Peterson v. W. Nat'l Mut. Ins. Co.

• Court: Minnesota Court of Appeals
• Writing for the Court: SLIETER, Judge
• Citation: Peterson v. W. Nat'l Mut. Ins. Co., 930 N.W.2d 443 (Minn. App. 2019)
• Decision Date: 03 June 2019
• Docket Number: A18-1081
• Parties: Alison Joel PETERSON, Respondent, v. WESTERN NATIONAL MUTUAL INSURANCE COMPANY, Appellant.

930 N.W.2d 443

Alison Joel PETERSON, Respondent,

v.WESTERN NATIONAL MUTUAL INSURANCE COMPANY, Appellant.

A18-1081

Court of Appeals of Minnesota.

Filed June 3, 2019

SLIETER, Judge

Appellant Western National Mutual Insurance Company challenges the district court’s award of taxable costs for bad-faith denial of a first-party insurance claim pursuant to Minn. Stat. § 604.18 (2018), arguing the district court misapplied the statute. We affirm.

FACTS

Collision and Initial Treatment

Respondent Alison Peterson was injured in an automobile collision on October 21, 2009 and sustained a whiplash injury. Peterson was not at fault and was covered by an underinsured-motorist (UIM) policy issued by Western National with a policy limit of $ 250,000. Following the collision, Peterson started experiencing severe daily headaches.

In December 2012, after exhausting other treatments, Peterson began receiving periodic Botox injections to alleviate her headaches. After beginning the Botox treatments, Peterson reported that her headaches were reduced by 50%. Her treating neurologist believed that Peterson’s injuries were permanent and that Peterson would need Botox injections every three to four months to manage her chronic headaches.

Peterson sought another opinion from a second neurologist. This doctor also opined that Peterson’s injuries were permanent and that Peterson will likely need to continue Botox treatments for the rest of her life.

UIM Claim

On January 13, 2014, Peterson notified Western National that her past medical expenses totaled $ 46,235 and her expected future medical expenses would likely exceed $ 300,000. Peterson advised Western National that she would likely seek UIM coverage because the at-fault driver’s liability policy had limits of $ 50,000. Ultimately, Peterson settled the liability claim for $ 45,000.

On July 22, 2014, Peterson sent Western National a detailed written settlement demand that requested payment of her $ 250,000 UIM policy limits. Peterson enclosed extensive copies of her medical records. Western National assigned a claims adjuster to Peterson’s claim.

Western National made several requests for medical documentation over the next 11 months during which time it neither accepted nor denied the UIM coverage demand. Many of the documents Western National requested had, as the district court found, been previously submitted by Peterson. Peterson had also authorized Western National to obtain her complete medical records.

On June 18, 2015, Peterson sent Western National a letter seeking an update on the status of the claim and repeated her request for the UIM policy limits. Western National did not respond.

In August 2015, Peterson sued Western National seeking to recover UIM benefits. Western National retained counsel to defend the case. After Peterson sued, Western National obtained an independent medical examination (IME). Following an examination of Peterson in March 2016, the IME doctor opined that Peterson suffered only minor soft tissue injuries from the collision and found no causal relationship between the collision and Peterson’s headaches. Western National’s counsel concluded that Peterson had been fully compensated by the liability settlement with the at-fault driver’s insurer and that Western National’s UIM exposure was "slim to none."

The parties attended court-ordered mediation on April 4, 2016. To prepare for the mediation, the Western National claims adjuster prepared a summary of Peterson’s claim for Western National’s claims board. The Western National claims board assigned zero value to Peterson’s claim. At mediation, Western National offered to settle the claim for $ 2,000. Western National considered this a "nuisance-value offer." Peterson rejected the settlement offer. After mediation, Peterson offered to settle for $ 200,000; Western National did not accept the offer.

In May 2016, Western National’s counsel tried another Botox-treatment chronic-headache case to a jury in Hennepin County. The case involved an automobile collision from which the plaintiff sustained a whiplash injury and then experienced daily headaches that were successfully treated with Botox. The plaintiff prevailed with a damages award totaling over $ 1.1 million. Western National’s counsel informed Western National about this verdict, but Western National’s counsel concluded that it had no impact on his evaluation of Peterson’s case because Peterson had a history of headache problems and the IME doctor had "made a very bad witness for the defense" at the other trial.

On June 1, 2016, Western National offered Peterson a $ 10,000 settlement. Peterson did not accept the offer. After the parties completed depositions of Peterson’s medical experts, Western National increased its settlement offer to $ 50,000. Western National’s counsel stated this increased offer was made because Western National felt Peterson might be a sympathetic plaintiff.

