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Armas v. USAA Casualty Insurance Co.

United States District Court, N.D. California, San Jose Division

July 24, 2019

GINA ARMAS, et al., Plaintiffs,



         This dispute arises from two car accidents involving Plaintiffs Gina and David Armas. Defendant USAA Casualty Insurance Company provided Plaintiffs with automobile insurance coverage. In connection with the accidents, Plaintiffs submitted insurance claims under their Under Insured Motorist (“UIM”) coverage, Medical Payments coverage, and Extended Benefits coverage. After Defendant allegedly failed to pay Plaintiffs the benefits due under their policy- or delayed paying benefits due, Plaintiffs sued for breach of contract and breach of the implied covenant of good faith and fair dealing, and seek punitive damages. Defendant moved for summary judgment. Having considered the parties' papers and having heard oral arguments, the Court denies the motion.

         I. Factual Background

         Plaintiffs' car insurance policy went into effect in November 2012. Dkt. No. 37-3 (Lolong Ex. 19) at 22-65 (the “Policy”). On December 27, 2012, Plaintiffs were rear ended while stopped at a red light in Merced, California (the “2012 Accident”). Following the 2012 Accident, both Plaintiffs complained of neck and back pain. Over the course of the next year, Gina Armas submitted medical bills for $18, 918.71 to Defendant under their Medical Payments coverage.

         Defendant paid $2, 630.73 of those bills. David Armas submitted $11, 033.35 in medical bills, of which Defendant paid $3, 428.00. In April of 2014, Gina Armas underwent shoulder surgery that was performed by Dr. Gregg Satow. Following the shoulder surgery, Gina Armas, on the advice of Dr. Satow, took time off of her job to recover. On July 26, 2014, Plaintiffs were again rear ended while stopped at a red light (the “2014 Accident”).

         In January 2015, Plaintiffs settled the 2012 Accident with the underlying tortfeasor, whose insurance policy carried a limit of $30, 000 per accident. Gina Armas received $15, 000, David Armas received $10, 000, and a third party received the remaining $5, 000. Plaintiffs advised Defendant of the settlement and, pursuant to the Policy, issued a demand for arbitration concerning their UIM coverage. Defendant deposed Dr. Satow during the runup to the arbitration. Defendant retained Dr. Eldan Eichbaum as a medical expert. He reviewed Gina Armas's records and issued an initial report on February 16, 2016. In that report, he concluded that her pain arose from conditions that were present before the 2012 Accident. He further opined that surgery was not indicated at that time and would not be indicated due to the 2012 Accident. He issued supplemental reports based on her records on April 28, 2016, November 5, 2016, and December 27, 2016. He conducted an independent medical examination of Gina Armas on March 20, 2017, and then issued a report. In all of these reports, he concluded that his original opinions did not change. But, during his deposition on April 28, 2017, he testified that Gina's Armas's treatments were reasonable and medically necessary. The parties agree that this was a change in his opinion. Based on this apparent change, Defendant paid Gina Armas the maximum under her UIM coverage: $285, 000, i.e., the maximum of $300, 000 less the $15, 000 paid by the underlying tortfeasor. Defendant and David Armas reached a settlement as to his UIM coverage.

         While Plaintiffs and Defendant prepared to arbitrate the UIM coverage, Plaintiffs submitted to Defendant medical bills allegedly related to the 2014 Accident: Gina Armas for $10, 370.00 and David Armas for $8, 444.00. Defendant paid $3, 463.75 under Gina Armas's Medical Payments coverage and $4, 916.83 under David Armas's Medical Payments coverage. In April of 2015, Gina Armas underwent a second shoulder surgery. As with the previous surgery, Dr. Satow recommended she take time off from her job. A year later, she underwent neck surgery, which was performed by Dr. Serena Hu. Following that surgery, she took time off from her job. In 2016, Defendant provided Plaintiffs with forms to submit claims under their Extended Benefits coverage for wages lost during Gina Armas's time taken off work. Plaintiffs submitted one claim related to the 2012 Accident (the “031 Application”) covering her post-surgery work restriction beginning in April 2014, and two claims related to the 2014 Accident (the “035 Application”) covering two post-surgery work restrictions starting in April 2015 and April 2016. With these Applications, Plaintiffs submitted notes from Dr. Satow. After receiving the Extended Benefit forms, the claims adjuster working on the 031 Application left Plaintiffs a voicemail in which she erroneously stated that the Policy only covered wages lost within one year of the subject accident, when it actually covered wages lost within two years of the accident. Under the adjuster's misrepresentation, the 031 Application would not be covered. Defendant did not respond to the 035 Application. On June 14, 2017, Plaintiffs' counsel contacted Defendant to follow up on the claims. Defendant responded to counsel with an email that stated no Extended Benefits forms had been submitted in connection with the 2014 accident. Later, on August 23, 2017, Defendant sent Plaintiffs' counsel another letter stating that the 035 Application did not contain information connecting the lost wages to an automobile accident. That same correspondence represented that Defendant had not received the 031 Application. Defendant does not consider the August 23, 2017 letter to be a denial of claims.

