State News : West Virginia

In State ex rel. Gallagher Bassett Services, Inc. v. Webster, No. 19-0043 WL 2494609 (W. Va. June 12, 2019), the West Virginia Supreme Court of Appeals held that the West Virginia workers’ compensation statute provides to third-party administrators (TPAs) statutory immunity from claims of workers’ compensation discrimination brought by employees. In granting third-party administrator Gallagher Bassett’s petition for a writ of prohibition and reversing the Circuit Court’s decision to deny the TPA’s motion to dismiss worker’s compensation discrimination and fraud claims brought against it, the Court determined that the TPA enjoyed immunity from the discrimination claim and that the fraud claim was barred by the relevant statute of limitations. Among the more notable parts of the Court’s opinion, however, is a discussion which appears to indicate that the Court may be amenable to relieving TPAs of liability for fraudulent denial of workers’ compensation benefits, a common law cause of action first recognized by the Court in Persinger v. Peabody Coal Co., 196 W. Va. 707, 474 S.E.2d 887 (1996). It appears possible the Court may extend the statutory immunity provided to TPAs by W. Va. Code § 23-2C-21(a) so as to cover fraud claims or alternatively to limit the reach of the Persinger cause of action.

The Persinger doctrine holds that the West Virginia workers’ compensation statute’s exclusive remedy provision does not preclude a civil fraud claim against employers that is separate and distinct from the employee’s original claim for benefits. That is, the Persinger action alleges damages stemming not from the workplace injury, but rather from denial of the employee’s claim based on fraudulent misrepresentation of information by the employer to some other person or body with authority to decide on the fate of the claim. Use of the fraudulent denial claim, however, has not been limited to actions against employers in West Virginia; TPAs have become liable under thePersinger doctrine as well.

For instance, in Barber v. Sedgwick Claims Management Services, Inc., No. CV 3:14-27349, 2016 WL 6211714 (S.D.W. Va. Oct. 24, 2016), plaintiff Jill Barber brought suit against Sedgwick, the TPA for her self-insured employer, Family Dollar, alleging fraudulent denial of benefits. Barber had been bitten by a brown recluse spider in the course of her employment and was initially approved for both wage loss and medical benefits following complications with the wound. However, Sedgwick later denied further treatment for Barber after a physician diagnosed her with an underlying auto-immune disease which was suggested to be responsible for the wound’s failure to heal. Barber alleged Sedgwick’s reviewing physician’s report was fraudulent and brought suit against the TPA for relying on the report in denying her benefits.

In an effort to dispose of Barber’s claims against it, Sedgwick moved for judgment on the pleadings, asserting—among other arguments—that thePersinger fraud claim was barred by W. Va. Code § 23-2C-21(a). That section provides that “[n]o civil action may be brought or maintained by an employee against a private carrier or a third-party administrator, or any employee or agent of a private carrier or third-party administrator, who violates any provision of this chapter or chapter thirty-three of this code.”

The District Court rejected that argument, finding that the Persinger cause of action’s source in common law—rather than Chapter 23 or 33 of the West Virginia State Code—precluded statutory immunity from covering the fraud claim. In denying Sedgwick’s motion and permitting the case to move forward, the Court indicated that TPAs fall within the scope of thePersinger doctrine and that they are not eligible for statutory immunity from the common law fraud claim. That state of affairs may change, however, in light of the West Virginia Supreme Court’s discussion ofPersinger claims in Gallagher Bassett.

Robin Lusk, the respondent in Gallagher Bassett, was employed as a long-haul truck driver by Old Dominion Freight Line, Inc., along with her husband, Kevin Lusk. In 2015, while in California for work, the Lusks drove into Old Dominion’s Los Angeles terminal to begin a haul. A computer system malfunction occurred while the Lusks’ truck was being connected with their new trailers that they were to haul, and Ms. Lusk received serious injuries. Some days later, an Old Dominion manager represented to Ms. Lusk that she and her husband had falsified entries in the Los Angeles terminal’s log book, and that both had been terminated from employment as a result. Upon returning home to West Virginia, the Lusks learned that their health insurance coverage had been terminated, and were informed by a representative of Gallagher Basset—Old Dominion’s third-party claims administrator—that Ms. Lusk’s claim for workers’ compensation benefits had been denied as the TPA had determined that her injury was not work-related.

Lusk protested the decision to deny her claim, and the West Virginia Workers’ Compensation Office of Judges (OOJ) ruled Ms. Lusk’s injury was in fact work-related, determining that her claim was compensable. The OOJ decision was affirmed by the Board of Review.

