Clarifying ‘Election of Remedies’ in Workers’ Comp Claims

March 24, 2003

In a flurry of recent cases, Texas courts have tried to clarify various issues regarding election of remedies in the context of workers’ compensation insurance. These issues arise in various circumstances. Two scenarios form the basis for the recent opinions: An injured employee whose status is uncertain may both pursue a workers’ compensation claim and sue the putative employer, often asserting status as an independent contractor; in addition, an employee may seek benefits under a group health insurance policy, representing that the injury or illness is not work-related. The question becomes how long the employee may keep his or her options open, and at what point the choice to pursue one avenue of recovery precludes pursuit of any other.

The cases address the application of the doctrine in the face of changes to the Texas Workers’ Compensation Act, Texas Labor Code §401.001, et seq., and whether a third-party’s statutory right of reimbursement under §409.009 effectively supersedes the election of remedies defense.

The election of remedies doctrine is not limited to the workers’ compensation context. The doctrine provides that there may be a bar to relief when “(1) one successfully exercises an informed choice, (2) between two or more remedies, rights, or statements of fact, (3) which are so inconsistent as to (4) constitute a manifest injustice.” Bocanegra v. Aetna Life Ins. Co., 605 S.W.2d 848, 851 (1980).

The issue of election of remedies has arisen repeatedly in the health insurance context, but the older cases indicate that there is rarely an informed and intentional decision to seek health insurance benefits, to the detriment of workers’ compensation benefits. In Bocanegra, the court held that workers’ compensation benefits did not bar a claim under a group medical and hospital policy. More recently, in U.S. Fire Ins. Co. v. Pettyjohn, 816 S.W.2d 839 (Tex. App.—Fort Worth 1991, no writ), the plaintiff was injured in an automobile accident while in the course and scope of employment. After the accident, he changed jobs. He subsequently sought treatment for his injury, and represented on claim forms that his condition was not related to his employment. While U.S. Fire contended that these representations, and the acceptance of health benefits, negated any right to pursue a workers’ compensation claim, the court disagreed. The court concluded there was no evidence that the plaintiff knew his injury was work-related at the time he completed the health insurance forms, or that he understood he would be foregoing the right to workers’ compensation benefits by receiving health insurance benefits. Thus, there was no informed choice.

Similarly, in Cigna Ins. Co. of Texas v. Evans, 847 S.W.2d 417 (Tex. App.—Texarkana 1993, no writ), Cigna appealed from a verdict in favor of Evans on several grounds, including a defense based on election of remedies. Evans was employed by Shell Oil Company when she was bitten by ticks. Several years later, she was diagnosed with Lyme disease and hospitalized. A report was then filed by the employer with the Industrial Accident Board, and the claim was controverted by the carrier. In addition to raising the timeliness of the notice, Cigna contended that the filing of health insurance claims during Evans’ hospitalization constituted an election of remedies. The claim forms indicated that Evans’ disease was not a work-related injury. The court noted, however, that the forms were not signed, and it was not even clear that Evans had provided the information included on the forms. The court reasoned that there could not have been an informed choice, as it was not even apparent that Evans knew her injury was work-related at the time the claim forms were completed.

While Evans and Pettyjohn represent the state of the law for the past decade, the doctrine of election of remedies was revisited in several recent cases, generated by arguments that changes in the Workers’ Compensation Act abrogated the doctrine of election of remedies, in its entirety.

Workers’ comp v. health benefits
In Valley Forge Ins. Co. v. Austin, 65 S.W.3d 371 (Tex. App.—Dallas), aff’d per curiam, No. 02-0100 (Tex. Sup. Ct., Feb. 6, 2003) and American Cas. Co. v. Martin, No. 05-02-00187-CV (Tex. App.—Dallas, Jan. 6, 2003, no pet. h.), the courts addressed the relationship between workers’ compensation benefits and group health insurance, and the Texas Supreme Court reviewed the results.

In the Valley Forge case, the court of appeals concluded that §409.009 of the Texas Workers’ Compensation Act was an abrogation of the common law election of remedies defense. Accordingly, the court concluded an employee does not waive his claim to workers’ compensation benefits by pursuing group health insurance benefits.

