AUSTIN, TX — Commissioner of Workers’ Compensation, Ryan Brannan, recently announced final disciplinary actions taken by the Division of Workers’ Compensation (DWC).

The final actions include administrative penalties ordered against insurance carriers and health care providers in the workers’ compensation system. Beginning January 1, 2015, through May 31, 2015, the Commissioner of Workers’ Compensation has ordered administrative penalties totaling $803,500 for system participants. The penalties include $588,300 in fines ordered for insurance carriers, $169,700 in fines ordered for health care providers, and $45,500 in fines ordered for other entities.

Violations of the Texas Labor Code by insurance carriers cited in recent orders include failure to accurately and timely pay benefits ordered to an injured employee, failure to accurately and timely notify DWC of termination of benefits, and failure to pay benefits in accordance with a designated doctor examination. Violations cited in orders naming health care providers include improper billing of medical services to an injured employee; issuing improper, unreasonable, or medically unnecessary treatment or medical services to an injured employee; and failure to timely file and/or accurately complete DWC forms, reports, or records. Violations cited in orders naming other entities include failure to timely respond to DWC when ordered to produce requested documents.

Summaries of disciplinary actions are available on the Texas Department of Insurance (TDI) website at:https://wwwapps.tdi.state.tx.us/inter/asproot/commish/da/dwcclips2015.asp.

Specific order summaries also can be viewed by searching by the subject of the order here:
http://www.tdi.texas.gov/commish/actions.html.

Copies of Commissioner of Workers’ Compensation orders also may be obtained by calling Maria Jimenez, DWC Enforcement, at (512) 804-4703 or via e-mail to Maria.Jimenez@tdi.texas.gov.

For more information contact: MediaRelations@tdi.texas.gov

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

IN THE SUPREME COURT OF TEXAS

NO. 08-0751

TEXAS MUTUAL INSURANCE COMPANY, PETITIONER,
v.
TIMOTHY J. RUTTIGER, RESPONDENT

ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE FIRST DISTRICT OF TEXAS

Argued April 14, 2010
JUSTICE JOHNSON delivered the opinion of the Court with respect to Parts I, II, III, IV, and
VI, in which JUSTICE HECHT, JUSTICE WAINWRIGHT, JUSTICE MEDINA, JUSTICE WILLETT and
JUSTICE GUZMAN joined, and an opinion with respect to part V, in which JUSTICE HECHT, JUSTICE
WAINWRIGHT, and JUSTICE MEDINA joined.
JUSTICE WILLETT filed a concurring opinion, in which JUSTICE GUZMAN joined.
CHIEF JUSTICE JEFFERSON filed a dissenting opinion, in which JUSTICE GREEN and JUSTICE
LEHRMANN joined.
In 1989 the Legislature enacted major amendments to the Workers’ Compensation Act (Act).
TEX.LAB.CODE §§ 401.001–506.002. The amendments included significant reforms, among which
were changes in how to calculate income benefits for injured workers, the amount of income benefits
workers could recover, the dispute resolution process, the addition of an ombudsman program to
provide assistance for injured workers who had disputes with insurers, and increasing sanctions for
violations of the Act. In this case, the issues presented involve, among other matters, (1) the
interaction of the current Act with the Insurance Code and the Deceptive Trade Practices Act
(DTPA), and (2) whether the 1989 restructuring of the Act and subsequent amendments obviate the
need we found in Aranda v. Insurance Co. of North America, 748 S.W.2d 210 (Tex. 1988) to engraft
an extra-statutory cause of action for breach of the duty of good faith and fair dealing onto the
workers’ compensation system.
We conclude that (1) claims against workers’ compensation insurers for unfair settlement
practices may not be made under the Insurance Code, but (2) claims under the Insurance Code may
be made against those insurers for misrepresenting provisions of their policies, although in this case
there was no evidence the insurer did so.
Further, seven members of the Court would consider whether Aranda should be overruled
even though the court of appeals did not reach the issues involving the cause of action for breach
of the duty of good faith and fair dealing. Four Justices would hold that Aranda should be overruled
while three would hold that it should not be. Two members of the Court would have the court of
appeals first consider the issues involving breach of the duty of good faith and fair dealing before
addressing them. In accordance with these views, a majority of the Court joins in the judgment
reversing the judgment of the court of appeals and rendering judgment in part and remanding in part
for further proceedings as to the issues involving breach of the duty of good faith and fair dealing.
I. Background
On June 21, 2004, Timothy Ruttiger was working for A&H Electric in Galveston when he
reported to his supervisor that he was injured while carrying pipe. He went to the University of
Texas Medical Branch at Galveston where he was diagnosed as having bilateral inguinal hernias.
Later that day he went to A&H’s office and filled out a TWCC-1 form reporting that he had been
2
injured on the job. See TEX. LAB. CODE § 409.001.1 Ruttiger was scheduled for hernia repair
surgery to be performed on July 14, 2004.
When A&H’s workers’ compensation carrier, Texas Mutual Insurance Company (TMIC),
received written notice that Ruttiger was claiming an injury, it initiated temporary income benefit
payments and began investigating. As part of the investigation process, TMIC’s adjuster, Audie
Culbert, interviewed A&H employees. One employee told Culbert that Ruttiger had been at a
softball tournament the weekend before the alleged injury and had come to work on the morning of
the incident with a limp. She later reported that one of Ruttiger’s co-workers informed her Ruttiger
was injured at the softball game and “bragged about getting it paid by workers’ comp.” The vice
president of A&H said that Ruttiger “wasn’t 100 percent” when he arrived at work on the day of the
incident and he “never got a straight story” on how Ruttiger was injured. Culbert testified at trial
that he attempted to contact Ruttiger by telephone and by mail, but was unable to do so. Ruttiger
denied receiving a letter or phone call from TMIC.
On July 11, Ruttiger’s doctor notified him that TMIC refused to pay for the hernia surgery.
Ruttiger testified that he then called Culbert who told him the claim was denied because the hernias
resulted from Ruttiger’s playing softball and were not work related.
On July 12, 2004, TMIC filed a “Notice of Refused or Disputed Claim” with the Texas
Workers’ Compensation Commission2 and discontinued temporary income benefit payments after
1 Further references to the Labor Code will generally be by reference to section numbers.
2 In 2005, the Legislature abolished the Texas Workers’ Compensation Commission and transferred its functions
to the Texas Department of Insurance, Workers’ Compensation Division. See Act of May 29, 2005, 70th Leg., R.A.,
ch. 265, § 8.001, 2005 Tex. Gen. Laws 469, 607-08. For ease of reference we will refer to the Division, or “WCD”
instead of the Commission.
3
having sent one check. See id. § 409.021 (providing that a carrier commits an administrative
violation if it does not, no later than the 15th day after the carrier receives written notice of an injury,
either begin paying benefits or notify the WCD and the employee of its refusal to pay as well as
notifying the employee of (1) his right to request a benefit review conference and (2) the means to
obtain further information).3 In its notice, TMIC stated that its investigation revealed Ruttiger
sustained the hernias while he was playing softball and that it “disput[ed] this claim in its entirety.”
