Opinion
Case No.: CV 99-4074 CAS (BQRx)
May 9, 2000
Lee A. Freeman, Freeman Assoc., Woodland Hills, CA, Attorney for Plaintiff.
Peter H. Klee, Charles A. Danaher, William Grant Peterson, Luce Forward Hamilton Scripps, San Diego, CA, Attorneys for Defendant.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
The above-referenced action came on for trial in May 4, 2000 before the Honorable Christina A. Snyder, without a jury. Plaintiff Susan Aronson appeared by her attorney, Lee A. Freeman of the Law Offices of Lee A. Freeman Associates, and defendant State Farm Mutual Automobile Insurance Company appeared by its attorneys, Peter H. Klee and Charles A. Danaher of Luce, Forward, Hamilton Scripps LLP. Testimony having been offered, arguments made, and briefs considered from all of the parties, the Court now makes the following findings of fact and conclusions of law:
I. FINDINGS OF FACT
1. Plaintiff Susan Aronson is a self-employed psychologist, whose practice consists of counseling and working as a court-appointed psychological examiner in family law cases.
2. Ms. Aronson also had a State Farm auto policy with a $5,000 medical payment limit and $100,000 in uninsured motorist coverage. Ms. Aronson also had a State Farm umbrella policy, which provided an addition $1 million in UM coverage.
3. On August 30, 1994, Ms. Aronson was riding as a passenger in a minivan driven by Kimberly Moore, one of Ms. Aronson's clients. Ms. Aronson was returning from a court hearing with Ms. Moore and her children. Ms. Moore was uninsured.
4. Mary Elizabeth Passantino was driving a Mazda pickup truck southbound in heavy traffic on the 55 Freeway. Ms. Passantino made an abrupt stop because of traffic conditions. Patrick Jones, who was driving an Isuzu pickup, struck Ms. Passantino from behind. Ms. Moore then struck Mr. Jones from behind. An unknown driver struck Ms. Moore. The police report indicates the accident caused minor to moderate property damage and that no one was injured in the accident.
5. Ms. Aronson, who was wearing a seatbelt and shoulder harness, got out of the car and helped Ms. Moore's children to safety. She then went to the call box to report the accident. when the paramedics arrived, Ms. Aronson asked them to check her eyes, but did not request or receive any treatment. Ms. Aronson accompanied Ms. Moore to the hospital and watched the children while Ms. Moore was examined. Ms. Aronson then went back to her office.
6. Ms. Aronson did not seek any medical treatment during the week following the accident.
7. On September 7, 1994, Ms. Aronson went to see Teddy Springfield, a chiropractor. The chiropractor referred Ms. Aronson to attorney Robert Johnson.
8. Tests performed at the request of Ms. Aronson's chiropractor showed no recent fractures and that Ms. Aronson's soft tissues were normal.
9. The chiropractor started Ms. Aronson on a Series of 80 chiropractic and physical therapy treatments that lasted for over one year.
10. On September 8, 1994, Ms. Aronson received a series of immunizations from her physician, Dr. John Granzella, in preparation for an upcoming vacation to Asia. Dr. Granzella's records indicate Ms. Aronson was "OK, but not sleeping."
11. On September 12, 1994, Ms. Aronson called State Farm to submit a claim.
12. On September 13, 1994, State Farm called Ms. Aronson to acknowledge her claim. When State Farm inquired about Ms. Moore's insurance information, Ms. Aronson said she would prefer that State Farm not contact Ms. Moore, because Ms. Moore was her client.
13. On September 22, 1994, Ms. Moore informed State Farm that she was uninsured. State Farm left a voice message notifying Ms. Aronson she had a potential UM claim.
14. On September 23, 1994, State Farm left another voice message for Ms. Aronson concerning her UM claim. Ms. Aronson's assistant returned the call and explained that Ms. Aronson was traveling in Asia and would return on October 19, 1994.
15. On October 7, 1994, State Farm began making payments under Ms. Aronson's $5,000 medical payment coverage.
16. On November 1, 1994, Ms. Aronson informed State Farm that she was not sure she wanted to pursue a UM claim, which required filing a lawsuit against Ms. Moore, because Ms. Moore was her client.
17. On November 7, 1994, Ms. Aronson notified State Farm that attorney Johnson would be handling her insurance claim. State Farm asked Mr. Johnson to send a letter of representation.
18. On December 22, 1994, Mr. Johnson's office sent the letter of representation and an apology for the delay. Mr. Johnson's office did not communicate further with State Farm.
19. On January 23, 1995, the chiropractor recommended that Ms. Aronson have intense deep muscle therapy at home once a week. Between February 1, 1995, and August 15, 1996, Ms. Aronson had a series of 77 massages from masseuse Lisa Mallon.
