Paulsen v. Ability Ins. Co.

• Decision Date: 29 October 2012
• Docket Number: No. 1:11–CV–01019.,1:11–CV–01019.
• Citation: 906 F.Supp.2d 909
• Parties: Dorothy PAULSEN, Plaintiff, v. ABILITY INSURANCE CO., f/k/a Ability Resources, Inc.; Medico Life Insurance Co.; Ability Reinsurance Holdings Ltd., a Bermuda Ltd. Co.; and Ability Reinsurance Ltd., a Bermuda Ltd. Co.; Defendant.
• Court: U.S. District Court — District of South Dakota

906 F.Supp.2d 909

Dorothy PAULSEN, Plaintiff,

v.ABILITY INSURANCE CO., f/k/a Ability Resources, Inc.; Medico Life Insurance Co.; Ability Reinsurance Holdings Ltd., a Bermuda Ltd. Co.; and Ability Reinsurance Ltd., a Bermuda Ltd. Co.; Defendant.

No. 1:11–CV–01019.

United States District Court,

D. South Dakota,

Northern Division.

Oct. 29, 2012.

Seamus Culhane, Nancy J. Turbak Berry, Turbak Law Office, P.C., Watertown, SD, for Plaintiff.

Daniel F. Duffy, Gregory James Erlandson, Terry G. Westergaard, Bangs, McCullen, Butler, Foye & Simmons, Rapid City, SD, Angela C. Zambrano, Weil, Gotshal & Manges, LLP, Dallas, TX, Kevin F. Meade, Weil, Gotshal & Manges LLP, New York, NY, for Defendant.

ORDER AND OPINION

CHARLES B. KORNMANN, District Judge.

Dorothy Paulsen filed a complaint against defendants alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and seeking punitive damages. These accusations stem from a long-term care insurance policy purchased by plaintiff from Medico Life Insurance Company (“Medico”) in 1996, a policy which defendants admit Ability Insurance Company (“Ability”) has assumed the responsibility to adjust, manage and pay claims as appropriate under the policy. Plaintiff contends that defendants initially failed to pay benefits due under the policy and that, following appeal of this decision, only then did Ability provide benefits under the plan but only a portion of the benefits rightly due. Plaintiff alleges that only later, after filing this case, did defendants begin paying the full benefits owed.

Ability, joined by co-defendants Ability Reinsurance Holdings Limited and Ability Reinsurance Limited, filed a motion for partial summary judgment on plaintiff's claim of emotional damages resulting from the alleged breach of the covenant of good faith. Defendants argue that there is no evidence that plaintiff suffered emotional distress by defendants' actions because (1) plaintiff was never aware of Ability's coverage decisions and (2) plaintiff is unable to provide any objective proof that she suffered emotional distress caused by defendants. Defendants also argue that the harms alleged by plaintiff do not constitute an “exceptional case.”

I. BACKGROUNDA. Standard of Review

Fed.R.Civ.P. 56 requires that this court dismiss all claims for which the movant shows there is no genuine issue as to any material fact and that the movant is entitled to summary judgment as a matter of law. The movant must support the motion with evidence admissible at trial in order to meet its initial burden showing the absence of a genuine issue of material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 159, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970), superseded on other grounds by Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party meets its initial burden, which may be achieved by showing a lack of evidence for a necessary element of plaintiff's claim, see Whitley v. Peer Review Sys., Inc., 221 F.3d 1053, 1055 (8th Cir.2000), abrogated on other grounds by Torgerson v. City of Rochester, 643 F.3d 1031 (8th Cir.2011), the nonmoving party cannot merely rest upon allegations or denials in its pleadings to defeat the motion, Forrest v. Kraft Foods, Inc., 285 F.3d 688, 691 (8th Cir.2002). Instead, the nonmoving party must “substantiate his allegations with enough probative evidence to support a finding in his favor” by citing to particular materials in the record which support the assertion that a fact is genuinely disputed. Roeben v. BG Excelsior Ltd. P'ship, 545 F.3d 639, 642 (8th Cir.2008). A genuine dispute arises “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The court must view the admissible evidence in a light favorable to the nonmoving party and give that party the benefit of all reasonable inferences drawn from the evidence. Country Life Ins. Co. v. Marks, 592 F.3d 896, 898 (8th Cir.2010). However, the scope of admissible evidence is quite finite: “Only disputes over facts that might affect the outcome of the suit under the governing substantive law will properly preclude the entry of summary judgment.” Liberty Lobby, 477 U.S. at 248, 106 S.Ct. 2505.

