Judge: Robert S. Draper, Case: 21STCV46868, Date: 2022-10-10 Tentative Ruling

Case Number: 21STCV46868    Hearing Date: October 10, 2022    Dept: 78

Superior Court of California 

County of Los Angeles 

Department 78 

Defendant’s Demurrer to the First Amended Complaint is OVERRULED.

Defendant’s Motion to Strike Plaintiffs’ Prayer for Punitive Damages is DENIED.

Defendant has thirty days to file a responsive pleading.

FACTUAL BACKGROUND   

This is an action for breach of an insurance policy. The operative First Amended Complaint (“FAC”) alleges as follows.

Plaintiffs Teresa Mando (“Teresa”) and James Mando (“James” and together with Teresa, “Plaintiffs”) were covered by a health care plan issued by Defendant California Physicians’ Services dba Blue Shield of California (“Blue Shield”). (FAC ¶ 9.)  Teresa needed a shoulder surgery, for which Blue Shield pre-approved coverage. (FAC ¶ 10.) Before her surgery, Teresa paid the hospital $4,265, the amount Blue Shield told the hospital Teresa owed for her deductible. (FAC ¶ 11.) Blue Shield paid Teresa’s surgeon and anesthesiologist for the procedure. (FAC ¶ 12.)

On October 15, 2021, Teresa logged on to her Blue Shield account, where she discovered that the hospital had submitted the claim to Blue Shield and Blue Shield had closed the claim with no payment. (FAC ¶ 13.) Additionally, the account had not record of Teresa’s $4,265 payment, which should have counted toward her deductible and out-of-pocket maximum payment for the year. (Ibid.)

Teresa contacted Blue Shield to see why Blue Shield did not pay the claim. (FAC ¶ 14.) A Blue Shield representative informed Teresa that the procedure was not pre-authorized. (Ibid.) When Teresa told the representative that she had obtained pre-authorization, the representative indicated that there must have been a mistake, and that Blue Shield would reopen the claim. (Ibid.)

On October 19, and again on October 21, Blue Shield sent letters to the hospital denying coverage. (FAC ¶¶ 16-17.) Despite repeated attempts to correct the issue, Teresa was unable to obtain coverage for the procedure until after she filed the instant lawsuit. (FAC ¶¶ 18-21.) As a result of Blue Shield’s conduct, Plaintiffs were forced to retain counsel, incur attorneys’ fees, and file the instant lawsuit. (FAC ¶ 22.)

PROCEDURAL HISTORY 

On December 23, 2021, Plaintiffs filed the Complaint asserting three causes of action:

1.    Breach of the Duty of Good Faith and Fair Dealing;

2.    Breach of Contract; and,

3.    Violation of Business & Professions Code § 17200.

On April 14, 2022, Blue Shield filed a Demurrer to the Complaint.

On June 1, 2022, Plaintiffs filed the operative First Amended Complaint before the hearing on the Demurrer.

On July 6, 2022, Blue Shield filed the instant Demurrer and Motion to Strike.

On August 29, 2022, Plaintiffs filed Oppositions.

On September 2, 2022, Blue Shield filed Replies.

DISCUSSION 

                         I.          REQUEST FOR JUDICIAL NOTICE

In ruling upon demurrers, courts may consider matters that are proper for judicial notice. (ABF Capital Corp. v. Berglass (2005) 130 Cal.App.4th 825, 834.)  

The court may take judicial notice of “official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States,” “[r]ecords of (1) any court of this state or (2) any court of record of the United States or of any state of the United States,” and “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code § 452, subds. (c), (d), and (h).)  

Evidence Code Section 452 provides that judicial notice may be taken for facts and propositions that are “not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Cal. Evid. Code § 452(h).) Further, “a court may take judicial notice of [recorded documents and] the fact of a document's recordation, the date the document was recorded and executed, the parties to the transaction reflected in a recorded document, and the document's legally operative language, assuming there is no genuine dispute regarding the document's authenticity. From this, the court may deduce and rely upon the legal effect of the recorded document, when that effect is clear from its face.” (Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 745-755.)  