UIM Trial

Peterson’s UIM claim was tried before a jury in August 2016. Both parties presented expert medical testimony regarding the cause of Peterson’s headaches. The jury returned a unanimous verdict awarding damages of over $ 1.4 million, including more than $ 900,000 for past and future medical expenses. Western National then paid Peterson the policy limits of $ 250,000. The court granted Peterson leave to amend her complaint to add a bad-faith claim pursuant to Minn. Stat. § 604.18.

Court Trial on Bad-Faith Claim

A court trial on Peterson’s bad-faith claim was held in July and August 2017. Both parties presented expert testimony regarding insurance claims handling. Peterson’s expert opined that Western National lacked a reasonable basis for denying Peterson’s claim and had acted unreasonably in a number of ways, including failing to investigate her claim fairly, "cherry-pick[ing]" her prior medical records, and unreasonably relying on the dollar value of the damage to her vehicle in denying her claim. Western National’s expert opined that Western National had reasonably evaluated Peterson’s claim because it obtained an IME, Peterson had headache complaints before the collision, Peterson’s mother suffered migraines, the collision was minor, and her headaches might be related to her multiple sclerosis.

The district court found that Peterson proved her claim by showing that Western National lacked a reasonable basis to deny her claim and that Western National either knew of, or acted with reckless disregard of, the lack of a reasonable basis for denying the claim. The district court awarded $ 100,000 plus $ 97,940.50 in attorney fees. This appeal follows.

ISSUE

Did the district court misinterpret and misapply Minn. Stat. § 604.18, subd. 2(a), to conclude that Western National lacked a reasonable basis to deny Peterson’s UIM claim and that Western National knew of, or acted with reckless disregard of, the lack of a reasonable basis to deny the claim?

ANALYSIS

I. Did the district court misinterpret Minn. Stat. § 604.18, subd. 2(a) ?

The parties dispute the proper interpretation of Minn. Stat. § 604.18, subd. 2(a). The statute provides a discretionary penalty for the unreasonable denial of a first-party insurance claim. The statute sets forth a two-prong test:

(a) The court may award as taxable costs to an insured against an insurer amounts as provided in subdivision 3 if the insured can show:

(1) the absence of a reasonable basis for denying the benefits of the insurance policy; and

(2) that the insurer knew of the lack of a reasonable basis for denying the benefits of the insurance policy or acted in reckless disregard of the lack of a reasonable basis for denying the benefits of the insurance policy.

Minn. Stat. § 604.18, subd. 2(a). The parties disagree over the meaning of the statute’s first prong. For the reasons explained below, we believe this statutory phrase is ambiguous because the parties have identified more than one reasonable interpretation of the phrase.

We review the interpretation of a statute de novo. Frandsen v. Ford Motor Co. , 801 N.W.2d 177, 181 (Minn. 2011). The aim of statutory interpretation is to effectuate the legislature’s intent. State Farm Mut. Auto. Ins. Co. v. Lennartson , 872 N.W.2d 524, 529 (Minn. 2015). We first determine "whether the statute’s language, on its face, is ambiguous." Am. Tower, L.P. v. City of Grant , 636 N.W.2d 309, 312 (Minn. 2001). "A statute is only ambiguous when the language therein is subject to more than one reasonable interpretation." Id. (quotation omitted).

Section 604.18 does not define "absence of a reasonable basis," and no Minnesota cases have addressed the issue. "We give words and phrases in a statute their plain and ordinary meaning, and technical words and phrases ... are construed according to [their] special meaning or their definition." Staab v. Diocese of St. Cloud , 813 N.W.2d 68, 72 (Minn. 2012) (alteration in original) (quotation omitted). "Whether a word is used in a technical sense is based on the context in which it is used." Briles v. 2013 GMC Terrain , 907 N.W.2d 628, 633 (Minn. 2018).

Here, "absence of a reasonable basis" is used in the context of first-party insurance coverage and is a technical term. See id. (determining that the phrase "right, title, and interest" is a technical term). Many states use "absence of a reasonable basis" or similar phrases in their first-party bad-faith jurisprudence, and this results in many different and reasonable interpretations. See, e.g. , Anderson v. Cont'l Ins. Co. , 85 Wis.2d 675, 271 N.W.2d 368, 376 (1978) ("To show a claim for bad faith, a plaintiff must show the absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim."); Bellville v. Farm Bureau Mut. Ins. Co. , 702 N.W.2d 468, 473 (Iowa 2005) (recognizing that to establish bad-faith, a plaintiff must prove "(1) [the insurer] had no reasonable basis for denying the plaintiff’s claim or for refusing to consent...