Worker's Comp Bad Faith Action Includes Traditional Tort Damages

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Torts—Worker's Compensation Bad Faith Damages Defined and Atty Client Privilege Waived

Mendoza v. McDonald's Corp., 222 Ariz. 139, 213 P.3d 288 (App., Div. I, July 7, 2009)(J Norris)

DAMAGES IN WORKER'S COMP BAD FAITH ACTION INCLUDE PAIN & SUFFERING, LOST WAGES AND MEDICAL EXPENSES WHERE PLAINTIFF'S CONDITION AGGRAVATED BY SELF-INSURED EMPLOYER AND DEFENDANT WAIVES ATTY/CLIENT PRIVILEGE WHERE IT TAKES POSITION IT ACTED REASONABLY AND HAD NO “EVIL MIND” BECAUSE IT RELIED UPON ADVICE OF COUNSEL

Plaintiff tripped and fell while carrying a box of meat patties while working at McDonald's. She then filed a worker's comp claim which was accepted by self-insured McDonald's. Subsequently McDonald's refused to approve carpal tunnel surgery recommended by plaintiff's doctor and misinterpreted one of plaintiff's doctor's reports to indicate the carpal tunnel syndrome was not work related. Despite the fact that plaintiff's doctor clarified this misunderstanding with McDonald's and explained that without timely surgery the plaintiff would experience permanent dysfunction McDonald's continued to deny the request.

McDonald's then sent plaintiff to another doctor for an independent medical examination and this doctor essentially agreed with plaintiff's doctor's findings except recommending 4 weeks of nonsurgical treatment and that she could return to light duty work without defining what that meant. Based upon this McDonalds terminated plaintiffs disability payments and told her to return to work. Based on her doctor's recommendations she refused. McDonalds continued to refuse to pay for surgery.

During litigation, after obtaining another medical review “to support our denial” which acknowledged the existence of carpal tunnel but did not recommend surgery and could not say if it was work related, McDonald's accepted it was work related but refused again to pay for surgery. Plaintiff was then sent back to the first IME doctor who again found carpal tunnel and recommended surgery, but a different surgery from what plaintiff's doctor wanted to perform. McDonalds then agreed to the different surgery and refused to allow another doctor to make this determination stating it had instead decided to “litigate it all the way.” The Industrial Commission found in plaintiff's favor.

Mc Donalds then approved the surgery and it was performed. Nonetheless, plaintiff continued to have symptoms which she related to the delay in surgery and which her doctor found would not allow her to return to work. This was confirmed by McDonald's second IME doctor.

Plaintiff sued for bad faith. The jury awarded $250,000 and no punitive damages. Plaintiff appealed and defendant cross-appealed.

The first error found by the Court of Appeals was the trial court's failure to instruct the jury that the plaintiff was entitled to seek medical expenses, lost wages and pain and suffering, not for the industrial injury itself but for the delay in surgery and the injury and disability that caused. Bad faith in the handling of a worker's comp case is not barred by the exclusive remedy provision for worker injuries and damages caused by the bad faith as opposed to the work related injury are recoverable including all ordinary tort damages.

Next, the Court of Appeals found that where an “insurer raises a defense based on factual assertions that, either explicitly or implicitly, incorporates the advice or judgment of its counsel, it cannot deny an opposing party the opportunity to discover the foundation for those assertions in order to contest them.” As a result, McDonald was required to submit a complete unredacted copy of its claim file since its ICA lawyers advice and judgment guided the claims process and because McDonalds defended its actions based upon its subjective motives. What the adjusters knew and relied upon in denying plaintiff's claim included the information obtained from its attorneys. Putting the subjective beliefs of the adjusters at issue constituted a waiver of the attorney-client privilege.

Additionally, this evidence is discoverable and admissible to prove the requisite state of mind in support of plaintiff's punitive damage claim. Likewise, the principal can be liable for punitive damages through the principal of Respondeat Superior even where there is no “evil mind” shown to exist in the principle. Also, “punitive damages may be assessed against an insurer for the actions of its attorney if those actions were taken in furtheranc3e of the insurer's business and within the scope of the attorney's agency.”

Finally, the trial court erred in refusing to instruct the jury of the preclusive effect of the IndustrialCommission's compensability determinations

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