Service Lloyds Ins. Co. v. Greenhalgh

• Decision Date: 24 May 1989
• Docket Number: No. 3-87-076-CV,3-87-076-CV
• Citation: 771 S.W.2d 688
• Parties: SERVICE LLOYDS INSURANCE COMPANY, Appellant, v. Richard GREENHALGH, Appellee.
• Court: Texas Court of Appeals

Page 688

771 S.W.2d 688

SERVICE LLOYDS INSURANCE COMPANY, Appellant, v. Richard GREENHALGH, Appellee.

No. 3-87-076-CV.

Court of Appeals of Texas Austin.

May 24, 1989.

Rehearing Denied June 21, 1989.

Robert D. Stokes, Flahive, Ogden & Latson, Austin, for appellant.

Ray Chester, Pluymen & Bayer, Austin, for appellee.

Before SHANNON, C.J., and GAMMAGE and ABOUSSIE, JJ.

GAMMAGE, Justice.

Service Lloyds Insurance Company (Service Lloyds) appeals from a judgment rendered in favor of Richard Greenhalgh for actual damages, punitive damages and attorney's fees. We will modify and, as modified, affirm the judgment.

Greenhalgh is an automobile mechanic who injured his back on the job in December 1984. Service Lloyds is the workers' compensation carrier which insured the automobile dealership where Greenhalgh worked at the time of his injury. During the pendency of Greenhalgh's workers' compensation claim, Service Lloyds filed a notice of controversion with the Industrial Accident Board formally denying all liability for medical and weekly indemnity benefits. Greenhalgh's workers' compensation claim against Service Lloyds was settled at a pre-hearing conference at the Industrial Accident Board in August 1985. None of Greenhalgh's medical expenses were paid, however, until after Greenhalgh filed this bad faith insurance practice lawsuit against Service Lloyds on December 5, 1985.

The trial court submitted fifteen special issues to the jury. Special issue one consisted of five subparts. The first three subparts asked the jury if Service Lloyds 1) failed to confirm medical benefits when no bona fide dispute existed as to the liability of Service Lloyds, 2) failed to timely pay for specific medical treatments, and 3) entered into a compromise and settlement agreement with the intention of not paying all past medical expenses called for in the agreement. The jury found Service Lloyds committed all of these acts. The court then instructed the jury that Service Lloyds did not pay weekly workers compensation indemnity benefits to Greenhalgh before August 12, 1985; and hired and retained Insurers Services of Texas to investigate Greenhalgh's employment and other activities.

The court also submitted five theories of recovery based on any one or more of the acts or omissions found by the jury in the first special issue: breach of the duty of good faith and fair dealing, unfair insurance practices, negligence, gross negligence and intentional infliction of emotional distress.

The jury found that all of the acts in special issue one were committed knowingly and maliciously, that these acts all constituted elements of all the theories of recovery, and that such acts were the proximate cause of actual mental anguish damages to Greenhalgh. The jury also found in response to a separate special issue that Service Lloyds represented in the settlement agreement that medical expenses would be paid. It is undisputed that, even though the Insurance Board approved the settlement, no medical expenses were paid until this suit was filed.

The jury awarded Greenhalgh $8000 in actual damages, $128,000 in punitive damages, and attorney's fees. The court entered judgment on the verdict without stating the specific theory or acts it relied upon. Service Lloyds therefore assumes the appellate burden of establishing that the judgment cannot be supported by any of the five theories submitted, based on any one or combination of the acts found by the jury in response to the special issues. McKelvy v. Barber, 381 S.W.2d 59, 62 (Tex.1964). Service Lloyds must not only show error, but also show that such error was reasonably calculated to cause and probably did cause rendition of an improper judgment. Hopfer v. Commercial Ins. Co. of Newark, New Jersey, 606 S.W.2d 354, 359 (Tex.Civ.App.1980, writ ref'd n.r.e.); Tex.R.App.P.Ann. 81 (Pamp.1989).

Service Lloyds brings twenty-four convoluted and confusingly briefed points of error, asserting that some of the acts in special issue number one do not give rise to recoverable damages because there is no duty of good faith and fair dealing between a workers' compensation carrier and a covered employee. In points of error 2, 3, 5, 6, and 20 through 23, it attacks the judgment by asserting that, because this suit arises out of the investigation, adjustment, negotiation and settlement of a workers' compensation claim, any duties owed the parties are created and measured exclusively by the Workers' Compensation Act; and that, because the Act does not include a duty of good faith to a claimant, the trial court erred in rendering judgment based on this duty. Tex.Rev.Civ.Stat.Ann. arts. 8306, et seq. (1967 and Supp.1989). Specifically, Service Lloyds claims the failure to confirm medical benefits, the failure to timely pay for medical treatment, the failure to pay workers' compensation benefits and the hiring of an investigator cannot give rise to a common law cause of action. Service Lloyds also contends that the Industrial Accident Board is the administrative agency with exclusive, or alternatively, primary jurisdiction over complaints against a carrier, and since no complaint was ever leveled against Service Lloyds before this suit, the district court had no subject matter jurisdiction over this bad faith claim.

