Argotte v. Northwestern Mutual Life Insurance Co.

Filing 61

MEMORANDUM OPINION & ORDER denying 43 Motion for Partial Summary Judgment; granting in part and denying in part 39 Motion for Summary Judgment. Signed by Senior Judge Thomas B. Russell on 3/26/2015. cc: Counsel(KJA)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
PADUCAH DIVISION
CIVIL ACTION NO. 5:13-CV-00045-TBR

ALEX ARGOTTE

Plaintiff

v.
NORTHWESTERN MUTUAL LIFE INSURANCE

Defendant

MEMORANDUM OPINION AND ORDER
This matter is before the Court on competing motions for summary judgment.
Defendant Northwestern Mutual Life Insurance (“Northwestern Mutual”) has moved for
summary judgment on all claims (Docket #39), Plaintiff Alex Argotte has responded
(Docket #45), and Northwestern Mutual has replied and supplemented that reply.
(Docket #52, 60). Argotte has moved for partial summary judgment (Docket #43),
Northwestern Mutual has responded (Docket #49), and Argotte has replied (Docket #55).
Northwestern Mutual’s motion (Docket #39) will be GRANTED in part and DENIED in
part. Argotte’s motion (Docket #43) will be DENIED.
BACKGROUND
This case arises out of six disability policies that Dr. Alex Argotte purchased from
Northwestern Mutual. Argotte is a surgeon. He has suffered two maladies – carpal
tunnel syndrome and central serous retinopathy – which he claims qualify him for
disability benefits. (Docket #43). The parties strongly disagree on how to interpret
several medical examinations of Argotte.

Page 1 of 14

In 1994, Argotte purchased his first “own occupation” disability insurance policy
from Northwestern Mutual. (Docket #43). Argotte added coverage, ultimately
purchasing six disability policies. The policies define “total disability” as: “Until the end
of the Initial Period, 1 the Insured is totally disabled when he is unable to perform the
principal duties of his regular 2 occupation. After the Initial Period, the Insured is totally
disabled when he is unable to perform the principal duties of his regular occupation and
is not gainfully employed in any occupation.” (Docket #1-1).
Argotte’s first disability claim stemmed from the pain and limited range of motion
he was experiencing in his right hand. In June, 2009, Argotte underwent surgery to
remove a carpal boss in the joint of his right wrist. The surgery was performed by Dr.
Charles Goldfarb. Argotte also received treatment from Dr. Shiraz Patel and underwent
physical therapy at Restoration Physical Therapy. (Docket #43). Argotte filed a
disability claim for this ailment in November, 2009. (Docket #43). In May, 2011,
Northwestern Mutual had Argotte submit to an independent medical evaluation
performed by Dr. Martin. (Docket #43-17). In August, 2011, Northwestern Mutual
denied Argotte’s claim.
Argotte’s second disability claim stemmed from central serous retinopathy in his
right eye. Central serous retinopathy is a condition in which fluid accumulates under the
retina causing distorted vision. Argotte was diagnosed with central serous retinopathy in
February, 2010. (Docket #39). Argotte received treatment from Dr. Carl Baker and Dr.

1

Two policies omit “Until the end of the Initial Period” and in its place state “During the
first 24 months of disability following the Beginning Date.”
2

