McClain v. Madison National Life Insurance Company et al
Filing
70
OPINION AND ORDER: GRANTING IN PART AND DENYING IN PART 49 and 51 Motions for Summary Judgment. Counts II and III of the Amended Complaint are dismissed. The 53 motion to exclude DiLisios report and testimony is GRANTED IN PART AND DENIED IN PART. DiLisios testimony regarding industry standards is admissible but his opinions on the issue of whether Defendants acted in bad faith are precluded. Signed by Judge Rudy Lozano on 9/4/14. (jld)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
LISA MCCLAIN,
Plaintiff,
vs.
MADISON NATIONAL LIFE INSURANCE
COMPANY and DISABILITY REINSURANCE
MANAGEMENT SERVICES, INC.,
Defendants.
)
)
)
)
) No. 3:11-CV-377
)
)
)
)
)
)
OPINION AND ORDER
This matter is before the Court on: (1) Defendant Madison
National Life Insurance Company’s Motion for Summary Judgment,
filed
on
Reinsurance
June
17,
2013
Management
Judgment, filed on
[DE
49];
Services,
(2)
Inc.’s
Defendant
Motion
Disability
for
Summary
June 17, 2013 [DE 51]; and (3) Defendants’
Motion to Exclude Report and Testimony of Robert DiLisio and Brief
in Support Thereof, filed on June 17, 2013 [DE 53].
Upon due
consideration, the summary judgment motions are GRANTED IN PART and
DENIED IN PART.
Counts II and III of the Amended Complaint are
dismissed. The motion to exclude DiLisio’s report and testimony is
GRANTED IN PART and DENIED IN PART.
DiLisio’s testimony regarding
industry standards is admissible but his opinions on the issue of
whether Defendants acted in bad faith are precluded.
BACKGROUND
Lisa McClain (“McClain”) worked as a third grade teacher at
Logansport
Community
approximately 13 years.
School
District
(“Logansport”)
for
In 2006, she suffered a stroke but was
able to return to work the following year.
She worked until 2010,
but then McClain claimed that she was unable to work due to
disability.
benefits
Insurance
McClain alleges that she had a long term disability
policy
(“Policy”)
Company
issued
(“Madison”)
and
by
Madison
administered
National
by
Life
Disability
Reinsurance Management Services, Inc. (“DRMS”), under which Madison
agreed to pay long term disability benefits in the event McClain
became disabled.
The Policy was issued with an effective date of
January 1, 2010.
McClain alleges that she became totally disabled
on January 22, 2010, but Madison has refused to pay her claim.
McClain has sued Defendants Madison and DRMS asserting that
Madison breached their contract (Count I) and the covenant of good
faith and fair dealing (Count II).
(DE #26).
McClain further
alleges that both Madison and DRMS breached their fiduciary duties
owed to McClain (Count III). Following the close of discovery, the
instant motions were filed.
They are now fully briefed and ripe
for adjudication.
-2-
DISCUSSION
Pursuant
to
Rule
56(a)
of
the
Federal
Rules
of
Civil
Procedure, summary judgment is proper only if it is demonstrated
that there is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law.
See
Nebraska v. Wyoming, 507 U.S. 584, 590 (1993); Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23 (1986).
In other words, the record
must reveal that no reasonable jury could find for the nonmovant.
Karazanos v. Navistar Int’l Transp. Corp., 948 F.2d 332, 335 (7th
Cir. 1991); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
250 (1986).
In deciding a motion for summary judgment, a court
must view all facts in the light most favorable to the nonmovant.
Anderson, 477 U.S. at 255; NUCOR Corp. v. Aceros Y Maquilas de
Occidente, 28 F.3d 572, 583 (7th Cir. 1994).
The burden is upon the movant to identify those portions of
“the
pleadings,
depositions,
answers
to
interrogatories,
and
admissions on file, together with the affidavits,” if any, that the
movant believes “demonstrate the absence of a genuine issue of
material fact.”
Celotex, 477 U.S. at 323.
Once the movant has met
this burden, the nonmovant must support its assertion that a fact
is genuinely disputed by citing to particular parts of materials in
the record.
Fed. R. Civ. P. 56(c); Becker v. Tenenbaum-Hill
Assoc., Inc., 914 F.2d 107, 110 (7th Cir. 1990); Schroeder v.
Lufthansa German Airlines, 875 F.2d 613, 620 (7th Cir. 1989).
-3-
“Whether
a
fact
is
material
depends
on
the
substantive
law
underlying a particular claim and ‘only disputes over facts that
might affect the outcome of the suit under governing law will
properly preclude the entry of summary judgment.”
Walter v.
Fiorenzo, 840 F.2d 427, 434 (7th Cir. 1988) (emphasis in original)
(citing Anderson, 477 U.S. at 248).
“A party who bears the burden of proof on a particular issue
may not rest on its pleading, but must affirmatively demonstrate,
by specific factual allegations, that there is a genuine issue of
material fact which requires trial.”
Beard v. Whitley Country
REMC, 840 F.2d 405, 410 (7th Cir. 1988) (emphasis in original); see
also Hickey v. A.E. Staley Mfg., 955 F.2d 1385, 1391 (7th Cir.
1993).
Therefore, if a party fails to establish the existence of
an essential element on which the party bears the burden of proof
at trial, summary judgment will be appropriate.
Facts1
McClain’s Employment with Logansport School Corporation
From approximately 1996 until 2010, McClain was employed by
Logansport School Corporation (“LCS”) as a third-grade teacher.
(McClain
Dep.
at
8).
Comments
from
a
review
of
McClain’s
performance in 2005 indicate she was an effective teacher and a
1
The facts in this case are largely uncontested and the Court has
therefore relied heavily on the facts as presented in the Defendants’ motions
for summary judgment, supplementing and editing where necessary.
-4-
leader in her school.
Mrs. McClain had instructional time well
organized and paced to sustain the interest of
students. She kept the discussion moving by
encouraging students to voice their thoughts
and opinions and ask questions. Transitions
were
smooth
and
student
behavior
was
monitored.
Mrs. McClain maintains a very pleasant
learning environment for students.
Her
classroom has a warm and inviting atmosphere.
She interacts well with students and specifies
behavior
expectations,
treating
students
fairly and equitably.
When disciplining or
correcting negative behavior, she does it
privately so as not to embarrass the students
and keep their self esteem in tact [sic].
Mrs. McClain interacts with students and
fellow staff members in a positive manner.
She takes initiative to develop and promote
special programs. She organized and continues
to chair the 5-Star Family program at Landis.
This has proven to be a successful program in
promoting parent and family involvement.
(Lamson Aff. Ex. A at 217-18).
In
October
of
2006,
McClain
suffered
a
cerebrovascular
accident (“CVA”) or stroke that left her with permanent brain
damage.
(Id. at 171-209).
in rehabilitative therapy.
In
February
and
As a result, McClain spent four weeks
(Id. at 219).
March
of
2007,
McClain
received
neuropsychological testing from Theresa Strout, HSPP Ph.D. (“Dr.
Strout”) to assess her cognitive function. (Document Production of
Lisa McClain, DE 49-2 at 2-6).
Dr. Strout opined that McClain’s
intellectual ability, executive functions, and attention/memory
-5-
functions were all within “normal” - that is, low-to-high average ranges. (Id.). Dr. Strout concluded that “there is no evidence of
loss of intellectual functioning.”
(Id.).
By March 13, 2007, Bradley Vossberg, McClain’s physician,
opined that she could return to work. (Document Production of Lisa
McClain, DE 49-2 at 1).
Dr. Vossberg wrote in an office note:
Her IQ is good. High-average verbal memory.
Visual memory is average to low-average, this
is her biggest deficit.
Neuropsych testing
showed mild impairment ... She should be able
to return to work.
(Id.).
McClain returned to work at LCS as a teacher for the 2007
summer school term.
(McClain Dep. at 9).
McClain testified that
she was at this time experiencing the same symptoms, in the same
severity, as in 2010 when she first claimed disability.
(Id. at
22-23).
At the beginning of the fall 2007 term, McClain was assigned
to teach third grade.
(Id. at 37).
Three weeks later, she took a
medical leave due to pregnancy, but she returned to work in October
of 2007.
(Id.).
McClain testified that her principal lacked
confidence in her ability to discharge the duties of her job. (Id.
at 40).
41).
She was almost immediately assigned two mentors.
(Id. at
These mentors remained assigned to McClain for most of the
remainder of her employment with LCS.
(Id. at 45).
During the 2008-09 term, McClain received numerous written
-6-
criticisms of her job performance.
In March, August, and October
of 2008 and May and July of 2009, McClain was issued disciplinary
memorandums directing her not to leave her classroom unattended or
leave the building during the day except for lunch.
(LCS Document
Production, DE 49-3 at 4-10). The October 2008 memorandum included
a
five
day
loss-of-pay
suspension
and
advised
misconduct by McClain would result in termination.
that
further
(Id. at 8).
The May 2009 memorandum documented McClain’s continued disobedience
and noted a recommendation that McClain’s contract be terminated.
(Id. at 7).
The July 2009 memorandum documented still further
disobedience and advised McClain for at least a third time that she
could be terminated if she continued to leave the building without
permission.
(Id. at 5).
In December of 2008 and March and November of 2009, McClain
received poor performance reviews criticizing a number of aspects
of her job performance.
2008,
criticized
A performance review dated December 5,
McClain
for
not
sufficiently
managing
her
classroom, for how she handled allowing students to go to the
bathroom, for failing to enter certain data into school computers,
and for failing to turn in lesson plans.
Lamson Aff., Ex. A at 220-31).
(McClain Dep. Ex. 2-3;
McClain was also criticized for
sitting behind her desk reading to herself for long periods of time
rather than walking around and interacting with students. (McClain
Dep., Ex. 3).
McClain was criticized for leaving her classroom
-7-
unattended and leaving the building during her prep period without
permission.
McClain
(Id.).
would
The December 2008 review concluded that
“need
to
improve
her
teaching
ability
and
opportunities for students if she is to remain a teacher here at
Landis Elementary.”
The
March
(Id.).
2009
review
similarly
criticized
McClain
for
problems such as her failures to enter student grades into the
school software, failures to turn in lesson plans, failures to
return graded work to the students, and sitting behind her desk
rather than interacting with students or supervising their work.
