Reasonable & Arguable Reason to Deny Claim not Bad Faith
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Post 4778
William A. Lemons, Jr., M.D., a doctor who specialized in obstetrics and gynecology (“OB/GYN”), sued Principal Life Insurance Company (“Principal”) for breach of contract and bad faith for its refusal to pay him disability benefits under a “regular occupation rider” provision contained in his insurance policy with the company. A jury returned a verdict in favor of Lemons on the breach of contract claim and in favor of Principal on the bad-faith claim.
William A. Lemons, Jr. MD v. Principal Life Insurance Company, No. 22-12064, United States Court of Appeals, Eleventh Circuit (April 5, 2024)
FACTUAL BACKGROUND
Lemons decided to open his own OB/GYN practice, which he called Covenant Gynecology & Wellness, P.C. (“Covenant”). In October 2015, during Covenant’s business development phase, Lemons worked for Blue Cross Blue Shield (“BCBS”) as an insurance claims consultant. A few months later, in February 2016, he began working at the Birmingham Metro Treatment Center, an opioid addiction treatment and recovery facility. A month later, he started working at the Fritz Clinic, another opioid treatment clinic.
In April 2016, Lemons opened Covenant and started seeing patients. He did not deliver babies or otherwise engage in obstetrics, and he did not submit any insurance claims for any obstetrics-related work. Eventually, Lemons devoted most of his time and resources to Covenant, and he reduced the number of hours at his other jobs to concentrate more on his OB/GYN practice. Lemons’ solo medical practice was unsuccessful. On July 15, 2016, he closed Covenant because he was not seeing enough patients. Lemons’s deteriorating health also played a significant role in his decision to close Covenant. Beginning in 2013, Lemons started developing hand tremors and was officially diagnosed with a neurological condition in March 2016.
In November 2016, Lemons completed a disability claim form and reported that, as of July 15, 2016, he was totally disabled and could no longer work as an OB/GYN. Lemons was interviewed and stated that he was working at BCBS approximately 15 hours per week, at Birmingham Metro approximately 12-18 hours per week, and at the Fritz Clinic 4 hours per week. He maintained that, at the time of his disability, his regular occupation was as an OB/GYN and, therefore, Principal should approve his claim under the “regular occupation rider.” The claims person responded that because Lemons was working other non-OB/GYN jobs when he became disabled, Principal could not just look at his occupation as an OB/GYN and would need to consider his other jobs in evaluating his claim.
Principal eventually approved Lemons’ claim under a “loss of earnings” provision in the policy based on the reduction to Lemons’s income as a result of his disability. A few weeks later, on February 9, 2017, Principal denied Lemons’s claim for benefits under the “regular occupation rider” provision. Principal explained that, because Lemons regularly worked at BCBS, Birmingham Metro, and the Fritz Clinic prior to the onset of his disability, he was not “totally disabled from all occupations that [he was] engaged in prior to [d]isability” as the regular occupation rider required.
ANALYSIS
The Supreme Court of Alabama has made clear that mental anguish damages are unavailable for breach of contract claims related to long-term disability insurance policies. Therefore, the Eleventh Circuit affirmed the district court’s ruling as to Lemons’s recoverable damages.
The “Benefit Update Rider” Claim
Lemons acknowledges that he did not specifically plead a separate claim related to the “benefit update rider” provision. It is undisputed that Principal sent letters to Lemons regarding the “benefit update rider” provision in 2004, 2007, and 2010. The 2004 letter explained that his benefits had increased to $10,000 per month, and the subsequent letters informed him that his benefits had been capped at that amount.
The Bad-Faith Claim
The Eleventh Circuit concluded that the district court did not err in denying Lemons’ motions. At trial, Lemons testified that he spent most of his time working at Covenant prior to the onset of his disability. He admitted that he did not derive any income from his practice at Covenant and did not submit any insurance claims for OB/GYN services to patients. The jury also could have found that Principal had an arguable reason for not issuing Lemons benefits pursuant to the “regular occupation rider” policy provision because the evidence showed that Principal gathered-as part of its decisional process-information suggesting that Lemons’s regular occupation was not as an OB/GYN.
The verdict in this case was not against the clear weight of evidence given the genuine issue of fact as to whether a breach of contract occurred. The Eleventh Circuit affirmed the district court’s judgment.
