GEICO General Insurance Company v. Green ( 2022 )

IN THE SUPREME COURT OF THE STATE OF DELAWARE
GEICO GENERAL INSURANCE § No. 107, 2021
COMPANY, §
§ Court Below – Superior Court
Defendant Below, § of the State of Delaware
Appellant/Cross-Appellee, §
§ C.A. No. N17C-03-242
v. §
§
YVONNE GREEN and §
REHABILITATION ASSOCIATES, §
P.A., on behalf of themselves and all §
others similarly situated, §
§
Plaintiffs Below, §
Appellees/Cross-Appellants. §
§
§
YVONNE GREEN and § No. 166, 2021
REHABILITATION ASSOCIATES, §
P.A., on behalf of themselves and all § Court Below – Superior Court
others similarly situated, § of the State of Delaware
§
Plaintiffs Below, § C.A. No. N17C-03-242
Appellants/Cross-Appellees, §
§
v. §
§
GEICO GENERAL INSURANCE §
COMPANY, §
§
Defendant Below, §
Appellee/Cross Appellant.
Submitted: January 19, 2022
Decided: April 8, 2022
Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR, and
MONTGOMERY-REEVES, Justices, constituting the Court en banc.
Upon appeal from the Superior Court. AFFIRMED IN PART AND REVERSED
IN PART.
Paul A. Bradley, Esquire, Stephanie A. Fox, Esquire, MARON MARVEL
BRADLEY ANDERSON & TARDY LLC, Wilmington, Delaware; Laura A.
Cellucci, Esquire (argued), Joshua F. Kahn, Esquire, MILES & STOCKBRIDGE
P.C., Baltimore, Maryland; George M. Church, Esquire, Cockeysville, Maryland;
Meloney Perry, Esquire, PERRY LAW P.C., Dallas, Texas; for GEICO General
Insurance Company.
Richard H. Cross, Esquire (argued), Christopher P. Simon, Esquire, Michael L. Vild,
Esquire, CROSS & SIMON, LLC, Wilmington, Delaware; for Yvonne Green and
Rehabilitation Associates.
2
MONTGOMERY-REEVES, Justice:
This appeal involves a challenge to how Geico General Insurance Company
(“GEICO”) processes insurance claims under 21 Del. C. § 2118. Section 2118
provides that certain motor vehicle owners must obtain personal injury protection
(“PIP”) insurance. Under this statute, insurance companies must, subject to a two-
year limitation period, compensate insureds for reasonable and necessary expenses
for injuries resulting from a motor vehicle accident. GEICO provides PIP insurance
to Delawareans under this statute. The plaintiffs below, all of whose claims for
medical expense reimbursement under a PIP policy have been denied, in whole or
in part, are either GEICO PIP policyholders who were injured in automobile
accidents or their treatment providers.
The plaintiffs below allege that GEICO uses two automated processing rules
that arbitrarily deny or reduce payments without consideration of the reasonableness
or necessity of submitted claims and without any human involvement. The plaintiffs
below argue that GEICO’s use of the automated rules to deny or reduce payments
(1) breaches the applicable insurance contract, (2) amounts to bad faith breach of
contract, and (3) violates Section 2118. In the court below, they sought damages
and a declaratory judgment that GEICO’s use of the automated rules violates Section
2118. GEICO argues that its use of the automated rules does not violate any contract
or law because the automated rules account for the reasonableness and necessity of
3
medical expenses and make recommendations that go to GEICO’s trained adjusters
who further assess the reasonableness and necessity of the expenses and then adjust
claims in their discretion.
The court below decided multiple motions filed by the parties, but this
Opinion addresses only two of those decisions. First, the Superior Court granted in-
part and denied in-part GEICO’s motion to dismiss. Relevant to this appeal, GEICO
challenges the court’s ruling that the judiciary has the authority to issue a declaratory
judgment regarding a violation of the insurance code.
Second, the parties filed separate motions for summary judgment. The
Superior Court entered judgment in favor of GEICO on the contract claims and
declaratory judgment in favor of the plaintiffs below. The plaintiffs below appeal
the court’s ruling as to the breach of contract and bad faith breach of contract claims,
and GEICO appeals the court’s issuance of a declaratory judgment that it violated
Section 2118.
Having reviewed the parties’ briefs and the record on appeal, and after oral
argument, the Court affirms the Superior Court’s ruling that the judiciary has the
authority to issue a declaratory judgment that GEICO’s use of the automated rules
violates Section 2118. We also affirm the Superior Court’s judgment as to the breach
of contract and bad faith breach of contract claims. We conclude, however, that the
4
issuance of the declaratory judgment was improper. Thus, we AFFIRM in part and
REVERSE in part.
I. RELEVANT FACTS AND PROCEDURAL BACKGROUND
A. The Parties
1. Plaintiffs Below
On September 12, 2011, Yvonne Green, plaintiff below and class
representative for the insured class, was injured in an automobile accident in
Delaware.1 Green was a Delaware resident at the time of the accident and had PIP
coverage through GEICO.2 She filed a claim under her policy, and her providers
submitted their medical bills directly to GEICO.3 While GEICO paid most of
Green’s medical expenses in full, a number of her claims for expenses were reduced
or denied.4
Rehabilitation Associates, P.A. (“RA”) (collectively with Green, the
“Claimants”), plaintiff below and class representative for the claimant class, is a
medical center that provides treatment to people who have PIP coverage through
GEICO.5 From March 10, 2011, to the time the complaint was filed below, RA
1
App. to GEICO’s Opening Br. 119, 460-61 (hereinafter, “A__”).
2
Id. at 461.
3
Id. at 462.
4
Id.
5
Id. at 121-22, 462.
