Court Dismisses Fraud Claim against Comp Carrier

The Tyler Court of Appeals has ordered a trial court to dismiss claims against a workers’ compensation carrier and its subrogation counsel alleging fraudulent lien, insurance code violations, fraud, independent fraudulent acts by lawyer/law firm, and conspiracy to assert fraudulent lien.

The case, In Re: Old Republic Risk Management, et al., No. 12-19-00144-CV (Tyler, June 12, 2019), considers a petition for writ of mandamus in which the trial court had refused to dismiss the claims against the carrier and attorneys for want of jurisdiction. The court conditionally granted the petition for writ of mandamus and ordered the abatement of the trial court proceeding pending the Division’s resolution of whether the carrier is entitled to seek administrative costs as part of its subrogation claim and whether the amount of benefits paid has been wrongfully inflated.

The case arose out of a series of compensable workers’ compensation claims, including at least one death claim, that spawned third party litigation by the employees and the deceased employee’s legal beneficiaries. The comp carrier sent written notice of its subrogation interests to the third party plaintiffs, claiming a lien against the third-party claims based on medical, and wage benefits paid by the carrier. The third party plaintiffs sued the comp carrier and its attorneys for allegedly asserting fraudulent liens, seeking a declaratory judgment, and alleging claims of insurance code violations, fraud, independent fraudulent acts by the attorneys, and conspiracy to assert a fraudulent lien.

The gravamen of the claims against the carrier and the attorneys were grounded in the fact that much of the carrier’s claimed lien amounts included administrative costs, fixed price contract payments made to a catastrophic care management company to manage medical payments on one or more of the claims, and contractual payments for case management. The third party plaintiffs contended that these payments did not constitute recoverable payments under the subrogation provisions of the Texas Workers’ Compensation Act. The carrier and attorneys contended that the trial court did not have jurisdiction to decide the allegations made against them.

The court of appeals agreed.

As set forth above, the substance of the . . . allegations demonstrates that their claims are founded on the contention that [the comp carrier’s] subrogation lien is fraudulent because it alleges a total amount that does not equate to the amount of benefits that were paid, including administrative costs, and its attorneys participated in such scheme. However, the Act expressly provides that an insurance carrier or its representative commits an administrative violation by failing to comply with a provision of the Act. The . . . allegations, if true, demonstrate a failure to comply with Chapter 417 of the Act with respect to an attempt to recover for monies, particularly administrative costs and inflated medical benefits, that do not qualify as “benefits” as defined by the Act. Such noncompliance would constitute an administrative violation. It is the DWC’s responsibility to ensure that the Act is executed and to monitor insurance carriers, attorneys, and representatives of parties for compliance with the Act. When participants, including carriers, abuse the process (as the [third party plaintiffs] allege), administrative penalties are available. The Act has “multiple, sometimes redundant but sometimes additive, penalty and sanction provisions for enforcing compliance with its requirements.”

Because the Act specifically provides that the net amount recovered by the claimant in a third-party action shall be used to reimburse the carrier for benefits, which includes only medical, income, death, or burial benefits, paid for the compensable injury, a carrier violates the Act’s provisions if it seeks subrogation for amounts that do not qualify as benefits. It is axiomatic that the DWC, tasked with regulating and administering the business of workers’ compensation and monitoring insurance carriers, attorneys, and other representatives for compliance with the Act, should be the decision maker with regard to whether benefits have been inflated and administrative costs have been wrongfully included in a subrogation claim. Accordingly, the . . . claims for fraudulent lien, insurance code violations, fraud, independent fraudulent acts by lawyer/law firm, and conspiracy to assert fraudulent lien arise out of [the comp carrier’s] allegedly improper investigation, handling, or settling of a claim for worker’s compensation benefits. For this reason, the DWC has exclusive jurisdiction over the claims and the [third party plaintiffs] were required to exhaust their administrative remedies with the DWC before seeking judicial review. Consequently, Respondent abused his discretion by denying Relators’ plea to the jurisdiction as to all claims other than the [third party plaintiffs] declaratory judgment claim. (Citations omitted)

The lesson in the case is clear. The insurance carrier’s subrogation interest is limited to the amount of the total benefits paid or assumed by the carrier to the employee or the legal beneficiary. Costs and expenses do not constitute benefits that have been paid or assumed by the carrier. What is less clear from the decision is whether payments to a case manager or catastrophic care management vendor can be recovered and, if so, how any such potential recovery, is affected by any repayments that may have been made by the vendor to the carrier.