Austin, Texas, U.S.A. - The Supreme Court of Texas issued a landmark decision June 22 in Texas Mutual Insurance Company v. Timothy J. Ruttiger that strengthens a law affecting millions of Texans—the Workers’ Compensation Act—and found that a bad faith cause of action is inconsistent with the current workers’ compensation system.

In a 5-4 decision, the Court overruled its 1988 “Aranda” decision that had created the bad faith claims-handling tort in workers’ compensation.

“The Supreme Court has acted with courage and integrity by upholding the remedies and protections that the Legislature has granted to injured workers,” Mary Barrow Nichols, General Counsel and Senior Vice President for Texas Mutual, said. “This decision is fundamental to the health of the entire workers’ comp system.”

When the Ruttiger case first came to the courts in 2004, lawsuits claiming “bad faith” against all insurance carriers, Texas Mutual included, were on the rise. Texas Mutual disputed Mr. Ruttiger’s claim for an on-the-job injury because his employer reported that he was hurt at a non work-related softball game. Texas Mutual ultimately entered into a compromise agreement with Mr. Ruttiger over the claim.

In 2006, a trial court found that the company’s adjuster had acted in “bad faith” by believing the employer instead of Mr. Ruttiger. The court awarded money to Mr. Ruttiger in excess of the amounts Texas Mutual had already paid him to cover his medical costs and replace his wages. He was awarded additional money for his “mental anguish over having his claim disputed.”

The First Court of Appeals in Houston upheld the original decision in 2008, and Texas Mutual appealed to the Supreme Court. In August 2011, the Supreme Court of Texas reversed the Houston Court of Appeals decision and rendered judgment that Mr. Ruttiger take nothing on his Insurance Code and Texas Deceptive Trade Practices Act claims. The Court also remanded the plaintiff’s common law good faith and fair dealing claims to the Houston Court of Appeals for further consideration.

Both sides requested a rehearing, suggesting that the Court reconsider fully the question of whether the 1989 overhaul of the Texas workers’ compensation system “eliminated the need for” a common law cause of action for breach of the duty of good faith and fair dealing. The requests were granted by the Court on Feb. 17, 2012.

In his concurring opinion, Justice Don R. Willett explained as follows: ”[T]he continued existence of bad-faith claims will subvert the Legislature’s meticulous soup-to-nuts system, one augmented by an immense regulatory and adjudicatory framework that, taken together, now regulates virtually every aspect of how a carrier handles a workers’ comp matter. . . [T]he inherently fuzzy nature of the bad-faith tort has a tendency to produce conflicting liability standards inconsistent with the Legislature’s statutory approach to carrier malfeasance and accountability.”

Justice Willett’s opinion continues: “I think it unwise to invite these potential complications, particularly in an area so imbued with public policy trade-offs, and where the Legislature has specifically addressed our concerns over how comp claims are processed. “Aranda” was rooted in specific claims-handling inequities in the pre-1989 comp system, inequities the Legislature has re-balanced. Accordingly, in light of the Legislature’s hermetic workers’ compensation regime, the time has come for the Court—exercising its authority to define and delimit common-law remedies—to overrule “Aranda,” a judicial gap-filler whose underlying rationale no longer exists.”

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