See id. § 409.022 (providing that an insurer’s notice of refusal to pay benefits must specify the
grounds for the refusal, that absent new evidence such grounds are the only basis on which the
carrier may dispute compensability in a later proceeding, and failure to comply with such
requirements is an administrative violation). The notice included the WCD’s telephone number and
a statement that an injured worker whose claim was denied had the right to contact the Division to
request a benefit review conference (BRC). See id. § 409.022(a)(2).
Two days after he was notified that TMIC refused to pay for his surgery, Ruttiger hired a
lawyer to help with his claim. Approximately two months later, in September, Ruttiger’s lawyer
3 When TMIC received notice of Ruttiger’s claim, it was required to notify the WCD of the claim. TEX. LAB.
CODE § 409.005. The WCD was then required to notify Ruttiger of the Act’s benefits and procedures:
Plain Language Information; Notification of Injured Employee
(a) The division shall develop information for public dissemination about the benefit process and the
compensation procedures established under this chapter. The information must be written in plain
language and must be available in English and Spanish.
(b) On receipt of a report [of injury], the division shall contact the affected employee by mail or by
telephone and shall provide the information required under Subsection (a) to that employee, together
with any other information that may be prepared by the office of injured employee counsel or the
division for public dissemination that relates to the employee’s situation, such as information relating
to back injuries or occupational diseases.
Id. § 409.013.
4
contacted TMIC and asked for a copy of the notice of disputed claim. After another month, on
October 22, 2004, Ruttiger’s lawyer requested the WCD to set a BRC. See id. § 410.021 (providing
that a benefit review conference is a non-adversarial, informal dispute resolution proceeding
designed, among other things, to mediate and resolve disputed issues). The BRC was set for
December 2, 2004. See id. § 410.025(a); 28 TEX.ADMIN.CODE § 141.1 (providing that a BRC must
be set within forty days after the request is received, but providing that in cases warranting expedited
processing the BRC must be set within twenty days). The WCD failed to notify TMIC of the setting
so the conference was rescheduled for January 6, 2005. At the January conference, Ruttiger and
TMIC entered into a benefit dispute agreement. They agreed that (1) Ruttiger suffered a
compensable injury on June 21, 2004; (2) he did not have disability from June 22, 2004 through
August 22, 2004; and (3) he had disability from August 23, 2004 “to the present.” The WCD
approved the agreement. Following the BRC, TMIC paid temporary income benefits for the agreed
period of past disability and re-initiated weekly benefits. See TEX. LAB. CODE § 408.101. TMIC
also paid for Ruttiger’s surgery and other medical expenses related to his hernias. Ruttiger reached
maximum medical improvement on August 1, 2005, and was assigned a 1% impairment rating. See
id. §§ 408.121–.122.
On June 16, 2005 while his claim was still pending before the WCD and before he had
reached maximum medical improvement, Ruttiger sued TMIC and Culbert (generally referred to
collectively as TMIC) for violations of article 21.21 of the Insurance Code,4 the common law duty
4 Ruttiger’s pleadings referenced article 21.21 of the Insurance Code. In 2003 the Legislature recodified the
Insurance Code and article 21.21 provisions relevant to this matter were placed in Chapter 541. Further reference to
Insurance Code provisions will be to the recodified designations.
5
of good faith and fair dealing, and violations of the Deceptive Trade Practices Act. TEX. BUS. &
COMM. CODE §§ 17.41–.63. Ruttiger did not claim that TMIC failed to fulfill the agreement it
entered into at the BRC or that TMIC did not properly pay income and medical benefits after the
BRC. Rather, he claimed that TMIC’s delay in paying temporary income benefits and agreeing to
pay for surgery until January 2005 damaged his credit, worsened his hernias, and caused mental
anguish, physical impairment, and pain and suffering over and above what he would have suffered
if TMIC had timely accepted liability and provided benefits. His allegations as to Insurance Code
violations were that TMIC (1) failed to adopt and implement reasonable standards for promptly
investigating claims, (2) refused to pay Ruttiger’s claim without having conducted a reasonable
investigation, (3) failed to promptly provide a reasonable explanation for denying his claim,
(4) failed to attempt to promptly and fairly settle the claim when liability was reasonably clear, and
(5) misrepresented the insurance policy to him. He also asserted that TMIC’s Insurance Code
violations authorized recovery under the DTPA. Ruttiger’s common law claim was that TMIC
breached its duty to properly investigate his claim and denied necessary medical care and other
benefits.
The case was tried to a jury, which found that TMIC (1) breached its duty of good faith and
fair dealing; (2) committed unfair and deceptive acts or practices that were a producing cause of
damages to Ruttiger; and (3) engaged in the unfair and deceptive acts knowingly. The jury found
damages for past physical impairment, past and future pain and suffering, past and future loss of
credit, past mental anguish, “additional” damages, and attorneys’ fees. The trial court rendered
judgment based on the Insurance Code findings, but also provided in its judgment that if the
6
Insurance Code theory of liability failed on appeal, Ruttiger was entitled to recover for TMIC’s
breach of the duty of good faith and fair dealing and under the Texas Deceptive Trade Practices Act.
The court of appeals held that there was no evidence of credit reputation damages, but
otherwise affirmed the trial court’s judgment allowing recovery under the Insurance Code. 265
S.W.3d 651, 672 (Tex. App.—Houston [1st Dist.] 2008). The appeals court did not reach the issues
of whether Ruttiger could recover under his DTPA or common law claims. We granted TMIC’s
petition for review. 53 TEX. SUP. CT. J. 388 (Mar. 15, 2010).
TMIC makes several arguments for reversing the court of appeals’ judgment: (1) Ruttiger
is not entitled to recover for aggravation of his hernias due to delay in surgery because a worker may
only recover for a common law bad faith claim if he suffers an “independent injury” separate from
his compensation injury; (2) the trial court lacked jurisdiction to award bad faith damages for
wrongful delay of benefits because Ruttiger did not exhaust his administrative remedies by obtaining
a determination by the WCD that benefits were due; (3) the Insurance Code causes of action do not
apply to Ruttiger’s claims as a matter of law, and even if they do, there is no evidence to support the
jury findings that TMIC violated the Code’s provisions; (4) even if Ruttiger’s injuries were
independent and the trial court had jurisdiction over his claims, this Court should join the majority
of states that have considered the issue and disallow common law bad faith claims in the context of
workers’ compensation; (5) the court of appeals misapplied insurance claims-handling standards for
liability and no-evidence appellate review when it held that jurors may disregard conflicting
evidence of coverage such as exists here where the statements made by employees of A&H and
7
medical records indicated Ruttiger’s hernias were preexisting;5 (6) there is no evidence that TMIC
knowingly violated the Insurance Code because there is no evidence it was actually aware it was
being unfair to Ruttiger; and (7) there is no evidence to support the award for mental anguish
damages.6
In response, Ruttiger argues that (1) a claim for aggravation of his hernias is separate from
his workers’ compensation claim; (2) he exhausted his administrative remedies by requesting and
attending a BRC where he entered into a benefit dispute agreement with TMIC; (3) claims under the
Insurance Code are allowed in the context of the workers’ compensation scheme; and (4) the jury
findings are supported by legally sufficient evidence.7
We begin by considering TMIC’s assertion that the trial court lacked jurisdiction because
Ruttiger failed to exhaust his administrative remedies.
