## Facts

- Joan Hangarter, a self-employed chiropractor, bought an individual “own occupation” disability policy in 1989, represented as paying if she could not work as a chiropractor even if she could perform other work.
- By the mid-1990s, she developed significant shoulder, arm, and neck problems and received ongoing treatment.
- In July 1997, she claimed total disability, asserting her condition prevented her from performing the substantial and material duties of a full-time chiropractor.
- The insurer paid benefits for roughly eleven months, then terminated benefits based largely on an independent medical examination and internal reviews concluding she could still work.
- Treating physicians and another examiner disagreed, supporting total disability; evidence suggested the insurer’s preferred examiner regularly rejected total-disability claims.
- Plaintiff presented expert testimony that the insurer’s claim review practices (including “roundtable” reviews oriented toward “net termination ratios”) and termination communications were misleading and below industry standards.
- Hangarter sued in federal court (diversity), alleging breach of contract, insurance bad faith, intentional misrepresentation, and violation of California’s Unfair Competition Act (UCL).
- After an approximately 11-day jury trial, the jury returned a verdict for Hangarter and awarded $7,670,849, including $5,000,000 in punitive damages.
- The district court denied post-trial motions and entered a permanent injunction under the UCL restricting certain claims-handling practices; defendants appealed.

## Issues

1. Whether substantial evidence supported the jury’s findings of total disability under an “own occupation” policy, breach of contract, insurance bad faith, and intentional misrepresentation.
2. Whether punitive damages were supported under California law and were constitutionally permissible in amount.
3. Whether the district court properly admitted insurance-industry expert testimony under Federal Rule of Evidence 702 and Daubert.
4. Whether jury instructions properly allowed recovery of future economic damages in tort claims arising from bad-faith denial of benefits.
5. Whether plaintiff had standing for prospective injunctive relief under California’s UCL and whether the permanent injunction was proper.

## Decision

- Affirmed the denial of JMOL and upheld the jury’s liability findings and compensatory and punitive damages awards.
- Held substantial evidence supported that Hangarter was “totally disabled” because California law does not require utter helplessness; inability to perform the substantial and material duties of the occupation in the usual manner can suffice.
- Held substantial evidence supported bad faith and misrepresentation based on evidence of biased investigation, reliance on a disputed IME, disregard of contrary medical evidence, and misleading claims communications and procedures.
- Upheld admission of the insurance-practices expert testimony as helpful specialized knowledge under Rule 702 and Daubert.
- Approved instructions permitting future economic damages when sufficiently proven and not speculative.
- Reversed the permanent injunction under the UCL and remanded to vacate it, holding Hangarter lacked standing for prospective injunctive relief.

## Legal Principles

- Under California disability insurance law, “total disability” does not require complete incapacity; an insured may be totally disabled if unable to perform the substantial and material duties of her occupation in the usual or customary way.
- An insurer may be liable for breach of the covenant of good faith and fair dealing when it unreasonably withholds benefits, including through a biased investigation or by ignoring relevant evidence.
- Intentional misrepresentation may be shown by evidence that an insurer knowingly made false or misleading statements about policy terms or eligibility in handling a claim.
- Insurance-industry expert testimony on claims-handling customs, standards, and the meaning of insurer communications may be admissible under Rule 702/Daubert when grounded in specialized knowledge and helpful to the jury, without stating legal conclusions.
- Punitive damages under California law may be sustained where the evidence permits a finding of sufficiently reprehensible conduct; appellate review also considers constitutional proportionality.
- A private plaintiff seeking UCL injunctive relief must show a real and immediate threat of future injury; past injury alone is insufficient.

## Conclusion

The Ninth Circuit left intact the jury’s verdict that the disability insurer breached the policy, acted in bad faith, and misrepresented coverage, including a $5 million punitive award, but vacated the UCL-based permanent injunction because the insured lacked standing to seek prospective equitable relief.


Hangarter v. Provident Life & Accident Ins. Co., 373 F.3d 998 (9th Cir. 2004)