Ford v. Sedgwick Claims Management Services, Inc. ( 2020 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
PAMELA FORD, :
:
Plaintiff, : C.A. No. K19C-12-030 JJC
: In and for Kent County
v. :
:
SEDGWICK CLAIMS :
MANAGEMENT SERVICES, :
INC., and LOWE’S HOME :
CENTERS, INC., :
Defendants. :
OPINION AND ORDER
Submitted: April 7, 2020
Decided: May 20, 2020
Defendants’ Motion for Summary Judgment – GRANTED
John S. Spadaro, Esquire, John Sheehan Spadaro, LLC, Smyrna, Delaware, Attorney
for Plaintiff.
David C. Malatesta, Esquire, Kent & McBride, P.C., Wilmington, Delaware,
Attorney for Defendants.
Clark, J.
Defendants Sedgwick Claims Management Services, Inc. and Lowe’s Home
Centers, Inc. (hereinafter collectively “Sedgwick”) seek summary judgment in this
insurance bad faith suit. Sedgwick argues that Plaintiff Pamela Ford’s suit should
be dismissed because it violates the rule against claim splitting. Ms. Ford had
previously filed a suit seeking unpaid bills, interest, and attorneys’ fees pursuant to
Huffman v. C.C. Oliphant & Son, Inc..1 She settled that claim one year after she
filed it. Approximately three weeks later, she filed this bad faith action. Because
Ms. Ford’s Huffman claim and bad faith claim involve the same nucleus of facts and
the same transaction, the doctrine of claim preclusion prevents her from pursuing
her bad faith claim. As a result, Sedgwick’s motion for summary judgment must be
GRANTED.
Procedural Background and Facts of Record
The facts are those of record, viewed in the light most favorable to Ms. Ford,
the non-movant. Ms. Ford suffered a work-related injury on May 26, 2015 at
Lowe’s. Sedgwick’s role relevant to this action included the processing and
payment of medical expenses related to her injury. On April 11, 2017, Ms. Ford
filed a petition seeking outstanding medical expenses from Sedgwick. On
September 26, 2017, the parties settled that claim. In the agreement, Sedgwick
accepted responsibility for the medical expenses. Notwithstanding the settlement,
Sedgwick did not pay them for more than two years.
Over the first year following the settlement, Ms. Ford’s attorney contacted
Sedgwick three times seeking payment. Her attorney first wrote Sedgwick on
November 24, 2017, requesting payment verification.2 Her attorney sent another
1
432 A.2d 1207 (Del. 1981).
2
Def. Mot., Ex. 1, at 3.
2
letter on December 5, 2017, again requesting payment verification.3 On March 27,
2018, Ms. Ford’s attorney sent Sedgwick a third letter. It confirmed Sedgwick’s
agreement to pay.4
Approximately one year after the September 2017 settlement, however,
Sedgwick had still not paid Ms. Ford’s bills. At that point, on September 13, 2018,
Ms. Ford’s attorney sent Sedgwick a Huffman demand pursuant to 19 Del. C. §§
2357, 1103, and 1113.5 Following Sedgwick’s failure to pay within thirty days of
the demand, Ms. Ford filed suit in Superior Court on October 17, 2018. In her
complaint, she sought her medical expenses, interest due on those bills, attorneys’
fees, and costs.6
A full year later, Sedgwick had still not paid the benefits. The parties then
settled the claims in her Huffman suit and on November 21, 2019, Ms. Ford signed
the release.7 The court then dismissed that case with prejudice on December 6,
2019.8 Approximately three weeks later, Ms. Ford filed the current suit. In it, she
claims that because Sedgwick failed to pay the medical expenses claimed in the
Huffman action, it acted in bad faith.9 Specifically, the new suit focuses on an
alleged lack of reasonable justification for Sedgwick’s “prolonged and repeated
failure” to pay the same medical expenses that were at issue in the Huffman claim.
After Ms. Ford filed the second complaint, Sedgwick moved to dismiss it
pursuant to Superior Court Civil Rule 12(b)(6). Because the parties referenced
matters outside the pleadings, the Court converted the motion to one for summary
judgment.
3
Id. at 4.
4
Id. at 5.
5
Id. at 6.
6
Id. at 1.
7
Def. Mot., Ex. 2, at 1.
