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Ball v. Federal Insurance Co.

United States District Court, D. South Dakota, Southern Division

October 15, 2019

RANDY BALL, Plaintiff,



         Plaintiff, 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.


         The facts, viewed in the light most favorable to the non-moving party, are as follows:

         Ball 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.

         In 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.

         On 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.


         Summary 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).


         I. Bad Faith Elements

         An 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. 1987)).

         In 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.

         South 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.

         Federal 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 ...

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