The “legitimate dispute” defense is asserted in many, if not most, bad faith cases. As noted in a previous post, using this defense, insurance companies often argue there is a “legitimate dispute” with the policyholder about the insurance claim in question, and there can therefore be no bad faith liability. Policyholders often argue in response that the dispute is not “legitimate” but instead based on an improper investigation, skewed evaluation of the issues, biased expert analysis, etc.
In the recent case of Falcone v. Liberty Mutual Insurance Co., the Oklahoma Supreme Court took on the “legitimate dispute” issue in the context of an uninsured motorist (“UM”) claim. In Falcone, the policyholder, Malinda Falcone, was injured in an automobile accident when an uninsured driver ran a stop sign and crashed into the vehicle in which she was riding. Ms. Falcone was taken to the emergency room at OU Medical Center. There, the ER doctors transferred her to the “Level 2” trauma center at the ER. The total medical bill from OU Medical Center submitted to the UM carrier (Liberty Mutual) was $47,203.00 (including $24,420.25 for the Level 2 ER). The total medical bills from all providers were $67,098.23. Ms. Falcone had $100,000.00 in UM coverage available to her.
Liberty Mutual took issue with the amount of the ER bill, and had the medical records reviewed by two out-of-state “utilization review” doctors, both of whom gave the opinion that Ms. Falcone did not need to go to the Level 2 trauma ER. The doctors also took issue with specific treatment, including CT scans. Liberty Mutual then offered significantly less than its UM limits to settle the claim. Ms. Falcone refused to settle for less than her policy limits and filed a bad faith lawsuit against Liberty Mutual.
After the suit was filed, Liberty Mutual paid its $100,000.00 policy limits. Then, Liberty Mutual moved for summary judgment, asking the trial judge to find as a matter of law there was no bad faith. The trial judge granted that motion, and Ms. Falcone appealed. The Oklahoma Supreme Court unanimously overturned the summary judgment in favor of Liberty Mutual, finding it is up to the jury to determine “whether a lack of good faith is shown” by Liberty Mutual’s conduct.
Justice Gurich wrote a separate concurring opinion (with Justice Reif joining her) stating in her opinion Liberty Mutual committed bad faith as a matter of law. Justice Gurich opined the case should be remanded to the trial court with instructions to submit the case to the jury only for a determination of whether Ms. Falcone was entitled to actual and punitive damages. The concurring opinion was critical of Liberty Mutual’s reading of its policy language. Further, the concurring opinion also stated: “The very act of using the utlization reviewers as pretext to deny payment of the emergency room bill in this case is bad faith. Liberty Mutual had no justifiable reason for withholding payment under the policy.”
By way of this opinion, the Oklahoma Supreme Court has reinforced the principle that a bad faith case in which the insurance company relies on the “legitimate dispute” defense should be decided, at least in most cases, by a jury – not on summary judgment. As a result, lay juries will continue to most often be the arbiters of whether an insurance company’s adverse claim position constitutes a “legitimate dispute” or not. Policyholders and their lawyers are likely pleased with this result.