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January 14, 2000

Record No. 990161






Present: All the Justices

Theodore J. Markow, Judge

In this appeal we consider whether the trial
court properly determined that an insurance company did not act
in good faith under Code ? 8.01-66.1(A).


Joel St. John, a twelve-year-old boy, had his
nose, knee, neck, and back injured in an automobile accident on
May 17, 1994. His mother scheduled an appointment with his family
physician and with a chiropractor who had treated Joel’s father.
On May 24, 1994, Joel was treated by his family physician for his
knee and nose injuries. The next day Joel was examined by Dr.
David M. deBarros, the chiropractor. Dr. deBarros’ examination
disclosed objective findings of fixations of the spine, positive
findings of a shoulder depression indicating either a muscle tear
or nerve compression or stretching, a positive Schepelmann’s test
which showed pain while flexing the head to the right, and a
vertebra that had moved out of position, called a T-12
subluxation. According to Dr. deBarros, all these injuries were
caused by the automobile accident.

Initially Joel was treated for these conditions
three times a week, and then twice a week for four weeks.
Following reevaluation on August 8, 1994, his treatments were
reduced to once a week. Joel was periodically reevaluated and his
treatment continued at a frequency consistent with his condition
at the time of reevaluation. Joel was dismissed from Dr.
deBarros’ care on April 5, 1995.

Joel was an insured under an automobile
liability insurance policy issued to his father by Nationwide
Mutual Insurance Company (Nationwide). A medical expense claim of
$1,960 for Joel’s treatment was submitted to Nationwide.
Nationwide referred the claim to Dr. James W. Walker, a
chiropractor, for review and evaluation of Joel’s medical
records. Based on Dr. Walker’s review, Nationwide paid $378.50
for medical expenses incurred prior to June 15, 1994, and
disallowed all expenses incurred after that date.

Joel, by his mother as next friend, filed suit
against Nationwide in the General District Court of the City of
Richmond seeking recovery of the medical costs for the ten months
of chiropractic care disallowed by Nationwide. Nationwide removed
the case to the Circuit Court of the City of Richmond. The jury
returned a verdict in favor of Joel for $1,581.50, approximately
the amount of the unpaid balance of the chiropractic medical
bills. Citing Code ? 8.01-66.1(A), Joel asked the trial
court to double the amount of the damages and award attorneys’
fees because Nationwide acted in bad faith when it refused to pay
for chiropractic care incurred after June 15, 1994.
[1] The trial court determined that Nationwide’s refusal
was not made in good faith and entered judgment against
Nationwide for $3,162.00 in damages plus attorneys’ fees of
$1,500. Nationwide filed an appeal asserting that the trial court
erred in holding that Nationwide did not act in good faith under
? 8.01-66.1(A).


We begin by addressing the legal principles
relevant to our review of the trial court’s judgment in this
case. First, although we have not previously considered the
principles to be applied by a trial judge when considering
whether an insurer acted in bad faith within the meaning of
? 8.01-66.1(A), we have addressed that issue in the context
of ? 38.2-209. That section allows an insured to recover
costs and reasonable attorneys’ fees in a declaratory judgment
action brought by the insured against the insurer, if the trial
court determines that the insurer was not acting in good faith
when it denied coverage or refused payment under the policy. In CUNA
Mutual Insurance Co. v. Norman
, 237 Va. 33, 38, 375 S.E.2d
724, 726-27 (1989), we observed that ? 38.2-209 was
intended to be both remedial and punitive and concluded that a
standard of reasonableness should be applied in evaluating the
conduct of the insurer. See also Scottsdale Ins.
Co. v. Glick
, 240 Va. 283, 397 S.E.2d 105 (1990). The parties
suggest that this standard should be applied in this case. We

Section 8.01-66.1(A), like ? 38.2-209, is
a remedial statute. It is limited to claims of $2,500 or less.
Without the statutory authorization for recovery of multiplied
damages, together with attorneys’ fees and expenses, the expense
of litigation to recover such claims would preclude that course
of action in many cases. Section 8.01-66.1(A) operates as a
punitive statute in the same manner as ? 38.2-209 because
both punish an insurer whose bad faith dealings force an insured
to incur the expense of litigation. Considering the similar
purposes of the two statutes, we conclude that the standard of
reasonableness enunciated in CUNA should be utilized when
applying ? 8.01-66.1(A).

