Allen v. State Farm Mutual Automobile Insurance Co.

          ORDER

          H. Russel Holland United States District Judge

         Motion for Summary Judgment

         Defendants move for summary judgment on plaintiff's bad faith claims.^[1] In the alternative, defendants move for partial summary judgment on some of plaintiff's damages claims.^[2] Defendants' motion is opposed.^[3] Oral argument was not requested and is not deemed necessary.

         Facts

         Plaintiff is Abraham Allen. Defendants are State Farm Mutual Automobile Insurance Company and Michael Yount.

         On October 17, 2012, plaintiff was working for Alaska's Best Water and was driving a vehicle owned and insured by Alaska's Best Water. Plaintiff was rear-ended at the intersection of Abbott Road and 88th Avenue in Anchorage, Alaska. The insurance policy covering the vehicle was issued by State Farm and provided up to $100, 000 in Underinsured Motorist (UIM) coverage.

         The driver of the vehicle that rear-ended plaintiff was Kris Brandon, who was also insured by State Farm. Brandon was determined to be at fault for the accident. Plaintiff settled his liability claim against Brandon for $100, 000, plus interest and attorney's fees. Plaintiff also received $143, 817.21 in Worker's Comp benefits for his injuries arising out of the accident.

         State Farm was first advised that plaintiff had a potential UIM claim when his attorney called State Farm on October 22, 2013. On October 24, 2013, State Farm acknowledged that it had received plaintiff's claim, ^[4] and on October 25, 2013, State Farm opened a UIM claim in its system.^[5]

         On December 26, 2013, plaintiff requested State Farm's consent to settle his liability claim against Brandon for liability policy limits of $100, 000.^[6] After performing an asset check on Brandon, on January 6, 2014, State Farm gave its consent for plaintiff to settle with Brandon for available liability limits.^[7]

         On March 6, 2014, plaintiff advised State Farm that he was still working on his demand package and that he would send it to State Farm by the end of the month.^[8] The settlement demand package was provided on April 21, 2014.^[9] Plaintiff offered to settle his UIM claim for policy limits of $100, 000.^[10]

         State Farm then began to evaluate plaintiff's UIM claim. Yount was the adjuster assigned to plaintiff's UIM claim. On April 29, 2014, Yount started attempting to find photos of the vehicles involved in the accident.^[11] Although it did not have any photos of plaintiff's vehicle, Alaska's Best Water told Yount that there was no physical damage to the vehicle and that the only damage was to the fuel pump assembly.^[12] Brandon told Yount that the damage to her car that showed up in photos was from driving over snow berms and a prior accident.^[13]

         On April 30, 2014, Yount requested authorization to deny plaintiff's UIM claim for a number of reasons. First, Yount noted that there was no damage to plaintiff's vehicle.^[14]Second, Yount noted that all of the damage to Brandon's vehicle was from another accident or other incidents.^[15] Third, Yount noted that plaintiff claimed that he was rear-ended at 35 miles per hour, but that damages to the vehicles did not support a 35 mph impact.^[16] Yount also noted that although plaintiff claimed he had injured his head, damages to the vehicles did not support sufficient force for him to have struck his head on the interior pillar and there was no evidence that plaintiff remained unconscious for any length of time after the accident.^[17] Fourth, Yount noted that plaintiff's claim that the steel rear bumper of his vehicle was pushed/curled up into the vehicle was not supported by what Yount had been told by Alaska's Best Water.^[18] Fifth, Yount noted that the main injury claimed was midline disc protrusion to C5-6 but that he “unable to find a mechanism from this loss to cause this injury.”^[19] Sixth, Yount noted that the IME doctor who examined plaintiff in connection with his Worker's Comp claim found that the accident was one of the causes of plaintiff's neck injury but that the IME doctor was “under [the] impression” that the accident occurred at 35 mph and that plaintiff lost consciousness, ^[20] facts which Yount believed were not supported.^[21]

         On May 12, 2014, Jeff Isaacson, Yount's Team Manager, noted that “there appears to be some causation questions for this loss.”^[22] Isaacson noted that the “IME and PA [plaintiff's attorney] indicate that this was a significant impact of over 35 MPH, however V1 photos indicate no damage, and the only damage claimed by the insured ... was for a fuel pump.”^[23] Yount was instructed to “[f]ollow up with PA for list of prior medical providers and auths to obtain records. We will also need to request WC file, and any damage photos and estimates PA has for vehicle damage.”^[24]

         On May 14, 2014, Yount informed plaintiff's attorney that he “currently d[id] not see any mechanism for significant inj.” and requested that plaintiff provide any photos he might have of the vehicle he was driving, a copy of his Worker's Comp file, and the past two years of his medical records.^[25]

         On May 23, 2014, plaintiff's attorney “emailed copies of photographs of damage to the van plaintiff was allegedly driving at the time of the accident.”^[26] Again, on May 29, 2014, plaintiff's attorney emailed Yount photographs of the van that plaintiff was allegedly driving at the time of the accident.^[27] Yount avers that “[w]hen I reviewed them, ... the damage to the vehicle bumper did not appear to be from the accident, since the damage was inconsistent with a rear-end accident by a smaller vehicle. The damage also did not appear severe enough to cause the injuries being claimed by plaintiff.”^[28]

