Mudlin v. Hills Materials Co.

Citation742 N.W.2d 49,2007 SD 118
Decision Date14 November 2007
Docket NumberNo. 24339.,24339.
PartiesVanessa L. MUDLIN, Plaintiff and Appellant v. HILLS MATERIALS COMPANY, a South Dakota Corporation, Oldcastle Materials South Dakota, Inc., Oldcastle Materials, Inc., a Delaware Corporation; Oldcastle Inc., a Delaware Corporation, and Liberty Mutual Insurance Company, Defendants and Appellees.
CourtSupreme Court of South Dakota

G. Verne Goodsell of Gunderson, Palmer, Goodsell & Nelson, LLP, Rapid City, and William Jason Groves of Groves Law Office, Rapid City, for appellant.

Edward C. Carpenter of Costello, Porter, Hill, Heisterkamp, Bushnell & Carpenter, LLP, Rapid City, and John Fornaciari of Sheppard, Mullin, Richter & Hampton, LLP, Washington, DC, for appellees Hills and Oldcastle et al.

Gary D. Jensen of Beardsley, Jensen and Von Wald, Rapid City, and Terrence R. Joy, Jason W. Pfeiffer, Daniel W. Berglund of Robins, Kaplan, Miller & Ciresi, LLP, Minneapolis, MN, for appellees Liberty.

SABERS, Justice.

[¶ 1.] Vanessa L. Mudlin brought suit against her employer Hills Materials Company (Hills)1 and its insurer Liberty Mutual Fire Insurance Company (Liberty Mutual) for bad faith, breach of contract, barratry, abuse of process, intentional infliction of emotional distress and punitive damages. Hills2 moved for summary judgment, which was granted. Mudlin appeals. We affirm.

FACTS

[¶ 2.] This case arises out of the denial of Mudlin's workers' compensation benefits. Mudlin was employed by Hills as a flagger, laborer, and material spreader. Around 5:30 a.m. on June 7, 1999, Mudlin arrived at the quarry in Rapid City, South Dakota, which was Hills' base location. Having discovered her work crew already left, she drove her personal vehicle to that day's work site near Faith, South Dakota. Between Newell and Faith, Mudlin fell asleep, rolled her vehicle, incurred substantial personal injury and was hospitalized for several weeks.

[¶ 3.] Mudlin returned to work on August 16, 1999. She later resigned on July 3, 2001. Five months after she resigned, she filed a claim for workers' compensation benefits against Hills and its insurer, Liberty Mutual. A hearing was held by the Department of Labor, which ruled in favor of Mudlin. Hills appealed to the circuit court, which agreed with the Department. On appeal, this Court affirmed in Mudlin v. Hills Materials Company, 2005 SD 64, ¶ 1, 698 N.W.2d 67, 70 (Mudlin I).

[¶ 4.] Mudlin sued Hills, its owners Oldcastle Materials, Inc. and Oldcastle, Inc.3 and Hills' insurer, Liberty Mutual, alleging bad faith in their denial of her workers' compensation benefits.4 Hills moved for summary judgment arguing a reasonable basis for denial of benefits existed; thus, Mudlin's bad faith claim failed as a matter of law. The circuit court ruled in favor of Hills and Mudlin appeals raising the following issues:

1. Whether the circuit court erred when it found the denial of benefits was fairly debatable.

2. Whether the circuit court erred in granting summary judgment based on a case defendants did not cite until appeal to the circuit court.

3. Whether the circuit court's ruling is consistent with the purposes of workers' compensation law.

STANDARD OF REVIEW

[¶ 5.] The facts of this case are undisputed. Therefore, the "facts do not present a genuine issue of material fact but raise a legal question as to whether the facts constitute bad faith." Phen v. Progressive N. Ins. Co., 2003 SD 133, ¶ 25, 672 N.W.2d 52, 59. "[T]his is ... a legal question to be determined de novo." Id.; see Culhane v. W. Nat'l Mut. Ins. Co., 2005 SD 97, ¶ 32, 704 N.W.2d 287, 301 (reversing the trial court's authorization to proceed with a bad faith claim because the insurer did not act in bad faith denying the claim).

[¶ 6.] 1. Whether the circuit court erred when it found Hills' denial of benefits was fairly debatable.

[¶ 7.] In a bad faith case, "the insured must show an absence of a reasonable basis for denial of policy benefits [or failure to comply with a duty under the insurance contract] and the knowledge or reckless disregard [of the lack] of a reasonable basis for denial." Phen, 2003 SD 133, ¶ 24, 672 N.W.2d at 59 (citing Stene v. State Farm Mut. Auto. Ins. Co., 1998 SD 95, ¶ 19, 583 N.W.2d 399, 403) (additional citations omitted). However, "[a]n insurance company is entitled to challenge claims which are fairly debatable and will be found liable only where it has intentionally denied ... a claim without a reasonable basis." Id.

