Simmons v. >Cal.> Physician’s
Service



















Filed 3/5/13 Simmons v. Cal. Physician’s Service CA2/8

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>NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

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California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115>.









IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA



SECOND
APPELLATE DISTRICT



DIVISION
EIGHT




>

LONNIE LEE SIMMONS, Plaintiff and Appellant, v. CALIFORNIA PHYSICIANS’ SERVICE, Defendant and Respondent.

B235171 (Los Angeles County Super. Ct. No. BC434798)

APPEAL from
a judgment of the Superior Court
of href="http://www.adrservices.org/neutrals/frederick-mandabach.php">Los Angeles
County. William F.
Fahey, Judge. Affirmed.



Taylor
& Ring, John C. Taylor; Esner, Chang & Boyer, Stuart B. Esner,
Andrew N. Chang and Holly N. Boyer for Plaintiff and Appellant.



Manatt,
Phelps & Phillips, Gregory N. Pimstone, Brad W. Seiling, Adam Pines, and
Joanna S. McCallum for Defendant and Respondent.



______________________________



Lonnie
Simmons filed a complaint against California Physicians’ Service doing business
as Blue Shield of California (Blue Shield), alleging Blue Shield wrongfully
denied coverage for medical
services he received while he was participating in a Blue Shield health
plan. The trial court granted summary
judgment to Blue Shield. Simmons
contests the judgment on appeal. We
affirm.

FACTUAL AND PROCEDURAL BACKGROUND

In 2004, Pamela Mason purchased
a Blue Shield health plan to cover herself and her husband, Lonnie
Simmons. From January 2006 through
September 2009, Mason and Simmons were covered under a Blue Shield PPO health
plan. In all of the health plan
agreements Mason and Simmons had with Blue Shield between 2004 and 2009, the
policy or plan documents included a provision regarding “medical
necessity.” The provision stated:

“Benefits are provided only for
Services that are Medically Necessary.

“1.
Services which are Medically Necessary include only those which have
been established as safe and effective, are furnished in accordance with
generally accepted professional standards to treat an illness, injury, or
medical condition, and which, as determined by Blue Shield of California, are:

“a.
Consistent with Blue Shield of California medical policy; and

“b.
Consistent with the symptoms or diagnosis; and

“c.
Not furnished primarily for the convenience of the Member, the attending
Physician or Other Provider; and

“d.
Furnished at the most appropriate level which can be provided safely and
effectively to the Member. [¶] . . .
[¶]

“4.
Blue Shield of California reserves the right to review all claims to
determine whether Services are Medically Necessary, and may use the services of
physician consultants, peer review committees of professional societies or
hospitals, and other consultants.”href="#_ftn1"
name="_ftnref1" title="">^[1]

Denial of Coverage for IVIG

In 2004, Simmons fell ill. He first experienced pain in his feet, then
became unable to walk and lost his voice.
Doctors did not know what was wrong.
Eventually, in August 2005, Simmons was diagnosed with Guillain-Barre
syndrome (GBS), an autoimmune disorder.
At that time, Simmons’s neurologist, Kolar Murthy, prescribed
intravenous immunoglobin treatments (IVIG).
IVIG is “a treatment under which the patient receives an intravenous infusion
of immunoglobulin . . . that has been extracted from the plasma of blood
donors.” The treatments were
administered by Biofusion, a “participating” or “contracted” provider with Blue
Shield. Under its agreements with Blue
Shield, Biofusion agreed to pursue any payment disputes only with Blue Shield
rather than with the patient receiving treatment.

Blue Shield paid Biofusion for the
first two IVIG treatments. However, Blue
Shield subsequently conducted a “medical review” of Simmons’s IVIG treatments. In January 2006, Blue Shield issued an
explanation of benefits to Mason regarding Biofusion’s claim for payment for
services rendered in November 2005. The
explanation stated Blue Shield could not complete processing of the claim
“because our medical review requires additional information. A letter, which identifies the specific
information requested, has been sent to you and the provider of service under
separate cover. If the requested
information is not received within 45 days of your receipt of our request,
please consider this claim denied.” The
record does not include the letter referenced in the explanation of benefits,
or any response from Biofusion or Simmons’s doctor.

In April 2006, Blue Shield issued
Mason another explanation of benefits informing her: “The patient’s clinical situation was
individually evaluated by a medical consultant.
Based on the documentation provided, the medical need for this was not established. An internal rule, guideline, protocol, or
other similar criteria and/or scientific or clinical judgment was relied upon
in making this determination. You may
receive free of charge, upon request, a copy of the internal rule guideline,
protocol or similar criteria and/or an explanation of the scientific or
clinical judgment used in this determination.
This information can be obtained by contacting your Customer/Member
Services Department at the mailing address or telephone indicated on the front
of this form.”

Despite this denial, Biofusion
continued providing IVIG treatments to Simmons.
In November 2006, Biofusion appealed the claim denial. Biofusion’s appeal attached a July 2006
letter from Dr. Murthy. Dr. Murthy’s
letter described Simmons’s need for a continuous passive motion machine. The letter also explained Simmons’s diagnosis
and progress, indicating he was making slow but steady improvement, although he
had experienced a setback in walking. In
February 2007, Blue Shield denied the appeal in a letter to Biofusion. The letter stated:

“Based on the documentation
submitted, our Physician Advisor has determined that the ‘appeal letter is for
the use of Continuous Passive Motion which is not related to this claim. IVIG indicated in Guillain-Barre Syndrome
only within 2 weeks of diagnosis; on-set of illness in this patient was
November 2004. There is no scientific
basis for long term IVIG administration and this is denied per Blue Shield of
California Medication [Policy.’]
Therefore, no additional payment can be made. [¶] If
you have any further questions regarding the status claim, please contact the
Customer Service Department by calling . . . .”

The letter also detailed a “Final
Appeal Procedure.” In April 2007, Dr.
Murthy sought reconsideration of the claim denial. Murthy explained he had changed Simmons’s
diagnosis to “the chronic form of Guillain-Barre, chronic inflammatory
demyelinating polyneuropathy (CIDP).”
Murthy noted “all major health plans and Medicare” recognized the use of
IVIG for treatment of CIDP, and warned that without continued IVIG treatments,
Simmons’s condition would deteriorate.