8
Def. Mot., Ex. 3, at 1.
9
Pl. Compl., ¶¶ 9–19.
3
Parties’ Arguments
Sedgwick argues that Ms. Ford’s failure to raise the bad faith claim in her first
suit precludes her from raising it in her second pursuant to the rule against claim
splitting. Namely, Sedgwick argues that she could have—and should have— raised
any bad faith claims in the first action. Sedgwick argues that both the Huffman and
bad faith claims arise out of the same transaction. This, in turn it argues, triggers the
rule against claim splitting. Finally, Sedgwick argues that because there was no
jurisdictional or other impediment to raising the bad faith claim in the first suit, it is
barred.
In response, Ms. Ford argues that the first action, a Huffman suit, and the
present action do not arise out of the same transaction. Instead, she argues that for
transactional purposes, a Huffman suit arises directly out of the initial workplace
injury. On the other hand, she argues that a bad faith claim arises out of subsequent
claims handling by the insurer. Given this difference, she argues that they are
separate and distinct actions and need not be included in the same suit. In so arguing,
she relies primarily upon the Superior Court decision in Kelley v. ILC Dover, Inc.10
and the Delaware Supreme Court decision in Pierce v. International Insurance Co.11
She also argues that public policy weighs against requiring a bad faith action to be
included in a Huffman action. She asserts that to do so would inappropriately limit
an insured’s ability to pursue bad faith claims.
Conversion to Motion for Summary Judgment
Sedgwick originally filed a motion to dismiss, pursuant to Superior Court
Civil Rule 12(b)(6). When the Court examines a Rule 12(b)(6) motion, “[t]he
complaint generally defines the universe of facts that the trial court may consider
10
787 A.2d 751 (Del. Super. Mar. 16, 2001) aff’d, 784 A.2d 1080 (Del. 2001).
11
671 A.2d 1361 (Del. 1996).
4
....”12 With only limited exceptions, if the Court looks outside the facts alleged in
the complaint, it must not consider them or it must convert the motion into one for
summary judgment.13 If the Court converts the motion, it must provide the parties a
reasonable opportunity to expand the record.14
In its motion to dismiss, Sedgwick included documents as exhibits that Ms.
Ford had not incorporated in the complaint. They included (1) Ms. Ford’s 2018
Huffman complaint and its accompanying exhibits, (2) the signed November 21,
2019 release settling the 2018 litigation, and (3) the December 6, 2019 stipulated
order of dismissal that followed the release of the Huffman claim. Ms. Ford
referenced the same documents in her response to Sedgwick’s motion to dismiss. At
oral argument, both parties also referred to them. The Court recognizes that it could
arguably take judicial notice of the pleadings filed in the prior Huffman action for
Rule 12(b)(6) purposes. Nevertheless, when the parties included the release as an
exhibit, they expanded the record beyond the complaint.
Ms. Ford’s claim narrowly focuses on Sedgwick’s alleged bad faith when it
failed to pay the medical bills at issue in the Huffman action. Under the
circumstances, and in light of the expansion of the record, the Court converted
Sedgwick’s motion to dismiss into a motion for summary judgment. At that point,
the Court notified the parties on March 5, 2020, and granted them leave until April
12
In re General Motors (Hughes) S'holder Litig., 897 A.2d 162, 168 (Del. 2006).
13
Id.14
Id. See also Sup. Ct. Civ. R. 12(b) (providing “[i]f, on a motion asserting the defense numbered
(6) to dismiss for failure of the pleadings to state a claim upon which relief can be granted, matters
outside the pleading are presented to and not excluded by the Court, the motion shall be treated as
one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given
reasonable opportunity to present all material made pertinent to such a motion by Rule 56”).
5
7, 2020 to supplement the record.15 Both parties filed supplemental arguments;
neither supplemented the evidentiary record.
