On May 13, the Ninth Circuit Court of Appeals heard the appeal of shop owner Leif Hansen who sued GEICO for refusing to cover diagnostic scans on his 2017 GMC Sierra 3500 which received rear bumper damage during a crash.
Last year, the class-action case was thrown out with prejudice by U. S. Oregon District Court Chief Judge Michael Mosman.
Acting as a policyholder in this case, Hansen sued GEICO for breach of contract and breach of the implied covenant of good faith and fair dealing. However, GEICO successfully argued that a scan was not the actual damage to a vehicle covered under the insurance contract during last year’s hearing.
Hansen’s appeal was heard by Circuit Judges Norman Randy Smith, Paul Watford and Ryan Nelson who reversed and remanded the case.
They found “Hansen has not sufficiently pled that GEICO breached the terms of the policy … [and] Hansen has not properly pled damages … As a result of these two deficiencies, the district court did not err in dismissing the breach of contract claim based on the current pleadings. However, we have made clear that district courts commit reversible error by dismissing a suit without any chance to amend, even if no request has been made, unless the district court determines additional facts could not possibly cure the deficiency. Hoang v. Bank of Am., N.A., 910 F.3d 1096, 1102 (9th Cir. 2018). Accordingly, the district court erred in dismissing the breach of contract claim with prejudice and we remand to allow Hansen to amend,” according to the court’s memorandum on the appeal.
The Ninth Circuit Court of Appeals reversed the course’s dismissal of Hansen’s claim for breach of the implied covenant of good faith and dealing, citing Klamath Off-Project Water Users, Inc. v. PacifiCorp which decided “A party may violate its duty of good faith and fair dealing without also breaching the express provisions of a contract. The dispositive question, in this case, is whether it is appropriate to imply a duty … in order to effectuate the parties’ objectively reasonable expectations regarding the … agreement.”
In its memorandum on the appeal, the court stated, “The district court erred, because the contract does not expressly state how the parties must determine the loss to the vehicle. Hansen has sufficiently pled that the industry standards and practices—here, the manufacturer’s recommendation that diagnostic scans be run every time the particular truck model at issue is involved in a collision—effectuated a potentially reasonable contractual expectation that GEICO would cover the cost of diagnostic scans in these circumstances. Nor do the exclusions on liability make it unreasonable to expect that the cost of a diagnostic scan, when necessary for repair, would be included in the cost of a repair. In fact, GEICO conceded that in some cases, it will reimburse for the cost of performing diagnostic tests.”
During the appeal Dan Goldfine, GEICO attorney, argued that the policy does not include coverage for pre- and post-repair scans, stating “The scan is not the damage to the vehicle.”
At the pressing of Hansen’s attorney Robert Koch, Goldfine confirmed that GEICO sometimes pays for scans. He said, “We would pay for a scan, assuming that the repair shop presented a legitimate reason for doing the scan … There are occasions when there is damage to the vehicle that relates and ties to the scan.”
Although it was not included in the court record, Koch confirmed during his rebuttal on May 13 that Hansen did pay for his own scan and found damage to the vehicle. This information will be added to the court record now that the Ninth Circuit Court has reversed and remanded the case.