SIZEMORE v. CONTINENTAL CASUALTY COMPANY

SIZEMORE v. CONTINENTAL CASUALTY COMPANY
2006 OK 36
142 P.3d 47
Case Number: 99940
Decided: 05/30/2006

THE SUPREME COURT OF THE STATE OF OKLAHOMA

Sherrie Sizemore, Plaintiff,
v.
Continental Casualty Company, d/b/a CNA Insurance Company, an Illinois Corporation, and Kerr Group, Inc., a Delaware Corporation, and Transportation Insurance Company, an Illinois Corporation, Defendants.

CERTIFIED QUESTION OF LAW

¶0 United States District Court, Northern District of Oklahoma, Honorable Terence C. Kern, certified question of law asking whether Oklahoma law recognizes tort of bad faith against workers' compensation insurer.

CERTIFIED QUESTION ANSWERED

Wilson N. Jones, lll, and Susan Hamilton Jones, Wilson Jones P.C., Tulsa, Oklahoma; Allen Smallwood, Tulsa, Oklahoma; and Jon Bryan Wallis, Tulsa, Oklahoma, for Plaintiff.
James K. Secrest, ll, Roger N. Butler, Jr., Edward J. Main, Secrest, Hill & Butler, Tulsa, Oklahoma, for Defendants, Continental Casualty Company and Transportation Insurance Company.

COLBERT, J.

¶1 The United States District Court for the Northern District of Oklahoma has certified the following question pursuant to the Revised Uniform Certification of Questions of Law Act, Okla. Stat. tit. 20, §§ 1601-1611 (2001):

Does Oklahoma law recognize a tort for bad faith against a workers' compensation insurer?

In response, this Court recognizes such a tort for a workers' compensation insurance carrier's refusal to pay a workers' compensation award and rejects decisions to the contrary.

FACTS

¶2 Sherrie Sizemore (Claimant) worked for Kerr Glass in Tulsa, Oklahoma. Kerr Glass was an insured of Continental Casualty Company and Transportation Insurance Company (collectively "Insurer"). In 1991, Claimant was injured in a job-related accident. She received awards of workers' compensation benefits for both temporary total disability and permanent partial disability. In November 2000, Claimant's temporary total disability payments ceased. Claimant alleges that at that time she should have started receiving permanent partial disability payments from her employer's workers' compensation insurance carrier, but did not. In March 2001, the Workers' Compensation Court found that the permanent partial disability payments were past due, accelerated the entire balance, and assessed 18 per cent interest pursuant to section 42(A) of the Workers' Compensation Act. Claimant's action in federal court asserts that Insurer's conduct constitutes a breach of the implied duty of good faith and fair dealing. Insurer contends that no such cause of action exists under Oklahoma law against a workers' compensation insurer. The federal court decided sua sponte to certify the question.

¶3 The question certified is nearly identical to one certified in the recent decision in Deanda v. AIU Insurance,

¶4 This matter provides this Court the opportunity to revisit an issue addressed in Deanda and in Kuykendall v. Gulfstream Aerospace Technologies,

HISTORICAL BACKGROUND

¶5 In 1992, this Court foreshadowed application of a common law tort action against a workers' compensation insurer for breach of the implied duty to deal fairly and in good faith by refusing to pay a workers' compensation award. In Goodwin v. Old Republic Insurance Co.,

¶6 This Court's signal that it would apply such an action intensified in a line of cases that continued to assume the action's viability. In 1995, this Court went so far as to state: "We also held [in Goodwin] that an injured worker has a cause of action for bad faith against his employer's insurance carrier for refusing to timely pay the injured worker's compensation award." Whitson v. Okla. Farmers Union Mut. Ins. Co.,

¶7 In 1996, this Court denied certiorari review of a published Court of Civil Appeals decision which affirmed a judgment entered on a jury's verdict awarding damages for the workers' compensation insurer's bad faith failure to timely pay an award. See Cooper v. Nat'l Union Fire Ins. Co.,

