Free Trial Brief - District Court of Arizona - Arizona

DAWSON & ROSENTHAL, P.C. _____________________
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Gregg H. Temple, State Bar No. 009866 GREGG H. TEMPLE, P.C. 4835 E. Cactus Road, Suite 225 Scottsdale, AZ 85254-4196 (602) 808-0508 [email protected] Steven C. Dawson, State Bar No. 006674 Anita Rosenthal, State Bar No. 006199 6586 Highway 179, Suite B-2 Sedona, AZ 86351 (602) 494-3800 [email protected]

IN THE UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA (1) Brett D. Leavey, Plaintiff, vs. (2) UNUM/Provident Corporation, a foreign corporation, and(3) Provident Life and Accident Insurance Company, a foreign corporation, Defendants. PLAINTIFF'S TRIAL MEMORANDUM Case No. CIV-02-2281 PHX SMM

I. INTRODUCTION The jury will decide whether defendants acted in bad faith in the handling of plaintiff's claim and whether they subsequently lied to cover up the fact that the claim was closed and the reserve released. The jury will also decide whether defendants' handling of plaintiff's claim was done pursuant to a corporate scheme to deny valid "gray area" psychiatric claims in order to increase profits. There are several facts which were admitted by the claim handlers and by defendants' Rule 30(b)(6) designee during discovery that will be important to the bad faith and punitive damages analysis:
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1.

From October 28, 1998 through December 4, 2001, plaintiff was paid

benefits because he was unable to perform the substantial and material duties of dentistry and was receiving care by a physician which was appropriate for the condition causing the disability. Although defendants agree that Leavey was and is disabled under the terms of the policy, plaintiff expects that they will attempt at trial to impugn his character and motivation. In the three motions for summary judgment that have been presented to this Court, defendants have tried to paint plaintiff as a bad dentist who never enjoyed the practice and was not motivated to return. While plaintiff disagrees with defendants' characterization of the facts, neither the facts nor defendants' characterization of them are relevant to this lawsuit because Leavey has always been entitled to benefits under the policy because he is unable to perform the substantial and material duties of dentistry and is receiving care that is appropriate for the condition causing the disability. 2. From June 2001 until the present plaintiff has been paid benefits

because he is unable to perform the substantial and material duties of dentistry and is receiving care by a physician which is appropriate for the condition causing the disability. Defendants' Rule 30(b)(6) designee, Greg Breter, agreed that defendants are currently paying benefits because Leavey is entitled to them under the terms of the policy: Q. A. Q. A. Q. A. Is Mr. Leavey entitled to benefits under this policy even if he didn't have the suggested therapy in the December 4th letter? I would say yes, he is continuing to receive benefits as of today's date. Is he entitled to receive benefits under this policy? I would say yes. Even though he didn't have the therapy, we're clear on this? Yes.
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*** Q: And I just want to make sure that you are representing that UnumProvident is paying this claim because he fits the definition of disability and not because you want it to look better in front of a jury. I would agree.

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A:

Jennifer Conrad, the claim handler, and her supervisor, Jeff Johnson, also agreed that even though plaintiff never participated in the cognitive behavioral therapy, he still meets the definition of disability. Leavey remains disabled because, as acknowledged by defendants' consultants, psychiatrist Dr. Stonnington and psychologist Dr. Obitz, he faces an unacceptably high risk that he will relapse into depression and substance abuse if he returns to dentistry. Breter agreed that an insured may not be able to perform the substantial and material duties of his occupation because of the risk that doing so would cause him mental or physical harm. This is also the law of Arizona. Nystrom v. Massachusetts Cas. Ins. Co., 148 Ariz. 208, 713 P.2d 1266 (App. 1986).

