The Texas Supreme Court Grants Rehearing in Ruttiger

By Nicholas Canaday, III, Shareholder, Downs Stanford, P.C.

Re: Texas Mutual Insurance Co. v. Ruttiger, 265 S.W.3d 651 (Tex.App.-Houston [1st Dist.] Jul 31, 2008) (NO. 01-06-00897-CV), review granted (Mar 12, 2010); Judgment Reversed, in part; Rehearing Granted (Feb. 17, 2012).

Synopsis:

On August 26, 2011, the Supreme Court of Texas issued its long-anticipated opinion in Texas Mutual Insurance Co. v. Ruttiger (2011 Tex. LEXIS 600).  A divided Court held that some - but not all - "bad faith" claims based upon alleged violations of the Insurance Code are "at odds with" the workers' compensation system and, thus, may not be presented to, or considered by, the district courts.  Importantly, Ruttiger's common law good faith and fair dealing claims were not addressed by the Court on the merits.  Instead, these claims were remanded to the Houston Court of Appeals for further consideration.

Both sides promptly requested rehearing.

Through order dated February 17, 2012, the Supreme Court of Texas granted both motions for rehearing, suggesting that the Court will reconsider fully the question whether the 1989 overhaul of the Texas workers' compensation system "eliminated the need for" a common law cause of action for breach of the duty of good faith and fair dealing.

The Underlying Facts

On June 21, 2004, Ruttiger reported that he had been injured while working on the job.  Shortly thereafter, he was diagnosed with bilateral hernias.  The Carrier, Texas Mutual Insurance Company "TMIC" received timely notice and initiated its investigation.  Several weeks later, TMIC filed a notice of dispute and discontinued payment of income benefits.

A Benefit Review Conference was held on January 6, 2005; at which time Ruttiger and TMIC entered into a Benefit Dispute Agreement.  It was agreed that Ruttiger had suffered a compensable injury on June 21, 2004 and that he had an ongoing disability.  Following the BRC, TMIC initiated payment of Temporary Income Benefits and paid for surgery and other medical expenses related to hernias.

On June 16, 2005, Ruttiger filed a "bad faith" suit alleging violations of (1) the Insurance Code; (2) the Deceptive Trade Practices Act (DTPA); and (3) the common law duty of good faith and fair dealing.  At trial, the jury found in favor of Ruttiger and awarded substantial damages for physical, economic, and emotional harm.  The trial judge then rendered judgment based on the Insurance Code claims; declaring further that if the Insurance Code theory of liability failed on appeal, Ruttiger could recover damages under the common law and the DTPA. Thereafter, TMIC appealed.

The Houston Court of Appeals affirmed the trial court's judgment to allow Ruttiger recovery under the Insurance Code theory of liability.  The Texas Supreme Court granted TMIC's Petition for Review.

Issues Presented to the Supreme Court of Texas

Three core issues were considered by the Texas Supreme Court:

(1)  Whether the trial court lacked jurisdiction to award bad faith damages because Ruttiger did not exhaust his administrative remedies;

(2) Whether - as a matter of law - any of Ruttiger's Insurance Code causes of action could be brought against a workers' compensation insurer; and

(3) Whether - as a matter of law - a compensation claimant may file suit against the workers' compensation carrier to allege a breach of the common law duty of good faith and fair dealing.

The Texas Supreme Court's Initial Rulings

(A) The Texas Supreme Court rejected TMIC's argument that Ruttiger had failed to exhaust administrative remedies.

(B) The Texas Supreme Court rejected Ruttiger's argument that TMIC had failed to preserve error.

(C) Some, but not all, of Ruttiger's Insurance Code claims were dismissed as a matter of law.

(D) Ruttiger's Deceptive Trade Practices Act claims were dismissed as a matter of law.

(E) Ruttiger's common law good faith and fair dealing claims were remanded to the Houston Court of Appeals for further consideration.

The Arguments for Rehearing

TMIC's Argument

TMIC moved for rehearing, arguing that the "viability of Aranda's common law tort is a pressing and important matter affecting scores of pending cases.[fn1] More specifically, TMIC urged the Court to grant rehearing to address head-on these questions:  (1) whether Aranda remains the common law and (2) if so, what safeguards are in place to prevent "abuses of this tort."  TMIC's central argument is that remand put the Court of Appeals in an impossible position:  It has no inherent authority to set aside, or disagree with, the Supreme Court's decision in Aranda. Thus, remand ultimately serves only to delay consideration of the critical questions.

On rehearing TMIC will encourage the Court to conclude that the common law action (bad faith remedies) is no longer needed as a remedy for unequal bargaining power, and, instead, now encourages abuses.  Alternatively, TMIC seeks "clarification" of the Court's position, arguing that the decision of the Court as it now stands undermines the Fodge line of decisions and the principle that bad faith  cannot attach in advance of a determination that a contested benefit, in fact, was due.

Ruttiger's Argument

Mr. Ruttiger's legal team, on the other hand, sought rehearing on a far more limited, or technical, basis.  Ruttiger's team argues that TMIC limited its argument in the Court of Appeals in such a manner that TMIC is not entitled to Supreme Court review of Ruttiger's bad faith cause of action.

Ruttiger's team further argues that the court misapplied the Lopez decision, which provides that a specific law trumps a general law when they are irreconcilable.  The argument is that Insurance Code Section 541.060 is not irreconcilable with the Labor Code and that the Legislature never intended to remove the possibility that a bad faith claim could be brought against a workers' compensation carrier. Ruttiger emphasizes those parts of the Insurance Code explicitly stating that compensation carriers are engaged in the business of insurance and subject to the requirements of the Insurance Code, and that maintaining a cause of action against compensation carriers for bad faith is one of the few protections left for claimants in the workers' compensation system.

On rehearing, Ruttiger will ask the Supreme Court to affirm the judgment in his favor. Alternatively, Ruttiger will request that the Court remand his Insurance Code Section 541.061 claims and his common law bad faith claim to the court of appeals for further consistent proceedings.

Summary:  Where do "bad faith" cases stand today?

The question of the continuing viability of "bad faith" litigation in a workers' compensation context, generally, is back at square one.  Ruttiger will ask the Court to dodge the issue, but it seems unlikely that the Supreme Court granted rehearing to dismiss TMIC's position on technical grounds.  Instead, it seems that the Court has been convinced that now is the time to address the Aranda issue head-on and to decide whether a common law bad faith claim can arise out of a workers' compensation dispute.

Footnote 1: In Aranda v. Insurance Company of North America, 748 S.W.2d 210 (Tex. 1988), the Texas Supreme Court held that an injured employee is entitled to assert a claim against a workers' compensation carrier for breach of the duty of good faith and fair dealing.  

Founded in 1989, Downs ♦ Stanford handles a wide variety of civil legal matters including the defense of catastrophic injury and wrongful death cases, the defense of workers compensation claims, insurance coverage matters, business and commercial litigation, business entity formation, commercial transactions, family law, probate and estate planning, appellate law and subrogation. The firm is able to provide these services on a statewide level.  Our firm is headquartered in Dallas and has offices in Austin, Houston and Tulsa.  For more information about our firm, practice areas or attorneys, please visit our website at www.downsstanford.com.

Downs ♦ Stanford is growing to suit your needs and is pleased to announce that three attorneys have recently joined the firm.  Ty Camp will be assisting Andrew Schreck in our Houston-area office and Jon Godoy and David Pettineo have joined our Dallas office.  All three gentlemen bring valuable experience to our firm and look forward to working with our valued clients.

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