In a 5-4 decision, the Texas Supreme Court held that employees that are injured on the job are not permitted to assert bad faith claims against workers' compensation carriers under the Texas Insurance Code. However, without providing any examples, the Court held that bad faith claims can be asserted by injured employees for policy misrepresentations.
The underlying case involved an employee who claimed that he was injured on the job After the employee filed his worker's compensation claim, his employer informed The insurance company that that the employee was actually injured in a softball game. The claim was denied on that basis, but eventually, the insurer relented and settled the coverage claim made by The employee. However, by that time, the employee argued that the damage had already been done, and he sued the insurer on the grounds that the company had engaged in bad faith by believing his employer instead of him. More specifically, he alleged that the insurance company committed the following acts of bad faith:
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.
After the trial concluded, the employee was successful, and he was awarded compensation in excess of the amount provided by the insurer in connection with the previously executed compromise and settlement agreement. On appeal, the trial court's award was confirmed by the Houston Court of Appeals. The insurer appealed once again to the Supreme Court of Texas.
The Supreme Court reversed the trial court's decision and held that the employee could not succeed on either his causes of action for bad faith pursuant to the Texas Insurance Code or his DTPA causes of action pursuant to the Texas Deceptive Trade Practices Act claims. The Court held that bad faith claims brought by aggrieved workers were inconsistent with the comprehensive statutory worker's compensation scheme created by the Texas Legislature, and that the injured employee's dispute of the initial denial of his claim resulted in a resolution of his worker's compensation claim just as the statute was designed to function.
I have previously written extensively regarding the Supreme Court's rulings concerning the appraisal clauses found in most insurance policies and the potential erosion of the viability of many bad faith claims as a result of those holdings. The 2012 opinion is a further erosion of bad faith claim viability. If the Texas Legislature were to later mandate an administrative dispute resolution process for non-worker's compensation first party disputes, would such a mandate be sufficient for the Supreme Court of Texas to find that such an ADR process obviates the need for bad faith claims? Based on the Court's reasoning, that would certainly be a legitimate conclusion.
http://www.jonathanallenlaw.com/.
Jonathan C. Allen
Over the years, I have represented a variety of businesses, ranging from the commercial contractor to the large petrochemical plant, in the resolution of insurance coverage and commercial disputes, as well as construction defect claims and general liability suits brought by contractors and employees. At my website, I write a business litigation blog, complete with movie and television references, and I also write an insurance coverage blog. I invite you to read my blogs and comment on any posts that interest you.
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