Case Title: National Union Fire Insurance Co. of Pittsburgh v. McDougall

Citation: 

Docket Number: 212, 2000

State: delaware

Court: Delaware Supreme Court

Date: 2001-03-28T00:00:00Z

Document:
IN THE SUPREME COURT OF THE STATE OF DELAWARE
NATIONAL UNION FIRE
INS. CO. OF PITTSBURGH,
PENNSYLVANIA,
Defendant Below,
Appellant,
v.
WILLIAM S. MCDOUGALL,
Plaintiff Below,
Appellee.
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No. 212, 2000
Court Below:  Superior Court
of the State of Delaware in and
for Kent County
94C-03-040-HDR
Submitted: February 13, 2001
Decided:
March 28, 2001
Before VEASEY, Chief Justice, BERGER and STEELE, Justices.
Upon Appeal from the Superior Court.  AFFIRMED.
Christopher J. Sipe, Esquire, of Bailey & Wetzel, P.A., Wilmington,
Delaware, for Appellant.
Scott R. Mondell, Esquire (argued), and H. Garrett Baker, Esquire, of
Elzufon & Austin, Wilmington, Delaware, for Amicus Curiae Air Products and
Chemical Company.
William D. Fletcher, Jr., Esquire (argued), Craig T. Eliassen, Esquire,
and Donna L. Harris, Esquire, of Schmittinger & Rodriguez, Dover, Delaware,
for Appellee.
Per Curiam:
This case involves the question whether an employer (or its insurance
carrier) can be held liable under the provisions of the Workers’ Compensation
Act1 and the Wage Payment and Collection Act2 for failure to pay an award made
by the Industrial Accident Board, notwithstanding a finding that the failure to pay
does not amount to a breach of the implied contractual obligation of good faith
and fair dealing.  Because we hold that an employer can be held liable under the
Acts in question even when nonpayment of an award was not in bad faith, we
affirm the ruling of the Superior Court.
Contentions of the Parties
National Union Fire Ins. Co. of Pittsburgh, Pennsylvania (“National
Union”), has appealed from the Superior Court’s grant of summary judgment in
favor of William S. McDougall on Count IV of McDougall’s Amended
Complaint seeking statutory damages and attorney’s fees arising from non-
payment of an award of medical expenses made by the Industrial Accident Board
(the “Board”).  McDougall cross-appeals from the grant of summary judgment in
favor of National Union on Counts I-III.  These counts allege National Union’s
                                   
1 19 Del. C. ch. 23.
2 19 Del. C. ch. 11.
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bad faith in the handling and non-payment of benefits owed to McDougall.3
After hearing argument by the parties, the Superior Court entered an order
awarding McDougall damages under Count IV of his complaint and dismissing
Counts I-III.  National Union’s primary contention on appeal is that it was legal
error for the Superior Court to find liability on Count IV in light of its resolution
of the good faith claim in Count III in its favor.
Count IV of McDougall’s complaint sought damages under the provisions
of the Workers’ Compensation Act4 and the Wage Payment and Collection Act.5
In Huffman v. Oliphant6 this Court explained how these provisions confer
jurisdiction on the Superior Court to award damages against employers for
wrongful suspension or nonpayment of benefits.
Title 19, section 2357 of the Delaware Code provides:  “If default is made
by the employer for 30 days after demand in the payment of any amount due
under this chapter, the amount may be recovered in the same manner as claims
for wages are collectible.”  Claims for wages are made under 19 Del. C. §
                                   