One policy omits the word “regular” from both sentences.
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Steven Charles. (Docket #43). Argotte filed a claim for this condition with Northwestern
Mutual. Northwestern Mutual had Dr. Marilyn Kay perform a “paper review” of
Argotte’s medical records. (Docket #43). Northwestern Mutual determined Argotte
became partially disabled in February, 2010 and that his disability resolved in September,
2010. (Docket #49). Argotte was paid disability benefits for this period. Argotte argues
both that his condition is chronic and therefore unresolved and that Northwestern
Mutual’s calculation of benefits was incorrect. (Docket #45).
In addition to these disputes, Northwestern Mutual argues “Argotte’s surgical
career was derailed, not by any physical condition, but by a grievance that was filed
against him with the Kentucky Board of Medical Licensure involving allegations of drug
use, domestic violence, and questionable medical practices.” (Docket #49). Argotte was
suspended from Lourdes Hospital in Paducah, Kentucky, and subsequently resigned his
position. (Docket #39-4). Argotte accepted a position with Southern Illinois Medical
Services (“SIMS”) in Herrin, Illinois. However, several months later SIMS learned of
grievance against Argotte and terminated him. (Docket #49-10).
Finally, Northwestern Mutual argues Argotte has repeatedly represented that he is
physically able to perform surgery by seeking reinstatement at Lourdes Hospital, by
applying for positions at other hospitals, and by applying for malpractice insurance.
(Docket #49).
Each party argues the record supports summary judgment in their favor. A review
of the extensive evidence submitted by each party shows there are factual issues in
dispute on most claims which render summary judgment inappropriate.

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STANDARD
Summary judgment is proper if the moving party can establish that the
“pleadings, depositions, answer to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue of material fact and that the
moving party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). In
determining whether summary judgment is appropriate, a court must resolve all
ambiguities and draw all reasonable inferences against the moving party. See Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
“[N]ot every issue of fact or conflicting inference presents a genuine issue of
material fact.” Street v. Bradford & Co., 886 F.2d 1472, 1477 (6th Cir. 1989). The test is
“whether the party bearing the burden of proof has presented a jury question as to each
element in the case.” Hartsel v. Keys, 87 F.3d 795, 799 (6th Cir. 1996). The plaintiff
must present more than a mere scintilla of evidence. To support this position, he must
present evidence on which the trier of fact could find for the plaintiff. See id. (citing
Anderson v. Liberty Lobby, 477 U.S. 242, 251-52 (1986)). Mere speculation will not
suffice to defeat a motion for summary judgment: “[t]he mere existence of a colorable
factual dispute will not defeat a properly supported motion for summary judgment. A
genuine dispute between the parties on an issue of material fact must exist to render
summary judgment inappropriate.” Monette v. Electronic Data Systems Corp., 90 F.3d
1173, 1177 (6th Cir. 1996).
DISCUSSION
Argotte has alleged Northwestern Mutual (I) breached the insurance policy; (II)
acted in bad faith; (III) violated the Kentucky Consumer Protection Act; and (IV)

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violated a fiduciary duty owed to Argotte. Northwestern Mutual has moved for summary
judgment on all claims. (Docket #39). Argotte has moved for partial summary judgment
on his claim that he is disabled as defined in the insurance policy. (Docket #43).
A federal court exercising diversity jurisdiction applies the law of the state whose
substantive law governs the action. Estate of Riddle v. S. Farm Bureau Life Ins. Co., 421
F.3d 400, 408 (6th Cir. 2005).
I.

Breach of contract.

