O'CONNOR v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, 02-795.

• Decision Date: 23 March 2004
• Docket Number: No. 02-795.,02-795.
• Citation: 87 P.3d 454,2004 MT 65
• Parties: Teddy Ann O'CONNOR, Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendant and Cross-Plaintiff, v. Alexsis, Inc., Third-Party Defendant.
• Court: Montana Supreme Court

87 P.3d 454

2004 MT 65

Teddy Ann O'CONNOR, Plaintiff, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendant and Cross-Plaintiff, v. Alexsis, Inc., Third-Party Defendant.

No. 02-795.

Supreme Court of Montana.

Argued July 17, 2003.

Submitted August 12, 2003.

Decided March 23, 2004.

Rehearing Denied April 14, 2004.

For Petitioner: Sharon M. Morrison, Frank B. Morrison, Jr. (argued), Morrison & Frampton, Whitefish, Montana.

For Defendants: L.D. Nybo and Allen P. Lanning (argued), Conklin, Nybo & Lanning, Great Falls, Montana (for National Union Fire Insurance Company of Pittsburgh, PA) Charles E. McNeil (argued), Garlington, Lohn & Robinson, Missoula, Montana (for Alexsis, Inc.).

Chief Justice KARLA M. GRAY delivered the Opinion of the Court.

¶ 1 By order dated December 26, 2002, and pursuant to Rule 44, M.R.App.P., the United States Court of Appeals for the Ninth Circuit certified two questions to this Court. We accepted the certified questions by order dated January 7, 2003. Pursuant to Rule 44(d), M.R.App.P., we reformulate and address the following certified question:

¶ 2 For statute of limitations purposes, do statutory and common law bad faith claims against an insurer, predicated on actions taken in the adjustment of a workers' compensation claim, accrue when the Montana Workers' Compensation Court enters a judgment which orders the insurer to pay for a previously denied benefit, but which leaves unresolved the ultimate determinations of the extent and duration of the worker's disability?

¶ 3 After briefing and oral argument by the parties, and for the reasons set forth below, we answer the question in the affirmative.

BACKGROUND

¶ 4 In August of 1993, Teddy Ann O'Connor (O'Connor) injured her back when she slipped and fell while working at the Wal-Mart store in Billings, Montana. At the time of O'Connor's injury, National Union Fire Insurance Company of Pittsburgh, PA (National Union) insured WalMart against workers' compensation claims. National Union employed Alexsis, Inc. (Alexsis) to adjust O'Connor's claim.

¶ 5 O'Connor's original physician recommended against surgery to repair the damage to her back. She sought a second opinion and was referred to a neurosurgeon who recommended surgery. O'Connor asked Alexsis for permission to continue treatment with the neurosurgeon and undergo the surgery, but Alexsis denied her request. O'Connor filed a claim with the Workers' Compensation Court (WCC) requesting various benefits, including that National Union pay for her back surgery. On May 19, 1995, the WCC determined that O'Connor had been temporarily totally disabled since March 16, 1994, and ordered National Union to pay for her surgery and lost wages since that date. Noting that O'Connor had not reached maximum healing, the WCC did not determine National Union's further liability and stated there was "a legitimate issue as to whether [O'Connor's] current condition is attributable to her 1993 fall."

¶ 6 In October of 1996, several months after her surgery, O'Connor filed an action against National Union in the United States District Court for the District of Montana, alleging National Union violated the Montana Unfair Trade Practices Act (MUTPA), § 33-18-101, MCA, et seq., in that it delayed her surgery in bad faith by denying her claim when liability was reasonably clear. National Union moved for summary judgment, arguing that the action was barred by the statute of limitations. The federal trial court denied the motion, but dismissed O'Connor's action without prejudice on the basis that it was filed prematurely. The court observed that the MUTPA prohibits a third-party claimant from filing an action against an insurer until the underlying claim is settled or reduced to judgment, and National Union's liability had not been fully determined.

¶ 7 In January of 2000, O'Connor filed a second action against National Union in the federal district court in reaction to our ruling in Brewington v. Employers Fire Ins. Co., 1999 MT 312, 297 Mont. 243, 992 P.2d 237, which she believed established that the underlying workers' compensation claim need not be resolved completely before a bad faith claim may be brought. She again alleged violations of the MUTPA, and added a common law bad faith claim. National Union filed a third-party complaint against Alexsis for indemnification. Both National Union and Alexsis filed motions for summary judgment, asserting that O'Connor's claims were barred by the applicable one-year and three-year statutes of limitations.

