Heavilin v. Madison National Life Ins Co et al
Filing
52
OPINION AND ORDER granting in part and denying in part Defendant Madison Nationals 27 Motion for Summary Judgment; granting Defendant DRMSs 29 Motion for Summary Judgment. Signed by Judge Joseph S Van Bokkelen on 12/12/12. (mc)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
DIANNA HEAVILIN,
)
)
Plaintiff,
)
v.
)
)
MADISON NATIONAL LIFE INSURANCE CO. )
and DISABILITY REINSURANCE
)
MANAGEMENT SERVICES, INC.,
)
)
Defendants.
)
Case No. 2:10-CV-505-JVB
OPINION AND ORDER
Plaintiff Dianna Heavilin was a guidance counselor in Indiana’s South Central
Community School Corporation for 16 years, until she did not return to work following a critical
performance review in May 2009. The next month, Plaintiff filed a claim for long-term disability
benefits under her policy with Madison National Life Insurance Co., alleging that her adult stress
reaction, fibromyalgia, and other medical conditions rendered her totally disabled and unable to
work. Madison National denied the claim, concluding that Plaintiff was not disabled for the
requisite minimum 90 days. Third-party administrator Disability Reinsurance Management
Services, Inc. (“DRMS”) affirmed the denial upon appeal.
In December 2010, Plaintiff sued Madison National and DRMS for breach of contract
and breach of covenant of good faith and fair dealing. In August 2012, both Defendants moved
for summary judgment. The Court denies Madison National’s motion as to the breach of contract
count because genuine issues of material fact remain to be resolved at trial. However, the Court
grants DRMS’s motion as to the same count, as Plaintiff conceded in her response brief that she
had no contractual relationship with DRMS. Finally, the Court grants both Defendants’ motions
regarding breach of covenant of good faith and fair dealing because Plaintiff failed to
demonstrate that either acted with “dishonest purpose, moral obliquity, furtive design, or ill
will,” the state of mind required for bad faith.
A. Summary Judgment Standard
Summary judgment is appropriate “if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to a judgment as a
matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (citing Rule 56(a) of the
Federal Rules of Civil Procedure). Once the moving party has produced evidence to show that it
is entitled to summary judgment, the party seeking to avoid such judgment must affirmatively
demonstrate that a genuine issue of material fact remains for trial. LINC Fin. Corp. v.
Onwuteaka, 129 F.3d 917, 920 (7th Cir. 1997).
In deciding a motion for summary judgment, a court must “review the record in the light
most favorable to the nonmoving party and . . . draw all reasonable inferences in that party’s
favor.” Vanasco v. Nat’l-Louis Univ., 137 F.3d 962, 965 (7th Cir. 1998). Nevertheless, the
nonmovant may not rest upon mere allegations, but “must support the assertion by[ ] citing to
particular parts of materials in the record.” Fed. R. Civ. P. 56(c)(1)(A). A genuine issue of
material fact is not shown by the mere existence of “some alleged factual dispute between the
parties,” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986), or by “some metaphysical
doubt as to the material facts.” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.
574, 586 (1986). Rather, a genuine issue of material fact exists only if “a fair-minded jury could
return a verdict for the [nonmoving party] on the evidence presented.” Anderson, 477 U.S. at
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252. It is well-settled that summary judgment should be granted “only where it is perfectly clear
that there is no dispute about either the facts of the controversy or the inferences to be drawn
from such facts.” Cent. Nat’l Life Ins. Co. v. Fid. & Deposit Co. of Md., 626 F.2d 537, 539 (7th
Cir. 1980) (citing U.S. v. Diebold, Inc., 369 U.S. 654, 655 (1962)).
B. Material Facts
(1) Plaintiff’s Employment with South Central Community School Corporation
Plaintiff worked as a guidance counselor for South Central Community School
Corporation in Indiana for 16 years, from 1993 to 2009. (DE 31-3 at 3.) Her primary job duties
were student scheduling, curriculum development, parent communications, testing programs, and
individual and group counseling for careers and post-secondary education. (DE 31-2 at 45.)
During her employment, Plaintiff received multiple performance evaluations. (Id.; DE
27-14 at 23–34.) The former principal, John Arnett, gave Plaintiff a positive performance review
in March 2007, after which Rick Gregg took over and became Plaintiff’s supervisor. (Id.)
