In an issue of first impression in Hawaii, the Hawaii Supreme Court ruled that an insurer's actions before an actual claim is submitted can be considered in determining whether the insurer acted in bad faith. Adams v. Hawaii Medical Service Ass'n, 2019 Haw. LEXIS 263 (Haw. Sept 30, 2019). Disclosure - our firm was co-counsel for the petitioner, Patricia Adams.
Brent Adams was diagnosed with a rare cancer, stage III multiple myeloma, in August 2006. His doctors advised a tandem stem cell transplant, under which he would receive a transplant of his own stem cells (autologous or "allo" transplant) followed by a stem cell transplant from a matched sibling donor (allogenic or "allo" transplant). Brent informed his health insurance provider, Hawaii Medical Service Association ("HMSA") of his intent, on the advice of his doctors, to pursue the auto and allo transplants.
HMSA directed Brent to seek treatment at City of Hope in Duarte, California. HMSA's case manager maintained a log of communications to oversee Brent's care. The log demonstrated that Brent's wife, Patricia Adams, told HMSA that she and Brent and were leaving for City of Hope on December 11, 2005 for testing and consultation. Patricia's declaration stated that she told HMSA that Brent would seek the auto and allo transplants at City of Hope and asked HMSA if anything else was needed to inform HMSA of the treatment plan. HMSA did not provide any further instructions.
On December 15, 2005, Brent's doctor at City of Hope, Dr. Stein, submitted a precertification request for an auto transplant. The request noted that Brents' siblings would be tested to determine if they could serve as donors, in which case Brent would pursue an allo transplant following the auto transplant. HMSA approved the auto transplant. HMSA, however, informed Dr. Stein that it would only pay for the testing of potential donors for the sibling that provided a match.
Brent underwent the auto transplant in January 2006. Dr. Stein then contacted HMSA regarding Brent's participation in a clinical trial for stem cell transplants in preparation for the allo transplant. HMSA informed Dr. Stein he should contact the precertification division and recommend that he submit data supporting the efficacy of the clinical trial. In January and February 2006, Brent and Patricia communicated numerous times with HMSA about Brent's desire to do the allo transplant. On January 17, 2006, HMSA informed Patricia that Dr. Stein had not submitted a precertification request for the allo transplant. On February 22, 2006, Brent informed HMSA that one of his siblings appeared to be a match and he hoped to pursue the allo transplant. HMSA again noted that a precertification request had to be submitted and advised Brant that "in terms of the care plan, the goals remain appropriate and on target." Patricia informed HMSA a couple of weeks later that they were "desperately trying to avoid any delays."
On March 2, 2006, Dr. Stein submitted a precertification request for the allo transplant. Four days later, HMSA denied the procedure because it was "investigational." The Adams were taken by surprise, viewing the denial as an abrupt change by HMSA, especially when Brent had a matched sibling donor. After an appeal to the circuit court, HMSA finally covered the allo transplant in 2007, but Brent died approximately one year later.
Before Brent died, he and Patricia filed suit for breach of contract, bad faith and additional claims. The circuit court granted HMSA's motion for summary judgment on all claims. The Intermediate Court of Appeals ("ICA") affirmed on the breach of contract claim, but vacated the circuit court's grant of summary judgment on the bad faith claim. The ICA held it could not conclude, as a matter of law, that HMSA reasonably handled Brent's claim for the allo transplant.
On remand, HMSA argued it denied coverage two days after the precertification request was submitted, so its handling of the claim was objectively reasonable. The circuit court agreed and again granted summary judgment on the bad faith claim to HMSA. The ICA affirmed, determining that no genuine issues of material fact existed as to whether HMSA mishandled the claim. HMSA denied the precertification request within the time period required under HMSA's Plan. Until a request was submitted, there was no claim for HMSA to process. The ICA noted that "the duties of good faith and fair dealing implied in every insurance contract arise after the insured complies with the claims procedure described in the insurance policy."
On appeal, the Supreme Court considered whether, viewing the evidence in the light most favorable to Patricia, the record contained evidence establishing that HMSA committed the tort of bad faith by unreasonably handling Brent's claim for an allo transplant. The Court considered the conduct of the parties before and after the formal submission of the claim to determine whether the insurer acted reasonably. The covenant of good faith and fair dealing required HMSA to act in good faith before and after the formal submission of the claim. The record contained facts that suggested HMSA had unreasonably handled Brent's claim. This included the fact that HMSA was aware that Brent was considering the allo transplant on December 15, 2005, but did not inform him that the allo transplant would not be covered until after a formal request was submitted on March 2, 2006. Further, HMSA was aware that Brent was testing his five siblings to seek a match for the allo transplant, but did not tell Brent the procedure was not covered.
Accordingly, HMSA's duty of good faith and fair dealing arose based upon the insurance contract entered with Brent. Evidence of HMSA's conduct during its relationship with Brent raised genuine issues of material fact as to whether HMSA unreasonably handled Brant's claim for an allo transplant. The ICA's judgment on appeal was vacated, as was the circuit court's order granting summary judgment to HMSA on the bad faith claim. The case was remanded to the circuit court.