Standard of Review
Given the conversion, the Court must apply the well-settled standard for
summary judgment. Summary judgment is appropriate only if there is no genuine
issue of material fact and if the movant is entitled to judgment as a matter of law.16
The Court must view the evidence in the light most favorable to the non-moving
party.17 The burden of proof is initially on the moving party. 18 However, if the
movant meets his or her initial burden, then the burden shifts to the non-moving
party to demonstrate the existence of material issues of fact.19 The non-movant’s
evidence of material facts in dispute must be sufficient to withstand a motion for
judgment as a matter of law and to support the verdict of a reasonable jury.20
Claim Splitting and the Doctrine of Claim Preclusion
The rule against claim splitting is a subset of the doctrine of claim
preclusion.21 Delaware applies the transactional approach.22 This approach
considers a second lawsuit precluded if it arises from the same transaction as a
15
See Appriva S'holder Litig. Co., LLC v. EV3, Inc., 937 A.2d 1275, 1288 (Del. 2007) (recognizing
“that the Superior Court must give the parties at least ten days’ notice of its intent to convert a
Rule 12(b)(6) motion to dismiss into a Rule 56 motion for summary judgment”).
16
Super. Ct. Civ. R. 56(c); Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979).
17
Brozaka v. Olson, 668 A.2d 1355, 1364 (Del. 1995).
18
Super. Ct. Civ. R. 56(e); Moore, 405 A.2d at 680 (Del. 1979).
19
Moore, 405 A.2d at 681 (citing Hurtt v. Goleburn, 330 A.2d 134 (Del. 1974)).
20
Lum v. Anderson, 2004 WL 772074, at *2 (Del. Super. Mar. 10, 2004).
21
Kossol v. Ashton Condominium Ass’n, Inc., 637 A.2d 827, 1994 WL 10861, at *2 (Del. 1994).
(TABLE) (citing Maldonado v. Flynn, 417 A.2d 378, 382–83 (Del. Ch. May 29, 1980)). The
majority of existing case law examining this issue refers to the doctrine of res judicata. The
contemporary reference refers to claim preclusion. The latter provides a better reference to
examine claim splitting.
22
LaPoint v. AmerisourceBergen Corp., 970 A.2d 185, 193 (Del. 2009).
6
previous adjudication.23 Two claims that come from a common nucleus of facts
arise from the same transaction.24 If the plaintiff knows or could have known those
common facts at the time of the first action, then the doctrine of claim preclusion
bars the claim in the second action.25 Under the transactional approach, resolving
the first suit may bar a claim in the second, even if the plaintiff pursues a different
substantive theory of recovery than in the first.26
This rule rests on the belief that it is fairer to require a plaintiff to present all
his or her theories of recovery regarding one transaction in one suit. This prevents
overlapping or repetitive actions at different times.27 Accordingly, “where a plaintiff
has had a ‘full, free and untrammeled opportunity to present [his or her] facts,’ but
has [not, he or she] will ordinarily be precluded by the doctrine of [claim preclusion]
from subsequently pressing [the] omitted claim in a subsequent action.”28
To bar a plaintiff’s second claim under the transactional approach, a defendant
must establish two elements. First, the same transaction must form the basis for the
prior and subsequent actions.29 Second, the plaintiff must have not raised a claim in
the first action that he or she should have, in fairness, raised.30 If the defendant
establishes these two elements, then the claim is barred unless the plaintiff
demonstrates a legal impediment to bringing the claim in the first instance.31
23
Id.24
Id. at 193.
25
Id. (citation omitted).
26
Kossol, 1994 WL 10861, at *2 (citations omitted).
27
Maldonado, 417 A.2d at 382.
28
Id. (citing Coca Cola Co. v. Pepsi Co., 172 A. 260, 262 (Del. Super. Apr. 16, 1934)).
29
Id.30
Kossol, 1994 WL 10861, at *2 (citing Coca Cola, 172 A. at 262).
31
Maldonado, 417 A.2d at 382; Kossol, 1994 WL 10861, at *2 (citing Maldonado, 417 A.2d at383–84).
