Cutting Your Medical Bills In Half
By Donovan B. Dodrill on June 27, 2012
CUT YOUR MEDICAL BILLS IN HALF
RSMo Section 430.225, the Missouri hospital lien statute, provides that medical providers can only share in fifty percent of the net proceeds of an auto accident settlement after payment of attorneys fees. What that means is that, if all your medical bills together total more than fifty percent of what’s left after your attorney’s fees and expenses have been paid from the settlement, all lien holders must share in that fifty percent and not a penny more.
If you have a case that settles for $10,000.00 and your attorney’s fee is $3,500.00 and your total medical expenses exceed $3,250.00 ($10,000.00 – $3,500.00 = $6,500.00 ÷ 2 = $3,250.00) then each medical bill must be reduced to their proportional share of $3,250.00. So, if St. Luke’s Hospital’s ER bill was the only bill, and it was $7,000.00, the most St. Luke’s would be able to enforce would be $3,250.00. Under this hypothetical, St. Luke’s Hospital would have no choice but to accept $3,250.00 in full and final payment of their interest and would not have the recourse to pursue the client personally thereafter once they had settled their interest.
Your choice of legal representation is an important one. Choose an experienced attorney to manage your claim. I’m waiting to speak with you right now and the initial consultation is free 816.977.2680 or Donovan@www.plazainjurylaw.com. I can also be found on line at injurylawyerskansascitymo.com.
HOSPITAL’S UNFAIR AND DECEPTIVE BUSINESS PRACTICES IN COLLECTION OF MEDICAL BILLS
Morgan v. Saint Luke’s Hospital of Kansas City
If you were injured in an auto accident or truck accident you probably suffered injuries that required treatment at an emergency room. Some hospitals in Missouri will actually reject payment from your private health insurance company because health insurance companies have negotiated lower payments (discounts) when paying for hospital charges. The hospital may attempt this tactic in an attempt to try to charge you the full value of their services by placing a lien against your auto accident claim. They attempt to do this simply to get paid more, in spite of your medical insurance, and they result (if successful) will be that you will take less money when your personal injury claim is settled.
Fortunately, the Western District of the Missouri Court of Appeals, in Morgan v. Saint Luke’s Hospital of Kansas City has ruled that hospitals cannot engage in this tactic. The court ruled that the hospital’s conduct was an unfair and deceptive business practice. The hospital had first billed Ms. Morgan’s private health insurance, received payment, and then sent the payment back. Then the hospital asserted a lien for the full amount of the bill, without any reduction, against her auto accident claim. The Court held that a hospital does not have the right to a lien to any amount greater than the debt owed by the patient following processing by her health insurance carrier.
Your choice of legal representation is an important one. Choose an experienced attorney to manage your claim. I’m waiting to speak with you right now and the initial consultation is free 816.977.2680 or Donovan@www.plazainjurylaw.com. I can also be found on line at injurylawyerskansascitymo.com.
EVIDENCE AT TRIAL
Everything you do matters, So it should be genuinely valuable
Evidence. Any species of proof, or probative matter, legally presented at the trial of an issue, by the act of the parties and through the medium of witnesses, records, documents, exhibits, concrete objects, etc., for the purpose of inducing belief in the minds of the court or jury as to their contention…All the means by which any alleged matter of fact, the truth of which is submitted to investigation, is established or disproved. Any matter of fact, the effect, tendency, or design of which is to produce in the mind a persuasion of the existence or nonexistence of some matter of fact. That which demonstrates, makes clear, or ascertains the truth of the very fact or point in issue, either on the one side or on the other. That which tends to produce conviction in the mind as to existence of a fact. The means sanctioned by law of ascertaining n a judicial proceeding the truth respecting a question of fact…
Partial definition-“Black’s Law Dictionary”, Abridged Fifth Edition Evidence, ev’i-dens, n. That which demonstrates that a fact is so, testimony; proof;
witness-To make evident, to prove “Webster’s Dictionary”
“Be frank and explicit with your lawyer…it is his business to confuse the issues afterwards” -J.R. Solly
When preparing for trial, I always view the evidence I intend to admit as having to persuade two different audiences. As a Plaintiff’s trial attorney, I never forget that I have to present enough evidence to initially overcome Defense Counsel’s Motion for Directed Verdict and ultimately prove the elements of my cause of action as outlined in the Verdict Director. Most of the judges I have been in front of are not going to be persuaded by my wit, flair for drama or my red power tie. At the same time, I feel that my evidence has to convince the jury made up of people like my father-in-law that both my client and I are telling them the truth.