Following those decisions, Ms. Lusk sued Old Dominion and Gallagher Bassett in Kanawha County Circuit Court, alleging workers’ compensation discrimination and workers’ compensation fraud. Gallagher Bassett moved to dismiss all of Ms. Lusk’s claims against it, asserting that the claims were barred by the two-year statute of limitations and that it was not a proper defendant as it was not Ms. Lusk’s employer. Lusk responded that the statute of limitations had been tolled by the discovery rule, and that nothing in the state workers’ compensation statute precluded the application of the Persinger fraud cause of action to claims administrators. The Circuit Court denied the motion to dismiss, and Gallagher Basset subsequently filed a petition for a writ of prohibition with the West Virginia Supreme Court of Appeals, challenging the denial of its motion.

In granting the writ and ordering the Circuit Court to enter an order dismissing Ms. Lusk’s claims against Gallagher Bassett, the West Virginia Supreme Court first addressed questions of Gallagher Bassett’s statutory immunity to the discrimination claim pursuant to § 23-2C-21(a) of the state workers’ compensation statute. Again, that section provides that employees may not maintain any claims against TPAs growing out of Chapter 23 or Chapter 33 of the state code. The Court quickly noted that workers’ compensation discrimination is a statutory cause of action arising under Chapter 23 of the code, and held that the plain language of § 23-2C-21(a) necessitated the dismissal of the claim. Turning to Lusk’s fraud claim, the Court found that the discovery rule could not save the claim, rendering it barred by the two-year statute of limitations, again requiring its dismissal.

Perhaps just as relevant as the Court’s holding that TPAs are immune from discrimination claims, however, was its discussion of workers’ compensation fraud claims, shedding light on the possible direction the Court may take with thePersinger doctrine in future decisions. Prior to finding that Lusk’s fraud claim against Gallagher Bassett was barred by the statute of limitations, the Court entertained the possibility that the claim may have been improperly asserted against the TPA even in the absence of the statute of limitations.

First, the Court noted during its consideration of statutory immunity from the discrimination claim that the scope of the immunity supplied to TPAs by § 23-2C-21 might reasonably be interpreted as extending so far as to coverPersinger fraud claims. Subsection (c) of that section provides that attorney’s fees and costs must be awarded to a workers’ compensation claimant when the claimant’s self-insured employer or its TPA issues an “unreasonable” denial of benefits, which occurs when the employer or TPA is unable to demonstrate that it possessed sufficient probative evidence supporting the denial of the claim. The Court suggested conduct sufficient to constitute aPersinger claim—that is, knowingly and intentionally fraudulently misrepresenting facts in opposition to a claim for benefits—may constitute an “unreasonable” denial for purposes of subsection (c). If that were the case, subsection (a)’s prohibition on causes of action growing out of “any provision” of Chapter 23 would be invoked, shielding TPAs from the fraudulent denial claim. The Court ultimately declined to determine whether the scope of the immunity might be so broad, but by virtue of the discussion’s inclusion in the opinion, it would not be overly surprising to find the question answered in a future decision.

Separately, in discussing the scope of the Persinger cause of action itself, the Court pointed out that thePersinger opinion made repeated reference to civil claims against “an employer.” Nowhere in that opinion did thePersinger court describe a cause of action against self-insured employers’ TPAs for fraudulent denial of benefits. Although the doctrine has been interpreted by West Virginia courts to allow for TPA liability, a plain reading of thePersinger opinion does suggest that the claim for fraudulent denial of benefits was meant to be made against the partymaking the false representations, not the party relying on those representations. Again, the Court determined it did not need to make a determination on this point inGallagher Bassett, but the presence of the discussion seems to hint at an evolving understanding ofPersinger.

In sum, the current state of the law in West Virginia as it relates to liability for alleged fraudulent denial of benefits allows for claims of workers’ compensation discriminationand fraud against self-insured employers, while TPAs are liable solely for fraud. This state of affairs appears to be premised on the idea of TPAs and their employees acting as agents or servants of the self-insured employer so as to render the TPA liable as “an employer” under Persinger. In light of Gallagher Bassett, however, it does not seem outside the realm of possibility that the West Virginia Supreme Court may soon clarify the scope of the doctrine and relieve TPAs of liability for fraud.

Article by Dill Battle

If you have questions or need more information, please call or e-mail Dill Battle at 304.340.3823 ordbattle@spilmanlaw.com

H. Dill Battle III, Esq.

Spilman Thomas & Battle, PLLC
300 Kanawha Boulevard, East
Charleston, WV 25301
304.340.3823 - office
304.340.3801 - fax
dbattle@spilmanlaw.com