         II. Legal Standard

         A court shall grant summary judgment motion where the moving party shows that no genuine dispute as to any material fact exists and that it is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). Where the moving party will not bear the ultimate burden of persuasion at trial, it has both the initial burden of production and the ultimate burden of persuasion on the motion. Friedman v. Live Nation Merch., Inc., 833 F.3d 1180, 1188 (9th Cir. 2016). The moving party may discharge its initial burden of production by “either produc[ing] evidence negating an essential element of the nonmoving party's claim . . . or show[ing] that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial.” Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1103 (9th Cir. 2000). If the moving party carries that burden, then “the nonmoving party must produce evidence to support its claim or defense.” Friedman, 833 F.3d at 1188 (quotation and citation omitted). But, if the moving party cannot carry the initial burden, then the nonmoving party need not produce any evidence to defeat the motion. Nissan Fire & Marine, 210 F.3d at 1102-03. For the moving party to carry its ultimate burden of persuasion, it must convince the deciding court that “there is no genuine issue of material fact.” Friedman, 833 F.3d at 1188.

         “A dispute is genuine only if there is sufficient evidence for a reasonable trier of fact to resolve the issue in the nonmovant's favor, and a fact is material only if it might affect the outcome of the case.” LivePerson, Inc. v. [24], Inc., 2018 WL 5849025, at *3 (N.D. Cal. Nov. 7, 2018) (citing Fresno Motors, LLC v. Mercedes Benz USA, LLC, 771 F.3d 1119, 1125 (9th Cir. 2014)). A court must draw all reasonable inferences in the light most favorable to the nonmoving party. Id. (citing Johnson v. Rancho Santiago Cmty. Coll. Dist., 623 F.3d 1011, 1018 (9th Cir. 2010)).

         III. Breach of Contract

         Plaintiffs claim that Defendant breached the Policy as to Gina Armas's UIM coverage, both Plaintiffs' Medical Payments coverage, and Gina Armas's Extended Benefits coverage. “While insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply.” Baldwin v. AAA N. Cal., Nev. & Utah Ins. Exch., 1 Cal.App. 5th 545, 549-50 (2016), as modified (July 13, 2016). “The elements of a breach of contract action under California law are: (1) the existence of a contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) damages to plaintiff as a result of the breach.” Moss v. Infinity Ins. Co., 2015 WL 7351395, at *3 (N.D. Cal. Nov. 20, 2015). “Unreasonable delay in paying policy benefits or paying less than the amount due is actionable withholding of benefits which may constitute a breach of contract . . . .” Intergulf Dev. LLC v. Superior Court, 183 Cal.App.4th 16, 20 (2010) (citing Wilson v. 21st Century Ins. Co., 42 Cal.4th 713, 723 (2007)). “What is a reasonable time is a question of fact.” Palmquist v. Palmquist, 212 Cal.App. 2d 322, 331 (1963); see also Mattson v. United Servs. Auto. Ass'n, 2019 WL 2330087, at *8 (S.D. Cal. May 31, 2019).

         a. UIM Coverage

         Defendant contends that it did not breach the Policy in connection with Gina Armas's UIM coverage because it paid her the maximum benefit. Dkt. 52-2 at 18, 19 (Pls.' Facts 21, 23). It argues that it relied on Dr. Eichbaum's reports in withholding UIM payments to Gina Armas until he changed his opinion during his deposition, at which point it promptly paid her. However, Gina Armas and Defendant agreed to arbitrate her UIM coverage on January 28, 2015, and Defendant did not settle until May of 2017. Plaintiffs argue that this delay is not justifiable. Opp'n at 7-8, 22, 24

         Plaintiffs have presented sufficient evidence to raise a genuine issue of material fact as to whether Defendant's delay in paying her UIM benefits was reasonable. In November 2016, Defendant's litigation manager wrote a report finding that Gina Armas's neck pain had worsened. Dkt. No. 52-2 at 31-32 (Pls.' Fact 14). This finding contradicted the conclusions (but not necessarily the substance as discussed below) of Dr. Eichbaum's reports. When Dr. Eichbaum changed his opinion during the deposition, he testified that her neck pain had not subsided. Eichbaum Dep. at 16:1-21, 22:19-24:13; see Dkt. 52-2 at 31, 33 (Pls.' Facts 10, 22). Plaintiffs' have therefore raised a triable question as to whether it was reasonable for Defendants to continue to withhold payment for months after finding that her neck pain had worsened.

         b. Medical Payments Coverage

         Plaintiffs claim that Defendant breached the Policy by refusing to pay for, or agreeing to pay only a portion of the cost of medical payments allegedly resulting from the two accidents. For the 2012 Accident, Gina Armas submitted $18, 918.71 in charges, of which Defendant paid only $2, 630.73, and David Armas submitted $11, 033.35 in charges, of which Defendant paid only $3, 428.00 Dkt. 52-2 at 29 (Pls.' Fact 3). For the 2014 Accident, Gina Armas submitted $10, 370.00 in charges, of ...

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