Rafi Ghazarian v. Magellan Health, Inc.

Generally, an insurer is not liable for bad faith if its denial of a claim was

reasonable. In this appeal, we clarify that to avoid bad faith liability, it is not enough that

an insurer’s ultimate decision might be considered reasonable at first glance. Here, the

trial court erred by failing to look past an arguably reasonable denial to determine

whether the insurer fairly evaluated its insured’s claim.

Plaintiffs Rafi Ghazarian and Edna Betgovargez (collectively plaintiffs)

have a son, A.G., with autism. A.G. receives applied behavior analysis (ABA) therapy

for his autism under a health insurance policy (the policy) plaintiffs have with defendant

California Physicians’ Service dba Blue Shield of California (Blue Shield). Mental

health benefits under this policy are administered by defendants Magellan Health, Inc.

and Human Affairs International of California (collectively Magellan). By law, the

policy must provide A.G. with all medically necessary ABA therapy. (Health & Saf.

Code, § 1374.73, subds. (a)(1) & (c)(1).)

1

Before A.G. turned seven years old, Blue Shield and Magellan (collectively

defendants) had approved him for 157 hours of medically necessary ABA therapy per

month. But shortly after he turned seven, defendants denied plaintiffs’ request for 157

hours of therapy on grounds only 81 hours per month were medically necessary.

Plaintiffs requested the Department of Managed Health Care (the Department) conduct

an independent review of the denial. (§ 1374.30 et seq.) Two of the three independent

physician reviewers disagreed with the denial, while the other agreed. As a result, the

Department ordered Blue Shield to reverse the denial and authorize the requested care.

Plaintiffs then filed this lawsuit against defendants. They asserted a claim

for breach of the implied covenant of good faith and fair dealing against Blue Shield, and

they also asserted claims for intentional interference with contract and violations of

Business and Professions Code section 17200 (the UCL) against defendants. Primarily,

1

Further undesignated statutory references are to the Health and Safety Code.

3

plaintiffs allege defendants have adopted unfair medical necessity guidelines that

categorically reduce the amount of ABA therapy autistic children receive once they turn

seven years old, regardless of medical need.

Defendants each moved for summary judgment. Both motions were

granted. As to the bad faith claim, the trial court found that since one of the independent

physicians agreed with the denial, Blue Shield acted reasonably as a matter of law. As to

the intentional interference with contract claim, the court found no contract existed

between plaintiffs and A.G.’s treatment provider with which defendants could interfere.

Finally, the court found the UCL claim was based on the same allegations as the other

claims and thus also failed. Separate judgments were entered in favor of defendants.

Plaintiffs now appeal.

We find summary judgment was improperly granted as to the bad faith and

UCL claims. Superficially, defendants’ denial of the treatment might appear to be

reasonable since an independent physician agreed with their decision. But it is well

established that an insurer may be liable for bad faith if it unfairly evaluates a claim.

Here, there are factual disputes as to the fairness of defendants’ evaluation. In particular,

the medical necessity standards defendants used to deny plaintiffs’ claim appear to

arbitrarily reduce ABA therapy for children once they turn seven. There are questions of

fact as to the reasonability of these standards. If defendants used unfair criteria to

evaluate plaintiffs’ claim, they did not fairly evaluate it and may be liable for bad faith.

Further, had the trial court examined why the independent physician found

A.G.’s treatment should be reduced, other questions of fact about whether defendants’

denial was reasonable would have been obvious and also would have required denial of

the motion. The independent physician found treatment should be reduced because A.G.

was not making much progress with ABA therapy. In contrast, Blue Shield stated A.G.

did not need as much treatment because he had already made significant progress under

ABA therapy. There are also questions of fact as to whether defendants thoroughly

4

evaluated supporting documentation for the claim and pressured A.G.’s therapy provider

to adopt their allegedly unreasonable criteria.

Conversely, we find summary adjudication proper as to the intentional

interference with contract claim because plaintiffs have failed to show any contract with

which defendants interfered.

We reverse the judgments and remand the case to the trial court as directed.

I

FACTS

A. Background Law

Under the Mental Health Parity Act enacted in 1999 (section 1374.72),

“every health plan providing hospital, medical or surgical coverage must also ‘provide

coverage for the diagnosis and medically necessary treatment of severe mental illnesses

of a person of any age, and of serious emotional disturbances of a child’ as specified in

the statute. [(Citing § 1374.72, subd. (a).)] The statute specifically itemizes the ‘“severe

mental illnesses”’ that must be covered, including ‘[p]ervasive developmental disorder or

autism.’ [(Citing § 1374.72, subd. (d)(7).)]”

2

(Consumer Watchdog v. Department of

Managed Health Care (2014) 225 Cal.App.4th 862, 870 (Consumer Watchdog).)

In 2011, the Legislature further addressed autism treatment by enacting

section 1374.73. This statute specifically requires health plans subject to section 1374.72

2

“‘“[A]utism spectrum disorders are complex neurological disorders of development

that onset in early childhood.” [Citation.] These disorders, which include full spectrum

autism, “affect the functioning of the brain to cause mild to severe difficulties, including

language delays, communication problems, limited social skills, and repetitive and other

unusual behaviors.”’” (Consumer Watchdog, supra, 225 Cal.App.4th at p. 868.)

5

to also provide coverage for medically necessary ABA therapy.

3

(§ 1374.73, subds.

(a)(1) & (c)(1); Consumer Watchdog, supra, 225 Cal.App.4th at pp. 874-875.) ABA

therapy “is a form of behavioral health treatment which develops or restores, to the

maximum extent practicable, the functioning of an individual with autism. [Citation.]

