The Ruttiger Case: a Detailed Analysis

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1 2012 Flahive, Ogden & Latson May/June VOLUME 17, NO. 5/6 A PRIVILEGE D ATTORNE Y CLIE NT COMMUNICATION BY FLAHIVE, OGDE N & LATS ON TEXAS SUPREME COURT ALTERS THE LEGAL LANDSCAPE IN RUTTIGER Court Concludes 1987 Aranda Cause of Action no Longer Warranted On June 22, 2012, the Texas Supreme Court rendered a landmark decision in Texas Mutual Insurance Co. v. Ruttiger, No Ruttiger sued Texas Mutual Insurance Company (TMIC) alleging statutory and common law causes of action for damages above and beyond those workers compensation benefits for which he was entitled. Ruttiger obtained a favorable jury verdict and the court of appeals, with a small modification, affirmed the trial court judgment. In its original opinion rendered on August 26, 2011, the Texas Supreme Court held that Ruttiger could not recover under the statutory causes of action and it remanded the case to the court of appeals to address the common law cause of action of breach of good faith and fair dealing. Following the August 2011 opinion, the parties filed a motion for rehearing which was granted by the court. The court then rendered its June 22, 2012 opinion by a 5 to 4 determination which affirmed its prior decision concerning the statutory causes of action and rendered an opinion that common law cause of action of breach of good faith and fair dealing recognized in Aranda did not survive the Texas Legislature s enactment of the 1989 Act. Therefore, for injured workers who make a claim for In This Issue From the Commissioner.. p. 14 Ruttiger: a Summary p. 21 workers compensation benefits subject to the 1989 Act, they do not have a common law cause of action of breach of good faith and fair dealing recognized in Aranda v. Insurance Co. of North America, 748 S.W.2d 210 (Tex. 1988). Next in this issue of FOLIO, we offer a detailed review of the facts, arguments and holding of the Supreme Court of Texas in the Ruttiger case. The Texas Supreme Court s decision in the Ruttiger case followed years of litigation, in that case, and decades of litigation over the purposes and meaning of the bad faith causes of action as it relates to Texas workers compensation cases. Rarely does a Supreme Court decision make such a dramatic impression upon an entire body of the law. What follows is a detailed review of the underlying facts in Ruttiger, as well as the legal arguments and reasoning of the court s majority, concurring and dissenting opinions. Facts The Ruttiger Case: a Detailed Analysis On June 21, 2004, Timothy Ruttiger was working for A&H Electric in Galveston when he reported to his supervisor that he was injured while carrying pipe. He FOLIO CLIENT NEWSLETTER B Y FLAHIVE, OGDEN & LATS ON

2 went to the University of Texas Medical Branch at Galveston where he was diagnosed as having bilateral inguinal hernias. Later that day he went to A&H s office and filled out a TWCC -1 form, reporting that he had been injured on the job. Ruttiger was scheduled for hernia repair surgery to be performed on July 14, Flahive, Ogden & Latson, a 19 lawyer firm, defends contested workers compensation cases statewide every day. The firm has represented insurance companies and employers before the Texas Workers Compensation agency for more than 50 years. For general questions concerning the newsletter call: (512) Flahive, Ogden & Latson P.O. Box Austin, TX If you are interested in receiving FOLIO by , please let us know. FOLIO is prepared for the exclusive use of Flahive, Ogden & Latson clients only. It contains privileged communications and further sharing of this newsletter (in either hard copy or electronic format) outside your company without the express written consent of Flahive, Ogden & Latson is not permitted. FO&L OFFICE HOURS Monday Friday 8:15 a.m. 4:45 p.m. If you need to call after 4:45 p.m. please call Patsy Shelton at (512) She will be on duty until 6:00 p.m. daily. Don t wait until the last hour of the day for deadline filing. Any faxes with information due must be received by 3:30 p.m. for any deadline handling for same day delivery to the Division, and faxed according to the fax directory listed on the last page of FOLIO. Furthermore, if you have a last minute deadline, call our office by 3:00 p.m. and speak with Sally Matthews or Patsy Shelton to advise that a last minute filing is necessary to meet a deadline. We will be watching and waiting for the fax. Otherwise, last minute faxes could delay receipt. Our last daily run to the Division will be at 4:00 p.m., in order to get across town to meet their 5:00 p.m. closing time. When A&H s workers compensation carrier, Texas Mutual Insurance Company (TMIC), received written notice that Ruttiger was claiming an injury, it initiated temporary income benefit payments and began investigating. After conducting its investigation, TMIC denied Ruttiger s claim because it believed that the hernias resulted from Ruttiger s playing softball and were not work related. On July 12, 2004, TMIC filed a Notice of Refused or Disputed Claim with the Texas Workers Compensation Commission (for ease of reference we will refer to the Division, or DWC instead of the Commission) and discontinued temporary income benefit payments after having sent one check. Ruttiger then hired an attorney who later requested a BRC. The BRC was held on January 6, 2005 and at that conference the parties entered into a benefit dispute agreement. They agreed that: (1) Ruttiger suffered a compensable injury on June 21, 2004; (2) he did not have disability from June 22, 2004 through August 22, 2004; and (3) he had disability from August 23, 2004 to the present. The DWC approved the agreement. Following the BRC, TMIC paid temporary income benefits for the agreed period of past disability and re-initiated weekly benefits. TMIC also paid for Ruttiger s surgery and other medical expenses related to his hernias. Ruttiger reached maximum medical improvement on August 1, 2005, and was assigned a 1% impairment rating. On June 16, 2005, while his claim was still pending before the DWC and before he had reached maximum medical improvement, Ruttiger sued TMIC and Culbert (generally referred to collectively as TMIC) for violations of article of the Insurance Code, breach of the common law duty of good faith and fair dealing, and violations of the DTPA. Continues next page FOLIO CLIENT NEWSLETTER B Y FLAHIVE, OGDEN & LATS ON 2

