Austin Court Rejects Bad Faith Claims Arising out of California WC Benefits Disputes

The Third Court of Appeals, sitting in Austin, has granted a petition for writ of mandamus and ordered a trial court to dismiss a bad faith claim arising out of a self-insured and its claims administrator’s handling of a workers’ compensation claim. The case, In re Murphy & Beane, Inc. and Viacom, Inc., No. 03-16-00690-CV, was decided August 29, 2017.

The claimant, Melanie Steele, filed suit against Murphy & Beane and Viacom alleging claims related to injuries she suffered when working as an independent contractor for Viacom in Austin, Texas. In the lawsuit, Steele asserted claims for Deceptive Trade Practices Act violations, fraud, fraudulent inducement, and gross negligence against Viacom and Murphy & Beane, a third-party administrator for workers’ compensation claims.

Steele claimed that after falling down two flights of stairs in the workplace on June 12, 2006, she suffered severe injuries including broken and cracked teeth, lacerations to the face and body, broken bones, a bruised back, a strained neck, torn meniscus in both knees ultimately resulting in double knee-replacement surgery, and head trauma. She further alleged that a Viacom employee took her to the hospital “so that she could receive medical care under Viacom’s Self Insurance coverage as a result of the injury occurring while working in the course and scope of her employment in Texas with Viacom.”

Steele maintained that three days later she countersigned a Texas Workers’ Compensation Work Status Report and began receiving regular Texas Workers’ Compensation Status reports. Three weeks later, Steele alleged, an agent acting on behalf of her carrier and TPA spoke with her and told her that her case was complicated because the injury happened in Texas, but the company handling the claim was from California. Steele contended that the agent never told her that her carrier was seeking to transfer the claim from Texas to California, but that Murphy & Beane proceeded to do so by filing an Employer’s Report of Occupational Injury or Illness in California with the Department of Industrial Relations two months after her injury. Steele also claimed that her carrier failed to inform her that the case should be handled under the Texas workers’ compensation system.

Steele contended that a number of disputes arose our of Murphy & Beane’s handling of her claim, including a dispute early on over the medical necessity of total knee-replacement surgery, as well as disputes over whether she should be required to fly to California to receive a Panel Qualified Medical Examination by a doctor provided by Murphy & Beane. She alleged that she found it increasingly difficult in the following years to receive medically necessary treatments “without either having to undertake unnecessarily difficult and repeated negotiations with Murphy & Beane, or just having the requested treatments flat out denied.” She also claimed that Murphy & Beane never filed her claim as an open workers’ compensation claim in Texas and “has misrepresented to Plaintiff [Steele] that (a) [Steele’s] accident occurred in California, that (b) [Steele] was an employee located primarily in California, that the claim was a California claim, and not a Texas claim, that (c) she could not seek treatment from doctors of her choosing, that (d) she would have to travel to California to receive a [panel qualified medical examination], and that (e) Murphy & Beane could close her case for non-compliance.”

Steele specifically pleaded that her carrier’s and TPA’s conduct fell outside of the claims-settlement process, and therefore, the “remedies provided by the Texas Workers’ Compensation Act are not the exclusive remedies allowed by law.” Along with their original answer, Murphy & Beane and Viacom filed a plea to the jurisdiction asserting that the trial court lacked subject-matter jurisdiction because all of Steele’s claims fell within the exclusive jurisdiction of the Division of Workers’ Compensation, to administer the workers’ compensation system. The defendants relied In re Crawford & Co., 458 S.W.3d 920 (Tex. 2015).

