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May 8, 1984

Loretta Washington, Plaintiff
Group Hospitalization, Inc., et al., Defendants

The opinion of the court was delivered by: GREENE

Plaintiff brought this action against Group Hospitalization, Inc. and Medical Service of the District of Columbia, both providers of medical health benefits, for breach of contract and bad faith refusal to pay insurance claims, seeking both compensatory and punitive damages. Defendants have moved for summary judgment. For the reasons stated below, the motion will be denied.

 Plaintiff, an employee of the City of Alexandria, Virginia since 1978, decided to transfer her health insurance coverage to that offered by the defendants in the spring of 1981. On May 19, 1981, plaintiff filled out the appropriate card to enroll in the health benefits program in effect at that time, to be effective July 1, 1981. She provided all the information the enrollment card requested with one exception -- she failed to state whether she was currently or had recently been enrolled in health care coverage through Blue Cross and Blue Shield, a Health Maintenance Organization (HMO), or other insurance carrier. *fn1" Information concerning prior health coverage is important because under the program persons who do not apply for coverage with defendants when they first become eligible, i. e., when they begin employment, must satisfy a ten-month waiting period before they will receive benefits for treatment of conditions existing before the effective date of the contract. In fact, plaintiff had been enrolled in the Kaiser-Georgetown Health Plan, a HMO, prior to her enrollment with defendants, and the ten-month waiting period for preexisting conditions therefore did not apply to her.

 During and after plaintiff's hospitalizations, defendants conducted a total of six medical reviews of plaintiff's case -- four by registered nurses and two by physicians. Following these investigations, defendants informed plaintiff that her benefits were denied because her condition existed before July 1, 1981. However, at no time did defendants explain that they were denying coverage because plaintiff had not transferred from a qualified health care plan nor did they ever ask plaintiff whether she had transferred from such a plan. They simply assumed this to be so because of the blank left on plaintiff's enrollment card.

 On April 22, 1982, plaintiff's employer notified defendants that plaintiff had had a policy with Kaiser-Georgetown prior to enrolling with defendants; defendants then changed plaintiff's enrollment card to reflect this fact; on May 26 and 27, 1982, they notified Arlington Hospital that benefits for plaintiff's July and August 1981 hospitalizations were approved; and they then proceeded to pay the treating physicians.

 During the interim, Arlington Hospital had been attempting to collect from plaintiff the money due for its services. The negotiations between plaintiff and the Hospital were far from amicable, but ultimately, plaintiff and the Hospital may have entered into an agreement under which plaintiff would make monthly payments of $40 to the Hospital commencing February 10, 1982. In spite of this agreement, however, the Hospital eventually sued plaintiff for her medical bills.

 On August 2, 1982, plaintiff filed this action against these defendants alleging in one count breach of contract and in another bad faith refusal to pay insurance claims, and she seeks damages both for hospital bills allegedly still unpaid and for emotional distress. Defendants have moved for summary judgment.


 Defendants argue that, because they eventually paid plaintiff's hospital and doctor bills, there has been no breach of contract, and that, in any event, the request for $100,000 in damages for "mental and emotional distress, worry, anxiety, loss of sleep, and lost time from her occupational duties in order to pursue the proper disposition of her claims" must be denied because such damages were not contemplated or foreseeable by the parties at the time of contracting. See Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1845); Mark Keshishian, etc. v. Washington Square, 414 A.2d 834, 841 (D.C. App. 1980). See also, Restatement of the Law 2d, Contracts, 2d Vol. 3 ยง 353 at 149. However, summary judgment cannot be granted on this basis.


 Many jurisdictions have recognized a cause of action in tort for the bad faith refusal of an insurer to pay. The District of Columbia is no exception. See Continental Insurance Co. v. Lynham, 293 A.2d 481, 483 (D.C. App. 1972). Individuals purchase insurance to protect themselves against calamities. The insured is generally in a vulnerable economic and emotional position when such an event occurs. Accordingly, it is said, the entire purpose of insurance would be defeated if an insurance company could refuse or fail to pay a valid claim without justification. Noble v. National American Life Insurance Co., 128 Ariz. 188, 624 P.2d 866, 868 (Ariz. 1981). Courts and legislatures have therefore imposed a legal duty upon insurance companies to process and pay claims expeditiously and in good faith. The breach of such duty gives rise to a tort.

 To recover under the tort of bad faith refusal to pay, plaintiff must show that defendant did not have a reasonable basis for denying benefits under the policy and that it knew or recklessly disregarded its lack of a reasonable basis when it denied the claim. *fn5" Noble v. National American Life Insurance Co., supra, 624 P.2d at 868; Anderson v. Continental Insurance Co., 85 Wis. 2d 675, 271 N.W.2d 368, 376-77 (1978). The District of Columbia Court of Appeals has defined the tort as "any frivolous or unfounded refusal to pay; it is not necessary that such refusal be fraudulent. And if probable cause is shown why payment should have been made, an inference of ...

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