933 N.W.2d 631
S.D.2019Background:
- Blanchard injured her back at work; the South Dakota Department of Labor awarded her workers’ compensation benefits and ordered Mid‑Century (Millstone’s carrier) to pay medical expenses and past temporary total benefits.
- Millstone/Mid‑Century retained defense counsel Eric Blomfelt, who advised appeal and later submitted proposed findings agreeing with the Department and failed to preserve objections for appellate review.
- Blomfelt received letters from Blanchard’s counsel warning that his submissions failed to preserve error and later filed a motion to dismiss; he did not timely inform Mid‑Century’s adjuster of those communications or the eventual dismissal.
- The circuit court dismissed Millstone/Mid‑Century’s appeal as inconsistent with its submitted findings; Mid‑Century paid the award and Blanchard sued for bad faith alleging Mid‑Century pursued a baseless appeal to delay payment or force a low‑value settlement.
- The circuit court granted summary judgment for Mid‑Century after excluding most post‑filing litigation conduct under the litigation‑conduct rule; Blanchard appealed.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Mid‑Century’s decision to appeal the Department’s award was made in bad faith | The appeal was baseless, violated internal policies, relied on counsel with a record of frivolous defenses, and was used to pressure settlement | The decision to appeal was reasonably based on counsel’s assessment that claimant’s treating‑physician opinions could be challenged on de novo review; the decision was fairly debatable | Court: No bad faith. The appeal decision was reasonably debatable at the time it was made, so it did not meet the bad‑faith standard |
| Whether post‑filing litigation conduct (Blomfelt’s procedural errors and settlement overtures) is admissible to prove bad faith | Post‑filing conduct shows Mid‑Century knowingly pursued a meritless appeal and should be admissible to prove bad faith | Such litigation conduct is generally irrelevant or unduly prejudicial under the DM&E litigation‑conduct rule and Rule 403 | Court: Excluded post‑filing conduct. Under DM&E and Harvieux, post‑filing litigation conduct generally does not shed light on insurer’s state of mind when claim was handled and was excluded |
| Whether Blomfelt’s knowledge and concessions are imputable to Mid‑Century for bad faith | Blomfelt’s admissions/concessions should bind Mid‑Century (imputation of attorney knowledge) and show insurer knew appeal was meritless | Imputation does not rescue evidence of post‑filing procedural errors; even if imputed, those facts are not probative of insurer’s pre‑decision knowledge or reckless disregard | Court: Even if imputable, Gilchrist is inapposite; the conceded facts arose during litigation and do not show what insurer knew when it decided to appeal, so they do not establish bad faith |
| Whether the court improperly added an extra element (e.g., "dishonest purpose") to bad‑faith tort | The court required proof of "dishonest purpose" beyond the statutory/common‑law bad‑faith elements | The established test requires absence of reasonable basis and knowledge or reckless disregard of that absence | Court: No improper new element. Court applied standard (absence of reasonable basis + knowledge/reckless disregard) and focused on timing and admissible evidence; summary judgment affirmed |
Key Cases Cited
- Hein v. Acuity, 731 N.W.2d 231 (2007 S.D. 40) (articulates workers’ compensation bad‑faith elements: absence of reasonable basis and insurer knowledge or reckless disregard)
- Dakota, Minn. & E. R.R. Corp. v. Acuity (DM&E), 771 N.W.2d 623 (2009 S.D. 69) (limits admissibility of post‑filing litigation conduct in bad‑faith claims)
- Gilchrist v. Trail King Indus., Inc., 655 N.W.2d 98 (2002 S.D. 155) (discusses imputed knowledge in employer/claim contexts and limits relevance to pre‑decision knowledge)
- Harvieux v. Progressive N. Ins. Co., 915 N.W.2d 697 (2018 S.D. 52) (affirmed exclusion of litigation conduct evidence in first‑party bad‑faith claim)
- Champion v. U.S. Fid. & Guar. Co., 399 N.W.2d 320 (S.D. 1987) (source for bad‑faith standard quoted in Hein)
- Smith v. Stan Houston Equip. Co., 836 N.W.2d 647 (2013 S.D. 65) (explains de novo appellate review of administrative factual findings where evidence is deposition‑based)