5
submitted medical bills to GEICO for processing and reimbursement.6 RA alleges
that GEICO has denied payment of their submitted bills.7
2. Defendant Below
GEICO, defendant below, is an insurance company incorporated in Maryland
with its principal place of business in Washington, D.C.8 GEICO sells insurance in
Delaware and underwrites motor vehicle insurance, including PIP insurance, for
persons who are injured while driving or occupying an automobile.9
B. Delaware’s Personal Injury Protection Statute
Under 21 Del. C. § 2118, owners of motor vehicles registered in the State
must obtain PIP insurance.10 Under Section 2118(a)(2), insurance companies must
“[c]ompensat[e] . . . injured persons for reasonable and necessary expenses” incurred
because of bodily injury arising out of the use of a vehicle.11
Section 2118B governs the processing and payment of PIP benefits. When a
covered person is injured in a motor vehicle accident and notifies the insurer of his
or her intent to submit a claim, “the insurer shall, no later than 10 days following the
insurer’s receipt of said notification, provide that claimant with a form for filing such
6
Id.
7
Id. at 122.
8
Id. at 104.
9
Id. at 104-05.
10
Those who are self-insured pursuant to 21 Del. C. § 2904 are exempt from Section 2118’s
requirement for insurance coverage. This exception is not relevant to this appeal.
11
21 Del. C. § 2118(a)(2).
6
a claim.”12 After the insured submits the claim, “the insurer shall promptly process
the claim” and, within thirty days, either pay reasonable and necessary expenses or
provide the insured with an explanation for a denial of the claim.13 If the insurer
does not pay the PIP benefits within the thirty-day period, the statute mandates that
the insurer pay an interest penalty on the amount of unpaid benefits due to the
insured.14 Section 2118B was enacted to “ensure reasonably prompt processing and
payment of sums owed by insurers to their policyholders and other persons covered
by their policies pursuant to § 2118 of this title, and to prevent the financial hardship
and damage to personal credit ratings that can result from the unjustifiable delays of
such payments.”15
C. The Rules
When GEICO receives a PIP claim for payment of medical expenses from
either the insured or the insured’s treatment provider, GEICO first determines
whether there is a causal connection between the motor vehicle accident and the
complained of injury.16 Once that connection is confirmed, GEICO determines how
much of the PIP claim it will pay to the claimant. In making this payment
determination, GEICO utilizes two automated rules, the Geographic Reduction Rule
12
Id. at § 2118B(b).
13
Id. at § 2118B(c).
14
Id.
15
Id. at § 2118B(a).
16
App. to Claimants’ Answering Br. and Opening Br. 69, 76 (hereinafter, “B__”).
7
(the “GRR”) and the Passive Modality Rule (the “PMR”) (collectively, the
“Rules”).17
1. The Geographic Reduction Rule
GEICO utilizes the GRR with respect to the reasonableness of a PIP claim.18
The GRR first finds the Current Procedural Terminology (the “CPT”) code for the
claimant’s treatment.19 The CPT is “a universal code assigned to each treatment
procedure.”20 For example, all office visits are assigned CPT code 99213.21 The
GRR then gathers information on the treatment’s CPT code from its database, which
contains submitted bills from all claimants.22 The database stores:
(i) information on the date of the procedure; (ii) CPT code;
(iii) the amount charged by the medical provider; (iv) the
geographic location of the provider (using the first three
digits of the zip code (“GeoZIP”)); and, (v) the type of
provider (which is [] broken down in three broad
categories – doctors, chiropractors and physical
therapists).23
17
GEICO’s Opening Br. 8 (hereinafter, “GEICO Opening Br.__”).
18
GEICO Opening Br. 9; see Claimants’ Answering Br. and Opening Br. 12 (hereinafter,
“Claimants Opening Br.__”).
19
GEICO Opening Br. 9; see A686-94.
20
GEICO Opening Br. 9; see GEICO Opening Br. Ex. D, at 10 (hereinafter, “SJ Op.__”)
(“Each procedure performed by a medical provider is billed using a Current Procedural
Terminology code (‘CPT Code’) identifier—a universal code assigned to each treatment
procedure.”); Claimants Opening Br. 11.
21
GEICO Opening Br. 9.
22
Id. at 9-10; see A686-87; Claimants Opening Br. 11; SJ Op. 10 (“GEICO has a database
that contains all bills submitted by all claimants and is updated every six months.”).
23
SJ Op. 10; see GEICO Opening Br. 11; Claimants Opening Br. 11.
8
Thus, the GRR considers multiple factors of reasonableness, including the average
charge of medical providers, the type of treatment, the geographic region, and the
type of provider. The GRR then uses that information to arrange provider charges
for the identified CPT code from the lowest amount to the highest amount.24 Next,
the GRR identifies the amount equal to the eightieth percentile of all charges from
the identified CPT code and categorizes all submitted claims under and up to that
amount as reasonable and thus payable.25 Any claims with treatment costs over the
eightieth percentile receive partial payment up to the eightieth percentile amount.26
GEICO first decided to use the GRR in the early 1990s and at that time
“determined that the 80th percentile was the industry standard.”27 Since 1994,
GEICO has used three different databases for the GRR: Medata, Fair Isaac/Mitchell,
and FAIR Health, Inc.28 These data processing systems “compare[] the submitted
medical charges to the charges of other providers in the same geographic area by
CPT code and date of service.”29 GEICO’s determination that the eightieth
percentile was reasonable was also made in reliance on Medata’s manuals, which
24
SJ Op. 10; see GEICO Opening Br. 9; Claimants Opening Br. 11.
25
GEICO Opening Br. 9; see A686-94; Claimants Opening Br. 11-12; SJ Op. 10 (“GEICO
sorts the claims from lowest amount to highest amount and [sic] amount that is at the 80 th
percentile in the linear stack is the maximum amount that GEICO will pay for a given CPT
code.”).
26
Id.
27
GEICO Opening Br. 11; see A1793-1812, 1872-76; SJ Op. 11 (“GEICO apparently
implemented the GRR in the 1990s.”).
28
GEICO Opening Br. 10; see A686-94.