The interpretation of an insurance contract is a question of law for the court.
Brown v. Ind. Ins. Co., 184 S.W.3d 528 (Ky. 2005). However, the interpretation of
conflicting medical testimony generally presents a question of fact for a jury. Ginsburg v.
Insurance Co. of North America, 427 F.2d 1318, 1320 (6th Cir. 1970); but see United Ins.
Co. v. Brown, 432 S.W.2d 428, 430 (Ky. App. 1968) (reversing judgment because the
facts, as presented by plaintiffs, only showed partial disability, not total disability). To
survive summary judgment, the plaintiff must present evidence of a disability that is more
than merely speculative. Rudder v. Ohio State Life Ins. Co., 389 S.W.2d 448, 451 (Ky.
App. 1965).
The parties agree that Argotte’s insurance policies are “own occupation” policies,
as opposed to non-occupational policies. (Docket #43, 49). Accordingly, the question
before the Court is not whether Argotte could perform “any occupation for which he may
be fitted,” but rather whether Argotte could “perform the duties of a specific occupation.”
Ginsburg, 427 F.2d at 1321. Specifically, Argotte must be able to perform the “essential
duties of his regular occupation.” Phelps v. UNUM Provident Corp., 2006 U.S. Dist.
LEXIS 71020 *13 (W.D. Ky. 2006) (“a dentist who cannot drill is not a dentist at all”).
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In this case, the questions are whether Argotte’s wrist injury prevented him from
performing the motions required of a surgeon or whether Argotte’s central serous
retinopathy obstructed the vision required of a surgeon. Since each party has moved for
summary judgment on these issues, the Court will decide whether the opposing party has
raised a factual dispute.
Northwestern Mutual has provided evidence which clearly supports its claim that
Argotte is not disabled. For example, Martin performed an independent medical
examination of Argotte’s wrist injury and concluded Argotte has “no limitations in the use
of his hands that would preclude his return to his occupation as a general surgeon.”
(Docket #43-17). Kay reviewed the medical records pertaining to Argotte’s eye condition
and opined he could still perform surgery with the use of a monitor. (Docket #43-34).
Argotte strongly challenges both findings, criticizing Martin’s expertise as he is a plastic
surgeon and Kay’s methodology as she performed only a “paper review” of Argotte’s file.
(Docket #45).
Similarly, Argotte has presented evidence in support of his claim that he is
disabled. Baker examined Argotte’s eye condition and concluded that the central serous
retinopathy “interferes with vision needed to perform surgery.” (Docket #43-24). Baker
diagnosed Argotte in May, 2010 and sent letters to Northwestern Mutual in November,
2010 and June, 2012 confirming that Argotte’s eye condition was “definitely interfering
with his ability to perform the duties of his profession.” (Docket #43-24; 43-30).
Additionally, Argotte had Dr. Anthony J. McEldowney perform an independent medical
examination, and McEldowney concluded Argotte’s wrist injury and eye condition
prevented him from returning to his position as a surgeon. (Docket #43-21).
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Northwestern counters that McEldowney acknowledged Argotte could still perform some
surgeries while his vision was impaired. (Docket #60). Northwestern also points out that
Argotte was actively seeking employment with other hospitals at this time and in the
process, representing he was fit to perform surgery. (Docket #49).
There is considerable medical evidence in the record, and the parties vehemently
disagree on how to interpret this evidence. For example, Goldfarb examined Argotte’s
wrist and completed an “Attending Physician Statement.” Goldfarb answered “No” in
response to the question: “Have you restricted your patient from performing any of his or
her occupational duties/activities?” However, Goldfarb answers “Yes” to the next
question: “Is your patient functionally limited in his or her ability to perform any of his
or her occupational duties/activities?” (Docket #43-14). Northwestern Mutual seizes on
the answer to the first question as evidence that Argotte is not disabled. Argotte cites the
answer to the second question as evidence he is unable to perform the functions of his
job. 3
“[T]he resolution of factual conflicts in the testimony, and the drawing of
inferences from conflicting medical testimony [a]re obviously matters for the jury.”
Ginsburg v. Insurance Co. of North America, 427 F.2d 1318, 1320 (6th Cir. 1970). Each
party has raised a factual issue as to whether Argotte was disabled. Until this factual
issue is decided, the question of whether Northwestern Mutual breached its contract

3

Similarly, Baker completed an “Attending Physician Statement” in regards to Argotte’s
eye condition. Baker also answered “No” to the question: “Have you restricted your
patient from performing any of his or her occupational duties/activities?” Baker also
answered “Yes” to the next question: “Is your patient functionally limited in his or her
ability to perform any of his or her occupational duties/activities?” (Docket #43-24).
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cannot be decided. Accordingly, this issue is inappropriate for resolution on summary
judgment.
There are two ancillary issues to this claim. First, in his complaint Argotte also
claimed he suffered from a back ailment which rendered him disabled. Argotte has
presented no evidence to support this claim, and Northwestern Mutual is entitled to
summary judgment on this claim. Second, Northwestern Mutual’s argues Argotte did not
provide written evidence when making his claim. See American Centennial Ins. Co. v.
Wiser, 712 S.W.2d 345, 346 (Ky. App. 1986). Argotte did provide written evidence,
including a Request for Benefits Form, attending physician’s statements, financial
records, tax returns, and authorizations to disclose medical records. (Docket #45).
Northwestern Mutual drew the conclusion that none of these support Argotte’s claim, but
that is a factual determination appropriate for a jury to decide.
II.