¶8 Two years later, this Court once again denied certiorari review of a published opinion of the Court of Civil Appeals which "assumed the [own risk employer's] liability for bad faith" but decided the matter "on the narrower grounds that the alleged bad-faith conduct predated a final award." Heintz v. Trucks For You, Inc.,

¶9 The point of this historical analysis is that for a decade this Court expressly assumed the viability of an action based on an insurer's refusal to pay a workers' compensation award. Further, this Court refused to review at least one Court of Civil Appeals decision in which the tort was actually applied by a jury. See Cooper,

¶10 An abrupt halt in the evolution of this Court's emerging recognition of the tort occurred in Kuykendall,

¶11 Kuykendall reasoned that, because section 42(A) of the Workers' Compensation Act provided for interest on overdue payment of an award and because that section provided a mechanism for enforcement of awards in district court, somehow this was the injured worker's sole remedy for a self-insured employer's bad faith failure to pay an award.

¶12 That answer came in Deanda,

¶13 First, as stated in Kuykendall, the Deanda Court asserted that "there are no Oklahoma cases holding an employer liable for bad faith breach in paying a Workers' Compensation award." Deanda,

¶14 Second, the exclusive remedy provision of section 12 applies expressly to the liability in section 11 for accidental personal injury arising out of and in the course of employment. Deanda treated the insurer's bad faith failure to pay an award as an injury arising from the employment relationship. Even if that conclusion were accurate, such conduct cannot be said to have occurred in the course of the injured worker's employment. "[A] bad faith claim is separate and apart from the work relationship, and it arises against an insurer only after there has been an award against the employer." Goodwin,

WORKERS' COMPENSATION INSURER'S DUTY TO DEAL FAIRLY AND ACT
IN GOOD FAITH IN PAYING AWARD

¶15 "An insurer has an implied duty to deal fairly and act in good faith with its insured and . . . the violation of this duty gives rise to an action in tort for which consequential and, in a proper case, punitive damages may be sought." Christian v. Am. Home Assurance Co.,

¶16 Workers in Oklahoma enjoy both a contractual and a statutory status as third party beneficiaries of a workers' compensation insurance agreement. "A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it." Okla. Stat. tit. 15, § 29 (2001). That rule applies specifically to workers in the text of the Workers' Compensation Act:

Every contract of insurance issued by an insurance carrier for the purpose of insuring an employer against liability under the Workers' Compensation Act shall be conclusively presumed to be a contract for the benefit of each and every person upon whom insurance premiums are paid, collected, or whose employment is considered or used in determination of the amount of premium collected upon such policy for the payment of benefits as provided by the Workers' Compensation Act . . . which contract may be enforced by such employee as the beneficiary thereof.

Okla. Stat. tit. 85, § 65.3 (2001). Thus, the right to enforce the insurance agreement, and the attendant duty of good faith and fair dealing implied in that contract, belongs to the injured worker. This is true whether the insurer is an insurance company or a self-insured employer who voluntarily assumes insurer status.

¶17 The Workers' Compensation Act now defines "insurance carrier" to include "stock corporations, reciprocal or interinsurance associations, or mutual associations with which employers have insured, and employers permitted to pay compensation, directly under the provisions of paragraph 4 of subsection A of Section 61 of this title." Okla. Stat. tit. 85, § 3(15) (Supp. 2005). Thus, under this recent amendment, an "individual self-insured or a group self-insurance association" is expressly included in the definition of "insurance carrier."

SCOPE OF EXCLUSIVE REMEDY PROVISION

¶18 Employers are required by section 11 of the Workers' Compensation Act to pay compensation for "accidental personal injury sustained by the employee arising out of and in the course of employment." Section 12 makes such liability "exclusive and in place of all other liability of the employer . . . at common law or otherwise, for such injury, loss of services, or death" (emphasis added). Thus, the Legislature has limited the exclusive remedy of workers' compensation to an employer's liability for accidental injury arising out of and in the course of employment. Nothing in section 12's exclusive remedy provision extends common law immunity to an insurance carrier for its failure to act in good faith and deal fairly in payment of an award.

