Falline v. GNLV CORP. , 107 Nev. 1004 ( 1991 )

OPINION

By the Court,

Steffen, J.:

Appellants Norman and Sharon Falline sought to maintain common law or private causes of action against respondents GNLV Corporation (Golden Nugget), a self-insured employer, and Gibbens Company, Inc. (Gibbens), the administrator of Golden Nugget’s self-insured plan. The causes of action included claims for negligence and bad faith in the processing and payment of claims, intentional and negligent infliction of emotional distress, unfair insurance practices, and other claims which will not be specifically addressed in this opinion. We conclude that the district court erred in dismissing two of appellants’ claims, and therefore reverse and remand as to those claims.¹

At the age of twenty-five, appellant Norman Falline (Falline) injured his back while working as a maintenance laborer at the Golden Nugget. The injury eventually required surgery. Approximately ten weeks after surgery, Falline experienced severe pain in his lower back as he arose from a sitting position. An examining physician determined that there was no new injury and concluded that Falline’s initial surgery left him prone to reinjury. The physician recommended treatment for the acute problem and determined that Falline was temporarily totally disabled. Based upon the physician’s findings and recommendations, Falline sought to have his claim reopened. Despite the doctor’s report, Gibbens and the Golden Nugget denied further liability, stating that Falline had suffered an intervening injury.

Falline appealed respondents’ rejection of his claim to a hearing otficer, who ruled in favor of reopening the claim and paying benefits. Respondents thereafter appealed to an appeals officer who also ruled in Falline’s favor. Subsequently, respondents sought judicial review, but the district court upheld the decision of the appeals officer and ordered the insurer to pay both accident and compensation benefits. Respondents’ appeal to this court was dismissed by order filed on June 26, 1986. Stay orders sought by respondents from the district court and this court were also denied.

After Falline was released to return to work, his employment was terminated about three months later. Rehabilitation benefits were subsequently refused by respondents, despite a hearing officer twice ruling that Falline was entitled to such benefits.

Appellants first contend that the district court erred in dismissing their cause of action for the negligent or bad faith delay in the payment of workmen’s compensation benefits. We agree. In our recent opinion in Northern Nev. Ass’n of Injured Workers v. Nevada State Indus. Ins. Sys., 107 Nev. 108, 807 P.2d 728 (1991), we reaffirmed our ruling in Rush v. Nevada Industrial Commission, 94 Nev. 403, 580 P.2d 952 (1978), holding that a claimant could maintain a cause of action against the State Industrial Insurance System (SIIS) under a common law negligence theory because SIIS was a third party separate and apart from the employer. We now conclude that there is no rational basis for permitting such an action against SIIS, which is funded by contributions from employers, and denying the same right of action against administrators of self-insured plans which are also funded by employers. In both instances, “administrators” are obligated to promptly, fairly, and in good faith, process and pay where warranted, compensation benefits to injured workers. Moreover, it makes no difference whether a self-insured plan is administered by the self-insured employer or an agent employed for that purpose. Although Nevada law (NRS 616.2947) imposes liability on a self-insured employer for penalties resulting from the derelictions of the administrator/agent, there is no sound reason why a self-insured employer should not be liable for damages resulting from the negligent or bad faith administration of the self-insured plan by the administrator/agent. There are cogent reasons for concluding that such liability would not constitute an erosion of the employer’s immunity from common law liability for work-related injuries under NRS 616.272(2). First, the basis for liability is not the industrial injury upon which the workmen’s compensation claim is based, but rather the negligent or bad faith failure or refusal to timely pay the compensation due. Second, the self-insured employer who relies on a fair, efficient, and lawful administration of the self-insured plan by an administrator/agent, and suffers damage by the latter’s breach of duty, may seek indemnification from the administrator/agent for such damages assessed against the self-insured employer. See, e.g., Salt Lake City School District v. Galbraith & Green, Inc., 740 P.2d 284 (Utah Ct.App. 1987). Third, it would unfairly discriminate against employees of a self-insured employer to disallow an action for damages resulting from the negligent or bad faith failure or refusal to timely pay compensation entitlements while allowing a similar action against SHS by employees of employers who are not self-insured.²

Although Falline properly exhausted his administrative remedies, the record reflects that while administrative and judicial remedies were pursued, he was denied compensation benefits during two intervals that were each approximately six months in duration. During these periods, Falline claims that he and his wife were forced to borrow money, sell their automobile and request the help of relatives.