Bad faith.

Argotte has asserted a claim for bad faith. Argotte states this is a “first-party”
case and that he “asserted claims for both common law and statutory bad faith.” (Docket
#45). “There is no common law cause of action in Kentucky for first party bad faith.”
State Farm Mut. Auto. Ins. Co. v. Reeder, 763 S.W.2d 116, 119 (Ky. 1988). Therefore,
the Court considers only whether a statutory bad faith claim exists.
To establish a bad faith claim, a plaintiff must prove three elements: “(1) the
insurer must be obligated to pay the claim under the terms of the policy; (2) the insurer
must lack a reasonable basis in law or fact for denying the claim; and (3) it must be
shown that the insurer either knew there was no reasonable basis for denying the claim or

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acted with reckless disregard for whether such a basis existed.” Wittmer v. Jones, 864
S.W.2d 885, 890 (Ky. 1993).
“Kentucky's standard is high. . . . Bad faith is not simply bad judgment. It is not
merely negligence. It imports a dishonest purpose of some moral obliquity. It implies
conscious doing of wrong. . . . It partakes of the nature of fraud.” Powell v. Cherokee Ins.
Co., 919 F. Supp. 2d 873, 878 (W.D. Ky. 2013) (citation omitted). To maintain a bad
faith claim, a plaintiff must prove that “the conduct of the insurers was outrageous,
because of an evil motive or reckless indifference to his rights.” Motorists Mut. Ins. Co.
v. Glass, 996 S.W.2d 437, 452 (Ky. 1997); Wittmer, 864 S.W.2d at 890.
“[A]n insurer is entitled to challenge a claim through litigation if the claim is
fairly debatable on either the law or the facts.” (citation and punctuation omitted) Phelps
v. State Farm Mut. Auto. Ins. Co., 680 F.3d 725, 732 (6th Cir. 2012). However, “the
existence of jury issues on the contract claim does not preclude the bad faith claim.”
Farmland Mut. Ins. Co. v. Johnson, 36 S.W.3d 368, 375 (Ky. 2000). “The appropriate
inquiry is whether there is sufficient evidence from which reasonable jurors could
conclude that in the investigation, evaluation, and processing of the claim, the insurer
acted unreasonably and either knew or was conscious of the fact that its conduct was
unreasonable.” (citation omitted) Id. at 376.
Argotte argues Northwestern Mutual acted unreasonably by delaying resolution of
Argotte’s claims. Approximately twenty-one months elapsed between the time when
Argotte filed his claim for his wrist condition and Northwestern Mutual’s denial of that
claim. (Docket #45). Argotte also claims Northwestern Mutual acted unreasonably by

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focusing its investigation into alternative grounds for denying Argotte’s claim, such as a
preexisting condition or the suspension of Argotte’s medical license. Northwestern
Mutual’s disability benefits consultant acknowledged that Argotte’s claim was referred to
a special investigative unit seven times, including investigations into the status of
Argotte’s license, a domestic violence order, and a bankruptcy filing. (Docket #43-20).
While a “mere delay” does not constitute bad faith, courts have found delays in
the range of eighteen months to three years “may serve as evidence of bad faith.” Phelps
v. State Farm Mut. Auto. Ins. Co., 736 F.3d 697, 706-07 (6th Cir. 2012) (collecting cases).
Moreover, while a “heightened degree of ‘scrutiny might raise an inference that the
Defendant sought to be as thorough and fair as possible,” it may “just as easily . . . raise
an inference that the company was looking for reasons to deny coverage.” Estate of
Riddle, 421 F.3d at 408; see also Shepherd v. UNUMProvident Corp., 381 F. Supp. 2d
608 (E.D. Ky. 2005). “Choosing between two reasonable inferences is the function of the
jury.” Estate of Riddle, 421 F.3d at 408.
Argotte’s argument that Northwestern Mutual unreasonably delayed resolution of
his claim while seven times referring his case to a special investigative unit to search for
reasons to deny his claim raises a factual dispute as to whether Northwestern Mutual
acted in bad faith. Accordingly, this issue shall be decided by a jury.
III.

