Franks v. U.S. Fidelity & Guar. Co.

Decision Date19 December 1985
Docket NumberNo. 1,CA-CIV,1
Citation718 P.2d 193,149 Ariz. 291
PartiesWalter L. FRANKS and Edwina Franks, husband and wife, Plaintiffs-Appellants, v. UNITED STATES FIDELITY & GUARANTY COMPANY, a foreign corporation, Defendant-Appellee. 7012.
CourtArizona Court of Appeals
OPINION

GRANT, Judge.

The plaintiffs-appellants, Walter and Edwina Franks (Franks), filed a complaint for breach of duty of good faith and fair dealing against the defendant-appellee, United States Fidelity & Guaranty Company (USF & G). USF & G filed a motion to dismiss the complaint for lack of subject matter jurisdiction and for failure to state a claim on which relief could be granted. The trial court granted the motion to dismiss based upon Sandoval v. Salt River Project Agricultural Improvement & Power District, 117 Ariz. 209, 571 P.2d 706 (App.1977). This appeal presents two issues: whether the Arizona superior courts have jurisdiction over and whether there is a cause of action for an injured worker's claim for damages based upon alleged bad faith administration of a worker's claim for benefits by his employer's insurance carrier.

FACTS

Walter Franks was injured on June 19, 1979, while working for Delta Electric, Inc. He qualified for benefits under Arizona's workers' compensation laws. The insurance carrier that was to provide the coverage, USF & G, accepted Franks's claim for benefits.

Franks alleged the following facts in his complaint: The original diagnosis by an orthopedic specialist in June, 1979, was a low back injury in the spinal area. After Franks had undergone conservative medical treatment for about two months he started to have radiation of pain from his back into both legs. On August 13, 1979, he was hospitalized for 18 days. A lumbar myelogram showed evidence of a disc lesion at L-4 and L-5 of the spine.

On April 15, 1980, USF & G had Franks examined by its doctor. On April 23, 1980, USF & G issued a notice of claim status terminating Franks's compensation and medical benefits retroactively to April 15, 1980, and stating that Franks was in partial temporary disability status as of April 16, 1980.

After a pre-hearing conference USF & G changed its position to claim that Franks had been discharged without permanent disability. On June 4, 1980, USF & G terminated compensation and medical benefits retroactively to April 15, 1980. After a hearing in July, 1980, the administrative law judge issued a decision on September 29, 1980, finding that Franks's condition was not stationary and that he was entitled to further medical treatment and compensation benefits as provided by the workers' compensation laws.

On October 7, 1980, the insurer gave notice that it wanted another medical examination of Franks by its doctor on October 14, 1980. On October 21, 1980, USF & G issued another notice of claim status stopping compensation and medical benefits as of October 14, 1980, and closed the case without permanent disability. Franks protested the notice and filed a timely request for a hearing. The October 21, 1980, notice stated that compensation was being withheld for the period from April 15, 1980, through October 13, 1980, pending receipt of a report indicating Franks's earnings. Franks gave USF & G a report of earnings in November, 1980, but USF & G failed to pay benefits for the April 15 through October 13, 1980 period.

On March 25 and April 14, 1981, hearings were held on the October 14, 1980, termination of benefits. On June 25, 1981, the administrative law judge once again ruled that the condition was not stationary and that Franks was entitled to continued medical treatment and to disability benefits.

In the June 25, 1981 Decision Upon Hearing and Findings and Award for Continuing Benefits the administrative law judge found as follows:

The evidence shows that the defendant insurance carrier has not acted in good faith in this matter by allowing the previous award of September 29, 1980 to become final, but refusing to authorize any further treatment of the applicant by Dr. Bisla as ordered therein; it is apparently the defendant insurance carrier's position that it has an absolute right to an independent medical examination pursuant to A.R.S. § 23-1026 and can thereby frustrate the final decisions of the Industrial Commission; ... by thus scheduling a medical examination everytime further medical treatment is ordered for the applicant, the insurance carrier can completely deny to the applicant the benefits to which he is entitled; accordingly, it is hereby ordered that the defendant insurance carrier authorize and provide for the medical treatment as recommended by Dr. Bisla for a period of no less than 90 days from the date this Award becomes final. [Emphasis added.]