Between 2007 and 2009, Plaintiff received increasingly negative reviews. (Id.)
In the May 15, 2009, evaluation, Principal Gregg rated Plaintiff as “unsatisfactory” in the
areas of curriculum, student support team, and communication. (DE 27-14 at 30–31.) He noted
her failure to improve since previous reviews with continued tardiness, negativity, blaming
others, security problems in administering the ISTEP+ state standardized test, and other
unprofessional behavior such as texting students. (Id. at 31–32.) Principal Gregg recommended
that Plaintiff “improve visibility by taking a lap around the halls and stopping to talk with
students and teachers.” (Id. at 32.) He provided Plaintiff with additional ways to address these
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problems in the “2009/2010 Improvement Plan.” (Id. at 33–34.) Plaintiff felt “devastat[ed]” and
“insult[ed]” by the principal’s suggestions (DE 27-1 at 43), but she also understood that her job
was in jeopardy if she did not satisfy the administration’s expectations during the 2009–2010
school year (DE 27-14 at 9; DE 31-3 at 7).
Following this review, Plaintiff did not return to work. (DE 31-3 at 7.) Defendants claim
Plaintiff decided to quit her job voluntarily because of the tension between her and Principal
Gregg’s administration. (DE 28 at 2, 4–5.) In contrast, Plaintiff claims she stopped working upon
the recommendation of her physician, DE 31-4 at 3, because her “totally disabl[ing]” medical
conditions prevented her from performing the physical requirements of the guidance counselor
position (DE 1 at 3).
(2) Plaintiff’s Medical History
Plaintiff had seen three doctors in the years leading up to her disability claim in June
2009: Dr. Ailes, her long-time family physician; Dr. Silberman, a neurologist; and Dr. Demko, a
chiropractor. Later, in May 2010, she met with Dr. Neucks, a rheumatologist.
Plaintiff has been a patient of family physician Dr. Ailes since 1983. (DE 32-2 at 71.) Dr.
Ailes testified that he first treated Plaintiff with medication for fibromyalgia in 2001. (DE 27-13
at 4.) On May 20, 2009—just five days after Plaintiff’s poor performance evaluation by Principal
Gregg—he diagnosed her with “[a]dult stress reaction, fibromyalgia, costochondritis of the left.
Plan is off work for now.” (Id. at 5.) On June 24, 2009, Dr. Ailes signed an Attending
Physician’s Statement to accompany Plaintiff’s insurance claim, in which he listed a primary
diagnosis of adult stress reaction and a secondary diagnosis of fibromyalgia as the reasons for
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Plaintiff’s inability to work. (Id. at 12.) At his May 16, 2012, deposition, Dr. Ailes opined that
“[t]he adult stress reaction has gotten better. It’s not an issue,” even though it “was the primary
thing affecting the fibromyalgia at the time.” (Id.)
Starting in January 2009, neurologist Dr. Silberman treated Plaintiff for fibromyalgia (DE
32-2 at 72), but he did not diagnose her with it; instead, she “came with that diagnosis” (DE 2912 at 2). He also testified that fibromyalgia is characterized by “muscular discomfort and pain,
which is very chronic. By definition, it has to be at least six months of pain.” (Id.) It also causes
sleep disturbances and “the fibromyalgia fog,” or clouding of a patient’s thoughts. (Id.) He
explained that the test for fibromyalgia is met when at least eleven “tender points” of intense
pain are present in the patient’s arms, legs, and trunk. (Id. at 2–3.) However, Dr. Silberman has
never found more than nine or ten tender points in Plaintiff. (Id. at 3, 7.)
Chiropractor Dr. Demko worked with Plaintiff as of July 2002. (DE 32-2 at 72.) Through
muscle testing and palpations, he diagnosed her with myofascial pain syndrome and chronic
headaches. (DE 27-11 at 5.) He did not diagnose Plaintiff with fibromyalgia, instead relying on
her statement that another doctor diagnosed it. (Id. at 3.) Dr. Demko also testified that he only
treated the fibromyalgia indirectly as a complicating factor of Plaintiff’s muscular condition.