(Id. at 55).
The March 2009 review further criticized McClain for
an incident in which she had been notified that no science grades
had been entered for a 9 week period, and she responded by adding
two homework grades of 100% for each student so that each and every
of her students received a 100% A in science for a 9-week grade.
(Id.). McClain was also criticized for showing videos during ISTEP
week “when prime teaching and reviewing should have been taking
place.”
(Id.).
The March 2009 review also criticized McClain for
unexcused absences, and, significantly, for continuing to leave her
classroom unattended and leaving the building without permission
during work hours.
(Id. at 60-62, Ex. 2).
The March 2009 review concluded by again noting that McClain
would “need to improve her teaching abilities and opportunities for
the
students
if
she
is
to
remain
-8-
a
teacher
here
at
Landis
Elementary.”
(Id. at Ex. 2).
McClain was placed on a School
Improvement Plan which required her to, among other duties, keep
her paperwork up to date, cease leaving her classroom unattended,
and cease leaving the building without permission. (Id. at Ex. 4).
McClain admits that she failed to remedy many of these behaviors
even after receiving the School Improvement Plan. (Id. at 49, 62).
McClain received another negative review in November of 2009
addressing the same general issues raised in the December 2008 and
March 2009 reviews.
(Lamson Aff., Ex. A at 220-31).
LCS escalated McClain from a “School Improvement Plan” to an
“Intensive Assistance Plan” or “IAP”, which McClain characterized
as a “last chance.”
231).
(McClain Dep. at 67; Lamson Aff. Ex. A at
The IAP required McClain to attend training, to turn in
detailed lesson plans weekly, to keep her other paperwork up to
date, and to cease leaving the building without permission.
(McClain Dep. at 67-70).
Despite the specificity of tasks listed
in the IAP, McClain claims that she failed to meet some of the
requirements because she “didn’t understand” what to do and just
“didn’t get it.”
McClain
(Id. at 69).
testified
that
the
poor
performance
reviews
she
received in 2008 and 2009 were the result of cognitive limitations
she had suffered since the October 2006 CVA.
testified
that,
management.
as
early
as
2007,
“I
(Id. at 20).
had
trouble
McClain
with
I had trouble with processing new information.
-9-
time
I had
trouble connecting my life with prior knowledge.”
(Id.).
She
testified that starting shortly after the 2006 CVA, she suffered
decreased motivation: “I used to be kind of a go-to person.
If you
wanted it done, I would get it done, and that’s - I don’t have the
organization and ambition to do it.”
(Id. at 21).
McClain also testified that she began to have hearing loss in
2007, around the time of her return to work.
(Id. at 28).
McClain
testified that these hearing issues became worse by the fall of
2009.
(Id. at 27-29).
McClain claims that she was “forced” to sit
behind her desk - a practice criticized by LCS - in order to “hear”
the students as early as March of 2009.
(Id. at 55-56).
McClain’s
performance reviews show that she was receiving criticism for
sitting behind her desk as early as December of 2008.
3).
(Id. at Ex.
McClain admits that she never attempted to wear hearing aids
to improve her hearing.
(Id. at 29).
McClain does not see any
provider regularly about her hearing problem.
(Id. at 31).
One of the mentors assigned to McClain, Tom Anders, had worked
with her both before and after her stroke.
(Anders Aff. ¶ 4).
Prior to her stroke, he describes her as an excellent educator:
dynamic, organized, patient, and a leader.
(Id. at ¶ 5).
her stroke, she was “a totally different person.”
After
(Id. at ¶ 6).
“Her personality had changed; she was not organized; she was not
able to multi-tasks [sic]; she was overwhelmed; she was easily
flustered; and she couldn’t meet deadlines.”
-10-
(Id.).
Anders met
with McClain once a week to try to assist her.
(Id. at ¶ 7).
According to Anders, “no matter how hard [he] and other members of
the faculty tried, [they] were not able to bring Lisa back to being
the highly functioning educator that she was before her stroke.”
(Id.).
They tried everything they could think of to help McClain
between the fall of 2007 and January of 2010, “but it became
undeniable that she could not meet the responsibilities of her
job.”
(Id. at ¶ 8).
On January 22, 2010, McClain was placed on a paid leave of
absence from LCS “due to medical issues which are impacting [her]
performance.”
(McClain Doc. Prod. DE 49-2 at 7).
McClain’s paid
leave of absence lasted until October 1, 2010.2
(McClain Doc.
Prod. DE 49-3 at 1).
On June 9, 2010, Craig Blume, teacher’s union
representative, sent the LCS superintendent a letter requesting
that LCS extend “due process timelines [sic]” for any decision on
McClain’s employment status.
(LCS Document Prod. DE 49-3 at 2).
The teacher’s union proposed that LCS “rescind that letter of
notification on the consideration of cancellation of her indefinite
contract” if McClain’s long-term disability benefit claim was
approved, but “reactivate the cancellation letter . . . affording
her the opportunity to submit a letter of resignation if she
chooses” if her claim was denied.
2
(Id.).
On October 8, 2010, LCS
Defendants state that McClain’s paid leave of absence
lasted until April 16, 2010, but this discrepancy is not
material. (McClain Doc. Prod. DE 49-3 at 4).
-11-
sent a letter to the teacher’s union by counsel, confirming “phone
conversations earlier this morning wherein Logansport Community
School Corporation and . . . Lisa McClain have reached an agreement
with respect to her current employment status.
At this time the
parties agree that she will remain on unpaid leave, without
benefits, until her long term disability appeal is resolved, either
favorably or unfavorably.”
(Id. at 1).
It appears that McClain
remains on unpaid leave at this time.
McClain’s Disability Claim
McClain filed a claim for benefits with Madison on May 13,
2010.
(Lamson Aff. Ex. A at 336-38).
She indicated that she
ceased work on January 22, 2010, but that her claim was related to
her stroke in October of 2006.
(Id.).
She indicated that she was
still recovering from the stroke and that her symptoms were poor
memory and difficulty processing new information. (Id.). She also
indicated that she could return to work if accommodations were
made. (Id. at 337). McClain claims that the symptoms that made her
unable to work in 2010 were the “same sort of symptoms” she
complained of shortly after returning to work in 2007.
Dep. at 22).
(McClain
She indicated that the symptoms were “the same” when
she stopped working in January of 2010 as they were when she
returned to work in 2007.
The
parties
dispute
(Id. at 22-23).
whether
-12-
McClain
has
consistently
maintained that the condition that caused her to stop working in
2010 are the same as those she experienced since her stroke in
2006.
Defendants initially argued that “McClain’s claim for
benefits contends that she became disabled on January 22, 2010" not
that she has been working while disabled since her return in 2007.
(DE 57 at 8).
But, in reply, Defendants conceded that the claim
form is actually “silent on the date she became unable to work.”
(DE 66 at 2-3)(emphasis in original). Defendants suggest that they
tried to clarify this uncertainty by seeking additional information
from Dr. Dutter, one of McClain’s treating physicians.
Dr. Dutter
indicated that “what changed” in January of 2010 was that McClain
became
“unable
to
support/assistance.”
keep
up
in
the
(Dutter Dep. Ex. L.).
classroom;
less
Madison asserts that
it took this as a confirmation that while McClain’s symptoms may
have began in 2006, they did not become impairing until 2010, after
the effective date of the Policy.
(DE 66 at 3).
Madison also
notes that McClain’s counsel indicated in an appeal letter that “as
of January 22, 2010, Ms. McClain was no longer able to work at
all.”
(Lamson Aff. Ex. A at 153).
LCS completed a “Long-Term
Disability Claim Job Analysis” indicating that McClain became
disabled on January 25, 2010.
(Id. at 166-67).
And, the amended
complaint itself in this matter indicates that McClain taught at
LCS for nearly 14 years “until she became totally disabled on
January 22, 2010.”
(Complaint, DE 26 at ¶ 11).
-13-
McClain alleges that she is unable to perform the material
duties of a teacher because she is no longer “able to predict where
a situation could go” and “can’t multitask,” as documented in her
December 2008 and March 2009 performance reviews. (McClain Dep. at
23-24). Those claimed limitations and her ability to perform as a
teacher were generally the same when she ceased work in 2010 as
they had been at least as early as December of 2008.
64).
Referring to her reviews, McClain testified, “[p]age after
page after page, I’m not getting it [teaching] done.
it.
(Id. at 24,
I can’t teach.
I can’t work.
I’m disabled.”
I can’t do
(Id. at 73).
In short, although McClain has not always clearly annunciated when
she believes she became unable to do the material aspects of her
job, it is nonetheless undisputed that McClain claims her disabling
condition began in 2006.
2(b) and (e)).
(McClain’s Response to Interrogatory No.
According to McClain’s interrogatory responses:
As of October 24, 2006, I have been unable to
perform one or more of the material duties and
responsibilities of my occupation as an
elementary school teacher.
Through the
assistance of mentors and staff, I was able to
maintain my employment despite being unable to
perform all the material duties of my job
until January 22, 2010.
(Id. at No. 20).
McClain’s
This is consistent with the opinion of one of
treating
physicians,
Dr.
Dutter,
who
opined
that
“disability started when the stroke happened, before she even went
back to work.”
(Dutter Dep. at 21).
Dr. Dutter opined that she
was not capable of performing all of the material duties of her job
-14-
as a teacher at any point after the stroke.
Although
McClain’s
neuropsychological
(Id. at 23-24).
testing
looked
“pretty
normal,” Dr. Dutter speculated that McClain had concentration
issues that might not show up on examination.
(Id. at 38).
Madison’s Policy of Insurance
The Policy under which McClain seeks long-term disability
benefits was issued to LCS with an effective date of January 1,
2010.
(Lamson Aff. Ex. A at 13).
The Policy’s insuring clause
states: “If you become disabled while insured under the Group
Policy, we will pay LTD Benefits according to the terms of your
Employer’s coverage under the Group Policy, after we receive
satisfactory Proof of Loss.”
(Id. at 20, § I).
