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HomeMy WebLinkAbout98-01285 III ~; ~ ~ } ", ~ ;' ~ ~ '" c: ~ ~ ,! . i ( ~ ::-. '\ .5 '-J iQ 'i ...... . 0.. ~ . ~, , . Complaint 1. The plaintJff, Gary S, Ynnnnn!!, Is an adult individual residing at 435 W. North St" Cnrllsl!!, CUl1lb!!rland County, Pennsylvania. 2. The D!!fendant, Unlt!!d Services Automobile Association, is a corporation doing business in ti\l' Commonwealth of Pennsylvania, with offices locat!!d at USAA Building, 9800 Fredricksburg Rd., San Antonio, T!!xas 78288, 3, On September 16, 1996, the plaintiff was involved in a motor vehicle accident whll!! driving a motor vehicle insured with defendant USAA. 4. There was a policy of Insurance in effect at the time of accident, with USAA Insurance Company bearing policy number 002185345. The contract provided fIrst party benefit coverage in the amount of $5,000.00 per person, 5. On the date of the aforesaid accident, the plaintiff was the owner of a 1995 Ford Escort LX, serial number 3FASP15J5SR140727, which was insured with USAA Insurance Company. 6, The plaintiff was injured in the aforesaid accident and as a result of said injuries he incurred medical expenses, which USAA, by letter dated June 16, 1997, wrongfulIy refuses to pay in accordance with the terms of the policy and the laws of the Commonwealth of Pennsylvania. 7, USA A wrongfulIy refused to pay for medical services which were provided to Mr. Yanonne by Dr. Craig Jurgensen, Dr. Ralph Lehman and Alexander Spring Rehab, 8. USAA did fraudulently, knowingly and intentionally misrepresent and deceive Gary Yannone with respect to the availability of coverage under his policy of insurance. 9. USAA has frivolously and with no proper foundation for their actions refused to pay proceeds under their policy of insurance and provide medical benefits in accordance with the terms of the policy. 10. The bad faith conduct of USAA gives rise to a cause of action pursuant to 42 Pa. C.S.A. ~837t. ~ 11. The defendant failed to promptly and completely investigate al1 claims arising under the aforementioned contract of insurance, by reason of the aforesaid incident, I 'I I i , 12. The defendant did not act in good faith to effectuate prompt, fair and equitable resolution of claims, knowing that liability is clear and coverage applies, and as a result, the plaintiff has been forced to incur expense to protect his interests. 13. The defendant failed to promptly provide a factually sound explanation for the basis of denial in the insurance policy in relation to the facts or applicable law for denial of the claim, 14. The defendant has wil1fully, maliciously and/or recklessly withheld benefits from the plaintiff, due to its failure to investigate the claim thoroughly which constitutes a breach of an implied covenant. 15. The defendant, in bad faith, has denied payment on behalf of its insured without a sound legal basis for its denial and in not fully inquiring into the possible basis which might support the insured's claim of coverage. 16. USAA has deliberately acted in conscious disregard and with indifference to the rights of their insured, 17. The defendant impliedly and/or expressly warranted that it would, in good faith, provide insurance coverage to Gary S. Yannone in accordance with the contract and abide by the terms of said contract. 18. As a result of the aforesaid, the defendant breached its contract and/or warranty, which breach resulted in loss to the plaintiff, and has impeded his ability to receive medical services, as well as aggravation, inconvenience and emotional distress. 19. The plaintiff hereby requests all remedial relief as provided in 42 Pa. C.S.A. ~8371 and payment in full of al1 past and future reasonable and necessary medical expenses. Wherefore it is prayed that judgment be entered in favor of the plaintiff and against the defendant in an amount in excess of that requiring compulsory referral to arbitration. A jury trial is hereby demanded. March 6, 1998 . ' . . _ . oJ __.:....~...._ --;---- .. . .~' , " ~, . ( '\. . ,1' ' ~ . ", "p , . , ,~" r~ ..;o.j,';'lif"!'I/n~i(.l\..''\flt'..~ "" ';,"'" .}.' ,,1,,:/.,1'" .',' ,'" ~ ' '. . ..' 'I ' ~ . 'f ,l. ".\ . j",; 'l' '. h" - <J _,..,'.,' < < '., i ~;.." ~' ' . _ : ,",~'\'~.. 'If' ,~," 'I' <.' ~>'\~~ilr:~-f/.'t' 'r "\>~\i...) c', 1,.' ;' 'n',' :\ ':, ..0,.- ;:,' " -. 'I... ~,..l 1 JJJ.f.. '" I.:'~~""J.-,j, 'L"4 ~~I' \, j ,'., Plain tiff I- I. . , , It I \ .;'. I, }l [ j 17 1I0vea,AS, 1I0VGI,AS /I< III1VGI.AS 17 W. IIIGII ST. WII.LlAM I>, DOUGI.AS, ESQ. rOil 2fil Suprellle Court 1.1),# 37926 CARI.ISI..: I'A 17013 n:U:rllON.: 717.24J.17VII "G'arY"5':"r~;'~""'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''fn"'i'fi'i!"co'u,=t"CiI'"co'mrnon''pfeas''or''''' Cumberland County Pennsylvania vs No. 98 - Civil Term United Services Automobile Association t/a/d/b/a USAA Civil Action Law Jury Trial Demanded Defendant Brief in Opposition to Preliminary Objections of the Defendant USAA The underlying issue in this case is a commitment made by an insurance carrier to pay medical expenses and their improper use of the PRO process in an attempt to avoid the terms of the contract made with the insured. The defendant has filed preliminary objections in the nature of a demurrer challenging the legal sufficiency of the pleadings. A preliminary objection, on the ground of legal insufficiency, is an allegation that the plaintiff has failed to state facts constituting a cause of action against the defendant in that the facts so alleged do not show any causal connection between the alleged acts or omissions of the defendant and the injury and damages suffered by the plaintiff. A preliminary objection, on the ground of legal insufficiency in the nature of a demurrer, should be sustained only when it appears with certainty that the law permits no recovery under the allegations pleaded, and any doubts in the determination should be resolved by overruling the objection.1 The court should review all pleadings filed, including