Numerous studies indicate that ABA is the most effective treatment known for autistic

children. Studies also demonstrate that ABA has lasting results. . . . ABA therapy can

create new brain connections in a child with autism; these new connections are to be

contrasted with the abnormal connections caused by autism.” (Consumer Watchdog,

supra, 225 Cal.App.4th at p. 868.)

The Department “is entrusted with the protection of patients’ rights to

quality health care, including enforcement of laws relating to health care service plans.”

(California Consumer Health Care Council, Inc. v. Department of Managed Health Care

(2008) 161 Cal.App.4th 684, 687-688.) These responsibilities include handling the

grievances of patients whose claims have been denied by their insurers for lack of

medical necessity. (Consumer Watchdog, supra, 225 Cal.App.4th at p. 871.) Such

patients may request the Department conduct an independent medical review (IMR) of

their denied claims. (Ibid.; § 1374.30, subds. (a), (b) & (d).) In the IMR process, “an

independent medical reviewer (or reviewers) determines whether the disputed health care

service is medically necessary based on the specific needs of the patient and such

information as peer-reviewed scientific evidence, nationally recognized professional

standards, and generally accepted standards of medical practice. . . . If the IMR decision

is in favor of the patient, the plan shall either promptly authorize the services or

3

Section 1374.73, subdivision (d), exempts certain health plans from its requirements:

“(1) [a] specialized health care service plan that does not deliver mental health or

behavioral health services to enrollees”; and “(2) [a] health care service plan contract in

the Medi-Cal program . . . .” Neither of these exemptions are relevant here.

6

reimburse the provider or the enrollee for services already rendered.” (Consumer

Watchdog, supra, 225 Cal.App.4th at p. 871.)

B. Denial of Plaintiffs’ Claim

Plaintiffs’ son, A.G., was born in April 2009 and later diagnosed with

autism. A.G. began receiving ABA therapy from the Center for Autism Related

Disorders (CARD) in 2012, which was covered by Blue Shield under the policy. Mental

health benefits under the policy were arranged and administered by Human Affairs

International of California (Human Affairs) under a contract it had with Blue Shield.

Human Affairs is a wholly owned subsidiary of nonparty Magellan Healthcare, Inc.,

which is a wholly owned subsidiary of defendant Magellan Health, Inc. (MHI).

4

There is

no dispute that the policy was subject to section 1374.73 or that Blue Shield was legally

required to cover all of A.G.’s medically necessary ABA therapy.

Prior to May 2016, i.e., before A.G. turned seven years old, Blue Shield had

covered 157 total hours of medically necessary ABA treatment per month (roughly 36

hours per week). This amount was comprised of 137 hours of direct one-on-one services,

14 hours of supervision, and 6 hours of caregiver training. Shortly after A.G. turned

seven, plaintiffs received a letter dated May 2, 2016, from Magellan acting as Blue

Shield’s mental health service administrator.

5

In the letter, Magellan denied plaintiffs’

request for 157 hours of ABA treatment per month for the upcoming period between May

23 to November 23, 2016. Instead, Magellan approved only 81 total hours per month

4

MHI contends it cannot be held liable for the acts of Human Affairs. As explained in

part E, infra, based on the record, there is no practical distinction between the conduct of

Human Affairs and MHI for purposes of this appeal. So, we generally refer to these

parties collectively throughout this opinion.

5

The letter is on Blue Shield letterhead but specifies it is coming from “the mental

health service administrator (MHSA) for Blue Shield,” which is Magellan.

7

(roughly 19 hours a week), including 68 hours of direct one-on-one services, 7 hours of

supervision, and 6 hours of caregiver training. The letter explained that A.G. had made

significant progress under ABA therapy. Consequently, the remaining 76 hours were not

medically necessary under Magellan’s medical necessity criteria and thus denied. The

letter was signed by Dr. Gayani DeSilva, an associate medical director for Magellan.

Plaintiffs appealed Magellan’s decision to Blue Shield. Blue Shield denied

the appeal in a letter dated June 15, 2016, stating “the medical necessity of this total

number of hours per month of direct and supervisory ABA services has not been

established.” The letter was signed by Blue Shield’s medical director.

Following Blue Shield’s denial of their appeal, plaintiffs requested an IMR

from the Department. Their petition was reviewed by a panel of three independent,

board-certified physicians. Two of the three panel members found the requested 157

monthly hours of ABA treatment to be medically necessary. The other panel member

agreed with Blue Shield that only 81 monthly hours were medically necessary. Contrary

to Blue Shield, however, the physician found less ABA treatment was warranted because

A.G. had made limited improvements over the years, “suggesting that he has had minimal

response to ABA therapy.” The Department sent plaintiffs a letter dated July 12, 2016,

stating Blue Shield’s denial had been overturned based on the majority opinion of the

panel. The Department ordered Blue Shield to authorize the requested treatment within

five working days. Blue Shield complied.

C. The Instant Lawsuit

Plaintiffs filed this lawsuit against Blue Shield and MHI in March 2017.

They filed the operative first amended complaint in June 2017 and later amended it to

designate Human Affairs as Doe 1. Among other things, plaintiffs alleged defendants

had engaged in the following conduct: (1) adopted unreasonable medical necessity

standards that indiscriminately reduce the amount of authorized ABA treatment for

8

autistic children once they turn seven years old; (2) bullied ABA therapy providers into

adopting these unreasonable standards by threatening to terminate provider agreements;

(3) forced families to file IMR requests with the Department to obtain medically

necessary ABA treatment; and (4) failed to thoroughly investigate ABA treatment claims

prior to denial.