According to
Defendants, the Policy’s definition of Disability or Disabled can
be found in Amendment 1 and is as follows:
1. during the Elimination Period and your Own
Occupation Period you are, as a result of
Physical Disease, Injury, Mental Disorder,
Substance Abuse or Pregnancy, unable to
perform one or more of the Material Duties of
your Own Occupation. ...; or
2.
during the Elimination Period and the
first 24 months you are Disabled with Work
Earnings, your Work Earnings are less than 99%
of your Predisability Earnings as a result of
Physical
Disease, Injury, Mental Disorder,
Substance Abuse or Pregnancy, and you are
incapable of earning 85% or more of your
Predisability Earnings....
(Id. Ex. A at 45-46).
-15-
McClain suggests that a different definition of disability,
the one in the original certificate of insurance, is applicable:
Disability or Disabled means that during the
Elimination Period and your Own Occupation
Period you are, as a result of Physical
Disease, Injury, Mental Disorder, Substance
Abuse or Pregnancy, 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 99% or more of
your Predisability Earnings.
(See Lamson Aff. Ex. A at 27).
The definition McClain relies upon
was replaced with Amendment 1, which, according to the amendment
itself, became effective on January 1, 2010. (Lamson Aff. Ex. A at
43, 45-46).
The Policy defines “Own Occupation” as “the occupation you
routinely perform for the Employer at the time Disability begins.”
(Id. Ex. A at 17).
Further, the Policy provides that, “[w]e 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.).
“Material Duties” is defined as “the duties generally required
by
employers
particular
in
the
occupation
omitted....”
national
that
economy
cannot
be
of
those
reasonably
engaged
in
modified
a
or
(Id. Ex. A at 20, § II).
Additionally, benefits are not payable until Madison receives
proof of loss that it finds satisfactory.
(Id. Ex. A at 35, §
XX.B.3). Madison reserves the right to “investigate a claim at any
-16-
time.”
(Id. Ex. A at 35, § XX.C.1).
The Policy requires that, to be eligible for insurance under
the plan, you must be an “Eligible Person.”
(Id. Ex. A at 20, §
II). To be an “Eligible Person” five requirements must be met: the
individual must be an employee, a citizen, “Actively at Work and
capable of sustained Active Work”, not a part-time, temporary, or
seasonal worker, and satisfy your waiting period.
(Id.).
“Active
Work” and “Actively at Work” are defined as “performing all the
Material Duties of your Own Occupation at your Employer’s usual
place
of
business,
Requirement.”
and
satisfying
the
Minimum
(Id. Ex. A at 20, § II.A.3.a).
Hourly
Work
However, “[i]f you
were eligible for insurance and insured under the Prior Plan on the
day before the Plan Effective Date, you can become insured on the
Plan Effective Date without meeting the Active Work requirement
under Section II.A.3.”
(Id. Ex. A at 26, § VI.A).
The Policy also provides, with regard to the effective date of
insurance, that “[i]f you are incapable of sustained Active Work
due to a Disability on the day before the scheduled effective date
of your insurance, such insurance will not become effective until
the day after you are capable of sustained Active Work and complete
one day of Active Work as an Eligible Person.”
§ III.B.3).
(Id. Ex. A at 20,
The parties disagree regarding whether this provision
is applicable to McClain.
-17-
Madison’s Consideration of McClain’s Claim for Benefits
Upon receipt of McClain's claim in 2010, one of the very first
actions Madison National took was to inquire whether McClain had
been
insured
under
the
school
corporation's
policy. (Lamson Aff., Ex. A at 236).
prior
disability
The Claim File shows
McClain's effective date of coverage under the Madison’s Policy as
January 1, 2010. (Lamson Aff., Ex. A at 3).
McClain’s claim was considered by Senior Claims Analyst Lisa
Caflisch (“Caflisch”).
(Caflisch Dep. at 32).
Caflisch obtained
and considered a wide range of information, including the claim
form submitted by McClain and discussed above. She also considered
the opinions of Dr. Dutter.
Dr. Dutter provided an “Attending
Physician’s Statement” which lists her symptoms as “history of CVA,
aneurysm of middle cerebral artery, S/P VP shunt.”
Ex. I).
(Dutter Dep.
Dr. Dutter indicated that McClain’s allegedly disabling
symptoms first appeared in October of 2006.
(Id.).
Dr. Dutter
indicated that McClain’s condition had improved since October 2006
but that he “never” expected to see a “fundamental or marked
change” in her current condition. (Id.). Caflisch also considered
a letter from Dr. Dutter dated February 9, 2010, which includes the
following:
First off Lisa is a walking miracle. She was
very fortunate to even survive the aneurysm
and CVA that she did have.
She has made a
miraculous recovery.
This however does not
mean that she is able to function in the
classroom at her previous job like she was
-18-
able to before the CVA. Physically her exam
is very normal. And with memory and recall
again her exam is pretty normal. This does
not
take
into
account
distractibility
concentration et cetera. I do feel that she
has to be considered for long-term disability
because of her inability to perform like she
was able to prior to the CVA.
(Id.).
Caflisch requested further information regarding what
changed in McClain’s condition around January 22, 2010, and in
response Dr. Dutter wrote that McClain was “unable to keep up in
classroom; less support/assistance.”
(Id.).
At his deposition,
Dr. Dutter clarified that he meant that McClain’s condition did not
change in 2010, but her employer’s willingness to accommodate her
changed.
(Id. at 53-54).
Caflisch obtained notes from McClain’s
office visits with Dr. Dutter.
(Id. at Ex. N).
These notes
indicated Dr. Dutter performed a “mini-mental state” exam and that
McClain scored a perfect 30 out of 30 on the exam.
(Id.).
Dr.
Dutter provided Caflisch with a note indicating he advised McClain
to cease work on February 9, 2010.
(Id. at Ex. M).
At his
deposition, Dr. Dutter was unsure whether he told McClain that she
should stop working.
(Id. at 27).
Caflisch reviewed the entire claim file.
32).
She
contacted
McClain
to
request
(Caflisch Dep. at
further
information.
(Id. at 33, Ex. 1). She also contacted LCS and discussed McClain’s
job performance with Teresa Popejoy (“Popejoy”). (Caflisch Dep. at
36-38, Ex. 1).
She investigated whether McClain was covered by
LCS’s prior disability policy.
-19-
(Lamson Aff. Ex. A at 235).
Caflisch brought up that McClain had been back to work for 3 years
since the time of her CVA and asked Popejoy what changed.
(Id.).
Caflisch’s notes regarding that conversation, which took place on
June 3, 2010, indicated the following:
I asked if there was anything special we
should know about the EE.
She said the EE
doesn’t process things very well.
For
example, the EE didn’t understand that she
needed to fill out and return the LTD claim
form.
They had to ask the EE’s mother for
assistance.
I asked how long the EE worked after her
stroke. She said the EE returned to work PT
in 7-07 and FT in 08-07.
I noted that she
worked for about 3 years and asked what
changed during that time that rendered her
unable to perform her job. She said the EE
did strange things at times. For example, she
would disappear during the day, in some cases
leaving the classroom unattended. She would
walk to a nearby convenience store for a soda.
She said the EE doesn’t understand that she
has responsibilities. I asked if they tried
to accommodate her limitations. She said they
tried everything, but nothing worked.
On another note, she mentioned that the EE has
been separated from her husband for a year.
She wasn’t sure if their divorce was finalized
yet.
(Id. at 235).
Caflisch understood McClain to be claiming that she became
disabled - meaning she went from being able to perform her job to
being unable to do so - on or about January 22, 2010.
Aff. at ¶ 6).
(Caflisch
When Caflisch was told that McClain “did strange
things at times,” she understood that to mean that McClain had
-20-
changed around January of 2010 by beginning to do strange things.
(Id. at ¶¶ 9-10).
In addition, Caflisch had asked Dr. Dutter what
changed with McClain’s condition that made her unable to work after
January 22, 2010.
McClain
was
(Id. at ¶ 11).
“unable
support/assistance.”
to
Dr. Dutter indicated that
keep
up
(Id. at ¶ 7).
in
classroom;
less
Caflisch indicated that
neither McClain, her attending physician, or her employer told her
that McClain was claiming to have been unable to work since 2006.
(Id. at ¶ 12).
Furthermore, if they had, she would have denied the
claim pursuant to Section III.B.3 of the Policy. (Id. at ¶ 13;
Lamson Aff. Ex. A at 21 (“If you are incapable of sustained Active
Work due to a disability on the day before the scheduled effective
date of your insurance, such insurance will not become effective
until the day after you are capable of sustained Active Work and
complete one day of Active Work as an Eligible Person.”)).
Caflisch determined that additional testing was necessary and
requested an IME.
(Caflisch Dep. at 33, Lamson Aff. Ex. A at 233).
Madison retained third-party vender Independent Medical Services
(“IMS”) who contracted with Dr. Shepard, a neuropsychologist, to
perform the independent examination.
Dr.
Shepard
conducted
a
clinical
(Lamson Aff. Ex. A at 261).
interview
with
McClain
and
reviewed her medical records, claim file, and a written description
of her job duties.
(Caflisch Dep. Ex. 6 at 251).
Dr. Shepard
performed a new comprehensive battery of neuropsychological tests
-21-
on McClain.
(Id. at 252).
Dr. Shepard found that McClain’s
reading, basic arithmetic, spelling, language skills and fund of
information
were
average.
(Id.
at
255-56).
Her
current
intellectual ability, verbal abilities and non-verbal abilities
were all high average.
processing
speed,
(Id.). Her attention, working memory, and
new
learning,
short-term
recall,
executive
functions, visuospatial and visuocosntructional ability were all
average to high average.
(Id.).
Her figure oscillation/grip
strength was low average. (Id.). Her speeded fine motor dexterity
was mildly impaired.
“pattern
of
findings
(Id.).
was
Dr. Shepard concluded that the
consistent
with
a
normal
cognitive
examination” and that “[b]ased on the present neuropsycholgoical
examination,
there
are
no
neurocognitive
impairments
and,
in
essence, no neuropsychological reason that Ms. McClain could not
successfully function as a teacher.”
Caflisch
considered
individual merits.”
McClain’s
(Id. at 257-58).
claim
on
(Caflisch Dep. at 64).
its
“unique
and
She considered
“everything contained in the claim file” and did not discount or
disregard McClain’s statements, the statements of her employer, or
the information provided by Dr. Dutter.
(Id. at 67-68).
Caflisch
took into account that the Shepard Report was “more recent” than
the 2007 data relied upon by Dr. Dutter.