3 Counts I and II of McDougall’s complaint are not relevant to our resolution of the issues presented in National
Union’s appeal.
4 19 Del. C. ch. 23.
5 19 Del. C. ch. 11.
6 Del. Supr., 432 A.2d 1207, 1210-11 (1981); see also Holden v. Gaico, Del. Supr., 736 A.2d 202, 203 (1999).
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1113(d), which provides:  “A civil action to recover unpaid wages and liquidated
damages may be maintained in any court of competent jurisdiction.”7
Thus, in cases of wrongful nonpayment of an amount due under the
Workers’ Compensation Act, the Superior Court has jurisdiction to order the
relief set forth in 11 Del. C. § 1103(b), which provides that “if the employer,
without any reasonable grounds for dispute,” fails to pay amounts due, “the
employer shall . . . be liable to the employee for liquidated damages in the
amount of 10 percent of the unpaid wages for each day, except Sunday and legal
holidays, upon which such failure continues after the day upon which payment is
required or in an amount equal to the unpaid wages, whichever is smaller. . . .”
As noted above, the Superior Court found National Union liable for failing to pay
an award made by the Board where that award has become final under these
provisions.
Count III of McDougall’s complaint concerns nonpayment of the same
award of medical expenses that is the subject of Count IV.  Specifically, Count
III alleges that this non-payment was in bad faith.  As explained more fully
below, the Superior Court found that National Union did not act in bad faith.
                                   
7 “This Court has held that to give effect to provisions in Section 2357, the reference to ‘wages’ in Section
1113(a) ‘must be construed to included claims based on unpaid workmen’s compensation benefits. . . .’”  Holden,
736 A.2d at 203 (citing Huffman, 432 A.2d at 1210).  Accordingly the provisions of section 1113(c) permit
recovery of “any amount due under the Workers’ Compensation statute.”  Holden at 203.
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National Union argues that summary judgment should not have been granted in
favor of McDougall on Count IV of his complaint because, for the purposes of
Count III, the Superior Court found that National Union acted in good faith when
it failed to pay the award.  National Union argues that this finding of good faith
cannot be reconciled with the finding of liability on the Huffman claim in Count
IV, and that in light of the dismissal of the bad faith claim, the Superior Court
committed legal error in resolving Count IV against National Union.
In effect, National Union argues that good faith is a defense to liability on
Count IV.  We disagree.  Because we affirm the judgment against National
Union on Count IV, we do not reach McDougall’s cross-appeal from the grant of
summary judgment for National Union on Counts I-III.8
Facts and Proceedings Below
We begin with a summary of the basic facts necessary to an understanding
of the disputed issues.  McDougall was injured in a work-related accident on July
18, 1990, while employed by Air Products & Chemicals, Inc. (“Air Products”).
National Union, Air Products’ insurer, began paying temporary total disability
benefits, and payment of total disability benefits later continued under an
agreement concluded between McDougall and National Union and approved by
                                                                                                                
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the Board.9  In April 1991, McDougall suffered a severe stroke.  Following this
stroke, McDougall sued his doctors in Florida, apparently for failing to diagnose
the condition that led to the stroke.  The suit was settled for over $1 million,
resulting in a net recovery by McDougall of $580,166.78.  As explained more
fully below, National Union offers this settlement as an explanation for failing to
compensate McDougall for his medical expenses on the basis that this third-party
recovery should offset the amounts owed McDougall.
In December 1992, National Union, on behalf of Air Products, filed a
petition to terminate disability benefits on the basis that McDougall’s stroke-
related disability was not related to the work accident.  In an order dated August
17, 1993, the Board dismissed the petition because National Union had not met
its burden of showing that McDougall’s disability was not related to the industrial
accident.  In November 1993, National Union filed a second petition to terminate
benefits, again on the ground that McDougall’s stroke was not a work-related
injury.  McDougall also petitioned the Board for payment of additional benefits,
primarily medical expenses associated with the stroke, on the ground that the
condition causing the stroke occurred at the time of the work accident.
                                                                                                                
