TEXAS WORKERS’ COMPENSATION BAD FAITH
CASE AND ISSUES UPDATE, 2010
Presenters
STEVEN M. TIPTON
Flahive, Ogden & Latson
504 Lavaca, Ste. 1000
Austin, Texas 78701
WM. RANDELL JOHNSON
P. O. BOX 296111
Lewisville, Texas 75029
Tel: 972/221-4541
Fax: 972/221-4241
email: [email protected]
Author
STEVEN M. TIPTON, Austin
Flahive, Ogden & Latson
State Bar of Texas
7th
ANNUAL
ADVANCED WORKERS’ COMPENSATION COURSE
August 19-20, 2010
Austin
CHAPTER 16.1
Workers’ Compensation Bad Faith Chapter 16.1
i
TABLE OF CONTENTS
I. Texas Mutual Ins. Co. v. Ruttiger. ..................................................................................................................... 1 A. Facts ...................................................................................................................................................... 1 B. Holdings ................................................................................................................................................ 2
1. Jurisdiction ............................................................................................................................... 2 2. Sufficiency of the Evidence ..................................................................................................... 3 3. Post Dispute Investigation ....................................................................................................... 3 4. The ―Knowingly‖ Finding ...................................................................................................... 4 5. Damages ................................................................................................................................... 4
C. The Ruttiger Issues ............................................................................................................................... 4 1. Jurisdiction ............................................................................................................................... 4 2. Bad Faith Liability and No Evidence Standards ...................................................................... 4 3. Existence of or Limitations on Common Law Bad Faith Liability .......................................... 4 4. Claimants‘ Standing Under Chapt. 541 Insurance Code ......................................................... 5 5. No Evidence of ―Knowing‖ Insurance Code Violation ........................................................... 5 6. No Evidence of Aranda‘s ―Separate and Independent Injury‖ Requirement ........................... 5 7. Evidentiary Underpinnings for Mental Anguish Damages ...................................................... 5
II. Texas Mutual Ins. Co. v. Morris ........................................................................................................................ 5 A. Facts ...................................................................................................................................................... 5 B. Holdings ................................................................................................................................................ 6 C. Issues ..................................................................................................................................................... 7
III. Burkhart v. Sedgwick Claim Management Services, Inc. .................................................................................. 7 A. Facts ...................................................................................................................................................... 7 B. Holdings ................................................................................................................................................ 8 C. Issues ..................................................................................................................................................... 8
IV. Johnson v. Zurich Am. Ins. Co. .......................................................................................................................... 8 A. Facts ...................................................................................................................................................... 8 B. Holdings ................................................................................................................................................ 8 C. Issues ..................................................................................................................................................... 8
V. In re Liberty Mutual Fire Ins. Co.. ..................................................................................................................... 9 A. Facts ...................................................................................................................................................... 9 B. Holdings ................................................................................................................................................ 9 C. Issues ..................................................................................................................................................... 9
VI. In re Texas Mutual Ins. Co and Evie Villareal ................................................................................................... 9 A. Facts ...................................................................................................................................................... 9 B. Holdings .............................................................................................................................................. 10 C. Mandamus in the Supreme Court of Texas ......................................................................................... 10 D. Issues ................................................................................................................................................... 10
VII. In re Texas Mutual Ins. Co. and Gloria Williams. ........................................................................................... 10 A. Facts .................................................................................................................................................... 10 B. Holdings .............................................................................................................................................. 11 C. Mandamus in the Supreme Court of Texas ......................................................................................... 11 D. Issues ................................................................................................................................................... 11
VIII. In re LM Insurance Corp.. ................................................................................................................................ 11 A. Facts .................................................................................................................................................... 11 B. Mandamus in the Supreme Court ........................................................................................................ 12 C. Comment ............................................................................................................................................. 12
Workers’ Compensation Bad Faith Chapter 16.1
ii
D. Issues ................................................................................................................................................... 12
IX. Kelly v. American Interstate Ins. Co., Hammerman & Gainer, Inc., and Sheryl Butman ............................... 13 A. Facts .................................................................................................................................................... 13 B. Holdings .............................................................................................................................................. 13 C. Issues ................................................................................................................................................... 14
X. Durst v. Texas Mutual Ins. Co.. ....................................................................................................................... 14 A. Facts .................................................................................................................................................... 14 B. Judicial Review ................................................................................................................................... 14 C. The Bad Faith Claims ......................................................................................................................... 14 D. On Appeal, Claimant Argues .............................................................................................................. 15 E. Issues ................................................................................................................................................... 15
XI. Schwartz v. Insurance Co. of the State of Pa. .................................................................................................. 15 A. Facts .................................................................................................................................................... 15 B. Holdings .............................................................................................................................................. 15 C. Issues ................................................................................................................................................... 16
XII. Cunningham Lindsey Claims Management, Inc. v. Snyder.............................................................................. 16 A. Facts .................................................................................................................................................... 16 B. Holdings .............................................................................................................................................. 16 C. Supreme Court Petition ....................................................................................................................... 17 D. Issues ................................................................................................................................................... 17
XIII. Stinson v. Insurance Co. of the State of Pa.. .................................................................................................... 17 A. Facts .................................................................................................................................................... 17 B. The Bad Faith Claim ........................................................................................................................... 18 C. Holdings .............................................................................................................................................. 18 D. Comment ............................................................................................................................................. 18 E. Issues ................................................................................................................................................... 19
XIV. Gasch v. Hartford Acc. & Indem. Ins. Co.. ...................................................................................................... 19 A. Facts .................................................................................................................................................... 19 B. Holding ............................................................................................................................................... 19
XV. In re Liberty Ins. Corp. and Michelle Yaklin. .................................................................................................. 20 A. Facts .................................................................................................................................................... 20 B. Holdings .............................................................................................................................................. 20 C. Issues ................................................................................................................................................... 21
XVI. In re Texas Mutual Ins. Co.. ............................................................................................................................. 21 A. Facts .................................................................................................................................................... 21 B. Holdings .............................................................................................................................................. 22 C. Issues ................................................................................................................................................... 22
Workers’ Compensation Bad Faith Chapter 16.1
1
TEXAS WORKERS’
COMPENSATION BAD FAITH CASE
AND ISSUES UPDATE, 2010
This article examines the most recently decided
and pending appellate level cases in the Texas
workers‘ compensation bad faith arena. The term
―bad faith‖ as used here refers generically to the
various extra-contractual causes of action against an
insurance carrier and/or claims handler that take the
form of the common law breach of good faith and fair
dealing [see Aranda v. Ins. Co. of North Am., 748
S.W.2d 210 (Tex. 1988)], Texas Insurance Code
violations [see TEX. INS. CODE, Chapt. 541] and
Deceptive Trade Practices Act violations [see TEX.
BUS. & COMMERCE CODE §§ 17.01, et seq. (Vernon
2004)].
This paper (dated July 12, 2010) is not intended
as a thorough history and evaluation of these causes of
action. For that we would refer you to D. Brenner, J.
Raizner & A. Slania, The Duty of Good Faith and
Fair Dealing in Workers’ Compensation Claims,
STATE BAR OF TEXAS, 6th Annual Advanced Workers‘
Compensation Course, August 2009. The purpose
here is to describe and highlight the most recent and
pending bad faith cases, then ―tee up‖ some, but not
all, of the most intriguing issues in those cases for
future discussion and debate.
I. Texas Mutual Ins. Co. v. Ruttiger, 265 S.W.3d
651 (Tex.App.—Houston [1st Dist.] 2008, pet.
granted). This case was submitted to the Supreme
Court of Texas following oral argument on April 14,
2010, and is currently pending.
A. Facts: Ruttiger alleged that on June 21, 2004,
he sustained bilateral inguinal hernias from lifting a
bundle of conduit. He asserted he immediately
reported this un-witnessed incident to his supervisor.
He sought medical treatment at UTMB Hospital, and
confirmed workers‘ compensation coverage with the
employer. On his way home from the hospital,
Ruttiger went to his employer‘s office and completed
an Employer‘s First Report listing his injury as caused
by ―carrying heavy pipes to a jobsite‖ and listing ―Dr.
William Harper, UTMB‖ as his treating doctor.
The adjuster contacted the employer on June 28,
2004, and was told that Ruttiger had not immediately
reported his condition to his supervisor as an on-the-
job injury, that he had taken off from work on June
17th and 18th to go to a softball game, that a co-worker
had observed Ruttiger to be limping when he arrived
at work on June 21st, and that Ruttiger‘s supervisor
(although aware of Ruttiger‘s complaints) was not
then told of any on-the-job accident. The employer
also related that Ruttiger missed work on a regular
basis, that there were ―a lot of questions about the
claim‖ and that she did not believe Ruttiger was
injured on the job.
The adjuster testified he twice, unsuccessfully,
attempted to contact Ruttiger on June 28th at the
number provided by the employer, that he mailed a
contact letter and attempted to contact the doctor
whose name was incorrectly listed on the first report
of injury by Ruttiger. The employer also claimed to
have called Ruttiger ―numerous times,‖ without
success.
The real treating doctor, Dr. Havlen, referred
Ruttiger to a surgeon who on July 2nd scheduled
surgery for July 14th. The adjuster testified that on
July 7th he took a statement from an employer
principal, Henry Beall, who stated that he was ―not
100% sure‖ Ruttiger was ―actually limping‖ when he
arrived at work on June 21st and was not ―totally
positive‖ whether Ruttiger was playing or coaching
softball the previous weekend. Beall was unclear
whether Ruttiger had reported an on-the-job injury
when reported onsite. Beall provided the name of the
doctor listed on the medical documentation he
believed was the treating doctor (different from what
Ruttiger had provided). The adjuster did not contact
that doctor or obtain a copy of that medical
documentation from the employer.
On July 8th, the adjuster contacted the employer
and was told that a co-worker had related that Ruttiger
was injured playing softball, had bragged about
getting workers‘ compensation to pay for it and that
the witness would be made available for a recorded
statement. The adjuster did not take a statement from
the co-worker at that time.
On July 12th, the employer reiterated that Ruttiger
had played softball on June 20th and then came to
work and claimed an injury. Per adjuster‘s notes, the
employer claimed Ruttiger had stated to a co-worker
―Adam‖ that he ―was happy that he was getting his
hernia repaired by Worker‘s
Compensation/employer.‖
On July 12th, the adjuster telephoned Ruttiger
and informed him that the claim was disputed
because he ―was hurt playing softball and not hurt on
the job.‖ Ruttiger told the adjuster that was incorrect
and claimed the adjuster hung up on him. Ruttiger
denied that he had been contacted any manner by the
adjuster or the employer prior to the July 12th phone
call, claiming that he had been available by phone 24-
hours a day.
On July 12th, the hospital contacted the adjuster
for surgery pre-authorization. The adjuster did not ask
for medical records or identification of the treating
doctors. The adjuster did inform the hospital that the
claim had been disputed. The Carrier filed its dispute
of the claim on that same date. The surgery was
cancelled by the doctor.
Workers’ Compensation Bad Faith Chapter 16.1
2
The Carrier had initiated TIBS timely, but
disputed the claim on July 12th, stating:
―The carrier disputes this claim in its
entirety. The claimant did not sustain a
compensable injury. The claimant did not
sustain an injury in the course and scope of
employment. Our investigation revealed
that the [employee] was playing softball and
sustained a hernia.‖
Ruttiger admitted that he coached his daughter‘s
softball tournament the weekend prior to June 12th,
but denied that he was injured in that activity.
The adjuster testified that as of July 12th, there
was no direct evidence Ruttiger had played softball.
The only recorded statement at that time was from an
employer representative who was unsure of whether
Ruttiger played or simply coached. The adjuster
confirmed that he did not conduct a ―three-point
contact‖ by contacting Ruttiger, his employer, and his
doctor. The adjuster further acknowledged the only
information upon which he based his dispute came
from the employer, that he had not yet discussed the
claim with Ruttiger or his doctors, and that he had not
yet requested any medical records.
Ruttiger hired an attorney two days later,
prompting the Carrier to reopen the investigation upon
notice of that fact in September. On September 21st,
the adjuster took a recorded statement of Adam
Popovich, Ruttiger‘s roommate, coworker and family
friend. Popovich stated Ruttiger had ―that hernia for a
long time‖ and that Ruttiger had admitted he did not
sustain the hernia at work—affirming the
representations made by the employer prior to the
dispute.
Ruttiger‘s counsel requested a BRC on October
26th, more than three months after being retained. The
request for an expedited BRC was denied as no reason
was given for the request. The December 2nd BRC
was reset for January 6, 2005, after the wrong carrier
had been notified for the BRC.
On December 17th, the adjuster took a statement
from Ruttiger‘s supervisor, David Martin. Martin
denied Ruttiger had reported to him that he had been
injured on the job, said no co-workers could confirm
the incident and that Ruttiger‘s roommate had said
Ruttiger was trying to get the carrier to pay for his
long-standing hernias that he had never taken care of.
At the January 6, 2005 BRC, the Carrier entered
into a benefit dispute agreement that Ruttiger
sustained a compensable hernia injury, was not
disabled for the initial two months following the
injury (June 22nd to August 22nd) and was disabled
beginning August 23, 2004.
Preauthorization for surgery was requested on
February 2, 2005 and approved the next day.
In June 2005, Ruttiger sued Texas Mutual
alleging that it had violated the Texas Insurance Code,
breached the duty of good faith and fair dealing, and
violated the DTPA. Ruttiger contended the Carrier
had denied him timely payment of benefits without a
reasonable basis and had wrongfully and unreasonably
delayed paying medical and income benefits. He
alleged that had Texas Mutual agreed sooner that his
injury was compensable, he would have had surgery
sooner, suffering less physical harm, pain, suffering,
mental anguish and financial harm. He claimed
damages only for the delay prior to the date of the
Benefit Dispute Agreement.