29
GEICO Opening Br. 10; see A686-94, 698-703.
9
defined “reasonable” as “‘the 80th percentile of actual charges in the provider’s
socio-demographic area.’”30
2. The Passive Modality Rule
With respect to the medical necessity of medical expenses, GEICO utilizes
the PMR.31 GEICO does not consider certain passive treatments to be necessary
once an injury is outside the acute phase.32 “To be medically necessary, treatment
must be indispensable and not just for comfort or convenience.”33 GEICO considers
an injury to be outside the acute phase eight or more weeks after the injury. 34 As
such, “[t]he PMR flags certain treatments (e.g., ultrasound, hot/cold packs, electrical
stimulation, etc.) as providing no therapeutic benefit eight weeks after the injury (i.e.
when an injury becomes chronic).”35 If the PMR flags a treatment as providing no
therapeutic benefit, the database recommends denying payment.36 In other words,
the PMR determines that certain passive treatments are not necessary eight weeks
after the injury.
30
GEICO Opening Br. 11; A925; see Claimants Opening Br. 13; SJ Op. 11.
31
GEICO Opening Br. 12.
32
Id.; see A861-62; Claimants Opening Br. 16.
33
GEICO Opening Br. 12.
34
Id.; see A861-62; Claimants Opening Br. 16; SJ Op. 11 (“GEICO utilizes the PMR to
review PIP claims submitted for passive treatment that occur more than eight weeks after
an accident.”).
35
GEICO Opening Br. 12; see A520-22, 861-62.
36
GEICO Opening Br. 12; see A520-22, 861-62; Claimants Opening Br. 16-17; SJ Op. 11.
10
GEICO adopted the PMR in 1996 “after it was analyzed and vetted by
Medata.” 37 GEICO relied on peer reviewed medical literature, including scientific
studies and medical guidelines in implementing the PMR.38
D. The PIP Claims Adjustment Process
The GRR and PMR’s recommendations are not dispositive.39 GEICO
employs licensed claims adjusters to consider the reasonableness and necessity of
submitted claims.40 Once the GRR and PMR render a recommendation, the adjusters
have an “obligation and the authority to adjust claims . . . .”41 GEICO’s adjusters
“evaluate reasonableness and necessity of a claim and, where circumstances warrant,
issue additional payment in response to a request for re-evaluation.”42
Once GEICO determines how much of the submitted claim it will pay, it sends
the insured and the provider an Explanation of Review (an “EOR”), which
“identifies the treatment rendered, the amount of the bill, the amount of the payment
and a written explanation for any reduction or denial.”43 All EORs establish the
procedure for re-evaluation of the payment amount and provide re-evaluation
37
GEICO Opening Br. 12; see A384-85.
38
GEICO Opening Br. 12; see A384, 861-77, 913-21.
39
GEICO Opening Br. 12; see A460-64, 849-56.
40
GEICO Opening Br. 13; see A1443-44, 1446-55.
41
GEICO Opening Br. 12; see SJ Op. 40 (“[A]djusters were ultimately given discretion . .
. .”).
42
GEICO Opening Br. 12; see A927-45, 1320-21, 1341-45; Claimants Opening Br. 35-36.
43
A462; see GEICO Opening Br. 8.
11
criteria, should the insured or provider wish to challenge GEICO’s payment
determination.44
E. Procedural History
On March 20, 2017, the Claimants filed a class action suit in the Superior
Court against GEICO.45 In the action, the Claimants alleged that GEICO violated
statutory and common law, bringing claims for breach of contract, bad faith breach
of contract, declaratory relief, and Deceptive Trade Practices Act violations on
behalf of themselves and all others whose PIP benefits claims were denied in whole
or in part because of the Rules.46
On July 12, 2017, the Claimants filed a first amended class action complaint
(the “Class Action Complaint”) asserting the following four counts. First, the
Claimants alleged that GEICO breached certain provisions of its PIP insurance
contract by “reducing or denying payment of covered claims for PIP benefits through
the use of the [R]ules” (“Count I”).47 Second, the Claimants contended that GEICO
committed bad faith breach of contract because it “knowingly and intentionally
violated the applicable policies of insurance and applicable law by performing
arbitrary and improper bill reductions and denials, without justification” (“Count
44
GEICO Opening Br. 8; see A463.
45
SJ Op. 13.
46
Id.
47
A123-24.
12
II”).48 Third, the Claimants sought a declaratory judgment that “(i) GEICO has
violated 21 Del. C. § 2118; and [that] (ii) GEICO may not lawfully use the
Geographic Reduction Rule or Passive Modality Rule” (“Count III”).49 Fourth, RA
argued that GEICO violated the Deceptive Trade Practices Act, 6 Del. C. §
2532(a)(5) and (12), by failing to disclose its use of the GRR and PMR and to
investigate claims (Count IV).50
On August 1, 2017, GEICO filed a motion to dismiss the Class Action
Complaint.51 In relevant part, GEICO alleged that Count III must be dismissed
because, under Clark v. State Farm Mutual Automobile Insurance Co.,52 “the
Delaware judiciary does not have the authority to enforce violations of the insurance
code, rather, that authority is vested with the General Assembly and the Insurance
Commissioner.”53 In response, the Superior Court issued an opinion dismissing
Count IV, but allowing Counts I, II, and III to remain.54 On appeal, GEICO
challenges the Superior Court’s ruling as to its authority to issue the Claimants’
requested declaratory judgment.
48
Id. at 124-25.
49
Id. at 125-26.
50
Id. at 126-28.
51
SJ Op. 14.
52
131 A.3d 806 (Del. 2016).
53
GEICO Opening Br. Ex. A, at 17 (hereinafter, “Dismiss Op.__”).
54
SJ Op. 14.