20. On February 1, 1995 Ms. Aronson exhausted the $5,000 limit on her medical payments coverage. State Farm wrote to Mr. Johnson to explain that the company had paid the full policy limits for the medical payments coverage, and to ask him to relay that information to Ms. Aronson.
21. On April 21, 1995, State Farm sent a letter to Mr. Johnson asking him to provide Ms. Aronson's medical specials so that State Farm could evaluate her UM claim. Mr. Johnson did not respond to this request.
22. On May 5, 1995, Ms. Aronson retained a new attorney, John Upton. Shortly thereafter, Mr. Upton referred Ms. Aronson to David Lechuga, Ph.D. for a neuropsychological exam. At or about this time, Ms. Aronson underwent a brain M.R.I. and E.E.G., the results of which were normal.
23. Mr. Upton advised State Farm that Ms. Aronson had sustained a brain injury. This was the first time anybody ever asserted that Ms. Aronson had a brain injury. Mr. Upton also advised State Farm that Ms. Aronson wars undergoing treatment for her head injuries and that he would wait until the treatment was complete before providing State Farm with any medical specials or settlement demands.
24. Mr. Upton did not, however tell State Farm that Ms. Aronson had already had both a brain M.R.I. and an E.E.G. in April 1995, and that neither test revealed an abnormality. State Farm first received the results of these tests after it subpoenaed Ms. Aronson's medical records in connection with the UM arbitration.
25. On June 5, 1995, Ms. Aronson began a series of tests with Dr. Lechuga. He noted that she suffered train anxiety and distress as a result of her perception of "persistent symptoms and life-style alterations." Dr. Lechuga reported: "The lack of significant neuroimaging and neurodiagnostic findings, the nondocumentation of a definite loss of consciousness or alteration of consciousness, and the presence of significant anxiety all, make interpretations of available neuropsychological data challenging." Dr. Lechuga diagnosed a "Cognitive Disorder, Not Otherwise Specified." Mr. Upton did not send this report to State Farm. It was obtained later in connection with the UM arbitration.
26. On June 22, 1995, at State Farm's request, Mr. Upton provided an authorization to obtain Ms. Aronson's medical records. Mr. Upton did not identify the doctors with whom Ms. Aronson was treating.
27. On August 9, 1995, Ms. Aronson reported to her doctor that she was sleeping okay and that she had recently traveled to Russia and had done well.
28. On September 18, 1995, Dr. Christopher bawler began treating Ms. Aronson for pain management. Her complaints included headaches, neck pain, back pain and right shoulder, arm and hand pain. Dr. Lawler referred Ms. Aronson to a physical therapist for a series of 13 treatments.
29. On December 6, 1995, Dr. Lawler discharged Ms. Aronson because her headaches had improved significantly and he had "nothing further to offer."
30. By October 2, 1995, Mr. Upton still had not made a settlement demand to State Farm.
31. On October 5, 1995, State Farm notified Mr. Upton it was demanding UM arbitration. State Farm retained Don Gilbert of the Law Offices of Michael Maguire Associates to handle the arbitration.
32. On October 16, 1995, attorney Gilbert inquired whether Ms. Aronson intended to make is loss of earnings claim and, if so, whether Mr. Upton had any thoughts on how to document the claim without invading the privacy rights of Ms. Aronson's patients. Mr. Gilbert also served sets of form interrogator-leg and requests for production of documents.
33. At or about this time, Ms. Aronson applied for admission to the Traumatic Head Injury Program at Coastline Community College. Entrance into this program required evidence of an acquired brain injury.
34. On October 24, 1995, Coastline wrote to Ms. Aronson's physician, Dr. Smith, stating: "Due to the vagueness of documentation of [Ms. Aronson's] brain injury, we are asking you to sign a Disability Verification form, which states that the applicant does in fact have a brain injury and is not degenerative in nature." Dr. Smith refused to sign the form.
35. On October 31, 1995, Dr. Lechuga (who is not a medical doctor) signed a verification at Coastline's request to facilitate Ms. Aronson's acceptance into the program.
36. On October 30, 1995, Ms. Aronson began a series of 91 chiropractic, physical therapy and acupuncture treatments under the direction of another chiropractor.
37. On November 21, 1995, Mr. Upton advised State Farm that Ms. Aronson would be making a large loss of earnings claim. He also demanded UM arbitration on behalf of Ms. Aronson, but indicated that he did not want to proceed immediately because Ms. Aronson was not permanent and stationary from her injuries and had just entered a two-year, full-time head injury rehabilitation program at Coastline Community College. As it turned out, Ms. Aronson only remained in the full-time program for eight months.