Taking judicial notice of a document is not the same as accepting the truth of its contents or accepting a particular interpretation of its meaning. (Fremont Indem. Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 113-14 (citations and internal quotations omitted).) In addition, judges “consider matters shown in exhibits attached to the complaint and incorporated by reference.”  (Performance Plastering v. Richmond American Homes of California, Inc. (2007) 153 Cal.App.4th 659, 665.)  However, “[w]hen judicial notice is taken of a document . . . the truthfulness and proper interpretation of the document are disputable.” (Aquila, Inc. v. Sup. Ct. (2007) 148 Cal.App.4th 556, 569 (quoting StorMedia Inc. v. Sup. Ct. (1999) 20 Cal.4th 449, 457 n. 9).) 

The party requesting judicial notice must (a) give each adverse party sufficient notice of the request to enable the adverse party to prepare to meet the request and (b) provide the court with sufficient information to enable it to take judicial notice of the matter. (Cal. Evid. Code § 453.) 

Here, Blue Shield requests judicial notice of the following:

1.    The Explanation of Benefits issued by Blue Shield on September 28, 2021, in connection with the claim for health care services identified in Plaintiffs’ Complaint. (RFJN Ex. A.)

2.    The Explanation of Benefits issued by Blue Shield on December 30, 2021, in connection with the claim for health care services identified in Plaintiffs’ Complaint. (RFJN Ex. B.)

Blue Shield contends that the Explanations of Benefits constitute facts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy and are therefore judicially noticeable pursuant to Cal. Evid. Code § 452.

In Objection, Plaintiffs argue that Evidence Code 452(h) is intended to apply to facts that are widely accepted “by experts and specialists in the natural, physical, and social sciences and which can be verified by reference to treatises, encyclopedias, almanacs and the like or by persons learned in the subject matter. [Citation.”” (Gould v. Maryland Sound Industries, Inc. (1995) 31 Cal.App.4^th 1137, 1145.)

Additionally, Plaintiffs note that the Court of Appeals has rejected similar attempts to have judicial notice of letters from insurance companies explaining benefits to their covered. (See StorMedia Inc. v. Superior Court (1999) 20 Cal.4^th 449, 457.)

Plaintiffs’ argument is well taken. Here, Defendants have proffered two “explanations of benefits” with the expectation that the veracity of the propositions contained within is “not reasonably subject to dispute and is capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” However, there is no evidence that the Explanations of Benefits are legally binding or dispositive of the issue. Indeed, the Explanations of Benefits explicitly state that “This is NOT a Bill.”

The First Amended Complaint alleges repeated communications with Blue Shield representatives that directly contradict the content of the explanations of benefits. Moreover, Blue Shield provides no explanation for what source of indisputable accuracy the Court could consider to determine the accuracy of the Explanations of Benefits contents.

Accordingly, the Court finds that the Explanations of Benefit are improper for judicial notice, and Blue Shield’s Requests for Judicial Notice are DENIED.

                       II.          DEMURRER

Blue Shield demurs to all causes of action pursuant to Code of Civil Procedure section 430.10.

A demurrer should be sustained only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Pro., §§ 430.30, et seq.) As is relevant here, a court should sustain a demurrer if a complaint does not allege facts that are legally sufficient to constitute a cause of action. (See id. § 430.10, subd. (e).) As the Supreme Court held in Blank v. Kirwan (1985) Cal.3d 311: “We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . . Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.” (Id. at p. 318; see also Hahn. v. Mirda (2007) 147 Cal.App.4th 740, 747 [“A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. [Citation.]”)  

“In determining whether the complaint is sufficient as against the demurrer … if on consideration of all the facts stated it appears the plaintiff is entitled to any relief at the hands of the court against the defendants the complaint will be held good although the facts may not be clearly stated.” (Gressley v. Williams (1961) 193 Cal.App.2d 636, 639.) 

A demurrer should not be sustained without leave to amend if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment. (Schifando v. City of Los Angeles, supra, 31 Cal.4th at p. 1081.) The demurrer also may be sustained without leave to amend where the nature of the defects and previous unsuccessful attempts to plead render it probable plaintiff cannot state a cause of action. (Krawitz v. Rusch (1989) 209 Cal.App.3d 957, 967.) 

A.  Explanation of Benefits

First, Blue Shield argues that the Explanations of Benefits confirm that Blue Shield never assigned patient responsibility to Teresa, and therefore no breach of contract can be alleged.

