Dr. Kellie Lim v. The Lincoln National Life Insurance Company

Background

Dr. Kellie Lim sued The Lincoln National Life Insurance Company over long-term disability benefits. Lim alleged that Lincoln breached her disability insurance policy by initially denying her claim and also violated the implied promise of good faith and fair dealing. Lincoln later reopened the claim and approved the benefits after Lim filed suit, and it paid the benefits, including amounts that would have been paid earlier but for the initial denial.

The policy provided long-term disability coverage if Lim could show that, because of injury or sickness, she was unable to perform the substantial and material acts of her own occupation in the usual and customary way and could not satisfactorily perform any occupation for which she could reasonably be expected to qualify. Lim reported chronic pain, including back and finger pain, and difficulties using a computer. Lincoln’s reviewer concluded that Lim had the capacity for sustained physical activity and needed restrictions related to her amputations. The reviewer later addressed her finger pain and recommended limits on fingering, handling, gripping, keyboarding, and mouse use.

Lincoln initially denied the claim. After Lim sued, Lincoln approved it. Lim’s pain-management specialist later stated that the reviewer inaccurately described their conversation, including whether Lim’s pain was controlled and whether she could sustain physical activity. He also stated that he had not said Lim needed restrictions only because of her amputations.

Summary-judgment standard

Summary judgment is appropriate when the evidence shows that no genuine dispute exists about a fact that could affect the outcome and the moving party is entitled to judgment as a matter of law. The court views the evidence in the light most favorable to the party opposing the motion.

Breach-of-contract claim

The court held that Lim could not establish the damages element of her contract claim. Lincoln had paid and continued to pay the benefits due under the policy. Lim argued that she could recover attorney fees and interest for the delay, but the court explained that attorney fees may serve as damages for a tortious bad-faith claim, not for the contract claim itself.

The court also rejected Lim’s argument that California insurance law or California Civil Code section 3287 supplied contract damages through interest. The court concluded that the insurance-law interest provision did not apply because Lincoln did not determine that it was liable until after Lim filed suit, and Lincoln then began paying within the required period. The court further concluded that Lim could not use the general interest statute to establish damages without first showing an entitlement to damages from a contract breach. Lincoln’s motion for summary judgment was therefore granted as to the breach-of-contract claim, and that claim was dismissed.

Bad-faith claim: damages

Lincoln argued that Lim could not prove economic damages from the alleged bad faith. The court disagreed. It concluded that attorney fees Lim incurred to obtain the benefits before Lincoln approved the claim could constitute economic damages in a tort action, subject to the limitation that recoverable fees could not exceed the amount attributable to obtaining the rejected policy benefits. The court also concluded that those economic damages allowed Lim to pursue the emotional-distress damages described in her complaint. Lincoln’s motion was denied on this damages argument.

Bad-faith claim: reasonableness of the denial

Both parties sought summary judgment on whether Lincoln reasonably denied Lim’s claim. Lincoln relied on the rule that an insurer is not liable for bad faith when there was a genuine dispute about coverage or liability. Lim argued that the evidence showed Lincoln denied the claim without fully investigating it.

The court held that neither side had shown the absence of a genuine dispute about a material fact. The dispute over what Lim’s pain-management specialist told Lincoln’s reviewer could support a finding of bad faith, particularly because the reviewer did not interview another care provider and initially did not address Lim’s finger pain. The court also noted that Lincoln quickly overturned the denial after hearing from Lim’s counsel.

At the same time, the court found that the record did not conclusively establish bad faith. The reviewer may have misunderstood the specialist, or the specialist may have remembered the conversation incorrectly. The reviewer’s later consideration of Lim’s finger pain also made the denial more reasonable than it otherwise might have been. The court concluded that whether Lincoln reasonably denied the claim was a question for the jury. Both parties’ motions were denied as to this aspect of the bad-faith claim.

Punitive damages

Lincoln sought summary judgment on Lim’s punitive-damages claim. Under California law, punitive damages require clear and convincing evidence of malice, fraud, oppression, or despicable conduct. Lim relied on evidence that Lincoln had an annual incentive program connected to the company’s financial results.

The court held that the incentive program, without more, was not clear and convincing evidence of the conduct required for punitive damages. The fact that Lim’s claim could be particularly costly to Lincoln also was insufficient. Lincoln’s motion was granted as to punitive damages, and punitive damages were foreclosed.

Disposition

Judge Richard Seeborg denied Lim’s motion for summary judgment. He granted Lincoln’s motion in part and denied it in part: the motion was granted on the breach-of-contract claim and punitive damages, denied on the damages argument concerning the bad-faith claim, and denied as to whether Lincoln reasonably denied Lim’s benefits claim. The breach-of-contract claim was dismissed, punitive damages were foreclosed, and the tort claim for breach of the implied covenant of good faith and fair dealing survived for the jury.