UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 96-60515
THOMAS ALLEN ROGERS
Plaintiff-Appellant,
VERSUS
HARTFORD ACCIDENT & INDEMNITY COMPANY, ET AL,
Defendants,
HARTFORD ACCIDENT & INDEMNITY COMPANY,
Defendant-Appellee.
Appeal from the United States District Court
for the Southern District of Mississippi
January 14, 1998
Before HIGGINBOTHAM, WIENER, and DENNIS, Circuit Judges.
DENNIS, Circuit Judge:
The principal issue presented by this appeal is whether the
district court erred in granting summary judgment in favor of
defendant-appellee, Hartford Accident & Indemnity Co. (“Hartford”),
and against plaintiff-appellant Thomas Allen Rogers (“Rogers”) on
the issue of whether Hartford had a legitimate or arguable reason
to initially deny workers’ compensation benefits to Rogers. We
conclude that there was no legitimate or arguable reason to
initially deny Rogers benefits, and therefore vacate the district
court’s order granting summary judgment, render partial summary
judgment in favor of Rogers, and remand.
BACKGROUND
Rogers, a Mississippi domiciliary, was employed by Quick
Change Oil & Lube in Ridgeland, Mississippi. A separately owned
and operated Speedway service station was located next door to
Quick Change. Speedway had an all female staff. An arrangement
developed whereby a male Quick Change employee would climb a ladder
to change the gasoline prices on Speedway’s elevated sign when
needed. Speedway paid Quick Change employees five dollars for this
service.
On August 9, 1991, while on duty at Quick Change, Rogers was
asked to change the price on Speedway’s sign. While changing the
the sign, Rogers fell off a ladder and was injured. As a result of
the injuries, Rogers incurred extensive medical expenses and missed
work for seven months. At the time of the accident, Hartford was
the workers’ compensation insurance carrier for both Speedway and
Quick Change.
Three days after Rogers’ accident, Quick Change filed a Form
B-3 (First Report of Injury) with the Mississippi Workers’
Compensation Commission regarding Rogers’ injury.1 Hartford
responded by refusing to pay or authorize medical treatment under
1
An employer or its insurance carrier must file a report of
nonfatal injury when the injury causes loss time in excess of the
waiting period prescribed in Section 71-3-11 of the Mississippi
Workers’ Compensation Law, i.e. the first five days of disability.
The report must be filed within ten days after the waiting period
is satisfied on forms approved by the Commission. MISS. CODE ANN.
§ 71-3-67(1); Vardaman S. Dunn, MISSISSIPPI WORKER’S COMPENSATION. App.
at 125 (3d ed. Supp. 1990).
2
Mississippi’s Workers’ Compensation Law.2 Rogers retained counsel
who sent a letter demanding that Hartford begin paying Rogers the
benefits owed under the Mississippi Workers’ Compensation Law. The
demand letter explained that Hartford, as the workers’ compensation
insurer of both Quick Change and Speedway, was inevitably liable
regardless which of its insureds was Rogers’ employer at the time
of the accident. Nevertheless, Hartford still refused to pay any
benefits.
On October 11, 1991, Rogers’ counsel filed a petition to
controvert against Hartford and Quick Change, but not against
Speedway.3 In its answer to Rogers’ petition to controvert,
Hartford asserted that at the time of the accident Rogers was
Speedway’s borrowed servant and was not acting in the course and
scope of his employment by Quick Change.
An administrative hearing was held before a Commission
Administrative Law Judge (“ALJ”) on April 14, 1992, to determine
whether Rogers’ injury arose out of the course and scope of his
employment with Quick Change. The ALJ found that Rogers’ injury
did not arise out of the course and scope of his employment with
Quick Change, therefore, Hartford was not responsible for providing
benefits to Rogers under the Quick Change policy. Rogers then
2
MISS. CODE ANN. §71-3-1 et seq.
3
A petition to controvert, Workmen’s Compensation Form B-5,
11, must be filed by an employee with the Commission if he wishes
to controvert a workers’ compensation claim. Dunn, supra note 1, at
125. An employer who wishes to controvert a claim must also satisfy
the Commission’s filing requirements. MISS. CODE ANN. § 71-3-37; Dunn,
id.
