886 N.W.2d 322
S.D.2016Background
- Employee James “Jake” Mordhorst was struck by a heavy sofa during a delivery and sought medical care; MRI showed a thoracic disc protrusion and other objective findings.
- Insurers (employer-selected IME) had Dr. Nolan Segal examine Mordhorst; Segal reported only a short-lived strain resolving in 18 days and found no objective support for ongoing complaints.
- Insurers terminated workers’ compensation benefits after Segal’s report; the Department of Labor later ordered Insurers to pay past and future medical bills, and Insurers did not appeal that administrative decision.
- Mordhorst sued in circuit court alleging bad-faith denial of benefits and sought punitive damages; Insurers moved to dismiss for failure to state a claim under SDCL 15-6-12(b)(5).
- The circuit court granted dismissal, reasoning reliance on a qualified IME was per se reasonable; Mordhorst appealed to the South Dakota Supreme Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether complaint states facts sufficient to support bad-faith denial of WC benefits | Mordhorst alleged Insurers lacked a reasonable basis to deny benefits and knew or recklessly disregarded that lack (biased IME, ignored MRI and objective findings) | Insurers argued denial was reasonable because it relied on a qualified IME report | Reversed: complaint alleged facts which, if true, satisfy both elements of bad faith and survive a Rule 12(b)(5) motion |
| Whether insurer’s reliance on an IME is per se reasonable | Mordhorst argued reliance on a biased/unsupported IME can be unreasonable | Insurers argued reliance on a qualified physician is necessarily reasonable | Rejected: reliance on an IME is not automatically reasonable; factfinder may weigh expert opinions |
| Whether plaintiff pleaded insurer’s knowledge of lack of reasonable basis | Mordhorst alleged Insurers knew of medical records (MRI) and failed to reconcile discrepancies; Segal recanted some opinions on cross-examination | Insurers implicitly argued no knowledge of lack of basis given their reliance on IME | Held: allegations support inference Insurers knew or recklessly disregarded lack of reasonable basis, so claim survives dismissal |
| Proper posture for resolving reasonableness of denial at Rule 12 stage | Mordhorst contended court must assume pleaded facts true and defer factual determinations to later proceedings | Insurers asked court to decide reasonableness based on record and IME | Held: at pleading stage court must accept plaintiff’s factual allegations; determination of reasonableness is premature |
Key Cases Cited
- Hein v. Acuity, 731 N.W.2d 231 (S.D. 2007) (sets two‑part test for bad‑faith denial of workers’ compensation benefits)
- Champion v. U.S. Fid. & Guar. Co., 399 N.W.2d 320 (S.D. 1986) (knowledge of lack of reasonable basis may be inferred where insurer recklessly disregards proofs)
- Travelers Ins. Co. v. Savio, 706 P.2d 1258 (Colo. 1985) (source articulation of bad‑faith elements and insurer knowledge standard)
- Magner v. Brinkman, 883 N.W.2d 74 (S.D. 2016) (factfinder may accept or reject expert opinions)