Wilson v. 21ST Century Ins. Co.

• Decision Date: 29 November 2007
• Docket Number: No. S141790.,S141790.
• Citation: 171 P.3d 1082,42 Cal.4th 713,68 Cal.Rptr.3d 746
• Court: California Supreme Court
• Parties: Reagan WILSON, Plaintiff and Appellant, v. 21ST CENTURY INSURANCE COMPANY, Defendant and Respondent.

68 Cal.Rptr.3d 746

42 Cal.4th 713

171 P.3d 1082

Reagan WILSON, Plaintiff and Appellant, v. 21ST CENTURY INSURANCE COMPANY, Defendant and Respondent.

No. S141790.

Supreme Court of California.

November 29, 2007.

As Modified December 19, 2007.

Hall & Bailey, Donald R. Hall, Newport Beach; The Ehrlich Law Firm and Jeffrey Isaac Ehrlich, Claremont, for Plaintiff and Appellant.

Horvitz & Levy, Barry R. Levy, Bradley S. Pauley, Encino; Lewis Brisbois Bisgaard & Smith and N. David Lyons, Los Angeles, for Defendant and Respondent.

Robie & Matthai, James R. Robie, Kyle Kveton and Steven S. Fleischman, Los Angeles, for State Farm Mutual Automobile Insurance Company, United Services Automobile Association, Infinity Insurance Company, Farmers Insurance Exchange, Fire Insurance Exchange, Truck Insurance Exchange and Mid-Century Insurance Company as Amici Curiae on behalf of Defendant and Respondent.

WERDEGAR, J.

In this first party insurance bad faith action, the question on review is whether summary judgment was properly granted for the insurer. Eight months after plaintiff Reagan Wilson was injured in an automobile accident by a drunk driver, her insurer, defendant 21st Century Insurance Company (21st Century), rejected her demand for payment of the $100,000 policy limit on her underinsured motorist coverage. Although Wilson's treating physician had opined that the 21-year-old woman had "degenerative disk changes as a result of occult disk injury at the levels in her neck from her high speed motor vehicle accident," and that these spinal changes were atypical for her age and "almost certainly" caused by the automobile accident, 21st Century rejected the claim on the asserted ground that she had suffered only soft tissue injuries in the collision and had "preexisting" degenerative disc disease. Because, based on the undisputed facts in the summary judgment record, a jury could reasonably find 21st Century reached this medical conclusion without a good faith investigation of the claim and without a reasonable basis for genuine dispute, we agree with the Court of Appeal that summary judgment on plaintiffs bad faith cause of action was improper.

Factual and Procedural Background

"Because this case comes before us after the trial court granted a motion for summary judgment, we take the facts from the record that was before the trial court when it ruled on that motion. (State Dept. of Health Services v. Superior Court (2003) 31 Cal.4th 1026, 1034-1035 [6 Cal. Rptr.3d 441, 79 P.3d 556].) `"We review the trial court's decision de novo, considering all the evidence set forth in the moving and opposing papers except that to which objections were made and sustained."' (Id. at p. 1035 [6 Cal.Rptr.3d 441, 79 P.3d 556].) We liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party. (Wiener v. Southcoast Childcare Centers, Inc. (2004) 32 Cal.4th 1138, 1142 [12 Cal. Rptr.3d 615, 88 P.3d 517].)" (Yanowitz v. L'Oreal USA Inc. (2005) 36 Cal.4th 1028, 1037, 32 Cal.Rptr.3d 436, 116 P.3d 1123.)

The summary judgment record reflects the following facts:

On November 22, 2000, an intoxicated driver made a left turn directly in front of the vehicle Wilson was driving, resulting in a collision. She was treated at an emergency room in Monterey for bruises and a wrist injury; she also complained of pain in her chest and upon moving her neck. Several days later she told Dr. Douglas Jackson in Santa Barbara, where she was attending college, that she was still feeling pain in her neck and left shoulder, as well as in her left wrist. A "limited" cervical spine X-ray ordered by Dr. Jackson was evaluated as "normal," with "[m]ild straightening of lordosis" but "no fracture, degenerative change or soft tissue swelling."¹ Dr. Jackson prescribed physical therapy for the neck pain.

On January 29, 2001, Wilson was examined by Edward Southern, an orthopedist in Long Beach. She reported continued neck, back and arm pain. Not having the prior film before him, Dr. Southern ordered additional cervical spine X-rays, which he found showed "reversal of the cervical lordosis with calcification of the anterior disk spaces at C4-5 and C5-6 with narrowing of the disk space more so at C5-6." Dr. Southern ordered a magnetic resonance imaging scan (MRI) to determine whether the "obviously degenerative motion segment within her cervical spine" was causing the arm pain. If the MRI was "markedly abnormal," Dr. Southern noted, Wilson might have to delay her planned departure for a period of study in Australia.

