White v. Montana State Fund

White v. Montana State Fund, 2013 MT 187 (July 12, 2013) (4-1) (Baker, J., for the majority; Cotter, J., dissenting on one issue)

Issue: (1) Whether the district court erred in granting the State Fund’s motion to dismiss White’s claims under Montana’s insurance code; and (2) whether the district court erred in granting the State Fund’s motion for summary judgment regarding White’s common-law claims of bad faith, malicious prosecution, and emotional distress.

Short Answer: (1) No, as the State Fund is explicitly not covered by Title 33, and (2) no.


Facts: Kirk White injured his shoulder at work in 2006. He reported the injury to the State Fund, which paid for shoulder surgery and paid White biweekly temporary total disability benefits of $981.08. White was told in writing that he had to report any return to gainful employment to the State Fund, or he could be subject to legal action or criminal prosecution for accepting benefits while also working.

After the State Fund received some tips that White was selling furniture out of his home, it investigated and determined the tips were true. Based on information from the investigation, the Department of Justice applied for a search warrant. The search yielded a receipt book reflecting sales and barter totaling $1900. The state filed an information charging White with felony theft. The State Fund terminated White’s benefits. White went to trial and a jury found him not guilty in January 2010.

Two months later, White settled his work comp claim with the State fund for a lump sum of $32,500. In May 2010, White sued the State Fund and its private investigators, alleging the defendants had violated the Montana insurance code regarding unfair claims settlement practices, as well as several common-law claims including bad faith, malicious prosecution, and negligent and intentional infliction of emotional distress.

Procedural Posture & Holding: The State Fund moved to dismiss White’s complaint for failure to state a claim. The district court granted the State Fund’s motion to dismiss the claims involving violation of the insurance code, and granted the defendant’s motions for summary judgment on the remaining counts. White appeals the district court’s rulings in favor of the State Fund, and the Supreme Court affirms.

Reasoning: (1) Title 33 of the MCA, the insurance code, does not apply to the State Fund by its plain terms. White argues that the State Fund nonetheless has a duty to comply with the standards set out in § 33-18-201, MCA, and that its failure to do so constitutes bad faith. The Court disagrees.

White brought three common-law claims against the State Fund: bad faith, malicious prosecution, and negligent or intentional infliction of emotional distress. (a) On the bad faith claim, the district court determined the State Fund had a reasonable basis for terminating White’s benefits. White contends reasonableness is an issue for the jury. However, reasonableness is a question of law when it depends on legal duties and defenses. White has never disputed that he sold furniture and received goods in return for work while receiving work comp benefits. The State Fund’s termination of benefits on the basis of these undisputed facts was reasonable as a matter of law. (b) On the malicious prosecution claim, the Dept. of Justice prosecuted White, not the State Fund. Additionally, the district court properly concluded that the undisputed facts show that the State Fund had probable cause for reporting White’s suspected fraud to the DOJ. (c) White contends the State Fund’s termination of his benefits caused him emotional distress. An independent claim for emotional distress requires proof of severe distress. Summary judgment is appropriate for emotional distress claims that lack sufficient evidentiary support. The district court is affirmed.

Justice Cotter’s Concurrence and Dissent: Justice Cotter concurs on the first issue, but dissents on the second. She would reverse and remand for trial on White’s claim of common-law bad faith and parasitic emotional damages. White alleged in his complaint that he was challenging the good faith of the State Fund’s program of surveillance and ostensible entrapment. The district court and the majority overlook this, and infer that the termination of White’s benefits is the sine qua non of his common-law bad faith action. Justice Cotter would conclude that whether an insurer’s program of surveillance and ostensible entrapment is reasonable is a question of fact for the jury. Justice Cotter agrees that White’s stand-alone claims for emotional distress were properly dismissed, but would allow White to pursue his claim for parasitic emotional distress arising out of the State Fund’s alleged bad faith.