According to the Federal District Court in South Dakota, it is only after a workers’ compensation claimant has exhausted her remedies under the South Dakota Workers’ Compensation statutes that a trial court may hear a bad faith claim for denial of workers’ compensation benefits. But what does it mean to exhaust your administrative workers’ compensation remedies? This important question was recently explored in Tovares v. Gallagher Bassett Services, Inc., Civ. 16-5051-JLV, 2019 WL 1446390 (Mar. 30, 2019).
Citing Hein v. Acuity, 731 N.W.2d 231 (2007), the Court noted that “[t]he unique circumstances surrounding bad faith relating to a workers’ compensation claim requires that the claimant first be entitled to the benefits requested.” Thus, a bad faith claim is dependent on an ultimate award of benefits by the South Dakota Department of Labor, the agency with jurisdiction over workers’ compensation benefit determinations. “
The parties in Tovares had entered into a voluntary agreement by which the insurer agreed to pay the benefits but did not admit liability and the claimant agreed to dismiss the case with prejudice. The Court found this did not amount to a memorandum of agreement regarding entitlement to benefits because there was no acknowledgement of compensability. “Had plaintiff intended to insist on an admission or determination of compensability, she should have rejected defendants’ check and requested a hearing.” Thus, the Court dismissed the claimant’s bad faith claim because there was no finding by the South Dakota Department of Labor that the claimant was indeed entitled to the benefits which she claimed were denied in bad faith.
Despite the dismissal of the bad faith cause of action, however, a claim for misrepresentation was allowed to continue. The letter sent from the insurer to the claimant denying benefits stated, “We have investigated this claim and found no evidence to support your claim for benefits under South Dakota Worker’s Compensation provisions.” The Court found that whether this was a misrepresentation of the claimant’s entitlement to benefits was a fact question best left to the jury.
What does this mean for insurers and claims handlers going forward? Contact us to discuss how to address these issues moving forward.