3 Ruttiger s Allegation In his lawsuit, Ruttiger claimed that TMIC s delayed agreement until January 2005 to pay temporary income benefits and surgery damaged his credit, worsened his hernias, and caused mental anguish, physical impairment, and pain and suffering over and above what he would have suffered if TMIC had timely accepted liability and provided benefits. His allegations as to Insurance Code violations were that: TMIC (1) failed to adopt and implement reasonable standards for promptly investigating claims; (2) refused to pay Ruttiger s claim without having conducted a reasonable investigation; (3) failed to promptly provide a reasonable explanation for denying his claim; (4) failed to attempt to promptly and fairly settle the claim when liability was reasonably clear; and (5) misrepresented the insurance policy to him. He also asserted that TMIC s Insurance Code violations authorized recovery under the DTPA. Ruttiger s common law claim was that TMIC breached its duty to properly investigate his claim and denied necessary medical care and other benefits. Jury Verdict and Trial Court Decision The case was tried to a jury, which found that TMIC: (1) breached its duty of good faith and fair dealing; (2) committed unfair and deceptive acts or practices that were a producing cause of damages to Ruttiger; and (3) engaged in the unfair and deceptive acts knowingly. The jury found damages for past physical impairment, past and future pain and suffering, past and future loss of credit, past mental anguish, additional damages, and attorneys fees. The trial court rendered judgment based on the Insurance Code findings, but also provided in its judgment that if the Insurance Code theory of liability failed on appeal, Ruttiger was entitled to recover for TMIC s breach of the duty of good faith and fair dealing and under the DTPA. TMIC Appellate Argument TMIC makes several arguments for reversing the court of appeals judgment: (1) Ruttiger is not entitled to recover for aggravation of his hernias due to delay in surgery because a worker may only recover for a common law bad faith claim if he suffers an independent injury separate from his compensation injury; (2) the trial court lacked jurisdiction to award bad faith damages for wrongful delay of benefits because Ruttiger did not exhaust his administrative remedies by obtaining a determination by the DWC that benefits were due; (3) the Insurance Code causes of action do not apply to Ruttiger s claims as a matter of law, and even if they do, there is no evidence to support the jury findings that TMIC violated the Code s provisions; (4) even if Ruttiger s injuries were independent and the trial court had jurisdiction over his claims, this Court should join the majority of states that have considered the issue and disallow common law bad faith claims in the context of workers compensation; (5) the court of appeals misapplied insurance claims-handling standards for liability and no-evidence appellate review when it held that jurors may disregard conflicting evidence of coverage such as exists here where the statements made by employees of A&H and medical records indicated Ruttiger s hernias were preexisting (Medical records obtained during lawsuit discovery revealed that Ruttiger had been diagnosed as having bilateral inguinal hernias on two different occasions before he began working for A&H. He denied knowing of the diagnoses and denied having hernias before he was injured on June 21, 2004); (6) there is no evidence that TMIC knowingly violated the Insurance Code because there is no evidence it was actually aware it was being unfair to Ruttiger; and (7) there is no evidence to support the award for mental anguish damages. See pages 4-7 for majority, concurring, and dissenting opinions Court of Appeal Decision The court of appeals held that there was no evidence of credit reputation damages, but otherwise affirmed the trial court s judgment allowing recovery under the Insurance Code. 265 S.W.3d 651, 672. The appeals court did not reach the issues of whether Ruttiger could recover under his DTPA or common law claims. FOLIO CLIENT NEWSLETTER B Y FLAHIVE, OGDEN & LATS ON 3

4 Majority Opinion Justice Phil Johnson, Justice Hecht, Justice Wainwright, Justice Willett, and Justice Guzman Exhaustion of Administrative Remedies Citing American Motorists Ins. Co. v. Fodge, 63 S.W.3d 801 (Tex. 2001), TMIC asserts that a trial court lacks jurisdiction over a workers compensation claims-handling suit unless the DWC has made a determination that the worker is entitled to the specific benefits wrongly denied or delayed. Since the parties reached a benefit dispute agreement at the BRC, TMIC argues that in this case the WCD has not done so. The court held that the agreement was approved by the WCD and was a sufficient resolution of Ruttiger s claim by the WCD to constitute exhaustion of his administrative remedies as to whether he suffered an injury in the course of his employment for which medical and income benefits were payable, and as to the date when he became disabled from the injury. Therefore, Ruttiger exhausted his administrative remedies as to his claims that TMIC delayed in paying income benefits and the Commission s approval of the benefit dispute agreement was a determination of specific dates for which income benefits were payable. Accordingly, the trial court had jurisdiction over the claims for delayed payment of income benefits. Insurance Code Claims Section Ruttiger alleged violations under Chapter 541 of the Insurance Code entitled Unfair Methods of Competition and Unfair or Deceptive Acts or Practices. TMIC argues that as between section and the Workers Compensation Act, the Act is the exclusive remedy. Ruttiger responds that under Aetna Casualty & Surety Co. v. Marshall, 724 S.W.2d 770 (Tex. 1987), an employee has a cause of action under the Insurance Code against a workers compensation carrier. The court held in 1987 that an injured worker was not limited to recovery under the Act, but could also recover under the