Mississippi Bad Faith Claims Can Affect Employers and Carriers in Other jurisdictions
With companies operating in multiple states, navigating interstate laws has become increasingly tricky. This is especially true in the worker’s compensation arena where an employer can be sued for benefits in its state of operation, the state where the injury occurred, or the state where the employee is domiciled.
Adding to the difficulties for adjusters is ensuring compliance with the bad faith laws of each state. Bad Faith lawsuits are allowed as separate, independent tort suits, and are exceptions to the “exclusive” remedy of worker’s compensation. The employee can sue for actual and punitive damages.
A claimant who is either injured or domiciled in Mississippi can bring a bad faith claim against the employer and/or the carrier for what is deemed to be a denial of a claim for services deemed to be “reasonable and necessary”. The worker’s compensation claim does not have to be pending in Mississippi for the claimant to bring the bad faith claim in Mississippi.
Williams v. Liberty Mutual – Mississippi bad faith claim for out-of-state workers’ compensation claim
In Williams v. Liberty Mutual Insurance Company, the US 5th Circuit Court of appeals ruled that the bad faith refusal to pay workers’ compensation benefits is more than a simple breach of contract. Instead, it is an independent tort committed outside the scope of employment. This gives the employee the right to file the claim against his employer. Williams v. Liberty Mut. Ins. Co., 741 F.3d 617 (5th Cir. 2014).
In Williams, the claimant was a MS domiciliary with a workers’ compensation case pending in Alabama. The carrier failed to pay benefits for eight months. Williams ultimately settled his workers’ compensation claim in Alabama, but after the resolution of the case, he brought the bad faith action against the employer and carrier in Mississippi. The 5th Circuit found that Mississippi state law granted him an independent right to recover damages from an employer’s insurance company when there was a bad faith refusal to pay benefits.
Bad Faith Tort Independent of Workers’ Compensation Claim
Mississippi Courts have recognized a separate cause of action against employers, carriers, and third party administrators for a “bad faith” denial of a claim. It involves a cause of action based in tort law and, simply stated; it takes life in the willful or intentional denial of a claim, or a part of a claim, without reasonable grounds, where the denial reflects an intent to injure the claimant. Southern Farm Bureau Casualty Ins. Co. v. Holland, 469 So.2d 55, 59 (Miss. 1985). The cause of action can lie against the employer as well as the carrier. Luckett v. Mississippi Wood Inc., 481 So. 2d 288 (Miss. 1985). Damages recoverable in such a suit are not a part of the workers’ compensation system and the cases are not tried before the Commission but in State or Federal Court. Mississippi Power & Light Co. v. Cook, 832 So. 2d 474 (Miss. 2002) illustrates the potential difficulties in such cases where the jury awarded $150,000 for actual damages and $5,000,000 for punitive damages, plus a large attorney’s fee. On appeal, the punitive award was reduced to $500,000; however, it is illustrative of the fact that these cases can become very expensive. Cook, 832 So.2d 474 (Miss. 2002).
AmFed Companies, LLC v Jordan, 34 So3d 1177 (Miss. App. 2009), cert granted, 31 So.3d 1217 (Miss. 2010, cert dismissed as improvidently granted, (Miss. 2010)) is also an example of a sustainable cause of action where the thrust of the alleged wrongdoing was a delay of about 11 weeks in making payment. Punitive damages, when awarded, are designed to punish the wrongdoer and to set an example to keep others from committing a similar wrong.
Limits to Punitive Damages
Effective in 2004, statutory limits were imposed on punitive damages based on the net worth of the defendant. Miss. Code Ann §11-1-65 (1972, as amended). Under that statute, as examples, the maximum punitive damage award for the largest defendants (i.e. those with a net worth of One Billion Dollars) is Twenty Million Dollars while the punitive damages cap for the smallest defendants (those with a net worth of Fifty Million Dollars or less) is two percent of the defendant’s net worth. Regardless of financial size, punitive damage awards can be significant. Some Mississippi counties have developed a reputation for awarding staggering punitive damages awards, and the potential for such damage awards in bad faith causes of action cannot be overemphasized.
Time to Make Claim
Mississippi Code 1972 Annotated § 15-1-49(1) provides a 3-year statute of limitations from a final order determining compensability from the Mississippi workers’ compensation commission. This is not 3-years from injury, date of filing claim or interlocutory orders.
An employee must first utilize and come to final resolution with the worker’s compensation courts, where the services were deemed to be “reasonable and necessary.” The statute of limitations does not begin to run until the claimant has received that final order from the Commission.
Avoiding Bad Faith Claims
“Bad faith” threats abound in workers’ compensation claims handling, but the threat of “bad faith” should not intimidate a claims adjuster from investigating claims or paying claims that are not owed.
Finding that balance in the claims administration process is the mark of true claims professionals. With a focus on quality claims handling practices rooted in rational and objective professionalism, the claims professional will avoid the pitfalls of “bad faith” allegations.
Unnecessary delays in the processing of claims are the primary basis for such suits, and legitimate disputes can become disastrous bad faith suits by the simple failure to follow through on the completion of a prompt and thorough investigation so that an informed and timely decision can be made.
Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.