Locke v. Standard Insurance Company

Filing 33

MEMORANDUM AND ORDER - Defendant Standard Insurance Company's Motion for Summary Judgment (Filing No. 20 ) is granted; Plaintiff's Complaint (Filing No. [1-1]) is dismissed, with prejudice; Any pending motions are denied as moot; and A separate Judgment will be entered. Ordered by Chief Judge Laurie Smith Camp. (MKR)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
JENNIFER M. LOCKE,
Plaintiff,
vs.
STANDARD INSURANCE COMPANY,
Defendant.

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CASE NO. 8:14CV2

MEMORANDUM
AND ORDER

This matter is before the Court on the Motion for Summary Judgment (Filing No. 20)
submitted by Defendant Standard Insurance Company (“Standard”). For the reasons
discussed below, the Motion will be granted.
FACTS
Standard’s statement of material facts, set out in its brief (Filing No. 28) with pinpoint
citations to the evidentiary record (Filing Nos. 22-27) in compliance with NECivR 56.1(a),
is not disputed by Plaintiff Jennifer M. Locke (“Locke”), and the following facts are accepted
as true for purposes of the pending Motion.
Locke obtained a Disability Insurance Income Policy (the “Policy”) from Standard,
effective September 23, 2004.1 The Policy (Filing No. 23 at ECF 2 et seq.) included the
following definitions:

1

The Policy application was completed and received in Nebraska in August
2004. The parties agree that Nebraska law applies. The name of the insured
appearing on the Policy is Jennifer Vaughn, which the Court infers was Locke’s name at
the time the Policy was issued. In the Policy application, Locke revealed that she was
treated for depression in 2001 at Omaha’s Immanuel Hospital Behavioral Clinic, and
the “Problem [was] resolved.” (Filing No. 23 at ECF 34.) She also stated that she
applied for insurance through Standard in 2002 and was rejected, but told she could
reapply in one year. (Id. at ECF 33.)

Total Disability/Totally Disabled – Because of your Injury or Sickness:
1) You are unable to perform the substantial and material duties of your
regular occupation; and
2) You are not engaged in any other gainful occupation; and
3) You are under the regular care of a Physician appropriate for your injury
or sickness. This Physician‘s care requirement will be waived when We
receive written proof, satisfactory to Us, that further care would be of no
benefit to you.
...
Regular Occupation – Your occupation at the time Disability begins. If You
have limited Your practice to a professionally recognized specialty in
medicine or law, the specialty will be deemed to be Your Regular
Occupation.
Id. at ECF 12.
A one-page endorsement to the Policy, that Locke signed and dated on September
23, 2004, set out the following “DISABILITY INCOME POLICY EXCLUSION”:
We, Standard Insurance Company, issue this policy on the express condition
that We do not assume any risk for Total or Residual Disability of the Insured
if either results from:
MENTAL DISORDER: Any mental, emotional or behavioral
disorder or condition regardless of the cause (including,
biological or biochemical disorder or imbalance of the brain)
and regardless of the presence of physical symptoms. Except
as excluded below, for the purposes of this definition, mental
disorder includes any diagnosis or condition listed in the most
current publication of the Diagnostic and Statistical Manual of
Mental Disorders published by the American Psychological
Association. If this publication is no longer available, we
reserve the right to use another nationally published manual of
similar scope and purpose. Dementia resulting from stroke,
trauma, infectious conditions or degenerative changes such as
Alzheimer‘s disease, is not considered to be a Mental Disorder
for the purpose of this exclusion.
This means that We will not pay benefits or waive premiums if Total or
Residual Disability is contributed to or caused by any of the above, except
as expressly noted.
Id. at ECF 9.
2

