Cavallo v. Phx. Health Plans, Inc. – 10/20/2022
The Arizona Supreme Court holds that a waiver instruction is improperly given on a bad faith claim in which the plaintiff lacks knowledge of the wrongful act at the time of the alleged waiver and that the duty of good faith and fair dealing cannot be waived in the context of an insurance bad faith claim.
A patient with multiple sclerosis received a drug infusion treatment that had to be re-administered within 90 days of the prior infusion to avoid a relapse. The patient’s new insurer required preauthorization to cover the cost of the treatment and did not cover out-of-network costs unless medically necessary and unavailable in-network. The provider requested preauthorization 72 days after the patient’s previous infusion, and the insurer incorrectly determined that the provider was out-of-network and provided a list of in-network providers, none of which offered the same treatment. The insurer eventually approved the infusion, but only after the provider cancelled the preauthorization request, the patient had refused an infusion of the same drug through a free drug program, and the patient had suffered a relapse.
The patient sued the insurer for insurance bad faith. The insurer raised a waiver defense, and the trial court gave the jury a corresponding instruction. The jury returned a verdict for the insurer; the trial court denied the patient’s motion for a new trial challenging the instruction, and the patient appealed. The court of appeals affirmed. It held that the trial court did not abuse its discretion by giving the waiver instruction.
The Arizona Supreme Court reversed and remanded for a new trial. It held that the trial court erred by giving the waiver instruction. The patient had based his insurance bad faith claim on (1) the insurer’s alleged policy of denying out-of-network claims without exploring whether each claim was medically necessary and (2) its incorrect determination that the provider was out-of-network. However, neither the patient nor the provider knew of the policy or the inaccuracy of the insurer’s determination when the provider cancelled the preauthorization request or explored alternative treatment options. The decision to cancel the preauthorization request therefore could not have constituted voluntary and intentional relinquishment of a known right, and the trial court erred by giving the waiver instruction. Moreover, the duty of good faith and fair dealing, upon which the patient’s claim had been based, cannot be waived in the context of an insurance bad faith claim.
Justice King authored the unanimous opinion.
Posted by: Matthew Stanford