Texas Workers' Compensation Com'n v. Garcia, No. D-4270

• Court: Supreme Court of Texas
• Writing for the Court: PHILLIPS, Chief Justice, delivered the opinion of the Court, in which GONZALEZ, HECHT, CORNYN, ENOCH, and OWEN
• Citation: 893 S.W.2d 504
• Parties: 38 Tex. Sup. Ct. J. 235 TEXAS WORKERS' COMPENSATION COMMISSION, et al., Petitioners, v. Hector GARCIA, Jr., et al., Respondents.
• Docket Number: No. D-4270
• Decision Date: 09 February 1995

Page 504

893 S.W.2d 504 38 Tex. Sup. Ct. J. 235 TEXAS WORKERS' COMPENSATION COMMISSION, et al., Petitioners,
v.
Hector GARCIA, Jr., et al., Respondents. No. D-4270. Supreme Court of Texas. Argued May 11, 1994.
Decided Feb. 9, 1995.

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Delmar L. Cain, Shannon H. Ratliff, Scott Moore, Marc O. Knisely, Dan Morales, Austin, for petitioners.

Bill Whitehurst, David R. Richards, Austin, Robert Serna, Crystal City, Robert R. Puente, Jon R. Alworth, San Antonio, for respondents.

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

This case requires us to decide whether various provisions of the Texas Workers' Compensation Act facially violate the Texas Constitution's guarantees of open courts, due course of law, equal protection, jury trial, and obligation of contract. We reverse the judgment of the court of appeals, 862 S.W.2d 61, and uphold the constitutionality of the Act.

I

In 1989, the Legislature enacted a new Workers' Compensation Act ¹ restructuring workers' compensation in Texas. To understand the new Act and its effect on claims by injured workers, we must first review the compensation system it replaced.

A

Texas first enacted workers' compensation legislation in 1913 to meet the needs of an increasingly industrialized society. Despite escalating industrial accidents, under the common law most injured workers were denied recovery. See Research Papers of the Joint Select Committee on Workers' Compensation Insurance ch. 1 at 2 (1988) (hereinafter "Research Papers "). Not only was negligence often difficult to prove in an industrial setting, but employers could also invoke as complete defenses the common law doctrines of contributory negligence, assumption of the risk, and fellow servant.

The Employers' Liability Act of 1913 replaced the common law negligence remedy with limited but more certain benefits for

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injured workers. Acts 1913, 33rd Leg., ch. 179. The Texas act, which was part of a nationwide compensation movement, was perceived to be in the best interests of both employers and employees. See Research Papers ch. 1 at 6. Employees injured in the course and scope of employment could recover compensation without proving fault by the employer and without regard to their or their coworkers' negligence. Acts 1913, ch. 179, pt. I, §§ 7-12. In exchange, the employer's total liability for an injury was substantially limited. Id. § 3. Although employers were allowed to opt out of the system, the act discouraged this choice by abolishing all the traditional common law defenses for non-subscribers. ² Id. § 1.

1

The intent of the former act was to compensate for medical costs and loss of wage earning capacity caused by a work-related injury. Although modified on numerous occasions over the years, the act's basic structure never changed. As of 1989, totally incapacitated employees could recover two-thirds of their average weekly wage for up to 401 weeks. ³ Tex.Rev.Civ.Stat.Ann. art. 8306, § 10 (repealed by Acts 1989, 71st Leg., 2nd C.S., ch. 1, § 16.01(7)). Partially incapacitated employees could recover two-thirds of the difference between their average weekly wage and their post-injury weekly earning capacity for up to 300 weeks, subject to an aggregate maximum of 401 weeks for periods of total and partial incapacity. Id. § 11.

Disability from injury was generally referred to as either "temporary" or "permanent" depending on whether it was likely to persist beyond the maximum benefit period. Thus, an injury causing complete incapacity for at least 401 weeks was the functional equivalent of "permanent total" disability, while an injury causing partial incapacity for at least 300 weeks was the functional equivalent of "permanent partial" disability. Conversely, an injury that totally incapacitated a worker for less than 401 weeks was a "temporary total" disability. See Research Papers ch. 2 at 11-14.

The former act also provided lifetime benefits for certain injuries conclusively presumed to be totally and permanently incapacitating, such as loss of both feet or both hands, and long-term death benefits for the beneficiaries of a fatally injured employee. Art. 8306, §§ 8, 11a. For certain other "specific injuries," the act mandated specific compensation in lieu of all other wage-loss benefits. Id. § 12. For loss of a thumb, for example, the employee was entitled to two-thirds of the average weekly wage for 60 weeks. Id.

