texas workers’ compensation bad faith …€™ compensation bad faith chapter 16.1 1 texas...

TEXAS WORKERS’ COMPENSATION BAD FAITH

CASE AND ISSUES UPDATE, 2010

Presenters

STEVEN M. TIPTON

Flahive, Ogden & Latson

504 Lavaca, Ste. 1000

Austin, Texas 78701

WM. RANDELL JOHNSON

P. O. BOX 296111

Lewisville, Texas 75029

Tel: 972/221-4541

Fax: 972/221-4241

email: [email protected]

Author

STEVEN M. TIPTON, Austin

Flahive, Ogden & Latson

State Bar of Texas

7th

ANNUAL

ADVANCED WORKERS’ COMPENSATION COURSE

August 19-20, 2010

Austin

CHAPTER 16.1

Workers’ Compensation Bad Faith Chapter 16.1

i

TABLE OF CONTENTS

I. Texas Mutual Ins. Co. v. Ruttiger. ..................................................................................................................... 1 A. Facts ...................................................................................................................................................... 1 B. Holdings ................................................................................................................................................ 2

1. Jurisdiction ............................................................................................................................... 2 2. Sufficiency of the Evidence ..................................................................................................... 3 3. Post Dispute Investigation ....................................................................................................... 3 4. The ―Knowingly‖ Finding ...................................................................................................... 4 5. Damages ................................................................................................................................... 4

C. The Ruttiger Issues ............................................................................................................................... 4 1. Jurisdiction ............................................................................................................................... 4 2. Bad Faith Liability and No Evidence Standards ...................................................................... 4 3. Existence of or Limitations on Common Law Bad Faith Liability .......................................... 4 4. Claimants‘ Standing Under Chapt. 541 Insurance Code ......................................................... 5 5. No Evidence of ―Knowing‖ Insurance Code Violation ........................................................... 5 6. No Evidence of Aranda‘s ―Separate and Independent Injury‖ Requirement ........................... 5 7. Evidentiary Underpinnings for Mental Anguish Damages ...................................................... 5

II. Texas Mutual Ins. Co. v. Morris ........................................................................................................................ 5 A. Facts ...................................................................................................................................................... 5 B. Holdings ................................................................................................................................................ 6 C. Issues ..................................................................................................................................................... 7

III. Burkhart v. Sedgwick Claim Management Services, Inc. .................................................................................. 7 A. Facts ...................................................................................................................................................... 7 B. Holdings ................................................................................................................................................ 8 C. Issues ..................................................................................................................................................... 8

IV. Johnson v. Zurich Am. Ins. Co. .......................................................................................................................... 8 A. Facts ...................................................................................................................................................... 8 B. Holdings ................................................................................................................................................ 8 C. Issues ..................................................................................................................................................... 8

V. In re Liberty Mutual Fire Ins. Co.. ..................................................................................................................... 9 A. Facts ...................................................................................................................................................... 9 B. Holdings ................................................................................................................................................ 9 C. Issues ..................................................................................................................................................... 9

VI. In re Texas Mutual Ins. Co and Evie Villareal ................................................................................................... 9 A. Facts ...................................................................................................................................................... 9 B. Holdings .............................................................................................................................................. 10 C. Mandamus in the Supreme Court of Texas ......................................................................................... 10 D. Issues ................................................................................................................................................... 10

VII. In re Texas Mutual Ins. Co. and Gloria Williams. ........................................................................................... 10 A. Facts .................................................................................................................................................... 10 B. Holdings .............................................................................................................................................. 11 C. Mandamus in the Supreme Court of Texas ......................................................................................... 11 D. Issues ................................................................................................................................................... 11

VIII. In re LM Insurance Corp.. ................................................................................................................................ 11 A. Facts .................................................................................................................................................... 11 B. Mandamus in the Supreme Court ........................................................................................................ 12 C. Comment ............................................................................................................................................. 12


ii

D. Issues ................................................................................................................................................... 12

IX. Kelly v. American Interstate Ins. Co., Hammerman & Gainer, Inc., and Sheryl Butman ............................... 13 A. Facts .................................................................................................................................................... 13 B. Holdings .............................................................................................................................................. 13 C. Issues ................................................................................................................................................... 14

X. Durst v. Texas Mutual Ins. Co.. ....................................................................................................................... 14 A. Facts .................................................................................................................................................... 14 B. Judicial Review ................................................................................................................................... 14 C. The Bad Faith Claims ......................................................................................................................... 14 D. On Appeal, Claimant Argues .............................................................................................................. 15 E. Issues ................................................................................................................................................... 15

XI. Schwartz v. Insurance Co. of the State of Pa. .................................................................................................. 15 A. Facts .................................................................................................................................................... 15 B. Holdings .............................................................................................................................................. 15 C. Issues ................................................................................................................................................... 16

XII. Cunningham Lindsey Claims Management, Inc. v. Snyder.............................................................................. 16 A. Facts .................................................................................................................................................... 16 B. Holdings .............................................................................................................................................. 16 C. Supreme Court Petition ....................................................................................................................... 17 D. Issues ................................................................................................................................................... 17

XIII. Stinson v. Insurance Co. of the State of Pa.. .................................................................................................... 17 A. Facts .................................................................................................................................................... 17 B. The Bad Faith Claim ........................................................................................................................... 18 C. Holdings .............................................................................................................................................. 18 D. Comment ............................................................................................................................................. 18 E. Issues ................................................................................................................................................... 19

XIV. Gasch v. Hartford Acc. & Indem. Ins. Co.. ...................................................................................................... 19 A. Facts .................................................................................................................................................... 19 B. Holding ............................................................................................................................................... 19

XV. In re Liberty Ins. Corp. and Michelle Yaklin. .................................................................................................. 20 A. Facts .................................................................................................................................................... 20 B. Holdings .............................................................................................................................................. 20 C. Issues ................................................................................................................................................... 21

XVI. In re Texas Mutual Ins. Co.. ............................................................................................................................. 21 A. Facts .................................................................................................................................................... 21 B. Holdings .............................................................................................................................................. 22 C. Issues ................................................................................................................................................... 22


1

TEXAS WORKERS’

COMPENSATION BAD FAITH CASE

AND ISSUES UPDATE, 2010

This article examines the most recently decided

and pending appellate level cases in the Texas

workers‘ compensation bad faith arena. The term

―bad faith‖ as used here refers generically to the

various extra-contractual causes of action against an

insurance carrier and/or claims handler that take the

form of the common law breach of good faith and fair

dealing [see Aranda v. Ins. Co. of North Am., 748

S.W.2d 210 (Tex. 1988)], Texas Insurance Code

violations [see TEX. INS. CODE, Chapt. 541] and

Deceptive Trade Practices Act violations [see TEX.

BUS. & COMMERCE CODE §§ 17.01, et seq. (Vernon

2004)].

This paper (dated July 12, 2010) is not intended

as a thorough history and evaluation of these causes of

action. For that we would refer you to D. Brenner, J.

Raizner & A. Slania, The Duty of Good Faith and

Fair Dealing in Workers’ Compensation Claims,

STATE BAR OF TEXAS, 6th Annual Advanced Workers‘

Compensation Course, August 2009. The purpose

here is to describe and highlight the most recent and

pending bad faith cases, then ―tee up‖ some, but not

all, of the most intriguing issues in those cases for

future discussion and debate.

I. Texas Mutual Ins. Co. v. Ruttiger, 265 S.W.3d

651 (Tex.App.—Houston [1st Dist.] 2008, pet.

granted). This case was submitted to the Supreme

Court of Texas following oral argument on April 14,

2010, and is currently pending.

A. Facts: Ruttiger alleged that on June 21, 2004,

he sustained bilateral inguinal hernias from lifting a

bundle of conduit. He asserted he immediately

reported this un-witnessed incident to his supervisor.

He sought medical treatment at UTMB Hospital, and

confirmed workers‘ compensation coverage with the

employer. On his way home from the hospital,

Ruttiger went to his employer‘s office and completed

an Employer‘s First Report listing his injury as caused

by ―carrying heavy pipes to a jobsite‖ and listing ―Dr.

William Harper, UTMB‖ as his treating doctor.

The adjuster contacted the employer on June 28,

2004, and was told that Ruttiger had not immediately

reported his condition to his supervisor as an on-the-

job injury, that he had taken off from work on June

17th and 18th to go to a softball game, that a co-worker

had observed Ruttiger to be limping when he arrived

at work on June 21st, and that Ruttiger‘s supervisor

(although aware of Ruttiger‘s complaints) was not

then told of any on-the-job accident. The employer

also related that Ruttiger missed work on a regular

basis, that there were ―a lot of questions about the

claim‖ and that she did not believe Ruttiger was

injured on the job.

The adjuster testified he twice, unsuccessfully,

attempted to contact Ruttiger on June 28th at the

number provided by the employer, that he mailed a

contact letter and attempted to contact the doctor

whose name was incorrectly listed on the first report

of injury by Ruttiger. The employer also claimed to

have called Ruttiger ―numerous times,‖ without

success.

The real treating doctor, Dr. Havlen, referred

Ruttiger to a surgeon who on July 2nd scheduled

surgery for July 14th. The adjuster testified that on

July 7th he took a statement from an employer

principal, Henry Beall, who stated that he was ―not

100% sure‖ Ruttiger was ―actually limping‖ when he

arrived at work on June 21st and was not ―totally

positive‖ whether Ruttiger was playing or coaching

softball the previous weekend. Beall was unclear

whether Ruttiger had reported an on-the-job injury

when reported onsite. Beall provided the name of the

doctor listed on the medical documentation he

believed was the treating doctor (different from what

Ruttiger had provided). The adjuster did not contact

that doctor or obtain a copy of that medical

documentation from the employer.

On July 8th, the adjuster contacted the employer

and was told that a co-worker had related that Ruttiger

was injured playing softball, had bragged about

getting workers‘ compensation to pay for it and that

the witness would be made available for a recorded

statement. The adjuster did not take a statement from

the co-worker at that time.

On July 12th, the employer reiterated that Ruttiger

had played softball on June 20th and then came to

work and claimed an injury. Per adjuster‘s notes, the

employer claimed Ruttiger had stated to a co-worker

―Adam‖ that he ―was happy that he was getting his

hernia repaired by Worker‘s

Compensation/employer.‖

On July 12th, the adjuster telephoned Ruttiger

and informed him that the claim was disputed

because he ―was hurt playing softball and not hurt on

the job.‖ Ruttiger told the adjuster that was incorrect

and claimed the adjuster hung up on him. Ruttiger

denied that he had been contacted any manner by the

adjuster or the employer prior to the July 12th phone

call, claiming that he had been available by phone 24-

hours a day.

On July 12th, the hospital contacted the adjuster

for surgery pre-authorization. The adjuster did not ask

for medical records or identification of the treating

doctors. The adjuster did inform the hospital that the

claim had been disputed. The Carrier filed its dispute

of the claim on that same date. The surgery was

cancelled by the doctor.

http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=TX_caselaw&volume=748&edition=S.W.2d&page=210&id=125012_01





2

The Carrier had initiated TIBS timely, but

disputed the claim on July 12th, stating:

―The carrier disputes this claim in its

entirety. The claimant did not sustain a

compensable injury. The claimant did not

sustain an injury in the course and scope of

employment. Our investigation revealed

that the [employee] was playing softball and

sustained a hernia.‖

Ruttiger admitted that he coached his daughter‘s

softball tournament the weekend prior to June 12th,

but denied that he was injured in that activity.

The adjuster testified that as of July 12th, there

was no direct evidence Ruttiger had played softball.

The only recorded statement at that time was from an

employer representative who was unsure of whether

Ruttiger played or simply coached. The adjuster

confirmed that he did not conduct a ―three-point

contact‖ by contacting Ruttiger, his employer, and his

doctor. The adjuster further acknowledged the only

information upon which he based his dispute came

from the employer, that he had not yet discussed the

claim with Ruttiger or his doctors, and that he had not

yet requested any medical records.

Ruttiger hired an attorney two days later,

prompting the Carrier to reopen the investigation upon

notice of that fact in September. On September 21st,

the adjuster took a recorded statement of Adam

Popovich, Ruttiger‘s roommate, coworker and family

friend. Popovich stated Ruttiger had ―that hernia for a

long time‖ and that Ruttiger had admitted he did not

sustain the hernia at work—affirming the

representations made by the employer prior to the

dispute.

Ruttiger‘s counsel requested a BRC on October

26th, more than three months after being retained. The

request for an expedited BRC was denied as no reason

was given for the request. The December 2nd BRC

was reset for January 6, 2005, after the wrong carrier

had been notified for the BRC.

On December 17th, the adjuster took a statement

from Ruttiger‘s supervisor, David Martin. Martin

denied Ruttiger had reported to him that he had been

injured on the job, said no co-workers could confirm

the incident and that Ruttiger‘s roommate had said

Ruttiger was trying to get the carrier to pay for his

long-standing hernias that he had never taken care of.

At the January 6, 2005 BRC, the Carrier entered

into a benefit dispute agreement that Ruttiger

sustained a compensable hernia injury, was not

disabled for the initial two months following the

injury (June 22nd to August 22nd) and was disabled

beginning August 23, 2004.

Preauthorization for surgery was requested on

February 2, 2005 and approved the next day.

In June 2005, Ruttiger sued Texas Mutual

alleging that it had violated the Texas Insurance Code,

breached the duty of good faith and fair dealing, and

violated the DTPA. Ruttiger contended the Carrier

had denied him timely payment of benefits without a

reasonable basis and had wrongfully and unreasonably

delayed paying medical and income benefits. He

alleged that had Texas Mutual agreed sooner that his

injury was compensable, he would have had surgery

sooner, suffering less physical harm, pain, suffering,

mental anguish and financial harm. He claimed

damages only for the delay prior to the date of the

Benefit Dispute Agreement.