II. Exhaustion of Administrative Remedies
Citing American Motorists Ins. Co. v. Fodge, 63 S.W.3d 801 (Tex. 2001), TMIC asserts that
a trial court lacks jurisdiction over a workers’ compensation claims-handling suit unless the WCD
has made a determination that the worker is entitled to the specific benefits wrongly denied or
delayed. TMIC argues that in this case the WCD has not done so.
5 Medical records obtained during lawsuit discovery revealed that Ruttiger had been diagnosed as having
bilateral inguinal hernias on two different occasions before he began working for A&H. He denied knowing of the
diagnoses and denied having hernias before he was injured on June 21, 2004.
6 Amicus briefs were submitted in support of TMIC’s position by Liberty Insurance Corporation, the American
Insurance Association, and the Property Casualty Insurers Association of America.
7 Amicus briefs were submitted in support of Ruttiger’s position by the Texas Trial Lawyers’ Association,
attorney Peter N. Rogers, and attorney Joe K. Longley.
8
Ruttiger and TMIC attended a BRC and entered into a benefit dispute agreement in which
the parties agreed that Ruttiger sustained a compensable injury and had disability beginning August
23, 2004. The WCD approved the agreement. TMIC asserts that this agreement was not a WCD
determination sufficient to give the trial court jurisdiction. Ruttiger counters that because at the time
he filed this suit there were no disputed issues to be resolved by the WCD, he was not required to
continue through the administrative process. We agree with Ruttiger.
As the court of appeals pointed out, the Act provides a dispute resolution process consisting
of four possible steps. 265 S.W.3d at 657. Those steps are a BRC, a contested case hearing (CCH),
review by an administrative appeals panel, and judicial review. TEX. LAB. CODE §§ 410.021,
410.104, 410.201, 410.251. A claimant is not required to continue through every step; the
provisions of the Act contemplate that disputes may be resolved at any level. See id. § 410.025(b)
(providing that the WCD shall schedule a contested case hearing “to be held not later than the 60th
day after the date of the benefit review conference if the disputed issues are not resolved at the
benefit review conference”); id. § 410.029 (“[A] dispute may be resolved either in whole or in part
at a benefit review conference.”); id. § 410.169 (providing that the decision of a contested case
hearing officer is final in the absence of an appeal).
Here, the parties entered into a benefit dispute agreement at the first BRC held in January
2005. The agreement stated that it resolved the issues in dispute and it was signed by Ruttiger, his
attorney, and a representative of TMIC. The agreement was binding on both parties “through the
conclusion of all matters relating to the claim” absent circumstances not involved here. Id.
§ 410.030. The agreement was approved by the WCD and was a sufficient resolution of Ruttiger’s
9
claim by the WCD to constitute exhaustion of his administrative remedies as to whether he suffered
an injury in the course of his employment for which medical and income benefits were payable.
TMIC also asserts that under Fodge Ruttiger was required to obtain a determination from
the division that he was entitled to the specific benefits he claims he was wrongly denied. In Fodge,
a CCH hearing officer concluded that Anne Fodge had suffered a compensable injury. 63 S.W.3d
at 802. She did not claim medical benefits or claim that the carrier, American Motorists Insurance
Co., had denied medical benefits. Id. Five months later she filed suit against American Motorists
for mishandling her claim by, among other things, denying and delaying payment for medical
treatment. Id. We noted that only the WCD can determine whether a claimant is entitled to
particular benefits, and held that just as a trial court could not award medical benefits, neither could
it award damages for a denial of payment of benefits without a determination that the benefits were
due. Id. at 804.
TMIC asserts that in this case the benefit dispute agreement addressed whether Ruttiger
sustained a compensable injury and had a disability, but it did not address medical benefits. In
Fodge we noted that only the WCD can determine entitlement to particular compensation benefits
and it has jurisdiction over both income and medical benefit disputes. Id. at 803-04. At the time
Fodge filed suit, a dispute still existed between Fodge and American Motorists regarding denial of
benefits that had not been first presented to the Commission. But in this case, at the time Ruttiger
filed suit there was no dispute over either income benefits or medical benefits. TMIC had agreed
to pay for and paid for Ruttiger’s hernia surgery, agreed to pay and paid income benefits for the
10
disability the parties agreed Ruttiger suffered from August 2004 through the BRC, and was
continuing to pay benefits.
If a dispute exists or arises between the parties, then resolution must first be sought from the
WCD. But the Act does not require a claimant to seek review of issues not in dispute. Nor would
it make sense for courts to impose such a requirement, even if the claimant could convince the WCD
to set a hearing when there was no disputed issue. We conclude that as to the claims underlying his
suit, Ruttiger exhausted his administrative remedies and the trial court had jurisdiction over his suit.
We next consider TMIC’s contentions relating to the Insurance Code.
III. Insurance Code Claims
A. Section 541.060
Chapter 541 of the Insurance Code is entitled “Unfair Methods of Competition and Unfair
or Deceptive Acts or Practices.”8 Ruttiger brought claims for violations of sections 541.060 and
541.061, for which section 541.151 provides a private cause of action. Section 541.060, as relevant
to Ruttiger’s claims, provides as follows:
Unfair Settlement Practices
(a) It is an unfair method of competition or an unfair or deceptive act or practice in
the business of insurance to engage in the following unfair settlement practices with
respect to a claim by an insured or beneficiary:
(1) misrepresenting to a claimant a material fact or policy provision
relating to coverage at issue;
(2) failing to attempt in good faith to effectuate a prompt, fair, and
equitable settlement of:
8Ruttiger asserts that TMIC waived its position that the Insurance Code does not provide a legal basis for him
to recover damages. The record reflects that TMIC objected to the jury charge on that basis and challenged the legal
sufficiency of the evidence to support a judgment against it in the court of appeals. TMIC did not waive error.
11
(A) a claim with respect to which the insurer’s
liability has become reasonably clear; . . .
(3) failing to promptly provide to a policyholder a reasonable
explanation of the basis in the policy, in relation to the facts or
applicable law, for the insurer’s denial of a claim or offer of a
compromise settlement of a claim;
. . . .
(7) refusing to pay a claim without conducting a reasonable
investigation with respect to the claim . . . .
TEX. INS. CODE § 541.060.
TMIC asserts that because the Labor Code and WCD rules set specific deadlines and
procedures for both paying and denying workers’ compensation claims and impose administrative
penalties for failing to comply with them, allowing recovery under the Insurance Code would be
inconsistent with what the Legislature has deemed to be adequate protections for workers. TMIC
concludes that as between section 541.060 and the Act, the Act is the exclusive remedy. Ruttiger
responds that under Aetna Casualty & Surety Co. v. Marshall, 724 S.W.2d 770 (Tex. 1987), an
employee has a cause of action under the Insurance Code against a workers’ compensation carrier.
In Marshall we considered whether an injured worker who had settled his compensation
claim by agreed judgment could recover damages under former article 21.219 of the Insurance Code
when the carrier failed to comply with the agreed judgment. Marshall, 724 S.W.2d at 770. At that
time, article 21.21 provided a cause of action to a person who sustained actual damages as a result
of an insurance carrier’s deceptive acts or practices. Id. at 772. Marshall sued Aetna under article
21.21, claiming that Aetna represented to him that it would provide benefits under the agreed
9 Act of Apr. 25, 1957, 55th Leg., R.S., ch. 198, § 1, 1957 Tex. Gen. Laws 401.
12
judgment and then refused to do so. Id. Aetna argued, in part, that Marshall was limited to relief
provided by the Act: a suit to recover unpaid medical expenses and a 12% penalty. Id.