(Id. at 42-43).
In
reviewing the Shepard report, Caflisch determined that it showed
objectively “normal cognitive examination” and that “there were no
-22-
neurocognitive
impairments
present
and,
therefore,
no
neuopsychological reason why [McClain] could not perform her job as
a teacher.”
(Id. at 54).
Caflisch concluded that “[t]he medical
evidence did not support [McClain’s] inability to perform her job.”
(Id. at 54).
In a letter dated August 26, 2010, Caflisch explained her
reasons for denying McClain’s claim as follows:
The information received indicates that you
suffered an aneurysm in late 2006, recovered
sufficiently to return to work in mid 2007,
and continued to work until January 22, 2010.
The information received from Dr. Dutter
indicates you are suffering from residual
effects of the aneurysm.
However, no new
cognitive testing was done to confirm the
doctor’s assessment.
In order to help us determine your eligibility
for
benefits,
we
contracted
with
an
independent
provider
through
Independent
Medical Services for a neuopsychological
examination...Dr. Shepard indicates there are
no neuorocognitive impairments present, and
therefore, no neuopsychological reason why you
cannot perform your job duties as a Teacher.
(Lamsom Aff., Ex. A at 248-49).
The decision to deny the claim was
not based on a lack of coverage. (DE 63 at 16).
McClain formally
appealed Madison’s denial of her claim on February 22, 2011.
(Lamsom Aff. Ex. A at 153-62).
On February 28, 2011, Madison
acknowledged McClain’s appeal and notified McClain that it was
forwarding her appeal to Madison’s third party claims appeals
administrator, DRMS.
McClain
admits
(Lamson Aff. Ex. A at 151-52).
she
is
unaware
-23-
of
evidence
that
Madison
subjectively believes she is disabled but refused to pay anyway,
that Madison did not try to make a factually based decision on her
claim, that Madison never deceived her or made an untrue statement,
or that Madison failed to consider evidence that it should have
considered.
(McClain Dep. at 74, 77-78).
DRMS’s Administration of McClain’s Appeal
When McClain appealed, Madison sent the appeal to DRMS, who
served only as an appeals administrator for the Policy. (Lamson
Aff. at ¶ 3). In connection with the appeal, McClain’s counsel
submitted additional medical records related to her CVA, an appeal
letter, an additional physician’s statement from Dr. Dutter, an
opinion statement from neuropsychologist Dr. Lance Trexler, and
performance reviews from both before and after her CVA.
(Lamson
Aff., Ex. A at 153-70; 195-210; 215-19; 220-30). The appeal letter
for the first time contended that McClain was disabled due to
“hearing loss” and also included records from an audiologist
McClain had seen. (Id., Ex. A at 158; 211-13).
The appeal letter drafted by McClain’s counsel indicated that
“despite her return to work, Ms. McClain was unable to perform the
main duties of her occupation as a teacher and as of January 22,
2010, Ms. McClain was no longer able to work at all.”
(Id., Ex. A
at 154). At the same time, the appeal letter argued that McClain’s
performance reviews, including the November 2009 review “show that
-24-
McClain’s inability to perform her job is the cause of the effects
of the brain aneurysm she suffered in October 2006.” (Id., Ex. A at
160).
Dr. Dutter’s new physician statement on appeal opined that
“physically her exam is normal. Memory and recall exam are pretty
normal.” (Id., Ex. A at 196).
As to hearing loss, Dr. Dutter
stated that “Lisa . . . has a hard time hearing since her CVA.”
(Id.).
With her appeal, McClain included a neuropsychology evaluation
from Dr. Lance Trexler, a neuropsychologist with over thirty years
of experience. (Lamson Aff., Ex. A at 203-09).
Dr. Trexler
provided his medical opinion that McClain has cognitive impairments
that correspond to the brain damage she sustained as a result of
her 2006 stroke and that such impairments preclude her from being
able to perform the material duties of a third grade teacher.
(Id.).
The neuropsychological opinion report provided by Dr. Trexler
(“Trexler
Report”)
opined
that
“McClain’s
level
of
cognitive
function is remarkably good given her stroke.” (First Dep. of Dr.
Lance Trexler, Ex. F at 208).
At his deposition, Dr. Trexler
admitted
conducted
that
the
tests
he
showed
test
scores
substantially similar to those found by Dr. Shepard, although the
two doctors reached different conclusions regarding McClain’s level
of impairment. (Id. at 53-54).
He performed a different, and in
-25-
his opinion more appropriate, battery of tests on McClain than
those performed by Dr. Shepard. (Id. at 49-65; Trexler Report, Ex.
9).
Despite this, Dr. Trexler concluded that “McClain evidences
clear impairment of neuropsychological function, in the context of
excellent cognitive reserve, and I would not be surprised that in
more
functionally
complex
environments,
especially
like
a
classroom, Mrs. McClain’s impairments would be much more manifest
. . . “ (First Dep. of Dr. Lance Trexler, Ex. F at 208). Dr.
Trexler did not during the appeal provide DRMS with any of the
scores or other raw data related to any of the tests that he
performed on McClain.
Dr. Trexler, however, could not have
provided
to
those
scores
neuropsychologist.3
anyone
other
than
a
qualified
(Trexler Dep. at 13-14).
Madison sent the claim file and appeal packet to DRMS for
review. (Hanson Dep. at 14).
The appeal was assigned to Senior
Appeals analyst Jennifer Pardi-McCarthy (“Pardi-McCarthy”), and,
after Pardi-McCarthy left DRMS for new employment, re-assigned to
Senior Appeals analyst Merle Hanson. (“Hanson”) (Id. at 15). Before
leaving DRMS, Pardi-McCarthy determined that further investigation
was warranted based on the Trexler Report and requested a records
3
Both the American Psychological Association and the National Academy
of Neuropsychologists state that raw data should not be released to anyone
other than a qualified neuropsychologist. (Trexler Dep. at 13). The
Defendants should have been aware of this requirement because when McClain
requested Dr. Shepard’s raw test data, they advised McClain of this
requirement. (Lamson Aff., Ex. A at 237-40).
-26-
review
from
a
neutral
third-party
vendor
Behavioral
Medical
Interventions (“BMI”), who contracted neuropsychologist Dr. Mark
Brooks to review the available records. (Id. at 18–19). Sending an
appeal file out for an additional independent review is standard
practice for DRMS when considering a claim denied based on a
conclusion that the claimant had not shown sufficient proof of
disability. (Id. at 19). DRMS intentionally chose a “totally
different” vendor to perform the records review than had been hired
by Madison to perform the IME. (Id. at 20).
Dr. Brooks reviewed all relevant available medical records,
including specifically the 2007 neuropscyhological testing done by
Teresa Strout, the Shepard Report and supporting test scores and
data, and the Trexler Report. (Lamson Aff., Ex. A at 129-30).4 Dr.
Brooks issued a report of his findings after review of these
records (“Brooks Report”) (Id., Ex. A at 129-34). Dr. Brooks
acknowledged that both Dr. Dutter and Dr. Trexler characterized
McClain as being unable to perform the duties of a teacher. (Id.,
Ex. A at 130, 132).
Dr. Brooks noted that the neuropsychological testing conducted
in 2007 (by Dr. Strout) and 2010 (by Dr. Shepard) showed no
evidence suggesting any impairment that would prevent McClain from
performing the duties of a teacher. (Id., Ex. A at 131-32). Dr.
4
Dr. Brooks never physically examined McClain, but rather only reviewed
her medical records. (Lamson Aff., Ex. A at 129-34).
-27-
Brooks noted that the Trexler Report opined that McClain was
impaired, but failed to back that opinion up with any supporting
data or test scores. (Id.). Dr. Brooks observed that the Trexler
Report “opines that Ms. McClain presents with sufficient cognitive
deficits . . . but includes no neuropsychological data, and the
report is somewhat difficult to follow with regard to conclusions
based on mixed results. The absence of supportive assessment data
[that is, actual test scores] limits the conclusions that can be
reached from this report.” (Id., Ex. A at 133).
request the raw data.
Dr. Brooks did not
(Hanson Dep. at 50-52).
Dr. Brooks
indicated that Defendants did not request that he ask for the raw
data. (Brooks Dep. at 30-32). Additionally, he felt he had enough
information to write his report.
(Brooks Dep. at 32).
DRMS,
however, points out that it did not engage Dr. Brooks - DRMS hired
BMI to perform a file review, and BMI contracted with Dr. Brooks.
(Brooks Dep. at 16-18).
Because the exam was to be independent,
DRMS had no direct contact with Dr. Brooks.
(Brooks Dep. at 36).
Dr. Brooks concluded that the medical records taken as a whole did
not support a finding that McClain suffered a disabling cognitive
dysfunction. (Lamson Aff., Ex. A at 133).
Dr. Brooks noted that McClain’s claim of hearing loss was
outside of the scope of his expertise. (Hanson Dep. at 22-23).
DRMS accordingly requested that BMI retain a specialist to review
McClain’s hearing loss claim.
(Id. at 23).
-28-
BMI referred the
hearing loss issues to Dr. Robert Carpenter. (Lamson Aff., Ex. A at
121-24). Dr. Carpenter reviewed the audiological records provided
by McClain on appeal, and stated that the records show “a moderate
to severe hearing loss in the right ear which is improved with
amplification or hearing aids to 88% discrimination.” (Id., Ex. A
at 123) (emphasis added). Dr. Carpenter concluded that “if the
claimant were aided with hearing aids, her hearing should be able
to be returned close to normal range . . . . With amplification,
there would be no restrictions or limitations according to the
presented audiogram.” (Id., Ex. A at 124) (emphasis added).
Even
though the Carpenter Report concludes that McClain would have no
limitations if she used hearing aids, McClain testified that she
had not tried hearing aids because they are expensive and a doctor
told her they would not help her.
(McClain Dep. at 29).
After review of Dr. Carpenter’s original report, DRMS had
further questions concerning whether McClain had been wearing
hearing aids at the time of the tests and whether Dr. Carpenter
could correlate the results of his testing back to January of 2010.
(Hanson Dep. at 25; Lamson Aff., Ex A at 121). Dr. Carpenter
generated a supplemental report addressing these questions. (Lamson
Aff., Ex. A at 119-20). Dr. Carpenter noted that “standard practice
is such that hearing aids are not worn during an audiogram.
