In GEICO General Insurance Company v. Green, No. 107 (Del. Apr. 8, 2022), the claimants argued that GEICO uses two automated processing rules that arbitrarily deny or reduce payments to personal injury protection (“PIP”) claimants without considering the reasonableness or necessity of submitted claims and without any human involvement. They argued that GEICO’s use of these automated rules breached the PIP contract, amounted to bad faith breach of contract, and violated 25 Del. C. § 2118. The Superior Court entered judgment in favor of GEICO on the contract claims but entered a declaratory judgment that GEICO violated 25 Del. C. § 2118 in favor of the plaintiffs.
The Delaware Supreme Court agreed with the Superior Court that GEICO’s use of the automated rules did not breach the PIP or amount to bad faith breach of the contract. The claimants failed to meet their burden to show that GEICO breached their obligation to pay reasonable and necessary medical expenses because they did not prove that the claimants’ submitted medical expenses were reasonable and necessary. Additionally, in order to prevail on a bad faith claim, the claimants first had to prove that there was a breach of the contract and that the breach was clearly without any reasonable justification. The Court found that the claimants did not carry this burden.
The Supreme Court found that while the court had the authority to issue the declaration at issue, it erred in doing so in this case. Citing State Farm Mut. Auto. Ins. Co. v. Spine Care Del., LLC, 238 A.3d 850 (Del. 2020), the Superior Court had held that a plaintiff could challenge an insurer’s use of computerized rules in the abstract without proving that its own medical expenses were reasonable and necessary. The Supreme Court disagreed and explained that Delaware’s Personal Injury Protection Statute, 25 Del. C. § 2118, only requires insurers to compensate injured persons for reasonable and necessary expenses for medical services. Thus, to show that the insurer violated the statute, the claimants had to prove that GEICO did not fulfill its statutory obligation to pay reasonable and necessary medical expenses. That showing requires the claimants to prove that their medical expenses were reasonable and necessary. In this case, the claimants disavowed proof of reasonableness and necessity of their medical expenses and therefore their claim failed.
The Supreme Court affirmed the Superior Court’s judgment on the breach of contract claims and reversed the Superior Court’s declaratory judgment.