In Valley Forge, the employee, Austin, rejected workers’ compensation benefits, sought medical treatment and surgery under his wife’s group health insurance benefits, and then filed a claim to receive workers’ compensation. The trial court concluded that the health insurer had the right to pursue reimbursement from the workers’ compensation carrier under Texas Labor Code §409.009. In the court of appeals, Valley Forge alleged error, based upon the election of remedies doctrine. The court of appeals rejected this argument, focusing on §409.009, enacted in 1989 (originally enacted a Tex. Civ. Stat. arts. 8308-1.03(44) and 8308-5.08). This section allows a person to file a claim with the Commission as a “subclaimant” if the person has provided compensation, including health care, directly or indirectly to an employee or legal beneficiary, and has sought and been refused reimbursement from the insurance carrier. The court of appeals concluded that the inclusion of this provision, allowing health insurers to pursue reimbursement from the workers’ compensation carrier, indicated that pursuit of health insurance and workers’ compensation benefits were not inconsistent, and abrogated the election of remedies defense in this context.

In American Casualty Co. v. Martin, the trial court entered summary judgment against the workers’ compensation carrier on the election of remedies defense. The claimant, Martin, was the chief executive officer of a computer consulting company. Martin was injured in a plane crash, returning from a business meeting. While he was unconscious at the hospital, two of his employees provided information regarding the company’s healthcare carrier. Based on this information, the medical expenses were submitted to the carrier. Martin, himself, never discussed coverage with the hospital. Martin underwent a series of surgeries, and then was transferred by air ambulance to Parkland Hospital in Dallas, where he remained for several weeks, and underwent another series of surgeries. Again, Martin never discussed payment, or coverage, with anyone at Parkland.

When it appeared that amputation was the only option remaining, Martin was referred to a doctor in Indiana, and arranged to be taken there for treatment. He remained there for another several weeks. After arriving in Indiana, he received a letter from his health insurer, stating that coverage was denied because the Indiana treatment was outside of the service area and not within 48 hours of an emergency. While trying to work through the intricacies of the health insurance coverage, Martin signed a personal guaranty for his expenses. Martin underwent a lengthy recovery period, both in Indiana and in Texas, with follow-up treatment and continued medication.

After hiring a lawyer, Martin provided notice to the workers’ compensation carrier, American Casualty, about his injury. The workers’ compensation carrier contested the claim on a number of grounds, including untimely reporting and election of remedies, but nonetheless began paying temporary benefits. The consulting company also filed a claim for reimbursement, based on payments made to Martin related to his injury, which the carrier also contested.

An appeals panel of the Texas Workers’ Compensation Commission found in favor of Martin on his claim, but against the employer, finding it had forfeited its right to reimbursement by failing to comply with the statutory notice requirements. Both the carrier and the employer appealed. Considering motions for summary judgment filed by the parties, the district court granted summary judgment on a number of issues, but retained the issue of election of remedies for trial. The jury responded in favor of Martin, finding no election of remedies.

The court of appeals, reviewing the judgment in favor of Martin, also reviewed the election of remedies doctrine. Martin argued, consistent with the Dallas Court of Appeals’ opinion in Valley Forge, that election of remedies was abrogated by the amendments to the Workers’ Compensation Act. The workers’ compensation carrier requested the court revisit its decision in Valley Forge. The court declined, concluding that §409.009 would not change the disposition of the case. The court reasoned that the carrier bore the burden of proof on an election of remedies defense, and had failed to establish that Martin made an informed election to reject workers’ compensation benefits. In fact, there was no evidence that Martin told any hospital or medical provider he was making that choice, nor was there actual evidence that the health insurance policy forbade recovery for work-related injuries. Instead, the court agreed with TWCC that the evidence “merely shows the contemporaneous and timely pursuit of consistent avenues of recovery.”

The Supreme Court affirmed the decision in Valley Forge per curiam in a brief opinion. The Supreme Court agreed that Austin’s claim for benefits was not barred by the election of remedies doctrine. The court held, however, that the court of appeals did not need to reach the issue of whether §409.009 abrogated the doctrine of election of remedies in cases involving workers’ compensation benefits and group health insurance. Instead, the court concluded that there was sufficient evidence to establish that the employee did not make an informed election to reject workers’ compensation benefits by accepting group health benefits. The court cited, with apparent approval, the opinions in Cigna Ins. Co. v. Evans and U.S. Fire Ins. Co. v. Pettyjohn, as well as the more recent opinion of the Dallas court of appeals in American Cas. Co. v. Martin.

To sue or not to sue
The election between health insurance and workers’ compensation revenues is only one of the areas in which the election of remedies doctrine arises. The doctrine also arises where a putative employee seeks arguably inconsistent relief by filing both a workers’ compensation claim and pursuing a lawsuit against the employer. This issue was also recently revisited, in Texas Workers’ Compensation Commission v. Texas Workers’ Compensation Ins. Fund, 07-02-00169-CV (Tex. App.—Amarillo, Jan. 14, 2003, no pet. h.). In this case, too, there was an argument that the Texas Workers’ Compensation Act abrogated the common law defense of the election of remedies. The dispute arose after the employee, Everett, filed suit against Jeffrey Evans d/b/a The Finished Touch, alleging injuries caused when using equipment provided by The Finished Touch. A notice of injury was also filed with the workers’ compensation carrier. The carrier denied benefits, asserting that no injury occurred in the course and scope of employment, and that Everett was an independent contractor. In the lawsuit, The Finished Touch initially contended that Everett’s exclusive remedy was under the Act. The answer was ultimately amended, withdrawing this defense. Everett then pursued his claim for workers’ compensation benefits.