We disagreed with Aetna and held that Marshall could recover under the Insurance Code
stating that “[t]he mere fact that Marshall was injured while working should not be used as a shield
by Aetna to escape the punitive provisions of article 21.21.” Id. So, we agree with Ruttiger that at
the time it was decided, Marshall answered the question of whether an employee could assert a
claim under the Insurance Code against a workers’ compensation carrier. However, the workers’
compensation landscape changed after Marshall was decided. As we explain below, a cause of
action under section 541.060 is incompatible with the provisions of the current Act.
Various aspects of the Texas workers’ compensation system have been criticized from the
time the first Employers’ Liability Act was enacted in 1913. See Tex. Workers’ Compensation
Comm’n v. Garcia, 893 S.W.2d 504, 512-13 (Tex. 1995). In the early 1980s, unusually heavy
criticism of the system, its costs to employers, benefits to injured workers, and dispute resolution
procedures began surfacing. Id. (citing Joint Select Committee on Workers’ Compensation
Insurance, A Report to the 71st Texas Legislature 3 (1988) (hereafter “Joint Committee Report”)).
In response to the increasing criticism, in 1987 the Legislature appointed an interim committee to
study the system.10 Tex. H.R. Con. Res. 27, 70th Leg., 2d C.S., 1987 Tex. Gen. Laws 920. The
committee held hearings around the state and in 1988 formulated its report to the Legislature, noting
10 The Senate representatives on the committee were Senators Bob Glasgow, Kent Caperton, Cyndi Krier, John
Montford, and Frank Tejeda. The House representatives were Representatives Richard Smith, David Cain, Robert Early,
Alex Moreno, and Rick Perry. Senator Glasgow and Representative Smith were co-chairs. A six member advisory panel
assisted the committee.
13
several major areas of concern about the existing system. Joint Committee Report at 2-4. In 1989,
the Legislature undertook to reform the workers’ compensation statutes in what has been called “the
most divisive legislative endeavor in contemporary Texas politics” up until that time. 1 JOHN T.
MONTFORD ET AL.,AGUIDE TO TEXAS WORKERS’COMP REFORM 1 (1991) (hereafter MONTFORD).
After failing in the regular and first special session to enact reforms, the Legislature finally did so
in a second special session. The key, and most controversial, reforms were in the areas of employee
benefits and dispute resolution. See id., at ix. As to the dispute resolution process, the reform
amendments “culminated in an essentially new set of Texas workers’ compensation laws.” Id. at
6-14.
Differences between the dispute resolution processes under the former law and the amended
Act11 are stark. When a claim was disputed under the former law, the injured employee and the
workers’ compensation carrier attended an informal pre-hearing conference. Garcia, 893 S.W.2d
at 512. Testimony was not taken and generally the only discernable result of the conference was a
written recommendation by the pre-hearing officer. Id. That recommendation was presented to the
Industrial Accident Board (IAB) at a “formal” hearing in Austin. Id. The formal hearing in most
instances was more formality than hearing: attendance by the parties or their representatives was
discouraged and for the overwhelming majority of claims no one attended and no testimony was
taken or submitted. 1MONTFORD, at 6-32 n.18 (noting that of more than 17,000 claims scheduled
for IAB hearing in 1989, only 70 were actually heard while the remainder were simply passed
11 For ease of reference the Act as amended will generally be referred to as the Act, or in some cases the
amended Act; the law as it was before the 1989 amendments will be referred to as the old law or the former law.
14
through as a matter of course so they could proceed to the judicial level). After the IAB made its
award, either party could appeal for judicial review by trial de novo. Garcia, 893 S.W.2d at 512.
Once a claim was appealed, the IAB lost jurisdiction over the claim and the IAB proceedings,
directives, and award were of no further effect. 1MONTFORD, at 6-33. Under the old law, the IAB’s
involvement was many times secondary and frequently the IAB proceedings were no more than a
“way station” on the way to the courthouse. Id.
The 1989 amendments and the current Act provide significantly more meaningful
proceedings at the administrative agency level so as to reduce the number and cost of judicial trials,
speed up the time for the entire dispute resolution process, and facilitate interlocutory payment of
benefits pending final resolution of disputes. Id. at 6-28. To achieve these purposes the amended
Act contains detailed procedures and penalties for failures of the various interested parties to comply
with statutory and regulatory requirements.
We recently considered the relationship between a general statutory cause of action and one
in which the statute had a more detailed, specific claims resolution process in City of Waco v. Lopez,
259 S.W.3d 147 (Tex. 2008). In that case, Lopez filed a whistleblower suit based on allegations that
he was discharged in retaliation for reporting age and race discrimination that violated the City’s
EEO policy. Id. at 149. The City argued that the Texas Commission on Human Rights Act
(CHRA), TEX. LAB. CODE §§ 21.001–.556, provided the exclusive remedy for Lopez’s claim.
Lopez, 259 S.W.3d at 150. Lopez did not file a claim under the CHRA and urged that he could elect
to proceed under either the CHRA or the Whistleblower Act. Id. at 151-52. The Whistleblower Act
generally prohibits governmental entities from suspending or terminating the employment of a
15
public employee who in good faith reports a violation of law by the employing governmental entity
to an appropriate law enforcement authority, and provides a general remedy for retaliation based on
the report of any violation of law. See TEX. GOV’T CODE §§ 554.001–.010. The CHRA, on the
other hand, prohibits retaliation against employees on the basis of employment discrimination.
Lopez, 259 S.W.3d at 154.
We held that relief under the more general Whistleblower Act with its comparatively simple
administrative exhaustion procedures was incompatible with and foreclosed by the more specific
and comprehensive anti-retaliation remedy in the CHRA. Id.; see id. at 153 (noting that in
determining legislative intent, we are guided by the principle that a specific statute will prevail over
a more general statute). In reaching our conclusion, we compared the policies behind each statute
as well as the procedural requirements and remedies provided by each. Id. at 154. We noted that
the CHRA embodied policies that included administrative procedures involving informal
conference, conciliation and persuasion, as well as judicial review of administrative action. Id.
(quoting Schroeder v. Tex. Iron Works, Inc., 813 S.W.2d 483, 487 (Tex. 1991)). We concluded that
[i]t is conceptually untenable that the Legislature would have erected two alternative
state statutory remedies, one that enacts a structured scheme favoring investigation
and conciliation and carefully constructs rights, remedies, and procedures under that
scheme (the CHRA) and one that would significantly undermine that scheme (the
Whistleblower Act).
Id. at 155-56.
As we did in Lopez, we must consider the purposes, policies, procedural requirements, and
remedies of the Insurance Code and the Workers’ Compensation Act to determine whether the
16
Legislature intended to effectively provide two different remedies to injured workers. The purpose
of Chapter 541 of the Insurance Code is to
regulate trade practices in the business of insurance by:
(1) defining or providing for the determination of trade practices in
this state that are unfair methods of competition or unfair or
deceptive acts or practices; and
(2) prohibiting those trade practices.
TEX. INS.CODE § 541.001. The Chapter provides a private action for damages against someone who
has engaged in a specified act or practice. Id. § 541.151. A plaintiff who prevails on such an action
is entitled to actual damages and treble damages if the trier of fact finds that the defendant
“knowingly” committed the act. Id. § 541.152.
