Aranda v. Insurance Co. of North America

PHILLIPS, Chief Justice,

dissenting.

I respectfully dissent. The Texas Workers Compensation Act replaces common law remedies with a comprehensive statutory scheme for the processing and adjudication of work-related injuries. I do not believe the unique statutory relationships it creates can give rise to an implied duty of good faith and fair dealing on the part of the carrier. Therefore, I would affirm the judgment of the court of appeals.

Contrary to the majority’s apparent assertion, this court has never held that every contract contains an implied duty of good faith and fair dealing. In fact, we specifically rejected this proposition in English v. Fischer, 660 S.W.2d 521, 522 (Tex.1983). We have, however, read a duty of good faith and fair dealing into certain types of contractual transactions where the partners are in special relationships. Those relationships arise either “from the element of trust necessary to accomplish the goals of the undertaking or ... because of an imbalance of bargaining power” between the parties. Id. at 524 (Spears, J. concurring). See, e.g., Montgomery Ward Co. v. Scharrenbeck, 146 Tex. 153, 157 , 204 S.W.2d 508, 510 (1947) (duty to exercise proper care in the performance of a service contract); Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544 (Tex.Comm’n App. 1929, opinion adopted) (insurance company’s duty *216 to exercise good faith in attempting settlement). Such duties are especially common where the parties are already in a fiduciary relationship. See, e.g., Johnson v. Peckham, 132 Tex. 148, 152 , 120 S.W.2d 786, 788 (1938) (partner’s obligation to exercise high duty in dealings with other partners); Fitz-Gerald v. Hull, 150 Tex. 39, 54 , 237 S.W.2d 256, 264 (1951) (joint adventurer’s duty to deal with each other with “utmost good faith”); Kinzbach Tool Co. v. Corbett-Wallace Corp., 138 Tex. 565, 573 , 160 S.W.2d 509, 513 (1942) (agent’s duty to exercise “fair dealing and good faith” in all transactions on his principal’s behalf).

Most recently, this court has found a duty on the part of insurers to deal fairly and in good faith with their insureds. Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165 (Tex.1987). In examining the relationship between the parties, we said:

In the insurance context a special relationship arises out of the parties' unequal bargaining power and the nature of insurance contracts which would allow unscrupulous insurers to take advantage of their insureds’ misfortunes in bargaining for settlement or resolution of claims. In addition, without such a cause of action, insurers can abritrarily deny coverage and delay payment of a claim with no more penalty than interest on the amount owed. An insurance company has exclusive control over the evaluation, processing and denial of claims.

725 S.W.2d at 167 . None of the factors which governed these cases, however, is present here.

The Workers’ Compensation Act is theoretically premised on a three-party contractual agreement between the employer, the employee and the compensation carrier. Huffman v. Southern Underwriters, 133 Tex. 354, 359 , 128 S.W.2d 4, 6 (1939). Such a contractual agreement, of course, is essentially a legal fiction. The actual terms of the contract between the worker, the employer and the insurance carrier are wholly dictated by statute. The rights and obligations of the different parties are not determined by any actual negotiation between the parties, but rather by the terms of the statute itself. See Florida Erection Services, Inc. v. McDonald, 395 So.2d 203, 209 (Fla.App.1981). Whatever bargaining there is over terms and remedies for breach occurs in the Legislature.

In enacting the statute, the Legislature has expressly addressed each of the concerns identified in Arnold . The Workers’ Compensation Act provides that within 20 days of receipt of a claimant’s written notice of injury, the carrier must either initiate compensation payments or file a statement of controversion with the Industrial Accident Board. Tex.Rev.Civ.Stat. art. 8306 § 18a(a). If the insurer files a statement of controversion, the Board must promptly set the matter for a prehearing conference on the merits. If a carrier neither initiates compensation nor files a statement of controversion, it is subject to a penalty of 15% of the past due payments to be paid to the claimant. Id.

If a claimant is suffering financially, he or she may file an affidavit of hardship with the Board. Texas Industrial Accident Board Rule 61.11.00.012. In the event the Board determines that financial hardship exists and that no tender of advanced or accelerated payments has been made within ten days of the filing of claimant’s affidavit of hardship, the Board must schedule an expedited prehearing conference. Texas Industrial Accident Board Rule 61.11.-00.020.

If a carrier suspends or stops payment of weekly compensation or medical benefits, it must file a statement to the Board within 10 days stating its reasons for such action. Failure to comply with this requirement subjects the carrier to a 15% penalty to be paid to the claimant. Tex.Rev.Civ.Stat. art. 8306 § 18a(b). If a carrier does not consent to abide by a final Board ruling, it must notify the Board within 20 days of the filing. It must then file suit in the district court within 20 days of giving notice. Failure to follow these procedures subjects the carrier to a 12% penalty plus attorney’s fees, which are again paid to the claimant. Tex.Rev.Civ.Stat. art. 8307 § 5a.

*217 Finally, if it appears to the Board that an insurer is, as a general business practice, wrongfully controverting claims and/or failing to promptly and adequately investigate claims, or is wrongfully suspending benefits, the carrier is subject to sanctions including a cease and desist order, a $10,-000 fine and/or revocation of its license. Tex.Rev.Civ.Stat. art. 8306 § 18a(d).

