A Mississippi man who worked for an Alabama company can proceed with a bad faith claim against Liberty Mutual Holding Co. Inc. even though workers comp is the exclusive remedy for such claims under Alabama law, the 5th U.S. Circuit Court of Appeals has ruled.

Clinton Williams, a Mississippi resident, worked for building contractor Steven Tanner Services, which was owned by Mobile, Ala., resident Steve Tanner, court records show. In September 2005, Mr. Williams fell 15 feet while working on the roof of a building in Gulfport, Miss., and suffered “severe injuries” to both feet.

Mr. Tanner held a workers comp policy with Liberty Mutual at the time of Mr. Williams' accident, records show. He notified Liberty Mutual of Mr. Williams' fall several days after the accident.

Mr. Tanner initially denied that Mr. Williams was his employee or that Mr. Williams' injury arose out of his employment, records show. But after an investigation, Liberty Mutual and Mr. Tanner conceded in May 2006 that Mr. Williams was employed by Mr. Tanner and that he was owed medical and temporary total disability benefits.

Liberty Mutual and Mr. Tanner ultimately settled with Mr. Williams in March 2010 for $128,294, in addition to $270,890 in medical and TTD benefits that were paid to Mr. Williams before that date, records show.

However, the court-approved settlement agreement did not release a bad faith claim that Mr. Williams had filed against Liberty Mutual in Mississippi court and an “outrageous conduct” claim in Alabama courts, which were based on the eight months that the parties delayed paying comp benefits after his accident while the investigation took place.

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Mr. Williams later agreed with Liberty Mutual to dismiss the Alabama case, but he proceeded with his bad faith claim in Mississippi state court, records show. The U.S. District Court in Jackson, Miss., dismissed Mr. Williams' Mississippi claim in 2011, finding that Alabama — which bans bad faith lawsuits under workers comp exclusivity rules — was the state in which Mr. Tanner's workers comp policy was based. Mr. Williams appealed.

A three-judge panel of the 5th Circuit unanimously reversed the District Court's ruling Tuesday. In its opinion, the appellate court found that Mississippi, which allows bad faith lawsuits in workers comp, was the appropriate venue for Mr. Williams' claim because he lives in Mississippi and his injury occurred in that state.

The “Mississippi Supreme Court (has) recognized, under common law, that an injured worker may recover damages from a workers compensation insurer for an independent tort, outside the scope of the worker's employment, when the insurer intentionally and in bad faith refuses to pay workers compensation to which the worker is entitled,” the ruling reads.

The case was remanded to the District Court for further proceedings.