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Texas 5th Court of Appeals Again Rules 60 Day Deadline Applies to Extent of Injury

Texas 5th Court of Appeals Again Rules 60-Day Deadline Applies to Extent of Injury Disputes

 

On February 26, 2009, the Fifth Court of Appeals in Dallas released its opinion in Zenith Ins. Co. v. Ayala, No. 05-08-00276-CV, 2009 Tex. App. LEXIS 1309 (Tex. App. - Dallas Feb. 26, 2009, pet. filed).  The Dallas Court of Appeals continued it’s holding that Rule 124.3(e) does not apply to injuries that exist before the 60th day after the initial injury.  Id. at *5.  The Dallas Court of Appeals held that Rule 124.3 “contemplates a situation where, after the initial injury and expiration of the sixty day period, a new dispute arises with regard to a body part, system or injury.” Id.  The Court cited to its prior opinion in Sanders v. American Protection Ins. Co., 260 S.W.3d 682, 685 (Tex. App- Dallas 2008, no pet.).

 

The facts of the Ayala case explain the holding of the Court.  On January 23, 2006, Ms. Ayala sustained injuries to her lower back when a window fell on her.  Zenith Insurance Company (Zenith) received its first notice of the injury on March 1, 2006.   Zenith did not dispute the injuries to Ms. Ayala’s lower back. On April 13, 2006, Ms. Ayala’s initial diagnosis was supplemented to include a diagnosis of lumbar radicular syndrome. On April 20, 2006, a second doctor reported a specific diagnosis of both lumbar radicular syndrome and L5-S1 spondylolisthesis.  Ms. Ayala’s doctor requested preauthorization for an epidural steroid injection (ESI).   "Notice of Utilization Review Findings" and a "Notice of Intent to Issue an Authorization" were issued on April 27, 2006 by Zenith’s utilization review agent.

 

On July 28, 2006, Zenith disputed Ms. Ayala’s injuries included lumbar spondylolisthesis and lumbar radicular syndrome.  A contested case hearing (CCH) was held before the Division of Workers' Compensation (DWC), it appears from the Court of Appeals opinion, on the issues of extent of injury and whether Zenith waived the right to contest compensability of the lumbar spondylolisthesis and the lumbar radicular syndrome.  The contested case hearing officer concluded "[t]he compensable injury of January 23, 2006 extends to include the [Lumbar Condition] by operation of [the Carrier's] extent waiver.” Zenith appealed the contested case hearing officer's decision to the DWC appeals panel where the decision was affirmed. Zenith then appealed to the district court.

 

Both Zenith and Ayala moved for summary judgment on the waiver issue. The district court granted Ayala final summary judgment holding that Zenith waived its right to raise its extension of the injury dispute, and by operation of Zenith's waiver, the compensable injury included the two lumbar conditions.  Zenith appealed to the Dallas Court of Appeals on two issues: (1) does the compensable injury extend to and include the lumbar conditions; and (2) has Zenith waived its right to dispute the extension of the compensable injury.  Zenith was represented in the Court of Appeals by John V. Fundis of Downs and Stanford.  Ayala was represented by William R. Johnson and by Leslie Casaubon.

 

Zenith contended before the Court of Appeals that Rule 124.3(e) “abrogates application of Texas Labor Code Section 409.021  to extent of injury disputes, whether existing or new.

 

The Court held that Zenith’s argument contradicts the Court's decision in Sanders v. American Protection Ins. Co., 260 S.W.3d 682, 685 (Tex. App- Dallas 2008, no pet.), where the Court held that Rule 124.3 does not apply to preclude waiver as to existing injuries before the 60 day deadline.  In Sanders the Court of Appeals reasoned that Rule 124.3 applies to situations where, after the initial injury and expiration of the 60 day period, “a new dispute arises with regard to a body part, system or injury.” (Emphasis added).

 

In Sanders v. American Protection Ins. Co., 260 S.W.3d 682, 685 (Tex. App- Dallas 2008, no pet.), the Dallas Court of Appeals held that when an insurance carrier is on notice of an injury within the initial sixty-day period of investigation, Rule 124.3 does not apply and the issue of compensability may not be reopened absent newly discovered evidence.  The Court of Appeals cited Texas Workers’ Compensation Appeal No. 041738-s, decided September 8, 2004, as the authority for this holding.  The Court of Appeals cited to the following language from the Appeals Panel Decision:  “injury that becomes compensable by virtue of waiver under section 409.021 is defined by information that could have been reasonably discovered in carrier's investigation prior to expiration of waiver period.”  Id. at 685. The Court of Appeals held the Appeals Panel “interpretation of rule 124.3 is reasonable, does not contradict the plain language of the statute, and gives effect to the legislature's goal of providing employees with a prompt streamlined process to handle worker's compensation claims.”  The citation to Appeals Panel Decision No. 041738-s by the Court as its authority for its holding requires a review of Rule 124.3 and Appeals Panel Decision No. 041738-s.