In deposition and in the recent medical records,

Ruttiger had denied having any hernia problems

before June 2004. During trial and only after the

Carrier obtained records from UTMB showing

bilateral hernias had been diagnosed and surgery

recommended in 1998, Ruttiger corrected his prior

sworn testimony after speaking with his attorneys.

In a 10-2 verdict, the jury found that Texas

Mutual had failed to comply with its duty of good

faith and fair dealing, had engaged in unfair and

deceptive acts or practices, and had engaged it those

acts and practices knowingly. The jury awarded

Ruttiger $37,000 for past pain and suffering, $5,000

for future pain and suffering, $11,500 for past damage

to credit reputation, $5,000 for future damage to credit

reputation, $4,500 for past physical impairment,

$100,000 for past mental anguish, and $20,000 in

additional damages based on the finding that Texas

Mutual's conduct was committed knowingly. Ruttiger

elected to recover damages under the Insurance Code

claim. The trial court rendered a judgment for

$163,000 in actual damages and $20,000 in additional

damages. The judgment also stated that in the event

the Insurance Code theory failed on appeal, Ruttiger

could elect to recover his damage under the common

law breach of the duty of good faith and fair dealing

and/or the DTPA.

B. Holdings: The First Court of Appeals held

that no evidence supported the credit reputation

damages, but otherwise affirmed.

1. Jurisdiction: The court rejected the Carrier‘s

argument the trial court lacked jurisdiction because

Ruttiger had failed to exhaust his administrative

remedies. Texas Mutual contended that the benefit

dispute agreement was a compromise and that to

consider it a final administrative determination would

have a chilling effect on settlements. The court found

that the finalized benefit dispute agreement left no

other administrative dispute resolution steps available

on the compensability and disability issues addressed

by the agreement.


3

The Court distinguished American Motorist Ins.

Co. v. Fodge, 63 S.W.3d 801 (Tex. 2001) and Pickett

v. Texas Mutual Ins. Co., 239 S.W.3d 826

(Tex.App.—Austin 2007, no pet.). In each, an earlier

agreement had addressed compensability of the claim

and income benefits. Both Fodge and Pickett alleged

bad faith in the denial of medical benefits. Each court

held that the claim was not ripe as the agency had

never addressed the medical benefits. Ruttiger,

however, based his allegations on the delay in

payment of income benefits prior to the agreement.

Accordingly, Ruttiger‘s agreement constituted a

determination that benefits were due.

2. Sufficiency of the Evidence: The Carrier

contended it had a reasonable basis to dispute

Ruttiger‘s claim. Specifically, the Carrier asserted

there was evidence Claimant had been actually been

injured outside of his work. On appeal, Ruttiger

asserted his Insurance Code claim was based upon (1)

failing to attempt in good faith to effectuate a prompt,

fair, and equitable settlement of a claim with respect

to which the insurer‘s liability has become reasonably

clear, and (2) refusing to pay a claim without

conducting a reasonable investigation with respect to

the claim. The Court held the evidence was sufficient

to support the jury findings stating:

―To the extent that, in some circumstances, an

insurer might be justified in relying solely upon

information obtained from an employer, a reasonable

juror could have believed that, under the

circumstances presented in this case, [the adjuster]

should have been highly suspect of the veracity of the

unsubstantiated allegations he was hearing from April

Beall at the Employer. For example, she suggested in

her first contact with [the adjuster] that Ruttiger never

reported an on-the-job injury. Yet, this representation

was flatly contradicted by the injury report form filled

out by Ruttiger, signed by April Beall, and provided to

[the adjuster][The Court‘s argument here is based

upon a misunderstanding of the facts. April Beall,

Henry Beall and Dave Martin had only testified

Ruttiger did not report an injury when on the jobsite,

not that he had never reported one.] April Beall's

repeated allegations that Ruttiger was injured in a

softball game, which served as the only specific basis

for TMI's dispute, were never verified. Her

representations that Henry Beall had told her that

Ruttiger came to work limping on the day of the

injury were not supported by Henry Beall.

Additionally, Henry Beall made contradictory

statements regarding whether Ruttiger even timely

reported an on-the-job injury on the day of the injury.

Given the evidence, no reasonable juror could have

doubted that Ruttiger timely reported his injury.

Finally, April Beall's promise to provide [the adjuster]

a recorded statement from a co-worker to confirm that

Ruttiger was seeking compensation for an off-the-job

injury did not materialized [before the denial]. In sum,

a reasonable juror could have believed 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 version of the evidence from the

court, as well as Ruttiger's direct testimony that he

had, in fact, suffered an on-the-job-injury, the court

concluded a reasonable juror could have found that, at

the time TMI denied Ruttiger's claim, coverage for

Ruttiger's injuries had become reasonably clear.

Furthermore, the adjuster agreed that, under what

he believed to be the standards for conducting an

adequate investigation, a ―rumor‖ could not form the

basis for refusing to pay a claim. The unsubstantiated

hearsay from the employer that Ruttiger was actually

injured playing softball was the only specific fact

recited by the Carrier to support the grounds for denial

of Ruttiger's claim. The court concluded that by its

own standards and those imposed by the Insurance

Code, the Carrier 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 no information supporting a ―bona-

fide‖ coverage dispute. Texas Mutual argued the

evidence ―conclusively‖ established ―powerful

reasons‖ to dispute Ruttiger's claim. The court

disagreed.

3. Post Dispute Investigation: The court also

addressed the evidence Carrier developed after its July

12, 2004 dispute. The court was of the opinion the

issue of whether there is a reasonable basis for denial

must be judged only by the facts known to the insurer

at the time of the denial. The subsequent evidence

was only relevant to the extent ―…there can be no

claim for bad faith when an insurer has denied a claim

that is, in fact, not covered and the insurer has not

otherwise breached the contract.‖ As to the Popovich

and Martin statements, the court notes that these did

not refute the possibility of an aggravation of a pre-

existing hernia and neither provided any evidence of a

softball injury. In other words, if the post-dispute

investigation did not affirmatively, as a matter of law,

disprove Ruttiger‘s claim, such evidence could not be

used to justify the Carrier‘s dispute. The court also

appears to effectively limit the evidence review to

evidence only of whether the hernias may have been

sustained playing softball—the alleged fact listed on

the PLN-1. The court also noted the Carrier

eventually did accept the claim. As to the 1998

medical records, the court concluded the evidence

could support a claim this preexisting condition was




4

asymptomatic and may have been aggravated in 2004

[a claim Ruttiger never made and even twice denied

under oath by falsely denying the existence of prior

hernias].

4. The “Knowingly” Finding: The court also

found the evidence sufficient to support a

determination that Carrier ―knowingly‖ violated the

Insurance Code:

―Here, Ruttiger claimed the adjuster did not

attempt to contact him during the course of his

investigation, or, at best, made only minimal efforts to

do so. The jury could have believed the adjuster relied

solely upon April Beall's unverified statements that

Ruttiger had been injured while playing softball.

Perhaps confusing the ground for the dispute (the

hernias were not sustained in the course and scope of

employment and/or did not arise from the

employment) with the alleged fact in support of that

ground (playing softball), the court noted that

although the Carrier expressly denied coverage on the

ground that Ruttiger was injured playing softball,

Henry Beall, an A & H employee and the alleged

source of this information, did not confirm it. The

adjuster conceded that he did not speak with anyone

who could confirm that Ruttiger was injured playing

softball.‖

The court found most significant to the jury's

―knowingly‖ finding, Ruttiger‘s testimony that when

he called the adjuster to explain his side of the story,

the adjuster refused to listen to his version of events

and hung up on him—a call and conversation not

recorded in the adjuster‘s claim notes and its existence

denied by the adjuster.

The court found the jury could have reasonably

concluded the Carrier ―knowingly‖ failed to attempt in

good faith to effectuate a prompt, fair, and equitable

settlement of a claim with respect to which its liability

had become reasonably clear and/or refused to pay a

claim without conducting a reasonable investigation.

5. Damages: Texas Mutual contended the

damages for physical pain and suffering, physical

impairment, and mental anguish were improper as

these were not ―separate and independent‖ of the

injury for which Ruttiger was compensated by

workers‘ compensation benefits as required by

Aranda v. Insurance Co. of North America, 748

S.W.2d 210, 214 (Tex. 1988). The 1st Court of

Appeals expressly rejects the 5th Court of Appeals

decision in Hulshouser v. Texas Workers’

Compensation Ins. Fund, 139 S.W.3d 789 (Tex.

App.—Dallas 2004, no pet.) which also held such

damages are not recoverable. Id. at 792; accord,

Burkhardt v. Sedgwick Claim Mgmt. Servs. Inc.,

___S.W.3d___, 2009 WL 2712414 (Tex.App. –

Corpus Christi, No. 13-08-00351-CV, August 31,

2009, no pet.) Without explanation, the court declared

Ruttiger‘s damages were separate and independent,

and affirmed the award.

As to the alleged loss of credit reputation, the

court notes that ―[t]o recover actual damages for loss

of credit reputation, a plaintiff must show that a loan

was actually denied or a higher interest rate was

charged‖ and ―[t]here must be a showing of injury, as

well as proof of the amount of that injury.‖ Claimant

did not present evidence of this nature, and only

presented a copy of his credit report and financial

records showing his reduced income. The court

found this evidence legally insufficient and modified

the judgment to delete the damages award for loss of

credit reputation. This modification was not appealed

by Ruttiger.

C. The Ruttiger Issues:

1. Jurisdiction. The trial court had jurisdiction

over Ruttiger‘s delay remedy claim, if the Benefit

Dispute Agreement constituted an exhaustion of his

administrative remedies. Does a BDA resolving

compensability and disability issues satisfy Fodge/In

re Liberty Mutual? Secondarily, does the failure to

request or the refusal of the DWC to grant

interlocutory/expedited relief satisfy Fodge/In re

Liberty Mutual?

2. Bad Faith Liability and No Evidence

Standards: Can a jury disregard evidence that an

insurer‘s claims liability was not reasonably clear?

The court of appeals in Ruttiger held that evidence

discovered after the denial (medical evidence of pre-

existing hernias, corroborating a witness‘ statement

that Ruttiger had bragged about getting workers‘

comp to pay for the hernias) would not be considered

in evaluating whether the carrier‘s liability was

reasonably clear. In effect, the court of appeals ruling

allows a claimant to collect damages for the carrier‘s

failure to timely discover and raise a defense it would

otherwise have had to the claim, even if the claimant

took affirmative steps to hide facts supporting the

defense. Should the jury and reviewing court be able

to consider all facts that existed at the time of denial

(even if not discovered or raised by the carrier prior to

the dispute)? Does such a requirement make sense in

the workers‘ compensation context where the DWC,

not the carrier, makes the determination of

compensability?

3. Existence of or Limitations on Common Law

Bad Faith Liability: Ruttiger raises the question of

whether the control over workers‘ compensation by

the 1989 Act and TDI/DWC is so pervasive that

Aranda’s application of common law bad faith to the

handling of workers‘ compensation cases is no longer

necessary or prudent. [This issue is reached in





5

Ruttiger only if the Court finds a workers‘

compensation claimant has no standing under the Ins.

Code, no evidence of standing or no evidence of Ins.

Code violations].

4. Claimants’ Standing Under Chapt. 541

Insurance Code: The Carrier points out that TEX.

INS. CODE § 541.060(a) provides a cause of action for

wrongful practices arising from ―a claim by an insured

or beneficiary,‖ and expressly precludes standing to a

third party who has asserted a claim against the

insured under the policy. TEX. INS. CODE §

541.060(a).(b). Does a workers‘ compensation

claimant have standing to sue a workers‘

compensation insurer under this section? Does the

Code provide to a workers‘ compensation claimant an

exception to the exclusion of claims by third parties to

the policy? How must we deal with differences in the

claims handling requirements of the Act, DWC rules

and DWC policy versus irreconcilable findings by a

trial court/jury in a bad faith case?

5. No Evidence of “Knowing” Insurance Code

Violation: For meaningful no-evidence review of

―knowing violations‖, what constitutes evidence of

actual awareness of unfair claims-handling and risk of

serious harm? The underlying basis for this finding in

Ruttiger is the assumption the carrier was bound to

disregard the employer‘s allegations in evaluating

compensability.

6. No Evidence of Aranda’s “Separate and

Independent Injury” Requirement: Ruttiger raises

the question of what counts as a claims handling

injury separate and independent of the workers‘

compensation claim. Under the facts of Aranda, that

court only recognized loss of credit reputation as

satisfying the criteria. Since Aranda, the Supreme

Court has not been presented with or expressly

recognized any other injury arising from claims

handling in a workers‘ compensation case. Are the

benefits provided by the Act in lieu of the alleged

delay damages that arise from the injury itself

(pain/suffering/extended disability/extended

recovery/increased impairment) and any mental

anguish arising from such?

7. Evidentiary Underpinnings for Mental

Anguish Damages: What defendant conduct,

defendant intent, and effects on the worker are

required for mental anguish damages in the workers‘

compensation context? What effect, if any, should

defendant conduct and/or intent have on mental

anguish damages?

II. Texas Mutual Ins. Co. v. Morris, 287 S.W.3d

401 (Tex.App.—Houston [14th Dist.] 2009, pet.

filed)(No. 09-0495, pet. pending review since

December 2009).

A. Facts: Morris, an employee of a volunteer fire

department, injured his lower back on June 12, 2000,

while lifting a motor vehicle accident victim from a

ditch. Texas Mutual accepted the claim. Morris

began with a brief series of chiropractic treatments,

which then continued sporadically for the next two

and one half years. Morris only missed a brief period

from work in 2000.

In February 2003, Morris relocated to Sugarland,

Texas and began treatment with a new chiropractor.

