Insurer may be sued for bad faith after workers' comp settlement
A South Dakota court is allowing a bad faith action to proceed after allegations the insurer mishandled a workers' comp claim.
The U.S. District Court for the District of South Dakota has denied an insurer’s motion for summary judgment on a bad faith claim stemming from its actions with respect to a workers’ compensation claim, allowing the workers’ comp claimant’s bad faith action to proceed.
The case
Randy Ball, a swine technician for EMP Serv, LLC, allegedly was injured while working at a hog confinement facility owned and operated by his employer in Willow Lake, S.D.
Federal Insurance Company, the workers’ compensation insurance carrier for EMP, initially accepted Ball’s claim as compensable.
For the next 14 months, Ball received treatment from various medical providers. Then, on September 30, 2014, Federal Insurance sent Ball a letter stating that it would deny all of his treatments after that date. Additionally, Federal Insurance informed Ball that payment of temporary total disability benefits would cease at the end of the month.
Ball filed a petition with the South Dakota Department of Labor and requested a hearing for additional workers’ compensation benefits. Federal Insurance answered, denying that Ball was entitled to any additional benefits.
In November 2017, Ball, EMP, and Federal Insurance entered into a voluntary settlement agreement that resolved Ball’s workers’ compensation claim.
Under the settlement agreement, Ball received a lump sum of $135,000 in exchange for his agreement to waive his hearing before the Department of Labor and to resolve his workers’ compensation permanent total liability claim.
The settlement agreement also contained clauses that the settlement was a “compromise of doubtful and disputed claims” and “not an . . . admission of liability,” and that Ball acknowledged “that there [were] bona fide disputed questions regarding his entitlement to any additional benefits.”
As to a potential bad faith claim, the settlement agreement stated the “insurer acknowledges that claimant alleges a ‘bad faith’ handling claim, which the claim insurer denies. Insurer acknowledges that this settlement does not resolve that claim.”
The Department of Labor approved the settlement agreement and dismissed Ball’s workers’ compensation claim with prejudice.
On January 22, 2018, Ball sued Federal Insurance for bad faith.
Federal Insurance moved for summary judgment.
First, Federal Insurance contended that Ball could not overcome the threshold requirement of exhausting his administrative remedies because there was no administrative ruling that Ball was entitled to benefits.
Second, Federal Insurance contended that Ball could not satisfy the first element of his bad faith claim because it was undisputed that there was no determination by the Department of Labor that Federal Insurance’s denial of benefits had been “wrongful.”
The insurer also contended that Ball’s claim was barred by res judicata, which prevents a party from re-litigating any claim or defense already litigated.
The court’s decision
The district court denied the motion.
In its decision, the district court first ruled that the settlement agreement, which was approved by the Department of Labor and which stated that its purpose was to resolve Ball’s disputed workers’ compensation claim, carried the “same force and effect as an adjudicated award.”
The district court added that the parties’ settlement agreement and its approval by the Department of Labor exhausted the administrative remedies and reflected South Dakota’s “historical preference for settlement of disputes.”
The district court then decided that Ball could show the absence of a reasonable basis for denying benefits by Federal Insurance. It pointed out that the Department of Labor had approved the settlement agreement and, the district court reasoned, that amounted to an award from the Department of Labor in favor of Ball.
The settlement agreement was not an adverse decision to Ball and did not mean that he was not entitled to benefits or that Federal Insurance had a reasonable basis for its denial of benefits, the district court said.
Therefore, viewing the evidence in the light most favorable to Ball, the district court concluded that he could establish the two elements Federal Insurance challenged in its motion for summary judgment.
Finally, the district court rejected Federal Insurance’s argument that Ball’s workers’ compensation bad faith claim failed as a matter of law due to the doctrine of res judicata. Among other things, the district court pointed out that the settlement agreement and the dismissal of Ball’s workers’ compensation claim “did not, and could not, resolve [his] bad faith claim.” In fact, it concluded, the settlement agreement left open the opportunity for Ball to bring a bad faith claim, stating, “Insurer acknowledges that claimant alleges a ‘bad faith’ handling claim, which claim insurer denies. Insurer acknowledges that this settlement does not resolve that claim.”
The case is Ball v. Federal Ins. Co.
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