Remembering that everything you do at trial matters reminds us that when it comes to deciding on what evidence to use at trial and how to get it admitted, we have to begin preparation when that case first walks through the door. It’s easy to read a favorable police report and think that presenting your case in trial a year or two later will be a breeze. Inevitably, you run into the quagmire of hearsay objections, missing witnesses and lack of foundation for that smoking gun piece of evidence that will have your opponent desperately seeking a last minute settlement before the case goes to the jury.
Before proceeding to a brief discussion of various evidentiary issues, I would like to highlight some general rules that experience has taught me are extremely helpful in not only presenting evidence but as to the entire trial of a case.
- KEEP IT SIMPLE – This applies not only to evidence but to the theme of your case;
- BE PREPARED – Know the foundations for the admission of your evidence, have exhibits marked, be organized;
- HAVE YOUR WITNESSES PREPARED – Just because you are prepared, do not assume that your witnesses are prepared to respond appropriately to direct examination let alone to cross-examination-remember, often the only evidence you have on a particular issue may be the testimony of a witness.
Preparation is so important to the presentation of your case. If you are truly prepared, you will be more confident in presenting your case. You will have anticipated and prepared for the objections to the evidence you need to admit.
Trial preparation includes:
- Knowing what you need to establish a prima facia case;
- Knowing the elements of your case;
- Knowing what evidence is available to you;
- Knowing what evidence you need to establish each element of your claim or defense;
- Knowing how each piece of evidence will be admitted;
- Knowing how you are going to use each piece of evidence - Proving or disproving a factual issue? – Impeaching a witness? - Rehabilitating a witness? - Refreshing a witness’ recollection? - Bring to life for the jury, an accident scene?
- Organizing and deciding how you will present the evidence
- Knowing that while you have a case to prove, you also have a jury to persuade/entertain
Before the trial court will admit any evidence, you will have to lay a foundation.
You need to demonstrate to the Court why an item of evidence should be admitted.
- A. Laying a Foundation
A party that is attempting to introduce or admit an item of evidence must lay a foundation for the admission of the evidence before formally offering the item into evidence. For example, if one is attempting to introduce “Business Records”, the foundation must include: 1) The identity of the records; 2) The record’s mode of preparation; 3) That the record was made in the regular course of business; and 4) That the record was made at or near the time of the act, condition or event that is the subject matter of the record.
Historically, the foundation to admit business records was usually laid through the testimony of a witness properly identified as the custodian of those records or another qualified witness. As a practical matter, there are certain records that can be admitted by complying with a specific evidentiary statute. For example, business records can be admitted upon the service of the records and an attesting affidavit by the records’ custodian at least seven days prior to trial. 490.692 R.S.Mo. Medical records that comply with 490.680 R.S.Mo., may be admitted as business records In addition, under the same statutes, police reports may also be admitted as business records.
However, one must remember that simply because documents or records may be admissible under the “Business Records” exception, even after proper foundation, they are still subject to any and all objections as to their contents. In offering a police report, even though it may be qualified as business record, portions of the report are subject to other objections as to admissibility such as “conclusions” or “unqualified opinions.”
Most often a foundation must be laid by witness testimony. For example, in offering a photograph, the elements of the foundation are:
The witness is familiar with the object or scene. The witness explains the basis for his familiarity with the object or scene. The witness recognizes the object or the scene. The photograph is a “fair” or “accurate” representation of the object or the scene at the relevant time In laying your foundation for evidence through testimony of a witness, it is important that in questioning the witness, you use simple easily understood language. Don’t say “prior to.” Say “before.” Don’t say “subsequent to.” Say “after.” Say “car,” not “motor vehicle.” Your witness may be nervous. More often than not, your witness is not a professional. If he is a professional, such as a treating physician, it can be a painful experience if your “friendly” physician tells you in front of the jury that he doesn’t understand you. Most importantly, remember that your audience is the jury and they will appreciate “plain” language. Remember one of the key rules, “Keep it simple.”
In addition, keep your questions short. We’ve all done it. We’re rolling along in a deposition and think we are on to something. The next thing you know, you hear yourself spouting one of those 50 word questions where the only response you get from the witness is something like, “Huh?” Well when you are trying to lay a proper foundation to admit important evidence, if your witness can’t follow you, you’re not going to get the right responses to your questions. If you don’t get the right responses, you’re not going to lay your foundation. If you don’t lay your foundation properly, your opponent is going to object.