(Id.) He did not remember anything indicating that she was disabled before 2009. (Id. at 2.)
Rheumatologist Dr. Neucks became involved after Plaintiff’s claim with Madison
National was on appeal to DRMS. (DE 32-2 at 72–73; DE 32-3 at 21–23.) In May 2010, he
diagnosed Plaintiff with fibromyalgia when she tested positive for twelve out of fourteen tender
points. (DE 32-3 at 21–22.) Plaintiff also scored 85 out of 100 points on the fibromyalgia impact
questionnaire. (Id. at 22.) Dr. Neucks stated that an average fibromyalgia patient scores about 50
points, and a significantly impaired patient scores around 70. (Id.) His additional diagnoses were
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degenerative disc disease with spondylolisthesis, carpal tunnel syndrome, possible peripheral
neuropathy, sleep apnea, degenerative arthritis, and depression. (Id.)
All four doctors, with Plaintiff’s consent, released Plaintiff’s medical records for review
in the original claim and appeal processes. Additionally, these doctors submitted written answers
to Defendants’ questions and eventually were deposed for purposes of this lawsuit.
(3) The Madison National Long-Term Disability Policy
Plaintiff does not dispute Defendants’ summary of the relevant terms and exclusions of
the Madison National Long-Term Disability Policy in their memoranda supporting summary
judgment. (DE 31 at 4; DE 32 at 4.)
The Policy under which Plaintiff seeks long-term disability benefits was issued to the
South Central Community School Corporation effective January 1, 2009. (DE 27-1 at 6.) In the
insuring clause, Madison National promised that “[i]f you become Disabled while insured under
the Group Policy, we will pay LTD [Long-Term Disability] Benefits according to the terms of
your Employer’s coverage under the Group Policy, after we receive satisfactory Proof of Loss.”
(Id. at 12.)
An insured becomes “Disabled” when:
during the Elimination Period and your Own Occupation Period you are, as a
result of Physical Disease, Injury, [or] Mental Disorder . . . unable to perform one
or more of the Material Duties of your Own Occupation, and, due to such
inability, your work earnings are less than 80% of your Indexed Predisability
Earnings, and you are incapable of earning 80% or more of your Indexed
Predisability Earnings.
(Id. at 17.) In order to qualify for benefits, the insured must be “continuously Disabled”
throughout the Elimination Period, which is at least “90 consecutive calendar days.” (Id. at 6, 8.)
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The Policy considers the insured’s “Own Occupation” to be “the occupation you routinely
perform for the Employer at the time Disability begins. We will look at your occupation as it is
normally performed in the national economy, instead of how the work tasks are performed for a
specific employer or at a specific location.” (Id. at 9.) Similarly, “Material Duties” are “the
duties generally required by employers in the national economy of those engaged in a particular
occupation that cannot be reasonably modified or omitted.” (Id. at 12.)
The Policy defines “Physical Disease” as “a physical disease entity or process that
produces structural or functional changes in the body as diagnosed by a Physician,” whereas an
“Injury” is “a bodily injury that is the direct result of an accident, that is not related to any other
cause, and which in and of itself results in your Disability within 90 days.” (Id. at 9.) Finally, a
“Mental Disorder” is “any mental, emotional, behavioral, psychological, personality, cognitive,
mood, or stress-related abnormality, disorder, disturbance, dysfunction, or syndrome listed in the
latest edition of American Psychiatric Association Diagnostic and Statistical Manual or the
International Classification of Disease.” (Id.)
The Policy contains a number of exclusions to coverage: “[y]ou are not covered for a
Disability that has not been diagnosed by your attending Physician. Subjective complaints alone
will not be considered conclusive evidence of a Disability. The attending Physician must be able
to provide objective medical evidence to support his or her opinion as to why you are not able to
perform the Material Duties of your occupation.” (Id. at 23.)
