in Re Texas Mutual Insurance Company

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-04-00415-CV

In re Texas Mutual Insurance Company

ORIGINAL PROCEEDING FROM TRAVIS COUNTY

O P I N I O N

This original proceeding presents the issue of whether the Texas Workers'

Compensation Commission has exclusive jurisdiction over common law breach-of-contract and

negligence claims arising from a dispute over the effective date of workers' compensation insurance

coverage. We hold that the plaintiff must exhaust its administrative remedies in the Commission

regarding its breach-of-contract claim before the trial court can exercise jurisdiction over either

claim. Because such exhaustion can thus remove the impediment to the trial court's exercise of

jurisdiction, we hold that the trial court should have abated the lawsuit pending the Commission

proceedings. The trial court abused its discretion in denying Texas Mutual's plea to the jurisdiction,

and we conditionally grant the writ.

BACKGROUND

The underlying dispute centers on a workers' compensation insurance policy that

Goetz Insurors, an insurance agency, obtained for Cattleco, Inc., a feed lot operator, from Texas

Mutual, the market of last resort for workers' compensation insurance in this state. See generally

Tex. Ins. Code Ann. art. 5.76-3 (West Supp. 2004-05). Goetz contacted Texas Mutual in December

2002 after Cattleco learned that its current workers' compensation carrier was going to drop

coverage at the end of that year. A series of communications followed as Goetz attempted to procure

or verify coverage with Texas Mutual to avoid a coverage gap. These communications and Texas

Mutual's alleged actions or inaction during their course gave rise to the underlying lawsuit.

On January 22, 2003, a Cattleco employee, Sonny Stephens, was injured at a Cattleco

facility when a horse fell on him and broke his leg. Texas Mutual, which had not previously issued

a policy document to Goetz and Cattleco, responded by forwarding a policy stating an effective date

of February 10. Under this effective date, Cattleco would have been a nonsubscriber during the

period in which Stephens was injured--and thus would have been exposed to Stephens's common-law claims. (1) As the trial court put it, Cattleco responded to the situation in "the cowboy way": it

entered into a settlement with Stephens in which it attempted to provide the employee the

compensation benefits Goetz believed Texas Mutual owed as its carrier, including medical expenses (2)

and temporary income benefits. (3)

Goetz subsequently indemnified Cattleco for these payments, and Cattleco assigned

Goetz its rights against Texas Mutual. Goetz filed suit against Texas Mutual in the Travis County

Court-at-Law No. 1 on behalf of itself and Cattleco. It asserted two claims: (1) breach of the

insurance contract by refusing to provide coverage during the disputed period; and in the alternative

(2) negligence in causing Cattleco to have a coverage gap between the December 31, 2002,

expiration of its prior workers' compensation policy and the February 10, 2003, effective date of the

Texas Mutual policy. Thus, Goetz's breach-of-contract claim presupposes that an insurance policy

contract existed at the time of Stephens's injuries, while its negligence claim assumes that there was

no policy in effect.

Under its breach-of-contract theory, Goetz seeks "contractual damages," including

"the benefits expected to be received from the [insurance policy] contract," consequential damages,

and attorney's fees. Under its negligence theory, Goetz seeks damages it claims stem from its

liability exposure as a nonsubscriber, including reimbursement of its settlement payments and

consequential damages.

Texas Mutual filed a plea to the jurisdiction asserting that both of Goetz's claims

were within the exclusive subject-matter jurisdiction of the Commission. The trial court denied the

plea, and Texas Mutual sought relief by mandamus.

DISCUSSION

Availability of mandamus

Mandamus in an extraordinary remedy only available to correct a clear abuse of

discretion or the violation of a duty imposed by law and only in situations where there is no other

remedy at law. In re Southwestern Bell Tel. Co. , 35 S.W.3d 602, 605 (Tex. 2000); Walker v. Packer ,

827 S.W.2d 833, 839 (Tex. 1992); In re Nance , No. 03-04-00366-CV, 2004 Tex. App. LEXIS 7318,

at *5 (Tex. App.--Austin August 12, 2002, orig. proceeding). Erroneously analyzing and applying

the law can constitute a clear abuse of discretion. Walker , 827 S.W.2d at 840 .

