JAMES ARP and CANDACE ARP,
AON/COMBINED INSURANCE CO.
and CONTINENTAL CASUALTY CO.,
Defendants and Third Party Plaintiffs,
GAB Robins North America, Inc.,
Third Party Defendant.
[2001 DSD 19]
United States District Court
District of South Dakota--Western Division
MEMORANDUM OPINION AND ORDER
Rodney C. Lefholz, Rapid City, SD
Attorney for Plaintiffs
Patricia A. Meyers, Costello, Porter, Heisterkamp, Bushnell
& Carpenter, Rapid City, SD
Attorney for Defendant AON/Combined Ins. Co.
Michael S. McKnight, Boyce,Murphy, McDowell & Greenfield,
Sioux Falls, SD
Attorney for Defendant GAB Robins
Filed August 13, 2001
Hon. Richard H. Battey, U. S. District Judge
[¶1] On June 26, 2001, defendants and third party plaintiffs AON/Combined Insurance Co. and Continental Casualty Co. ("AON") moved for summary judgment pursuant to F. R. Civ. P. 56. On July 11, 2001, third party defendant joined in AON's motion. James and Candace Arp ("plaintiffs") subsequently filed a response on July 16, 2001. AON filed a reply brief on July 24, 2001.
[¶2] On January 19, 1997, James Arp sustained head injuries while working and in the employ of AON. See Plaintiff's Amended Complaint at ¶¶ 4-6. AON, a corporation licensed to do business in South Dakota, is self-insured for workers' compensation up to $500,000. See AON's Brief in Support of Motion for Summary Judgment ("AON's Brief") at 1-2. Costs of claims exceeding $500,000 are paid by defendant Continental Casualty Co. Id. At the time of James Arp's accident, the administration of AON's workers' compensation program was managed by third party defendant GAB Robins North America, Inc. ("GAB"), a third party administrator. Id. at 2.
[¶3] Arp's wife, Candace, filed a workers' compensation claim on behalf of her husband. Id. The claim was accepted and Arp received temporary disability benefits. Id.; Deposition of Candace Arp ("Arp Depo.") at 14-15, 96. Although there have been delays in payment of medical bills, Candace Arp has admitted that the delinquent payments were all unintentional. See AON's Brief at 2; Arp Depo. at 76, 107-108, 113, 120-21. James Arp had continued to receive temporary total disability benefits. AON's Brief at 2; Arp Depo. at 60, 138.
[¶4] Following his release from the hospital, James Arp was enrolled and cared for in a program entitled "Adult Day Center." AON's Brief at 2-3. The program allowed Candace to work nearly full time. Id. at 2-3; Arp Depo. at 60, 138. Subsequently, in 1998, Arp entered the Community Transition Program but left the program in 1999 as he had "plateaued." AON's Brief at 3; Arp. Depo. at 31-33. James was then placed in the Black Hills Workshop, which, unfortunately, proved inadequate for him. AON's Brief at 3; Arp Depo. at 35, 45, 64. Candace Arp has admitted that the problem of James Arp's care is the lack of service available in the area in which they reside. AON's Brief at 3; Arp Depo. at 46-47, 64-65.
[¶5] On May 3, 1999, GAB made an offer to pay Arp's permanent partial disability benefits in the amount of $12,151.16. See Plaintiff's Brief in Opposition to Motion for Summary Judgment at 10 ("Plaintiffs' Opposition Brief"). The offer was not accepted. Id.
[¶6] A workers' compensation proceeding before the South Dakota Department of Labor was commenced in May, 1999. See AON's Brief at 3. Initially, AON denied that Arp was permanently and totally disabled. See Exhibit two of AON's Statement of Material Facts ("AON's SMF"). However, the parties entered into a stipulation and agreement on March 14, 2000, whereby AON stipulated that Arp was permanently and totally disabled. See Exhibit three of AON's SMF.
[¶7] GAB was authorized only to make commitments on claims up to $25,000. See AON's Brief at 4; Deposition of Stroud ("Stroud Depo.") at 13. Plaintiff's Statement of Material Facts ("PSMF") at 2. Any commitment exceeding $25,000 and up to the maximum covered (i.e., $500,000) required approval by AON. See AON's Brief at 4; Stroud Depo. at 13; PSMF at 2. Furthermore, claims exceeding $125,000 required notice to defendant Continental Casualty Co. ("CNA") before any claims exceed $125,000 were paid. Id. CNA was obligated to pay claims exceeding $500,000. Id.