Dr. Southern's clinical impression was as follows: "A young woman involved in a high speed motor vehicle accident with changes now in the cervical spine which are atypical for a patient of her age and are almost certainly due to the history of trauma. She probably has degenerative disk changes as a result of occult disk injury at the levels in the neck from her high speed motor vehicle accident."²

The MRI showed "mild desiccated discs at C2-3, C3-4, C4-5, C5-6 and C6-7," "mild dextroscoliosis" and "2mm or less posterior disc bulges at C4-5, C5-6 and C6-7," while "the central canal and neural foramina are patent at these levels."³ "No significant disc pathology" was found at other levels.

In February 2001, Donald Hall, Wilson's attorney, told Paul Le, 21st Century's claims examiner, that his client wanted to make a claim on her underinsured motorist (UIM) coverage. In April, after Wilson reached a settlement with the other driver for his $15,000 liability coverage, Le asked Hall to send 21st Century a demand package so he could evaluate the UIM claim.

Hall sent Le a demand letter and documentation on June 28, 2001. The medical reports described above were attached. Hall told Le that after the accident Wilson had made a long-planned trip to Europe, which was "ruined" by her injuries. At the time of the demand letter, Hall wrote, she was studying in Australia but was still experiencing pain "on a regular basis." He quoted Dr. Southern's opinion that Wilson had suffered degenerative disk changes as a result of the automobile accident. The general damages resulting from such an injury at Wilson's young age, Hall asserted, exceeded the $100,000 UIM policy limits. He requested that 21st Century pay Wilson $85,000, the UIM policy benefit remaining after Wilson's recovery of $15,000 from the other driver.

Le and Hall discussed the claim by telephone on July 6, 2001. According to Le's notes of the conversation, he asked Hall if there was any additional medical documentation for the claim. Hall said there was not, but that Dr. Southern's report indicated disk changes that would affect Wilson later in life. Le then asked, "[w]hy is she in Australia if [her] inj[ury][is] so severe?" and observed that Wilson "is young and may not experience any pain in future from degenerative] disk." Le also noted his own, opinion that the "MRI does not show bulge touching the nerves."

By a memorandum dated July 9, 2001, Le sought and obtained the approval of his superior, Jay Boomer, to reject Wilson's UIM claim. In the memo, Le wrote that Wilson "has a pre-existing condition pertaining to scolosis [sic], MRI shows no encroachment of a neural structure, it is unlikely that the 2mm bulge was produced by this accident. Presently, the [insured] is on vacation in Australia and is not expected to return until November, this discounts her attorney's allegation that the pain & suffering and injuries are severe." Le recommended offering Wilson the $5,000 limit of her medical payments coverage; with the $15,000 received from the negligent other driver, Le asserted, this would fully compensate her. Boomer approved this course, noting his view that Wilson's injuries were "really just ST [soft tissue]."

Before making the recommendation to reject Wilson's UIM claim, Le did not attempt to contact Dr. Southern and did not speak with any other medical practitioner about the claim.

21st Century rejected Wilson's UIM claim by a letter from Le to Hall dated July 17, 2001. After noting that "the X-rays" were "normal" and paraphrasing the conclusions of the January 2001 MRI report, Le stated: "Based on the above, we believe your client sustain [sic ] soft tissue injury superimposed by a preexisting degenerative disc disease. Therefore, we believe that your client has been fully compensated for her injuries by the payment of the $15,000 policy limits from North Pointe Insurance plus our Medical Payment limits of $5,000."

Soon after receiving 21st Century's rejection, Wilson initiated arbitration of the claim. In late 2001 and 2002, Wilson saw Dr. Southern and other physicians for her continuing neck pain. After a diskogram was performed in June 2002, one orthopedic surgeon recommended spinal fusion surgery. Wilson did not go through with the surgery at that time. In August 2002, she saw a neurosurgeon who recommended pain management instead of surgery; Wilson pursued that course, which to some extent alleviated the pain, through the remainder of 2002.

In 2002, after learning of the surgery recommendation (through deposing Wilson in preparation for arbitration), 21st Century retained independent physicians to examine Wilson and review her medical records. Stephen Nagelberg, the retained orthopedic surgeon, saw evidence on the diskogram of "bilateral leakage of C4-5, and a right-sided annular tear with leakage of C5-6." In June 2003, Dr. Nagelberg reported to 21st Century that Wilson's neck pain was caused by these disk injuries, which resulted from the November 2000 automobile accident. He recommended surgery. Allan Chan, the claims examiner now handling the case, promptly prepared a revised evaluation of Wilson's claim and requested and received authorization to pay Wilson the $85,000 remainder of her UIM policy limit. 21st Century paid Wilson the $85,000 on July 23, 2003.

Wilson sued 21st Century, alleging...