38. On January 8, 1996, Mr. Gilbert asked Mr. Upton to provide a convenient date for Ms. Aronson's deposition.
39. On February 14, 1996, after four extensions, Mr. Upton finally served responses to State Farm's form interrogatories. Mr. Upton objected and refused to provide requested information concerning Ms. Aronson's medical examination, recommendations for treatment, and the medications she was taking. Mr. Upton also objected and refused to provide information related to Ms. Aronson's loss of earnings claim, including her monthly income and the number of days she had missed work due to the accident.
40. On February 14, 1996, Dr. Pittluck (a neurologist to whom Ms. Aronson was referred) issued a medical opinion that Ms. Aronson's condition was permanent and stationary with respect to her injuries. The report indicated Ms. Aronson was working three days a week.
41. Mr. Upton disagreed with Dr. Pittluck's opinion. Me continued to assert his position that settlement talks were premature and that the arbitration should be postponed until Ms. Aronson completed her hospitalization. Mr. Upton promised to contact Mr. Gilbert when Ms. Aronson was ready for her deposition.
42. On August 21, 1996, Mr. Gilbert again asked Mr. Upton to provide a date for Ms. Aronson's deposition and produce documents to support her loss of earnings claim.
43. State Farm noticed Ms. Aronson's deposition, but offered to change the date if it was inconvenient. Mr. Gilbert reminded Mr. Upton that the claim was more than two years old and that Ms. Aronson still had not made a settlement demand or provided the information necessary for State Farm to evaluate the claim. Ms. Aronson failed to appear for her deposition so it was rescheduled.
44. On January 30, 1997, Ms. Aronson appeared for her deposition. However, the deposition had to he postponed because Mr. Upton failed to appear. It was subsequently rescheduled for May 7, 1997.
45. On March 27, 1997, Ms. Aronson fired Mr. Upton and elected to proceed without an attorney. Mr. Upton testified at deposition that he believed it would have been a mistake to make a settlement demand during his tenure On the case because, in his opinion, Ms. Aronson's condition was not permanent and stationary and further evaluation was needed. In the two years Mr. Upton represented Ms. Aronson he did not make a settlement demand.
46. In or about May 1997, Ms. Aronson retained a third attorney, Brian Witzer. At Mr. Witzer's request, Mr. Gilbert agreed again to postpone Ms. Aronson's deposition.
47. On June 24, 1997, Mr. Gilbert asked Mr. Witzer to provide a flew date for MS. Aronson's deposition and to produce documents to support Ms. Aronson's loss of earnings claim. He also requested a letter of representation. Mr. Witzer did not respond.
48. State Farm did not hear from Mr. Witzer for three and a half months. On October 10, 1997, Mr. Gilbert wrote to inquire whether Mr. Witzer was willing to discuss settlement of the case short of arbitration. Mr. Gilbert also renewed his request for a representation letter. Mr. Witzer's office never provided the representation letter required by California Code of Regulations Title 10, Champion. 5, section 2895.2 (commonly referred to as the California Fair Claims Settlement Practices Regulations).
49. On November 12, 1997, Mr. Gilbert was permitted to take Ms. Aronson's deposition.
50. Based on Ms. Aronson's deposition testimony, State Farm retained Barbara Moyer, Ph.D., an independent clinical psychologist and assistant clinical professor in the UCLA. Department of Psychiatry and Biobehavioral Sciences, and Dr. Kenneth Triggs, an orthopedic surgeon, to conduct independent medical examinations of Ms. Aronson.
51. On December 15, 1997, at Mr. Witzer's request, Lawrence Majovski, Ph.D performed a neuropsychological evaluation of Ms. Aronson and reviewed her medical records. Dr. Majovski concluded that Ms. Aronson suffered depression, emotional and psychological problems and neurocognitive decline as a result of the accident.
52. On December 17, 1997, on referral from Mr. Witzer, Dr. Marc Seltzer of the UCLA. Medical Center performed a Cerebral Glucose Metabolic PET Study of Ms. Aronson's brain. The PET Study found a mild relative hypometabolism in the high anterior frontal lobe (a thickening of the frontal bone associated with menopause) Dr. Seltzer concluded that this "might account for the patient's symptoms such as lack of focus and concentration."
53. On December 29, 1997, Ms. Aronson had a CT Scan of her head. Dr. Michael Fisher's radiology report indicates the presence of a bilateral symmetric hyperostosis frontalis interna (abnormally large bone formation in front of skull). He concludes: "There is no mass, midline shift or ventricular abnormality. No intra, extra, axial hemorrhage identified."