 

Rule 124.3, Investigation of an Injury and Notice of Denial/Dispute, was initially adopted on or about February 22, 2000, with an effective date of March 13, 2000.   25 Tex. Reg. 2096 (Mar. 10, 2000).  Subsection (a) provided in part that upon receipt of written notice of injury as provided in Rule 124.1, the insurance carrier was to conduct an investigation relating to the compensability of the injury.  If the insurance carrier believed that it was not liable for the injury or that the injury was not compensable, the carrier was to file the denial of a claim.

 

Subsection (c) of Rule 124.3 as initially adopted, held that Texas Labor Code Section 409.021 and Subsection (a) of Rule 124.3 do not apply to extent of injury disputes. In adopting Rule 124.3 the Texas Workers’ Compensation Commission stated in its Preamble:

 

Texas Labor Code, § 409.021, is intended to apply to the compensability of the injury itself or the carrier's liability for the claim as a whole, not individual aspects of the claim. When a carrier disputes the extent of an injury, it is not denying the compensability of the claim as a whole; it is disputing an aspect of the claim. This is similar to when a carrier accepts a claim but disputes the existence of disability. A dispute of disability is a dispute of the amount of benefits that a person is entitled to. In much the same way, a dispute involving extent of injury is a dispute over the amount or type of benefits, specifically, medical benefits, to which the employee is entitled (i.e. what body areas/systems, injuries, conditions, or symptoms for which the employee is entitled to treatment); it is not a denial of the employee's entitlement to benefits in general.

 

Rule 124.3 does not define the phrase “extent of injury.”  In the example given in the Preamble Texas Workers’ Compensation Commission stated “an employee may have injured his arm and then several months later the doctor begins to treat the shoulder as well and the carrier does not believe that the shoulder is part of the compensable injury.”  The inference is the injury to the arm occurred at the same time as the compensable injury.

 

In responding to the Rule’s proposal, one Commentor stated: "Not only is this bad policy, it is illegal.” Citing Continental Casualty Company v. Williamson, 971 S.W. 2d 108  (Tex. App. - Tyler no writ h.)  The Commentor pointed out that an insurance carrier cannot be found to have waived its right to contest the compensability of a noninjury. “This rule effectively repeals an existing Texas case - something we would respectfully note the Commission has no jurisdiction to do."  Of course the Commission disagreed.  In response to another comment, the Commission stated:

 

The timeframes for a denial of a claim in its entirety such as those addressed in subsection (a) are statutorily driven by Texas Labor Code, § 409.021 and are tied to notice of the injury. Extent of injury disputes are not so governed. Further, extent of injury disputes are often more complicated because the carrier might not realize that a dispute on extent of injury is needed until a doctor begins or attempts to begin treatment to a body part/system, condition, and/or symptom that the carrier had not been notified was part of the compensable injury. This can and usually does occur well into the claim.

 

The author was unable to find a Rule that was adopted on or before February 22, 2000, containing a definition of the phrase “extent of injury.”

 

Texas Workers’ Compensation Appeal No. 041738-s, decided September 8, 2004, was authored by Appeals Judge Veronica L. Ruberto.  The other two Panel members were Chris Cowan and Thomas Knapp who concurred with Judge Ruberto’s Decision.  Judge Ruberto held “that the injury that becomes compensable by virtue of waiver is not necessarily limited by the information listed on the first written notice of injury. Rather the nature of the injury will be defined by that information that could have been reasonably discovered in the carrier's investigation prior to the expiration of the waiver period. In this case, it is apparent that the TWCC-41 could have been reasonably discovered in that period. Accordingly, the hearing officer properly determined, in accordance with the TWCC-41, that the low back and the left leg became compensable due to the carrier's waiver of its right to contest compensability.  (Emphasis added).  Judge Ruberto cited no case, statute, rule or prior Appeal Panel Decision for this ipse dixit holding!