¶ 8 The federal district court interpreted Brewington as holding that, with regard to workers' compensation proceedings, an "underlying claim" included each WCC interim judgment, regardless of whether the claimant's ultimate disability had been determined. The court then concluded that the applicable statutes of limitations on O'Connor's claims arising out of the WCC's May 19, 1995, decision began to run at the time that decision was entered and, consequently, those claims were time barred when O'Connor filed her action in 2000. Based on that conclusion, the court granted summary judgment to National Union and Alexsis on those claims, and dismissed as premature O'Connor's bad faith claims occurring after May 19, 1995.

¶ 9 O'Connor appealed to the Ninth Circuit Court of Appeals from that portion of the federal district court's order which granted summary judgment to National Union and Alexsis. The Ninth Circuit then certified two questions to this Court and we reformulated them into one question.

DISCUSSION

¶ 10 For statute of limitations purposes, do statutory and common law bad faith claims against an insurer, predicated on actions taken in the adjustment of a workers' compensation claim, accrue when the WCC enters a judgment which orders the insurer to pay for a previously denied benefit, but which leaves unresolved the ultimate determinations of the extent and duration of the worker's disability?

¶ 11 A third-party claimant may not bring an action pursuant to the MUTPA "until after the underlying claim has been settled or a judgment entered in favor of the claimant on the underlying claim." Section 33-18-242(6)(b), MCA. Furthermore, the statute of limitations for an action brought by a third-party claimant pursuant to the MUTPA is "within 1 year from the date of the settlement of or the entry of judgment on the underlying claim." Section 33-18-242(7)(b), MCA. The MUTPA does not define the term "underlying claim."

¶ 12 A common law bad faith claim accrues "when all elements of the claim or cause exist or have occurred, the right to maintain an action on the claim or cause is complete, and a court or other agency is authorized to accept jurisdiction of the action." Section 27-2-102(1)(a), MCA. The statute of limitations for a common law bad faith claim is three years and begins to run "when the claim or cause of action accrues." Sections 27-2-204(1) and 27-2-102(2), MCA.

¶ 13 O'Connor argues that, for purposes of a MUTPA bad faith claim, the settlement of, or the entry of judgment on, the underlying workers' compensation claim does not occur until all issues contained in that claim including the ultimate issues of liability, and extent and duration of disability have been resolved. With respect to common law bad faith claims, she similarly argues that the cause of action does not accrue until all issues in the workers' compensation claim including liability, and extent and duration of disability have been resolved. National Union and Alexsis contend that statutory and common law bad faith claims arising out of the handling of workers' compensation claims accrue at the time each individual dispute giving rise to the bad faith claim is resolved by settlement or WCC judgment, regardless of whether other issues remain in dispute in the workers' compensation case. National Union and Alexsis are correct.

¶ 14 We first discussed the accrual of a third-party bad faith claim against an insurer arising from conduct in the handling of a workers' compensation claim in Grenz v. Orion Group, Inc. (1990), 243 Mont. 486, 795 P.2d 444. In that case, Grenz suffered a work-related injury for which the insurer, Orion Group, Inc. (Orion), accepted liability and paid benefits. Grenz initially received temporary total disability benefits. After several years, Orion reduced Grenz's benefits to permanent partial disability. Grenz challenged the reduction and, eventually, the WCC restored his benefits to temporary total disability. Grenz, 243 Mont. at 487, 795 P.2d at 445-46. The WCC did not determine, however, whether Orion had acted unreasonably in reducing Grenz's benefits. Grenz subsequently brought an action in the district court alleging Orion had acted in bad faith in handling his workers' compensation claim. Orion moved to dismiss the action, asserting it was premature because the WCC had not determined whether Orion had acted unfairly. The district court granted the motion and Grenz appealed. Grenz, 243 Mont. at 488-89, 795 P.2d at 445-46.

¶ 15 On appeal, we observed that § 33-18-242(6)(b), MCA, provides that a third-party bad faith claim may not be brought until after there has been either a settlement of or judgment entered on the underlying claim. Grenz, 243 Mont. at 491, 795 P.2d at 447. We then concluded the district court correctly determined that, until the WCC ruled on whether Orion's actions in reducing Grenz's benefits were improper, Grenz's bad faith action based on those actions was premature. We affirmed the dismissal of Grenz's complaint. Grenz, 243 Mont. at 490-91, 795 P.2d at 446-47. Thus, in analyzing whether Grenz's bad faith claim had accrued, we looked to whether the WCC had entered a judgment relating to the specific issue and conduct alleged in Grenz's district court bad faith complaint.

¶ 16 We next addressed this issue in Poteat v. St. Paul Mercury Ins. Co. (1996), 277 Mont. 117, 918 P.2d 677. There, Poteat suffered a...