Insurance Code. Marshall, 724 S.W.2d at 772. But the current Act with its definitions, detailed procedures, and dispute resolution process demonstrating legislative intent for there to be no alternative remedies was not in effect in The Legislature s definition of settlement under the current Act reflects legislative intent that is at odds with the intent reflected in Insurance Code section ; the limited definition of settlement provided in the Act does not fit within the construct of section The provisions of the amended Act indicate legislative intent that its provisions for dispute resolution and remedies for failing to comply with those provisions in the workers compensation context are exclusive of those in section Thus, we agree with TMIC that Ruttiger may not assert a cause of action under section Section The jury charge also asked whether TMIC, with respect to a claim by an insured or beneficiary, failed to adopt and implement reasonable standards for prompt investigation of claims arising under its policies. Such action by an insurer is prohibited by Insurance Code section (a), (b)(3). But as we discussed in the preceding section, the Act contains specific requirements with which a workers compensation carrier must comply when contesting a claim, and provides that failure to comply with the requirements can constitute waiver of the carrier s rights as well as subject the carrier to significant administrative penalties. The Act s requirements include time limits for payment of benefits, giving notice of a compensability contest and the specific reason for the contest, and necessarily subsume the requirement of proper investigation and claims processing. We conclude, as we did with section , that in light of the specific substantive and procedural requirements built into the Act and the detrimental effects on carriers flowing from penalties that can be imposed for failing to comply with those requirements, the Legislature did not intend for workers compensation claimants to have a cause of action against the carrier under the general provision of section To the extent Marshall is in conflict with any of the foregoing, we overrule it. FOLIO CLIENT NEWSLETTER B Y FLAHIVE, OGDEN & LATS ON 4

5 Section The trial court judgment also allowed Ruttiger to recover under section of the Insurance Code, which is entitled Misrepresentation of Insurance Policy. TMIC asserts that section is not a legal basis for Ruttiger to recover damages for the same reasons he may not recover damages under Insurance Code section We disagree. Unlike section , section does not specify that it applies in the context of settling claims. See id (a) (defining unfair settlement practices with respect to a claim ). Section applies to the misrepresentation of an insurance policy, but because it 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. Nevertheless, we agree with TMIC that there is legally insufficient evidence to support a finding that it misrepresented its policy. TMIC denied Ruttiger s claim on the basis that he was not injured on the job. Ruttiger does not point to any untrue statement made by TMIC regarding the policy or any statement about the policy that misled him. The dispute between Ruttiger and TMIC was over whether Ruttiger s claim was factually within the policy s terms whether he was injured on the job. And the parties BRC agreement did not resolve any issues regarding TMIC s policy terms. It resolved whether Ruttiger was injured in the course of his employment with A&H. Deceptive Trade Practices Act Ruttiger agrees that his DTPA claim as pled and submitted to the jury depended on the validity of his Insurance Code claim. Because we have determined that he cannot recover on his Insurance Code claim, we likewise hold that he cannot recover on his DTPA claim. Good Faith and Fair Dealing The trial court s judgment provides that if Ruttiger s Insurance Code and DTPA claims failed on appeal, he could elect to recover on his claim that TMIC breached its common law duty of good faith and fair dealing. The court of appeals did not address the issue, but it has been briefed and argued here, so we will. TMIC asserts, in part, that Ruttiger cannot recover for breach of the duty of good faith and fair dealing because the cause of action is no longer warranted given the provisions of the current Act. In Arnold v. National County Mutual Fire Insurance Co., the Court held that a duty of good faith and fair dealing arises from the relationship between an insurer and a first-party insured. 725 S.W.2d 165, 167 (Tex. 1987). The Court noted that without such a cause of action insurers can arbitrarily deny coverage and delay payment of a claim with no more penalty than interest on the amount owed. An insurance company has exclusive control over the evaluation, processing and denial of claims. Id. at 167. In Aranda v. Insurance Co. of North America, we imposed the holding of Arnold onto the workers compensation system and held that an injured employee was entitled to assert a claim against a workers compensation carrier for breach of the duty of good faith and fair dealing. 748 S.W.2d 210, (Tex. 1988) (sometimes hereafter referred to as an Aranda cause of action for ease of reference). We pointed out three reasons for holding that an employee should be allowed to assert such a claim outside the workers compensation dispute resolution system: (1) the disparity of bargaining power between compensation insurers and employees; (2) the exclusive control that an insurer exercises over processing of claims; and (3) arbitrary decisions by carriers to refuse to pay or delay payment of valid claims leave the injured employees with no immediate recourse. Id. In sum, the Legislature has substantially remedied the deficiencies that led to this Court s extending a cause of action under Arnold for breach of the duty of good faith and fair dealing to the workers compensation system. The current system (1) reduces the disparity of bargaining power between compensation insurers and employees; (2) removes insurers exclusive control over the processing of claims; (3) diminishes and in most instances negates the ability of insurers to make arbitrary decisions refusing or unreasonably delaying payment of valid claims; (4) provides employees information about, immediate recourse to, and, through the ombudsman program, free assistance before the WCD with the claims and dispute resolution process; and (5) provides multiple remedies and penalties, including specific provisions for revocation of the carrier s right to do business under the workers compensation FOLIO CLIENT NEWSLETTER B Y FLAHIVE, OGDEN & LATS ON 5