54. Dr. Moyer examined Ms. Aronson on January 6, 1998.
55. On January 7, 1998, Dr. Triggs performed an orthopedic examination of Ms. Aronson and reviewed her medical records. An attorney from Mr. Witzer's office was present. Dr. Triggs concluded Ms. Aronson's complaints of low back pain and radiating pain and numbness in her arm and leg were unrelated to the accident, noting that these symptoms were not even mentioned in her medical records until after April 1995. Dr. Triggs also reported that Ms. Aronson had a "very nice full cervical range of motion and does not exhibit any evidence of neurological compromise." He concluded that she did not need further medical or chiropractic treatment.
56. On January 8, 1998, Dr. Majovski gave Mr. Witzer a supplemental report in which he opined that the PET study supported there being an "organic basis" for Ms. Aronson's cognitive problems, i.e., Ms. Aronson had sustained a brain injury.
57. On January 20, 1998, Mr. Witzer gave State Farm copies of Dr. Majovski's reports and other medical information.
58. On January 29, 1998, Mr. Witzer sent a letter to state Farm, demanding a policy limits payment of $1 million.
59. On February 9, 1998, Mr. Gilbert asked Mr. Witzer to document the loss of earnings claim. Mr. Witzer provided a report by Alan Bassman estimating that, as a result of her alleged brain injury, Ms. Aronson's loss of earnings over the remainder of her career was $934,874.
60. Mr. Gilbert informed Mr. Witzer that he could not respond to the demand within 30 days, because he had not received Dr. Moyer's report. He also needed an independent expert to analyze the Pet Study and loss of earnings information.
61. On March 6, 1998, Mr. Witzer demanded that the parties proceed to UM arbitration.
62. On March 10, 1998, Mr. Gilbert reminded Mr. Witzer that he needed to obtain independent evaluations of the Pet Scan and loss of earnings information before he could proceed.
63. On March 12, 1998, Dr. Moyer reported that she found Ms. Aronson's short term memory intact and her sensory and motor skills normal. Dr. Moyer found no evidence of head injury. She concluded Ms. Aronson suffered from "mild depression and had a tendency toward over activity, a wide range of interests and likely unrealistic self-appraisal." Dr. Moyer also noted that: "Overall, the profile suggests that the patient is likely to be free of current disabling psychopathology."
64. On March 24, 1998, Mr. Gilbert informed Mr. Witzer that he could not respond to the settlement demand until he obtained a medical evaluation of the PET Study, an economic analysis of the loss of earnings claim, and a medical records review from Dr. Moyer.
65. On April 19, 1998, Dr. Moyer reported the results of her record review. She noted that: (1) Ms. Aronson's previous neurological exams were normal; (2) the MRI, EEG and brain stem tests were normal; (3) Dr. Lechuga's neuropsychological exam findings that Ms. Aronson had no deficit in sensory, motor or visual skills was inconsistent with his diagnosis of head injury; and (4) Ms. Aronson was regularly taking several prescription medications that were well-known to interfere with cognitive functions, including Trazodone, Lodine and Ultram.
66. Dr. Moyer disagreed with Dr. Lechuga's diagnosis that Ms. Aronson suffered from a "Cognitive Disorder, Not Otherwise Specified."
67. On May 6 and 7, 1998, Mr. Witzer stated that he would file a motion to compel arbitration. He informed Mr. Gilbert that Ms. Aronson was frustrated that the claim had not been resolved.
68. On May 8, 1998, Mr. Gilbert explained that State Farm was willing to proceed to arbitration,
69. On May 12, 1995, the parties agreed to use retired Judge Vernon Foster as the UM arbitrator. The arbitration hearings were scheduled to begin July 22, 1998.
70. On May 13, 1998, Mr. Gilbert asked Dr. Alan Waxman, an export on interpreting PET Studies, to review Ms. Aronson's X-ray films and the PET study. Dr. Waxman informed Mr. Gilbert the PET Study showed no evidence of brain injury.
71. On May 21, 1998, Mr. Gilbert asked Dr. Kenneth Nuddleman (from the neurology department of U.C.I. Medical School) to perform an independent review of Ms. Aronson's medical records. Dr. Nuddleman reported that Ms. Aronson's medical records contained no objective findings to support a brain injury. Her complaints of fatigue, lethargy and reduced energy were considered the result of depression rather than a brain injury.
72. On May 29, 1998, Mr. Gilbert asked Mr. Witzer to provide missing tax returns needed to evaluate the loss of earnings claim. The documents were produced on June 1, 1998.
73. On June 25, 1998, Dr. Nuddleman issued a supplemental report concerning the PET Study. "It was deemed that the findings were relatively minor and could not account for the widespread complaints of this individual."