On or about November 6, 2012, Locke advised Standard that she intended to make
a claim for disability benefits. At the time, she was obtaining in-patient care for Post
Traumatic Stress Disorder (“PTSD”), depression, and anxiety, at the Life Healing Center
in Santa Fe, New Mexico, following a sexual assault in April 2012.
She identified PTSD and Fibromyalgia2 as the conditions contributing to her inability
to work. Her treating psychiatrist, Roxana Raicu, M.D., submitted an Attending Physician‘s
Statement in conjunction with Locke’s claim for disability benefits. Dr. Raicu identified a
primary diagnosis of PTSD and a secondary diagnosis of Major Depressive Disorder. In
the statement, Dr. Raicu recommended that Locke stop working because of severe anxiety
and limitations in activities of daily living.
Locke submitted an Insured‘s Statement for individual disability benefits dated
December 16, 2012. In her statement, Locke noted that she was a Physician‘s Assistant
and her duties consisted of patient interviews and examinations, chart reviews, and writing
medical opinions. At the time she left work3, Locke was employed at the Veterans

2

“Fibromyalgia is a disorder characterized by widespread musculoskeletal pain
accompanied by fatigue, sleep, memory and mood issues. Researchers believe that
fibromyalgia amplifies painful sensations by affecting the way [the] brain processes pain
signals. Symptoms sometimes begin after a physical trauma, surgery, infection or
significant psychological stress. In other cases, symptoms gradually accumulate over
time with no single triggering event. Women are much more likely to develop
fibromyalgia than are men. Many people who have fibromyalgia also have tension
headaches, temporomandibular joint (TMJ) disorders, irritable bowel syndrome, anxiety
and depression. While there is no cure for fibromyalgia, a variety of medications can
help control symptoms. Exercise, relaxation and stress-reduction measures also may
help.”
(www.mayoclinic.org/diseases-conditions/fibromyalgia/basics/definition/con-20019243.)
3

It is not clear from the record precisely when Locke stopped working, though it
appears to have been after the sexual assault in April 2012.
3

Administration, working 20-25 hours per week. Locke stated that her disability was the
result of a sickness, and she identified PTSD, first noticed in April 2012, and fibromyalgia,
first noticed in January 2009. Locke provided the following narrative as to how her
sickness prevented her from working in her occupation: “I have severe anxiety and panic
attacks and have difficulty leaving my house. My occupation requires contact with
strangers, many men, which trigger flashbacks and anxiety attacks. Fibromyalgia pain and
fatigue interfere with daily function, often unable to get out of bed.”
As part of its review, Standard submitted Locke’s claim to Dan Przybylowski, C.R.C.,
a Vocational Consultant.

Przybylowski determined that Locke’s occupation as a

Physician’s Assistant required light physical strength with minimal other physical demands.
Standard also obtained medical information from Locke’s treating physicians. The
medical records included notes from Lasting Hope Recovery Center where Locke was
admitted on October 15, 2012, with diagnoses of depression and generalized anxiety. She
was discharged from Lasting Hope Recovery Center on October 23, 2012, after she
showed significant improvements with respect to her mood, anxiety, functionality, and
social interactions. The records also included a clinical note from Dr. Michael Feely, M.D.,
a rheumatologist whom Locke first saw on March 21, 2012. Locke identified aches and
pain, stiffness in her hands, and fatigue. Dr. Feely noted that Locke had several tender
myofascial trigger points and several features of fibromyalgia, but refrained from making
any diagnosis. Dr. Feely did not place restrictions or limitations on Locke’s ability to work.
Locke submitted medical records of three additional visits with Dr. Feely on April 24,
2012, July 18, 2012, and January 4, 2013. Dr. Feely did not provide restrictions or
limitations on Locke’s work or social activities due to fibromyalgia during these visits.
4