3
simultaneously filed a petition to controvert against Speedway and
appealed the ALJ’s decision. On August 10, 1992, a year and a day
after Rogers was injured, Hartford answered the petition to
controvert on behalf of Speedway, admitted that Rogers was a
Speedway employee, and commenced paying Rogers benefits under the
Speedway policy.
On review of the ALJ’s order finding Rogers’ was not a Quick
Change employee at the time of his injury, the Workers’
Compensation Commission reversed. The Circuit Court of Madison
County affirmed the Commission reasoning that Quick Change
necessarily retained control over the timing and circumstances
under which its employees could assist Speedway. The Mississippi
Supreme Court affirmed holding that at the time of his accident
Rogers was not a borrowed servant of Speedway, but was acting in
the course and scope of his employment with Quick Change. Quick
Change Oil and Lube, Inc. v. Rogers, 663 So.2d 585 (Miss. 1995).
In August 1995, Rogers filed the present action seeking
compensatory and punitive damages because of Hartford’s bad faith
initial denial of worker’s compensation benefits in Mississippi
state court against Hartford, Emro Marketing d/b/a Speedway, and
Marathon Oil n/k/a Ohio Oil Company.4 Todd Coleman and Beth
Coleman, Hartford employees, were also named as defendants. The
defendants timely removed the action to federal district court,
alleging that the Colemans, Mississippi domiciliaries, had been
4
Emro Marketing d/b/a Speedway and Marathon Oil n/k/a/ Ohio
Oil Company were subsequently dismissed from the suit. These
dismissals are not an issue on appeal.
4
fraudulently joined to defeat diversity. Rogers then moved to
remand.5 The district court denied Rogers’ motion to remand and
upon motion by the Colemans granted summary judgment in their favor
ruling that there was no possibility of independent liability being
imposed.
After the action was removed to federal court, Rogers moved
for partial summary judgment as to whether Hartford had a
legitimate or arguable basis to deny benefits. Hartford countered
with its own motion for summary judgment. In addition, Rogers
filed a motion requesting the court to (1) alter or set aside its
previous denial of remand pursuant to Federal Rule of Civil
Procedure 60, (2) allow Rogers to amend his complaint to rename
Todd Coleman as a party and to add a non-diverse defendant, Jim
Napper, pursuant to Federal Rule of Civil Procedure 15, and (3)
remand.
The district court granted Hartford’s motion for summary
judgment and denied Rogers’ motion for partial summary judgment and
other motions. The summary judgment in favor of Hartford decreed
that the insurer could not be held liable for bad faith nonpayment
of benefits because it had a legitimate and arguable reason for its
delay of one year in commencing payment of compensation benefits.
Rogers timely appealed.
5
Rogers’ argument for remand is based solely on a lack of
diversity of citizenship. He does not argue the action is not
removable under 28 U.S.C. § 1445(c). See, e.g., Patin v. Allied
Signal, Inc., 77 F.3d 782 (5th Cir. 1996).
5
DISCUSSION
As there is no dispute with regard to the facts, the principal
issue is whether, as a matter of law, Hartford had a legitimate or
arguable reason for initially denying workers’ compensation
benefits and payments to Rogers. Although the Mississippi Workers’
Compensation Law, Section 71-3-9, indicates compensation is the
exclusive remedy available to an employee suffering an injury
arising out of and in the course of employment, Mississippi
jurisprudence has held this exclusive remedy provision does not bar
an injured employee’s common law tort action against an insurance
carrier for the commission of an intentional tort independent of
the accident compensable under the worker’s compensation scheme.
Southern Farm Bureau Cas. Ins. v. Holland, 469 So.2d 55, 58-59
(Miss. 1984). From this jurisprudence, we infer that in order to
succeed in this action, the plaintiff must prove: (1) a contract of
workers’ compensation insurance existed between the defendant and
the plaintiff’s employer; (2) the carrier denied the plaintiff’s
compensable workers’ compensation claim without a legitimate or
arguable reason; and (3) the denial of benefits constitutes a
willful and intentional or malicious wrong. See Holland, 469 So.2d
at 58-59, Leathers v. Aetna Casualty & Surety Co., 500 So.2d 451,
452-53 (Miss. 1986); Luckett v. Mississippi Wood, Inc., 481 So.2d
288, 289-90 (Miss. 1985).