The purpose of the Act is
to provide employees with certainty that their medical bills and lost wages will be
covered if they are injured. An employee benefits from workers’ compensation
insurance because it saves the time and litigation expense inherent in proving fault
in a common law tort claim. But a subscribing employer also receives a benefit
because it is then entitled to assert the statutory exclusive remedy defense against the
tort claims of its employees for job related injuries.
HCBeck, Ltd. v. Rice, 284 S.W.3d 349, 349 (Tex. 2009); see In re Poly-Am. L.P., 262 S.W.3d 337,
349 (Tex. 2008) (“In order to ensure compensation for injured employees while protecting
employers from the costs of litigation, the Legislature provided a mechanism by which workers
could recover from subscribing employers without regard to the workers’ own negligence, while
limiting the employers’ exposure to uncertain, possibly high damage awards permitted under the
common law.” (citations omitted)); see also TEX. LAB.CODE § 408.001(a) (“Recovery of workers’
17
compensation benefits is the exclusive remedy of an employee covered by workers’ compensation
insurance coverage . . . .”).
To accomplish these purposes, the Act provides detailed notice and administrative dispute
resolution proceedings that include specific deadlines and incorporate a “conveyor-belt” approach.
That is, once the administrative dispute resolution process is initiated, a dispute continues through
the process until the dispute is either resolved by the parties or by a binding decision through the
resolution procedures. The claims process begins when an employee reports a lost-time injury or
occupational disease to the employer. The employer, as required by the Act, then reports the injury
claim to the carrier. Id. § 409.005(a). Within fifteen days of receiving written notice of an
employee’s injury claim, the carrier must initiate benefit payments or notify the WCD and the
employee of its refusal to pay. Id. § 409.021(a). If the carrier refuses to pay or terminates benefits,
it is required to advise the employee of his or her right to request a BRC and of the means to obtain
further information from the WCD. Id. § 409.021(a)(2)(A). The carrier also must specify its
grounds for refusal. Id. § 409.022. Once the WCD receives notice of an employee’s claim, it must
mail the employee a description of (1) the services the WCD provides; (2) the WCD’s procedures;
(3) the services provided by the Office of Injured Employee Counsel, including the ombudsman
program which provides free assistance to injured employees in the dispute resolution process; and
(4) the employee’s rights and responsibilities under the Act. Id. § 409.010. Then, if there are
disputed issues, the dispute resolution process begins when a party requests a BRC or the WCD sets
a BRC on its own motion. Id. § 410.023(a). If a BRC is requested, the WCD must schedule it
18
within forty days after receiving the request, or within twenty days if compensability or liability for
essential medical treatment is in dispute. Id. § 410.025(a); 28 TEX. ADMIN. CODE § 141.1.
If all disputed issues are not resolved at the BRC, the dispute resolution process is designed
to automatically move to the next step: the Act requires the WCD to schedule a contested case
hearing (CCH) before a hearing officer within sixty days. TEX. LAB. CODE § 410.025(b). Sworn
testimony and other evidence is received at the CCH and a record of the proceeding is made. Id. §§
410.163–.166. The decision of the CCH hearing officer regarding benefits is final unless it is timely
appealed. Id. § 410.169. A party dissatisfied with the CCH decision may appeal it to an appeals
panel, but the hearing officer’s decision is binding during pendency of the appeal. Id.
If a CCH decision is appealed, the appeals panel’s written decision is based on the CCH
record, the written request for an appeal, and the response. Id. § 410.203. If the appeals panel does
not issue a decision within forty-five days after the response to the appeal request is filed, then the
decision of the CCH hearing officer is final absent timely appeal for judicial review. Id. §§ 410.204,
410.205(a). And just as the decision of the CCH hearing officer is binding during appeal to the
appeals panel, the decision of the appeals panel is binding during pendency of an appeal for judicial
review. Id. § 410.205(b). Judicial review regarding compensability or income benefits is limited
to issues decided by the appeals panel and on which judicial review is specifically sought. Id.
§ 410.302. If trial is by jury, the court must instruct the jury as to the decision of the appeals panel
on each of the disputed issues submitted. Id. § 410.304(a). If trial is without a jury, the court is
required to consider the decision of the appeals panel. Id. § 410.304(b).
19
A carrier’s failure to comply with the Act’s requirements, deadlines, and procedures is not
without consequences. First, the Act specifies administrative penalties both in particular sections
and in a general, catchall provision. For example, if a carrier fails to initiate compensation or notify
the WCD of its refusal to do so within fifteen days of receiving notice of injury, it is subject to
monetary penalties ranging from $500 to $5,000, depending on the length of time it takes the carrier
to comply. Id. § 409.021(e). The Act also provides that a carrier or its representative commits an
administrative violation for any of twenty-two specified actions, including failing to process claims
promptly and in a reasonable and prudent manner, controverting a claim if the evidence clearly
indicates liability, and failing to comply with the Act. Id. § 415.002(11), (18), (22). If a carrier
refuses or fails to comply with an order of the WCD, either interlocutory or final, or a decision of
the commissioner, within twenty days of when the decision or order becomes final, it commits an
administrative violation. Id. § 410.208(e). Also, both the WCD and claimant are specifically
authorized by the Act to file suit to enforce the order and recover attorneys’ fees. Id.
§ 410.208(a)–(c). A claimant who brings suit is entitled to recover 12% of the amount of benefits
recovered in the judgment as a penalty. Id. § 410.208(d).
Further, the WCD is required to monitor the actions of carriers, as well as other parties in
the workers’ compensation system, for compliance with “commissioner rules, [the Act], and other
laws relating to workers’ compensation.” Id. § 414.002(a). In addition to its mandate to monitor
carriers and other participants in the system, the WCD has a separate mandate to, at the carriers’
expense, “review regularly the workers’ compensation records of insurance carriers as required to
ensure compliance with [the Act].” Id. § 414.004(a), (c). The Act also provides that in addition to
20
other sanctions or remedies, the WCD commissioner has authority to assess administrative penalties
of up to $25,000 per day per occurrence for violations of the Act. Id. § 415.021(a).
It is apparent that the Act prescribes detailed, WCD-supervised, time-compressed processes
for carriers to handle claims and for dispute resolution. It has multiple, sometimes redundant but
sometimes additive, penalty and sanction provisions for enforcing compliance with its requirements.
Permitting a workers’ compensation claimant to additionally recover by simply suing under general
provisions of Insurance Code section 541.060 would be inconsistent with the structure and detailed
processes of the Act. Not only would such a recovery be inconsistent with the Act’s goals and
legislative intent exhibited in the Act, it could also result in rewarding an employee who is dilatory
in utilizing the Act’s detailed dispute resolution procedures, regardless of whether the delay was
intentional or inadvertent, because whether and when the dispute resolution begins is by and large
dependent on the employee.
For example, Ruttiger’s damages claim was based on TMIC’s delay in providing both
compensation and medical benefits and the delay’s effect on him over and above what the effects
of his injury would have been had TMIC not terminated benefits in July 2004. But Ruttiger and his
lawyer did not seek immediate resolution of his dispute with TMIC by promptly requesting a BRC.
