Failure to Fish or Cut Bait
In Allen M. Entin v. the Superior Court of Los Angeles County, No. B239642 (Cal.App. Dist.2 08/20/2012) the insurer filed a declaratory relief action that was pending while the benefits of disability insurance policies were paid seeking a conclusion from the court that it could stop payments. In so doing it neither accepted nor denied the claim of Mr. Entin.
An insurance company faced with a claim where, after completing a thorough and fair investigation, it concludes that the evidence available to the insurer leads it to conclude that the claim is not by the terms and conditions of the policy, has available to it the following choices:
- Deny the claim outright.
- Pay the claim to avoid litigation.
- File a complaint for declaratory relief seeking the advice of the court whether the insurer’s decision to deny the claim is correct.
Allen Entin owned two disability income insurance policies. In 2009, Entin filed a claim asserting that migraine headaches had rendered him totally disabled. Entin’s insurer, respondent Provident Life and Accident Insurance Company, agreed to pay Entin benefits while investigating his claim. Allen Entin acquired a disability income insurance policy that provided benefits of $20,000 per month in the event that he became totally disabled and an “overhead expense disability policy” that provided benefits up to $360,000 in the event that he became totally disabled. Both polices defined the term “totally disabled” to mean: “(1) [the insured is] not able to perform the substantial and material duties of [his] occupation; and [¶] (2) [the insured is] receiving care by a [p]hysician which is appropriate for the condition causing the disability.”
At the conclusion of its investigation, Provident filed a declaratory relief action seeking a determination that Entin was not totally disabled within the meaning of his policies. The complaint clarified that Provident would continue to pay Entin benefits during the pendency of the action and would not seek reimbursement of those payments. Entin requested a jury trial. The trial court denied the request, concluding that Provident’s claim was equitable in nature because Provident was continuing to pay Entin disability benefits during the pendency of the action.
Entin filed a petition for writ of mandate seeking an order directing the superior court to grant his request for a jury trial.
Entin argued that he had a right to a jury because the case raised factual issues concerning his entitlement to contractual insurance benefits. Provident, however, argued that there was no right to a jury because “the underlying claim and relief sought – identification of prospective right under the insurance policies – is [sic] purely equitable in nature.” On February 22, 2012, the trial court ordered that Entin did not have a right to a jury “in light of the fact that payments [under the policies] are ongoing.”
The issue of whether Entin was constitutionally entitled to a jury trial is a pure question of law. The right to a jury trial is guaranteed by the California Constitution. (Cal. Const., art. I, § 16.) As a general proposition, the jury trial is a matter of right in a civil action at law, but not in equity. If the action is essentially one in equity and the relief sought depends upon the application of equitable doctrines, the parties are not entitled to a jury trial. California courts characterize declaratory relief actions as being “equitable” in nature.
Several California decisions have addressed whether the right to a jury attaches in declaratory relief actions seeking a determination of insurance coverage. The general rule is that if the issues of fact arising would have been triable by a jury as of right in an action which might have been substituted for the declaratory judgment action by either party, then there is a right to jury trial on such issues. California courts will not permit a declaratory action to be used as a device to circumvent the right to a jury trial in cases where such right would be guaranteed if the proceeding were coercive rather than declaratory in nature. Notwithstanding that an action for declaratory relief is characterized as an action in equity, there is a right to a jury trial of material triable issues of fact concerning a breach of contract claim. For example, if an insurance policy is ambiguous, and the resolution of the ambiguity turns on disputed extrinsic evidence, the dispute must be resolved by a jury upon demand.
Provident’s complaint does not raise any dispute regarding the proper construction of the parties’ insurance policies. Instead, it seeks a determination as to whether Entin is “totally disabled” within the meaning of those policies. To resolve this issue, the finder of fact will have to decide two matters that are currently in dispute: (1) whether Entin’s migraine headaches have rendered him “unable to perform the substantial and material duties of his occupation,” and (2) whether Entin is receiving “appropriate care for the condition.” The legal nature of Provident’s claim is also demonstrated by the fact that, without the declaratory relief mechanism, this matter would have proceeded as an action at law.
The predominant issue in this case does not involve the proper construction of Entin’s disability policy. Provident’s complaint does not allege that the parties dispute the meaning of any term in the policy. It asserts only that they disagree as to whether Entin’s migraine headaches have rendered him incapable of performing the substantial and material duties of his profession and whether he is seeking appropriate treatment for his condition. These are pure issues of fact and Entin was entitled to have a jury decide them.
The petition for writ of mandate was granted and the trial court was directed to vacate its order denying Entin’s request for a jury trial and enter a new order granting the request.
This is a case where form overcame substance. Provident believed that Mr. Entin was not disabled as he claimed and that, therefore, his claim was fraudulent. Rather than apply its position directly the insurer filed a suit it called a complaint for declaratory relief hoping to avoid a jury trial. It failed because the issue was not an interpretation of the contract but was, rather, a question of whether Mr. Entin was really disabled.
If Provident had evidence that Entin was not disabled it should have denied his claim in its entirety. Entin would have sued for the benefits and, if demanded by either party, a jury would have determined whether the denial was appropriate or not.
Insurers should stand by their principles. If they believe they are being defrauded and have evidence to support that position, they should act on their belief. If they have no evidence to support the decision then they should simply pay the claim. Provident promised to pay disability payments to Mr. Entin if he was totally disabled. He claimed he was disabled and Provident believed he was not. Paying him and filing a declaratory relief action did not help. By their pleadings they admitted they were not sure he was disabled and wanted the court to resolve the lack of certainty without giving Entin the right to a jury trial.
Insurers should never deny a claim unless they have conducted a thorough and fair investigation and conclude, from that investigation, that a preponderance of the evidence will prove there is no coverage under the policy. There is really no middle ground — the coverage either applies or it does not. Insurers must decide.
© 2012 – Barry Zalma
Barry Zalma, Esq., CFE, has practiced law in California for more than 40 years as an insurance coverage and claims handling lawyer. He also serves as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud. Mr. Zalma serves as a consultant and expert, almost equally, for insurers and policyholders.
He founded Zalma Insurance Consultants in 2001 and serves as its senior consultant.
Mr. Zalma recently published the e-books, “Zalma on Insurance Fraud – 2012″; “Zalma on Diminution in Value Damages – 2012,”“Zalma on Insurance,” “Heads I Win, Tails You Lose — 2011,” “Zalma on Rescission in California,” “Arson for Profit” and others that are available at www.zalma.com/zalmabooks.htm.
Mr. Zalma can also be seen on World Risk and Insurance News’ web based television program “Who Got Caught” with copies available at his website at http://www.zalma.com.