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(4) Plaintiff’s Claim for Benefits under the Madison National Long-Term Disability Policy
On June 28, 2009, Plaintiff filed a claim for long-term disability benefits under the
Policy. (DE 31-2 at 11–12.) She claimed that her disability was caused by “[d]epression and
fibromyalgia—high level emotional stress and chronic pain,” and her doctor ordered “no work at
this time due to emotional stress.” (Id. at 12.) Dr. Ailes also provided an Attending Physician’s
Statement with a primary diagnosis of adult stress reaction and a secondary diagnosis of
fibromyalgia. (Id. at 15–16.) He recommended “no work at this time” and noted that Plaintiff
“became unable to work” as of May 15, 2009, the date of her unpleasant performance review and
the last day that she reported for work. (Id. at 15.)
(5) Madison National’s Consideration and Denial of Plaintiff’s Claim
Madison National Claim Specialist Scott Lullof reviewed Plaintiff’s initial documents
and requested additional records from Drs. Silberman and Demko. (DE 27-9 at 4.) Family
physician Dr. Ailes also provided notes of Plaintiff’s office visits beginning in March 2009. (DE
27-13 at 28–32.) He first diagnosed her “adult stress reaction” on May 20, 2009 (id. at 5) and
noted improvements in Plaintiff’s condition at the July 15, August 10, and October 26 visits (id.
at 5, 13, 17). Neurologist Dr. Silberman submitted records as of January 2009, when he started
treating Plaintiff for fibromyalgia. (DE 27-12 at 9–26.) He also noted on July 2, 2009, that
“[s]he’s now feeling much better . . . especially with less stress.” (Id. at 6.) Finally, chiropractor
Dr. Demko gave Madison National his office notes, which specify “subjective” complaints from
the patient and “objective” supporting evidence from the doctor. (DE 27-11 at 4, 7–8.)
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Lullof forwarded Plaintiff’s records to Behavioral Medical Interventions (“BMI”) for an
independent review by psychiatrist Dr. Shipko and neurologist Dr. McIntire. (DE 27-9 at 5.) The
former contacted Dr. Ailes by phone, and the latter contacted Dr. Silberman by phone. (DE 27-1
at 45–46.) Dr. Shipko sent a written summary of the conversation to Dr. Ailes for revisions. (Id.)
Dr. Ailes’s “minor changes” did not affect Dr. Shipko’s conclusion that Plaintiff’s psychiatric
illness only prevented her from working between May 20 and July 15, 2009. (Id. at 47; DE 27-9
at 11.) However, Dr. Ailes adamantly asserts that his words were taken out of context and his
revisions should have changed Dr. Shipko’s outcome. (DE 27-13 at 13–14.) As for the claimed
fibromyalgia, Dr. McIntire concluded that Plaintiff had no neurological disability. (DE 27-9 at
11.) Finally, BMI psychologist Kate Harri interviewed Plaintiff via phone and learned that,
despite her asserted medical limitations, Plaintiff was still able to clean her house, cook, see
friends, take her mother to doctors’ appointments, read, and research genealogy at the library.
(Id.; DE 27-1 at 42–45.)
Lullof reviewed Plaintiff’s claim documents and medical records and BMI’s reports
before denying her claim on October 14, 2009. (DE 27-9 at 10–13.) He concluded that Plaintiff
was not neurologically disabled, despite her asserted fibromyalgia. (Id. at 11.) He further
concluded that Plaintiff was unable to work between May 15 and July 15, 2009, because of the
extreme stress she experienced after her negative performance review, but by July 15, she “had
returned back to [her] psychiatric baseline as a result of treatment.” (Id.) Madison National
believed Plaintiff’s stress-inducing problems were localized at her previous school because of
personal conflicts with that administration. (Id. at 11–12.) Because her two-month-long disabling
condition did not last for at least 90 days as the policy required and because she could continue
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performing her occupation elsewhere, Madison National denied Plaintiff’s claim for long-term
disability benefits. (Id. at 12.)
(6) Plaintiff’s Appeal and DRMS’s Administration of the Appeal
Madison National received Plaintiff’s written appeal on November 16, 2009 (DE 32-3 at
39–49), which she withdrew before Madison National considered it (id. at 34). Plaintiff then
submitted her renewed appeal on June 10, 2010, arguing that she had been totally disabled from
May 16, 2009, to present. (DE 32-2 at 70–74.) She claimed fibromyalgia was her “primary
reason for not returning to work after 7/15/2009” (DE 32-3 at 42) and that she “suffers from
sleep apnea, degenerative disc disease of the lumbar spine, osteoarthritis, possible peripheral
neuropathy, adult stress reaction, and depression,” all which made it “impossible to consistently
and adequately perform her job as a Guidance Counselor” (DE 32-2 at 70).