In In re Entergy , the supreme court ruled that the erroneous denial of a plea to the

jurisdiction based on exclusive agency jurisdiction could justify mandamus relief where it effects

a judicial usurpation of state agency's authority and is a "clear disruption of the 'orderly processes

of government.'" 142 S.W.3d 316, 321 (Tex. 2004). If Texas Mutual is correct that the Commission

has exclusive jurisdiction of all or some of Goetz's claims, we believe the trial court's denial of

Texas Mutual's jurisdictional plea here would likewise usurp the Commission's authority and disrupt

the "orderly processes of government," and that mandamus would be an appropriate, available

remedy. Id .; see also In re ExxonMobil Corp. , 2004 Tex. App. LEXIS 7811, at *37-38 (Tex.

App.--Amarillo Aug. 26, 2004, orig. proceeding).

The Commission's jurisdiction

General concepts

"Under the exclusive jurisdiction doctrine, the Legislature grants an administrative

agency the sole authority to make the initial determination in a dispute." Subaru of Am., Inc. v.

David McDavid Nissan, Inc. , 84 S.W.3d 212, 221 (Tex. 2002) (emphasis in original). Thus, where

an agency has exclusive jurisdiction, the courts have no subject-matter jurisdiction, and a party can

turn to the courts only after first exhausting all administrative remedies in the agency. In re Entergy

Corp. , 142 S.W.3d at 321-22 ; Subaru of Am. , 84 S.W.3d at 221 . Whether an agency has exclusive

jurisdiction depends upon statutory interpretation. In re Entergy Corp. , 142 S.W.3d at 322 .

The Texas Workers' Compensation Act provides that the "exclusive remedy of an

employee covered by workers' compensation insurance coverage" for a work-related injury is

"recovery of workers' compensation benefits" as provided under the Act. Tex. Lab. Code Ann.

§ 408.001 (a) (West 1996). Benefits include medical benefits and income benefits. Id . § 401.011(5).

The Act "vests the power to award compensation benefits solely in the Workers' Compensation

Commission (formerly the Industrial Accident Board), subject to judicial review." American

Motorists Ins. Co. v. Fodge, 63 S.W.3d 801, 803 (Tex. 2001); see Tex. Lab. Code Ann.

§ 408.001 (a); Saenz v. Fidelity & Guar. Ins. Underwriters , 925 S.W.2d 607, 612 (Tex. 1996);

Howell v. Texas Workers' Comp. Comm'n , 143 S.W.3d 416, 434-39 (Tex. App.--Austin 2004, no

pet. h.). (4)

The parties' contentions

In asserting that both of Goetz's claims are within the Commission's exclusive

jurisdiction, Texas Mutual places primary reliance on Fodge , which held that a claim for damages

in the form of compensation benefits falls within the Commission's exclusive jurisdiction regardless

of the liability theory asserted. 63 S.W.3d at 802-05 . Seizing upon Fodge 's reasoning, Texas

Mutual characterizes both of Goetz's claims as being for "damages for a denial in payment of

compensation benefits," and thus within the Commission's exclusive jurisdiction.

In response, Goetz dismisses the idea the Commission could have any jurisdiction

over its negligence claim, much less exclusive jurisdiction, where the claim presumes Cattleco had

no workers' compensation coverage and the Commission's regulatory regime is based on the

existence of such coverage. See, e.g. , Tex. Lab. Code Ann. § 408.001 (a) ("recovery of workers'

compensation benefits is the exclusive remedy of an employee covered by workers' compensation

insurance coverage ") (emphasis added).

As for its breach-of-contract claim, Goetz concedes that issues relating to the

compensability of job-related injuries under a compensation policy fall within Commission

jurisdiction but attempts to distinguish threshold questions regarding whether or when the insurance

contract was formed. It urges that this is not a workers' compensation benefits case but a simple

coverage dispute and emphasizes that Texas Mutual's counsel characterized "[t]he dispute in this

case . . . [as] essentially over the effective date of the insurance policy" before the trial court. Such

issues, Goetz contends, are beyond the Commission's exclusive jurisdiction.

Goetz also suggests that, to the extent its breach-of-contract claim raised issues

regarding compensability, Texas Mutual either waived those issues procedurally or did not contest

them as "a practical matter." Goetz points out that the legislature has placed on the compensation

carrier the burden of notifying the Commission of an injury and thereby establishing administrative

jurisdiction over the injury. See Tex. Lab. Code Ann. § 409.021 (West Supp. 2004-05). (5) However,

Texas Mutual did not notify the Commission within seven days of receiving notice of injury. See

id . § 409.021(a). Nor did it either conduct an investigation within sixty days, begin paying benefits,

or file a notice of its refusal to do so along with an explanation. See id . § 409.021(c). As a result,

Goetz argues that section 409.021(c) operates to prevent Texas Mutual from contesting

compensability now.

