Health and Disability & Life Insurance Law

Summary Judgment Granted in Favor of Insurer on Bad Faith Claim

Health and Disability & Life Insurance Law Committee Newsletter

Health and Disability & Life Insurance Law Committee Newsletter

Spring 2020

In the recent case of Centeno v. American Liberty Insurance Company, No. CV-18-01059-PHX-SMB, 2019 WL 4849548 (D. Ariz. Oct. 1, 2019), the U.S. District Court for the District of Arizona expounded upon the evidentiary burden a plaintiff must satisfy to demonstrate insurer bad faith. Centeno was a traveling nurse employed by Beech Home Care (“Beech”) and was covered under a policy issued by American Liberty Insurance Company (“American Liberty”) providing workers’ compensation coverage. On August 5, 2016, while retrieving medical supplies from her vehicle to continue treatment of a patient, Centeno allegedly fell and injured her back. No one witnessed the injury. Centeno, along with fellow nurse Jeuckstock, continued treating patients that day following Centeno’s alleged injury.

Centeno reported her alleged injury to Beech three days later and began receiving medical care at Chandler Regional Medical Center that same day. The reports of Centeno’s attending physician and radiologist, who both administered treatment that day, differed as to whether Centeno’s injury occurred during or after work. Three weeks passed before Centeno next sought medical treatment by visiting her personal physician. After complaining of continued back and neck pain to her supervisors, Centeno visited a workers compensation clinic, after which she was recommended for light duty. Then, nearly a month after the alleged accident, Centeno reported her injury to American Liberty for the first time.

After conducting an investigation, American Liberty’s claims adjuster determined that Centeno’s claim was initially compensable. Shortly thereafter, however, the initial approval of Centeno’s claim was thrown into doubt by two co-workers’ independent reports indicating that Centeno’s injury was not job-related. One of those reports came from Jueckstock, who insisted that Centeno did not exhibit any signs or symptoms of injury, nor complain of an injury either before or after the time of the alleged accident. The claims adjuster asked a third party adjuster to investigate these reports while continuing to approve Centeno’s medical treatment. Centeno’s medical treatment included the scheduling of therapy sessions, preoperative surgical appointments, and the setting of a tentative surgery date of October 20, 2016.

On October 13, 2016, noting the final claim determination deadline of October 18, 2016, the adjuster denied Centeno’s claim, in part due to the conflicting accounts of Centeno’s co-workers indicating that the injury occurred outside of work and was therefore non-compensable. The adjuster also cited the minimal medical treatment sought in the three-week period immediately following the alleged accident and Centeno’s delay in reporting the claim to American Liberty as additional support for the denial. The adjuster maintained that the timing of the denial – five days before the claim determination deadline – was motivated by a desire to meet the deadline and to allow Centeno to pursue other surgery options given her fast approaching surgery date. Following the claim denial, Centeno postponed her surgery and contested the denial. The Arizona Industrial Commission ultimately reversed the claim denial and Centeno’s claim was found compensable.

Centeno thereafter filed a bad faith action against American Liberty and the claims adjuster, arguing, among other things, that they failed to conduct an adequate investigation and terminated her workers’ compensation benefits without a reasonable basis. More specifically, Centeno argued that American Liberty unreasonably denied her claim in order to save money. As support for this theory, Centeno presented an excerpted section from the claims handler’s website entitled “Philosophy,” which outlined the adjuster’s responsibilities and goals to both employers and their injured workers. These responsibilities and goals included approving meritorious claims and assured that the claims handler “is fully aware of the fact that every dollar spent on workers’ compensation comes directly off the employers’ bottom line. We are committed to working closely with employers and risk management to save every dollar that is legally possible.” 2019 WL 4849548, at *4 (citing Plaintiff’s Response to Defendant’s Motion for Summary Judgment, Exhibit 3). 

American Liberty moved for summary judgment, arguing that the record did not show a genuine dispute of material fact regarding whether American Liberty’s conduct was objectively unreasonable or that it acted with the requisite intent required to show bad faith in Arizona. The Court agreed.

Specifically, the Court found that “to establish bad faith, a plaintiff must demonstrate that its insurer acted unreasonably with respect to the plaintiff’s claim.” 2019 WL 4849548, at *4 (emphasis in original). With respect to the adjuster’s “Philosophy,” the Court found that “[o]utside of conclusory inferences, Centeno [did] not show that this ‘Philosophy’ is considered in American Liberty’s evaluation of claims generally, much less in the consideration of her claim specifically.” Id. “Evidence of an insurer’s allegedly inappropriate claims management practices does not prove bad faith unless those practices were applied to the insurer’s handling of the plaintiff’s particular claim.” Id. “Without any evidence to make this inference reasonable or show a single instance where cost was considered in [Centeno’s] claim evaluation, the Court will not indulge in such a tenuous inferential leap.” Id. at *5. 

With respect to Centeno’s argument that American Liberty’s conduct in handling her claim was objectively unreasonable, the Court found that (i) Centeno did not identify any particular delay in the processing of her claim as unreasonable; (ii) the timing of reports from two disinterested co-workers, requiring American Liberty to conduct additional investigation through a third-party adjuster, explained any internal delay in claim processing; (iii) the reports of Centeno’s medical providers were in conflict, which further justified American Liberty’s continued investigation and eventual claim denial; and (iv) despite Centeno’s argument that American Liberty failed to directly confront her with her two co-workers’ statements, Centeno failed to show that American Liberty had such a duty to do so. Id. at *5. In short, the Court held that American Liberty’s “investigation was not unreasonable merely because Centeno disagree[d] with the outcome.” Id

Daniel P. Thiel

Cozen O'Connor

Daniel’s practice focuses primarily on ERISA and insurance litigation, where he represents ERISA plans and long term disability insurers in disputes regarding such matters as benefit determinations and bad faith. In addition, Daniel has extensive experience litigating stranger originated life insurance (STOLI) matters, in which he has represented insurers challenging the validity of life insurance policies due to a lack of insurable interest. He is licensed in Arizona, Pennsylvania, New Jersey and New York and has litigated cases in state and federal courts across the country. He received his J.D. from the University of Pennsylvania Law School in 2011.

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