An Analysis of DWC v. Jones: the SIBs Agreement Case Pending at the Texas Supreme Court

The Supreme Court of Texas has agreed to decide a case that will define the limits of dispute resolution under the Texas workers’ compensation system. In an unusual paring, the claimant and the carrier are squared off against the Division of Workers’ Compensation over the question of what kind of cases can be resolved by agreement under the act and how those agreements may be structured.

The case involves the legality of an agreement resolving a case on judicial review. The parties to the case compromised the carrier’s liability for a single disputed quarter of SIBs by agreeing that the carrier would pay the quarter, but at one-half of the SIBs monthly rate to which the claimant would otherwise be entitled. The Division intervened, objecting to the agreement, arguing that the proposed agreement violated statutory and regulatory requirements. The Dallas Court of Appeals disagreed.

The Supreme Court has granted a petition for review in Texas Dept. of Insurance, Division of Workers’ Compensation v. Jones, et al., (No. 15-0025), on January 22, 2016. The case was filed in the Supreme Court on January 12, 2015. The court has set the case for oral argument before the full court on March 30, 2016. The oral arguments will be conducted at Baylor University School of Law. The court can be expected to issue a decision in the case sometime during the Summer 2016.

Each side advocates contrasting policy arguments. The Division argues that its interpretation of the Act will hold the line on workers’ compensation costs by preventing suits for nuisance value from cascading across the workers’ compensation system. The Division views the Court of Appeals’ reasoning as a return to the law as it existed prior to the 1989 legislative reforms. The Division argues:

The Labor Code mandates that settlement agreements comply with the law, and the Division asks the Court to correct a holding which treats the protections and requirements of the law as inapplicable or optional in district court. The settlement agreement in question conflicts with provisions of the Workers’ Compensation Act, especially the requirement in section 410.256(b)(2) and (g) of the Texas Labor Code that settlements adhere to statutes and regulations. The settlement agreement was entered over the Division’s objection and is contrary to law and public policy. Correction by this Court is necessary to implement the Texas Legislature’s requirement that settlements conform to law, to prevent suits for nuisance value from cascading across the workers’ compensation system, and to prevent workers’ compensation costs from increasing.

The Dallas Court of Appeals rejected the Division’s interpretation of the statute and upheld the agreement of the parties. The court reasoned that:

The public policy of Texas is to encourage the settlement of legal disputes. See TEX. CIV. PRAC. & REM. CODE ANN. § 154.002 (West 2011) (“It is the policy of this state to encourage the peaceable resolution of disputes, . . . and the early settlement of pending litigation through voluntary settlement procedures.”). That this policy applies to workers’ compensation claims under judicial review is clear from the fact that the labor code expressly permits settlement of those claims. See LAB. §§ 410.256, .258 (West 2006). Sections 410.256 and .258 impose various requirements on a settlement, but none expressly prohibits the parties from compromising and settling a suit for judicial review of the denial of supplemental income benefits by agreeing to pay the claimant an amount less than that provided by the formula.

The Texas Civil Justice League, an important tort reform organization, has urged support for the Division’s arguments:

The case for reforming the Texas workers’ compensation evolved over many years, but the Legislature finally acted in 1988-89, beginning with a joint select committee to study the system and make recommendations for change to the 71st Legislature. While the interim committee’s recommendations exposed a number of sacred cows inhabiting the old system, the most sacred of these was the trial de novo standard. As Justice Johnson observed in his opinion in Ruttiger, the fundamental issue fought out in that 1989 Legislature was whether Texas would join the other 49 states in the union with a binding administrative process for determining workers’ compensation benefits. The battle over trial de novo became so bitter and protracted that it took multiple special sessions and a lot of broken arms to muster the votes necessary in the Texas Senate to bring the bill to the floor for final approval.

Since that watershed vote on December 13, 1989, the Legislature’s policy choice has survived a constitutional challenge before this Court and numerous legislative amendments to the system during the 1990s and 2000s. The most recent of these amendments, HB 2600 from the 2005 session, created the Texas Department of Insurance’s Division of Workers’ Compensation with a single commission appointed by the Governor (in lieu of the six-member Workers’ Compensation Commission). It also established health care networks in an effort to contain rising medical costs and keep the system affordable for businesses and their employees. In each case the Legislature has revisited the system in the past 25 years, it has been to make administrative improvements to make the system more efficient and cost-effective.

The Court of Appeals’ decision in this case represents, on the other hand, a very significant and dangerous step in the opposite direction. If we permit trial courts to approve benefit settlements different from those prescribed by statute, the trial de novo standard, though not explicitly resurrected, will bedevil the workers’ compensation system once more, unsettling the administrative certainty specifically mandated by the Legislature in 1989 and staunchly maintained ever since. While the amount in controversy in this case may seem small, the principle of public policy involved here is anything but.

