Mordhorst v. Dakota Truck Underwriters – Bad Faith in Workers’ Compensation Insurance

All insurance companies – including those that dole out workers’ compensation benefits – have a duty to act in good faith and fair dealing. This is implicit in all insurance policies.worker

When they do not, pursing a bad faith action could be required, which if successful, may result in a significant damages award against the insurer. However, the availability of this option could be limited, depending on the state where you live and the case law that applies. For example, in North Carolina, the state supreme court held in Trivette v. Yount that all claims arising from an employer or insurer’s processing and handling of a workers’ compensation claim – including bad faith actions – fall within the exclusive jurisdiction of the industrial commission, even if the conduct was intentional or negligent.

In the recent case of Mordhorst v. Dakota Truck Underwriters, the question before the South Dakota Supreme Court was whether a worker injured while working for a furniture company had the right to seek punitive damages against his workers’ compensation insurer for an alleged bad faith denial of workers’ compensation benefits.

Bad faith by insurance companies could involve:

  • Deceptive practices or intentional misrepresentations to avoid paying claims;
  • Using improper standards to deny claims;
  • Unreasonably delaying claim resolution;
  • Using tactics that are abusive or coercive to attain a settlement;
  • Failing to adequately investigate a claim; or
  • Making arbitrary and unreasonable damages of proof of loss.

This isn’t an exhaustive list, by any means, but it gives you an idea of the kinds of actions in which insurance companies sometimes engage to avoid paying legitimate claims.

In the Mordhorst case, a 20-year-old worker was employed at a furniture company. While making a delivery in 2011, a 275-pound couch fell off the back of a truck and onto his head and shoulders. He was temporarily knocked unconscious and sought medical attention on the following day. Two doctors and numerous physical therapists diagnosed him after an MRI showed he had a herniated disc in his back and noted his “head forward” posture, which is known to indicate compensation for back pain.

He filed a claim for workers’ compensation benefits, which were awarded.

In the following year, at the insurer’s request, the claimant met with an independent medical examiner, who opined the only injury the claimant suffered was a “strain” that was better two weeks after the accident. Subjective complaints of pain, the doctor theorized, were not supported by the objective evidence. The insurer terminated all workers’ compensation benefits.

The claimant requested a hearing in an effort to restore payments for medications and medical treatment. The insurer denied liability, but the Department of Labor (overseeing the hearing) disagreed and ordered the insurer to pay for all medical bills and interest plus future medical expenses. The insurer did not appeal this decision.

The worker then filed a complaint in circuit court, alleging the insurer engaged in bad faith in its denial of workers’ compensation benefits. He sought punitive damages, which are intended to punish the defendant, rather than compensate a plaintiff for calculable losses.

The insurer moved to dismiss for failure to state a cause of action for which relief could be granted, and the circuit court granted the dismissal. The worker appealed.

The South Dakota Supreme Court was asked to decide whether the worker had stated a claim alleging the necessary elements of a bad faith denial of workers’ compensation benefits. Were the assertions made by the plaintiff, if true, enough to establish that a bad faith insurance action had occurred? The court ruled that they were.

In order to prove bad faith in workers’ compensation, a worker would need to show there was no reasonable basis for which the policy benefits were denied, and the insurer knew there was a lack of a reasonable basis for denial. Reckless indifference to the facts can be interpreted as knowledge of the lack of a reasonable basis.

If the plaintiff’s assertions were proven true (an issue of fact to be decided by a jury, rather than a judge), the plaintiff could win on his bad faith claim. The district court’s denial was reversed and the case remanded.

Contact the Carolina workers’ compensation lawyers at the Lee Law Offices by calling 800-887-1965.

Additional Resources:

Mordhorst v. Dakota Truck Underwriters, Sept. 28, 2016, South Dakota Supreme Court

More Blog Entries:

Yarborough v. Duke University – Proving a Compensable Injury, Sept. 28, 2016, Asheville Workers’ Compensation Lawyer Blog

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