Texas Mutual Insurance Company v Ruttiger

February 16, 2009                                               Bulletin 2009-No. 05A

 

On Friday, February 13, 2009, the Texas Supreme Court, in Case No. 08-0751; Texas Mutual Insurance Company v. Timothy J. Ruttiger, requested the record from the Court of Appeals be filed with the clerk of the Supreme Court and requested briefing on the merits from the parties.  This occurred one day after Liberty Insurance Corporation, the American Insurance Association and the Property Casualty Insurers Association of America represented by Thomas R. Phillips and Steven M. Tipton filed an amici curiae brief with the Court.  Mr. Phillips, as you may know, is a retired Chief Justice of the Supreme Court of Texas.

 

You may also recall that Timothy J. Ruttiger, represented by Michael P. Doyle, sued Texas Mutual Insurance Company, for violations of the Texas Insurance Code, breach of the duty of good faith and fair dealing (bad faith), and violations of the Texas Deceptive Trade Practices Act.  Mr. Ruttiger won $183,500.00 at trial.

 

Texas Mutual Insurance Company (Texas Mutual) appealed to the 1st Court of Appeals in Houston on eight issues. The seventh and eighth issues are the main ones of interest.  In its seventh issue, Texas Mutual contended that the trial court lacked jurisdiction to award damages because Mr. Ruttiger failed to obtain a finding by the Texas Workers' Compensation Commission that Mr. Ruttiger was entitled to workers' compensation benefits. In its eighth issue, Texas Mutual contended that no cause of action exists in Texas for breach of the duty of good faith and fair dealing (bad faith) in the context of a workers' compensation claim.

 

Texas Mutual argued before the Court of Appeals that the Texas Supreme Court’s decision in American Motorists Insurance Company v. Fodge, 63 S.W.3d 801 (Tex. 2001) governed in this case.  The Texas Supreme Court had held that Ms. Fodge's claims for benefits due and for damages caused by the insurer's alleged bad faith denial of additional benefits were never awarded by the Texas Workers’ Compensation Commission and that Ms. Fodge’s failure to obtain a Commission ruling entitling her to those benefits denied the trial court of jurisdiction to hear her claims.  However, regarding the claims for the carrier's alleged bad faith delay in the payment of compensation benefits (which were ultimately stipulated to by the carrier), the Court of Appeals stated that the Texas Supreme Court concluded that they were "ripe for adjudication and should not have been dismissed."  Mr. Ruttiger had alleged that Texas Mutual committed bad faith in delaying payment of benefits that Mr. Ruttiger claimed Texas Mutual ultimately agreed to pay in a Benefit Dispute Agreement.  The Court of Appeals agreed that the Benefit Dispute Agreement constituted a final determination that benefits were due to Mr. Ruttiger and that the trial court had subject matter jurisdiction to hear Mr. Ruttiger's case.

 

The Court of Appeals did not address Texas Mutual’s eighth issue in which Texas Mutual contended that no cause of action exists in Texas for the breach of the duty of good faith and fair dealing.  Instead, addressing one of Texas Mutual’s other issues, the Court of Appeals cited to the Texas Supreme Court’s decision in Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 49 (Tex. 1997), as well as the Court of Appeals’ own decision in Travelers Personal Sec. Ins. Co. v. McClelland, 189 S.W.3d 846, 852 (Tex. App.—Houston [1st Dist.] 2006, no pet.), for the proposition that under the Texas Insurance Code an insurer violates its duty of good faith and fair dealing by denying or delaying payment of a claim when the insurer knew or should have known that it was reasonably clear that the claim was covered. 

 

The Texas Supreme Court recently in the case of Southwestern Bell Telephone Co. v. Mitchell, No. 05-0171 (Tex. 2008), overruled its prior decision in the case of Continental Casualty Co. v. Downs, 81 S.W.3d 803 (Tex. 2002).  It will be interesting to see if the Supreme Court overrules its prior decisions regarding the existence of a common law cause of action for bad faith in this Ruttiger case.

 

 

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