S.D. High Court Permits Bad Faith Cause of Action Against Workers’ Comp Insurer

In Mordhorst v. Dakota Trucking Underwriters and Risk Administration Services, 886 N.W.2d 322(S.D. 2016) the South Dakota Supreme Court found that a workers’ compensation insurer could be found in bad faith, even though it relied upon an independent medical opinion informing its claim decision. Under the facts of the case, the claimant, James Mordhorst was injured while making a delivery for Mordhorst employer. Mordhorst sought medical treatment following the accident, two physicians and multiple physical therapists documented the injury. Mordhorst reported pain in his back and neck, and a MRI revealed a herniated disk in his back. The insurer, Dakota Truck Underwriters Risk Administration Services, scheduled an independent medical examination (IME) with Doctor Nolin Seagull. Dr. Seagull concluded that the only injury Mordhorst sustained in the accident was a “strain” that resolved 18 days after the accident. Dr. Seagull also concluded that Mordhorst’s subjective complaints were not supported by objective findings. On the basis of Dr. Seagull’s report, the insurer terminated all of the workers’ compensation benefits. In the Department of Labor proceeding, Mordhorst requested a hearing to restore payments for medical treatment and medications. The Department ordered the insurer to pay all past medical bills and interest as well as all his future medical expenses. The insurers did not appeal the Department’s decision.

Mordhorst’s brought a bad faith claim against the workers’ compensation insurer. The insurer defended on the basis that it relied upon Dr. Seagull’s report and findings. Mordhorst attacked the reasonableness of Dr. Seagulls report claiming that Dr. Seagull was biased. The trial Court rejected Mordhorst’s argument, finding that it was never unreasonable for an insurer to act in accordance with an opinion of an IME doctor. The Trial Court reasoned that insurance companies were not required to second guess physicians who were qualified to offer their opinions. In essence, the trial Court held that the insurer’s reliance on the IME report was per se reasonable. However, the South Dakota Supreme Court rejected this finding. The Supreme Court rejected the motion that a workers’ compensation insurance company, who’s chosen business deals with injuries and medical conditions was somehow incapable of weighing the opinions of medical practitioners.

The case was before the Court on a motion to dismiss for failure to state a claim upon which relief could be granted. The Court was required to view the assertions made by Mordhorst in the light most favorable to Mordhorst. Because Mordhorst alleged that the insurers were aware that Mordhorst’s medical records, including the MRI, revealed that he suffered from a herniated disk, a jury could also conclude that the insurers recklessly disregarded the medical evidence in favor of Dr. Seagull’s contrary report.

The Mordhorst’s case holding is understandable because it represented an appeal from a rule 12 B6 motion for dismissal where the trial court was required to assume the truth of the allegations stated by the plaintiffs. Thus, the High Court’s holding represented nothing more than an affirmation that if Mordhorst’s asserted facts were true, then the insurance company’s reliance on Dr. Seagull’s report to deny benefits was not per se reasonable.