Billings v. Conseco Health Insurance Company

Filing 71

ORDER denying 55 defendant Consecos Motion for Summary Judgment (as more fully set out in order). Signed by Honorable Vicki Miles-LaGrange on 2/22/2012. (ks)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA
GARY BILLINGS, Limited Guardian of
the person of DONALD BILLINGS,
an incapacitated person,
Plaintiff,
vs.
CONSECO HEALTH INSURANCE
COMPANY,
Defendant.

)
)
)
)
)
)
)
)
)
)
)
)

Case No. CIV-10-372-M

ORDER
This case is scheduled for trial on the Court’s March 2012 trial docket.
Before the Court is defendant’s Motion for Summary Judgment, filed January 3, 2012. On
January 24, 2012, plaintiff filed his response, and on February 3, 2012, plaintiff filed his
supplemental response. On February 10, 2012, defendant filed its reply. Based upon the parties’
submissions, the Court makes its determination.
I.

Introduction
On or about October 16, 2007, Donald Billings executed an application for insurance to

defendant Conseco Health Insurance Company (“Conseco”) for a Heart/Stroke policy (the
“Application”). In the Application, the following inquiry was posed:
Has anyone proposed to be insured ever had, been treated for, or been
diagnosed as having: any heart disease, a heart condition, angina or
a heart attack; any disorder, disease or abnormality of the coronary
arteries; arteriosclerosis; chronic disease of the pericardium; transient
ischemic attack; stroke, whether or not resulting in paralysis?
Application at p.2, attached as Exhibit 1 to Conseco’s Motion for Summary Judgment. Donald
Billings responded “NO” to the above inquiry. Based on the representations in the Application,

Conseco issued a Heart/Stroke policy of insurance to Donald Billings on or about October 17, 2007
(the “Policy”). The Policy contained the following “GENERAL PROVISION”:
We rely on the statements made in the application when issuing this
policy. After this policy has been in force for you for two years, we
cannot cancel it or refuse to pay benefits for losses commencing after
such time because of any misstatements in the application unless the
applicant knowingly made them.
Policy at p.10, attached as Exhibit 1 to Conseco’s Motion for Summary Judgment.
On August 2, 2009, Donald Billings suffered symptoms of a stroke and was taken to Seiling
Municipal Hospital, where various tests were run and whose records indicate that Donald Billings’
diagnosis was “multiple strokes.” Donald Billings was sent home but returned to Seiling Municipal
Hospital a couple of days later, after passing out at a neighbor’s house. After spending several days
at Seiling Municipal Hospital, Mr. Billings had himself discharged to go to the Veterans
Administration (“VA”) Hospital in Oklahoma City. The VA doctors also determined that Donald
Billings had suffered strokes, “persistent neglect of the left side” and gait abnormality. Mr. Billings
was a patient at the VA Hospital from August 6 to September 17, when he was discharged to Grace
Living Center, a skilled nursing facility. Mr. Billings was a patient at Grace Living Center until they
exhausted the rehabilitative care they could provide. On approximately December 21, 2009, Donald
Billings was transferred to Seiling Nursing Center, where he currently resides.
On August 20, 2009, Conseco received notice of Donald Billings’ stroke and, thereafter, sent
Gary Billings, Donald Billings’ son and guardian, the claim forms for submitting a claim under the
Policy. On or about October 21, 2009, Gary Billings submitted a claim to Conseco for benefits
under the Policy and included the following documents: an executed power of attorney form, an
executed medical authorization, an executed Cancer, Alternative Care, Intensive Care and

2

Heart/Stroke Claim Form, a photocopy of Donald Billings’ driver’s license, and a medical bill and
records from Seiling Municipal Hospital. Additionally, in support of the claim, Gary Billings
submitted a physician’s statement, dated October 2, 2009, from Dr. Hester, who marked “yes” for
stroke. Patrice McCloud was the adjuster who handled Mr. Billings’ claim. Ms. McCloud states
that she reviewed the physician’s statement and misread the “date of treatment” for a stroke to be
“8/2/07” instead of “8/2/09.” On October 23, 2009, Claim 705414 and Claim 705373 were created.1
On October 27, 2009, Gary Billings submitted additional medical records from the VA
Hospital in support of his claim. Included in this submission was a physician’s statement by Dr.
Rabadi, VA Hospital, who marked that Donald Billings had suffered from a stroke. Additionally,
the VA Discharge Summary identified a right ischemic stroke, acute onset of left side weakness
throughout the body, and mixed fiber peripheral sensory neuropathy with gait abnormality, as well
as old left MCA, right frontal, and right cerebellar strokes.
On November 11, 2009, Claim 705414 was denied based on Conseco’s determination that
the services provided were for the treatment of another condition. Ms. McCloud has testified that
she made a “mistake” in processing Claim 705414, because she simply input the first two diagnosis
codes of Dr. Hester’s physician’s statement and did not include the other two diagnosis codes, one
of which was a diagnosis code for stroke. On November 16, 2009, Gary Billings submitted
additional medical records in support of his claim, including a physician’s statement by Dr. David
Fisher, Grace Living Facility, who also marked “yes” for stroke. On December 23, 2009, Claim
705373 was “closed” because allegedly Conseco had not received the requested information.