[¶ 8.] In order to receive workers' compensation benefits, "[a] claimant must prove by a preponderance of the evidence that she sustained an injury `arising out of and in the course of the employment.'" Mudlin, 2005 SD 64, ¶ 7, 698 N.W.2d at 71 (citing SDCL 62-1-1(7); Norton v. Deuel Sch. Dist., 2004 SD 6, ¶ 7, 674 N.W.2d 518, 520). "Generally, employees injured while going to and coming from work are not covered under workers' compensation." Id. (citing S.D. Pub. Entity Pool for Liab. v. Winger, 1997 SD 77, ¶ 19, 566 N.W.2d 125, 131 (stating the "going and coming" rule)). Hills argues that the denial of benefits in this case presented several issues of first impression in South Dakota regarding the going-and-coming rule, such as:

[W]hether a customary, but not required, appearance at the office before travel to a job site was a basis for an exception to the going-and-coming rule; whether nominal pay for travel to a job site, but not return from the job site, was a basis for an exception to the rule; whether commencement of wages only at a specified time at the job site for work actually performed upon arrival was dispositive in application of the rule.

Additionally, Hills claims courts have uniformly held that where an insurer denies a claim based on an issue of first impression, an insurer does not engage in bad faith. Therefore, it argues Mudlin's bad faith claim must fail.

[¶ 9.] Mudlin claims that her travel between the base location and the remote job site was "an activity that is expressly authorized by [Hills]." She argues that it is settled law that when an employee is carrying out an act expressly authorized by the employer, that employee is within the course and scope of employment. Therefore, Mudlin argues that this is not a matter of first impression,5 Hills denied her claim without a reasonable basis to do so, and the circuit court erred by granting summary judgment.

[¶ 10.] However, it is clear that the arguments before the Department, the circuit court and this Court during the workers' compensation proceedings involved the going-and-coming rule and any potential exceptions thereto. Hills cited cases from different jurisdictions that held nominal payment is not enough to bring the employee's action outside of the going-and-coming rule, even when the employee was expressly authorized to drive their personal vehicle. See Mitchell v. Pleasant Hill Gen. Hosp., Inc., 491 So.2d 183, 185 (La.Ct.App.1986); Ricciardi v. Aniero Concrete Co. Inc., 64 N.J. 60, 312 A.2d 139, 141 (1973); Madaras v. Chinigo, 131 N.J.Super. 314, 329 A.2d 592, 594-95 (L.1974); Jourdan v. State Indus. Ins. Sys., 109 Nev. 497, 853 P.2d 99, 101-02 (1993); Byrd v. Stackhouse Sheet Metal Works, 317 S.C. 35, 451 S.E.2d 405, 407 (Ct.App.1994).

[¶ 11.] Furthermore, in the eyes of the employer, Mudlin was driving to work from home, as they argued she was not required to drive to the quarry before leaving for the remote jobsite,6 and would be within the going-and-coming rule. See Mudlin I, 2005 SD 64, ¶ 3 n. 1, n. 2, 698 N.W.2d at 70 n. 1, n. 2 (noting that although it was common company practice for employees to meet at the quarry before traveling to remote work sites, Mudlin's supervisor testified meeting at the quarry was not required and employees typically drove their personal vehicles).

[¶ 12.] Additionally, in the cases that deny benefits based on the going-and-coming rule, despite nominal payment, the employer also expressly authorized the employee to drive his personal vehicle and receive reimbursement. For example, Hills references Ricciardi, 64 N.J. 60, 312 A.2d 139, to support its denial of benefits. In Ricciardi, the employee was reimbursed for the tolls he encountered on his way to and from work. This was approximately 40% of his commuting costs. The employee was injured on his commute and the lower courts allowed compensation based on "the exception to the `going and coming' rule comprised by the situation where the employer furnishes actual transportation to the employee for the trip to or from home or reimburses him his expenses therefor." Id. at 140. The New Jersey Supreme Court denied compensation and explained:

We conclude, after study of all the cases, that the rationale of the exception to the going and coming rule under discussion can be sustained only in those situations where, if the employer reimburses him for all or substantially all of the total expenses involved. Anything less would border so closely upon the noncompensable area where the arrangement is really part of the work-remuneration rather than provision for transportation as to render the rule impracticable of judicial administration and of but ephemeral foundation in any significant Nexus between the journey and the employment.

Id. at 141. See Mitchell, 491 So.2d at 184-85; Jourdan, 853 P.2d at 101-02; Byrd, 451 S.E.2d at 407.

[¶ 13.] Other jurisdictions have held that disputes over the applicability of the going-and-coming rule constitute reasonable bases for an insurer to deny a workers' compensation claim. Complete Vending Services, Inc. v. Indus. Comm'n, 305 Ill.App.3d 1047, 239 Ill.Dec. 472, 714 N.E.2d 30, 32-33 (1999) (denying imposition of penalties because insurer's denial based on going-and-coming rule was reasonable); McLin v. Indus. Specialty Contractors, Inc., 851 So.2d 1135, 1144 (La. 2003) (denying penalties for insurer's refusal to pay claim based on going-and-coming rule). In Complete...

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