Remember one of the other key rules, “Be prepared.” When it comes to laying a foundation, both you and your witness need to be prepared as to what your goal is concerning the evidence. There is no reason whatsoever for your witness not to be prepared. Explain the evidentiary rule to your witness. Walk him or her through the fact that you are going to try to admit a photograph with their help or draw an opinion as to a car’s speed from their testimony. If you are trying to admit evidence, you should always know the foundation needed before you go anywhere near the courthouse.
For example, if you are trying to introduce a photograph of an intersection, which is the scene of the accident where your client was injured, it might go something like this: Attorney: Now, can you tell the jury where the accident occurred? Witness: It happened at the corner of Kings Highway and Delmar. A: Have you been to the intersection before the date of the accident? W: Yes. A: So you are familiar with the intersection? W: Yes. A: Your honor, may I approach the witness? J: You may. A: I am going to hand you what I previously had marked as Exhibit “A”. Can you tell me what it is? W: That’s the intersection of Kings Highway and Delmar. A: Can you tell me from what perspective or view point Exhibit “A” shows the intersection? W: Well you are on Delmar, just west of the intersection, looking eastbound. A: Does that photograph, Exhibit “A” accurately reflects or depict how the intersection looked on the day of the accident?
W: Well, there aren’t leaves on the trees. The accident happened in the summer and there were leaves in the trees. A: With that exception, does Exhibit “A” accurately depict how the intersection looked on the day of the accident?
W: Yes it does. A: Your honor, at this time, I would move to admit the Plaintiff’s Exhibit “A”. Remember that once you’ve laid your foundation, your exhibit, your exhibit is not admitted until you have moved to have it admitted and it has been accepted. Before, every trial, in addition to having your exhibits marked, you should have a list of your exhibits and check them off as they are admitted. In addition, I like to provide the Court and opposing counsel a copy of my proposed exhibit list whether or not I am required to do so.
This writer still pulls out his “Evidentiary Foundations” by Edward J. Imwinkelried, THE MICHIE COMPANY, Charlottesville, Virginia © 1980 The Bobbs- Merrill Company, Inc. and “Missouri Evidentiary Foundations” by John C. O’Brien, Jean C. Hamilton, Eugene K. Buckley and Edward J. Imwinkelried, THE MICHIE COMPANY, Charlottesville, Virginia © 1994 The Michie Company, before every trial. I use these books as a recipe to script my questions as to any foundation or to prepare to argue any objection that I anticipate I will see from opposing counsel.
- B. Relevance
Relevant evidence is evidence that has the tendency to prove or disprove any disputed fact that is of importance to the determination of the case. Relevant evidence includes evidence that bears on the credibility of a witness. It includes evidence that is created solely for trial or to aid the jury to understand witness testimony. Only relevant evidence is admissible and, unless it is otherwise excluded, all relevant evidence is admissible.
Obviously, despite all your efforts to comply with the evidentiary rules, there will come a time when a trial court will refuse to admit evidence you have offered. After such a refusal, to preserve your point for appeal, you must make an offer of proof that demonstrates that relevant and admissible evidence was improperly excluded. Your offer of proof must establish that you 1) demonstrated to the trial court the relevancy of the testimony offered, 2) be specific, and 3) be definite. In general, like laying a foundation, an offer of proof is usually carried out in a “question and answer” format.
- C. Habit and Routine
Habit evidence may be used as well as character evidence as circumstantial proof of conduct. The major difference between Habit and Character evidence:
- Character evidence is usually admissible only after the criminal defendant opens the issue;
- Either party in a civil or criminal case may introduce habit evidence;
- Character evidence allows the proponent to prove “general” character or character traits-Habit evidence requires proof of a very specific, frequently repeated behavioral pattern.
A specific mailing procedure a business customarily used • Character evidence is reputation not opinion evidence/Opinion evidence is the most common method of proving a habit.
Foundation of Habit Evidence
- Witness is familiar with the business or person;
- Witness has been familiar with the person or business for a substantial period of time;
- In the witness’ opinion, the person or business has a habit, a specific behavioral pattern;
- The witness has observed the person or business act in conformity with the habit on numerous occasions.