Madison National forwarded Plaintiff’s entire appeal to a third-party administrator,
DRMS. (DE 29-10 at 2.) Senior Appeals Analyst Jennifer Pardi-McCarthy reviewed Plaintiff’s
file (id. at 3, 6–7) and requested performance evaluations from her employer (id. at 8). She then
had University Disability Consortium conduct an independent review of Plaintiff’s entire claim
history, including the previous record reviews. (Id.) Psychiatrist Dr. Lurie reviewed the alleged
psychiatric disabilities (DE 29-3 at 14–29), and Physical Medicine and Rehabilitation Specialist
Dr. Wagner reviewed the alleged physical disabilities (id. at 3–13, 28–29). Consistent with
Madison National’s decision, Dr. Lurie opined that Plaintiff’s psychiatric functioning had
returned to normal by July 15, 2009, and that her stress was likely attributable to the
deteriorating relationship with her former supervisors. (Id. at 25–26.)
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Dr. Wagner concluded that the medical evidence supported findings of fibromyalgia,
knee osteoarthritis, and mild sleep apnea (id. at 10), but noted that Plaintiff’s pain complaints
were greater and pain treatments were less than would be expected for the asserted conditions
(id. at 11–12). Because of this contradictory evidence, Dr. Wagner supported the claim denial
(id. at 11–13), also recommending permanent restrictions on walking, standing, and other
movements to accommodate Plaintiff’s physical problems at work (id. at 10–11).
After Pardi-McCarthy reviewed the two doctors’ reports and the entire claim file (DE 2910 at 9), DRMS upheld the benefits denial on December 3, 2009 (id. at 10; DE 32-1 at 48–52).
Like her complaint against Madison National, Plaintiff contends that she and Dr. Ailes provided
numerous corrections and clarifications to the seemingly inconsistent record that DRMS failed to
adequately consider. (DE 32 at 17–18.)
C. Discussion
(1) Count I (Breach of Contract) Against Defendant Madison National
The Court agrees with Plaintiff that there are genuine issues of material fact that need to
be resolved at trial before determining whether Madison National breached its long-term
disability insurance contract with Plaintiff by denying her claim for benefits.
In order for Plaintiff to qualify for benefits under the Policy, she must be “disabled” for at
least 90 days and unable to return to work in her occupation as a guidance counselor. The record
is contradictory as to the severity and duration of Plaintiff’s claimed disability, as well as its
impact on her job. For example, Plaintiff asserts she cannot do the sedentary work of a guidance
counselor, but she is able to do similar tasks such as reading and genealogy research in the
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library, as well as more active work like cleaning her house, cooking, and driving her mother to
doctors’ appointments. It is also unclear whether the tender point test or fibromyalgia impact
questionnaire is a reliable and objective way to diagnose fibromyalgia, and, if so, when Plaintiff
demonstrated the requisite twelve out of fourteen tender points for a positive finding of
fibromyalgia.
Because the parties disagree on the proper interpretation of the medical evidence from
Drs. Ailes, Silberman, Demko, and Neucks—which is material to whether Plaintiff was disabled
from working as a guidance counselor within the terms of the Policy and thus whether Madison
National wrongfully denied her claim for insurance benefits—this matter is not appropriate for
summary judgment. Rather, it is the jury’s job to weigh the evidence and determine the
credibility of the witnesses, eventually deciding which interpretation of, and inferences from, the
conflicting medical evidence to accept. Therefore, the Court denies Madison National’s motion
for summary judgment on the breach of contract count.
(2) Count II (Breach of Covenant of Good Faith and Fair Dealing) Against Defendant
Madison National
“Indiana law has long recognized a legal duty, implied in all insurance contracts, for the
insurer to deal in good faith with its insured.” Freidline v. Shelby Ins. Co., 774 N.E.2d 37, 40
(Ind. 2002). The unique nature of an insurance contract may create at times contractual,
fiduciary, and adversarial relationships, for example, as the insured purchases the policy, makes
privileged statements to the insurance company, and makes a claim for benefits. Erie Ins. Co. v.