In deposition and in the recent medical records,
Ruttiger had denied having any hernia problems
before June 2004. During trial and only after the
Carrier obtained records from UTMB showing
bilateral hernias had been diagnosed and surgery
recommended in 1998, Ruttiger corrected his prior
sworn testimony after speaking with his attorneys.
In a 10-2 verdict, the jury found that Texas
Mutual had failed to comply with its duty of good
faith and fair dealing, had engaged in unfair and
deceptive acts or practices, and had engaged it those
acts and practices knowingly. The jury awarded
Ruttiger $37,000 for past pain and suffering, $5,000
for future pain and suffering, $11,500 for past damage
to credit reputation, $5,000 for future damage to credit
reputation, $4,500 for past physical impairment,
$100,000 for past mental anguish, and $20,000 in
additional damages based on the finding that Texas
Mutual's conduct was committed knowingly. Ruttiger
elected to recover damages under the Insurance Code
claim. The trial court rendered a judgment for
$163,000 in actual damages and $20,000 in additional
damages. The judgment also stated that in the event
the Insurance Code theory failed on appeal, Ruttiger
could elect to recover his damage under the common
law breach of the duty of good faith and fair dealing
and/or the DTPA.
B. Holdings: The First Court of Appeals held
that no evidence supported the credit reputation
damages, but otherwise affirmed.
1. Jurisdiction: The court rejected the Carrier‘s
argument the trial court lacked jurisdiction because
Ruttiger had failed to exhaust his administrative
remedies. Texas Mutual contended that the benefit
dispute agreement was a compromise and that to
consider it a final administrative determination would
have a chilling effect on settlements. The court found
that the finalized benefit dispute agreement left no
other administrative dispute resolution steps available
on the compensability and disability issues addressed
by the agreement.
Workers’ Compensation Bad Faith Chapter 16.1
3
The Court distinguished American Motorist Ins.
Co. v. Fodge, 63 S.W.3d 801 (Tex. 2001) and Pickett
v. Texas Mutual Ins. Co., 239 S.W.3d 826
(Tex.App.—Austin 2007, no pet.). In each, an earlier
agreement had addressed compensability of the claim
and income benefits. Both Fodge and Pickett alleged
bad faith in the denial of medical benefits. Each court
held that the claim was not ripe as the agency had
never addressed the medical benefits. Ruttiger,
however, based his allegations on the delay in
payment of income benefits prior to the agreement.
Accordingly, Ruttiger‘s agreement constituted a
determination that benefits were due.
2. Sufficiency of the Evidence: The Carrier
contended it had a reasonable basis to dispute
Ruttiger‘s claim. Specifically, the Carrier asserted
there was evidence Claimant had been actually been
injured outside of his work. On appeal, Ruttiger
asserted his Insurance Code claim was based upon (1)
failing to attempt in good faith to effectuate a prompt,
fair, and equitable settlement of a claim with respect
to which the insurer‘s liability has become reasonably
clear, and (2) refusing to pay a claim without
conducting a reasonable investigation with respect to
the claim. The Court held the evidence was sufficient
to support the jury findings stating:
―To the extent that, in some circumstances, an
insurer might be justified in relying solely upon
information obtained from an employer, a reasonable
juror could have believed that, under the
circumstances presented in this case, [the adjuster]
should have been highly suspect of the veracity of the
unsubstantiated allegations he was hearing from April
Beall at the Employer. For example, she suggested in
her first contact with [the adjuster] that Ruttiger never
reported an on-the-job injury. Yet, this representation
was flatly contradicted by the injury report form filled
out by Ruttiger, signed by April Beall, and provided to
[the adjuster][The Court‘s argument here is based
upon a misunderstanding of the facts. April Beall,
Henry Beall and Dave Martin had only testified
Ruttiger did not report an injury when on the jobsite,
not that he had never reported one.] April Beall's
repeated allegations that Ruttiger was injured in a
softball game, which served as the only specific basis
for TMI's dispute, were never verified. Her
representations that Henry Beall had told her that
Ruttiger came to work limping on the day of the
injury were not supported by Henry Beall.
Additionally, Henry Beall made contradictory
statements regarding whether Ruttiger even timely
reported an on-the-job injury on the day of the injury.
Given the evidence, no reasonable juror could have
doubted that Ruttiger timely reported his injury.
Finally, April Beall's promise to provide [the adjuster]
a recorded statement from a co-worker to confirm that
Ruttiger was seeking compensation for an off-the-job
injury did not materialized [before the denial]. In sum,
a reasonable juror could have believed the adjuster
made his decision to deny Ruttiger's claim after
conducting an extremely limited, one-sided
investigation that produced nothing more than highly
suspicious rumors and speculation from two, related
employer representatives.‖
Considering this version of the evidence from the
court, as well as Ruttiger's direct testimony that he
had, in fact, suffered an on-the-job-injury, the court
concluded a reasonable juror could have found that, at
the time TMI denied Ruttiger's claim, coverage for
Ruttiger's injuries had become reasonably clear.
Furthermore, the adjuster agreed that, under what
he believed to be the standards for conducting an
adequate investigation, a ―rumor‖ could not form the
basis for refusing to pay a claim. The unsubstantiated
hearsay from the employer that Ruttiger was actually
injured playing softball was the only specific fact
recited by the Carrier to support the grounds for denial
of Ruttiger's claim. The court concluded that by its
own standards and those imposed by the Insurance
Code, the Carrier failed to fulfill its obligation to
conduct an adequate investigation before denying
Ruttiger's claim. A reasonable juror could have
concluded that, at the time TMI denied Ruttiger's
claim, there was no information supporting a ―bona-
fide‖ coverage dispute. Texas Mutual argued the
evidence ―conclusively‖ established ―powerful
reasons‖ to dispute Ruttiger's claim. The court
disagreed.
3. Post Dispute Investigation: The court also
addressed the evidence Carrier developed after its July
12, 2004 dispute. The court was of the opinion the
issue of whether there is a reasonable basis for denial
must be judged only by the facts known to the insurer
at the time of the denial. The subsequent evidence
was only relevant to the extent ―…there can be no
claim for bad faith when an insurer has denied a claim
that is, in fact, not covered and the insurer has not
otherwise breached the contract.‖ As to the Popovich
and Martin statements, the court notes that these did
not refute the possibility of an aggravation of a pre-
existing hernia and neither provided any evidence of a
softball injury. In other words, if the post-dispute
investigation did not affirmatively, as a matter of law,
disprove Ruttiger‘s claim, such evidence could not be
used to justify the Carrier‘s dispute. The court also
appears to effectively limit the evidence review to
evidence only of whether the hernias may have been
sustained playing softball—the alleged fact listed on
the PLN-1. The court also noted the Carrier
eventually did accept the claim. As to the 1998
medical records, the court concluded the evidence
could support a claim this preexisting condition was
Workers’ Compensation Bad Faith Chapter 16.1
4
asymptomatic and may have been aggravated in 2004
[a claim Ruttiger never made and even twice denied
under oath by falsely denying the existence of prior
hernias].
4. The “Knowingly” Finding: The court also
found the evidence sufficient to support a
determination that Carrier ―knowingly‖ violated the
Insurance Code:
―Here, Ruttiger claimed the adjuster did not
attempt to contact him during the course of his
investigation, or, at best, made only minimal efforts to
do so. The jury could have believed the adjuster relied
solely upon April Beall's unverified statements that
Ruttiger had been injured while playing softball.
Perhaps confusing the ground for the dispute (the
hernias were not sustained in the course and scope of
employment and/or did not arise from the
employment) with the alleged fact in support of that
ground (playing softball), the court noted that
although the Carrier expressly denied coverage on the
ground that Ruttiger was injured playing softball,
Henry Beall, an A & H employee and the alleged
source of this information, did not confirm it. The
adjuster conceded that he did not speak with anyone
who could confirm that Ruttiger was injured playing
softball.‖
The court found most significant to the jury's
―knowingly‖ finding, Ruttiger‘s testimony that when
he called the adjuster to explain his side of the story,
the adjuster refused to listen to his version of events
and hung up on him—a call and conversation not
recorded in the adjuster‘s claim notes and its existence
denied by the adjuster.
The court found the jury could have reasonably
concluded the Carrier ―knowingly‖ failed to attempt in
good faith to effectuate a prompt, fair, and equitable
settlement of a claim with respect to which its liability
had become reasonably clear and/or refused to pay a
claim without conducting a reasonable investigation.
5. Damages: Texas Mutual contended the
damages for physical pain and suffering, physical
impairment, and mental anguish were improper as
these were not ―separate and independent‖ of the
injury for which Ruttiger was compensated by
workers‘ compensation benefits as required by
Aranda v. Insurance Co. of North America, 748
S.W.2d 210, 214 (Tex. 1988). The 1st Court of
Appeals expressly rejects the 5th Court of Appeals
decision in Hulshouser v. Texas Workers’
Compensation Ins. Fund, 139 S.W.3d 789 (Tex.
App.—Dallas 2004, no pet.) which also held such
damages are not recoverable. Id. at 792; accord,
Burkhardt v. Sedgwick Claim Mgmt. Servs. Inc.,
___S.W.3d___, 2009 WL 2712414 (Tex.App. –
Corpus Christi, No. 13-08-00351-CV, August 31,
2009, no pet.) Without explanation, the court declared
Ruttiger‘s damages were separate and independent,
and affirmed the award.
As to the alleged loss of credit reputation, the
court notes that ―[t]o recover actual damages for loss
of credit reputation, a plaintiff must show that a loan
was actually denied or a higher interest rate was
charged‖ and ―[t]here must be a showing of injury, as
well as proof of the amount of that injury.‖ Claimant
did not present evidence of this nature, and only
presented a copy of his credit report and financial
records showing his reduced income. The court
found this evidence legally insufficient and modified
the judgment to delete the damages award for loss of
credit reputation. This modification was not appealed
by Ruttiger.
C. The Ruttiger Issues:
1. Jurisdiction. The trial court had jurisdiction
over Ruttiger‘s delay remedy claim, if the Benefit
Dispute Agreement constituted an exhaustion of his
administrative remedies. Does a BDA resolving
compensability and disability issues satisfy Fodge/In
re Liberty Mutual? Secondarily, does the failure to
request or the refusal of the DWC to grant
interlocutory/expedited relief satisfy Fodge/In re
Liberty Mutual?
2. Bad Faith Liability and No Evidence
Standards: Can a jury disregard evidence that an
insurer‘s claims liability was not reasonably clear?
The court of appeals in Ruttiger held that evidence
discovered after the denial (medical evidence of pre-
existing hernias, corroborating a witness‘ statement
that Ruttiger had bragged about getting workers‘
comp to pay for the hernias) would not be considered
in evaluating whether the carrier‘s liability was
reasonably clear. In effect, the court of appeals ruling
allows a claimant to collect damages for the carrier‘s
failure to timely discover and raise a defense it would
otherwise have had to the claim, even if the claimant
took affirmative steps to hide facts supporting the
defense. Should the jury and reviewing court be able
to consider all facts that existed at the time of denial
(even if not discovered or raised by the carrier prior to
the dispute)? Does such a requirement make sense in
the workers‘ compensation context where the DWC,
not the carrier, makes the determination of
compensability?
3. Existence of or Limitations on Common Law
Bad Faith Liability: Ruttiger raises the question of
whether the control over workers‘ compensation by
the 1989 Act and TDI/DWC is so pervasive that
Aranda’s application of common law bad faith to the
handling of workers‘ compensation cases is no longer
necessary or prudent. [This issue is reached in
Workers’ Compensation Bad Faith Chapter 16.1
5
Ruttiger only if the Court finds a workers‘
compensation claimant has no standing under the Ins.
Code, no evidence of standing or no evidence of Ins.
Code violations].
4. Claimants’ Standing Under Chapt. 541
Insurance Code: The Carrier points out that TEX.
INS. CODE § 541.060(a) provides a cause of action for
wrongful practices arising from ―a claim by an insured
or beneficiary,‖ and expressly precludes standing to a
third party who has asserted a claim against the
insured under the policy. TEX. INS. CODE §
541.060(a).(b). Does a workers‘ compensation
claimant have standing to sue a workers‘
compensation insurer under this section? Does the
Code provide to a workers‘ compensation claimant an
exception to the exclusion of claims by third parties to
the policy? How must we deal with differences in the
claims handling requirements of the Act, DWC rules
and DWC policy versus irreconcilable findings by a
trial court/jury in a bad faith case?
5. No Evidence of “Knowing” Insurance Code
Violation: For meaningful no-evidence review of
―knowing violations‖, what constitutes evidence of
actual awareness of unfair claims-handling and risk of
serious harm? The underlying basis for this finding in
Ruttiger is the assumption the carrier was bound to
disregard the employer‘s allegations in evaluating
compensability.
6. No Evidence of Aranda’s “Separate and
Independent Injury” Requirement: Ruttiger raises
the question of what counts as a claims handling
injury separate and independent of the workers‘
compensation claim. Under the facts of Aranda, that
court only recognized loss of credit reputation as
satisfying the criteria. Since Aranda, the Supreme
Court has not been presented with or expressly
recognized any other injury arising from claims
handling in a workers‘ compensation case. Are the
benefits provided by the Act in lieu of the alleged
delay damages that arise from the injury itself
(pain/suffering/extended disability/extended
recovery/increased impairment) and any mental
anguish arising from such?
7. Evidentiary Underpinnings for Mental
Anguish Damages: What defendant conduct,
defendant intent, and effects on the worker are
required for mental anguish damages in the workers‘
compensation context? What effect, if any, should
defendant conduct and/or intent have on mental
anguish damages?
II. Texas Mutual Ins. Co. v. Morris, 287 S.W.3d
401 (Tex.App.—Houston [14th Dist.] 2009, pet.
filed)(No. 09-0495, pet. pending review since
December 2009).
A. Facts: Morris, an employee of a volunteer fire
department, injured his lower back on June 12, 2000,
while lifting a motor vehicle accident victim from a
ditch. Texas Mutual accepted the claim. Morris
began with a brief series of chiropractic treatments,
which then continued sporadically for the next two
and one half years. Morris only missed a brief period
from work in 2000.
