Does Utah workers' compensation law bar bad faith claims for delayed benefit payments? Gunderson v. May Department Stores Explained

The Utah Court of Appeals addressed a significant question about the scope of workers’ compensation exclusivity in Gunderson v. May Department Stores, determining whether employees can pursue separate tort claims when employers delay paying court-ordered benefits.

Background and Facts

Josie Ann Gunderson suffered severe injuries during a workplace robbery while employed at Payless Shoe Source, a subsidiary of May Department Stores. The company was self-insured under Utah’s workers’ compensation system. After Gunderson filed claims for medical expenses and disability benefits, the Utah Labor Commission issued a formal order in 1994 requiring May Department Stores to pay over $11,000 in benefits plus medical expenses. Despite not contesting the order, the company delayed payment for years, causing Gunderson significant emotional distress as she faced unpaid medical bills, creditor harassment, and credit rating damage.

Key Legal Issues

The case presented three critical questions: whether the Workers’ Compensation Act provides exclusive remedy for delayed benefit payments, whether covered employees can maintain contractual bad faith claims against self-insured employers, and whether employees can pursue negligent infliction of emotional distress claims arising from payment delays. The court focused primarily on the exclusivity question as dispositive.

Court’s Analysis and Holding

The Utah Court of Appeals held that the Workers’ Compensation Act’s exclusive remedy provision bars both bad faith and negligent infliction of emotional distress claims based solely on delayed payment. The court emphasized that Utah’s statute includes specific penalties for payment delays, including mandatory 8% annual interest and potential 15% benefit increases for willful noncompliance. Following the majority rule from other jurisdictions, the court concluded that these statutory remedies demonstrate legislative intent to keep such disputes within the administrative system rather than allowing separate tort actions.

Practice Implications

This decision significantly limits options for employees facing delayed workers’ compensation payments. However, the court left open the possibility of separate tort claims in extraordinary cases involving “intentional and outrageous conduct” that goes beyond mere payment delay. Practitioners should focus on administrative remedies including interest calculations and penalty provisions when employers delay payments, while carefully documenting any conduct that might rise to the level of independent intentional torts.