In two recent cases, the courts showed substantial deference to patients’ treating physicians in determining the reasonableness of medical treatment. This deference appears to reflect a reluctance of courts to decide what healthcare is appropriate for a patient.

In Peterson v. Western National Mut. Ins. Co., 946 N.W.2d 903 (Minn. 2020), the policyholder was involved in a low-speed automobile accident. Following the accident, she sought treatment from a chiropractor for body aches and headaches. She entered into a settlement with the other driver and her insurer also paid her policy’s no-fault benefits. For two to three years following the accident, the insured underwent various treatments for her headaches. Eventually, she tried Botox injections, which she found effective. The insured’s treating physician reported that the insured would need the $2,500 per treatment Botox injections for the rest of her life. As a result, the insured demanded her insurer pay her policy’s full $250,000 underinsured motorist coverage limit, and then filed suit.

After Peterson filed suit, her insurer retained counsel and retained a board-certified neurologist to conduct an independent medical examination. The board-certified neurologist concluded that the insured’s headaches were likely caused by depression, although the doctor was not qualified to diagnose a psychiatric disorder. The Supreme Court of Minnesota summarily reviewed the evidence and generally agreed with the insured’s treating physician that the insured’s headaches changed in intensity and frequency following the accident. Id. at 914.

Under Minn. Stat. § 604.18, the insured is required to show the absence of a reasonable basis for denying the benefits of the insurance policy, and that the insurer knew of a lack of a reasonable basis for denying the benefits or acted in reckless disregard of the lack of a reasonable basis for denying the benefits. The court explained that the proper inquiry to determine reasonableness is whether “a reasonable insurer under the circumstances would not have denied the insured the benefits of the insurance policy.” Id. at 910. The insurer argued it had a reasonable basis for denying the insured’s claim for benefits because it relied on an independent medical examiner’s opinion and the advice of experienced litigation counsel. The Supreme Court of Minnesota disagreed, advising that “it is not always reasonable to rely on an independent doctor.” Id. at 914. The court noted that the trial court relied on the insured’s expert who opined that a reasonable insurer would have discounted the independent medical examiner’s opinion. The court further noted that the independent medical examiner’s opinion contradicted the findings of the insured’s treating physician, and that the independent medical examiner was not a headache specialist. Id. at 915.

The Supreme Court of Minnesota also agreed with the trial court that the evidence demonstrated reckless inferences to the facts, noting that the insured’s expert opined that the adjuster ignored “clear evidence” in the insured’s medical records that supported her claim. Id. at 916. The court also credited the expert’s testimony that the insurer did not investigate the claim with an open mind, but instead formed an early opinion that the claim had no value because the vehicle damage was minor. The trial court awarded nearly $200,000 in attorney fees and costs.

The dissenting justices disagreed with the majority opinion in Peterson, explaining that the insurer “sought advice from two of its experienced claims adjusters, an internal claims review board, a board-certified neurologist, and an experienced personal-injury attorney. All agreed that, under the policy, she was not entitled to underinsured motorist benefits.” Id. at 919 (Anderson, J., dissenting). The dissent cautioned that if the insured’s bad-faith claim does not fail as a matter of law, then “any personal injury verdict in an uninsured or underinsured motorist case that substantially exceeds the last offer amount from the carrier … carries with it the seeds of a bad-faith claim.” Id. at 921. In other words, the dissent warns that the precedent set by Peterson is likely to open the bad-faith floodgates in Minnesota.

Similarly, in Ghazarian v. Magellan Health, Inc., 53 Cal. App. 5th 171 (Cal. Ct. App. 2020), the dispute turned on the appropriate number of hours of applied behavior analysis (ABA) therapy for a child with autism. Before the child turned seven, he was approved for 157 hours of ABA therapy per month. After turning seven, the insurer advised that only 81 hours per month were medically necessary. The California Court of Appeal reversed an order granting summary judgment in favor of the insurer, finding there were triable issues of fact regarding the reasonableness of the insurer’s medical necessity standards.

The court explained that bad faith may be found where an insurer “employs a standard of medical necessity significantly at variance with the medical standards of the community ….” Id. at 184. Under California law, good faith “demands a construction of medical necessity consistent with community medical standards that will minimize the patient’s uncertainty of coverage in accepting his physician’s recommended treatment.” Id. The court then turned to “the standards set forth by the Behavior Analyst Certification Board (BACB)” which state, “[ABA] treatment should be based on the clinical needs of the individual and not constrained by age….” Id. at 185. The court also noted, however, that the BACB is a private organization established to grant national credentials to ABA professionals, and thus was neither neutral nor local. The court examined the insurer’s medical necessity guidelines and concluded that there was no explanation or evidence to support the reasonableness of the insurer’s guidelines. Ghazarian is remarkable because the court showed deference to a private organization of professionals in determining the medical necessity of the services offered by the same professionals.

While courts make it clear that an insured’s treating physician does not have the final say when it comes to determining medical necessity, the insured’s treating physician will be shown significant deference. As the dissenting justices in Peterson explained, making this type of credibility determination loses sight of the principal issue—whether it is “reasonable” for an insurer to deny a claim for certain medical treatment. A claims professional therefore should consider that a court may evaluate the treating physician’s and independent medical examiner’s credibility in determining what is “reasonable.”