In May 2007, Mason wrote Blue
Shield complaining of the lack of response since the previous denial, and
informing Blue Shield that Simmons’s condition had deteriorated. Later that month, Blue Shield submitted the
claim to Dr. Lee Hartman for review.
Hartman is a specialist in href="http://www.sandiegohealthdirectory.com/">otolaryngology, head and neck
surgery, but also served as a Blue Shield medical director in the company’s
appeals and grievances department. When
reviewing a subscriber’s appeal, Hartman relied on Blue Shield’s internal
medical policies. In deposition
testimony and a declaration supporting the summary judgment motion, Hartman
explained the Blue Shield policies are established by a Blue Shield “Pharmacy
and Therapeutics committee.” At his
deposition, Hartman testified: “The committee uses pharmacists and independent
physicians in the community of different specialists to review current drug therapies
and determine what the appropriate indications are for it, what are acceptable
alternatives for it, and put that forth to the Blue Shield plan for making
determinations of formulary decisions of what drugs they’re going to allow on
formulary and approve and under what conditions.” According to Hartman, for any given
medication, “the committee reviews the clinical and scientific evidence
relating to the medication and, based on that review, establishes guidelines
and medical policy positions as to whether or not the medication is safe and
effective and covered by the Plan.”

In Simmons’s case, Hartman reviewed
the claim denials, medical records Murthy submitted to Blue Shield, and “Blue
Shield’s medical policy for IVIG.” The
medical policy indicated Blue Shield would only cover IVIG as treatment for GBS
when the disease was diagnosed within the first two weeks of the illness, and
treatment began within four weeks of the onset of symptoms. Hartman noted Simmons experienced GBS
symptoms in November 2004 but was not diagnosed with the disease until August
2005, and did not receive IVIG treatments until August 2005.

The medical policy also indicated
IVIG would only be covered as treatment for CIDP when three of five criteria
were met.href="#_ftn2" name="_ftnref2" title="">^[2] Hartman determined the medical records
Biofusion and Murthy had submitted “did not indicate that requirement was
satisfied in [Simmons’s] case.” Hartman
thus concluded there was no coverage for Simmons’s IVIG treatments.

In June 2007, Blue Shield sent
Simmons a letter informing him it denied his appeal. The letter indicated “[t]he principal reason
for the denial” was “there is currently insufficient information to support
your neurologist’s change of diagnosis from [Guillain]-Barre CIDP.” The letter provided the “clinical rationale,”
which was Blue Shield’s medical policy requiring the presence of three of five
listed criteria to authorize IVIG for CIDP patients. The letter concluded “medical necessity for
IVIG was not established.” It further
informed Simmons he had the right to request an independent medical review
through the Department of Managed Health Care (DMHC). The letter also advised Simmons he could
request a copy of Blue Shield’s “Medical Policy.”

Simmons received his last IVIG
treatment from Biofusion in February 2007.
In November 2007, Blue Shield sent a letter to Simmons, copied to
Murthy, indicating medical necessity was met for IVIG treatments for three
months from November 1, 2007.href="#_ftn3"
name="_ftnref3" title="">^[3]

>Denial of Coverage for Fentora

In October 2007, another of
Simmons’s doctors, James Lin, prescribed the pain medication Fentora, “a
powerful and highly addictive Schedule II narcotic . . . containing the drug
Fentanyl.” According to Lin, of “all the
opiate medications, neuropathic medications, antidepressants, [and] muscle
relaxers” Simmons tried, Fentora helped him most with his pain, increasing his
activity and energy, and providing him a better state of well being.

In October 2007, Blue Shield sent
Lin a letter indicating it would not provide coverage for Fentora. The letter informed Lin: “The Clinical information submitted by your
provider for coverage of the above medication does not meet the coverage
criteria established by the Blue Shield of California Pharmacy and Therapeutics
Committee for the following reason(s):
[¶] Fentora is covered only for
the management of breakthrough cancer pain.”
The letter advised that if specific additional information supporting
the request was provided, Blue Shield would perform additional clinical review.href="#_ftn4" name="_ftnref4" title="">^[4] A similar letter explaining the rationale for
the denial was also addressed to Simmons.
Despite this denial, Blue Shield reimbursed Simmons for Fentora he
purchased between October 2007 and June 2008.


In July 2008, Blue Shield amended
Simmons’s health plan. The amended Plan
included a drug formulary. The Evidence
of Coverage indicated that while benefits would be provided for drugs listed on
the formulary, “[b]enefits may also be provided for Non-Formulary Drugs subject
to higher Copayments. Selected Drugs and
Drug dosages . . . require prior authorization by Blue Shield of
California for Medical Necessity appropriateness of therapy or when effective,
lower cost alternatives are available (The more costly alternatives will be
authorized when Medically Necessary).” The
provision stated subscribers could find out if a drug was on the formulary by
calling Blue Shield, requesting a printed copy, or accessing a listed
website. The drug formulary for 2007 to
2008 identified Fentora as a nonformulary drug that required “medical necessity
prior authorization.” On July 1, 2008,
Blue Shield told an employee in Lin’s office that Blue Shield would approve
only one month of Fentora and it needed more information from Lin to determine
medical necessity.

In August 2008, Blue Shield sent
Lin another letter denying coverage for Fentora because the drug was covered
only for the management of breakthrough cancer pain. The letter included the same invitation to
submit additional information as that of the October 2007 denial letter. Simmons continued taking Fentora. In February 2009, Lin’s office submitted a
preauthorization request for Fentora.
Blue Shield denied the request, again indicating Fentora was covered
only for the management of breakthrough cancer pain.

On March 3, 2009, Simmons appealed
Blue Shield’s denial of coverage. Blue
Shield submitted the appeal to Hartman.
As he had when reviewing the IVIG issue, Hartman consulted the Blue
Shield medical policy, which indicated coverage would only be approved if the
patient was diagnosed with cancer pain and the drug was prescribed for the
management of breakthrough pain in patients who were already receiving, and
were tolerant to, opioid therapy for their pain. Hartman “saw that [Simmons’s] primary
diagnosis was GBS, and that [Simmons’s] had not been diagnosed with any form of
cancer. Accordingly, the Fentora that
was prescribed for him was not in accordance with Blue Shield’s medical policy
or covered under the Plan.”href="#_ftn5"
name="_ftnref5" title="">^[5]

Blue Shield sent Simmons a letter
dated March 6, 2009, denying his appeal.
The letter indicated the “principal reason for the denial is that you do
not meet the Blue Shield of California Medication Policy criteria for
approval. [¶] Specifically, the clinical rationale for the
denial is that Fentora is only Food and Drug Administration (FDA) and Blue
Shield authorized for breakthrough cancer pain.
According to the documentation, you do not have this condition. There is insufficient evidence in the peer
reviewed medical literature to conclude the off-label use of this medication is
superior to currently available and approved alternatives. Based on the information provided, you did
not meet the coverage criteria established by the Blue Shield of California
Pharmacy and Therapeutics Committee.
Therefore, we are unable to comply with your request.” The letter was signed by a coordinator in the
Blue Shield grievance department.