Rather, Dr. Feely identified PTSD as the primary cause of Locke’s condition. Dr. Feely
stated, “I have explained to [Locke] that I feel that her fibromyalgia symptoms are unlikely
to improve much unless her PTSD symptoms stabilize . . . . I don‘t see evidence of an
active inflammatory process. I have checked radiographs of her SI joints which showed no
significant abnormalities. She has been under a great deal of stress recently and I suspect
that this is contributing to her musculoskeletal symptoms . . . .”
In the attending physician‘s statement, dated January 4, 2013, Dr. Feely diagnosed
Locke with fibromyalgia and PTSD. Dr. Feely anticipated that Locke could return to work
noting that it “depends on the improvement in her PTSD symptoms.” With respect to a
question concerning Locke’s physical, mental and cognitive limitations, Dr. Feely wrote:
“Patient has widespread pain due to her fibromyalgia, though it is her PTSD which limits
her ability to work primarily.” With respect to physical limitations, Dr. Feely left the section
blank. Under physical impairment, Dr. Feely indicated that Locke was precluded from
“medium manual activity (15-30%).” Under the section related to Locke’s mental limitations
and impairments, Dr. Feely stated, “patient has significant loss of physiological, personal
and social adjustment (severe limitations).”
In the attending physician’s statement, dated January 7, 2013, Lorrie McGill, M.D.,
wrote that Locke’s condition was the “direct result of sexual trauma on 4/8/12,” and
identified a diagnosis of “Fibromyalgia + PTSD” and migraine headaches. Dr. McGill
indicated that Locke was unable to work as of October 5, 2012, because of “severe stress,
depression, headaches, suicidal” and “severe psychological stressors.”

5

In the Intake Assessment at Focus on Recovery, dated January 21, 2013, an
outpatient therapy program, Locke stated that she was “currently unable to work due to
PTSD symptoms and panic attacks.”
In the letter to Standard, dated February 21, 2013, Dr. Feely noted that Locke had
“a great deal of chronic musculoskeletal pain which I believe to be on the basis of her
fibromyalgia. [She] had been able to manage her symptoms relatively well until roughly six
months ago at which point she was the victim of a sexual assault. With this unfortunate
event she has had worsening of her pain and has been under psychiatric care for posttraumatic stress disorder. There is no doubt in my mind that her somatic symptoms and
chronic pain have been much worse since the assault.”
The information provided to Standard was reviewed by Ronald Fraback, M.D., a
physician board-certified in rheumatology. Dr. Fraback reviewed the medical records and
other information in the claim file. In his report, Dr. Fraback accepted that Locke met the
American College of Rheumatology criteria for fibromyalgia. Dr. Fraback noted, however,
that “while I appreciate the opinion of Dr. Feely, it appears that [Locke’s] primary issues are
psychiatric. I do not find evidence that her fibromyalgia alone should preclude sedentary
to light level work.” Dr. Fraback further stated that Locke’s inability to work “is primarily due
to her PTSD. The fibromyalgia would be contributory.”
Locke’s file was also reviewed by Esther Gwinnell, M.D., a board certified
Psychiatrist. Based on her review, Dr. Gwinnell opined that, “I would accept that an
individual with this level of symptomatology from PTSD and depression, requiring first
inpatient, then residential, then intensive outpatient treatment, would be too impaired to
function at any occupation during this time frame.”
6

In a letter dated March 12, 2013, Standard notified Locke that her inability to work
was contributed to or caused by a mental disorder and, therefore, she was not eligible for
disability benefits under the Policy. Standard concluded that, “the medical documentation
in your file supports that you are disabled due to PTSD and depression. The medical
documentation also supports that you have fibromyalgia. However, we have insufficient
documentation to support that you have limitations and restrictions from fibromyalgia
preventing you from working. While we accept that you are disabled due to a mental
disorder, your policy excludes payment if Total or Residual Disability is contributed to or
caused by a mental disorder.” (Filing No. 2 at ECF 69.)
Standard offered to review its original benefits decision; however, Locke declined.
She commenced this action in state court, and Standard removed it to federal court,
invoking this Court’s diversity jurisdiction.4
Locke agrees that her mental and emotional conditions contribute to her disability.
In her affidavit (Filing No. 31-2) she states: “The stress associated with my PSTD helps to
contribute to my Fibromyalgia. The Fibromyalgia condition causes me stress that worsens
the PTSD. The financial stress associated with no income worsens both conditions. It’s
difficult to differentiate what stress is worsening which condition.” (Id. at ECF 1 ¶ 3.)