Based on these allegations, the amended complaint asserted causes of

action for breach of the implied covenant of good faith and fair dealing, intentional

interference with contractual relations, and UCL violations. The breach of the implied

covenant claim was asserted against Blue Shield only, while the remaining claims were

asserted against all defendants.

In January 2018, defendants filed separate motions for summary judgment,

or, in the alternative, summary adjudication of the individual claims alleged against them.

The trial court granted both summary judgment motions in September 2018. As to the

first cause of action, the trial court found “Blue Shield’s conduct was reasonable as a

matter of law. . . . Blue Shield presented undisputed evidence that [the Department]

conducted an [IMR] utilizing three independent physicians at Plaintiffs’ request. One

such physician agreed with Blue Shield’s coverage determination.” As to the second

cause of action, the trial court found no contract existed between plaintiffs and CARD

with which defendants could interfere. Finally, the trial court found the UCL claim arose

from the same allegations as the other two claims, and, consequently, failed for the same

reasons.

The trial court entered separate judgments in favor of defendants in October

2018. Plaintiffs appeal.

9

II

DISCUSSION

A. Legal Standard

“The purpose of the law of summary judgment is to provide courts with a

mechanism to cut through the parties’ pleadings in order to determine whether, despite

their allegations, trial is in fact necessary to resolve their dispute.” (Aguilar v. Atlantic

Richfield Co. (2001) 25 Cal.4th 826, 843.) A defendant moving for summary judgment

must show the plaintiff’s causes of action have no merit. It may do so by negating an

element of a cause of action or showing it has a complete defense to a cause of action.

The burden then shifts to the plaintiff to show a triable issue of material fact as to the

cause of action or defense. (Id. at p. 849.)

The trial court’s decision is reviewed de novo, “considering all the evidence

set forth in the moving and opposition papers except that to which objections were made

and sustained.” (Johnson v. City of Loma Linda (2000) 24 Cal.4th 61, 65-66.) The

reviewing court “liberally constru[es] the evidence in favor of the party opposing the

motion and resolv[es] all doubts about the evidence in favor of the opponent.” (Doe v.

Department of Corrections & Rehabilitation (2019) 43 Cal.App.5th 721, 732-733.)

Similarly, “any doubts as to the propriety of granting a summary judgment motion should

be resolved in favor of the party opposing the motion.” (Reid v. Google, Inc. (2010) 50

Cal.4th 512, 535.)

B. Evidence Outside the Separate Statement

Before analyzing the merits of the appeal, we address Blue Shield’s

contention that plaintiffs cannot rely on facts outside their separate statement. In San

Diego Watercrafts, Inc. v. Wells Fargo Bank, N.A. (2002) 102 Cal.App.4th 308, 315-316,

this court found that “[w]hether to consider evidence not referenced in the moving party’s

separate statement rests with the sound discretion of the trial court . . . .” The trial court

10

likewise has discretion to consider facts not referenced in the opposing party’s separate

statement. (Code Civ. Proc., § 437c, subd. (b)(3); see San Diego Watercrafts, Inc., at pp.

315-316.)

The appellate court has the same discretion as the trial court to consider

evidence not cited in a party’s separate statement. (Fenn v. Sherriff (2003) 109

Cal.App.4th 1466, 1481.) We exercise that discretion here. The record in this case is not

large, and there are only a few key documents. In fact, plaintiffs submitted only about 60

pages of evidence in opposition to the motions. We also note that “[t]he separate

statement is not designed to pervert the truth, but merely to expedite and clarify the

germane facts.” (King v. United Parcel Service, Inc. (2007) 152 Cal.App.4th 426, 438.)

C. Defendants’ Evidentiary Objections

Defendants each made several objections to plaintiffs’ evidence. The trial

court did not rule on any of them. Thus, we presume the trial court overruled these

objections and considered the disputed evidence in ruling on the motions. (Reid v.

Google, Inc., supra, 50 Cal.4th at p. 534.) The overruled objections may be raised on

appeal, but the burden is on the objecting party to renew any relevant objection by

arguing the issue in its brief; citation to the record alone is insufficient. (Ibid.; Duffey v.

Tender Heart Home Care Agency, LLC (2019) 31 Cal.App.5th 232, 251, fn. 17.)

Magellan did not renew any of its evidentiary objections on appeal, and, as a result, we

disregard them. We will address Blue Shield’s renewed objections below where relevant.

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

1. Bad faith liability

“The law implies in every contract, including insurance policies, a covenant

of good faith and fair dealing. ‘The implied promise requires each contracting party to

refrain from doing anything to injure the right of the other to receive the agreement’s

11

benefits. . . . When the insurer unreasonably and in bad faith withholds payment of the

claim of its insured, it is subject to liability in tort.’” (Wilson v. 21st Century Ins. Co.

(2007) 42 Cal.4th 713, 720 (Wilson).) Similarly, “‘delayed payment based on inadequate

or tardy investigations, oppressive conduct by claims adjusters seeking to reduce the

amounts legitimately payable and numerous other tactics may breach the implied

covenant because’ they frustrate the insured’s right to receive the benefits of the contract

in ‘prompt compensation for losses.’” (Waller v. Truck Ins. Exchange, Inc. (1995) 11

Cal.4th 1, 36.)

Bad faith may also be found where an insurer “employs a standard of

medical necessity significantly at variance with the medical standards of the community

. . . . Such a restricted definition of medical necessity, frustrating the justified

expectations of the insured, is inconsistent with the liberal construction of policy

language required by the duty of good faith. . . . [G]ood faith demands a construction of

medical necessity consistent with community medical standards that will minimize the

patient’s uncertainty of coverage in accepting his physician’s recommended treatment.”

(Hughes v. Blue Cross of Northern California (1989) 215 Cal.App.3d 832, 845-846

(Hughes).)