The standard of reasonableness requires the
consideration of the following issues when determining whether an
insurer acted in bad faith under ? 8.01-66.1(A):

whether reasonable minds could differ in the
interpretation of policy provisions defining coverage and
exclusions; whether the insurer had made a reasonable
investigation of the facts and circumstances underlying the
insured’s claim; whether the evidence discovered reasonably
supports a denial of liability; whether it appears that the
insurer’s refusal to pay was used merely as a tool in settlement
negotiations; and whether the defense the insurer asserts at
trial raises an issue of first impression or a reasonably
debatable question of law or fact.

CUNA, 237 Va. at 38, 375 S.E.2d at 727.

Next, while the parties agreed on the
reasonableness standard, they disagreed on the quantum of proof
required to prevail under this standard. Nationwide asserts that State
Farm Mutual Automobile Insurance v. Floyd
, 235 Va. 136, 366
S.E.2d 93 (1988), imposes a clear and convincing evidentiary
standard on the insured in this case. We disagree with

Nothing in Floyd suggests that the
principles established in that case are appropriate for
application in this case. In Floyd, an insured was
required to show by clear and convincing evidence that its
insurer acted in bad faith when it failed to settle a previous
tort action resulting in a judgment in excess of the policy
limits against the insured. Id. at 144, 366 S.E.2d at 98.
However, the action in Floyd was a common law breach of
contract action, not a claim under a remedial statute allowing
recovery of additional damages for refusal to pay claims based on
the bad faith of the insurer. Furthermore, to recover in the
breach of contract action, the insured had to show that the
insurer "acted in furtherance of its own interest, with
intentional disregard of the financial interest of the
insured." Id. at 144, 366 S.E.2d at 97. Such a
showing is significantly different than the reasonableness
analysis to be applied to determinations of bad faith in this

The higher evidentiary standard of clear and
convincing evidence applied in Floyd is inconsistent with
the remedial purpose of ? 8.01-66.1(A) and, absent
legislative directive otherwise, an insured’s evidentiary burden
under this remedial statute is the preponderance of the evidence

A third principle relevant to our review is
that the facts are reviewed in the light most favorable to the
party prevailing below. The trial court’s judgment will be upheld
unless it appears from the evidence that the judgment is plainly
wrong or without evidence to support it. ? 8.01-680; RF&P
Corporation v. Little
, 247 Va. 309, 319, 440 S.E.2d 908, 915
(1994). We now apply these principles to the issue in this case.


Nationwide asserts that its decision to deny
payment of Joel’s medical expenses incurred after June 15, 1994
was reasonable. Nationwide contends that it conducted a
reasonable investigation by engaging Dr. Walker to review the
medical records connected with Joel’s claim and that it was
reasonably debatable whether Joel suffered any back or neck
injury as a result of the accident.

Dr. Walker, after reviewing Joel’s medical
records concluded that "it was difficult to draw any direct
causal relationship between the vehicle accident and the
diagnosis [of subluxation of T-12 alone]," that other
objective findings were made by Dr. deBarros indicating a
"sprain/strain" and that "since the doctor didn’t
keep very good records . . . it was legitimate to
consider chiropractic care through June 15th of ’94, but not care
beyond that time." Even though Dr. Walker expressed some
hesitation at this point concerning the relationship between the
accident and the T-12 subluxation diagnosed by Dr. deBarros, Dr.
Walker did not question Dr. deBarros’ diagnosis that Joel had
been injured and recommended payment for treatment Joel had
received for those injuries.

Dr. Walker’s recommended limitation on the
length of time for which payment should be made does not alter
his conclusion that the payment by Nationwide for some treatment
was appropriate. Nationwide paid for at least a portion of the
medical treatment bills, thereby acknowledging that Joel was
injured in the accident. Therefore, Nationwide’s own actions
contradict its assertion that whether Joel’s injuries were caused
by the May 14, 1994 accident was fairly debatable.

