THE TEXAS WORKERS’ COMPENSATION DIVISION HAS EXCLUSIVE JURISDICTION OVER CLAIMS FOR MISREPRESENTATION OF AN INSURANCE POLICY WHEN THE ALLEGED MISREPRESENTATION OCCURRED WITHIN THE CLAIMS-SETTLEMENT CONTEXT

This past Friday, the Supreme Court of Texas determined that a trial court abused its discretion when it refused to dismiss claims over which the Division of Workers’ Compensation had exclusive jurisdiction over the insurance company’s investigation, handling, and settling of claims for workers’ compensation.

In, In Re Crawford & Company, Company & Company Healthcare Management, Inc., Patsy Hogan and Old Republic Insurance Company, No. 14-0256 (February 27, 2015), Glenn Johnson, an employee of ASARCO, suffered serious injuries at work.  Due to the severity of his injuries, Mr. Johnson was entitled to receive lifetime workers’ compensation benefits.  In 2008, disputes over the amounts of benefits that he was entitled to receive resulted in a contested hearing.  Separate from the administrative proceedings, Mr. Johnson and his wife filed an underlying suit against ASARCO’s workers’ compensation insurance provider.  The Johnson’s allege that over a period of 10 years, the insurer engaged in “a battle plan to discourage and deny” benefits that the Johnsons were entitled to receive.  The Johnsons pleaded numerous causes of action, in tort and contract, and alleged violations of the statutory duties under the Texas Insurance Code and Texas Deceptive Trade Practices Act.

The Johnsons alleged that the Texas Workers’ Compensation Act did not require them to pursue their claims through its administrative procedures because the Act’s administrative procedures do not apply to some of their claims.  Specifically, the Johnson’s alleged that the Worker’s Compensation Act did not bar their claims because they were seeking damages that were “unrelated” to workers’ compensation benefits and based on injuries that are “independent” of harm the Worker’s Compensation Act was intended to prevent.

The insurer filed a plea to the jurisdiction and motion for summary judgment arguing that the Texas Workers’ Compensation Act had exclusive jurisdiction over the Johnson’s claims because they arose out of the workers’ compensation claims-handling process.  The trial court dismissed the Johnson’s claims for breach of common law duty of good faith and fair dealing but refused to dismiss any of the other claims.  The court of appeals denied the insurer’s petition for mandamus relief. 

The Supreme Court determined that the Division of Workers’ Compensation has exclusive jurisdiction over the Johnsons’ claims as the administrative agency responsible for overseeing the workers’ compensation system of Texas.  The Supreme Court further determined that the Court of Appeals’ interpretation of Texas Mutual Insurance Co. v. Ruttiger, 381 S.W.3d 430 (Tex. 2012) was too narrow.  While the Supreme Court recognized that its holding in Ruttiger does not necessarily bar claims for misrepresenting an insurance policy under the Texas Insurance Code, it noted that the holding in Ruttiger was based on the fact that “section 541.061 [of the Texas Insurance Code] does not specify that it applies in the context of settling claims.”  And, because section 541.061 does not evidence intent that it be applied in regard to settling claims, it is not at odds with the dispute resolution process of the workers’ compensation system.  Clarifying Ruttiger, the Court noted that instead of assessing whether a claim falls within the Workers’ Compensation Division’s exclusive jurisdiction, courts must look at the substance of the claim to determine if the Worker’s compensation act bars a cause of action.  As the Supreme Court reiterated in this case, “the current [Worker’s Compensation] Act with its definitions, detailed procedures, and dispute resolution process demonstrat[es] legislative intent for there to be no alternative remedies.”

While the Johnson’s alleged that their claims for misrepresentation existed outside of the Worker’s Compensation Act—thereby justifying their underlying lawsuit, the Supreme Court concluded that the Worker’s Compensation Division has exclusive jurisdiction over a claim for “misrepresentation of an insurance policy” when the alleged misrepresentation occurs within the claims-settlement context.  The Act’s comprehensive system for resolving workers’ compensation claims encompasses prohibitions against fraud and misrepresentations made within the claims settlement context, and grants the Worker’s Compensation Division authority to regulate and sanction any such conduct.

Because all of the Johnsons’ misrepresentation-based claims complained of misrepresentations that Crawford allegedly made in connection with its investigation, handling, and settling of the Johnsons’ claims for workers’ compensation benefits, the Workers’ Compensation Division had exclusive jurisdiction to address those claims.