National Union Fire Ins. Co. of Pittsburgh, Pa. v. Dominguez, D-0040

• Citation: 873 S.W.2d 373
• Decision Date: 05 January 1994
• Docket Number: No. D-0040,D-0040
• Parties: NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., v. Justo L. DOMINGUEZ, Jr.
• Court: Supreme Court of Texas

Page 373

873 S.W.2d 373

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., v. Justo L. DOMINGUEZ, Jr.

No. D-0040.

Supreme Court of Texas.

Jan. 5, 1994.

Rehearing Overruled May 11, 1994.

J. Stephen Gibson, R. Brent Cooper, Charles T. Frazier, Jr., R. Michael Northrup, Dallas, for petitioner-appellant-relator.

Ruff Adams, Odessa, Larry Zinn, San Antonio, for respondent-appellee-respondent.

GONZALEZ, Justice, delivered the opinion of the Court, in which PHILLIPS, Chief Justice, and HIGHTOWER, HECHT, CORNYN, ENOCH and SPECTOR, Justices, join.

This workers' compensation case concerns an allegation by the worker that the compensation carrier breached its duty of good faith and fair dealing. Justo L. Dominguez, Jr. filed a compensation claim with the Industrial Accident Board for "repetitious, traumatic injury to his back and body as a whole." The Board awarded him $6,559.48. He appealed to the district court. Before trial, Dominguez and the insurance carrier settled the suit for $28,000.00, and an agreed judgment was signed by the trial court. Dominguez then filed this present action against National Union Fire Insurance Company for breach of the duty of good faith and fair dealing owed by workers' compensation carriers to their insureds. After a jury trial, the trial court rendered a $322,988.36 judgment in Dominguez' favor as compensatory and exemplary damages for breach of the carrier's duty of good faith and fair dealing. The court of appeals affirmed the judgment for past mental anguish in the amount of $75,000.00, but reversed the damages for future mental anguish and exemplary damages. 793 S.W.2d 66. Following the opinion in Lyons v. Millers Casualty Insurance Company, 866 S.W.2d 597 (Tex.1993), we hold that there is no evidence that National Union breached its duty of good faith and fair dealing to the insured. We thus reverse the judgment of the court of appeals and render judgment that Dominguez take nothing. ¹

Justo Dominguez worked for a company known at the time as Petty-Ray, which performed geophysical work. For the last seven years of his employment, his job involved driving a truck which vibrated the ground as a part of seismographic analysis. His job called upon him to repair the truck on occasion and some of his duties involved bending, stooping, and maintaining certain fixed positions for periods of time.

In February of 1985, Dominguez called in to work complaining of a swollen toe and a sore back. His employer instructed him to see a doctor, and he received treatment from a chiropractor. The chiropractor sent the company his diagnosis of the problem as "sciatic neuritis associated with subluxation L-4 and 5," and Dominguez was afforded benefits from the company's disability policy, which covered non-work related conditions. Over the next several months, Dominguez signed a number of forms that included a representation that the injury was not work related.

The chiropractor soon referred Dominguez to a back specialist who began regular treatment. After five months of disability, Petty-Ray encouraged Dominguez to see another doctor. That doctor diagnosed the injury as a degenerative joint disease in the lumbar area. He recommended that Dominguez return to work because of his opinion that activity might be therapeutic.

Petty-Ray terminated the disability payments, and put Dominguez on leave without pay. Dominguez returned to work on September 4, 1985, although his back was still causing him pain. In December the company terminated Dominguez for the stated reason that he missed work without informing his supervisor.

Dominguez hired an attorney in January of 1986. He had missed work to attend his grandmother's funeral, and had been unable to get through to notify his supervisor. It was his view that he had been fired because of his back problems. Rather than seek redress from Petty-Ray, however, Dominguez sent notice of an occupational disease to the Industrial Accident Board on January 27, 1986.

National Union received notice of the claim on February 24, 1986. The next day an adjusting and investigating service hired by National Union began to inquire into the claim. The claim was preliminarily completed on March 10, 1986, the date National Union's response was due to be filed with the Board. ² On that date, National Union filed a notice that it was controverting the claim based on the failure to report the injury as an on-the-job injury, and the failure to report the injury within 30 days.