those of the party filing the 1 GCk.15 v Sharp, 469 Pa 1, 364 A2d 691 (1976). preliminary obJection,2 However, the court should not deal wHh questions of law unless and until the resolution of the law is essential to a proper disposition of the matters being litigated} A preliminary objection, on the ground of legal insufficiency, in the nature of a demurrer, should not be sustained, unless the law is clear that no recovery is possible.4 If any theory of law will support the pleading challenged by the preliminary objection, the preliminary objection should be overruled.s The issue raised by a preliminary objection in the nature of a demurrer is not whether the applicable law is clear and free from doubt, or whether the statement of the pleader's claim is sufficiently specific in substance and form, as to entitle the pleader to proceed to trial without amending it. The only issue to be resolved by a preliminary objection on the grounds of legal insufficiency in the nature of a demurrer is whether the facts in the pleadings are sufficient to entitle the plaintiffs to relief,6 Therefore, if a party files a preliminary objection in the nature of a demurrer, and the complaint provides a cause of action under any theory of law, as for example under alternative theories, the preliminary objection should be overruled.7 The defendant has cited Slaby v Nationwide Insurance. 69 Northumb, Leg. Jour. 49 (1997) in their brief for the proposition that the defendant's preliminary objection should be sustained. A discussion of Slaby is warranted because, in Slaby. the preliminary objections of the defendant were dismissed. On June 26, 1993, Judith Slaby sustained injuries in a motor vehicle accident, Nationwide refused to pay Ms. Slaby's medical bills pursuant to a PRO review. Nationwide filed preliminary objections claiming the plaintiff was not permitted to proceed with a bad faith action when a PRO is involved, The Court determined that the question of the applicability of 91791 and 98371 had not been addressed by the Pennsylvania appellate courts, and the existing authority from other trial courls was merely persuasive. The Court ruled that public policy necessitated that an insurer could be held liable for bad faith damages, including the possibility of punitive damages. The Court cited the Pennsylvania Supreme Court's reversal in Barnum v State Farm Mutual Automobile Insurance Co., 430 Pa Super 488, 635 A2d 155 (1993), reversed and remanded without opinion, 539 Pa 673, 652 A2d 1319 2 Smith v McDougall, 365 Super Ct 157, 529 A2d 20 (1987). 3 Broido v Klnneman, 375 Pa 568,101 A2d 647 (1954). 4 Clanfranl v Commonwealth State EmploYl'Cs Retirement Bel" 505 Pa 294,479 A2d 468 (1984). S Cianfrani, slIpra. 6 International Union of Operating Englnl'Crs v L1nesville Construction Co., 457 Pa 220. 322 A2d 353 (1974). 7 Packler v State EmploYl'CS Retirement Board, 470 Pa 368, 368 A2d 158, on remand, 33 Cmwlth Ct 452,382 A2d 158, affd 487 Pa 51,408 A2d 1091 (1977). (1995). However, the Supreme Court provided no guidance concerning the Superior Court's determination of the co-application of the PMVFRL and ~8371. The Court concluded that in the absence of precedent expressly prohibiting the co-applicability of the PMVFRL and ~8371, the Supreme Court's reversal of Barnum established only that ~8371 could not apply to good faith use of PRO's, Slaby v Nationwide Insurance. 69 Northumb. Leg. Jour, 49 (1997). Accordingly, the Court held that the PMVFRL was not the exclusive remedy for suits based upon the bad faith use of a PRO. The Court stated, "[iJt goes against our concept of fundamental fairness that an insurance company could simply submit a disputed claim to a PRO, engage in either self-serving or intolerable behavior, and, at the most, only be made to pay 12% interest, costs, and attorney's fees," Slaby opinion at p. 4. The Court reasoned that insurance companies could limit liability to 12 % interest, costs, and attorney fees through good faith compliance with the PRO process. See also, Backstrom v State Farm. No. AD 1997-219 (C.P. Franklin County, January 26, 1998) in which it was found that an insured may maintain a bad faith action when an insurer abuses the PRO process - i.e. the co.applicability of ~1797 and ~8371.; DeFazio v Nationwide. 99 Lack. Jurist 6 (1998), in which the Court found that an insurer can be sued for bad faith for having a PRO organization determine that the plaintiff's injuries were not causally related to the accident. In Lutkowski v State Farm Mutual Automobile Insurance Company. 96 Lack. Jurist 4 (1995) Judge Cottone stated: . . . We believe that plaintiff should be allowed to go forward under Section 8371 because her medical claims were given to a PRO for review, would remove from the courts its responsibility of providing the insured (and medical service professionals) a forum for bad faith claims whenever the PRO system is involved - even if the PRO system is invoked improperly, The net effect of this would be that the PRO system would serve as an umbrella under which insurance companies could always be insulated from 8371 sanctions. Section 8371 is designed to protect the insured from bad faith on the part of the insurance providers irrespective of whether or not the bad faith action occurs after the insurance company chooses to use the PRO system. In conclusion, the Court should not deal with a question of law unless and until the resolution of the law is essential to a proper disposition of the matters being litigated, Also is it is clear that the trend in this area is in fact the opposite as claimed by the defendant. The courts are allowing plaintiff's to maintain ~ 8371 bad faith actions for improper use of the PRO process. 4 LACKAWANNA JURIST Vol. 96 - 1995 BRENDA LUTKOWSKJ, Plaintiff VS, STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant t. The exhaustion or administrative remedies doctrine hu no application to the PRO scheme. A PRO Is not an Impartial administrative agency, a court or record, or a tribunal authorized to resolve disputes wing nut or insurance policies. 