Missouri Courts have held that the admission of evidence under this rule “should be restricted and kept within narrow limits.” Only evidence that rises to the level of a habit or a routine practice overcomes, by virtue of its probative value, the accompanying dangers of collateral inquiry and of distracting the jury from the main issues to be resolved. Hawkins v. Whittenberg, 537 S.W. 2nd 385- the doctrine was recognized but the offer of proof was inadequate as to whether or not pedestrian crossed streets only within crosswalks. D. Objections The legal purpose of objections is to avoid trial court error and allow the trial court to rule intelligently. The burden is on the party who objects to the admission of evidence to state proper grounds for the exclusion of that evidence. The attorney must state his or her objections with sufficient specificity that the trial court will be made aware of what rules of evidence are being invoked.
Objections make the record for appeal. Earlier, I talked about presenting evidence to two different audiences. Well a good objection plays to a new audience known as the appellate courts. Objections preserve your claim or claims that the trial court has erred in allowing evidence of your opponent that you believe the rules of evidence require to be excluded.
Sufficiently specific objections must be raised by the objecting party in time for the trial court to act. You must remember that the scope of the objection cannot be broadened on appeal nor can a different objection from the one offered at trial be raised on appeal.
If you give a general, non-specific objection, the trial court knows that if it overrules your objection, it is not in error on its part. Again, with good preparation, you will most often be prepared to state legal reason for your objection. Through discovery and preparation, you should be able to anticipate what questionable evidence or testimony, opposing counsel might attempt to admit. Before the trial ever begins, you are most likely going to want to address those issues in a Motion in Limine. However, remember you must renew your objections if opposing counsel still attempts to introduce that evidence during the course of the trial itself.
If a question itself is not objectionable but the answer was objectionable, you should promptly move to strike the answer or you have waived any potential claim of error.
Now as a practical matter, don’t just make an objection to make an objection. For example, there are times that leading questions are not only appropriate but a welcome relief to keep a case moving along. Object because it is important.
Just as important, you should be in a position to anticipate objections to your evidence and be prepared to state to the Court why it is admissible.
- D. Hearsay
Most people, including many lawyers, think that the hearsay rule applies to any
out-of-court statement. To the contrary, the hearsay rule is fairly narrow and specific. Evidence is hearsay only if it is 1) an assertive statement 2) by an out-of-court declarant 3) offered to prove the truth of the matter asserted. The Federal Rule definition is “a statement, other than one made by the declarant while testifying at trial or hearing, offered in evidence to prove the truth of the matter asserted. FRE 801 (c). For example, if the witness in the courtroom testifies that, “Bill said, “ It’s raining.” This testimony is hearsay if it is offered to prove that Bill’s statement is true, i.e. it was raining. If it is offered to prove why someone who was listening to Bill put on a raincoat before going outside, it is not hearsay.
The reason for the hearsay rule is that we want to preserve the right of immediate cross examination and we want the declarant to testify within the parameters of trial, that is, under oath and to establish first hand knowledge on the part of the declarant.
Practical Application of the Hearsay Rule. Hearsay evidence almost always comes in. There are so many exceptions that they swallow the rule.
- Some believe that hearsay evidence has no real impact. In today’s courtroom it is understood that hearsay has little credibility. In addition, in general, admission of hearsay evidence is almost always held to be harmless error on appeal;
- At times, the real world application of the hearsay rule is almost so complex as to be impossible to understand;
- When admission or exclusion of potential hearsay evidence is crucial, one should always address the issue with the trial court through a Motion in Limine Hearsay Exceptions They are so numerous that whole books are written about them. However, in general, the hearsay exceptions rest on two grounds;
- Need for the testimony because the declarant is unavailable;
- Inherent trustworthiness of certain hearsay evidence, e.g. medical records, business records Frequent Hearsay Exceptions;
- Admissions of a party opponent;
- Prior Inconsistent Statements;
- Present Recollection Refreshed;
- Excited Utterances;
- Dying Declarations;
- Declarations of State of Mind or Emotion;
- Declarations against interest;
- E. Miscellaneous Issues
- Demonstrative Evidence is not Evidence it is a demonstrative aid. It is not admitted;
- Evidence of subsequent repairs is generally inadmissible to prove negligence. Logically, this evidence is irrelevant. However, it might be admissible to prove ownership or control;
- Settlement negotiations are inadmissible;
- Stipulations as to the admissibility of evidence. Quite often, parties may stipulate or agree that and item of evidence will be admissible which does away for the need to lay a foundation;
- Judicial notice is an alternative to the presentation of formal evidence. In essence, the Court accepts or notes a fact and informs the jury of the fact’s existence. For example, in Missouri, courts have taken judicial notice that a car travels approximately 1.5 times its speed in feet per second. Courts have also taken judicial notice that a car traveling at a certain speed can be stopped within a stated number of feet.
