Texas Supreme Court: Bad Faith Claim Inconsistent with Worker’s Comp

The Texas Supreme Court has concluded that while bad faith claims against workers’ compensation carriers are not permissible under the state’s insurance code, claims made under the code against insurers for policy misrepresentation are allowable.

With its decision in Texas Mutual Insurance Company v. Timothy J. Ruttiger, the Court strengthened the state’s Workers’ Compensation Act by finding that a bad faith cause of action is inconsistent with the current workers’ compensation system, according to Texas Mutual.

The Court clarified that in Ruttiger it found no evidence that the insurer attempted to misrepresent the terms of its policy.

In 2004, Texas Mutual disputed Ruttiger’s claim for an on-the-job injury because his employer reported that he was hurt at a non-work related softball game, the insurer explained. Texas Mutual ultimately entered into a compromise agreement with Ruttiger over the claim. In 2006, a trial court found that Texas Mutual’s adjuster had acted in “bad faith” by believing the employer instead of Ruttiger. The court awarded money to Ruttiger in excess of the amounts Texas Mutual had already paid him to cover his medical costs and replace his wages. He was also awarded extra money for his “mental anguish over having his claim disputed.”

The First Court of Appeals in Houston upheld the original decision. On appeal, the Texas Supreme Court reversed. It also rendered judgment that Ruttiger take nothing on his Insurance Code and Texas Deceptive Trade Practices Act claims.

“[If the plaintiff were to prevail, the precedent would build] additional costs into the system by increasing litigation expense to employees, insurers and employers,” Justice Johnson wrote in the Court’s opinion.

Johnson explained that Ruttiger’s “allegations as to Insurance Code violations were that [Texas Mutual] (1) failed to adopt and implement reasonable standards for promptly investigating claims, (2) refused to pay Ruttiger’s claim without having conducted a reasonable investigation, (3) failed to promptly provide a reasonable explanation for denying his claim, (4) failed to attempt to promptly and fairly settle the claim when liability was reasonably clear, and (5) misrepresented the insurance policy to him.”

Ruttiger also asserted that violations under the Insurance Code authorized recovery under the DTPA. The finding that Ruttiger’s claim was not consistent with the Insurance Code negated his claim under the DTPA, according to Court’s written opinion.

The Court said Ruttiger was free to pursue his common law claim against Texas Mutual and remanded the case.

Topics Texas Claims Workers' Compensation