On March 17, 2014, plaintiff Juan Martinez, a tow truck driver, was transporting his four children home from school in a Honda sedan when he was involved in a collision with a tractor-trailer. The operator of the tractor-trailer, Jesus Morfin, was attempting a lane change when he collided with Martinez’s vehicle on a city street just before an intersection. Property damage to Martinez’s vehicle amounted to $1,700, and no injury was initially reported at the scene by anyone. Martinez reported the incident to his insurer, Mercury Insurance Co., on the day of the accident. He had been insured by Mercury for 10 years prior to the subject accident and his policy contained medical payments coverage of $5,000. Martinez initially reported that there was only property damage and no injury to himself or his passengers and that when a Mercury adjuster inquired about the facts of the accident the next day, he again stated that he was not injured and neither were his passengers. The adjuster then allegedly told him that his policy had “liability coverage only” and that he would have to look to the responsible driver’s carrier for any recovery regarding the accident. Several days later, Martinez allegedly felt pain in his lower back and his 12-year-old daughter allegedly had a bruised arm and was complaining of arm pain. As a result, Martinez attempted to contact the driver of the tractor-trailer, Morfin, but had no success. As a result, Martinez retained counsel against Morfin and sent a representation letter to Mercury 14 days after the accident. In response, an adjuster from Mercury wrote plaintiff’s counsel that Martinez had medical payments coverage of $5,000 that was “excess with reimbursement,” meaning that it was subject to repayment back to Mercury if recovery was made against Morfin. Martinez was eventually referred to a clinic convenient to him by plaintiff’s counsel for treatment on lien, as he had no medical insurance except for the Mercury medical payments benefit. The clinic subsequently treated him and released him in August 2011. The clinic also requested authorization from plaintiff’s counsel to refer Martinez to a facility for an MRI, which counsel authorized. Plaintiff’s counsel then sent a demand letter with medical reports and bills to the adjuster in early September 2011. The bills were totaled for Martinez and his daughter, and the letter requested that Mercury pay the medical payments pursuant to the policy provisions. In response, the adjuster sent the claims to Mercury’s Medical Review Unit, who used “Next Gen” software to determine if the bills and treatment were reasonable and necessary. The review unit “reduced” Martinez’s daughter’s bills from $ 3,450.44 to $1,714.35 and sent a check to plaintiff’s counsel. It also calculated a reduction in Martinez’s bills from $8,512.19 to $5,500, but did not send a check and, instead, a request was made that Martinez’s claim be transferred from the adjuster to Mercury’s Special Investigation Unit (SIU). After the matter was transferred, the SIU adjuster requested that plaintiff’s counsel send another copy of the bills and records, stating that they were illegible. After receiving another set of records, the SIU adjuster stated that she needed to obtain the records directly from the providers by a copy service, which she did after being provided authorizations by plaintiff’s counsel. One of the provider’s records received by Mercury’s SIU department in March 2012, that of the MRI facility, showed evidence that the liens had been paid by plaintiff’s counsel on behalf of his client. As a result, the SIU adjuster instituted her “Fraud Investigation” by reporting Martinez, Martinez’s entire family, all of Martinez’s doctors, and Martinez’s attorney to two national fraud bureaus prior to any investigation confirming any suspicion of fraud. The SIU adjuster also appeared at Martinez’s medical facility without notice, identified herself as a “Special Investigator,” and sought to inspect the medical facility and conduct interviews with providers and staff, all as part of her investigation. However, her request was refused by the facility. The SIU adjuster then sent several requests to the clinic’s administrator, seeking a meeting for her investigation, without stating why the claim was being investigated. The SIU adjuster then demanded a statement under oath of Martinez, which was provided in May 2012. Mercury refused to request any specific information from any medical provider pursuant to its investigation, but simply requested in-person interviews with the medical providers themselves. However, these interviews were never granted by the doctors, physical therapists, or administrators of such medical providers. Since the SIU adjuster could not obtain the cooperation of the medical providers with respect to the fraud investigation, she closed the file on the claim and confirmed this by letter in December 2012. Martinez sued his insured, Mercury Insurance Co. and Mercury Casualty Co., alleging that the insurer acted in bad faith and that its actions constituted fraud. After the suit was filed, Mercury deposed plaintiff’s orthopedic physician in December 2013, and the physician furnished copies of checks paid by Martinez’s counsel to the medical providers in settlement of the liens. A formal claim denial was not made until one month before trial, when, in May 2014, the SIU department sent a letter stating that the claim