Tuesday, February 24, 2015

Bad Faith or Not?

Here's a sensitive question for the workers' compensation community that I'm sure will provoke passionate debate: should workers' compensation insurance companies and/or third party administrators be subject to civil "bad faith" lawsuits?

Or should a state's workers' compensation system remain an exclusive remedy, even if a claims payer intentionally commits egregious acts such as denying benefits that it knows are due in order to "facilitate" a settlement?

WorkCompCentral Legal Editor, Sherri Okamoto, reports that about half of the states have done away with any civil bad faith remedy either through legislative or judicial actions, and the other half of the nation retains that remedy.

The contrasts are stark.

Okamoto cites an Iowa jury award an earlier this month of $25 million in punitive damages, along with $284,000 in damages, payable by his former employer's workers' compensation carrier for its bad-faith handling of his claim. The offense was failure to pay permanent total disability benefits after a 2009 accident left the injured worker with catastrophic injuries.

Other states where there is no civil remedy rely on administrative penalties and administrative judicial enforcement, such as California, which has been criticized because those policies lack sufficient deterrence to bad behavior such as wrongfully denying medical care to the critically injured.

Bad Faith?

Okamoto notes that the states that do allow for civil remedies vary widely in the standards and definitions for reprehensible conduct.

Alaska and Arizona, for example, define "bad faith" as a refusal to pay a claim without any arguably reasonable basis. In contrast, Arkansas requires a showing of "affirmative misconduct" or “dishonest purpose” to avoid liability.

Colorado, Maine and Michigan make a carrier's failure to act in good faith a breach-of-contract claim. Hawaii and Mississippi make carrier misconduct redressable in tort.

Texas used to permit bad faith actions until the Supreme Court's decision in Texas Mutual Insurance Co. v. Ruttiger, which held there was no common-law bad-faith action in the Lone Star State for workers' compensation claims handling.

Likewise, two months after Ruttiger came out, though, the New Jersey Supreme Court held that the state's injured workers do not have a common-law right of action for pain and suffering caused by an insurer's administration of a workers' compensation claim in Stancil v. Ace USA.

Last week, the North Carolina Court of Appeals ruled that an injured worker cannot bring a tort action to recover damages from an insurance carrier for its alleged bad-faith claims handling.

The split surely raises the passions in people: civil remedies fly in the face of the concept of administrative expediency that underlies workers' compensation; yet, administrative enforcement needs sufficient "teeth" to encourage compliance and deter bad behavior.

What do you think?


At 8 a.m. this morning the pre-recorded introduction webinar to Peter Rousmaniere's ground breaking white paper, Seismic Shifts: An Essential Guide for Practitioners and CEOs in Workers’ Comp, will be broadcast on WorkCompCentral (click here to register to watch the introduction for free, or purchase one or all of the subsequent four parts of the series here, and click here to download the white paper).

Rousmaniere argues that the workers' compensation industry, despite rising costs, is actually shrinking. He explains why, and what industry executives and other professionals should be doing. If your job has anything to do with workers' compensation (and you wouldn't be reading this if it weren't) then you need to at least read the paper - better though, you need to "attend" the webinar series to get the most from Rousmaniere's work, including exclusive interviews with subject matter experts.

If this isn't convincing enough, read Tom Lynch's review of the paper and the series here.


  1. Comment 2 of 2: Interestingly enough, I've learned that maiming injured workers happens. It is done for strategic reasons which could be many including 1. Creating the look of a condition so that the defense can litigate the file and levy the condition as an apportionment issue thereby reducing if not eliminating the insurance carriers / employers medical and monetary obligation, 2. A method of "deterring" the injured worker from seeking additional medical treatment, 3. Retaliation from a vindictive employer.
    Without a doubt, there absolutely should be pain and suffering benefits for the injured worker if the IW has had to suffer as they waited for medical treatment due to delays and denials and if the injured worker reports having been maliciously maimed. In the case where injured workers are harassed, their personal property vandalized, their homes intruded upon, theft, tainting of food and drink in their homes, medical records falsified, and/or most horrifically - their body maimed during treatment, there should not only be civil damages but also prosecution against those who facilitated these crimes and also the employer, defense attorneys and insurance carriers who bought and paid for these crimes.
    Not surprisingly, the fact that injured workers are or once were valuable employees is not considered. How about the fact that IW's are human beings. But no, the only focus is how to limit the medical treatment & compensatory cost to the defense while spending money on tactics that are meant to harm or discredit the IW. Simple but true.
    Corporations such as insurance carriers and their attorneys have more power over our country than the people. If it is against the law to not file a workers comp claim when we are hurt at work, then why don't IW's receive timely, legitimate medical treatment. Wouldn't it cost less money to get the IW back to work than to have to pay the attorneys to battle it out over years, committing crimes against injured workers, delay, denial, maim, batter, falsify medical records, wire tapping, vandalizing personal property including the IW's automobile, harassing the IW's with over aggressive stalking, computer and e-mail hacking, intruding into injured workers homes, tainting their food, and more. Defense firms are doing anything and everything to destroy an injured workers credibility and/or reputation and inhibit the IW's ability to get medical treatment even outside of the WC arena! They are expert liars who orchestrate bizarre scenarios against the IW's who have no idea of the evil that is about to befall them. When the injured worker finally realizes that they are a target of crimes, like me, it was too late to protect my body from the prolific damage. Subsequently, I learned as others will in their claim, that the attack on my credibility & integrity had also been underway, with a little help from a corrupt AME who would then would steer my complaints of having been maimed and forced under anesthesia to a psych issue to protect the defense's turf. Tell me, what is a good description for those who work in an industry who collude together against many innocent people, those people being injured workers? Apparently, there is no shame felt by those in the WC industry who partake in these crimes.
    Why should this corrupt system have yet another advantage that is profoundly to the disadvantage of a person who was once considered a valuable employee?! Limiting or eliminating bad faith torts will be like throwing gas on a fire!

  2. I must have not pressed the "Publish" button properly as my "1st of 2 comments" didn't save to the page.