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Texas Supreme Court Severely Cuts Back Workers' Compensation Bad Faith
08.29.11

In Texas Mutual Insurance Co. v. Timothy J. Ruttiger, the Texas Supreme Court held that claims against workers’ compensation insurers for unfair settlement practices may not be made under the Insurance Code, and thus eliminating DTPA claims arising under the Insurance Code as well. However, workers can still pursue claims against insurers under the Insurance Code for misrepresenting provisions of their policies. Additionally, seven members of the Court would consider whether Aranda—case extending the common law action for breach of the duty of good faith and fair dealing to the workers’ compensation system—should be overruled. Four justices would hold that Aranda should be overruled while three would not.

The Court first addressed Texas Mutual’s jurisdictional argument, relying on American Motorists Ins. Co. v. Fodge, 63 S.W.3d 801 (Tex. 2001), that a trial court lacks jurisdiction over a workers’ compensation claims-handling suit unless the DWC had determined that the worker is entitled to specific benefits wrongly denied or delayed. Because Ruttiger entered into a benefit dispute agreement addressing his entitlement to both income and medical benefits, unlike in Fodge, Ruttiger exhausted his administrative remedies and the Court held that the trial court had jurisdiction over his suit.

With regard to Ruttiger’s Chapter 541.060 Insurance Code claim for unfair settlement practices and his section 542.003 claim, the Court held that allowing workers’ compensation claimants to bring causes of action for unfair settlement practices under the Insurance Code would significantly undermine the Workers’ Compensation Act (“Act”) which has carefully constructed rights, remedies and procedures. The Court drew on its 2008 decision in City of Waco v. Lopez, 259 S.W.3d 147 which analyzed the relationship between a general statutory cause of action and one in which the statute had a more detailed, specific claims resolution process. The Court held in Lopez, as it did in Ruttiger, that when more than one statute could provide a remedy, the more detailed, specific statute governs. However, the Court did hold that claims under section 541.061 for misrepresentation of an insurance policy are not at odds with the dispute resolution process of the workers’ compensation system because section 541.061 does not specify that it applies in the context of settling claims. With respect to Ruttiger’s DTPA claim, the Court held that because the Insurance Code claims failed and the DTPA claim was dependent upon the Insurance Code claims, he could not recover on his DTPA claim.

Finally, for reasons similar to the Court’s analysis and finding that workers’ compensation claimants cannot bring Insurance Code claims for unfair settlement practices, four of the Justices agreed that claimants should no longer be allowed to pursue a common law claim for breach of the duty of good faith and fair dealing. The Court would overrule Aranda because the amendments to the Act adequately addressed all of the original reasons Aranda extended the cause of action for breach of the duty of good faith and fair dealing onto the workers’ compensation system. However, the Court declined to overrule Aranda and definitively rule on this issue because the court of appeals had not addressed that claim. The Court remanded that issue back to the Houston First District Court of Appeals for further proceedings.

To see the Majority Opinion, click here.

To see Justice Willet's Concurrence, click here.

To see Justice Jefferson's Dissent, click here.