Rather, they waited over three months from the time they knew TMIC was contesting the claim to
do so. Ruttiger and TMIC resolved their dispute by agreement at the first BRC they attended—just
as is contemplated by the Act’s procedures.12 As we stated in Lopez, “[i]t is conceptually untenable
12 The record does not reflect, and Ruttiger does not argue, that the WCD determined TMIC committed
administrative violations by failing to process claims in a reasonable and prudent manner, see TEX. LAB. CODE
§ 415.002(11); by refusing to pay benefits without having reasonable grounds, see id. § 409.022(c); or by terminating
21
that the Legislature would have erected two alternative statutory remedies, one that enacts a
structured scheme . . . and carefully constructs rights, remedies and procedures . . . and one that
would significantly undermine that scheme.” Lopez, 259 S.W.3d at 155-56. If allowed to bring
Insurance Code claims, workers’ compensation claimants will actually have incentive to delay
seeking resolution of disputes through the carefully crafted administrative dispute resolution
procedures of the Act. As is demonstrated by the facts of this case, an employee’s delay in initiating
the Act’s expedited dispute resolution procedures can generate both recovery of benefits under the
Act and a separate, additional lawsuit for damages and delay in derogation of the Act’s carefully
crafted dispute resolution procedures. Instead of encouraging claimants to immediately seek
resolution of their disputes by means of the legislatively mandated aids such as the ombudsman
program and WCD-directed administrative procedures, allowing an Insurance Code cause of action
would provide an incentive for employees to wait weeks or months to initiate the Act’s expedited
dispute resolution procedures and then file suit for damages under the Insurance Code, as was done
here.
Further, Insurance Code section 541.060 is entitled “Unfair Settlement Practices.” Its text
provides that specified acts or practices are “unfair settlement practices” and that those settlement
practices are unfair methods of competition and unfair or deceptive acts or practices in the business
of insurance. TEX. INS.CODE § 541.060(a). In the Act, settlements are defined as “a final resolution
of all the issues in a workers’ compensation claim that are permitted to be resolved under terms of
[the Act].” TEX. LAB. CODE § 401.011(40). A settlement (1) may not resolve an issue of
benefits absent substantiating evidence that doing so was reasonable and authorized by law. See id. § 415.002(a)(2).
22
impairment before the employee reaches maximum medical improvement (and settlement
agreements even after that point must adopt an impairment rating using guidelines prescribed by the
Act); (2) may not provide for payment of benefits in a lump sum except when an employee (a) has
returned to work for at least three months earning at least 80% of the employee’s average weekly
wage and (b) elects to commute impairment income benefits; and (3) may not limit or terminate the
employee’s right to medical benefits. Id. § 408.005(a), (b), (c). At the time Ruttiger filed suit in this
matter he had not reached maximum medical improvement, did not have an impairment rating from
his doctors, and had not returned to work. Thus, as of the time he filed suit complaining of TMIC’s
past delays, his workers’ compensation claim could not yet have been settled.
In sum, this Court held in 1987 that an injured worker was not limited to recovery under the
Act, but could also recover under the Insurance Code. Marshall, 724 S.W.2d at 772. But the current
Act with its definitions, detailed procedures, and dispute resolution process demonstrating
Legislative intent for there to be no alternative remedies was not in effect in 1987. The Legislature’s
definition of “settlement” under the current Act reflects legislative intent that is at odds with the
intent reflected in Insurance Code section 541.060; the limited definition of “settlement” provided
in the Act does not fit within the construct of section 541.060.13 The provisions of the amended Act
indicate legislative intent that its provisions for dispute resolution and remedies for failing to comply
with those provisions in the workers’ compensation context are exclusive of those in section
13 Ruttiger does not claim that the agreement he reached with TMIC at the BRC was a settlement. See TEX.
LAB.CODE § 401.011(3) (defining “agreement” as the resolution by the parties of one or more issues regarding an injury,
coverage, or compensability, but not a settlement).
23
541.060. Thus, we agree with TMIC that Ruttiger may not assert a cause of action under section
541.060.
B. Section 542.003
The jury charge also asked whether TMIC, with respect to a claim by an insured or
beneficiary, failed “to adopt and implement reasonable standards for prompt investigation of claims
arising under its policies.” Such action by an insurer is prohibited by Insurance Code section
542.003(a), (b)(3).14 But as we discussed in the preceding section, the Act contains specific
requirements with which a workers’ compensation carrier must comply when contesting a claim,
and provides that failure to comply with the requirements can constitute waiver of the carrier’s rights
as well as subject the carrier to significant administrative penalties. The Act’s requirements include
time limits for payment of benefits, giving notice of a compensability contest and the specific reason
for the contest, and necessarily subsume the requirement of proper investigation and claims
processing. See, e.g., TEX. LAB. CODE § 409.021(a) (a carrier must initiate benefit payments or
notify the WCD and the employee of its refusal to pay within fifteen days of receiving written notice
of an employee’s injury and if the carrier refuses to pay or terminates benefits, it is required to
advise the employee of his or her right to request a BRC and of the means to obtain further
information from the WCD); id. § 409.022 (when refusing to initiate benefits or when terminating
benefits the carrier must specify its grounds and a carrier commits an administrative violation if the
carrier does not have reasonable grounds for refusing to pay benefits); id. § 409.021(c) (providing
14 TMIC argues that the Insurance Code does not provide for a private cause of action for a violation of this
section. This is the first time TMIC has made this argument. It has not been preserved and we do not address it.
24
that a carrier waives its right to contest compensability if it does not contest compensability within
sixty days of receiving notice of injury); id. § 415.002(a) (providing that a carrier commits an
administrative violation for, among other actions, failing to process claims promptly and in a
reasonable manner, failing to initiate benefits when due if a legitimate dispute does not exist as to
the liability of the carrier, terminating or reducing benefits without substantiating evidence that the
action is reasonable and authorized by law, or controverting a claim if the evidence clearly indicates
liability).
We conclude, as we did with section 541.060, that in light of the specific substantive and
procedural requirements built into the Act and the detrimental effects on carriers flowing from and
penalties that can be imposed for failing to comply with those requirements, the Legislature did not
intend for workers’ compensation claimants to have a cause of action against the carrier under the
general provision of section 542.003. To the extent Marshall is in conflict with any of the
foregoing, we overrule it.
C. Section 541.061
The trial court judgment also allowed Ruttiger to recover under section 541.061 of the
Insurance Code, which provides:
Misrepresentation of Insurance Policy
It is an unfair method of competition or an unfair or deceptive act or practice in the
business of insurance to misrepresent an insurance policy by:
(1) making an untrue statement of material fact;
(2) failing to state a material fact necessary to make other statements
made not misleading, considering the circumstances under which the
statements were made;
(3) making a statement in a manner that would mislead a reasonably
prudent person to a false conclusion of a material fact . . .
25
TEX. INS. CODE § 541.061. TMIC asserts that section 541.061 is not a legal basis for Ruttiger to
recover damages for the same reasons he may not recover damages under Insurance Code section
541.060. We disagree.
Unlike section 541.060, section 541.061 does not specify that it applies in the context of
settling claims. See id. § 541.060(a) (defining unfair settlement practices “with respect to a claim”).
Section 541.061 applies to the misrepresentation of an insurance policy, but because it does not
evidence intent that it be applied in regard to settling claims, it is not at odds with the dispute
resolution process of the workers’ compensation system.
