Summary
considering whether insured was required to exhaust administrative remedies before pursuing claim for breach of duty of good faith and fair dealing and holding that there was no evidence of insurer misconduct
Summary of this case from Mid-Continent Casualty Company v. Eland Energy, Inc.Opinion
EP-00-CA-201-DB
March 2, 2001
MEMORANDUM OPINION AND ORDER
On this day, the Court considered Defendant National Union Fire Insurance Company of Pittsburgh, Pennsylvania's ("National Union" or "Defendant") "Motion for Summary Judgment" and "Brief in Support of Defendant's Motion for Summary Judgment," filed in the above-captioned cause on November 28, 2000. Plaintiff Jose A. Loya ("Plaintiff" or "Loya") filed a Response on December 7, 2000. Thereafter, on December 18, 2000, Defendant filed a Reply to Plaintiffs Response.
After due consideration, the Court is of the opinion that Defendant's Motion should be granted for the reasons that follow.
FACTS
On October 24, 1991, while working for the PET Company, a/k/a Old El Paso Foods, Plaintiff slipped and sustained injury to his lumbar spine, groin, neck and left shoulder. Plaintiff was thereafter treated by Dr. Johan Pennick, who ordered, upon examination of Loya, x-rays and a magnetic resonance image ("MRI") of the spine. The MRI was performed on February 12, 1992, and payment for the procedure was approved by National Union, the workers' compensation insurance carrier for PET Company. Thereafter, between February 24 and March 10, 1992, Plaintiff participated in a physical therapy program called a "work hardening program." On March 5, 1992, at the request of National Union, Plaintiff underwent an examination by Dr. Barry King. Dr. King concluded that Plaintiff could return to work and, further, assessed a 5% impairment rating. On March 27, 1992, Plaintiff again visited Dr. Pennick, who thereafter certified that Plaintiff had reached maximum medical improvement ("MMI") and, like Dr. King before him, assessed a 5% impairment rating.
"`Impairment rating' means the percentage of permanent impairment of the whole body resulting from a compensable injury." TEX. LAB. CODE ANN. § 401.011 (24) (Vernon Supp. 2001).
Pursuant to the Texas Labor Code, MMI means:
[T]he earlier of (A) the earliest date after which, based on reasonable medical probability, further material recovery from or lasting improvement to an injury can no longer be reasonably anticipated; or (B) the expiration of 104 weeks [i.e., two years] from the date on which income benefits began to accrue; or (C) the date determined as provided by Section 408.104 [Maximum Medical Improvement After Spinal Surgery].
TEX. LAB. CODE ANN § 401.011 (30) (Vernon Supp. 2001).
In June 1992, Plaintiff consulted another physician, Dr. Joseph Neustein, who, unlike the previous physicians, assessed a 42% impairment rating and projected that Plaintiff would never return to full-time work. Additionally, Dr. Neustein referred Plaintiff for a second MRI, finding that the results of the February 1992 MRI were inconclusive. National Union declined to pre-approve the second MRI on the grounds that it had been unable to get any medical information regarding the referral from Dr. Neustein. In its letter denying pre authorization, National Union reported that it made repeated telephone calls to Dr. Neustein's office and further, sent a letter notifying him of their decision. No response, however, was forthcoming.
According to the regulations of the Texas Worker's Compensation Commission, certain medical procedures require pre-certification by the insurance carrier. Among those are "repeat individual diagnostic study, with a fee . . . of greater than $350." 28 TEx. ADMIN. CODE § 134.600 (h)(6), (a)(2) (West, WESTLAW through September 30, 2000).
In November 1992, Plaintiff traveled to Mexico, where he underwent an MRI, which his son's health insurance carrier financed. Based on the results of the MRI, physicians in Mexico performed back surgery in February 1993. Thereafter, Plaintiff returned to the United States, where he continued to be treated by Dr. Neustein.