Simmons subsequently requested an
independent medical review from the DMHC.
On March 30, 2009, the DMHC issued a decision. The DMHC reported an independent medical reviewer
had determined Fentora was not medically necessary for Simmons.href="#_ftn6" name="_ftnref6" title="">^[6] The independent reviewer explained the
findings:

“The package insert for Fentora
specifically states it is indicated only for cancer related pain. There are no studies in the literature that
support the use of Fentora in neuropathic pain or in the patient’s specific
syndrome, ascending polyneuropathy and Guillain-Barre disease. Other opiates as well as the anti-convulsants
have been studied for their efficacy in Guillain-Barre syndrome. However, as concluded by Pandey and
colleagues, buccal fentanyl (Fentora) has not been examined for this
disease. Its efficacy for the treatment
of the patient’s condition has not been established. Furthermore, Fentora was designed to address
breakthrough pain and not as a medication to be taken around the clock, 5-10
times per day. [¶] Therefore, I have determined that the
medication at issue was not and is not medically necessary for treatment of the
patient’s medical condition.”href="#_ftn7"
name="_ftnref7" title="">^[7]

Litigation

Simmons filed suit against Blue
Shield in June 2010. Following a
demurrer, Simmons was left with claims for breach of contract and breach of the
implied covenant of good faith and fair dealing. Blue Shield moved for summary judgment or
summary adjudication. As to the denial
of payment for IVIG treatments, Blue Shield asserted the claims were barred by
a two-year contractual limitations period; Simmons never received
pre-authorization for the treatments as required by the plan; the IVIG
treatments were not medically necessary as defined by the plan because they
were inconsistent with Blue Shield’s medical policy; and Simmons suffered no
damages because he was never required to pay for any IVIG treatments. As to the complaint as a whole, Blue Shield
argued there were no triable issues of fact because the treatments prescribed
for Simmons were not consistent with Blue Shield’s medical policy and therefore
they were not medically necessary under the plan. Blue Shield contended it could not be liable
on a bad faith theory because it did not breach the plan, and further because a
genuine dispute existed as to the payment of benefits.

In support of its motion, Blue
Shield provided a declaration from Hartman explaining the Blue Shield medical
policies for IVIG and Fentora, and describing his process in reviewing and
denying Simmons’s claims. Hartman’s
declaration also authenticated various documents, including the relevant
medical policies.

Simmons opposed the motion, arguing
Blue Shield could not rely on the “medical policy” prong of the medical
necessity definition because the term “medical policy” was not mentioned in the
exclusion section of the plan and was not defined. Simmons argued his doctors’ deposition
testimony created a triable issue of fact as to whether the denied treatments
were medically necessary. Simmons
further contended the evidence created a triable issue of fact on his claim
that Blue Shield failed to adequately investigate Simmons’s claims for coverage.


Each side objected to portions of
the other’s evidence. Simmons objected
to Hartman’s description of Blue Shield’s medical policies, his description of
the manufacturer warnings for Fentora, his description of the FDA warnings for
the drug, and his conclusion that consistent with the manufacturer and FDA
warnings, the Blue Shield Pharmacy and Therapeutics Committee established
Fentora is only medically necessary for opioid-tolerant patients with cancer
suffering from breakthrough pain. Among
other things, Blue Shield objected to portions of Mason’s declaration
describing an August 2008 telephone call with Blue Shield in which a Blue
Shield representative stated Fentora would be covered. Blue Shield also objected to portions of a
supporting declaration from Dr. Murthy, in which he opined IVIG was medically
necessary when he prescribed it, and the stop in treatments caused Simmons’s
condition to deteriorate, leading to substantial pain and a hospitalization.

The trial court sustained all but
one of Blue Shield’s objections to Simmons’s evidence and granted summary
judgment. The court adopted most of an
order prepared by Blue Shield, listing undisputed facts. In addition to the party-prepared order, the
court noted: “In fact, plaintiff’s
separate statement did not dispute most of defendant’s undisputed facts. Plaintiff’s few ‘disputes’ consist mostly of
argument and no citation to supporting evidence.” This appeal timely followed.

DISCUSSION

I. Summary
Judgment/Adjudication Standard of Review

“The rules applicable to summary
judgments apply equally to motions for summary adjudication. . . . Summary judgment is granted when a moving
party establishes the right to the entry of judgment as a matter of law. (Code Civ. Proc., § 437c, subd.
(c).) In reviewing an order granting
summary judgment, we must assume the role of the trial court and redetermine
the merits of the motion. . . . Accordingly, we are not bound by the trial
court’s stated reasons and review only the ruling, not its rationale. . .
. [¶]
A defendant moving for summary judgment meets its burden of showing that
there is no merit to a cause of action if that party has shown that one or more
elements of the cause of action cannot be established or that there is a
complete defense to that cause of action.
(name="citeas((Cite_as:_192_Cal.App.4th_727,_*7">Code Civ. Proc., § 437c,
subds. (o)(2), (p)(2).) If the defendant does so, the burden shifts
back to the plaintiff to show that a triable issue of fact exists as to that
cause of action or defense. . . . A triable
issue of material fact exists ‘if, and only if, the evidence would allow a
reasonable trier of fact to find the underlying fact in favor of the party
opposing the motion in accordance with the applicable standard of proof.’ (Aguilar v. Atlantic Richfield Co.
(2001) 25 Cal.4th 826, 850, fn. omitted.)”
(Blue Shield of California Life
& Health Ins. Co. v. Superior Court (2011) 192 Cal.App.4th 727, 732,
citations omitted.)

>II. Blue
Shield’s Denial of Coverage for IVIG Cannot Form the Basis of Simmons’s Claims

Simmons
alleges Blue Shield’s denial of coverage for IVIG treatments and Fentora
breached the health care plan (Plan), and the implied covenant of good faith
and fair dealing. Blue Shield argues the
denial of coverage for IVIG is not actionable because it is barred by a two-year
contractual limitations period. We agree
that the IVIG denial cannot form the basis of Simmons’s claims.

As an initial matter, Simmons
contends the contractual limitations period could not provide a basis to
summarily adjudicate his IVIG-based allegations because they did not constitute
a separate claim. (Compare >Lilienthal & Fowler v. Superior Court (1993)
12 Cal.App.4th 1848, 1853-1854 (Lilienthal)> with DeCastro West Chodorow & Burns, Inc. v. Superior Court (1996)
47 Cal.App.4th 410, 422-423 & Catalano
v. Superior Court (2000) 82 Cal.App.4th 91, 96-98.) We disagree.