13
On January 3, 2019, GEICO filed a motion for summary judgment on Counts
I, II, and III, which the Superior Court stayed until after it decided the Claimants’
motion for class certification.55 After the court granted the motion for class
certification, the Claimants also filed a motion for summary judgment.56 In its
summary judgment opinion, issued on March 24, 2021, the Superior Court entered
summary judgment in favor of GEICO on Counts I and II.57 The Claimants
challenge these rulings on cross-appeal.58 As to Count III—the declaratory judgment
count—the Superior Court ruled in favor of the Claimants, holding that the Rules
violate 21 Del. C. §§ 2118(a)(2) and 2118B(c).59 GEICO challenges this ruling on
appeal.60
II. STANDARD OF REVIEW
On appeal, we review a trial court’s “rulings on motions to dismiss pursuant
to Rule 12(b)(6) and motions for summary judgment de novo.”61 A motion to
dismiss may be granted where “the plaintiff would not be entitled to recover under
any reasonably conceivable set of circumstances.”62 A motion for summary
55
Id.
56
Id.
57
See id. at 48.
58
Claimants Opening Br. 41-53.
59
SJ Op. 39.
60
GEICO Opening Br. 23-37.
61
Ramirez v. Murdick, 948 A.2d 395, 399 (Del. 2008).
62
Central Mortg. Co. v. Morgan Stanley Mortg. Cap. Holdings LLC, 27 A.3d 531, 535
(Del. 2011).
14
judgment is only properly granted when “there is no genuine issue as to any material
fact and [] the moving party is entitled to a judgment as a matter of law.”63
III. ANALYSIS
In this appeal, we consider the following questions: (1) whether GEICO’s use
of the Rules breaches the PIP insurance contract; (2) whether GEICO’s use of the
Rules constitutes bad faith breach of contract; and (3) whether the Superior Court
erred in issuing a declaratory judgment that GEICO’s use of the Rules violates
Sections 2118 and 2118B.64
A. GEICO’s Use of the Rules Does Not Breach the PIP Contract
Under Delaware law, plaintiffs must establish the following three elements to
succeed on a breach of contract claim: (1) the existence of a contract, whether
express or implied; (2) breach of one or more of the contract’s obligations; and (3)
damages resulting from the breach.65
Claimants allege that GEICO breached its form Delaware Family Automobile
Insurance policy (“PIP Insurance Policy” or the “Policy”) by (1) failing to comply
with its common law and statutory requirement to investigate insurance claims,
63
Del. Super. Ct. Civ. R. 56(c).
64
The parties presented two other questions in their opening briefs. First, GEICO appealed
the Superior Court’s certification of the class. Second, the Claimants appealed the Superior
Court’s denial of their motion for relief related to declaratory judgment. Because we
reverse the Superior Court’s determination that GEICO’s use of the Rules violates Section
2118 and 2118B, we need not reach these arguments.
65
VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003).
15
which Claimants argue the parties incorporated into the contract, and (2) improperly
imposing a sublimit, cap, or percentage reduction that the insureds did not consent
to in a signed written document, as Delaware Insurance Regulation 603 (“Regulation
603”) requires.66
1. The Claimants fail to show that GEICO’s use of the Rules violates
a contractual obligation
Under the PIP Insurance Policy, GEICO is obligated to pay the “Medical
expenses” of the injured person.67 The Policy defines “Medical expenses” as
“reasonable expenses for necessary medical, hospital, dental, surgical, x-ray,
ambulance and professional nursing services, prosthetic devices, and treatment by
recognized religious healers.”68 Thus, the Policy requires GEICO to pay reasonable
and necessary medical expenses.
The Policy also provides that “[a]ny terms of this policy in conflict with the
statutes of Delaware are amended to conform to those statutes” (the “Incorporation
Provision”).69 According to the Claimants, the Incorporation Provision means that
“Delaware statutory law is therefore expressly incorporated into GEICO’s
contracts.”70 In particular, the Claimants allege that the following Delaware
66
Claimants Opening Br. 41-53.
67
B13.
68
Id.69
Id. at 28.
70
Claimants Opening Br. 48.
16
common law and statutory laws are incorporated into the contract: (1) the Delaware
common law requirement that “insurer[s] perform a proper investigation of a claim
before denying it” 71 and (2) 18 Del. C. §§ 2303 and 2304(16),72 which require
insurers to “perform an investigation based on all available information and to adopt
and implement reasonable standards for the prompt investigation of claims arising
under insurance policies.”73
GEICO responds, and the Superior Court agreed, that the Claimants’
argument must fail because the Incorporation Provision is only implicated when the
Policy conflicts with Delaware law and the Claimants do not specify a provision that
does so.74 We reach the same conclusion.
The Incorporation Provision states that the Policy will be amended to conform
to Delaware law if any terms of the Policy “conflict” with Delaware law.75 In other
words, the Incorporation Provision first requires the Claimants to identify a
71
Id. at 46.
72
18 Del. C. §§ 2301-2320 is the Delaware Unfair Trade Practices Act of the Insurance
Code. Section 2304(16) prohibits insurers from having a general business practice of
“[r]efusing to pay claims without conducting a reasonable investigation based upon all
available information.” Section 2303 states that “[n]o [insurer] shall engage in this State
in any trade practice which is defined in this chapter as, or determined pursuant to this
chapter to be, an unfair method of competition or an unfair or deceptive act or practice in
the business of insurance.”
73
Claimants Opening Br. 48.
74
GEICO’s Reply Br. and Answering Br. 32 (hereinafter, “GEICO Answering Br.__”); SJ
Op. 21 (“By not specifying a particular provision that conflicts with Delaware law,
Plaintiffs essentially argue that all Delaware law should be incorporated into the contract.
The absence of a provision does not mean that there is a conflict warranting reformation.”).
75
B28 (emphasis added).