[¶8] In May, 1999, AON's contract with GAB was cancelled and the Arp claim was transferred to Cambridge, the new third party administrator for AON. AON's Brief at 4.
[¶9] Candace Arp was hospitalized twice for depression in 1998. See id. at 2. Candace also underwent bankruptcy in late 1997. Id. Both hospitalizations and the bankruptcy occurred during periods when Candace admits that she had no complaints pertaining to the handling of her husband's claim. See id.; Arp Depo. at 25-26, 31, 49, 93, 122-23. Candace also admits that the distress resulting from the handling of her claim is only "nervousness" and that her condition has not worsened. AON's Brief at 5; Arp Depo. at 63-64. Candace has failed to indicate any physical manifestations of distress. AON's Brief at 5; Arp Depo. at 82-83. Additionally, according to Candace, the only cause of the distress of James is due to the fact that she is "worried." AON's Brief at 5; Arp Depo. at 149-50.
[¶10] Under Rule 56(c) of the Federal Rules of Civil Procedure, a movant is entitled to summary judgment if the movant can "show that there is no genuine issue as to any material fact and that [the movant] is entitled to judgment as a matter of law." In determining whether summary judgment should issue, the facts and inferences from those facts are viewed in the light most favorable to the nonmoving party, and the burden is placed on the moving party to establish both the absence of a genuine issue of material fact and that such party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 US 574, 106 SCt 1348, 1356-57, 89 LEd2d 538 (1986). Once the moving party has met this burden, the nonmoving party may not rest on the allegations in the pleadings, but by affidavit or other evidence must set forth specific facts showing that a genuine issue of material fact exists.
[¶11] In determining whether a genuine issue of material fact exists, the Court views the evidence presented based upon which party has the burden of proof under the underlying substantive law. Anderson v. Liberty Lobby, Inc., 477 US 242, 106 SCt 2505, 2513, 91 LEd2d 202 (1986). The Supreme Court has instructed that "[s]ummary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed 'to secure the just, speedy, and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 US 317, 327, 106 SCt 2548, 2555, 91 LEd2d 265 (1986) (citing F. R. Civ. P. 1). The nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts," and "[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.'" Matsushita, 106 SCt at 1356.
[¶12] The teaching of Matsushita was further articulated by the Supreme Court in Eastman Kodak Co. v. Image Technical Services, Inc., where the Court said, "Matsushita demands only that the nonmoving party's inferences be reasonable in order to reach the jury, a requirement that was not invented, but merely articulated, in that decision." 504 US 451, 468, 112 SCt 2072, 2083 (1992). The Court expounded on this notion by reiterating its conclusion in Anderson that, "[s]ummary judgment will not lie ... if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Eastman Kodak, 504 US at 468 n.14, 112 SCt at 2083 n.14 (quoting Anderson, 477 US at 248, 106 SCt at 2510). To survive summary judgment there must be evidence that "reasonably tends to prove" plaintiff's theory; defendant meets the burden under Fed. R. Civ. P. 56(c) when it is conclusively shown that the facts upon which the nonmoving party relied to support the allegations were not susceptible of the interpretation which was sought to give them; only reasonable inferences can be drawn from the evidence in favor of the nonmoving party. Id. (citations omitted).
[¶13] Plaintiffs, in their complaint, allege the following causes of action: (1) breach of duty to pay workers' compensation benefits; (2) negligent infliction of emotional distress, (3) intentional infliction of emotional distress; (4) loss of consortium; and (5) bad faith. See Plaintiff's Amended Complaint at 2-3. Plaintiffs also seek punitive damages and attorneys fees. Id. at 3. The Court will discuss each count seriatim.