2, Section t797(b) of the MVFRL allows an insurer to retain a PRO to IIScertaln only that tteBbnent conrorms to professional standards or performance and Is medically necessary. The In.ur- er may not use the PRO to determine wbether or not the medicaltre.bnent was causally related to a particular accident. 3, [d]isputes regarding causation of the injury ror whicb payment is relUsed are nol covered under [7S Pa. C.S,A.] section 1797. Thererore, there Is no conflict and the [42 Pa. C.S.A. section 8371] bad faith action is not barred, 4. Disallowing plaintiff to go forward under Section 8371 because ber medical claims were given to a PRO for review, would remove from the courts Its responsibility of providing the insured (and medical services proressionals) a rorum for bad raith claims whenever the PRO system i. involved. The net effect of this would be that the PRO system would serve u an umbrella under whicb insurance companies could always be insulated from 8371 sanctions. In the Court of Common Pleas of Lackawanna County, Civil ActionlLaw No. 94 Civi181S. Tem!nce R. Nealon, Esq.. for the Plaintiff. Christine Sheridan, Esq., for the Defendant OPINION COTroNE, J. This matter is before the Court by way of the preliminary objections of the defendant, State Farm Insurance Company (hereinafter: "State Farm''). State Farm's objections are motions to dismiss the plaintiff, Brenda Lutkowski's, com- plaint for failure to set forth a cause of action upon which relief can be granted, pursuant to 42 Pa. R.C.P. Sections 1028 and 1017, and a motion to dismiss the plaintiff's complaint based on lack of subject matter jurisdiction. As the pleadings comprising the record before us reveal, Brenda Lutkowski filed with this Court on February 22, 1994, averring that State Farm breached the terms and conditions of an automobile insurance policy covering the plaintiff, violated Sections 1712 (i), 1716 and 1797 of the Pennsylvania Motor Vehicle Financial Responsibility Law (hereinafter: "MVFRI:'), 7S Pa. C.S.A. Sections 1712(i), 1716 and 1797 (1994), and plaintiff avers that State Farm conducted itself in dealing with plaintiff in such a way as to constitute bad faith under Section 8371 of the Iudicial Code. See 42 Pa. C.S.A. Sections 101 to 22009 (1994). Before examining the instant preliminary objections, however, a cursory review of the underlying facts of this lawsuit would prove beneficial. Plaintiff set forth in her complaint that, on February 13, 1992, she was a passenger riding in \ Vol. 96 - 1995 LACKAWA1'lNA JURlST 5 a 1989 Ford driven by lamie Moult, when the vehicle was struck broadside. The accident resulted in physical injuries to the plaintiff. At the time of this accident, the vehicle in which plaintiff was riding was insured by State Farm. On March 27, 1992, plaintiff was again a passenger in an automobile oper- ated by lamie Moult. This time the vehicle in which she was a passenger was involved in a single vehicle accident resulting in physical injuries to the plaintiff. At the time of this second accident, the vehicle was insured by State Farm. During March of 1993, State Farm hired a peer review organization (here- inafter "PRO") under the MVFRL, 75 Pa. C,S.A. Section 1797(b) to review plaintiff's treatment as provided by Old Forge Physical Therapy. The purpose of the PRO, under the statute, was to review the reasonableness and necessity of plaintiff's medical treatment. I-PRO, the PRO contracted to conduct this review, hired Dr. lohn W. Lehman, M.D. to prepare the review. After analyzing the records of the treatment received by plaintiff while under the care of Old Forge Physical Therapy, Dr. Lehman made a determination that, in his opinion, plain- tiff's injuries were not causally related to the February 13, 1992 accident. In accordance with Dr. Lehman's opinion, State Farm refused payment to Old Forge Physical Therapy for plaintiff's April I to April 28, 1992 and November 20 to December 28, 1992 physical therapy. Slate Farm also used Dr. Lehman's review of Old Forge Physical Therapy's records to deny payment to Dr. J. Teig Port, M.D. for any treatment provided to plaintiff after September, 1992. At no less than four separate points in time spanning the ten months fol- lowing State Farm's denial to pay for plaintiff's treatment, plaintiffhas requested that State Farm provide her with the records I-PRO used in making the PRO detennination - but to no avail. To date, no review of the PRO determination has transpired As a result of State Farm's refusal to pay for plaintiff's medical treatment, and because State Farm has refused by inaction to supply plaintiff with the PRO records for an appeal, plaintiff has filed the instant action. In Count I of her complaint, plaintiff claims State Farm breached the terms and conditions of the insurance policy under which she is covered Plaintiff seeks payment in full of her medical bills resulting ITom treatment for her February and March, 1992 automobile accidents. In Count n, plaintiff seeks damages for bad faith under 42 Pa. C.S.A. Section 8371 based on State Farm's alleged abuse of the MVFRL PRO process. . State Farm's preliminary objections are threefold State Farm's fIrSt pre- liminary objection is in the form of a demurrer. State Farm argues that, under the PRO process, a plaintiff must exhaust her statutorily prescribed remedies as a prerequisite to court action. Her failure to play out the administrative reconsid- eration of the adverse PRO detennination, State Farm maintains, precludes her from this Court. State Farm's second preliminary objection is logically a contin- uation of the f'U'St. State Farm submits that, since the plaintiff has failed to exhaust her administrative remedies, this Court has no subject matter jurisdiction 6 LACKAWANNA JURlST Vol. 96 - 1995 over the claim. As there is a !ink between these first two preliminary objections, we shall consider them jointly. This Court's standard of review when passing