Hickman, 622 N.E.2d 515, 518 (Ind. 1993). However, the duty of good faith and fair dealing
only arises when the insurer and the insured have a “special” or fiduciary relationship that goes
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beyond traditional, arms-length contract transactions. Id. Breach of this duty constitutes a tort
because “[e]asily foreseeable is the harm that proximately results to an insured, who has a valid
claim and is in need of insurance proceeds after a loss, if good faith is not exercised in
determining whether to honor that claim. . . . [I]t is in society’s interest that there be fair play
between insurer and insured.” Id. at 518–519 (citation omitted).
Another longstanding Indiana rule is that an insurance company may, in good faith,
dispute the validity or amount of a claim. Id. at 520; Freidline, 774 N.E.2d at 40. A breach of the
covenant of good faith and fair dealing occurs when “an insurer . . . denies liability knowing
there is no rational, principled basis for doing so . . . . To prove bad faith, the plaintiff must
establish, with clear and convincing evidence, that the insurer had knowledge that there was no
legitimate basis for denying liability.” Freidline, 744 N.E.2d at 40 (citations omitted). The
required state of mind for bad faith is one “reflecting dishonest purpose, moral obliquity, furtive
design, or ill will.” Monroe Guar. Ins. Co. v. Magwerks Corp., 829 N.E.2d 968, 977 (Ind. 2005)
(quotation omitted).
Here, the Court must determine whether, after reviewing the record in the light most
favorable to Plaintiff and drawing all reasonable inferences in her favor, she cannot possibly
demonstrate with a preponderance of the evidence that Madison National denied her claim in bad
faith. See Lummis v. State Farm Fire & Casualty Co., 2005 U.S. Dist. LEXIS 12346 (S.D. Ind.
June 16, 2005) (the standard for proving that bad faith occurred is a preponderance of the
evidence, even though that standard becomes clear and convincing evidence when the plaintiff is
trying to prove that she deserves punitive damages for bad faith).
Plaintiff challenges Madison National’s asserted good faith in processing her claim for
benefits. Although there is medical evidence supporting the denial, Plaintiff has also presented
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evidence that Madison National disregarded some of the records regarding the duration and
effects of her medical conditions. For example, Dr. Ailes’s office notes from as far back as 2001
indicate treatment for fibromyalgia. Plaintiff also challenges the appropriateness of Madison
National’s handling of her claim, for example, as Dr. Shipko refused to change his opinion that
Plaintiff was not disabled after Dr. Ailes amended multiple statements in the summary of their
conversation, upon which Dr. Shipko relied to make his determination.
However, these facts are not sufficient to establish bad faith on the part of Madison
National, as Plaintiff has failed to demonstrate the requisite mental state behind the claim denial.
The conflicting medical evidence may be relevant to her breach of contract claim, but, as for bad
faith, Madison National had the right to evaluate the validity of Plaintiff’s evidence and
ultimately deny her benefits. Moreover, Dr. Shipko did take into consideration Dr. Ailes’s
conversation corrections before deciding to maintain his professional opinion that Plaintiff was
not disabled. Just because Dr. Shipko interpreted Plaintiff’s medical records differently than her
family physician does not mean that Madison National acted with ill intentions. Because a
reasonable juror could not infer that Madison National knew Plaintiff was “totally disabled” for
longer than 90 days and chose to deny her claim anyway, Madison National’s motion for
summary judgment as to the breach of covenant of good faith and fair dealing count is granted.
(3) Count I (Breach of Contract) Against Defendant DRMS
In Plaintiff’s response to DRMS’s motion for summary judgment, she conceded that
“DRMS cannot be held liable for Madison National’s [alleged] breach of the disability policy
since Indiana law provides that only a party to the contract can be held liable for its breach.
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Rodriguez v. Tech Credit Union Corp., 824 N.E.2d 442, 447 (Ind. App. 2004).” (DE 32 at 20).
Because Plaintiff had no contractual relationship with DRMS, her breach of contract claim
against it is without merit. DRMS’s motion for summary judgment on the breach of contract
count is granted.