Nationwide also argues that even if Joel was
injured in the May 14, 1994 accident, his injuries were so minor
that treatment after three weeks was medically unnecessary.
However, Dr. Walker’s recommended limitation on payment of
post-June 15, 1994 medical bills was not based on his opinion
that the treatment beyond June 15 was not medically necessary.
Instead, it was based on the fact that Dr. Walker couldn’t tell
whether or not the treatment was required because Dr. deBarros
"didn’t keep very good records."

The medical necessity of continued treatment
was addressed in the pre-trial depositions of Dr. Walker and Dr.
deBarros which were admitted in evidence at trial. Dr. Walker
maintained his position that the lack of good record keeping was
the basis for his decision not to recommend payment for treatment
after June 15. Dr. deBarros testified to a reasonable degree of
medical certainty that Joel’s injuries were caused by the May 14,
1994 accident, and that all the treatment administered to Joel
for those injuries was reasonably necessary. Dr. deBarros
testified in detail regarding the periodic evaluations of Joel’s
condition, the conditions requiring treatment, and the necessity
for that treatment until Joel was discharged from Dr. deBarros’
care. This testimony was not contradicted by Dr. Walker.

Thus, prior to trial, Nationwide had no medical
evidence that the injuries were not caused by the May 14, 1994
accident, no medical opinion that the medical treatment received
by Joel after June 15, 1994 did not relate to injuries received
in the accident, and no medical opinion that the post-June 15
treatment was not medically necessary and reasonable.
Nevertheless, Nationwide refused to pay the remaining balance of
Joel’s medical bills and thus forced the matter to proceed to a

Based on this review, we conclude that there is
support in the record for the trial court’s determination that
Nationwide acted in bad faith in refusing to pay Joel’s claim for
medical expenses incurred after June 15, 1994, and the trial
court’s judgment was not clearly erroneous. We, therefore, will
affirm the judgment of the trial court.


JUSTICE COMPTON, concurring in the result.

On May 17, 1994, the 12-year-old plaintiff was
injured while riding in a vehicle operated by his mother that
collided with another vehicle. In the collision, the plaintiff
sustained a blow to his nose and one knee. As a result of the
accident, he developed tenderness in his neck and back.

The plaintiff was entitled to medical payments
coverage under a policy of automobile liability insurance issued
by defendant Nationwide Mutual Insurance Company. The policy
contract provided that defendant would pay all reasonable and
necessary expenses for, among other things, medical and
chiropractic expenses resulting from the accident.

A week after the accident, the plaintiff was
treated by his "family doctor." The next day, the
plaintiff was examined by a chiropractor, who found the plaintiff
had sustained muscular and soft-tissue injuries to his neck and
back in the accident. The plaintiff was treated by the
chiropractor until he was released from treatment about 11 months
following the accident. The chiropractor was of the opinion,
within a reasonable degree of medical certainty, that his
treatment and services rendered to the plaintiff were medically
necessary as a result of the injuries plaintiff sustained in the

When the plaintiff’s parents submitted a claim
to defendant for reimbursement of medical expenses under the
medical payments provision of the policy, defendant referred the
claim to another chiropractor to review the plaintiff’s medical
records and to render an opinion on the medical necessity of the
plaintiff’s treatment as it related to the accident. Following
this review, the chiropractor opined that based on the medical
records he "couldn’t draw a direct causal relationship
between the accident" and the diagnosis made by plaintiff’s
chiropractor of "T-12 subluxation." Preferring to err
on the side of the plaintiff, even though he felt the medical
records were unclear, the defendant’s chiropractor advised that
the medical care rendered for only about one month after the
accident "could be considered" as related to the

The defendant’s refusal to pay the full amount
of medical expenses claimed generated this lawsuit. In January
1998, plaintiff, through his mother as next friend, filed this
action seeking recovery of $1,960, alleging breach of contract
and "breach of the defendant’s duty to deal with the
plaintiff fairly and in good faith."

In an October 1998 jury trial, the breach of
contract claim was litigated. At that time, defendant had paid
$378.50 of the plaintiff’s claim.

