Lewison v. W. Nat’l Mut. Ins. Co., Civ. No. 13-4031-KES, 2014 WL 3573403 (D.S.D. July 21, 2014).

The District of South Dakota grants in part and denies in part an insurer’s motion for summary judgment on two plaintiffs’ bad faith claims, where one plaintiff’s entitlement to benefits was “fairly debatable” at the time of the denial and the other plaintiff’s claim was denied for reasons the insurer knew to be false.

Clinton and Beverly Lewison (the “Lewisons”) were involved in an automobile accident on August 24, 2010. The other driver in the accident was entirely at fault. Neither of the Lewisons went to the hospital immediately after the accident, but both sought medical care shortly thereafter. Mr. Lewison attended physical therapy for knee, shoulder, back, hip, and neck pain, and also received chiropractic care. Due to persistent knee pain, Mr. Lewison saw an orthopedist on December 22, 2010, and had total knee replacement surgery on February 14, 2011. He continued to attend physical therapy until March 31, 2011. Mrs. Lewison also attended physical therapy and received chiropractic care following the accident. She completed all treatment on January 6, 2011.

The Lewisons were insured by Western National Mutual Insurance Company (“Western National”).   Western National was notified of the accident on the day it happened.  The motorist who caused the accident had a policy with another insurance company with policy limits of $25,000 per person. The at-fault driver’s insurer offered to settle with the Lewisons for the full amount of the policy.  Western National advised the Lewisons’ attorney that the Lewisons were free to agree to this settlement.   After settling with the driver, the Lewisons submitted underinsured motorist (“UIM”) claims to Western National.  Western National paid each of the Lewisons $5,000 toward medical expenses but denied their UIM claims.

Western National based its denial of Mr. Lewison’s UIM claim on an independent medical examination (“IME”) conducted by an orthopedic surgeon.  The doctor who performed the IME concluded that Mr. Lewison’s knee injury was not caused by the accident and that he would have needed a knee replacement in any event.  As to Mrs. Lewison, Western Mutual determined that she had fully recovered from all injuries caused by the accident and that the $30,000 she had received was sufficient to cover the entirety of the damages she suffered.

Following the denial of their UIM claims, the Lewisons filed suit against Western National for breach of contract.  The parties were able to reach an agreement under which Western National paid Mr. Lewison the limits of his UIM coverage, $75,000, and paid Mrs. Lewison $30,000 on her claim. After entering into the agreement, the Lewisons filed suit in the District of South Dakota alleging bad faith for Western National’s denial of the UIM claims. Western National moved for summary judgment on both of the bad faith claims.

The court denied the motion for summary judgment as to Mr. Lewison, but granted summary judgment in Western National’s favor on Mrs. Lewison’s bad faith claim. The court explained that bad faith would only be found where there was a lack of a reasonable basis for the denial of policy benefits.  Further, if an insured’s claim was “fairly debatable” either in fact or law, the insurer would not be found to have acted in bad faith.

As to Mr. Lewison, the court noted that Western National’s denial was based on the IME’s conclusion that Mr. Lewison did not complain of any knee pain until several months after the accident.  The court found that Western National knew this assertion was false, because it had a copy of Mr. Lewison’s medical records.  Moreover, in its request for the IME,  Western National told the examining orthopedist that Mr. Lewison complained of knee pain as early as three days after the accident.  Western National argued that it would have denied Mr. Lewison’s claim regardless of when he first complained about his knee.  The court, however, rejected this argument, reasoning that an insurer who denies a claim for reasons known to be false cannot be said to have had a “reasonable basis” for denying the claim.  Accordingly, there was a triable issue of fact as to whether Western National had reasonably denied the claim and the motion for summary judgment was denied.

Unlike Mr. Lewison’s claim, the court found that whether Mrs. Lewison was entitled to UIM benefits was fairly debatable at the time her claim was denied.  Mrs. Lewison argued that Western National acted in bad faith by failing to interview her or speak with any of her treating physicians prior to denying her claim.  The court rejected this argument, noting that when Western National requested an examination under oath, Mrs. Lewison’s counsel refused and accused the company of bad faith conduct.  Moreover, Western National had total access to Mrs. Lewison’s medical records, which indicated that she was doing well at the time she stopped receiving treatment. The court emphasized that while Western Mutual could have spoken to Mrs. Lewison’s physicians in addition to reviewing her records, the law requires an insurer’s investigation of a claim  to be reasonable, not perfect.  Because Western Mutual acted reasonably and the question of whether Mrs. Lewison was entitled to UIM benefits was fairly debatable, Western Mutual was entitled to summary judgment on her bad faith claim.