                                                                                                                           Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


12-17-2004

Ketzner v. John Hancock
Precedential or Non-Precedential: Non-Precedential

Docket No. 03-4870




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                                                                 NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT


                                      No. 03-4870


                               HELEN KETZNER, M.D.,
                                          Appellant

                                            v.

                        JOHN HANCOCK MUTUAL LIFE
                           INSURANCE COMPANY;
                     PROVIDENT LIFE INSURANCE COMPANY


                       Appeal from the United States District Court
                              for the District of New Jersey
                              (D.C. Civil No. 99-cv-04852)
                 District Judge: Honorable John W. Bissell, Chief Judge


                      Submitted Under Third Circuit LAR 34.1(a)
                                 December 6, 2004

                   Before: RENDELL and FISHER, Circuit Judges,
                            and YOHN*, District Judge.

                               (Filed: December 17, 2004)


                              OPINION OF THE COURT




*Honorable William H. Yohn, Jr., Senior District Court Judge for the Eastern District of
Pennsylvania, sitting by designation.
RENDELL, Circuit Judge.

       Appellant Doctor Helen Ketzner brought this suit against Appellees John Hancock

Mutual Life Insurance Company (“Hancock”) and Provident Life Insurance Company

(“Provident”) asserting a panoply of claims arising from the processing of Appellant’s

claims on a disability insurance policy she had purchased from Hancock. After several

years of motions and discovery disputes, the District Court granted Appellees’ motion for

summary judgment on all counts. On appeal, Appellant argues that the District Court

erred in dismissing her claims for bad faith, declaratory judgment, and breach of contract,

and in denying her leave to amend her complaint to add causes of action for post-

complaint bad faith, malicious abuse of process, and RICO violations.

       The District Court had jurisdiction over this diversity of citizenship action under

28 U.S.C. § 1332, and we have jurisdiction under 28 U.S.C. § 1291. Because we believe

the District Court provided more than adequate reasoning to justify sound conclusions, we

will affirm its judgment.

                                             I.

       In the fall of 1997, Ketzner was working as an internist for HIP Health Plan of

New Jersey, a health maintenance organization. Although she had been experiencing

problems since she began working at HIP, by November 1997 she had become

overwhelmed. She was feeling tense in dealing with patients and had been threatened by

some of them. Her concentration was poor, she was losing weight, and she “derived little

                                             2
enjoyment from anything.” In mid-November 1997, Ketzner stopped working.

       Ketzner alleged that she left her job at HIP because of a medical disability,

dysthymic depression, and the essence of her initial claim in this litigation was that she

had not received the full benefits entitled to her for this disability under a disability

income insurance policy she had purchased from Hancock that was administered by

Provident. 1

       Problems with Ketzner’s claim on the policy developed from the very beginning:

she alleged that she gave Appellees notice of her disability claim as early as December

1997, but Appellees contended that they first received notice regarding the claim on

January 12, 1998. This miscommunication was, unfortunately, the first in a series of

miscommunications and disputes that spanned several months of increasingly tense

dealings between Ketzner and Appellees. We note that these incidents are well

documented by the parties and the District Court in the record; consequently, we will

make only sparing and necessary reference to them here.

       By March 27, 1998, Appellees had received from Ketzner a completed “Statement


  1
   Ketzner purchased her first disability income insurance policy from Hancock in 1980.
The noncancellable policy was to provide “disability income protection if [Ketzner] were
injured or ill and not able to perform the material duties of her occupation.” On July 22,
1991, Hancock reissued the policy in light of a premium reduction. Pursuant to an
agreement entered into on July 30, 1992, Provident assumed responsibility for
adjudicating claims under the policy. Under this agreement, Provident was “‘solely
responsible for performing all claim administration, as well as funding the payment of
benefits, and John Hancock did not participate in the adjudication or payment of benefits
under the policy of disability income insurance.’”

                                               3
of Claim” form, required to process her claim. Accompanying this form was an

“Attending Physicians Statement,” signed by Ketzner’s therapist, Marsha K. Ontell, on

March 6, 1998, and by one of Ketzner’s physicians, Dr. Campion, on M arch 17, 1998.