Violation of the Kentucky Consumer Protection Act.

The Kentucky Consumer Protection Act (“KCPA”) prohibits unfair, false,
misleading, or deceptive practices in commerce in furtherance of Kentucky’s “strong
public policy in favor of consumer protection.” Commonwealth ex rel. Cowan v. Telcom
Directories, Inc., 806 S.W.2d 638, 642 (Ky. 1991); KRS § 367.170. The “purchase of
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an insurance policy is a purchase of a ‘service’ intended to be covered by the Consumer
Protection Act.” Stevens v. Motorists Mut. Ins. Co., 759 S.W.2d 819, 820 (Ky. 1988).
To demonstrate a violation of the KCPA in the context of an insurance claim, the
insured must show more than a mere failure to settle a claim. State Farm Fire &
Casualty Ins. Co. v. Aulick, 781 S.W.2d 531 *533 (Ky. App. 1989); see also Garrett v.
State Auto Prop. & Cas. Ins. Co., 2009 U.S. Dist. LEXIS 118572 (holding that “never
offer[ing] to pay interest on claims” also did not support a claim under the KCPA). The
offending actions must be “substantial wrongs,” not merely “irritations injuring pride.”
Capitol Cadillac Olds, Inc. v. Roberts, 813 S.W.2d 287, 291 (Ky. 1991) (“[KCPA] does
not apply to simple incompetent performance of contractual duties unless some element
of intentional or grossly negligent conduct is also present”). In many respects, the
analysis is similar to a claim of bad faith. See Capitol Cadillac, 813 S.W.2d at 291
(“There is an analogy between the Consumer Protection Act claim asserted here and a
tort claim for bad faith based on an insurer's failure to pay the amount due its
policyholder”).
In general, courts have viewed “the question of whether an insurer's actions rise to
the level of unlawful conduct under the KCPA to be a question of fact.” Rawe v. Liberty
Mut. Fire Ins. Co., 462 F.3d 521 *531-32 (6th Cir. 2006). For similar reasons as stated
above, the issue of whether Northwestern Mutual’s conduct violated the KCPA is a
question of fact for a jury to decide.
IV.

Fiduciary Duty.

Finally, Northwestern Mutual argues it does not owe a fiduciary duty to Argotte
and therefore summary judgment may be granted on this claim.
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The “circumstances which may create a fiduciary relationship are so varied” as to
resist simple classification. Steelvest, Inc. v. Scansteel Serv. Ctr., 807 S.W.2d 476, 485
(Ky. 1991). However, the Kentucky Supreme Court has held that “as a general rule, we
can conclude that such a relationship is one founded on trust or confidence reposed by
one person in the integrity and fidelity of another and which also necessarily involves an
undertaking in which a duty is created in one person to act primarily for another's benefit
in matters connected with such undertaking.” Id.
The parties disagree on how to interpret a line of cases which arguably imposes a
fiduciary duty on insurers. In Feathers, the Kentucky Court of Appeals “established a
new tort action in this Commonwealth by reasoning that the insurance company became a
fiduciary by breach of a covenant to act in good faith.” Federal Kemper Ins. Co. v.
Hornback, 711 S.W.2d 844, 845 (Ky. 1986) (citing Feathers v. State Farm Fire &
Casualty Co., 667 S.W.2d 693, 698 (Ky. App. 1983)). In Kemper, the Kentucky Supreme
Court expressly overruled Feathers and stated: “The only fiduciary relationship we
recognize attaching to insurance policies is the excess-of-the-policy-limits cases where
good faith is required on the part of the insurance company.” Id. However, three years
later, the Kentucky Supreme Court overruled Kemper. Curry v. Fireman's Fund Ins. Co.,
784 S.W.2d 176 (Ky. 1989). The Curry court held “a bad faith action is based upon the
fiduciary duty owed by an insurance company to its insured based upon the insurance
contract.” Id. at 380.
Northwestern Mutual argues that the “‘fiduciary’ language was another way of
recognizing the tort of bad faith – not creating a separate claim for breach of fiduciary
duty.” (emphasis in original) (Docket #39). Conversely, Argotte argues that Curry
12