In February 2003, Morris relocated to Sugarland,
Texas and began treatment with a new chiropractor.
Claimant sought emergency treatment for increasing
back pain on March 23, 2003. The hospital referred
Morris to a neurosurgeon, who diagnosed herniated
discs and request authorization for a L4-5 and L5-S1
laminectomy. Texas Mutual granted pre-authorization
and the surgery was performed on April 2, 2003.
On April 3, 2003, Texas Mutual transferred the
file to a new adjuster. On April 7, 2003, the adjuster
took her first action on the case, contacting the fire
chief, and learned that Morris had returned to work ―at
full duty without any problem.‖ The chief
subsequently testified he must have made the
statement, then stated it was unlikely that he would
have done so.
On April 7, 2003, the adjuster filed a TWCC-21
disputing liability for the L4-5 and L5-S1 disc
herniations and the surgery. Prior to this filing, the
adjuster did not contact Morris or any of his doctors to
obtain information about the current medical
condition or the cause of the disc herniations. The
adjuster asserted that the dispute decision was, in part,
based on an inconsistency in the 2003 description of
the injury (slipping off a fire truck—which, as it was
later discovered, is a description of a 1998 back
injury) and that description immediately after the June
12, 2000 accident (lifting a patient out of a ditch).
There was no contact with Morris to inquire about the
discrepancies.
Texas Mutual asserted that it had difficulty
obtaining medical records on the case. Morris,
however, presented evidence that his attorney had
faxed records to Texas Mutual on several occasions
and had provided a signed medical release by mid-
April 2003.
A benefit review conference was held on
November 2003, at which Morris agreed to an
evaluation with a RME, Dr. DeYoung, scheduled for
January 22, 2004. Texas Mutual provided medical
records to Dr. DeYoung, but these did not include a
page of chiropractic treatment notes from 2001 to
2003. Dr. DeYoung wrote to Texas Mutual and
indicated that because of the lack of medical records,
Workers’ Compensation Bad Faith Chapter 16.1
6
he could not determine the cause of the herniated
discs. He stated that under the assumptions that
Morris did not have low back trouble prior to June 12,
2000 and that medical records would show ongoing
difficulties with the lower back between June 2000
and April 2003, that the disk herniations would be
causally related to the June 12, 2000, injury. Texas
Mutual did not provide additional records to Dr.
DeYoung at that point and maintained its denial.
A second BRC was held in June 2004, which did
not resolve the issue. A contested case hearing was
set in July 2004. On July 1, 2004, Texas Mutual
forwarded records from Dr. Waldrop to Dr. DeYoung.
Again, the records did not include the chiropractic
treatment notes from 2001 to 2003. Dr. DeYoung
testified that the records he reviewed showed Morris
last treated with Dr. Waldrop in January 2001. He
opined that if Morris did not receive medical
treatment from 2001 to 2003, he would attributed the
herniation ―more to a disease of life than the work
related injury.‖ The CCH resulted in a decision that
the herniations at ―L4-5 and L5-S1 were caused
and/or aggravated by‖ the incident on June 12, 2000.
Texas Mutual did not appeal the decision.
Morris sued Texas Mutual alleging violations of
the Insurance Code, breach of the common-law duty
of good faith and fair dealing, and violation of the
Deceptive Trade Practices Act. During discovery,
Texas Mutual learned that Morris had previously
injured his back in 1998, when he fell from the
running board of a fire truck. The injury was
described as a strain or sprain. Morris missed two
weeks from work and had numerous chiropractic
treatments. Texas Mutual filed a counterclaim for
fraud, alleging that Morris had fraudulently testified at
the CCH that he had not injured his back prior to the
2000 injury. At trial, Morris acknowledged that he
did not mention the 1998 injury to the Carrier or Dr.
DeYoung, but asserted that this occurred because he
had fully recovered and did not consider it an
―injury‖.
Dr. DeYoung subsequently reviewed the records
from 1998 injury and testified that the 2000 injury was
not causally related to the herniated discs addressed
by the April 2003 surgery. Dr. DeYoung
acknowledged that the chiropractic treatment notes
showed 20 to 30 chiropractic treatments between 2001
and 2003, and acknowledged that those medical
records were contrary to Texas Mutual representations
that it had no record of any treatments during that
period.
At trial, Morris presented an expert who testified
that the Carrier‘s investigation was not reasonable
because it failed to include a ―three point contact‖
prior to the filing of the dispute. The expert also
criticized the Carrier‘s delay in requesting full medical
records, scheduling the RME, and requesting dispute
resolution. The expert also asserted that the 1998
injury would relieve Texas Mutual of liability only if
it were the sole cause of the herniated disc and that no
evidence suggested that the 1998 injury was the sole
cause of the disc herniations. [This legally incorrect
notion is apparently accepted as accurate by the
Court.]
The jury found that Texas Mutual had violated its
common law and statutory duties and acted knowingly
in so doing. The jury awarded $125,000 in actual
damages and $500,000 in additional damages based
upon the knowing conduct. The trial court reduced
the additional damage award to $250,000, in order to
comport the total award with three times the actual
damages.
Texas Mutual appealed contending that the
evidence was legally insufficient to support the jury
findings. It also contended error in the jury
instructions. Morris cross-appealed complaining of
the reduction in additional damages.
B. Holdings: Affirmed in part and reversed in
part. The Court highlights what it believed was the
relevant evidence against Texas Mutual as follows:
● Medical and non-medical personnel at Texas
Mutual initially authorized the surgery;
● The adjuster disputed coverage the same day
she first reviewed the file, ignored accepted
methods of investigating a claim, may or
may not have spoken briefly with Morris's
former employer, never spoke with the two
people who would know the most about the
initial injury and/or the current state of
Morris's spine, and did not speak with any
other treating physician before deciding to
dispute the claim;
● Texas Mutual complained that it had trouble
getting Morris's medical records, yet
Morris's attorneys faxed his records to Texas
Mutual on more than one occasion, Morris's
wife signed a release for Morris's medical
records as early as mid-April, and Morris
himself signed a release for his medical
records;
● Twice Texas Mutual sent medical records to
its medical expert (Dr. DeYoung) asserting
that those were all the records when, in fact,
one key page detailing multiple visits to Dr.
Waldrop was left out of the record;
● The page left out of the records sent to Dr.
DeYoung showed that Morris saw his
chiropractor sporadically between the 2000
Injury and the 2003 surgery;
● Dr. DeYoung informed Texas Mutual that
he would give Morris the benefit of the
doubt if Morris's records supported ongoing
Workers’ Compensation Bad Faith Chapter 16.1
7
trouble with his back and if he had no back
trouble prior to 2000. Texas Mutual either
was not aware that it had a page of treatment
notes from Dr. Waldrop showing visits
between 2001 and 2003 (The Carrier
explained the page was inadvertently
attached to a request to change treating
doctor form and was not placed in the
medical record section of their file), or it
chose not to give the sheet to Dr. DeYoung.
Either way, the jury reasonably could have
concluded that Texas Mutual acted
unreasonably.
The Court found that reasonable jurors could
have determined from this evidence that Texas Mutual
failed to reasonable investigate the claim and that
failed to attempt in good faith to settle the claim when
its liability had become reasonable clear. The Court
also found the evidence sufficient to support a
knowing violation of the Insurance Code. The Court
cites the testimony of Morris‘ expert that the carrier
knew it was wrong to raise an extent issue after
preauthorizing the surgery. He declared that action
unconscionable and ―thoroughly prohibited‖ [itself a
clearly incorrect statement of the law per 28 TEX.
ADMIN. CODE § 124.3(e) and State Office of Risk
Mgmt. v. Lawton, 295 S.W.3d 646, 648-50 (Tex.
2009].
Texas Mutual also complains the evidence was
legally insufficient to support the award of $50,000 in
past mental anguish damages. Although there was no
medical evidence, the Court found Morris‘s testimony
sufficient to support a mental anguish award.
Texas Mutual also complains the trial court
erroneously submitted Question 2, requesting the jury
to find whether Texas Mutual had engaged in one or
more of the eight listed TEX. INS. CODE § 541.060
unfair or deceptive acts. This, it asserts, erroneously
submits valid and invalid theories of recovery, with no
way to determine if the jury found liability on valid or
invalid theories. This is prohibited by Crown Life Ins.
Co. v. Casteel, 22 S.W.3d 378, 388 (Tex. 2000). The
Court rejects the argument as the jury found the two
violations in Question 1 (no reasonable investigation
and denial when liability was reasonably clear) which
mirrored two of the eight elements in Question 2. The
Court finds no Casteel problem.
The Court sustains Texas Mutual‘s assertion that
the evidence was insufficient to support the award for
loss of credit reputation, as Morris had not presented
any evidence that he had sustained actual damages
from loss of credit reputation, such as a loan denial or
payment of a higher interest rate. Morris testified that
he had been unable to finance a new washing machine
and had refinanced his home under his wife‘s name.
The evidence, however, failed to establish any
identifiable, measurable damages. The judgment was
modified to eliminate the credit reputation damages
(actual damages now reduced to $50,000).
The Court rejected Morris‘ cross-appeal that
additional damages should be calculated at three times
the actual damage and be paid in addition to those
actual damages, for a total award of four times the
actual damages. The Court affirmed the trial court in
limiting the total award, including the additional
damages, to three times the actual damages. So
additional damages were reduced to $100,000. Morris
has not appealed this holding to the Supreme Court.
The attorneys‘ fee award was also reversed and
remanded for new trial based on the modified total
award of $150,000.
C. Issues: Can a finding of no reasonable
investigation alone, in the absence of an additional
finding that liability was reasonably clear, form the
basis of an INSURANCE CODE § 541.060 violation?
What is the appropriate standard of review for a
no evidence or insufficient evidence complaints in a
bad faith claim? What evidence is relevant to a no
evidence or insufficient evidence appellate review of
a finding of bad faith?
What evidence is sufficient to establish
entitlement to mental anguish damages in a bad faith
claim?
What is the role, if any, of a sole cause analysis
in an appellate review of findings of bad faith?
What should be the role, if any, of an expert
witness in a bad faith claim? Under what
circumstances, if any, may such an expert testify as to
legal matters/background?
What is the appropriate manner of submission of
jury issues on DTPA and Insurance Code violations in
a bad faith case?
III. Burkhart v. Sedgwick Claim Management
Services, Inc ___S.W.3d___, 2009 WL 2712414
(Tex. App.—Corpus Christi, No. 13-08-00351-CV,
August 31, 2009, no pet.).
A. Facts: In April 2005, Burkhart injured his foot
and ankle on the job. In July 2005, the third party
administrator (TPA), Sedgwick, sought to have the
Claimant undergo a required medical exam (RME),
including a functional capacity examination (FCE) to
assess return-to-work issues. The FCE was scheduled
at Sedgwick‘s request by Concentra at Innovative
Physical and Occupational Therapy (Innovative) for
September 7, 2007.
In the meantime, the treating podiatrist
performed surgery on August 12, 2005, with post-
surgical instructions of no weight bearing. The
Claimant appeared for and participated in the FCE
Workers’ Compensation Bad Faith Chapter 16.1
8
anyway. Burkhart claimed his efforts at the FCE
seriously and permanently injured his foot and ankle.
The Claimant sued Sedgwick, Concentra and
Innovative for the alleged aggravation of his
compensable injuries. A second amended petition
included a claim of civil conspiracy to engage in the
practice of medicine in violation of the Texas Medical
Practice Act, for failing to consult the treating doctor
before performing the FCE, and additional counts of
negligence, assault, fraud and breach of good faith and
fair dealing. The Claimant claimed he had no
knowledge his treating doctor had not been consulted
regarding the FCE and would not have agreed to the
exam if he had known that.
The trial court granted Sedgwick‘s and
Concentra‘s motions for summary judgment, without
specifying the grounds. The court also granted
Innovative‘s motion to dismiss based upon an
untimely affidavit under § 74.351 TEX. CIV. PRAC. &
REM. CODE, for reasons not discussed here.
B. Holdings: The court of appeals concluded
that all the causes of action against Sedgwick and
Concentra were barred by the exclusive remedy
provisions of the Texas Workers‘ Compensation Act.
The court did not address the arguments made by the
Sedgwick and Concentra as to no duty to obtain
permission from the treating doctor, proximate
causation, consent and no vicarious liability for
Innovative‘s actions.
The court of appeals likened this situation to that
in Payne v. Galen Hosp. Corp., 28 S.W.3d 15 (Tex.
2000) and Hulshouser v. Tex. Workers’ Comp. Ins.
Fund, 139 S.W.3d 789 (Tex. App.—Dallas 2004, no
pet.), where the claimants‘ claims for aggravation of
the compensable injury were barred by the exclusive
remedy provision of the Act. Payne, 28 S.W.3d at 20;
Hulshouser, 139 S.W.3d at 792. Noting Aranda was
the reversal of a trial court dismissal, the damages
there were limited to loss of credit reputation, and
limited by the Supreme Court‘s ―separate claim‖ and
―independent injury‖ requirement (Aranda, 748
S.W.2d at 212-14), the Dallas court affirms the trial
court‘s granting of the summary judgment in favor of
the defendants. The court reasoned that ―…the
damages sought by the Burkharts-including damages
for medical care, physical pain and suffering, mental
anguish, and physical impairment-are of the same
kind as those for which the TWCA was designed to
provide the exclusive remedy.‖
The court notes that its holdings did not preclude
the claim against Innovative, as they were not
protected by the Act as an agent or employee of the
employer; nor was the Claimant barred from pursuing
any claim before the Division related to his workers‘
compensation claim.
C. Issues: What kinds of injuries and damages are
actionable in a bad faith claim as ―separate‖ from the
workers‘ compensation claim and ―independent
injuries‖? What consequences, if any, of the carrier‘s
actions which allegedly aggravate/worsen the
underlying compensable injury may form the basis for
a bad faith claim?