7
Both Claims Involved the Same Transaction
In LaPoint v. AmerisourceBergen Corp., the Delaware Supreme Court
recognized three factors applicable to the first element of the two-part inquiry:
whether the two claims arose from the same transaction. These three factors are (1)
whether the facts relate in time, space, origin, or motivation, (2) whether they form
a convenient trial unit, and (3) whether treating the claims as a unit meets the parties’
expectations, business understanding, or usage.32
First, Ms. Ford’s Huffman and bad faith claims relate in time, space, origin,
and motivation. They center on Sedgwick’s handling of the same claim. Moreover,
the time-frames applicable to the two claims align exactly. Namely, after waiting a
full year for Sedgwick to pay the bills, Ms. Ford filed her first suit on October 17,
2018. Her Huffman suit then remained active for more than a year, until early
December 2019. The Court dismissed it after settlement. Ms. Ford filed her second
suit three weeks later. As with the first suit, the second suit focuses on Sedgwick’s
failure to pay the same bills during the identical time-period at issue in the first suit.33
Accordingly, the time relevant to the Huffman claim and the bad faith claim is
identical in time and space. Likewise, the claims’ origins are related. They both
stem from Sedgwick’s allegedly improper claims handling. Finally, and most
telling, Ms. Ford’s bad faith complaint alleges no additional bad faith after the
settlement of the same claims addressed in the Huffman action.
As to motivation, both suits attack Sedgwick’s claims handling and seek, at
least in part, to impose a penalty. The Huffman action sought a remedy for failure
to pay approximately $26,000 in medical expenses after a thirty-day demand period
expired. In that action, Ms. Ford sought the statutory penalty for Sedgwick’s failure
to pay – attorneys’ fees. Likewise, the bad faith action, though a different theory of
32
LaPoint, 970 A.2d at 193 (citing Restatement (Second) of Judgments § 24(2) (1982)).
33
Pl. Compl. ¶ 13.
8
recovery, seeks to punish Sedgwick for not paying the same benefits. Specifically,
Ms. Ford’s second suit alleges a bad faith breach of contract based upon the
“defendants’ handling of Ms. Ford’s claims for workers’ compensation benefits.”34
In doing so, it seeks both “compensatory and punitive damages.” 35 Both suits have
substantially similar motivations in that they both seek penalties because Sedgwick
wrongfully withheld the same benefits.
As to the second LaPoint factor, Ms. Ford’s Huffman and bad faith claims
would have formed a convenient trial unit. She argues that they would not because
they have different state of mind requirements. She correctly emphasizes that in a
Huffman suit, the insurer’s state of mind is irrelevant.36 In contrast, in a bad faith
claim, the fact finder must evaluate the insurer’s state of mind to determine if it was
reckless or worse.37 Based on these state of mind differences, Ms. Ford argues that
filing Huffman actions and bad faith claims together would result in unnecessary
work, expense, and confusion. Namely, she argues that combining them would
require more extensive discovery, trial preparation, and a complicated explanation
to the jury.
In this regard, Ms. Ford’s argument is not persuasive. Many, if not most,
actions include claims with different theories of recovery and different state of mind
requirements. Coupling a claim that has no state of mind requirement with one that
does is an ordinary thing in civil practice. Rather than adopt Ms. Ford’s suggested
approach focusing narrowly on states of mind, the Court must consider the overall
34
Pl Compl. ¶ 1.
35
Id.
36
See Huffman, 432 A.2d at 1209 (explaining that an employer or insurer’s good faith belief that
an employee is not entitled to compensation is irrelevant under the applicable statute because only
the Board can make such a determination and payment should continue until any such
determination is made).
37
See Jardel Co., Inc. v. Hughes, 523 A.2d 518, 529 (Del. 1987) (summarizing the states of mind
justifying punitive damages). See also Tackett v. State Farm Fire & Cas. Ins. Co., 653 A.2d 254,
264 (Del. 1995) (applying the punitive damages state of mind framework in the insurance context).
9
evidentiary overlap between the two claims.38 Namely, it must consider the degree
that witnesses or proofs in a second action would tend to overlap with the first.39
Where the two substantially overlap, the second action is more likely precluded.40
Here, there is significant, if not complete, overlap between the two claims.
The two years between the 2017 settlement agreement and the 2019 Huffman suit’s
settlement is the relevant claims handling period for both claims. The identical
claims adjuster and medical providers testimony would be necessary to prove both
claims, including (1) the presentation of bills, (2) settlement of the IAB claim, (3)
the terms of the settlement, (4) Ms. Ford’s demand for payment thereafter, and (5)
Sedgwick’s failure to pay despite demand. As a result, there is a substantial overlap
in witnesses and proof between the two claims.