Claimant sought emergency treatment for increasing

back pain on March 23, 2003. The hospital referred

Morris to a neurosurgeon, who diagnosed herniated

discs and request authorization for a L4-5 and L5-S1

laminectomy. Texas Mutual granted pre-authorization

and the surgery was performed on April 2, 2003.

On April 3, 2003, Texas Mutual transferred the

file to a new adjuster. On April 7, 2003, the adjuster

took her first action on the case, contacting the fire

chief, and learned that Morris had returned to work ―at

full duty without any problem.‖ The chief

subsequently testified he must have made the

statement, then stated it was unlikely that he would

have done so.

On April 7, 2003, the adjuster filed a TWCC-21

disputing liability for the L4-5 and L5-S1 disc

herniations and the surgery. Prior to this filing, the

adjuster did not contact Morris or any of his doctors to

obtain information about the current medical

condition or the cause of the disc herniations. The

adjuster asserted that the dispute decision was, in part,

based on an inconsistency in the 2003 description of

the injury (slipping off a fire truck—which, as it was

later discovered, is a description of a 1998 back

injury) and that description immediately after the June

12, 2000 accident (lifting a patient out of a ditch).

There was no contact with Morris to inquire about the

discrepancies.

Texas Mutual asserted that it had difficulty

obtaining medical records on the case. Morris,

however, presented evidence that his attorney had

faxed records to Texas Mutual on several occasions

and had provided a signed medical release by mid-

April 2003.

A benefit review conference was held on

November 2003, at which Morris agreed to an

evaluation with a RME, Dr. DeYoung, scheduled for

January 22, 2004. Texas Mutual provided medical

records to Dr. DeYoung, but these did not include a

page of chiropractic treatment notes from 2001 to

2003. Dr. DeYoung wrote to Texas Mutual and

indicated that because of the lack of medical records,




6

he could not determine the cause of the herniated

discs. He stated that under the assumptions that

Morris did not have low back trouble prior to June 12,

2000 and that medical records would show ongoing

difficulties with the lower back between June 2000

and April 2003, that the disk herniations would be

causally related to the June 12, 2000, injury. Texas

Mutual did not provide additional records to Dr.

DeYoung at that point and maintained its denial.

A second BRC was held in June 2004, which did

not resolve the issue. A contested case hearing was

set in July 2004. On July 1, 2004, Texas Mutual

forwarded records from Dr. Waldrop to Dr. DeYoung.

Again, the records did not include the chiropractic

treatment notes from 2001 to 2003. Dr. DeYoung

testified that the records he reviewed showed Morris

last treated with Dr. Waldrop in January 2001. He

opined that if Morris did not receive medical

treatment from 2001 to 2003, he would attributed the

herniation ―more to a disease of life than the work

related injury.‖ The CCH resulted in a decision that

the herniations at ―L4-5 and L5-S1 were caused

and/or aggravated by‖ the incident on June 12, 2000.

Texas Mutual did not appeal the decision.

Morris sued Texas Mutual alleging violations of

the Insurance Code, breach of the common-law duty

of good faith and fair dealing, and violation of the

Deceptive Trade Practices Act. During discovery,

Texas Mutual learned that Morris had previously

injured his back in 1998, when he fell from the

running board of a fire truck. The injury was

described as a strain or sprain. Morris missed two

weeks from work and had numerous chiropractic

treatments. Texas Mutual filed a counterclaim for

fraud, alleging that Morris had fraudulently testified at

the CCH that he had not injured his back prior to the

2000 injury. At trial, Morris acknowledged that he

did not mention the 1998 injury to the Carrier or Dr.

DeYoung, but asserted that this occurred because he

had fully recovered and did not consider it an

―injury‖.

Dr. DeYoung subsequently reviewed the records

from 1998 injury and testified that the 2000 injury was

not causally related to the herniated discs addressed

by the April 2003 surgery. Dr. DeYoung

acknowledged that the chiropractic treatment notes

showed 20 to 30 chiropractic treatments between 2001

and 2003, and acknowledged that those medical

records were contrary to Texas Mutual representations

that it had no record of any treatments during that

period.

At trial, Morris presented an expert who testified

that the Carrier‘s investigation was not reasonable

because it failed to include a ―three point contact‖

prior to the filing of the dispute. The expert also

criticized the Carrier‘s delay in requesting full medical

records, scheduling the RME, and requesting dispute

resolution. The expert also asserted that the 1998

injury would relieve Texas Mutual of liability only if

it were the sole cause of the herniated disc and that no

evidence suggested that the 1998 injury was the sole

cause of the disc herniations. [This legally incorrect

notion is apparently accepted as accurate by the

Court.]

The jury found that Texas Mutual had violated its

common law and statutory duties and acted knowingly

in so doing. The jury awarded $125,000 in actual

damages and $500,000 in additional damages based

upon the knowing conduct. The trial court reduced

the additional damage award to $250,000, in order to

comport the total award with three times the actual

damages.

Texas Mutual appealed contending that the

evidence was legally insufficient to support the jury

findings. It also contended error in the jury

instructions. Morris cross-appealed complaining of

the reduction in additional damages.

B. Holdings: Affirmed in part and reversed in

part. The Court highlights what it believed was the

relevant evidence against Texas Mutual as follows:

● Medical and non-medical personnel at Texas

Mutual initially authorized the surgery;

● The adjuster disputed coverage the same day

she first reviewed the file, ignored accepted

methods of investigating a claim, may or

may not have spoken briefly with Morris's

former employer, never spoke with the two

people who would know the most about the

initial injury and/or the current state of

Morris's spine, and did not speak with any

other treating physician before deciding to

dispute the claim;

● Texas Mutual complained that it had trouble

getting Morris's medical records, yet

Morris's attorneys faxed his records to Texas

Mutual on more than one occasion, Morris's

wife signed a release for Morris's medical

records as early as mid-April, and Morris

himself signed a release for his medical

records;

● Twice Texas Mutual sent medical records to

its medical expert (Dr. DeYoung) asserting

that those were all the records when, in fact,

one key page detailing multiple visits to Dr.

Waldrop was left out of the record;

● The page left out of the records sent to Dr.

DeYoung showed that Morris saw his

chiropractor sporadically between the 2000

Injury and the 2003 surgery;

● Dr. DeYoung informed Texas Mutual that

he would give Morris the benefit of the

doubt if Morris's records supported ongoing


7

trouble with his back and if he had no back

trouble prior to 2000. Texas Mutual either

was not aware that it had a page of treatment

notes from Dr. Waldrop showing visits

between 2001 and 2003 (The Carrier

explained the page was inadvertently

attached to a request to change treating

doctor form and was not placed in the

medical record section of their file), or it

chose not to give the sheet to Dr. DeYoung.

Either way, the jury reasonably could have

concluded that Texas Mutual acted

unreasonably.

The Court found that reasonable jurors could

have determined from this evidence that Texas Mutual

failed to reasonable investigate the claim and that

failed to attempt in good faith to settle the claim when

its liability had become reasonable clear. The Court

also found the evidence sufficient to support a

knowing violation of the Insurance Code. The Court

cites the testimony of Morris‘ expert that the carrier

knew it was wrong to raise an extent issue after

preauthorizing the surgery. He declared that action

unconscionable and ―thoroughly prohibited‖ [itself a

clearly incorrect statement of the law per 28 TEX.

ADMIN. CODE § 124.3(e) and State Office of Risk

Mgmt. v. Lawton, 295 S.W.3d 646, 648-50 (Tex.

2009].

Texas Mutual also complains the evidence was

legally insufficient to support the award of $50,000 in

past mental anguish damages. Although there was no

medical evidence, the Court found Morris‘s testimony

sufficient to support a mental anguish award.

Texas Mutual also complains the trial court

erroneously submitted Question 2, requesting the jury

to find whether Texas Mutual had engaged in one or

more of the eight listed TEX. INS. CODE § 541.060

unfair or deceptive acts. This, it asserts, erroneously

submits valid and invalid theories of recovery, with no

way to determine if the jury found liability on valid or

invalid theories. This is prohibited by Crown Life Ins.

Co. v. Casteel, 22 S.W.3d 378, 388 (Tex. 2000). The

Court rejects the argument as the jury found the two

violations in Question 1 (no reasonable investigation

and denial when liability was reasonably clear) which

mirrored two of the eight elements in Question 2. The

Court finds no Casteel problem.

The Court sustains Texas Mutual‘s assertion that

the evidence was insufficient to support the award for

loss of credit reputation, as Morris had not presented

any evidence that he had sustained actual damages

from loss of credit reputation, such as a loan denial or

payment of a higher interest rate. Morris testified that

he had been unable to finance a new washing machine

and had refinanced his home under his wife‘s name.

The evidence, however, failed to establish any

identifiable, measurable damages. The judgment was

modified to eliminate the credit reputation damages

(actual damages now reduced to $50,000).

The Court rejected Morris‘ cross-appeal that

additional damages should be calculated at three times

the actual damage and be paid in addition to those

actual damages, for a total award of four times the

actual damages. The Court affirmed the trial court in

limiting the total award, including the additional

damages, to three times the actual damages. So

additional damages were reduced to $100,000. Morris

has not appealed this holding to the Supreme Court.

The attorneys‘ fee award was also reversed and

remanded for new trial based on the modified total

award of $150,000.

C. Issues: Can a finding of no reasonable

investigation alone, in the absence of an additional

finding that liability was reasonably clear, form the

basis of an INSURANCE CODE § 541.060 violation?

What is the appropriate standard of review for a

no evidence or insufficient evidence complaints in a

bad faith claim? What evidence is relevant to a no

evidence or insufficient evidence appellate review of

a finding of bad faith?

What evidence is sufficient to establish

entitlement to mental anguish damages in a bad faith

claim?

What is the role, if any, of a sole cause analysis

in an appellate review of findings of bad faith?

What should be the role, if any, of an expert

witness in a bad faith claim? Under what

circumstances, if any, may such an expert testify as to

legal matters/background?

What is the appropriate manner of submission of

jury issues on DTPA and Insurance Code violations in

a bad faith case?

III. Burkhart v. Sedgwick Claim Management

Services, Inc ___S.W.3d___, 2009 WL 2712414

(Tex. App.—Corpus Christi, No. 13-08-00351-CV,

August 31, 2009, no pet.).

A. Facts: In April 2005, Burkhart injured his foot

and ankle on the job. In July 2005, the third party

administrator (TPA), Sedgwick, sought to have the

Claimant undergo a required medical exam (RME),

including a functional capacity examination (FCE) to

assess return-to-work issues. The FCE was scheduled

at Sedgwick‘s request by Concentra at Innovative

Physical and Occupational Therapy (Innovative) for

September 7, 2007.

In the meantime, the treating podiatrist

performed surgery on August 12, 2005, with post-

surgical instructions of no weight bearing. The

Claimant appeared for and participated in the FCE




8

anyway. Burkhart claimed his efforts at the FCE

seriously and permanently injured his foot and ankle.

The Claimant sued Sedgwick, Concentra and

Innovative for the alleged aggravation of his

compensable injuries. A second amended petition

included a claim of civil conspiracy to engage in the

practice of medicine in violation of the Texas Medical

Practice Act, for failing to consult the treating doctor

before performing the FCE, and additional counts of

negligence, assault, fraud and breach of good faith and

fair dealing. The Claimant claimed he had no

knowledge his treating doctor had not been consulted

regarding the FCE and would not have agreed to the

exam if he had known that.

The trial court granted Sedgwick‘s and

Concentra‘s motions for summary judgment, without

specifying the grounds. The court also granted

Innovative‘s motion to dismiss based upon an

untimely affidavit under § 74.351 TEX. CIV. PRAC. &

REM. CODE, for reasons not discussed here.

B. Holdings: The court of appeals concluded

that all the causes of action against Sedgwick and

Concentra were barred by the exclusive remedy

provisions of the Texas Workers‘ Compensation Act.

The court did not address the arguments made by the

Sedgwick and Concentra as to no duty to obtain

permission from the treating doctor, proximate

causation, consent and no vicarious liability for

Innovative‘s actions.

The court of appeals likened this situation to that

in Payne v. Galen Hosp. Corp., 28 S.W.3d 15 (Tex.

2000) and Hulshouser v. Tex. Workers’ Comp. Ins.

Fund, 139 S.W.3d 789 (Tex. App.—Dallas 2004, no

pet.), where the claimants‘ claims for aggravation of

the compensable injury were barred by the exclusive

remedy provision of the Act. Payne, 28 S.W.3d at 20;

Hulshouser, 139 S.W.3d at 792. Noting Aranda was

the reversal of a trial court dismissal, the damages

there were limited to loss of credit reputation, and

limited by the Supreme Court‘s ―separate claim‖ and

―independent injury‖ requirement (Aranda, 748

S.W.2d at 212-14), the Dallas court affirms the trial

court‘s granting of the summary judgment in favor of

the defendants. The court reasoned that ―…the

damages sought by the Burkharts-including damages

for medical care, physical pain and suffering, mental

anguish, and physical impairment-are of the same

kind as those for which the TWCA was designed to

provide the exclusive remedy.‖

The court notes that its holdings did not preclude

the claim against Innovative, as they were not

protected by the Act as an agent or employee of the

employer; nor was the Claimant barred from pursuing

any claim before the Division related to his workers‘

compensation claim.

C. Issues: What kinds of injuries and damages are

actionable in a bad faith claim as ―separate‖ from the

workers‘ compensation claim and ―independent

injuries‖? What consequences, if any, of the carrier‘s

actions which allegedly aggravate/worsen the

underlying compensable injury may form the basis for

a bad faith claim?

What duties do non-treating medical vendors

have to workers‘ compensation claimants? To what

extent, if at all, does the workers‘ compensation act

protect non-treating medical vendors?

