The court held, in McGee-Grant v. American Family Mutual Ins., 2016 WL 126429 (W.D. Wash. Jan. 12, 2016), that the insurer violated Washington’s Unfair Claims Settlement Practices Regulation 284–30–370 by failing to complete its investigation within 30 days and acted in bad faith by denying a claim without a medical basis; and deciding to refuse payment prior to an independent medical examination (IME) or medical records review.
Penny McGee-Grant’s policy included personal injury protection (PIP) coverage. In July 2012, she was injured in an automobile accident and was examined shortly thereafter for shoulder pain. She was re-examined in October 2012 due to ongoing pain and an MRI revealed a rotator cuff tear in the shoulder that required surgery.
In December 2012, an American Family Mutual Insurance (AmFam) claims manager recommended denial of coverage pending an IME based on the belief that the injury was not related to the accident. Because of a delay in obtaining the IME, in January 2013, AmFam requested the opinion of McGee-Grant’s doctor as to whether the shoulder injury and surgery were related to the accident. Given conflicting versions of injury and examinations, AmFam denied payment pending a records review to resolve the conflicting information. After the records review, AmFam concluded that the cause of McGee-Grant’s injury was normal/usual wear and tear. Thus, AmFam closed its file in March 2013.
McGee-Grant filed a lawsuit and moved for summary judgment on the alleged bad faith claim. She argued that the claims manager did not have the requisite information and expertise to deny a claim where her doctor vouched for the relatedness of the treatment and where there was no IME/records review to displace that opinion. She also argued that AmFam’s failure to communicate the basis for its refusal to pay for several months constituted bad faith. AmFam argued that McGee-Grant could not support a bad faith claim on the basis of several good faith mistakes. McGee-Grant rebutted that argument by highlighting that the investigation took 107 days and AmFam could have relied on the answers of her doctor to conclude its investigation.
The court found that AmFam had denied payment solely on its belief that the shoulder injury was not related to the automobile accident, based on the delayed onset of symptoms, delayed treatment and the fact that McGee-Grant continued to work as a hairdresser requiring significant movement of the shoulder, even though there was no evidence that these statements were medically valid or that AmFam knew of these facts before it denied coverage. According to the court, the only basis AmFam had for denying coverage prior to its receipt of the records report were McGee-Grant’s medical records and her doctor’s report, which indicated the injury was related to the accident. The court also noted the fact that her first examination showed less of an injury than the subsequent examination did not, by itself, demonstrate that the injury was not related to the accident.
An insurer must be mindful of all state laws and regulations regarding claim handling, including specific deadlines for completion of coverage investigations. Insurers must also be diligent in conducting a coverage investigation; otherwise, there is a risk of bad faith exposure in some states for denying a claim without sufficient evidence or support, here a medical basis, even though a later investigation provides support for the denial.