My aching head
Alison Peterson was involved in an automobile collision on October 21, 2009, and sustained a whiplash injury. Peterson was not at fault. She had a policy with Western National Mutual Insurance Company that included underinsured motorist (UIM) coverage with a limit of $250,000. After the collision, Peterson started to experience severe daily headaches.
In December 2012, after exhausting other treatments, Peterson began receiving periodic Botox injections to alleviate her headaches. After beginning the treatments, Peterson reported that her headaches were reduced by 50%. Her treating neurologist believed that Peterson’s injuries were permanent and that she would need Botox injections every three to four months to manage her chronic headaches.
Peterson sought an opinion from a second neurologist. This doctor also opined that her injuries were permanent and that she likely would need to continue Botox treatments for the rest of her life.
On January 13, 2014, Peterson notified Western National that her past medical expenses totaled $46,235 and her expected future medical expenses likely would exceed $300,000. Peterson advised Western National that she likely would seek UIM coverage because the at-fault driver’s policy had liability limits of $50,000. Ultimately, Peterson settled the liability claim for $45,000.
On July 22, 2014, Peterson sent Western National a demand for payment of her $250,000 UIM limits. She enclosed extensive copies of her medical records.
Western National made several requests for medical documentation over the next 11 months, during which time it neither accepted nor denied the UIM coverage demand. Many of the documents Western National requested had previously been submitted by Peterson. Peterson had also authorized Western National to obtain her complete medical records.
On June 18, 2015, Peterson sent Western National a letter seeking an update on the status of the claim and repeated her request for the UIM limits. Western National did not respond.
In August 2015, Peterson sued Western National seeking to recover UIM benefits. Western National obtained authorization for an independent medical examination (IME). After examining Peterson in March 2016, the IME doctor opined that Peterson had suffered only minor soft tissue injuries from the collision and found no causal relationship between the collision and Peterson’s headaches. Western National concluded that Peterson had been fully compensated by the liability settlement with the at-fault driver’s insurer and that Western National’s UIM exposure was “slim to none.”
The parties attended court-ordered mediation on April 4, 2016. Western National offered to settle the claim for $2,000, which it considered a “nuisance-value offer.” Peterson rejected the offer and offered to settle for $200,000; Western National did not accept the offer.
On June 1, 2016, Western National offered Peterson a $10,000 settlement. Peterson did not accept the offer. After the parties completed depositions of Peterson’s medical experts, Western National increased its settlement offer to $50,000.
Peterson’s UIM claim was tried before a jury in August 2016. Both parties presented expert medical testimony regarding the cause of Peterson’s headaches. The jury awarded Peterson damages of over $1.4 million, including more than $900,000 for past and future medical expenses. Western National then paid Peterson the UIM limit of $250,000. The court granted Peterson leave to amend her complaint to add a bad faith claim.
A trial on Peterson’s bad faith claim was held in July and August 2017. Both parties presented expert testimony regarding the insurer’s handling of Peterson’s UIM claim. Peterson’s expert opined that Western National lacked a reasonable basis for denying Peterson’s claim and had acted unreasonably in a number of ways, including failing to investigate her claim fairly, “cherry-pick[ing]” her prior medical records, and unreasonably relying on the dollar value of the damage to her vehicle. Western National’s expert opined that the insurer had reasonably evaluated Peterson’s claim because it obtained an IME, Peterson had headache complaints before the collision, Peterson’s mother suffered migraines, the collision was minor, and her headaches might be related to her multiple sclerosis.
The court found that Peterson proved her claim by showing that Western National lacked a reasonable basis to deny the claim and that Western National either knew of, or acted with reckless disregard of, the lack of a reasonable basis for denying the claim. The court awarded Peterson $100,000 plus $197,940.50 in attorney fees. Western National appealed.
On appeal, the parties disputed the appropriate interpretation of a Minnesota statute that provides a discretionary penalty for the unreasonable denial of a first-party insurance claim. The statute sets forth a two-prong test:
The court may award as taxable costs to an insured against an insurer amounts as provided in subdivision 3 if the insured can show:
(1) the absence of a reasonable basis for denying the benefits of the insurance policy; and
(2) that the insurer knew of the lack of a reasonable basis for denying the benefits of the insurance policy or acted in reckless disregard of the lack of a reasonable basis for denying the benefits of the insurance policy.
The parties disagreed over the meaning of the statute’s first prong. Western National contended that, to establish the first prong, Peterson was required to “prove there [were] no facts or evidence upon which [Western National] could rely to deny coverage.” Peterson disagreed, arguing that the lower court appropriately interpreted the first prong of the statute using what is known in Wisconsin as the Anderson framework. (In Wisconsin, bad faith claims are based on common law and use a two-prong test that mirrors Minnesota’s statute.) Under the first prong of the Anderson test, a court asks whether “a reasonable insurer under the circumstances [would] have denied or delayed payment of the claim under the facts or circumstances. It is appropriate, in applying the test, to determine whether a claim was properly investigated and whether the results of the investigation were subjected to a reasonable evaluation and review.”
The appellate court held that, because more than one reasonable interpretation could be made of the phrase “absence of a reasonable basis,” the phrase was ambiguous and must be construed against the insurer. The judgment of the lower court was affirmed.
Peterson v. Western National Mutual Insurance Company—Court of Appeals of Minnesota—August 6, 2019—No. A18-1081.