Monday, June 25, 2012

Ruttiger Highlights Dispute Resolution in Comp

The issue of liability for bad faith claims management practices in Texas has been going back and forth for some time, with the latest salvo in favor of carriers when the Texas Supreme Court ruled against Timothy J. Ruttiger in favor of Texas Mutual on Friday.

This case has been followed closely by Texas workers' compensation professionals because of its far ranging implications, and the fact that it has yo-yo'd from side to side through the courts.

Ruttiger sued after he was denied workers’ compensation benefits for a hernia he claimed he suffered when lifting heavy objects at work. Texas Mutual decided to investigate the claim after Ruttiger's boss, who initially signed his claim, later told the insurer she had heard Ruttiger suffered the injury playing softball.

An adjuster denied the claim – allegedly without adequately investigating it.

Ruttiger was awarded damages by the trial court for bad faith practices. The appellate court affirmed the judgment, but the Supreme Court on Friday reversed the appeals court and rendered judgment that Ruttiger take nothing.

The court majority concluded that claims against workers’ compensation carriers for alleged unfair claim handling practices can’t be brought under the Insurance Code – and that legislative change to the workers’ compensation system in 1989 had eliminated the common law right to sue for bad faith.

This is the second time the parties have been to the Supreme Court. In August 2011, the Supreme Court reversed the appeals court decision and rendered judgment that Ruttiger take nothing on his Insurance Code and Texas Deceptive Trade Practices Act claims. But the court also remanded the plaintiff's common law good faith and fair dealing claims to the Houston Court of Appeals for further consideration.

Both sides requested a rehearing, suggesting the court consider more fully whether the 1989 overhaul of the workers' compensation system "eliminated the need for" a common law cause of action for breach of the duty of good faith and fair dealing.

The Court did - finding that the 1989 changes afforded much more administrative protection to injured workers than existed under prior law:

The 1989 amendments and the current Act provide significantly more meaningful
proceedings at the administrative agency level so as to reduce the number and cost of judicial trials,
speed up the time for the entire dispute resolution process, and facilitate interlocutory payment of
benefits pending final resolution of disputes. To achieve these purposes the amended
Act contains detailed procedures and penalties for failures of the various interested parties to comply
with statutory and regulatory requirements.

The Court makes note that the failure of a carrier to comply with the deadlines and reporting features found in the Workers' Compensation Act are not with out consequences, noting the various administrative penalties that attach and start accumulating with various claims administration failures:

A carrier’s failure to comply with the Act’s requirements, deadlines, and procedures is not
without consequences. First, the Act specifies administrative violations both in particular sections
and in a general, catchall provision. For example, if a carrier fails to initiate compensation or notify
the WCD of its refusal to do so within fifteen days of receiving notice of injury, it is an
administrative violation subject to monetary penalties up to $25,000 per day. Id. §§ 409.021(e),
415.021. The Act also provides that a carrier or its representative commits an administrative
violation for any of twenty-two specified actions, including failing to process claims promptly and
in a reasonable and prudent manner, controverting a claim if the evidence clearly indicates liability, 
and failing to comply with the Act. Id. § 415.002(11), (18), (22). If a carrier refuses or fails to
comply with an order of the WCD, either interlocutory or final, or a decision of the commissioner,
within twenty days of when the decision or order becomes final, it commits an administrative
violation. Id. § 410.208(e). Also, both the WCD and claimant are specifically authorized by the Act
to file suit to enforce the order and recover attorneys’ fees. Id. § 410.208(a)–(c). A claimant who
brings suit is entitled to recover 12% of the amount of benefits recovered in the judgment as a
penalty. Id. § 410.208(d).

Ruttiger's attorneys affirmed to WorkCompCentral that they are going to request another rehearing before the Supreme Court, but they did not provide any further comment beyond that. The fact that the Court was split so evenly in its decision (5 to 4) would give Ruttiger sufficient confidence to try one more time - just convincing one justice to change minds could mean that policing carrier claims behavior would inure to the benefit of the claimant rather than the state.

The dissent by Chief Justice Wallace Jefferson (joined by three other justices) said that because the Legislature has not made the Workers’ Compensation Act “exclusive with respect to extra-contractual claims, I would not eliminate Ruttiger’s claims and would affirm the appeals court's judgment.”

Jefferson states:

The exclusivity provision of the new Act provides that “[r]ecovery of workers’ compensation
benefits is the exclusive remedy of an employee covered by workers’ compensation insurance
coverage . . . against the employer . . . [for] a work-related injury sustained by the employee.” TEX.
LAB.CODE § 408.001 (emphasis added). This clause thus emphasizes two important aspects of the
old law: (1) it provides that workers’ compensation is exclusive only with respect to the employer,
and (2) it retains the distinction, important to our decisions in Aranda and Marshall, between a
“work-related injury” and an injury caused by a carrier’s misconduct. See id. A logical inference
from this provision, which bars claims against employers, isthat claims against carriers mayproceed. 
Indeed, Aranda, analyzing the old Act’s exclusivity provision, recognized exactly this, holding that
the injury alleged in a common law suit is wholly separate, both conceptually and temporally, from
the job-related injury to which the exclusivity provision, and the workers’ compensation system as
a whole, applied. Aranda, 748 S.W.2d at 214 (“Injury from the carrier’s conduct arises out of the
contractual relationship between the carrier and the employee and is sustained after the job-related

The Ruttiger case turns exclusively on state law but is interesting because it highlights the tension between injured workers and gatekeepers that is inherent in workers' compensation. While it is a benefit delivery system, with "rights" and "liabilities", dispute resolution is a key element and often times becomes more of the focus than the rectification of injury.

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