National Union's investigator continued to investigate the claim. The record is not entirely clear when various items of information came to light, but the doctor who had initially seen Dominguez diagnosed his back pain as stemming from a degenerative condition. However, a second physician had given his opinion that Dominguez' condition was work related. From Petty-Ray, National Union learned that Dominguez had never reported the injury as work related, and in fact, as late as April 26, 1986, Dominguez submitted forms to Petty Ray's group health carrier and made an express representation that his injury was not work related.

The Board conducted a hearing, and in August of 1986 awarded $6,559.48 as a lump-sum payment, plus lifetime medical benefits. Both parties appealed. On the morning of the trial of the workers' compensation claim, National Union settled with Dominguez for $28,000. The attorneys for National Union prepared a proposed consent judgment. Dominguez' attorney struck out one of the paragraphs and the trial court rendered the agreement as modified as the judgment of the court.

The settlement in question provides in part:

In full and final compromise and settlement of this suit and all claims alleged or which might now or later have been alleged in Plaintiff's pleadings herein filed, which are incorporated by reference, in connection with the accident, injuries and incapacity involved in this suit,....

The Parties agree that this suit involves questions as to the occurrence of an accident, the liability of the Defendant to pay benefits of any kind under the Workers' Compensation Act, the extent of Plaintiff's injuries and resulting incapacities and the probability of need for future medical services, and other questions; and all such issues are disputed, indefinite, uncertain, and incapable of being exactly established and determined.

The following was stricken from the agreement:

The Parties further agree that for and in consideration of the aforementioned sums, the Plaintiff herein does hereby RELEASE, REMISE, QUITCLAIM and FOREVER DISCHARGE Defendant and Employer named herein, their respective successors and assigns, servants, representatives, officers and/or employees of and from all claims, controversies, or causes of action for all claims, whether known or unknown, for injuries, damages, or any other matter, including any matter regarding the adjustment or handling of the above described suit from the time of the filing of a claim before the Industrial Accident Board by Plaintiff through the date of the signing of this Judgment.

Finally, the agreed judgment provides:

THE COURT FINDS the above Settlement Agreement to be true as to all its recitations, and to be a full, fair, and complete settlement of this cause; ....

This judgment is final and is a complete bar to the right of the Plaintiff, or anyone claiming under or for the Plaintiff, ever again to assert a claim or cause of action in any manner connected with the accident upon which the suit is based, for worker's compensation benefit, and all past and all future medical services....

The same day that the settlement between the parties was approved and the judgment was rendered, Dominguez filed a suit for breach of the duty to handle his claim in good faith and with fair dealing. At the trial of the suit for mishandling his claim, Dominguez was the only witness to present testimony in person. When asked about the statement in the agreed judgment that liability under workers' compensation was disputed uncertain, and incapable of being ascertained with certainty, he agreed that it was a truthful statement.

The case was submitted to a jury, which concluded that National Union breached the duty of good faith and fair dealing with Dominguez, causing him $75,000 in past mental anguish and $50,000 for future mental anguish. The jury further determined that National Union was consciously indifferent to Dominguez' rights and welfare and found that $175,000 in exemplary damages should be assessed. The trial court rendered judgment on the verdict in the principal amount of $322,988.

The court of appeals reversed the award of punitive damages because of a lack of evidence of National Union's conscious indifference. It also reversed the award of future mental anguish damages on a no evidence point. However, the court of appeals rejected National Union's argument that the agreement signed by the parties settling the worker's compensation claim precluded any claim for breach of the duty of good faith and fair dealing.

The duty of a workers' compensation carrier to handle claims in good faith and with fair dealing was established in Aranda v. Insurance Company of North America, 748 S.W.2d 210 (Tex.1988). A claimant who alleges a breach of this duty must establish (1) the absence of a reasonable basis for denying or delaying payment of the benefits of the policy, and (2) that the carrier knew or should have known that there was not a reasonable basis for denying the claim or delaying payment of the claim. Id. at 213.

The first element of the Aranda test, absence of a reasonable basis for denying the claim, requires an objective determination of whether a reasonable insurer under similar circumstances would have delayed or denied the claimant's benefits. Aranda, 748 S.W.2d at 213. The second element, that the carrier knew or should have known, is an attempt to balance the right of an insurer to reject an invalid claim and...