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Man acquitted of workers comp fraud cannot sue insurer for bad faith

Man acquitted of workers comp fraud cannot sue insurer for bad faith

A construction worker who was found not guilty of workers compensation fraud cannot sue his employer's workers comp insurer for bad faith based on his acquittal, the Montana Supreme Court has ruled.

Kirk White injured his shoulder while working at a construction site for Gallatin Gateway, Mont.-based Trademark Construction Inc., court records show. He filed for workers comp benefits in October 2006, and ultimately was awarded temporary total disability payments and payment for two shoulder surgeries.

Montana State Fund, Trademark's workers comp insurer, told Mr. White in 2006 and 2008 that he was required to notify the insurer if he returned to gainful employment. But in August 2008, the state fund received an anonymous tip that Mr. White was building and selling furniture out of his home.

The state fund hired a private investigator, who visited Mr. White's home under a pseudonym and ordered a cedar chest from Mr. White for $650, records show. The investigator later returned with a state fund fraud investigator to pick up the completed cedar chest, and Mr. White showed them other furniture on which he was working or had completed.

Based on the investigation, the Montana Department of Justice searched Mr. White's home and found a receipt book that showed he sold two chests for $1,000, records show. The state agency also found he had received a $900 vacuum cleaner while working at a local vacuum store. Mr. White was charged with theft for working while receiving $2,242 in TTD benefits.

However, a jury found Mr. White not guilty in January 2010, court records show. The state fund, which had terminated Mr. White's benefits in the interim, ultimately settled Mr. White's workers comp case for $32,500.


Mr. White sued the state fund and its private investigator in May 2010 on grounds o bad faith settlement practices, malicious prosecution and emotional distress. But Montana's 18th Judicial District Court dismissed the suit and Mr. White appealed.

In a 4-1 ruling Friday, the Montana Supreme Court upheld the district court ruling. The high court majority said the state fund did not act in bad faith under Montana law because its investigation showed that it had a “reasonable basis” for contesting Mr. White's benefits.

“The statutory language plainly proscribes receipt of 'both wages and temporary total disability benefits' and defines 'wages' broadly, with no exceptions for minimal or occasional payments,” the majority ruled. “It is not the province of this court to determine that White's remuneration was not substantial enough to trigger termination of benefits.”

In a partial dissent, Justice Patricia O. Cotter said that Mr. White should be allowed to proceed with his bad faith claim. She contended that “a claim for bad faith may arise if the insurer engages in 'tortious conduct … during the processing and settlement of a workers compensation claim,'” regardless of whether the action had a reasonable basis.

“I would therefore conclude that the question of whether an insurer's program of surveillance and ostensible entrapment is reasonable is a question of fact best left to (a) jury,” said Justice Cotter, who would have remanded Mr. White's case to the district court for trial.