6 laws of Texas if on multiple occasions it fails to pay benefits promptly and as they accrue. The essential question before us is not, as the dissent maintains, whether the Legislature intended to abrogate entirely a common law bad faith remedy when it enacted the Workers Compensation Act. S.W.3d at (Jefferson, C.J., dissenting). We do not believe it did. Rather, the question is to what extent the judiciary will respect the Legislature s function of addressing the concerns and adjusting the rights of parties in the workers compensation system as part of its policy-making function. In reaching this conclusion it is important to keep in mind the fact that the workers compensation system is wholly a legislatively crafted entity. Its continued existence and nature depends on the Legislature renewing, reviewing, and amending it to meet the changing needs of Texas employees and employers. The Aranda cause of action operates outside the administrative processes and other remedies in the Act and is in tension with and in many instances works in direct opposition to the Act s goals and processes. In part, that tension arises because the extra-statutory cause of action provides incentive for an injured worker to delay using the avenues for immediate relief that the Legislature painstakingly built into the law as happened in Ruttiger s case. Even if a carrier complies with the Act s provisions by timely notifying the employee of its refusal to pay benefits and the specific reasons why, then participating in a BRC, CCH, and even an appeal to a DWC Appeals Panel or for judicial review, the carrier still risks common law liability. That situation distorts the balances struck in the Act and frustrates the Legislature s intent to have disputes resolved quickly and objectively. See Lopez, 259 S.W.3d at Further, an extra-statutory cause of action builds additional costs into the system by increasing litigation expense to employees, insurers, and employers. See Garcia, 893 S.W.2d at (discussing how through the 1989 amendments the Legislature sought to reduce delay and costs). It also discourages insurers from contesting suspect or questionable claims and medical treatments because of the possibility of unpredictable large damage awards if the carrier loses its contest, or even resolves a dispute as TMIC did with Ruttiger. This case demonstrates how a cause of action for breach of the duty of good faith and fair dealing can hinder the prompt resolution of disputes through proper use of the Act s dispute resolution provisions and increase costs to participants in the system. TMIC timely notified Ruttiger that it was disputing his claim, why it was doing so, and notified him of his right to a BRC. When Ruttiger finally requested a BRC to resolve the dispute, one was scheduled and held, the dispute was resolved, and TMIC began paying benefits. The way the dispute was resolved after Ruttiger initiated the dispute resolution process is the way the Act is designed to function. The disruptive factor was Ruttiger s waiting three months to request a BRC. Such a delay is not what is contemplated by the statutes, and the time for which Ruttiger delayed in initiating the Act s dispute resolution procedures is the basis for his claim for damages in this suit. Concurring Opinion Justice Willett I join the Court s opinion but write separately on Part V to emphasize this overlooked truism: It is principally the judiciary s role to define and delimit common-law causes of action. In our constitutional design, the judicial branch is a partner, but not a junior partner and shaping Texas common law is fundamentally a judicial prerogative. Today the Court overrules Aranda v. Insurance Co. of North America and holds a commonlaw action for bad faith is no longer warranted in the workers compensation context. I agree. The dissent avers the proper inquiry is whether the Legislature intended to abrogate extra-statutory Aranda claims when it amended the Workers Compensation Act in Respectfully, this focus on legislative action is misplaced, at least in this case. To be sure, the Legislature has some power to override or otherwise limit common-law remedies. However, this is a high hurdle, one clearly uncleared here. As such, the search for some legislative suggestion on whether Aranda should survive an inquiry both the majority and the dissent eventually entertain is at best fruitless, and at worst, dangerously speculative. The more proper inquiry, respectfully, is FOLIO CLIENT NEWSLETTER B Y FLAHIVE, OGDEN & LATS ON 6

7 whether the Court believes Aranda still has a place, not whether the Legislature believes so. Statutory abrogation is not the sole way to re-think a common-law cause of action. In determining the continued vitality of the bad-faith remedy in workers compensation cases, I would pivot on something simpler: this Court s nonpareil role as arbiter of the common law. It is the duty of the judicial branch to declare what the common law is: The law is not static; and the courts, whenever reason and equity demand, have been the primary instruments for changing the common law through a continual re-evaluation of common law concepts in light of current conditions. This charge is indeed an ongoing one: [T]he common law is not frozen or stagnant, but evolving, and it is the duty of this [C]ourt to recognize that evolution. Accordingly, we are called upon to reevaluate common-law rules, giving deference to stare decisis when warranted, but departing when the prior rule no longer furthers the interests of efficiency, fairness, and legitimacy. As we noted 142 years ago, When the reason of the rule fails, the rule itself should cease. Cessante ratione legis,cessat ipsa lex. 