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Johnson v. First Union Corp.

February 03, 1998


Appeal by plaintiffs from order entered 18 September 1996 by Judge Henry V. Barnette, Jr., in Wake County Superior Court. Heard in the Court of Appeals 9 October 1997.

The opinion of the court was delivered by: McGEE, Judge.

Plaintiffs appeal from the granting of defendants' motions to dismiss pursuant to N.C.R. Civ. P. 12(b)(6). Plaintiffs' complaint alleged common law fraud, unfair or deceptive trade practices, intentional infliction of emotional distress, bad faith claims practices and civil conspiracy by defendant First Union Corporation and/or First Union Mortgage Corporation (employer) and defendants Cigna Property and Casualty Company and/or Esis, Inc., and International Rehabilitation Associates, Inc. (Intracorp) (collectively insurers), in connection with the handling of their workers' compensation claims.

In 1992 and 1993 plaintiffs separately filed claims with the North Carolina Industrial Commission (Commission) seeking workers' compensation benefits for injuries they allegedly sustained in the course of their employment with First Union as customer representatives in the Raleigh, North Carolina office. Specifically, plaintiffs allege that they developed a "repetitive motion disorder" affecting their hands, arms, shoulders, and neck. The record shows that the Commission has not yet issued an opinion and award for the claim of either plaintiff.

Viewing the facts in the light most favorable to the plaintiffs, the allegations in plaintiffs' complaint show that in August 1992 Smith signed a Form 21, which obligated the insurer to pay compensation to her "for an unlimited period of `necessary' weeks." In September 1992, Smith received a copy of a letter by Robin Deffenbaugh (Deffenbaugh), claims adjustor for the insurers, stating that further medical treatment in her case was no longer authorized by insurers because Smith's physician had withdrawn his opinion that her injury was caused by activities performed in the course of her employment. Smith then obtained counsel, who upon investigation, informed her that the Form 21 Agreement she had signed was not contained in the Commission's file. Shortly thereafter, Smith advised the Commission of the insurers' failure to submit the executed Form 21 to the Commission for approval. By letter dated 3 March 1993 Smith was notified by the Commission that it had received a Form 21 which appeared to have been materially altered by defendants. The Commission also informed plaintiff that the possibility of fraud in connection with the alteration of the Form 21 could warrant the setting aside or the voiding of the Form 21. Plaintiff was further notified that defendants had failed to file other reports with the Commission required by law.

Smith alleged in her complaint that: defendants, through their agent and employee Deffenbaugh, with the intent to deceive plaintiff Smith, her attorney and the Industrial Commission, altered material terms of the Form 21 she had signed, by whiting out and changing its agreement to pay compensation for an unlimited period of "necessary" weeks, to "7 6/7" weeks, a limited period which conformed to the date her physician's diagnosis was canceled, and returned the altered Form 21 to the Industrial Commission for approval and filing.

Smith further alleged that by providing her physician with a videotape inaccurately depicting her work-related activities at First Union, the insurers intentionally misrepresented her work-related activities in order to cause her physician to withdraw his opinion that she was disabled. The videotape was produced by the insurers, through their agents and employees, Deffenbaugh and Pat Edwards, a rehabilitation nurse acting as the agent of all defendants in the provision of medical case management services to both plaintiffs in connection with their workers' compensation claims. According to plaintiffs, "he video did not accurately illustrate the actual repetitive, high-speed activities plaintiffs and other CSRs had performed on a daily basis." Plaintiffs alleged that "defendants, through use of the inaccurate video . . . willfully deceived" plaintiffs and their physician, and as a result caused the physician to "withdraw his diagnosis that [plaintiffs'] injuries were work-related because [plaintiffs'] work activity as depicted in the video could not have caused a repetitive motion disorder." Smith also alleged that Edwards had "conspired with the employer and carrier in a plan to discredit her claim."

Johnson was first employed by First Union in the same office as Smith from 1986 to 1989, and later for eighteen months from June 1991 until January 1993. In January 1992 Johnson developed a repetitive motion disorder and later filed a claim with the Commission for disability arising from this disorder. In March 1993, by letter from the Commission, she learned that her claim had been rejected on the basis of the same inaccurate video previously sent to Smith's physician. In November 1993, insurers informed Johnson that based on the inaccurate videotape, her physician had withdrawn his diagnosis that her injury was work-related. Because of this, defendants would not voluntarily accept her claim for compensation and continued medical treatment. Johnson then joined Smith in filing the 25 March 1996 complaint on the basis that defendants acted with the intent to deceive her physician through use of a videotape which inaccurately portrayed the work-related duties of both she and Smith.

I. Exclusive remedy doctrine

The first issue before this Court is whether the Workers' Compensation Act (Act) provides the exclusive remedy for acts of fraud committed in the handling of workers' compensation claims. We first examine the scope of the Commission's authority under the applicable statutes pertaining to fraud under the Act. Charlotte-Mecklenburg Hospital Auth. v. N.C. Industrial Comm., 336 N.C. 200, 214, 443 S.E.2d 716, 725 (1994) (quoting In re Community Association, 300 N.C. 267, 280, 266 S.E.2d 645, 654 (1980)("he responsibility for determining the limits of statutory grants of authority to an administrative agency is a judicial function for the courts to perform.").

We note that the alleged fraudulent acts occurred prior to the General Assembly's enactment of the Workers' Compensation Reform Act of 1994, N.C. Gen. Stat. § 97-88.2 (1994); thus, this statute does not govern the case currently before this Court. N.C. Gen. Stat. § 120-20 (Cum. Supp. 1997)(acts of the General Assembly effective only after passage unless otherwise expressly directed). This statute required the Commission to "refer all cases of suspected fraud and all violations related to workers' compensation claims, by or against insurers or self- funded employers, to the Department of Insurance." N.C.G.S. § 97-88.2. The applicable statute, as amended in 1995, now confers this authority upon the Commission by requiring it to: (1) Perform investigations regarding all cases of suspected fraud and all violations related to workers' compensation claims, by or against insurers or self-funded employers, and refer possible criminal violations to the appropriate prosecutorial authorities;

(2) Conduct administrative violation proceedings; and

(3) Assess and collect civil penalties and restitution.

N.C. Gen. Stat. § 97-88.2 (Cum. Supp. 1997).

This case is governed by law as it existed prior to the passage of N.C. Gen. Stat. § 97-88.2. There was no comparable statute existing at the time the fraudulent acts allegedly occurred to empower the Industrial Commission to penalize insurers and employers for attempting to fraudulently deprive injured employees of their benefits. The Commission's power to remedy the effects of fraud involving "settlements made by and between the employee and the employer," such as a Form 21 Agreement, was limited to setting aside the agreement tainted by fraud pursuant to N.C. Gen. Stat. § 97-17 (1991)(emphasis added). This statute provides that if ...

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