¶19 This action against the insurer is not controlled by the exclusive remedy provision of the Workers' Compensation Act. An insurance carrier's bad faith in failing to pay court-ordered benefits is not reasonably encompassed within the "industrial bargain" by which the worker "gave up the right to bring a common law negligence action against the employer and in return received automatic guaranteed medical and wage benefits. The employer gave up the common law defenses and received reduced exposure to liability." Parret v. UNICCO Serv. Co.,

¶20 "[T]he intent of the Work[ers'] Compensation Law is to make the insurance carrier one and the same as the employer as to liability and immunity." U.S. Fid. & Guar. Co. v. Theus,

¶21 An insurer's refusal to pay a workers' compensation award fails to meet three of the section 11 elements of a valid workers' compensation claim. It is not (1) an accidental injury (2) arising out of and (3) in the course of employment. Although "accidental injury" is not defined in the Act, "compensable injury" is defined as "any injury or occupational illness, causing internal or external harm to the body, which arises out of and in the course of employment if such employment was the major cause of the specific injury or illness." Okla. Stat. tit. 85, § 3(13) (Supp. 2005). Refusal to pay an award does not "arise out of" the worker's employment because there is no causal nexus between the conditions under which the work was performed and the resulting injury. See Moore v. City of Norman,

¶22 The Workers' Compensation Act provides a comprehensive scheme for providing medical care and wage benefits to injured workers. However, not every injury connected to work falls within the exclusive remedy provision of the Act. Some injuries are expressly excluded from the provisions of the Act. These include: (1) third party claims under section 44 of the Act; (2) a common law action under the penalty provision of section 12 against an employer who fails to secure compensation in the manner provided by section 61 of the Act; (3) certain exceptions to the Act, found in section 11, based on an employee's willful injury to self or another, failure to use a guard or protection furnished against accident, substance abuse, or horseplay; and (4) non-accidental injury which the employer knew was certain or substantially certain to result from the employer's conduct, See Parret,

SECTION 42 PENALTY PROVISIONS

¶23 This Court has struggled with the question of whether section 42

¶24 "This Court will look to the text of the Workers' Compensation Act, its underlying policies, and to the purposes of workers' compensation generally in applying the provisions of the Act." Parret,

¶25 Section 42(A) addresses late payment of workers' compensation benefits. When payment under the terms of a workers' compensation award are not made within 10 days, the Workers' Compensation Court may order a certified copy of the award to be filed in a district court clerk's office to be enforced as a judgment of the district court. The award bears interest at the rate of 18 per cent until paid. Thus, the Legislature has provided an incentive for prompt payment of workers' compensation awards

¶26 A claimant seeking to enforce an award must first utilize the mechanism provided in section 42(A) of the Act and have the award certified for enforcement. But if the insurance carrier still refuses to pay the award, as is alleged in this matter, an action for the insurer's bad faith refusal to do so will lie in district court.

¶27 This holding gives the Legislature's intended effect to section 42. It recognizes that the provision was never intended to be exclusive, nor is it adequate to deter an insurance carrier's refusal to pay or to adequately compensate the injured worker for attorney fees and other items of harm flowing from the carrier's refusal to pay. Although section 42 expresses the Legislature's intent that awards be paid promptly, nothing in the Act has supplanted a worker's common law remedy for an insurance carrier's bad faith in refusing to pay a workers' compensation award.

CONCLUSION

¶28 Today, this Court recognizes that a common law tort action exists for an insurance carrier's bad faith in refusing to pay a workers' compensation award. In doing so, this Court reaches the result foreshadowed by a line of decisions dating back to 1992. Any language in Kuykendall or Deanda that is contrary to this opinion is rejected.

