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Bosetti v. United States Life Insurance Company in the City of New York

July 17, 2009


APPEAL from judgments and order of the Superior Court of Los Angeles County, Michael C. Solner, Judge. In No. B206896, appeal as to one defendant is dismissed and, as to another defendant, the judgment is reversed with directions. In No. B208835, the judgment and order are affirmed with directions. (Los Angeles County Super. Ct. No. BC354062).

The opinion of the court was delivered by: Croskey, J.


Plaintiff and appellant Linda Bosetti was employed by defendant and respondent Palos Verdes Peninsula Unified School District (PVSD). As part of her employment benefits, she was covered under a group long-term disability insurance policy (the policy) issued by The United States Life Insurance Company in the City of New York (U.S. Life). The third party claims administrator for the policy was Keenan & Associates (Keenan).

Bosetti's job was eliminated for economic reasons. Shortly after she learned that her employment would be terminated, she saw a doctor for depression and was placed on temporary disability. Her disability would ultimately extend for two years, and had a physical component as well as an emotional one. Under the policy, Bosetti could obtain disability benefits for two years if she was disabled from her own occupation. After that time, she could only obtain disability benefits if she was disabled from any occupation. Keenan directed Bosetti to perform a Functional Capacity Evaluation (FCE); the results of the FCE indicated that Bosetti could perform sedentary or light physical work. Therefore, U.S. Life concluded that Bosetti was not disabled from any occupation and terminated her disability benefits at the end of two years.

Bosetti brought suit against U.S. Life, Keenan, and PVSD, seeking additional disability benefits. Keenan successfully demurred on the basis that, as a third party claims administrator, it could not be liable on the policy. PVSD sought summary judgment on the basis that it had fulfilled every duty it owed Bosetti as her employer, and that any coverage disputes were exclusively between Bosetti and U.S. Life. PVSD was granted summary judgment, and was also awarded its costs and attorney fees under Code of Civil Procedure section 1038.

During the course of the litigation, U.S. Life concluded that, regardless of whether Bosetti was still disabled after two years of payments, another defense was available to it. The policy limited benefits for disabilities due to ―mental, nervous or emotional disorder[s]‖ to only two years. U.S. Life took the position that, although Bosetti ultimately suffered some level of physical disability, she did not suffer a physical disability prior to the termination of her employment. As coverage under its policy ceased at the time of the termination of Bosetti's employment, U.S. Life argued there could be no coverage for any physical disability which may have arisen thereafter. U.S. Life sought, and obtained, summary judgment on this basis.

Bosetti filed two notices of appeal, one with respect to judgment in favor of U.S. Life (No. B206896) and the other challenging the judgment and order entered in favor of PVSD (No. B208835).*fn1 Bosetti, however, did not file a notice of appeal from the judgment of dismissal in favor of Keenan, and we will therefore dismiss her appeal in No. B208896 to the extent it challenges that dismissal. Bosetti's complaint against PVSD alleged no legitimate cause of action against PVSD, and we will therefore affirm the summary judgment and order awarding attorney fees in favor of PVSD. In addition, we will remand for a determination of any attorney fees on appeal to which PVSD might be entitled under Code of Civil Procedure section 1038. Finally, as to U.S. Life, we conclude that the mental disability exclusion does not apply when the insured suffered related mental and physical symptoms, and that a triable issue of fact exists as to whether Bosetti suffered from a disability which was not wholly mental while the policy was still in force. We will therefore reverse the summary judgment in favor of U.S. Life. We also conclude, however, that (1) U.S. Life had an objectively reasonable factual and legal basis for its denial of further benefits after two years; and (2) there was no evidence presented showing that U.S. Life had made any intentional misrepresentations or had intentionally inflicted any emotional distress upon Bosetti. For the reasons we explain below, we will therefore direct the trial court to grant summary adjudication in favor of U.S. Life on Bosetti's bad faith and intentional tort causes of action.