“rejected the idea from the majority in Federal Kemper that a fiduciary relationship
existed only in excess verdict situations.” (Docket #45). Northwestern Mutual’s position
has been adopted by other jurisdictions. 4 However, the Kentucky Supreme Court appears
to have reaffirmed Feathers. Farmland Mut. Ins. Co. v. Johnson, 36 S.W.3d 368, 380
(Ky. 2000) (citing Kemper and stating “a bad faith action is based upon the fiduciary duty
owed by an insurance company to its insured based upon the insurance contract”).
Federal courts have interpreted Johnson as holding: “Kentucky law imposes a fiduciary
duty upon an insurer for the benefit of an insured based upon the relationship between
them arising from the insurance contract.” Kendrick v. Std. Fire Ins. Co., 2007 U.S. Dist.
LEXIS 28461 *51-55 (E.D. Ky. 2007); Knight v. Stewart Title Guar. Co., 2014 U.S. Dist.
LEXIS 142725 (E.D. Ky. 2014).
This Court interprets these cases as neither automatically creating a fiduciary duty
in all insurance relationships, nor foreclosing the possibility of a fiduciary relationship.
Instead, “the existence of a fiduciary relationship is determined from the circumstances of
each case.” Knight, 2014 U.S. Dist. LEXIS 142725 at *32. “Those circumstances must
demonstrate an established trust between the parties based on an exchange of

4

In support of Northwestern Mutual’s argument is the fact that other states have held an
insurance contract may create a special relationship between insurer and insured, but this
does not rise to the level of a fiduciary relationship. Vu v. Prudential Property &
Casualty Ins. Co., 33 P.3d 487, 492 (Cal. 2001) (“even as the California cases expanded
upon the significance of the special relationship between insurer and insured, they have
not viewed those cases as undermining the Neff decision [that there is not a fiduciary
relationship]”); see also Bolden v. John Hancock Mut. Life Ins. Co., 422 F. Supp. 28, 31
(E.D. Mich. 1976) (“Ordinarily, an insurance company stands in no fiduciary relationship
to a legally competent applicant for [an] insurance contract”). Kentucky courts have
addressed the issue, though not in this specific context, holding an “ordinary business
relationship or an agreement reached through arm's length transactions ‘cannot be turned
into a fiduciary one absent factors of mutual knowledge of confidentiality or the undue
exercise of power or influence.’”) (citation omitted).
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confidences.” Id. The only facts supporting Argotte’s breach of fiduciary duty claim is
that Argotte paid insurance premiums for fifteen years. That does not demonstrate a
relationship of trust necessary to establish a fiduciary duty. Argotte’s claim seems to
essentially mirror his bad faith claim. Northwestern Mutual is entitled to summary
judgment on Argotte’s claim for breach of fiduciary duty.
CONCLUSION
For the foregoing reasons, Northwestern Mutual’s motion (Docket #39) for
summary judgment is GRANTED in part and DENIED in part. Northwestern Mutual is
entitled to summary judgment on Argotte’s claim that he was disabled due to a back
injury and Argotte’s claim for breach of fiduciary duty. Northwestern Mutual’s remaining
requests are denied. Argotte’s motion for partial summary judgment (Docket #43) is
DENIED.

cc:

March 26, 2015

Counsel

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