Analysis

Because Texas Mutual's argument centers on Fodge , we begin with a brief survey

of that opinion. A covered employee, Barbara Anne Fodge, obtained an award of temporary income

benefits from a Commission hearing examiner. Id . at 802. Her carrier had initially denied the claim

on the basis that Fodge's injury was not work-related and that she did not timely notify her employer

of the injury as required by the Act. Id . Neither party appealed that ruling, and the question of

Fodge's possible entitlement to medical benefits, as distinguished from income benefits, was never

raised. Id .

Subsequently, Fodge filed suit against the carrier alleging it had underpaid and

delayed temporary income benefits, denied and delayed medical treatment, and otherwise mishandled

her claim. Id . She asserted causes of action for breach of the duty of good faith and fair dealing,

negligence, fraud, and violations of the DTPA and the insurance code. Id . at 802-03. Fodge sought

damages for "the loss of the sums due and owing under the workers' compensation insurance

policy," mental anguish related to her inability to obtain medical care, past and future lost wages and

impairment of credit reputation, statutory damages and attorney's fees. Id . at 803.

The supreme court held that the Commission had exclusive jurisdiction over both

Fodge's claim for medical benefits "due and owing under the workers' compensation insurance

policy" and her claims predicated on the allegedly bad faith denial or delay of those benefits. It

reasoned:

Because only the Commission can determine a claimant's entitlement to

compensation benefits, it follows, as we reasoned in Saenz [ (6) ], that "[a]llowing courts

to award damages for wrongful deprivation of benefits would circumvent the

Commission's jurisdiction" and therefore could not be permitted. Thus, just as a

court cannot award compensation benefits, except on appeal from a Commission

ruling, neither can it award damages for a denial in payment of compensation benefits

without a determination by the Commission that such benefits were due.

Accordingly, Fodge could not recover damages for American Motorists' breach of

its duty of good faith to pay her medical expenses if she was not entitled to medical

treatment. The court could not adjudicate her damages claim without determining

her entitlement to medical treatment, a matter within the Commission's exclusive

jurisdiction. Her claim for damages from denied medical treatment is made no more

viable simply by restating it under the other legal theories she asserted--negligence,

fraud, and statutory violations. To award damages equal to the cost of denied

medical care is tantamount to ordering that the care be paid for and would, as we said

in Saenz , circumvent the Commission's exclusive authority to decide that issue. The

same is true for Fodge's other claims for damages based on a denial of benefits.

Id . at 804. In contrast, the supreme court concluded that Fodge's claims related to temporary income

benefits, those for which Fodge had already exhausted her administrative remedies, were ripe for

adjudication in the trial court. Id . at 805.

Applying these principles, we hold that Goetz's breach-of-contract claim is within

the Commission's exclusive jurisdiction; it presupposes the existence of a workers' compensation

insurance policy and quite plainly seeks benefits due under that policy. See id . at 803. Goetz's

argument that Texas Mutual waived its right to contest compensability is not a basis for defeating

jurisdiction but merely identifies one of the issues that the Commission would consider when

determining Goetz's benefits claim. Similarly, the Commission also has exclusive jurisdiction to

consider, as part of its determination of the benefits claim, the merit or significance of Goetz's

assertion that "there is really no dispute concerning Mr. Stephens's injury" as "a practical matter."

In any event, nothing in the record indicates that Texas Mutual explicitly conceded the issue of

compensability.

We likewise reject Goetz's assertions that the Commission's exclusive jurisdiction

over workers' compensation benefits claims does not extend to determining whether coverage

existed at the time of Stephens's injury. The legislature has granted the Commission exclusive

jurisdiction over claims for policy benefits. Fodge , 63 S.W.3d at 805 . In adjudicating such claims,

the Commission will necessarily have to interpret compensation policies and determine the period

in which coverage existed. Indeed, it appears to routinely do so. See, e.g. , Gonzalez v. Cigna Ins.

Co. of Tex. , 924 S.W.2d 183, 184-87 (Tex. App.--San Antonio 1996, writ denied); Houston Gen.

