Jeremy Falcone

We rarely have the opportunity to cover a section 75-1.1 dispute in the context of a workers’ compensation claim.  The exclusivity provision of the North Carolina Workers’ Compensation Act keeps most of these claims from ever making their way to court.

In Seguro-Suarez v. Key Risk Insurance Company, the Court of Appeals allowed a section 75-1.1 claim to proceed against an insurance company for an issue that grew out of a workers’ compensation claim.  The Court of Appeals reached this decision despite the Workers’ Compensation Act’s exclusivity provision.

This post examines the Court of Appeals’ analysis of the exclusivity provision and its consideration of whether the plaintiff was in privity with the insurer.

A (Hopefully) Irregular Fact Pattern

Mario Seguro-Suarez’s complaint paints a grim picture of an insurer’s conduct after a workplace injury.

In 2003, while working on a jobsite, Seguro-Suarez fell from a significant height and struck his head.  He suffered a severe, traumatic brain injury, went into a coma, and required emergency neurosurgery.  He eventually came out of the coma, but suffered ongoing physical and mental complications as a result of the fall.

At first, his employer’s workers’ compensation insurer, Key Risk, admitted that the injuries were compensable and Seguro-Suarez began treatment.  Over the next several years, his treating physician performed tests that confirmed a traumatic brain injury.

But then, the physician recommended in-home treatment and Key Risk denied the request.

Key Risk then took surveillance video of Mr. Seguro-Suarez and provided the video to his doctor.  Based on that video, his doctor changed his diagnosis and treatment plan: the doctor believed that Seguro-Suarez was exaggerating his symptoms and did not need any more treatment.

In 2010, Key Risk argued that Seguro-Suarez’s benefits should be terminated for fraud and misrepresentation.  The Industrial Commission rejected that argument and found that Key Risk’s claims were brought without reasonable grounds.

Key Risk then exhausted, unsuccessfully, all available appeals of that decision.

Even though it had lost all potential appeals, Key Risk soldiered on.  It first conducted an independent medical exam of Seguro-Suarez that confirmed the validity of his symptoms.

Key Risk pressed on, and hired a private investigator to surveil Seguro-Suarez.  Key Risk then requested that the investigator convince the local police to charge Seguro-Suarez with fraud.

Apparently, the investigator was successful.  Seguro-Suarez was arrested and jailed in October 2013 and indicted in March 2014 on several fraud charges.

After a medical exam to determine Seguro-Suarez’s competency showed that he was exhibiting cognitive deficits consistent with the prior injury, the state dropped the charges (with some strong urging from the trial judge).

After he was released, Seguro-Suarez sued Key Risk (and several individual defendants).  He included a section 75-1.1 claim among his claims.

Key Risk moved to dismiss the section 75-1.1 claim under Rule 12(b)(1), arguing that the Court lacked subject matter jurisdiction over the claim under the exclusivity provision of the Workers’ Compensation Act.  Key Risk also argued for dismissal under Rule 12(b)(6) because Seguro-Suarez lacked privity with Key Risk.

The trial court denied Key Risk’s motion.

The Court of Appeals Allows the Section 75-1.1 Claim to Proceed

Judge Inman, writing for the Court, affirmed the denial of the motion to dismiss the section 75-1.1 claims (and several other tort claims).

As to the exclusivity provision of the Worker’s Compensation Act, the Court held that Seguro-Suarez’s tort claims were only “tangentially” associated with his workers’ compensation claims and were primarily focused on the criminal charges that resulted from Key Risk’s investigation.  In so holding, the Court of Appeals noted that claims based on intentional torts are not foreclosed by the Workers Compensation Act, citing Woodson v. Rowland.  Taking Key Risk’s argument to its logical extreme, the Court noted, an insurer could “hire an assassin to kill an insured employee” and claim the protection of the exclusivity provision.

The defendants also argued that Seguro-Suarez’s claim was barred for lack of privity with Key Risk.  They cited the typical rule that a third-party claimant cannot bring a section 75-1.1 claim against the insurance company of an adverse party.  Because Key Risk was the insurer of the plaintiff’s employer, Key Risk argued that rule barred Seguro-Suarez’s claims.

The Court of Appeals again disagreed.  Focusing on the timing of the tortious conduct at issue—which occurred after Key Risk had already been ordered to provide compensation by the Industrial Commission—the Court of Appeals found that Seguro-Suarez was in privity with Key Risk—as a third-party beneficiary of the insurance relationship.  That’s because Key Risk was already obligated to provide payments to Seguro-Suarez at the time of the allegedly tortious conduct.  The Court also noted that neither North Carolina statutes nor the insurance contract allowed Key Risk to “maliciously seek the arrest, incarceration, and felony prosecution of an employee for acceding workers’ compensation payments awarded to him by the Commission.”

The Court of Appeals allowed Seguro-Suarez’s section 75-1.1 claims to proceed to discovery.

Avoiding Dismissal of Section 75-1.1 Claims in the Workers’ Compensation Arena  

This fact pattern is egregious (and hopefully unique).  But the case provides interesting analysis for future litigants navigating two typical exceptions to tort (and section 75-1.1) liability.

The exclusivity provision of the Workers’ Compensation Act operates to bar many potential claims against employers and insurers, but Seguro-Suarez may provide a would-be litigant some avenues to avoid the exclusivity provision.

The case also provides future litigants with further guidance on the privity requirement for claims against an insurer and highlights the importance of the timing of the allegedly tortious conduct.

Author: Jeremy Falcone