17
provision in the Policy that is “different, opposed, or contradictory” to Delaware
law.76 They have not done so. The Policy only obligates GEICO to pay reasonable
and necessary medical expenses.77 It does not specify how GEICO must make that
determination. Thus, even if we assume arguendo the Claimants’ assertion that there
exists a common law duty for insurers to investigate all claims in a proper manner,78
and even if 18 Del. C. § 2304 contained a private right of action,79 nothing in the
76
Conflict, Merriam-Webster, https://www.merriam-webster.com/dictionary/conflict (last
visited Feb. 18, 2022); see also Conflict, Oxford English Dictionary,
https://www.oed.com/view/Entry/38899?rskey=OJTWEa&result=2&isAdvanced=false#e
id (last visited Mar. 29, 2022) (defining “conflict” as “[t]o come into collision, to clash; to
be at variance, be incompatible”); Conflict, Cambridge Dictionary,
https://dictionary.cambridge.org/us/dictionary/english/conflict (last visited Mar. 29, 2022)
(defining “conflict” as “to be in active disagreement, as between opposing opinions or
needs”).
77
B13.
78
We do not decide in this opinion whether that duty exists.
79
It would be difficult to conclude that the parties intended to incorporate § 2304 into the
Policy when the Delaware Unfair Trade Practices Act does not create a private right of
action. 18 Del. C. § 2301, et seq. “Under the Act, only the Insurance Commissioner has
authority to examine and investigate alleged bad faith acts and file claims against ‘any such
person [who] has been engag[ed] . . . in any unfair or deceptive act or practice, whether or
not defined in § 2304.’” Davidson v. Travelers Home and Marine Ins. Co., 2011 WL
7063521, at *2 (Del. Super. Ct. Dec. 30, 2011) (citing 18 Del. C. § 2307(a)). This outcome
is supported by Johnson v. Gov’t Emps. Ins. Co., a case where the plaintiff brought a breach
of contract claim against GEICO on a theory that the policy incorporated Section 2304.
2014 WL 2708300, at *1 (D. Del. June 16, 2014). The plaintiff argued that because the
policy incorporated Delaware law, including Section 2304, and because GEICO’s use of
claims processing rules violated Section 2304, GEICO was in breach of its contract. Id.,
at *4. In holding that the contract did not incorporate Section 2304, the court reasoned:
[T]he Plaintiff is attempting to reform the contract via the implied covenant
of good faith and fair dealing, to include the requirements of 18 Del. C. §
2304. For the Court to read into the insurance contract the requirements of
§ 2304 would require the Court to find that the parties would have agreed to
such a term had the parties thought to have negotiated with respect to the
matter. Here, as § 2304 contains no private right of action, the Court will not
18
Policy conflicts with those supposed duties since the Policy is silent on how GEICO
will determine what is reasonable and necessary. In the absence of a conflict, the
Policy cannot be reformed to require anything more than the duty to pay reasonable
and necessary medical expenses.
Focusing on the only relevant contractual obligation in the Policy—GEICO
obligation to pay reasonable and necessary medical expenses—GEICO is entitled to
judgment as a matter of law. To succeed on their breach of contract claim, which
requires breach of a contractual obligation, the Claimants bear the burden to show
that GEICO breached that obligation by failing to pay reasonable and necessary
medical expenses. Inherent in making that showing is the need to first prove that the
Claimants submitted medical expenses are reasonable and necessary. Claimants
disavowed proving that their submitted medical expenses were reasonable and
necessary. As such, they cannot show that GEICO breached its contractual
obligation to pay reasonable and necessary medical expenses. Accordingly, their
breach of contract claim necessarily fails.
For the reasons stated above, we affirm the Superior Court order granting
judgment in favor of GEICO on the contract claims.
read the requirements into the contract without compelling evidence that the
parties would have agreed to include the clause if they had negotiated the
issue. Id.
19
2. The Rules do not constitute a “sublimit, cap, percentage reduction,
[o]r similar reduction” in violation of Delaware Insurance
Regulation 603
The Claimants also contend that the use of the Rules breaches the PIP Policy
by violating Regulation 603. The argument goes like this. The Rules operate as a
sublimit, cap, percentage reduction, or similar reduction. Regulation 603 requires
that the parties agree in a signed writing to any such sublimit, cap, or reduction, but
the parties did not agree to any such sublimit, cap, or reduction. Thus, the Rules
violate Regulation 603. Because GEICO is not in compliance with Regulation 603,
it cannot permissibly use the Rules to deny PIP benefits. As such, under the
Claimants’ theory, those claims denied by the use of the Rules are deemed
reasonable and necessary, and GEICO has breached the Policy by not paying those
claims.80
GEICO argues that the Rules are not sublimits because they are not limitations
in an insurance policy on the amount of coverage and that the Rules are not
percentage reductions because they reduce bills by a dollar amount instead of by a
percentage.81 While the Superior Court agreed with GEICO’s conclusion, it held
that the Rules are not sublimits, caps, or percentage reductions because they “are not
applied in the same way to each of the GEICO Policies.”82 We agree with the
80
Claimants Opening Br. 49-51.
81
GEICO Answering Br. 35-36.
82
SJ Op. 25.
20
Superior Court. Regulation 603, which is entitled the “Delaware Motorists
Protection Act,” was adopted by the Insurance Commissioner pursuant to 21 Del. C.
§ 2118.83 Section 6.3 of Regulation 603 specifically concerns PIP insurance and
states that
[a]ny insurer, in accordance with filings made with the
Insurance Department, may provide for certain
deductibles, waiting periods, sublimits, percentage
reductions, excess provisions or similar reductions at the
election of the owner of a motor vehicle . . . . The owner’s
election of any reduced benefits described in this section
must be made in writing and signed by that owner.84
According to the Claimants, the Rules are sublimits or percentage reductions
subject to Regulation 603 because they “automatically cap and deny payments.”85
That conclusion is necessary to their success on this claim. We cannot, however,
reach this conclusion because the GRR and PMR do not operate as sublimits or
percentage requirements as to each GEICO Policy across the board. For example,
imagine A and B both get into car accidents and incur medical expenses for treatment
X as a result of those accidents. Both A and B have PIP insurance coverage through
GEICO. A’s medical provider submits a claim to GEICO that charges $300 for
treatment X. B’s medical provider submits a claim to GEICO that reflects a $280
charge for treatment X. In the geographic region for A’s medical provider, the
83
Del. Ins. Reg. 603.