74. Based upon the opinions and reports of the medical experts, State Farm concluded that Ms. Aronson had suffered soft tissue injury, but did not have brain damage. Relying upon (1) the information provided by Ms. Aronson, (2) the opinions of the independent medical experts retained by Mr. Gilbert, and (3) State Farm's experience with hundreds of similar soft tissue injury claims, the company authorized an otter to Ms. Aronson in the amount of $40,000 to settle the UM claim in late June or early July of 1998. There is a dispute whether the $40,000 offer was communicated to Ms. Aronson and her counsel, but the record is clear that had such offer been communicated, it would have been rejected.
75. State Farm twice agreed to continue the arbitration to accommodate Mr. Witzer's trial schedule. The arbitration ultimately took place on November 17, 19, 20 and 23, 1998.
76. During the arbitration, Mr. Gilbert spoke to Mr. Witzer about State Farm's offer. Mr. Witzer demanded $1,000,000 to settle, but that would include a waiver of any "bad faith" claim. Mr. Witzer told Mr. Gilbert that State Farm should not make another otter unless it was substantial, and that be did not consider $40,000 to be substantial. Later, Mr. Witzer told Mr. Gilbert that he was glad State Farm did not make another offer because, in Mr. Witzer's opinion, it would have been counter-productive.
77. On January 5, 1999, the arbitrator issued his award, concluding:
— Ms. Aronson had spinal degeneration that predated the accident. The accident accounted for only a small part of her cervical and lumbar complaints.
— It was impossible for Ms. Aronson to justify charges for more than 260 visits to chiropractors, physical therapists and masseurs.
— Ms. Aronson's complaints of tennis elbow, rotator cuff tendinitis, and bursitis of the hip were not related to the accident.
— "All diagnostic tests have proven negative for brain injury."
— Ms. Aronson's post accident I.Q. was roughly equivalent to the scores on her high school I.Q. tests.
— The loss of earnings estimates were not helpful because they improperly assumed Ms. Aronson would not recover from her psychological impairments.
— Ms. Aronson suffered psychological injury, including frustration, anxiety and depression, which affected memory loss.
78. The arbitrator found that Ms. Aronson did not have a brain injury. He found that the reasonable value of Ms. Aronson's "psychological injuries" was $500,000. State Farm was given an offset for the $5,000 previously paid under the medical payments coverage, for a net award of $495,000.
79. On January 20, 1999, State Farm hand-delivered checks for $495,000 to Ms. Aronson's counsel.
80. On March 10, 1999, Ms. Aronson filed this bad faith lawsuit.
81. At no time during underlying claim was there a request by Ms. Aronson, or any of her attorneys, for an advance payment on the claim.
82. At no time during the underlying claim was State Farm ever presented with a request to pay the "undisputed" amount of the claim.
83. At no time prior to the arbitration award was there ever an "undisputed" amount on this claim for State Farm to pay. Ms. Aronson's loss of earnings claim was predicated on her having a "brain injury." Specifically, State Farm was told that the reason Ms. Aronson was missing work was because (i) she had enrolled herself in a head trauma program and (ii) she had reduced cognitive capacity — i.e., a brain injury. Likewise, Ms. Aronson's medical specials were not "undisputed." State Farm received medical bills it or treatment that was (i) unrelated to the August 30, 1994 accident, (ii) excessive and (iii) based on the assumption that Ms. Aronson had a brain injury. Neither Ms. Aronson nor her attorneys identified which bills pertained to her alleged brain injury and which pertained to soft tissue injuries and/or injuries that were unrelated to the August 30, 1994 accident. Ms. Aronson's position was that State Farm was obligated to pay all of her medical bills.
84. At no time prior to the arbitration did Ms. Aronson contend that she had suffered a severe psychological injury that was unrelated to a brain injury. In her arbitration brief, she stated: "Ms. Aronson contends that the mild to moderate traumatic brain injury occurred as a result of the August 30, 1994 accident that has caused cognitive deficits that result in economic and non-economic damages that easily exceed the $1 million policy." Likewise, Ms. Aronson's January 29, 1999 demand letter made it clear that her $1 million demand was based upon a purported brain injury, not emotional distress from soft tissue injuries.
II. CONCLUSIONS OF LAW
1. Under California law, a breach of the implied covenant of good faith and fair dealing has two elements: "(1) benefits due under the policy must have been withheld and (2) the reason for withholding benefits must have been unreasonable or without proper cause." Love v. Fire Ins. Exch., 221 Cal.App.3d 1136, 1151 (1990); Waller v. Truck Ins. Exch., Inc., 11 Cal.4th 1, 35 (1995).
2. The implied covenant of good faith requires insurers to be reasonable, not flawless. See e.g., California Shoppers, Inc. v. Royal Globe Ins. Co., 175 Cal.App.3d 1, 55 (1985) (mistakes made by insurance company in handling of claim do not constitute bad faith; proper standard is "unfair dealing"); Congleton v. National Union Fire Ins. Co., 189 Cal.App.3d 51, 59 (1987).