Our case law strongly emphasizes that one of the obligations of a self-insurer “is the prompt payment of benefits, and if payment is determined to be unwarranted, the self-insurer must seek reimbursement of benefits it paid.” Imperial Palace v. Dawson, 102 Nev. 88, 92, 715 P.2d 1318, 1320 (1986) (quoting Dep’t Ind. Relations v. Circus Circus, 101 Nev. 405, 411-12, 705 P.2d 645, 649 (1985)). Under our rulings, respondents’ vexatious and dilatory withholding of Falline’s compensation cannot be condoned. Nevertheless, there is another consideration that must be addressed in determining whether Falline has a right of action against respondents.

Our ruling in Northern Nev. Ass’n of Injured Workers, supra, recognized that under Nevada law, NRS 41.032, the liability of SUS and its employees for negligent acts is limited to acts that are of an operational, rather than discretionary, nature. Although statutory immunity for discretionary acts is accorded only to governmental agencies and employees, we have determined that a denial of such immunity to self-insured employers and their administrators/agents would constitute an unwarranted, discriminatory source of liability against the latter. We therefore hold that self-insured employers and their administrators/agents are liable for negligent claims processing only to the extent that such processing constitutes what would be properly classified as an operational decision if made within the State Industrial Insurance System. In that connection, however, we also hold that if failure or refusal to timely process or pay claims is attributable to bad faith, immunity does not apply whether an act is discretionary or not.

Bad faith, the converse of good faith, has been defined as “the absence of a reasonable basis for denying benefits . . . and the defendant’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim.” Franks v. United States Fidelity & Guar. Co., 718 P.2d 193, 197 (Ariz.Ct.App. 1985) (quoting Noble v. National Am. Life Ins. Co., 624 P.2d 866 (1981); Anderson v. Continental Ins. Co., 271 N.W.2d 368 (Wis. 1978)); 2A A. Larson, The Law of Workmen’s Compensation § 68.34(c) at 13-144 (1987 & Supp. 1990). Neither SIIS nor a self-insured employer or its administrator/agent has discretion to act in bad faith, i.e., without a reasonable basis or with knowledge or reckless disregard of the lack of a reasonable basis in the processing or denial of claims. It follows, therefore, that any act involving the processing of claims committed or performed in bad faith cannot, by definition, be within the actor’s discretion.³

Respondents contend that the legislative scheme for sanctioning self-insurers who violate their obligations to injured workers, coupled with the availability of additional sanctions imposed by the judiciary in the form of interest, costs and attorney’s fees, constitute an exclusive remedy. It is true that NRS 616.294⁴ and NRS 616.647⁵ provide a basis for modest monetary penalties or even a withdrawal of certification that may be invoked against a self-insurer who fails or refuses to comply with the law. Unfortunately, however, with the exception of the limited benefit an aggrieved claimant may receive as a result of judicial sanctions imposed against a self-insurer, the modest administrative fines that may be assessed provide no financial relief to claimants.

In Hansen v. Harrah’s, 100 Nev. 60, 675 P.2d 394 (1984), we recognized a public policy exception to the at-will employment doctrine in instances where employees are terminated in retaliation for the filing of workmen’s compensation claims. As a result, we concluded that aggrieved workers thus terminated were entitled to pursue a tort cause of action against their self-insured employers. If, in Harrah’s, we had been receptive to the argument asserted by respondents in the instant case, we would have declared the statutorily provided administrative fines to be an exclusive remedy. Indeed, NRS 616.647(l)(a) and (2)(c) provide for an administrative fine of “[n]ot more than $1,000” for inducing a claimant not to report an accidental injury or an occupational disease. Thus, within the context of the Harrah’s situation, if an employer were to induce an injured employee not to file an industrial accident claim under threat of termination, the statutory remedy for the wrongful inducement would be a maximum administrative fine of $1,000. The aggrieved employee would have received nothing by way of financial relief for his wrongful discharge. Similarly, if a self-insured employer were to fail to accept or pay a valid claim for workmen’s compensation, the statutory remedy under NRS 616.647(l)(g), (2)(a) and (2)(b) would be a maximum fine of $100 if unintentional or a maximum of $1,000 if intentional. We are unwilling to expose Nevada’s injured workmen to such a hollow and illusory form of relief. If the Legislature sees fit to declare the statutory scheme of fines an exclusive remedy to aggrieved workmen whose claims are denied or delayed as a result of negligence or bad faith, the Legislature may enact legislation to that end.

In Harrah’s we noted that “Nevada’s workmen’s compensation laws reflect a clear public policy favoring economic security for employees injured while in the course of their employment. It has been a long-standing policy of this Court to liberally construe such laws to protect injured workers and their families.” Harrah’s, 100 Nev. at 63, 675 P.2d at 396.