In Lilienthal, the court
approved the use of summary adjudication in a case like this one, in which two
separate and distinct wrongful acts are combined in one cause of action. (Lilienthal,
supra, 12 Cal.App.4th at
pp. 1854-1855.) As in that case, Simmons
seeks “to recover damages based on two separate and distinct obligations. Each obligation creates a separate and
distinct claim. . . . [¶] . . .
[¶] [U]nder subdivision (f) of
section 437c [of the Code of Civil Procedure], a party may present a
motion for summary adjudication challenging a separate and distinct wrongful
act even though combined with other wrongful acts alleged in the same cause of
action.” (Ibid.) Although the claims
here arose out of one contractual relationship, they were based on separate and
distinct denials of coverage, involved requests for different medical services
prescribed by different doctors, and the claims accrued at different
times. (CDF Firefighters v. Maldonado (2011) 200 Cal.App.4th 158, 165; >Edward Fineman Co. v. Superior Court
(1998) 66 Cal.App.4th 1110, 1117-1118.)
Thus, we consider whether there were any triable issues of fact as to
whether the IVIG-based claim was time-barred.


A. The Plan’s Limitations Period

The January 2006 plan documents
contained the following provision regarding commencement of legal action: “Any suit or action to recover benefits under
this Agreement, or damages concerning the provision of coverage or benefits,
the processing of claims, or any other matter arising out of this Agreement,
shall be commenced no later than two years after the date of coverage for
benefits in question were first denied, unless a shorter period of limitations
otherwise applies.”href="#_ftn8" name="_ftnref8"
title="">^[8] Blue Shield first denied coverage for IVIG treatments
in April 2006. Letters confirming the
denial followed in February 2007 and June 2007.
In November 2007, Blue Shield indicated it would cover three months of
prospective IVIG treatments, beginning November 1, 2007. Simmons did not file suit until June 2010.

Simmons
does not challenge the validity of the limitations provision. Instead, he argues he was not obligated to
file suit within two years of the IVIG denials because (1) the time to
file was tolled since Blue Shield did not unequivocally deny his claim for
coverage for IVIG; and (2) the relationship was one of continuing contractual
obligations, so he could wait until a time for “complete performance” before
filing suit. The record establishes there
was no triable issue of fact on the tolling contention, and we reject Simmons’s
“complete performance” argument.

>B.
No Triable Issue of Fact on Tolling

In general in the insurance
context, a contractual limitations period “is tolled from the time the insured
gives notice of the claim to the insurance company until ‘the time the insurer
formally denies the claim in writing.’
[Citations.] This has been
construed to mean ‘unequivocal’ denial in writing.” ^{href="#_ftn9" name="_ftnref9" title="">[9]} (Migliore
v. Mid-Century Ins. Co. (2002) 97 Cal.App.4th 592, 604.) It was undisputed that Simmons received
multiple notices that Blue Shield would not provide coverage for IVIG
treatments. In April 2006, Blue Shield
sent Mason a notice explaining that it did not pay the Biofusion claim because
the “medical need” for the treatment was “not established.” In June 2007, Blue Shield sent Simmons a
letter in response to the Biofusion appeal from the denial of coverage. The letter unequivocally indicated Blue
Shield would not authorize coverage for the past IVIG treatments and denied the
appeal. Even if a jury found the June
2007 letter was the first unequivocal denial of coverage for the IVIG
treatments Simmons received, Simmons’s complaint was filed well after two years
had passed from the date of that letter.

Simmons also argues that Blue Shield’s
consideration of additional evidence and his and Biofusion’s appeals of the
denials tolled the limitations period.
But once there has been an unequivocal denial, an insurer’s willingness
to consider additional evidence does not toll the limitations period
further. (Singh v. Allstate Ins. Co. (1998) 63 Cal.App.4th 135,
143-144.) We also disagree that the
November 2007 letter authorizing three months of future treatments created a
triable issue of fact on whether Blue Shield had unequivocally denied coverage
for the already-administered IVIG treatments.
No trier of fact could reasonably infer from the November 2007 letter
that Blue Shield was reconsidering or continuing to consider whether it would
retroactively cover the prior IVIG
treatments. The record includes no
evidence suggesting Blue Shield continued to consider whether to provide
payment for the already-administered IVIG treatments after June 2007, or that
it made any representations to Simmons suggesting Biofusion’s past claims were
still under consideration. Yet, Simmons
did not file his complaint until June 2010, three years after the June
2007 denial, and more than two years after the November 2007 letter.

C. Continuing Obligations

We also reject Simmons’s contention
that there was a continuing duty in this case, and he therefore was not
obligated to file suit until the time for “complete performance” had
passed. The language upon which Simmons
relies comes from Lambert v. Commonwealth
Land Title Ins. Co. (1991) 53 Cal.3d 1072, 1078 (Lambert), as quoted in Romano
v. Rockwell Internat., Inc. (1996) 14 Cal.4th 479, 489-490 (>Romano).
A consideration of the “continuing duty” in the context of each case
demonstrates the reasoning is not applicable here.

Lambert
concerned a title insurer’s failure to defend the insured. The Lambert
court concluded that “[a]lthough the statutory period commences upon the
refusal to defend, it is equitably tolled until the underlying action is
terminated by final judgment.” (>Lambert, supra, 53 Cal.3d at p.
1077.) The court explained equitable
tolling applied because the duty to defend “commences upon tender of the
defense, and continues until the underlying lawsuit is concluded.” (Ibid.) Given how long it could take for the
underlying litigation to end, without tolling an insured might have to sue the
insurer before the underlying litigation was over, and before the insurer’s
duty to defend had expired. The court
rejected this result.

The Lambert court further recognized that “California courts have long
given the ‘plaintiff, in cases where a continuing duty has been breached, the
option of filing suit when the time for complete performance has passed.’ [Citations.]”
(Lambert, supra, 53 Cal.3d at p.
1078.) The Lambert court cited language from Union Sugar
Co. v. Hollister Estate Co. (1935) 3 Cal.2d 740, in which the parties had an
executory beet farming contract that could not be completed until the
conclusion of the beet season of 1925. (>Union Sugar, at p. 745.) In Union
Sugar, the injured party was not required to file suit at the first of
several breaches, and could wait until the time for “complete performance” to
sue. The Lambert court found the parties’ obligations in >Union Sugar similar to an insurer’s duty
to defend an insured, which continues until the underlying suit is completed.> However,
Lambert does not stand for the
proposition that with respect to a claim of a covered loss, or an analogous
context, the insurer has a continuing duty with respect to claims it has
unequivocally denied, and where the loss is complete rather than ongoing, such
that any limitations period is tolled indefinitely until the entire contract is
terminated.