The legislative scheme for workers’ compensation thus concerns itself not only with assuring compensation to injured workers, but with policing the procedures under which claims are made and paid. The Legislature mandates the relationship between the parties at all stages of the process, obviating the need we found in Arnold to provide a common law remedy for a private individual who might be disadvantaged by the superior bargaining power of an insurance company. While the legislative procedures and sanctions may not always be adequate, their shortcomings are a matter of legislative concern. I see neither the need nor the justification for superimposing a common law cause of action on a carefully crafted legislative scheme.

The majority of courts that have faced this issue have declined to permit a tort action based on bad faith settlement practices by insurance carriers. See Garvin v. Shewbart, 442 So.2d 80 (Ala.1983); Stafford v. Westchester Fire Ins. Co., 526 P.2d 37 (Alaska 1974); Sandoval v. Salt River Project, 117 Ariz. 209 , 571 P.2d 706 (Ct.App.1977); Everfield v. State Compensation Ins. Fund, 115 Cal.App.3d 15 , 171 Cal.Rptr. 164 (1981); Old Republic Co. v. Whitworth, 442 So.2d 1078 (Fla.App.1983); Bright v. Nimmo, 320 S.E.2d 365 (Ga. 1984); Robertson v. Travelers Ins. Co., 95 Ill.2d 441 , 69 Ill.Dec. 954 , 448 N.E.2d 866 (1983); Hormann v. New Hampshire Ins. Co., 236 Kan. 190 , 689 P.2d 837 (1984); Zurich Ins. Co. v. Mitchell, 712 S.W.2d 340 (Ky.1986); Gallagher v. Bituminous Fire & Marine Ins. Co., 303 Md. 201 , 492 A.2d 1280 (1985); Denisen v. Milwaukee Mut. Ins. Co., 360 N.W.2d 448 (Minn.App.1985); Young v. United States Fidelity & Guar. Co., 588 S.W.2d 46 (Mo.App.1979); Dickson v. Mountain States Mut. Casualty Co., 98 N.M. 479 , 650 P.2d 1 (1982); Burlew v. American Mut. Ins. Co., 63 N.Y.2d 412 , 482 N.Y.S.2d 720 , 472 N.E.2d 682 (1984); Whitten v. American Mut. Liab. Ins. Co., 468 F.Supp. 470 (D.S.C.1977) aff'd without opinion, 594 F.2d 860 (4th Cir.1979). “The rationale of these cases has typically been that the legislature, anticipating that bad faith in delaying payment of benefits would occur on occasion, provided a ‘quick, simple and readily accessible method’ of resolving disputes over such payments without ‘proof and defenses incident [to a common law action], the intolerable delay in resolution of a lawsuit, economic waste to all and expense to the worker’ ”. Robertson, supra 69 Ill.Dec. at 958 , 448 N.E.2d at 870 , citing Everfield v. State Compensation Ins. Fund, supra, 115 Cal.App.3d at 20 , 171 Cal.Rptr. at 166 .

The majority’s reliance on Travelers Ins. Co. v. Savio, 706 P.2d 1258 (Colo.1985), is misplaced. In Savio , the court found that Colorado’s statute “contained] no provisions indicating that claims against an employer or insurer for bad faith in handling a claim for compensation or treatment are covered by its provisions, nor [did] the Act suggest any limitations on the potential remedies for such conduct.” 706 P.2d at 1264 . The Colorado statute is thus readily distinguishable from our own, which does contain remedies for workers who have been injured by the bad faith settlement practices of an insurance carrier. See Tex. Rev.Civ.Stat. art. 8306 § 18a, art. 8307 §§ 5, 5a.

I would accordingly hold that the exclusivity provisions of the Workers’ Compensation Act do bar an action for breach of a duty of good faith and fair dealing in claims settlement. The reasons for nonpayment of benefits or delay in their payment can be investigated by the Industrial Accident Board in the manner designated by statute, with appropriate sanctions. I would hold this court is without authority to create a parallel scheme for judicial inquiry into the settlement practices of insurers.

Moreover, even if it were proper to recognize a tort duty of good faith and fair dealing, I fail to see in what way Aranda *218 has alleged bad faith on the part of the insurance companies in this case. The gravamen of Aranda’s complaint is that the two insurance companies sought an adjudication by the Industrial Accident Board of their respective liability for Aranda’s claims. I find nothing in the statute to suggest that they were not within their rights to do so. And if they were within their rights, surely the legitimate exercise of a statutory right should not constitute the violation of a common law duty.

The Workers’ Compensation Act is by no means perfect, as recent criticisms from representatives of workers, employers, and insurers have made clear. Nonetheless, thousands of claims are resolved under its auspices every year. In this, it serves its primary legislative purposes of assuring certain and timely resolution of claims. In my view, this court’s insertion of a common law duty of good faith and fair dealing invites the proliferation of lawsuits and the possibility of double recoveries and inconsistent findings of fact. To permit a tort remedy in addition to the remedies provided by statute betrays the bargain implicit in the Act and necessarily impairs the function of the compensation system.

Therefore, I dissent.

CULVER, J., joins in this dissent.