SB 1049 by Rep. Leticia Van de Putte (D-San Antonio) applies the unfair settlement practices statute, §540.060, Insurance Code, to a claim by an insured or a beneficiary under a workers’ compensation insurance policy.
SB 1049 appears to respond to the Texas Supreme Court’s decision in Texas Mutual Insurance Company v. Ruttiger (No. 08-0751; June 22, 2012). In a 5-4 decision, the Court overruled Aranda v. Insurance Co. of North America, 748 S. W.2d 210 (Tex. 1988), which recognized a common law cause of action for breach of the duty of good faith and fair dealing against workers’ compensation carriers. The Court closely examined the 1989 and subsequent reforms to the Texas Workers’ Compensation Act and concluded that the detailed notice and administrative dispute resolution provisions of the Act demonstrate legislative intent “for there to be no alternative remedies,” either under Chapters 541 and 542, Insurance Code, the Texas Deceptive Trade Practices Act, or the common law. The lack of an effective and exclusive remedy prior to 1989 may have justified the Aranda court’s recognition of a common law bad faith claim against a workers’ compensation carrier, but the current system does not. Continuing to recognize a common law cause of action against the carrier would undercut the Legislature’s administrative process, encourage the injured employee to delay the speedy resolution of a comp claim, and penalize the carrier for otherwise complying with the notice and appeals process provided by the Act. It would also increase litigation expense to employees, insurers, and employers in direct contravention of the Legislature’s intention to reduce those costs.
A vigorous dissent argued that the Legislature did not specifically intend to abrogate a common law bad faith remedy when it enacted the 1989 reforms. The majority avoids this argument by agreeing with the dissent, but asserting that the question before the Court was whether the judiciary should defer to the Legislature with respect to balancing interests in the comp system. The dissent also argued that Sections 416.001 and 416.002 of the Act specifically recognize the common law action for breach of the duty of good faith and fair dealing and that the Legislature in effect ratified Aranda. The majority rejected this argument.