As Blue Shield’s Requests for Judicial Notice were denied, this argument is moot.

B.  Breach of Contract

Next, Blue Shield argues that Plaintiffs fail to state a cause of action for Breach of Contract as “Plaintiffs fail to identify any term of their Blue Shield health plan that was allegedly breached.”

“The standard elements of a claim for breach of contract are: ‘(1) the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) damage to plaintiff therefrom.’” (Wall Street Network, Ltd. v. New York Times Co. (2008) 164 Cal.App.4th 1171, 1178.) 

Blue Shield argues that, although Plaintiffs are not required to plead the relevant contractual terms verbatim, they fail to even plead the legal effect of the contract as required by California law.

 “A written contract may be pleaded by its terms—set out verbatim in the complaint or a copy of the contract attached to the complaint and incorporated therein by reference—or by its legal effect.” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489.) “In order to plead a contract by its legal effect, plaintiff must allege the substance of its relevant terms.” (Id.) 

Here, the First Amended Complaint alleges that the contract required “timely access to medically necessary diagnosis, assessment, evaluation, care, and treatment,” and that Blue Shield “breached their contractual duties owed to Plaintiffs by failing to provide coverage for the medically necessary care and treatment and its failure to do so in a timely manner.” (FAC ¶ 36.)

Though Blue Shield accurately notes that the First Amended Complaint does not verbatim cite the provision that Plaintiffs accuses Blue Shield of breaching, it seems apparent that the legal effect of an insurance contract is the requirement that the insurer provides timely access to medically necessary diagnosis, assessment, evaluation, care and treatment.

Accordingly, Plaintiffs have successfully stated the legal effect of the contract in question, and Blue Shield’s Demurrer on this ground is OVERRULED.

C.  Breach of the Implied Covenant of Good Faith and Fair Dealing

Next, Blue Shield argues Plaintiffs fail to allege facts sufficient to state a cause of action for Breach of the Implied Covenant of Good Faith and Fair Dealing.

To establish a breach of the covenant of good faith and fair dealing for insurance claims, the plaintiff must establish: (1) benefits due under the policy must have been withheld; and (2) the reason for withholding benefits must have been unreasonable or without proper cause. (Love v. Fire Insurance Exchange (1990) 221 Cal.App.3d 1136, 1151.)  

Here, Blue Shield contends that Plaintiffs cannot show damages, as Blue Shield eventually, by Plaintiffs’ admission, covered the procedure, and that Plaintiffs’ do not allege that Blue Shield’s purported withholding of benefits was unreasonable or without proper cause.

As to the first argument, the First Amended Complaint alleges that “as a result of Blue Shield’s bad faith conduct, Plaintiffs were forced to retain counsel, incur attorneys’ fees, and file this lawsuit.” (FAC ¶ 22.)

Though Blue Shield did eventually pay for the procedure, Blue Shield’s alleged pushback on its obligation to pay prior to the filing of the instant lawsuit caused damages as noted above, and in the form of emotional distress. Therefore, Plaintiffs successfully allege damages.

As to the second argument, the First Amended Complaint alleges that Blue Shield unreasonably denied benefits by a litany of actions. (See FAC ¶ 28(a-m).) Though this list is largely conclusory, it is supported by the specific allegations incorporated into the First Cause of Action, including that a Blue Shield Representative advised Teresa that her claim had been denied because surgery was not preauthorized, when it fact it had been preauthorized (FAC ¶ 14); a different Blue Shield representative told Teresa that Blue Shield had denied the claim because it had multiple procedure codes (FAC ¶ 15); Blue Shield repeatedly informed the hospital that it was denying Teresa coverage while Teresa was contesting the decision (FAC ¶¶ 16-17); Blue Shield informed Teresa that it was opening an appeal without actually doing so (FAC ¶¶ 19-20); and that the hospital bill was denied and delayed for two one-dollar charges. (FAC ¶ 21.)

These specific allegations, together with the general allegations of unreasonable behavior, satisfy the requisite standard at Demurrer.

Accordingly, Blue Shield’s Demurrer to the Cause of Action for Implied Covenant of Good Faith and Fair Dealing is OVERRULED.