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3.
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The policy does not require that treatment be geared toward returning

Leavey to his occupation and it would be inappropriate for defendants to take the position that treatment had to be geared toward returning him to dentistry because it
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would be adding terms to the contract. Defendant's Rule 30(b)(6) designee, Mr. Breter,
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testified:
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Q: A: Q:

In fact, the contract doesn't require that treatment be geared toward returning someone to their occupation, do you agree? I would say that's correct. Alright. That would be inappropriate if UNUM/Provident was taking the position that treatment had to be geared toward returning somebody to their occupation, do you agree? I agree. That would be adding terms to the contract? Correct.
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A: Q: A:

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In addition, as noted above, Breter, Conrad, and Johnson all agreed that even though Leavey never participated in their suggested therapies, he still meets the policy definition of disability. This Court has ruled twice that the policy does not require that to be appropriate the treatment must be designed to return insureds to their former occupations: Plaintiff notes that the Policy does not dictate that Provident Life direct his care nor does it require that the care be directed to returning the insured to his former occupation, and Defendant does not refute this contention. In addition, the Court's inspection of the policy did not reveal any inclusion of language regarding Provident Life's role in the treatment process. Order dated September 9, 2003, at page 4, line 25 through page 5, line 15; Defendants cannot condition the receipt of benefits on Plaintiff's agreement to follow a treatment plan geared toward returning him to work as a dentist. Memorandum of Decision and Order, August 9, 2004, at 7. It is well established as a matter of law that treatment need not be designed to return the insured to his or her former occupation in order to be "appropriate" under the terms of this and similar policies: · Eichacker v. Paul Revere, 354 F.3d 1142 (9th Cir. 2004): The Ninth Circuit

held that the purpose of the "appropriate care" requirement (virtually identical to the one in this case: "the regular and personal care of a physician, which under prevailing medical standards, is appropriate for the condition causing the disability") "is to assure that the claimant is actually disabled, is not malingering, and is not making a fraudulent claim." · Heller v. Equitable Life Assur. Soc. of U.S., 833 F.2d 1253, 1257 (7th Cir.

1987): The Seventh Circuit held: "In the absence of a clear, unequivocal and specific contractual requirement that the insured is obligated to undergo [carpal tunnel] surgery to attempt to minimize his disability, we refuse to order the same." *** "We refuse to indulge in judicial activism and condition coverage under the contract on the insured's

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undergoing surgery, when the insurer failed to provide such a conditional clause in the policy." · Provident Life & Accident Ins. Co. v. Henry, 106 F. Supp. 2d 1002, 1004

(C.D. Cal. 2000): "The policy does not state that the insured must obey every doctor's recommendation or defer to Provident's judgment about the appropriate care for his condition. Provident does not have that power, and the Court does not interpret the policy to create it." · Provident Life and Accident Ins. Co. v. Van Gemert, 262 F. Supp. 2d 1047,

1051-52 (C.D. Cal. 2003): "Provident goes too far by arguing that the 1977 Policy obligates Van Gemert to submit to `reasonable curative or mitigating procedures as a precondition to receiving benefits . . . .' Where a patient is presented with more than one `reasonable' treatment option, or where a treating physician is ambivalent about the risks or remedial value of surgery, it would seem sufficient under the `care and attendance' provision that the patient has considered and elected not to pursue such a course." · Doe v. Provident Life and Accident Insurance Company, No. CIV. A. 96-

3951 (E.D. Pa. 1997) (1997 WL 799439; 1997 U.S. Dist. LEXIS 20770): The district court instructed the jury that "appropriate" means suitable under the circumstances, not perfect care or the best possible care. · Sebastian v. Provident Life and Accident Ins. Co., 73 F. Supp. 2d 521, 528-

30 (D.Md 1999): The jury could find that treatment of bipolar disease was appropriate even though the treating doctor was not a psychiatrist and did not diagnose or provide treatment for bipolar disease. · Kottle v. Provident Life and Accident Ins. Co., 775 So.2d 64, 77

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(La.Ct.App. 2000): The court affirmed the trial court's judgment that the insured did not have to undergo the treatment demanded by Provident in order to continue to collect benefits.
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Both the psychiatrist and the psychologist hired by defendants to examine plaintiff in 2001 were asked to provide an opinion on the appropriateness of the care provided by Leavey's treating physicians. Dr. Stonnington, a psychiatrist, responded: "The psychiatric care with Dr. Almer appears appropriate for his anxiety/depressive disorder." Dr. Obitz, a psychologist, stated that "Dr. Almer is providing relatively strong psychiatric care...." Defendants maintain that they became "concerned" that plaintiff was not receiving treatment by a physician which is appropriate for the condition causing the disability. Defendants have never suggested any treatment other than the cognitive behavioral therapy that was expressly designed to try to return him to dentistry. And, as discussed above, they have acknowledged that he need not undergo that therapy in order to be eligible for benefits. Nor have they ever suggested that his treatment is otherwise inappropriate. Defendant's "concern" is necessarily based on some interest other than enforcement of the terms of the contract. Leavey is still receiving treatment for chemical dependence, depression, and anxiety from board certified addictionologist Dr. Curtin and psychiatrist Dr. Almer. The treatment is not designed to return him to the practice of dentistry because of the high risk of relapse. Since defendants have not questioned the appropriateness of Leavey's treatment other then to insist on the experimental treatment that they admit he is not required to undergo to receive benefits under the policy, Leavey is receiving appropriate care. 4. Defendants closed plaintiff's claim and released the reserve on