While Plaintiff never sought a medical dispute resolution hearing from the Texas Workers' Compensation Commission ("TWCC") regarding the denial of pre-authorization for the second MRI ordered in June 1992, he did dispute the impairment rating assessed by Drs. Pennick and King. Plaintiff initiated four separate "contested case hearings" before an officer of the TWCC, none of which ultimately resulted in a significant change to the impairment ratings assessed by Drs. Pennick and King. Proceedings held on March 16, 1994; April 18, 1995; December 7, 1999; and February 7, 2000, yielded TWCC findings that (1) Plaintiffs impairment rating had correctly been assessed at 10%; (2) Plaintiffs evidence was insufficient to establish a causal relationship between Plaintiff's on-the-job-accident in 1992 and certain alleged injuries to his right elbow, his right wrist, his right ring and pinky fingers, and his bilateral lower extremities as well as a headache disorder from which he allegedly suffers; and (3) Plaintiff did not qualify for lifetime income benefits.
The Labor Code provides for an extensive dispute resolution mechanism which must first be exhausted before judicial review may be sought in state court. See TEX. LAB. CODE ANN. §§ 410.001 et seq.
See TEX. LAB. CODE ANN. §§ 410.151 et seq. (detailing the prerequisites, scope, and procedure of contested case hearings).
Pursuant to the Texas Labor Code, an employee may receive lifetime income benefits for "an injury to the spine that results in permanent and complete paralysis of both arms, both legs, or one arm and one leg." TEX. LAB. CODE ANN. § 408.161(a)(5) (Vernon Supp. 2001).
On June 15, 2000, Plaintiff commenced this lawsuit in the 34th Judicial District Court of El Paso County, Texas, alleging that Defendant's refusal to pre-authorize a second MRI in June 1992 constituted a breach of the common law duty of good faith and fair dealing
On July 10, 2000, Defendant timely removed the cause to this Court based on diversity of citizenship. The instant Motion for Summary Judgment followed on November 28, 2000.
DISCUSSION
Plaintiff alleges in his "Original Petition" that Defendant's refusal to authorize the MRI requested in June 1992 has resulted in a deterioration of Plaintiff's physical condition and the development of psychological problems. Based on these allegations, Plaintiff brings causes of action based on breach of the common law duty of good faith and fair dealing. For its part, Defendant avers in its "Motion for Summary Judgment" and "Brief in Support of Motion for Summary Judgement" that Plaintiff's eight-year-old claim is barred by the statute of limitations, a complete defense which entitles Defendant to summary judgment. Alternatively, Defendant argues that it is entitled to summary judgment because Plaintiff has failed to raise a genuine issue of material fact and cannot prove the essential elements of his claim. In this vein, Defendant maintains that Plaintiff cannot meet the standard for a bad faith claim without first showing that the insurer breached its duty under the contract of insurance. Plaintiffs failure to exhaust his administrative remedies, Defendant argues, bars such a showing, hence making him unable to meet the required showing for his bad faith claim. The Court concurs with Defendant's, position as detailed below.
A. SUMMARY JUDGMENT STANDARD
Summary judgment should be granted only where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. Civ. P. 56(c). The party that moves for summary judgment bears the initial burden of identifying those portions of the pleadings and discovery on file, together with any affidavits, which it believes demonstrate the absence of a genuine issue of material fact. See, e.g., Celotex Corp. v. Catrett 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L. Ed. 2d 265 (1986). "If the moving party fails to meet this burden, the motion must be denied, regardless of the nonmovant's response." Tubacex, Inc. v. M/V Risan, 45 F.3d 951, 954 (5th Cir. 1995). If the movant does meet this burden, however, the nonmovant must go beyond the pleadings and designate specific facts showing that there is a genuine issue for trial. See, e.g., Celotex, 477 U.S. at 324, 106 S.Ct. at 2553. "If the non-movant fails to meet this burden, then summary judgment is appropriate." Tubacex, 45 F.3d at 954.