[¶14] Count One
[¶15] The plaintiffs' allege in count one of their amended complaint that AON and GAB breached their duty to pay workers' compensation benefits. See Amended Complaint at 2. Plaintiffs elaborate on this somewhat ambiguous allegation by characterizing it as tortuous conduct. See Plaintiffs' Brief at 20. However, South Dakota law does not recognize a breach of an implied duty of good faith independent of contract. See Garrett v. BankWest, Inc., 459 NW2d 833, 842 (SD 1990); Nelson v. WEB Water Dev. Ass'n Inc., 507 NW2d 691, 697 (SD 1993). As South Dakota does not permit a separate cause of action for breach of an implied duty of good faith in tort, this Court must find for AON and GAB, as a matter of law, on count one of the amended complaint.
[¶16] Count Two
[¶17] Count two of the amended complaint alleges negligent infliction of emotional distress. See Amended Complaint at 2. Under South Dakota law, the tort of negligent infliction of emotional distress requires manifestation of physical symptoms. See Nelson, 507 NW2d at 699 (citing Wright v. Coca Cola Bottling Co. of Cent. South Dakota , Inc., 414 NW2d 608, 609 (SD 1987)). Additionally, "there must be some causal nexus between the distress and the physical injury." Nelson, 507 NW2d at 699. Here, Candace has failed to indicate any physical injuries resulting from emotional distressed allegedly caused by the action of AON and GAB. See Arp Depo. at 82-83. Accordingly, the Court must find, as a matter of law, for AON and GAB on count two of the amended complaint.
[¶18] Count Three
[¶19] Count three of the plaintiffs' amended complaint alleges intentional infliction of emotional distress. See Amended Complaint at 2. The elements required to prove intentional infliction of emotional distress in South Dakota are:
(1) an act by defendant amounting to extreme and outrageous conduct;
(2) intent on part of the defendant to cause plaintiff severe emotional distress;
(3) the defendant's conduct was the cause in-fact of plaintiff's distress; [and]
(4) the plaintiff suffered an extreme disabling emotional response to defendant's conduct.
Nelson, 507 NW2d at 698. "The outrageous conduct ... must be conduct which 'exceeds all bounds usually tolerated by decent society and which is of a nature especially calculated to cause, and does cause, mental distress of a very serious kind.'" Id. at 698-99 (quoting Tibke v. McDougall, 479 NW2d 898, 907 (SD 1992)). The trial court initially determines whether the defendant's conduct is extreme enough. Nelson, 507 NW2d at 699.
[¶20] The plaintiffs fail to establish their prima facie case for intentional infliction of emotional distress. The Court finds that AON's and GAB's actions do not rise to the level of extreme and outrageous conduct as required under South Dakota law. See Nelson, 507 NW2d at 698. Additionally, Candace admits that the delays in payment were not intentional. See Arp Depo. at 76, 107-108, 113, 120-21. "It is settled law [in South Dakota] that a party cannot claim benefit of a version of the facts more favorable to his contentions than he gave in his own sworn testimony." Nelson, 507 NW2d at 699 (citing Waddell v. Dewey County Bank, 471 NW2d 591, 595 n. 3 (SD 1991)). Furthermore, AON's and GAB's conduct is not a cause in-fact of James' and Candace's emotional distress. See Arp Depo. at 25-26, 31, 49, 63-64, 93, 122-23, 149-50. Additionally, there is no evidence that Candace's depression and "worriness" is disabling as required under the fourth prong of the test. See Nelson, 507 NW2d at 698. Therefore, this Court finds for AON and GAB, as a matter of law, on count three of the amended complaint.
[¶21] Count Four
[¶22] Count four alleges loss of consortium. See Amended Complaint at 3. Although the right of consortium is a personal right and a separate cause of action, the South Dakota Supreme Court has defined loss of consortium as derivative in nature. See Matter of Certification of Question of Law from US Court of Appeals for the Eighth Circuit, Pursuant to Provisions of SDCL 15-24A-1, 544 NW2d 183, 193, 1996 SD 10 (SD 1996); Titze v. Miller, 337 NW2d 176, 177 (SD 1983). As the Court has granted summary judgment on all the other causes of actions, and as loss of consortium is derivative, summary judgment for AON and GAB must be given on count four as well.