1

Conseco has a claim-handling system in place that creates various claim numbers based on
document “bundles” that are received. During the handling of Donald Billings’ request for benefits
under his policy, Conseco created five different claim numbers.
3

Also on December 23, 2009, Conseco created Claim 201465 and subsequently denied the
claim on January 5, 2010, because the expense submitted was not one of the listed policy benefits.
On January 15, 2010, Conseco created Claim 297784, but the claim was “closed” on March 19, 2010
because Conseco allegedly had not received the previously requested information. On March 31,
2010, Conseco created Claim 669224.
According to Conseco, based upon Ms. McCloud’s misreading of the dates and based on the
medical information indicating possible prior strokes, Conseco began an investigation to see whether
Donald Billings had materially misrepresented his medical history in the Application when he
answered “NO” to the underwriting question involving cardiac and stroke history. As part of the
investigation, Conseco wanted to review Donald Billings’ medical records for the five years prior
to his October 2007 application for insurance. According to plaintiff, Ms. McCloud did not begin
this investigation based upon medical record information but began the investigation in compliance
with Conseco claims handling processes that require an investigation into a possible rescission of
the policy on all claims made within the first two years of issuance of the policy.
Conseco asserts that it finally received Donald Billings’ prior medical records on July 19,
2011, reviewed them in light of the potential rescission of the Policy, and advised Mr. Billings on
August 15, 2011, that Conseco was not going to rescind the Policy despite material
misrepresentations in the Application. Subsequent to this determination, Conseco processed Mr.
Billings’ claims for benefits under the Policy and, on August 23, 2011, issued a check for benefits
in the amount of $19,974.13, including interest.

4

On April 13, 2010, plaintiff brought the instant action, alleging a single claim of bad faith
against Conseco for its handling of Donald Billings’ claim for benefits under the Policy. Conseco
now moves for summary judgment as to plaintiff’s bad faith claim.
II.

Summary Judgment Standard
“Summary judgment is appropriate if the record shows 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. The moving
party is entitled to summary judgment where the record taken as a whole could not lead a rational
trier of fact to find for the non-moving party. When applying this standard, [the Court] examines
the record and reasonable inferences drawn therefrom in the light most favorable to the non-moving
party.” 19 Solid Waste Dep’t Mechs. v. City of Albuquerque, 156 F.3d 1068, 1071-72 (10th Cir.
1998) (internal citations and quotations omitted).
“Only disputes over facts that might affect the outcome of the suit under the governing law
will properly preclude the entry of summary judgment. Furthermore, the non-movant has a burden
of doing more than simply showing there is some metaphysical doubt as to the material facts.
Rather, the relevant inquiry is whether the evidence presents a sufficient disagreement to require
submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.”
Neustrom v. Union Pac. R.R. Co., 156 F.3d 1057, 1066 (10th Cir. 1998) (internal citations and
quotations omitted).
III.

Discussion
The Oklahoma Supreme Court first recognized the tort of bad faith by an insurer in the case

of Christian v. Am. Home Assurance Co., 577 P.2d 899 (Okla. 1978). In so doing, the court held
that “an insurer has an implied duty to deal fairly and act in good faith with its insured and that the

5

violation of this duty gives rise to an action in tort for which consequential and, in a proper case,
punitive, damages may be sought.” Id. at 904. The court further recognized:
there can be disagreements between insurer and insured on a variety
of matters such as insurable interest, extent of coverage, cause of
loss, amount of loss, or breach of policy conditions. Resort to a
judicial forum is not per se bad faith or unfair dealing on the part of
the insurer regardless of the outcome of the suit. Rather, tort liability
may be imposed only where there is a clear showing that the insurer
unreasonably, and in bad faith, withholds payment of the claim of its
insured.
Id. at 905.
In order to establish a bad faith claim, an insured “must present evidence from which a
reasonable jury could conclude that the insurer did not have a reasonable good faith belief for
withholding payment of the insured’s claim.” Oulds v. Principal Mut. Life Ins. Co., 6 F.3d 1431,
1436 (10th Cir. 1993). In order to determine whether the insurer acted in good faith, the insurer’s
actions must be evaluated in light of the facts the insurer knew or should have known at the time the
insured requested the insurer to perform its contractual obligation. Id. at 1437. The essence of the
tort of bad faith is
unreasonable, bad-faith conduct, including the unjustified
withholding of payment due under a policy, and if there is conflicting
evidence from which different inferences might be drawn regarding
the reasonableness of insurer’s conduct, then what is reasonable is
always a question to be determined by the trier of fact by a
consideration of the circumstances in each case.
McCorkle v. Great Atl. Ins. Co., 637 P.2d 583, 587 (Okla. 1981).
However, the mere allegation that an insurer breached its duty of good faith and fair dealing
does not automatically entitle the issue to be submitted to a jury for determination. Oulds, 6 F.3d
at 1436. The Tenth Circuit has held:

