Plead It Correctly

Just in time for the Insurance Council of Texas' annual workers' compensation conference in a couple weeks, a Texas appellate court reversed a bad faith jury verdict of nearly a half million dollars, which should provide some topical discussion material for presenters.

In the famous Ruttiger case, the Texas Supreme Court ruled that a 1989 overhaul of the state Workers' Compensation Act had eliminated causes of action for the breach of workers' compensation carriers' common-law duty of good faith and fair dealing when adjusting claims.

The court did say, though, that the amended act “does not purport to preclude all types of claims against workers’ compensation insurers,” and that Insurance Code Section 541.061 would continue to apply to carriers.

That code section provides that it is an unfair or deceptive trade practice for a carrier to misrepresent an insurance policy by making an untrue statement of fact or misstatement of law.

On Friday, the Court of Appeals for the state's 5th District last week said that Jeff Palmer could take nothing on his claim after a jury awarded him $483,716.69 against Texas Mutual, because he had failed to include a plea of an alleged violation of Insurance Code Section 541.061 in his amended petition for relief.

Palmer claimed a January 2006 back injury from using a jackhammer to break concrete. Doctors determined that he had a slipped disc in his back, with some nerve impingement.

Texas Mutual initially accepted Palmer's injury as compensable and began paying him temporary income and medical benefits.

In February 2006, Palmer's doctor requested authorization to perform an L4-5 and L5-S1 laminectomy and discectomy. Texas Mutual granted approval for the procedure on the same day it filed a dispute over the extent of Palmer's injuries with the Division of Workers’ Compensation.

Bowzer's back pain a procedural morass.

For the next several months, the parties haggled over whether Texas Mutual was obligated to pay for the surgery it had authorized, in light of its contest to the compensability of the condition the surgery was supposed to address. Palmer's doctor refused to do the surgery until the parties resolved this dispute.

Palmer finally got his surgery in July 2006, and Texas Mutual paid for it, as well as for his post-surgical care, physical therapy and pain management. Once Palmer reached maximum medical improvement, Texas Mutual paid him benefits of $267.25 per week for 15 weeks.

After the payments ended, Palmer filed suit against Texas Mutual in July 2007. In his initial complaint, Palmer accused the carrier of violating its common-law duty of good faith and fair dealing, unspecified provisions of the Insurance Code and the Texas Deceptive Trade Practices Act.

He blamed Texas Mutual's "brazen and dilatory blockage" of his surgery as the reason he had to endure months of pain, and he asserted that the prolonged impingement on the nerves in his spine had led to his development of left thigh and calf atrophy.

Texas Mutual filed special exceptions to Palmer's complaint, asserting that his claims under the Insurance Code should be stricken pursuant to the Supreme Court's decision in Ruttiger.

It supported its motion with citation to language from the Ruttiger decision holding that a dispute about whether a worker’s claim was covered under workers’ compensation will not constitute a misrepresentation under Section 541.061.

Dallas District Judge Kenneth Molberg struck Palmer's Insurance Code claims. Palmer amended his petition to plead only a breach of the common-law duty of good faith and fair dealing and unconscionable acts under the Deceptive Trade Practices Act.

The case then proceeded to trial, and Texas Mutual moved for a directed verdict in its favor.

Molberg denied the motion, saying he found Texas Mutual’s actions to be "absolutely incomprehensible." He chided the carrier for having engaged in "one of the most outrageous, egregious administrations of a claim that I've ever seen."

Later, despite his earlier ruling striking Palmer's Insurance Code-based claims, Molberg agreed to instruct the jury as to Section 541.060.

Texas Mutual objected, but Molberg overruled the carrier.

The jury then returned a verdict finding Texas Mutual had made a misrepresentation as to the availability of coverage for Palmer's back surgery by authorizing it while simultaneously disputing its liability. The jury awarded Palmer $483,716.69 in damages.

Texas Mutual appealed and on Friday, the 5th District Court of Appeals agreed with the carrier's procedural argument, finding an abuse of discretion by Molberg.

The case troubles me on a couple of fronts.

First, I don't understand why the carrier first approved, very quickly and expediently I might add, surgical treatment, and then delay, deny and otherwise welch on that deal. The carrier's behavior clearly exacerbated the situation.

Who made that decision? Why? And what was the purpose, other than to save carrier money that should otherwise have gone to providing the originally APPROVED treatment?

Frankly, Texas Mutual deserved to be sued. They brought the lawsuit upon themselves.

Second, was Palmer setting up Texas Mutual? I understand that the delay of several months was probably a painful several months, but back surgery is painful in itself for up to a year or more - and the nerve impingement leading to atrophy may actually have been a product of the treatment itself rather than the original injury.

Did Palmer expect to take on the carrier in civil court at the start? Was the intent to get better, or get money?

To be blunt, the 5th District was not only procedurally correct, but the trial judge, Molberg, appeared to have stepped outside his role of independent jurist by resuscitating Palmer's pleading failure.

The full story with links to the 5th District's opinion and the parties' briefs is on WorkCompCentral.