December 6, 2001. Defendants initially denied that they closed Leavey's claim in December 2001, and their Rule 30(b)(6) designee, Mr. Breter, stated that it would have been inappropriate to have closed Leavey's claim because he was entitled to benefits under the terms of the policy. When confronted with the December 31, 2001 "Monthly
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Trends Detail Report," which proves that plaintiff's claim was terminated and the reserve released in December 2001, defendants admitted that they had in fact closed the claim and released the reserves in December 2001. Plaintiff received this report as one of thousands of documents produced by defendants in another bad faith lawsuit but not in this lawsuit. As discussed in this Court's March 31, 2005 Memorandum and Order regarding punitive damages, one element of plaintiff's claims for bad faith and punitive damages is the conflicting testimony of defendants' employees about whether the claim was closed or not. The Court also addressed the Monthly Trends Detail Report in the March 31, 2005 Memorandum and Order and concluded that "a reasonable jury could infer that the failure to produce evidence earlier in the litigation that Plaintiff"s claim had been closed may demonstrate in small part Defendant's `evil mind.'" The fact that defendants never produced the document in this litigation is therefore even more probative of "evil mind." This Court subsequently ruled, however, that plaintiff is precluded from telling the jury that defendants never produced this report or any other report that proved that the claim was closed and the reserve released because it would be unduly prejudicial to defendants. Plaintiff respectfully maintains that excluding this evidence, which is admittedly probative of evil mind, and allowing the jury to speculate on the source of the document is reversible error. II. THE BAD FAITH HANDLING OF PLAINTIFF'S CLAIM

Because of the special quasi-fiduciary duties owed by defendants to Leavey, Arizona allows the recovery of tort damages for breach of the duty of good faith and fair dealing. Rawlings v. Apodaca, 151 Ariz. 149, 157, 726 P.2d 565, 573 (1986). Defendants were, and are, required to comply with the following industry standards: · To act reasonably in the handling of the claim. Rawlings v. Apodaca, 151

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Ariz. 149, 157, 726 P.2d 565, 573 (1986).

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·

To treat Leavey fairly and honestly at all times. Zilisch v. State Farm Mut.

Auto. Ins. Co., 196 Ariz. 234, 995 P.2d 276 (2000) · · To not try to gain an unfair advantage. Id. To give as much consideration to Leavey's interest as they do to their own

interests. Deese v. State Farm Mut. Auto. Ins. Co., 172 Ariz. 504, 508, 838 P.2d 1265, 1269 (1992) · Id. · To not misrepresent facts or policy provisions to avoid paying benefits. To make claims decisions without regard to profitability of the company.

Sparks v. Republic Nat'l Life Ins. Co., 132 Ariz. 529, 67 P.2d 1127 (1982); Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, 995 P.2d 276 (2000) · To reasonably interpret contract provisions. Rowland v. Great States Ins.

Co., 199 Ariz. 577, 20 P.3d 1158 (App. 2001). · · To not take unreasonable legal positions. Id. To not impose requirements on an insured that are not contained in the

policy. Amadeo v. Principal Mutual Life Ins. Co., 290 F.3d 1152 (9th Cir. 2002); Ace v. Aetna Life Ins. Co., 139 F.3d 1241 (9th Cir. 1998). · To properly investigate Leavey's the claim and to reasonably review and

evaluate the information obtained. Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, 995 P.2d 276 (2000); Linthicum v. Nationwide Life Ins. Co., 150 Ariz. 354, 723 P.2d 703 (App. 1985) · claim. Id. · To not deny benefits based on speculation or conjecture. Id. To consider all evidence that supports coverage. Id. To fully inquire into all possible bases that might support the insured's

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·
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·

To not attempt to influence the opinions of independent medical examiners.

