379 F. Supp. 3d 791
D.S.D.2019Background
- Plaintiff Annie Tovares slipped at work on March 19, 2014, later experienced visual disturbance, tinnitus and headaches, sought ER and ophthalmology care, and incurred medical bills (~$3,225).
- Praetorian insured Menards; Gallagher Bassett Services (GBS) administered the workers’ compensation claim; GBS investigated, denied the claim in a April 30, 2014 letter, and closed the file.
- Counsel for Tovares negotiated with insurer’s counsel; insurer tendered $3,225.12 and maintained its denial; Tovares’ counsel accepted the check and filed a notice of dismissal with prejudice in the Dept. of Labor stating the bills had been paid.
- Tovares sued in federal court alleging (Count I) bad faith (failure to pay workers’ compensation benefits) and (Count II) misrepresentation under SDCL ch. 58-33; she also sought punitive damages and fees.
- Court granted defendants’ summary judgment motion in part and denied in part: dismissed Count I (bad faith) without prejudice for failure to obtain an administrative ruling of entitlement; denied summary judgment on Count II (misrepresentation), on GBS duty question, on damages and on punitive damages.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiff must exhaust administrative remedies / obtain an administrative ruling before suing for bad faith | Tovares contends the parties’ settlement and dismissal (payment) ended Dept. of Labor jurisdiction so administrative remedies were exhausted | Defendants argue voluntary payment without an admission of compensability is not an administrative determination; Zuke requires an administrative ruling before bad-faith tort | Held: Dismissed Count I without prejudice — no administrative finding of entitlement; the dismissal/paid-check was not a §62‑7‑5 compromise/agreement admitting compensability |
| Whether the April 30 denial and related statements support a statutory misrepresentation claim under SDCL ch. 58-33 | Tovares: a jury could find GBS misrepresented benefits or that its denial was a false/misleading representation actionable under §58‑33‑5 | Defendants: denial of compensability is not a misrepresentation of policy terms or benefits; such disputes concern compensability reserved for administrative forum | Held: Denied summary judgment as to Count II — factual dispute creates a jury question on misrepresentation |
| Whether GBS (third-party administrator) owes a duty of good faith and fair dealing to the claimant | Tovares: GBS performed claim-handling functions and aided/abetted insurer; South Dakota law would impose such duty on a third-party administrator | Defendants: GBS lacked privity and special relationship; third-party admins generally not liable for insurer’s contractual duties | Held: Denied summary judgment — court follows authority suggesting third-party administrators can owe a duty when they perform insurer functions and substantially assist in misconduct |
| Whether plaintiff presented damages (including emotional distress) and whether punitive damages are available | Tovares: Borrowed money to pay bills, incurred attorney fees, and suffered emotional distress from alleged denials/misrepresentations; malice (actual or presumed) may be shown | Defendants: No uncompensated financial loss, emotional distress requires exceptional proof, and no evidence of malice to support punitive damages | Held: Denied summary judgment on damages and punitive damages — factual disputes (financial harm, emotional distress, and presumed malice) are for the jury |
Key Cases Cited
- Zuke v. Presentation Sisters, 589 N.W.2d 925 (S.D. 1999) (bad-faith tort for workers’ compensation denial requires claimant first obtain administrative entitlement ruling)
- Hein v. Acuity, 731 N.W.2d 231 (S.D. 2007) (reaffirming that bad-faith claims tied to workers’ compensation depend on administrative entitlement)
- Skjonsberg v. Menard, Inc., 922 N.W.2d 784 (S.D. 2018) (Dept. of Labor’s earlier adjudication of work-related injury can render later payment moot for administrative jurisdiction)
- Gilchrist v. Trail King Indus., 612 N.W.2d 10 (S.D. 2000) (third-party actors may owe duties that support tort claims if they cause additional harm; duty is a threshold element)
- Biegler v. American Family, 621 N.W.2d 592 (S.D. 2001) (punitive damages available where plaintiff proves oppression, fraud, or malice; malice may be presumed from disregard of rights)
- Cary v. United of Omaha Life Ins. Co., 68 P.3d 462 (Colo. 2003) (third-party administrator can owe good-faith duties when it performs insurer functions)