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. Dissenting Opinion Chief Justice Jefferson, Justice Medina, Justice Green, and Justice Lehrmann Timothy Ruttiger allegedly sustained a work-related injury. Because of various complaints about how the Texas Mutual Insurance Company (TMIC) processed his workers compensation claims, Ruttiger sued under the common law and chapters 541 and 542 of the Insurance Code, alleging that TMIC breached its duty of good faith and fair dealing. TMIC and its amici ask us to hold that the Texas Workers Compensation Act is the exclusive remedy for all work-related injuries, thus precluding Ruttiger s suit. We have previously concluded that both the Insurance Code and common law claims are viable indeed, that they complement the workers compensation system. Even after the 1989 overhaul, the Act s express language makes plain the Legislature s intent that common law bad faith claims remain available to litigants. As for Ruttiger s Insurance Code claims, the Code s language makes clear that they apply, and the Act s exclusivity provision does not apply to insurance carriers. Far from having precluded such claims, then, the Legislature has continued to recognize actions like Ruttiger s. Today the Court holds that most of Ruttiger s Insurance Code claims (and, as a result, his dependent DTPA claims) are no longer viable. The Court also eliminates Ruttiger s common law good-faith-and-fair-dealing claim. The Court makes persuasive policy arguments to support its decision, replacing the Legislature s judgment with its own. I would hold that both claims survived the Legislature s 1989 workers compensation overhaul and would affirm the court of appeals judgment. Because the Court does otherwise, I respectfully dissent. FOLIO CLIENT NEWSLETTER B Y FLAHIVE, OGDEN & LATS ON 7

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14 From the Commissioner: Opioids and the Texas Workers Compensation System In the June 2012 Texas Workers Compensation Update, Commissioner Rod Bordelon provided the following comments: THERE IS NO DISPUTING THE GROWING CONCERN over the use of prescription drugs, particularly opioids. Abuse and misuse of prescription drugs, including opioids, is a serious issue in health care including the Texas workers compensation system. I d like to take this opportunity to remind workers compensation system participants of our shared responsibilities concerning the use of prescription drugs and about the tools that the TDI-DWC has made available to assist system participants in this area. Our goal is to promote prompt, high-quality health care for injured employees while ensuring effective cost control. The TDI-DWC has adopted and implemented several rules that provide the tools necessary for system participants to monitor prescription drug utilization and curb unnecessary medical care. We have adopted evidencebased treatment and return-to-work guidelines that provide guidance to system participants about recommended treatment protocols and expected return-to-work outcomes for specific types of injuries. We also have adopted rules requiring preauthorization for services outside of these guidelines. In addition, the TDI-DWC has adopted a new closed pharmacy formulary which identifies specific drugs that require preauthorization from the insurance carrier before they can be dispensed. New medical data reporting requirements for insurance carriers will allow the TDI-DWC to more effectively monitor prescription patterns for doctors and evaluate the effectiveness of new rules on medical costs and quality of care out-comes. Finally, monitoring of doctors who prescribe opioids has been added as a required review category for the enforcement-based CY 2012 Medical Quality Review Audit Plan. We have begun to see the positive impact of these efforts through reduced prescription drug utilization and costs for new claims. The TDI-DWC will continue to monitor the transition of legacy claims (i.e. claims with dates of injury prior to September 1, 2011) to the closed pharmacy formulary on September 1, Research findings by the Workers Compensation Research and Evaluation Group indicate that these legacy claims account for a disproportionate share of prescription drug utilization and costs. As a result, our rules require that insurance carriers identify these claims as quickly as possible and begin the dialog with prescribing doctors about the need to either continue the use of drugs excluded from the closed pharmacy formulary for these legacy claims or the need to transfer and/or wean these injured employees off of excluded drugs. For injured employees who have been taking these drugs for many years, this presents serious health concerns that can only be effectively managed if both insurance carriers and health care providers have open communication and focus on the injured employee s health and safety first. These efforts alone cannot resolve the problems associated with prescription drug abuse and misuse in the Texas workers compensation system. Prescribing doctors are reminded of their responsibility to pre-scribe drugs in accordance with the appropriate standard of care and the applicable treatment guidelines. Insurance carriers are reminded of the tools they have through the closed pharmacy formulary rules and through appropriate utilization review methods to address overutilization and inappropriate use of prescription drugs, including opioids. We at the TDI-DWC will continue to discuss with all system participants ways to improve compliance with current statutes and rules. Working together we can ensure a smooth transition of legacy claims to the closed pharmacy formulary in 2013 and promote high quality and cost effective health care for all injured employees in Texas. Rod Bordelon, Commissioner of Workers Compensation FOLIO CLIENT NEWSLETTER B Y FLAHIVE, OGDEN & LATS ON 14