Romano
concerned a wrongful termination claim.
The plaintiff’s employer told him he would be terminated at a certain
date in the future. His employment did
not end until that date. (>Romano, supra, 14 Cal.4th at pp.
484-485.) The Romano court concluded the statute of limitations began to run when
the plaintiff was actually terminated, not when the employer gave notice that
he would be terminated in the future. (>Id. at p. 490.) After discussing the “time . . . for complete
performance” language in Lambert, the
Romano court reasoned the employer
made an implied promise not to terminate the plaintiff without good cause, and
the claim did not accrue until the termination.
The court alternatively reasoned the employer’s notice that it intended
to terminate the plaintiff in the future was an anticipatory repudiation of the
contract. (Romano, at p. 490.) Here, analogous reasoning would be that Blue
Shield obligated itself to pay for medical treatments Simmons required. Once it failed to do so by denying coverage
for IVIG, the claim accrued. There were
no facts suggesting Blue Shield’s failure to provide coverage for IVIG could be
construed as merely an anticipatory repudiation of the parties’ agreement.

The time for Simmons to commence
legal action was governed by the Plan’s limitations period, the validity of
which Simmons does not contest. Under
that provision, he was required to file suit no later than two years after Blue
Shield denied coverage for the treatment he was seeking. Simmons has provided no legal authority for
the proposition that despite the presence of a contractual limitations period
in a health service plan or analogous insurance context, he had the option of
waiting until a theoretical future time of “complete performance,” which in his
view did not occur in this case until he ceased paying premiums and Blue Shield
terminated coverage. (See >Magnolia Square Homeowners Assn. v. Safeco
Ins. Co. (1990) 221 Cal.App.3d 1049, 1059-1060 [rejecting argument that href="http://www.mcmillanlaw.com/">contractual limitations period did not
begin to run until insured had proof of structural defects, rather than at time
it knew or should have known of the defects]; State Farm Fire & Casualty Co. v. Superior Court (1989) 210
Cal.App.3d 604, 609 [insured’s cause of action accrues at the latest upon the
date of unconditional denial].) >

The record contains no evidence
demonstrating a triable issue of fact on the timeliness of the IVIG-based
claim. The allegation that Blue Shield
unlawfully denied coverage for IVIG treatments could not form the basis of
either a breach of contract or bad faith claim.
(Velasquez v. Truck Ins. Exchange
(1991) 1 Cal.App.4th 712, 718.)
The remainder of our analysis concerns only the denial of coverage
for Fentora.

III. No
Triable Issue of Fact on the Breach of Contract Claim

Blue
Shield’s argument for summary disposition of the breach of contract claim is
straightforward. The Plan indicates Blue
Shield will only cover medically necessary treatment. It sets forth a multifactor definition of
“medically necessary.” In addition to
“being established as safe and effective,” and “furnished in accordance with
generally accepted professional standards to treat illness, injury, or medical
condition,” to be a “medically necessary” treatment, Blue Shield must determine
four additional factors are present. The
first of these factors is that the treatment must be consistent with “Blue
Shield medical policy.” The medical
policy for Fentora was that Blue Shield would only cover Fentora when
prescribed for cancer patients suffering breakthrough pain. It is undisputed that Simmons did not have
cancer. Thus, Fentora as prescribed for
Simmons was not consistent with Blue Shield’s medical policy. As such, it was not “medically necessary,”
and Blue Shield could deny coverage under the terms of the Plan.

In
response, Simmons argues Blue Shield cannot rely on the “medical policy” prong
of the medical necessity definition. We
address each of Simmons’s contentions below.

>A.
No Triable Issue of Fact on the Authenticity of the Fentora Medical
Policy

On appeal, Simmons’s first argument
is that the medical policies Blue Shield references—“detached, untitled pages
from a Blue Shield internal
document”—cannot be accepted as the “medical policy” referenced in the
Plan. Without any citation to legal
authority, Simmons asserts there is no evidence the “untitled pages that Blue
Shield claims are its ‘medical policy’ are part of the insurance contract”
between Simmons and Blue Shield.

It is
undisputed that the Plan refers to “Blue Shield medical policy.” To the extent the issue is whether the documents
Blue Shield has offered purporting to reflect the “medical policy” on Fentora
were actually the “medical policy,” Blue Shield has shown there is no triable
issue of fact and Simmons has not refuted the showing. Blue Shield’s medical director’s declaration
authenticates the documents.href="#_ftn10"
name="_ftnref10" title="">^[10] Moreover, the evidence established that Blue
Shield repeatedly advised Simmons and Dr. Lin of the clinical rationale for the
denial of coverage for Fentora, which was the same as the guidelines in the
“medical policy” presented in support of summary judgment. There is no evidence suggesting Blue Shield’s
internal guidelines on Fentora—the “medical policy”—were something other than
what is represented in the documents produced in this case.href="#_ftn11" name="_ftnref11" title="">^[11]

>B.
Caselaw
Does Not Establish a Particular Definition of Medical Necessity

Simmons next contends Blue Shield’s
definition of “medical necessity” is invalid because it conflicts with
California caselaw. Simmons asserts the
Plan’s requirement that a treatment be consistent with Blue Shield’s medical
policy to be deemed medically necessary conflicts with cases indicating
“medical necessity” is an objective standard.
We disagree. Although there are
two published California cases that consider denials of coverage based on an
alleged lack of medical necessity, neither case established a definition of the
term as a matter of law. We are unable
to interpret either case as invalidating the Plan’s use of Blue Shield’s
internal treatment-specific guidelines as a factor in the medical necessity
determination.

In Sarchett, supra,> 43 Cal.3d 1, the California Supreme
Court considered “medical necessity” in the context of a bad faith claim. Blue Shield denied Sarchett’s claim for
hospitalization benefits on the ground that his hospitalization was subject to
an exclusion for diagnostic hospitalization, and an exclusion for medical
necessity. The Sarchett policy’s medical necessity provision stated: “ ‘Benefits will be provided under this
contract only for such services, whether provided on an Inpatient or Outpatient
basis, as are reasonably intended, in the exercise of good medical practice,
for the treatment of illness or injury.’ ”
(Id. at p. 4.) The trial court “found that the Blue Shield
policy was ambiguous because it did not indicate who would determine when the
diagnostic services or medical necessity exclusion barred coverage. Construing that ambiguity in favor of the
member, it concluded that [the plaintiff] should be able to rely on the
judgment of his treating physician as to the purpose and necessity of
hospitalization, and that Blue Shield could not question that judgment.” (Id.
at pp. 5-6.)

