Dunn became Jaffrey police chief in 2002. During the ensuing four years, the job included many stressful incidents:
- A civil rights suit against Dunn by a disbarred attorney
- A public dispute with the board of selectmen over budgetary issues
- His unsuccessful application for another police chief position
- A union grievance after Dunn terminated a police officer
- Dunn's two investigations of the town manager, which were referred to the county attorney and U.S. Attorney
- The town manager's suspension of Dunn and subsequent reinstatement
- A published editorial by a selectman stating that he did not want Dunn as chief
- An e-mail from a selectman questioning Dunn's sanity
Dunn suffered from diarrhea, insomnia, nausea, vomiting, headaches and a rash, which his physician concluded were stress-related. He also saw a psychiatrist, who prescribed medications, and a psychologist for counseling. He was diagnosed with "adjustment disorder with mixed anxiety and depressed mood." In July 2006, he left work and subsequently filed a workers' compensation claim for permanent total disability and a New Hampshire Retirement System (NHRS) claim for accidental disability retirement (ADR) benefits.
Dunn's workers' compensation claim was initially denied when a psychiatrist for the insurer offered an opinion that Dunn's disorder was not caused by police work, but, rather, by conflict with the town manager and board of selectmen. The workers' compensation claim was later settled for a lump sum amount of $95,000 for permanent total disability.
To receive ADR benefits from NHRS, a member who has received a lump sum workers' compensation settlement must prove that he or she has been totally and permanently incapacitated for duty as the natural and proximate result of either:
- An accident occurring while in the actual performance of duty at some definite time and place; or
- Repeated trauma or gradual degeneration occurring while in the actual performance of duty, or arising out of, and in the course of, employment; or
- Any occupational disease arising out of, or in the course of, employment as defined by RSA 281-A:2, XI, RSA 281-A:2, XIII, or RSA 281-A:17 [sections of the workers' compensation statute].
RSA 100-A:6, II(c)(1). RSA 281-A:2, XI provides that the injury of an occupational disease "shall not include a mental injury if it results from any disciplinary action, work evaluation, job transfer, layoff, demotion, termination, or any similar action, taken in good faith by an employer."
A psychiatrist retained by NHRS rendered the opinion that "it is not his duties as Police Chief that brought about his illness; rather, it is his inability to work with his bosses." The NHRS board of trustees approved a recommendation of the hearing examiner to deny Dunn's ADR benefits, on the grounds that his illness was caused by the unexpected suspension by the town manager.
On appeal, the Supreme Court reversed and remanded to NHRS for further proceedings. The Court ruled that the hearing examiner had made significant legal errors. First, in focusing on the single incident of discipline by the town manager, the hearing examiner considered only the "occupational disease" theory. She did not consider evidence in the record of "trauma or gradual degeneration" caused by other "job-related stressors." The hearing examiner also erred by making a distinction between "work-related" and "personnel-related" psychological injury. The Court held that the stress caused by Dunn's interaction with the town manager and other officials and employees was work-related because the job description for police chief includes hiring, evaluation and discipline of staff and working with the board of selectmen and other officials.
"An employee does not need to establish that good faith discipline did not cause the claimed injury; rather, it is the employee's burden to 'establish, by a preponderance of the evidence, that the work-related activities probably caused or contributed to the employee's disabling injury as a matter of medical fact.'"