Considering the third LaPoint factor—whether treating the Huffman suit and
bad faith claim as a unit conforms to the parties’ expectations or business
understanding or usage -- turns on many of the same undisputed facts. Claims
handling is claim handling and parties generally understand it to be so. In a lawsuit,
parties typically assert all relevant claims available against an opposing party.41
Exceptions apply, such as where individual obligations create successive obligations
that may require separate actions.42 Even where successive obligations arise
between the same parties, the doctrine of claim preclusion may still require the
38
Restatement (Second) of Judgments § 24, cmt. b.
39
Id.
40
Id.
41
See Super. Ct. Civ. R. 18 (permitting “a party asserting a claim to relief as an original claim,
counterclaim, cross-claim, or third-party claim, [to] join, either as independent or as alternate
claims, as many claims as the party has against an opposing party”).
42
Restatement (Second) of Judgments § 24, cmt. d. (providing an example of separate successive
actions, such as where “there is an undertaking, for which the whole consideration has been
previously given, to make a series of payments of money . . . the obligation to make each payment
is considered separate from the others and judgment can be obtained on any one or a number of
them without affecting the right to maintain an action on the others”).
10
plaintiff to raise the claims in the same suit.43 This case does not require the more
complicated analysis required in such cases. Rather, it involves one distinct claims
handling period as opposed to successive ones.
In this decision, the Court recognizes that evaluating bad faith in claims
handling often requires a cumulative evaluation of an insurer’s conduct. Bad
conduct may not tip the threshold to qualify as bad faith until a certain point in the
process. Furthermore, the Court recognizes that given the length of some workers’
compensation claims, a claim may run smoothly for a time and then generate a later
dispute between the parties.
Here, however, the entire relevant universe of facts for both claims fell within
the same clearly defined time. If Ms. Ford wanted to sue Sedgwick for bad faith for
its conduct during this time, she (1) should have raised it in her first complaint, or
(2) sought to amend the first complaint to include it before settling the first action.
Based upon the LaPoint factors, Ms. Ford’s 2018 Huffman suit and bad faith claim
arise out of the same transaction.
Fairness in Including It in the First Suit
Before applying claim preclusion in this instance, the Court must also
examine the second element in the inquiry: whether Ms. Ford, should have in
fairness, included her bad faith claim in the first suit.44 Here, she should have for
the same reasons discussed in the Court’s LaPoint factors analysis. Namely, she did
not settle the first suit until a full year after filing it. This gave her sufficient time to
fully litigate any claims related to Sedgwick’s then two-year withholding of
43
Id. (describing the concept of successive or simultaneous acts of a defendant within the general
rule of claim splitting).
44
Kossol, 1994 WL 10861, at *2
11
benefits.45 This period also permitted her sufficient time to move to amend the first
complaint. Permitting Ms. Ford to proceed with her bad faith claim now would
provide overlapping and repetitive prosecutions. The rule against claim splitting
avoids those ills.46 As a result, Ms. Ford failed to assert a bad faith claim that she
should have in fairness asserted in her 2018 Huffman suit.
No Impediment to Having Joined the Two Claims
Finally, Sedgwick has established that (1) the same transaction forms the basis
for Ms. Ford’s prior and present suit, and (2) in fairness, she should have asserted
her bad faith claim in the first suit. Accordingly, Ms. Ford’s bad faith claim survives
only if there was an impediment to the presentation of her claim in the prior action.
Here, she identifies no such impediment; nor has the Court found one. Pursuant to
19 Del. C. § 1113(a), Ms. Ford filed her 2018 Huffman suit in Superior Court.47 As
with her Huffman suit, the Superior Court had jurisdiction to address her bad faith
claim so there was no jurisdictional impediment. Likewise, no statutory or common-
law prohibition prevented her from including the claim in her first suit.
Ms. Ford asks the Court to bypass the LaPoint factors in its analysis because
she claims that, as a matter of law, Huffman suits and bad faith claims arise out of
separate transactions. Although she does not couch her argument in terms of a legal
impediment to combining the claims, her argument is best resolved in that manner.
She bases her argument on the Superior Court’s decision in Kelley v. ILC
Dover, Inc.,48 and the Delaware Supreme Court’s decision in Pierce v. International
45
Id. at *3 (explaining that “[a] fundamental tenet of the adversarial process is the opportunity of
both parties to fully litigate the claims implicated in their dispute”).
46
Maldonado, 417 A.2d at 382.
