El Paso Court of Appeals Holds Bad-Faith Claims against Workers’ Compensation Carrier Precluded by Exclusive Remedy Doctrine

A recent case out of El Paso clarified the line between bad-faith cases subject to the exclusive remedy of workers’ compensation and subrogation claims by the workers’ compensation carrier. The issue was resolved in the mandamus proceeding In re Texas Mutual Ins. Co., No. 08-15-00343-CV, 2016 WL 921317 (Tex. App.—El Paso, Mar. 9, 2016), which arose from a fatal injury by an employee of Alamito Construction Company, which was protected by workers-compensation insurance from Texas Mutual. The survivors of the employee sued and obtained settlement from the non-employer defendant that controlled the premises where the accident occurred. Texas Mutual then intervened in the suit, asserting a statutory subrogation lien under Section 417.001 of the Texas Labor Code. Texas Mutual suspended benefits to the survivors under the “future credit” provisions of the Labor Code, and resumed paying benefits when the credit was exhausted. The survivors challenged the suspension benefits in an administrative proceeding but also asserted bad-faith claims against Texas Mutual in state court.

In the administrative proceeding, the Texas Department of Insurance – Division of Workers’ Compensation (DWC) found that Texas Mutual was entitled to suspend benefits to offset a third-party recovery, even though the third-party settlement of $75,985.13 was not funded for approximately one year. After an appeals panel affirmed this determination, the survivors filed suit against Texas Mutual in state court. Their claims arose from Texas Mutual’s assertion of its subrogation interest and its suspension of benefits.

On mandamus, the Court of Appeals looked to Texas Supreme Court cases holding that the exclusive-remedy provisions applied to claims that a workers-compensation carrier improperly investigated, handled, or settled a claim. The Court first found that the trial court improperly denied Texas Mutual’s motion to dismiss by focusing on its subrogation claim rather than on the plaintiffs’ bad-faith claims. In other words, the trial judge had improperly classified the case as a “collection case” not subject to the exclusive jurisdiction of the DWC. The Court also found that the trial court improperly ruled that Texas Mutual waived its right to avail itself of the DWC’s exclusive jurisdiction by asserting its subrogation right in state court. The Court held that this violated the rule that subject-matter jurisdiction could not be waived. Noting that the DWC has exclusive authority to regulate improper settlement conduct by insurers, the Court granted Texas Mutual’s Petition for Writ of Mandamus, directing the district judge to dismiss the plaintiffs’ claims for lack of jurisdiction.