IV. Johnson v. Zurich Am. Ins. Co. No. 05-09-

00087-CV, 2009 WL 3337663 (Tex.App.—Dallas

2009, no pet.).

A. Facts: Johnson sued the Carrier seeking

damages for denial of medical care under his

November 13, 2006, workers‘ compensation claim.

The Carrier had disputed medical treatments as not

being reasonable or necessary to treat that injury.

Johnson had not pursued the denied charges or

services through medical dispute resolution prior to

filing of this suit.

In response to Johnson‘s suit, the Carrier filed a

plea to the jurisdiction contending Johnson failed to

exhaust his administrative remedies. The trial court

granted the plea to the jurisdiction and dismissed the

lawsuit.

B. Holdings: Affirmed. When the legislature

has granted an administrative body the sole authority

to make an initial determination in a dispute, that

agency has the exclusive jurisdiction over the dispute.

Thomas v. Lang, 207 S.W.3d 334, 340 (Tex 2006). In

such a situation, the courts have no subject matter

jurisdiction over the matter until the party had

exhausted all of the administrative remedies with the

agency. Suburu of Am., Inc. v. David McDavid

Nissan, Inc., 84 S.W.3d 212, 221 (Tex.2002). The

Division of Workers‘ Compensation has exclusive

jurisdiction to determine entitlement to medical

benefits and to adjudicate medical benefit disputes,

including preauthorization of care and medical

necessity disputes. Am. Motorists Ins. Co. v. Fodge,

63, S.W.3d 801, 803-04 (Tex. 2001). Johnson had not

pursued the agency dispute process. Accordingly, the

trial court correctly granted the Carrier‘s plea to the

jurisdiction and motion to dismiss.

C. Issues: Are there circumstances where the

claimant need not exhaust his/her administrative

remedies which would bestow subject matter

jurisdiction to a court over matters related to claims

handling?










9

V. In re Liberty Mutual Fire Ins. Co., 295 S.W.3d

344 (Tex.App.--Corpus Christi 2008, orig.

proceeding), mand. granted, 295 S.W.3d 327 (Tex.

2009).

A. Facts: Nickelson injured his back and neck in

June 2003. He was found to be at MMI in January

2004 by a designated doctor with a zero impairment

rating. The Claimant unsuccessfully disputed the

designated doctor‘s findings at a CCH and the

Appeals Panel. He then filed for judicial review in

Nueces County. The only issue was entitlement to

income benefits.

Claimant alleges that shortly after he filed the

lawsuit he phoned the adjuster to discuss his concern

over being able to continue his chiropractic treatments

and the possibility he might need surgery. He claims

he was told by an adjuster that no additional medical

visits would be covered during the pendency of

judicial review. Claimant amended his suit to add an

allegation of bad faith for denying pre-authorization of

medical treatment. Nickelson characterized his

telephone call as a request to preauthorize office visits

and possible back surgery, and the Carrier‘s response

as a wrongful denial.

The impairment rating and MMI dispute were

subsequently settled. The Carrier filed a plea to the

jurisdiction seeking dismissal of the bad-faith

allegations, asserting that administrative remedies had

not been exhausted. The Carrier argued that

preauthorization was not required for the office visits

under Rule 130.600 and that preauthorization had

never been requested for back surgery.

The trial court denied the plea to the jurisdiction

and the Corpus Christi Court of Appeals denied the

Carrier‘s petition for mandamus. The Carrier then

requested mandamus relief in the Texas Supreme

Court.

B. Holdings: The Supreme Court, per curium,

conditionally grants the writ of mandamus and

instructs the trial court to grant the plea to the

jurisdiction and dismiss the case. The trial court and

Court of Appeal erred in failing to dismiss the suit.

Pre-authorization for office visits is not required

by Rule 130.600 and pre-authorization had never been

requested for back surgery. By allegedly demanding

pre-authorization for office visits when it was not

required and by failing to request pre-authorization for

surgery where it was required, the Claimant had

avoided all administrative review of his claim for

medical services.

The Division has exclusive jurisdiction over

entitlement to medical benefits. The Claimant‘s bad-

faith claims were dependent on whether he was

entitled to further medical care, an issue which must

first be addressed administratively. The Supreme

Court declined to consider the Claimant‘s discussion

with the adjuster regarding future care to be an

exhaustion of his administrative remedies.

C. Issues: Did the Texas Supreme Court really

mean what it said in Fodge requiring the exhaustion of

administrative remedies before the filing of bad faith

suits? The obvious answer, and by way of the

extraordinary remedy of mandamus, is ―Yes.‖

VI. In re Texas Mutual Ins. Co and Evie Villareal,

___ S.W.3d ___, No. 04-09-00082-CV, 2009 WL

1151795 (Tex. App.—San Antonio April 29, 2009,

orig. proceeding [mand. pending, No. 09-0508]).

A. Facts: Claimant, Hernandez was injured in

February 2006, while working on an oil rig. The

Claimant was discovered to have a pre-existing brain

injury and underwent emergency surgical procedures

for both injuries. The Carrier, Texas Mutual, disputed

the compensability of the claim, asserting that

Hernandez was intoxicated at the time of the accident.

This dispute was based a post-injury toxicology

report, which had been misinterpreted by the

insurance adjuster. The medical report itself indicated

―0.9 MG/DL,‖ which was reported by the registered

vocational nurse as ―0.9%‖ blood alcohol level. The

adjuster read this to mean 0.9 grams per 100 ml, rather

than the actual amount of 0.009.

Hernandez asserted that he and the employer

attempted to explain to the adjuster that he was not

intoxicated. In December 2007, Hernandez‘ attorney

requested a BRC. On January 22, 2007, eleven

months after engaging counsel, the attorney called the

adjuster and asserted the toxicology report had been

misinterpreted. The adjuster then consulted with a

peer review doctor who confirmed that the adjuster

had misread the report.

On January 26, 2007, the Carrier paid TIBs with

interest. February 8, 2007 BRC, the parties entered

into a Benefit Dispute Agreement only that Hernandez

had sustained a compensable injury. The scheduled

BRC was cancelled. In 2008, the hospital that treated

Hernandez after the injury sought reimbursement. The

Carrier denied the bills because they had not been

submitted in a timely manner.

In January 2008, Hernandez sued the Carrier and

the adjuster asserting that each acted in bad faith in

handling his workers‘ compensation claim. The

defendants filed a plea to the jurisdiction and a motion

for summary judgment asserting that Hernandez had

failed to exhaust administrative remedies as to

medical and income benefits as there was no Division

determination of liability and had failed to request an

interlocutory order for the payment of benefits.

The trial court denied the plea to the jurisdiction

and the defendants filed this mandamus action.





10

B. Holdings: Writ of mandamus conditionally

granted in part and denied in part. The court first

holds that mandamus relief is available to correct the

erroneous denial of a plea to the jurisdiction based

upon exclusive agency jurisdiction where it interferes

with the legislatively mandated function and purpose

of the agency and is a ―clear disruption of the ‗orderly

processes of government.‘ ‖, citing In re Entergy, 142

S.W.3d 316, 321 (Tex. 2004) (orig. proceeding). The

court concludes that mandamus relief is available if

the Claimant did not exhaust his administrative

remedies in the DWC.

Hernandez‘s trial pleadings included two aspects:

(1) bad-faith denial of medical benefits, and (2) bad-

faith delay in paying temporary income benefits.

The court of appeals agrees that the Division had

exclusive jurisdiction over the ―recovery of workers‘

compensation benefits‖ and ―disputes over income

benefits, pre-authorization of medical care, and

reimbursement of medical expenses.‖ The court also

acknowledges that if a dispute is resolved by binding

written agreement, there is no requirement that the

parties continue to other tiers of dispute resolution in

order to exhaust the agency process.

Texas Mutual, however, contended that because

the Benefit Dispute Agreement was silent as to

disability, liability for income or medical benefits, its

execution and approval did not exhaust the

administrative remedies as to those benefits. The

Carrier argued that to pursue a bad faith claims

handling case, the claimant must first obtain a

―…determination by the [DWC] of the carrier‘s

liability for each benefit the worker claims was

wrongfully delayed.‖ Fodge, 63 S.W.3d at 804.

Hernandez contended that because no issues remained

unresolved after the BDA was executed, he had

exhausted all remedies.

The Court agreed with Texas Mutual as to the

medical benefits. Neither the Claimant nor the

hospital sought a determination for payment of the

medical bills until the period of time to dispute denial

of the bill had expired. The Court holds that

administrative remedies as to the medical benefit had

not been exhausted, administrative remedies as to

those bills were no longer available and ordered that

those claims be dismissed. The trial court has since

entered an order dismissing the claims related to the

unpaid hospital bills.

The Court agreed with the Claimant as to the

allegations of wrongful delay in payment of temporary

income benefits. While the BDA did not address

disability, Carrier paid the TIBS in full prior to the

agreement. The Court reasoned that when the BDA

was executed, there were no remaining disputed issues

as to the payment of those benefits and pursuit of

administrative remedies was needless.

The Court also disagreed with the Carrier‘s

argument that because the Claimant had not sought an

interlocutory order to cure the delayed payment of

TIBS, he had not exhausted his administrative

remedies. The Claimant had invoked no

administrative remedy for the nine months following

the joining of the dispute. The Court describes the

interlocutory order as a ―permissive mechanism for a

claimant to obtain an expedited resolution,‖ which did

not require the exhaustion of administrative remedies.

C. Mandamus in the Supreme Court of Texas:

Following the court of appeals decision, Texas Mutual

filed a petition for writ of mandamus in the Supreme

Court of Texas (No. 09-0508), further pressing the

issues of the affect of the BDA and exhaustion. That

Court requested merits briefing which was completed

in December 2009. At this time, the petition is

pending.

D. Issues: Does a trial court lack subject matter

jurisdiction of a workers‘ compensation claimant‘s

bad faith claim over delay of income benefits if the

claimant does not obtain a DWC determination such

income benefits were owed?

Can an agreement between the parties (a BDA)

constitute a determination by the agency, thereby

conferring jurisdiction upon the trial court?

Does a Benefit Dispute Agreement that is silent

on disability and the payment of TIBs and which only

documents an agreement the claimant sustained a

compensable injury constitute a DWC determination

of entitlement to and an exhaustion of remedies as to

those income benefits issues?

Does a trial court lack subject matter jurisdiction

of a workers‘ compensation claimant‘s bad faith claim

over delay of income benefits where the claimant fails

to request or obtain the available DWC delay

remedies? Does the DWC have exclusive jurisdiction

over delay consequences and remedies?

Can the voluntary payment of TIBs constitute a

―determination‖ that TIBs were due?

VII. In re Texas Mutual Ins. Co. and Gloria

Williams, ___ S.W.3d ___, No. 05-09-00214-CV,

2009 WL 909725 (Tex. App.—Dallas, April 6, 2009,

orig. proceeding [mand. pending, No. 09-0443]).

A. Facts: The Claimant, Palmer, had an on-the-job

injury on January 5, 2006. The Carrier, Texas Mutual,

timely initiated and paid benefits. The Claimant‘s

surgeon requested preauthorization for a laminectomy

and discectomy at L4/5 and L5/S1, which was

approved on February 17, 2006. The same day, the

Carrier filed a PLN-11 disputing that the compensable

injury caused the purported disc herniations but

acknowledged that the pre-existing back condition had




11

been aggravated by the compensable injury. The

surgeon refused to perform the approved surgery out

of fear he would not be paid.

The Claimant requested a BRC on April 5, 2006.

No resolution was reached at the May 18th BRC. The

parties did enter into a Benefit Dispute Agreement at

the June 21st BRC. The parties agreed the

compensable injury included the disc conditions at

L4/5 and L5/S1, but not to L3/4 and L1/2. There was

no reference in the agreement regarding the proposed

spinal surgery. The next day, the surgeon again

requested preauthorization, and again, it was

approved. Surgery was performed July 5, 2009.

Palmer then sued Texas Mutual and the adjuster

for bad faith delay of his spinal surgery. The Carrier

filed a plea to the jurisdiction, contending the trial

court did not have subject matter jurisdiction as

Palmer failed to exhaust his administrative remedies

before bringing suit, as required by American

Motorists Ins. Co. v. Fodge, 63, S.W.3d 801 (Tex.

2001). The trial court denied the plea, but stayed that

proceeding pending disposition of the mandamus

petition. The Carrier did file a petition for writ of

mandamus in the Fifth District Court of Appeals

(Dallas), which denied the petition on April 6, 2009.

The Carrier claims there was no actual dispute

causing a delay as the PLN-11 accepted the

aggravation of the pre-existing condition the subject

of the surgery. However, because the Claimant

believed there was a dispute affecting the plan for

surgery, the Carrier argues the fact the Claimant did

not request or obtain an order from DWC related to

the surgery bars the bad faith claim on the basis of

failure to exhaust available administrative remedies.

The Claimant alleges the PLN-11 raised a dispute

regarding medical benefits which caused a delay in

receiving medical benefits (surgery). Claimant argues

there is no ―legislative intent to vest DWC with the

exclusive jurisdiction to issue rulings on whether a

dispute of coverage results in a dispute of benefits.‖

Claimant also argues that the delay remedies

referenced by Carrier are only ―permissive‖ and,

therefore, purportedly meaningless in an exhaustion

context.

B. Holdings: The Dallas Court of Appeals,

without comment, denied the petition for mandamus

C. Mandamus in the Supreme Court of Texas:

Following the court of appeals decision, Texas Mutual

filed a petition for writ of mandamus in the Supreme

Court of Texas (No. 09-0443), further pressing the

issues of whether the extent of injury dispute

constituted a denial of medical benefits and

exhaustion. That Court requested merits briefing

which was completed in December 2009. At this

time, the petition is pending.