Consonant with our prior rulings, we hold that an employee who has suffered damage as a result of the negligent or bad faith failure or refusal by a self-insured employer or its administrator/ agent, to process and timely pay claims properly asserted under the Nevada Industrial Insurance Act (NRS 616) may pursue a tort action in accordance with the limitations set forth in this opinion.⁶

We are aware of the contrary position taken by a number of other courts and commentators who have concluded that a legislative scheme of administrative fines is the exclusive remedy for injured workmen who have been aggrieved by the bad faith or negligence of a self-insured employer in the processing and payment of claims for compensation. See Phillips v. Crawford & Co., 248 Cal.Rptr. 371, 373 (Cal.Ct.App. 1988);⁷ 2A A. Larson, The Law of Workmen’s Compensation § 68.34(c) at 13-146 (1990) (citations omitted). However, we are not persuaded by the contrary view because although administrative fines may have some deterrent effect on self-insured employers, they do not purport to address the plight of the injured worker who may suffer great deprivation as a result of the tortious denial or delay of his or her benefits. The availability of tort damages under the restrictions provided in this opinion should serve the salutary purposes of worker relief and employer compliance.

Appellants also contend that the district court erred in dismissing their cause of action for intentional infliction of emotional distress. We disagree. The synonym for this particular cause of action is the tort of outrage. We have previously held, in Star v. Rabello, 97 Nev. 124, 625 P.2d 90 (1981), that one of the elements of this tort is extreme and outrageous conduct. Id. at 125, 625 P.2d at 91-92. Moreover, we have inferred that “malicious intent” is a descriptive aspect of the tort of outrage. See Branda v. Sanford, 97 Nev. 643, 648, 637 P.2d 1223, 1227 (1981). In short, this particular tort would, at least in many instances, embrace conduct that would support a claim for punitive damages and we have held that such damages are unavailable in the type of action presented by the instant case. Moreover, recognizing a cause of action for emotional distress in the workmen’s compensation context raises the specter of “almost every emotion-based case turning up as some kind of tort suit.” 2A A. Larson, The Law of Workmen’s Compensation § 68.34(a) at 13-116 (1987 & Supp. 1990). Finally, the Legislature has established the degree to which self-insurers should be punished for conduct of the type here present by imposing administrative fines in specific maximum amounts.

Appellants also urge us to recognize a discrete cause of action for the negligent infliction of emotional distress. We have not as yet had occasion to consider this particular tort within the context of claims involving the tortious delay or denial of claims for workmen’s compensation, and do not consider it wise to do so. Moreover, because the key element for liability in such an action is negligence, and we have already determined that, under the circumstances alleged here, a common law negligence action is available to workers employed by self-insured employers, emotional distress is more appropriately treated as an element of damage in such causes of action rather than a cause of action itself.

Finally, appellants argue that NRS 686A.310, which enumerates unfair insurance practices, gave rise to a private cause of action even prior to its 1987 amendment. On this record, we are not prepared to agree. It is at least doubtful that chapter 686A applies to self-insurers in the workmen’s compensation system. In any event, given our disposition of this appeal we decline to address the issue, including the retrospective application of the statute as urged by appellants.

We have fully examined appellants’ remaining issues and conclude that they are without merit. For the reasons stated above, we hold that the trial court erred in dismissing appellants’ negligence and bad faith claims, and therefore reverse the lower court’s judgment as to those claims; in all other respects the judgment below is affirmed.

Rose, J., concurs.

1 All of appellants’ causes of action were dismissed with the exception of their claim for wrongful termination which is still pending below.

2 By a parity of reasoning, it would be equally discriminatory against self-insured employers to permit injured workers to seek punitive damages against the self-insured employer or its administrator/agent when we have expressly disallowed such damages in actions against SUS and its employees. See Northern Nev. Ass'n of Injured Workers, 107 Nev. at 111, 807 P.2d at 730 n.5, (citing Rush v. Nevada Indus. Comm’n, 94 Nev. 403, 580 P.2d 952 n.5 (1978)), for its holding that punitive damages are unavailable in actions involving negligent or malicious claims processing. Punitive damages are therefore precluded in this type of action against self-insured employers and their administrators/agents.