Ins. Co. v. Association Cas. Ins. Co. , 977 S.W.2d 634, 636 (Tex. App.--Tyler 1998, no pet.). (7)

Moreover, Goetz's argument would imply that whenever the Commission, in the

exercise of its exclusive jurisdiction, encounters a coverage issue that can be characterized as going

to "policy formation," the agency must abate its proceedings pending judicial resolution of the

"formation" issue. We doubt that the legislature, in conferring exclusive jurisdiction upon the

Commission to determine compensation benefits claims, intended such an absurd result that

seemingly turns traditional concepts of exclusive jurisdiction on their head. Instead, as Texas Mutual

aptly observes, "[w]hether the carrier does not pay benefits because the employee did not suffer a

compensable injury, or because the employee did not timely notify the employer of the injury, or

because (as here) coverage was not in effect on the date of injury, anyone seeking to compel the

carrier to pay the benefits must first go through the Commission." See Fodge , 63 S.W.3d at 803-04 .

Accordingly, the trial court abused its discretion in denying Texas Mutual's plea to the jurisdiction

regarding Goetz's breach-of-contract claim.

But Goetz is correct that its negligence claim is outside the Commission's exclusive

jurisdiction. The Commission's exclusive jurisdiction extends to claims for benefits under workers'

compensation insurance policies. Tex. Lab. Code Ann. § 408.001 (a). Goetz's negligence claim, by

contrast, presupposes that no workers' compensation insurance policy was in effect at the time of

Stephens's injuries. In addition, this claim is not like those in Fodge , which the trial court could not

adjudicate without determining Goetz's entitlement to workers' compensation benefits. Fodge , 63

S.W.3d at 804 ("The court could not adjudicate her damages claim without determining her

entitlement to medical treatment, a matter within the Commission's exclusive jurisdiction."). We

reject Texas Mutual's attempts to characterize Goetz's negligence damages claim as seeking the

specific workers' compensation benefits of which Cattleco and Stephens were negligently deprived. (8)

To the contrary, Goetz seeks the damages proximately caused by Texas Mutual's alleged negligence

in causing Cattleco to be a nonsubscriber at the time Stephens was injured, including its out-of-pocket expenditures to eliminate its liability exposure. Although Goetz voluntarily attempted to tie

its out-of-pocket settlement expenditures to the hypothetical workers' compensation benefits

Stephens would have received if there had been coverage, that fact, at most, might bear upon

causation or mitigation of damages elements in its negligence case. The trial court need not

adjudicate the specific amount of benefits the Commission would have awarded.

Nonetheless, in the circumstances of this case, the trial court does not have

jurisdiction to adjudicate Goetz's negligence claim until Goetz first exhausts its administrative

remedies regarding its breach-of-contract claim. "Where . . . the administrative remedies are

available for a portion of the plaintiff's claims and the resolution of that portion of the claims may

be determinative of the claims over which the administrative body has no jurisdiction, the trial court

does not have jurisdiction over the claims outside the jurisdiction of the administrative body until

the plaintiff has exhausted its administrative remedies with respect to the claims over which the

administrative body does have jurisdiction." Metro Temps, Inc. v. Texas Workers' Comp. Ins.

Facility , 949 S.W.2d 534, 536 (Tex. App.--Austin 1997, no writ). Here, the Commission's

determination of Goetz's breach-of-contract claim--and, specifically, the issue of whether coverage

existed at the time of Stephens's injury--would be determinative of a portion of Goetz's negligence

claim. If the Commission were to find that coverage existed, that finding would negate the premise

upon which Goetz's negligence claim is based. On the other hand, if the Commission were to find

that the policy was not yet in effect, Goetz would then have the opportunity to assert its negligence

claim in the trial court. The proper course would be for the trial court to abate the negligence claim

until the issue of coverage has been decided.

Remedy

Having concluded that the trial court abused its discretion in denying Texas Mutual's

plea to the jurisdiction, we must consider the proper remedy. The supreme court has stated if "a

claim is not within a court's jurisdiction, and the impediment to jurisdiction cannot be removed, then

it must be dismissed; but if the impediment to jurisdiction could be removed, then the court may

abate proceedings to allow a reasonable opportunity for the jurisdictional problem to be cured."