When making a determination under Rule 56, factual questions and inferences are viewed in a light most favorable to the nonmovant. See Lemelle v. Universal Mfg. Corp., 18 F.3d 1268, 1272 (5th Cir. 1994). The party opposing a motion supported by evidence cannot discharge his burden by alleging mere legal conclusions. See Anderson v. Liberty Lobby, 477 U.S. 242, 248-49, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986). Instead, the party must present affirmative evidence in order to defeat a properly supported motion for summary judgment. See id.
B. STATUTE OF LIMITATIONS
A lawsuit based on breach of the common-law duty of good faith and fair dealing must be filed within two years from the date the carrier denies coverage. See Murray v. San Jacinto Agency, 800 S.W.2d 826, 829 (Tex. 1990) ("Limitations on a first party claim appropriately begins to run at denial, not the date a separate suit to determine coverage under the contract is resolved."); TEX. Civ. PRAC. REM. CODE ANN. § 16.003(a) (Vernon 1986).
The state statute of limitations must be applied by a federal court in diversity cases. See Guarantee Trust Co. of N.Y. v. York, 326 U.S. 99, 108, 65 S.Ct. 1464, 1469, 89 L.Ed. 2079 (1945); see also 4 CHARLES ALAN WRIGHT ARTHUR MILLER, FEDERAL PRACTICE AND PROCEDURE § 1057 (2d ed. 1987).
The Texas Civil Practice and Remedies Code § 16.003(a) reads:
(a) Except as provided by Sections 16.010 and 16.0045, a person must bring suit for . . . personal injury . . . not later than two years after the day the cause of action accrues.
TEX. Civ. PRAC. REM. CODE ANN. § 16.003(a) (Vernon 1986) (emphasis added).
Defendant denied Plaintiff's request for pre-authorization in June 1992. The denial was final at that time, and Plaintiff was aware of the denial, as he admitted in deposition testimony. Plaintiff cites Murray to argue that the statute of limitations does not begin to run until "facts came into existence, which authorize Judicial remedy." Plaintiff contends that the necessary facts which would authorize judicial remedy in this case did not become evident until another MRI was performed in December 1998. That MRI allegedly revealed that the injuries to Plaintiff's shoulders were so severe that surgery was immediately necessary. Hence, Plaintiff argues, the statute of limitations could not have begun to run until December 1998.
Putting aside the fatal fact that Plaintiff supplies no evidence to support his allegations regarding the December 1998 MRI, Plaintiff's argument is barred by the very case he proposes to support his claim. While Murray does, as Plaintiff asserts, stand for the principle that "a cause of action generally accrues at the time when facts come into existence which authorize a claim to seek judicial remedy," Robinson v. Weaver, 550 S.W.2d 18, 19 (Tex. 1977), Murray circumscribes the time at which those facts can be said to have come into existence. Under Murray, a cause of action begins to accrue when a "wrongful act effects an injury." See Murray, 800 S.W.2d at 828. The wrongful act in a denial of benefits action occurs on the day the party denies benefits. Id. (emphasis added). "The fact that damage may continue to occur for an extended period after denial does not prevent limitations from starting to run. Limitations commence when the wrongful act occurs resulting in damages to the Plaintiff." Id.
The Court notes that Plaintiff submitted absolutely no summary judgment evidence to support his claims.
In short, under Murray, Plaintiff's cause of action accrued when National Union denied pre-authorization for the second MRI in June 1992. The fact that Plaintiff allegedly suffered damages for the period between June 1992 and December 1998 did not prevent the period of limitations from starting in June 1992. Plaintiff commenced this action on June 15, 2000, some eight years after the denial of benefits by Defendant. The statute of limitations had long passed when Plaintiff filed suit, and the suit, therefore, is barred. Hence, Defendant is entitled to summary judgment.