B. Factual Background

Viewing the evidence in the light most favorable to plaintiff, the facts are as follows. In November 1996, Medico Life Insurance Company (“Medico”) sold plaintiff a long-term care policy (“policy”). According to plaintiff, this policy and other Medico long-term care policies were sold to Ability at some point between November 1996 and January 2010. Ability assumed the responsibility for adjusting, managing, and paying claims when plaintiff began making claims on her policy. Plaintiff asserts that she has always paid the policy premiums, which eventually amounted to over $1,000 annually, and that the policy provides benefits of sixty-four dollars a day “for qualified assisted living care when that care is deemed medically necessary by the policyholder's treating physician.”

In January 2010, plaintiff's treating physician prescribed placement for plaintiff in an assisted living facility after deeming the move medically necessary. Plaintiff moved to Benet Place Assisted Living Center (“Benet Place”) in February 2010 and has resided there, with limited interruption for hospital care, ever since. Plaintiff alleges that Ability initially denied plaintiff's claim for benefits outright when plaintiff entered Benet Place and that only after appealing this decision through a process provided by state administrative rule (S.D.Admin.R.20:06:21:89) did Ability agree to pay a forty dollar benefit per day, or 50% of the maximum daily benefit of eighty dollars or nearly two-thirds of what Ability allegedly owed plaintiff under the terms of the policy. Ability confirmed it would pay this reduced benefit rate on March 31, 2010. Plaintiff filed this case on July 8, 2011. Defendants subsequently paid plaintiff the accrued difference between the reduced rate and the rate allegedly due under the policy, plus interest, in checks mailed on November 23, 2011, and July 31, 2012.

Affidavits filed by plaintiff's daughter and son indicate that plaintiff took a substantial amount of comfort in the policy taking care of her needs before she entered Benet Place. Plaintiff's daughter averred that plaintiff's “short term memory was deteriorating” at the time she entered Benet Place, a condition her treating physician in a deposition referred to as “mild dementia,” but that such a condition was not so debilitating that plaintiff would have to enter an assisted living center on that basis alone. Her daughter also recalled that her mother opened a bill from Benet Place soon after beginning her time there and became “very upset about the bill” because the care “was costing more each month than what she got in Social Security.” This cost was allegedly the result of Ability's decision to not provide benefits, or to provide insufficient benefits under the policy, at that time. Both children asserted that plaintiff was upset about these bills to the point that special arrangements were made at Benet Place to hold her mail until her daughter could pick it up so that plaintiff would not see the bills. Yet another affidavit taken from a nursing supervisor at Benet Place supported the existence of this arrangement after plaintiff became upset when another resident received a billing statement from Benet Place. The nurse stated that, in her upset state, plaintiff declared that she wanted to leave the facility “if she had to pay for the bill herself.” As of September 2012, plaintiff's son asserted that plaintiff's dementia advanced to the point where she does not currently know that she has a long-term care policy.

Defendants cite numerous unchallenged facts in support of the motion. Defendants note that plaintiff's son admitted in a deposition that plaintiff (1) is not currently aware of the dispute with defendants, (2) had been taking an antidepressant for a period of time before being admitted to Benet Place, and (3) was upset that she was at an assisted living facility. Defendants also cite the deposition of plaintiff's daughter to note that she admitted that (1) plaintiff did not communicate with defendants, (2) she believed that plaintiff's belief that she could not live in Benet Place was not the result of a letter from defendants, and (3) plaintiff was unaware of the lawsuit when the lawsuit was filed. Finally, defendants provide the deposition of plaintiff's treating physician, who admitted that she (1) did not diagnose plaintiff as being under stress before she moved to Benet Place, (2) had prescribed plaintiff antidepressants four-to-five years before the move, and (3) did not diagnose plaintiff as being under stress after she moved to Benet Place.

II. ANALYSIS

The rule of Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) requires adherence to the appropriate substantive law of a particular state in a diversity case. South Dakota is the forum state and its choice-of-law rules are applied. See Allianz Ins. Co. of Can. v. Sanftleben, 454 F.3d 853, 855 (8th Cir.2006). Plaintiff claims emotional distress resulted from defendants' breach of the covenant of good faith, which rests in contract law.

It is settled law in this state that a breach of duty may arise from a contractual relationship, and while matters complained of may have their origin in contract, the gist of an action may be tortious. Conduct which merely is a breach of contract is not a tort, but the contract may establish a relationship demanding the exercise of proper care and acts and omissions in performance may give rise to tort liability.

Kunkel v. United Sec. Ins. Co. of N.J., 84 S.D. 116, 168 N.W.2d 723, 733 (S.D.1969) (internal citations omitted).

The South...