Gurule v. Illinois Mutual Life & Casualty Co., 152 Ariz. 600, 734 P.2d 85 (1987); · To not destroy or alter documents to conceal evidence of claim

handling. Hooper v. Truly Nolen of America, Inc., 171 Ariz. 692, 694, 832 P.2d 709, 711 (App. 1992); Hyatt Regency Phoenix Hotel Co. v. Winston & Strawn, 184 Ariz. 120, 132, 907 P.2d 506, 528 (Ct. App. 1995), citing Thompson v. Better-Bilt Aluminum Prods. Co., 171 Ariz. 550, 557, 832 P.2d 203, 210 (1992). · To not lie about actions taken on a claim. Farr v. Transamerica Occidental

Life Ins., 145 Ariz. 1, 8, 699 P.2d 376, 383 (1984). Disability insurers must be especially careful in their decisions to deny benefits because of the health and financial circumstances that are involved in such claims. Delgado v. Heritage Life Ins. Co., 157 Cal.App. 3d 262, 203 Cal.Rptr. 672 (1984); see also Gurule v. Illinois Mutual Life & Casualty Co., 152 Ariz. 600, 607 n.7, 734 P.2d 85, 92 n.7 (1987). It is also significant that defendants' payment of benefits does not excuse bad faith conduct. Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, 995 P.2d 276 (2000); Rawlings v. Apodaca, 151 Ariz. 149, 156, 726 P.2d 565, 572 (1986). Similarly, defendants must continue to perform all good faith duties owed to Leavey after the filing of this lawsuit. Tucson Airport Authority v. Certain Underwriters at Lloyd's, London, 186 Ariz. 45, 918 P.2d 1063 (Ariz. App. 1996). Defendants cannot rely on reasons created or discovered after suit is filed to justify their prior conduct. A. Evidence of a Corporate Plan to Terminate Valid Disability Claims to

Increase Company Profits Plaintiff will present the testimony of Steven Rutledge. Mr. Rutledge was a Vice President of the Customer Care and Business Systems Group for UnumProvident Corporation. He began his employment with Paul Revere in 1978 and came to have responsibility for the creation of the company's computerized claim system which was
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later implemented by Provident and then UnumProvident. Mr. Rutledge has written and testified about the problems disability insurance companies were facing with own occupation, non-cancelable policies. "Disability insurance competition was fierce. Doctors, dentists, lawyers and professional business people were overwhelmed by insurance agents trying to attract their business." He has explained that, with this competition, came increasingly generous benefits and discounts that led to a financial crisis once the claims experience began. The claims department was expected to help ease this crisis through increased claim denials and terminations. "The claim department didn't cause the mud slide and probably could not have prevented it, but in many cases the claim department has been asked to clean up the mess." Through his testimony, Mr. Rutledge will inform the jury how the company began setting targets and goals in connection with closing claims and how these were set out in inter-company memos. Mary Fuller, also a former employee of UnumProvident, will testify as plaintiff's expert. From 1982-84 she was a supervisor in Individual Disability Claims; from 1984-88 she was Assistant Vice President of Individual Disability Underwriting; from 1991-95 she was Director of Individual Disability Benefits and managed the individual disability claims within the Western region of the United States; from 1995-97 she Assistant Vice President of Claims and managed the Psychiatric and Complex Claims units; from 199799 she was Vice President of the Individual Disability Benefits Department, where, among other things, she was responsible for the oversight of all pending claims as well as initial liability decisions for all impairment groups; from 1999-2001 she was Vice President of the Psychiatric and Cardiac Claim units and had full responsibility for the management of that block of business. Ms. Fuller will testify that defendants breached their obligation of good faith in the administration of Leavey's claim and failed to comply with Industry Fair Claims Practice Standards as well as their own Impairment Based Claims Management Model and the procedures related to that model as outlined in the Claims Manual.
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Ms. Fuller will testify about defendants' aggressive marketing of own occupation disability policies to professionals and the eventual problems caused by poor underwriting and underpricing. By late 1994, Provident's loss recognition studies revealed that it faced an unfunded loss of over $400 million resulting in special charges to the business. In response to the crisis, Provident instituted a Special Review program to seek new and different solutions to its problems including increasing claim terminations on policies with larger benefits. Ralph Mohney, Senior Vice President of Claims, developed individual disability claim performance objectives including the objective to increase net claim terminations, which was measured by the amount of reserves which Provident could eliminate from its books through terminating claims which had previously been accepted as valid and paid. These claims initiatives put specific pressure on claims handlers in the psychiatric unit. Psychiatric claims were termed "grey area" claims, and handlers were told that "limitation on this claim type will have a significant impact on profitability." These new tactics were openly touted as being able to save the company between 30 and 60 million dollars a year "due to the significant financial leverage associated with individual disability claims." These claims initiatives were in place in 2000 and 2001 during the time that Dr. Leavey's claim was administered. The expectations for continuous increases in closures month over month and quarter over quarter is consistent with the types of expectations reflected in documents dating back as far as 1995 and suggested an ongoing pattern of inappropriate and unfair practices. Plaintiff will also present the testimony of Dr. William Feist, a Medical Director at Provident for over fourteen years. He explains how he observed his employer begin to put pressure to deny claims after 1993 when Harold Chandler became CEO. He testified that new programs such as "round table reviews" were designed to find ways to terminate high dollar claims. The termination of Leavey's claim began with a roundtable review. Dr.

