In Case v. State Farm Mutual Automobile Ins. Co., Inc. (No. B281732, filed 11/21/18, ord. pub. 12/18/18), a California appeals court held that the allowable reduction from uninsured motorist (UM) benefits for “payable” workers’ compensation benefits meant “eligible,” whether the insured sought the benefits or not. As a result, the court found that a genuine dispute over resolution of the insured’s workers’ compensation claim negated a claim for bad faith delay in payment of UM benefits as a matter of law.
In 2013, after being involved in an accident while in the course and scope of her employment, the Case plaintiff made a workers’ compensation claim through her employer. In 2014, she made a demand for uninsured motorist (UM) benefits from her own insurer, State Farm, which responded by requesting verification of a final lien for workers’ compensation medical expenses. When State Farm would not pay UM benefits, the plaintiff demanded arbitration. In May 2015, she sued State Farm for breach of contract and bad faith, asserting improper delay of arbitration or settlement for UM benefits, alleging that she had verified a final workers’ compensation lien for medical expenses in November 2014. But the plaintiff did not submit proof that she had finally exhausted any possibility for additional workers’ compensation benefits until September 2015 and State Farm settled her UM claim for $35,000 in November 2015.
State Farm sought summary adjudication on the claim for breach of contract, arguing that it had paid all benefits due. Relying on Rangel v. Interinsurance Exchange (1992) 4 Cal.4th 1, State Farm also sought adjudication of the bad faith claim, arguing that there was no breach of the policy or bad faith in declining to pay or arbitrate the UM claim before the claim for workers’ compensation benefits had been resolved.
The trial court granted State Farm’s motion and the appeals court agreed. The evidence showed that the plaintiff’s demand for UM benefits included medical expenses that had not been paid under workers’ compensation. Although her attorney represented that her condition had achieved “stationary and ratable” status, the workers’ compensation administrator advised State Farm that the plaintiff had never been discharged from care and could still seek additional medical treatment. There was some back-and-forth communication between the plaintiff’s counsel and State Farm, and the case finally resolved when the plaintiff’s counsel provided State Farm an email dated September 2015 in which the workers’ compensation administrator rejected a request by the plaintiff for reimbursement of certain medical expenses, stating that the treatment had been “self-procured” and without authorization. At that point, State Farm settled the UM claim.
First, the Case court dealt with the issue of whether the statutory right to reductions from UM benefits for workers’ compensation benefits required actual payment by workers’ compensation. The court noted that both the policy and the UM statute used the word “payable,” which the court said meant “eligible,” whether the employee sought workers’ compensation benefits or not: “[T]he term ‘payable’ necessarily encompasses medical expenses eligible for payment through the workers’ compensation system, regardless of whether the insured has submitted a claim for them…. Accordingly, the provision authorized State Farm to request a determination regarding the extent to which her past and future medical expenses could be paid through that system.”
Having concluded that State Farm had the right to require proof of all “payable” workers’ compensation benefits, the Case court proceeded to find that a genuine dispute over the reduction negated bad faith. Although the plaintiff argued that there was a triable issue of fact about when State Farm knew the answer, and whether that was reasonable, the appeals court agreed with the trial court that State Farm’s conduct was reasonable as a matter of law, citing Chateau Chamberay Homeowners Assn. v. Associated Internat. Ins. Co. (2001) 90 Cal.App.4th 335 and Wilson v. 21st Century Ins. Co. (2007) 42 Cal.4th 713.
The Case court walked through all of the exchanges that had occurred between the plaintiff’s counsel, the workers’ compensation administrator and State Farm, and found that State Farm only had sufficient information to determine the allowable reduction at the point when the plaintiff’s counsel had disclosed that treatment was completed and the workers’ compensation administrator had confirmed that the past medical expenses listed in the original demand were not eligible for payment under workers’ compensation:
“The facts crucial to establishing the loss payable – namely, the extent to which Case was entitled to worker’s [sic] compensation benefits – were fully known by State Farm only in September 2015, when Bassett Gallagher [sic] made the requested determination. Because State Farm resolved Case’s claim shortly after that determination, no triable issues exist regarding bad faith…. The existence of bad faith hinges on when State Farm knew the determination of Case’s eligibility for workers’ compensation benefits, not on the determination itself. The record discloses only that State Farm resolved Case’s promptly after learning of her ineligibility for future Workers’ Compensation benefits.”
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