Our Supreme Court rejected the
trial court’s interpretation of the policy.
The court found the policy unambiguous in that it provided for disputes
over medical necessity to be resolved by a third party, either a medical
society review committee or an arbitrator.
(Sarchett, supra, 43 Cal.3d at
pp. 7, 10.) The court rejected the
argument that the policy had to be interpreted as allowing the plaintiff’s
physician to determine what is medically necessary. (Id. at
pp. 10-11.) Instead, the court expressly
held that under the terms of that policy, Blue Shield could challenge the
physician’s recommendation. (>Id. at p. 10.) But the Sarchett
court did not hold that a third party review procedure for resolving medical
necessity disputes was required. The
court also noted the policy before it did not allow the insurer complete
discretion to determine medical necessity.
(Id. at p. 11,
fn. 13.) Sarchett neither offers a definition of medical necessity nor
mandates that health plans employ any particular method or procedure for
determining medical necessity. (>People v. Mills (2012) 55 Cal.4th 663,
680, fn. 12 [cases are not authority for propositions not considered].)

To support his argument, Simmons
relies on several portions of the Sarchett
decision out of context. For example,
Simmons contends Sarchett held
medical necessity must be construed as an objective standard to be applied by
the trier of fact. But when referring to
an “objective standard,” the Sarchett court
was only describing the position courts in other states had adopted when
interpreting specific medical necessity provisions, in contrast to the
plaintiff’s argument that the treating physician’s determination of medical
necessity should prevail in the event of any ambiguity in the contract. The court refused to follow an Illinois Court
of Appeal case in which the court held that the absence of language in a policy
regarding who would determine medical necessity prevented the insurer from
denying benefits solely on the ground that it disagreed with the judgment of
the treating physician. The >Sarchett court then noted: “Numerous
decisions from other jurisdictions take the position that ‘medical necessity’
or similar policy language is an objective standard to be applied by the trier
of fact, not a delegation of power to the treating physician.” (Id.
at p. 9.) This language was not a
conclusion that all policy language regarding medical necessity, regardless of
the specifics of the provision, must be interpreted as setting forth an
objective standard to be applied by a trier of fact.

We also find no support for
Simmons’s assertion that under Sarchett,
the insurer (or health care service plan) must justify a denial of coverage by
establishing the physician’s judgment is unreasonable or contrary to good
medical practice. Instead, the >Sarchett court anticipated that even
though insurers may retrospectively disagree with the recommendation of the
treating physician on medical necessity issues, the general policies governing
interpretation of insurance contracts would allow most subscribers to rely on
their physician’s advice and receive coverage.
The court rejected the plaintiff’s argument that the non-ambiguous
insurance policy should be construed in light of the reasonable expectations of
the insured so as to cover any treatment the treating physician recommends,
simply because the physician has recommended it. Rather, the court reasoned the subscriber
expects coverage for a hospitalization recommended by his doctor because “he
trusts that his physician has recommended a reasonable treatment consistent
with good medical practice. Consequently
we believe the subscriber’s expectations can be best fulfilled not by giving
his physician an unreviewable power to determine coverage, but by construing
the policy language liberally, so that uncertainties about the reasonableness
of treatment will be resolved in favor of coverage.” (Sarchett,
supra, 43 Cal.3d at p. 10.)

The Sarchett court further declined to invalidate unambiguous language
simply to alleviate the uncertainty subscribers face when the policy allows the
insurer to dispute the treating physician’s determination of medical
necessity. The court explained:

“In summary, we appreciate the
plight of the subscriber, forced to decide whether to follow his doctor’s
recommendation without assurance that his policy will cover the expense. We do not, however, believe it would be
alleviated by requiring the insurer to insert redundant language into the
policy to make doubly clear to the subscriber that he really is in a dilemma
and cannot count on coverage. And
although a judicial ruling that retrospective review violates public policy
would protect against retrospective denial of coverage, subscribers would pay
the price in reduced insurance alternatives and increased premiums. [¶]
The problem of retrospective denial of coverage can be reduced through
the growing practice of preadmission screening of nonemergency hospital
admissions. When such screening is not feasible, as in the present case, we
think the best the courts can do is give the policy every reasonable
interpretation name="citeas((Cite_as:_43_Cal.3d_1,_*13)">in favor of coverage.name=FN14> We trust that, with
doubts respecting coverage resolved in favor of the subscriber, there will be
few cases in which the physician’s judgment is so plainly unreasonable, or
contrary to good medical practice, that coverage will be refused.” (Sarchett,
supra, 43 Cal.3d at pp. 12-13.)

Thus, consistent with the rules
that apply generally to the interpretation of insurance contracts, courts are
to construe policy language liberally, “so that uncertainties about the
reasonableness of treatment will be resolved in favor of coverage.” (Sarchett,
supra, 43 Cal.3d at p. 10.) The court expressly rejected an approach that
would construe an unambiguous policy so as to give the physician the power to
determine coverage, when that is contrary to the policy’s language. The Sarchett
policy’s medical necessity provision was significantly different from the
detailed and specific provision at issue here.
Sarchett does not address
whether medical necessity must be defined or decided in a particular way under
a policy. However, as relevant here, >Sarchett confirms that general
principles of insurance contract interpretation apply, and, absent ambiguity,
the plain language of the agreement controls.

Hughes
v. Blue Cross of Northern California (1989) 215 Cal.App.3d 832 (>Hughes) also concerned a denial of
coverage based on medical necessity, but similarly did not sanction any
particular definition of the term, or require that it be determined using any
particular procedure. >Hughes also considered medical necessity
in the context of a bad faith claim, and we discuss it in greater detail, >infra, in connection with the implied
covenant of good faith and fair dealing.
But here, we note the decision in Hughes
does not describe how medical necessity was defined or appeared in the policy
at issue in that case, and does not address how medical necessity must be >defined in a health plan. In Hughes,
the court concluded that a health insurer may breach the implied covenant of
good faith and fair dealing if it construes “medical necessity” in a way that
significantly varies from the medical standards of the community. (Hughes,
at p. 845.) This conclusion does not
render the “medical policy” factor per se invalid as a contract term in this
case.

In short, we cannot conclude that
either Sarchett or >Hughes espouses principles that would
render Blue Shield’s contractual definition of medical necessity invalid
because of the “consistency with Blue Shield medical policy” factor.