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Feist's testimony has been held to be admissible and credible by the Ninth Circuit in Hangarter v. Paul Revere Life Ins. Co., 373 F.3d. 998, 1018-19 (2004). Defendants' internal documents will show that the executives in charge of implementing this scheme knew that it was improper to devalue their claimants' interests in this fashion, agreeing to "be careful in the words we use and the documentation developed during this project" and describing a Provident practice as "unwise from a litigation standpoint." Provident implemented specific ambitious claim-closing goals called "net termination ratios" (terminated claims minus reopened claims divided by new claims). The company also set financial goals for claim closures based on reserves. Setting these arbitrary claim-closing goals fostered the culture necessary for employees to close the requisite number of targeted claims. Among the most effective of the "claim management" initiatives were the round table reviews. These claim-closing triumphs were tracked in regular reports that recounted the company's quarterly success in cutting benefits to disabled claimants in the same manner in which a financial report might cover stock investments. By June 1995, Provident was celebrating $41 million of claim terminations for the previous month, and foreseeing a "good chance of meeting [its] goal of $132 million of terminations for the quarter." The next month, "[t]erminated claims reached a record level of $144.7 million ­ 25% above the previous four quarter average." The company's "claim improvement" scheme caused its "net termination ratio" to skyrocket from 47% in early 1995 to over 276% in 1997, meaning that hundreds of disabled insureds were denied the benefits they would have received, but for the defendants' improper practices. Provident reaped huge profits from its scheme. By October 1995, it had generated $99.8 million in "net terminations" in a single quarter. B. Evidence of Bad Faith in the Handling of Leavey's Claim

In spite of its acknowledgment that treatment does not have to be designed to return the insured to his or her occupation, the first communication to plaintiff and his attending
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physicians misrepresent that treatment is required to be designed to return the insured to their former occupation. This same misleading letter is sent to the insured's treating physician in every own-occupation disability claim. The form letter does not tell the physician that the policy only requires that treatment be appropriate for the condition causing the disability. This knowing and intentional misrepresentation of the requirements of the policy is particularly offensive for two reasons. It is intended to mislead insureds and their physicians and it is an intentional attempt to interfere with the physician/patient relationship. Leavey's claim was initially assigned to Brian Porter. During the first two years of the claim, Porter sent Leavey's file to defendant's in-house medical department six times for an evaluation of whether Leavey could perform the material and substantial duties of dentistry whether his care was appropriate for the condition causing his disability. All six reviews concluded that his situation fit the definition of disability and that benefits should be paid. After two years of payments, Leavey's claim was transferred to Jennifer Conrad. Ms. Conrad admits today that when she took over this file, she was aware that both of Leavey's treating doctors, (a specialist in addictive medicine and a psychiatrist), felt Mr. Leavey was disabled and should never return to dentistry. She was also aware that there had been six previous in-house medical reviews, all of which supported payment of this claim. But, at a round table review of Leavey's claim, the participants decided that Leavey should submit to two independent medical examiners (IMEs), a psychologist and psychiatrist for testing and evaluations. The documentation of the round table review was destroyed. Although state law requires that all aspects of the claim be documented in the claim file, defendants do not retain documentation of round table reviews because they do not want to "provide a roadmap for plaintiff's lawyers."