In Hughes, the plaintiff’s son was hospitalized several times for psychiatric

reasons. The plaintiff’s insurer denied a portion of her claims for hospital expenses on

grounds some hospitalizations were not medically necessary. The plaintiff sued the

insurer for bad faith and prevailed at trial. The insurer appealed, arguing the jury’s

verdict was not supported by substantial evidence. (Hughes, 215 Cal.App.3d at pp. 838-

841.) The reviewing court disagreed, finding “the jury could reasonably infer that [the

insurer’s reviewing physician] employed a standard of medical necessity markedly at

variance from that of the psychiatric community in California.” (Id. at p. 843.) Among

other things, the reviewing physician testified he recommended disapproval of about 30

percent of the claims he reviewed, was unswayed that his recommendation conflicted

12

with the son’s other treating psychiatrists who were more familiar with the case, and

admitted “his standard of medical necessity might be more restrictive than the generally

accepted professional standard.” (Ibid.)

The principles in Hughes are applicable here. Plaintiffs allege Blue Shield

has adopted unreasonable medical necessity standards that indiscriminately reduce the

amount of ABA therapy for children seven years old and above, regardless of medical

need. The alleged scheme forces families to either accept Blue Shield’s decision or

expend additional resources going through the IMR process. In support of their

allegations, plaintiffs provide Magellan’s medical necessity guidelines for comprehensive

ABA therapy, which were adopted by Blue Shield.

6

These guidelines state, “[ABA]

Services may range from 21 to 40 hours per week, early in the recipient’s development

(for example, under the age of 7). . . . The standard of care for comprehensive services

has been for durations of 1 to 2 years.” (Italics added.)

Plaintiffs assert these guidelines conflict with established medical

standards. Specifically, the standards set forth by the Behavior Analyst Certification

Board (BACB), which state, “[ABA] treatment should be based on the clinical needs of

the individual and not constrained by age. . . . ABA is effective across the life span.

Research has not established an age limit beyond which ABA is ineffective.” (Italics

added.) The BACB is “a private organization established [in 1998] to grant national

credentials to ABA professionals.” (Consumer Watchdog, supra, 225 Cal.App.4th at p.

869.) It is a respected organization in the world of ABA treatment. This is evidenced by

section 1374.73, subdivision (c)(3)(A), which defines “‘[q]ualified autism service

provider’” to mean “[a] person who is certified by a national entity, such as the Behavior

Analyst Certification Board . . . .”

6

Blue Shield does not argue that it cannot be held liable for the actions of Magellan, its

mental health service administrator.

13

While the BACB’s guidelines are not binding on Blue Shield, they are

evidence of the general standard of medical necessity for ABA therapy. Notably, the

BACB’s guidelines state treatment should be based on the needs of the individual and

unconstrained by age. In comparison, Blue Shield’s standards appear to arbitrarily limit

comprehensive ABA therapy (21 to 40 hours per week) to children under the age of

seven, or, at best, to “early in the recipient’s development.” Though Blue Shield may

develop its own standards for determining medical necessity (see § 1367.01, subd. (b)), it

may not adopt self-serving guidelines that lack support from the medical community.

Such actions are inconsistent with an insurer’s obligations under the implied covenant of

good faith and fair dealing. (Hughes, supra, 215 Cal.App.3d at pp. 845-846.)

To be clear, we do not mean to suggest that a health insurer cannot define

medical necessity in a manner that embraces efficient practices or novel technologies or

procedures that have support in the medical community. That is not the case here. Blue

Shield provides no explanation or evidence in support of the reasonableness of the

medical necessity guidelines at issue. It is entirely unclear why Blue Shield’s standards

advise that comprehensive ABA therapy should be limited to children under the age of

seven. Here, A.G.’s ABA therapy was reduced from roughly 36 hours per week to 19

hours per week just after he turned seven years old. Based on the record, triable issues of

fact exist as to the reasonableness of Blue Shield’s medical necessity standards for

comprehensive ABA therapy and whether plaintiffs’ claim was unfairly denied based on

those standards.

2. The genuine dispute rule

Blue Shield argues the trial court correctly granted summary judgment

under the genuine dispute rule (also known as the genuine issue rule). We disagree.

The genuine dispute rule allows an insurer to avoid bad faith liability by

showing it denied payment on a claim due to the existence of a genuine dispute with its

14

insured over coverage or the claim amount. (Wilson, supra, 42 Cal.4th at p. 723.) “The

genuine dispute rule does not relieve an insurer from its obligation to thoroughly and

fairly investigate, process and evaluate the insured’s claim. A genuine dispute exists only

where the insurer’s position is maintained in good faith and on reasonable grounds.”

(Id. at pp. 723-724.) “An insurer cannot claim the benefit of the genuine dispute doctrine

based on an investigation or evaluation of the insured’s claim that is not full, fair and

thorough.” (Bosetti v. United States Life Ins. Co. in City of New York (2009) 175

Cal.App.4th 1208, 1237.)

“When determining if a dispute is genuine, we do ‘not decide which party

is “right” as to the disputed matter, but only that a reasonable and legitimate dispute

actually existed.’ [Citation.] A dispute is legitimate, if ‘it is founded on a basis that is

reasonable under all the circumstances.’ [Citation.] ‘This is an objective standard.’

[Citation.] ‘Moreover, the reasonableness of the insurer’s decisions and actions must be

evaluated as of the time that they were made; the evaluation cannot fairly be made in the

light of subsequent events that may provide evidence of the insurer’s errors.’” (Zubillaga

v. Allstate Indemnity Co. (2017) 12 Cal.App.5th 1017, 1028, first italics added

(Zubillaga).)