Shortly after the 90 days of uninterrupted treatment ordered by the administrative law judge had expired, USF & G again scheduled Franks for a medical examination on October 28, 1981. On November 5, 1981, USF & G again issued a notice of claim status terminating temporary compensation and active treatment retroactive to October 28, 1981 "because claimant was discharged" and claiming that "injury resulted in no permanent disability." Franks again protested USF & G's notice and requested a hearing.

On December 2, 1981, Franks had surgery by his treating physician who found and removed a herniated disk in his low back. Franks applied to the Industrial Commission in January, 1981, for special relief under A.R.S. § 23-1061(J). The Industrial Commission refused to allow proceedings under that statute and stated that the matter would be handled in a "routine manner." Hearings were held regarding USF & G's November 5, 1981, notice of claim status and the administrative law judge rendered a decision, findings and award on July 19, 1982, awarding compensation benefits and medical/surgical benefits for the period from March 25, 1981 until the condition became stationary.

Franks's complaint filed in superior court essentially alleged that USF & G acted intentionally, willfully and wantonly in:

(1) failing to make adequate disability compensation payments and in delaying payment of disability compensation benefits; and

(2) terminating or denying a claim for compensation and medical benefits without adequate information.

Franks requested damages for loss of use of compensation and medical benefits, damages for mental and emotional distress, and for punitive damages.

On appeal from the dismissal of their complaint, Franks presents the following arguments:

(1) The complaint states a claim for relief as to USF & G's bad faith which is a tort claim over which the superior court has jurisdiction;

(2) When a workers' compensation insurer acts in bad faith in settlement or payment of compensation benefits, a separate tort is committed that is not within the purview of the exclusivity provisions of the Workers' Compensation Act and a separate tort of bad faith may be alleged and proved in court;

(3) The Sandoval decision is not controlling authority for the case at bar;

(4) Administrative bodies have no jurisdiction over tort claims for damages;

(5) Franks's right to sue for tort damages is constitutionally guaranteed;

(6) The right of a workers' compensation beneficiary to bring a claim for bad faith is particularly important in Arizona because Arizona's administrative procedures violate due process requirements, leaving an injured worker at the mercy of an unscrupulous insurance carrier.

BAD FAITH CLAIM

A.R.S. § 23-906(A) exempts employers and compensation insurance carriers from damages at common law if the employer provides workers' compensation insurance coverage, unless an employee rejects this coverage and retains the right to sue the employer as provided by law. A.R.S. § 23-1022(A) states that the right to recover compensation is the "exclusive remedy" against the employer or the insurance carrier unless the injury was caused by the employer's "wilful misconduct." These statutes provide the Industrial Commission with the

exclusive jurisdiction to determine all questions of fact and of law, including equitable remedies or defenses as they relate to compensation insurance, or related powers or matters, subject, of course, to the right of review as to whether the commission's orders were supported by evidence.

S.H. Kress & Co. v. Superior Court, 66 Ariz. 67, 69, 182 P.2d 931, 933 (1947). The exclusivity provision of the statute is " 'part of the quid pro quo in which the sacrifices and gains of employees and employers are to some extent put in balance,' " Vineyard v. Southwest Engineering and Contracting Co., 117 Ariz. 52, 53, 570 P.2d 823, 824 (App.1977), quoting 2A A. Larson, Workmen's Compensation Law § 65.10 at 12-4, now § 65.11 at 12-1-12-2.

In Sandoval v. Salt River Project, this court held that the exclusive remedy provision precluded superior court subject matter jurisdiction to consider an injured worker's claims for breach of contract and tortious conduct against a self-insured employer or its claims administrator where "the basic contention of the claimant is that he has been wrongfully deprived of benefits due under the Workmen's Compensation laws." 117 Ariz. at 214, 571 P.2d at 711.

Franks argues that the complaint states a claim for relief for USF & G's bad faith, a tort claim over which the superior court has jurisdiction. He contends that his claim for bad faith is not a case of an employee suing on an employment-connected accident, but is rather a completely independent cause of action for a tort, which is not within the purview of the exclusivity provision of the Workers' Compensation Act. He further argues that the elements for which damages are sought (pain, mental distress, etc.) are not compensable...

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