TCJL deeply appreciates the Court accepting review in this case and considering the full extent of the implications of the Court of Appeals’ decision to the workers’ compensation system as a whole. We close by noting that Texas is still the only state in the union in which employers voluntarily subscribe to workers’ compensation insurance. If the Legislature had not eliminated trial de novo back in 1989, few Texas businesses could have afforded to remain in the system. We have been down this road before. Thanks to the Legislature and to prior decisions by this Court, we have avoided going down it again.

The Claimant’s position is summarized as follows:

The trial court and the court of appeals did not disregard a mandatory statutory requirement but acted in conformance with the spirit, letter and intent of the Texas Workers’ Compensation Act, Division rules, and public policy. The statutory provisions and Division rules regarding “settlements” are separate and distinct from the statutory provisions and Division rules regarding “agreements” and do not apply to the agreed judgment at issue in this case. While “settlements” may be “tightly controlled and limited” and are subject to being approved by the Division at the administrative level, “agreements” entered at the judicial review stage are subject only to the approval of the trial court. The fact that the Division has a right to intervene in judicial review cases is not the same as having the right of approval. The Act and Division rules do not prohibit resolving a SIBs dispute via an agreed judgment.

The Division for the first time on appeal contends that the trial court lacked discretion to determine the amount of benefits due because the amount of benefits was not raised in the suit for judicial review. The Division has waived this contention and is mistaken in its assertion that such matters must be presented individually for administrative dispute resolution.

The Division has failed to identify any mandatory requirement that the court of appeals or trial court disregarded and has not demonstrated how the judgment does not comply with the law. The parties complied with the Act by submitting the agreed judgment to the Division at least thirty days before it was filed. The trial court complied with the Act when it entered the agreed judgment after considering the Division’s intervention together with the other pleadings and evidence herein on file. The court of appeals correctly concluded that the resolution of this SIBs dispute via an agreed judgment complies with Legislative intent and public policy.

There is no evidence in the record on appeal that the trial court or the court of appeals disregarded a mandatory statutory requirement that workers’ compensation settlement agreements must comply with the law. Likewise, the Division has not provided any references to the record or persuasive authorities to compel the conclusion that Jones was not entitled to 14th Quarter SIBs as a matter of law, the amount awarded should have been different from the amount stated in the judgment as a matter of law or the judgment was not properly submitted to the Division, signed prematurely by the trial court or is otherwise clearly contrary to law to law so as to be void. By conceding that the trial court had discretion to determine whether supplemental benefits were due, the Division has essentially admitted that the trial court had discretion to enter the agreed judgment, and thus, no error that requires reversal is presented for review in this Court.

The Division has misapplied, misconstrued and/or otherwise overstated the application and requirements of §408.144 and Rule 130.012. Regardless of whether these provisions establish a mandatory formula for determining the amount of SIBs payments, there is nothing in the record to support a finding that either the trial court or the court of appeals ignored or misapplied these provision or any such requirements.

The court of appeals approval of the agreed judgment signed by the trial court after considering the Division’s objections to the judgment is not contrary to public policy but is fully consistent with this Court’s analysis of the current workers’ compensation system in Garcia and the spirit, letter and intent of the Texas Workers’ Compensation Act, as well as a reasonable interpretation of applicable Division rules.

Finally, the court of appeals decision in no way restricts or undermines the Division’s ability to police carriers, does not create confusion or prolong litigation and reduces rather than increases costs. The Division’s petition in intervention and subsequent appeals, on the other hand, has substantially and unnecessarily prolonged the litigation and increased costs in this litigation. This Court should put an end to this matter by refusing or denying the Division’s request for review or by affirming the agreed judgment and the decision of the court of appeals.

The Carrier’s position largely agrees with the claimant. Its arguments can be summed up as follows:

Jones and American Home were involved in a legitimate dispute concerning entitlement to supplemental income benefits for three quarters. There were factual issues that would necessitate a jury trial unless resolution was reached. Jones and American Home did reach resolution by negotiating what would be paid and received. The resolution did not include any collusion to overturn the appeals panel’s decision. Because there was no collusion, the resolution, which included payment of a partial quarter of supplemental income benefits, was proper. The court of appeals’ opinion was correct in that the Texas Workers’ Compensation Act does not prohibit resolution, and, in fact, supports it. Further public policy in Texas favors resolution as it reduces costs to the system participants as well as reducing trial courts’ dockets. Because disputes, just like this one, are routinely approved and favored at the administrative level, this dispute should likewise be approved. It should be approved because it promotes judicial economy and is not contrary to the law.

All the briefs filed in the Supreme Court in the case can be found here.