 

In Appeals Panel Decision No. 041738-s, Judge Ruberto acknowledged that the insurance carrier’s first notice of injury was an EES-11 from the Texas Workers’ Compensation Commission and not the TWCC-41, the Notice of Injury and Claim for Compensation.  She further acknowledged that the EES-11 “was not in evidence and it is unknown what injury was listed on that form.”  In other words the contested case hearing officer and the Appeals Panel had no evidence as to what the insurance carrier was notified was the injury!

 

In Appeals Panel Decision No. 041738-s, Judge Ruberto acknowledged that the insurance carrier’s first notice of injury was an EES-11 from the Texas Workers’ Compensation Commission and not the TWCC-41, the Notice of Injury and Claim for Compensation.  She further acknowledged that the EES-11 “was not in evidence and it is unknown what injury was listed on that form.”  In other words the contested case hearing officer and the Appeals Panel had no evidence as to what the insurance carrier was notified was the injury!

 

It appears that Judge Ruberto and the concurring Panel members expect that in every workers’ compensation claim, the insurance carrier will file the form DWC-153, Request for Copies of Confidential Claimant Information.

 

A Lexis search revealed over 59 Appeals Panel Decisions cited to Texas Workers’ Compensation Appeal No. 041738-s, decided September 8, 2004.  The latest was Texas Workers’ Compensation Appeal No. 090048, decided February 2, 2009.  This is another Appeals Panel Decision authored by Judge Ruberto.

 

The Fifth Court of Appeals in Dallas released its opinion in Fed. Ins. Co. v. Ruiz, No. 05-08-00587-CV, 2009 Tex. App. LEXIS 1148 (Tex. App. - Dallas Feb. 19, 2009, no pet. h.) (hereinafter referred to as Federal One) and in Fed. Ins. Co. v. Ruiz, No. 05-08-00529-CV, 2009 Tex. App. LEXIS 1153 (Tex. App. - Dallas Feb. 19, 2009, no pet. h.) (hereinafter referred to as Federal Two) the same day it released its opinion in Zenith Ins. Co. v. Ayala.  In both cases the Dallas Court of Appeals reached the same holding as in Ayala.

 

In Federal One the Dallas Court of Appeals rejected Federal Insurance Company’s contention that Rule 124.3(e) provides that Texas Labor Code Section 409.021 does not apply to extent of injury disputes.  The Court stated it rejected similar arguments in Sanders v. American Protection Insurance Co., 260 S.W.3d 682 (Tex. App.-Dallas 2008, no pet.). The Court held for the reasons set forth in Sanders and in Federal Two that Texas Labor Code Section 409.021 applies to extent of injury disputes.

 

In Federal Two the Dallas Court of Appeals reported that the Appeals Panel Decision in the case had held that the hearing officer's finding that Federal Insurance Company could not have determined during the sixty-day period that carpal tunnel syndrome was part of the claimed injury was against the great weight and preponderance of the evidence because the Appeals Panel had held that an allegation linking the medical condition to the compensable injury is not necessary when the employee had [not] been diagnosed previously with the condition, the employee's complaints during the waiver period were consistent with the medical condition, and the employee was diagnosed with the medical condition during the waiver period.  Under this holding an injured employee after his on the job injury could complain of skin rashes, skin infections, poor skin healing, dry itchy skin, flaky skin, skin ulcers, skin boils and peripheral neuropathy, then be diagnosed with diabetes, and the diabetes become compensable even though the employee made no claim that the diabetes was work related.  This holding also conflicts with Texas Labor Code Sections 409.001, 409.002, 409.003 and 409.004.

 

According to the Dallas Court of Appeals, Federal Insurance Company relied on the Waco Court of Appeals holding in TIG Premier Insurance Co. v. Pemberton, 127 S.W.3d 270 (Tex. App.--Waco 2003, pet. denied), to support its contention that waiver under Section 409.021 of the Labor Code does not apply to extent of injury disputes.  The Dallas Court of Appeals responded that the Waco Court of Appeals in State Office of Risk Management v. Lawton, 256 S.W.3d 436 (Tex. App.--Waco 2008, pet. granted), implicitly “had to have concluded that, following the issuance of Appeals Panel Decision No. 041738-s, its decision in Pemberton did not apply to medical conditions that could have been reasonably discovered in the carrier's investigation prior to the expiration of the sixty-day waiver period.”