1. Bosetti First Seeks Medical Assistance

Bosetti worked for PVSD as an Assistant Director of Adult Education. She was entitled to disability insurance benefits under the policy. In January 2003, PVSD eliminated Bosetti's position for budgetary reasons. The position was eliminated effective March 3, 2003.

After learning in January that her position would be terminated, Bosetti saw her physician, Dr. Barbara Lebron-Caine. She had first seen Dr. Lebron-Caine earlier in that month. At her initial appointment, Bosetti had filled out a medical history questionnaire indicating that she was then being treated for allergies, gastric reflux, and fibromyalgia.*fn2 Nonetheless, Bosetti indicated in the medical history that she was ―reasonably healthy‖ and not experiencing any ―major health problems.‖

Bosetti returned to Dr. Lebron-Caine on January 22, 2003, after having been notified that her job would be eliminated.*fn3 Bosetti testified that she went to see Dr. Lebron-Caine for insomnia; she wanted sleeping pills. Bosetti said that, during the examination, Dr. Lebron-Caine told her that she was suffering from depression and anxiety disorder. Dr. Lebron-Caine would later characterize Bosetti's state at the time as a ―nervous breakdown.‖ Although Dr. Lebron-Caine noted that Bosetti was then suffering from generalized aches and pains, her primary concerns were Bosetti's depression and anxiety. Bosetti was referred to a behavioral health and psychotherapy specialist, as well as a psychiatrist. Dr. Lebron-Caine put Bosetti on temporary disability based on depression and anxiety.

2. Bosetti Submits a Claim for Benefits

Bosetti submitted a claim for disability benefits. On January 30, 2003, Bosetti filled out U.S. Life's Application for Long Term Disability Benefits. In the space on the form asking for the ―first symptoms of [Bosetti's] illness,‖ Bosetti wrote: ―Paraly[z]ing depression, inability to concentrate, mental confusion, insomnia, pain -- headache pain -- increased fibromyalgia pain in muscles in whole body. Poor concentration is affecting my ability to safely drive.‖

3. Further Medical Evaluations Before Termination of Bosetti's Employment

Bosetti's attending physicians were required to complete U.S. Life's Attending Physician's Statement forms documenting her condition, disability, and prognosis. The form has a section entitled ―Physical Impairment‖ and another entitled ―Mental/Nervous Impairment.‖ In each section, the physician can check a box between ―Class 1‖ and ―Class 5,‖ indicating the level of the patient's impairment. On February 4, 2003, Dr. Lebron-Caine completed an Attending Physician's Statement. In the ―Physical Impairment‖ section, Dr. Lebron-Caine wrote ―N.A.‖ She indicated a Class 5 Mental/Nervous impairment. At her deposition, Dr. Lebron-Caine testified that she thought, at the time she completed this form, that Bosetti's problems were emotional and not physical.

Dr. Lebron-Caine completed one further Attending Physician's Statement prior to the termination of Bosetti's employment. On February 24, 2003, Dr. Lebron-Caine's Attending Physician's Statement reflects both a physical and a mental/nervous impairment. Under ―Physical Impairment,‖ Dr. Lebron-Caine checked the box for a Class 5 impairment, which is defined on the form as ―Severe limitation of functional capacity, incapable of minimal (Sedentary) activity.‖ In the ―Remarks‖ section for the physical impairment, Dr. Lebron-Caine wrote, ―Mental Impairment affects her ability to work. 2ary physical impairment.‖ Under ―Mental/Nervous Impairment,‖

Dr. Lebron-Caine also indicated a Class 5 (―severe limitations‖) impairment. At her deposition, Dr. Lebron-Caine explained that she did not diagnose a physical disability independent of Bosetti's emotional disability; instead, the physical disability was secondary to the emotional one. Dr. Lebron-Caine believed Bosetti's physical impairment was her body's reaction to her severe depression and anxiety, rendering her unable to function. According to Bosetti, however, it was ―the other way around.‖ Bosetti testified that her depression was secondary to her physical pain, although she conceded that stress exacerbated her physical pain.

