United States District Court, D. South Dakota, Southern Division
ORDER DENYING DEFENDANT'S MOTION FOR SUMMARY
E. SCHREIER, UNITED STATES DISTRICT JUDGE
Randy Ball, filed a complaint alleging that defendant,
Federal Insurance Company, acted in bad faith and breached
its fiduciary duty by denying Ball's workers'
compensation claim when there was no legitimate and
reasonable basis for the denial. Docket 1. Federal Insurance
denies Ball's allegations. Docket 27. Federal Insurance
moves for summary judgment. Docket 28. Federal Insurance
alleges that it is entitled to an order granting summary
judgment because Ball cannot establish an essential element
of a workers' compensation bad faith claim and Ball's
claim is barred by the doctrines of res judicata and judicial
estoppel. Docket 30 at 1-2. Ball opposes the motion. Docket
32. For the following reasons, the court denies Federal
Insurance's motion for summary judgment.
facts, viewed in the light most favorable to the non-moving
party, are as follows:
worked as a swine technician for EMP Serv, LLC. Docket 33 at
1. On June 21, 2013, Ball was injured while working at a hog
confinement facility that was owned and operated by his
employer in Willow Lake, South Dakota. Id. At that
time, Federal Insurance was the workers' compensation
insurance carrier for EMP Serv, LLC. Id. Initially,
Federal Insurance accepted Ball's claim as compensable.
Id. For the next fourteen months, Ball received
treatment from various medical providers. Id. at 2.
On September 30, 2014, Federal Insurance sent Ball a letter;
in the letter, Federal Insurance stated that it would deny
all of Ball's treatments after that date. Id.
Additionally, Federal Insurance informed Ball that the
payment of temporary total disability benefits would cease at
the end of the month. Id. On October 8, 2014, Ball
filed a petition with the South Dakota Department of Labor
and requested a hearing for additional workers'
compensation benefits. Id. Federal Insurance filed
an answer to the petition and denied that Ball was entitled
to any additional benefits. Id.
November of 2017, Ball, EMP Serv, LLC, and Federal Insurance
entered into a voluntary settlement agreement (Docket 34-14)
that resolved Ball's workers' compensation claim.
Docket 33 at 2. 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. Id.; Docket 34-14 at 3-4. The
Settlement Agreement also contained clauses that the
settlement was a “compromise of doubtful and disputed
claims, ” “not an . . . admission of liability,
” and that Ball acknowledged “that there [were]
bona fide disputed questions regarding his entitlement to any
additional benefits.” Docket 33 at 2-3; Docket 34-14 at
2. As to a potential bad faith claim, the Settlement
Agreement stated, “Insurer acknowledges that Claimant
alleges a ‘bad faith' handling claim which claim
Insurer denies. Insurer acknowledges that this settlement
does not resolve that claim.” Docket 34-14 at 2. The
Department of Labor approved the Settlement Agreement and
dismissed Ball's workers' compensation claim with
prejudice. Docket 33 at 3.
January 22, 2018, Ball brought the current action against
Federal Insurance. Docket 1; Docket 33 at 3. Ball alleges
that Federal Insurance committed bad faith by denying his
claim in September of 2014 when Federal Insurance “knew
that there was no legitimate and reasonable basis to deny the
claim[.]” Docket 1 ¶ 11; Docket 33 at 3. Federal
Insurance filed a motion for summary judgment on January 11,
2019. Docket 28. Ball opposes the motion. Docket 32.
judgment is appropriate if the movant “shows that there
is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law.”
Fed.R.Civ.P. 56(a). The moving party can meet its burden by
presenting evidence that there is no dispute of material fact
or that the nonmoving party has not presented evidence to
support an element of its case on which it bears the ultimate
burden of proof. Celotex Corp. v. Catrett, 477 U.S.
317, 322-23 (1986). To avoid summary judgment, “[t]he
nonmoving party may not ‘rest on mere allegations or
denials, but must demonstrate on the record the existence of
specific facts which create a genuine issue for trial.'
” Mosley v. City of Northwoods, 415 F.3d 908,
910 (8th Cir. 2005) (quoting Krenik v. Cty. of Le
Sueur, 47 F.3d 953, 957 (8th Cir. 1995)). Summary
judgment is precluded if there is a genuine dispute of fact
that could affect the outcome of the case. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When
considering a summary judgment motion, the court views the
facts and the inferences drawn from such facts “in the
light most favorable to the party opposing the motion.”
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986).
Bad Faith Elements
employee aggrieved by an insurer's bad faith failure to
pay benefits to which the employee is entitled under the
workers' compensation statute may proceed against the
insurer by way of an action in tort. Hollman v. Liberty
Mut. Ins. Co., 712 F.2d 1259, 1261 (8th Cir. 1983).
“An action for bad faith compensates an insured for the
intentional misconduct of a defendant insurer as
distinguished from merely negligent conduct.”
Jordan v. Union Ins. Co., 771 F.Supp. 1031, 1032-33
(D.S.D. 1991) (citing Simkins v. Great W. Cas. Co.,
831 F.2d 792, 793 (8th Cir. 1987)). The conduct of an insurer
in denying a claim is deemed intentional and in bad faith
where there is (1) an absence of a reasonable basis for
denying the benefits of the policy and (2) the insurer's
knowledge of the lack of a reasonable basis for denial.
Mordhorst v. Dakota Truck Underwriters & Risk Admin.
Servs., 886 N.W.2d 322, 324 (S.D. 2016) (citing Hein
v. Acuity, 731 N.W.2d 231, 237 (S.D. 2007)). An insurer
can “ ‘challenge claims which are fairly
debatable,' and therefore, ‘will be found liable
only where it has intentionally denied (or failed to process
or pay) a claim without a reasonable basis.' ”
Hein, 731 N.W.2d at 236 (quoting Champion v.
U.S. Fid. & Guar. Co., 399 N.W.2d 320, 324 (S.D.
South Dakota, “[b]efore a [state] trial court may grant
relief for a bad faith denial of worker's compensation
benefits, it must decide whether the plaintiff is entitled to
benefits.” Zuke v. Presentation Sisters, Inc.,
589 N.W.2d 925, 930 (S.D. 1999). “This threshold issue
must be decided within the worker's compensation
forum.” Id. Thus, plaintiffs must exhaust
their administrative remedies before they can bring a bad
faith claim. Id.
Dakota allows parties to resolve a workers' compensation
claim by filing a petition with the Department of Labor and
requesting a hearing or entering into an agreement as to
compensation. SDCL §§ 62-7-12, 62-7-5. If the
parties reach an agreement as to compensation, they must file
a memorandum of the agreement with the Department of Labor.
SDCL § 62-7-5. If the Department of Labor does not
notify the parties that it disapproves of the agreement, then
“the agreement shall stand as approved and is
enforceable for all purposes . . . .” Id.
“Compromise agreements permitted under SDCL [§]
62-7-5 have the same force and effect as adjudicated
awards[.]” Sopko v. C & R Transfer Co.,
575 N.W.2d 225, 229 (S.D. 1998). When parties enter into a
settlement agreement, there are no “further
administrative remedies to exhaust.” Hein, 731
N.W.2d at 237.
Insurance argues that Ball's bad faith claim fails for
two reasons. First, Federal Insurance contends that Ball
cannot overcome the threshold requirement of exhausting his
administrative remedies because there is no administrative
ruling that Ball is entitled to benefits. Docket 30 at 5;
Docket 40 at 4. Second, Federal Insurance contends that Ball
cannot satisfy the first element of his bad faith claim
because it is undisputed that there was no ...