Should Have Read "Montana Doesn't Make Bad Faith and Punitive Damages, Easy No Bad Faith in Montana

Insurance Bad Faith in Disguise Fails

Barry Zalma

Jul 22, 2024

Transcript

FACTUAL BACKGROUND

King, a resident of Montana, sued HCSC, a business incorporated in Illinois, for HCSC’s alleged breach of contract with its insured King when HCSC denied King’s claim for coverage of a back surgery. HCSC insured King under an individual health insurance policy (“the Policy”). King requested pre-approval from HCSC for a two-level lumbar disc arthroplasty (“the surgery”). HCSC denied King’s pre-approval request on December 14, 2022, citing to a policy exclusion contained in the Policy. King nevertheless underwent the back surgery on October 12, 2023, at a clinic in Germany. King alleged that the Policy provided coverage for the surgery.

DISCUSSION

Count I: Breach of Contract

HCSC argued that King failed to allege facts sufficient to state a claim for breach of contract for Count I. HCSC contends that King failed to identify the contractual provision that would have required HCSC to cover his requested back surgery.

HCSC denied pre-approval for the surgery that King sought on the basis that the surgery was not appropriate, not medically necessary, and experimental.

The Food and Drug Administration (FDA) approved the use of a medical device known as the prodisc L for 2-level lumbar disc arthroplasties on April 10, 2020. The FDA concluded that the 2-level lumbar disc arthroplasty was safe and effective for King’s condition. Therefore, the complaint provides sufficient language for the Court to draw a reasonable inference that HCSC had breached the Policy.

Count II: Breach of Implied Covenant of Good Faith and Fair Dealing

HCSC argues that King’s claim of breach of the implied covenant of good faith and fair dealing should be dismissed because Montana law precludes the claim. King contended that HCSC misdescribes the cause of action of Count II.

The USDC concluded that King’s complaint presents an insurance bad faith claim in disguise. King failed to prove the distinction between the breach of the implied covenant claim and a common law bad faith claim..

Punitive Damages

HCSC argued that Montana law bars King from including a request for an award of punitive damages in the complaint. King concedes that Montana law bars the inclusion of punitive damages in an initial pleading. The USDC concluded it must dismiss the punitive damages claim in accordance with Mont. Code Ann. § 27-1-221(5).

However, King may file to amend the pleading for punitive damages after discovery begins.

Accordingly, IT WAS ORDERED that:

Defendant’s Rule 12(b)(6) Motion to Dismiss is GRANTED in part and DENIED in part.

Count II of Plaintiff’s complaint (Doc. 1) is DISMISSED.
Plaintiff’s punitive damages claim is DISMISSED.

ZALMA OPINION

The State of Montana does not like bad faith and claims seeking punitive damages. The plaintiff – to avoid the requirements of the state – composed its complaint to disguise its bad faith claim as a different type of tort. The attempt failed and the USDC limited the case to the simple breach of contract action and allowed that the plaintiff could amend his complaint to allege bad faith after discovery. When a plaintiff has a winnable breach of contract claim it should do so and give up the attempt to get rich with a bad faith suit.