4. Disability Benefits are Granted to Bosetti

As stated above, Bosetti initially applied for disability benefits after Dr. Lebron-Caine placed her on temporary disability on January 23, 2003. Keenan co-managed Bosetti's claim along with an entity referred to as DRMS. Based on Bosetti's reference to pain in the claim form and Dr. Lebron-Caine's identification of a physical impairment, DRMS and Keenan decided to telephone Bosetti and determine whether her disability was purely mental, or whether she was then obtaining medical treatment for a physical condition as well. According to Keenan, Bosetti indicated in a telephone conversation that her disability was purely mental. There is no writing signed by Bosetti confirming that she did not seek disability payments for a physical disability. DRMS and Keenan agreed to approve Bosetti for disability payments for a mental disability, but not a physical disability. On March 18, 2003, Keenan wrote Bosetti, indicating that her claim had been approved. At this time, it was not Keenan's practice to include in the approval letter the nature of the condition for which benefits were approved. In other words, Keenan never told Bosetti that she was approved for only mental disability, and not physical disability, payments. The policy had a 60-day elimination period, so Bosetti's benefits began on March 24, 2003.

5. Further Treatment After Bosetti's Employment is Terminated

Subsequent to the March 3, 2003 termination of her employment, Bosetti suffered from further physical problems. In March 2003, she indicated to her psychologist that her fibromyalgia pain increased. In April 2003, Dr. Lebron-Caine referred Bosetti to a fibromyalgia specialist. That same month, Bosetti told her psychiatrist that she was experiencing back pain, in addition to the increased fibromyalgia. Eventually, x-rays and MRIs were performed, which indicated that Bosetti suffered from degenerative disk disease, herniated disks, and bone spurs. According to Bosetti, her orthopedic physicians agreed that, given the level of degeneration, Bosetti likely had degenerative disk disease prior to January 2003.

6. After Two Years of Benefits, U.S. Life Determines Bosetti Is Not Disabled from "Any Occupation" and Terminates Benefits

The policy had two limitations that went into effect after two years: first, payments for mental or emotional disorders were expressly limited to two years; second, payments for a disability from the insured's ―own occupation‖ would end after two years; benefits would continue only if the insured was disabled from any occupation. In that situation, benefits would continue until age 65. On January 13, 2005, Keenan wrote plaintiff informing her of both limitations and noting that Bosetti will have received two years of benefits by March 23, 2005. Keenan indicated, ―we are continuing to review your claim for any physical restrictions.‖

Bosetti was required to perform a physical FCE to determine whether she could return to work in any occupation. Bosetti attended the evaluation and attempted to test her limitations. However, she would later object that the evaluators, who were not physicians,*fn4 had pushed her too far and caused her extreme back pain which lingered for days after the evaluation. On March 31, 2005, Keenan wrote to Bosetti indicating that, based on its review of her FCE results as well as the entire file, Bosetti had the capacity to perform sedentary to light physical demands.*fn5 Thereafter, a Vocational Assessment was done, in order to determine whether Bosetti was capable of working in any occupation based on the results of her FCE, in light of her education and work history. The Vocational Assessment Report concluded that Bosetti could perform her own occupation of Associate Director of Adult Education, as well as the two previous occupations she held, Administrator and Employment & Training Coordinator.

Additionally, six other occupations were identified based on Bosetti's ―level of education, employment history, transferable skills and functional capacity.‖ The Vocational Assessment Report indicated that Bosetti ―should be able to perform all of [these] occupations using her transferable work skills. These occupations are considered to require college education plus work experience and with her advanced degree in Education and her work history, [Bosetti] would meet these expectations. Employers are willing to provide some job specific training regarding the needs of their individual business. These jobs are sedentary or light duty and would meet [Bosetti's] current work restrictions.‖*fn6 As Bosetti was not disabled from any occupation (or, indeed, her prior occupation), Keenan indicated Bosetti's claim was closed.*fn7

7. Reconsideration Leads to a Second Denial

Bosetti wrote back, requesting that her file be reopened. She submitted a letter from her chiropractor, Dr. Natacha D. Nelson, listing restrictions that should be imposed on Bosetti upon her return to the workplace. These restrictions did not substantially differ from the recommendations in the FCE report. Dr. Nelson would later testify, somewhat ambiguously, that she believed Bosetti to be totally disabled. Recognizing that it would be inconsistent to state that Bosetti is totally disabled and that she could work with restrictions imposed, Dr. Nelson explained that she only set out the restrictions because she thought Bosetti was going to return to work for a trial period to determine whether she was still disabled.