¶29 This Court approves and adopts the rule that where a workers' compensation claimant has followed the mechanism for enforcement of an award pursuant to section 42(A) of the Workers' Compensation Act and the insurer fails to act in good faith and deal fairly by paying the award, that failure gives rise to a common law action for bad faith in tort. Such action may be brought against a workers' compensation insurer, a self-insured employer, or any entity meeting the Act's definition of "insurance carrier" found at section 3(15).

CERTIFIED QUESTION ANSWERED

CONCUR: Watt, C.J., Kauger, Edmondson, Taylor, Colbert, JJ.

DISSENT: Winchester, V.C.J., Lavender, Hargrave, Opala, JJ.

FOOTNOTES

1 Section 61(A) of the Act provides four ways of securing compensation to employees: (1) through "a policy to provide workers' compensation benefits"; (2) by "obtaining and keeping in force guaranty insurance"; (3) by "obtaining and keeping in force a workers' compensation equivalent insurance product"; and (4) through "an individual self-insured or a group self-insurance association."

2 Other than in the case of an award from the Multiple Injury Trust Fund, section 42(A) provides:

If payment of compensation or an installment payment of compensation due under the terms of an award . . . is not made within ten (10) days after the same is due by the employer or insurance carrier liable therefor, the Court may order a certified copy of the award to be filed in the office of the court clerk of any county, which award whether accumulative or lump sum shall have the same force and be subject to the same law as judgments of the district court . . .. Upon the filing of the certified copy of the Court's award a writ of execution shall issue and process shall be executed and the cost thereof taxed, as in the case of writs of execution, on judgments of courts of record, as provided by Title 12 of the Oklahoma Statutes; provided, however, the provisions of this section relating to execution and process for the enforcement of awards shall be and are cumulative to other provisions now existing or which may hereafter be adopted relating to liens or enforcement of awards or claims for compensation.

3 An additional penalty is provided by section 42(B):

If any insurance carrier intentionally, knowingly, or willfully violates any of the provisions of the Workers' Compensation Act or any published rules or regulations promulgated thereunder, the Insurance Commissioner, on the request of a judge of the Court or the Administrator, shall suspend or revoke the license or authority of such insurance carrier to do a compensation business in this state.

TAYLOR, J., concurring:

¶1 I fully concur in today's opinion. I write separately to emphasize that it is the refusal of the workers' compensation insurer to timely pay an award as finally ordered by the Workers' Compensation Court that gives rise to a common law action for bad faith in tort. "If insurance companies wish to prevent bad faith cases, then they must govern themselves in accordance with the law and the terms of the insurance products they market and sell. When that day comes, then bad faith cases will become a relic of the past." Badillo v. Mid Century Insur. Co., 2005 OK 48 (Taylor, J., concurring specially, ¶9), 121 P.3d 1080, 1111. In this case the insurer refuses to pay compensation benefits awarded in a final order of the Workers Compensation Court. That refusal invites, encourages and gives viability to a bad faith claim by the injured and unpaid worker.

WINCHESTER, V.C.J., with whom LAVENDER, HARGRAVE AND OPALA, JJ. join, dissenting:

¶1 The principal issue in Kuykendall v. Gulfstream Aerospace Technologies, 2002 OK 96, 66 P.3d 374, Deanda v. AIU Insurance, 2004 OK 54, 98 P.3d 1080, and the case now before this Court is whether the compensation statute, 85 O.S.2001, § 42, provides the exclusive remedies for wrongful delay in payment or refusal to pay. I would hold that the statute excludes common-law remedies.

¶2 The Oklahoma Legislature enacted the Workers' Compensation Act in 1915,1 ensuring that employees would be provided benefits for work-related injuries. The purpose of the act is to fully define the rights of the parties and to wholly compensate an injured worker. The Legislature arbitrarily fixed certain factors in the calculation of awards to achieve exact and uniform results. Mudge Oil Co. v. Wagnon, 1943 OK 354, ¶ 8, 145 P.2d 185, 186. Injecting the tort of bad faith into this statutory framework threatens the balance the Legislature has attempted to achieve.

