State News : South Dakota

South Dakota Supreme Court

Whitesell v. Rapid Soft Water & Acuity

James Leach/Charles Larson

Issue: Whether a workers’ compensation carrier must pay the full amount of medical expenses incurred or whether it has to simply reimburse the health carrier for expenses actually paid.

The background of this case is not all that important, but the holding will have significant impacts going forward. This was a workers’ compensation claim whether the insurer denied surgery to the cervical spine. The department held a hearing and found the surgery was related to the work injury and the employer and insurer were responsible for the surgery.

Claimant had very good health insurance, which paid for the cervical fusion. The amount billed by the health providers was over $100,000. However, the amount paid by the health carrier was just over $20,000. After the department’s decision, the insurer reimbursed the health carrier their $20,000, and paid the claimant his out of pocket expenses. The claimant filed a motion with the department seeking to require the insurer to pay the full amount of the charges.

The department held the insurer satisfied its obligation by reimbursing the health carrier for what was actually paid. The circuit court reversed and held the full amount of the bills had to be paid to the health carrier, with the claimant’s attorney receiving a fee on those bills. The matter was appealed to the South Dakota Supreme Court.

The court reversed and held the insurer’s obligation was only to reimburse the health carrier for payments actually made. The applicable statute indicates that in the event a denied claim is later determined to be compensable, the insurer shall immediately "reimburse" the parties who made payments. The court said the plain language of the statute must be applied, and rejected the claimant’s argument that this would encourage wrongful denials.

This decision will have a huge impact going forward. With the requirement that everyone have health insurance, we will hopefully see more claims where a claimant has personal health insurance. If health insurance pays for something that is later determined to be responsible, your obligation is to reimburse the health carrier. The amount paid by the health carrier will be a substantial reduction on what was charged, depending on the health carrier.

Isack v. Acuity

Jon Sogn/Rick Orr

Issue: Whether the claimant’s attorney in a third party action is entitled to an attorney fee on the amount recovered by the insurer.

The claimant in this case was in a horrible automobile accident (semi versus car), and will be living in an assisted living facility his entire life. The claimant brought suit against the driver of the semi seeking damages from the accident. The claimant was also receiving benefits from the insurer as the injury occurred while he was working.

The insurer paid for medical expenses, and was to be reimbursed when the claimant settled with the semi driver. The insurer also received a credit on future "like damages" that the claimant received (lost time and medical benefits). The question was whether the insurer had to pay a fee to the claimant’s attorney for recovery of past and future medical expenses. The court held the insurer had to pay a fee, but the decision was very factual, and will not have much impact going forward.

The court indicated an insurer can hire its own attorney to protect its subrogation interest, and to negotiate the future credit. The insurer is not required to pay a fee to the claimant’s attorney as long as the insurer’s attorney takes an active role and actively participates in the litigation. The finding in this case was that the insurer’s attorney’s contribution was "de minimum" when compared to the work of the claimant’s attorney. The court could have held that an insurer is never allowed to protect its own interest, which would have had a huge impact on future claims. Instead, the decision states it is a factual question on whether the attorney did enough to warrant not paying the claimant’s attorney.

While this was case adverse to the insurer, it likely will not have any real bearing on future cases. The court’s language allows for a carrier to protect its own interest and avoid paying an attorney fee, but only if their attorney actively participates and substantially contributes to resolving the underlying claim.

South Dakota Department of Labor

Jacobson v. Rupp Masonry Construction

Robert A. Christenson/Eric Kerkvliet

Issue: Whether employer’s denial of specific medical benefits triggered the two year statute of limitations on future medicals.

Claimant suffered a work-related injury in 1987 that was primarily denied. The parties settled the dispute and Employer agreed to pay for future medical treatments directly and causally related to claimant’s alleged 1987 work injury. In 1998, Claimant suffered a slip and fall that was not work related and submitted medical bills related to that slip and fall to work comp. Employer denied medical benefits specifically associated with the slip and fall. On September 4, 2012, Claimant treated with Dr. Mitchell Johnson from Orthopedic Institute and Dr. Johnson recommended surgery. Dr. Johnson opined that the surgery was needed to correct problems caused by the 1987 injury. Employer filed for summary judgment stating that its denial of benefits in 1998 triggered the two year statute of limitations, barring Claimant’s claim for medical benefits.

The Department denied summary judgment and stated that the settlement agreement left open all medical benefits directly related to the 1987 injury. The 1998 denial only applied to that specific claim for medical benefits and did not prevent any future claim for medical benefits. Since SDCL 62-7-35 allows for a partial denial, the statute of limitations only applies to those benefits denied. In other words, the denial was too specific, and so it only applied to the dates of treatment identified. Moral of the story: it’s better to draft denial letters broadly.

Anderson v. Global Polymer Industries, Inc. and Cincinnati Insurance

Gary Schumacher/Charles Larson

Issue: Whether Claimant’s case should be dismissed for failure to prosecute.

I tried to get a case dismissed for failure to prosecute. There had been more than a year with no activity so it was up to the discretion of the department whether to dismiss the case. I was hoping that with one of the judges leaving, the other two would be a little more prone to get cases off of their desk. The motion to dismiss was denied as the claimant’s attorney had been gathering medical records within a couple weeks of the motion. While that should not count as "activity," the department felt it would be unfair to dismiss the claimant’s case.

Jordan Baker v. Rapid City Professional Hockey and Ace American Insurance Co

Steve Siegel/Greg Erlandson

Issue: Whether the collective bargaining agreement removes Claimant’s claim from the Department’s jurisdiction.