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Dr. Brown, defendants' medical director and vice president, prepared a biased and misleading synopsis of Leavey's medical records and treatment which he provided to the IME doctors in an effort to influence their opinions. Dr. Stonnington testified that his synopsis was slanted and that it left out facts that might have supported disability. Nonetheless, both IMEs concluded that Leavey was disabled, that he should not return to dentistry, that he was not exaggerating or malingering, and that the risk was high that if he tried to return to dentistry he would relapse. Both also concluded that the care and treatment plaintiff was receiving from his treating doctors was "appropriate" and "relatively strong." Defendants nonetheless continued to pursue their goal of terminating the claim. Dr. Brown, wrote both IME doctors a letter, setting out suggestions for treatments designed to try to get Leavey back to work as a dentist. Dr. Stonnington responded that Leavey could try the suggested treatments, but warned that it could lead to an exacerbation of his problems: However, I do think that there is a significant risk of relapse and if he did relapse it would lead to more depression and anxiety and inability to function generally. Therefore, the relapse prevention and monitoring program would have to be very good and provide him significant amount of support to increase the likelihood that it is a successful experiment. Dr. Obitz did not initially respond to Dr. Brown's request. Dr. Brown tried a third time to convince both that Leavey could possibly return to dentistry with certain treatments, this time calling both by telephone. He agrees that he asked both of them to outline a treatment program based on his earlier suggestions for ways to get Leavey to return to dentistry, which they did. Both wrote a supplemental letter outlining defendants' suggested treatment program, but still continued to warn defendants of their doubts for his recovery.
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Jennifer Conrad sent a letter to Leavey on December 4, 2001: We regret to inform you that upon completion of our review of the data contained in the claim file and the reports received from the above examiners, you do not qualify for continuing Total Disability benefits under the terms of your policy. *** After careful review, it is our understanding that with appropriate care and compliance with treatment recommendations, you should be able to return to work within 6 months. Therefore, please find enclosed benefit payments for the time period of December 8, 2001 to June 8, 2002. *** While there appears to be an impairment at this time for a psychiatric standpoint, the examination concludes that there is the need for aggressive treatment. You will find specific treatment recommendations that are explicitly geared toward returning to the work force. In order for this to take place, your treatment plan should address them. *** Please be aware that you will once again be responsible for premiums due after June 8, 2002 in order to maintain your policy in force. In addition a copy of the IME will be provided to your Attending Physician, John W. Curtin, M.D., for review and implementation of the treatment recommendations. Both Drs. Stonnington and Obtiz testified that the December 2001 letter misrepresented their opinions. Jennifer Conrad and Jeff Johnson both denied in their October 2003 depositions that they ever closed Leavey's claim. Both were certain in their recall of this claim. For instance, when asked what she meant when she recommended in the claim file to "close claim for benefits," Jennifer Conrad stated that she only meant to close "handling" of the claim for six months "because we did not close Mr. Leavey's claim for benefits." As to the language of the letter, she testified: [I]t was not my intention to advise him that no further benefits would be payable. It was just information, you know, if you return to work, we're hopeful, if you go ­ if these treatment recommendations are implemented
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and if you're not longer receiving benefits under the policy, then premiums would be due. Jeff Johnson, who approved the letter before it was sent, also testified to a similar "interpretation" of the letter and said that it could have been "worded more clearly." The central issue of their October 2003 depositions was whether the claim was closed, and both had attended a nearly five hour meeting with counsel and other witnesses to prepare for their depositions. Conrad and Johnson both conceded at their first deposition that it would have been inappropriate to close the claim in December 2001 because there was no factual basis to do so. Greg Breter, speaking as defendants as their Rule 30(b)(6) designee, admitted that it would have been bad faith to close the claim. They did not expect that plaintiff would later obtain a document that demonstrated that they were lying. When confronted nine months later with the December 31, 2001 Monthly Detail Report, both Conrad and Johnson said that they "forgot" that they had closed the claim and "forgot" that they re-opened it after this lawsuit was filed in 2002 and that they were surprised to learn that it had been closed. In light of all of the circumstances of their previous testimony, the jury could conclude that this was also a lie. Mr. Breter, put forth as the company representative in a 30(b)(6) deposition, agreed that it would be "outrageous" behavior if defendants had closed the claim and were lying to cover up that fact. When a claim is closed on defendants' computer system, it will show up on reporting screens as "closed," with the date of the closure and the person who closed it, and when it is reopened the system will show a reopen date, which remains in the system until the claim is closed again. The claim status screens should reflect the status of the claim as either "CLOSED" or "REOPEN" but Leavey's records show neither and defendants have no explanation for why they do not. Defendants tampered with either the computer system and/or the document produced to plaintiff to hide the fact that Leavey's
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claim had in fact been closed in December 2001 and, presumably, reopened in order to again make benefits payments. Similarly, no hard copy of closure documents are in the claim file. I. A. DAMAGES Compensatory Damages