84
Id. at 6.3.
85
Claimants Opening Br. 50.
21
eightieth percentile for treatment X is $330. As such, the GRR determines that A’s
claim of $300 is reasonable because it is below the region’s eightieth percentile
figure. A’s provider receives full payment. In the geographic region for B’s medical
provider, however, the eightieth percentile for treatment X is $250. Thus, the GRR
determines that B’s claim of $280 is not reasonable and B’s provider receives only
$250. While B’s provider did not receive the full payment, as it relates to A’s
provider, the GRR has not acted as a limit because GEICO paid A’s medical expense
claim in full. Stated differently, in most instances the Rules will not limit payment
at all. Thus, we cannot conclude that the Rules operate as a “sublimit, cap,
percentage reduction, [o]r similar reduction” when that is not true in every case. As
a result, Claimants have failed to show that the Rules are “sublimit[s], cap[s],
percentage reduction[s], [o]r similar reduction[s]” that are subject to Regulation 603.
Like the Superior Court, we believe the Rules should be disclosed because
they “are basically incorporated into the GEICO Policies under GEICO’s
interpretation of reasonableness” and in some instances appear to “operate like
sublimits or similar reduction.”86 But we also “find[] fault with [Claimants’] breach
of contract theory under Delaware Insurance Regulation 603.”87 Thus, we affirm the
86
SJ Op. 25.
87
Id. at 26.
22
Superior Court’s holding that the Claimants’ breach of contract theory under
Regulation 603 fails.
B. GEICO’s Use of the Rules Does Not Amount to Bad Faith Breach of
Contract
The Claimants allege that GEICO has engaged in bad faith breach of contract
by relying on the Rules to arbitrarily deny PIP claims.88 According to the Claimants,
GEICO knows that the GRR is not a reasonable method of denying claims because
the Rules do not consider factors such as time, skill level of the provider, or the cost
of operating the provider’s practice.89 The Claimants also allege that GEICO knows
the PMR is not an adequate determinant of the necessity of a treatment because
treatises it relies on warn that passive modalities may be necessary after eight weeks
and because “GEICO knows from its own medical experts that before denying a
claim, it would need to study the entire file and examine the insured.”90 The
Claimants contend GEICO is acting in bad faith by denying claims through the use
of fully automated rules that either only consider three factors of reasonableness or
do not take the claimant’s individual circumstance into account.91
GEICO responds, and the Superior Court agreed, that GEICO’s use of the
Rules does not amount to bad faith breach of contract because the Claimants failed
88
Claimants Opening Br. 54-59.
89
Id. at 56.
90
Id. at 57.
91
Id. at 56-58.
23
to show that GEICO’s use of the Rules was without any reasonable justification.92
We agree.
Delaware law recognizes that “bad faith[] is actionable where the insured can
show that the insurer’s denial of benefits was ‘clearly without any reasonable
justification.’”93 These claims for bad faith nonpayment are “cognizable under
Delaware law as a breach of contractual obligations.”94 “In order to establish ‘bad-
faith’ the plaintiff must show that the insurer’s refusal to honor its contractual
obligation was clearly without any reasonable justification.”95 In other words, an
insurer’s actions only give rise to a bad faith breach of contract claim if the insurer’s
actions first breach the contract. Then, the question relevant to whether the insurer’s
denial was reasonable becomes “whether at the time the insurer denied liability,
there existed a set of facts or circumstances known to the insurer which created a
bona fide dispute and therefore a meritorious defense to the insurer’s liability.”96
Thus, in order for the Claimants to prevail on this claim, they must first prove that
92
GEICO Answering Br. 38-41; SJ Op. 30 (“The Court finds that Plaintiffs have not carried
their burden on bad faith. [T]he Court cannot find that GEICO’s use of the Rules was
without any reasonable justification.”).
93
Tackett v. State Farm Fire and Cas. Ins. Co., 653 A.2d 254, 264 (Del. 1995) (quoting
Casson v. Nationwide Ins. Co., 455 A.2d 361, 369 (Del. Super. Ct. 1982)).
94
Id. at 256.
95
Casson, 455 A.2d at 369 (emphasis added).
96
Id.24
there was a breach of the contract and next that the breach was “clearly without any
reasonable justification.”97 The Claimants have not carried this burden.
As an initial matter, Claimants did not show that there was a breach of
contract. Without a showing of an underlying breach, there can be no claim for bad
faith breach of contract.
Even if the Claimants could show a breach of contract, they cannot show that
GEICO’s reliance on the Rules was clearly without any reasonable justification.
Section 2118 requires insurers to pay reasonable and necessary medical expenses,
but Section 2118 does not dictate how insurers must determine the reasonableness
and necessity of claims.98 At the time GEICO used the Rules to process the
Claimants’ claims, no Delaware court had ruled on the lawfulness of GEICO’s
current PIP claims process. Further, it is undisputed that GEICO’s current process
considers the cost of treatment by other members of the profession in the same
geographic location.99 Delaware case law has articulated that the ordinary and
reasonable charges usually made by similarly situated providers should be
considered when determining the reasonableness of a charge.100 Moreover, not only
97
Id.98
21 Del. C. § 2118(a)(2).
99
See Section I.C.1.
100
Anticaglia v. Lynch, 1992 WL 138983, at *1 (Del. Super. Ct. Mar. 16, 1992); Watson
v. Metro. Prop. & Cas. Ins. Co., 2003 WL 22290906, at *1 (Del. Super. Ct. Oct. 2, 2003).