judgment on a preliminary objection in the form of a demurrer is well.settled: All material facts set forth in the complaint as well as all reasonable infer- ences therefrom are admitted as true . . . [t]he question presented by the demurrer is whether, on the facts averred, the law says with certainty that no recovery is possible. , Where doubt exists as to whether a demurrer should be sustained, this doubt should be reSolved in favor of overruling it. See Muhammed v. Strasburger, 526 Pa. 541, -.t 587 A.2d 1346, 1349, cm denied, _ U.S. -,112 S. Ct. 196, 116, L. Ed. 2d 156 (1991). The PRO process is set out in Section 1797(b) of the MVFRL, 75 Pa. C.S.A. Sections 1701 to I 799.7(h). Section 1797(b) provides that insurers can contract with a PRO to determine whether a claim for medical benefits should be paid or denied depending upon the reasonableness and necessity of the medical treatment received. A PRO's initial determination may be reconsidered ,if a request is made by an insurer, medical services provider, or the insured within thirty (30) days of the determination. State Farm argues that, because Section 1797(b)(2) allows for a reconsid- eration, that this step must be completed by the plaintiff prior to the institution of a lawsuit. Based upon the recent Pennsylvania' Supreme Court decision of TerminAto v. Pennsylvania Nat'l Ins. Co., however, we disagree wIth'State Farm's argument. See Terminato v. Pennsylvania Nat'l Ins. Co., _ PI. -' 645 A.2d 1287 (1994). T~to revolved around a procedural situation ~at was very similar to the instant case. There, the plaintiff failed to seek an administrative reconsidera- tion of an adverse PRO decision prior to filing suit in a court of law. The defen- dant azgued that, because the plaintiff failed to request a reconsideration, she had not exhausted her administrative/statutory remedies. Justice Zappala, writing the opinion of the court, held that an insured is not required to exhaust the reconsid- eration process prior to proceeding to court. Justice Zappala explained that the exhaustion of administrative remedies doctrine has no application to the PRO scheme. A PRO is not an impartial admin- istrative agency, a court of record, or a tribunal authorized to resolve disputes arising out of insurance policies. A PRO is not entitled to the judicilil deference afforded to admini!ltrative agencies because it is not a neutral body. The insurer initiates the PRO process forming a contractual relationship lacking detachment and neutrality. The insurer chooses the PRO, pays for the PRO's service, and the PRO has a strong rmancial incentive, lest business is sent elsewhere. At the same time, the PRO is not concerned with the insured's-thoughts on the matter because they will not affect its future business. Therefore, a PRO lacks the characteristics of an independent body for which the legislature intended judicial deference. Id at 1290-1. Vol. 96 -1995 LACKAWANNA JURIST 7 Reconsideration of an adverse PRO decision is not a prerequisite to pro- ceeding 10 .court. As such, the plaintiff has, indeed, staled a claim upon which relief may be granted, and this Court does have subject matter jurisdiction 10 hear plainliff's claim for medical benefits coverage. Thus, State Farm's first two pre- liminary objections to Court I are denied. The third and final preliminary objection offered by Stale Farm involves whether a claim for bad faith under Section 8371 of the Judicial Code, 42 Pa. C.S.A. Sections 101 to 22009 (1994), can be raised in a complaint together with a claim for medical benefits under Section 1797(b) of the MVFRL. We believe that there is no conflict blltween Ihe two sections on these facts. The defendant asserts that the MVFRL and 42 Pa. C.S.A. Section 8371 conflict, and that it is improper to join these claims. State Farm maintains that this Court should dismiss Count II of plaintiff's complaint for failure to stale a cause of action upon which relief can be granted - a demurrer. State Fann contracted with I-PRO to review medical services provided to Brenda Lutkowski by Old Forge Physical Therapy. Ms. Lutkowski avers that State Fann, through I-PRO, attempted to establish the causation of plaintiff's injuries and not only whether or not treatment was reasonable and necessary. State Farm used I-PRO's causation determination to deny plaintiff payment for certain medical treatment. Section 1797(b) of the MVFRL allows an insurer to retain a PRO to ascer- tain only that treatment conforms 10 professional standards of performance and is medically necessary. The insurer may not use Ihe PRO to determine whether or not the medical treatment was causally related to a particular accident. See Scott v. Pennsylvania Millers Mut. Ins. Co., No. 145-E 1991 (Luzerne Co., Oct. 14, 1992), allocatur denied, No. 27 M.D.E. 1993 (pa. Super. June 8, 1993). Hence, accepting the facts as alleged, State Farm used the PRO process to make a causation determination without express statutory authority allowing them to do so. State Farm subsequently used that same causation determination to deny first party medical benefits to Brenda Lutkowski. We agree with the logical and well-reasoned opinion concerning similar facts authored by the Hon. Jolene Grubb Kopriva, Judge of the Common Pleas in Blair County, who opined in Bopp v. All State, "[d]isputes regarding causation of the injury for which payment is refused are not covered under [75 Pa. C,S.A.] section 1797. Therefore, there is no conflict and the [42 Pa. C.S.A. section 8371] bad faith action is not barred.>> See Bopp v. All State Ins. Co., No. 93-1790, p. 5 (Blair Co. Pa., Feb. 2, 1994). Judge Kopriva added "[w]e rmd the question of causation is not covered by section 1797. Therefore, the claim under Section 8371 may not be dismissed as there is no conflict between the two sections on these facts." Id. at p. 5. State Farm relies primarily on the Superior Court's Barnum decision where it was held that "[i]f [the insurer] follows the PRO procedure, it cannot be sub- jected to damages for bad faith." Barnwn v. State Farm Mut. Auto Ins. Co., 430 IbJ lB'<I=:~[ ("')'<1 I~ ~!t'~ z ~ ... ~~~ ~ <0 g. ~ ~ .... t"' EI EI ~ . a . .0 Jil~~ ~ rS'.q~[to: 000. 