By Steve Dioneda
Deck v. Teasley
Opinion handed down Oct. 26, 2010
In Deck v. Teasley, the Supreme Court of Missouri reviewed an action arising out of a traffic accident. After interpreting Missouri Revised Statutes section 490.715.5, the circuit court limited the plaintiff’s evidence of medical damages to the amount of money actually paid to the providers by Medicare coverage, supplemental insurance, and the plaintiff. The Supreme Court of Missouri held that section 490.715.5 supplies a rebuttable presumption that the dollar amount paid to satisfy the medical providers is the proper value of medical treatment when determining damages. The court found that the plaintiff had properly rebutted this presumption by presenting sufficient evidence that the amount billed was the actual value of her treatment. Additionally, the court held that testimony about possible future medical treatment, including surgery, is relevant and admissible, even if such treatment is not reasonably certain to occur at the time of trial.
I. Facts and Holding
In May 2003, the defendant in this action, Delmar Teasley, caused a multi-vehicle collision that involved the plaintiff, Edith Deck. As a result of the collision Ms. Deck suffered injuries that required surgery, physical therapy, and follow-up medical care. Her treatment resulted in bills in the amount of $27,991.30. However, the amount actually paid to the providers by Medicare coverage, supplemental insurance, and Ms. Deck to satisfy the debt was only $9,904.28.
Missouri Revised Statutes section 490.715.5 was amended “in 2005 to limit the evidence litigants could introduce regarding the value of medical treatment rendered.” The amendment created a rebuttable presumption that the dollar amount actually paid to satisfy the debts owed to medical providers by a plaintiff are in fact the value of the medical treatment provided.
The defense filed a pre-trial motion asserting that the medical damages presented to the jury should be limited to the $9,904.28 that was actually paid to the health care providers. During a hearing on the motion, the plaintiff called three witnesses to testify about the correct value of the care received by Ms. Deck. All three witnesses testified that the amount billed, instead of the amount paid, is the best indication of the value of the medical services received by the plaintiff. After hearing the evidence offered by Ms. Deck, the circuit court found that the presumption in section 490.715 had not been sufficiently rebutted. Accordingly, the court did not allow Ms. Deck to present evidence of the total amount billed and limited the medical damage evidence to the amount paid to the providers. The jury found in favor of Ms. Deck and determined that her damages were $42,500.
II. Legal Background
A. Missouri Revised Statutes Section 490.715.5
Section 490.715 codifies the collateral source rule, which prohibits a tortfeasor from reducing her liability by proving that the plaintiff received payments from a collateral source. Subsection 5 of section 490.715 “provides that evidence of the dollar amount necessary to satisfy the financial obligation to health care providers is admissible at trial and creates the rebuttable presumption that such amount represents the value of the medical treatment rendered.” However, if any party files a motion, the court may consider the admissibility of alternative evidence, such as medical bills, actual payment for treatment, or an estimated remainder to be paid.
The court noted that “[a] presumption places the burden of producing substantial evidence to rebut the presumed fact on the party against whom the presumption operates.” When a party produces substantial evidence against the presumed fact, the case proceeds as if no presumption existed. However, the party entitled to the presumption is still able to present evidence that supports the presumption in an effort to persuade the fact finder.
During the hearing on the value of medical treatment received, three witnesses testified on behalf of Ms. Deck, stating that the amount billed was in fact the correct value of the medical services provided. One of the witnesses testified that “the amount billed by a health care provider is a better indicator of the value of the goods and services than the amount that Medicare reimburses” because the amount reimbursed does not cover the provider’s cost of business. The Supreme Court of Missouri concluded that the evidence presented by Ms. Deck was substantial evidence that the amount billed was probative of the value of her treatment and the presumption in section 490.715.5 had been properly rebutted.
The court did briefly discuss Mr. Teasley’s point that section 490.715 was amended to prevent windfalls to plaintiffs in personal injury cases. However, that argument fails to consider the fact that the statute, as enacted, created only a rebuttable presumption that the amount paid to satisfy the obligation was the value of the medical treatment. The court noted that the phrase “rebuttable presumption” conforms with the notion that the measure of damages is the “value of services rendered” and not necessarily the reimbursement amounts paid.
In a footnote, the court pointed out that the legislature attempted to make unpaid medical bills inadmissible. However, that attempt was unsuccessful, and the “rebuttable presumption” language was inserted in the final version of the bill. The court construed this language to mean that a party is now able to introduce evidence that the value of services is higher than the amount paid to healthcare providers.
