State Farm Fire and Cas. Co. v. Huynh

Decision Date14 September 1998
Docket NumberNo. 39212-3-I,39212-3-I
CourtWashington Court of Appeals
Parties454STATE FARM FIRE AND CASUALTY COMPANY, Respondent, v. Quang HUYNH; Ming T. Huynh; Quoc T. Ngo; Hoang Thi Quach; Teresa Tran; Tam V. Dang; Hoang Nguyen, Defendants, Edwin Kiniry, D.C., Appellant.
Howard Mark Goodfriend, Edwards, Sieh, Smith & Goodfriend P.S., Seattle, for Appellant

William Robert Hickman, Reed McClure, Seattle, for Respondent.

KENNEDY, Chief Judge.

State Farm Fire & Casualty Company filed fraud and Consumer Protection Act claims against Edwin Kiniry, D.C., seeking to recover financial losses it suffered from false injury reports and phony billings that Kiniry submitted to State Farm on behalf of State Farm insureds, who had staged an auto accident. After a jury verdict for State Farm, the trial court entered judgment against Kiniry and awarded damages to State Farm. It then denied Kiniry's motions for reconsideration, judgment as a matter of law, and a new trial.

Kiniry appeals, contending that State Farm did not have standing to sue him under the Consumer Protection Act. In addition, he maintains that the trial court erred by admitting one witness's invocation of her Fifth Amendment privilege, and another witness's opinion that more than 20 of Kiniry's reports and billings contained unusual similarities. Kiniry also argues that the evidence is insufficient to support the jury's verdicts that he committed fraud and violated the Consumer Protection Act. Finding these contentions to be without merit, we affirm.

FACTS

In January 1993, Edwin Kiniry, a chiropractor, treated two persons who claimed they had been injured in a car accident two days earlier. In his ensuing reports, Kiniry reported objective findings that he stated strongly suggested injuries that appeared to be a direct consequence of the automobile accident. He billed both patients for these services. Approximately six months later, with Kiniry's knowledge, these bills and Kiniry's injury reports were submitted to State Farm for payment. After State Farm completed its investigation of the incident, it concluded State Farm filed fraud and Consumer Protection Act (CPA) claims against Kiniry. 2 After a 9-day trial, a jury determined that Kiniry had committed fraud and violated the CPA, causing damage to State Farm. The trial court entered judgment against Kiniry and awarded State Farm $24,314.03 on the fraud claim and $10,000 on the CPA claim. It also ordered Kiniry to pay State Farm's reasonable attorney fees, under the CPA, in the amount of $35,000. Kiniry moved for reconsideration, judgment as a matter of law, and a new trial, but the trial court denied these motions. Kiniry appeals.

that the "accident" had been staged 1 and refused to pay Kiniry's bills.

DISCUSSION
I. Standing

"The question of whether an act or practice is actionable under the Consumer Protection Act is a question of law." Dombrosky v. Farmers Ins. Co., 84 Wash.App. 245, 260, 928 P.2d 1127, review denied, 131 Wash.2d 1018, 936 P.2d 417 (1997). Accordingly, we review this issue de novo. State v. McCormack, 117 Wash.2d 141, 143, 812 P.2d 483 (1991). The CPA is to be liberally construed to serve its purpose, i.e., to protect the public, and foster fair and honest competition. RCW 19.86.920. This court has held that entrepreneurial aspects of medical practice, i.e., acts done for the purpose of increasing profits, are within the sphere of trade, are commerce, and are subject to the CPA. Thomas v. Wilfac, Inc., 65 Wash.App. 255, 265, 828 P.2d 597 (1992); Quimby v. Fine, 45 Wash.App. 175, 181-82, 724 P.2d 403 (1986). In Blewett v. Abbott Lab., 86 Wash.App. 782, 785-89, 938 P.2d 842 (1997), review denied, 133 Wash.2d 1029, 950 P.2d 475 (1998), we held that indirect purchasers of goods do not have standing to bring an action alleging price-fixing in violation of the CPA. Whether our holding that only direct purchasers have standing extends to suits alleging CPA violations that are not in the nature of an antitrust violation need not be decided in the present case, because even if it does, State Farm was the "direct purchaser" of Kiniry's services for the benefit of its insureds. And the subject of this action is Kiniry's false billings and reports that were submitted to State Farm for the purpose of increasing profits. Accordingly, Kiniry's false billings and reports are subject to the CPA.

