Robert Hollman and Darlene Hollman, Appellants, v. Liberty Mutual Insurance Co., a Corporation, Appellee.robert Hollman and Darlene Hollman, Appellants, v. Dale Electronics, Inc., Appellee, 712 F.2d 1259 (8th Cir. 1983)

This is a diversity suit based on a claim of damages for alleged bad faith exercised by plaintiff's employer and its worker's compensation carrier for failure to pay benefits on a work related claim. The district court held the South Dakota Worker's Compensation Act provided the exclusive remedy and granted summary judgment in favor of the defendants. The plaintiffs, Darlene Hollman and Robert Hollman, appeal. We reverse the grant of summary judgment and remand to the district court for further proceedings.

Darlene Hollman was employed by Dale Electronics, an electronics manufacturing company, located in Yankton, South Dakota. She had been employed approximately four years when she began to develop headaches, breathing problems and nausea. An allergy specialist, Dr. John Argabrite, after extensive testing, recommended that she quit work as her condition had severely worsened and was becoming permanent. Dr. Argabrite concluded that the primary chemical causing Mrs. Hollman's condition was "toulene di isocyanate" (TDI).

Mrs. Hollman reported her injury to Dale Electronics in August 1977. Dale Electronics contacted Liberty, its worker's compensation insurer. On September 3, 1977, Liberty informed Mrs. Hollman that the condition was "wholly foreign to employment." She thereafter filed a worker's compensation claim.

The Hollmans continually contacted Liberty concerning the claim but at best were treated with indifference. Until this lawsuit in federal district court was commenced, reports about the chemicals were withheld, labels with warnings of isocyanates and directions on ventilation were not revealed, and a list of persons who previously had reactions was not furnished. The continuing interrogatories indicated that no TDI existed at the Yankton plant.¹ 

Mrs. Hollman was eventually awarded worker's compensation by the Director of the Department of Labor. Liberty appealed this decision to the circuit court of Yankton County which affirmed the award of benefits. Liberty then decided to appeal to the South Dakota Supreme Court, but before doing so, received this memo from its home office legal department:

It is even difficult to see how we could fairly employ appeal as settlement leverage. This case should be paid or settled. Appeal is not authorized.

Later that day Liberty's home office notified the Minneapolis branch as follows:

HO legal says we have no basis for appeal, I agree, I authorized settlement to $50,000.00. If case does not settle, you will withdraw the appeal and pay per award.

Notwithstanding these directives, Liberty filed an appeal with the South Dakota Supreme Court. No briefs were ever filed, and finally, on December 7, 1979, the Supreme Court dismissed the appeal. In January 1980, Mrs. Hollman received her worker's compensation benefits that had been previously awarded. Because there had been such a delay, and since both she and her husband were totally disabled and without funds (a fact known by Liberty and Dale Electronics), Mrs. Hollman requested a lump sum distribution. This request was contested by Liberty on the grounds that it would not benefit the employee, although no basis was given for such an assertion. The Director ordered a lump sum payment to Mrs. Hollman.

The Hollmans then sued Dale Electronics and Liberty in United States District Court. Their amended complaint alleged a conspiracy and refusal to disclose information on toxic chemicals, the nature of conducted tests, harassment and coercion, misrepresentations, unjustifiable denial of benefits, and refusal to pay. In essence, she sued for intentional, malicious and fraudulent actions which occurred after her employment and during the pendency of her claim. She requested compensatory, punitive and exemplary damages.

The district court granted Liberty's motion for summary judgment on the basis that Mrs. Hollman's exclusive remedy existed under section 62-8-6 of the South Dakota Worker's Compensation Act.²  Mrs. Hollman urges that her claim is for the intentional tort of the insurer and not for any injury covered by the worker's compensation laws. The district court held that Mrs. Hollman's only additional remedies were for attorney fees in accord with S.D. Codified Laws Ann. § 58-12-3 (1978).³  The issue on appeal is whether a worker who is covered under the South Dakota Worker's Compensation Act may assert a separate claim in the courts for intentional torts which occurred after employment ceased and during the processing and payment of the claim.

South Dakota case law and legislative history offer no direct guidance. We also note that it is well settled in our circuit that this court will give deference to a district court's interpretation of state law, unless, of course, we find the district court has not correctly interpreted the state statutes or properly applied local law. Red Lobster Inns of America, Inc. v. Lawyers Title Insurance Corp., 656 F.2d 381, 387 (8th Cir. 1981); Bazzano v. Rockwell International Corp., 579 F.2d 465, 469 (8th Cir. 1978); Harris v. Hercules, Inc., 455 F.2d 267, 269 (8th Cir. 1972). Cf. Luke v. American Family Mutual Insurance Co., 476 F.2d 1015, 1019 (8th Cir.), cert. denied, 414 U.S. 856, 94 S. Ct. 158, 38 L. Ed. 2d 105 (1973).

We agree that section 62-8-6 sets forth the exclusive remedy "on account of any disease or injury to health." However, this language does not involve torts which occur independent of the industrial injury. In the present case we conclude plaintiffs' cause of action is implicitly recognized within the South Dakota statutes. Section 58-12-3 provides that a grant of attorney fees "shall not be construed to bar any other remedy, whether in tort ... arising out of its refusal to pay such loss." This clause coupled with the language in the title " [o]ther remedies not barred" strongly suggests that the legislature did not intend to bar an action for intentional torts independent of the party's claim for worker's compensation.⁴ 

Similar results have been reached by other state courts addressing the same or similar issues. In Coleman v. American Universal Insurance Co., 86 Wis.2d 615, 273 N.W.2d 220 (1979), the insurer was sued for bad faith, refusal to pay the claim, and intentional infliction of emotional distress. The court held that these were separate torts not encompassed under the exclusivity provisions of the worker's compensation laws. Id. 273 N.W.2d at 221. The weight of the case law clearly supports causes of action for such intentional torts and does not recognize exclusivity provisions of worker's compensation statutes to be a bar to the action.⁵  As Professor Larson stated:

If the essence of the tort, in law, is non-physical, and if the injuries are of the usual non-physical sort, with physical injury being at most added to the list of injuries as a makeweight, the suit should not be barred. But if the essence of the action is recovery for physical injury or death, the action should be barred even if it can be cast in the form of a normally non-physical tort.

2A Larson, Workmen's Compensation Law § 68.34, at 13.31-32 (1976).

While we recognize that some jurisdictions have declined to allow a separate action for such intentional torts,⁶  we do not find their reasoning persuasive. We find that the South Dakota statutes permit the Hollmans to bring this claim in state court;⁷  as indicated, the South Dakota compensation laws reflect recognition of this cause of action.⁸ 

We hold that the Hollmans stated a cause of action for an intentional tort which occurred after the employment ceased under South Dakota law; we find the action is not barred by the exclusivity provision of section 62-8-6 of the South Dakota Codified Laws.

We therefore vacate the grant of the summary judgment in favor of the defendants and reverse and remand for further proceedings not inconsistent with this opinion.