Texas Mutual Insurance Co. (TMIC) said it would appeal to the Supreme Court a decision handed down by the 14th Court of Appeals.
The 14th Court rejected Texas Mutual’s appeal of a jury verdict from a district court in Harris County that found TMIC acted in bad faith and that the company had knowingly violated the insurance code. The jury also had found that plaintiff P. Lance Morris had mental anguish and loss of credit reputation damages because of TMIC’s actions.
The 14th Court of Appeals held that the evidence was sufficient to support the jury’s entire verdict, with the exception of the loss of credit reputation damages.
“In Texas Mutual’s opinion, the court did not correctly apply the law to the facts of this case,” Mary Nichols, Texas Mutual’s general counsel, said. “We feel strongly that allegations of negligence in claims handling or the fact that the insurance carrier has a difference of an opinion with an injured worker regarding the extent of his work-related injury does not rise to the level of bad faith. Texas Mutual intends to appeal this decision to the Texas Supreme Court. The facts of this case speak for themselves,” Nichols said.
TMIC is a major provider of workers’ compensation insurance in the state, with offices in Austin, Dallas, Houston and Lubbock.
On June 12, 2000, Morris reported an injury to his lower back while working for Justin Volunteer Fire Department, a TMIC policyholder. Morris claimed that he injured his lower back after lifting an accident victim. Texas Mutual accepted the claim and paid for several visits to a chiropractor for treatment. Morris missed a brief period of time from work as a result of this injury.
On March 23, 2003, almost three years after the injury, Morris went to an emergency room complaining of severe back pain. The hospital referred him to a surgeon who said Morris required surgery for a herniated disc in his lower back. The surgeon requested preauthorization to perform the surgery, and Texas Mutual granted the request and approved surgery. Morris had the surgery shortly thereafter.
On April 3, 2003, a TMIC adjuster reviewed the new medical records pertaining to Morris’ back condition and called the Justin fire chief to inquire about Morris’ ability to return to work after his initial injury. The fire chief said Morris had returned to work full duty after only a brief period off. The adjuster then filed a notice with the Texas Workers’ Compensation Commission stating that Texas Mutual disputed that the June 2000 compensable injury extended to and included the new disc herniation.
During a benefit review conference at the commission, Morris agreed to attend a required medical examination with Stephen DeYoung, M.D., a board-certified orthopedic surgeon. Dr. DeYoung reported that he could not determine whether the June 2000 injury aggravated Morris’ pre-existing degenerative lower-back condition, which led to the disc herniation, or whether the disc herniation was simply a part of the aging process. The physician also said that if Morris had no history of lower back problems before June 2000, and if the medical records showed that Morris continued to have problems with his lower back between June 2000 and March 2003, the physician would give him the benefit of the doubt and say that the disc herniation was causally related to the June 2000 work-related injury.
The dispute continued on to a contested case hearing where a hearing officer determined that the disc herniation was causally related to the June 2000 work-related injury. Texas Mutual did not appeal, though it had the right to agency appeals panel and judicial review. Texas Mutual paid for the surgery.
After the favorable agency decision, Morris sued Texas Mutual for bad faith. He alleged that TMIC failed to conduct a reasonable investigation before disputing that the disc herniation was related to the June 2000 minor back injury. Morris further alleged that TMIC’s adjuster failed to send pertinent medical records to Dr. DeYoung before the medical exam, which would have proven Morris’ claim. In fact, the medical records in question were erroneously identified in the claim file as a different document type and were inadvertently omitted from the records TMIC sent to Dr. DeYoung before the exam.
During the discovery phase of the bad faith lawsuit, TMIC learned that Morris sustained an injury to his lower back in 1998 and obtained treatment from the same chiropractor he saw for the June 2000 work-related injury. Morris had never disclosed the 1998 injury and in fact testified during the contested case hearing that he had not injured his lower back before June 2000. Because of this revelation, Texas Mutual filed a counterclaim against Morris for fraud.
The bad faith case went to trial in March, 2006, in the 11th District Court in Harris County. In a 10-2 verdict, the jury found that TMIC violated its duty of good faith and fair dealing in disputing the causal connection between the June 2000 injury and the 2003 disc herniation that required surgery. The jury awarded Morris $50,000 for past mental anguish; $25,000 for past damage to his credit reputation; $50,000 for future damage to his credit reputation; and $120,000 in attorneys fees. The jury further awarded Morris $500,000 in additional damages because it found that TMIC knowingly violated the insurance code, an amount that the trial judge reduced to $250,000. The jury declined to find that Morris defrauded TMIC.
The Court of Appeals eliminated the credit reputation damages from Morris’ award.
Source: Texas Mutual Insurance Co.
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