Therefore,
I
can
state
with
a
reasonable
degree
of
medical
certainty that the claimant would not have been wearing any hearing
-29-
aid device during the time of the audiogram.” (Id., Ex. A at
119-20). Dr. Carpenter also concluded that “it is not possible to
objectively correlate the hearing loss back to the date of 1/23/10,
or back to the date of aneurysm in 2006.” (Id., Ex. A at 119).
Hanson reviewed the entire Madison claim file, the appeal
packet and new records, the Shepard Report, the Trexler Report, the
Brooks Report, and the Carpenter Report and supplement.
Dep. at 16–17).
(Hanson
Hanson determined that McClain’s claim had been
properly denied by Madison and that “there was no change in Ms.
McClain’s condition when she stopped working on January 23, 2010.”
(Id. at 38).
On May 25, 2011,5 Hanson sent a letter to McClain denying her
appeal. (Hanson Dep. at Ex. 3). The denial letter summarized
the
course of McClain’s claim proceedings, including the evidence
McClain had provided in support of her claim. (Id.). The letter
also cited and summarized the Brooks Report and the Carpenter
Report and their evaluations of the available medical records to
date. (Id.).
The letter concluded: “The medical records provided
do not support a change in Ms. McClain’s condition at the time she
ceased working or her inability from performing one or more of the
material duties of her regular occupation . . . .” (Id. at 104).
The DRMS denial letter did not cite lack of coverage as a basis for
5
The letter is dated May 25, 2010, but the parties agree this is a
typographical error.
-30-
denying the claim. (Lamson Aff., Ex. A at 102-05).
McClain admits that she has no evidence that DRMS was not
trying to make a factually based decision regarding her appeal.
(McClain Dep. at 76).
DeLisio’s Testimony
Robert DiLisio (“DiLisio”), an expert in claims processing
retained by McClain, testified as follows in his deposition:
Q: What evidence of conscious wrongdoing is
there on Madison's part?
A: Madison knew that --let me take a step
back. This is not a case where the company
failed to investigate something that it didn’t
know about.
. . .
This case involves going out and getting
information that Madison National was aware
of. It made a conscious decision not to go out
and get that information. So specifically,
when Madison National learned from the
employer in its telephone call with the
employer that there had been performance
issues, when it learned that the employer had
tried to make accommodations with the insured
because of those performance issues, and then
despite that knowledge it chose not to get
that information, and it proceeded to evaluate
the case strictly from a standpoint of what
changes have occurred in her medical condition
at the time she became disabled, that, in my
opinion, is so far below of what I would call
the standard of care or what I would consider
reasonable conduct for an insurer, that I
believe it's a conscious wrongdoing.
(DiLisio Dep. at 67-69, Ex. 4).
When asked about further evidence
that Madison engaged in conscious wrongdoing, DiLisio responded as
follows:
-31-
A: . . . Well, the conscious wrongdoing also
in the original claim decision, I think would
include the consistent reference specifically
in the medical referral there is reference to
the fact that Ms. McClain returned to work in
2007 and continued to work until 2010. I think
that is very misleading, because it gives
absolutely no indication to the reader of the
critical importance and the existence of
information that supported the claim, namely
that yes, she returned to work but she did not
successfully return to work. . . .
Q: . . . Is there anything else with Madison?
A: . . . I didn't see any requests for medical
records from the physician she was treating
with prior to Dr. Dutter, any emergency room
or surgical records, any rehab records. I
didn't see any requests for performance
evaluations. I didn't see any efforts to
obtain information from the people who had
been assisting her during her employment or
the people potentially with her employer or
the union who recommended that she pursue a
disability claim because she was no longer
able to do her job. . . ..
(DiLisio Dep. at 72-74, Ex. 4).
DiLisio also opined that DRMS engaged in conscious wrongdoing:
A: In overseeing an unfair and biased appeal.
Q: Let's start with biased. How was it biased?
A: It was biased because it gave an unfair
advantage to the information that it gathered
in support of denial. It seemed to go by
different, but then seemed to apply a
different set of rules with respect to the
information that was submitted in support of
the claim.
And let me take a step back.
The two, unfair and biased, are certainly
overlapped there. They are very closely
intertwined, particularly on the issue of the
lack of raw data accompanying Dr. Trexler's
-32-
report. Dr. Brooks' reference to the fact that
there was a lack of raw data and the failure
of DRMS to go out and obtain that data.
(DiLisio Dep. at 77-78).
DiLisio further testified:
Q: If Madison had performed this investigation
you think they should have performed, and if
they had reached a conclusion that you think
they possibly could have reached that Ms.
McClain was working disabled from 2007
forward, in your opinion would that have
changed their decision on the claim?
.... A: Yes, I think it should this is a
In my opinion have
classic case, maybe one
of the best cases I have
seen of a person working
disabled as I understand
that theory, and as a
result the claim would be
payable.
(DiLisio Dep. at 85-86).
DeLisio, however, was working under a false assumption that
the
Policy
became
effective
prior
to
McClain’s
CVA.
“My
recollection is it was several years prior to the ‘06 event that
the carrier was changed and she was continued under coverage on the
group policy.” (DiLisio Dep. at 87).
DiLisio conceded that, if
this were wrong then “arguably [McClain] doesn’t have a compensable
claim under the policy.”
(DiLisio Dep. At 89).
Before this
concession was made, the following exchange occurred:
Q: If it were the case that this policy had
come into effect well after the cardiovascular
accident, would that change your opinion?
A: No. It would change my analysis a little
bit, but in my opinion it wouldn’t change the
-33-
ultimate result.
In other words, I would
probably analyze it along these lines.
You still notice provisions in the
policy.
You still have requirements that
claims be filed in certain timely fashion when
a person knows they have a compensable claim.
I think you could reach, the analysis would be
that even though this policy went into effect
after the date or after ‘06, she is not
looking for benefits back to ‘06.
She
continued to work.
She is looking for benefits after the
point where she could no longer work and after
the point that this policy had become
effective.
So my analysis is it would be
compensable.
(DiLisio Dep. at 87-88).
Timing of Madison’s Argument that the Policy did not cover McClain.
According to McClain, Madison first argued that she was not
covered by the Policy in the instant summary judgment motion.
Madison, however, raised the issue in its answer in October of
2011. (DE 22 at ¶ 14 (“Plaintiff’s claimed injury or disability
occurred prior to effective date of the Policy.”)).
Madison also
argues that its questioning of DiLisio at his deposition on October
29, 2012, showed that they had questions about eligibility.6
on
November
19,
2012,
after
the
deposition
of
Dr.
And,
Trexler,
Madison’s counsel represents that he had a frank conversation with
McClain’s counsel about the coverage issue created by McClain’s
6
“My recollection is it was several years prior to the ‘06 event that
the carrier was changed and she was continued under coverage on the group
policy” and that if this were wrong then “arguably [McClain] doesn’t have a
compensable claim under the policy.”
(DiLisio Dep. at 87, 89).
-34-
contention that she has been continuously unable to perform her job
since 2006. (DE 66 at 8-9).
McClaim claims that, upon receipt of her claim, one of the
very first actions Madison took was to confirm that she was insured
under the school’s prior disability policy. (Lamson Aff., Ex. A at
236).
Diary notes in the claim file indicate that Madison checked
for pre-existing group coverage on May 25, 2010.
(Id.).
Notes
from June 3, 2010, indicate that someone from Madison asked Teresa
Popejoy “if the EE was covered under their prior policy w/ Lincoln
Nat’l Life, and if so, when coverage became effective.
She said
the EE was covered under the prior policy from her date of hire.”
(Id.).
The claim file indicates that McClain’s effective date of
coverage was January 1, 2010.
(Lamson Aff. Ex. A at 3).
ARGUMENT
McClain is not covered by the Policy.
Madison argues that, because McClain’s allegedly disabling
condition existed continuously approximately three years prior to
the
effective
date
of
coverage
of
the
Policy,
they
have
no
obligation to pay benefits both because she did not “become
disabled”
while
insured
and
because
the
Policy
never
became
effective for McClain.
The Policy did not become effective until January 1, 2010,
three years after McClain’s CVA and three years after she returned
-35-
to work in 2007.
Madison construed McClain’s claim as asserting
that she was able to perform her duties when she returned in 2007
but became unable to perform her duties on or around January 22,
2010.
If that were the allegation, then McClain would have been
covered by the plan.
But it is now clear that McClain claims that
her condition was essentially unchanged from the fall of 2007 until
she stopped working in 2010; what changed was not McClain’s medical
condition
but
Logansport’s
willingness
to
accommodate
her
limitations.
Insurance contracts are considered “using the same rules of
interpretation applied to other contracts.”
Auto-Owners Inc. Co.
v. Benko, 964 N.E.2d 886, 890 (Ind. Ct. App. 2012).
Where the
language is clear and unambiguous, courts apply the plain and
ordinary meaning of the contract’s provisions.
Id.
“[T]he proper
interpretation of an insurance policy, even if it is ambiguous, is
generally a question of law appropriate for summary judgment.”
Progressive Ins. Co., Inc. v. Bullock, 841 N.E. 2d 238, 240 (Ind.
Ct. App. 2006). See also Royer v. USAA Casualty Insurance Company,
781 F.Supp.2d 767, 770 (N.D. Ind. 2011)(“Interpretation of a
written contract, including a contract of insurance, typically
presents a question of law suitable for resolution on motions for
summary judgment.”).
McClain did not “Become Disabled” while insured under the
Policy.
-36-
The Policy’s insuring clause states: “If you become disabled
while insured under the Group Policy, we will pay LTD Benefits
according to the terms of your Employer’s coverage under the Group
Policy, after we receive satisfactory Proof of Loss.”
§ I).
(Id. at 20,
The Policy, as amended at the time McClain stopped working
and when she filed her claim, defines Disability or Disabled as
follows:
1. during the Elimination Period and your Own
Occupation Period you are, as a result of
Physical Disease, Injury, Mental Disorder,
Substance Abuse or Pregnancy, unable to
perform one or more of the Material Duties of
your Own Occupation. ...; or
2.
during the Elimination Period and the
first 24 months you are Disabled with Work
Earnings, your Work Earnings are less than 99%
of your Predisability Earnings as a result of
Physical
Disease, Injury, Mental Disorder,
Substance Abuse or Pregnancy, and you are
incapable of earning 85% or more of your
Predisability Earnings....