While both the lawsuit and the workers’ compensation claim were pending, Everett entered into a settlement of the lawsuit. As part of the settlement, Everett agreed to release the defendant and any persons or entities in privity with the defendant, and agreed to dismiss this suit with prejudice, and to forego further relief and indemnify the defendant. Everett then pursued his workers’ compensation claim. An award was made, and affirmed by an appeals panel. The Fund then filed suit asserting that Everett had made an election of remedies. The trial court found that there had been a binding election of remedies when Everett settled his claim for damages, and that he was barred from receiving workers’ compensation benefits. Again, the court looked, in part, to Texas Labor Code §409.009, creating a right of a subclaimant to seek reimbursement from the workers’ compensation carrier from any services provided. The Commission also argued that §406.035, which provides that any agreement by an employee to waive the employee’s right to compensation is void, except as provided in the statute, abrogated the common law as the employee could not legally waive his right to compensation by receiving a settlement.

The court rejected the Commission’s argument that the statute abrogated the election of remedies defense. The court concluded that “waiver” was not the same as election of remedies. While Everett’s status as an employee was uncertain, he could not “waive” any benefits by executing the settlement agreement.

The court then concluded that, on the facts, the settlement constituted an election of remedies. The court reviewed the elements of the defense, as stated in Bocanegra, and found each element satisfied. The court noted that there was an informed choice, because the settlement specifically recited that Everett had signed the agreement after consultation with his attorneys. The court also noted that Everett’s status as an employee was contested at the time of the agreement, and that Everett had the option to pursue his workers’ compensation claim, or to accept the settlement agreement. The court also noted that the remedies were indeed inconsistent, as no negligence action could be pursued, if the exclusive remedy provision of the Workers’ Compensation Act applied. See Tex. Labor Code §406.034. Finally, the court noted that it would constitute manifest injustice to allow Everett to pursue his workers’ compensation claim, after he had settled, agreeing not to assert any further claims arising under common law, inequity, or statute.

While the court of appeals’ opinion in Valley Forge indicated there might be a change in the law, it appears that the change in the Act will make little difference. Although still a viable defense, election of remedies is difficult to establish, and will be successful in only the most extreme of circumstances, where the stringent standards of Bocanegra are met and actual informed election can be established. Where the employee is unaware that one remedy will preclude the other, or unaware that one remedy is even available, it is unlikely that the workers’ compensation carrier will prevail. It also appears that §409.009 will have little, if any, effect. While it may or may not abrogate the election of remedies doctrine, most cases will fail on their facts, and not on a statutory argument. The Supreme Court’s review of the Valley Forge case did not reach the merits of the argument regarding §409.009, but appears, implicitly, to reject this understanding and to approve the common law approach in Martin. Similarly, the Dallas court of appeals’ own refusal to revisit the issue, in the Martin case, indicates that the reasoning in Valley Forge is suspect. The outcome of the recent review of election of remedies is that the defense survives, but remains limited in application, and rarely successful without an express written election.

Top 25 Texas Workers’ Comp Carriers
Based on 2001 Direct Written Premium (DWP)
No. Company
DWP 2001
Market Share
1 Texas Workers Comp Ins Fund
2 Liberty Mut Fire Ins Co
3 Zurich American Ins Co
4 Commerce and Industry Ins Co
5 Lumbermens Mut Cas Co
6 American Home Assur Co
7 Transcontinental Ins Co
8 North American Specialty Ins Co
9 Service Lloyds Ins Co
10 Hartford Underwriters Ins Co
11 Old Republic Ins Co
12 American Cas Co of Reading, PA
13 St Paul Fire & Marine Ins Co
14 Pacific Employers Ins Co
15 Association Cas Ins Co
16 Transportation Ins Co
17 Liberty Mut Ins Co
18 National Fire Ins Co of Hartford
19 Continental Cas Co
20 Twin City Fire Ins Co
21 American Zurich Ins Co
22 Fire and Cas Ins Co of CT
23 American Motorists Ins Co
24 Liberty Ins Corp
25 Mid-Century Ins Co
Top 25 Total
Industry Total
Source: 2001 Annual Statement, Page 14/15 NAIC database
Provided by the Texas Department of Insurance

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