Later, the defendants moved for traditional summary judgment seeking dismissal of Steele’s claims on the grounds that the Division has exclusive jurisdiction over all of Steele’s claims and that Steele failed to exhaust the administrative remedies under the Workers’ Compensation Act with the Division. The trial court denied the summary-judgment motion, “due to the existence of genuine issues of material fact.” Relators then filed a petition for writ of mandamus seeking to set aside the trial court’s order. The court of appeals granted the petition, observing first:

The Texas Supreme Court’s opinion in In re Crawford & Co. controls the outcome of this case. In Crawford, the supreme court concluded that the Division had exclusive jurisdiction over the worker and his spouse’s claims, which included numerous tort, contract, and statutory claims, and that the Act provided their exclusive remedies. Id. at 923. The court relied on the precedent it had established in Texas Mutual InsuranceCo. v. Ruttiger, 381 S.W.3d 430 (Tex. 2012), when it concluded “that the Act provides the exclusive procedures and remedies for claims alleging that a workers’ compensation carrier has improperly investigated, handled, or settled a workers’ [sic] claim for benefits.” In re Crawford, 458 S.W.3d at 923-24. Specifically, the court held in Ruttiger that “the Act bars claims for breach of the duty of good faith and fair dealing and claims under [Insurance Code] sections 541.060 and 542.003, not because those are the only claims the Act bars, but because those claims are necessarily based on the investigation and settlement of benefit claims.” Id. at 926 (citing Ruttiger, 381 S.W.3d at 443-45) (emphasis added).

In Crawford, the court considered whether and how Ruttiger applied to claims that the worker and his spouse brought which had not been specifically addressed in Ruttiger. Id. at 925. Of particular relevance here, the court considered the worker and his spouse’s common-law and statutory claims based on allegations of deception, fraud, and misrepresentation. Id. at 926. The court noted that the case before it presented a question not expressly addressed in Ruttiger: “whether the Division has exclusive jurisdiction over a claim for ‘misrepresentation of an insurance policy’ when the alleged misrepresentation occurs within the claims-settlement context.” Id. at 927 (noting that analysis of misrepresentation claims was more complex because of Ruttiger’s holding that Act does not necessarily bar claim for misrepresenting insurance policy under Insurance Code Section 541.061). The court held that the Division had exclusive jurisdiction over the claims because all of the misrepresentation-based claims complained of misrepresentations that Crawford allegedly made in connection with its investigation, handling, and settling of the worker and spouse’s claims for workers’ compensation benefits.

Steele attempted to distinguish her claims from the holding in Crawford by arguing that the defendants’ alleged misrepresentation that her “claim would properly be filed in the state she lives, works and was injured in[] was made before any paperwork was filed” and thus before the claims-handling process began. The court rejected this argument.

We disagree with Steele’s contentions that this alleged misrepresentation occurred before the claims-handling process began and that it was unrelated to relators’ handling of her claim. Taking the facts in Steele’s petition as true, as we must, the record indicates that the claims-handling process began when a Viacom employee took her to the hospital immediately after her injury, or at the latest, when Steele signed the Texas Workers’ Compensation Work Status Report that she alleges is evidence of relators’ misrepresentation.

Steele also attempted to avoid the effect of Crawford by arguing that her claim alleged a misrepresentation of the insurance policy under Insurance Code Section 541.061, not a claim for unfair settlement practices under Section 541.060 (which would be barred by the holding in Ruttiger). The court also rejected this argument.

As in Crawford, the misrepresentation-based claims that Steele alleges in this case (including her DTPA claim based on the alleged misrepresentation that her claim was a Texas claim and would be filed here) all complain of misrepresentations that relators allegedly made in connection with their investigation, handling, and settling of Steele’s claim for workers’ compensation benefits. Accordingly, we hold that the Division has exclusive jurisdiction to address those claims.

The court also rejected Steele’s arguments that the Division lacked exclusive jurisdiction over her case for two additional reasons: (1) her claim was never registered with the Texas system and (2) the Division cannot have exclusive jurisdiction over her claims because she has been receiving benefits through the California workers’ compensation system. The writ of mandamus was conditionally issued, directing the trial court to withdraw its order denying the defendants’ summary-judgment motion and to dismiss Steele’s claims for lack of subject-matter jurisdiction.