Leavey is entitled to compensatory damages caused by defendants' bad faith conduct. Farr v. Transamerica Occidental Life Ins., 145 Ariz. 1, 699 P.2d 376 (1984). Leavey is disabled due to anxiety and depression and so was particularly susceptible to emotional damage when defendants' terminated his benefits in December 2001. He is still suffering damages based on defendants' ongoing bad faith conduct. Defendants' changing positions on the handling of his claim and the requirement of appropriate care have shown Leavey that he simply cannot trust this insurance company to ever treat him fairly. The jury will decide the value of his emotional distress damages. This Court has already ruled that future benefits are recoverable when a party indicates that it will not perform in the future, when a party insists on terms that are not included in the contract, or when a party acts in bad faith. September 9, 2003 Order, page 4-5 (denying defendants' motion for summary judgment on accelerated benefits). See also Hangarter v. Paul Revere Life Ins. Co., 373 F.3d. 998 (9th Cir. 2004. As discussed above, defendants agree that plaintiff is currently entitled to benefits, and his treating doctor has repeatedly advised defendants that he can never return to the practice of dentistry. Testimony will establish the present value of the future benefits. B. Punitive Damages

The same evidence offered for bad faith will establish the entitlement to punitive damages. Hawkins v. Allstate Ins. Co., 152 Ariz. 490, 496, 733 P.2d 1073, 1079 (1984)(same evidence relevant and admissible as to intentional tort of bad faith and
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punitive damages). The only additional evidence that will be offered for punitive damages is defendants' financial condition. This Court denied defendants' motion for summary judgment on punitive damages and held that the issue of punitive damages will go to the jury. An award of punitive damages focuses on the defendant's state of mind, intent, and motives. Defendants are liable for punitive damages if they intended to cause injury, their wrongful conduct was motivated by spite or ill-will, or, even though they had neither desire nor motive to injure, they acted to serve their own interests, having reason to know and consciously disregarding a substantial risk that their conduct might significantly injure the rights of others. Bradshaw v. State Farm Mut. Auto. Ins. Co., 157 Ariz. 411, 422, 758 P.2d 1313, 1324 (1988). Proof of a "conscious and deliberate disregard of the interests and rights of others also will suffice." Gurule v. Illinois Mut. Life Ins. Co., 152 Ariz. 600, 602, 734 P.2d 85, 87 (1987). This is true "even if the defendant's conduct was not outrageous." Id. Arizona law recognizes that defendants' employees are not likely to take the witness stand and admit their improper motives in dealing with Dr. Leavey, so state of mind is typically proven by circumstantial evidence from which the jury can infer that the defendant acted with an improper intent or conscious disregard of the rights of the insured. Bradshaw, 157 Ariz. at 422, 758 P.2d at 1324; Hawkins, 152 Ariz. at 497, 733 P.2d at 1080. The jury may make the requisite "evil mind" findings on the basis of "defendant's expressions, conduct, or objectives. . . ." Thompson v. Better- Bilt Aluminum Prods. Co., 832 P.2d 203, 210-11 (Ariz. 1992) (quoting Gurule, 734 P.2d at 87). Plaintiff will present evidence of the following acts by defendants which support a finding of bad faith and punitive damages: · Defendants willfully and knowingly closed a claim known to be valid. Farr