4

Locke is a resident of Omaha, Nebraska. (Complaint, Filing No. 1-1 at ECF ¶
1). Standard is an Oregon corporation with its principal place of business in Oregon.
(Affidavit of Nicholas K. Rudman, counsel for Defendant, Filing No. 1-3.) The amount in
controversy exceeds $75,000. (The Policy provides disability benefits in the amount of
$3,900 per month to the insured, up to age 67. Locke was 32 years of age at the time
the Policy was issued, and therefore under age 42 at the time of her claim. See Filing
No. 23 at ECF 5.)
7

Locke also submitted the affidavit of Dr. Feely, dated August 21, 2014 (Filing No.
31-1), in which he confirms that the physical and mental limitations associated with
Fibromyalgia cause Locke’s inability to perform the duties of a Physician’s Assistant on a
full time basis (id. at ECF 1-2 ¶ 5), and she would be likely to miss about four days of work
per month, if she tried to work full time (id. at ECF 7). In a Medical Source Statement
dated May 5, 2014, Dr. Feely noted that Locke’s symptoms, signs, and associated
conditions included depression and anxiety disorder, and that emotional factors contributed
to the severity of her symptoms and limitations. (Id. at ECF 4-5.)
STANDARD OF REVIEW
“Summary judgment is appropriate when the record, viewed in the light most
favorable to the non-moving party, demonstrates there is no genuine issue of material fact
and the moving party is entitled to judgment as a matter of law.” Gage v. HSM Elec. Prot.
Servs., Inc., 655 F.3d 821, 825 (8th Cir. 2011) (citing Fed. R. Civ. P. 56(c)). The court will
view “all facts in the light most favorable to the non-moving party and mak[e] all reasonable
inferences in [that party's] favor.” Schmidt v. Des Moines Pub. Sch., 655 F.3d 811, 819
(8th Cir 2011). “[W]here the nonmoving party will bear the burden of proof at trial on a
dispositive issue . . . Rule 56(e) permits a proper summary judgment motion to be opposed
by any of the kinds of evidentiary materials listed in Rule 56(c), except the mere pleadings
themselves.” Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986). The moving party need
not negate the nonmoving party’s claims by showing “the absence of a genuine issue of
material fact.” Id. at 325. Instead, “the burden on the moving party may be discharged by

8

‘showing’ . . . that there is an absence of evidence to support the nonmoving party’s case.”
Id.
In response to the movant’s showing, the nonmoving party’s burden is to produce
specific facts demonstrating “‘a genuine issue of material fact' such that [its] claim should
proceed to trial.” Nitro Distrib., Inc. v. Alticor, Inc., 565 F.3d 417, 422 (8th Cir. 2009)
(quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)).
The nonmoving party “'must do more than simply show that there is some metaphysical
doubt as to the material facts,' and must come forward with 'specific facts showing that
there is a genuine issue for trial.'” Torgerson v. City of Rochester, 643 F.3d 1031, 1042
(8th Cir. 2011) (quoting Matsushita, 475 U.S. at 586-87)), cert. denied, 132 S. Ct. 513
(2011). “'[T]he mere existence of some alleged factual dispute between the parties'” will
not defeat an otherwise properly supported motion for summary judgment. Quinn v. St.
Louis Cnty., 653 F.3d 745, 751 (8th Cir. 2011) (quoting Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 247-48 (1986)).
In other words, in deciding “a motion for summary judgment, 'facts must be viewed
in the light most favorable to the nonmoving party only if there is a “genuine” dispute as to
those facts.'” Ricci v. DeStefano, 557 U.S. 557, 586 (2009) (quoting Scott v. Harris, 550
U.S. 372, 380 (2007)). Otherwise, where the Court finds that “the record taken as a whole
could not lead a rational trier of fact to find for the non-moving party”–where there is no
“'genuine issue for trial'”–summary judgment is appropriate. Matsushita, 475 U.S. at 587
(quoting First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289 (1968)).