3 We realize that NRS 41.032(2) provides immunity to contractors, officers, . employees, agencies and political subdivisions of the State for the performance or non-performance of discretionary acts “whether or not the discretion involved is abused.” (Emphasis supplied.) However, an abuse of discretion necessarily involves at least two factors: (1) the authority to exercise judgment or discretion in acting or refusing to act on a given matter; and (2) a lack of justification for the act or inaction decided upon. Bad faith, on the other hand, involves an implemented attitude that completely transcends the circumference of authority granted the individual or entity. In other words, an abuse of discretion occurs within the circumference of authority, and an act or omission of bad faith occurs outside the circumference of authority. Stated otherwise, an abuse of discretion is characterized by an application of unreasonable judgment to a decision that is within the actor’s rightful prerogatives, whereas an act of bad faith has no relationship to a rightful prerogative even if the result is ostensibly within the actor’s ambit of authority. For example, if an administrator decides to delay or deny a claimant’s benefits because of a personal dislike for the claimant, the delay or denial would be attributable to an unauthorized act of bad faith despite the fact that a denial or delay could be otherwise among the rightful prerogatives of the administrator. See Crosby v. SAIF, 699 P.2d 198 (Or.App. 1985) (holding that State Accident Insurance Fund’s conspiring with employer to eliminate a worker’s entitlement to benefits is not a matter of discretion).

4 NRS 616.294 states in pertinent part:

1. The commissioner may impose an administrative fine, not to exceed $500 for each violation, and may withdraw the certification of a self-insured employer if:

(c) The employer intentionally fails to comply with regulations of the commissioner regarding reports or other requirements necessary to carry out the purposes of this chapter. . . .

5 NRS 616.647 states in relevant part that:

1. If the administrator has reason to believe that an insurer or employer has:

(e) Refused to pay or unreasonably delayed payment to a claimant of compensation found to be due him by a hearing officer or appeals officer;

(f) Made it necessary for a claimant to resort to proceedings against the employer or insurer for compensation found to be due him by a hearing officer or appeals officer;

(g) Failed to comply with regulations of the department for the acceptance and rejection of claims, determination and calculation of a claimant’s average monthly wage, determination and payment of compensation, delivery of accident benefits and reporting relating to these matters ....

the administrator shall set a date for a hearing. The date must be no sooner than 30 days after notice is served upon the insurer or employer of the alleged action and the time and place of the hearing.

2. If, after an evidentiary hearing, the administrator determines that the insurer or employer has committed the alleged act, the administrator may impose an administrative fine of:

(a) Not more than $100 for each act in violation of paragraph (g) of subsection 1 which was not intentional;

(b) Not more than $1,000 for each intentional or repeated act in violation of paragraph (g) of subsection 1; or

5. The commissioner may withdraw the certification of a self-insured employer if, after a hearing, it is shown that the self-insured employer:

(a) Intentionally or repeatedly committed any of the acts enumerated in paragraph (g) of subsection 1; or

(b) Committed any acts in violation of any other provisions of subsection 1.

6 In order to achieve fairness and parity in causes of action asserted against SHS, its officers and employees on the one hand, and self-insured employers, their administrators/agents on the other, it is necessary to recognize that the former enjoys the benefit of a $50,000 recovery limit provided by NRS 41.035(1). Consequently, any action seeking tort damages against a self-insured employer or its administrator/agent shall also be subject to a total recovery limit of $50,000 exclusive of interest computed from the date of judgment. Although self-insured employers may derive pecuniary benefits by their self-insured status, they also confer benefits on the heavily congested State Industrial Insurance System by saving the System the administrative burdens associated with the processing of claims presented under self-insured programs.

7 See also, Bright v. Nimmo, 320 S.E.2d 365, 368 (Ga. 1984) (adverse financial consequences from the intentional delay of workers’ compensation payments does not give rise to an independent cause of action against the employer or its insurer where penalties for such delay are provided by the act); Hormann v. New Hampshire Ins. Co., 689 P.2d 837, 844 (Kan. 1984) (the worker’s exclusive remedy where an insurer intentionally refuses to pay compensation prior to an award is contained in the Act and allowing independent common-law actions would circumvent the intent of the legislature and the Act); Dickson v. Mountain States Mut. Casualty Co., 650 P.2d 1, 2-3 (N.M. 1982) (express remedies provided by the Act are the sole and exclusive remedies available to an employee for claims against his employer or insurer); Hall v. C & P Tel. Co., 809 F.2d 924, 926 (D.C.Cir. 1987) (recognizing a cause of action for intentional bad faith refusal to make timely compensation payments when the act provides for a specific remedy would unravel the legislated compromise between the interests of employees and the concerns of employers); Garrett v. Washington Air Compressor Co., Inc., 466 A.2d 462, 464 (D.C. 1983) (Longshoremen’s and Harbor Workers’ Compensation Act provides a specific remedy for tardiness in making payments and appellant’s remedy was to seek an administrative fine under the Act).