(Id. Ex. A at 45-46).
McClain’s only response to Madison’s argument that she did not
“become disabled” while insured is to rely on a definition of
disability found in the original certificate of insurance but that
is no longer applicable because it was changed through a Policy
amendment.
Under that definition, McClain would not have been
considered disabled until her earnings were less than 99% of her
pre-disability
earnings
-
after
the
Policy
became
effective.
Unfortunately for McClain, the definition of disability she relies
-37-
upon was not in effect at the relevant time: the definition was
replaced with the definition Defendants rely upon through an
amendment that became effective on January 1, 2010.
(Lamson Aff.
Ex. A at 27, 43, 45-46).
Because McClain has asserted without any qualification that
she was unable to perform the material duties of her occupation
beginning in 2006, no reasonable jury could find that she “became
disabled” after the Policy’s effective date.
Accordingly, unless
waiver or estoppel applies, McClain’s breach of contract claim must
fail.
The Court need not decide whether the Policy “became
effective” as to McClain.
The Policy requires that, to be eligible for insurance under
the plan, you must be an “Eligible Person.”
II).
(Id. Ex. A at 20, §
To be an “Eligible Person” five requirements must be met,
including a requirement that the employee be “Actively at Work and
capable of sustained Active Work.”
(Id.).
“Active Work” and
“Actively at Work” are defined as “performing all the Material
Duties of your Own Occupation at your Employer’s usual place of
business, and satisfying the Minimum Hourly Work Requirement.”
(Id. Ex. A at 20, § II.A.3.a).
However, the plan also provides
that, “[i]f you were eligible for insurance and insured under the
Prior Plan on the day before the Plan Effective Date, you can
become insured on the Plan Effective Date without meeting the
Active Work requirement under Section II.A.3.”
-38-
(Id. Ex. A at 26,
§ VI.A).
Thus, the active work requirements of Section II of the
contract pose no obstacle to McClain.
Section III, however, provides, with regard to the effective
date of insurance, that “[i]f you are incapable of sustained Active
Work due to a Disability on the day before the scheduled effective
date of your insurance, such insurance will not become effective
until the day after you are capable of sustained Active Work and
complete one day of Active Work as an Eligible Person.”
A at 20, § III.B.3).
provision
is
(Id. Ex.
The parties disagree regarding whether this
applicable
to
McClain.
Madison
claims
this
requirement must be met separately from the requirement in section
II.
McClain asserts that Section VI waives the “Active Work”
requirement as to the effective date for all employees who were
covered by the school’s prior disability policy.
seems
to
completely
ignore
the
language
in
McClain, who
Section
VI
that
explicitly states the active work requirement is waived “under
Section II.A.3," believes the language “could not be more plain or
clear.”
(DE 63 at 24).
than clear.
McClain is mistaken - it is certainly less
Although it seems that the provision waiving the
active work requirement would be rendered meaningless if the
requirement was not also waived with regards to Section III,
McClain has not made that argument and this Court will not develop
arguments for the parties.
Vaughn v. King, 167 F.3d 347, 354 (7th
Cir. 1999)(“It is not the responsibility of this Court to make
-39-
arguments for the parties.”).
McClain further claims that there is no contractual ambiguity
on this point, but if the Court finds ambiguity, it should be
construed in her favor and the Court should reopen discovery to
allow McClain to investigate the bargaining history and insurance
custom with respect to the clauses at issue.
demonstrated
contractual
ambiguity
that
McClain has not
warrants
reopening
discovery and, in light of this Court’s finding that McClain did
not “become disabled” while insured, further discovery would be
unwarranted even if McClain had demonstrated ambiguity.
Because
this Court has already found that McClain did not “become disabled”
while insured, it need not decide whether McClain needed to meet
the active work requirement of Section III for the plan to become
effective as to her.
A question of fact exists regarding implied waiver or
estoppel.
McClain argues that, even if she were not covered by the
Policy as a matter of law, the Defendants have waived their right
to avoid the contract, or alternatively, their conduct throughout
litigation
should
eligibility.
estop
them
from
denying
coverage
based
on
As the Indiana Supreme Court noted in Tate v. Secure
Ins.,
Technically, there is a distinction between
“waiver” and “estoppel.”
A waiver is an
intentional relinquishment of a known right
and is a voluntary act, while the elements of
estoppel are the misleading of a party
-40-
entitled to rely on the acts or statements in
question and a consequent change of position
to his detriment.
But in the law of
insurance, the distinction between “estoppel”
and “implied waiver” is not easy to preserve,
and, quite commonly, in insurance cases, the
courts
have
found
it
unnecessary
or
inadvisable to make a distinction between them
and have used the terms interchangeable.
587 N.E.2d 665, 671 (Ind. 1992); see also Welty Bldg. Co., Ltd. v.
Indy Fedreau Co., LLC, 985 N.E.2d 792, 798 (Ind. Ct. App. 2013).
For there to be a waiver, an insurer must have “knowledge of facts
which would have permitted it to deny coverage.” Illinois Founders
Ins. Co. v. Horace Mann Ins. Co., 738 N.E.2d 705, 707 (Ind. Ct.
App. 2000).
Waiver also requires a “distinct act of affirmance.”
See American Family Mut. Ins. Co. v. Kivela, 408 N.E.2d 805, 811
(Ind. Ct. App. 1980).
McClain asserts that Madison “affirmed the contract at every
turn for over three years with full knowledge of the facts that
they now claim entitle them to avoidance.”
(DE 63 at 26).
Unfortunately for McClain, the record suggests otherwise.
Madison
contested coverage at least as early as October of 2011, when
Madison filed their answer to the amended complaint.
Madison
listed several affirmative defenses in its answer, including that
“Plaintiff’s
claimed
injury
effective date of the policy.”
or
disability
(DE 22 at 12).
occurred
prior
to
But, ultimately, it
is not material whether McClain first learned of Madison’s defenses
in October of 2011 or May of 2013.
-41-
Madison has produced evidence that indicates they understood
(or perhaps misunderstood) McClain to be claiming she became
disabled on or about January 22, 2010.
McClain, however, has
produced some evidence that at least suggests this belief was
unreasonable. McClain’s initial claim form revealed that her claim
was at least related to her October 2006 CVA.
That form was silent
as to the date McClain became unable to perform the material duties
of her job.
Madison confirmed that McClain had been insured under
the prior disability plan shortly after the claim was made, and the
claim file reflects an effective date of coverage of January 1,
2010.
Dr. Dutter commented, in February of 2010, that McClain
should be considered for disability “because of her inability to
perform like she was able to prior to the CVA.”
I).
(Dutter Dep. Ex.
And, in an early conversation with someone from McClain’s
school, a Madison representative asked what had changed in the
three years since McClain returned to work.
McClain
had
behaved
accommodate her
strangely,
and
that
The response was that
they
had
tried
to
“but nothing worked.” (Lamson Aff. Ex. A at 235).
At least arguably, the response suggests that the problems were not
new at all, but ongoing.
And, a comparison of McClain’s pre-CVA
and post-CVA performance reviews shows a consistent pattern of poor
performance since the outset of McClain’s return to work in 2007.
Despite this evidence, Madison did not deny McClain’s claim based
on a lack of coverage, or even a possible lack of coverage if she
-42-
were claiming disability back to 2006.
They denied her claim
because they did not believe she provided sufficient proof of
disability.
The denial of McClain’s appeal also did not reference
any possibility that she may not be eligible for benefits if she
was alleging disability beginning prior to January 1, 2010.
This
evidence, however, does not demonstrate that Madison had the
knowledge necessary for it to intentionally relinquishment a known
right.
Accordingly, McClain’s waiver argument fails.
McClain’s estoppel or implied waiver argument, however, may
proceed to trial.
The Indiana Supreme Court, in 2011, stated the
following regarding estoppel:
In describing the doctrine of estoppel, this
Court has explained, ‘[a]lthough variously
defined, it is a concept by which one’s own
acts or conduct prevents the claiming of a
right to the detriment of another party who
was entitled to and did rely on the conduct.’
Brown v. Branch, 758 N.E.2d 48, 51-52 (Ind.
2001). Further, ‘one who by deed or conduct
has induced another to act in a particular
manner will not be permitted to adopt an
inconsistent position, attitude, or course of
conduct that causes injury to such other.’
Id. at 52.
Ashby v. Bar Plan Mutual Ins. Co., 949 N.E.2d 307, 309-14 (Ind.
2011).
In Ashby, an attorney abandoned his clients.
The clients
made claims directly with the attorney’s malpractice insurance
provider.
The policy provided that the attorney had to provide
written notice of the claim to the insurance company, but the
attorney was not accessible to his clients and did not provide the
-43-
required notice.
Nonetheless, upon receipt of the claims, the
insurance company’s communication with the claimants implied that
coverage existed by assigning a claim number, seeking further
information, and inviting settlement negotiations. The Court noted
that, “[c]onspicuously absent was any caution about possible noncoverage due to the absence of written notice from [the attorney].”
Id. at 313.
On these facts, the Indiana Supreme Court found that
there was a genuine issue of fact regarding whether the claimants
and their counsel were misled to believe that the insurance company
provided coverage for their claims against the attorney.
Id.
In this case, a reasonable jury could conclude on the basis of
the
evidence outlined above, that McClain incurred unnecessary
expenses when she reasonably relied on Madison’s actions suggesting
that coverage was not an issue.
The extent of these damages is
questionable: at least as of October 2011 when Madison’s answer
clearly stated an affirmative defense based on lack of coverage,
McClain’s reliance on Madison’s prior acts assuming coverage were
likely unwarranted.
McClain
requests
an
opportunity
to
engage
in
additional
discovery to substantiate her claims of detrimental reliance; more
specifically, to develop a record of what actions she might have
taken if she had known Madison did not believe she were covered.
In light of Madison’s affirmative defense raising the issue in its
answer, there appears to be no reason this issue could not have
-44-
been explored during the discovery period - it is not a new issue
as McClain suggests. Acordingly, discovery will not be reopened on
this issue.