¶3 The certified question is: "Does Oklahoma law recognize a tort for bad faith against a workers' compensation insurer?" The majority asserts that intentional refusal to pay an award, as discussed in Kuykendall and Deanda, is outside the scope of the exclusive remedy provision of § 12 of the Workers' Compensation Act.2 The majority's conclusion equates a bad faith failure of an insurer to pay a worker's compensation award, with a bad faith failure of an insurance company to pay pursuant to a contract.3

¶4 A bad faith refusal to pay a judgment is not the equivalent of a bad faith breach of contract. In the worker's compensation case, the court has made a final, enforceable award. In contrast, when an insurance company, in bad faith, determines not to pay pursuant to contract, a tort is committed and the legal process begins. If a casualty insurance company refuses to pay a judgment against it, what would be the remedy? Would it be to bring a new, a second court case for bad faith merely because the judgment was against an insurance company? I think not. The remedy is collection of the judgment through the existing statutory process,4 not creating a new tort to allow for punitive damages.

¶5 Section 42(A) provides remedies for failure to pay within ten days of a court-ordered award. An unpaid award is to bear interest at the rate of eighteen percent.5 Intentional, knowing or willful violation of the provisions of the Workers' Compensation Act by an insurer may result in suspension or revocation of the authority of the insurance carrier to provide compensation business in Oklahoma.6 The higher interest rate provided by that statute expressly applies to either the employer or the insurance carrier, whichever is liable for the payment.7

¶6 Although I agree that the act contemplates payment for "accidental personal injury", 85 O.S.2001, § 11(A), remedies for failure to pay a judgment of the Workers' Compensation Court are specifically provided by § 42. The majority, although acknowledging this, justifies providing a common-law remedy by asserting that the § 42 remedies are inadequate "to deter an insurance carrier's refusal to pay or to adequately compensate the injured worker for attorney fees and other items of harm flowing from the carrier's refusal to pay."8 That is a legislative, policy decision. To create a common-law remedy to supplement the statutory remedies of § 42 is as much an invasion of the constitutionally-mandated balance of power9 as it would be to attempt to alter the schedule of compensation found at 85 O.S.Supp.2005, § 22 through adding additional compensation by court order.

¶7 When the Supreme Court of Wisconsin recognized the tort of bad faith in a worker's compensation case,10 its legislature reacted by enacting a statute providing for an exclusive remedy and specified that an employee may not maintain a bad-faith, common-law tort action against the employer or insurance carrier.11 Like Wisconsin, the final resolution of this issue in Oklahoma must come from Oklahoma's Legislature.

FOOTNOTES

1 Laws 1915, ch. 246, art. 1, § 1.

2 Majority Opinion, ¶ 14.

3 Majority opinion, ¶ 25.

4 12 O.S.2001, ch. 13, Executions

5 85 O.S.2001, § 42(A)

6 42 O.S.2001, § 42(B).

7 The first sentence of 85 O.S,2001, § 42(A) provides in pertinent part: "If payment of compensation or an installment payment of compensation due under the terms of an award . . . is not made within ten (10) days after the same is due by the employer or insurance carrier liable therefore, the Court may order a certified copy of the award to be filed in the office of the court clerk of any county, which award whether accumulative or lump sum shall have the same force and be subject to the same law as judgments of the district court. . . ."

8 Majority opinion, ¶ 27.

9 Okla.Const., art. 5, § 1.

10 Coleman v. American Universal Ins. Co., 86 Wis.2d 615, 273 N.W.2d 220 (1979)

11 Messner v. Briggs & Stratton Corp., 120 Wis.2d 127, 133, 353 N.W.2d 363, 366 (Ct. App. 1984).

OPALA, J., with whom WINCHESTER, V.C.J., and LAVENDER and HARGRAVE, J.J., join, dissenting

¶1 I dissent from the court's opinion and from the statement in concurrence and join the other dissent. I write separately to offer an addendum to the analytical framework for the issue at hand.