This form, also required to process Ketzner’s claim, was to be completed by an attending

doctor for the purpose of giving an opinion regarding Ketzner’s “degree of disability,” but

it appeared to have been completed by Ontell, the primary signatory, or Ketzner herself

rather than by Dr. Campion. In this form, Ketzner was diagnosed with “dysthymic

depression r/o major depression,” 2 with symptoms first appearing on November 13, 1997,

and treatment for this “total disability,” provided by Ontell, beginning the next day.

(App. at 53a.) The form also stated that Ketzner had previously suffered from depressive

episodes and had been treated for her symptoms by Ontell with therapy sessions twice a

week since November 1997.

         The majority of the parties’ miscommunications and tense encounters occurred

during the period of April to October 1998. During this time, as they were investigating

Ketzner’s claim, Appellees sent a variety of supplementary forms to Ketzner and her


  2
      The District Court explained this diagnosis in a footnote:
         Dysthymia is a disorder similar to clinical depression but with milder
         symptoms and is longer-lasting. It is considered less disabling than major
         depression. Although the disorder lasts for at least two years, those affected
         are usually able to go on working and do not need hospitalization. Also “r/o”
         is a widely accepted medical abbreviation for “rule out.” Therefore it appears
         that Dr. Ketzner was diagnosed as having dysthymia, and major depression
         was ruled out.


                                                4
health care providers and specifically requested Ontell’s notes regarding her treatment

and evaluation of Ketzner. Ketzner, taxed by what she describes as “endless questions

and forms” and “continuing harassment,” was at times too overwhelmed to deal

productively with Appellees, and eventually she retained an attorney to represent her in

dealing with Appellees. In response to Appellees’ request for treatment notes, Ontell had

submitted a detailed medical history on her therapy sessions with Ketzner, but did not

submit a copy of her treatment and evaluation notes. Ontell also asked that Appellees not

contact Ketzner directly as such contact tended to upset Ketzner. At one point, Ketzner

offered to see a psychiatrist to expedite the processing of her claim. Appellees instead

requested that Ketzner meet with one of their field representatives for an interview to aid

in their information gathering.

       After several failed attempts to arrange the interview, on October 13, 1998,

Ketzner finally met with a field representative to discuss her claim. At the interview,

Ketzner complained of its harassing nature and debated with the representative over

whether Ketzner could audiotape the discussion; eventually Ketzner did record the

conversation. Regarding her treatment, Ketzner stated that she did not require

medication, a statement that contradicted Dr. Campion’s diagnosis, but admitted receiving

prescription medication, including Paxil, Prozac, and Zoloft, from a psychiatrist she

would not identify. After the interview, the representative concluded that numerous

questions remained unanswered regarding whether a disability existed, the severity of any



                                             5
disability, and a diagnosis. The representative also noted that Ketzner was generally

uncooperative and did not forward a copy of the tape she had made despite the

representative’s requests.

       Two days after the interview, Appellees referred Ketzner’s disability file for a

second medical review. A review was conducted shortly thereafter and concluded that

based on the contradictions, ambiguities, and unsubstantiated diagnoses in the materials

submitted by Ketzner and her treatment providers, a “diagnosis of major depression was

‘clearly not substantiated.’” The review also stated that an independent medical

examination may be necessary.

       Toward the end of October 1998, Ketzner’s attorney sent a letter to Appellees

outlining the perceived mishandling of Ketzner’s claim and demanded payment within 30

days under threat of suit. Appellees responded that they had still not received Ontell’s

treatment notes or a copy of the audiotape of the interview with the field representative,

claiming both were necessary to complete the processing of Ketzner’s claim. The letter

also stated that a thorough review of the materials submitted indicated that Ketzner’s

disability claim was unsubstantiated and, unless the requested information were submitted

within 30 days, the claim would be denied and the case would be closed.

       Shortly after this correspondence, Appellees received a psychiatric summary from

a Dr. Williams, which further clouded the medical information regarding Ketzner’s

condition, stating that Ketzner “‘displayed no cognitive impairment. Insight and



                                             6
judgment were adequate,’” but that Ketzner suffered from major depression and required

antidepressant medication.

