Johnson v. United Parcel Serv.

• Citation: 2020 S.D. 39
• Decision Date: 24 June 2020
• Docket Number: #28599,#28609,#28598
• Parties: FERN JOHNSON, Plaintiff and Appellee, v. UNITED PARCEL SERVICE, INC., and LIBERTY MUTUAL FIRE INSURANCE CO., Defendants and Appellants.
• Court: Supreme Court of South Dakota

2020 S.D. 39

FERN JOHNSON, Plaintiff and Appellee, v. UNITED PARCEL SERVICE, INC., and LIBERTY MUTUAL FIRE INSURANCE CO., Defendants and Appellants.

#28598

#28599

#28609

SUPREME COURT OF THE STATE OF SOUTH DAKOTA

ARGUED FEBRUARY 21, 2019

June 24, 2020

#28598, #28599, #28609-r-MES

APPEAL FROM THE CIRCUIT COURT OF THE SEVENTH JUDICIAL CIRCUIT PENNINGTON COUNTY, SOUTH DAKOTA

THE HONORABLE JANE WIPF PFEIFLE Judge

DAVID S. BARARI

G. VERNE GOODSELL

TERENCE R. QUINN of

Goodsell Quinn, LLP

Rapid City, South Dakota

ROBERT S. PECK of

Center for Constitutional Litigation, P.C.

Washington, D.C.

WM. JASON GROVES

Rapid City, South Dakota

Attorney for plaintiff and

appellee.

JACK H. HIEB

ZACHARY W. PETERSON of

Richardson, Wyly, Wise

Sauck & Hieb, LLP

Aberdeen, South Dakota

THOMAS D. WARREN of

Baker & Hostetler, LLP

Cleveland, Ohio

Attorneys for defendants and

appellants.

SALTER, Justice

[¶1.] Fern Johnson sued her former employer, United Parcel Service (UPS), and its workers' compensation carrier, Liberty Mutual Fire Insurance (collectively Appellants), alleging bad faith and conversion based on their denial of previously ordered workers' compensation medical benefits. A jury returned a verdict for Johnson, awarding her general and punitive damages. On appeal, the Appellants claim the circuit court erred when it concluded before trial that their legal obligation to pay Johnson's benefits was not fairly debatable and that no reasonable basis to deny Johnson's benefits existed. The Appellants also claim that the court abused its discretion by excluding specific evidence of their attorney's advice to terminate benefits and by instructing the jury that it could not consider their reliance upon the advice of counsel to determine whether the elements of bad faith were met.

[¶2.] We agree that the Appellants had no reasonable basis to terminate Johnson's medical benefits because their legal obligation to pay was not fairly debatable. However, we conclude the circuit court erred when it determined this lack of a reasonable basis necessarily impacted the jury's consideration of the separate bad faith element concerning the Appellants' knowledge. This error manifested itself in the court's evidentiary rulings restricting certain evidence and in its jury instructions, which effectively ended the jury's consideration of the knowledge element. Therefore, we reverse and remand for a new trial.

Background

[¶3.] Fern Johnson worked at UPS from 1973 to 1982 and again from 1988 to 1997. In November 1995, Johnson noticed pain in her right groin area, especially with lifting. On January 4, 1996, Johnson experienced a sharp pain in her groin area at the end of her shift. She saw her gynecologist that day for what she believed was pain from endometriosis, a previously diagnosed medical condition. Following a laparoscopy two weeks later, Johnson learned she had a hernia and reported it to her employer the next day. Johnson underwent a combined hysterectomy and hernia repair surgery the following month. She returned to work on March 19, but experienced increased groin pain that kept her off work during a period of time that spring. Johnson subsequently quit working at UPS on December 9, 1997, due to groin and back pain.

[¶4.] Johnson initially filed for workers' compensation benefits related to, as relevant here, her hernia surgery and groin pain. On August 4, 2002, the Department of Labor (DOL or Department) determined that Johnson's hernia was causally related to her employment at UPS, but her groin pain was not.

[¶5.] Johnson appealed to the circuit court, which reversed the Department's decision that Johnson's groin pain was not compensable on March 9, 2004. The court remanded the case to the Department for further administrative proceedings in an April 15, 2005 order.

[¶6.] On remand, the administrative law judge (ALJ) issued findings of facts and conclusions of law, which stated in relevant part:

Pursuant to the Circuit Court's ruling, Claimant has demonstrated by a preponderance of evidence that her groinpain is causally related to her employment with Employer . . . . Claimant is entitled . . . to necessary, suitable, and proper medical expenses causally related to her work-related groin condition.