The court held that the lower court was in error when, instead of determining whether substantial evidence had been presented, it weighed the evidence presented by both parties to determine the value of the medical treatment. The court acknowledged that the language in section 490.715.5(2) that “the court may determine . . . the value of the medical treatment rendered” could be interpreted to allow the trial judge to make the determination of the value of medical treatment. However, this interpretation is not “supported by a full reading of section 490.715.5, because the creation of a rebuttable presumption indicates that, if the presumption is rebutted, the jury would be presented evidence as though no presumption existed.” The court determined that excluding the evidence of the amount billed to Ms. Deck was prejudicial and, therefore, she was entitled to a new trial on damages.
B. Cost of Future Medical Treatment
Ms. Deck also argued that the trial court erred by not allowing expert testimony relevant to future medical expenses. The court discussed the relevant law; however, it did not decide the issue because the case was remanded on the issue of damages. Ms. Deck wanted to offer the testimony of a doctor who would testify that another MRI and future surgery might be necessary. The trial court excluded the testimony because the doctor did not testify “to a medical degree of certainty that surgery would be needed.”
In Swartz v. Gale Webb Transportation Company, the court stated that testimony about possible future medical treatment is admissible “for the purpose of establishing the nature and extent of the plaintiff’s present injuries.” The court stated that plaintiffs are only entitled to recover for future injuries if the injury is reasonably certain to occur in the future. However, expert testimony regarding the possibility of future medical treatment is admissible to help the jury determine the extent and nature of a plaintiff’s current injuries, even if the future treatment may not occur.
Deck v. Teasley prevents section 490.715 from having its intended effect of limiting medical damages to amounts paid or reimbursed to the service providers. When creating a “rebuttable presumption” the legislature likely intended that plaintiffs are entitled to only recover monies that were actually paid on their behalf. Allowing plaintiffs to receive the money billed allows them to recover considerably more money than what was paid. Deck has essentially established that section 490.715 is a low hurdle for plaintiffs to overcome in order to recover the amount billed for their treatment.
After the decision in Deck, the ball is back in the legislature’s court. If it truly intended to limit plaintiffs’ recovery to the amount paid it will need to pass legislation with stronger language than a “rebuttable presumption.” With this decision, the amended statute’s impact on personal injury cases will be next to nothing. As in Deck, medical providers are likely to testify that their reimbursement rates do not represent the value of their services. The lower courts are now on notice that, if they choose to limit medical damages to the amount paid under section 490.715 based on testimony that the amount billed is a better indicator of the value of medical services provided, they will likely face automatic reversal.
– Lawrence Hall
 322 S.W.3d 536 (Mo. 2010) (en banc).
 Id. at 537.
 Id. See also Mo. Rev. Stat. § 490.715 (2009).
 Id. at 537-38.
 Id. at 537.
 Id. at 538.
 Id. See also Mo. Rev. Stat. § 490.715.5 (2010)
 Id. at 539. See also Mo. Rev. Stat. § 490.715.5 (2010).
 Id. at 540
 Id. at 541.
 Id. n.2.
 Id. at 541-42.
 Id. at 541.
 Id. at 542.
 215 S.W.3d 127 (Mo. 2007) (en banc).
 Deck, 322 S.W.3d at 543.
 Id. at 536.
 Id. at 540.
Whether and under what circumstances an Insurance Company is liable to their Insured in the states of Missouri and Kansas for the Vexatious Refusal to pay on a claim under their policy
II. Brief Answer
A. Vexatious Refusal (1st Party)
First-party bad faith involves only two parties, the insured and the insurer. There is a contractual relationship between the insurer and the insured in which the insurer has a good faith duty not to unreasonably withhold payment due to the insured under the policy. This type of bad faith claim occurs when the insurer refuses to pay a claim the insured has made and that is owed to the insured under the policy. First-party bad faith claims occur because there is a dispute over whether the particular loss is covered by the policy the insured holds. Usually the insured sends in a claim believing it to be covered and the insurance company refuses to pay for the loss because it claims it is not covered by the insurance policy. The claim therefore centers on the correctness and reasonableness of the insurance company’s determination that there is no coverage under the policy. In Missouri, and to a somewhat lesser extent in Kansas, first-party bad faith is governed by statute.