       In November 1998, Ketzner’s counsel again wrote to Appellees to explain: why he

thought they were acting in bad faith, that Ontell’s notes did not exist, and that the request

for the audiotape was puzzling since the interview was taped by Ketzner and the field

representative did not see the need to tape it. Appellees responded that they believed the

notes existed because Ontell had earlier represented that she would not release them. At

this time, Appellees determined that a complete independent medical examination of

Ketzner was necessary to complete their evaluation of her claim, and as a showing of

good faith, Appellees paid Ketzner three months of benefits.

       By the end of December, Ketzner had appointments to be examined by Drs. Nancy

and David Gallina for the independent medical examination. The reports of these

examinations were filed in mid-January 1999, and, based on these reports, Appellees

denied Ketzner’s claim for disability benefits in mid-March 1999. This litigation began

after the denial of the claim.

       During the litigation, Ketzner filed another claim for disability benefits on or about

January 13, 2002 for “‘various orthopedic and neurological afflictions concerning her

right hand.’” (Ketzner v. John Hancock Mut. Life. Ins. Co., No. 99-4852(JWB) (D.N.J.

Dec. 11, 2003).) She alleged that this disability began on the same date her purported

psychiatric disability began–November 14, 1997. Despite the late notice of the claim,



                                              7
Appellees found Ketzner’s condition satisfied the definition of “total disability” and they

paid her retroactive benefits, with interest. Although there was some confusion regarding

how Appellees paid the benefits, at this point it is undisputed that Ketzner was paid for all

months from January 13, 1998 through present. The only payment Ketzner continues to

contest is for the period before the chosen “begin date,” i.e., from November 14, 1997

through January 13, 1998.

                                             II.

       The procedural history of this litigation is extensive. Looking only at a sampling

of the relevant end work-product of the District Court’s labors, we note that Chief Judge

Bissell filed no fewer than four orders in this matter, three of which were accompanied by

thoroughly reasoned opinions, and Magistrate Judge Haneke has filed no fewer than three

orders and one letter opinion. A thorough review of all the orders and opinions here

would be unproductive. Instead, we will discuss each order and opinion that is

specifically relevant to Ketzner’s appeal as our review requires such.

                                             III.

       We exercise plenary review over the District Court’s grant of summary judgment.

Abramson v. William Paterson College, 260 F.3d 265, 276 (3d Cir. 2001). To affirm the

grant of summary judgment, we must be convinced that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment as a matter of law when

the facts are viewed in the light most favorable to the nonmoving party. Fed. R. Civ. P.



                                              8
56(c). We review the District Court’s denial of leave to amend a complaint for abuse of

discretion. Lorenz v. CSX Corp., 1 F.3d 1406, 1413 (3d Cir. 1993).

                                             IV.

       A.     Bad Faith Claim

       The District Court considered Ketzner’s bad faith claim against Appellees in an

opinion filed on March 5, 2003, ultimately granting summary judgment to Appellees.

The Court reconsidered the grant of summary judgment in its November 25, 2003 opinion

and again found Ketzner’s bad faith claim to be without merit, ultimately denying her

motion for reconsideration. Both times the Court found that because Ketzner could not

establish a right to summary judgment with respect to her claim for disability benefits, her

disability claim was “fairly debatable” and, therefore, she had no sustainable bad faith

claim against Appellees. We agree with the District Court’s analysis and conclusion on

this issue.

       Under New Jersey law, to establish a claim for bad faith in the insurance context, a

plaintiff must show two elements: (1) the insurer lacked a “fairly debatable” reason for its

failure to pay a claim, and (2) the insurer knew or recklessly disregarded the lack of a

reasonable basis for denying the claim. Pickett v. Lloyds, 621 A.2d 445, 454 (N.J. 1993).

To establish a bad faith claim, plaintiff must be able to establish, as a matter of law, a

right to summary judgment on the substantive claim; if plaintiff cannot establish a right to

summary judgment, the bad faith claim fails. Id. In other words, if there are material



                                              9
issues of disputed fact which would preclude summary judgment as a matter of law, an

insured cannot maintain a cause of action for bad faith. Id.; Tarsio v. Provident Ins. Co.,