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v. Transamerica Occidental Life Ins., 145 Ariz. 1, 8, 699 P.2d 376, 383 (1984). · Defendants lied to cover up the unsupportable termination. Id.
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·

Defendants concealed and destroyed documents. Hooper v. Truly Nolen of

America, Inc., 171 Ariz. 692, 694, 832 P.2d 709, 711 (App. 1992); Hyatt Regency Phoenix Hotel Co. v. Winston & Strawn, 184 Ariz. 120, 132, 907 P.2d 506, 528 (Ct. App. 1995), citing Thompson v. Better-Bilt Aluminum Prods. Co., 171 Ariz. 550, 557, 832 P.2d 203, 210 (1992). · · Defendants tampered with documents. Id. Defendants misrepresented the terms of the policy. Amadeo v. Principal

Mut. Life Ins. Co., 290 F.3d 1152, 1165 (9th Cir. 2002); Ace v. Aetna Life Ins. Co., 139 F.3d 1241 (9th Cir. 1998) · · Defendants misrepresented medical records and IME conclusions. Defendants engaged in a corporate scheme to terminate valid claims.

Hawkins v. Allstate Ins. Co., 152 Ariz. 490, 733 P.2d 1073 (1984); Amadeo v. Principal Mut. Life Ins. Co., 290 F.3d 1152, 1165 (9th Cir. 2002). · Defendants violated industry standards and committed fraud by failing to

maintain reserves on Leavey's claim as part of a scheme to deny him benefits. Hooper v. Truly Nolen of America, Inc., 171 Ariz. 692, 694, 832 P.2d 709, 711 (App. 1992) In determining the amount of punitive damages, the jury may consider the relationship of punitive damages to any actual or potential harm to the plaintiff: Thus, both State Supreme Courts and this Court have eschewed an approach that concentrates entirely on the relationship between actual and punitive damages. It is appropriate to consider the magnitude of the potential harm that the defendant's conduct would have caused to its intended victim if the wrongful plan had succeeded.... TXO Production Corp. v. Alliance Resources, Corp., 509 U.S. 443, 460 (1993)(plurality opinion)(emphasis in original); see also BMW of North America, Inc. v. Gore, 517 U.S. 559, 582 (1996)(Court considered whether the plaintiff or any other BMW purchasers were "threatened with any additional potential harm" by BMW's wrongful acts). In its most recent analysis of the relevant constitutional issues, the Supreme Court described the
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relevant inquiry as "the ratio between harm, or potential harm, to the plaintiff and the punitive damages award." State Farm Mut. Auto. In. Co. v. Campbell, 538 U.S. 408, 424 (2003). The jury must therefore consider the potential losses to plaintiff if defendants' "wrongful plan had succeeded." Plaintiff maintains that defendants' intent in sending the December 4, 2001 letter was to convince Leavey that he was required to undergo cognitive behavioral therapy, that he would receive no further benefits, and that he would have to resume paying premiums. If defendants' wrongful plan had succeeded, plaintiff would have been deprived of ongoing benefits, he would have paid premiums, and he would have suffered additional emotional distress and anxiety. As to the cognitive behavioral therapy, defendants' consulting psychiatrist, Dr. Stonnington, informed defendants that if the treatment "experiment" failed, it would "lead to more depression and anxiety and inability to function generally." Defendants were also aware that Leavey was vulnerable and that he had talked of suicide. All of these potential damages, which were avoided by the filing of this lawsuit, are relevant to the constitutional inquiry on punitive damages. Dated September 1, 2005. DAWSON & ROSENTHAL, P.C. and GREGG H. TEMPLE, P.C.

By_//Gregg H. Temple//____________________ Steven C. Dawson Anita Rosenthal 6586 Highway 179, Suite B-2 Sedona, AZ 86351 Attorneys for Plaintiff

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Copy served by the court's electronic case filing system on September 1, 2005 on: Stephen Bressler Lewis & Roca 40 North Central Phoenix, AZ 85004 Attorneys for Defendants _______________________________

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