A trial court may grant summary judgment based on the genuine dispute

rule “‘when it is undisputed or indisputable that the basis for the insurer’s denial of

benefits was reasonable—for example, where even under the plaintiff’s version of the

facts there is a genuine issue as to the insurer’s liability under California law. [Citation.]

. . . On the other hand, an insurer is not entitled to judgment as a matter of law where,

viewing the facts in the light most favorable to the plaintiff, a jury could conclude that the

insurer acted unreasonably.’ [Citation.] Thus, an insurer is entitled to summary

judgment based on a genuine dispute over coverage or the value of the insured’s claim

only where the summary judgment record demonstrates the absence of triable issues

[citation] as to whether the disputed position upon which the insurer denied the claim was

15

reached reasonably and in good faith.” (Wilson, supra, 42 Cal.4th at pp. 723-724, italics

added.)

The reasonableness of an insurer’s conduct is typically a question of fact

but can be decided as a matter “of law where the evidence is undisputed and only one

reasonable inference can be drawn from the evidence.” (Chateau Chamberay

Homeowners Assn. v. Associated Internat. Ins. Co. (2001) 90 Cal.App.4th 335, 346;

Fadeeff v. State Farm General Ins. Co. (2020) 50 Cal.App.5th 94, 102 [“Ordinarily,

reasonableness is a factual issue to be decided by a jury”].)

Blue Shield’s argument focuses on the one physician on the IMR panel that

agreed with its decision. There is no evidence challenging the reasonability of this

physician’s conclusion. So, Blue Shield contends that because an independent physician

agreed with its denial, there is a genuine dispute as to whether 157 monthly hours of

ABA treatment were medically necessary. However, for the genuine dispute rule to

apply, Blue Shield’s denial must be “‘founded on a basis that is reasonable under all the

circumstances.’” (Zubillaga, supra, 12 Cal.App.5th at p. 1028.) The undisputed record

must show Blue Shield fairly and thoroughly evaluated plaintiffs’ claim and its denial

“was reached reasonably and in good faith.” (Wilson, supra, 42 Cal.4th at pp. 723-724;

Bosetti v. United States Life Ins. Co. in City of New York, supra, 175 Cal.App.4th at pp.

1237-1238.)

The record does not show this. As set forth above, there are triable issues

as to the reasonableness of Blue Shield’s medical necessity guidelines. In other words,

there are questions of fact as to whether Blue Shield fairly evaluated plaintiffs’ claim and

reached its denial reasonably and in good faith. Plaintiffs’ claim was not fairly evaluated

if Blue Shield denied it based on unfair criteria. Although one physician on the IMR

panel arrived at the same conclusion as Blue Shield, that physician did not apply or

evaluate Blue Shield’s medical necessity criteria. As such, this evidence does not show

that Blue Shield acted reasonably as a matter of law.

16

To further illustrate, viewing the facts most favorably to plaintiffs, Blue

Shield arbitrarily reduces ABA treatment for autistic children after they turn seven years

old. Based on this criteria, Blue Shield reduced A.G.’s treatment from 157 hours to 81

hours per month after he turned seven without regard for his actual medical needs. It

then cited A.G.’s significant progress—progress the expert it now wishes to rely on said

did not exist—as a pretextual reason for this reduction. Under this version of the facts,

even if there is a genuine dispute as to the amount of treatment that is medically

necessary for A.G., that dispute is immaterial because the claim was not fairly evaluated.7



Blue Shield did not reach this decision reasonably and in good faith. A health insurer is

not absolved of bad faith liability if it bumbles into a facially reasonable medical decision

using patently unfair medical necessity criteria. Even a stopped clock is right twice a

day.

Blue Shield cannot defeat plaintiffs’ bad faith claim at summary judgment

by only showing a reasonable dispute exists as to its ultimate decision. To be granted

summary judgment in this case, the undisputed record must show that Blue Shield’s

medical necessity guidelines are consistent with community medical standards. (See

Hughes, supra, 215 Cal.App.3d at pp. 845-846.) It does not. Issues of fact remain as to

whether Blue Shield has adopted unreasonable medical criteria for comprehensive ABA

therapy. Besides, there are other issues of fact as to whether Blue Shield fairly evaluated

plaintiffs’ claim.

First, Magellan’s separate statement cited evidence indicating it did not

review CARD’s report on A.G. prior to denying plaintiffs’ claim. Specifically, Magellan

cited deposition testimony from plaintiff Betgovargez describing a call she had with a

7

We provide no opinion on whether a genuine dispute actually exists as to the amount of

medically necessary ABA treatment that A.G. requires. This is not material to our

analysis.

17

CARD representative. Betgovargez testified that the CARD representative “met with Dr.

DeSilva . . . from Magellan, and [Dr. DeSilva] basically verbally told her that she wasn’t

going to approve the hours. And when she asked [Dr. DeSilva] why, she said -- she said,

‘Well, have you even read his report?’ [B]ecause she had turned in a big report. [Dr.

DeSilva] said ‘No.’”8

A jury could find that by ignoring CARD’s report, Magellan,

acting on behalf of Blue Shield, unfairly evaluated plaintiffs’ claim. (See, e.g., Zubillaga,

supra, 12 Cal.App.5th at pp. 1029-1030 [summary judgment denied where insurer

ignored physician’s treatments and recommendations].)

Second, Blue Shield’s stated reason for reducing A.G.’s treatment was at

odds with the concurring physician on the IMR panel. Defendants explained reduced

treatment was warranted because A.G. had already significantly improved with ABA

therapy. In contrast, the physician on the IMR panel found less treatment was

appropriate because A.G. had only shown limited improvement with ABA therapy,

indicating it had only been minimally effective. The stark differences between these

evaluations raise questions as to whether Blue Shield thoroughly and fairly evaluated

plaintiffs’ claim, especially in light of Betgovargez’s deposition testimony above.