If these elements are satisfied, punitive damages can also be
awarded. Punitive damages may be recovered from an insurer for bad
faith if an insured proves by a preponderance of the evidence that
6
“the insurer acted with [] malice, or [] gross negligence or
reckless disregard for the rights of others.” Caldwell v. Alfa
Insurance Co., 686 So.2d 1092, 1095 (Miss. 1996) (quoting Blue
Cross & Blue Shield v. Maas, 516 So.2d 495, 496 (Miss. 1987)
(citations omitted)).6 The gross negligence must be such as to be
an independent tort. Id. Punitive damages are not available,
however, “[i]f the insurer had a legitimate or arguable reason to
deny payment of the claim.” Caldwell, 686 So.2d at 1095. Finally,
Holland emphasizes that a workers’ compensation claimant seeking
punitive damages because of the carrier’s wrongful refusal to pay
the workers’ compensation claim must “allege and prove the
recognized elements” of the claim. 469 So.2d at 59.
As for the first element of the bad faith action, it is
undisputed that there was a contract of workers’ compensation
insurance between Hartford and Rogers’ employer. The second
element, whether Hartford had a legitimate or arguable basis for
initially denying payment of Rogers’ workers’ compensation
benefits, is determinative in the present case. The third element,
whether the denial of benefits was a willful and intentional wrong,
was not reached by the district court and is not before us as
6
Notwithstanding that the Mississippi Supreme Court has
indicated “gross negligence” may be sufficient to justify an award
of punitive damages and that permitting an independent tort action
against insurance carriers in workers’ compensation cases is in
line with cases allowing punitive damages with bad faith insurance
claims, proof of an intentional tort is required to circumvent the
exclusive remedies available under the Mississippi Workers’
Compensation Law. Allegations sounding in negligence are
inadequate. See Holland, 469 So.2d at 57-59, Luckett, 481 So.2d at
290. See also Peaster v. David New Drilling, 642 So.2d 344, 348
(Miss. 1994).
7
Rogers has only addressed the existence of the second element on
appeal.
The Mississippi Workers’ Compensation Law furnishes the
framework for our analysis of whether Hartford had such a
legitimate or arguable reason.
§ 71-3-77 “Insurance policy regulations” provides in pertinent
part:
(1) [T]he payments of the claims . . . shall be made
directly from the insurance company to the employee, except
for medical benefits which shall be paid to the medical
provider. A copy of such payments shall be forwarded to the
employer [emphasis added].
(2) In any case where the employer is not a self-insurer, in
order that the liability for compensation imposed by this
chapter may be most effectively discharged by the employer and
in order that the administration of this chapter in respect of
such liability may be facilitated, the commission shall by
regulation provide for the discharge, by the carrier or
carriers for such employer, of such obligations and duties of
the employer in respect of such liability imposed by this
chapter upon the employer as it considers proper in order to
effectuate the provisions of this chapter. For such purpose
(a) notice to or knowledge of an employer of the occurrence of
the injury shall be notice to or knowledge of the carrier or
carriers; [emphasis added]
§ 71-3-37 “Payment of compensation” provides in pertinent part:
(1) Compensation under this chapter shall be paid
periodically, promptly, in the usual manner, and directly to
the person entitled thereto, without an award except where
8
liability to pay compensation is controverted by the employer
[emphasis added].
(2) The first installment of compensation shall become due on
the fourteenth day after the employer has notice, as provided
in Section 71-3-35, of the injury or death, on which date all
compensation then due shall be paid [emphasis added].
. . . .
(4) If the employer controverts the right to compensation he
shall file with the commission, on or before the fourteenth
day after he has knowledge of the alleged injury or death, a
notice in accordance with a form prescribed by the commission,
stating that the right to compensation is controverted, the
name of the claimant, the name of the employer, the date of
the alleged injury or death, and the grounds upon which the
right to compensation is controverted.