8  McDougall represents in his brief that he is cross-appealing the Superior Court’s judgments on Counts I-III only in
the event that this Court reverses the judgment in his favor on Count IV.
9  Air Products & Chemicals, Inc. was the named party in certain of the proceedings referred to below, and has
filed an amicus curiae brief in National Union’s appeal.
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The Board held hearings on the parties’ petitions.  At the hearings, the
Board heard conflicting medical testimony concerning whether McDougall’s
stroke was related to the accident.  In an Opinion and Order dated September 22,
1995 (the “1995 Order”), the Board found that McDougall’s stroke had its origin
in the industrial accident, and that consequently McDougall’s medical expenses
were compensable.  Accordingly, National Union’s petition was denied, and
McDougall’s petition was granted.  McDougall was awarded $367,697.66 as
reimbursement for past medical expenses.  The Order makes no mention of a
credit in connection with the Florida settlement.
Air Products filed a motion for reargument of the 1995 Order, which the
Board dismissed as untimely by order dated March 21, 1996.  Air Products did
not appeal this dismissal to the Superior Court but instead made further filings
with the Board requesting reconsideration of its timeliness ruling.  Nearly two
years later the Board issued an order dated June 19, 1998, indicating that it
would hold an evidentiary hearing on the timeliness issue.  McDougall filed a
motion for reargument of this order, contending that the Board lacked jurisdiction
to reconsider the finality of its timeliness decision of March 21, 1996, which
National Union had not appealed.  The Board granted McDougall’s motion by
order dated August 6, 1998.  National Union appealed that order to the Superior
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Court.  The Superior Court summarily dismissed this appeal.  This Court
affirmed, holding that Air Products’ failure to appeal the March 21, 1996 denial
of the motion for reargument meant that the Board’s denial of the motion was
“final,” and that further actions by the Board were a “nullity” since it lacked
jurisdiction.10
Before the 1995 Order, McDougall had filed a complaint in Superior Court
alleging bad faith handling of his compensation claims.  In September 1997,
McDougall filed an amended complaint.  A Count III was added, alleging bad
faith non-payment of the award of medical expenses in the amount of
$367,697.66 made by the Board in the 1995 Order.  As described above, a Count
IV was added seeking compensatory and statutory damages.  The parties’ filed
cross-motions for summary judgment.  The Superior Court rejected the bad faith
claim but granted McDougall summary judgment on his Huffman claim.
Accordingly, the Superior Court ordered payment to McDougall of $924,529.02,
an amount reflecting primarily the 1995 award and statutory damages.  National
Union appeals that order.
                                   
10  Air Products & Chemicals, Inc. v. McDougall, Del. Supr., No. 209, 1999, 1999 WL 734666, Berger, J. (Aug. 25,
1999) (ORDER).
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The Superior Court’s Rejection of the Bad Faith Claim Does Not Preclude
Statutory Liability for Nonpayment of the Award
As noted above, Count IV of McDougall’s complaint sought damages
under the provisions of the Workers’ Compensation Act and the Wage Payment
and Collection Act.  In this case, the Superior Court properly found National
Union liable for failing to pay to McDougall the “amount due” under the 1995
Order.  The Superior Court awarded appropriate damages under 19 Del. C. §
1103.  At the same time, the court rejected McDougall’s bad faith claim, because
it found that there was a “bona fide dispute as to the applicability of a credit”
that, if it existed, would reduce National Union’s payments to McDougall.  The
dispute over a credit stems from National Union’s view that under 19 Del. C. §
2363(e)11 its payments to McDougall should be offset by the amount McDougall
recovered in his settlement with his Florida doctors.  Although the issue of a
credit has never been presented to the Board, National Union argues that it
“enjoys” a credit under section 2363(e) based on the settlement recovery.
National Union also points to apparent concessions made by McDougall’s
counsel at a hearing indicating that a credit might exist.  In light of these
arguments, the Superior Court found that National Union’s nonpayment of
                                   
11 § 2363(e) provides in relevant part that a “recovery against [a] third party for damages . . . shall first reimburse the
employer or its workers’ compensation insurance carrier for any amounts paid or payable under the Workers’
Compensation Act to date of recovery, and the balance shall forthwith be paid to the employee. . . .”
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benefits was not in bad faith.12  Accordingly, summary judgment was entered for
National Union on Count III of the Amended Complaint.
National Union argues that this finding precludes liability for non-payment
of benefits under Huffman.  National Union focuses on language in Huffman
stating that liability is based on “wrongful” non-payment,13 and also on the
provisions of section 1103(b), which predicates liability on non-payment “without
any reasonable grounds for dispute.”  National Union argues that if the Superior
Court found a “bona fide” dispute concerning the amounts due, then non-
payment cannot have been wrongful or unreasonable for the purposes of Count
IV.
This argument fails because, as this Court stated in Huffman, “the alleged
‘good faith’ belief of an employer or insurer that the employee is no longer
entitled to compensation is irrelevant under this statute.”14  National Union’s
obligation to pay attached when the Board’s September 22, 1995 award became
                                   
