Blanchard v. Mid-Century Ins. Co.

• Decision Date: 11 September 2019
• Docket Number: 28652
• Citation: 933 N.W.2d 631
• Court: South Dakota Supreme Court
• Parties: Christina BLANCHARD, Plaintiff and Appellant, v. MID-CENTURY INSURANCE COMPANY, also known as Farmers Insurance, Defendant and Appellee, v. Mid-Century Insurance Company, Third-Party Plaintiff and Appellee, v. Eric C. Blomfelt, and Eric Blomfelt & Associates, P.C., Third-Party Defendants.

933 N.W.2d 631

Christina BLANCHARD, Plaintiff and Appellant,

v.MID-CENTURY INSURANCE COMPANY, also known as Farmers Insurance, Defendant and Appellee,

v.Mid-Century Insurance Company, Third-Party Plaintiff and Appellee,

v.Eric C. Blomfelt, and Eric Blomfelt & Associates, P.C., Third-Party Defendants.

28652

Supreme Court of South Dakota.

CONSIDERED ON BRIEFS FEBRUARY 19, 2019

OPINION FILED September 11, 2019

HEATHER LAMMERS BOGARD of Costello, Porter, Hill, Heisterkamp, Bushnell & Carpenter, LLP, Rapid City, South Dakota, Attorneys for plaintiff and appellant.

MICHAEL F. TOBIN, MITCHELL W. O’HARA of Boyce Law Firm, LLP, Sioux Falls, South Dakota, Attorneys for appellee Mid-Century Ins. Co. a.k.a. Farmers Ins.

JENSEN, Justice

[¶1.] Christina Blanchard filed this complaint for bad faith against Mid-Century Insurance Company, alleging that Mid-Century pursued a "baseless and meritless appeal" from a decision of the South Dakota Department of Labor (Department) awarding Blanchard workers' compensation benefits. The circuit court granted Mid-Century’s motion for summary judgment on the bad faith complaint. Blanchard appeals, arguing the circuit court erred by failing to consider all the facts supporting Mid-Century’s bad faith conduct, failing to impute the knowledge and actions of Mid-Century’s attorney to Mid-Century, erroneously adding an additional element to the tort of insurance bad faith, and incorrectly excluding evidence under the litigation conduct rule. We affirm.

Facts and Procedural History

[¶2.] From March 2008 to January 2011, Blanchard was employed by Millstone II, Inc. (Millstone), a restaurant located in Rapid City. In August 2010, she began to experience persistent lower-back pain after lifting boxes at work. Blanchard sought medical treatment for her back pain on September 23, 2010. As her pain worsened, Blanchard began missing work and struggled to perform her job duties. Millstone terminated Blanchard’s employment in January 2011. Thereafter, Mid-Century, Millstone’s workers' compensation carrier, began paying temporary total disability benefits to Blanchard. On July 22, 2011, Blanchard’s treating physician determined she had reached maximum medical improvement. He rated Blanchard with a five-percent whole-person impairment, and a permanent lifting restriction of twenty pounds. Mid-Century stopped paying benefits to Blanchard in August 2011. Blanchard did not find employment that accommodated her work restrictions until August 2012.

[¶3.] Blanchard filed a petition with the Department in November 2011, seeking continuing benefits. The Department held an evidentiary hearing on Blanchard’s petition in March 2014. The administrative law judge awarded Blanchard benefits, determining that her work activities at Millstone were a major contributing cause of her back pain and her inability to work. The decision directed Blanchard to submit proposed findings of fact, conclusions of law, and an order within twenty days. Millstone/Mid-Century was directed to submit objections and/or proposed findings of fact and conclusions of law within twenty days after Blanchard’s submissions.

[¶4.] Eric Blomfelt, defense counsel for Millstone/Mid-Century, informed Mid-Century’s claim adjuster, Beth Neu, of the adverse decision on July 21, 2014. Neu and Blomfelt discussed the case, including whether to appeal the decision to circuit court. Blomfelt explained to Neu that the Department’s decision generally accepted the testimony of Blanchard’s treating physician, while discounting the testimony from the doctor who conducted an independent medical examination for Millstone/Mid-Century. Blomfelt advised Neu that a decision finding one expert more credible than another is ordinarily not a good candidate for appeal. However, Blomfelt recommended appealing this decision because he believed deficiencies existed in the opinions offered by Blanchard’s treating physician. In particular, Blomfelt noted that Blanchard’s treating physician lacked knowledge regarding the scope of Blanchard’s job duties at Millstone.

[¶5.] Neu directed Blomfelt to file an appeal to the circuit court. While waiting for entry of the final order, Neu emailed Blomfelt for updates on the status of the case and asked if Blanchard might be open to settling. Blomfelt suggested waiting to discuss settlement, because Blanchard would not "have much motivation to settle" since she won at the administrative hearing.