Lastly, § 71-3-35 “Limitation” provides in pertinent part:
(1) No claim for compensation shall be maintained unless,
within thirty (30) days after the occurrence of the injury,
actual notice was received by the employer or by an officer,
manager, or designated representative of an employer. Absence
of notice shall not bar recovery if it is found that the
employer had knowledge of the injury and was not prejudiced by
the employee's failure to give notice [emphasis added].
Accordingly, when an employer has knowledge of an employee’s
injury formal notice is not needed to trigger the obligation to
provide benefits, § 71-3-35(1); see also Walker Mfg. Co. v.
Pickens, 206 So.2d 639, 640 (Miss. 1968); Bush v. Dependents of
Byrd, 108 So.2d 211, 212 (Miss. 1959); Ingalls Shipbuilding Co. v.
9
Dickerson, 92 So.2d 354, 358-59 (Miss. 1957), and this knowledge
is, in turn, imputed to the carrier without any formal notification
to the carrier, § 71-3-77(2)(a). When a carrier knows of an
insured’s employee’s injury, and the insured does not controvert
the injury, the carrier has a duty to begin paying benefits
directly to the injured employee, §§ 71-3-37(1), (2), & (4), 71-3-
77(1) & (2). The duty of the carrier to pay benefits is owed by
the carrier to the injured employee, §§ 71-3-37(1) & 71-3-77(1).
Applying the state statutes and court decisions to the facts
of the present case, we conclude that: (1) it is undisputed that
(a) Hartford was the workers’ compensation carrier of both Speedway
and Quick Change and (b) Rogers was acting in the course and scope
of employment by either Quick Change or Speedway when the accident
occurred; (2) Rogers had no duty to give formal notice of his
injury to Quick Change, Speedway, or Hartford, §§ 71-3-35(1) & 71-
3-77(2)(a); (3) both Speedway and Quick Change had knowledge of
Rogers’ injury immediately after it occurred on August 9, 1991, and
this knowledge was imputed to Hartford, §§ 71-3-35(1) & 71-3-
77(2)(a); (4) neither Speedway nor Quick Change ever controverted
Rogers’ injury, § 71-3-37(1); (5) Hartford had a duty to promptly
make benefits available to Rogers, §§ 71-3-37(1) & 71-3-77(1); (6)
Rogers was entitled to “the first installment of compensation” on
or around August 23, 1991 -- 14 days after Hartford had statutory
knowledge of Rogers’ injury, § 71-3-37(2); and (7) by refusing to
pay benefits until a year and a day after Rogers was injured,
Hartford breached its statutory duty of prompt, direct payment to
10
Rogers, §§ 71-3-37(1) & 71-3-77(1).
Hartford defends its action by separating its obligation to
pay Rogers as the carrier of Speedway and Quick Change into two
compartmentalized arguments, i.e., that it had independent
legitimate reasons not to pay under either the Quick Change or
Speedway policy. First, Hartford argues that because the issue of
whether Speedway or Quick Change was Rogers’ employer was an
“extremely close question” as stated by the Mississippi Supreme
Court, they had a legitimate reason to deny Rogers’ benefits on the
Quick Change policy.
In making this argument, Hartford is ignoring the issue sub
judice. For our purposes, the Rogers employment issue is
irrelevant. The issue in this case is whether Hartford, as the
indisputably responsible party to pay benefits, had a legitimate or
arguable reason to deny paying Rogers benefits under the
Mississippi Workers’ Compensation Law. By mischaracterizing the
issue, Hartford was able to persuade the district court. However,
after a careful review of the relevant statutory provisions, we are
convinced that the statutory scheme set forth by the Mississippi
Workers’ Compensation Law clearly demonstrates that, as the
responsible party, Hartford had an obligation to promptly and
directly pay benefits to Rogers notwithstanding which of Hartford’s
insureds was Rogers’ employer and how close the employer
determination might have been. Because it is undisputed Rogers’
accident arose out of and in the course of employment by either
Quick Change or Speedway, Hartford had no justifiable reason to
11
refuse to pay compensation benefits as required under the workers’
compensation statutes.