D. Issues: May a healthcare provider‘s voluntary

delay in providing medical services because of the

belief of the existence of an unresolved

compensability or extent of injury dispute serve as the

basis for a bad faith delay claim?

May delays occasioned by a claimant‘s and/or his

attorneys‘ failure to initiate DWC dispute processes

and/or request interlocutory relief serve as the basis

for a bad faith delay claim?

Does a claimant‘s failure to promptly initiate

DWC dispute processes and/or request interlocutory

relief constitute a failure to exhaust administrative

remedies? What affect, if any, does the ―permissive‖

nature of an administrative remedy have on an

exhaustion defense to an extra-contractual cause of

action?

Did the filing of an extent dispute, but accepting

the aggravation of a pre-existing condition, constitute

a dispute of medical benefits that could serve as the

basis for a bad faith delay claim?

VIII. In re LM Insurance Corp., 2009 WL

3032525, No. 05-09-01123-CV, (Tex. App.—Dallas,

September 24, 2009, orig. proceeding)(mand.

pending, Supreme Court of Texas, No. 09-0823,

briefing completed November 2009).

A. Facts: The Claimant was injured in June 2005.

The Carrier accepted the claim and began paying

benefits. On April 18, 2006, a surgeon sought

preauthorization for spinal surgery (decompression),

which was timely denied by the Carrier‘s Utilization

Review Agent (URA). There was no timely request

for reconsideration of this denial. Following additional

testing and examination, the surgeon acknowledged a

change of plan and requested preauthorization for

spinal decompression, plus fusion and

instrumentation. On May 25, 2006, the Carrier‘s

URA approved this latter request and the surgery

described in the May 2006 request was performed.

On October 11, 2006, the surgeon requested

preauthorization for a bilateral decompression and

―redo instrumentation‖ on the left. The Carrier‘s

URA timely denied medical necessity of the original

request on October 16th and upon reconsideration on

October 23rd. No request for Independent Review

Organization review followed.

On November 28, 2006, the surgeon submitted

another request for preauthorization, this time limited

to redo of the instrumentation on the left, dropping the

proposal for decompression and use of new

instrumentation. This request was timely approved

and the surgery performed.

On June 4, 2007, one of Claimant‘s doctors

requested preauthorization for a cervical discogram.

This request was timely denied by the URA. There


12

was no record of any request for reconsideration or

appeal of this finding.

On August 15, 2007, another doctor requested

preauthorization for a cervical and lumbar CT

myelogram. The cervical and lumbar myelograms

were both timely denied by the URA, each on separate

grounds. Citing additional rationale, the doctor timely

asked for reconsideration of the request for the

myelograms, which were promptly approved by the

URA.

On October 24, 2007, another surgeon requested

preauthorization for a third spinal surgery (removal of

hardware, fusion and instrumentation). This original

request and an [untimely?] reconsideration request

were denied by the URA. No IRO request followed

these denials.

On January 11, 2008, two surgeons jointly

requested preauthorization for another spinal surgery

(lumbar laminectomy and decompression performed

by one doctor and fusion by another). The URA

timely approved this procedure and it was performed

on February 1, 2008.

The Claimant then sued Carrier and the adjuster

alleging common law breach of good faith and fair

dealing, Insurance Code and DTPA violations arising

from delays occasioned by the denials of the requests

for preauthorization for certain surgical and diagnostic

procedures. The Carrier filed a plea to the jurisdiction

based upon exhaustion grounds, which was denied by

the trial court. The Carrier filed for mandamus relief

in the court of appeals. The Dallas Court of Appeals

denied the petition without comment. The Carrier

then filed petition for mandamus relief in the Supreme

Court of Texas, which is now pending.

B. Mandamus in the Supreme Court: The Carrier

claims the Claimant‘s failure to exhaust his

administrative remedies related to the preauthorization

requests means the trial court does not have subject

matter jurisdiction over these bad faith delay claims

per Fodge and In re Liberty Mutual. The Claimant

claims the case is more like Ruttiger, as the Carrier is

said to have eventually ―agreed‖ to the previously

denied procedures and there was no available

remedies to exhaust. Furthermore, the adjuster‘s

testimony can be characterized as admitting the

Claimant had no remedies to exhaust.

This appears to be a semantics dispute. The

Claimant characterizes each healthcare provider‘s

alteration of their original request and/or supplying of

additional documentation after an initial denial,

resulting in approval of the amended or supplemented

request as a ―reversal‖ or ―overturning‖ on ―appeal‖—

in effect, an admission by the Carrier it was wrong in

denying the procedure in the first place. The Claimant

does not acknowledge the differences in the various

requests. The Claimant argues the adjuster‘s

acknowledgment that ―the surgery was approved‖

(without reference to the different surgical procedures

proposed within many of the requests) is considered a

binding admission of liability in the first instance, or a

least raises a fact question.

The Carrier characterizes each of the altered

preauthorization requests following an initial denial as

a new request, and the original request as ―un-

appealed‖ (abandoned). At best, the subsequently

approved requests are reconsideration requests under

DWC rules. The adjuster‘s general testimony the

―surgery was approved‖ is meaningless in light of the

differences in the denied procedures and those finally

approved. The adjuster‘s testimony, no matter how

strangely contorted or even misguided, cannot serve to

raise a ―fact question‖ as to the legal question of

whether Claimant had a remedy to exhaust. The

Carrier directs attention to the two denials upon

reconsideration that did not generate an IRO request

from the Claimant or his doctors, and that all the

approvals were for procedures not previously

requested or not properly documented.

C. Comment: At this stage, neither party

addresses the fact these complained-of determinations

were by utilization review agents, separately licensed

and regulated by the Texas Department of Insurance

and whose use are mandated by the Labor Code. In

effect, this lawsuit appears to be an attempt to use bad

faith claims to prosecute complaints of the medical

decisions of URAs regarding medical necessity.

D. Issues: Does the DWC have exclusive

jurisdiction over medical necessity disputes? Does a

claimant‘s failure to exhaust his/her remedies related

to medical necessity disputes deprive the trial court of

subject matter jurisdiction of a bad faith claim related

to the carrier‘s handling of the medical necessity

dispute?

Should the exclusive licensing and regulation of

URAs by the Texas Department of Insurance under

the Insurance Code bar bad faith claims related to

URA determinations? And, should the exclusive

regulation by the Division of Workers‘ Compensation

under the Labor Code of URAs and the effect of their

determinations, also bar bad faith claims related to

URA determinations? Should juries be reviewing and

determining the validity, propriety and

appropriateness of URA medical necessity

determinations? May insurance companies rely upon

URA determinations and be insulated from bad faith

liability related to those determinations? Must carriers

independently evaluate URA determinations, and are

they even permitted to do so?

May the denial of preauthorization by a carrier‘s

utilization review agent of an abandoned request for a


13

particular medical procedure form the basis of a bad

faith claim?

Under what circumstances, if any, may a denial

of preauthorization by a URA form the basis for a bad

faith claim against an insurance carrier? Would such

a question be the proper subject of mandamus?

IX. Kelly v. American Interstate Ins. Co.,

Hammerman & Gainer, Inc., and Sheryl Butman,

___S.W.3d___, No. 14-07-00083 (Tex. App.—

Houston[14th Dist.] November 25, 2008, unpublished

opinion, pet. filed, No. 09-0014)

A. Facts: Claimant Kelly claimed an on-the-job

injury of May 14, 2002. The Carrier, through its third

party administrator, Hammerman & Gainer, denied

compensability on May 29, 2002. At a September 3,

2002 BRC, the parties agreed to a compensable injury

and a period of disability. A separate period of

disability was left to a later agreement or

determination. Two days after that BRC, the Carrier

filed a request for another BRC to determine if newly

discovered evidence of pre-existing spinal injuries in

1998 was grounds for rescission of the first Benefit

Dispute Agreement (BDA) under TEXAS LABOR

CODE § 410.030(a).

A second BRC on December 12, 2002, addressed

the issues of (1) good cause to relieve the Carrier of

the effects of the original BDA, (2) whether there was

a compensable injury of May 14, 2002, (3) disability,

and (4) waiver of the right to dispute compensability.

On December 16, 2002, the Carrier filed a second

compensability dispute, specifically addressing the

question of whether the proposed and preauthorized

spinal surgery was related to the present injury, rather

than a 1993 injury. On December 30, 2002, the

Carrier filed a dispute questioning the medical

necessity of the proposed surgery, based upon

information related to the 1993 which it believed had

been intentionally withheld by Claimant.

On January 21, 2003, and before the scheduled

CCH, the parties signed a BDA which affirmed the

first BDA (Claimant sustained a compensable injury,

no good cause to rescind the original BDA, the Carrier

had waived its right to dispute compensability) and

agreed the compensable injury was a producing cause

of disability to date.

On March 6, 2003 and based in part upon an

RME exam, the Carrier issued a partial, qualified

preauthorization of the proposed lumbar surgery, by

approving the discectomy, and the fusion only if

determined to be appropriate intra-operatively. The

surgeon performed an exploration on April 1, 2003,

deciding not to do either the discectomy or the fusion.

Following additional testing and a failure of ongoing

treatment, the Carrier later preauthorized a lumbar

decompression and fusion performed on August 28,

2003.

On September 17, 2004, filed an extent dispute

based upon injuries (including cervical injuries)

received in a September 8, 2004 motor vehicle

accident. At a subsequent BRC a third BDA was

signed which limited the compensable injury to the

lumbar spine.

Claimant then filed the present lawsuit for

common law and statutory bad faith delay of medical

benefits, alleging Defendants had breached their

contracts (BDAs) with Claimant. The trial court

granted Defendants plea to the jurisdiction and motion

to dismiss. Claimant, Kelly, appealed.

Claimant claims the issue was one squarely on

point with In re Texas Workers’ Comp. Fund, 995

S.W.3d 335 (Tex. App.—Houston[1st Dist.] 1999, no

pet.) where the carrier had violated the express

language of a BDA by later denying liability for

medical benefits that had been addressed in the BDA.

The Defendants likened this situation to American

Motorists Ins. Co. v. Fodge, 63 S.W.3d 801 (Tex.

2001) and Picket v. Texas Mutual Ins. Co., 239

S.W.3d 826 (Tex. App.—Austin 2007, no pet.) both

of which dismissed the bad faith claims based upon

exhaustion of administrative remedies grounds. In

those cases, the orders of the agency and agreements

between the parties did not expressly address

entitlement to the medical benefits the subsequent

denial of which formed the basis for the extra-

contractual claims.

B. Holdings: The court of appeals characterized

the central question as ―whether a claimant can sue a

carrier for denial of specific benefits, based upon an

agreement to provide general benefits, without first

exhausting administrative remedies through the

TWCC process.‖ Slip Op. at 7. The court rejected

Claimant‘s contention that the BDAs relieved him of

having to request preauthorization. The court noted

that none of the BDAs addressed medical issues and

that the issue of medical necessity is otherwise

independent of the compensability and relatedness

issues addressed in the BDAs. Without a final

determination by the agency that the subject medical

benefits were due earlier, the trial court lacked the

requisite subject matter jurisdiction over claims of

delay and/or denial of such medical benefits. The

defect in jurisdiction was incurable and dismissal

appropriate.

The court of appeals affirmed the trial court‘s

dismissal of Claimant‘s bad faith claims. Claimant,

Kelly, has filed petition for review with the Supreme

Court of Texas. Although unclear from the briefing, it

appears Claimant may also be claiming the dismissal

is in violation of the ―Open Courts‖ provisions of

Article I, §13 of the Texas Constitution and a





14

violation of the ―Due Process Clause.‖ The Court

requested merits briefing in April 2009 which was

completed in September 2009. The petition for review

is pending.

C. Issues: Is a claimant relieved of the obligation

of requesting and receiving either preauthorization for

or a final order from the agency/court regarding

medical necessity of proposed spinal surgery during

any period of delay, if the carrier has entered into a

Benefit Dispute Agreement that the claimant has

sustained a compensable injury?

X. Durst v. Texas Mutual Ins. Co., No. 04-09-

00430-CV (Tex. App.—San Antonio, submitted on

written briefs, June 2, 2010) on appeal from the 2nd

25th District Court of Guadalupe County, Texas.

A. Facts: The Claimant, Charles Durst, claimed

an on-the-job low back lifting injury of November 30,

2004. Texas Mutual began benefits and paid TIBs,

without interruption, for the statutory maximum. In

the meantime, Durst‘s treating doctor certified MMI

as of January 21, 2005, with no impairment.

However, the Claimant then began seeing Dr. Lloyd

Youngblood who immediately recommended a 3-level

fusion to address degenerative problems and a

decompression to correct a herniated disc. This

recommendation raised issues of medical necessity

and extent of injury.

In February 2005, the Carrier‘s utilization review

agent denied the requested surgery upon initial request

and reconsideration. Upon resubmission and

additional testing, the proposed surgery was

preauthorized.

In March 2005, one of the Carrier‘s nurses

questioned whether some of the proposed treatment

was for non-compensable degenerative conditions.

Based upon Dr. Youngblood‘s records and the

diagnostic‘s, the opinion of peer reviewer Dr.

Tsourmas, Texas Mutual accepted liability for the

herniated discs, but not the degenerative conditions.

On March 23, 2005, the Claimant was informed the

Carrier would pay for the treatment-including surgery,

if needed- of the herniated discs. The surgeon refused

to perform either surgical procedure in the presence of

Texas Mutual‘s extent of injury dispute for the

degenerative conditions.

