Hunton Employment & Labor Perspectives

The Texas Supreme Court officially closed the door on the ability of workers’ compensation claimants to seek supplemental relief under the Texas Insurance Code.  In Texas Mutual Ins. Co. v. Ruttiger, --- S.W.3d ---, No. 08-751 (Tex. Aug. 26, 2011), the Court held that the Texas Workers’ Compensation Act (“Act”) preempts claims against workers’ compensation insurers for unfair or “bad faith” settlement practices under the Texas Insurance Code. 

Plaintiff Timothy Ruttiger sued his employer’s workers’ compensation carrier, Texas Mutual Insurance Company (“TMIC”), after they denied his claim for hernia surgery because they determined Ruttiger’s injury occurred while he was playing softball rather than in the course of his employment.  Although Ruttiger quickly retained an attorney after being notified of the denial, he waited another three months before requesting a Benefit Review Conference with the Texas Department of Insurance.  During the BRC,  the parties entered into a benefit dispute agreement where TMIC agreed to pay Ruttiger’s temporary income benefits along with his surgery and other medical expenses. 

Despite the agreement, however, Ruttiger sued TMIC for violating Article 21.21 (now contained in Insurance Code Chapter 541) and violations of the Deceptive Trade Practices Act.  Ruttiger also asserted a common law claim for violation of the duty of good faith and fair dealing under Aranda v. Insurance Co. of North America, 748 S.W.2d 210 (Tex. 1988).  At trial, the jury found for Ruttiger on all claims.  The First Court of Appeals affirmed the trial court’s judgment as to Ruttiger’s recovery under the Insurance Code, but did not address Ruttiger’s common law bad faith claims. 

In reversing the Court of Appeals, Justice Phil Johnson went through a detailed analysis of the Act’s requirements on workers’ compensation carriers when contesting claims, along with the significant administrative penalties carriers face for failing to comply with those requirements.  The Court specifically noted that allowing claimants to pursue claims under the Insurance Code would reward an employee who delays utilizing the Act’s dispute resolution procedures and “would be inconsistent with the structure and detailed process” of the Act.

With regard to Ruttiger’s common law bad faith claim, the Court analyzed Aranda and determined that the deficiencies addressed by Aranda no longer existed in light of the substantially revised Act.  The Court found that the Legislature explicitly addressed these deficiencies in the revised Act by reducing the amount of time for carriers to file a notice of dispute or start paying benefits, granting administrative penalties against carriers who fail to follow the Act’s procedures, providing a meaningful, binding administrative dispute resolution process, creating the Office of Injured Employee Counsel, and placing limitations on settlements of claims.  Specifically, the Court stated that “[t]he Aranda cause of action operates outside the administrative processes and other remedies in the Act and is in tension with--and in many instances works in direct opposition to--the Act’s goals and processes.”  The Court went on to state that “[i]t was the Court’s prerogative to recognize the need for and extend [the] extra-contractual common law cause of action when it decided Aranda; it is the Court’s prerogative and responsibility to recognize if the cause of action is no longer appropriate.”  Although the Court expressed the clear opinion that Texas should join the majority of other states in finding that common law actions for bad faith are preempted by the Act, the Court ultimately remanded Ruttiger’s case to the Court of Appeals to address the issue.

Texas Mutual v. Ruttiger further solidifies the all-encompassing nature of the Workers’ Compensation Act in Texas.  The decision shields workers’ compensation carriers from additional liability under the Insurance Code and provides them with greater predictability in litigating suits against workers’ comp claimants.