What duties do non-treating medical vendors
have to workers‘ compensation claimants? To what
extent, if at all, does the workers‘ compensation act
protect non-treating medical vendors?
IV. Johnson v. Zurich Am. Ins. Co. No. 05-09-
00087-CV, 2009 WL 3337663 (Tex.App.—Dallas
2009, no pet.).
A. Facts: Johnson sued the Carrier seeking
damages for denial of medical care under his
November 13, 2006, workers‘ compensation claim.
The Carrier had disputed medical treatments as not
being reasonable or necessary to treat that injury.
Johnson had not pursued the denied charges or
services through medical dispute resolution prior to
filing of this suit.
In response to Johnson‘s suit, the Carrier filed a
plea to the jurisdiction contending Johnson failed to
exhaust his administrative remedies. The trial court
granted the plea to the jurisdiction and dismissed the
lawsuit.
B. Holdings: Affirmed. When the legislature
has granted an administrative body the sole authority
to make an initial determination in a dispute, that
agency has the exclusive jurisdiction over the dispute.
Thomas v. Lang, 207 S.W.3d 334, 340 (Tex 2006). In
such a situation, the courts have no subject matter
jurisdiction over the matter until the party had
exhausted all of the administrative remedies with the
agency. Suburu of Am., Inc. v. David McDavid
Nissan, Inc., 84 S.W.3d 212, 221 (Tex.2002). The
Division of Workers‘ Compensation has exclusive
jurisdiction to determine entitlement to medical
benefits and to adjudicate medical benefit disputes,
including preauthorization of care and medical
necessity disputes. Am. Motorists Ins. Co. v. Fodge,
63, S.W.3d 801, 803-04 (Tex. 2001). Johnson had not
pursued the agency dispute process. Accordingly, the
trial court correctly granted the Carrier‘s plea to the
jurisdiction and motion to dismiss.
C. Issues: Are there circumstances where the
claimant need not exhaust his/her administrative
remedies which would bestow subject matter
jurisdiction to a court over matters related to claims
handling?
Workers’ Compensation Bad Faith Chapter 16.1
9
V. In re Liberty Mutual Fire Ins. Co., 295 S.W.3d
344 (Tex.App.--Corpus Christi 2008, orig.
proceeding), mand. granted, 295 S.W.3d 327 (Tex.
2009).
A. Facts: Nickelson injured his back and neck in
June 2003. He was found to be at MMI in January
2004 by a designated doctor with a zero impairment
rating. The Claimant unsuccessfully disputed the
designated doctor‘s findings at a CCH and the
Appeals Panel. He then filed for judicial review in
Nueces County. The only issue was entitlement to
income benefits.
Claimant alleges that shortly after he filed the
lawsuit he phoned the adjuster to discuss his concern
over being able to continue his chiropractic treatments
and the possibility he might need surgery. He claims
he was told by an adjuster that no additional medical
visits would be covered during the pendency of
judicial review. Claimant amended his suit to add an
allegation of bad faith for denying pre-authorization of
medical treatment. Nickelson characterized his
telephone call as a request to preauthorize office visits
and possible back surgery, and the Carrier‘s response
as a wrongful denial.
The impairment rating and MMI dispute were
subsequently settled. The Carrier filed a plea to the
jurisdiction seeking dismissal of the bad-faith
allegations, asserting that administrative remedies had
not been exhausted. The Carrier argued that
preauthorization was not required for the office visits
under Rule 130.600 and that preauthorization had
never been requested for back surgery.
The trial court denied the plea to the jurisdiction
and the Corpus Christi Court of Appeals denied the
Carrier‘s petition for mandamus. The Carrier then
requested mandamus relief in the Texas Supreme
Court.
B. Holdings: The Supreme Court, per curium,
conditionally grants the writ of mandamus and
instructs the trial court to grant the plea to the
jurisdiction and dismiss the case. The trial court and
Court of Appeal erred in failing to dismiss the suit.
Pre-authorization for office visits is not required
by Rule 130.600 and pre-authorization had never been
requested for back surgery. By allegedly demanding
pre-authorization for office visits when it was not
required and by failing to request pre-authorization for
surgery where it was required, the Claimant had
avoided all administrative review of his claim for
medical services.
The Division has exclusive jurisdiction over
entitlement to medical benefits. The Claimant‘s bad-
faith claims were dependent on whether he was
entitled to further medical care, an issue which must
first be addressed administratively. The Supreme
Court declined to consider the Claimant‘s discussion
with the adjuster regarding future care to be an
exhaustion of his administrative remedies.
C. Issues: Did the Texas Supreme Court really
mean what it said in Fodge requiring the exhaustion of
administrative remedies before the filing of bad faith
suits? The obvious answer, and by way of the
extraordinary remedy of mandamus, is ―Yes.‖
VI. In re Texas Mutual Ins. Co and Evie Villareal,
___ S.W.3d ___, No. 04-09-00082-CV, 2009 WL
1151795 (Tex. App.—San Antonio April 29, 2009,
orig. proceeding [mand. pending, No. 09-0508]).
A. Facts: Claimant, Hernandez was injured in
February 2006, while working on an oil rig. The
Claimant was discovered to have a pre-existing brain
injury and underwent emergency surgical procedures
for both injuries. The Carrier, Texas Mutual, disputed
the compensability of the claim, asserting that
Hernandez was intoxicated at the time of the accident.
This dispute was based a post-injury toxicology
report, which had been misinterpreted by the
insurance adjuster. The medical report itself indicated
―0.9 MG/DL,‖ which was reported by the registered
vocational nurse as ―0.9%‖ blood alcohol level. The
adjuster read this to mean 0.9 grams per 100 ml, rather
than the actual amount of 0.009.
Hernandez asserted that he and the employer
attempted to explain to the adjuster that he was not
intoxicated. In December 2007, Hernandez‘ attorney
requested a BRC. On January 22, 2007, eleven
months after engaging counsel, the attorney called the
adjuster and asserted the toxicology report had been
misinterpreted. The adjuster then consulted with a
peer review doctor who confirmed that the adjuster
had misread the report.
On January 26, 2007, the Carrier paid TIBs with
interest. February 8, 2007 BRC, the parties entered
into a Benefit Dispute Agreement only that Hernandez
had sustained a compensable injury. The scheduled
BRC was cancelled. In 2008, the hospital that treated
Hernandez after the injury sought reimbursement. The
Carrier denied the bills because they had not been
submitted in a timely manner.
In January 2008, Hernandez sued the Carrier and
the adjuster asserting that each acted in bad faith in
handling his workers‘ compensation claim. The
defendants filed a plea to the jurisdiction and a motion
for summary judgment asserting that Hernandez had
failed to exhaust administrative remedies as to
medical and income benefits as there was no Division
determination of liability and had failed to request an
interlocutory order for the payment of benefits.
The trial court denied the plea to the jurisdiction
and the defendants filed this mandamus action.
Workers’ Compensation Bad Faith Chapter 16.1
10
B. Holdings: Writ of mandamus conditionally
granted in part and denied in part. The court first
holds that mandamus relief is available to correct the
erroneous denial of a plea to the jurisdiction based
upon exclusive agency jurisdiction where it interferes
with the legislatively mandated function and purpose
of the agency and is a ―clear disruption of the ‗orderly
processes of government.‘ ‖, citing In re Entergy, 142
S.W.3d 316, 321 (Tex. 2004) (orig. proceeding). The
court concludes that mandamus relief is available if
the Claimant did not exhaust his administrative
remedies in the DWC.
Hernandez‘s trial pleadings included two aspects:
(1) bad-faith denial of medical benefits, and (2) bad-
faith delay in paying temporary income benefits.
The court of appeals agrees that the Division had
exclusive jurisdiction over the ―recovery of workers‘
compensation benefits‖ and ―disputes over income
benefits, pre-authorization of medical care, and
reimbursement of medical expenses.‖ The court also
acknowledges that if a dispute is resolved by binding
written agreement, there is no requirement that the
parties continue to other tiers of dispute resolution in
order to exhaust the agency process.
Texas Mutual, however, contended that because
the Benefit Dispute Agreement was silent as to
disability, liability for income or medical benefits, its
execution and approval did not exhaust the
administrative remedies as to those benefits. The
Carrier argued that to pursue a bad faith claims
handling case, the claimant must first obtain a
―…determination by the [DWC] of the carrier‘s
liability for each benefit the worker claims was
wrongfully delayed.‖ Fodge, 63 S.W.3d at 804.
Hernandez contended that because no issues remained
unresolved after the BDA was executed, he had
exhausted all remedies.
The Court agreed with Texas Mutual as to the
medical benefits. Neither the Claimant nor the
hospital sought a determination for payment of the
medical bills until the period of time to dispute denial
of the bill had expired. The Court holds that
administrative remedies as to the medical benefit had
not been exhausted, administrative remedies as to
those bills were no longer available and ordered that
those claims be dismissed. The trial court has since
entered an order dismissing the claims related to the
unpaid hospital bills.
The Court agreed with the Claimant as to the
allegations of wrongful delay in payment of temporary
income benefits. While the BDA did not address
disability, Carrier paid the TIBS in full prior to the
agreement. The Court reasoned that when the BDA
was executed, there were no remaining disputed issues
as to the payment of those benefits and pursuit of
administrative remedies was needless.
The Court also disagreed with the Carrier‘s
argument that because the Claimant had not sought an
interlocutory order to cure the delayed payment of
TIBS, he had not exhausted his administrative
remedies. The Claimant had invoked no
administrative remedy for the nine months following
the joining of the dispute. The Court describes the
interlocutory order as a ―permissive mechanism for a
claimant to obtain an expedited resolution,‖ which did
not require the exhaustion of administrative remedies.
C. Mandamus in the Supreme Court of Texas:
Following the court of appeals decision, Texas Mutual
filed a petition for writ of mandamus in the Supreme
Court of Texas (No. 09-0508), further pressing the
issues of the affect of the BDA and exhaustion. That
Court requested merits briefing which was completed
in December 2009. At this time, the petition is
pending.
D. Issues: Does a trial court lack subject matter
jurisdiction of a workers‘ compensation claimant‘s
bad faith claim over delay of income benefits if the
claimant does not obtain a DWC determination such
income benefits were owed?
Can an agreement between the parties (a BDA)
constitute a determination by the agency, thereby
conferring jurisdiction upon the trial court?
Does a Benefit Dispute Agreement that is silent
on disability and the payment of TIBs and which only
documents an agreement the claimant sustained a
compensable injury constitute a DWC determination
of entitlement to and an exhaustion of remedies as to
those income benefits issues?
Does a trial court lack subject matter jurisdiction
of a workers‘ compensation claimant‘s bad faith claim
over delay of income benefits where the claimant fails
to request or obtain the available DWC delay
remedies? Does the DWC have exclusive jurisdiction
over delay consequences and remedies?
Can the voluntary payment of TIBs constitute a
―determination‖ that TIBs were due?
VII. In re Texas Mutual Ins. Co. and Gloria
Williams, ___ S.W.3d ___, No. 05-09-00214-CV,
2009 WL 909725 (Tex. App.—Dallas, April 6, 2009,
orig. proceeding [mand. pending, No. 09-0443]).
A. Facts: The Claimant, Palmer, had an on-the-job
injury on January 5, 2006. The Carrier, Texas Mutual,
timely initiated and paid benefits. The Claimant‘s
surgeon requested preauthorization for a laminectomy
and discectomy at L4/5 and L5/S1, which was
approved on February 17, 2006. The same day, the
Carrier filed a PLN-11 disputing that the compensable
injury caused the purported disc herniations but
acknowledged that the pre-existing back condition had
Workers’ Compensation Bad Faith Chapter 16.1
11
been aggravated by the compensable injury. The
surgeon refused to perform the approved surgery out
of fear he would not be paid.
The Claimant requested a BRC on April 5, 2006.
No resolution was reached at the May 18th BRC. The
parties did enter into a Benefit Dispute Agreement at
the June 21st BRC. The parties agreed the
compensable injury included the disc conditions at
L4/5 and L5/S1, but not to L3/4 and L1/2. There was
no reference in the agreement regarding the proposed
spinal surgery. The next day, the surgeon again
requested preauthorization, and again, it was
approved. Surgery was performed July 5, 2009.
Palmer then sued Texas Mutual and the adjuster
for bad faith delay of his spinal surgery. The Carrier
filed a plea to the jurisdiction, contending the trial
court did not have subject matter jurisdiction as
Palmer failed to exhaust his administrative remedies
before bringing suit, as required by American
Motorists Ins. Co. v. Fodge, 63, S.W.3d 801 (Tex.
2001). The trial court denied the plea, but stayed that
proceeding pending disposition of the mandamus
petition. The Carrier did file a petition for writ of
mandamus in the Fifth District Court of Appeals
(Dallas), which denied the petition on April 6, 2009.
The Carrier claims there was no actual dispute
causing a delay as the PLN-11 accepted the
aggravation of the pre-existing condition the subject
of the surgery. However, because the Claimant
believed there was a dispute affecting the plan for
surgery, the Carrier argues the fact the Claimant did
not request or obtain an order from DWC related to
the surgery bars the bad faith claim on the basis of
failure to exhaust available administrative remedies.
The Claimant alleges the PLN-11 raised a dispute
regarding medical benefits which caused a delay in
receiving medical benefits (surgery). Claimant argues
there is no ―legislative intent to vest DWC with the
exclusive jurisdiction to issue rulings on whether a
dispute of coverage results in a dispute of benefits.‖
Claimant also argues that the delay remedies
referenced by Carrier are only ―permissive‖ and,
therefore, purportedly meaningless in an exhaustion
context.