47
19 Del. C. § 1113(a) (providing that “[a] civil action to recover unpaid wages and liquidated
damages may be maintained in any court of competent jurisdiction”).
48
787 A.2d 751 (Del. Super. Mar. 16, 2001).
12
Insurance Co.49 Ms. Ford claims these decisions collectively provide that a bad
faith claim need not be included in any Huffman suit. According to her, the Kelley
decision recognizes that Huffman suits are intended to “pry loose” unpaid workers’
compensation benefits.50 Because a Huffman claim seeks unpaid benefits due
because of a workplace accident, she argues that a Huffman claim arises from the
accident rather than subsequent claims handling. She further emphasizes that the
Pierce decision recognizes that bad faith claims arise from claims handling that
occurred after the workplace accident. 51 That, she asserts, makes the two claims
different and the later not subject to preclusion. In this regard, she argues that her
two claims arose out of separate transactions as a matter of law.
Neither the Kelley nor the Pierce decision support Ms. Ford’s arguments. In
fact, together they illustrate why there was no impediment to including the two
claims in the first suit. First, nothing in the Kelley decision provides that Huffman
suits derive, as a matter of law, from the original accident. Rather, it addressed
claims handling and the demand necessary to trigger the Superior Court remedy.52
Otherwise, the Kelley decision mentions nothing, in terms of transactional matters,
about the basis for a Huffman suit. To the contrary, the Kelley decision impliedly
recognizes that a Huffman claim arises from the employer or insurer’s failure to pay
benefits upon demand.53 Failure to pay benefits is a function of claims handling. It
is not an event that can be considered one in the same as the original workplace
injury.
49
671 A.2d 1361 (Del. 1996).
50
See Pl. Resp. at 4–5 (quoting Kelley to show that Sections 2357 and 1113(a) “include claims
based on unpaid workers’ compensation benefits”).
51
Pierce, 671 A.2d at 1365.
52
Kelley, 787 A.2d at 753–54.
53
Id. (citations omitted) (emphasis omitted).
13
Likewise, the Supreme Court’s Pierce decision further demonstrates that the
claims are more similar than dissimilar. Namely, in Pierce, the plaintiff filed a bad
faith claim after an employer delayed paying disability benefits for eleven-months.54
The plaintiff appealed the Superior Court’s dismissal of his claim on the basis that
workers’ compensation exclusivity barred the plaintiff from filing his bad faith claim
in Superior Court.55 In that decision, the Superior Court found the original work
injury to subsume the bad faith claim.
In reversing the Superior Court’s decision, the Delaware Supreme Court held
that exclusivity did not bar the plaintiff’s claim. It recognized that bad faith
adjustment centers on conduct after the workplace accident.56 The Court also
recognized the distinct temporal difference between a workplace accident and
subsequent claims handling related to the accident.57
Accordingly, a Huffman action arises only after there is a failure to pay
benefits and a demand. Similarly, a bad faith action arises only after there is a bad
faith delay or failure to pay benefits. Both focus upon claims handling. Under the
circumstances of this case, these two claims should have been included in the same
suit.
Finally, the Court need not address Ms. Ford’s public policy argument
regarding an improper chilling effect on bad faith litigation. The Court’s role in this
instance is not to address public policy. Rather, it is to apply well-recognized
concepts of civil procedure. Although Ms. Ford’s claim is barred under the
circumstances of this case, the Court does not hold that a bad faith claim can never
separately follow a Huffman action. To do so would ignore the possibility that bad
54
Pierce, 671 A.2d at 1362.
55
Id. at 1363.
56
Id. at 1365.
57
Id.14
faith could follow the resolution of a Huffman suit. Under the circumstances of this
case, however, there was a complete overlap of relevant insurer conduct between the
two claims. Ms. Ford should have, in fairness, included her bad faith claim in the
first suit.
Conclusion
When viewing the facts in the light most favorable to Ms. Ford, and
recognizing that there are no genuine issues of material fact regarding whether the
same transaction forms the basis for both the 2018 litigation and the present action,
summary judgment on behalf of Defendant Sedgwick Claims Management Services,
Inc., and Lowe’s Home Centers Inc., must be GRANTED.
IT IS SO ORDERED.
/s/Jeffrey J Clark
Judge
15