Insurance companies can be found liable for bad faith when they unreasonably deny benefits or fail to properly investigate a claim. In two recent cases, courts deferred to the opinions of treating healthcare providers about the medical necessity of services in decisions that could lead to a spike in bad faith claims against insurers.
Ghazarian v. Magellan Health, Inc., et al.
Ghazarian v. Magellan Health, Inc., et al. concerned applied behavior analysis (ABA) therapy for a boy with autism. Prior to the child’s seventh birthday, his health insurer approved 157 hours of medically necessary ABA therapy per month, but after he turned seven, coverage was reduced to 81 hours of therapy monthly. The boy’s parents requested an independent review by the Department of Managed Health Care. When two of the three independent reviewers disagreed with the denial, the insurance company was ordered to reverse the denial and authorize the requested level of care.
The plaintiffs then sued the insurer for breach of the implied covenant of good faith and fair dealing. The trial court granted the defendants’ motion for summary judgment, holding the insurance company acted reasonably as a matter of law because one of the independent physicians agreed with the denial.
On appeal, the California Court of Appeal reversed the order, finding there were, in fact, triable issues of fact regarding the reasonableness of the insurer’s medical necessity standards.
“Superficially, defendants’ denial of the treatment might appear to be reasonable since an independent physician agreed with their decision,” the Court said. “But it is well established that an insurer may be liable for bad faith if it unfairly evaluates a claim. Here, there are factual disputes as to the fairness of defendants’ evaluation.” Further, the Court said, bad faith can be found when an insurer “employs a standard of medical necessity significantly at variance with the medical standards of the community.”
The medical necessity standards the defendants used to deny the plaintiffs’ claim appeared arbitrary, the Court said, noting it was entirely unclear why comprehensive ABA therapy should be limited to children under the age of seven, and that the defendants provided no explanation or evidence to support the reasonableness of the guidelines they used.
Further, the Court held that the defendants’ guidelines conflicted with established medical standards, specifically those set by the Behavior Analyst Certification Board (BACB). ABA treatment “should be based on the clinical needs of the individual and not constrained by age” and “research has not established an age limit beyond which ABA is ineffective,” according to the BACB. The Court said BACB’s guidelines are evidence of the general standard of medical necessity for ABA therapy. “Notably, the BACB’s guidelines state treatment should be based on the needs of the individual and unconstrained by age,” the Court said.
Additionally, the defendants’ stated reason for reducing the child’s treatment contradicted the assertion of the concurring physician on the independent review panel. The defendants said reduced treatment was warranted because the boy had already significantly improved with ABA therapy. In contrast, the physician on the panel said less treatment was appropriate because the child had shown limited improvement from the therapy. These contrasting evaluations raise questions as to whether the insurance company thoroughly and fairly evaluated the plaintiffs’ claim, the Court held.
Peterson v. Western National Mutual Insurance Company
This Minnesota bad-faith lawsuit stemmed from a 2009 motor vehicle accident in which the plaintiff’s car was struck by another motorist. The plaintiff, who sought treatment for headaches and body aches, settled with the other driver for $45,000 and received an additional $20,000 in no-fault benefits from her own insurer, Western National Mutual Insurance Company. The plaintiff’s headaches continued. and, Aafter some time, she tried Botox injections, which she and found this too be effective in treating her symptoms, and her. Her physician said she would need the injections, which cost $2,500 per treatment, every few months for the rest of her life. The plaintiff sued Western National Mutual for her policy’s full $250,000 underinsured motorist coverage limit.
The insurance company retained a board-certified neurologist to conduct an independent medical examination. The neurologist concluded that any injury the plaintiff suffered from the accident was resolved a short time after the accident, and that the headaches were likely psychological in origin, despite the absence of any evidence in the record to support that conclusion.
After a jury awarded the plaintiff $1.4 million for past and future personal injury damages, including healthcare expenses, she amended her complaint to add a bad faith allegation and sought attorney fees and costs.
Under Minnesota law, there is a two-prong test to determine whether an insurer committed bad faith. The insured must demonstrate there was an absence of a reasonable basis for denying benefits and that the insurer knew of the lack of a reasonable basis for denying the benefits or acted in reckless disregard of the lack of a reasonable basis.
The Minnesota Supreme Court found the insurance company ignored evidence that supported the plaintiff’s claim that her injuries were caused by the accident. Further, the Court said, the insurer failed to evaluate any of the evidence favorable to the plaintiff’s claim and relied almost blindly on the independent medical examiner, even though that doctor was not a headache specialist and even though the doctor reached conclusions that contradicted the findings of the plaintiff’s treating physician. The Court awarded the plaintiff nearly $200,000 in attorney fees and costs.
“Of course, we do not hold that it is never reasonable for an insurer to obtain and consider an independent doctor’s opinion when determining whether to deny an insured’s claim for benefits,” the Court said. “On the other hand, it is not always reasonable to rely on an independent doctor.”
The Takeaway
These two cases may open the door for more bad faith findings against insurance companies who deny claims based on medical expert opinions and medical necessity standards that are significantly at odds with treating physicians and generally accepted standards