McClain has provided sufficient proof of disability to overcome
summary judgment.
Madison claims McClain has not provided any objective evidence
of her inability to perform the material duties of a teacher - just
subjective complaints.
Under the plan, “[s]ubjective complaints
alone will not be considered conclusive evidence of a Disability.”
(Lamson Aff. Ex. A at 34, § XIX.A.c).
regard.
Madison is mistaken in this
There is objective evidence of McClain’s disability,
namely, Dr. Trexler’s report. (Lamson Aff., Ex. A at 203-09). Dr.
Trexler, a neuopsychologist with over thirty years of experience
opined that it is his professional opinion, based on a battery of
tests, that McClain is unable to perform the material duties of an
elementary
school
teacher
due
to
cognitive
correspond to permanent brain damage.
deficiencies
that
(Trexler Report, DE 49-12).
Madison retorts by noting that even Trexler found that McClain
was within normal, average limits of cognitive ability.
Trexler’s
report does state that:
Mrs. McClain’s level of cognitive function is
remarkably good given her stroke.
She
presents
with
some
excellent
cognitive
abilities reflective of an above average preinjury cognitive reserve.
(Id. at 8).
But, Dr. Trexler also noted that it is agreed that
-45-
McClain suffered brain damage and CT imaging shows “right frontal
chronic encephalomalacin.”
“neuropsychological
(Id.).
impairments
of
He found that she suffers
fine
motor
dexterity
and
coordination bilaterally,” “impaired sensory perception on the left
hand,” moderately impaired psychomotor problem-solving and visual
memory, impairments of vigilance, attention and concentration, and
“disorganized
impairment.”
verbal
(Id.).
output
consistent
with
right
frontal
Despite her “excellent cognitive reserve,”
Dr. Trexler opined based on his experience that he “would not be
surprised
that
in
more
functionally
complex
environments,
especially like a classroom, Mrs. McClain’s impairments would be
much more manifest[.]”
(First Dep. of Dr. Lance Trexler, Ex. F at
208).
In short, while Dr. Trexler found McClain’s cognitive ability
to be normal, he also found that McClain suffered a variety of
impairments, and those findings were not based on subjective
complaints alone.
This Court cannot weigh the evidence at the
summary judgment stage, and because Dr. Trexler’s report offers
some evidence of disability, summary judgment is inappropriate on
this issue.
McClain points to other evidence of disability, but
because Dr. Trexler’s report creates a genuine issue of fact on
this issue, the Court elects not to consider the other evidence
that McClain points to in her response.
-46-
DiLisio’s testimony is admissible in part.
Defendants seek to exclude both the report and testimony of
DiLisio
claiming
he
is
not
qualified,
his
opinions
are
reliable, and his opinions would not be helpful to the jury.
702
of
the
Federal
Rules
of
Civil
Procedure
governs
admissibility of expert testimony in federal courts.
not
Rule
the
The rule
provides:
A witness who is qualified as an expert by
knowledge, skill, experience, training, or
education may testify in the form of an
opinion or otherwise if:
(a) the expert’s scientific, technical,
or other specialized knowledge will help
the trier of fact to understand the
evidence or to determine a fact in issue;
(b) the testimony is based on sufficient
facts or data;
(c) the testimony is the product of
reliable principles and methods; and
(d) the expert has reliably applied the
principles and methods to the facts of
the case.
Fed. R. Evid. 702 (2011).
There is a two-step inquiry to undertake for evaluating the
admissibility of expert testimony under Rule 702.
Corp., 157 F.3d 512, 515 (7th Cir. 1998).
Ancho v. Pentek
“First, the court must
consider whether the testimony has been subjected to the scientific
method;
it
speculation.”
must
Id.
rule
out
subjective
belief
or
unsupported
At step one, Daubert’s familiar nonexhaustive
list of four factors is helpful in gauging the reliability and
validity of expert testimony:
-47-
1) whether the theory is scientific knowledge
that will assist the trier of fact and can be
tested; 2) whether the theory has been
subjected to peer review or publication; 3)
the known or potential rate of error and the
existence
of
standards
controlling
the
technique’s operation; and 4) the extent to
which the methodology or technique employed by
the expert is generally accepted in the
scientific community.
Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 590 (1993); see
also Goodwin v. MTD Products Inc., 232 F.3d 600 (7th Cir. 2000).
At step two, the court needs to determine “whether the
evidence or testimony assists the trier of fact in understanding
the evidence or in determining a fact in issue.”
at 515 (citations omitted).
Ancho, 157 F.3d
At step two, “an expert’s opinion is
helpful only to the extent the expert draws on some special skill,
knowledge, or experience to formulate that opinion; the opinion
must be an expert opinion (that is, an opinion informed by the
witness’ expertise) rather than simply an opinion broached by a
purported
expert.”
Id.
at
518.
“Because
an
expert’s
qualifications bear upon whether he can offer special knowledge to
the jury, the Daubert framework permits - indeed, encourages - a
district judge to consider the qualifications of a witness.”
United States v. Vitek Supply Corp., 144 F.3d 476, 486 (7th Cir.
1998).
Qualifications
Defendants claim DiLisio is not qualified because he offers an
outcome-determinative legal conclusion that Defendants engaged in
-48-
bad faith, and because he lacks specialized knowledge on Indiana
law regarding bad faith.
Defendants note that DiLisio is not
licensed to practice in Indiana, has never tried a bad faith claim,
and has little to no knowledge of Indiana’s laws regarding bad
faith claims.
In response, McClain seems to concede that DiLisio
cannot offer opinions regarding whether Defendants engaged in bad
faith, but asserts that he is qualified to present testimony to the
jury regarding industry standards.7
Defendants do not seriously
contend that DiLisio lacks the qualifications to testify regarding
industry standards, instead arguing that industry standards are
irrelevant because in Indiana bad faith requires a showing of
willful or knowing wrongdoing.
DiLisio
Accordingly, the Court finds
qualified to testify regarding industry standards.
Reliability
One of DiLisio’s conclusions is that McClain has been “working
disabled” from 2007 until 2010 and that she is therefore eligible
for benefits under the policy.
In reaching this conclusion,
DiLisio wrongly presumed that the Policy’s effective date was prior
to McClain’s 2006 CVA.
DiLisio’s opinions regarding whether
7
McClain notes in her response to the motion in limine that:
Mr. DiLisio has not held himself out as an expert on
Indiana law regarding Indiana’s covenant of good faith
and fair dealing.
Mr. DiLisio has offered testimony
regarding industry practices for conducting a fair and
thorough investigation of a disability claim and his
opinions as to how Defendants deviated from those
industry standards in processing Ms. McClain’s claim.
(DE 52 at 11).
-49-
Defendants complied with industry standards are based, at least on
part, on this erroneous assumption.
Even DiLisio admits that, if
his assumption was wrong, McCLain at least “arguably” might not be
covered.
But, before conceding this, the following exchange took
place:
Q: If it were the case that this policy had
come into effect well after the cardiovascular
accident, would that change your opinion?
A: No. It would change my analysis a little
bit, but in my opinion it wouldn’t change the
ultimate result.
In other words, I would
probably analyze it along these lines.
You still notice provisions in the
policy.
You still have requirements that
claims be filed in certain timely fashion when
a person knows they have a compensable claim.
I think you could reach, the analysis would be
that even though this policy went into effect
after the date or after ‘06, she is not
looking for benefits back to ‘06.
She
continued to work.
She is looking for benefits after the
point where she could no longer work and after
the point that this policy had become
effective.
So my analysis is it would be
compensable.
(DiLisio Dep. at 87-88).
Based on his experience, DiLisio has
opined that, even if he were wrong about the effective date, the
Defendants nonetheless failed to properly evaluate McClain’s claim.
The error regarding the eligibility date does not render his
testimony
regarding
industry
standards
inadmissible.
It
may,
however, render DiLisio’s testimony particularly susceptible to
cross examination.
-50-
Helpful
To the extent DiLisio intends to discuss industry standards
and what constitutes reasonable claims treatment, Defendants argue
that this is not helpful to the jury in determining whether
Defendants engaged in conscious wrongdoing or otherwise disbelieved
their own reasons for denying McClain’s claim.
This same argument
was made and rejected in Sieveking v. Reliastar Life Ins. Co., No.
4:08-cv-45, 2009 WL 1795090, at *2 (S.D. Ind. June 23, 2009).
In
Sieveking, Madison sought to exclude this very same expert’s
testimony for the same reason:
Finally,
defendants
move
to
exclude
Sieveking’s
expert
Robert
V.
DiLisio.
DiLisio, an attorney who has worked in various
positions within the disability insurance
industry, has offered testimony regarding
industry practices for conducting a fair and
thorough investigation of a disability claim,
and will offer his opinion as to how
defendants deviated from those practices in
processing Sieveking’s claim.
Defendants
argue that, because DiLisio cannot offer
testimony regarding their state of mind when
processing Sieveking’s claim, his testimony
would be irrelevant and would not assist the
jury.
The court disagrees.
A lay jury
unfamiliar with the insurance industry could
be aided by an expert’s explanation of how a
disability claim should be processed, and
DiLisio’s proposed testimony will be relevant
to the jury’s ultimate determination of
whether defendants’ actions and inactions
amounted to bad faith in this case.
Id.
at *2.
The Sieveking case is not binding on this Court, but
its logic is sound.
See also Lumbermens v. Combs, 873 N.E.2d 692,
702 (Ind. App. 2007)(affirming trial court’s decision to allow an
-51-
insurance expert to testify regarding claims practices)(disapproved
on other grounds, Kosarko v. Padula, 979 N.E.2d 144 (Ind. 2012)).
While DiLisio will be precluded from offering his opinion on
whether or not Defendants engaged in bad faith (the ultimate
conclusion), his testimony regarding industry standards provides
some evidence of bad faith and is admissible.
As is noted in the
next section, however, a violation of industry standards alone is
insufficient to avoid summary judgment on a bad faith claim.
McClain’s bad faith claims fail as to both Madison and DRMA.
Insurers have a duty to deal in good faith with its insured.
Erie Ins. Co. v. Hickman by Smith, 622 N.E.2d 515, 518-19 (Ind.
1993).
A plaintiff can demonstrate bad faith by showing that “the
insurer had knowledge that there was no legitimate basis for
denying liability.”