B. Holdings: The Dallas Court of Appeals,
without comment, denied the petition for mandamus
C. Mandamus in the Supreme Court of Texas:
Following the court of appeals decision, Texas Mutual
filed a petition for writ of mandamus in the Supreme
Court of Texas (No. 09-0443), further pressing the
issues of whether the extent of injury dispute
constituted a denial of medical benefits and
exhaustion. That Court requested merits briefing
which was completed in December 2009. At this
time, the petition is pending.
D. Issues: May a healthcare provider‘s voluntary
delay in providing medical services because of the
belief of the existence of an unresolved
compensability or extent of injury dispute serve as the
basis for a bad faith delay claim?
May delays occasioned by a claimant‘s and/or his
attorneys‘ failure to initiate DWC dispute processes
and/or request interlocutory relief serve as the basis
for a bad faith delay claim?
Does a claimant‘s failure to promptly initiate
DWC dispute processes and/or request interlocutory
relief constitute a failure to exhaust administrative
remedies? What affect, if any, does the ―permissive‖
nature of an administrative remedy have on an
exhaustion defense to an extra-contractual cause of
action?
Did the filing of an extent dispute, but accepting
the aggravation of a pre-existing condition, constitute
a dispute of medical benefits that could serve as the
basis for a bad faith delay claim?
VIII. In re LM Insurance Corp., 2009 WL
3032525, No. 05-09-01123-CV, (Tex. App.—Dallas,
September 24, 2009, orig. proceeding)(mand.
pending, Supreme Court of Texas, No. 09-0823,
briefing completed November 2009).
A. Facts: The Claimant was injured in June 2005.
The Carrier accepted the claim and began paying
benefits. On April 18, 2006, a surgeon sought
preauthorization for spinal surgery (decompression),
which was timely denied by the Carrier‘s Utilization
Review Agent (URA). There was no timely request
for reconsideration of this denial. Following additional
testing and examination, the surgeon acknowledged a
change of plan and requested preauthorization for
spinal decompression, plus fusion and
instrumentation. On May 25, 2006, the Carrier‘s
URA approved this latter request and the surgery
described in the May 2006 request was performed.
On October 11, 2006, the surgeon requested
preauthorization for a bilateral decompression and
―redo instrumentation‖ on the left. The Carrier‘s
URA timely denied medical necessity of the original
request on October 16th and upon reconsideration on
October 23rd. No request for Independent Review
Organization review followed.
On November 28, 2006, the surgeon submitted
another request for preauthorization, this time limited
to redo of the instrumentation on the left, dropping the
proposal for decompression and use of new
instrumentation. This request was timely approved
and the surgery performed.
On June 4, 2007, one of Claimant‘s doctors
requested preauthorization for a cervical discogram.
This request was timely denied by the URA. There
Workers’ Compensation Bad Faith Chapter 16.1
12
was no record of any request for reconsideration or
appeal of this finding.
On August 15, 2007, another doctor requested
preauthorization for a cervical and lumbar CT
myelogram. The cervical and lumbar myelograms
were both timely denied by the URA, each on separate
grounds. Citing additional rationale, the doctor timely
asked for reconsideration of the request for the
myelograms, which were promptly approved by the
URA.
On October 24, 2007, another surgeon requested
preauthorization for a third spinal surgery (removal of
hardware, fusion and instrumentation). This original
request and an [untimely?] reconsideration request
were denied by the URA. No IRO request followed
these denials.
On January 11, 2008, two surgeons jointly
requested preauthorization for another spinal surgery
(lumbar laminectomy and decompression performed
by one doctor and fusion by another). The URA
timely approved this procedure and it was performed
on February 1, 2008.
The Claimant then sued Carrier and the adjuster
alleging common law breach of good faith and fair
dealing, Insurance Code and DTPA violations arising
from delays occasioned by the denials of the requests
for preauthorization for certain surgical and diagnostic
procedures. The Carrier filed a plea to the jurisdiction
based upon exhaustion grounds, which was denied by
the trial court. The Carrier filed for mandamus relief
in the court of appeals. The Dallas Court of Appeals
denied the petition without comment. The Carrier
then filed petition for mandamus relief in the Supreme
Court of Texas, which is now pending.
B. Mandamus in the Supreme Court: The Carrier
claims the Claimant‘s failure to exhaust his
administrative remedies related to the preauthorization
requests means the trial court does not have subject
matter jurisdiction over these bad faith delay claims
per Fodge and In re Liberty Mutual. The Claimant
claims the case is more like Ruttiger, as the Carrier is
said to have eventually ―agreed‖ to the previously
denied procedures and there was no available
remedies to exhaust. Furthermore, the adjuster‘s
testimony can be characterized as admitting the
Claimant had no remedies to exhaust.
This appears to be a semantics dispute. The
Claimant characterizes each healthcare provider‘s
alteration of their original request and/or supplying of
additional documentation after an initial denial,
resulting in approval of the amended or supplemented
request as a ―reversal‖ or ―overturning‖ on ―appeal‖—
in effect, an admission by the Carrier it was wrong in
denying the procedure in the first place. The Claimant
does not acknowledge the differences in the various
requests. The Claimant argues the adjuster‘s
acknowledgment that ―the surgery was approved‖
(without reference to the different surgical procedures
proposed within many of the requests) is considered a
binding admission of liability in the first instance, or a
least raises a fact question.
The Carrier characterizes each of the altered
preauthorization requests following an initial denial as
a new request, and the original request as ―un-
appealed‖ (abandoned). At best, the subsequently
approved requests are reconsideration requests under
DWC rules. The adjuster‘s general testimony the
―surgery was approved‖ is meaningless in light of the
differences in the denied procedures and those finally
approved. The adjuster‘s testimony, no matter how
strangely contorted or even misguided, cannot serve to
raise a ―fact question‖ as to the legal question of
whether Claimant had a remedy to exhaust. The
Carrier directs attention to the two denials upon
reconsideration that did not generate an IRO request
from the Claimant or his doctors, and that all the
approvals were for procedures not previously
requested or not properly documented.
C. Comment: At this stage, neither party
addresses the fact these complained-of determinations
were by utilization review agents, separately licensed
and regulated by the Texas Department of Insurance
and whose use are mandated by the Labor Code. In
effect, this lawsuit appears to be an attempt to use bad
faith claims to prosecute complaints of the medical
decisions of URAs regarding medical necessity.
D. Issues: Does the DWC have exclusive
jurisdiction over medical necessity disputes? Does a
claimant‘s failure to exhaust his/her remedies related
to medical necessity disputes deprive the trial court of
subject matter jurisdiction of a bad faith claim related
to the carrier‘s handling of the medical necessity
dispute?
Should the exclusive licensing and regulation of
URAs by the Texas Department of Insurance under
the Insurance Code bar bad faith claims related to
URA determinations? And, should the exclusive
regulation by the Division of Workers‘ Compensation
under the Labor Code of URAs and the effect of their
determinations, also bar bad faith claims related to
URA determinations? Should juries be reviewing and
determining the validity, propriety and
appropriateness of URA medical necessity
determinations? May insurance companies rely upon
URA determinations and be insulated from bad faith
liability related to those determinations? Must carriers
independently evaluate URA determinations, and are
they even permitted to do so?
May the denial of preauthorization by a carrier‘s
utilization review agent of an abandoned request for a
Workers’ Compensation Bad Faith Chapter 16.1
13
particular medical procedure form the basis of a bad
faith claim?
Under what circumstances, if any, may a denial
of preauthorization by a URA form the basis for a bad
faith claim against an insurance carrier? Would such
a question be the proper subject of mandamus?
IX. Kelly v. American Interstate Ins. Co.,
Hammerman & Gainer, Inc., and Sheryl Butman,
___S.W.3d___, No. 14-07-00083 (Tex. App.—
Houston[14th Dist.] November 25, 2008, unpublished
opinion, pet. filed, No. 09-0014)
A. Facts: Claimant Kelly claimed an on-the-job
injury of May 14, 2002. The Carrier, through its third
party administrator, Hammerman & Gainer, denied
compensability on May 29, 2002. At a September 3,
2002 BRC, the parties agreed to a compensable injury
and a period of disability. A separate period of
disability was left to a later agreement or
determination. Two days after that BRC, the Carrier
filed a request for another BRC to determine if newly
discovered evidence of pre-existing spinal injuries in
1998 was grounds for rescission of the first Benefit
Dispute Agreement (BDA) under TEXAS LABOR
CODE § 410.030(a).
A second BRC on December 12, 2002, addressed
the issues of (1) good cause to relieve the Carrier of
the effects of the original BDA, (2) whether there was
a compensable injury of May 14, 2002, (3) disability,
and (4) waiver of the right to dispute compensability.
On December 16, 2002, the Carrier filed a second
compensability dispute, specifically addressing the
question of whether the proposed and preauthorized
spinal surgery was related to the present injury, rather
than a 1993 injury. On December 30, 2002, the
Carrier filed a dispute questioning the medical
necessity of the proposed surgery, based upon
information related to the 1993 which it believed had
been intentionally withheld by Claimant.
On January 21, 2003, and before the scheduled
CCH, the parties signed a BDA which affirmed the
first BDA (Claimant sustained a compensable injury,
no good cause to rescind the original BDA, the Carrier
had waived its right to dispute compensability) and
agreed the compensable injury was a producing cause
of disability to date.
On March 6, 2003 and based in part upon an
RME exam, the Carrier issued a partial, qualified
preauthorization of the proposed lumbar surgery, by
approving the discectomy, and the fusion only if
determined to be appropriate intra-operatively. The
surgeon performed an exploration on April 1, 2003,
deciding not to do either the discectomy or the fusion.
Following additional testing and a failure of ongoing
treatment, the Carrier later preauthorized a lumbar
decompression and fusion performed on August 28,
2003.
On September 17, 2004, filed an extent dispute
based upon injuries (including cervical injuries)
received in a September 8, 2004 motor vehicle
accident. At a subsequent BRC a third BDA was
signed which limited the compensable injury to the
lumbar spine.
Claimant then filed the present lawsuit for
common law and statutory bad faith delay of medical
benefits, alleging Defendants had breached their
contracts (BDAs) with Claimant. The trial court
granted Defendants plea to the jurisdiction and motion
to dismiss. Claimant, Kelly, appealed.
Claimant claims the issue was one squarely on
point with In re Texas Workers’ Comp. Fund, 995
S.W.3d 335 (Tex. App.—Houston[1st Dist.] 1999, no
pet.) where the carrier had violated the express
language of a BDA by later denying liability for
medical benefits that had been addressed in the BDA.
The Defendants likened this situation to American
Motorists Ins. Co. v. Fodge, 63 S.W.3d 801 (Tex.
2001) and Picket v. Texas Mutual Ins. Co., 239
S.W.3d 826 (Tex. App.—Austin 2007, no pet.) both
of which dismissed the bad faith claims based upon
exhaustion of administrative remedies grounds. In
those cases, the orders of the agency and agreements
between the parties did not expressly address
entitlement to the medical benefits the subsequent
denial of which formed the basis for the extra-
contractual claims.
B. Holdings: The court of appeals characterized
the central question as ―whether a claimant can sue a
carrier for denial of specific benefits, based upon an
agreement to provide general benefits, without first
exhausting administrative remedies through the
TWCC process.‖ Slip Op. at 7. The court rejected
Claimant‘s contention that the BDAs relieved him of
having to request preauthorization. The court noted
that none of the BDAs addressed medical issues and
that the issue of medical necessity is otherwise
independent of the compensability and relatedness
issues addressed in the BDAs. Without a final
determination by the agency that the subject medical
benefits were due earlier, the trial court lacked the
requisite subject matter jurisdiction over claims of
delay and/or denial of such medical benefits. The
defect in jurisdiction was incurable and dismissal
appropriate.
The court of appeals affirmed the trial court‘s
dismissal of Claimant‘s bad faith claims. Claimant,
Kelly, has filed petition for review with the Supreme
Court of Texas. Although unclear from the briefing, it
appears Claimant may also be claiming the dismissal
is in violation of the ―Open Courts‖ provisions of
Article I, §13 of the Texas Constitution and a
Workers’ Compensation Bad Faith Chapter 16.1
14
violation of the ―Due Process Clause.‖ The Court
requested merits briefing in April 2009 which was
completed in September 2009. The petition for review
is pending.
C. Issues: Is a claimant relieved of the obligation
of requesting and receiving either preauthorization for
or a final order from the agency/court regarding
medical necessity of proposed spinal surgery during
any period of delay, if the carrier has entered into a
Benefit Dispute Agreement that the claimant has
sustained a compensable injury?
X. Durst v. Texas Mutual Ins. Co., No. 04-09-
00430-CV (Tex. App.—San Antonio, submitted on
written briefs, June 2, 2010) on appeal from the 2nd
25th District Court of Guadalupe County, Texas.
A. Facts: The Claimant, Charles Durst, claimed
an on-the-job low back lifting injury of November 30,
2004. Texas Mutual began benefits and paid TIBs,
without interruption, for the statutory maximum. In
the meantime, Durst‘s treating doctor certified MMI
as of January 21, 2005, with no impairment.
However, the Claimant then began seeing Dr. Lloyd
Youngblood who immediately recommended a 3-level
fusion to address degenerative problems and a
decompression to correct a herniated disc. This
recommendation raised issues of medical necessity
and extent of injury.
In February 2005, the Carrier‘s utilization review
agent denied the requested surgery upon initial request
and reconsideration. Upon resubmission and
additional testing, the proposed surgery was
preauthorized.
In March 2005, one of the Carrier‘s nurses
questioned whether some of the proposed treatment
was for non-compensable degenerative conditions.
Based upon Dr. Youngblood‘s records and the
diagnostic‘s, the opinion of peer reviewer Dr.
Tsourmas, Texas Mutual accepted liability for the
herniated discs, but not the degenerative conditions.
On March 23, 2005, the Claimant was informed the
Carrier would pay for the treatment-including surgery,
if needed- of the herniated discs. The surgeon refused
to perform either surgical procedure in the presence of
Texas Mutual‘s extent of injury dispute for the
degenerative conditions.
