In James “Jake” Mordhorst v. Dakota Truck Underwriters and Risk Administration Services, 2016 S.D. 70, the South Dakota Supreme Court heard an appeal arising out of the Circuit Court’s granting of Risk Administration Services’ (“Insurer”) motion to dismiss Jake Mordhorst’s allegations of bad faith denial of workers’ compensation benefits. In the underlying workers’ compensation claim, Mordhorst was injured when a sofa fell off the back of a delivery truck, striking him on the head and shoulders. Mordhorst was diagnosed with a herniated disk in his back. After obtaining an IME report from Dr. Segal indicating that Mordhorst only suffered from a strain, RAS terminated Mordhorst’s workers’ compensation claim. At hearing, the Department ruled in favor of Mordhorst.
Mordhorst then brought an action in Circuit Court, seeking punitive damages for Insurer’s bad faith denial of workers’ compensation benefits. Insurer moved for dismissal, arguing that Mordhorst failed to state a cause of action upon which relief could be granted, and the Circuit Court granted the motion, finding that Insurer had a reasonable basis for denying Mordhorst’s workers’ compensation benefits because they relied on the opinion of a qualified expert.
On appeal, the Supreme Court disagreed that the lawsuit should have been dismissed, asserting that the proper question before the Circuit Court was whether Mordhorst asserted facts that, if true, establish the necessary elements of a bad faith action. The Court recited the two elements a claimant must prove to succeed in a claim of bad faith denial: (1) an absence of a reasonable basis for denial of policy benefits and (2) the insurer’s knowledge of the lack of a reasonable basis for denial. Related to element one, the Supreme Court indicated that Mordhorst’s assertion that his medical records exhibited objective findings substantiating his complaints could provide a reasonable basis for the jury to conclude that Dr. Segal’s report was not reasonable. Furthermore, the Supreme Court rejected the notion that it is ever unreasonable for an insurer to act in accordance with an opinion given by an IME.
Although the Supreme Court did reiterate that the purpose of its decision was not to determine whether Dr. Segal’s report was biased or Insurer’s reliance thereon was unreasonable, but rather to determine whether the facts as alleged would be sufficient to support such a finding. The implications of this decision regarding the duties potentially imposed on insurer’s causes concern, and we will stay apprised of this case as it unfolds on remand to the Circuit Court.