6

[a] jury question arises only where the relevant facts are in dispute or
where the undisputed facts permit differing inferences as to the
reasonableness and good faith of the insurer’s conduct. On a motion
for summary judgment, the trial court must first determine, under the
facts of the particular case and as a matter of law, whether insurer’s
conduct may be reasonably perceived as tortious. Until the facts,
when construed most favorably against the insurer, have established
what might reasonably be perceived as tortious conduct on the part
of the insurer, the legal gate to submission of the issue to the jury
remains closed.
Id. at 1436-37 (internal citations omitted).
“A claim must be paid promptly unless the insurer has a reasonable belief that the claim is
legally or factually insufficient.” Willis v. Midland Risk Ins. Co., 42 F.3d 607, 611-12 (10th Cir.
1994). “To determine the validity of the claim, the insurer must conduct an investigation reasonably
appropriate under the circumstances. If the insurer fails to conduct an adequate investigation of a
claim, its belief that the claim is insufficient may not be reasonable.” Id. at 612 (internal quotations
and citation omitted). Thus, “[t]he investigation of a claim may in some circumstances permit one
to reasonably conclude that the insurer has acted in bad faith.” Oulds, 6 F.3d at 1442.
The Court has carefully reviewed the parties’ briefs and evidentiary submissions. Viewing
the evidence in the light most favorable to plaintiff and viewing all reasonable inferences in
plaintiff’s favor, as the Court must when addressing a motion for summary judgment, the Court finds
plaintiff has presented sufficient evidence to create a genuine issue of material fact as to whether
Conseco acted in bad faith and violated its duty to deal fairly and act in good faith with plaintiff.
Specifically, the Court finds that plaintiff has submitted sufficient evidence of Conseco’s
investigation and handling of plaintiff’s claim from which a jury could reasonably conclude that
Conseco acted in bad faith in conducting the investigation and handling of plaintiff’s claim.

7

During Conseco’s investigation and handling of plaintiff’s claim, Conseco opened five
separate claims regarding the singular event of Donald Billings’ stroke and “closed” and denied a
number of these claims for reasons that were not supported by the documentation that had been
received by Conseco. For example, Conseco denied claim 705414 on November 11, 2009, stating
that the services provided were for the treatment of another condition – it is undisputed that Donald
Billings had a stroke with paralysis; however, Conseco’s adjuster only imputed the first two
diagnosis codes on the medical bill, rather than all diagnosis codes.
Additionally, Conseco repeatedly sent generic system-generated letters requesting the same
information over and over again, even when Conseco already had what it was requesting. Conseco
sent the same generic request to Dr. Hester for medical records for the past 5 years on eleven
separate occasions (even after Dr. Hester had sent two copies of all of Donald Billings’ medical
records). Further, during the same time period, Conseco sent Donald Billings a generic letter stating
that Conseco had not received a complete proof of loss and more information was needed from Dr.
Hester on eight separate occasions. Additionally, and even more confusingly, Conseco sent Donald
Billings a request for VA Hospital records “for the date 9-9-07 when you were first treated for a
stroke.”2 As a result, from October 21, 2009 to March 30, 2010, Gary Billings sent Conseco four
executed power of attorneys, five executed medical authorizations, three completed claim forms, a
VA Medical Records Release, VA medical records, and numerous other medical records from the
healthcare providers who treated him for the strokes, and Dr. Hester sent Conseco two copies of the
records from Seiling Municipal Hospital.

2

Donald Billings was never treated for and never had a stroke on 9-9-07.
8

During this same time period, Conseco asserts that it was unable to complete its investigation
as to whether Donald Billings had materially misrepresented his medical history in the Application
when he answered “NO” to the underwriting question involving cardiac and stroke history because
it had not received Donald Billings’ medical records for the five years prior to his October 2007
application for insurance. Plaintiff has submitted evidence showing that although Conseco had
multiple executed medical authorizations and was aware of additional medical providers, Conseco
never sought to obtain the needed medical records on its own. Further, the evidence submitted
shows that Conseco did not specifically request Donald Billings’ medical records for the five years
prior to his October 2007 application for insurance from Mr. Billings himself until April 21, 2010,
after the instant action was filed.
Accordingly, the Court finds that Conseco is not entitled to summary judgment on plaintiff’s
bad faith claim.
IV.

Conclusion
For the reasons set forth above, the Court DENIES Conseco’s Motion for Summary

Judgment [docket no. 55].
IT IS SO ORDERED this 22nd day of February, 2012.

9