108 F. Supp. 2d 397, 400-01 (D.N.J. 2000); Polizzi Meats, Inc. v. Aetna Life & Cas. Co.,

931 F. Supp. 328, 335 (D.N.J. 1996).

       As the District Court noted, there were several competing medical reports about

Ketzner’s mental state and, even before the examinations by Drs. Gallina, there were

many material issues of disputed fact. In short, we agree with the District Court that

given the variety of inconsistencies within and among the medical reports, the time delays

in processing Ketzner’s claims because of miscommunications, and Ketzner’s failure to

produce requested documents in a timely manner, “a reasonable juror could find that

defendants reasonably denied Dr. Ketzner’s claim for benefits.” Plainly put, there is

enough evidence on the record, even without further discovery or consideration of the

examinations conducted by Drs. Gallina, to conclude that Ketzner’s disability claim was

fairly debatable. Ketzner’s arguments that Drs. Gallina were not truly independent

examiners, that their opinions lacked credibility, that they should not have been allowed

to be characterized as expert witnesses for Appellees, and that Appellees violated state

insurance laws and regulations with respect to keeping claims files do nothing to alter or

refute this dispositive circumstance. Regarding the balance of Ketzner’s arguments on

this issue, regardless of whether they were all raised to the District Court as Appellees

contest, to the extent they are based on denial of jury consideration, misapplication of



                                             10
Pickett, the law of other jurisdictions regarding bad faith claims, alternative approaches to

bad faith claims under New Jersey law, constitutional rights to jury trials under both the

United States and New Jersey constitutions, and insurance ethics, they are all similarly

misplaced. None of these contentions persuasively refutes the evidence of record,

adequately considered by the District Court on more than one occasion, or its conclusion

that Ketzner’s claim was fairly debatable before Drs. Gallina were ever involved. As a

matter of law, under the controlling precedent of Pickett, Ketzner’s bad faith cause of

action is unsustainable and Appellees are entitled to summary judgment thereon.

       B.     Malicious Abuse of Process and Post-Complaint Bad Faith Claims

       Ketzner argues that the District Court erred in denying her requests to amend her

complaint to add claims for malicious abuse of process and post-complaint bad faith.

These claims are based on allegations that Appellees “sought irrelevant, invasive, and

abusive discovery” and “blocked discovery of the witnesses who provided the sole factual

predicate for [Appellees’] claims denial–Drs. Gallina–by designating them as trial expert

witnesses after Dr. Ketzner subpoenaed their records and depositions.” We believe that

the District Court and the Magistrate Judge gave more than adequate consideration to

these claims and we find that the District Court did not abuse its discretion in denying

leave to amend the complaint to add them.

       Magistrate Judge Haneke first entertained Ketzner’s motion to amend to add these

claims in a hearing on May 13, 2002. During the hearing, Magistrate Judge Haneke



                                             11
characterized the motion as an effort to disguise earlier allegations of wrongful defense

that had been rejected and not appealed to the District Court, and he accused Ketzner’s

counsel of trying “to make a simple thing complex.” Accordingly, he denied the motion

on the grounds of bad faith and futility. After this decision, the District Court passed,

twice, on renewed attempts by Ketzner to assert these claims or their substantial

equivalents. In an opinion and order filed on March 6, 2003, the District Court denied

Ketzner’s appeal of M agistrate Judge Haneke’s May 13, 2002 order. Specifically

discussing the malicious abuse of process and post-complaint bad faith claims, the

District Court found that they were merely relabeled claims for the wrongful defense

claim that Magistrate Judge Haneke had already decided could not be added to the

complaint in an April 24, 2000 order that had not been appealed. Discussing Ketzner’s

proposed amendments more generally, the Court noted that many of the claims were

based on complaints concerning discovery practices by Appellees that Magistrate Judge

Haneke had authorized in rulings that were not timely appealed. The District Court

revisited and affirmed its reasoning for denying leave to amend to add the post-complaint

bad faith claim in its December 11, 2003 opinion.

       As noted above, we review a denial of a motion for leave to amend a complaint for

abuse of discretion. Lorenz, 1 F.3d at 1413. “Amendments, although liberally granted,

rest within the sound discretion of the trial court.” Massarsky v. Gen. Motors Corp., 706

F.2d 111, 125 (3d Cir. 1983). On review of the record, we are satisfied that the District



                                             12
Court, and indeed the Magistrate Judge, were well within their discretion in denying

Ketzner’s motion to amend the complaint to add these claims. Furthermore, we agree

with this conclusion insofar as these claims are, for all practical purposes, a repackaging

of the wrongful defense claim that was previously denied by the Magistrate Judge and

never directly appealed.

