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 state Supreme 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 also 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 company 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 and Texas Mutual appealed to the Supreme Court.
The Supreme Court reversed the Houston Court of Appeals and 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, presenting the opinion of the Court. “The way the dispute was resolved after Ruttiger initiated the dispute resolution process is the way the Act is designed to function.”
Justice 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 Court’s finding that Ruttiger’s claim was not consistent with the Insurance Code negated his claim under the DTPA, according to Court’s written opinion.
Ruttiger also presented a common law claim that Texas Mutual breached its duty to properly investigate his workers’ comp claim and denied necessary medical care and other benefits, according to court documents.
The justices acknowledged that Ruttiger was free to pursue his common law claim and remanded the case to the court of appeals to consider the issues as to the common law claim.
Source: Texas Mutual, Supreme Court of Texas