As for the Speedway policy, Hartford argues that it had a
legitimate or arguable reason to delay benefits because (1) until
the Mississippi Workers’ Compensation Commission ALJ determined
that Rogers was injured while employed by Speedway, Rogers did not
file a petition to controvert against Speedway, (2) Speedway never
filed a Form B-3 and relatedly instructed Hartford not to pay
benefits, (3) as soon as Rogers filed a petition to controvert
against Speedway alleging he was a Speedway employee Hartford began
paying benefits under the Speedway policy and (4) the Mississippi
Supreme Court ultimately held that Speedway was not Rogers’
employer. This argument is equally without merit. As clearly
stated in Sections 71-3-35(1) & 71-3-77(2)(a) of the Mississippi
Workers’ Compensation Law, formal notice of injury is not needed
if the employer had knowledge of the injury. As discussed
previously, it is undisputed that both Quick Change and Speedway
had knowledge of Rogers’ injury, thereby imputing knowledge to
Hartford for the purposes of compensation under the Workers’
Compensation scheme. § 71-3-77(2)(a). Furthermore, an insured’s
failure to file a petition to controvert does not absolve an
insurer from paying on a claim it knows is due. See § 71-3-37.
Similarly, Speedway’s instruction to not pay the Rogers claim
is of no significance as here Hartford was the only possible
responsible party. Hartford’s own assertion that Rogers was
Speedway’s loaned servant in its answer to Rogers’ petition to
12
controvert filed against Quick Change indicates Hartford’s implicit
recognition of this fact. As Rogers’ attorney advised, Hartford,
as ultimately the only responsible party with regard to this
compensation claim, should not have allowed internal concerns about
whose account to “charge” override its statutory obligation to
Rogers. Rogers should not suffer because by coincidence Quick
Change and Speedway had chosen the same carrier.
Hartford’s contention that it had a legitimate reason to deny
Rogers’ benefits under the Speedway policy as the Mississippi
Supreme Court ultimately determined that Speedway was not Rogers’
employer is also irrelevant to Hartford’s statutory responsibility
as the carrier for both Speedway and Quick Change to promptly make
benefits available to an injured claimant as explained above with
regard to the Quick Change “close question” argument. The argument
is a classic non sequitur in that the inference that Hartford had
a legitimate basis not to provide compensation does not logically
follow from the premise that the Mississippi Supreme Court had
difficulty deciding which of Hartford’s insureds was Rogers’
employer. As explained previously, Hartford had an obligation to
provide benefits to Rogers regardless of whether Quick Change or
Speedway was ultimately found to be the actual employer of Rogers
at the time of the accident. For the foregoing reasons, we
conclude that Hartford did not have a legitimate or arguable reason
for refusing to timely pay Rogers workers’ compensation benefits.
As a final matter, we conclude that the district court
properly (1) granted summary judgment in favor of the Colemans, and
13
(2) denied, on the basis of fraudulent joinder, Rogers’ motion to
amend his complaint by adding Todd Coleman and Jim Napper as
parties and to remand. Fraudulent joinder is established when
resolving all factual disputes and ambiguities in favor of the
plaintiff, there is no possibility that the plaintiff would be able
to establish a cause of action against the nondiverse defendants in
state court. Burden v. General Dynamics Corp., 60 F.3d 213, 217
(5th Cir. 1995); Carriere v. Sears, Roebuck & Co., 893 F.2d 98, 100
(5th Cir.), cert. denied, 498 U.S. 817 (1990); B., Inc. v. Miller
Brewing Co., 663 F.2d 545, 551 (5th Cir. Unit A Dec. 1981). We
conclude no cause of action could be sustained against these
nondiverse Hartford employees as the record reveals they lacked the
requisite authority to deny benefits to Rogers.
CONCLUSION
For the foregoing reasons, the order of the district court
granting summary judgment in favor of Hartford is VACATED, partial
summary judgment in favor of Rogers decreeing that Hartford did not
have any legitimate or arguable basis for initially denying
benefits is RENDERED, and the case is REMANDED to the district
court for further proceedings.
14