This is a case where a semi-professional hockey player was injured while playing hockey for the employer. The claimant sought medical treatment for his injury and the employer refused to pay for the treatment. The collective bargaining agreement specifically addressed how players would receive worker’s compensation benefits and directed that any disputes will be resolved through arbitration. Claimant filed a petition for benefits with the Department and Employer claimed the Department had no jurisdiction pursuant to the arbitration clause in the collective bargaining agreement.

In analyzing the jurisdictional issue, the Department held that SDCL 62-3-2 (work comp exclusive remedy for work injuries) precluded Claimant from seeking a remedy via arbitration as arbitration is contrary to law. The Department was quick to note that the arbitration clause was only unenforceable as it related to workers’ compensation matters and may be utilized for all other matters.

This case really has little bearing going forward. The interesting part is that I just saw where the Department signed an order allowing two parties to entire into a binding arbitration. The difference was that the Department entered the order allowing arbitration versus the parties simply putting it into a contract that is not approved by the Department.

Klinkner v. Lamont Company and Midwest Family Mutual Insurance Co.

Kara Semmler/JG Shultz

Issue: Whether certain withheld documents pursuant to Attorney Work Product are discoverable.

This is another case dealing with withheld documents and a motion to compel those documents. Claimant had a compensable injury to his hand in 2012. Eventually, Employer retained a nurse case manager on April 2, 2013. On April 9, 2013, Claimant’s attorney made contact with the nurse case manager and on April 10, 2013, Claimant’s attorney contacted Insurer. Claimant filed a petition for hearing on August 14, 2013. Employer answered the petition and denied any further benefits. Claimant sent discovery to Employer and Employer, who objected to the production of the nurse case manager notes claiming they were created in anticipation of litigation. Claimant moved to compel the production of the nurse case manager notes.

The Department used the same analysis as prior cases when determining whether the documents requested were protected by the attorney work product doctrine. Specifically, the Department held that "the test we apply for determining whether a document or tangible thing is attorney work product is whether in the light of the nature of the document and the factual situation in the particular case, the document can fairly be said to have been prepared or obtained because of the prospect of litigation."

Employer argued that it anticipated litigation from the time Claimant hired an attorney. Claimant argued litigation could not be anticipated prior to the denial of benefits in Employer’s answer to the petition. The Department disregarded both arguments. It stated that the fact that Claimant hires an attorney to insure his rights are protected does not automatically signal that litigation is imminent. In this case, the correspondence from Claimant’s attorney was focused on insuring that the claims process proceeded smoothly. The Department also held that the date of denial was not pivotal as litigation could be anticipated prior to a denial, thus prompting a petition for hearing. In the end, the Department found that the date Claimant filed his petition was the date Employer could anticipate litigation.

While the Department used the correct test, I believe it reached the wrong conclusion. It’s absurd to think that the insurer in this case didn’t anticipate litigation until the petition was filed. I think that if the decision was appealed, the circuit court would find a different date applied. This is a good warning to be careful what is in your notes, and the nurse case manager notes, as that information will likely be produced.

Clyde v. Hardees and American Family Insurance

Brad Lee/Jeremy Nauman

Issue: Whether sheltered employment is considered regularly and continuously available employment to defeat a perm total claim

This case deals with a worker who was injured at Hardees and suffered elbow and cervical pain. It was a compensable claim. Claimant was given permanent work restrictions of no push, pull or lift greater than 5-10 pounds and avoid repetitive bending or twisting of the cervical spine. Hardees was unable to accommodate those restrictions and Claimant was terminated.

Claimant filed for unemployment and received such benefits. Claimant made about 150 job contacts while receiving unemployment benefits. Employer denied indemnity benefits while Claimant was receiving unemployment benefits. Eventually, Employer arranged for Claimant to work for All Facilities, Inc. doing telephone survey work. Basically, Employer paid All Facilities, Inc. to hire Claimant, thus subsidizing Claimant’s wages with All Facilities, Inc. Claimant only worked for All Facilities, Inc. for a short time due to alleged increased pain symptoms from doing her work activities.

Eventually, Claimant made a perm total claim on the fact that she was 58 years old, had only a high school education, had no real work experience outside of fast food (was a stay at home mom for 20 years) and her physical condition limited the available jobs. Employer denied benefits. The Department held that Claimant carried her burden to show that she was obviously in the odd-lot disability category and that the burden shifted to Employer to show that some form of suitable work was regularly and continuously available to Claimant. Employer argued that the All Facilities, Inc. position met that burden.

Among her arguments against Employer’s allegation that the All Facilities, Inc. position met Employer’s burden, Claimant argued that the All Facilities, Inc. position was not a bona fide opportunity because it was sheltered employment. Basically, Claimant argued that the only she had the position with All Facilities, Inc. was because Employer was paying All Facilities, Inc. for every expense associated with Claimant’s employment at All Facilities, Inc. In relying on an US Department of Labor case and an Illinois work comp case, our Department held that a single offer of employment for a sheltered position does not meet the Employer’s burden to show that work is regularly and continuously available to Claimant that fits within her work restrictions and meets or exceeds her workers’ compensation rate. This case applied to a perm total case, and likely will not have an impact on non-PTD cases.

On a side note, the Department also held that receiving unemployment benefits does not automatically mean that Claimant is not disabled for purposes of workers’ compensation.

If you have any questions, please contact Charlie Larson at 605-336-2424 orcalarson@bgpw.com. Thanks!