was denied due to plaintiff’s counsel’s alleged “concealment” of the fact that he had settled and paid Martinez’s medical bills for $ 4,300, which was less than the medical bills sent of $8,512.19, and less than the policy limits of $ 5,000. The SIU department alleged that this was a fraud perpetrated by plaintiff’s counsel to improperly profit $700 on the claim. At trial, Martinez contended that he had to settle the medical bills when the third-party claim was resolved pursuant to the signed medical liens; that bills were settled in October 2011, after making the medical payments claim; and that since he did not request a specific figure in the medical payments demand, just that the bills be properly paid under the coverage, he did not attempt to claim monies in excess of what was later paid for the liens. In addition, plaintiff’s counsel testified that he was unaware that Mercury did not know that the medical liens were paid in October 2011, out of the plaintiff’s third-party recovery against Morfin, in that he properly assumed that Mercury would have that information from the medical records that Mercury obtained directly from the providers. Counsel also claimed that he was never asked if the liens were paid and that he never thought there was a need to inform Mercury that the liens had been paid in October 2011. Plaintiff’s counsel argued that Mercury’s SIU unit had, at no time, any intention of properly paying the medical payments coverage that Martinez was entitled to receive. Counsel contended that Martinez did not report his injury on the day after the accident, only that there was property damage, because Martinez was incorrectly informed that his coverage was for liability only. Counsel also contented that this misstatement, and another made in writing to plaintiff’s counsel one month later, were in Mercury’s favor, as both would cause Martinez to forgo making a medical payments claim. Plaintiff’s counsel further contended that the claim made by the SIU adjusters about the records being illegible was false given that the medical record review department had already analyzed and approved the bills for payment prior to the adjusters making that claim. (Counsel noted that the Medical Review Unit evaluated the medical costs claimed and found the reasonable and customary charges to be $5,500, which was $500 more than Martinez’s benefit limit.) Thus, plaintiff’s counsel argued that Mercury’s SIU department’s practice of reporting 100 percent of its insured’s claims as fraudulent to two insurance bureaus was absurd, as this was done at the very onset of every investigation and before Mercury had any supporting evidence whatsoever that a claim was fraudulent. In addition, plaintiff’s counsel contended that he never demanded the policy limit of $5,000 for Martinez’s bills, which were later settled for $4,300, but simply sent the bills to Mercury and asked that they be properly paid pursuant to the Mercury policy. The plaintiff’s expert on claims handling testified that, under the Fair Claims Settlement Practices Act, Mercury had 40 days to accept or deny the claim, which could be extended to 80 days if fraud was suspected, but that a two-year delay was in bad faith. The expert also testified that Mercury was not entitled to “close the file” on the claim for noncooperation of the medical providers, as the policyholder had cooperated fully and had no control over whether others cooperate with Mercury. The expert further opined that Mercury’s contention at trial that plaintiff’s counsel “concealed” the fact and amount of payment of the medical liens was absurd, as Mercury insisted on obtaining the information directly from the providers; was provided with some evidence of the liens being previously been paid; never made inquiry to plaintiff’s counsel or the providers to confirm if the bills were ever paid, despite having notes in the claims file regarding the fact of payment; and knew or should have known that the third-party claim had long been settled, which required payment of the liens for Martinez’s treatment. Finally, plaintiff’s counsel contended throughout the trial that the SIU department’s investigation was calculated to find a reason to deny the claim, as Mercury did not have much respect for the plaintiff’s medical providers, despite all of them holding valid medical licenses. Defense counsel claimed that the SIU unit believed that the clinic Martinez first treated at was illegally owned because one of the owner’s was not licensed to practice medicine. Counsel also claimed that the SIU unit learned that the plaintiff’s radiologist had recently been indicted on over 900 counts of fraud relating to his radiology practice. Thus, counsel claimed that Mercury believed the clinic was “illegally owned under California Law. However, the court granted the plaintiff’s motion in limine to preclude evidence at trial concerning the legality of the clinic ownership because the court deemed that the evidence would result in a mini-trial. However, the court permitted Mercury to submit evidence regarding the fraud indictment of the plaintiff’s radiologist. At trial, defense counsel contended that the SIU investigator requested that plaintiff’s counsel send a complete copy of the treatment records because some of the supporting documents underlying the billing were illegible and that although the medical review unit evaluated the billing, it did not review the documentation