AN APPEAL TO REASON

Appellate court holds plaintiffs not required to comply with C.C.P. 425.13 when suing a health care plan

by Donna Bader

In Kaiser Foundation Health Plan, Inc. v. Superior Court (Rahm) (2012) ___ Cal.App.4th ____, Anna Rahm and her parents sued Kaiser Foundation Health Plan and two Kaiser health care providers, alleging they had devised an insurance compensation scheme that induced Kaiser's physicians to deny medical services to plan members. They alleged Kaiser's system allowed its contracted physicians the responsibility of deciding whether to give insureds benefits under their contracts. Part of that decision must be based in part upon cost savings to Kaiser. These cost savings are translated into rewards and bonuses to the physicians who withhold treatment. Plaintiffs alleged four causes of action and prayed for punitive damages for breach of implied covenant of good faith and fair dealing and intentional infliction of emotional distress.
Anna was suffering from severe pain, and although she and her parents requested an MRI, the Kaiser health care providers refused, resulting in a three-month delay. When it was finally done, the MRI indicated Anna had an "aggressive mass" in her pelvis and a biopsy revealed she was suffering from a fast-growing osteosarcoma. That delay allowed the cancer to spread and Anna, who underwent chemotherapy, lost her right leg and portions of her pelvis and spine.
The defendants filed a motion to strike the punitive damages, pursuant to Code of Civil Procedure section 425.13(a). The trial court denied the motion and defendants filed a petition for writ of mandate. The petition was summarily denied by the appellate court. Defendants then filed a petition for review in the California Supreme Court. While the petition was pending, the plaintiffs dismissed their punitive damages claims. The Supreme Court granted reviewed and ordered the appellate court to hear the matter.
The appellate court concluded plaintiffs were not required to comply with Code of Civil Procedure section 425.13 because the statute did not apply to plaintiffs' claims against Kaiser Foundation Health Plan and because plaintiffs had dismissed their punitive damage claims against defendants. Pursuant to Code of Civil Procedure section 425.13, a plaintiff cannot include a prayer for punitive damages unless the trial court enters an order allowing an amended pleading that includes such a prayer. The plaintiffs are generally required to show there is a substantial probability they will prevail on their claims. The trial court concluded plaintiffs' claims were related to insurance bad faith, rather than medical malpractice, and therefore, section 425.13 did not apply.
The court in Kaiser Foundation Health Plan, Inc. concluded section 425.13 does not apply to a health care service plan. It found the language in the statute was unclear. As a consequence, the court turned to the legislative history of section 425.13, which established it was only intended to apply to medical care providers. This holding was not changed because the decisions were made by Kaiser health care providers. The Health Plan was being sued because it provided financial incentives to providers to deny expensive medical treatment. Thus, the trial court did not err in refusing to strike the prayer for punitive damages against the Health Plan.