At a BRC on the extent-of-injury dispute held on

July 12, 2005, Texas Mutual claims the Claimant‘s

attorney handed the Carrier‘s representative an

exchange which included a 2003 MRI that had not

been previously exchanged, then tried to take the

report back, but was instructed by the BRO to provide

the report to the Carrier. The BRO then ordered the

Claimant to DWC RME. The RME doctor was

instructed to compare the pre-injury and post-injury

MRIs. There was no indication he did so and he did

not directly address the degenerative conditions in his

report. However, he did agree the disc herniations

were work-related—which Texas Mutual had never

disputed.

The adjuster then had a radiologist compare the

two MRIs. The radiologist noted there was only one

small change in one level of the multiple disc

herniations between 2003 and 2005. There was no

change in the disputed degenerative conditions.

On November 10, 2005, a Hearing Officer found

the compensable injury included the degenerative

conditions, finding the opinions of three of the doctors

more persuasive than the two believing the

degenerative conditions were not aggravated by the

compensable injury. In the meantime, a carrier RME

also concluded the degenerative conditions were not

related to the compensable injury. Nevertheless, the

appeals panel affirmed.

B. Judicial Review: Texas Mutual presented

evidence that five qualified physicians agreed with

and supported Dr. Tsourmas‘ conclusion the

degenerative conditions were pre-existing and not

aggravated by the compensable injury. The jury, 10-

2, found for the Claimant on the extent-of-injury

issue. The court of appeals affirmed, Texas Mutual

Ins. Co. v. Durst, No. 04-07-00862, 2009 WL 490056

(Tex. App.—San Antonio, February 25,

2009)(unreported).

C. The Bad Faith Claims: In the meantime, Durst

filed a bad faith suit against Texas Mutual and the

adjuster alleging that without a reasonable basis the

Carrier had denied timely payment of benefits and

continually denied payment of necessary medical

treatment. The Claimant states Chapt. 541 INS. CODE

and common law breach of good faith and fair dealing

causes of action. He claims damages for pain and

suffering, physical impairment, lost earnings, lost

earning capacity, lost credit and mental anguish. The

factual basis for the claims is that the surgeon delayed

the medically necessary surgery out of fear he would

not be paid for the fusion portion of the surgery.

The trial court granted Texas Mutual‘s motion

for summary judgment on the basis that the Carrier

had demonstrated the existence of conflicting medical

evidence (―a bona fide dispute‖) as to the extent-of-

injury issue. In such case, there could be no bad faith

as a matter of law. See Provident American Ins. Co.

v. Castaneda, 988 S.W.2d 189, 194 (Tex. 1998).

The Claimant argued at trial that Dr. Tsourmas‘

assessment of the extent-of- injury issue was

equivocal or a sham. Texas Mutual countered that

two other physicians had given similar opinions and

three had testified that Dr. Tsourmas‘ opinion was



15

reasonable, establishing a reasonable basis for the

Carrier‘s actions.

D. On Appeal, Claimant Argues: (1) the treating

doctor‘s testimony that the on-the-job incident

aggravated the pre-existing degenerative condition

raised a fact question; (2), that bad faith liability is

judged only by the facts before the carrier at the time

the claim is denied, citing Viles v. Security Nat. Ins.

Co., 788 S.W. 566, 567 (Tex. 1990); (3) a carrier is

required to prove that an asserted pre-existing

condition was the ―sole cause‖ of any disputed

conditions (i.e., the carrier must disprove the

possibility of an aggravation, citing Texas Mutual Ins.

Co., v. Morris, 287 S.W.3d 401, 415-16 (Tex. App.—

Houston[14th Dist.] 2009, pet. filed); (4) that bad faith

is inherently a fact question; (5) the trial court erred in

excluding the deposition testimony of the treating

doctor from a deposition taken in the judicial review

case in the underlying comp claim.

Texas Mutual responds: (1) the treating doctor‘s

testimony only demonstrated the existence of

conflicting medical opinion; (2) that the Viles standard

has been modified to include the evaluation of the

―facts existing at the time of the denial‖, citing

Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 340

(Tex. 1995) and Provident American Ins. Co. v.

Casteneda, 998 S.W.2d 189, 197 (Tex. 1998); (3)

―sole cause‖ has nothing to do with a bad faith

analysis, failing to prove ―sole cause‖ only would

create a fact question in the underlying claim, and

Morris is wrongly decided and contrary to existing

case law; (4) the exclusion of the deposition taken in

underlying comp case was not error, nor reversible

error as all it proved was that there was conflicting

evidence of the extent dispute.

In addition, Texas Mutual argues the judgment

would otherwise be supported by other grounds not

relied upon by the trial court: (1) Durst‘s claim of

damages does not comply with the ―separate injury‖

that is ―independent from‖ the compensable injury

requirement under Aranda, 748 S.W.2d 210; and (2)

Durst failed to exhaust his administrative remedies

designed to alleviate any delays occasioned by the on-

going dispute--meaning, the trial court had no subject

matter jurisdiction to award damages for such delay

under American Motorists Ins. Co. v. Fodge, 63

S.W.3d 801 (Tex. 2001) and In re Liberty Mut. Fire

Ins. Co., 295 S.W.3d 327 (Tex. 2009).

E. Issues: What are the evidentiary standards for

establishing a fact question in a claim for bad faith in

the workers‘ compensation context? What are an

appellate court‘s standards of review of a summary

judgment in a bad faith claim?

What administrative remedies must a bad faith

claimant exhaust to make a claim for delay of medical

treatment?

What damages arising from a delay in medical

treatment satisfy the separate and independent

requirements of Aranda?

Is it reversible error, in a bad faith claim, to

exclude deposition testimony of an expert witness

from the judicial review of the underlying workers‘

compensation case?

XI. Schwartz v. Insurance Co. of the State of Pa.,

274 S.W.3d 270 (Tex.App.—Houston [1st Dist.] 2009,

pet. denied)

A. Facts: Schwartz injured her right foot on

March 23, 2003. Her treating doctor, Dr. Denson

diagnosed a toe fracture and in July 2003 requested

preauthorization for surgery. This request was denied

on July 21, 2003, based on the recommendation of the

Carrier‘s utilization review agent. Dr. Denson

continued communications with the URA to attempt

to obtain approval. The record, however, did not

show that Dr. Denson requested reconsideration of the

denial within 15 days as required by the applicable

version of Rule 134.600. In October 2003, the Carrier

scheduled an independent evaluation with Dr.

Lamarra. Dr. Lamarra examined Schwartz on March

16, 2004, and indicated that he agreed with the need

for surgery and diagnosed a neuroma deformity.

Dr. Denson repeated his preauthorization request

in April 2004. Again, Carrier‘s URA denied

authorization. On April 26, 2004, however, the

Carrier‘s administrator overrode the denial and

authorized the surgery based on Dr. Lamarra‘s report.

Dr. Denson performed surgery on May 27, 2004. Dr.

Denson asserted that the delay in surgery had resulted

in the development of a more serious condition that

would require additional surgery. In 2005, Dr.

Denson performed a second surgery to address the

neuroma deformity.

On July 11, 2005, Schwartz sued the Carrier, its

TPA and the adjuster alleging damages from an

unreasonable delay in approval of foot surgery. The

trial court granted the defendants‘ plea to the

jurisdiction and dismissed the case, finding that

Schwartz had failed to exhaust her administrative

remedies. Schwartz appealed and contended that once

Carrier authorized surgery, no administrative remedy

remained available for her to exhaust and that she was

free to pursue this damages claim.

B. Holdings: Affirmed. The Court holds that

Schwartz's claims did not stem from the carrier's delay

or denial of benefits owed to Schwartz, but stem from

a medical necessity dispute arising from the initial

denial of preauthorization of her requested surgery.









16

The fact that the surgery was later authorized did not

constitute a determination that the initial denial was

improper. Accordingly, when Schwartz filed this suit

there remained a dispute for the Commission to

resolve.

The Court also found that Schwartz could not

cure this impediment to jurisdiction. Because Dr.

Denson had failed to timely request reconsideration of

the 2003 preauthorization denial, any administrative

review of that issue was barred. The trial court

properly dismissed the case.

C. Issues: What is the effect, if any, in a bad faith

delay of medical claim of a carrier‘s eventual

preauthorization of the subject medical service, where

the same medical service had previously been denied

and left unappealed?

XII. Cunningham Lindsey Claims Management,

Inc. v. Snyder, 291 S.W.3d 472 (Tex.App.—Houston

[14th Dist.] 2009, pet. filed)(No. 09-0875).

A. Facts: Snyder, a nurse with the self-Insured

Christus Health Gulf Coast, was injured on October 9,

2002, when a patient punched him on his right

collarbone. On December 19, 2002, an orthopedic

surgeon requested pre-authorization to perform spinal

surgery. Even though the injury and request appeared

related to the cervical region, the doctor‘s rationale

actually referred to a goal of resolving a lumbar

condition. The Self-insured‘s utilization review agent

denied preauthorization on lack of medically necessity

grounds. Neither the surgeon nor Snyder requested

reconsideration (timely or otherwise) of this denial.

About a week later, Self-insured filed a TWCC-

21 disputing the claim as a whole and also disputing

the extent of the injury. After a November 6, 2003,

contested case hearing, the hearing officer found that

the Self-insured had waived its right to dispute the

claim by not filing a dispute within 7 days of its first

written notice, that Snyder had been injured in the

course and scope of his employment, and that the

injury extended to a ―aggravation of the cervical area‖

at C5-6 and C6-7, ―and osteophytes associated with

these levels.‖ The Appeals Panel affirmed that

decision on February 4, 2004.

On April 14, 2004, a second request for pre-

authorization [a ―resubmission‖] was made for an

anterior C5-C6, C6-C7 discectomy, interbody fusion

and plate. The URA approved this initial

resubmission and the surgery was performed on April

27, 2004.

In September 2004, Snyder sued the Self-insured,

its third-party administrator and an individual adjuster,

alleging Insurance Code and DTPA violations (no

pleading of a common law bad faith claim). The Self-

insured settled prior to trial. At trial, a jury found

against the TPA and the adjuster and found damages

totaling $2,208,799 [$230,000 past physical pain and

suffering, $1.08 million future physical pain and

suffering, $540,000 future physical impairment,

$119,023 past loss of wage earning capacity,

$139,776 future loss of wage earning capacity,

$100,000 past mental anguish, $1.8 million (TPA

only) and $25,000 (adjuster only) punitive damages

for knowing violations, trial attorneys fees of

$185,000, and contingent appellate attorneys fees of

$66,000/$24,000/$24,000.] After settlement credits

and remittitur, the final judgment was $1,460,665.36,

plus attorneys fees and costs.

The TPA, Cunningham-Lindsey, appealed the

judgment and contended, in part, that the trial court

did not have jurisdiction.

B. Holdings: Judgment vacated and case

dismissed with prejudice. The Court holds that Snyder

failed to exhaust his administrative remedies. Snyder

attempted to characterize his injuries as resulting from

the wrongful compensability dispute for which he

exhausted his administrative remedies, but the Court

found his claims to be dependent on the determination

that he was entitled to pre-authorization of the surgery

in December 2002. Claimant‘s allegations were that

he sustained permanent damage and impairment due

to the delay in his surgery between December 2002

and April 2004.

It was undisputed that there was no request for

reconsideration of the December 2002

preauthorization denial or other pursuit of a ruling on

the medical necessity of the proposed procedure.

Because Snyder did not do so, the Court holds ―he

waived the argument that spinal surgery was

medically necessary in December 2002.‖

Snyder asserted that medical necessity was not in

dispute as the surgery was ultimately approved in

April 2004. This, the Court says, ignored two

undisputed facts: (1) The Claimant‘s initial request

for preauthorization for surgery was denied—a

determination that went unchallenged, and (2) the

surgery request that was eventually approved was a

―resubmission‖ under then rule 134.600(g)(4). Where

a party does not timely request reconsideration of a

denied pre-authorization or request an IRO review, the

same request for services may be resubmitted only on

evidence of a change in condition. Presumable the

April 14, 2004 surgery approval was based on such a

change—a worsening of Claimant‘s condition.

The Court holds that Snyder also incorrectly

asserted, that he could not have instituted medical

dispute resolution during the pendency of the

compensability dispute. The Court points out that the

medical dispute procedure and the compensability

dispute procedure remain separate. While a request

for IRO would have been held in abeyance until the

compensability and extent of injury dispute had been



17

resolved, a timely IRO request was still required to

preserve the medical necessity dispute. The Court

considers the Claimant‘s failure to act as an

abandonment of the dispute at that time.

The Court states that while it is true that there

was no medical necessity dispute by the time Snyder

filed this suit, ―the reason that there is no unresolved

dispute is because Snyder waived the right to dispute

[the URA‘s] determination that surgery was not

medically necessary in 2002.‖ Accordingly, he could

not re-litigate that issue in District Court and his claim

for damage resulting from the surgery delay was no

more viable if restated as bad faith.

Finding no other evidentiary basis in the record

to support the damage award—other than the delay

occasioned by the denial of preauthorization in

December 2002—and finding that that defect could

not be corrected, the Court vacated the trial court

judgment and dismissed the suit with prejudice.

C. Supreme Court Petition: The case is pending

petition for review in The Supreme Court of Texas as

of December 2009. Snyder now argues that it does not

matter if he failed to exhaust a remedy available at the

time of the initial dispute if that remedy was not

available by the time he filed the bad faith claim.

Snyder characterizes the court of appeal‘s exhaustion

requirement as a demanding an unavailable

retrospective determination of medical necessity. The

Carrier argues this can be characterized as

retrospective and unavailable only because the

Claimant failed to timely avail himself of the remedy

in the first place. Furthermore, a determination by the

Carrier in April 2004, based upon new medical

evidence and references only to the compensable

cervical injuries, cannot function as an admission the

surgery (the request for which referenced lumbar

diagnoses) should have been preauthorized in

December 2002.