>C.
Contract
Interpretation Principles Do Not Require a Construction of the Plan Against
Blue Shield and in Favor of Coverage

Simmons also argues the “medical policy” prong of the
definition cannot be used to deny coverage because the term is not defined
within the plan document and is ambiguous, and therefore it must be construed
against Blue Shield. We disagree.

>1.
Applicable Legal Principles

As our Supreme Court recently
explained, “In general, interpretation of an insurance policy is a question of
law that is decided under settled rules of contract interpretation. [Citations.]
‘ “While insurance contracts have special features, they are still
contracts to which the ordinary rules of contractual interpretation
apply.” [Citations.]’ [Citation.]
‘The fundamental goal of contractual interpretation is to give effect to
the mutual intention of the parties.’
[Citations.] ‘Such intent is to
be inferred, if possible, solely from the written provisions of the
contract.’ [Citations.] ‘If contractual language is clear and
explicit, it governs.’ [Citation.] ‘
“The ‘clear and explicit’ meaning of these provisions, interpreted in their
‘ordinary and popular sense,’ unless ‘used by the parties in a technical sense
or a special meaning is given to them by usage’ ([Civ. Code,] § 1644), controls
judicial interpretation. (>Id., § 1638.)” [Citations.]’
[Citation.]” (>State of California v. Continental Insurance
Company (2012) 55 Cal.4th 186, 194-195 (Continental).)

“ ‘In the insurance context, we
generally resolve ambiguities in favor of coverage. [Citations.] Similarly, we generally interpret the
coverage clauses of insurance policies broadly, protecting the objectively
reasonable expectations of the insured.
[Citations.] These rules stem
from the fact that the insurer typically drafts policy language, leaving the
insured little or no meaningful opportunity or ability to bargain for
modifications. [Citations.] Because the
insurer writes the policy, it is held “responsible” for ambiguous policy
language, which is therefore construed in favor of coverage.’ [Citations.]”
(Hervey v. Mercury Casualty Co. (2010)
185 Cal.App.4th 954, 961.)



A policy “
‘should be read as a layman would read it and not as it might be analyzed by an
attorney or an insurance expert.’
[Citation.]” (>Haynes v. Farmers Ins. Exchange (2004)
32 Cal.4th 1198, 1209 (Haynes).) The interpretation of a contract, including
an insurance policy, is a question of law we determine de novo. (MacKinnon
v. Truck Insurance Exchange (2003) 31 Cal.4th 635, 641.)

>2.
Ambiguous

Simmons contends the term
“medical policy” is ambiguous and therefore must be construed against Blue
Shield.

“ ‘A policy provision will be
considered ambiguous when it is capable of two or more constructions, both of
which are reasonable.’ [Citation.] A term is not ambiguous merely because the
policies do not define it.
[Citations.] Nor is it ambiguous
because of ‘[d]isagreement concerning the meaning of a phrase,’ or ‘ “the fact
that a word or phrase isolated from its context is susceptible of more than one
meaning.” ’ [Citation.] ‘ “[L]anguage in a contract must be
construed in the context of that instrument as a whole, and in the
circumstances of that case, and cannot be found to be ambiguous in the name="sp_4645_1005">name="citeas((Cite_as:_55_Cal.4th_186,_*195,_2">abstract.” ’ [Citations.]
‘If an asserted ambiguity is not eliminated by the language and context
of the policy, courts then invoke the principle that ambiguities are generally
construed against the party who caused the uncertainty to exist (i.e., the
insurer) in order to protect the insured’s reasonable expectation of
coverage.’ [Citation.]” (Continental,
supra, 55 Cal.4th at pp. 194-195.)

Here, the
term “Blue Shield medical policy” is not defined in the “Medically Necessary”
provision. Although the term appears in
four other sections of the 2007 and 2008 plan documents, it remains undefined.href="#_ftn12" name="_ftnref12" title="">^[12] Yet, a term that is not defined is not
necessarily ambiguous. (>Carson v. Mercury Insurance Company
(2012) 210 Cal.App.4th 409, 426-427 (Carson),
citing Bay Cities Paving & Grading,
Inc. v. Lawyers’ Mutual Ins. Co. (1993) 5 Cal.4th 854, 866.)

The references to a Blue Shield
“medical policy,” when considered together, suggest a rule, guideline, or set
of guidelines, independent of the plan documents, that Blue Shield will use to
determine whether to cover a particular treatment or service. (Clarendon
America Ins. Co. v. North American Capacity Ins. Co. (2010) 186 Cal.App.4th
556, 566 [court must consider the entire policy in its analysis].) Some of the provisions state the listed
service will only be covered if it is medically necessary and consistent with Blue Shield medical policy. Although this makes the use of “medical
policy” redundant, it also suggests consistency with the medical policy is a
condition for coverage that must be met in addition to, and apart from,> the other factors in the medical
necessity definition. In some
provisions, consistency with the medical policy is to be considered in addition
to the circumstances of the subscriber, thus suggesting the medical policy is
not patient-specific.

The term “policy,” as commonly
understood, refers to a procedure, course of action that guides future
decisions, or an overall plan.
(Webster’s New Collegiate Dict. (10th ed. 2002) p. 898 [“policy” means
“prudence or wisdom in the management of affairs”; “management or procedure
based primarily on material interest”; “a definite course or method of action
selected from among alternatives and in light of given conditions to guide and
determine present and future decisions”; or “a high-level overall plan
embracing the general goals and acceptable procedures esp. of a governmental
body”].) A layperson would likely
understand “medical policy” to mean some sort of internal guidance on coverage
issues, even if not at the level of specificity of the actual medical policy or
policies. (Baker v. National Interstate Ins. Co. (2009) 180 Cal.App.4th 1319, 1340.)

Simmons convincingly asserts that
the term “medical policy” does not clearly mean the specific guidelines Blue
Shield relied upon to deny coverage for Fentora. But we are unable to discern another
potential meaning of “medical policy” that would indicate Blue Shield would
make coverage and medical necessity decisions without relying on some internal
guidance, rule, or plan. In that sense,
the term is not ambiguous. Further,
while a layperson reading the Plan may not know what exactly the “medical policy”
is, the Plan is not ambiguous in stating that Blue Shield will determine four
of the factors necessary for a service to be deemed medically necessary; all
factors of “medical necessity” must be present for Blue Shield to cover a
service; and Blue Shield will consider factors not specific to the patient in
its coverage decisions.