9

DISCUSSION
Locke’s Complaint presents two theories of recovery. Her first theory is based on
contract, asserting that she has presented a valid claim for disability benefits under the
Policy, and is entitled to payment. Her second theory asserts that Standard breached an
implied covenant of good faith and fair dealing by denying her disability benefits under the
Policy.
I. The Parties’ Contract
Standard does not dispute that Locke is disabled. Locke does not dispute that her
mental and emotional conditions, including PTSD and anxiety disorder, have caused or
contributed to her disability; and she does not dispute that those conditions are listed in the
Diagnostic and Statistical Manual of Mental Disorders. She also acknowledges that her
mental and emotional conditions are excluded illnesses under the endorsement. She
contends, however, that two other clauses in the Policy conflict with the clause in the
endorsement relied upon by Standard and should govern:
CONCURRENT DISABILITY - If a Disability is caused by more than one
Injury or Sickness, or from a combination, it is a Concurrent Disability. We
will pay benefits for a Concurrent Disability as if there was only one Injury or
Sickness. In no event will You be considered to have more than one
Disability at the same time. Once a continuous period of Disability starts, it
will be one period of Continuous Disability no matter what Injuries or
Sicknesses, or how many, cause the Disability to cause it to continue.
Filing No. 23 at ECF 10.
LIMITATION FOR MENTAL DISORDER AND/OR SUBSTANCE ABUSEExcept as noted below, payment of Disability Benefits is limited to a total of
24 months during Your entire lifetime for Disability caused or contributed to
by one or both of the following, or by medical or surgical treatment for one
or both of the following:

10

1. Mental Disorder; and/or
2. Substance Abuse.
This limitation does not apply to any period during which You are confined
in a Hospital solely because of a Mental Disorder.
Id. at ECF 14.
Locke notes that the endorsement provides: “”PART OF POLICY - this endorsement
is part of the policy to which it is attached. All terms of the policy which do not conflict with
this endorsement will apply to this endorsement.” Because the two sections of the Policy
relied upon by Locke do conflict with the endorsement, she infers that those two sections
do not apply to the endorsement and, therefore are not limited by the terms of the
endorsement. At a minimum, she suggests that the Policy terms, including those of the
endorsement are ambiguous and should be construed in her favor.
The Nebraska Supreme Court has said:
In interpreting a contract, a court must first determine, as a matter of law,
whether the contract is ambiguous. Callahan v. Washington Nat. Ins. Co.,
259 Neb. 145, 608 N.W.2d 592 (2000).
Whether an insurance contract is ambiguous and therefore in need of
construction is a question of law. Moller v. State Farm Mut. Auto. Ins. Co.,
252 Neb. 722, 566 N.W.2d 382 (1997).
A contract is ambiguous when a word, phrase, or provision in the contract
has, or is susceptible of, at least two reasonable but conflicting
interpretations or meanings. Callahan v. Washington Nat. Ins. Co., supra.
But the fact that parties to a document have or suggest opposing
interpretations of the document does not necessarily, or by itself, compel the
conclusion that the document is ambiguous. Id.; Moller v. State Farm Mut.
Auto. Ins. Co., supra.
Interpretation of an unambiguous term or provision in an insurance policy
presents a question of law. Callahan v. Washington Nat. Ins. Co., supra;
American Family Ins. Group v. Hemenway, 254 Neb. 134, 575 N.W.2d 143
(1998).

11

While an ambiguous insurance policy will be construed in favor of the
insured, ambiguity will not be read into policy language which is plain and
unambiguous in order to construe against the preparer of the contract.
Callahan v. Washington Nat. Ins. Co., supra; American Family Ins. Group v.
Hemenway, supra.
Tighe v. Combined Ins. Co. of Am., 628 N.W.2d 670, 675 (Neb. 2001).
Generally, where the event for which an insured seeks coverage is plainly
outside the scope of the coverage encompassed in the policy according to
a plain reading of its terms, an insurer may not be obligated to provide
coverage to the insured. Neff Towing Serv. v. United States Fire Ins. Co.,
264 Neb. 846, 652 N.W.2d 604 (2002). An insurance contract is to be
construed as any other contract to give effect to the parties' intentions at the
time the contract was made. Finch v. Farmers Ins. Exch., 265 Neb. 277, 656
N.W.2d 262 (2003).
City of Scottsbluff v. Employers Mut. Ins. Co., 658 N.W.2d 704, 710 (Neb. 2003).
The Nebraska Supreme Court’s “goal in interpreting insurance policy language is
to give effect to each provision of the contract,” Wheeler v. McCrary, 842 N.W.2d 100, 107
(Neb. 2014). When interpreting “the language of an insurance policy should be read to
avoid ambiguities, if possible, and the language should not be tortured to create them.”
Cincinnati Ins. Co. v. Becker Warehouse, Inc., 262 Neb. 746, 756, 608 N.W.2d 592, 598
(2001) (citing Austin v. State Farm Mut. Auto. Ins. Co., 261 Neb. 697, 625 N.W.2d 213
(2001)). The Nebraska Supreme Court also said: “When general and specific terms in
a contract relate to the same thing, the more specific provision controls.” Hans v. Lucas,
703 N.W.2d 880, 883 (Neb. 2005) (emphasis in original) (citing Krzycki v. Genoa Nat.
Bank, 496 N.W.2d 916 (Neb. 1993)).