ZALMA OPINION
Lawyers representing people whose claim was rejected in whole or in part will always include a cause of action for the tort of bad faith and seek exemplary as well as tort damages. However, if, as in this case the insurer honors the claim that was available to the insured and refused to provide benefits related to his specialty of OB/GYN because he tried but never acted as an OB/GYN and admitted he made no money from the failed practice. They paid what they owed and there was neither a genuine dispute about the coverage nor were the actions of the insurer fairly debatable.
(c) 2024 Barry Zalma & ClaimSchool, Inc.
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Notice of Claim Later than 60 Days After Expiration is Too Late
Post 5089
Injury at Massage Causes Suit Against Therapist
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Hiscox Insurance Company (“Hiscox”) moved the USDC to Dismiss a suit for failure to state a claim because the insured reported its claim more than 60 days after expiration of the policy.
In Mluxe Williamsburg, LLC v. Hiscox Insurance Company, Inc., et al., No. 4:25-cv-00002, United States District Court, E.D. Missouri, Eastern Division (May 22, 2025) the trial court’s judgment was affirmed.
FACTUAL BACKGROUND
Plaintiff, the operator of a massage spa franchise, entered into a commercial insurance agreement with Hiscox that provided liability insurance coverage from July 25, 2019, to July 25, 2020. On or about June 03, 2019, a customer alleged that one of Plaintiff’s employees engaged in tortious ...
ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Posted on June 2, 2025 by Barry Zalma
Post 5087
See the full video at and at
Read the full article and the full issue of ZIFL June 1, 2025 at https://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-06-01-2025.pdf
Zalma’s Insurance Fraud Letter – June 1, 2025
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ZIFL – Volume 29, Issue 11
The Source for the Insurance Fraud Professional
Read the full article and the full issue of ZIFL June 1, 2025 at https://lnkd.in/gTWZUnnF
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at ...
No Coverage if Home Vacant for More Than 60 Days
Failure to Respond To Counterclaim is an Admission of All Allegations
Post 5085
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In Nationwide Mutual Insurance Company v. Rebecca Massey, Civil Action No. 2:25-cv-00124, United States District Court, S.D. West Virginia, Charleston Division (May 22, 2025) Defendant Nationwide Mutual Insurance Company's (“Nationwide”) motion for Default Judgment against Plaintiff Rebecca Massey (“Plaintiff”) for failure to respond to a counterclaim and because the claim was excluded by the policy.
BACKGROUND
On February 26, 2022, Plaintiff's home was destroyed by a fire. At the time of this accident, Plaintiff had a home insurance policy with Nationwide. Plaintiff reported the fire loss to Nationwide, which refused to pay for the damages under the policy because the home had been vacant for more than 60 days.
Plaintiff filed suit ...
ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
See the full video at https://lnkd.in/gK_P4-BK and at https://lnkd.in/g2Q7BHBu, and at https://zalma.com/blog and at https://lnkd.in/gjyMWHff.
Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
To Avoid Conviction for Insurance Fraud Defendants Murder Witness
In United States of America v. Louis Age, Jr.; Stanton Guillory; Louis Age, III; Ronald Wilson, Jr., No. 22-30656, United States Court of Appeals, Fifth Circuit (April 25, 2025) the Fifth Circuit dealt with the ...
Professional Health Care Services Exclusion Effective
Post 5073
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This opinion is the recommendation of a Magistrate Judge to the District Court Judge and involves Travelers Casualty Insurance Company and its duty to defend the New Mexico Bone and Joint Institute (NMBJI) and its physicians in a medical negligence lawsuit brought by Tervon Dorsey.
In Travelers Casualty Insurance Company Of America v. New Mexico Bone And Joint Institute, P.C.; American Foundation Of Lower Extremity Surgery And Research, Inc., a New Mexico Corporation; Riley Rampton, DPM; Loren K. Spencer, DPM; Tervon Dorsey, individually; Kimberly Dorsey, individually; and Kate Ferlic as Guardian Ad Litem for K.D. and J.D., minors, No. 2:24-cv-0027 MV/DLM, United States District Court, D. New Mexico (May 8, 2025) the Magistrate Judge Recommended:
Insurance Coverage Dispute:
Travelers issued a Commercial General Liability ...
A Heads I Win, Tails You Lose Story
Post 5062
Posted on April 30, 2025 by Barry Zalma
"This is a Fictionalized True Crime Story of Insurance Fraud that explains why Insurance Fraud is a “Heads I Win, Tails You Lose” situation for Insurers. The story is designed to help everyone to Understand How Insurance Fraud in America is Costing Everyone who Buys Insurance Thousands of Dollars Every year and Why Insurance Fraud is Safer and More Profitable for the Perpetrators than any Other Crime."
Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...