         On June 5, 2014, plaintiff's attorney advised Yount that plaintiff said “he has not been to doctor since year 2000 for kidney stones. Had a broken arm prior to that. No PCP prior to MVA.”^[29]

         Sometime between June 5, 2014 and June 10, 2014, plaintiff's attorney advised State Farm that plaintiff had had a life insurance physical in 2012.^[30] On June 10, 2014, Yount noted that “[a]t this time, evidence does not support the inj being claimed. Also, DO [plaintiff] does not appear credible as he has claimed LOC and 35mph impact which appears to be false. At this time, recomm denial of claim on basis that DO has been fully compensated by liability limits of D/W claim.”^[31]

         On July 10, 2014, Yount noted that plaintiff “denies any medical history over the last 14 years except for physical in 2012 (this was found to be false as records indicate inj from a fall 5 days prior to physical in 2012).”^[32] Plaintiff's medical records showed that he had been seen at Mat-Su Regional 5 days before the September 2012 physical.^[33]

         On August 18, 2014, Yount discussed plaintiff's claim with Isaacson and Isaacson noted that “[g]iven causation questions, and uncertainty of prior medical treatment, with a questionable relatedness of surgery to the accident, we will need an IME.”^[34] Yount then discussed plaintiff's claim with a defense attorney (Stacy Walker) who recommended having a biomechanical engineer “determine if any causation for inj and if none then possibly records review for doctor to look over the Biomechanical Expert review and formulate a medical opinion.”^[35] Yount discussed the defense attorney's recommendations with Isaacson who advised him to write a letter retaining the defense attorney and then have her retain the biomechanical engineer.^[36]

         On August 22, 2014, Walker noted that the question is causation. There is an IME done by Dr.

[Dietrich] wherein he opines that Allen's problem relates to this accident. His treating physician is of a similar mind set. The adjuster has real questions regarding the file because the impact forces were so low and the plaintiff's damages so high. The claimant's neurosurgeon is also of the opinion that this accident caused [plaintiff's] problems. We don't have many pre[-] accident records and so it's hard to say whether his problems relate to a prior problem or if they were caused by the accident.^[37]

         On September 22, 2014, Walker advised Yount that there had been some delay in getting a report from the biomechanical engineer.^[38] She also advised that “proceeding w/ an Examination Under Oath of [plaintiff] would be beneficial to answer some questions and confirm ... if he did/didn't have any pre-existing neck problems before this MVA, as well as some mechanical questions about the MVA and how he was positioned upon impact.”^[39]Yount's request to do an Examination under Oath was approved on September 22, 2014^[40] and scheduled for October 8, 2014.^[41] Yount avers that he requested that “Walker confirm causation, the mechanics of the loss, plaintiff's claim of loss of consciousness, plaintiff's past medical history and providers.”^[42]

         At the Examination Under Oath, plaintiff showed State Farm four pictures that plaintiff had of the vehicle that he had been driving on the day of the accident.^[43] These pictures “confirmed there is no separate head rest ... and there is a flat piece of metal (a driver wall) directly behind the seat.”^[44]

         After the Examination Under Oath, State Farm determined that it needed to try to get measurements of plaintiff's vehicle in order to compare measurements of the seat height “w/ [plaintiff's] height regarding his claim that his head went backwards and hit the metal cage behind the driver[']s seat.”^[45]

         On October 14, 2014, State Farm learned that Alaska's Best Water no longer owned the vehicle that plaintiff had been driving.^[46] State Farm then began attempting to locate the current owner of the vehicle.^[47]

         On October 28, 2014, plaintiff filed suit against defendants. Plaintiff asserted a UIM claim as well as bad faith claims against defendants. Although defendants were not served with plaintiff's complaint until January 2015, they were aware that plaintiff had filed suit prior to being served.^[48]

         On November 21, 2014, Yount noted that Walker had informed him that the “accident reconstruction expert Toby Hayes has confirmed forces are about 5mph if the damg to r/e of V1 is actually related to this MVA.”^[49] Yount avers that at this point, he “considered that, if the claimed injury were found to be truly related, an expected award of general damages would be estimated at $100, 000.”^[50] Yount and Walker decided that “based on info we have we should deny claim stating DD fully comp'd by underlying liab carrier. Then through discovery we can obtain further docs to see if it changes impressions of claim or not.”^[51] Yount also noted that “PA has filed bad faith claim and named me in the suit. No concerns w/ this as nothing has been handled in bad faith, simply investigating a claim. DA will work to stay bad faith claim. Explnd I will req TM auth to deny DD's UIM claim and then will f/u to advise if approved.”^[52]

         On December 3, 2014, Yount noted that he was still awaiting approval to deny plaintiff's UIM claim.^[53]

         On December 4, 2014, State Farm learned that plaintiff had been treated by a chiropractor and attempted to obtain these records.^[54]

