PIP Insurer Required to Defend Process for Denying Claims
Oregon courts have consistently held that an insurance company may only be liable for tortuous bad faith in situations where it is defending its insured. In Ivanov v. Farmers Insurance Company of Oregon, the Oregon Supreme Court addressed an insurer’s obligations under personal injury protection (PIP) coverage. The decision itself addresses an insurer’s obligation to pay medical payments under Oregon’s PIP coverage statutes. Ivanov sought certification of a class and summary judgment regarding denial of PIP benefits “solely on the basis of generalized criteria not specific to claimants’ injuries” and that PIP benefits may not be denied “unless [the] determination is based on a contemporaneous physical examination of the insured by a physician selected by Farmers.” The trial court granted summary judgment in favor of Farmers on Farmers’ corresponding motion for summary judgment on the ground that the PIP statute does not require an IME prior to denial of the claim and that the insured bears the burden of proving that medical expenses were reasonable and necessary. The Court of Appeals affirmed the trial court decision, but held that plaintiff had failed to produce evidence from which a trier of fact could infer that the claimed expenses were necessary.
The plaintiffs’ claims are that the system Farmers uses to deny claims for medical expenses constitutes breach of contract, fraud, breach of the implied duty of good faith, and tortious breach of the duty of good faith. The Oregon Supreme Court notes that in the argument before both of the lower courts and the Oregon Supreme Court, there was no discussion as to the elements of the theories of recovery. The claims are based on Farmers’ use of a computer system to analyze claims that resulted in automatic deductions, rather than a case-by-case review of the particular claims. The court reviewed the PIP statutes and found that ORS 742.524(1)(a) provides a presumption in favor of the necessity of medical expenses incurred by a health care provider. Once a claim is denied, the presumption is removed as well. The court noted, however, that the plaintiffs are not challenging the validity of the denials, but the investigation of the claims prior to the denial. The court held that at the time an insurer decides whether to accept or deny a PIP claim, the medical expenses incurred to that date are presumed to be reasonable and necessary. The court also held that since the summary judgment record did not demonstrate that the process Farmers uses is valid as a matter of law, Farmers was not entitled to summary judgment.
The court discussed an insurer’s duties of good faith to its insured before reaching its decision. In reaching its conclusion, the Oregon Supreme Court found that “because Farmers’ review methodology was an impermissible one, Farmers needed to establish that the procedures it employed to deny plaintiffs’ claims satisfied its statutory and common law duties and did not violate the prohibitions set out in ORS 746.230(1)(d).” ORS 746.230(1)(d) prohibits an insurer from denying a claim without a reasonable investigation. Since Farmers did not present evidence that its claim review process was valid, the plaintiffs did not have to produce evidence that their medical expenses were medically necessary.