Nevertheless, we agree with TMIC that there is legally insufficient evidence to support a
finding that it misrepresented its policy. TMIC denied Ruttiger’s claim on the basis that he was not
injured on the job. Ruttiger does not point to any untrue statement made by TMIC regarding the
policy or any statement about the policy that misled him. The dispute between Ruttiger and TMIC
was over whether Ruttiger’s claim was factually within the policy’s terms—whether he was injured
on the job. And the parties’ BRC agreement did not resolve any issues regarding TMIC’s policy
terms; it resolved whether Ruttiger was injured in the course of his employment with A&H. While
we disagree with TMIC’s assertion that Ruttiger’s claim under section 541.061 is precluded by the
Act, we agree with its legal sufficiency challenge to the evidence supporting a finding based on
section 541.061.
Because the provisions of section 541.060 and 542.003 cannot support a judgment against
TMIC for unfair settlement practices and there is no evidence to support a finding pursuant to
26
section 541.061 that TMIC misrepresented its insurance policy, we reverse the court of appeals’
judgment affirming Ruttiger’s recovery on his claim under the Insurance Code.
IV. Deceptive Trade Practices Act
Ruttiger agrees that his DTPA claim as pled and submitted to the jury depended on the
validity of his Insurance Code claim. Because we have determined that he cannot recover on his
Insurance Code claim, we likewise hold that he cannot recover on his DTPA claim.
V. Good Faith and Fair Dealing
A. Discussion
The trial court’s judgment provides that if Ruttiger’s Insurance Code and DTPA claims failed
on appeal, he could elect to recover on his claim that TMIC breached its common law duty of good
faith and fair dealing. The court of appeals did not address the issue, but it has been briefed and
argued here, so I will. See TEX. R.APP. P. 53.4; Nat’l Union Fire Ins. Co. of Pittsburgh, PA v. CBI
Indus., Inc., 907 S.W.2d 517, 520-22 (Tex. 1995).
TMIC asserts, in part, that Ruttiger cannot recover for breach of the duty of good faith and
fair dealing because the cause of action is no longer warranted given the provisions of the current
Act.
In Arnold v. National County Mutual Fire Insurance Co,. the Court held that a duty of good
faith and fair dealing arises from the relationship between an insurer and a first-party insured. 725
S.W.2d 165, 167 (Tex. 1987). The Court noted that “without such a cause of action insurers can
arbitrarily 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
27
denial of claims.” Id. at 167. In Aranda v. Insurance Co. of North America, the Court imposed the
holding of Arnold onto the workers’ compensation system and held that an injured employee was
entitled to assert a claim against a workers’ compensation carrier for breach of the duty of good faith
and fair dealing. 748 S.W.2d 210, 212-13 (Tex. 1988) (sometimes hereafter referred to as an Aranda
cause of action for ease of reference). The Court pointed out three reasons for holding that an
employee should be allowed to assert such a claim outside the workers’ compensation dispute
resolution system: (1) the disparity of bargaining power between compensation insurers and
employees, (2) the exclusive control that an insurer exercises over processing of claims, and (3)
arbitrary decisions by carriers to refuse to pay or delay payment of valid claims leave the injured
employees with no immediate recourse. Id.
Aranda was decided in 1988. Even before it was decided, however, the Legislature had
begun an intensive study of how to best modify the workers’ compensation system that interested
parties and experts agreed needed changing. The study identified numerous deficiencies, including
those set out in Aranda. See generally Joint Committee Report. During the regular and a special
legislative session following Aranda, the Legislature struggled without success to enact major
reforms to the Act. It was only in a second special session that overhaul of the system was finally
accomplished. As can be seen from our discussion of the 1989 amendments in section III.A. above,
and as I explain in more detail below, those reforms and subsequent amendments to the Act
addressed the three deficiencies underlying Aranda—and much more.15
15 The factual situation underlying Aranda is specifically addressed by the Act. In Aranda an employee was
injured while working for two employers. 148 S.W.2d at 211. The employers had different workers’ compensation
carriers. Id. The carriers did not contest whether the employee’s injury was compensable, but each asserted that the
28
In Aranda the Court expressed concern that a carrier could arbitrarily refuse to pay benefits,
leaving an injured worker without immediate recourse because “the mechanisms provided by the
Workers’ Compensation Act do not afford immediate relief to the injured employee who is denied
compensation.” 748 S.W.2d at 212. The Joint Committee Report emphasized that one major
deficiency of the process for delivering benefits was “[t]he system has no means to render fast
decisions in disputes which require them.” Joint Committee Report, at 4. A brief review of the
former dispute resolution system demonstrates the problems.
As outlined above, under the old law the first step in the administrative dispute resolution
process was an informal pre-hearing conference where a record was not made and the result
generally was a written recommendation of the pre-hearing officer that was sent to the IAB in
Austin. Garcia, 893 S.W.2d at 512. The IAB hearing in Austin was not designed to be an actual
hearing, but was primarily for the purpose of making an award based on the pre-hearing officer’s
recommendation. Id. After the IAB’s award completed the administrative process, either the
employee or carrier could appeal the award to the district court for a trial de novo. See Latham v.
other was liable for the employee’s benefits and neither provided benefits pending resolution of the dispute by the IAB.
Id.
Section 410.033 of the current Act is entitled “Multiple Carriers” and provides:
(a) If there is a dispute as to which of two or more insurance carriers is liable for compensation for one
or more compensable injuries, the commissioner may issue an interlocutory order directing each
insurance carrier to pay a proportionate share of benefits due pending a final decision on liability. The
proportionate share is computed by dividing the compensation due by the number of insurance carriers
involved.
(b) On final determination of liability, an insurance carrier determined to be not liable for the payment
of benefits is entitled to reimbursement for the share paid by the insurance carrier from any insurance
carrier determined to be liable.
TEX. LAB. CODE § 410.033.
29
Security Ins. Co., 491 S.W.2d 100, 104 (Tex. 1972) (interpreting former TEX. REV. CIV. STAT. art.
8307, § 5). If a party appealed for judicial review, the appeal vacated the award, the IAB lost
jurisdiction over the proceedings and the carrier could stop providing benefits; or, if the carrier had
been contesting compensability of the claim and had not been paying benefits, it could continue to
refuse to provide benefits even if the IAB award was in favor of the employee. Id. Plus, there was
no effective procedure for resolving disputes over medical care. 1MONTFORD, at 4-27.
The lack of an immediate, binding dispute resolution process under the old law resulted in
carriers, for the most part, having control over claims resolution. That control yielded greatly
disparate bargaining positions between insurers and injured workers, and the IAB was considered
to have had relatively little power to control the process. See Garcia, 893 S.W.2d at 512-13; Joint
Committee Report, at 5 (stating that under the old law “[t]he agency lacks either the ability or the
resources to effectively control the behavior of participants and to compel appropriate actions when
they are required”). As outlined above, the IAB’s dispute resolution process was considered a
formalistic ritual through which claims had to pass to get to the courthouse. Hearings were rarely
meaningful and the procedures did not provide incentive to insurers to make indemnity payments
to injured workers nor did they provide a disincentive to insurers to dispute payment for medical
benefits. 1 MONTFORD, at 6-32. And because of the delay inherent in and cost of reaching the
system’s first factfinding process—de novo trials when IAB awards were appealed—disputes were
primarily resolved through compromise before an injured worker’s medical condition had stabilized.