While this case was pending on appeal, the Texas Supreme Court held that a common law duty of good faith and fair dealing exists between workers' compensation carriers and covered employees. Aranda v. Insurance Co. of North America, 748 S.W.2d 210 (Tex.1988). This cause of action lies in tort and exists apart from the Industrial Accident Board's administrative power to determine an employee's grievance for an unreasonable failure to pay benefits for compensable injuries.

A workers' compensation claimant who asserts that a carrier has breached the duty of good faith and fair dealing by refusing to pay or delaying payment of a claim 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. The first element of this test requires an objective determination of whether a reasonable insurer under similar circumstances would have delayed or denied the claimant's benefits. The second element balances the right of an insurer to reject an invalid claim and duty of the carrier to investigate and pay compensable claims. This element will be met by establishing that the carrier actually knew there was no reasonable basis to deny the claim or delay payment, or by establishing that the carrier, based on its duty to investigate, should have known that there was no reasonable basis for denial or delay. Under the test, carriers will maintain the right to deny invalid or questionable claims and will not be subject to liability for an erroneous denial of a claim. Carriers that breach the duty of good faith and fair dealing, however, will be subject to liability for their tortious conduct.

Id. at 213 (emphasis in original) (citations omitted). Furthermore, the exclusivity provision of the Act does not apply if the claim is not based on a job-related injury. Tex.Rev.Civ.Stat. art. 8306, § 3. "A claimant may recover when he shows that the carrier's breach of the duty of good faith and fair dealing or the carrier's intentional act is separate from the compensation claim and produced an independent injury." Aranda, 748 S.W.2d at 214.

The supreme court did not, however, address whether the duty applied retroactively to cases not yet final. Generally, a decision of a supreme court applies retroactively, but considerations of fairness and policy occasionally preclude such application. Linkletter v. Walker, 381 U.S. 618, 626-629, 85 S.Ct. 1731, 1736-38, 14 L.Ed.2d 601 (1965); Sanchez v. Schindler, 651 S.W.2d 249, 254 (Tex.1983). "Resolution of the issue turns primarily on the extent of public reliance on the former rule and the ability to foresee a coming change in the law." Sanchez, 651 S.W.2d at 254. But see: Duncan v. Cessna Aircraft Co., 665 S.W.2d 414 (Tex.1984); Smithson v. Cessna Aircraft Co., 665 S.W.2d 439 (Tex.1984).

Reliance on a former rule is not an issue here because the Supreme Court, before Aranda, never directly addressed whether a workers' compensation carrier owed a duty of good faith and fair dealing to a covered employee. Aranda, however, looked to basic contract and insurance law and determined that such a duty does exist. The Court then reviewed the Act itself to determine if the penalty provisions of the Act preclude the imposition of separate tort duties. Tex.Rev.Civ.Stats.Ann. arts. 8306, § 18a, 8307, § 5a (Supp.1989). The Court concluded the wording of the Act does not preclude such duties and the penalty provisions providing direct benefits to claimants do not afford relief, or alternatively, afford inadequate relief for a breach of the duty of good faith and fair dealing by refusing to pay benefits for a compensable claim. Furthermore, the Court interpreted the exclusivity provision of the Act to prevent only those actions based on injuries sustained in the course of employment. Reed Tool Co. v. Copelin, 610 S.W.2d 736, 739 (Tex.1980); Tex.Rev.Civ.Stat.Ann. art. 8306, § 3 (Supp.1989). See also Izaguirre v. Texas Employers' Ins. Ass'n, 749 S.W.2d 550, 554 (Tex.App.1988, no writ). Finally, because this Court perceives no public policy or fairness consideration which favors shielding a party from liability for bad faith acts, we will apply Aranda retroactively to this case.

Because the knowing and malicious failure to timely pay for medical treatment and benefits supports a claim for a breach of the duty of good faith and fair dealing which the Act does not exclude, we overrule points of error 2, 3, and 20 through 23. Because these acts, in addition to the knowing and malicious hiring of an...