The interpretation of the Policy is a question of

law; and this Court finds the terms of the Policy and endorsement to be unambiguous.
Giving effect to both the provisions in the endorsement and the Policy, this Court finds that
(1) the language in the Policy under the heading “CONCURRENT DISABILITY” does not
include disabilities caused in whole or part by a mental disorder because the endorsement
12

clearly states that “mental, emotional or behavioral disorder or condition” is not a covered
disability; and (2) the language in the Policy under the heading “LIMITATION FOR
MENTAL DISORDER AND/OR SUBSTANCE ABUSE” sets a cap on potential payments
for disability caused in whole or part by a mental disorder, but does not guarantee any
payment for such disability.
Locke’s suggested interpretation of the Policy and endorsement is unreasonable,
because it would nullify language in the endorsement and would not give effect to the
intent of the parties at the time the contract was made.5 “The fact that parties to a
document have or suggest opposing interpretations of the document does not necessarily,
or by itself, compel the conclusion that the document is ambiguous.” Callahan v.
Washington Nat. Ins. Co., 259 Neb. 145, 152, 608 N.W.2d 592, 598 (2000). Because this
Court finds the terms of the policy and endorsement unambiguous, and because Locke’s
mental and emotional conditions–PTSD and anxiety disorder–caused or contributed to her
disability, benefits are not due and owing under the Policy.
II. Covenant of Good Faith and Fair Dealing
“[I]n order to establish a claim for bad faith, a plaintiff must show an absence of a
reasonable basis for denying the benefits of the insurance policy and the insurer‘s
5

When construing conflicting provisions in an insurance policy and a policy
endorsement, other state Supreme Courts have held that the terms of the endorsement
supersede the conflicting terms of the original policy. See Commercial Standards Ins.
Co. v. General Trucking Co., 423 So.2d 168 (Ala. 1982); Abco Tank & Mfg. Co. v.
Federal Ins. Co., 550 S.W.2d 193, 198 (Mo. 1977); and Wyatt v. Wyatt, 239 Minn. 434,
437 (1953). This Court finds it unnecessary to speculate about how the Nebraska
Supreme Court would address that question.
_________.

13

knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.”
LeRette v. Am. Med. Sec., Inc., 705 N.W.2d 41, 47-48 (Neb. 2005). “[A]n insurance
company has a right to debate a claim that is ‘fairly debatable,’ or subject to a reasonable
dispute, without being subject to a bad faith claim.” Williams v. Allstate Indem. Co., 669
N.W.2d 455, 460 (Neb. 2003)). “Whether a claim is fairly debatable is appropriately
decided by the court as a matter of law, and such determination is based on the
information available to the insurance company at the time the demand is presented.”
Radecki v. Mut. of Omaha Ins. Co., 583 N.W.2d 320, 326 (Neb. 1998) (citation omitted).
Standard’s denial of benefits was reasonable as a matter of law, and Locke’s theory
of recovery based on the implied covenant of good faith and fair dealing fails.
Accordingly,
IT IS ORDERED:
1.

Defendant Standard Insurance Company’s Motion for Summary Judgment
(Filing No. 20) is granted;

2.

Plaintiff’s Complaint (Filing No. 1-1) is dismissed, with prejudice;

3.

Any pending motions are denied as moot; and

4.

A separate Judgment will be entered.

DATED this 12th day of September, 2014.
BY THE COURT:

s/Laurie Smith Camp
Chief United States District Judge
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