Texas Supreme Court Virtually Eliminates Workers' Compensation Bad Faith
In the original Texas Mutual Insurance Co. v. Timothy J. Ruttiger, --- S.W. ---, 2011 WL 3796353 (Tex. Aug. 26, 2011) opinion, the Texas Supreme Court held that workers’ compensation claimants may no longer bring claims against workers’ compensation insurers for unfair settlement practices under section 541.060 of the Insurance Code, or claims for failing to adopt and implement reasonable standards for investigation of claims under section 542.003 of the Insurance Code. The court further held that claimants can no longer bring DTPA claims that are based on the claimant’s Insurance Code claims, but did not address whether a worker can pursue a DTPA claim not based upon an Insurance Code claim. The court allowed one Insurance Code claim to survive, holding that workers can still pursue claims against insurers under the Insurance Code for misrepresenting provisions of their policies under section 541.061 of the Insurance Code. Finally, the majority indicated that Aranda v. Insurance Company of North America, 748 S.W.2d 210 (Tex. 1988), which extended the common law action for breach of the duty of good faith and fair dealing to the workers’ compensation system, should be overruled. However, the court concluded that, since the viability of the common law claim had not been addressed at the court of appeals, that issue should be remanded.
On June 22, 2012, the supreme court issued a new opinion in Ruttiger, maintaining its original rulings as to the statutory bad faith causes of action, but also holding that Aranda should be overruled. Accordingly, workers can no longer pursue a claim for breach of the common law duty of good faith and fair dealing against a workers’ compensation insurer. In a 5-4 decision, the court relied largely on the 1989 amendments to the Workers’ Compensation Act which included major reforms consisting of the manner of calculation of benefits, the amount of available benefits, a detailed four-tier dispute resolution scheme, the availability of an ombudsman to assist workers through the claim process, and the addition of sanctions against insurers for violations of the Act. The court reasoned that the changes to the administrative framework resulting from the 1989 amendments had rectified earlier “deficiencies” in the Act which had lead to the extension of Aranda to the workers’ compensation system.
In discussing whether the Legislature intended to abrogate the common law duty of good faith and fair dealing when it enacted the 1989 amendments, the court noted that the common law cause of action is often in “tension” with the “goals and processes” of the Act, “build[ing] additional costs into the system by increasing litigation expense to employees, insurers and employers.” Concluding that the Act “effectively eliminates the need for a judicially imposed cause of action outside the administrative processes and other remedies in the Act,” the court found that it was their “prerogative and responsibility to recognize if the cause of action is no longer appropriate.”
Based upon the new Ruttiger opinion, a claim for misrepresentation of the terms of the workers’ compensation insurance policy under section 541.061 of the Insurance Code may be the only “bad faith” cause of action that a worker can now pursue against a workers’ compensation insurer. In most cases, it should be very difficult for a worker to carry the burden to show that an insurer has misrepresented the terms of the insurance policy, as opposed to a misrepresentation of coverage for a claim. Workers may now turn their focus to pursuing a claim for “unconscionability” under the DTPA against workers’ compensation insurers, as that issue was not addressed by the Ruttiger court. However, the current state of the law suggests that workers should not have standing to pursue such a claim.