Fodge , 63 S.W.3d at 805 . Here, the jurisdictional impediment preventing the trial court from

adjudicating Goetz's claims can be removed if Goetz exhausts its administrative remedies regarding

its breach-of-contract claim. Once it does so, the trial court may proceed, in light of the

Commission's findings, on any remaining issues presented by Goetz's negligence claim. See Subaru

of Am. , 84 S.W.3d at 224 . Accordingly, the trial court should abate the pending case "to allow a

reasonable opportunity" for Goetz to exhaust its administrative remedies before the Commission

regarding its breach-of-contract claim.

CONCLUSION

We conditionally grant Texas Mutual's petition for writ of mandamus. If the trial

court does not vacate its order denying Texas Mutual's plea to the jurisdiction, grant the plea to the

jurisdiction, and abate the case to afford Goetz a "reasonable opportunity" to exhaust its

administrative remedies before the Commission, the writ will issue.

__________________________________________

Bob Pemberton, Justice

Before Justices Kidd, B. A. Smith and Pemberton

Filed: December 22, 2004

1. See Tex. Lab. Code Ann. § 408.001 (a) (West 1996) (the "exclusive remedy of an employee

covered by workers' compensation insurance coverage" for work-related injury is "recovery of

workers' compensation benefits" as provided under the Act); see also id . § 406.033(a) (West Supp.

2004-05) (nonsubscriber employers cannot assert contributory negligence, assumption of risk, or

fellow servant defenses).

2. See id . §§ 408.021(a) (West 1996), .027 (West Supp. 2004-05).

3. Temporary income benefits are paid by a workers' compensation carrier to an employee

while the employee has a "disability" arising from a "compensable injury," until he or she reaches

"maximum medical improvement." Id . §§ 408.101 (West 1996), .102 (West Supp. 2004-05). To

determine the amount of these benefits, which is derived from a statutorily-defined formula, Cattleco

consulted the Commission's website.

4. Texas Mutual contends that Goetz is a "subclaimant" whose claim for reimbursement of

paid compensation benefits would be derivative of Stephens's claim. See id . § 409.009 (West 1996)

(authorizing any person who has provided compensation benefits to employee and been refused

reimbursement from carrier to file claim with Commission); 28 Tex. Admin. Code § 141.1 (a) (2004)

(subclaimant may request benefit review conference, first step in initiating compensation benefits

claim). Goetz does not dispute that it stands in the shoes of Stephens, the employee, for purposes

of the jurisdictional analysis.

5. Section 409.021(a) provides that "[n]ot later than the seventh day after an insurance carrier

receives written notice of an injury, the insurance carrier shall" either begin paying benefits under

the Act or notify the Commission and the employer in writing of its refusal to pay those benefits.

Tex. Lab. Code Ann. § 409.021 (a) (West Supp. 2004-05). Subsection (c) provides that if a carrier

does not contest compensability of the injury before the sixtieth day after the date on which the

insurance carrier is notified of the injury, the insurance carrier waives its right to contest

compensability. Id . § 409.021(c). Subsection (d) allows a carrier to "reopen the issue of

compensability of an injury if there is a finding of evidence that could not reasonably have been

discovered earlier." Id . § 409.021(d).

6. 925 S.W.2d 607, 612 (Tex. 1996).

7. Texas Mutual also has provided examples of Commission appeals panel decisions that have

addressed issues of coverage and contract formation. Although not binding on us, these decisions

illustrate the Commission's practice in similar cases.

8. Cf. Saenz v. Fidelity & Guar. Ins. Underwriters , 925 S.W.3d 607 , 612 (Tex. 1996) (citing

Brannon v. Pacific Employers Ins. Co. , 224 S.W.2d 466, 468 (Tex. 1949); Traders & Gen. Ins. Co.

v. Bailey , 94 S.W.2d 134, 135 (Tex. 1936); and Commercial Cas. Ins. Co. v. Hilton , 87 S.W.2d

1081, 1083 (Tex. 1935)) (holding that person who alleged he or she was fraudulently induced to

settle workers' compensation claim cannot recover damages for hypothetical benefits Commission

would have awarded but for settlement but must instead seek rescission of the settlement and re-file

claim with Commission). The supreme court has explained that "[t]he reason for this rule is that the

Workers' Compensation Act vests the power to award compensation benefits solely in the Workers'

Compensation Commission . . . subject to judicial review" and that "[a]llowing courts to award

damages for wrongful deprivation of benefits would circumvent the Commission's jurisdiction."

Id .