       C.     RICO Claim

       Ketzner argues that the District Court erred in denying her motion to amend her

complaint to assert a RICO claim. The District Court’s error, she maintains, derives from

the Magistrate Judge’s error in originally denying the motion in reliance on a prior

decision in a completely inapplicable case involving an ERISA claim.

       In an order filed on April 22, 2003, Magistrate Judge Haneke denied for futility

Ketzner’s motion to amend the complaint to add a RICO claim. He explained that the

amendment would be futile because it could not withstand a motion to dismiss and

incorporated by reference his prior letter opinion in Mark v. Unum Provident Corp., Civ.

Action No. 00-3872 (JAG), believing its reasoning to be applicable to his denial of

Ketzner’s motion. (Id.) The District Court denied Ketzner’s appeal of this decision in an

order filed on December 16, 2003.

       In the Mark letter opinion, the Magistrate Judge denied the plaintiff’s motion for

leave to amend to add ERISA and RICO claims in a case where plaintiff was suing

Provident on a group long-term disability policy for unpaid benefits, a scenario very



                                             13
similar to the instant case. In denying leave to add the RICO claim, the Magistrate Judge

stated that he believed its proposed addition was a transparent effort to circumvent the

strictures of ERISA, which was designed to limit the available remedies for plaintiffs in

that type of dispute, and that the defendant had met the burden of demonstrating the

futility of the proposed amendment. Ketzner argues the Magistrate Judge’s reliance on

Mark was misplaced because Ketzner’s case has nothing to do with ERISA and she did

not delay in asserting the RICO claim.

       Again, we review the District Court’s denial of the motion for leave to amend

under abuse of discretion. Lorenz, 1 F.3d at 1413. We understand Ketzner’s argument

that Mark involved an ERISA claim and her case plainly does not, and we agree that, to

the extent the Magistrate Judge denied the RICO claim in Mark as an attempt to avoid the

strictures of ERISA, that much of Mark is inapplicable. Nevertheless, we believe that the

Magistrate Judge did explain his decision to deny leave to amend in both cases was based

on the futility of the proposed amendments. While Mark may not be directly applicable,

there, as here, the situation is ill-suited to a RICO claim. In both cases, the plaintiffs

attempted to turn relatively weak bad faith claims regarding the processing of their own

insurance claims (that were eventually paid) into a wholesale indictment of the way

Provident processes all policy claims, grounded only in assertions that further discovery

would justify their vague allegations of some illegal scheme. Both the Magistrate Judge

and the District Court were correct in refusing to endorse a fishing expedition to justify a



                                              14
RICO claim where the initial bad faith claim had already proven meritless. Because we

would also disapprove of Ketzner’s piscatory endeavors, we conclude that the District

Court did not abuse its discretion denying her appeal of the Magistrate Judge’s denial of

her motion to amend the complaint to add a RICO claim.

       D.     Declaratory Relief and Breach of Contract Claims

       Ketzner’s final argument on appeal is that the District Court erred in granting

summary judgment to Appellees on her breach of contract and declaratory judgment

claims on the grounds they were moot. Ketzner contends that although she has been paid

benefits for her orthopedic disability claim from January 13, 1998 onward, she has not

been compensated for the period of November 14, 1997, when she made her first claim of

mental disability, to January 13, 1998.

       We are persuaded that the District Court’s resolution of this issue in its December

11, 2003 opinion, by applying a 2½-month overpayment to the disputed 2-month period

of November 14, 1997 to January 13, 1998, was correct. Although Ketzner has

continually asserted that she has not been paid for this period and that the District Court

erred, she has not specifically contested the District Court’s discussion of the 2½-month

overpayment or explained to us why this was wrong. Furthermore, we find nothing in the

record that indicates that the District Court made an error in this determination.

Accordingly, we find no genuine issue of material fact regarding the District Court’s

conclusion and, therefore, we affirm the District Court on this point.



                                             15
                                          V.

      For the reasons stated above, we will AFFIRM the District Court’s judgment on all

counts.




                                          16