At a BRC on the extent-of-injury dispute held on
July 12, 2005, Texas Mutual claims the Claimant‘s
attorney handed the Carrier‘s representative an
exchange which included a 2003 MRI that had not
been previously exchanged, then tried to take the
report back, but was instructed by the BRO to provide
the report to the Carrier. The BRO then ordered the
Claimant to DWC RME. The RME doctor was
instructed to compare the pre-injury and post-injury
MRIs. There was no indication he did so and he did
not directly address the degenerative conditions in his
report. However, he did agree the disc herniations
were work-related—which Texas Mutual had never
disputed.
The adjuster then had a radiologist compare the
two MRIs. The radiologist noted there was only one
small change in one level of the multiple disc
herniations between 2003 and 2005. There was no
change in the disputed degenerative conditions.
On November 10, 2005, a Hearing Officer found
the compensable injury included the degenerative
conditions, finding the opinions of three of the doctors
more persuasive than the two believing the
degenerative conditions were not aggravated by the
compensable injury. In the meantime, a carrier RME
also concluded the degenerative conditions were not
related to the compensable injury. Nevertheless, the
appeals panel affirmed.
B. Judicial Review: Texas Mutual presented
evidence that five qualified physicians agreed with
and supported Dr. Tsourmas‘ conclusion the
degenerative conditions were pre-existing and not
aggravated by the compensable injury. The jury, 10-
2, found for the Claimant on the extent-of-injury
issue. The court of appeals affirmed, Texas Mutual
Ins. Co. v. Durst, No. 04-07-00862, 2009 WL 490056
(Tex. App.—San Antonio, February 25,
2009)(unreported).
C. The Bad Faith Claims: In the meantime, Durst
filed a bad faith suit against Texas Mutual and the
adjuster alleging that without a reasonable basis the
Carrier had denied timely payment of benefits and
continually denied payment of necessary medical
treatment. The Claimant states Chapt. 541 INS. CODE
and common law breach of good faith and fair dealing
causes of action. He claims damages for pain and
suffering, physical impairment, lost earnings, lost
earning capacity, lost credit and mental anguish. The
factual basis for the claims is that the surgeon delayed
the medically necessary surgery out of fear he would
not be paid for the fusion portion of the surgery.
The trial court granted Texas Mutual‘s motion
for summary judgment on the basis that the Carrier
had demonstrated the existence of conflicting medical
evidence (―a bona fide dispute‖) as to the extent-of-
injury issue. In such case, there could be no bad faith
as a matter of law. See Provident American Ins. Co.
v. Castaneda, 988 S.W.2d 189, 194 (Tex. 1998).
The Claimant argued at trial that Dr. Tsourmas‘
assessment of the extent-of- injury issue was
equivocal or a sham. Texas Mutual countered that
two other physicians had given similar opinions and
three had testified that Dr. Tsourmas‘ opinion was
Workers’ Compensation Bad Faith Chapter 16.1
15
reasonable, establishing a reasonable basis for the
Carrier‘s actions.
D. On Appeal, Claimant Argues: (1) the treating
doctor‘s testimony that the on-the-job incident
aggravated the pre-existing degenerative condition
raised a fact question; (2), that bad faith liability is
judged only by the facts before the carrier at the time
the claim is denied, citing Viles v. Security Nat. Ins.
Co., 788 S.W. 566, 567 (Tex. 1990); (3) a carrier is
required to prove that an asserted pre-existing
condition was the ―sole cause‖ of any disputed
conditions (i.e., the carrier must disprove the
possibility of an aggravation, citing Texas Mutual Ins.
Co., v. Morris, 287 S.W.3d 401, 415-16 (Tex. App.—
Houston[14th Dist.] 2009, pet. filed); (4) that bad faith
is inherently a fact question; (5) the trial court erred in
excluding the deposition testimony of the treating
doctor from a deposition taken in the judicial review
case in the underlying comp claim.
Texas Mutual responds: (1) the treating doctor‘s
testimony only demonstrated the existence of
conflicting medical opinion; (2) that the Viles standard
has been modified to include the evaluation of the
―facts existing at the time of the denial‖, citing
Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 340
(Tex. 1995) and Provident American Ins. Co. v.
Casteneda, 998 S.W.2d 189, 197 (Tex. 1998); (3)
―sole cause‖ has nothing to do with a bad faith
analysis, failing to prove ―sole cause‖ only would
create a fact question in the underlying claim, and
Morris is wrongly decided and contrary to existing
case law; (4) the exclusion of the deposition taken in
underlying comp case was not error, nor reversible
error as all it proved was that there was conflicting
evidence of the extent dispute.
In addition, Texas Mutual argues the judgment
would otherwise be supported by other grounds not
relied upon by the trial court: (1) Durst‘s claim of
damages does not comply with the ―separate injury‖
that is ―independent from‖ the compensable injury
requirement under Aranda, 748 S.W.2d 210; and (2)
Durst failed to exhaust his administrative remedies
designed to alleviate any delays occasioned by the on-
going dispute--meaning, the trial court had no subject
matter jurisdiction to award damages for such delay
under American Motorists Ins. Co. v. Fodge, 63
S.W.3d 801 (Tex. 2001) and In re Liberty Mut. Fire
Ins. Co., 295 S.W.3d 327 (Tex. 2009).
E. Issues: What are the evidentiary standards for
establishing a fact question in a claim for bad faith in
the workers‘ compensation context? What are an
appellate court‘s standards of review of a summary
judgment in a bad faith claim?
What administrative remedies must a bad faith
claimant exhaust to make a claim for delay of medical
treatment?
What damages arising from a delay in medical
treatment satisfy the separate and independent
requirements of Aranda?
Is it reversible error, in a bad faith claim, to
exclude deposition testimony of an expert witness
from the judicial review of the underlying workers‘
compensation case?
XI. Schwartz v. Insurance Co. of the State of Pa.,
274 S.W.3d 270 (Tex.App.—Houston [1st Dist.] 2009,
pet. denied)
A. Facts: Schwartz injured her right foot on
March 23, 2003. Her treating doctor, Dr. Denson
diagnosed a toe fracture and in July 2003 requested
preauthorization for surgery. This request was denied
on July 21, 2003, based on the recommendation of the
Carrier‘s utilization review agent. Dr. Denson
continued communications with the URA to attempt
to obtain approval. The record, however, did not
show that Dr. Denson requested reconsideration of the
denial within 15 days as required by the applicable
version of Rule 134.600. In October 2003, the Carrier
scheduled an independent evaluation with Dr.
Lamarra. Dr. Lamarra examined Schwartz on March
16, 2004, and indicated that he agreed with the need
for surgery and diagnosed a neuroma deformity.
Dr. Denson repeated his preauthorization request
in April 2004. Again, Carrier‘s URA denied
authorization. On April 26, 2004, however, the
Carrier‘s administrator overrode the denial and
authorized the surgery based on Dr. Lamarra‘s report.
Dr. Denson performed surgery on May 27, 2004. Dr.
Denson asserted that the delay in surgery had resulted
in the development of a more serious condition that
would require additional surgery. In 2005, Dr.
Denson performed a second surgery to address the
neuroma deformity.
On July 11, 2005, Schwartz sued the Carrier, its
TPA and the adjuster alleging damages from an
unreasonable delay in approval of foot surgery. The
trial court granted the defendants‘ plea to the
jurisdiction and dismissed the case, finding that
Schwartz had failed to exhaust her administrative
remedies. Schwartz appealed and contended that once
Carrier authorized surgery, no administrative remedy
remained available for her to exhaust and that she was
free to pursue this damages claim.
B. Holdings: Affirmed. The Court holds that
Schwartz's claims did not stem from the carrier's delay
or denial of benefits owed to Schwartz, but stem from
a medical necessity dispute arising from the initial
denial of preauthorization of her requested surgery.
Workers’ Compensation Bad Faith Chapter 16.1
16
The fact that the surgery was later authorized did not
constitute a determination that the initial denial was
improper. Accordingly, when Schwartz filed this suit
there remained a dispute for the Commission to
resolve.
The Court also found that Schwartz could not
cure this impediment to jurisdiction. Because Dr.
Denson had failed to timely request reconsideration of
the 2003 preauthorization denial, any administrative
review of that issue was barred. The trial court
properly dismissed the case.
C. Issues: What is the effect, if any, in a bad faith
delay of medical claim of a carrier‘s eventual
preauthorization of the subject medical service, where
the same medical service had previously been denied
and left unappealed?
XII. Cunningham Lindsey Claims Management,
Inc. v. Snyder, 291 S.W.3d 472 (Tex.App.—Houston
[14th Dist.] 2009, pet. filed)(No. 09-0875).
A. Facts: Snyder, a nurse with the self-Insured
Christus Health Gulf Coast, was injured on October 9,
2002, when a patient punched him on his right
collarbone. On December 19, 2002, an orthopedic
surgeon requested pre-authorization to perform spinal
surgery. Even though the injury and request appeared
related to the cervical region, the doctor‘s rationale
actually referred to a goal of resolving a lumbar
condition. The Self-insured‘s utilization review agent
denied preauthorization on lack of medically necessity
grounds. Neither the surgeon nor Snyder requested
reconsideration (timely or otherwise) of this denial.
About a week later, Self-insured filed a TWCC-
21 disputing the claim as a whole and also disputing
the extent of the injury. After a November 6, 2003,
contested case hearing, the hearing officer found that
the Self-insured had waived its right to dispute the
claim by not filing a dispute within 7 days of its first
written notice, that Snyder had been injured in the
course and scope of his employment, and that the
injury extended to a ―aggravation of the cervical area‖
at C5-6 and C6-7, ―and osteophytes associated with
these levels.‖ The Appeals Panel affirmed that
decision on February 4, 2004.
On April 14, 2004, a second request for pre-
authorization [a ―resubmission‖] was made for an
anterior C5-C6, C6-C7 discectomy, interbody fusion
and plate. The URA approved this initial
resubmission and the surgery was performed on April
27, 2004.
In September 2004, Snyder sued the Self-insured,
its third-party administrator and an individual adjuster,
alleging Insurance Code and DTPA violations (no
pleading of a common law bad faith claim). The Self-
insured settled prior to trial. At trial, a jury found
against the TPA and the adjuster and found damages
totaling $2,208,799 [$230,000 past physical pain and
suffering, $1.08 million future physical pain and
suffering, $540,000 future physical impairment,
$119,023 past loss of wage earning capacity,
$139,776 future loss of wage earning capacity,
$100,000 past mental anguish, $1.8 million (TPA
only) and $25,000 (adjuster only) punitive damages
for knowing violations, trial attorneys fees of
$185,000, and contingent appellate attorneys fees of
$66,000/$24,000/$24,000.] After settlement credits
and remittitur, the final judgment was $1,460,665.36,
plus attorneys fees and costs.
The TPA, Cunningham-Lindsey, appealed the
judgment and contended, in part, that the trial court
did not have jurisdiction.
B. Holdings: Judgment vacated and case
dismissed with prejudice. The Court holds that Snyder
failed to exhaust his administrative remedies. Snyder
attempted to characterize his injuries as resulting from
the wrongful compensability dispute for which he
exhausted his administrative remedies, but the Court
found his claims to be dependent on the determination
that he was entitled to pre-authorization of the surgery
in December 2002. Claimant‘s allegations were that
he sustained permanent damage and impairment due
to the delay in his surgery between December 2002
and April 2004.
It was undisputed that there was no request for
reconsideration of the December 2002
preauthorization denial or other pursuit of a ruling on
the medical necessity of the proposed procedure.
Because Snyder did not do so, the Court holds ―he
waived the argument that spinal surgery was
medically necessary in December 2002.‖
Snyder asserted that medical necessity was not in
dispute as the surgery was ultimately approved in
April 2004. This, the Court says, ignored two
undisputed facts: (1) The Claimant‘s initial request
for preauthorization for surgery was denied—a
determination that went unchallenged, and (2) the
surgery request that was eventually approved was a
―resubmission‖ under then rule 134.600(g)(4). Where
a party does not timely request reconsideration of a
denied pre-authorization or request an IRO review, the
same request for services may be resubmitted only on
evidence of a change in condition. Presumable the
April 14, 2004 surgery approval was based on such a
change—a worsening of Claimant‘s condition.
The Court holds that Snyder also incorrectly
asserted, that he could not have instituted medical
dispute resolution during the pendency of the
compensability dispute. The Court points out that the
medical dispute procedure and the compensability
dispute procedure remain separate. While a request
for IRO would have been held in abeyance until the
compensability and extent of injury dispute had been
Workers’ Compensation Bad Faith Chapter 16.1
17
resolved, a timely IRO request was still required to
preserve the medical necessity dispute. The Court
considers the Claimant‘s failure to act as an
abandonment of the dispute at that time.
The Court states that while it is true that there
was no medical necessity dispute by the time Snyder
filed this suit, ―the reason that there is no unresolved
dispute is because Snyder waived the right to dispute
[the URA‘s] determination that surgery was not
medically necessary in 2002.‖ Accordingly, he could
not re-litigate that issue in District Court and his claim
for damage resulting from the surgery delay was no
more viable if restated as bad faith.
Finding no other evidentiary basis in the record
to support the damage award—other than the delay
occasioned by the denial of preauthorization in
December 2002—and finding that that defect could
not be corrected, the Court vacated the trial court
judgment and dismissed the suit with prejudice.
C. Supreme Court Petition: The case is pending
petition for review in The Supreme Court of Texas as
of December 2009. Snyder now argues that it does not
matter if he failed to exhaust a remedy available at the
time of the initial dispute if that remedy was not
available by the time he filed the bad faith claim.
Snyder characterizes the court of appeal‘s exhaustion
requirement as a demanding an unavailable
retrospective determination of medical necessity. The
Carrier argues this can be characterized as
retrospective and unavailable only because the
Claimant failed to timely avail himself of the remedy
in the first place. Furthermore, a determination by the
Carrier in April 2004, based upon new medical
evidence and references only to the compensable
cervical injuries, cannot function as an admission the
surgery (the request for which referenced lumbar
diagnoses) should have been preauthorized in
December 2002.