For example, Magellan’s initial denial letter explained “[t]he clinical

information from your provider has shown measurable progress has been made since you

started ABA treatment with CARD on 5/14/12 and you no longer require 157

hours/month of ABA services. . . .” (Italics added.) It also stated, “[A.G.] has been

receiving ABA treatment since May 2012 with CARD and has shown a significant

improvement in behavior reduction goals, such that [he] no longer warrant[s] continuation

of the 157 hours per month of ABA therapy.” (Italics added.) Likewise, Blue Shield’s

denial of plaintiffs’ appeal stated, “[t]he principal reason [for the denial] is the medical

necessity of [the 157 hours of ABA treatment per month] has not been established.

8

There were no objections to this evidence.

18

Considering the improvement [A.G.] has made with his ABA therapy; . . . a reduced

allocation of service hours is sufficient in order to continue to train the social,

communication, and self-control skills which [he] currently requires.” (Italics added.)

On the other hand, the physician on the IMR panel that agreed with Blue

Shield found “[t]he requested services are not medically necessary for treatment of the

patient’s medical condition. In this case, there is documentation supporting limited

behavioral improvements with ABA therapy. His progress report notes positive but

limited behavioral improvement after over four years of intensive ABA therapy,

suggesting that he has had minimal response to ABA therapy. In this clinical setting, the

Health Plan’s authorization of [81 hours of therapy] is reasonable and medically

appropriate.” (Italics added.)

Third, there is evidence Blue Shield has engaged in a pattern of denying

medically necessary ABA treatment. Plaintiffs filed the declaration of Mary Rizk in

support of their opposition to both motions. Among other things, Rizk testified she has a

seven-year-old daughter with autism who received comprehensive ABA therapy from

CARD under a Blue Shield policy administered by Magellan. Blue Shield also denied

ABA treatment for her daughter. Similar to plaintiffs, Rizk submitted multiple appeals

through the IMR process, which resulted in the Department reversing Blue Shield’s

denials and ordering it to authorize the requested treatment. It could be inferred from this

testimony that plaintiffs’ experience was not unique. Rather, it was part of a larger

pattern in which Blue Shield unfairly denied ABA treatment by adopting an unreasonable

standard of medical necessity, forcing families to obtain necessary treatment through the

IMR process.

9

9

Blue Shield objects to the entire Rizk declaration on relevancy grounds. It argues

plaintiffs have not established Blue Shield’s conduct was substantially similar in this case

and the Rizk case. (See Moore v. American United Life Ins. Co. (1984) 150 Cal.App.3d

610, 625.) “[T]o establish ‘a pattern of unfair claims practices’ the antecedent practice

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Fourth, there are issues of fact as to whether Blue Shield, through

Magellan, pressured CARD into adopting its unreasonable criteria. Such evidence would

further demonstrate an overall pattern by Blue Shield to unfairly reduce ABA therapy to

its insureds, including A.G. The record shows that in February 2017, Magellan gave

notice to CARD that it was terminating their provider agreement without cause (the

termination notice). Michelle Brennan-Cooke, a vice president of MHI, testified during

deposition that she met with a CARD representative about CARD’s performance a few

months prior to the termination notice. During this meeting, Brennan-Cooke told the

representative that CARD’s “average billing far exceeded other agencies,” and that

CARD averaged a higher number of hours of treatment and “ha[d] more expensive

case[s] in California than other ABA agencies.” Magellan thought CARD had several

children whose ABA services should be reduced or denied.

After receiving the termination notice, CARD asked Magellan to halt the

termination. Brennan-Cooke opined this was likely because Magellan was “a big payer

for [CARD]. They have a lot of Magellan members nationally.” Then, in May 2017,

Magellan and CARD entered into a letter agreement rescinding the termination. As part

of the agreement, “CARD agree[d] to follow all of Magellan’s Medical Necessary

Criteria and clinical policies.”

Brennan-Cooke’s testimony shows Magellan thought CARD was providing

too much treatment to its patients. This evidence, along with the timing of the

termination notice and the terms of the letter agreement, creates a reasonable inference

that Magellan threatened to terminate the provider agreement unless CARD adopted

must be substantially similar.” (Ibid.) We liberally construe the evidence in favor of

plaintiffs and resolve all doubts in their favor at summary judgment. (Doe v. Department

of Corrections & Rehabilitation, supra, 43 Cal.App.5th at pp. 732-733.) Based on the

current record, the facts in Rizk’s declaration are similar enough to warrant admissibility

for purposes of this appeal: Rizk’s daughter is seven years old, was treated by CARD,

was denied medically necessary ABA therapy by Blue Shield, and had the denials

reversed through the IMR process.

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Magellan’s restrictive medical necessity guidelines. This inference is further supported

by the Rizk and Ghazarian declarations. Rizk stated that CARD began reducing the

amount of ABA hours for her daughter because it was afraid “it would lose its

participating provider contract with Blue Shield and . . . Magellan.” Ghazarian likewise

averred that defendants “pressured CARD to reduce ABA claims, reduce appeals, and

limit IMRs, at the risk of losing its participating provider agreement.”

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E. Liability of MHI

MHI denies liability as to the remaining claims for intentional interference

with contract and violation of the UCL, contending the undisputed evidence shows

Human Affairs, its subsidiary, administered the policy. MHI maintains there is no

evidence showing that it can be held liable for Human Affairs’ actions. We disagree.

There is sufficient evidence in the record to create issues of fact as to MHI’s vicarious or

direct liability.