15 AUSTIN, TX Fewer opioids, narcotics and other not recommended drugs are being prescribed in the Texas workers compensation system according to a recent study of medical billing and payment data collected by the Texas Department of Insurance, Division of Workers Compensation (TDI-DWC) and the Workers Compensation Research and Evaluation Group (REG). The study which will be released later this summer examines the impact of a pharmacy closed formulary adopted by Workers Compensation Commissioner Rod Bordelon in The study compared injuries that occurred between September and November 2011 with injuries that occurred during the same timeframe in To ensure comparability, both sets of claims were analyzed at six months post-injury to account for differences in claim maturity. The study found that under the formulary: Fewer Texas Workers Compensation Claims Include Opioids and Not-Recommended Prescriptions prescription drug costs specifically attributed to not-recommended ( N ) drugs for 2011 claims were reduced by 75 percent (approximately $841,000) when compared to 2010; the frequency of opioid prescriptions dispensed to injured employees decreased by 10 percent and the costs associated with opioid prescriptions decreased by 17 percent This is significant, said Commissioner Bordelon. With this formulary, along with treatment guidelines, preauthorization requirements and enforcement efforts we ve recently adopted, Texas is now leading the charge in combating overutilization of unnecessary prescription drugs in the workers compensation system, while safeguarding medically necessary care that promotes an injured employee s return to work quickly and safely. The formulary (mandated by House Bill 7, 79th Legislature, 2005), includes all FDA-approved drugs, except for investigational and experimental drugs and excludes drugs listed as N drugs (or not recommended drugs) in Appendix A of DWC s adopted treatment guidelines. Under this formulary, which took effect for new workers compensation claims with dates of injury on or after September 1, 2011, prescriptions for drugs that are excluded from the formulary require pre-approval from the insurance carrier before they can be dispensed. The workers compensation closed pharmacy formulary will take effect for older claims (i.e., claims with dates of injury prior to September 1, 2011) on September 1, To find out more information about the workers compensation closed pharmacy formulary, including a copy of the most current list of N drugs, see claims receiving N drugs were reduced by 54 percent between 2010 and 2011; the frequency of N drug prescriptions being dispensed to injured employees was reduced by 65 percent; total prescription drug costs for 2011 claims were reduced by 26 percent (approximately $1.4 million) when compared to 2010 claims; and FOLIO CLIENT NEWSLETTER B Y FLAHIVE, OGDEN & LATS ON 15

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17 June 25, 2012 COMMISSIONER'S BULLETIN #B TO: All insurance companies, corporations, exchanges, mutuals, reciprocals, associations, Lloyds, or other insurers writing workers compensation and employers liability insurance in the state of Texas, their agents and representatives, and to the public generally. RE: Call for Workers Compensation and Employers Liability Rate Filings for the 2012 Public Rate Hearing This call for workers compensation rate filings applies to all insurance companies subject to Texas Insurance Code, Chapter 2053 and that write workers' compensation and employers liability insurance on a direct basis in Texas. Section (a) requires the commissioner of insurance to hold a rate hearing each biennium to review rates to be charged for workers compensation insurance in this state. Section (b) requires each insurance company subject to Chapter 2053 and to submit its rates, supporting information and supplementary rating information to the commissioner. This call outlines the required documents that an insurer must submit for rate filings and supplementary rating information. See the online version of the Filings Made Easy Guide for guidance and complete the interactive PDF forms at the Texas Department of Insurance s website at Rate filings must include rate indications based on other than large deductible data. Rate indications at the group level are acceptable if the companies in the group normally make rate filings on a group basis. However, if you provide rate indications at the group level, you must also provide actuarial justification for individual company rate level differences within the group. You should clearly indicate when the rate indications use company specific or group specific data. In addition to the elements typically used to develop rate indications, this call requests additional data as described in Part 3 of the attached document. If your company submitted a rate filing that meets the requirements of this call on or after April 1, 2012, and the company wishes to use that filing as its response to this call, provide a reference to that filing. If the filing met some, but not all, of the requirements of this call, provide the additional material in addition to the reference to the previously submitted rate filing. The referenced filing must have been based on other than large deductible experience through December 31, 2011, valued no earlier than December 31, Insurance Code (b) does not apply to a rate filing under this call if the insurer does not propose any change to its existing rate deviations. Pursuant to , rate filings, including any supporting information filed, are open to public inspection as of the date the filing is made. Rate filings are due by August 15, You should mail or deliver them to the Intake Unit at the appropriate address below or submit them via SERFF. Mail responses to: Texas Department of Insurance Property and Casualty Intake Unit Mail Code 104-3B P. O. Box Austin, Texas Deliver responses to TDI Service Center: Texas Department of Insurance Property and Casualty Intake Unit 104-3B 333 Guadalupe Street William P. Hobby Building, Tower 1, Room 103 Austin, Texas Continues next page FOLIO CLIENT NEWSLETTER B Y FLAHIVE, OGDEN & LATS ON 17