C. PRIMA FACIE CASE FOR BREACH OF THE DUTY OF GOOD FAITH
Assuming arguendo that the statute of limitation does not bar Plaintiff's claim, Defendant contends that the claim must still fail because first, the material facts are undisputed, and second, Plaintiff cannot meet the elements of his claim, hence entitling Defendant to judgment as a matter of law.
As to the material facts, Plaintiff and Defendant both agree that Plaintiff properly sought pre-authorization for the second MRI in June 1992 and that Defendant denied the claim. Plaintiff additionally contends that Defendant finally approved the MRI in 1998, six years after its initial denial, and that the 1998 MRI revealed "that the shoulders were so severe that surgery was immanent [sic]." That allegation, which Defendant neither affirms nor denies, must however be disregarded by the Court because it is not supported by proper summary judgement evidence. See Anderson, 477 U.S. at 248-49, 106 S.Ct. at 2509-10 (holding that the party opposing a properly supported motion for summary judgment must present affirmative evidence in order to defeat the motion).
As there are no genuine issues of material fact in dispute, the remaining issue is whether Defendant is entitled to judgment as a matter of law. Plaintiff alleges that National Union's failure to pre-authorize the MRI in June 1992 resulted in a breach of the duty of good faith and fair dealing. To state such a claim, Plaintiff must establish that the insurer "(1) either denied or delayed payment of the claim; and (2) knew or should have known that it was reasonably clear that the claim was covered." State Farm Fire Gas. Ins. Co. v. Vandiver, 970 S.W.2d 731, 738 (Tex.App. 1998) (citing Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 54-56 (Tex. 1997)). Additionally, the Plaintiff must show that the insurance "carrier's breach of the duty of good faith and fair dealing . . . is separate from the compensation claim and produced an independent injury." Aranda v. Ins. Co. of N. Am., 748 S.W.2d 210, 214 (Tex. 1988). Under the "reasonably clear" standard first articulated in Giles, "an insurer breaches its duty of good faith and fair dealing by denying a claim when the insurer's liability has become reasonably clear." State Farm Fire Cas. Co. v. Simmons, 963 S.W.2d 42, 44 (Tex. 1998). An insurance carrier does not breach its duty of good faith and fair dealing by erroneously denying a claim. United States Fire Ins. Co. v. Williams, 955 S.W.2d 267, 269 (Tex. 1997). Nor does a bona fide dispute over the insurer's liability rise to the level of bad faith. See Transportation Ins. Co. v. Moriel, 879 S.W.2d 10, 17 (Tex. 1994).
National Union maintains that it was not liable for the June 1992 MRI. In support of this position, Defendant submits reports from Dr. King, a physician retained by National Union, and from Dr. Pennick, Plaintiff's first examining physician, which indicate that Plaintiff had reached maximum medical improvement and did not require further treatment. Additionally, National Union notes that even if the insurer's liability were unclear, which in this case Defendant avers it was not, National Union made a good faith effort to investigate the claim. Its efforts, however, proved futile. Liability, if it were in dispute, could not have been "reasonably clear" since Defendant was unable to obtain any information from Plaintiff or his physician which would support the request for pre-authorization. At best, the record shows only that National Union's refusal to pre-authorize the June 1992 MRI stems from a bona fide dispute about Defendant's liability for a second MRI. Such disputes do not rise to the level of bad faith. See Williams, 955 S.W.2d at 269.
Plaintiff further cannot meet the required showing for a bad faith denial of his claim without first establishing liability under the insurance policy. Since Plaintiff has failed to exhaust his administrative remedies with regard to the underlying claim, he cannot now allege that he was denied benefits to which he was entitled. In Republic Insurance Co. v. Stoker, 903 S.W.2d 338, 341 (Tex. 1995), the Texas Supreme Court held that an insurer could not be held liable for breaching its duty of good faith and fair dealing "until the insured first establishes that the insurer breached its duty under the contract of insurance." Stoker, 903 S.W.2d at 341. This, the Stoker Court held, stands to reason since a claimant establishes the first element for a bad faith claim only when he shows that the insurer had no reasonable basis to deny the claim. See id. Whether an employer wrongfully denied benefits is a fact question over which only the TWCC has original jurisdiction. See Henry v. Dillard Dep't Stores, Inc., 21 S.W.3d 414, 418-19 (Tex.App. 2000) The Stoker Court acknowledged, however, "the possibility that in denying the claim, the insurer may commit some act, so extreme, that would cause injury independent of the policy claim." Id. The Court's analysis suggests that in such cases, exhaustion of administrative remedies may not be necessary.
