The Galveston Court of Appeals for the First District of Texas has published Texas Mutual Ins. Co. v. Ruttiger, 2008 Tex. App. LEXIS 440 (2008). The unanimous decision affirmed Mr. Ruttiger's bad faith allegations against Texas Mutual Insurance (“TMI”) (although it reversed findings regarding past and future loss of credit reputation).
Mr. Ruttiger alleged a hernia injury while lifting at work on June 21, 2004. On June 28, 2004, the TMI adjuster contacted the employer who questioned the validity of the claim. April Beall stated other employees believed the claimant was injured prior to coming to work and in fact was limping at work before beginning a shift on June 21, 2004. They also indicated he was injured while playing softball. The adjuster attempted to contact Mr. Ruttiger and was unsuccessful on two attempts and sent the claimant a letter. The claimant denied receiving any phone calls or letter. The adjuster then tried to contact the doctor but did not have the right contact information.
On July 7, 2004, the adjuster took the recorded statement of Henry Beall of A&H (the decision does not state, but one assumes, that A&H Electric Company would be April and Henry Beall). Mr. Beall did not have any verification of a limp or an injury playing softball but stated he did not believe Ruttiger was injured in the course and scope of his work.
On July 8, 2004 the adjuster again spoke with April Beall who alleged Ruttiger was bragging to co-workers that workers' compensation was paying for his preexisting hernia. They scheduled a recorded statement with one employee, Adam Popovich, for July 9, 2004. The recorded statement did not occur. The carrier filed its denial within the 60 day time frame.
On July 12, 2004 the surgery was cancelled by carrier and a denial was filed. The claimant called the adjuster and tried to explain the asserted preexisting condition. According to claimant, the adjuster did not want to speak with him and terminated the telephone conversation. The adjuster denied this.
The injured worker contacted an attorney and Texas Mutual Insurance reopened the case. On September 21, 2004, the adjuster took the recorded statement of Adam Popovich. Mr. Popovich indicated Ruttiger had a preexisting hernia condition. He did not believe there was a compensable work related injury.
On December 17, 2004 the adjuster took the recorded statement of David Martin who believed claimant was trying to "pull the wool" over everyone's eyes. However, he did not have any specific evidence the claimant was injured at the softball game on June 21, 2004.
The parties signed a DWC-24 benefit dispute agreement on January 6, 2005 indicating claimant was injured in the scope of his employment. Subsequently, the claimant filed this bad faith action. During the discovery portion of the trial, it was determined the claimant did have a preexisting hernia condition from 1998.
The jury awarded $37,500 damages for past physical pain and suffering; $5,000 for future physical pain and suffering; $4,500 for past impairment; $100,000 for past mental anguish; and $20,000 because the wrongful denial was "knowingly" made.
The court of appeals decision is very detailed. The court believed the adjuster should have been highly suspect of the veracity of the unsubstantiated allegations from April or Henry Beall at A&H. The court stated, “ ... In sum, a reasonable juror could have believed that [the adjuster] made his decision to deny Ruttiger's claim after conducting an extremely limited, one sided investigation that produced nothing more than highly suspicious rumors and speculation from two related employer representatives. Considering this evidence, as well as Ruttiger's direct testimony that he had, in fact, suffered an on the job injury, a reasonable juror could have found that, at the time TMI denied Ruttiger's claim, the injuries would have become reasonably clear.”
The court also believed TMI did not follow its own standards or the statute by relying upon an unsubstantiated rumor that Ruttiger was actually injured playing softball. The court concluded, “TMI failed to fulfill its obligation to conduct an adequate investigation before denying Ruttiger's claim. A reasonable juror could have concluded, that, at the time TMI denied Ruttiger's claim, there was simply no information supporting a ‘bona fide’ coverage dispute. Contrary to TMI's argument the evidence certainly did not ‘conclusively’ establish ‘powerful reasons’ to dispute Ruttiger's claim.”
The court further noted that Adam Popovich's recorded statement was taken after the denial. However, even considering the statement, Mr. Popovich's statement does not establish the claimant did not suffer compensable injury or an aggravation of his preexisting condition. Further, there is nothing in David Martin's statement taken on December 17, 2004 which established claimant did not sustain a compensable injury. Finally, the evidence reflected the compensable hernia injury of 1998 was not the basis of the dispute originally filed.
The court believed TMI did not attempt to contact the injured worker, or, "at best only made minimal effort to do so." The adjuster also hung up on the claimant and refused to listen to his version of the events. The court found fault with TMI relying upon the owner's unverified statements Ruttiger had been injured while playing softball and not on the job.
This case is certainly a warning to insurers. Plaintiff' attorney Doyle Raizner has been filing bad faith actions in Texas on workers' compensation claims with great success. This is the first case the author is aware that an attorney has sought a bad faith action, and a jury and a court of appeals have agreed, where carrier signed a benefit dispute agreement before the CCH accepting liability for the claim. This case sets forth several lessons adjusters:
(1) Courts want a successful three point contact;
(2) Carriers are to assess their own insureds and the credibility of statements provided to them. In this case, the court believed TMI should have been highly suspect of the veracity of the unsubstantiated allegations provided by the insured;
(3) Claimant believed the adjuster hung up on the claimant even though this was denied by the carrier. Some carriers may very well choose to record all conversations with injured workers to protect against such allegations;
(4) The Court will assess facts generated by carrier’s investigation prior to the denial;
(5) The court believed that the basis of the denial was an unsubstantiated and unverified rumor. Therefore, all rumors must be verified if they are the basis of a dispute. The fact the claimant has the burden of proof appears immaterial to the court. Attorneys representing injured workers will be filing more bad faith lawsuits. Carriers must review their policies and procedures, provide additional training to its employees, and insure proper supervisory control on all denials. Failure to deny a case based upon legitimate facts could subject a carrier to an E&O action by the insured. However, disputing a case based upon unsubstantiated rumors can lead to a bad faith claim by the injured worker. Adjusters should complete three point contact, substantiate all bases of the denial prior to the denial being filed, and round table with supervisors, and legal counsel prior to denying a case.