18 Insurance companies authorized to write workers compensation insurance in Texas that do not currently write workers compensation insurance should send a letter or to Elizabeth Buhro. Further information or questions concerning this bulletin may also be addressed to Elizabeth Buhro in the Property and Casualty Actuarial Office by telephone at , by at Elizabeth.Buhro@tdi.state.tx.us, or by mail at P.O. Box , Mail Code 105-5F, Austin, TX NCCI Releases New Research on Indemnity Benefit Duration and Obesity There is mounting evidence of obesity contributing to the cost of workers compensation. Longitudinal studies by Duke University of its own employees and by Johns Hopkins University of employees of a multi-site U.S. aluminum manufacturing company point to substantially higher odds of injury for workers in the highest obesity category. Further, a 2011 Gallup survey found that obese employees account for a disproportionately high number of missed workdays, thus causing a significant loss in economic output. Finally, earlier NCCI research of workers compensation claims found that claimants with a comorbidity code indicating obesity experience medical costs that are a multiple of what is observed for comparable non-obese claimants. The study finds that obesity contributes in significant ways to the length of time during which claimants receive indemnity benefits. Indemnity duration was measured based on Temporary Total and Permanent Total indemnity benefit payments; in a sensitivity analysis, Permanent Partial benefits were counted toward indemnity benefit duration as well. Two concepts of aggregating observed indemnity benefit transactions into duration were employed, with little difference in the results. Further, the statistical analysis accounted for the presence of interval-censoring and right-censoring, both in the nonparametric framework of Kaplan-Meier plots and in the Bayesian semiparametric proportional hazard model. The statistical analysis shows that claimants with a comorbidity indicator pointing to obesity have an indemnity benefit duration that is more than five times the value of claimants who do not have this comorbidity indicator but are otherwise comparable. Inclusive of Permanent Partial indemnity payments, this multiple climbs to more than six. Clearly, the limiting factor in this study is the lack of information on the body mass index of the claimant. On one hand, it can be argued that the analysis overestimates the effect of obesity if the assignment of the comorbidity indicator, the ICD-9 code 278, is related to the arrival of obesity-related medical complications, as opposed to the condition of obesity. From this perspective, claimants who acquire this comorbidity indicator may disproportionately belong to the highest obesity category the morbidly obese; this conjecture is supported by the fact that only 0.15 percent of the claims in the data set acquire the ICD-9 code 278 (within 12 months of the date of injury). On the other hand, a case can be made that the effect of obesity is underestimated. This is because many of the claimants who are categorized as non-obese in this study may, in fact, be overweight or obese, thereby diminishing the measured contribution of obesity to duration. Despite the limitations of the data set employed in this study, the results obtained for the effect of obesity on indemnity duration are close to what has been established by Duke University for the morbidly obese. Based on the reported means in the Duke University study, for the morbidly obese, the number of lost workdays per claim amounts to 6.4 times the value observed for claimants of recommended weight. By comparison, for duration concept I [II], the multiples established here equal 5.4 [5.3] (Temporary Total and Permanent Total) and 6.6 [6.7] (Temporary Total, Permanent Total, and Permanent Partial). FOLIO CLIENT NEWSLETTER B Y FLAHIVE, OGDEN & LATS ON 18

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22 Summary: Texas Mutual Ins. Co. v. Ruttiger, --- S.W.3d ----, 2012 WL (Tex. June 22, 2012) A bad faith cause of action is inconsistent with the current workers' compensation system in Texas. Ruttiger alleged that he suffered bilateral Facts: inguinal hernias while carrying pipe at work. The carrier, Texas Mutual, began benefits and its investigation. The investigation revealed that Ruttiger had arrived at work on the morning of the injury with a limp after competing in a softball tournament over the weekend. A co-worker noted that he had been bragging about getting paid comp for a softball injury. The claim was then denied and benefits were suspended. The parties attended a Benefit Review Conference and reached an agreement that Ruttiger had suffered a compensable injury and had a period of disability. Weekly benefits were again initiated and medical benefits ensued. Ruttiger reached maximum medical improvement (MMI) on 8/1/05 with a 1% impairment rating. Before he reached MMI, Ruttiger sued Texas Mutual and the adjuster handling the claim for violations of the Insurance Code, alleging the breach of the common law duty of good faith and fair dealing and violations of the DTPA under the Business Code. The basis for this suit was the delay in paying temporary income benefits and for surgery. Ruttiger alleged that this damaged his credit, worsened his hernias, and caused mental anguish, physical impairment, and pain and suffering. A jury decided that the carrier had breached its duty of good faith and fair dealing, committed unfair and deceptive acts or practices that were a producing cause of damages to Ruttiger, and engaged in the unfair and deceptive acts knowingly. In other words, that it had acted in bad faith. 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." Texas Mutual appealed and the First Court of Appeals upheld the original decision in Texas Mutual appealed to the Texas Supreme Court. In August 2011, the Supreme Court reversed the appellate decision and rendered judgment that Mr. Ruttiger take nothing on his Insurance Code and Texas Deceptive Trade Practices Act claims. The Court remanded Ruttiger s common law good faith and fair dealing claims to the Houston Court of Appeals for further consideration. Both Texas Mutual and Ruttiger requested a rehearing, which was granted by the Court on 2/17/12. Holding: Reversed and rendered. Ruttiger to take nothing. In a 5-4 decision, the Texas Supreme Court held Ruttiger should not prevail on any theory. The Court analyzed each theory of recovery brought forth. The Court concluded that permitting recover under the Insurance Code Section 541.l060 (relating to unfair methods of competition or unfair or deceptive acts or practices) would be inconsistent with the structure and detailed processes in the Workers Compensation Act. The court noted that a claimant who