[¶23] Count Five
[¶24] Count five of the plaintiffs' amended complaint alleges bad faith on the part of AON for not paying reasonable medical expenses and failure to admit, for three years, that James was permanently and totally disabled. See Amended Complaint at 3. South Dakota has recognized a cause of action against an insurance company for bad faith in failing to pay a claim. See In re Certification of a Question of Law from the US Dist. Court, Dist. Of South Dakota, Western Div. (Champion v. United States Fidelity & Guar. Co.), 399 NW2d 320 (SD 1987) (recognizing a cause of action in tort for the bad faith denial of a workers' compensation claim) (hereinafter, Champion); Stene v. State Farm Mut. Auto. Ins. Co., 583 NW2d 399, 403, 1998 SD 95 (SD 1998). Under Champion, the plaintiff must satisfy a two prong test:
[F]or proof of bad faith, [(1)] there must be an absence of a reasonable basis for denial of policy benefits [or failure to comply with a duty under the insurance contract] and [(2)] the knowledge or reckless disregard [of the lack] of a reasonable basis for denial.
Stene, 583 NW2d at 403; See, also Champion, 399 NW2d at 324. "[I]mplicit in [this] test ... is ... that the knowledge of the lack of reasonable basis may be inferred and imputed ... where there is a reckless disregard of a lack of a reasonable basis for denial or a reckless indifference to facts or to proofs submitted by the insured." Stene, 583 NW2d at 403 (quoting Walz v. Fireman's Fund Ins. Co., 556 NW2d 68, 70, 1996 SD 135 (SD 1996)). It is entirely permissible, however, for insurance companies to challenge claims which are "fairly debatable." Stene, 583 NW2d at 403. An insurance company is only liable if it has intentionally denied or failed to process or pay a claim without a reasonable basis. Id.
[¶25] Plaintiffs' allegations based on failure to pay reasonable medical expenses fails the Champion test. Candace admits in her deposition that the delinquent payments were unintentional. See Arp Depo. at 76, 107-108, 113, 120-21. She has made no claim that such delinquent payments were the result of reckless indifference. Additionally, Candace admits that the problem of providing proper care for her husband is due to the lack of proper services in the area in which she lives. See id. at 46-47, 64-65. Refusal of plaintiffs' demand for a lump sum payment is not bad faith as such lump sum payments are not required under South Dakota law. See Thomas v. Custer State Hosp., 511 NW2d 576, 579 (SD 1994). On the contrary, installment payments are presumed to be proper. Id. Thus, plaintiffs have not met the requirements of the Champion test as to the allegations regarding the failure to pay reasonable medical expenses.
[¶26] Plaintiffs' allegations that AON and GAB acted in bad faith in failing to admit that James was permanently and totally disabled for three years also fails the Champion test. GAB had a reasonable basis not to admit due to the fact it would create a monetary commitment in an amount exceeding its authority. See Stroud Depo. at 13; PSMF at 2. Additionally, there is no evidence that AON's denial was intentional. It was reasonable for AON to investigate the claim. Therefore, the Court finds, as a matter of law, for AON and GAB on count five of the amended complaint.
[¶27] Count Six
[¶28] Count six of the amended complaint makes a demand for punitive damages. See Amended Complaint at 3. Under South Dakota law, "punitive damages are not allowed absent an award of compensatory damages." Schaffer v. Edward D. Jones & Co., 521
NW2d 921, 928 (SD 1994). As the Court has granted summary judgment for AON and GAB on all of the plaintiffs' causes of actions, punitive damages may not be granted as there are no compensatory damages.
[¶29] Count Seven
[¶30] Count seven also makes a demand for attorney's fees. See Amended Complaint at 3. South Dakota does not recognize an award of attorney's fees in tort actions challenging an insurer's handling of a claim. See Kirchoff v. American Cas. Co., of Reading, Pennsylvania., 997 F2d 401, 407 (8th Cir. 1993) (examining South Dakota law). SDCL 58-12-3, governing recovery of attorney's fees in an action against a self-insured employer, requires attorney's fees only "if judgment or an award is rendered for plaintiff." SDCL 58-12-3. As this Court has granted summary judgment for AON and GAB on all counts, it will also deny attorney's fees.
[¶31] Based upon the foregoing discussion, finding no material facts in dispute for all the causes of action pled by plaintiffs, it is hereby
[¶32] ORDERED that AON's motion for summary judgment (Docket #41) is granted as to all counts of the amended complaint.
[¶33] IT IS FURTHER ORDERED judgment shall be entered in favor of AON and GAB and against plaintiffs.