3. Bad faith implies dishonesty, fraud and concealment. Merritt v. Reserve Ins. Co., 34 Cal.App.3d 858, 876 (1973); accord, Hodges v. Standard Accident Ins. Co., 198 Cal.App.2d 564, 574 (1962). Mistakes or negligence in claims handling do not support a cause of action for bad faith. Aceves v. Allstate Ins. Co., 68 P.3d 1160, 1166 (9th Cir. 1996) ("In California, mere negligence is not enough to constitute unreasonable behavior and does not establish a breach of the implied covenant of good faith and fair dealing in an insurance case"); National Life Accident Ins. Co, v. Edwards, 119 Cal.App.3d 326, 339 (1981) (although the insured's claims handling "may have constituted negligent behavior, it . . . did not constitute a violation of the covenant off fair dealing"); see also Sanchez v. Lindsey Morden Claim Servs., Inc., 72 Cal.App.4th 249, 254 (1999) (in California, insureds cannot state a negligence claim against an insurer).
4. To constitute bad faith, an insurer's conduct must demonstrate "a failure or refusal to discharge contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act. . . ." State Farm Fire Cas. Co. v. Superior Court, 45 Cal.App.4th 1093, 1105 (1996), abrogated on other grounds by Cel-Tech Comm., Inc. v. Los Angeles Cellular Telephone Co., 20 Cal.4th 163 (1999).
5. In evaluating the evidence to see if there was any "bad faith" conduct by the insurer, it is essential that no hindsight is applied. The insurance company's action is measured as of the time it was confronted with the factual situation to which it was called to respond. See Austero v. National Cas. Co., 84 Cal.App.3d 1, 32 (1978), overruled on other grounds by Egan v. Mutual of Omaha Ins. Co., 24 Cal.3d 809 (1979);Paulson v. State Farm Auto. Ins. Co., 867 F. Supp. 911, 918 (C.D. Cal. 1994). After-the-fact second-guessing of claims handling decisions cannot form the basis for a had faith claim. See id.
6. An insurance company is not obligated to pay a. claim while it seeks information essential to determining the merits of the claim. Blake v. Aetna Life Ins. Co., 99 Cal.App.3d 901 (1979) (insurer is entitled to withhold payment of a claim until its investigation reveals, "to a measure of certainty," that a loss is covered). An insurer is entitled to withhold payment until it "receives adequate information to process the claim and reach an agreement with the insureds." Globe Indem. Co. v. Superior Court, 6 Cal.App.4th 725, 731 (1992); see also Othman v. Globe Indem, Co., 759 F.2d 1458, 1468 n. 13 (9th Cir. 1985), overruled on other grounds by Bryant v. Ford Motor Co., 832 F.2d 1080 (9th Cir. 1987) (holding that insurer is entitled to withhold benefits while it investigates claim to determine if coverage exists under policy).
7. As a matter of law, "[i]t is not unreasonable for an insurer to resolve good faith doubts about the claim against the claimant." Phelps v. Provident Life Acc. Ins. Co., 60 F. Supp.2d 1014, 1022 (C.D. Cal. 1999) (applying California law). The implied covenant allows "the insurer [to] . . . give its own interests consideration equal to that it gives the interests of its insured." Love v. Fire Ins. Exch., 221 Cal.App.3d 1136, 1148-49 (1990).
8. Both the insurance policy and Insurance Code section 11580.2 provide that disagreements over the value of a UM claim are to be resolved by arbitration. An insurance company does not commit bad faith when it cannot reach an agreement with its insured, and resolves the disagreement through arbitration. See Rangel v. Interinsurance Exch., 4 Cal.4th 1, 16-17 (1992) ("[b]ecause the loss payable is subject to arbitration under the policy, payment may be delayed until the amount of the loss payable has been determined in arbitration."); Austin v. Allstate Ins. Co., 16 Cal.App.4th 1812, 1817 (1993) ("the Legislature has established a policy that underinsured motorist claims are to be determined by arbitration.").
9. The value that an arbitrator subsequently places on an uninsured motorist claim is an after-the-fact event that may not be considered in evaluating the insurer's conduct prior to the arbitration. Paulson, 867 F. Supp. at 919 ("The fact that . . . the arbitrator subsequently found that State Farm owed [the insured] the limit of his policy does not imply that State Farm acted in bad faith in the first instance."); Miller v. Allstate Ins. Co., 1998 WL 937400 (C.D. Cal. 1998) ("The fact that an arbitrator later determined that defendant owed $11,800 to plaintiff instead of the $1,820 offered by Allstate does not by itself constitute bad faith or unfair dealing").