The Court notes that the standard for a bad faith claim has since been amended by the Texas Supreme Court. Rather than a showing that the insurer had no reasonable basis to deny a claim, a claimant must now show that the insurer's liability was reasonably clear. See Universe Life lns. Co. v. Giles, 950 S.W.2d 48, 54-5 6 (Tex. 1997)). This amended standard, however, does not change the Stoker Court's analysis, since Plaintiff must still make a showing with regard to the insurer's liability.
In Plaintiffs case, however, the record contains no evidence of misconduct on the part of National Union. Indeed, National Union took pains to investigate the request for a second MRI by contacting Dr. Neustein, the referring physician, but its attempts met with little success. Such efforts tend to negate the proposition that there was misconduct on the part of Defendant. In addition, there is no indication that Plaintiff sustained an injury independent of his workers' compensation claim. There is an assertion in the original petition that Plaintiff suffers from serious anxiety attacks as a result of the injury, but there is no evidence to support that allegation Short of a showing of injury independent of the workers' compensation claim or National Union's misconduct, Plaintiff's claim rests on a showing that his underlying contractual claim was improperly denied. Where, as here, a claim arising out of workers' compensation benefits is in dispute, only the TWCC is authorized to resolve the factual issues related to coverage. See Saenz v. Fidelity Guar. Ins. Underwriters, 925 S.W.2d 607, 612 (Tex. 1996). Since the dispute over pre-authorization in 1992 has never been administratively resolved, Plaintiff cannot make the required showing that Defendant's liability for the 1992 MRI was reasonably clear.
Plaintiff, for his part, has presented no affirmative evidence to indicate National Union's liability was in fact reasonably clear, or that National Union knew or should have known that the liability was reasonably clear. Plaintiff himself argues that he was not aware of the severity of his injury until an MRI was performed in 1998.
Finally, assuming arguendo that liability for the June 1992 MRI was in fact, reasonably clear, and that the refusal to pre-authorize was made in bad faith, Plaintiff has submitted no affirmative evidence to indicate that the lack of good faith was the proximate cause of an independent injury, separate from the original job-related injury. Plaintiff seems to argue that the refusal to pre-authorize resulted in the failure to detect the extent of Plaintiff's original, job-related injury. This, of course, cannot be said to be an injury independent of the original injury, for which worker's compensation benefits were available. Plaintiff, in any event, subsequently had an MRI performed in Mexico in 1993, at which time any injury undetected in 1992 could then have been discovered.
In sum, the uncontroverted summary judgment evidence shows that there are no issues of material fact in dispute. Moreover, the Court finds that, as a matter of law, Plaintiff has failed to meet the fundamental "reasonably clear" showing required of a bad faith claim. Hence, the Court is of the opinion that Defendant is entitled to judgment as a matter of law.
All told, Plaintiff is barred by the Texas statute of limitations for personal injury cases and he cannot even meet the essential elements of his bad faith claim. Having carefully examined Defendant's motion, the evidence attached thereto, and Plaintiff's response, and having considered the arguments set forth therein, the Court is of the opinion that there are no genuine issues of disputed material fact and that Defendant is entitled to judgment as a matter of law. Hence the court is of the opinion that summary judgment should enter for Defendant.
Accordingly, IT IS HEREBY ORDERED that Defendant National Union Fire Insurance Company of Pittsburgh, Pennsylvania's Motion for Summary Judgment is GRANTED.