[¶6.] Blanchard timely submitted proposed findings of fact, conclusions of law, and an order, requiring Millstone/Mid-Century to pay Blanchard’s medical expenses related to the injury. Millstone/Mid-Century was also ordered to pay $18,763.16 in temporary total benefits for the period from August 25, 2011 through August 1, 2012. On September 2, 2014, Blomfelt submitted proposed findings of fact and conclusions of law on behalf of Millstone/Mid-Century that agreed in all material respects with the Department’s decision, including the compensability of Blanchard’s injuries. Blomfelt also failed to submit objections to Blanchard’s proposed findings of fact and conclusions of law. Blomfelt did not provide a copy of his proposed findings of fact and conclusions of law to Neu or Mid-Century. Millstone/Mid-Century timely appealed the decision on October 13, 2014.

[¶7.] At his deposition, Blomfelt admitted he had received a letter from Blanchard’s counsel in early November 2014 advising that Blomfelt’s proposed findings of fact and conclusions of law failed to preserve error for appellate review of the Department’s decision. The letter claimed that this omission rendered the appeal infirm. Blomfelt did not provide a copy of the letter to Neu or discuss it with her.

[¶8.] Blanchard moved to dismiss the appeal on November 14, 2014, arguing that Millstone/Mid-Century failed to preserve objections to the findings of fact and conclusions of law. Blomfelt informed Neu by email on November 30th that Blanchard had filed a motion to dismiss. Blomfelt did not provide a copy of the motion to dismiss or explain the basis for the motion to Neu.¹ While discussing the motion to dismiss, Blomfelt also recommended that Mid-Century should explore settlement with Blanchard’s counsel. Blomfelt sent a letter to Blanchard’s counsel on November 30th asking if Blanchard was interested in discussing settlement. Blanchard rejected this overture. Blomfelt filed a resistance to the motion to dismiss and an appeal brief on behalf of Millstone/Mid-Century.

[¶9.] On December 11, 2014, Blanchard’s counsel sent correspondence to Blomfelt claiming that Blanchard was "in severe financial distress" and "on the verge of having her vehicle repossessed and [could not] pay her rent" due to Mid-Century not paying her benefits. The letter also stated Blanchard’s belief that Mid-Century was acting in bad faith by pursuing a meritless appeal in hopes of settling for less than Mid-Century had already conceded it owed under the Department’s decision. Blomfelt did not inform Neu of this second letter.

[¶10.] On December 30, 2014, the circuit court granted Blanchard’s motion to dismiss explaining Millstone/Mid-Century "actually made no indication that [it] disagreed with the Department’s findings" and their appeal "directly contradicts the proposed findings of fact and conclusion[s] of law [Mid-Century] submitted to the Department." Mid-Century first learned the motion to dismiss had been granted in an email from Blomfelt to Neu on January 6, 2015. Millstone/Mid-Century did not appeal the dismissal and immediately paid Blanchard’s workers' compensation award in accordance with the Department’s decision.

[¶11.] On March 16, 2015, Blanchard filed this bad faith action claiming Mid-Century pursued a "baseless and meritless appeal in an attempt to delay or avoid payment of that claim or settle that claim in an amount less than that indisputably due to Plaintiff ...." Blanchard further alleged that the entire purpose of the appeal was to try to exploit her "desperate need for money by intentionally offering to settle [her] claim for less money[,]" causing her "to incur significant legal fees and costs."²

[¶12.] Mid-Century initially moved for summary judgment on Blanchard’s bad faith claim and moved to exclude certain evidence under the litigation conduct rule. See generally Dakota, Minn. & E.R.R. Corp. v. Acuity (DM&E) , 2009 S.D. 69, 771 N.W.2d 623 (explaining the litigation conduct rule). The circuit court denied the motion without prejudice, explaining the factual record was not adequately developed concerning Mid-Century’s knowledge. Mid-Century subsequently filed a third-party complaint against Blomfelt for professional negligence and indemnity.

[¶13.] On August 1, 2017, Mid-Century renewed its motion for summary judgment and again moved to exclude evidence of Mid-Century’s litigation conduct. Mid-Century argued that evidence of its litigation conduct was not admissible, and the evidence did not establish that Mid-Century "denied her claim for further workers' compensation benefits without a reasonable basis, or that it knew or recklessly disregarded the lack of a reasonable basis for denial." In her resistance, Blanchard argued that Blomfelt’s knowledge should be imputed to Mid-Century. Blanchard further argued that Mid-Century’s conduct was admissible because the litigation conduct rule did not protect the decision to pursue a meritless appeal and attempt to settle for less than had already been conceded to be owed.

[¶14.] Following a hearing, the circuit court granted summary judgment to Mid-Century. The court explained that Blanchard could not satisfy the standard for bad faith as she could not prove Mid-Century "knew of or acted with reckless disregard of counsel’s conduct." The circuit court emphasized that Blanchard’s bad faith claim was "narrow" because "she does not seem to claim the decision to appeal, itself, is bad faith. Instead, she claims Blomfelt’s findings and conclusions rendered [Mid-Century’s]...