By TIM STRONG, a partner in Steptoe & Johnson LLP's Phoenix office, and KEVIN FINCEL, a litigation associate with the firm
Why do workers' compensation bad faith cases appeal to plaintiffs' lawyers? The simple answer: "better" injuries. Workers' compensation bad faith cases often involve a serious or even disabling injury that may not be fully compensated under workers' compensation laws. The plaintiff's attorney who can persuade a jury that the carrier exacerbated her client's industrial injury or regarded it callously can also play to the anti-insurer, don't-question-my-doctor sentiments of many jurors. The carrier's reasonable exercise of legal rights to have the claim reviewed by an independent medical examiner or utilization-review process--or its efforts to help get the claimant back to work--will be portrayed as overreaching despite the broad public and private benefits of such cost-control processes.
So how does an insurer avoid unpredictable jury trials in workers' compensation cases? Another straightforward answer: Wherever possible, win on summary judgment.
Easier said than done, some may say, but in many cases, the administrative structure of the workers' compensation system may offer the carrier unique arguments for summary adjudication of a case. Unlike in the typical casualty insurance setting, a workers' compensation carrier's claim decisions are routinely reviewed by a state administrative officer or administrative law judge (ALJ). A highly effective summary-judgment argument is that a claims-handling or coverage position that an ALJ approved cannot be bad faith, as a matter of law.
Showing that an administrative law judge or other neutral arbiter accepted the carrier's position as either correct or reasonable is a particularly compelling method of establishing the carrier's good faith. After all, if an impartial arbiter informed by adversarial presentation has agreed with the insurer's position, it is hard to argue that the insurer acted unreasonably.
For example, a neutral arbiter's decision that an insured is not entitled to certain benefits necessarily means that the insurer did not act in bad faith by challenging those benefits. Numerous courts have held this to be true even if the arbiter's decision is later reversed on appeal. In Aetna Casualty & Surety Co. v. Superior Court, for example, both the trial and intermediate appellate courts agreed that Aetna's denial of the insured's claim was proper, but the state supreme court disagreed. On remand, the trial court granted (and the intermediate appellate court affirmed) summary judgment on the insured's bad faith claim based on the fact that two courts had agreed with Aetna's position:
"Even if ultimately wrong, if a reasonable basis existed for denying the claim, the insurer cannot be liable for bad faith," the judges wrote in decision.
This principle that a carrier cannot have acted in bad faith if a neutral arbiter agreed with it is well suited to use in workers' compensation cases because of the routine involvement of administrative law judges, who review and decide disputes over carriers' benefits positions. For instance, in a recent case in the Superior Court of Arizona, a workers' compensation claimant alleged that his employer's carrier breached the covenant of good faith and fair dealing when it challenged multiple claimed benefits based on evidence including the opinions of the claimant's physicians and surveillance video showing the claimant functioning at a higher level than exhibited during physician visits. In the separate underlying workers' compensation proceeding, an administrative law judge of the Industrial Commission of Arizona agreed with the carrier that the claimant was not entitled to a majority of the challenged benefits; among other things, the ALJ ruled that the claimant was not totally disabled as he claimed.
When the Arizona Court of Appeals vacated the ALJ's disability ruling, the claimant argued that the carrier "lost" that issue and was liable for bad faith because its position was arbitrary and primarily intended to increase company profits. Citing Aetna, the carrier argued that the ALJ's agreement with its benefit positions showed that it acted reasonably and required summary judgment in the carrier's favor. The claimant argued that the appellate court's decision precluded summary judgment. The trial court agreed that the ALJ's decision demonstrated the carrier's reasonableness even if its position ultimately proved to be incorrect.
This method of obtaining summary judgment should be of interest to all lines of insurers, but particularly those (like workers' compensation carriers) whose claims are commonly reviewed by administrative law judges, arbitrators, or umpires. A decision by a neutral arbiter that is even partially favorable to the insurer may be used to defeat or substantially limit the scope of a bad faith suit. It should work no matter what state court system you're involved in. This strategy is a function of the definition of the bad faith tort, which, in virtually every state that recognizes the tort, requires at a minimum proof of unreasonable conduct.
As for the carrier whose position is rejected by the neutral arbiter, there are numerous other potential avenues for obtaining summary judgment. Because the touchstone of the bad faith tort is intentional unreasonableness, any evidence that convincingly establishes the insurer's reasonableness can support a favorable summary adjudication.
Thus, a workers' compensation carrier that reasonably bases a claim decision on information provided by the claimant's own physician can hardly be said to have acted in bad faith, even if an ALJ later disagrees with the carrier's decision. This principle has been applied in numerous cases, including Montoya Lopez v. Allstate Ins. Co. and Knoell v. Metropolitan Life Ins. Co.
November 7, 2010
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