(Emphasis added.) See SDCL 62-4-1 ("The employer shall provide necessary first aid, medical, surgical, and hospital services, or other suitable and proper care including medical and surgical supplies, apparatus, artificial members, and body aids during the disability or treatment of an employee within the provisions of this title.") (Emphasis added.)

[¶7.] Following Johnson's pro se petition for review, the DOL Secretary affirmed the ALJ's findings of facts and conclusions of law in a March 14, 2006 order (2006 DOL Order). The Appellants did not appeal this order¹ and paid for Johnson's compensable medical expenses until the spring of 2010.

[¶8.] At that point, the Appellants asked their attorney, Eric Schulte, for advice regarding their ongoing obligation to pay Johnson's medical benefits. The Appellants assert that the claims adjuster assigned to Johnson's case was not familiar with South Dakota workers' compensation law and sought Schulte's advice because of his experience and excellent reputation. Schulte recommended scheduling an independent medical examination (IME) for Johnson with a neurologist pursuant to SDCL 62-7-1, which generally requires claimants toundergo compulsory IME's to "determin[e] the nature, extent and probable duration of the injury . . . ." Id.

[¶9.] The Appellants hired Dr. Bruce Norback, a board-certified neurologist, to conduct Johnson's IME. Dr. Norback opined that what had been described as Johnson's "neuroma condition" relating to her groin pain did not remain a major contributing cause of her need for continuing medical treatment.² Indeed, Dr. Norback believed "a definite diagnosis of a neuroma has never been made." He also thought that Johnson's employment at UPS was no longer a major contributing cause of her need for medical treatment related to her groin pain because she had not worked for UPS for almost 13 years, but still experienced worsening symptoms.

[¶10.] On August 9, 2010, the Appellants, through Schulte, wrote Johnson a letter stating that they were terminating payment of all present and future medical expenses related to her groin pain based upon Dr. Norback's IME findings. After the Appellants denied Johnson's requests for reconsideration, she filed a petition for hearing with the Department. Following the hearing, the Department issued findings of facts and conclusions of law, which included the finding that the Appellants had "denied all further workers' compensation benefits . . . based on Dr. Norback's opinion regarding the same issues that were litigated by the parties ten years earlier." The Department also concluded that the "Employer/Insurer did not make a request to the Department for a review of the medical services or payments made for Claimant . . . pursuant to SDCL 62-7-33." See SDCL 62-7-33 (describingthe procedure for an employer or employee to ask the Department to determine whether a changed condition warrants a modification of medical or disability payments).

[¶11.] The Department further concluded that the causal relationship of Johnson's work-related activities and her groin pain had already been established and that the "Employer/Insurer do not have the authority to approve or deny medical treatment . . . without proper notice to the Department for a review pursuant to SDCL 62-7-33." After finding Johnson's current medical treatments suitable based on her treating doctor's testimony, the Department reinstated Johnson's medical benefits on January 20, 2012. The Appellants then reimbursed Johnson for approximately $13,000 in medical expenses that she had incurred following their decision to terminate benefits.

[¶12.] On appeal to the circuit court, the Appellants argued that notwithstanding the 2006 DOL Order, the provisions of SDCL 62-7-1 and SDCL 62-1-1(7) allowed them to review Johnson's medical condition and unilaterally determine if her work injury "remains a major contributing cause of her . . . need for treatment." The circuit court disagreed and affirmed the Department's determination that SDCL 62-7-33 was "the proper mechanism" to review the 2006 DOL Order. In its decision, the circuit court stated that "[a]fter an award is final, whether the injury is a major contributing cause becomes an issue only after the employer/insurer establishes a change in condition." The circuit court concluded that an employer or insurer may not "decide to unilaterally ignore the Department's decision." The Appellants did not appeal the circuit court's ruling.

[¶13.] On May 22, 2014, Johnson commenced this action against the Appellants alleging bad faith, barratry, conversion, abuse of process, and requesting punitive damages. In its amended answer, the Appellants raised several affirmative defenses, including claims that the law was fairly debatable at the time of its 2010 denial and that it had relied on the advice of counsel.

[¶14.] The parties sought to narrow or eliminate various claims and defenses through summary judgment. The circuit court granted the Appellants' motion for summary judgment on the barratry and abuse of process claims, but the court denied the motion as to the conversion claim, finding the evidence could show Johnson met the elements to prevail on the claim.³

[¶15.] The Appellants' affirmative defenses relating to Johnson's bad faith claim were also the subjects of summary judgment litigation. In her summary judgment motion seeking to preempt the Appellants' defense that they relied upon the advice of counsel, Johnson argued that the Appellants could not reasonably rely upon legal advice that contradicted an existing order to pay medical benefits. With regard to its fairly debatable defense, the Appellants claimed that at the time they terminated Johnson's benefits, utilizing the IME process to disregard...