the cervical strain and the tardy ulnar palsy to the accident, and stated that the scoliosis and absence of a platysmas muscle, which were congenital, made Lucas more vulnerable to be injured.

Lucas was not satisfied with Dr. O'Brien, so State Farm provided another neurologist for Lucas to see, Dr. Robert Burton, who examined Lucas on November 17, 1992. Dr. Burton found that Lucas's platysmas muscle was present, and that the scoliosis was only minor. Dr. Burton found that:

I find no evidence on examination for herniated cervical disc and the mild degenerative changes noted on his cervical spine X-ray are indeed mild and do not represent an abnormality of that [sic] one could relate to trauma. These were pre-existing. His pain is primarily of the musculoligamentous origin.

After completing nearly a month of physical therapy, Lucas was referred to another neurologist, Dr. Allen C. Han, whom Lucas visited on January 3, 1993. After an MRI, Han diagnosed Lucas with "degenerative changes with potentially significant neural foraminal stenosis on the left at C5-6 and on the right at C6-7. Both of these levels appear to have advanced since the plain film study of 6 July 1992." Lucas was then examined by Dr. Charles Smith, another neurosurgeon, on February 25, 1993. After a CT scan, Dr. Smith diagnosed Lucas with mild osteoarthritis and noted that there is "associated mild spinal stenosis at the C5-6 and C6-7 levels." In response to a letter from Dion asking about the cause of Lucas's condition, Dr. Smith stated:

The cervical flexion/extension injury derives per history given me from the vehicular accident of July, 1992. Mr. Lucas' neck pain is apt to continue for quite some period of time regardless of further therapy--further therapy should reasonably be symptomatic. The pain radiating into the arm is felt to be radicular, even in the absence of electrodiagnostic corroboration. This, per my understanding of the circumstances, was triggered by the accident; however, Mr. Lucas was certainly more vulnerable on the basis of his foraminal stenosis which very likely proceeded [sic] the vehicular accident. Please note in this that Dr. Hall's report of the MRI completed 1/3/93 indicates the foraminal narrowing has advanced compared to the plain film study of 7/6/92. The treatment options for this radicular pain is either to leave it as is, conservative management already having failed, or attempt to improve the circumstances for root healing by decompression/foraminotomy.

On March 12, 1993, Dr. Smith operated on Lucas to relieve the pain, and exactly one This surgery did relieve Lucas's pain, but State Farm claimed there was still an issue as to whether the back and neck pain was related to the accident or whether it was related to a degenerative, pre-existing condition. Rather than pay the surgery-related medical expenses, Dion requested an independent medical investigation to determine whether the surgery was related to the accident. State Farm submitted copies of Lucas's medical records to Medical Claims Review Services, Inc., (MCRS) which stated in its report dated April 26, 1993, that:

month later Dr. Smith stated that the need for surgery was directly related to the automobile accident.

Mr. Lucas sustained musculoligamentous injuries during the accident of 6 July 1992. While he had a painful road to recovery, by 17 December 1992 most of his symptoms had resolved. There were prior injuries and degenerative disease of the spine that may have impacted his ongoing complaints, but there were no details about his pre-accident medical condition in the year prior to the accident of review. Therefore, it is our medical opinion that the accident-related treatment was appropriate, except for the above noted exceptions, through 17 December 1992.

Dion then sent the MCRS report to Lucas's attorney and informed him that she would not go beyond the report's recommendations, but that State Farm would continue to review items payable under Lucas's policy. Dion acknowledged that State Farm was aware that Lucas was presently attempting to resolve the liability claim directly with the third-party carrier, ANPAC. Dion requested Lucas's complete medical records for ten years prior to the accident, all x-rays, and the readouts of Lucas's EMG, CT and MRI studies. Dion stated that after receiving such information, State Farm "will forward for an independent causation review to help [them] determine what is payable."

Before the requested information was given to State Farm, however, Lucas settled his claim with ANPAC for $57,500 on June 22, 1993. Thereafter, on July 14, 1993, State Farm received the independent medical review from Dr. Burton which concluded that the narrowing of the C5-6 disk space responsible for Lucas's surgery "was more related to degenerative disease than to any form of clearly defined traumatically induced abnormalities." State Farm then notified Lucas that State Farm was no longer obligated to pay the surgery-related medical expenses because Lucas had settled his third-party claim for an amount in excess of the medical expenses, thereby contractually relieving State Farm from any obligation to pay. State Farm paid medical bills incurred totaling $5,466.36 but did not pay the surgery-related medical bills totaling $14,270.36.

Subsequently, on August 5, 1994, Lucas filed an action for damages against State Farm claiming that State Farm's failure to immediately pay the surgery-related medical expenses forced Lucas to settle with ANPAC. On February 29, 1996, State Farm moved for partial summary judgment seeking dismissal of the breach of contract and bad faith claims. On June 3, 1996, the district court granted State Farm's motion for partial summary judgment, concluding that the surgery-related claims submitted by Lucas that were not paid were "fairly debatable" and thus bad faith could not be asserted based on the failure to immediately pay those claims. On July 30, 1996, the district court clarified its previous order to reflect that summary judgment had been granted for both the breach of contract and bad faith claims. Thereafter, the parties stipulated to the dismissal of Barbara J. Dion as a party and to the dismissal of all remaining claims alleged in the complaint, including fraud and breach of fiduciary duty.

On appeal, Lucas asserts that the district court erred in granting State Farm's motion for summary judgment by holding that Lucas's surgery-related claims were "fairly debatable" and that, as a result, the failure to...