B. Statutory Law
In Missouri, first-party bad faith is called vexatious refusal to pay. An insured can bring a claim in Missouri under Missouri Revised Statutes Sections 375.296 and 375.420. Not every first-party insurance claim, even those in which the insured prevails, results in an award of vexatious penalties. There are certain elements under the statute that must be proven by the insured bringing the action to win vexatious refusal damages. The burden of proof is on the plaintiff insured. The insured must show that the insurer’s refusal to pay was “willful and without reasonable cause, as the facts would appear to a reasonable and prudent person.” Mears v. Columbia Mut. Ins. Co., 855 S.W.2d 389 (Mo. App. W.D. 1993). In determining if the insurance company acted with vexatiously, the facts that must be examined are those presented to the insurer at the time it was called on to pay. Russel v. Farmers & Merchants Ins. Co., 834 S.W.2d 209 (Mo. Ct. App. 1992). Vexatious refusal, as defined in Gardner v. Queen Ins. Co. of America, 115 S.W.2d 4 (Mo. Ct. App. 1938), is refusal without reasonable or probable cause or excuse.
It should also be noted that direct evidence of vexatious refusal is not required. “The jury may find vexatious delay upon a general survey and a consideration of the whole testimony and all the facts and circumstances in connection with the case.” Dewitt v. American Family Mutual Ins. Co., 667 S.W.2d 700 (Mo. 1984).
Section 375.296, entitled Additional damages for vexatious refusal to pay, states:
In any action, suit or other proceeding instituted against any insurance company, association or other insurer upon any contract of insurance issued or delivered in this state to a resident of this state, or to a corporation incorporated in any contract of insurance issued or delivered in this state to a resident of this state, or to a corporation incorporated in or authorized to do business in this state, if the insurer has failed or refused for a period of thirty days after due demand therefor prior to the institution of the action, suit or proceeding, to make payment under and in accordance with the terms and provisions of the contract of insurance, and it shall appear from the evidence that the refusal was vexatious and without reasonable cause, the court or jury may, in addition to the amount due under the provisions of the contract of insurance and interest thereon, allow the plaintiff damages for vexatious refusal to pay and attorney’s fees as provided in section 375.420. Failure of an insurer to appear and defend any action, suit or other proceeding shall be deemed prima facie evidence that its failure to make payment was vexatious without reasonable cause.
There are five basic elements that must be proven by the insured under this section:
- the claim must be based on an insurance contract “issued or delivered in this state” to a Missouri resident;
- due demand was made a minimum of thirty days prior to date the action was filed;
- the demand was made “under and in accordance with the terms and provisions of the contract of insurance”;
- the insurer fails to or refuses to pay before this thirty day period expires; and
- the refusal was “vexatious and without reasonable cause.”
Section 375.420, entitled Vexatious refusal, to pay claim damages for, exception states:
In any action against any insurance company to recover the amount of any loss under a policy of automobile, fire, cyclone, lightning, life, health, accident, employers’ liability, burglary, theft, embezzlement, fidelity, indemnity, marine or other insurance except automobile liability insurance, if it appears from the evidence that such company has refused to pay such loss without reasonable cause or excuse, the court or jury may, in addition to the amount thereof and interest, allow the plaintiff damages not to exceed twenty percent of the first fifteen hundred dollars of the loss, and ten percent of the amount of the loss in excess of fifteen hundred dollars and a reasonable attorney’s fee; and the court shall enter judgment for the aggregate sum found in the verdict.
There are two basic elements that must be proven by the insured under this section:
- The claim is based on a loss covered by a “policy of automobile, fire, cyclone,lightning, life, health, accident, employers’ liability, burglary, theft, embezzlement, fidelity, indemnity, marine or other insurance except automobile liability insurance”;
- The insurance company refused to pay the loss “without reasonable cause or excuse.”
Examples of situations where vexatious refusal penalties were awarded, detailed in Anthony G. Fussner, Overview of Bad Faith Litigation in Missouri, 62 Mo. L. Rev. 807 (1997), include the following:
- Refusal to pay based on a suspicion that is unsupported by substantial facts;
- Persistence in refusal to pay after insurer becomes aware that it has no meritorious defense;
- Refusal to pay based on an inadequate investigation and a denial of liability without stating a ground for denial;
- Refusal to pay founded not on what appeared to be the facts, but on a possibility that later investigation would develop facts justifying a refusal to pay, even if such investigation did develop such facts.