The sole issue presented to the jury was
whether defendant had breached its contract with plaintiff. More
specifically, the jury had to determine whether the treatment and
services rendered by the plaintiff’s chiropractor were medically
necessary as a result of the injuries plaintiff sustained in the

The jury found in favor of the plaintiff and
fixed the contract damages at $1,581.50, the amount claimed
reduced by the sum defendant had paid.

Following discharge of the jury, the plaintiff
moved the trial court to "award double damages and
reasonable attorney’s fees and cost," relying on Code
? 8.01-66.1(A). Without taking additional evidence and
following oral argument, the court granted the motion, finding
"that defendant’s denial of payment was not in good
faith." The defendant appeals that portion of the October
1998 judgment order which found defendant failed to act in good

When an insurer under these circumstances
"denies, refuses or fails to pay its insured a claim of
$2,500 or less," Code ? 8.01-66.1(A) authorizes the
trial court, upon a finding "that such denial, refusal or
failure to pay was not made in good faith," to find the
insurer liable for "double the amount otherwise due and
payable" under the policy’s provisions, "together with
reasonable attorney’s fees and expenses."

In evaluating the performance of an insurer
when there is a claim that it acted in bad faith in withholding
payment to an insured, courts should apply a "reasonableness
standard." CUNA Mut. Ins. Co. v. Norman, 237 Va. 33,
38, 375 S.E.2d 724, 726-27 (1989).

In actions against insurers based upon breach
of contract for failure to use good faith, we have held
"that bad faith must be proved by clear and convincing
evidence in cases of this kind." State Farm Mut. Auto.
Ins. Co. v. Floyd
, 235 Va. 136, 144, 366 S.E.2d 93, 98
(1988). This is because the concept of "’bad faith’ runs
counter to the presumption that contracting parties have acted in
good faith." Id.

Contrary to the plaintiff’s contention, it
makes no sense in this insurance contract action alleging bad
faith to adopt a preponderance-of-the-evidence standard of proof.
Bad faith means the same in any insurance contract context, no
matter under what circumstances the lack of good faith is sought
to be proved.

Applying the foregoing principles, I would
hold, however, that the trial court did not err in finding bad
faith in this case, given the record with which it was presented.
The two chiropractors testified by video deposition. The
deposition of the defendant’s chiropractor was taken about three
weeks before trial. The deposition of plaintiff’s chiropractor
was taken two weeks prior to trial. Thus, well in advance of
trial, defendant was armed with the information that the
plaintiff’s witness would give an unqualified opinion of medical
necessity while its own witness would give an inconclusive
opinion on the subject. In effect, prior to trial defendant’s
representatives knew, or should have known, that it had no
evidence to rebut the plaintiff’s evidence on the only issue in
the case.

Additionally, when the plaintiff made his
post-verdict motion, there was no request from the insurer to
offer evidence on the charge of bad faith, an allegation that had
been made when the action was filed. The court was not presented
with any testimony on the subject of reasonableness from a claims
supervisor or claims adjuster upon how the insurer finally
evaluated the claim, given the medical testimony, or upon the
insurer’s reasoning to support its decision to deny the claim and
to force the plaintiff to trial.

Therefore, I would affirm the judgment of the
trial court.



[1] Code ? 8.01-66.1(A)

Whenever any insurance company licensed in this
Commonwealth to write insurance as defined in ? 38.2-124
denies, refuses or fails to pay to its insured a claim of $2,500
or less in excess of the deductible, if any, under the provisions
of a policy of motor vehicle insurance issued by such company to
the insured and it is subsequently found by the judge of a court
of proper jurisdiction that such denial, refusal or failure to
pay was not made in good faith, the company shall be liable to
the insured in an amount double the amount otherwise due and
payable under the provisions of the insured’s policy of motor
vehicle insurance, together with reasonable attorney’s fees and

The provisions of this subsection shall be
construed to include an insurance company’s refusal or failure to
pay medical expenses to persons covered under the terms of any
medical payments coverage extended under a policy of motor
vehicle insurance, when the amount of the claim therefor is
$2,500 or less and the refusal was not made in good faith.