SNR Denton on Texas Mutual Insurance Co. v. Ruttiger: Texas Limits Extracontractual Claims Regarding Workers Compensation Benefits

SNR Denton on Texas Mutual Insurance Co. v. Ruttiger: Texas Limits Extracontractual Claims Regarding Workers Compensation Benefits

William Barker   By William T. Barker, Partner, SNR Denton

In Texas Mutual Insurance Co. v. Ruttiger,[1] the Texas Supreme Court limited the estracontractual claims available to injured workers regarding payment of workers compensation benefits and foreshadowed the likely elimination of those remedies.  This commentary examines the impact and implications of that decision.

The commentary summarizes the case as follows:

In 1987-88, the Texas Supreme Court held that injured workers could sue workers compensation insurers for extracontractual damages for improper handling of their claims under both the Texas Insurance Code and the common law of insurance bad faith.  In 1989, the Texas legislature enacted major amendments to the Workers Compensation Act ("Act").  Ruttiger presented the question whether the amendments to the Act called for limiting or elimination of remedies other than those provided by the Act.  By a vote of 6-3, the court held that injured workers could no longer sue under claim-handling provisions of the Insurance Code.  Two members of the majority were not prepared to pass on whether common-law claims were also precluded, because that had not been addressed by the court of appeals, leaving the rest of the court split 4-3 on that issue.  Accordingly, all of the majority justices agreed to remand that issue to the court of appeals.

These questions arose from the following facts.  On June 21, 2004, Ruttiger reported having suffered an injury while carrying pipe on the job.  TMIC began paying benefits while it investigated, but received information suggesting that Ruttiger had suffered his injury while playing softball.  On July 12, 2004, TMIC notified Ruttiger that it was denying the claim and that he was entitled to a Benefit Review Conference ("BRC") to address the denial.  Ruttiger promptly retained counsel, who, on Oct. 22, 2004, requested a BRC.  Due to an error by the Workers Compensation Division ("WCD"), the BRC was not held until six months after the reported injury.  Ruttiger and TMIC entered into an agreement that Ruttiger had suffered a compensable injury on June 21 but had not suffered disability until August 23; TMIC paid benefits for past periods of disability, resumed disability payments, and paid for hernia surgery.  Ruttiger reached maximum medical improvement on August 1, 2005 and was assigned a 1% disability rating.[2]

On June 16, 2005, Ruttiger filed suit against TMIC, alleging that its conduct before the TMIC was improper and damaged his credit, worsened his hernias, and caused mental anguish, physical impairment, and pain.  A jury agreed and awarded damages.

The commentary describes the significance of the court's holding as follows:

Even if the action for common law bad faith remains available, elimination of the Insurance Code remedies will be highly significant.  In an action under the Insurance Code, a prevailing plaintiff may recover actual damages and attorneys' fees; if the trier of fact finds "that the defendant knowingly committed the act complained of, the trier of fact may award an amount not to exceed three times the amount of actual damages." "'Knowingly' means actual awareness of the falsity, unfairness, or deceptiveness of the act or practice on which a claim for damages ... is based. Actual awareness may be inferred if objective manifestations indicate that a person acted with actual awareness."  Elimination of attorneys' fee awards and multiple damages will significantly reduce insurer liability in workers compensation cases.

But the important question remains whether claims for common-law bad faith in Texas workers compensation matters will survive once that question is addressed on its merits.  The commentary concludes by analyzing that issue.

[1] Tex. Mut. Ins. Co. v. Ruttiger, 2011 Tex. LEXIS 600 (August 26, 2011).

[2] 2011 Tex. LEXIS 600, at *3-8.

William T. Barker is a partner in the Chicago office of SNR Denton, L.L.P., with a nationwide practice representing insurers in complex litigation, including matters relating to coverage, claims handling, sales practices, risk classification and selection, agent relationships, and regulatory matters. He is a member of the Editorial Board of the New Appleman on Insurance Law Library Edition and a Consulting Author of the New Appleman Insurance Law Practice Guide. He has published over 100 articles and speaks frequently on insurance and litigation subjects. He was a Contributing Editor and then Editor of Bad Faith Law Report until that publication merged with Insurance Litigation Reporter, where he is currently Senior Contributing Editor and Editorial Board Director. He has been described as the leading lawyer commentator on the connections between procedure and insurance. See Charles Silver & Kent Syverud, The Professional Responsibilities of Insurance Defense Lawyers, 45 Duke L.J. 255, 257 n.4 (1995). Mr. Barker is a member of the American Law Institute. Mr. Barker is the co- author of New Appleman Insurance Bad Faith Litigation, Second Edition.

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