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Citing Darllwll and earlier Dauphin County eases. the Court ngain found that 7S Pa,C.S,A, * 1797 was the plainti f!'s exclusive remedy under the MVFRL. See generully Herd v, Natillllli'idcJnsllrallc.c~.. 116 Dauph. 141 (1996). CacchiI11~..Malcria1 Damngcs..Adjustment Corp....cLal.. I 16 Dauph. 189 (1996), Other jurisdictions have also agreed with the logic of the Barnum decision. The Court of Common Pleas of Northumberland County stated in Slaby v, Nationwide Insurunce that where the insurance eompany used and followed the recommendations of the Peer Review Organization in good faith. 7S Pa.C.S.A. * 1797 would be the applicable statute. Accordingly, the insurance company is thereby shielded from punitive damages found under 42 Pa.C.S.A. * 8371. 69 Northumb. Leg. Jour, 49. SS (1997). Although not mandatory precedent. these cases from Dauphin and Northumberland Counties seem to indicate the trend in Pennsylvania in this particular area of the law. These jurisdictions have accepted the reasoning in Barnum as valid law despite its being reversed on other grounds. Therefore. Defendant urges this court to accept the reasoning of the Superior Court in Barnum. Defendant pruys that its Preliminary Objections be sustained. and Parugraphs 10 and 19 of the Plaintiffs,Complaint be dismissed, with prejudice. at the cost of Plaintiff. Respectfully submitted, I (") lO ~ ~ OJ ,- .-0 ~i" c: '"~ t:p :.= -~ I ~I.J U1 :-.;) ~~,. Q ~e ..., ;j~ ] ~(") -. ~)O ~ :pO :.?om c: w ~ .. ~ W ~ c;:t .~ .- >- If) r;: !f.: ...:z ,.:: N -'L!: """'WO ::.> !liI n~!: '- -7 .....'- U:~ ,. " 'L. 9f;t )cS r- eo: --''':t) t ..... N 5-, "1;":- - 0: ~IJ 0:: t~Z r.!.: c., n:l~ 0<.( -..; ~ ... D:l ;:l en U " (') ,0 ~ c: CL) ;1: "" :;:J ""OCtl ." - -:!J lJHj' ::<J ~~ A'~. 1 l'~ ;;~\~. -J ,.,., c.'" c."; ~?( -;/ ~....:) ..., :l~~ ~C-' =~ ('," ""c .;~() ,.~ Pc: ~ ~ ~ r:- ~ en '"< NO. 98-0077 CIVIL TERM 1. Plaintiff was injured in a motor vehicle accident on October 1, 1996. (Paragraphs 5 & 7). 2. Defendant is responsible for the payment of Plaintiff's first party medical benefits pursuant to a contract of insurance issued in accordance with the Pennsylvania Motor Vehicle Responsibility Law, 75 Pa.C.S.A. S 1701, et sea. (Paragraph 4). 3. Defendant has in the past paid for some of the medical treatment of the injuries sustained by Plaintiff in the accident. (Paragraph 10). 4. Plaintiff continues to suffer from injuries arising from the accident for which she needs and will continue to need medical treatment. (Paragraph 9). 5. Defendant conducted an untimely peer review of Plaintiff's accident related medical treatment. (Paragraph 15). 6. The peer review was conducted by a physician who was not of the "appropriate specialty." (Paragraph 20). 7. Defendant's peer review was a "sham", conducted for the sole purpose of intimidating Plaintiff to keep her from seeking further treatment as recommended by her treating physician. (Paragraph 21). 8. ... . - . . --.-- - . _ __._ _.___..__..___.._____.._____._.____n____.___ ." --_._----_._---~-----_.,._._--- Defendant has refused to pay certain past accident related medical bills. It is also refusing to pay continuing accident related medical bills. (Paragraph 11). 9. Defendant has acted in bad faith by basing its denial of payment for accident related medical bills on a "sham" peer 2 . . NO. 98-0077 CIVIL TERM review. (Paragraph 33). 10. Defendant's conduct is actionable under 42 Pa.C.S.A. S 8371. DISCUSSION It is the Defendant's position that Section 1797{b) of the MVFRL, 75 Pa.C.S.A. S 1797(b), provides the exclusive remedy for a party aggrieved by the peer review procedure set forth therein.2 Therefore, the Defendant argues that Plaintiff cannot 2The relevant portions of 75 Pa.C.S.A. S 1797(b) provide as follows: (b) Peer review plan for challenges to reasonableness and necessity of treatment.-- (1) Peer review plan.--Insurers shall contract jointly or separately with any peer review organization established for the purpose of evaluating treatment, health care services, products or accommodations provided to an injured person. Such evaluation shall be for the purpose of confirming that such treatment, products, services or accommodations conform to the professional standards of performance and are medically necessary. An insurer's challenge must be made to a PRO within 90 days of the insurer's receipt of the provider's bill for treatment or services or may be made at any time for continuing treatment or services. .. . (4) Appeal to court.--A provider of medical treatment or rehabilitative services or merchandise or an insured may challenge before a court an insurer's refusal to pay for past or future medical treatment or rehabilitative services or mel:'ehllc!'ld~I;l:=M18=:t'~a~9.!J!,!,~;j;~!1~..slil=-9)::=J:l_e.c.e-,,- q.l,t...Y Q-f wMckthednsU:!;A" has not challenged before a PRO. Conduct considered to be wanton shall be subject to a payment of treble damages to the injured party. .. . (6) Court determination in favor of provider or insured.-- If, pursuant to paragraph (4), a court determines that medical treatment or rehabilitative services or merchandise were medically necessary, the insurer must pay to the provider the outstanding amount plus interest at 12%, as well as the cost of the challenge and all attorney fees. 3 . . NO. 98-0077 CIVIL TERM maintain a claim under 42 Pa.C.S.A. S 8371.' For the reasons set forth below, we disagree with Defendant's position. At the outset, we note that the standard to be applied to preliminary objections in the nature of a demurrer is whether it is clear and free from doubt that Plaintiff has pled no facts sufficient to establish a right to relief. Bower v. Bower, 531 Pa. 54, 611 A.2d 181 (1992). We must accept as true all well pleaded facts together with any reasonable inferences which may be drawn therefrom. Mellon Bank v. Fabinvi, 437 Pa.Super. 