The Carrier continues to assert as independent

grounds of dismissal the argument that the self-

insured is not ―engaged in the business of insurance‖

as required by former article 21.21 of the Insurance

Code, and that Snyder is not a consumer under the

DTPA.

D. Issues: Does the fact that a request for

preauthorization of a medical procedure (here,

surgery) was eventually authorized constitute a

determination by the DWC that an initial denial was

improper?

Was there some evidence of damages arising

from Defendants‘ actions other than from delayed

surgery; and therefore, within the trial court‘s

jurisdiction to award?

XIII. Stinson v. Insurance Co. of the State of

Pa., 286 S.W.3d 77 (Tex.App.—Houston [14th Dist.]

2009, pet. denied).

A. Facts: Stinson, a flight attendant, was injured

on December 16, 2003, when her airplane made a

sudden stop during taxiing causing her to fall

backwards. The Carrier accepted the claim and paid

TIBS for a two-week period in December 2003 and

lost time beginning again in May 2004.

After initial treatment in Honolulu, Claimant

returned home to Texas and began treatment with a

Dr. Turner in January 2004. Claimant was referred to

a chiropractor, Dr. Helton, who subsequently became

the treating doctor in April 2004. In May 2004,

cervical and lumbar x-rays and MRI were performed

and showed cervical spondylosis, cervical disc

protrusions, stenosis and annular tears, and lumbar

disc protrusions.

On June 30 2004, a consulting neurologist, Dr.

Tomaszek, evaluated Stinson and recommended

physical therapy. Dr. Helton testified that both he and

Dr. Tomaszek requested authorization for the physical

therapy and that a copy of Dr. Tomaszek‘s report was

faxed to the Carrier‘s third-party administrator. There

was a factual dispute as to whether these

communications constituted a request for pre-

authorization of physical therapy.

On July 1, 2004, a carrier required medical

examiner saw claimant and disagreed with the need

for physical therapy. The RME doctor indicates that

only home-based exercise was required. He also

addressed the extent of injury and describes the MRI

findings as preexisting degenerative disc disease. On

July 21st, Carrier filed a dispute stating, ―Carrier

disputes the cervical and lumbar degenerative

spondylosis as pre-existing and/or an ordinary disease

of life.‖ The Carrier, however, continued to pay

TIBS.

On August 24, 2004, a designated doctor found

that Claimant was not at MMI. On September 20th,

Commission appointed RME addressed the extent of

injury and the necessity of physical therapy. The

RME opined that Stinson‘s injuries from the fall

should have resolved and that the requested physical

therapy was not medically necessary. On September

23rd, Carrier filed a dispute stating: ―Based on

Commission RME there is no medical necessity for

chiropractic treatment, medications other that over-

the-counter NSAIDS, physical therapy, injection

treatment, pain management treatment, surgical

treatment, or further diagnostic imaging.‖ On October

19th, Carrier filed another dispute stating, ―Carrier

disputes that the compensable injury extends to and

includes cervical disc protrusions and/or herniations,

cervical radiculopathy, lumbar disc protrusions and/or

herniations and lumbar radiculopathy.‖



18

The Designated Doctor reexamined Claimant on

January 11, 2005, and disagreed with the findings of

the two RMEs. In February 2005, Carrier approved

and began payment for physical therapy treatments.

After a BRC of May 4, 2005, and a CCH on June 15,

2005, a decision and order was issued finding that the

December 16, 2003, injury extended to ―cervical disc

protrusions and/or herniations, cervical radiculopathy,

cervical degenerative spondylosis, lumbar disc

protrusions and/or herniations, lumbar radiculopathy,

and lumbar degenerative spondylosis.‖ That decision

became final without further appeal.

B. The Bad Faith Claim: In November 2005,

Stinson sued the Carrier, its TPA, and the adjuster

alleging Insurance Code violations, breach of the

common law duty of good faith and fair dealing, legal

malice, and violations of the DTPA. She alleged

damages resulting from the wrongful denial and delay

in medical benefits. The allegations focused on

physical therapy treatments and alleged that Carrier

wrongfully denied approval for physical therapy

between June 2004 and February 2005.

Carrier and the other defendants filed a motion to

dismiss the suit asserting that Stinson had failed to

exhaust her available administrative remedies as to the

medical necessity of these medical treatments.

Stinson responded asserting that her bad-faith claims

were predicated on the Carrier‘s unsuccessful

compensability challenge rather than on a medical

necessity dispute.

The trial court granted the motion to dismiss and

Stinson appealed. Stinson contended that

preauthorization had been requested by her treating

doctors and that Carrier had assented to the medical

necessity of the treatments when it began payment for

therapy in February 2005. Stinson argued that this left

compensability as the only disputed issue and that

there were no administrative remedies left to pursue

after that issue was resolved by the June 2005 CCH

decision.

C. Holdings: Reversed and remanded. The

court acknowledges that a disputed issue existed as to

whether there was a proper preauthorization request

for the physical therapy in 2004. Under the standard

of review of a summary judgment, the Court was

required to ―credit evidence favoring the non-movant

and draw all reasonable inferences in the non-

movant‘s favor.‖ Applying this standard, the court

finds sufficient evidence to demonstrate a proper pre-

authorization request occurred.

The Court notes that the record on appeal did not

contain any written denial of pre-authorization that

would start a timeline for medical dispute resolution.

The Court finds the case analogous to Ruttiger, in that

once the compensability dispute was resolved, ―there

is no indication that any dispute remained for

administrative resolution with respect to the medical

necessity of physical therapy after February 2005,

when the carrier assented to this treatment and began

paying for it.‖ The court holds,

―Medical necessity of physical therapy as of July

2003, when it was first requested, no longer was at

issue because the carrier did not send a written denial

in response to Stinson‘s pre-authorization requests.

There were no further administrative review

procedures for Stinson to exhaust as to that issue

because her obligations were keyed to the receipt of a

written pre-authorization denial that was not sent.

Medical necessity of physical therapy from February

2005 forward was no longer at issue in light of the

carrier‘s assent.‖

The court reversed the summary judgment and

remanded the case to the trial court.

D. Comment: The court of appeals believes that

Stinson had no administrative recourse if the Carrier

did not, in fact, respond in writing to the purported

preauthorization request; and therefore, the court had

subject matter jurisdiction. This is not accurate. The

case appears to be wrongly decided. The Stinson court

does not appear to have been made aware of the actual

agency practice and rules. The TWCC/DWC has

twice reminded participants that a carrier‘s failure to

respond within the three-day response time to an

initial request for preauthorization constitutes a de

facto denial, allowing the requestor to request

reconsideration--indeed, requiring the requestor to do

so if he/she wishes to pursue the issue. TWCC

Advisory 96-11 (June 29, 1996) and TWCC Advisory

2002-02 (January 29, 2002). See

http://www.tdi.state.tx.us/wc/news/advisories/index.ht

ml --link to advisories/bulletins. Likewise, a failure

by a carrier to respond to a request for reconsideration

within that five-day response time also constitutes a

de facto denial, allowing the requestor to request

dispute resolution (now through the Independent

Review Process). Id.

This policy makes perfect sense. To hold

otherwise, would allow a carrier to unilaterally and

indefinitely suspend the preauthorization process by

simply failing or refusing to respond to the request.

Then Rule 133.308(f)(3) provided a mechanism to

address the situation where the carrier might fail to

respond. If the carrier had failed to respond to a

request for reconsideration, the requestor could still

qualify for dispute resolution by simply providing

―convincing evidence of the carrier‘s receipt of that

request.‖ Rule 133.308(f)(3), 26 TEX. REG. 10934,

10968)(repealed, effective December 30, 2006). In

other words, a carrier‘s written response to a request

for preauthorization or reconsideration has never been


19

required for a claimant or healthcare provider to

initiate the dispute process.

E. Issues: Is the effect of the Stinson remand to

allow the jury in the bad faith case to determine the

medical necessity of the medical services the basis of

the delay claim? How does this conflict with the

Labor Code and DWC Rules which make clear that

medical necessity in a workers‘ compensation case is

never a jury issue? [cf. TEXAS LABOR CODE Section

413.031 and DWC Rule 133.308 which provided a

dispute resolution process distinct from benefits

issues, and one which was subject only to substantial

evidence review under TEX. GOV‘T CODE Chapt.

2001.].

Based upon DWC rules and policy, should the

Stinson court have dismissed Stinson‘s bad faith

claims for want of jurisdiction, based upon the failure

to exhaust her administrative remedies—the

availability of which had expired?

XIV. Gasch v. Hartford Acc. & Indem. Ins. Co.,

491 F.3d 278 (5th Cir. 2007).

A. Facts: Mr. Gasch was rendered a paraplegic

by a work-related injury in 1999. In 2003, Mr. Gasch

died as a result of a pulmonary embolism related to

the paraplegia. Hartford, the workers‘ compensation

carrier, initially disputed the claims of Mrs. Gasch and

a minor child for death benefits, asserting that the

death was the result of a myocardial infarction that

was unrelated to the 1999 injury. Frazier was the

adjuster handing the file at the time of the dispute.

Hartford later withdrew its dispute and paid death

benefits.

The Gaschs subsequently brought suit in state

court against Hartford and Frazier asserting that each

had violated the Texas common law duty of good faith

and fair dealing, the Texas Deceptive Trade Practices

Act, and Article 21.21 of the Texas Insurance Code.

Specifically, they alleged that the defendants had

wrongfully denied the death benefits even though

Hartford‘s liability was reasonably clear or had failed

to investigate the claim reasonably.

Hartford removed the case to Federal Court on

the basis of diversity jurisdiction. A case may be

removed to Federal Court based on diversity, only if

none of the properly joined defendants are citizens of

the state in which the action was brought. Frazier was

a citizen of Texas, but Hartford contended that she

was improperly joined. Hartford contended that none

of the causes of actions could be maintained against

Frazier as an individual.

The Federal District Court did not address

whether Frazier was a proper party or if the removal

was appropriate. Rather, the court granted a summary

judgment in favor of Hartford and Frazier, finding that

a reasonable jury could not find that either had failed

to investigate properly or that liability was clear at the

time of the dispute.

B. Holding: Vacated and remanded. The

Circuit Court addressed subject matter jurisdiction sua

sponte. To show that improper joinder of a resident

defendant, the removing defendant must show either:

(1) actual fraud in the pleading of jurisdictional facts,

or (2) inability of the plaintiff to establish a cause of

action against the non-diverse party.

Hartford had based it removal on an assertion

that the beneficiaries could not establish a colorable

claim against Frazier because an adjuster cannot be

held individually liable under Texas law. The Circuit

Court cites Liberty Mutual Ins. Co. v. Garrison

Contractors, Inc., 966 S.W.2d 482 (Tex. 1998), for its

holding that an insurer‘s employee who ―engage[s] in

the business of insurance‖ may be held individually

liable for violations of Article 21.21. That court noted

that ―an employee who has no responsibility for the

sale or servicing of insurance policies and no special

insurance expertise, such as a clerical worker or

janitor, does not engage in the business of insurance,‖

and would not be individually liable. A claims

adjuster, however, who was responsible for servicing

insurance policies would be ―engaged in the business

of insurance.‖ Accordingly, a potential claim would

exist under Article 21.21 against Frazier as an

individual.

The Circuit Court also states that Hartford‘s

reliance on Natividad v. Alexis, Inc., 875 S.W.2d 695

(Tex. 1994), to argue that a claim adjuster could not

be held liable for breach of the Carrier‘s non-

delegable duty of good faith and fair dealing,

overstates the Natividad holding. In that case, the

Carrier had contracted with a TPA, to provide all

services under the policy, which in turn contracted

with Alexis to provide claim-adjusting services.

Natividad held that because Alexis was not a party to

the workers‘ compensation policy contract, the

―special relationship‖ that gives rise to the duty of

good faith and fair dealing did not exist between

Natividad and Alexis. The Circuit Court holds that

while the Natividad holding insulated ―subcontracting

companies (and their agents)‖ from the duty of good

faith and fair dealing, it does not extend to agents of

the contracting carrier.

Finally, Hartford alleged that Frazier was not a

properly joined party because there was no evidence

of a viable claim against Frazier. The Circuit Court

relied on its holding in Smallwood v. Illinois Central

Railroad, Inc., 385 F.3d 568 (5th Cir. 2004). When

the only proffered justification for improper joinder is

that there is no reasonable basis for predicting

recovery against the in-state defendant and that

showing is equally dispositive of all defendants rather

http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=US_5thcircuit&volume=491&edition=F.3d&page=278&id=125012_01



http://www.TexasBarCLE.com/CLE/PMCasemaker.asp?table=US_5thcircuit&volume=385&edition=F.3d&page=568&id=125012_01


20

than to the in-state defendants alone, there is no

improper joinder.

In this case, Hartford‘s arguments were an attack

on the merits of the claim as a whole, rather than an

inquiry as to the propriety of the joinder of Frazier.

Finding that no federal jurisdiction existed under

diversity, the Circuit Court vacated the judgment of

the district court and remanded the case with

instructions that it be remanded to state court.

C. Issues: Under what circumstances would a

federal court have diversity jurisdiction over a bad

faith claim arising from a Texas workers‘

compensation claim? Under what circumstances

would the joinder of agents, subcontractors, third-

party administrators or other vendors of an insurer be

improper and provide potential federal diversity

jurisdiction?

XV. In re Liberty Ins. Corp. and Michelle

Yaklin, 2010 WL 2795362, No. 14-10-00229-CV

(Tex. App.—Houston [14th Dist.], July 16, 2010, orig.

proceeding).