40 (Ind. 2002).
Friedline v. Shelby Ins. Co., 774 N.E.2d 37,
“As a general proposition, ‘[a] finding of bad
faith requires evidence of a state of mind 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)(quoting Colley v. Indiana Farmers Mut. Ins. Group, 691 N.E.2d
1259, 1261 (Ind. Ct. App. 1998)).
Mere negligence is insufficient
to support a claim of bad faith.
Erie, 622 N.E.2d at 520.
“an
insurer
which
denies
liability
knowing
that
there
But,
is
no
rational, principled basis for doing so has breached its duty.”
-52-
Id.
The Supreme Court in Erie did not determine the extent of the
duty of good faith, but noted that:
[t]he obligation of good faith and fair
dealing with respect to the discharge of the
insurer’s contractual obligation includes the
obligation to refrain from (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 advantage to pressure an insured
into a settlement of his claim.
Id. at 519.
Madison and DRMS both claim there is no evidence that they
possessed the culpable state of mind necessary to support the bad
faith claim.
DRMS also argues that they had no duty of good faith
to McClain in the first instance because they were just an appeals
administrator.
DRMS owed McClain a duty of good faith.
DRMS argues that, under Indiana law, there can only be a duty
of good faith by contract or through the formation of a fiduciary
relationship.
Coates v. Heat Wagons, Inc., 942 N.E.2d 905, 919
(Ind. Ct. App. 2011)(“In Indiana law, implied covenants of good
faith and fair dealing apply only to insurance and employment
contracts or where contracts are ambiguous as to the application of
the covenants or expressly impose them.”); Doe v. Roman Catholic
Archdiocese of Indianapolis, 958 N.E.2d 472, 477 (Ind. Ct. App.
2011)(“[A] fiduciary relationship exists when a confidence is
reposed by one party in another with resulting superiority and
-53-
influence exercised by the other.”)(citations omitted).
It is
undisputed that there is not a contractual relationship between
McClain and DRMS, but the parties cannot agree on whether a
fiduciary relationship exists.
A fiduciary relationship arises only when “one party places a
special trust and confidence in a dominant party and it is presumed
that a transaction entered into during such relationship is not at
arm’s length.”
length’
...
Doe, 958 N.E.2d at 477.
relationship
relationship.”
does
not
give
“A business or ‘arm’s
rise
to
a
fiduciary
Wilson v. Lincoln Fed. Sav. Bank, 790 N.E.2d 1042,
1046-47 (Ind. Ct. App. 2003).
“Not only must there be confidence
by one party in the other ...it must be shown “that the dominant
party wrongfully abused this confidence ... so as to obtain an
unconscionable advantage.”
Paulson v. Centier Bank, 704 N.E.2d
482, 490 (Ind. Ct. App. 1998).
With regard to third-party administrators of insurance, a noncontractual fiduciary duty has been found to arise in the limited
context of a third-party administrator who “actually made the
decisions” to deny a claim.
Sieveking v. Reliastar Life Ins. Co.,
No. 4:08-cv-45, 2009 WL 1795090, at *2 (S.D. Ind. June 23, 2009).
DRMS attempts to distinguish Sieveking by noting that they just
handled the appeal: they did not actually make the decision to deny
the claim in the first instance.
While the third party administer
in Sieveking did make the decision to deny the claim in the first
-54-
instance, DRMS has made no effort to explain why that is a
distinction that matters - they still denied McClain’s claim. DRMS
has not convinced this Court that they are free of fiduciary
obligations to McClain while handling her insurance appeal.
See
Heavlin v. Madison Nat’l Life Ins. Co., No. 2:10-CV-505, 2012 WL
6507680, at *9 (N.D. Ind. December 12, 2012)(“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.”). As such,
this Court finds DRMS did owe McClain a fiduciary duty.
McClain has produced insufficient evidence of bad faith as
to both Madison and DRMS.
Here, Madison’s refusal to pay was not unfounded - McClain did
not become disabled while insured. Under the clear language of the
contract in effect at that time, McClain was not entitled to
coverage because she alleged her disabling condition began in 2006.
Nonetheless, that was not the reason given by Madison for denying
McClain’s claim.
They denied her claim because they felt she had
produced insufficient evidence of disability.
In Indiana, the fact that a good faith dispute about coverage
existed will not alone preclude McClain’s bad faith claim.
See
Monroe Guar. v. Magwerks Corp., 829 N.E.2d 968, 977-78 (Ind.
2005)(“an insurer’s duty to deal in good faith with its insured
-55-
encompasses more than a bad faith coverage claim” and “a good faith
dispute
concerning
insurance
coverage
does
not
automatically
preclude a punitive damages claim for bad faith when coverage is
denied.”). Despite the fact that refusal to pay was not unfounded,
McClain may still pursue a bad faith claim against Madison if she
shows that Madison: (1) made an unfounded refusal to pay policy
proceeds; (2) caused an unfounded delay in making payments; (3)
deceived McClain; or (4) exercised an unfair advantage to pressure
McClain into settlement.
Id. (citing Erie, 622 N.E.2d at 520).
The court in Magwerks declined an invitation to expand Indiana’s
law of bad faith to include the manner of handling the claim.
Id.
at 976.
Similarly, McClain claims that proof that an insurer violated
Indiana’s Unfair Claims Practices Act constitutes evidence of bad
faith.
(DE 63 at 32, citing Ansert v. Adams, 678 N.E.2d 839 (Ind.
Ct. App. 1997).
But what Ansert says is that a violation of the
statute “would necessarily offer some evidence of bad faith [but]
such a showing would not, standing alone, provide the evidence
necessary for imposition of punitive damages...”.
McClain asserts
that Madison violated the Unfair Claims Practices Act by: (1)
misrepresenting pertinent facts or insurance policy provisions; (2)
refusing to pay claims without conducting reasonable investigation;
and (3) not attempting in good faith to effectuate fair settlements
of claims in which liability has become reasonably clear. See I.C.
-56-
§ 27-4-1-4.5.
Although not the reason Madison gave for its denial, this
Court’s finding that McClain was not covered by the Policy prevents
McClain from demonstrating that Defendants’ refusal to pay was
unfounded.
For the same reasons, there was not an unfounded delay
in making payments.
And, there is no evidence whatsoever that
Madison exerted any pressure on McClain to settle her claim or
tried to deceive her.
In fact, McClain admits she is unaware of
evidence that Madison subjectively believes she is disabled but
refuses to pay anyway, that Madison did not try to make a factually
based decision on her claim, that Madison never deceived her or
made an untrue statement, or that Madison failed to consider
evidence that it should have considered. (McClain Dep. at 74, 77).
Similarly, McClain admits that she has no evidence that DRMS was
not trying to make a factually based decision regarding her appeal.
(McClain Dep. at 76).
McClain argues that Defendants’ failure to investigate facts
known to support her claim shows bad faith, much like in Gooch v.
State Farm Mut. Auto Ins. Co., 712 N.E.2d 38 (Ind. Ct. App. 1999).
In Gooch, the allegation was that State Farm intentionally failed
to investigate a line of evidence that it suspected would support
Gooch’s claim.
Id. at 41.
McClain argues that Defendants failure
to get raw data from Dr. Trexler, failure to investigate her
unsuccessful return to work, and decision to raise “specious”
-57-
coverage arguments three years after the claim was filed all point
to bad faith.
These arguments are unavailing.
The failure to get raw data from Dr. Trexler, at most, shows
negligence.
Dr. Brooks noted that the absence of raw data limited
the conclusions that could be reached from Dr. Trexler’s report.
While the Defendants did rely in part on Dr. Brooks’ opinion, the
Defendants did not hire Dr. Brooks directly and had no direct
contact with him.
Furthermore, Dr. Brooks testified that he felt
he had enough information to write his report without the raw data.
Under these circumstances, the failure to obtain Dr. Trexler’s raw
data can hardly be viewed as evidence of an intentional failure to
investigate for fear of finding evidence of disability.
McClain also argues that Defendants’ failure to investigate
her claim as an unsuccessful return to work shows bad faith.
Ironically, if the Defendants had done what McClain claims they
should have done, the evidence shows that Defendants would have
denied her claim for lack of coverage.
Caflisch indicated that if
she had understood that McClain was claiming to have been unable to
work since 2006, she would have denied the claim pursuant to
Section III.B.3 of the Policy.
Given the contract language which
precludes coverage for McClain in the event she claims she was
unable to work prior to the effective date of the Policy, the
failure to treat her claim as an unsuccessful work attempt shows
that, if anything, they were giving McClain the benefit of the
-58-
doubt in not treating her as if she had been disabled since her
return to work.
Lastly, the Court has already noted that McClain’s claims that
Defendant first asserted a lack of coverage at the summary judgment
stage is erroneous.
(See supra at 33-34).
Accordingly, this
provides no evidence of bad faith.
While DiLisio has opined that Madison and DMRS engaged in bad
faith, this Court has found that those opinions are not admissible
as they go to an ultimate conclusion of law.
DiLisio’s testimony
about violations of industry standards, in this particular case,
and in the absence of any other evidence of bad faith, is simply
not
enough
to
allow
a
reasonable
jury
to
find
bad
faith.
Nationwide Mut. Ins. Co. v. Neville, 434 N.E.2d 585 (Ind. Ct. App.
1982)(“[E]ven assuming the investigation of the claim was below
industry standards, negligence cannot be the basis for awarding
punitive damages.”).
Even considering the admissible portions of
DiLisio’s testimony, McClain lacks evidence that either Madison or
DRMS had a “state of mind reflecting dishonest purpose, moral
obliquity, furtive design, or ill-will.”
Co. v. Magwerks Corp., 829 N.E.2d at 977.
-59-
See Monroe Guar. Ins.,
CONCLUSION
For the reasons set forth above both Madison’s and DRMS’s
motions for summary judgment are GRANTED IN PART AND DENIED IN
PART.
Counts II and III of the Amended Complaint are dismissed.
The motion to exclude DiLisio’s report and testimony is GRANTED IN
PART AND DENIED IN PART.
DiLisio’s testimony regarding industry
standards is admissible but his opinions on the issue of whether
Defendants acted in bad faith are precluded.
DATED: September 4, 2014
/S/RUDY LOZANO, Judge
United States District Court
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