In Anticaglia and Watson, the Superior Court articulated the following factors that it uses
to determine the reasonableness of medical expenses: ordinary and reasonable charges
25
did GEICO rely on medical studies supporting its implementation of the PMR,101 but
its adjusters also review a claimant’s medical records and other relevant facts upon
a request for re-evaluation.102 And while the Claimants argue that GEICO’s current
process does not consider enough factors to actually determine the reasonableness
and necessity of a claim, it cannot be said that GEICO’s current process is so devoid
of any justification as to give rise to a claim of bad faith breach of contract.
As a result, we affirm the Superior Court’s ruling that GEICO did not commit
bad faith breach of contract.
C. The Superior Court Erred in Issuing a Declaratory Judgment that the
Rules Violate §§ 2118 and 2118B
GEICO challenges the Superior Court’s issuance of a declaratory judgment
that GEICO’s use of the Rules violates 21 Del. C. §§ 2118 and 2118B on two
grounds: (1) the judiciary lacks the authority to issue such a declaration;103 and (2)
the Claimants failed to present evidence that their medical expenses were reasonable
and necessary.104 We disagree that the judiciary lacks authority to issue a
made by similarly situated providers; the nature and difficulty of the treatment; the time
devoted to the treatment; the number of treatments rendered; the number of office visits;
the inconvenience and expense borne by the provider; the nature of the provider’s
geographic location, the provider’s education level, training, and reputation; and the ability
of the insured to pay.
101
GEICO Opening Br. 12; A861-77, 913-21.
102
A915.
103
GEICO Opening Br. 17.
104
Id. at 24-25. GEICO also argues that the Superior Court erred for the following
additional four reasons: (1) the Superior Court improperly shifted the burden of proof to
GEICO; (2) the Superior Court erred in ruling, sua sponte, that GEICO violated Section
26
declaratory judgment. We agree, however, that the Claimants were required to first
show that their medical expenses were reasonable and necessary.
1. The judiciary has the authority to issue the claimants’ requested
declaratory relief
GEICO first attacks the court’s authority to issue a declaratory judgment as to
Section 2118.105 According to GEICO, the judiciary does not have the authority to
issue such a declaration because Clark held that resolution of “a similar request for
declaratory relief involving § 2118B . . . is exclusively within the province of the
Insurance Commissioner, not the Judiciary.”106 As such, GEICO contends that the
Superior Court was required to grant its motion for summary judgment.107
The Claimants respond, and the Superior Court held, that Clark does not act
as a bar to judicial enforcement of insurance law because Clark addressed the narrow
issue of whether the Court could substitute Section 2118B’s statutory remedy for an
insurer’s failure to pay PIP benefits within the thirty-day timeframe with a
declaratory judgment compelling payment within thirty days.108 In our view, Clark
does not foreclose review by the courts.
2118B; (3) the Superior Court improperly injected an investigation requirement into
Section 2118B; and (4) there are genuine disputes of material fact that preclude the entry
of summary judgment. GEICO Opening Br. 24-32, 35-37. Given our reversal of the
Superior Court’s declaratory judgment, we need not reach these issues.
105
GEICO Opening Br. at 17-22.
106
131 A.3d 806; GEICO Opening Br. 17.
107
Id. at 17-22.
108
Claimants Opening Br. 24-25; Dismiss Op. 19-20 (“GEICO overstates the holding in
Clark. The Clark court addressed the very narrow issue of whether declaratory judgment
27
In Clark, the plaintiffs, Clark and Smith, had PIP insurance coverage through
State Farm.109 After receiving claims under the policy, State Farm began making
payments to both plaintiffs.110 The last of the payments, however, was made more
than thirty days after the plaintiffs submitted their claims. 111 Despite being paid
Section 2118B’s statutorily required interest, the plaintiffs sued State Farm, alleging
that State Farm deducted the statutorily required interest amounts from the PIP
coverage limits it owed to them.112 When that allegation proved to be false, the
plaintiffs requested leave to amend their complaint to allege that State Farm’s
delayed payments violated § 2118B.113 The plaintiffs thus requested declaratory
judgment that “State Farm’s failure to pay claims within thirty days of its receipt of
written requests violated § 2118B(c).”114 State Farm opposed the motion to amend
and filed a motion for summary judgment.115 After the Superior Court denied the
plaintiffs’ request and granted State Farm’s motion for summary judgment, the
plaintiffs appealed to this Court.116
concerning [sic] the appropriate remedy for violations of Section 2118B(c) when the
legislature had clearly enumerated the available remedies for violation [sic] of Section
2118B(c).”).
109
131 A.3d at 809.
110
Id.
111
Id.
112
Id.
113
Id. at 809-10.
114
Id. at 810.
115
Id.
116
Id. at 810, 812.
28
In affirming the Superior Court’s decision to deny the plaintiffs’ motion for
leave to amend, the Court determined that granting the motion would ultimately be
futile because the issuance of the plaintiffs’ requested remedy would be improper.117
The Court reached this conclusion for two reasons. First, the statute expressly
permits insurers to pay claims outside of the thirty-day window.118 But doing so
triggers interest payments, which State Farm had already paid.119 The Court
reasoned that because the statute permitted the complained of behavior, providing
its own consequence for that behavior, and because State Farm already paid the
statutory interest, “there was no further relief that could be fashioned for Clark and
Smith.”120
Second, and rooted in the Court’s first reason, the Court determined that
because the statute already provided its own remedy for not paying PIP claims within
thirty days, thus allowing for that situation, issuing the plaintiffs’ requested
declaratory judgment would provide what the statute does not: a rigid deadline
requiring payment within thirty days.121 Additionally, the Court noted that such an
action would replace the legislative remedy with a judicial remedy, causing the
117
Id. at 812-13.
118
Id. at 813.
119
Id.
120
Id.
121
Id.