The Carrier continues to assert as independent
grounds of dismissal the argument that the self-
insured is not ―engaged in the business of insurance‖
as required by former article 21.21 of the Insurance
Code, and that Snyder is not a consumer under the
DTPA.
D. Issues: Does the fact that a request for
preauthorization of a medical procedure (here,
surgery) was eventually authorized constitute a
determination by the DWC that an initial denial was
improper?
Was there some evidence of damages arising
from Defendants‘ actions other than from delayed
surgery; and therefore, within the trial court‘s
jurisdiction to award?
XIII. Stinson v. Insurance Co. of the State of
Pa., 286 S.W.3d 77 (Tex.App.—Houston [14th Dist.]
2009, pet. denied).
A. Facts: Stinson, a flight attendant, was injured
on December 16, 2003, when her airplane made a
sudden stop during taxiing causing her to fall
backwards. The Carrier accepted the claim and paid
TIBS for a two-week period in December 2003 and
lost time beginning again in May 2004.
After initial treatment in Honolulu, Claimant
returned home to Texas and began treatment with a
Dr. Turner in January 2004. Claimant was referred to
a chiropractor, Dr. Helton, who subsequently became
the treating doctor in April 2004. In May 2004,
cervical and lumbar x-rays and MRI were performed
and showed cervical spondylosis, cervical disc
protrusions, stenosis and annular tears, and lumbar
disc protrusions.
On June 30 2004, a consulting neurologist, Dr.
Tomaszek, evaluated Stinson and recommended
physical therapy. Dr. Helton testified that both he and
Dr. Tomaszek requested authorization for the physical
therapy and that a copy of Dr. Tomaszek‘s report was
faxed to the Carrier‘s third-party administrator. There
was a factual dispute as to whether these
communications constituted a request for pre-
authorization of physical therapy.
On July 1, 2004, a carrier required medical
examiner saw claimant and disagreed with the need
for physical therapy. The RME doctor indicates that
only home-based exercise was required. He also
addressed the extent of injury and describes the MRI
findings as preexisting degenerative disc disease. On
July 21st, Carrier filed a dispute stating, ―Carrier
disputes the cervical and lumbar degenerative
spondylosis as pre-existing and/or an ordinary disease
of life.‖ The Carrier, however, continued to pay
TIBS.
On August 24, 2004, a designated doctor found
that Claimant was not at MMI. On September 20th,
Commission appointed RME addressed the extent of
injury and the necessity of physical therapy. The
RME opined that Stinson‘s injuries from the fall
should have resolved and that the requested physical
therapy was not medically necessary. On September
23rd, Carrier filed a dispute stating: ―Based on
Commission RME there is no medical necessity for
chiropractic treatment, medications other that over-
the-counter NSAIDS, physical therapy, injection
treatment, pain management treatment, surgical
treatment, or further diagnostic imaging.‖ On October
19th, Carrier filed another dispute stating, ―Carrier
disputes that the compensable injury extends to and
includes cervical disc protrusions and/or herniations,
cervical radiculopathy, lumbar disc protrusions and/or
herniations and lumbar radiculopathy.‖
Workers’ Compensation Bad Faith Chapter 16.1
18
The Designated Doctor reexamined Claimant on
January 11, 2005, and disagreed with the findings of
the two RMEs. In February 2005, Carrier approved
and began payment for physical therapy treatments.
After a BRC of May 4, 2005, and a CCH on June 15,
2005, a decision and order was issued finding that the
December 16, 2003, injury extended to ―cervical disc
protrusions and/or herniations, cervical radiculopathy,
cervical degenerative spondylosis, lumbar disc
protrusions and/or herniations, lumbar radiculopathy,
and lumbar degenerative spondylosis.‖ That decision
became final without further appeal.
B. The Bad Faith Claim: In November 2005,
Stinson sued the Carrier, its TPA, and the adjuster
alleging Insurance Code violations, breach of the
common law duty of good faith and fair dealing, legal
malice, and violations of the DTPA. She alleged
damages resulting from the wrongful denial and delay
in medical benefits. The allegations focused on
physical therapy treatments and alleged that Carrier
wrongfully denied approval for physical therapy
between June 2004 and February 2005.
Carrier and the other defendants filed a motion to
dismiss the suit asserting that Stinson had failed to
exhaust her available administrative remedies as to the
medical necessity of these medical treatments.
Stinson responded asserting that her bad-faith claims
were predicated on the Carrier‘s unsuccessful
compensability challenge rather than on a medical
necessity dispute.
The trial court granted the motion to dismiss and
Stinson appealed. Stinson contended that
preauthorization had been requested by her treating
doctors and that Carrier had assented to the medical
necessity of the treatments when it began payment for
therapy in February 2005. Stinson argued that this left
compensability as the only disputed issue and that
there were no administrative remedies left to pursue
after that issue was resolved by the June 2005 CCH
decision.
C. Holdings: Reversed and remanded. The
court acknowledges that a disputed issue existed as to
whether there was a proper preauthorization request
for the physical therapy in 2004. Under the standard
of review of a summary judgment, the Court was
required to ―credit evidence favoring the non-movant
and draw all reasonable inferences in the non-
movant‘s favor.‖ Applying this standard, the court
finds sufficient evidence to demonstrate a proper pre-
authorization request occurred.
The Court notes that the record on appeal did not
contain any written denial of pre-authorization that
would start a timeline for medical dispute resolution.
The Court finds the case analogous to Ruttiger, in that
once the compensability dispute was resolved, ―there
is no indication that any dispute remained for
administrative resolution with respect to the medical
necessity of physical therapy after February 2005,
when the carrier assented to this treatment and began
paying for it.‖ The court holds,
―Medical necessity of physical therapy as of July
2003, when it was first requested, no longer was at
issue because the carrier did not send a written denial
in response to Stinson‘s pre-authorization requests.
There were no further administrative review
procedures for Stinson to exhaust as to that issue
because her obligations were keyed to the receipt of a
written pre-authorization denial that was not sent.
Medical necessity of physical therapy from February
2005 forward was no longer at issue in light of the
carrier‘s assent.‖
The court reversed the summary judgment and
remanded the case to the trial court.
D. Comment: The court of appeals believes that
Stinson had no administrative recourse if the Carrier
did not, in fact, respond in writing to the purported
preauthorization request; and therefore, the court had
subject matter jurisdiction. This is not accurate. The
case appears to be wrongly decided. The Stinson court
does not appear to have been made aware of the actual
agency practice and rules. The TWCC/DWC has
twice reminded participants that a carrier‘s failure to
respond within the three-day response time to an
initial request for preauthorization constitutes a de
facto denial, allowing the requestor to request
reconsideration--indeed, requiring the requestor to do
so if he/she wishes to pursue the issue. TWCC
Advisory 96-11 (June 29, 1996) and TWCC Advisory
2002-02 (January 29, 2002). See
http://www.tdi.state.tx.us/wc/news/advisories/index.ht
ml --link to advisories/bulletins. Likewise, a failure
by a carrier to respond to a request for reconsideration
within that five-day response time also constitutes a
de facto denial, allowing the requestor to request
dispute resolution (now through the Independent
Review Process). Id.
This policy makes perfect sense. To hold
otherwise, would allow a carrier to unilaterally and
indefinitely suspend the preauthorization process by
simply failing or refusing to respond to the request.
Then Rule 133.308(f)(3) provided a mechanism to
address the situation where the carrier might fail to
respond. If the carrier had failed to respond to a
request for reconsideration, the requestor could still
qualify for dispute resolution by simply providing
―convincing evidence of the carrier‘s receipt of that
request.‖ Rule 133.308(f)(3), 26 TEX. REG. 10934,
10968)(repealed, effective December 30, 2006). In
other words, a carrier‘s written response to a request
for preauthorization or reconsideration has never been
Workers’ Compensation Bad Faith Chapter 16.1
19
required for a claimant or healthcare provider to
initiate the dispute process.
E. Issues: Is the effect of the Stinson remand to
allow the jury in the bad faith case to determine the
medical necessity of the medical services the basis of
the delay claim? How does this conflict with the
Labor Code and DWC Rules which make clear that
medical necessity in a workers‘ compensation case is
never a jury issue? [cf. TEXAS LABOR CODE Section
413.031 and DWC Rule 133.308 which provided a
dispute resolution process distinct from benefits
issues, and one which was subject only to substantial
evidence review under TEX. GOV‘T CODE Chapt.
2001.].
Based upon DWC rules and policy, should the
Stinson court have dismissed Stinson‘s bad faith
claims for want of jurisdiction, based upon the failure
to exhaust her administrative remedies—the
availability of which had expired?
XIV. Gasch v. Hartford Acc. & Indem. Ins. Co.,
491 F.3d 278 (5th Cir. 2007).
A. Facts: Mr. Gasch was rendered a paraplegic
by a work-related injury in 1999. In 2003, Mr. Gasch
died as a result of a pulmonary embolism related to
the paraplegia. Hartford, the workers‘ compensation
carrier, initially disputed the claims of Mrs. Gasch and
a minor child for death benefits, asserting that the
death was the result of a myocardial infarction that
was unrelated to the 1999 injury. Frazier was the
adjuster handing the file at the time of the dispute.
Hartford later withdrew its dispute and paid death
benefits.
The Gaschs subsequently brought suit in state
court against Hartford and Frazier asserting that each
had violated the Texas common law duty of good faith
and fair dealing, the Texas Deceptive Trade Practices
Act, and Article 21.21 of the Texas Insurance Code.
Specifically, they alleged that the defendants had
wrongfully denied the death benefits even though
Hartford‘s liability was reasonably clear or had failed
to investigate the claim reasonably.
Hartford removed the case to Federal Court on
the basis of diversity jurisdiction. A case may be
removed to Federal Court based on diversity, only if
none of the properly joined defendants are citizens of
the state in which the action was brought. Frazier was
a citizen of Texas, but Hartford contended that she
was improperly joined. Hartford contended that none
of the causes of actions could be maintained against
Frazier as an individual.
The Federal District Court did not address
whether Frazier was a proper party or if the removal
was appropriate. Rather, the court granted a summary
judgment in favor of Hartford and Frazier, finding that
a reasonable jury could not find that either had failed
to investigate properly or that liability was clear at the
time of the dispute.
B. Holding: Vacated and remanded. The
Circuit Court addressed subject matter jurisdiction sua
sponte. To show that improper joinder of a resident
defendant, the removing defendant must show either:
(1) actual fraud in the pleading of jurisdictional facts,
or (2) inability of the plaintiff to establish a cause of
action against the non-diverse party.
Hartford had based it removal on an assertion
that the beneficiaries could not establish a colorable
claim against Frazier because an adjuster cannot be
held individually liable under Texas law. The Circuit
Court cites Liberty Mutual Ins. Co. v. Garrison
Contractors, Inc., 966 S.W.2d 482 (Tex. 1998), for its
holding that an insurer‘s employee who ―engage[s] in
the business of insurance‖ may be held individually
liable for violations of Article 21.21. That court noted
that ―an employee who has no responsibility for the
sale or servicing of insurance policies and no special
insurance expertise, such as a clerical worker or
janitor, does not engage in the business of insurance,‖
and would not be individually liable. A claims
adjuster, however, who was responsible for servicing
insurance policies would be ―engaged in the business
of insurance.‖ Accordingly, a potential claim would
exist under Article 21.21 against Frazier as an
individual.
The Circuit Court also states that Hartford‘s
reliance on Natividad v. Alexis, Inc., 875 S.W.2d 695
(Tex. 1994), to argue that a claim adjuster could not
be held liable for breach of the Carrier‘s non-
delegable duty of good faith and fair dealing,
overstates the Natividad holding. In that case, the
Carrier had contracted with a TPA, to provide all
services under the policy, which in turn contracted
with Alexis to provide claim-adjusting services.
Natividad held that because Alexis was not a party to
the workers‘ compensation policy contract, the
―special relationship‖ that gives rise to the duty of
good faith and fair dealing did not exist between
Natividad and Alexis. The Circuit Court holds that
while the Natividad holding insulated ―subcontracting
companies (and their agents)‖ from the duty of good
faith and fair dealing, it does not extend to agents of
the contracting carrier.
Finally, Hartford alleged that Frazier was not a
properly joined party because there was no evidence
of a viable claim against Frazier. The Circuit Court
relied on its holding in Smallwood v. Illinois Central
Railroad, Inc., 385 F.3d 568 (5th Cir. 2004). When
the only proffered justification for improper joinder is
that there is no reasonable basis for predicting
recovery against the in-state defendant and that
showing is equally dispositive of all defendants rather
Workers’ Compensation Bad Faith Chapter 16.1
20
than to the in-state defendants alone, there is no
improper joinder.
In this case, Hartford‘s arguments were an attack
on the merits of the claim as a whole, rather than an
inquiry as to the propriety of the joinder of Frazier.
Finding that no federal jurisdiction existed under
diversity, the Circuit Court vacated the judgment of
the district court and remanded the case with
instructions that it be remanded to state court.
C. Issues: Under what circumstances would a
federal court have diversity jurisdiction over a bad
faith claim arising from a Texas workers‘
compensation claim? Under what circumstances
would the joinder of agents, subcontractors, third-
party administrators or other vendors of an insurer be
improper and provide potential federal diversity
jurisdiction?
XV. In re Liberty Ins. Corp. and Michelle
Yaklin, 2010 WL 2795362, No. 14-10-00229-CV
(Tex. App.—Houston [14th Dist.], July 16, 2010, orig.
proceeding).
