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Not Following Our Doctor’s Recommendations – Does It Give Rise to a Claim for ‘Bad faith’?

In a long and complicated decision involving issues of claim removal, diversity citizenship of insurance companies, and limitations of actions, a Federal District Court found that a workers’ compensation carrier (OneBeacon) could be liable in a civil action to a claimant whose benefits (surgery) was denied. In this article we will ignore most of the legal wrangling and focus on the dangerous precedent set in Davis v. OneBeacon – that a valid cause of action existed directly against an insurance company for the delay in treatment provided to an injured worker.

The case arose on a complicated set of facts. For the purposes of this article, we focus on the facts in the workers’ compensation case that led to the ruling finding that an injured worker could proceed in civil court to recover damages against a workers’ compensation carrier for delays in treatment.

The general rule in New Jersey allows no direct action available to an injured employee against the employer, or against the employer’s insurer when the insurer does what is required under the Workers’ Compensation Act and the carrier’s insurance policy. Under normal circumstances, injured employees must pursue their exclusive remedies in the Division of Workers’ Compensation, even when an employer, acting through its insurer, does not furnish necessary medical treatment when requested to do so by an employee.

This ‘general rule’ is known as the exclusivity provision and it is enshrined in the New Jersey Workers’ Compensation Act at N.J.S.A. 34:15-8.

Here are the facts: On August 11, 2000, Frank Davis, Sr., suffered a serious injury to, among other things, his left shoulder while working for his employer, South Jersey Overhead Door Company (“Overhead Door”), in Vineland, New Jersey. As a result of the accident, Davis filed a claim petition in the New Jersey Division of Workers’ Compensation. OneBeacon, identified in Davis’s complaint as the workers’ compensation insurance carrier for Overhead Door, selected and appointed Dr. Robert Dalsey, an orthopedic surgeon, to serve as the authorized treating physician to care for and treat Davis.

On March 16, 2005, Dr. Dalsey evaluated Davis and recommended an MRI exam of his left shoulder. About a week later, avers Davis, “The Honorable Robert F. Butler, Judge of Compensation, entered an Order Approving Settlement of Plaintiff[‘s] … claim for permanent disability benefits arising out of the August 11, 2000 accident, awarding 40% permanent partial total disability including, inter alia, 2.5 % permanent partial total disability stemming from tendinopathy and impingement syndrome of the left shoulder.”

On March 15, 2006, Dr. Dalsey recommended that Davis undergo surgery for his left shoulder as a result of the August 2000 accident. Despite being advised of Dr. Dalsey’s recommendation and several requests made by Davis, OneBeacon refused to authorize the surgery. Consequently, on September 20, 2006, Davis filed a Motion for Temporary Disability and Medical Benefits with the Division of Workers’ Compensation (or, “the Division”), seeking to compel the treatment recommended by Dr. Dalsey along with temporary benefits.

The Workers’ Compensation Ruling: On April 18, 2007, Judge Butler rendered his decision, finding that OneBeacon was obligated to authorize the shoulder surgery as recommended by Dr. Dalsey, its authorized treating physician, and that OneBeacon’s refusal to authorize the surgery violated Section 15 of the Workers’ Compensation Act (or, “the Act”), N.J.S.A. 34:15-1 et seq. , and was unconscionable. In reaching its conclusion that OneBeacon’s violation of the Act was unconscionable, the Judge explained that OneBeacon’s denial of surgery was not predicated on any sound medical basis, was made with disregard to the seriousness of Davis’s injury and the possible consequences he could suffer due to a delay in treatment, and defied the recommendations of OneBeacon’s own authorized physician.

Further, Workers’ Compensation Judge Butler suggested that, apart from the Act, Davis could pursue a civil remedy for his pain and suffering in another court.

Judge Butler wrote in his opinion:

“The additional and prolonged pain and obvious mental anguish of the Petitioner that has been caused by the appalling and unconscionable conduct of OneBeacon are neither cognizable nor compensable based upon the provisions of the Workers’ Compensation Act. Only the nature and extent of the Petitioner’s permanent disability following his recuperation from surgery is compensable in this court.

. . .

As regrettable as that may be, the Petitioner is not left without a possible source of redress against OneBeacon for his pain and suffering. The Court suggests that Petitioner’s counsel direct his attention to the case of Rothfuss versus Bakers Mutual Insurance Company of New York, 107 N.J.Super. 189, 257 A.2d 733 (1969).”

In apparent response to the Judge’s opinion, Davis filed a two-count complaint in the Superior Court of New Jersey on April 13, 2009. In the first count, Davis alleges that OneBeacon’s egregious refusal to authorize necessary medical treatment has caused him “injuries that are not compensable under the Workers’ Compensation Act, including but not limited to, pain and suffering, deterioration, worsening, wasting, inability to return to work sooner, prolonged pain and mental anguish and severe emotional distress.” Further, in the second count, Davis’s wife, Carolyn, asserts a claim for loss of consortium. Together, Davis and his wife sought compensatory and punitive damages, among other expenses.

On August 17, 2009, defendant removed Davis’s suit to Federal Court.

The Federal Court ruled that an employee has a limited right to maintain a common-law cause of action against an employer’s insurance carrier for willful failure to provide medical benefits in a circumstance where it ‘voluntarily undertook to examine and treat an injured employee by its own doctor ….‘ In particular, the court in Rothfuss, the panel clarified, “found that when the carrier failed to provide medical benefits that its own physician had deemed necessary, it opened the door to a common-law cause of action.”

Under New Jersey law, an employee can state a common law cause of action against an employer’s workers’ compensation carrier, which was not categorically precluded by the Workers’ Compensation Act, by alleging that carrier frivolously, negligently, willfully, wantonly and maliciously failed or refused to authorize the surgery recommended by its own authorized treating physician.

Keep this new decision (decided June 28, 2010) in mind when making treatment decisions!

In the wake of this decision it is clear that ‘bad faith’ civil claims are not limited to a situation where a party ignores a court order – a claimant can make a ‘bad faith’ civil claim anytime an employer selects an authorized doctor and then refuses to offer treatment recommended by that doctor.

Case: Davis v. OneBeacon Insurance, — F.Supp.2d —-, 2010 WL 2629053 (D.N.J.), decided June 28, 2010).

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