29
judiciary to “act like an administrative agency and craft regulation[].”122 The Court
concluded that, given the circumstances, this form of judicial regulation would be
impermissible.123
Here, in arguing that Clark held that the judiciary does not have the authority
to decide “whether GEICO’s use of the Rules is prohibited by [Section] 2118”
because such a decision is “exclusively within the province of the Insurance
Commissioner,” GEICO both mischaracterizes and hyperfocuses on the Court’s
secondary reasoning regarding impermissible judicial regulation.124 While GEICO
is correct that the Court cautions against judicial regulation, that secondary reason is
firmly planted in the ground of the Court’s first and primary reason, which is that
the statute permits the complained of behavior. In other words, before the Court
addresses the topic of judicial regulation, it first acknowledges that the statute allows
State Farm’s behavior. And therein lies the distinction between Clark and the instant
case. Unlike in Clark, where the statute at issue expressly allowed for the payment
of PIP claims thirty days after claims are submitted, here, the statute is silent on the
use of tools such as the Rules. As such, a declaration regarding whether GEICO can
lawfully use the Rules would not amount to judicial regulation as it would have in
Clark.
122
Id.
123
Id.
124
GEICO Opening Br. 17.
30
2. The Claimants must present evidence that their medical expenses
are reasonable and necessary
According to GEICO, the “Plaintiffs spelled out the exact declaratory relief
sought in Count III: ‘Plaintiffs . . . respectfully request that this [c]ourt enter
judgment, as a matter of law, that” GEICO violated Section 2118 and that “GEICO
may not lawfully use the [Rules].”125 GEICO argues that Claimants could not prove
that the Rules violated Section 2118 without first showing that GEICO denied or
reduced medical expenses that were reasonable and necessary.126 And because the
Claimants disavowed proving the reasonableness and necessity of their medical
expenses, summary judgment should have been granted in GEICO’s favor.127
Claimants respond that it need not prove the reasonableness and necessity of
its expenses because it is challenging GEICO’s Rules in the abstract as “amount[ing]
to an illegitimate, unreasonable sham.”128 The Superior Court agreed.129 Citing State
Farm Mutual Automobile Insurance Co. v. Spine Care Delaware, the Superior Court
held that this Court indicated that a plaintiff could challenge an insurer’s use of
computerized rules in the abstract without first proving that its own medical
expenses are reasonable and necessary.130
125
Id. at 24.
126
Id. at 24-25.
127
Id.
128
Plaintiffs Opening Br. 28-29.
129
SJ Op. 32-33.
130
SJ Op. 32-33 (citing 238 A.3d 850 (Del. 2020)).
31
In State Farm, the plaintiff, an ambulatory surgery center, submitted PIP
claims to State Farm for medical expense reimbursement for minimally invasive
spinal injections.131 These injections were both bilateral and multilevel, requiring
“injections on two sides of the spine or on multiple vertebral levels, respectively.”132
As to multilevel spinal injections, State Farm followed a rule, referred to as a
multiple payment reduction (“MPR”), of paying the first injection at one hundred
percent and the second injection at fifty percent of the first injection.133 As such,
when State Farm received the plaintiff’s charges for multi-injection procedures, it
unilaterally applied the MPR to those charges, resulting in the plaintiff’s second
injection being paid at only fifty percent.134 The plaintiff filed suit, alleging that
State Farm’s use of the MPR to reduce its charges violated Section 2118 because its
charges for multi-injection procedures were reasonable and necessary.135
The Court held that the plaintiff had the burden of showing that State Farm
was not entitled to apply the MPR to its charges and that the plaintiff must
“demonstrate that its charges for the second and subsequent injections are
reasonable.”136 When the plaintiff argued that State Farm needed to prove the
131
238 A.3d at 852.
132
Id.
133
Id. at 852-53.
134
Id.
135
Id. at 853.
136
Id.
32
reasonableness of the MPR because the case had always related to the propriety of
the rule, this Court found that argument unpersuasive because the plaintiff “w[as]
not contesting State Farm’s MPR in the abstract. Rather, according to the
Stipulation, the live, ‘ongoing controversy between [the plaintiff] and State Farm’
was with respect to whether State Farm could apply its MPRs to [the plaintiff’s]
fees.”137 Thus, State Farm left open the question that we answer today: whether a
PIP claimant may challenge an insurer’s PIP claims process in the abstract without
first proving that its medical expenses were reasonable and necessary. We hold that
it may not.
Section 2118(a)(2) only requires insurers to “[c]ompensat[e] [] injured
persons for reasonable and necessary expenses” for medical services.138 In other
words, the insurer’s obligation under the statute is the payment of reasonable and
necessary medical expenses.139 Thus, to show a violation of the statute, the
Claimants must prove that GEICO did not fulfill its statutory obligation. That
showing, however, requires Claimants to prove that their medical expenses are
reasonable and necessary. Stated differently, the validity of a PIP claim alleging an
137
Id. at 861-62.
138
21 Del. C. § 2118(a)(2)a.
139
See Ramsey v. State Farm Mut. Ins. Co., 2005 WL 528846, at *1 (Del. 2005) (“The PIP
statute provides recovery only for ‘reasonable and necessary’ expenses. In order to satisfy
that requirement, Ramsey had to establish that her lost wages were unavoidable. Since she
offered no evidence on that point, she failed to establish her entitlement to PIP benefits.”).
33
insurer’s violation of Section 2118(a)(2) hinges on whether the expenses at issue are
reasonable and necessary and, absent such a showing, that plaintiff cannot prevail.
Here, because Claimants disavowed proof of the reasonableness and necessity
of their medical expenses, their claim fails. If Claimants prove that their expenses
are reasonable and necessary, GEICO’s nonpayment of those expenses would be a
statutory violation, and Claimants would be entitled to payment without reduction
under the Rules.
For this reason, we hold that the Superior Court’s issuance of the Claimants’
requested declaratory judgment was improper.
IV. CONCLUSION
For the foregoing reasons, the Court AFFIRMS in part and REVERSES in
part the Superior Court’s judgment.
34