 

Citing its decision in Sanders v. American Protection Ins. Co., 260 S.W.3d 682, 685 (Tex. App- Dallas 2008, no pet.), the Dallas Court of Appeals held that that Sanders is “on point and controls our decision in this case” (Federal Two). “The only distinction between the two cases is that in Sanders, the insurer agreed the bilateral carpal tunnel syndrome was compensable but sought to contest the compensability of the neck injury; while in this case, the insurer agreed to the compensability of the right shoulder strain, cervical strain, and left wrist strain but sought to contest the compensability of the bilateral carpal tunnel syndrome. This is not a material distinction.”  The Court went on to state that the “summary judgment record shows Ruiz's bilateral carpal tunnel syndrome could have been reasonably discovered by Federal during the sixty days following notice to Federal of Ruiz's injury.”

 

In State Office of Risk Mgmt. v. Lawton, 256 S.W.3d 436 (Tex. App. - Waco 2008, pet. granted), Lawton was injured on July 5, 2005, and diagnosed that same day with a left knee contusion.  The State Office of Risk Management (SORM) accepted the compensable left knee contusion and paid benefits.  On July 25, 2005, Lawton underwent a MRI.  SORM received the results on August 1, 2005.  The MRI showed Lawton had internal knee damage to the cartilage and other structures within her knee. On November 29, 2005, SORM received a medical report from its peer review doctor, J. William Wellborn, M.D. that the internal knee damage was not part of the compensable work injury. On December 7, 2005, SORM filed its Notice of Disputed Issues disputing the internal damage to the knee.

 

The Division of Workers' Compensation found that Lawton's conditions arose out of or naturally flowed from the compensable injury. The Division of Workers' Compensation determined that the SORM waived the right to contest compensability by failing to timely do so in accordance with Section 409.021. SORM appealed to the Brazos County District Court. Attorney Stuart F. Lewis, representing Lawton, filed a Motion for Summary Judgment as did SORM.  The trial court granted Lawton's Motion for Summary judgment and dismissed the case.  SORM appealed to the Waco Court of Appeals.

 

SORM contended before the Waco Court of Appeals that Rule 124.3 and case law make Section 409.021 inapplicable to extent of injury disputes.  SORM cited to TIG Premier Insurance Co. v. Pemberton, 127 S.W.3d 270 (Tex. App.- Waco 2003, pet. denied), a Waco Court of Appeals case which held Section 409.021 pertains only to the overall injury, the initial response by the carrier after receiving notice that an employee has been injured, and the initiation of benefits (Id. at 274), and that Rule 124.3 specifically provides that Section 409.021 "does not apply to disputes of extent of injury." Id. at 275.  The Lawton Court decided that the then Texas Workers’ Compensation Commission Appeals Panel had held that "the nature of the injury will be defined by that information that could have been reasonably discovered in the carrier's investigation prior to the expiration of the waiver period." The Waco Court of Appeals cited to Texas Workers' Compensation Appeal No. 041738-s to affirm the agency’s decision on waiver.

 

SORM argued that Appeal No. 041738-s conflicts with Section 409.021’s and Rule 124.3's rejection of waiver for new disputes arising after the sixty-day period and so amounts to ad hoc rule making. The Waco Court of Appeals disagreed claiming Rule 124.3 and Section 409.021 both provide for disputes raised outside the sixty-day period, where the carrier establishes the existence of information that could not have been reasonably discovered within the sixty-day time period.  According to the Waco Court of Appeals, Rule 124.3 contemplates the situation where, after the initial injury and the expiration of the sixty-day period, a new dispute arises with regard to a body part, system, injury, condition, or symptom. Id. at 441.

 

Yet, to allow a carrier to dispute the extent of an injury of which it had notice within the sixty-day period would obviate the purpose of chapter 409 to provide a streamlined process for workers' compensation claims in order to promote "prompt response[s]" to claims, "avoid early attorney involvement," and prevent delays that result in "hardship upon the employee." Cont'l Cas. Co. v. Downs, 81 S.W.3d 803, 806 (Tex. 2002) (quoting 1 MONTFORD ET AL., A GUIDE TO TEXAS WORKERS' COMP REFORM 5-52 (1991)).

 

Chief Justice Gray dissented from the majority in Lawton but did not write a separate opinion. He noted that the majority’s opinion appears to be the first court opinion in which an Appeals Panel opinion has been used to modify the former Texas Workers’ Compensation Commission's duly adopted rule regarding the scope of waiver of compensability versus a waiver of the right to contest the extent of the compensable injury. He did not mention that the majority’s holding conflicts with the proposition that an agency has to follow its own rules.  See Public Util. Comm'n v. Gulf States Util. Co., 809 S.W.2d 201, 207 (Tex. 1991). Chief Justice Gray stated “[t]his is an issue of significance to the State because of the frequency with which it is likely to be repeated, if not corrected or clarified. So that all workers compensation carriers are put on notice of the need to hire sufficient additional doctors to conduct peer reviews by the deadline or have their ability to contest the extent of injury waived. . . .”  Id. at 441-42.

