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Zochert v. Protective Life Insurance Co.

Supreme Court of South Dakota

December 12, 2018

IVAN ZOCHERT individually and as Administrator for the Estate of Lenore Zochert, Plaintiff and Appellant,

          ARGUED OCTOBER 2, 2018


          SEAMUS W. CULHANE NANCY J. TURBAK BERRY of Turbak Law Office, P.C. Watertown, South Dakota Attorneys for plaintiff and appellant.

          MARK W. HAIGH EDWIN E. EVANS RYAN W. W. REDD of Evans, Haigh & Hinton, LLP Sioux Falls, South Dakota Attorneys for defendant and appellee.

          SALTER, Justice

         [¶1.] Ivan Zochert filed a complaint against Protective Life Insurance, Co. (Protective), alleging breach of contract and bad faith. He appeals the circuit court's decision to grant Protective's motion for summary judgment. We affirm.


         [¶2.] Ivan and Lenore Zochert obtained a supplemental cancer insurance policy from Protective. The policy limited coverage to "loss resulting from definitive [c]ancer treatment" with the requirement that "[p]athologic proof thereof must be submitted." The policy included a schedule of benefits which listed the specific types of coverages available to the Zocherts. Benefits were "payable for those expenses incurred by an insured from 10 days preceding the date of positive diagnosis of [c]ancer or from the first day of a period of [h]ospital confinement during which positive diagnosis is made, whichever is more favorable to you." The policy stated that Protective would send "forms for filing proof of loss" following notice of a claim. Protective would then pay benefits due under the policy after receiving proof of the loss established through "a written statement of the nature and extent of [the] loss[.]"

         [¶3.] On July 5, 2012, a needle core biopsy of tissue from a lump in Lenore's left breast revealed the presence of cancer. In a July 11 pathology report, doctors listed the specific diagnosis as invasive ductal carcinoma. On August 14, Lenore underwent a partial mastectomy and layered closure on her left breast. Two days later she was discharged, but returned to the hospital on August 31 due to complications from the procedure. She spent three days in the intensive care unit and was ultimately released from the hospital on September 7.

         [¶4.] Ivan requested claim forms from Protective, which treated the request as notice of a claim and responded by mailing him claim forms on August 17, 2012, that included a patient information form, a physician statement form, and a medical release form. Instructions on the patient information form required that "[a] PATHOLOGY REPORT diagnosing cancer MUST accompany your first claim." The instructions also stated that the claimant should "[s]ubmit all bills related to this cancer claim," and that "[a]ll bills should be itemized" and indicate diagnosis, services, actual charges, and provider information. [¶5.] Ivan completed the forms and returned them to Protective. The physician statement form filled out by Lenore's doctor indicated the dates of Lenore's diagnosis and hospital stay. Ivan also sent Protective a Professional Hospital Account Summary (PHAS) that contained a billing summary for the August 14 partial left mastectomy and layered closure. The PHAS indicated that Lenore was both admitted and discharged from the hospital on August 14. Ivan did not include a pathology report or any other bills with his first submission.

         [¶6.] Protective did not initially issue any benefits for the Zocherts' claim, indicating in an explanation of benefits that Ivan needed to include a pathology report to verify the cancer diagnosis. After Ivan asked the hospital to send the report, Protective received a pathology report from a biopsy conducted on August 14. Ivan did not provide the original July 11 pathology report until much later. Based on the August 14 pathology report and the PHAS Ivan previously sent, Protective issued a benefit check on November 13, 2012, for the partial mastectomy and layered closure procedure.

         [¶7.] On December 12, 2012, Ivan called Protective to ask how benefits were determined under the policy, but the claims handler noted that he was "elderly and wasn't able to discuss much." Ivan inquired about a previous explanation of benefits that indicated some charges for Lenore's care had been excluded because they "exceed[ed] the amount which can be considered a covered charge." The Protective claims handler called back the next day to explain the claims process. Ivan told the claims handler that he was having difficulty hearing and requested that she send a letter explaining how the initial claim was paid. He also stated that he would send Protective additional bills. The claims handler sent Ivan a follow-up letter explaining how the benefits had been determined under the policy.