A. Facts: The Claimant sustained on-the-job
injuries to multiple body parts on June 18, 2008. The
Carrier accepted multiple contusions and bruises. An
MRI of the knee about a month later showed an
abnormal signal from the medial meniscus—possibly
due to post-operative changes and/or complex
tearing—along with chondromalacia. On September
30, 2008, the Claimant‘s surgeon requested
preauthorization for a knee arthroscopy. The Carrier‘s
utilization review agent (URA) denied the request on
medical necessity grounds and also questioned
whether the knee condition was related to the
compensable injury. No one requested a timely
reconsideration of that adverse determination.
In October 2008, the Carrier‘s analysis to a
designated doctor indicated the issues for
determination were MMI, impairment, extent of injury
and return to work. It also stated the injury was a slip
and fall, with the Claimant landing on her left knee
and face, injuries were limited to strain/sprains, and
denying aggravation of pre-existing conditions to the
left knee, right hip and back. The designated doctor
found the compensable injury included, among other
conditions, aggravation of various pre-
existing/degenerative conditions in multiple levels of
the spine and internal derangement of the left knee.
In January 2009, the treating doctor requested a
second opinion regarding knee surgery. That second
opinion doctor declined to recommend surgery at the
time. A BRC later that month pushed forward issues
of extent of injury and waiver of right to dispute
extent. On February 4, 2009, the Carrier amended its
dispute to maintain its position the spinal injuries were
limited to sprain/strains, but to now accept
aggravation of the chondromalacia and medial
meniscus tear.
The treating doctor again requested
preauthorization for the knee surgery—in effect, a
―resubmission‖ under 28 TEX. ADMIN. CODE §
134.600(o)(4). The Carrier‘s utilization review agent
approved the request.
An April 6, 2009, Hearing Officer‘s Decision and
Order found the compensable injury included, among
other conditions, the degenerative spine and left knee
conditions, and that the Carrier had waived its right to
dispute the extent of injury. In August 2009, Claimant
filed a bad faith claim based upon the denial/delay of
payment of benefits after being ordered to pay by the
DWC and following the September 30, 2008 denial of
preauthorization of the knee surgery. The Carrier
filed a plea to the jurisdiction based upon failure to
exhaust administrative remedies, which was denied by
the trial court. The Carrier then filed this petition for
mandamus.
B. Holdings: The court first acknowledges that
the failure to grant a plea to the jurisdiction for failure
to exhaust administrative remedies with the DWC is
subject to mandamus review in order to prevent the
disruption of the orderly processes of government,
citing In re Liberty Mut. Fire Ins. Co., 295 S.W.3d
327, 328 (Tex. 2009)(orig. proceeding)(per curiam).
The court reasoned that the DWC is vested with
exclusive jurisdiction to determine a claimant‘s
entitlement to medical benefits, requiring a claimant
to exhaust all administrative remedies before seeking
judicial review of the agency‘s action. That would
include a review of the propriety of the carrier‘s
actions by way of a bad faith claim. The court rejects
Claimant‘s claim that the CCH decision was a final
determination that constituted an exhaustion of
remedies. The court notes the CCH decision dealt
with extent of injury issues and did not constitute a
determination of entitlement to medical benefits. The
reference in the CCH Decision and Order to the
Carrier‘s general obligation to pay all medical benefits
in accordance with the decision did not constitute a
decision of entitlement to any specific medical
benefits. As the Claimant had not pointed out any
medical benefits that had been ordered and denied, she
was bound to obtain a determination of entitlement to
a specific medical benefit before bringing this lawsuit.
The court also rejected Claimant‘s claim that the
eventual approval of the knee surgery left no
administrative remedy for Claimant to exhaust.
Claimant‘s reliance on TEX. LABOR CODE §
413.014(f) is misplaced. That Code section only
allows a carrier to voluntarily certify/agree that it will
pay for health care the subject of the agreement. That
section of the Code simply did not apply to this
Workers’ Compensation Bad Faith Chapter 16.1
21
situation, where the Claimant had appropriately
invoked the initial preauthorization process.
The court also rejects Claimant‘s contention the
later approval of surgery left no administrative remedy
to exhaust. The court holds Claimant was required to
show she had exhausted her administrative remedies
as it related to the September 30, 2008
preauthorization request. The later request for the
knee surgery was a resubmission. The URA review
and approval at that later date [itself requiring an
initial showing of material change of condition since
the September 30, 2008 request—per 28 TEX. ADMIN.
CODE § 134.600(o)(4)] did not constitute an
agreement or determination that the surgery was
medically necessary when originally requested.
The court rejects the contention the case should
be remanded based upon Stinson v. Ins. Co. of the
State of Pa., 286 S.W.3d 77, 83 (Tex. App—Houston
[14th Dist.] 2009, pet. denied)(op. on reh‘g). In that
case, the 14th Court of Appeals refused to dismiss the
case on exhaustion grounds, remanding back to the
trial court. The basis of that decision was there was
no evidence the carrier had denied the claimant‘s
request for preauthorization in writing, which
presumably meant there were no reconsideration
deadlines for Stinson to meet, and therefore, no
administrative review procedures available. [Note:
Unfortunately, the court repeats its incorrect
assumption from that case that Stinson had no
administrative recourse of the carrier‘s purported non-
response to the request for preauthorization. See
Stinson discussion, supra Section XIII.D. at 19.]
Nevertheless, the court distinguishes the present case
by noting the Carrier did respond in writing to the
initial preauthorization request, and neither the health
care provider nor the Claimant requested
reconsideration.
The court finally concludes the trial court did not
have subject matter jurisdiction. Since the
impediment to jurisdiction could not be removed, the
trial court is ordered to grant the plea to the
jurisdiction and dismiss the lawsuit.
C. Issues: Can a claimant rely upon the fact there
are no administrative remedies available to him/her at
the time of the initiation of the bad faith claim to
satisfy exhaustion requirements? Can the carrier and
courts rely upon a claimant‘s failures to pursue
administrative remedies at the time of the underlying
dispute to establish a failure to exhaust administrative
remedies?
Under what circumstances, if any, can a DWC
determination or an agreement regarding
compensability, liability or extent of injury, or a
carrier‘s agreement to pay for medical expenses under
Labor Code § 413.014(f), constitute a ―determination‖
regarding medical benefits under Fodge and sons?
In what ways, if any, can a URA‘s subsequent
determination of medical necessity constitute evidence
a previous adverse determination by that URA was
incorrect, wrongful, or even imputed to the carrier for
purposes of establishing a bad faith claim?
XVI. In re Texas Mutual Ins. Co., 2010 WL
2893300, No. 14-10-00104-CV (Tex. App.—Houston
[14th
Dist.], July 26, 2010, orig. proceeding).
A. Facts: The Claimant was injured on November
30, 2006, injuring his neck, low back and right elbow.
Texas Mutual accepted the claim and began paying
benefits. Following a January 2007 MRI that
described findings of degenerative changes resulting
in stenosis, Texas Mutual filed a PLN-11 challenging
the compensability of the degenerative conditions,
limiting the compensable injury to lumbar, cervical,
shoulder and elbow strains. The Carrier continued to
pay benefits during the pendency of the extent dispute.
The Claimant‘s surgeon noted he would not
proceed until the extent issue was resolved. In an
April 4, 2007 letter, he stated he believed the on-the-
job injury exacerbated Claimant‘s pre-existing
degenerative cervical conditions. Apparently in
response to the letter, the adjuster made a notation in
her notes that the extent dispute would/should be
dropped. The Carrier, however, made the decision to
continue the dispute through the dispute resolution
process.
On September 6, 2007, a designated doctor
opined that the compensable injury extended to the
degenerative cervical conditions. A carrier RME of
October 9, 2007, opined the degenerative changes
were not ―enhanced, accelerated or worsened‖ by the
compensable injury. On February 26, 2008, a hearing
officer issued a decision that the compensable injury
included certain cervical degenerative conditions. As
usual, the Carrier was ordered to pay benefits in
accordance with the decision. There is no mention of
any pending medical necessity issues considered by
the hearing officer, nor findings regarding medical
necessity.
On April 22, 2008, Claimant‘s surgeon requested
preauthorization for a two-level cervical discectomy
and fusion. The Carrier‘s utilization review agent
(URA) issued an adverse determination. There was
no timely request for reconsideration under TEX. INS.
CODE § 1305.354 (regarding reconsideration requests
in network claims). On July 11, 2008, the surgeon
again requested preauthorization for a two-level
cervical fusion; and again an adverse determination
was issued by the URA. And again, no
reconsideration was requested. Instead, the surgeon
requested a review by an independent review
organization (IRO). The URA properly returned the
request as no timely request for reconsideration had
Workers’ Compensation Bad Faith Chapter 16.1
22
been filed with the URA. On September 17, 2008,
Claimant‘s new surgeon requested preauthorization
for a one-level fusion, which the URA approved. The
approved surgery was performed on October 3, 2008.
On October 14, 2008, Claimant sued Texas
Mutual alleging an improper investigation and
wrongful extent of injury dispute delayed necessary
surgery between January 2007 and February 2008.
Claimant disclaimed any intent to sue over the
medical necessity dispute. Texas Mutual responded
with a plea to the jurisdiction, asserting the trial court
had no subject matter jurisdiction as Claimant had not
exhausted his administrative remedies. The trial court
denied the plea. Texas Mutual then filed this petition
for writ of mandamus.
B. Holdings: The 14th Court of Appeals grants
Texas Mutual‘s petition. The court first notes that
pleas to the jurisdiction based upon failure to exhaust
administrative remedies are reviewable by mandamus.
In re Libery Mut. Fire Ins. Co., 295 S.W.3d 327, 328
(Tex. 2009)(orig. proceeding). This is based upon the
underlying premise that where an agency has been
given exclusive jurisdiction to resolve a dispute, a
party must first exhaust all administrative remedies
before a trial court has subject matter jurisdiction.
O’Neal v. Ector County Indep. Sch. Dist., 251 S.W.3d
50,51 (Tex. 2008)(orig. proceeding); Suburu of Am.
Inc. v. David McDavid Nissan, Inc, 84, S.W.3d 212,
222 (Tex. 2002); Am. Motorists Ins. Co. v. Fodge, 63
S.W.3d 801, 802-04 (Tex. 2001); Saenz v. Fidelity &
Guar. Ins. Underwriters, 925 S.W.2d 607, 612 (Tex.
1996).
The court rejects Claimant‘s assertion he did
exhaust his administrative remedies by obtaining a
ruling on the extent of injury dispute. Disputes of
extent of injury and medical necessity are recognized
as entirely different disputes involving separate
procedures. Even preauthorization of a procedure
does not bar an extent of injury dispute related to that
approved procedure. Likewise, a determination of
extent of injury does not address the medical necessity
of a particular medical service. See Preamble, 28
TEX. ADMIN. CODE § 134.600(d), 25 TEX.REG. at
2101.
The court likens the present case to the
circumstances in Cunningham Lindsey Claims Mgmt.,
Inc. v. Snyder, 291 S.W.3d 472 (Tex. App.—Houston
[14th Dist] 2009, pet. filed). There, the claimant had
exhausted his administrative remedies as to a
compensability/extent of injury dispute. However, the
court held the claimant had not exhausted his
administrative remedies related to entitlement to
surgery at the time of the medical necessity dispute
and during the delay period the basis of the bad faith
claim. Id. at 478-9.
The court again distinguishes its reversal of a
granting of the carrier‘s plea to the jurisdiction in
Stinson v. Ins. Co. of the State of Pa, 286 S.W.3d 77,
83 (Tex. App.—Houston [14th] 2009, pet. denied)(op.
on reh‘g). In Stinson, the court notes, the carrier had
never responded in writing to the request for
preauthorization. Accordingly, there was purportedly
no administrative remedy to exhaust. [As noted supra
in Sections XIII.D. at 19 and XV.B at 22, this
distinction is erroneous as Stinson did, in fact, have an
administrative remedy following the carrier‘s
purported non-response to a request for
preauthorization.] Nevertheless, that observation does
not alter the rationale of this court‘s refusal to rely
upon Stinson. The court also notes that the DWC rule
in effect in Stinson required that medical necessity
disputes be abated during the pendency of any
compensability, liability or extent of injury dispute;
but that, that rule was no longer in effect for this
claim.
The court also rejects Claimant‘s assertion the
eventual preauthorization of the one-level fusion in
October 2008 relieved Claimant of the exhaustion
requirement. The court reasons that the Claimant
cannot seek damages for an asserted treatment delay
between January 2007 and February 2008 without a
determination by the DWC that he was entitled to the
two-level fusion proposed during that period. The
Carrier‘s approval of the one-level fusion does not
constitute an agreement by the Carrier that its earlier
denial was wrongful. [Note: This discussion is in
terms of the ―carrier‘s‖ denial of preauthorization.
There is no discussion of the impact, if any, of the fact
medical necessity was determined by a separately
licensed URA, regulated by the Texas Department of
Insurance under the Texas Insurance Code and in the
context of a health care network claim.]
As Claimant‘s entitlement to a two-level cervical
fusion between January 2007 and February 2008 has
never been presented to or determined by the DWC,
the Claimant has failed to exhaust his administrative
remedies as to entitlement to benefits the denial/delay
of which are the basis of his bad faith claim. As this
impediment to subject matter jurisdiction may not
now be remedied, abatement is not proper. The court
orders the trial court to grant Texas Mutual‘s plea to
the jurisdiction and to dismiss the case.
C. Issues: Under what circumstances, if any, may
the fact finder in a bad faith case be allowed to, in the
absence of a DWC prior determination, make findings
of facts on compensability, liability, extent of injury,
medical fee disputes or medical necessity issues in the
underlying workers‘ compensation claim? Can the
fact finder in a bad faith claim make factual findings
in conflict with fact findings in the underlying
workers‘ compensation claim?
Workers’ Compensation Bad Faith Chapter 16.1
23
Does the fact this was a health care network
claim change the court‘s exhaustion analysis in any
way?
What effect, if any, does the abatement of
medical necessity disputes under former DWC Rule
133.308(f)(7)(26 TEX.REG. 10934)(effective January
2, 2002 through December 30, 2006) have on an
exhaustion analysis?
THE END