supporting the billing. Counsel also contended that after receiving an incomplete set of records from the plaintiff’s attorney, the investigator requested medical authorizations from Martinez so that she could obtain the complete records, which Mercury obtained in February and March of 2012. The radiologist’s billing showed that Martinez’s lien was paid, but that there was no indication of who paid the amount. Thus, defense counsel argued that, unbeknownst to Mercury, the plaintiff’s attorney had paid the entirety of Martinez’s medical bills in the amount of $4,324 back in October 2011, yet neither the attorney nor Martinez ever disclosed to Mercury that the plaintiff’s attorney had made those payments. Further, defense counsel argued that although the radiologist’s billing reflected payment, the billing from the plaintiff’s chiropractor, physical therapist, and orthopedist reflected no payment. Counsel contended that as a result, the SIU investigator reported the claim to the Department of Insurance and the National Fraud Bureau, as required by Insurance Code § 1872.4 (regarding suspected fraud). All persons connected to the claim — including Martinez, his children, the adverse driver, and the plaintiff’s treating doctors — were identified in the report, but the Department of Insurance rejected the claim. The SIU adjuster testified that, in 100 percent of the SIU cases involving its own insureds claims, it was standard reporting procedure to report the insured, his entire family, the attorney, and all the doctors involved to the National Insurance Crime Bureau and the Department of Insurance regarding alleged fraud. Defense counsel contended that in May 2012, the SIU investigator interviewed Martinez with his attorney present and that when asked if he had paid any bills out-of-pocket, Martinez stated that he had not paid anything out-of-pocket and that he did not know if any of his bills had been paid. Counsel argued that during this questioning, the plaintiff’s attorney failed to disclose that he had paid the medical bills on behalf of his client. Counsel also contended that the SIU investigator attempted to visit Martinez’s clinic to inspect the medical facility and conduct interviews with providers and staff in May 2012, but that she was denied access and told to contact the facility owner to coordinate inspection and interviews. As a result, the SIU investigator sent several written requests to the clinic’s owner to determine who had provided physical therapy to Martinez. Defense counsel noted that Martinez stated in his interview that a female physical therapist had performed his physical therapy, but that the clinic’s owner only identified two male licensed physical therapists at the facility. Counsel contended that this discrepancy was why Mercury requested in-person interviews with the medical providers themselves. However, the providers did not respond to the requests and, in December 2012, the SIU investigator closed the file. Defense counsel contended that it was only after plaintiff’s counsel filed a lawsuit for bad faith and fraud in June 2013 that Mercury was able to depose the plaintiff’s orthopedic physician in December 2013. As a result, the plaintiff’s orthopedic physician produced copies of the October 2011 checks paid by Martinez’s attorney to the medical providers in settlement of the liens. Counsel also contended that in February 2014, Mercury took the deposition of the business responsible for the billing of the orthopedist, the chiropractor, and physical therapist, during which it was confirmed that the providers’ bills had been paid in full by the plaintiff’s attorney in October 2011. Defense counsel further contended that as a result, Mercury took the deposition of the plaintiff’s attorney in May 2014, during which the attorney confirmed that he paid the bills in full in October 2011 and that he never told Mercury he had paid those bills. Defense counsel contended that based on those findings, Mercury denied Martinez’s claim two days later on the ground of that the plaintiff’s attorney sought to conceal that he had paid the Martinez’s medical bills for $4,324, which was less than the medical bills he sent to Mercury in the amount of $8,512.19, and less than the $5,000 policy limit. Thus, defense counsel argued that Martinez, through his attorney, sought to profit on the insurance claim by not disclosing the payments. In response, plaintiff’s counsel testified that he was unaware that Mercury did not know that the medical liens had been paid in October 2011. He claimed that he had assumed that Mercury would have obtained the information from the providers. He also claimed that he was never asked if the liens were paid and that during Mercury’s interview with Martinez, he did not think it was necessary to inform Mercury about the liens being paid. He alleged that Martinez had to settle the medical bills when the third-party claim was resolved, pursuant to the signed medical liens, and that Martinez did not request a specific figure in the medical-payments demand and, instead, simply requested that the bills be paid under the coverage., Martinez sought contractual damages of $4,323, attorney fees of $47,860, and an appropriate amount for emotional distress. The court granted Mercury’s motion for non-suit on the issue of punitive damages, but denied its motion for non-suit on the claims seeking recovery for emotional distress and attorney fees.