         [¶8.] On March 13, 2013, Ivan's attorney, Seamus Culhane, contacted Protective, asking how the surgical benefit was calculated and why in-hospital room and board benefits and in-hospital attending physician benefits had not been paid. Protective responded on March 22 and stated that Ivan had not submitted bills for these other benefits. It explained that it issued payment for the surgery according to the procedure codes on the PHAS. On May 6, Culhane sent Protective billing records for Lenore's first hospital stay, pathology lab charges, and pharmacy charges. Protective processed these bills and issued Ivan a benefit check for the services covered by the policy on May 13. Lenore passed away on August 2.

         [¶9.] On August 14, Culhane sent a follow-up letter to Protective, asking why he had not heard from a representative since March. Protective responded by email, attaching its March 22 response and informing Culhane that it processed room and board benefits on May 13, but had not processed attending-physician benefits because it had not received itemized bills from the physician. The delay did not preclude coverage, though, and Protective assured Culhane that "[t]here is no timely filing for a cancer claim, once we receive any/all itemized bills pertaining to cancer treatment, we will process according to policy provisions."

         [¶10.] Culhane responded, asking whether Protective had requested itemized billing from the physician, what actions Protective undertook to determine the Zocherts' applicable coverages, and how Protective determined the amount of reimbursement Ivan was eligible to receive. Protective answered that it was the insured's responsibility to submit itemized bills so that Protective could, in turn, determine what benefits were payable under the policy.

         [¶11.] Culhane then asked Protective to indicate "where in the policy it says that the insured has to submit the bills?" He also remarked that, "[a]ll I can seem to find is that the insured must file a proof of loss, which I believe the Zocherts have now done. I thought it was the insurer's job to investigate the claim, not the policy holder." (Emphasis added). Culhane inquired about what other coverage might apply and who determines if that coverage applies. He further asked, "what I am curious about is what formula and code you used to calculate the payments made to the Zocherts[?]"

         [¶12.] Protective's response confirmed the obligation to provide a notice of claim and in subsequent emails also identified the need for itemized bills in order to calculate the correct benefits due under the policy. Protective also noted Ivan's intensive-care rider provided additional coverage. Finally, Protective explained how the surgical-expense benefit was paid in accordance with the 1969 California Relative Value Schedule, as provided in the policy.[1] Communication between Culhane and Protective about the calculation of benefits continued periodically into November 2013.

         [¶13.] On July 21, 2014, Culhane sent Protective a letter and enclosed a spreadsheet he created of Lenore's medical expenses generated from Lenore's billings and medical records, as well as a copy of the complaint for the civil action he intended to file against Protective. The spreadsheet listed all of Lenore's medical procedures, costs, benefit limits, benefits paid, and benefits owed. Protective reviewed the spreadsheet and replied by email, indicating it had only received a pathology report for August 14, 2012, and needed an earlier pathology report to process claims for the initial biopsy.[2] Moreover, Protective indicated that it needed itemized bills specifying the diagnosis and procedure codes.

         [¶14.] Culhane responded that "[w]e will happily provide you with the itemized billings." On August 4, 2014, Culhane enclosed a copy of the first pathology report and copies of all the itemized bills related to Lenore's cancer treatment. Protective processed these bills and paid the benefits under the policy on August 29. On September 2, Protective issued a final payment for Lenore's home-recovery benefits.

         [¶15.] Around the same time, Ivan commenced this action against Protective, alleging breach of contract and tortious breach of the duty of good faith and fair dealing. The parties both moved for summary judgment.

         [¶16.] At a November 6, 2017, hearing, the circuit court granted Protective's motion for summary judgment and denied Ivan's motion. The court ruled that the language of the contract was unambiguous, and Protective did not fail "to pay other benefits allegedly owed[.]" Ivan does not challenge these determinations on appeal. The court noted that the "insurer made timely payments once the pathology report was received, and additional payments once itemized bills were received." It found that Ivan's claim for breach of the covenant of good faith and fair dealing failed because "[t]he benefits were clearly articulated . . . Protective Life paid the benefits that the Plaintiff was entitled in accordance with the language of the policy, and had not breached the language of the policy, and had not acted deceitful[ly]." The court also ruled that "[i]n regards to the independent tort for breach of duty of good ...

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