Texas S.Ct.: Workers Comp Carriers Not Subject to Statutory Unfair Claims Settlement Practices Claims

In a ground-breaking decision, the Texas Supreme Court today decided that workers compensation insurers are not subject to "bad faith" claims for unfair claims settlement practices under the Texas Insurance Code.

The court states in the attached opinion, "We conclude that (1) claims against workers’ compensation insurers for unfair settlement practices may not be made under the Insurance Code, but (2) claims under the Insurance Code may be made against those insurers for misrepresenting provisions of their policies, although in this case there was no evidence the insurer did so."

Ruttinger involved an investigation by a carrier that failed to follow what the adjuster admitted was a standard investigation. At trial, the adjuster admitted that he did not interview the claimant or his doctor, only the employer. The adjuster also admitted that he should have interviewed all three. The jury found that the carrier violated the Texas Insurance Code by failing to conduct a reasonable investigation. It also found a "knowing" violation, leading to trebling of damages.

The court fractured on section 5 of the opinion receiving 4 votes and 3 dissents. The other sections received 5 votes and 3 dissents. There were 2 justices who concurred.

The majority would have overruled Aranda in section 5 of the opinion. Stating that "The [Workers Compensation] Act effectively eliminates the need for a judicially imposed cause of action outside the administrative processes and other remedies in the Act. Recognizing and respecting the Legislature’s prime position in enacting, studying, analyzing, and reforming the system, and its efforts in having done that, I conclude that Aranda should be overruled." Aranda created a cause of action for breach of the duty of good faith and fair dealing between insurers and policyholders. Aranda itself was a workers compensation decision, and the cause of action has since expanded to other insurance policies in Texas.

This opinion by the Texas Supreme Court will have far-reaching effects in Texas as the success of Ruttinger was followed by a flood of bad faith workers compensation lawsuits.

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