12 National Union owes a duty of good faith to McDougall.  This duty arises out of National Union’s insurance
contract with Air Products, of which McDougall is the third-party beneficiary.  See Pierce v. International Ins. Co.
of Ill., Del. Supr., 671 A.2d 1361, 1366 (1996).  An insurer violates this duty when “it delays or terminates payment
of a claim in bad faith.”  Id. (citation omitted).  To show breach of the obligation of good faith, the plaintiff must
show that the insurer acted without “reasonable justification in delaying or refusing payment.”  Tackett v. State
Farm Fire & Cas. Co., Del. Supr., 653 A.2d 254, 264 (1995).
13  432 A.2d at 1210 (emphasis added).
14 Huffman, 432 A.2d at 1209.
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final.15  Thus, the decision not to pay the award was “wrongful” because it
contravened a final order of the Board, notwithstanding a bona fide dispute
sufficient to defeat McDougall’s claim that National Union was not acting in
good faith.
Failure to pay an amount due can be “wrongful” in a sense that does not
necessarily imply bad faith.  In light of the unappealed 1995 Order, which does
not establish a credit, there is no basis for National Union’s refusal to pay the
medical expenses that would preclude awarding statutory damages to McDougall.
The award under the Board’s 1995 Order is an “amount due”16 under the Act
regardless of National Union’s good faith objections based on its view that a
credit existed.  National Union’s attempt in this case to relitigate whether it truly
owes a Board award that has become final is incompatible with the statutory
remedy outlined in Huffman.
Similarly, we agree with the Superior Court’s rejection of National
Union’s contention that McDougall is estopped from suing for statutory damages.
                                   
15 See Holden v. Gaico, Del. Supr., 736 A.2d 202, 204 (1999); Keeler v. Metal Masters Food Service Equip. Co.,
Del. Super., No. 97C-09-005 HDR, 1999 WL 1241063, Ridgely, P.J., (Aug. 16, 1999), aff’d. Del. Supr., 755 A.2d
389 (2000) (holding that unappealed Board awards become final and establish liability under Huffman).
16 19 Del. C. § 2357.
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This estoppel argument is based on several statements made by McDougall’s
counsel allegedly indicating that there would be a credit.17  Based on our review
of the record we find support for the Superior Court’s rejection of the estoppel
argument.  The 1995 Order and related hearings concerned two petitions, one by
National Union to terminate payments and one by McDougall to collect
additional payments.  National Union did not petition for a credit, and it was not
an issue at the hearings.  The 1995 Order makes no mention of a credit, and no
credit is reflected in the award.  National Union did not appeal the resulting
award.  Based on the record before us, we agree with the decision of the
Superior Court that McDougall is not estopped from suing for damages.   
National Union also challenges whether a valid demand was made.18  The
Superior Court found that the complaint satisfies the demand requirement as a
matter of law.  The addition of Count IV was noticed to National Union in
September 1997.  Count IV cites Huffman, the relevant statutory bases for
liability, and the 1995 Order.  We agree with the Superior Court that this is a
“proper demand.”
                                   
17 The parties dispute the context and meaning of the alleged stipulations.
18 See Huffman, 432 A.2d at 1210 (stating than an employee may pursue statutory remedies “after proper demand
has been made”).
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Conclusion
The Superior Court’s rejection of the claim of bad faith made against
National Union in Count III of McDougall’s complaint does not preclude liability
for statutory damages under Count IV.  The Superior Court properly found
National Union liable for statutory damages for failure to pay a final award of the
Board.  Accordingly, we affirm the judgment of the Superior Court.