“[W]e do not find contract language ambiguous in the
abstract. Rather, we construe
contractual language in the context of the instrument as a whole, and under the
circumstances of the case.” (>Van Ness v. Blue Cross of California (2001)
87 Cal.App.4th 364, 373
(Van Ness).) Certainly, “Blue Shield medical
policy” could have been defined or explained with greater clarity in the
Plan. But “insurance provisions need not
be perfectly drafted . . . . [P]olicy
language is not misleading and unenforceable just because it could be more
explicit or precise.” (>Van Ness, supra, 87 Cal.App.4th at
p. 375, fn. 4, citation omitted.)

Simmons also briefly contends
the “medical policy” factor does not meet the requirement that policy
exclusions be “conspicuous, plain, and clear.”
(Haynes, supra, 32 Cal.4th at
p. 1204.) However, aside from stating
the contention and quoting the relevant legal standard, Simmons offers no
analysis to support his argument. He
makes no attempt to apply the legal principles he cites to the facts of this
case. This is insufficient. “ ‘Appellate briefs must provide argument and
legal authority for the positions taken.
“When an appellant fails to raise a point, or asserts it but fails to name="sp_7047_94">name="citeas((Cite_as:_194_Cal.App.4th_939,_*9">support it with reasoned
argument and citations to authority, we treat the point as waived.” ’ [Citation.]
‘We are not bound to develop appellant[’s] argument for [him]. [Citation.]
The absence of cogent legal argument or citation to authority allows
this court to treat the contention as waived.’
[Citations.]” (>Cahill, supra, 194 Cal.App.4th at
p. 956.)

Under the
terms of the Plan, Blue Shield could conclude Fentora as prescribed for Simmons
was not medically necessary because it was not consistent with Blue Shield
medical policy. It was undisputed that
Simmons’s use of Fentora was not consistent with Blue Shield medical
policy. There was no triable issue of
fact on the breach of contract claim.

IV. Bad Faith Claim

Simmons also asserted a claim for
breach of the implied covenant of good faith and fair dealing. We conclude Blue Shield established there
were no triable issues of fact as to its genuine dispute defense.

A. General Principle

“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 benefits.
To fulfill its implied obligation, an insured must give at least as much
consideration to the interests of the insured as it gives to its own
interests. When the insurer unreasonably
and in bad faith withholds payment of the claim of its insured, it is subject
to liability in tort.’ [Citation.]” (Wilson
v. 21st Century Ins. Co. (2007) 42 Cal.4th 713, 720 (Wilson).)

B. Breach of an Express
Provision of the Plan Is Not Required to Maintain an Action for Breach of the
Implied Covenant of Good Faith and Fair Dealing

Blue Shield argues the bad faith
claim fails as a matter of law because the Plan allowed it to deny coverage
based on inconsistency with the medical policy.
We do not agree under the circumstances of this case.

“As a general rule, . . . there can
be no breach of the implied covenant of good faith and fair dealing if no
benefits are due under the policy: ‘The
covenant is based on the contractual relationship between the insured and the
insurer . . . . Absent that contractual
right [to policy benefits], the implied covenant has nothing upon which to act
as a supplement, and “should not be endowed with an existence independent of
its contractual underpinnings.” ’
[Citations.]” (>Brehm IV v. 21st Century Ins. Co. (2008)
166 Cal.App.4th 1225, 1235 (Brehm),
quoting Waller v. Truck Ins. Exchange,
Inc. (1995) 11 Cal.4th 1, 36.)

However, “[i]t is well established
that a breach of the implied covenant of good faith is a breach of the contract
[citation], and that breach of a specific provision of the contract is not a necessary
prerequisite to a claim for breach of the implied covenant of good faith and
fair dealing. [Citations.] Similarly, even an insurer that pays the full
limits of its policy may be liable for breach of the implied covenant, if
improper claims handling causes detriment to the insured.” (Schwartz
v. State Farm Fire & Casualty Company (2001) 88 Cal.App.4th 1329, 1339;
see also Carson, supra, 210
Cal.App.4th at p. 429.)

Moreover, as explained in >Carma Developers (Cal.), Inc. >v. Marathon Development California, Inc.
(1992) 2 Cal.4th 342, 373 (Carma),
“[i]t is universally recognized the scope of conduct prohibited by the covenant
of good faith is circumscribed by the purposes and express terms of the
contract. . . . It is of course a simple
matter to determine whether given conduct is within the bounds of a contract’s
express terms. For this it is enough
that the conduct is either expressly permitted or at least not prohibited. Difficulty arises in deciding whether such
conduct, though not prohibited, is nevertheless contrary to the contract’s
purposes and the parties’ legitimate expectations.” Thus, in the insurance context, for example,
an insurer’s failure to accept a reasonable offer to settle a claim against the
insured may expose the insurer to liability for breach of the implied covenant,
even though the insurer has fulfilled the express terms of the policy. (Comunale
v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 659; >Archdale v. American Internat. Specialty
Lines Ins. Co. (2007) 154 Cal.App.4th 449, 463-466.)

Similarly, in Brehm, the insurance policy in question granted the parties the
right to arbitrate any dispute if they did not agree on whether the insured was
entitled to recover damages from an uninsured motorist, or the amount of such
damages. The insurer argued its decision
to seek arbitration could not constitute a breach of the implied covenant of
good faith and fair dealing, because the contract expressly permitted that
decision. (Brehm, supra, 166 Cal.App.4th at p. 1241.) The Brehm
court concluded that although the insurer had a right to demand arbitration,
the implied covenant required that it first “attempt in good faith to reach
agreement with its insured prior to arbitration.” (Id.
at p. 1242.) The insurer had an obligation
to honestly assess the insured’s claim and make a reasonable effort to resolve
any dispute before invoking the right to arbitrate. (Ibid.)

Equally pertinent to our discussion
is the “rule that ‘ “[w]here a contract confers on one party a discretionary
power affecting the rights of the other, a duty is imposed to exercise that
discretion in good faith and in accordance with fair dealing.” [Citations.]’
[Citation.] In such circumstance,
a breach of the implied covenant can result from conduct permitted by the
express (or implied-in-fact) terms of the contract.” (Careau
& Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d
1371, 1394, fn. 16 (Careau); see also
Carma, supra, 2 Cal.4th at p. 372; >Kendall v. Ernest Pestana, Inc. (1985) 40
Cal.3d 488, 500; Jacob v. Blue Cross and
Blue Shield (Or.App. 1988) 758 P.2d 382, 384, fn. 1 [policy defined
“medically necessary” as contingent on insurer’s interpretation of community
standards; court noted insurer did not have unlimited discretion because it was
required to apply objective standards of policy exclusions, and to carry out
contractual obligations in good faith].)

Here, Blue Shield contends the Plan
expressly allowed it to de