559, 650 A.2d 895 (1994). Any doubt as to the sufficiency of the pleading must be resolved in the Plaintiff's favor. Applying that standard of review to the instant case, we must accept as true the fact that the Defendant conducted an untimely peer review before a physician who was not qualified to review the matter. The whole procedure was a "sham", with results which were a foregone conclusion, conducted for the sole purpose of intimidating the Plaintiff and preventing her from seeking necessary medical treatment which had been recommended by 's 837l. Actions on insurance policies In an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured, the court may take all of the following actions: (1) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%. (2) Award punitive damages against the insurer. (3) Assess court costs and attorney fees against the insurer. 4 . . NO. 98-0077 CIVIL TERM her own treating physician. We have no doubt that such conduct, if true, is exactly the type of bad faith conduct contemplated and made actionable by 42 Pa.C.S.A. S 8371.4 Therefore, the only issue before us is whether the special provisions of 75 Pa.C.S.A. S 1797(b) would bar recovery under the more general provisions of 42 Pa.C.S.A. S 8371. This is the first time our Court has faced the issue of whether an insurer can avoid a claim for bad faith under 42 Pa.C.S.A. S 8371 by using the peer review procedure provided in 75 Pa.C.S.A. S 1797(b). However, the identical issue has been addressed by numerous other Common pleas Courts throughout this Commonwealth, with divided results.s In addition, a three Judge panel of the Superior Court addressed the issue in Barnum v. State Farm Mut. Auto. Ins. Co., 430 Pa.Super. 488, 635 A.2d 155 (1993). While the Barnum Court held that compliance with the provisions of 75 Pa.C.S.A. S 1797 would insulate an insurer from 4 Prior to the passage of 42 Pa.C.S.A. S 8371 there was no cognizable action for bad faith conduct of an insurer in this Commonwealth. D'Ambrosio v. Pa. Nat'l Mut. Cas. Ins. Co., 494 Pa. 501, 431 A.2d 966 (1981). S Those cases which have held that section 1797{b) bars a - _mnm.... ~laim..tlhd~,-r t:l~"..._tion. 83.7.1 wl.ene.tl.e P~~w_J'roc:e(hl:r.e _is_~~ __~ utilized include Conway-West v. State Farm Ins. Co., 19 D & C 4th 84 (C.P. Monroe, 1993), Herd v. Nationwide, 116 Dauph. 141 (1996), and Snyder v. State Farm Ins. Co., 91-56-05676-01, York County (1997). Those cases which are contra include Bacstrom v. State Farm Ins. Co., No. A. D. 1997-219, Franklin County (1998), Hice v. Prudential, 80 Westmoreland L.J. 27 (1997), pierce v. State Farm, 27 D & C 4th 464 (C.P. Lackawanna, 1994), Knox v. Worldwide Ins. Group, 140 P.L.J. 185 (1992), and Milton S. Hershev Medical Ctr. v. state Farm Ins. Co., 21 D & C 4th 62 (C.P. Franklin, 1992). 5 NO. 98-0077 CIVIL TERM liability under 42 Pa.C.S.A. S 8371, the case has no precedential value because it was overturned by our Supreme Court, albeit on other grounds. Barnum v. State Farm Mut. Auto. Ins. Co., 652 A.2d 1319 (pa. 1994). Recognizing that there appears to be a conflict between section 1797(b) and Section 8371, virtually all of the Courts addressing the issue have engaged in an exercise of statutory interpretation and construction. The rule of statutory construction applicable to the issue at bar is found in 1 Pa.C.S.A. S 1933 which provides as follows: S 1933. Particular controls general Whenever a general provision in a statute shall be in conflict with a special provision in the same or another statute, the two shall be construed, if possible, so that effect may be given to both. If the conflict between the two provisions is irreconcilable, the special provisions shall prevail and shall be construed as an exception to the general provision, unless the general provision shall be enacted later' and it shall be the manifest intention of the General Assembly that such general provision shall prevail. Those courts concluding that Section 1797 bars an action under Section 8371 have uniformly held that there is an irreconcilable conflict between the two statutes. Therefore, under the rules set forth in 1 Pa.C.S.A. S 1933, the special provisions of Section 1797(b) of the MVFRL would prevail and bar a claim under the more general provision of Section 8371 of the 6 Section 1797 of the Motor Vehicle Financial Responsibility Law and Section 8371 of the Judicial Code were enacted as part of the Act of February 7, 1990, P.L. 11, No.6, effective AprilS, 1990. 6 NO. 98-0077 CIVIL TERM of the Judicial Code.' While we agree that section 1797{b) is more specific than Section 8371, we do not agree that the two sections cannot be reconciled. section 1933 of the Statutory Construction Act provides that conflicting provisions of statutes "shall be construed, if possible, so that effect may be given to both." 1 Pa.C.S.A. S 1933 (emphasis added). In the instant case, we feel that it is certainly possible to construe the provisions so as to give effect to both. Section 17~7 and section 8371 address different types of grievances an insured may have. Therefore, they are reconcilable. The procedures set forth in 1797{b){4) deal with the situation where an insurer refuses to pay medical benefits without challenging the reasonableness or necessity of the treatment before a PRO. If its conduct is found to be "wanton" it is subject to treble damages. However, it does not address the situation alleged to be present in the instant case, i.e. where the insurer submits the insured's claim to a "sham" PRO in 7 As the Barnum Court stated: TheJie~eral~sections",of=the_s.t;atu.te,,,.llf"rp . hp ; I)g . "'" "ml.nAr! cannot be reconciled. The damages specified by the legislature in the event of wanton or bad faith conduct by an insurer are different, and the rate of interest to be awarded is also different.... Because the two provisions were enacted at the same time and cannot be reconciled, the specific provisions of 75 Pa.C.S. S 1797 must be deemed an exception to the general remedy for bad faith contained in 42 Pa.C.S. S 8371. 