 

SORM appealed to the Texas Supreme Court contending that the Waco Court of Appeals had found that SORM’s dispute did indeed constitute “an extent of injury dispute,” but the Court of Appeals nevertheless applied the 60-day waiver provision from Labor Code Section 409.021 and held that SORM’s dispute was untimely and therefore waived.  SORM contended this holding is in direct conflict with Texas law clearly establishing that the 60-day waiver rule, without exception, does not apply to disputes regarding extent of injury.

 

SORM pointed out in its brief that the former Texas Workers’ Compensation Commission had explained what constitutes an extent of injury dispute:

 

When a carrier disputes the extent of an injury, it is not denying the compensability of the claim as a whole; it is disputing an aspect of the claim . . . . [A] dispute involving extent of injury is a dispute over the amount or type of medical benefits to which the employee is entitled (i.e. what body areas/systems, injuries, conditions, or symptoms for which the employee is entitled to treatment); it is not a denial of the employee’s entitlement to benefits in general.

 

25 TEX. REG. 2096, 2101 (Mar. 10, 2000)

 

SORM further pointed out in its brief to the Supreme Court that the language of Rule124.3(e) is plain and does not admit exception. “Texas Labor Code, §409.021 and subsection (a) of this section do not apply to disputes of extent of injury. Nevertheless, contrary to the principle that ‘[c]ourts should give full effect to all of a rule’s terms[,]’ Id. (emphasis added) (citing St. Luke’s Episcopal Hosp. v. Agbor, 952 S.W.2d 503, 505 (Tex. 1997)), the court below crafted a new exception to Rule 124.3(e), and held that SORM was required to dispute the extent of Lawton’s injury within Section 409.021's initial 60-day period because it received a doctor’s MRI report within that time period . . .”

 

SORM attacked the Appeals Panel decision in Appeal No. 041738-s showing that the decision “is plainly wrong as it conflicts with both the text of Rule 124.3(e) and the Commission’s intent in adopting the rule set out in the Texas Register.”  Citing Rodriguez v. Service Lloyds Ins. Co., 997 S.W.2d 248 (Tex. 1999), for the proposition that the courts will reverse an agency’s decision if it does not follow the clear, unambiguous language of its own regulation, SORM stated the Appeals Panel’s decision has recognized an exception not found in the agency’s rule.  “Rule 124.3(e) does not contain any exception to the prohibition against applying Section 409.021’s 60-day waiver period to extent of injury disputes.

 

On March 11, 2009, the Texas Supreme Court heard oral arguments in State Office of Risk Management v. Lawton.  SORM asserted what it stated in its Brief:  a plain reading of Rule 124.3 finds Section 409.021 of the Labor Code does not apply to extent of injury disputes.  SORM argued that Rule 124.3(e) excludes disputes of extent of injury from the sixty day waiver period.  SORM further argued the Appeals Panel decisions which have applied the sixty day waiver period to extent of injury disputes are clearly erroneous as they conflict with the applicable rules and statute.

 

It has been reported that Justice Nathan Hecht questioned SORM closely as to whether extent of injury and compensability issues are on a continuum in the life of a claim.  Justice Hecht asked where the line should be drawn as to compensability and extent of injury disputes.  SORM responded that the line is set out in Rule 124.3

 

Stuart F. Lewis, an attorney out of Bryan, argued for Lawton and claimed SORM knew the claimed diagnosis for the degenerative knee condition during the initial sixty day period and SORM failed to dispute such condition as required by Section 409.021.

 

It has been reported that the Justices on the Court had several questions for Lawton focused on whether a requirement that insurance carriers dispute the extent of injury within the initial sixty day waiver period would increase the number of disputes.  Several Justices apparently commented that requiring carriers to dispute claims in sixty days would just encourage carriers to file more denials.  At this time a decision from the Supreme Court is pending.

 

Zenith Insurance Company filed its Petition for Review to the Supreme Court in the Ayala case on April 10, 2009.  A response to the petition was waived.  Don R. Freiling, with the Law Office of Robert Yates, and John Fundis are representing Zenith at the Supreme Court.  Leslie Casaubon is representing Ms. Ayala.  The Supreme Court’s decision in Lawton should govern what happens in Ayala.

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