(4) Count II (Breach of Covenant of Good Faith and Fair Dealing) Against Defendant DRMS
The duty of good faith and fair dealing may arise through a contract or a fiduciary
relationship. Plaintiff conceded that she had no contractual relationship with DRMS, so such a
duty could not have arisen by contract. But in an opinion written by Judge David F. Hamilton,
the court in Sieveking v. Reliastar Life Ins. Co., 2009 U.S. Dist. LEXIS 52763 (S.D. Ind. June 23,
2009), held that a third-party administrator of an insurance claim may have a fiduciary
relationship with the insured, giving rise to a duty of good faith and fair dealing.
Sieveking is factually similar to the present case. That plaintiff had been a teacher for 24
years in Indiana before she stopped working due to multiple lung problems. Id. at *1. “Believing
that Sieveking’s impairments affected her only intermittently and that she retained the ability to
work as a teacher at a different location, defendants denied her claim initially and in three
internal appeals.” Id. at *1–2. She sued the insurance company and the third-party administrator
for breach of contract and breach of covenant of good faith and fair dealing, and both defendants
moved for summary judgment as to the latter. Id. The court reviewed the Erie Insurance Co.
factors for bad faith—“(1) making an unfounded refusal to pay policy proceeds; (2) causing an
unfounded delay in making payment; (3) deceiving the insured; and (4) exercising any unfair
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advantage to pressure an insured into a settlement of [her] claim,” Erie Insurance Co., 622
N.E.2d at 519—and denied the defendants’ motions. Id. at *3, 5–6.
Judge Hamilton decided that the third-party administrator could be liable to the plaintiff
for bad faith, even if it was not a party to the insurance contract. Id. at *5–6. He explained:
The relationship of insurer to insured is at times fiduciary in nature. Erie, 622
N.E.2d at 518. As the administrator of Sieveking’s claim and the employer of
those persons who actually made the decisions to deny her claim, Madison
National [the third-party administrator in this case] owed Sieveking a fiduciary
duty to administer her claim in good faith.
Id. Any contrary result would be illogical, as an insured maintains the same trust and confidence
in the company handling her claim and the company handling her appeal, assuming both
fiduciaries will reach a fair and accurate outcome on her case at all stages of the process. For this
reason, DRMS’s attempt to distinguish Sieveking from the present case is unconvincing. It does
not matter whether the third-party administrator handled the initial claim denial plus the appeals
or the appeals only; the third-party administrator owes an insured the same duty of good faith
and fair dealing throughout the entire insurance claim process.
According to Sieveking, DRMS did have a duty of good faith and fair dealing to Plaintiff,
but, unlike in that case, a reasonable juror could not find that DRMS breached its duty to
Plaintiff. Much like her claim of bad faith against Madison National, Plaintiff’s claim against
DRMS comes down to its alleged disregarding of parts of her medical records and of Dr. Ailes’s
corrections to, and clarifications of, the medical evidence during the appeal process. Here too,
Plaintiff has not demonstrated the required mental state of dishonesty or ill intentions underlying
DRMS’s actions. Senior Appeals Analyst Pardi-McCarthy reached out to Plaintiff’s employer for
additional information and sought a second independent review of Plaintiff’s entire claim file.
Both the psychiatrist and the physical medicine and rehabilitation specialist agreed with Madison
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National’s original denial decision, supported by their professional opinions on Plaintiff’s
conflicting medical records. DRMS did not act in bad faith when it followed its third-party
appeal process, providing ample opportunity for Plaintiff’s claims to be reviewed and resulting in
an unfavorable outcome for Plaintiff. Therefore, the Court grants DRMS’s motion for summary
judgment as to the breach of covenant of good faith and fair dealing count.
D. Conclusion
For these reasons, the Court:
Denies in part Defendant Madison National’s motion for summary judgment (DE 27)
as to the count for breach of contract;
Grants in part Defendant Madison National’s motion for summary judgment (DE 27)
as to the count for breach of covenant of good faith and fair dealing; and
Grants Defendant DRMS’s motion for summary judgment (DE 29).
SO ORDERED on December 12, 2012.
S/ Joseph S. Van Bokkelen
JOSEPH S. VAN BOKKELEN
UNITED STATES DISTRICT JUDGE
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