635 A.2d at 158-159. 7 , . NO. 98-0077 CIVIL TERM bad faith. Section 8371 can, therefore, be construed to apply to the situation in the case at bar, thereby giving effect to both provisions. If we were to adopt Defendant's position, the mere submission of a claim to a PRO would insulate an insurer from a bad faith claim, no matter how corrupt the organization, or how much collusion might be proven to exist between it and the insurer. We cannot believe that this was the intention of the legislature. As Franklin County's Judge Walker so aptly noted, Courts must be permitted to police the relationship between the insurers and PROs to ensure the procedures mandated by [the] legislature are not being used to the disadvantage of the insured.... Prohibiting a plaintiff from proceeding under 8371 because the claim has been submitted to a PRO would thwart [the] legislature's goal of providing fair and efficient procedures to review insurance claims by precluding courts from hearing evidence of fraud, deceit, collaboration, "kickbacks," and other similar conduct that could constitute bad faith. Milton S. Hershev Medical Ctr. v. state Farm Ins. Co., 21 D & C 4th 62,71 (C.P. Franklin 1992). For the reasons set forth above, we are constrained to deny Defendant's Preliminary Objections. ."- ~ .-- '...--.--.--- ...-<--.. ---- -- _._.,~----.._--_..__. +~,..,_.- '__"__"'_'_n '__'... ...___...+_._______.. .. ..n_ _.__________._____.__.___-. } 8 "., ,,_...~...- .". .......~ , '.,--, -'-.:..~._- .~. ." , ..' "_,,, _.~..." ... M' . ~. "I'<r."~"f' ~I~>,\'llr, ~tl"'T' (r:tl.~ ,,, .;l~,.. f J~"'I""U""_I\:i""",_~,'''',<\I.\l'::l''''''i'nl.t'''' .'l....'~ " , ',' ,,', 11 ' .. ',.' if"" if''', " t:""''''. ,. .' .~" ",..",,'1 d~',I' "",'e ~,,,I. I ( .. " ., 'r"' '. ." \ ~\ 'l,\~\ \"" 'I} . , " .,r. li'''l':J'''~.r~' "j< , ,', " \ J ,.'/., , , ... ",'. "'...1' ,'-' "," ! I ' , 4".... ,..... 1 I,.... ',...~,... " .., "'Yr ;", n . " . ".. ,. '~(-.. ~ 1 ' t>.. J! . . t "J II. ',\' , ' .... ,,' t.... " . '.. f'. ' . .' I,.. ....,p k', . ''II': ..-;.~">(1~. ',,(, ' (.....H ",,', I.: _' 'j j l . NICOLE R. MciNTYRE v. STATE FARM AUTO. INS. CO. 209 Clle u.7 Cumbo 200 (1998) mode actlonable by42 Po. C.S.A. ~B371.' Therefore, the only Issue before w Is whether the speclol provisions of 75 Po. C.S.A. U797(b) would bar recovery under the more general provisions of 42 Po. C.S.A. ~8371. ThJs Is the first time our Court has faced the Issue of whether an insurer con ovoid 0 clolm for bod faith under 42 Po. C.S.A. ~8371 by wing the peer review procedure provided In 75 Po. C.S.A. U 797(b). However, the identlcollssue has been addressed by numerow other Common Pleas Courts throughout thJs Commonweolth, with divided results:' In addi. tlon, 0 three.Judge panel of the Superior Court addressed the Issue in Barnum v. State Farm Mutual AutomobUe lDsuranc:e Co., 430 Po. Superior Cl. 488, 635 A.2d 155 (1993). WhDe the Barnum Court held that compliance with the provisions of75 Po. C.S.A. U797 would insulate an Insurer from liability under 42 Po. C.S.A. ~8371, tile case bas no precedentlol value becawe it was ovcrtwned by our Supreme Court, oIbelt on other grounds. Barnum v. State Farm Mutual AutomobUe Insurance Co., 539 Po. 673, 652 A.2d 1319 (1994). Recognizing that there appears to be 0 conll1ct between Sectlon 1797(b) and Sectlon 8371, virtually all of the courts addressing the Issue have engaged in an exercise of statutory inlelpretation and construction. The rule of statutory constructlon applicable to the Issue at bar Is found in 1 Po. C.S.A. U933 which provides as foUows: ~1933. Particular controls general Whenever 0 general provision in 0 statute shall be in conll1ct with 0 special provision in the sume or another statute, the two shall be construed, if possible, so that e/feet may be given to both. If the conllict between the two provisions is irreconcilable, the special provisions shall prevail and shall be construed as an exception to the , ( · Prio, 10 the passage or <12 Pa. C.S.A. 1B371. there was no ~bJe octfon ror bad faith conductor an Insurerm tllb Commonwealth. D'Ambrorio Y. Peonsyll'llllla Natloual Mutual CuuaIty IDIIIranee Co.. 494 Pa. 501. 431 A.2d Il66 (1981). S Th"", cases which ha... held thai Secllon 1797(b) bars a claim under Secllon B371 wheo the Pee, Re.1ew Procedure Is ullll2ed include Conway.We" Y. Slale Farm Iasuru.ee Co, 19 O. .le C. 4th 84 (C.P. Monroe. 1993); Henh. Nationwide, 116 oauph. 141 (1996). and Snyder Y. Slale Farm Inauranee Co., 91-56-05676-01. York County (1997). Tho~ cases whfch are COntra include B__ Y. Slale Farm Im_ Co., No. A. O. 1997.219. FnnldLn County (1998). Hlee Y. PrudenIlaJ,50 Westmoreland I.). 27 (1997). Pleroe Y. Slate Farm lniuraneC Co., 27 O. .le C. .th 484 (C.P. 1Aelotwanna. 1994). Itn.... Y. Worldwfde Inauranee Group, 140 P.1.!. 185 (1992). and MIllon S. He~ Medical Cenle. Y. Slale Farm ltUuranee Co., 21 O. .le C. 4th 62 (C.P. Fnnldbi.I992). 5 i l 210 NICOLE R. MciNTYRE v. STATE FARM AUTO. INS. CO. Cite as 47 Cumbo 206 (l1l98) general provision. unless the general provision shall be enacted later" and It shall be the manifest Intention ofthe General Assembly that such general provision shall prevail. Those courts concluding that Section 1797 bars an action under Section 8371 have uniformly held that there Is an Irreconcilable conlllct between the two statutes. Therefore, under the rules set forth In 1 Pa. C.S.A. ~1933, the special provisions of Section 1797(b) of the MVFRL would prevnil and bar a c1nl.m under the more general provision of Section 8371 of the Judicial Code.' ) , While we agree that Section 1797(b) Is more specific than Section 8371, we do not agree that the two sections cannot be reconciled. Section 1933 of the Statutory Construction Act provides that conlllctlng provi- sions of statutes "shall be construed, if possible. so that effect may be given to both." 1 Pn. C.S.A. 41933 (emphasis added). In the Instant case. we feel that It is certainly possible to construe the provisions so lIS to give effect to both. Section 1797 and Section 8371 address different types of grievances an insured may have. Therefore, they are reconcilable. n,e procedures set forth in Section 1797(b)(4) deal with the situation where an Insurer refuses to pay medical benellts without challenging the rellSonableness or necessity of the treatment before a PRO. If Its conduct Is found to be "wanton"it is subject to treble damages. However, It does not address the situation alleged to be present in the Instant loISe, I.e. where the insurer submits the insured's claim to a "sham" PRO in bad faith. Section 8371 can. therefore. be construed to apply to the situation in the case at bar. thereby giving effect to both provisions. " Section 1797 of the Molo, Veblcle Flnandal R..ponslbiUty Luw and Section &:3'71 of the Judldal Code were enlleled os port of the Act of Febl1llU)l7. 1900. P.L 11. No.6. effective April S. 1990. 7 As Ihe llamum Court staled: The severul sect:fons of the ,tatuto here being examined cannot be I'e'COndled. The damage' specjBed by Ihelw.slature In the eveot ofwaolon or bod fauh conduct by an Insurer IlI'O dlIferent. and the rate of Interest to be awarded is also dltTerent. Beanue the two provisions were elUlCtrd nt the same time and cunnot be rec:onclJed.lh. 'pedRc provisions of7S Pa. C.S.II797 most be deemedan exception 10 the general remedy for bod faith contained In olJ! Pa. C.S. 1B371. lei. at 496, B35 A.2d at 1.58-.'59. 6 -- ---.,., - - . - --- ..Ab':".;"._""," ..__..._'..,.d .,.. .. . \'.~,.' !~1,\. 'f;"-,., ~ '"~, '1:>,1;:100.. 7' '~'\""f"'"'(T''''''''' J:ll",........:t:r:-!~~~;t:~}~:t',~..(r?~~1i't.-:--'l:~.r'''':... ~ ._.,......,'.,~"_ _,'. . '~"'" " ..~ ""....'~,....,~f' ~~'p.,:..~.:..,~i..i}'''',r;:tfJ\~~~,.!tjf.'\~~''tf...i, :1.';.J;.,(1']~;"''':\11>; f~~'?~f.l."l~;.,j, ,,.1',: . 1'1 " '.." I ~'..~.. ll'-'\' I ~. V'l,\"',rn II'............ l......c" , , ""'--'["1."-:'': ,J..'~':',\ ... ;1..... a...... ].,;.....*..:,..~ ' l' 'I . ',.. . , . ..... .:..- ' :'.'\ " ~. 1 ". , ~.. , POST & SCHELL, P.C. ATTORNEYS AT LAW SUITE 100, 240 GRANDVlEW AVE. CAlli" HILL."A 17011 '(717) 73i.1870 FAX: (717)731.1885 WE DO HERESY CERTIFY THAT THE WITHIN IS A TRUE AND COR. REC~"y OF THE ORIGINAL '~1OD ~~ . RN POST & SCIIELL, )'.C. BY: PAUL W. GREGO, ESQUIRE I.D. 1139701 240 GRANDVIEW A VENUE CAMP HILL, PA 17011 (717) 731-1970 ATTORNEYS FOR DEFENDANT USAA GARY S. YANNONE COURT OF COMMON PLEAS OF PENNSYLVANIA CUMBERLAND COUNTY Pluintiff, v. CIVIL ACTION NO. 98-1285 UNITED SERVICES AUTOMOBILE ASSOCIATION t/aldlbla USAA JURY TRIAL DEMANDED Dcfcndanl. ANSWER AND NEW MATTER NOW INTO COURT, through undcrsigncd counsel, comcs thc Dcfcndant, who, in answcr to the Complaint ofthc Plaintiff, rcspcctfully rcprcscnts that: I. Admittcd. 2. Othcr than the dcnial of its status as a corporation, Dcfcndant admits thc allegations of paragraph 2. 3 - 5. Admitted. 6 - 7. Denied as stated. On the contmry, all positions tuken by USAA herein have been in accordance with the policy and the luws of the Commonweulth ofPcnnsylvunia. 8. Defendant specifically denics thut it fmudulcntly, knowingly, or intentionally misrepresentcd or deceived PlaintifTwith rcspcctto the avuilability of coverage under his policy of insumnce. On the contmry, Defendant has mct ull of its obligutions under the upplicahle policy of insurance and laws of the Coml11onwculth ofl'cnnsylvuniu. 9. It is speeilieally dcnicd that Dcfcndant li'ivolously or with no proper foundation rcfused to pay thc proeccds ofthc policy ami provide medical benelits in accordance with the policy. On the contrary, at all times, Delcndant USAA mct its obligmions under thc policy of insurance and laws of the Commonwealth of Pennsylvania. 10. Legal conclusions which require no answer. II. It is speci Iieally denied that Defendant failed to properly or eompletcly investigate all claims arising under the aforementioned policy. On the contrary, Defendant, USAA, at all times, met all of its obligations under the policy of insurance and laws of the Commonwealth of Pennsylvania. 12. It is specilieally denied that Defendant did not act in good faith to effectuate prompt, fair and equitable resolution of claims. On the contrary, Defendant, USAA, at all times, met its obligations under the policies of insurance and laws of the ConuTIonwealth of Pennsylvania. 13. It is specilieally denied that Defendant failed to promptly provide a factually sound explanation for the basis of its denial. On the contrary, Defendant, USAA, at all times, met its obligations under the policies of insurance and laws orthe Commonwealth of Pennsylvania. 14. It is specifically denied that Defcndant has wilfully, maliciously and/or recklessly withheld benefits from the Plaintiff due to its failure to investigate the claim thoroughly. On the contrary, Defendant, USAA, at all times, met its obligations under the policies of insurance and laws of the Commonwealth of Pcnnsylvania. 15. It is spccifically denicd that Defcndant, in bad faith, has denicd payment on behalf of its insurcd without a sound legal basis for its dcnial and in not fully inquiring into thc possiblc basis which might support the insurcd's claim of coverage. On the contrary, Dcfcndant, USAA, at -2- (') ,0 0 ~ 0 -n -~ --J ..,..r:" :5 ~':ifn ri"lt;"! - 0.- :r: :.': .I_,r~ '. ~~\~:, a' '~I ~ (-'C) ~ ,Jo~ ;--S:r ;;.;c.. ...;.. ::~~ 1/ '-J r;~ ;;t': ~~ 2. ::- -". ~ 5.:t .;;- ~. " .'~- --~ ... - - . ~ . \. <" .~. , I " "I. ~ .. . '.. J. i" , 11' ,'" ;., ':~ . ....,..~""i.~;')',\~y;:<..\~.!~Jt=:S;1l.:~/...~~;.V'f."f::i.i:~:--;~;:;J:';.(:[.':;.~l r :':.~ ',1',':' H-,~;! ..'. , ,', \ '.~.'~" :::;~:~'.:';'.>,~~~~:j:~,:~,~'~i>'i~l.l:,;~~>;j~C~~'}j:..'!r'~~;,~1.~:~: ,(~S::~;;~~':"II:;\:::.;.,,:.'I,_' :~~.~T,,.:',.'..l.', .,....,.. (') <::> 0 G 0 -fl --n:!o- '- ..... ~C!l :~ T_ ~J:) :;::: 'l1p 6S~ ~:- -.~~''ll ~ ...~ '-:'6 0 ~ -c -r!-rJ -." (") -r zC' --0 ~8 r;y Olfl ~ -I I:) z. CJ, ~