On June 6, 2005, Dr. Lebron-Caine wrote a letter stating that Bosetti has ―multiple disabling medical problems. She has generalized body pain secondary to fibromyalgia. She also has chronic low back pain syndrome and osteopenia. Her chronic pain has contributed to insomnia, depression and fatigue.‖ A June 13, 2005 letter from Terry Davis, Ph.D., Bosetti's psychologist, states, ―The etiology of [Bosetti's] depression appears to be from chronic pain and loss of her ability to engage in her usual activities - work, recreational and personal.‖ In other words, while it had appeared to Dr. Lebron-Caine in February 2003 that Bosetti's physical impairment was caused by her depression, it now appeared that her depression was caused by physical pain.

Keenan reopened Bosetti's claim, but on August 3, 2005, confirmed the initial denial. Keenan explained that the claim was originally denied because Bosetti had reached the two-year limitation on mental disability payments. Keenan further stated that, although Bosetti was experiencing physical pain, Bosetti was not totally disabled by her back pain and fibromyalgia. Keenan had sent Bosetti's file for review by an independent physician consultant, who agreed that Bosetti was not totally physically disabled from working, and that the restrictions suggested by the FCE report and by Dr. Nelson were sufficient. Keenan had also obtained an addendum to the Vocational Assessment Report, in which a vocational expert agreed that, in light of the restrictions identified by the independent physician consultant, the six additional occupations identified in the Vocational Assessment Report still remained ―viable return-to-work situations.‖*fn8

8. Bosetti Files Suit

On July 16, 2006, Bosetti brought the instant action against U.S. Life, PVSD, and Keenan, seeking additional disability insurance payments. She alleged six causes of action: (1) Breach of the insurance contract, against U.S. Life and PVSD, alleging that Bosetti was a third party beneficiary of the insurance contract between U.S. Life and PVSD, and that her payments were improperly cut off after two years. Bosetti sought the unpaid disability benefits from both defendants. (2) Breach of the implied covenant of good faith and fair dealing (bad faith) against U.S. Life and PVSD, wrongfully limiting the applicable coverages, unreasonable investigation of the claim, and failing to consider Bosetti's interests on a par with theirs. (3) Breach of contract, against PVSD and Keenan, alleging that Keenan had an oral contract with PVSD ―to advise and procure long-term disability insurance for the benefit of [Bosetti]‖ and that Keenan and PVSD were thereby obligated to ―review and analyze the coverage [provided] to be certain that [Bosetti] had the best and most complete coverage‖ and ―to tell [her] if additional insurance was necessary, and to recommend other coverage, if needed or available, from other sources, if that would be necessary to protect [Bosetti] in the event [she] became disabled as alleged.‖ (4) Intentional misrepresentation, against all three defendants, for promising without the intent to perform that U.S. Life would pay according to the policy. (5) Intentional Infliction of Emotional Distress, against all three defendants, for terminating benefits when they knew Bosetti was still eligible and suffering. (6) Declaratory Relief against U.S. Life and PVSD, seeking a declaration that Bosetti is entitled to further disability payments. Bosetti sought compensatory damages in the amount of unpaid disability benefits, emotional distress damages, and punitive damages.

9. Keenan Successfully Demurs

Keenan demurred, on the basis that it was not a party to any contract of insurance, but was only a third party claims administrator who owed no obligation to Bosetti. On December 18, 2006, the trial court sustained Keenan's demurrer without leave to amend. A judgment of ...

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