delayed the use of the system could also be rewarded if the Insurance Code cause of action is allowed. Here, Ruttiger did not request a BRC until three months after the denial, and the parties made an agreement at the first BRC, just as is contemplated by the Act s procedures. Instead of encouraging injured workers to proceed with dispute resolution, a cause of action under the Insurance Code could provide an incentive for waiting. There was also a question regarding the Insurance Code Section regarding whether a carrier failed to adopt and implement reasonable standards for prompt investigation of claims arising under its policies. The majority concluded that the Workers Compensation Act sufficiently addresses this too. The Legislature did not intend that claimants have a separate cause of action due to the very specific requirements and penalties in the Workers Compensation Act. For instance, there are time FOLIO CLIENT NEWSLETTER B Y FLAHIVE, OGDEN & LATS ON 22

23 limits for payments, for denials, and there are substantial penalties for non-compliance, including the waiver of the carrier s rights. Regarding Section of the Insurance Code, that deals with misrepresentation of an insurance policy, the Court again rejected Ruttiger s argument. There was legally insufficient evidence of such. Ruttiger also cannot recover under the Deceptive Trade Practices Act since that hinges on the ability to recover under the Insurance Code. The common law duty of good faith and fair dealing was not addressed by the Court of Appeals, but this Court did address it. Previously, the Court had held an employee should be allowed the common law cause of action outside the worker s compensation system. However, that was under the old law. The Court noted that the 1989 Workers Compensation Act provides much more meaningful procedures at the administrative level and that there are detailed procedures and penalties for the failure of parties to comply. The Court outlined the administrative process, then noted that there the Act prescribes detailed, WCD-supervised, time-compressed processes for carriers to handle claims and for dispute resolution. The 1989 legislature addressed the deficiencies that gave rise to the cause of action of the breach of the duty of good faith and fair dealing and now, Texas should join the majority of states that do not allow Aranda-type suits in the workers compensation setting, referring to the 1988 decision that allowed an injured worker to assert a claim against a workers compensation carrier for the breach of the duty of good faith and fair dealing. FOLIO CLIENT NEWSLETTER B Y FLAHIVE, OGDEN & LATS ON 23

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26 G Q CORNER Q: The employee suffered a severe foot injury on 4/1/12. A blood test was performed on 4/2/12, which revealed a positive screen for marijuana. Does the carrier have an intoxication defense? A: Although you indicate that the test was performed the next calendar day, you do not indicate how many hours have elapsed between the injury and the test. You also do not describe the claimant s situation between the injury and the test. Has the claimant asserted drug use between the injury and the test? If the claimant denies post-injury use, then whatever was present at the time of the test was clearly present at the time of the injury. On the other hand, if he asserts post-injury use, then such assertion must be evaluated on the basis of credibility. For example, if the claimant under constant observation or otherwise in a medical stetting, post -injury use is unlikely. Drug tests for marijuana actually test for a component of marijuana, THC. In urine testing, the qualitative (initial) test looks for the presence of several different metabolites of THC. In the quantitative (confirmatory) test, the device determines the concentration of a specific metabolite of THC, Δ9-Carboxy-THC. In a urine test, the concentration is of processed THC. Thus, levels are not particularly important as, for example, a low level can be just as indicative of recent use (where the THC has not yet been processed) as it can of remote use. You indicate, however, that the test was of blood (plasma), not urine. The blood test will not only look for the concentration of Δ9-Carboxy-THC, but also the concentration of the parent ingredient, THC. On a graph, the concentration of THC to plasma rapidly peaks and then rapidly falls off, to the point where no trace of THC is evident in a non-chronic user within four hours of acute use. During this time, and as the plasma concentration of THC begins to decrease, the plasma concentrations of the metabolite, Δ9-Carboxy-THC, begins to increase. The plasma concentration of Δ9-Carboxy-THC then begins to decrease, but after the initial hour following use, it remains several factors higher than the plasma concentration of its parent, THC. While this is occurring, the THC and Δ9- Carboxy-THC are leaching into the fatty tissues, and the Δ9 -Carboxy-THC is also being processed and expelled through the urine. In a chronic user, whose body is constantly processing the THC that has been stored in the fatty tissues, he cannot possibly have the normal use of his physical and mental faculties. In either a chronic or a non-chronic user, as long as the plasma test is positive, he cannot possibly have the normal use of his physical and mental faculties. Indeed the scientific literature provides that one continues to have the nonnormal use of mental and physical faculties even after the concentration of THC is no longer detected in the plasma. Thus, several inquires are important. Is the claimant an acute or chronic user of marijuana? Does he admit or deny post-injury use of marijuana? What were the circumstances following the injury but prior to the test? What are the ratios of THC to Δ9-Carboxy-THC in the plasma? In any event, the presumption of intoxication under section (c) of the Texas Labor Code applies regardless of the date of the test, and it is always up to the employee to prove that he had the normal use of his mental and physical faculties at the time of the injury. Whether he can do so will depend upon the answers to the questions noted. FOLIO CLIENT NEWSLETTER B Y FLAHIVE, OGDEN & LATS ON 26