¶2 The Workers' Compensation Act provides the exclusive remedy for a workers' compensation insurer's failure to pay an obligation of its policy. "It may be neither supplemented nor diluted by the norms of common law injected into its corpus by . . . a judicial syringe."1 "No Oklahoma case holds that a workers' compensation insurer has a duty of good faith in paying a workers' compensation award, the violation of which is a tort."2 Assuming arguendo that extant jurisprudence recognizes a common-law tort action of bad faith for a workers' compensation insurer's failure to pay an obligation of its policy, such action stands barred by 85 O.S. 2001 §42.

¶3 The court's opinion and the statement in concurrence erroneously conclude that § 42 does not provide the exclusive remedy available to Sizemore by incorrectly construing the provisions of 85 O.S. 2001 §12. The latter govern only the employer's duties and not those of a workers' compensation insurer.

¶4 The legislature has been clear and explicit in providing that the terms of "Workers' Compensation Act [and its related sections] are in derogation of the common law and those statutes are the exclusive . . . [legal norms] governing benefits [and by extension the right of action]."3

¶5 Assuming that §42 is not sufficiently clear, statutes in derogation of the common law, such as §42, "are to be liberally construed so as to effect legislative intent."

¶6 This court, as well as the U.S. Court of Appeals for the Tenth Circuit, clearly announce that Oklahoma's extant jurisprudence does not recognize an insurer's duty of good faith in paying a workers' compensation award. 5 The dearth of erroneous instances that would suggest otherwise should not be relied upon. Good law is crafted neither from aberrational court rulings nor in reliance upon flawed construction of statutory authority and upon judicial departure from the explicit will of the legislature.

¶7 The court's pronouncement not only upsets the balance to be struck between common-law remedies and the necessity of uniformity in public law, but also between the equilibrium of public and private interests which forms the foundation of public law.6

¶8 I hence dissent from the court's judgment, from today's pronouncement, and from the statement in concurrence.

FOOTNOTES

1 Bradshaw v. Oklahoma State Election Bd., 1093, 2004 OK 69, ¶3, 98 P.3d 1092 (Opala, V.C.J., concurring) (emphasis added).

2 Kuykendall v. Gulfstream Aerospace Techs., 2002 OK 96, ¶8, 66 P.3d 374, 376-77 (emphasis added).

3 Patterson v. Sue Estell Trucking Co. Inc., 2004 OK 66, ¶6, 95 P.3d 1087, 1088 (emphasis added).

4 Finnell v. Seismic, 2003 OK 35, ¶15, 67 P.3d 339, 345 (emphasis added).

5 See Kuykendall v. Gulfstream Aerospace Techs., supra note 2; Southerland v. Granite State Ins. Co., 68 Fed.Appx. 156, 158-159, (10th Cir.2003) (unreported).

6 See generally Richard B. Cappalli, The American Common Law Method (1997).

ORDER

The application of the Oklahoma Association of Defense Counsel to file an amicus curiae brief is denied.

It is hereby ordered that both petitions for rehearing filed by the defendant/appellees and the plaintiff/appellant are denied. The parties argument that the opinion requires that a bad faith tort action may only be maintained after an order of the Workers' Compensation Court has been certified for enforcement in the district court pursuant to

DONE BY ORDER OF THE SUPREME COURT IN CONFERENCE THIS 26 DAY OF June, 2006.

/S/CHIEF JUSTICE

WATT, C.J., KAUGER, EDMONDSON, TAYLOR, COLBERT, JJ., concur.

WINCHESTER, V.C.J., LAVENDER, HARGRAVE, OPALA, JJ., dissent.