10. An insurer's failure to pay the "undisputed amount" of the claim is not bad faith. See, e.g., Voland v. Farmers Ins. Co. of Arizona, 189 Ariz. 448, 943 P.2d 808 (App. 1997) (holding that insurer is not obligated to make advance payments on "undisputed" elements of a UM claim); LeFerve v. Westberry, 590 So.2d 154, 162 (Ala. 1991) (same). The implied covenant does not require insurance companies to make advance payments. Florists' Mutual Ins. Co. v. Tatterson, 802 F. Supp. 1426, 1436-37 (E.D. Va. 1992) (holding that implied covenant does not impose obligation on insurer to "advance" benefits due under policy).
11. Under California law, an insurer may not withhold payment. admittedly owed under one portion of the policy while it contests payment under a different portion of the policy. See Neal v. Farmers Ins., Exch., 21 Cal.3d 910, 921 (1978) (insurer may not withhold benefits admittedly owed under TIM coverage pending resolution of disputed med-pay claim); Beck v. State Farm Mut. Auto. Ins. Co., 54 Cal.App.3d 347, 355 (1976) (insurer cannot withhold benefits admittedly owed under med-pay coverage pending resolution of disputed UM claim); Croskey Kauffman, California Practice Guide: Insurance Litigation § 12:926, at 12C-30 (Rutter Group 1999) (under California Law, insurer cannot insist on settling separate claims "as a bundle" where one claim is undisputed and the other is not).
12. State Farm did not withhold benefits admittedly due under one portion of the policy while it contested benefits due under a different portion of the policy. To the contrary, State Farm exhausted its med-pay coverage on this claim before Ms. Aronson submitted a UM claim.
13. State Farm's obligations under the implied covenant are governed by the express terms of the policy. See New Plumbing Contractors. Inc. v. Nationwide Mutual Ins. Co., 7 Cal.App.4th 1088, 1096 (1992) ("neither the duty nor the covenant of good faith and fair dealing extend beyond the terms of the insurance contract in force between the parties"); Racine Laramie, Ltd. v. Department of Parks Recreation, 11 Cal.App.4th 1026, 1032 (1992) ("[i]f there exists a contractual relationship between the parties, . . . the implied covenant is limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated in the contract"); Camelot by the Bay Condominium Owners' Ass'n. v. Scottsdale Ins. Co., 27 Cal.App.4th 33, 52 (1994) ("`[t]he rights of the parties are measured by the contract, and liability of the insurer ordinarily can be imposed only in this manner.' Thus, the terms and conditions of the insurance policy must dictate the scope of the duties and performance to which the insurer is entitled. . . . The insurer does not . . . insure the entire range of an insured's well-being, outside the scope of and unrelated to the insurance policy"); see also Waller v. Truck Ins. Exch., 11 Cal.4th 1, 35-36 (1995) ("the covenant is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct that frustrates the other party's rights to the benefits of the agreement. . . . Absent that contractual right, however, the implied covenant has nothing upon which to act as a supplement, and should not be endowed with an existence independent of its contractual underpinnings"). Nothing in the policy requires State Farm to advance policy benefits where there is a bona fide dispute as to the value of the claim. In fact, the policy expressly contemplates that such disputes will be resolved by UM arbitration.
14. Neither Ms. Aronson nor her attorneys made a request for an advance payment from State Farm. Voland, 943 P.2d at 813 (holding that no duty existed to advance payments under UM coverage because, among other things, no request for an advance was ever made by the insured); Keefe v. Prudential Prop. Cas. Ins. Co., 203 F.3d 218 (3rd Cir. 2000) (same).
The fact that Ms. Aronson was represented by counsel during the claim further undermines her argument. Aceves v. Allstate Ins. Co., 68 F.3d 1160, 1167 (9th Cir. 1995) (observing that California law "relieves insurers of certain duties during claim investigation and negotiation when the insured is represented by counsel.")
15. Even if State Farm had a duty to advance such payments, that rule would not apply in this case. At no time prior to the arbitration award was there an "undisputed amount" on this claim for State Farm to pay. Ms. Aronson's loss of earnings claim was predicated entirely on her having a "brain injury." Specifically, Ms. Aronson represented that she was missing work because (i) she had enrolled herself in a head trauma program and (ii) she bad reduced cognitive capacity — i.e., a brain injury. Likewise, Ms. Aronson's medical specials were not "undisputed." State Farm received medical bills for treatment that were (i) unrelated to the August 30, 1994 accident. (ii) excessive and fill) based on the assumption that Ms. Aronson had a brain injury. Neither Ms. Aronson nor her attorneys identified (even during the arbitration) which bills pertained to her alleged brain injury and which pertained to soft tissue injuries and/or injuries that were unrelated to the August 30, 1994 accident, Ms. Aronson's position was that State Farm was obligated to pay all of her medical bills. See Anderson v. Farmers Ins. Co., 947 P.2d 1003, 1006-1007 (Idaho 1997) (rejecting plaintiff's argument that should have insurer paid "undisputed" medical bills where bills were not segregated by insured and insurer disputed reasonableness of treatment); Williams v. Hartford Cas. Ins. Co., 83 F. Supp.2d 567, 575 (E.D. Pa. 2000) (where insured, insurer and arbitrator all placed different values on value of pain and suffering, insurer had no duty to offer benefits for pain and suffering prior to arbitration, because amount of such benefits were in dispute).