         Yount avers that by this time,

based on Dr. Hayes' opinions and the other information gathered during our investigation, we evaluated the range of damages for the UIM claim from a low of zero if the claimed neck injury was not caused by the accident to a high of $330, 384, before off-sets, if a jury were to accept that the neck injury was caused by the accident.^[55]

         Yount further avers that “[b]ased on the totality of the investigation and the resulting evaluation, State Farm advised Mr. Allen, through counsel, that State Farm believed Mr. Allen had been fairly compensated for any injuries caused by the October 17, 2017 motor vehicle accident.”^[56]

         Plaintiff's bad faith claims were severed pending outcome of his UIM claim, which he tried to a jury. On September 2, 2016, the jury awarded plaintiff $354, 480.23 for damages caused by the October 17, 2012 motor vehicle collision.^[57]

         Defendants now move for summary judgment on plaintiff's bad faith claims. In the alternative, defendants move for summary judgment on plaintiff's request for punitive damages and summary judgment that plaintiff is not entitled to seek damages based on the stress of the litigation process, emotional distress caused by the motor vehicle accident, and attorney's fees incurred in connection with his UIM claim.

         Discussion

         Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). The initial burden is on the moving party to show that there is an absence of genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). If the moving party meets its initial burden, then the non-moving party must set forth specific facts showing that there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). In deciding a motion for summary judgment, the court views the evidence of the non-movant in the light most favorable to that party, and all justifiable inferences are also to be drawn in its favor. Id. at 255. “[T]he court's ultimate inquiry is to determine whether the ‘specific facts' set forth by the nonmoving party, coupled with undisputed background or contextual facts, are such that a rational or reasonable jury might return a verdict in its favor based on that evidence.” T.W. Elec. Service, Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 631 (9th Cir. 1987).

         First, defendants move for summary judgment on plaintiff's bad faith claims. “Under Alaska's contract law, ‘the covenant of good faith and fair dealing ... is implied in all contracts.'” Lockwood v. Geico General Ins. Co., 323 P.3d 691, 697 (Alaska 2014) (quoting State Farm Mut. Auto. Ins. Co. v. Weiford, 831 P.2d 1264, 1266 (Alaska 1992)). “Although [the Alaska Supreme Court has] declined to define the elements of the tort of bad faith in an insurance contract, [its] precedent makes clear that the element of breach at least requires the insured to show that the insurer's actions were objectively unreasonable under the circumstances.” Id. In order to prevail on his bad faith claims, plaintiff will have to show that the decision to deny his UIM claim was “‘made without a reasonable basis.'” Id. at 698 (quoting Hillman v. Nationwide Mut. Fire Ins. Co., 855 P.2d 1321, 1324 (Alaska 1993)).

         As an initial matter, there is some disagreement as to whether plaintiff's bad faith claims can be based on violations of the Unfair Claim Settlement Practices Act, AS 21.36.125, and its implementing regulations, 3 AAC 26. In his complaint, plaintiff alleges that such violations are a “breach of the covenant of good faith and fair dealing....”^[58]However, there is no private cause of action for violations of AS 21.36.125. O.K. Lumber Co., Inc. v. Providence Washington Ins. Co., 759 P.2d 523, 527 (Alaska 1988). But, plaintiff has also alleged that violations of AS 21.36.125 are evidence of an insurer's breach of the implied covenant of good faith and fair dealing.^[59] Violations of AS 21.36.125 and its implementing regulations could be evidence of bad faith.

         Defendants argue that plaintiff's bad faith claims are primarily based on allegations that they acted in bad faith because they investigated and evaluated his UIM claim, rather than just paying it. Defendants argue, however, that there was nothing improper about them investigating and evaluating plaintiff's UIM claim because this claim was fairly debatable. “[A]n insurance company may ... challenge claims which are fairly debatable” without acting in bad faith. Hillman, 855 P.2d at 1324 (citation omitted). “[I]f reasonable minds can differ on the coverage-determining facts or law, then [a] claim is fairly debatable.” Bellville v. Farm Bureau Mut. Ins. Co., 702 N.W.2d 468, 473 (Iowa 2005). “The fact that the insurer's position is ultimately found to lack merit is not sufficient by itself to establish ... a bad faith claim.” Id.

         In support of their argument that plaintiff's UIM claim was fairly debatable, defendants rely heavily on the fact that they hired a causation expert because some courts have found that an insurer's reliance on an expert is evidence that the claim in question is fairly debatable. See, e.g., Lakehurst Condominium Owners Ass'n v. State Farm Fire and Cas. Co., 486 F.Supp.2d 1205, 1214 (W.D. Wash. 2007) (“There is no question that the investigations performed by American and Trinity were reasonable. Both insurers hired qualified experts, and the experts conducted extensive inspections of the subject property.”); Maynard v. State Farm Mut. Auto. Ins. Co., 499 F.Supp.2d 1154, 1160 (C.D. Cal. 2007) (“An insurer may also demonstrate a genuine dispute if it relied on opinions from experts while evaluating the insured's claim”); Prince v. Bear River Mut. Ins. Co., 56 P.3d 524, 535 (Utah 2002) (“[d]enying benefits under an insurance policy in ...