First, the medical necessity guidelines at issue were developed by MHI.

Brennan-Cooke testified to this during her deposition, and the guidelines state they are

copyrighted by MHI. Similarly, in the letter agreement rescinding the termination of

CARD’s provider agreement, CARD agreed to follow “Magellan’s Medical Necessary

Criteria,” with “Magellan” being defined to include MHI.

Second, there is evidence MHI was involved in the denial of plaintiffs’

claim. The initial letter denying plaintiffs’ claim was signed by Dr. DeSilva, who

appears to have been employed by MHI.

10

Blue Shield did not object to this portion of Ghazarian’s declaration, and its only

objection to this portion of the Rizk declaration was relevance. We find this evidence to

be relevant and consider it in our analysis. (Code Civ. Proc., § 437c, subd. (b)(5);

McCaskey v. California State Automobile Assn. (2010) 189 Cal.App.4th 947, 956-957.)

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Third, as set forth above, there are issues of fact as to whether MHI

pressured CARD into adopting the medical necessity standards at issue. The termination

notice was on MHI’s letterhead. Brennan-Cooke, who met with CARD about its

performance prior to the termination notice, was a vice president at MHI. Finally, MHI is

a party to the letter agreement rescinding the termination.

F. Intentional Interference with Contract

“The elements of a cause of action for intentional interference with

contractual relations are ‘(1) the existence of a valid contract between the plaintiff and a

third party; (2) the defendant’s knowledge of that contract; (3) the defendant’s intentional

acts designed to induce a breach or disruption of the contractual relationship; (4) actual

breach or disruption of the contractual relationship; and (5) resulting damage.’”

(Redfearn v. Trader Joe’s Co. (2018) 20 Cal.App.5th 989, 997.) “To state a claim for

disruption of a contractual relation, the plaintiff need not show the defendant induced an

actual or inevitable breach of the contract. It is sufficient to show the defendant’s

conduct made the plaintiff’s performance, and inferentially enjoyment, under the contract

more burdensome or costly.” (Golden West Baseball Co. v. City of Anaheim (1994) 25

Cal.App.4th 11, 51.)

In the trial court, plaintiffs argued they had a written contract with CARD

with which defendants interfered. The trial court found no such contract existed and so

the claim failed. On appeal, plaintiffs argue that defendants interfered with an implied

contract that plaintiffs had with CARD. We will not consider this theory since it was

presented for the first time on appeal and the existence of an implied contract is a

question of fact, not law. (Unilab Corp. v. Angeles-IPA (2016) 244 Cal.App.4th 622,

636; Mattco Forge, Inc. v. Arthur Young & Co. (1997) 52 Cal.App.4th 820, 847.)

Besides, this argument would fail even if considered. Though plaintiffs are

vague on the specific terms of the implied contract, the gist of it seems to be that

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plaintiffs would pay out of pocket for any treatment that defendants did not authorize.

Plaintiffs allege defendants disrupted this contract by denying medically necessary ABA

treatment for their son and pressuring CARD to adopt defendants’ medical necessity

guidelines. These actions resulted in actual disruption of the implied contract, they argue,

because CARD reduced A.G.’s ABA therapy. But this assertion is belied by the

undisputed record, which shows CARD never reduced A.G.’s treatment after defendants

denied plaintiffs’ claim.

More fundamentally, even if defendants improperly refused to cover

medically necessary treatment, plaintiffs have not explained how this interfered with their

ability to obtain additional therapy by paying out of pocket. Defendants’ denial did not

prevent plaintiffs from personally paying for uncovered treatment. To the contrary, the

denial of treatment was the triggering condition for plaintiffs’ obligation to personally

pay CARD. Nor did the denial make plaintiffs’ performance under the implied contract

more burdensome or costly. Plaintiffs never had to perform. It is undisputed that Blue

Shield provided the treatment, by order of the Department, before plaintiffs incurred any

out-of-pocket expenses.

G. UCL Claim

Defendants each made several arguments as to plaintiffs’ UCL claim. We

are not persuaded by any of them and conclude that summary judgment was wrongly

granted as to this claim.

1. Unfair competition

Both defendants contend that plaintiffs have failed to establish “unfair

competition” under the UCL. Not so. “Unfair competition” includes “any unlawful,

unfair or fraudulent business act or practice.” (Bus. & Prof. Code, § 17200.) “[B]ad faith

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insurance practices may qualify as any of the three statutory forms of unfair

competition.” (Zhang v. Superior Court (2013) 57 Cal.4th 364, 380.)

Since plaintiffs’ bad faith claim against Blue Shield survives summary

judgment, its UCL claim against Blue Shield must too. Although no bad faith claim was

asserted against Magellan, it is inextricably intertwined with the conduct underlying the

bad faith claim: (1) it created the medical necessity guidelines at issue in this case; (2) it

initially denied plaintiffs’ claim while acting as Blue Shield’s mental health service

administrator; and (3) it pressured CARD into adopting its medical necessity guidelines.

Therefore, the UCL claim against Magellan must also survive.

2. Standing

Next, Magellan claims that plaintiffs lack standing. This argument is

unconvincing. Under the UCL, “private standing is limited to any ‘person who has

suffered injury in fact and has lost money or property’ as a result of unfair competition.”

(Clayworth v. Pfizer, Inc. (2010) 49 Cal.4th 758, 788.) The purpose of this rule is “to

confine standing to those actually injured by a defendant’s business practices and to

curtail the prior practice of filing suits on behalf of ‘“clients who have not used the

defendant’s product or service, viewed the defendant’s advertising, or had any other

business dealing with the defendant . . . .”’” (Ibid.) “There are innumerable ways in

which economic injury from unfair competition may be shown.” (Kwikset Corp. v.