In Kansas, there is a statute stating that the insurance company has a duty to make a good faith investigation of the facts surrounding the claim, that the insurance company must have a “bona fide reason and reasonable factual ground for contesting the insurance claim”, and if the court finds this is not fulfilled then attorney’s fees may be awarded to the insured based on the idea that there is “failure to pay without just cause”. See Kan. Stat. Ann. §40-256 (19XX). See also Evans v. Provident Life & Accident Ins. Co., 815 P.2d 550 (Kan. 1991).
When there is a finding of vexatious refusal, additional damages authorized by the statutes may be awarded.
1. Penalties. The amount permitted for vexatious refusal damages is set out in §375.420. The plaintiff is allowed damages “not to exceed twenty percent of the first fifteen hundred dollars of the loss, and ten percent of the amount of the loss in excess of fifteen hundred dollars…” Mo. Rev. Stat. §375.420 (1994).
2. Attorney’s fees. Under §375.420 a plaintiff can recover reasonable attorney’s fees. This is not mandatory and the judge and jury have complete discretion in deciding whether to award them. Dewitt v. American Family Mutual Ins. Co., 667 S.W.2d 700 (Mo. 1984). An insurance company is liable for attorney fees and expenses where it refuses to defend an insured whom is in fact covered; this is true even though the company acts in good faith and has a reasonable ground to believe there is no coverage under the policy. Wood v. Safeco Ins. Co. of America, 980 S.W.2d 43 (Mo. Ct. App. 1998). In order for the court to even consider whether to grant attorney’s fees, the reasonable value of the attorney’s services must be shown by evidence in the record and supported by appropriate pleadings. Russell v. Farmers & Merchants Ins. Co., 834 S.W.2d 209 (Mo. Ct. App. 1992). See also, Kan. Stat. Ann. §40-256; Evans v. Provident Life & Accident Ins. Co., 815 P.2d 550 (Kan. 1991).
3. Punitive damages. Punitive damages are not to be awarded unless some other nominal or compensatory damages are also awarded. In Missouri, the vexatious refusal statutes are considered punitive in nature and therefore the damages are limited to what is awarded under these statutes. Baker v. State Farm Mut. Auto. Ins. Co., 846 F.2d 495 (8th Cir. 1998).
4. Interest. Section 375.420 authorizes an award of damages for interest on the amount owed by the insurance company. Mo. Rev. Stat. §375.420 (1994). The reasoning behind allowing an award for interest is the general idea of compensating for the loss of use of money. Generally, interest will be assessed on the amount owed from the time the proof of claim is made and insurer neglected or refused to pay the policy. Sherifrim v. Hawkeye Cas. Co., 85 F.Supp. 84 (W.D.Mo. 1949). This interest award is not contingent on the award of vexatious damages. This interest is calculated as pre-judgment interest. Catron v. Columbia Mut. Ins. Co., 723 S.W.2d 5 (Mo. 1987).
In Kansas, the insurer’s duty to its insured is broader than in Missouri. The courts in Kansas have stated that not only do the insurers have a duty of good faith but they also have a duty to act without negligence. See Bollinger v. Nuss, 449 P.2d 502 (Kan. 1969) (a liability insurer…may become liable in excess of its undertaking under the policy provisions if it fails to exercise good faith….); Anderson v. Surety Co., 191 P. 583 (Kan. 1920) (the insurer will be liable for damages which are shown to result from negligence of the insurer.) The insurer has a duty, in Kansas, to consider the interests of the insured and the insurer’s own interests equally. The insurer cannot put its own interests above the insured. The court states in Levier v. Koppenheffer, 879 P.2d 40 (Kan. App. 1994) (quoting Bollinger), that “the insurer must evaluate the claim without looking at the policy limits and as though it alone would be responsible for the entire amount of any judgment rendered on the claim.” See also Rector v. Husted, 519 P.2d 634 (Kan. 1974).
The Kansas courts repeatedly state that the determination of bad faith or negligence of the insurer in relation to its insured must be looked at on a case by case basis, but the Kansas Supreme Court sets out eight factors for the courts to look at when making this determination. Bollinger at 512. They are:
- the strength of the injured claimant’s case on the issues of liability and damages;
- attempts by the insurer to induce the insured to contribute to a settlement;
- failure of the insurer to properly investigate the circumstances so as to ascertain the evidence against the insured;
- the insurer’s rejection of advice of its own attorney or agent;
- failure of the insurer to inform the insured of a compromise offer;
- the amount of financial risk to which each party is exposed in the event of a refusal to settle;
- the fault of the insured in inducing the insurer’s rejection of the compromise offer by misleading it as to the facts; and
any other factors tending to establish or negate bad faith on the part of the insurer.