D.  Unfair Competition Law

Next, Blue Shield argues that Plaintiffs fail to state a claim under California’s Unfair Competition Law (“UCL”).

To successfully plead a UCL claim for unfair business practices, a plaintiff must allege facts justifying relief in the form of protecting the public from unfair business practices or deceptive advertising. (Day v. AT&T Corp. (1998) 63 Cal.App.4th 325, 331-332.) A plaintiff must plead and prove that the defendant engaged in a business practice that was either unlawful (i.e., is forbidden by law) or unfair (i.e., harm to victim outweighs any benefit) or fraudulent (i.e., is likely to deceive members of the public). (Albillo v. Intermodal Container Services, Inc. (2003) 114 Cal.App.4th 190, 206.) 

As stated in West v. JPMorgan Chase Bank, “[s]everal definitions of ‘unfair’ under the UCL have been formulated. They are: 

1.    “An act or practice is unfair if the consumer injury is substantial, is not outweighed by any countervailing benefits to consumers or to competition, and is not an injury the consumers themselves could reasonably have avoided.” (Daugherty v. American Honda Motor Co., Inc. (2006) 144 Cal.App.4th 824, 839, 51 Cal.Rptr.3d 118.) 

2.    “‘[A]n “unfair” business practice occurs when that practice “offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.” [Citation.]’ [Citation.]” (Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, 719, 113 Cal.Rptr.2d 399.) 

3.    An unfair business practice means “the public policy which is a predicate to the action must be “tethered” to specific constitutional, statutory or regulatory provisions.’ (Scripps Clinic v. Superior Court (2003) 108 Cal.App.4th 917, 940, 134 Cal.Rptr.2d 101.) 

Plaintiffs allege that Defendants are “engaged in a pattern and practice of systematically” preauthorizing procedures and then subsequently denying coverage, denying and delaying medical claims without conducting fair investigations, wrongfully asking providers to write off bills, and not starting appeals and grievances when members complain about the denial of coverage. (FAC ¶ 42.)

Blue Shield argues that the First Amended Complaint fails to allege that Blue Shield engaged in conduct that was wrongful or unfair to consumers at large within the meaning of the UCL.

However, the general allegations regarding Blue Shield’s misleading of Teresa clearly constitute behavior that is injurious to consumers, is not outweighed by benefit to consumers, and is unavoidable to consumers. Moreover, the First Amended Complaint alleges that these behaviors were systematic, and therefore would affect many consumers. This allegation is sufficient at the pleading stage.

Accordingly, Blue Shield’s Demurrer to the Third Cause of Action is OVERRULED.

E.   Jurisdiction

Finally, Blue Shield argues that this Court does not have jurisdiction over the instant action. Blue Shield contends that the only damages properly alleged are the $4,265 deductible, and that Plaintiffs fail to allege any attorney fees related to the instant action exceed the $25,000 damages for a Civil Unlimited action.

The First Amended Complaint alleges that “as a result of Blue Shield’s bad faith conduct, plaintiffs were forced to retain counsel, incur attorneys’ fees, and file this lawsuit.” (FAC ¶ 22.) Additionally, the First Amended Complaint states that “the amount in controversy exceeds the jurisdictional minimum of $25,000.” (FAC ¶ 23.) The Court finds that it is not only possible, but probable, that Plaintiffs have already incurred more than $25,000 worth of attorney’s fees in litigating the instant matter. Therefore, Plaintiffs properly state that this Court has jurisdiction over the matter.

Accordingly, Blue Shield’s Demurrer to the First Amended Complaint is OVERRULED.

                     III.          MOTION TO STRIKE

Blue Shield also moves to strike Plaintiffs’ prayer for punitive damages from the First Amended Complaint. Blue Shield argues that the only cause of action that supports a prayer for punitive damages is the Breach of the Implied Covenant of Good Faith and Fair Dealing. As Plaintiffs successfully state a cause of action for Breach of the Implied Covenant of Good Faith and Fair Dealing, Plaintiffs’ argument is moot.

Accordingly, Blue Shield’s Motion to Strike is DENIED.

DATED: October 10, 2022 

____________________________

Hon. Robert S. Draper 

Judge of the Superior Court