Superior Court (2011) 51 Cal.4th 310, 323.) A party has standing when they have

“expended money due to the defendant’s acts of unfair competition.” (Hall v. Time Inc.

(2008) 158 Cal.App.4th 847, 854.) For example, a “plaintiff may . . . be required to enter

into a transaction, costing money or property, that would otherwise have been

unnecessary.” (Kwikset Corp., at p. 323.)

Due to the wrongful denial of their insurance claim, plaintiffs retained and

paid an attorney to assist them with the IMR process. This is sufficient to establish

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standing under the UCL. Plaintiffs hired an attorney because of defendants’ denial of

their claim. The transaction would have been unnecessary without defendants’ conduct.

Magellan contests standing by baselessly accusing Ghazarian of filing a

“sham declaration [that] fatally contradicts his deposition testimony.” It cites a portion of

Ghazarian’s declaration that states “‘[i]n order to appeal effectively, and to file an

effective IMR, [plaintiffs] retained and paid an attorney for this process . . . .’” Magellan

then contends “at deposition, which was prior to the signing of [Ghazarian’s] declaration

. . . [Ghazarian] unequivocally testified that he prepared the IMR himself. [Citation.]

This testimony belies [Ghazarian’s] claim that he paid an attorney to assist him in the

IMR process.”

At the outset, the fact that Ghazarian drafted the IMR petition himself does

not preclude him from retaining an attorney to assist with the process. These are not

mutually exclusive actions. More troubling, however, is that the very portion of the

deposition transcript on which Magellan relies reveals this argument lacks merit:

“Q: Okay. Did your attorney -- was your – were you already working with

an attorney by the time of the I.M.R.?

“A: I believe I had contacted [my current counsel] by then, yes.

“Q: Okay. Did you prepare the I.M.R. yourself?

“A: Yes.” (Italics added.)

Magellan cites the final two lines of this exchange but curiously ignores the preceding

question.

Similarly, other portions of the transcript from Ghazarian’s deposition show

that he retained his current counsel, Randy Curry, after Blue Shield denied his appeal and

prior to the IMR. Ghazarian testified that after he received the June 15, 2016 denial letter

from Blue Shield, “one of the things I did at the time was reach out to [Mr. Curry] . . . .

[¶] . . . [¶] . . . Ultimately [plaintiffs] decided to do an I.M.R. [¶] As well as I think,

[Mr. Curry], you also prepped a letter for us as part of this.”

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3. Injunctive Relief

Blue Shield also argues the UCL claim should be dismissed because

plaintiffs have an adequate remedy at law, specifically, money damages. In response,

plaintiffs state they seek injunctive relief, and they insist the adequate-remedy-at-law

requirement does not apply to injunctions sought under the UCL. We need not address

the latter component of plaintiffs’ argument. There are issues of fact as to whether

plaintiffs have an adequate remedy at law. As explained above, there are triable issues as

to whether defendants unfairly denied plaintiffs claim by using unreasonable medical

necessity guidelines. There is no evidence these guidelines have been changed. If the

guidelines are found to be unreasonable, damages may be inadequate. They would not

protect plaintiffs from future wrongful denials of benefits.

Blue Shield further contends plaintiffs may not seek broad injunctive relief

under the UCL without filing a class action, which they did not do. This argument was

rejected by our Supreme Court. In McGill v. Citibank, N.A. (2017) 2 Cal.5th 945, the

Court held that a plaintiff bringing a private action for public injunctive relief need not

comply with class action requirements. (Id. at pp. 959-960.) As explained in McGill,

“‘an injunction’ is ‘the primary form of relief available under the UCL to protect

consumers from unfair business practices.’” (Id. at p. 959.) Among other things, a class

action requirement “would largely eliminate the ability of a private plaintiff to pursue

such relief, because class certification requires ‘the existence of both an ascertainable

class and a well-defined community of interest among the class members’ [citation], and

‘“the general public . . .” fails to meet’ this requirement . . . .” (Id. at p. 960.)

H. Punitive Damages

Since the trial court granted summary judgment, it did not rule on

Magellan’s request for summary adjudication of plaintiffs’ claim for punitive damages.

Magellan renews this request on appeal. We deny it, finding issues of fact exist.

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Plaintiffs may recover punitive damages if they can show by clear and

convincing evidence that Magellan “has been guilty of oppression, fraud, or malice.”

(Civ. Code, § 3294, subd. (a).) “Malice” is defined as conduct intended “to cause injury

to the plaintiff or despicable conduct which is carried on by the defendant with a willful

and conscious disregard of the rights or safety of others.” (Civ. Code, § 3294, subd.

(c)(1).) “‘Oppression’ means despicable conduct that subjects a person to cruel and

unjust hardship in conscious disregard of that person’s rights.” (Civ. Code, § 3294, subd.

(c)(2).) Finally, “‘[f]raud’ means an intentional misrepresentation, deceit, or concealment

of a material fact known to the defendant with the intention on the part of the defendant

of thereby depriving a person of property or legal rights or otherwise causing injury.”

(Civ. Code, § 3294, subd. (c)(3).)

Based on the evidence set forth above, we cannot find as a matter of law

that plaintiffs are barred from obtaining punitive damages against Magellan. A jury must

determine whether there is clear and convincing evidence that Magellan acted

maliciously, oppressively, or fraudulently under Civil Code section 3294.

The judgments in favor of defendants are both reversed. On remand, the trial court is directed to grant summary adjudication in favor of defendants as to

plaintiffs’ cause of action for intentional interference with contract and to deny summary adjudication as to the other claims. Plaintiffs are entitled to their costs on appeal.