A. Facts: The Claimant sustained on-the-job

injuries to multiple body parts on June 18, 2008. The

Carrier accepted multiple contusions and bruises. An

MRI of the knee about a month later showed an

abnormal signal from the medial meniscus—possibly

due to post-operative changes and/or complex

tearing—along with chondromalacia. On September

30, 2008, the Claimant‘s surgeon requested

preauthorization for a knee arthroscopy. The Carrier‘s

utilization review agent (URA) denied the request on

medical necessity grounds and also questioned

whether the knee condition was related to the

compensable injury. No one requested a timely

reconsideration of that adverse determination.

In October 2008, the Carrier‘s analysis to a

designated doctor indicated the issues for

determination were MMI, impairment, extent of injury

and return to work. It also stated the injury was a slip

and fall, with the Claimant landing on her left knee

and face, injuries were limited to strain/sprains, and

denying aggravation of pre-existing conditions to the

left knee, right hip and back. The designated doctor

found the compensable injury included, among other

conditions, aggravation of various pre-

existing/degenerative conditions in multiple levels of

the spine and internal derangement of the left knee.

In January 2009, the treating doctor requested a

second opinion regarding knee surgery. That second

opinion doctor declined to recommend surgery at the

time. A BRC later that month pushed forward issues

of extent of injury and waiver of right to dispute

extent. On February 4, 2009, the Carrier amended its

dispute to maintain its position the spinal injuries were

limited to sprain/strains, but to now accept

aggravation of the chondromalacia and medial

meniscus tear.

The treating doctor again requested

preauthorization for the knee surgery—in effect, a

―resubmission‖ under 28 TEX. ADMIN. CODE §

134.600(o)(4). The Carrier‘s utilization review agent

approved the request.

An April 6, 2009, Hearing Officer‘s Decision and

Order found the compensable injury included, among

other conditions, the degenerative spine and left knee

conditions, and that the Carrier had waived its right to

dispute the extent of injury. In August 2009, Claimant

filed a bad faith claim based upon the denial/delay of

payment of benefits after being ordered to pay by the

DWC and following the September 30, 2008 denial of

preauthorization of the knee surgery. The Carrier

filed a plea to the jurisdiction based upon failure to

exhaust administrative remedies, which was denied by

the trial court. The Carrier then filed this petition for

mandamus.

B. Holdings: The court first acknowledges that

the failure to grant a plea to the jurisdiction for failure

to exhaust administrative remedies with the DWC is

subject to mandamus review in order to prevent the

disruption of the orderly processes of government,

citing In re Liberty Mut. Fire Ins. Co., 295 S.W.3d

327, 328 (Tex. 2009)(orig. proceeding)(per curiam).

The court reasoned that the DWC is vested with

exclusive jurisdiction to determine a claimant‘s

entitlement to medical benefits, requiring a claimant

to exhaust all administrative remedies before seeking

judicial review of the agency‘s action. That would

include a review of the propriety of the carrier‘s

actions by way of a bad faith claim. The court rejects

Claimant‘s claim that the CCH decision was a final

determination that constituted an exhaustion of

remedies. The court notes the CCH decision dealt

with extent of injury issues and did not constitute a

determination of entitlement to medical benefits. The

reference in the CCH Decision and Order to the

Carrier‘s general obligation to pay all medical benefits

in accordance with the decision did not constitute a

decision of entitlement to any specific medical

benefits. As the Claimant had not pointed out any

medical benefits that had been ordered and denied, she

was bound to obtain a determination of entitlement to

a specific medical benefit before bringing this lawsuit.

The court also rejected Claimant‘s claim that the

eventual approval of the knee surgery left no

administrative remedy for Claimant to exhaust.

Claimant‘s reliance on TEX. LABOR CODE §

413.014(f) is misplaced. That Code section only

allows a carrier to voluntarily certify/agree that it will

pay for health care the subject of the agreement. That

section of the Code simply did not apply to this




21

situation, where the Claimant had appropriately

invoked the initial preauthorization process.

The court also rejects Claimant‘s contention the

later approval of surgery left no administrative remedy

to exhaust. The court holds Claimant was required to

show she had exhausted her administrative remedies

as it related to the September 30, 2008

preauthorization request. The later request for the

knee surgery was a resubmission. The URA review

and approval at that later date [itself requiring an

initial showing of material change of condition since

the September 30, 2008 request—per 28 TEX. ADMIN.

CODE § 134.600(o)(4)] did not constitute an

agreement or determination that the surgery was

medically necessary when originally requested.

The court rejects the contention the case should

be remanded based upon Stinson v. Ins. Co. of the

State of Pa., 286 S.W.3d 77, 83 (Tex. App—Houston

[14th Dist.] 2009, pet. denied)(op. on reh‘g). In that

case, the 14th Court of Appeals refused to dismiss the

case on exhaustion grounds, remanding back to the

trial court. The basis of that decision was there was

no evidence the carrier had denied the claimant‘s

request for preauthorization in writing, which

presumably meant there were no reconsideration

deadlines for Stinson to meet, and therefore, no

administrative review procedures available. [Note:

Unfortunately, the court repeats its incorrect

assumption from that case that Stinson had no

administrative recourse of the carrier‘s purported non-

response to the request for preauthorization. See

Stinson discussion, supra Section XIII.D. at 19.]

Nevertheless, the court distinguishes the present case

by noting the Carrier did respond in writing to the

initial preauthorization request, and neither the health

care provider nor the Claimant requested

reconsideration.

The court finally concludes the trial court did not

have subject matter jurisdiction. Since the

impediment to jurisdiction could not be removed, the

trial court is ordered to grant the plea to the

jurisdiction and dismiss the lawsuit.

C. Issues: Can a claimant rely upon the fact there

are no administrative remedies available to him/her at

the time of the initiation of the bad faith claim to

satisfy exhaustion requirements? Can the carrier and

courts rely upon a claimant‘s failures to pursue

administrative remedies at the time of the underlying

dispute to establish a failure to exhaust administrative

remedies?

Under what circumstances, if any, can a DWC

determination or an agreement regarding

compensability, liability or extent of injury, or a

carrier‘s agreement to pay for medical expenses under

Labor Code § 413.014(f), constitute a ―determination‖

regarding medical benefits under Fodge and sons?

In what ways, if any, can a URA‘s subsequent

determination of medical necessity constitute evidence

a previous adverse determination by that URA was

incorrect, wrongful, or even imputed to the carrier for

purposes of establishing a bad faith claim?

XVI. In re Texas Mutual Ins. Co., 2010 WL

2893300, No. 14-10-00104-CV (Tex. App.—Houston

[14th

Dist.], July 26, 2010, orig. proceeding).

A. Facts: The Claimant was injured on November

30, 2006, injuring his neck, low back and right elbow.

Texas Mutual accepted the claim and began paying

benefits. Following a January 2007 MRI that

described findings of degenerative changes resulting

in stenosis, Texas Mutual filed a PLN-11 challenging

the compensability of the degenerative conditions,

limiting the compensable injury to lumbar, cervical,

shoulder and elbow strains. The Carrier continued to

pay benefits during the pendency of the extent dispute.

The Claimant‘s surgeon noted he would not

proceed until the extent issue was resolved. In an

April 4, 2007 letter, he stated he believed the on-the-

job injury exacerbated Claimant‘s pre-existing

degenerative cervical conditions. Apparently in

response to the letter, the adjuster made a notation in

her notes that the extent dispute would/should be

dropped. The Carrier, however, made the decision to

continue the dispute through the dispute resolution

process.

On September 6, 2007, a designated doctor

opined that the compensable injury extended to the

degenerative cervical conditions. A carrier RME of

October 9, 2007, opined the degenerative changes

were not ―enhanced, accelerated or worsened‖ by the

compensable injury. On February 26, 2008, a hearing

officer issued a decision that the compensable injury

included certain cervical degenerative conditions. As

usual, the Carrier was ordered to pay benefits in

accordance with the decision. There is no mention of

any pending medical necessity issues considered by

the hearing officer, nor findings regarding medical

necessity.

On April 22, 2008, Claimant‘s surgeon requested

preauthorization for a two-level cervical discectomy

and fusion. The Carrier‘s utilization review agent

(URA) issued an adverse determination. There was

no timely request for reconsideration under TEX. INS.

CODE § 1305.354 (regarding reconsideration requests

in network claims). On July 11, 2008, the surgeon

again requested preauthorization for a two-level

cervical fusion; and again an adverse determination

was issued by the URA. And again, no

reconsideration was requested. Instead, the surgeon

requested a review by an independent review

organization (IRO). The URA properly returned the

request as no timely request for reconsideration had



22

been filed with the URA. On September 17, 2008,

Claimant‘s new surgeon requested preauthorization

for a one-level fusion, which the URA approved. The

approved surgery was performed on October 3, 2008.

On October 14, 2008, Claimant sued Texas

Mutual alleging an improper investigation and

wrongful extent of injury dispute delayed necessary

surgery between January 2007 and February 2008.

Claimant disclaimed any intent to sue over the

medical necessity dispute. Texas Mutual responded

with a plea to the jurisdiction, asserting the trial court

had no subject matter jurisdiction as Claimant had not

exhausted his administrative remedies. The trial court

denied the plea. Texas Mutual then filed this petition

for writ of mandamus.

B. Holdings: The 14th Court of Appeals grants

Texas Mutual‘s petition. The court first notes that

pleas to the jurisdiction based upon failure to exhaust

administrative remedies are reviewable by mandamus.

In re Libery Mut. Fire Ins. Co., 295 S.W.3d 327, 328

(Tex. 2009)(orig. proceeding). This is based upon the

underlying premise that where an agency has been

given exclusive jurisdiction to resolve a dispute, a

party must first exhaust all administrative remedies

before a trial court has subject matter jurisdiction.

O’Neal v. Ector County Indep. Sch. Dist., 251 S.W.3d

50,51 (Tex. 2008)(orig. proceeding); Suburu of Am.

Inc. v. David McDavid Nissan, Inc, 84, S.W.3d 212,

222 (Tex. 2002); Am. Motorists Ins. Co. v. Fodge, 63

S.W.3d 801, 802-04 (Tex. 2001); Saenz v. Fidelity &

Guar. Ins. Underwriters, 925 S.W.2d 607, 612 (Tex.

1996).

The court rejects Claimant‘s assertion he did

exhaust his administrative remedies by obtaining a

ruling on the extent of injury dispute. Disputes of

extent of injury and medical necessity are recognized

as entirely different disputes involving separate

procedures. Even preauthorization of a procedure

does not bar an extent of injury dispute related to that

approved procedure. Likewise, a determination of

extent of injury does not address the medical necessity

of a particular medical service. See Preamble, 28

TEX. ADMIN. CODE § 134.600(d), 25 TEX.REG. at

2101.

The court likens the present case to the

circumstances in Cunningham Lindsey Claims Mgmt.,

Inc. v. Snyder, 291 S.W.3d 472 (Tex. App.—Houston

[14th Dist] 2009, pet. filed). There, the claimant had

exhausted his administrative remedies as to a

compensability/extent of injury dispute. However, the

court held the claimant had not exhausted his

administrative remedies related to entitlement to

surgery at the time of the medical necessity dispute

and during the delay period the basis of the bad faith

claim. Id. at 478-9.

The court again distinguishes its reversal of a

granting of the carrier‘s plea to the jurisdiction in

Stinson v. Ins. Co. of the State of Pa, 286 S.W.3d 77,

83 (Tex. App.—Houston [14th] 2009, pet. denied)(op.

on reh‘g). In Stinson, the court notes, the carrier had

never responded in writing to the request for

preauthorization. Accordingly, there was purportedly

no administrative remedy to exhaust. [As noted supra

in Sections XIII.D. at 19 and XV.B at 22, this

distinction is erroneous as Stinson did, in fact, have an

administrative remedy following the carrier‘s

purported non-response to a request for

preauthorization.] Nevertheless, that observation does

not alter the rationale of this court‘s refusal to rely

upon Stinson. The court also notes that the DWC rule

in effect in Stinson required that medical necessity

disputes be abated during the pendency of any

compensability, liability or extent of injury dispute;

but that, that rule was no longer in effect for this

claim.

The court also rejects Claimant‘s assertion the

eventual preauthorization of the one-level fusion in

October 2008 relieved Claimant of the exhaustion

requirement. The court reasons that the Claimant

cannot seek damages for an asserted treatment delay

between January 2007 and February 2008 without a

determination by the DWC that he was entitled to the

two-level fusion proposed during that period. The

Carrier‘s approval of the one-level fusion does not

constitute an agreement by the Carrier that its earlier

denial was wrongful. [Note: This discussion is in

terms of the ―carrier‘s‖ denial of preauthorization.

There is no discussion of the impact, if any, of the fact

medical necessity was determined by a separately

licensed URA, regulated by the Texas Department of

Insurance under the Texas Insurance Code and in the

context of a health care network claim.]

As Claimant‘s entitlement to a two-level cervical

fusion between January 2007 and February 2008 has

never been presented to or determined by the DWC,

the Claimant has failed to exhaust his administrative

remedies as to entitlement to benefits the denial/delay

of which are the basis of his bad faith claim. As this

impediment to subject matter jurisdiction may not

now be remedied, abatement is not proper. The court

orders the trial court to grant Texas Mutual‘s plea to

the jurisdiction and to dismiss the case.

C. Issues: Under what circumstances, if any, may

the fact finder in a bad faith case be allowed to, in the

absence of a DWC prior determination, make findings

of facts on compensability, liability, extent of injury,

medical fee disputes or medical necessity issues in the

underlying workers‘ compensation claim? Can the

fact finder in a bad faith claim make factual findings

in conflict with fact findings in the underlying

workers‘ compensation claim?










23

Does the fact this was a health care network

claim change the court‘s exhaustion analysis in any

way?

What effect, if any, does the abatement of

medical necessity disputes under former DWC Rule

133.308(f)(7)(26 TEX.REG. 10934)(effective January

2, 2002 through December 30, 2006) have on an

exhaustion analysis?

THE END

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