16. Assuming that State Farm offered to settle the UM claim or $40,000, that does not mean that $40,000 was the "undisputed amount" of the claim. As the court stated in Voland:
Contrary to plaintiff's contention, that the carriers considered her claim's "fair value" to be $30,000 and therefore offered to settle for that amount does not mean they acknowledged that was "the minimal amount the insurers own adjuster had evaluated as being owed to the insured" Rather, the settlement otter was simply a proposal to compromise and resolve the claim, nothing more and nothing less. It represented the carriers' evaluation or best estimate, at that point in time, of what the trier (here, the arbitrators) might award.
The carriers' settlement offer did not bind them if, as it turned out, the claim could not be settled and had to be arbitrated. Nor did it set a "floor" on what the arbitrators had to award or what the carriers ultimately would have to pay. As State Farm correctly notes, "an unaccepted settlement otter does net liquidate the amount of damages or constitute an admission of `undisputed amounts' owed."
If, in order to avoid a bad faith claim, UM carriers were obligated to pay the amount of their lowest settlement offer without obtaining any release and before any arbitration hearing or award, they would have little if any incentive to settle. Imposing such a requirement would have a chilling effect on genuine settlement evaluations and negotiations. The effect would be to deter settlement and foster litigation, whereas our system of justice encourages settlement and discourages litigation.943 P.2d at 812; accord, Kosierowski v. Allstate Ins. Co., 51 F. Supp.2d 583, 592 n. 8 (E.D. Pa. 1999) ("[t]he court is unwilling to infer that settlement authority invariably constitutes a final) objective assessment of a claim's worth to which an insurer may be held on penalty of bad faith."); Anderson v. Farmers Ins. Co., 947 P.2d 1003, 1006-1007 (Idaho 1997) (same).
17. Under California law, there can be no bad faith liability where there exists a "genuine issue" as to whether policy benefits are due.Lunsford v. Am. Guar. Liab. Ins. Co., 18 F.3d 653, 656 (9th Cir. 1994);Dalrymple v. U.S.A.A., 40 Cal.App.4th 497, 519 (1995); Opsal v. U.S.A.A., 2 Cal.App.4th 1197, 1205-06 (1991).
18. The "genuine issue" standard, or a similar standard, has been applied with particular force where, as here, the insurance claim presented either a complex or unresolved issue of law in the jurisdiction. Opsal, 2 Cal.App.4th at 1206-07 (because no California court had previously applied the tolling provisions of the Soldiers' and Sailors' Civil Relief Act to the internal limitations period of an insurance policy, there was a "genuine issue" precluding bad faith, even if insurer incorrectly decided the issue); Aceves v. Allstate Ins. Co., 827 F. Supp. 1473, 1485-86 (S.D. Cal. 1994), aff'd in relevant part 68 F.3d 1160 (9th Cir. 1995) (holding that even though insurer's application of the one-year provision was contrary to "the abundance of authority," because it was supported by some authority, as a matter of law, the denial of benefits could not constitute bad faith); Clemco v. Commercial Union Ins. Co., 665 F. Supp. 816, 830 (N.D. Cal. 1987) (no bad faith where California law was "unsettled").
19. California law does not impose bad faith liability on insurance companies for mistakes. Aceves v. Allstate Ins. Co., 68 F.3d 1160, 1166 (9th Cir. 1996) ("In California, mere negligence is not enough to constitute unreasonable behavior and does not establish a breach of the implied covenant of good faith and fair dealing in an insurance case");National Life Accident Ins. Co. v. Edwards, 119 Cal.App.3d 326, 339 (1981) (although the insured's claims handling "may have constituted negligent behavior, it . . . did not constitute a violation of the covenant of fair dealing"); see also Sanchez v. Lindsey Morden Claim Servs., Inc., 72 Cal.App.4th 249, 254 (1999) (in California, insureds cannot state a negligence claim against an insurer).
20. To the extent that any of the following conclusions of law are more appropriately characterized as findings of fact, each and every such conclusion is incorporated fully into the foregoing findings of fact.