The weekly benefits for death, total incapacity, or a specific injury were subject to a statutory maximum and minimum, while the benefits for partial incapacity were subject only to the statutory maximum. Id. §§ 8(a), 10(a), 11, 12. These upper and lower limits on the weekly benefit were adjusted annually based on Texas Employment Commission statistics, id. § 29, and in 1988 were $238 and $40, respectively. See Research Papers ch. 2 at 9. The former act also compensated for all medical costs of a work-related injury, without limit as to amount or duration. Art. 8306, § 7.

2

The Industrial Accident Board, a three-member panel appointed by the Governor, administered the former compensation system. See generally Tex.Rev.Civ.Stat.Ann.

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art. 8307 (repealed by Acts 1989, 71st Leg., 2nd C.S., ch. 1, § 16.01(10)). The Board and its staff monitored work-place injuries, seeking to resolve disputes between claimants and insurers. The adjudicative process began with a "prehearing conference," an informal meeting of the parties presided over by a prehearing officer. Id. § 10. Witnesses were not sworn and no record was made, and "no matter occurring during, or fact developed in, a pre-hearing conference [could be] deemed as admissions or evidence or impeachment against the association, employee or the subscriber in any other proceedings except before the Board." Id. Under the prehearing officer's guidance, the parties attempted to mutually resolve the disputed issues. If successful, they could enter into binding settlement agreements, subject to Board approval. ⁴ Id. § 12.

For claims not settled, the prehearing officer prepared a report stating the officer's recommendations for the award and the basis therefor. Id. § 10. These claims then proceeded to the Board for formal hearing. Id. Although the parties could appear and give sworn testimony, in most cases the Board simply reviewed its claim file, usually approving the prehearing officer's recommended award. See Research Papers ch. 2 at 33.

Any party dissatisfied with the Board decision could appeal to court. Art. 8307 § 5. All issues were subject to de novo review under the normal rules of procedure, including the right to a jury trial on disputed factual issues. Id. Settlements were subject to court approval, id. § 12a, as was the claimant's attorney's fee, which could not exceed 25 percent of the recovery. Art. 8306 § 7d. At trial, the Board award was inadmissible.

B

Satisfaction with the former workers' compensation system was never high. A detailed study in 1938 concluded that the system was a "genuine source of embarrassment" in need of "immediate and constructive reform." Karl E. Ashburn, Report on Texas Workmen's Compensation Insurance Act and Its Administration with Recommendations for Improvement 7 (1938). Ashburn recommended, among other changes, making coverage mandatory, strengthening the Board, limiting settlement agreements, and eliminating trial de novo.

By the 1980s, loss of confidence in the system had reached crisis proportions. Beginning in 1983, the percentage of claims with indemnity (wage loss) payments began to increase dramatically, as did the proportion of indemnity claims with payments for permanent disability. Joint Select Committee on Workers' Compensation Insurance, A Report to the 71st Texas Legislature 3 (1988). Medical costs for injured workers also began increasing at a much higher rate than medical costs outside the compensation system. Id. These increases helped cause compensation insurance premiums to more than double between 1984 and 1988. Id. at 1. By 1988, the cost of workers' compensation to Texas employers was among the highest in the nation. Id. at 4. Business groups claimed that these spiralling costs forced large businesses to locate operations elsewhere and forced small businesses to cease operations or opt out of coverage. Id. at 1.

Despite these high costs, the system was also widely perceived to be unfair to injured workers. Id. In July 1987, the Legislature created the Joint Select Committee on Workers' Compensation Insurance to study the system and propose changes. After numerous public hearings and meetings, the Committee identified several inequitable features of the former act, including 1) the low statutory maximum benefit, 2) the 401-week limit on benefits, 3) the settlement of claims prior to stabilization of the claimant's medical condition, 4) the subjective "loss of wage earning capacity" standard, and 5) inconsistent jury awards based on geographical location. Report of Joint Select Committee at 4. The Committee concluded that persons with serious long-term injuries received benefits "among the very lowest in the nation," while those with minor injuries received relatively high benefits. Id. The Committee also

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found that the system suffered from the Board's relative lack of power, and concluded that the delay and cost of de novo review forced premature and inaccurate settlements. Id. at 5.

The Committee also discovered that, between 1983 and 1987, the level of attorney involvement in Texas rose from 36 percent to 50 percent of all claims. Research Papers ch. 4 at 100-101. By comparison, a 1987 survey of seventeen other jurisdictions found attorney involvement in only 7.8 percent of all claims. See National Council on Compensation Insurance, Workers Compensation Claim Characteristics 58 (1987). This disparity existed even though the percentage of compensation...