Kiniry contends that State Farm did not have standing to sue him because the CPA was designed to protect consumers, not insurance companies. But an injured party need not be a consumer of goods or services to assert a cause of action under the CPA. Physicians Ins. Exch. v. Fisons Corp., 122 Wash.2d 299, 313, 858 P.2d 1054 (1993). In Fisons, a doctor sued a drug company for injuries he sustained after his patient was injured by a prescription drug that the doctor had obtained from that drug company. Id. at 306, 858 P.2d 1054. Our Supreme Court noted that a passenger in an auto accident had standing to bring a CPA claim against an insurance company even though that person had no consumer relationship with the company, and then held that the doctor had standing to sue the drug company. Id. at 312, 858 P.2d 1054 (citing Escalante v. Sentry Ins. Co., 49 Wash.App. 375, 387, 743 P.2d 832 (1987)). But see Tank v. State Farm Fire & Cas. Co., 105 Wash.2d 381, 394, 715 P.2d 1133 (1986) (holding that only the insured has standing to bring per se CPA actions for breach of an insurer's duty of good faith).

In support of its conclusion, the Fisons court examined the unique relationship between a drug manufacturer and a doctor. Fisons, 122 Wash.2d at 313, 858 P.2d 1054. Here, the relationship between a doctor and his patients' insurer is also unique. In Fisons, the court noted that the drug company gives drug warnings to the doctor, not the patient, and targets its marketing efforts toward the doctor, not the patient. Id. Then, it observed that the doctor is a logical person to be the private attorney general because he stands in the shoes of the ordinary consumer of the drug. Id. Similarly, a doctor submits patients' bills to an insurance company for payment. When these bills are fraudulent, the costs are passed on to consumers, who are forced to pay higher premiums. Therefore, following the intermediary doctrine explained in Fisons, an insurance company is a logical party to be the private attorney general because it stands in the shoes of its premium-paying consumers who are affected by false billings from doctors.

Kiniry argues that if we allow an insurance company to sue a doctor under the CPA, doctors will begin to question patients' descriptions of symptoms and--because of their fear of liability under the CPA--give clouded diagnoses. He therefore contends that doctor-patient relationships, particularly those involving treatment of soft-tissue injuries and pain that cannot be explained by objective findings, would be adversely affected.

Doctors who falsely report objective findings and bill for services that were never provided should fear liability for fraud and under the CPA. But the mere reporting and treatment of subjective symptoms described by a patient does not constitute fraud or a violation of the CPA. We note a vast difference between fraud and good faith medical response to patients' subjective complaints. Although medical science cannot yet explain chronic pain syndrome, for example, specialized pain clinics are nevertheless able to successfully treat chronic pain that cannot be explained by objective findings. See generally Integration of Behavioral and Relaxation Approaches Into the Treatment of Chronic Pain and Insomnia, 276 JAMA 313 (1996) (describing effective methods of reducing chronic pain in various medical conditions).

The insurance code was amended in 1995 to expressly require health care providers to preserve "inviolate the integrity of insurance." RCW 48.01.030; Laws of 1995, ch. 285 § 16, at 1157-58. That statute also provides that "all persons be actuated by good faith, abstain from deception, and practice honesty and equity in all insurance matters." RCW 48.01.030. We do not believe that the CPA or the public policy pronouncements contained in RCW 48.01.030 or any portion of this opinion should cause health care providers who in good faith treat patients' subjective symptoms to fear litigation. In addition, fraud must be proved by clear, cogent, and convincing evidence, which in itself provides protection to doctors who treat subjective symptoms in good faith.

We fully agree with Kiniry that health care providers are under no duty to independently investigate whether patients who claim to have been in an accident actually were. In this case, some of the "victims" of the staged accident were treated by other chiropractors who were not sued, presumably because their reports and billings submitted in support of those patients' claims contained no evidence of fraud on the part of the chiropractor.

At oral argument for this appeal, Kiniry argued that cross-claims against doctors could become a routine practice by attorneys representing insurers who hope to utilize discovery to indiscriminately perform audits of medical records of doctors who routinely treat soft-tissue injuries. But the record reflects that insurers already routinely hire auditors to examine injury reports and treatment records. Moreover, the trial court has adequate means of sanctioning parties and attorneys who file claims without a legal or factual basis, under CR 11 and by ordering the payment of fees under RCW 4.84.185 if a lawsuit is frivolous. This opinion is not an invitation for wholesale cross-claims against the health care profession. Any such response would be swiftly dealt with under CR 11 and RCW 4.84.185. Contrary to Kiniry's contentions, doctors who honestly report objective findings and bill only for services that are provided have nothing to fear as...

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