That situation increased the probability that “assessment of disability (and hence, the benefits)
30
[would] be inaccurate.” Joint Committee Report, at 5; see Garcia, 893 S.W.2d at 512-13 (“The
delay and cost of de novo review forced premature and inaccurate settlements.”).
The 1989 reforms were intended to reduce the costs to employers and provide greater
benefits to injured employees in a more timely fashion. Achieving those goals required, among
other changes, reducing the disparity of bargaining power between the employee and insurer,
imposing controls over the carriers’ processing of claims, and controlling the ability of carriers to
make arbitrary decisions about refusing or delaying payment. Those changes were accomplished
by providing meaningful, binding administrative dispute resolution procedures, speeding up “the
start-to-finish time for the entire comp dispute resolution process, as well as [facilitating]
interlocutory payment of comp benefits pending final resolution.” 1MONTFORD, at 6-28.
Some of the amendments relevant to the issue before us have been previously discussed, but
nevertheless I review them here because of their importance in giving context and perspective to this
discussion. When compared to the old law, the Act provides a reduced amount of time for carriers
to file a notice of dispute or start paying benefits. TEX. LAB. CODE § 409.021 (providing that a
carrier shall begin paying benefits or file a notice of dispute within fifteen days after receiving
written notice of injury). Failure to meet the time limit is an administrative violation subject to
penalties of $500 to $5,000 depending on how long it takes a carrier to comply. Id. § 409.021(e).
The carrier has statutory and regulatory duties to promptly conduct adequate investigations and
reasonably evaluate and expeditiously pay workers’ legitimate claims or face administrative
penalties. See, e.g., id. § 409.021. If a carrier on multiple occasions fails to pay benefits promptly
as they accrue, except as authorized by the Act, the carrier is subject to an additional administrative
31
violation and even revocation of its right to do business under the workers’ compensation statutes.
Id. § 409.023(d).
Under the Act’s dispute resolution process, the BRC begins a process in which disputes
proceed from one part of the process to the next until the dispute is resolved by agreement, final
order or decision of the WCD, or judicial order. A BRC must be held within forty days of a request
for one, or within twenty days if an expedited setting is needed. 28 TEX.ADMIN.CODE § 141.1(h).
Unless the dispute is resolved at the BRC, the WCD must schedule a CCH to take place within sixty
days of the BRC, TEX. LAB. CODE § 410.025(b), or within thirty days if an expedited setting is
appropriate. 28 TEX.ADMIN. CODE § 142.6(a)(2). At the CCH a record is made and the dispute is
heard by a WCD hearing examiner whose decision is final unless an appeal is filed within fifteen
days. TEX. LAB. CODE §§ 410.164, 410.169. If the decision is appealed, the decision of the CCH
hearing officer is binding during the appeal and an appeals panel must issue a written decision
within forty-five days. Id. §§ 410.169, 410.204. Appeals for judicial review are circumscribed by
the Act to minimize the expense and time for discovery and trial preparation. See, e.g., id. § 410.255
(judicial review of issues other than compensability or income or death benefits is by the substantial
evidence rule); id. § 410.306 (unless an employee’s condition has substantially changed, evidence
at trial is limited to that presented to the WCD). And during the process the carrier is not in
exclusive control. The WCD has the authority to issue interlocutory benefit-payment orders that are
binding as to past as well as future benefits. Id. §§ 410.032, 410.168(c), 413.055.
The Act addresses the disparity of bargaining power between the employee and the insurer,
in part, by providing an Office of Injured Employee Counsel. TEX. LAB. CODE § 404.101. That
32
office provides assistance to injured employees through an ombudsman program by which
employees have trained assistance during the dispute resolution process even if the employee is not
represented by counsel. Id. The disparity is also addressed by limitations on settling of claims.
Lump-sum benefit settlement payments are not permitted except in certain specific, limited
circumstances and settlements resolving issues of impairment may not be made before an employee
reaches maximum medical improvement. Id. § 408.005(c)(1). When settlements regarding
impairment issues are permitted, they must be according to the opinion of a treating or designated
doctor assessing impairment based on objective, standardized guidelines. Id. § 408.005(c)(2).
Those provisions limit a carrier’s ability to overreach during any dispute resolution proceedings or
settlement negotiations with workers.
In sum, the Legislature has substantially remedied the deficiencies that led to this Court’s
extending a cause of action under Arnold for breach of the duty of good faith and fair dealing to the
workers’ compensation system. The current system (1) reduces the disparity of bargaining power
between compensation insurers and employees; (2) removes insurers’ exclusive control over the
processing of claims; (3) diminishes and in most instances negates the ability of insurers to make
arbitrary decisions refusing or unreasonably delaying payment of valid claims; (4) provides
employees information about, immediate recourse to, and, through the ombudsman program, free
assistance before the WCD with the claims and dispute resolution process; and (5) provides multiple
remedies and penalties, including specific provision for revocation of the carrier’s right to do
business under the workers’ compensation laws of Texas if on multiple occasions it fails to pay
benefits promptly and as they accrue.
33
The original creation of, continued existence of, and amendments to update and improve the
workers’ compensation system are within the Legislative function of establishing public policy. See
Town of Flower Mound v. Stafford Estates Ltd. P’ship, 135 S.W.3d 620, 628 (Tex. 2004)
(“Generally, ‘the State’s public policy is reflected in its statutes.’” (quoting Tex. Commerce Bank,
N.A. v. Grizzle, 96 S.W.3d 240, 250 (Tex. 2002)); Lawrence v. CDB Servs., Inc., 44 S.W.3d 544,
553 (Tex. 2001) (“[T]he administration of the workers’ compensation system is heavily imbued with
public policy concerns.”); James v. Vernon Calhoun Packing Co., 498 S.W.2d 160, 162 (Tex. 1973)
(noting that the “policy of the state [is] declared in the Workmen’s Compensation Law”). The
cornerstone provision of the 1913 Employers’ Liability Act by which an employee received
workers’ compensation benefits in exchange for the common law right to sue his employer for
negligence in the event of an on-the-job injury was the product of a legislative public policy decision
brought about by the nature and needs of a changing and more industrialized society. That concept,
as well as the workers’ compensation system which is continually amended, updated, and changed
by the Legislature to reflect the State’s changing societal needs, have reflected policy decisions.
Key parts of the system are the amount and types of benefits, the delivery systems for benefits, the
dispute resolution processes for inevitable disputes that arise among participants, the penalties
imposed for failing to comply with legislatively mandated rules, and the procedures for imposing
such penalties. Those were some of the areas of concern both identified by the Legislature in the
Joint Committee Report and underlying Aranda.
The essential question before us is not, as the dissent maintains, “whether the Legislature
intended to abrogate entirely a common law bad faith remedy when it enacted the Workers’
34
Compensation Act.” ___ S.W.3d at ___ (Jefferson, C.J., dissenting). I do not believe it did. Rather,
the question is to what extent the judiciary will respect the Legislature’s function of addressing the
concerns and adjusting the rights of parties in the workers’ compensation system as part of its
policy-making function. In reaching this conclusion it is important to keep in mind the fact that the
workers’ compensation system is wholly a legislatively crafted entity. It exists only because it was
created by the Legislature. Its continued existence and nature depends on the Legislature renewing,
reviewing, and amending it to meet the changing needs of Texas employees and employers.
The Aranda cause of action operates outside the administrative processes and other remedies
in the Act and is in tension with—and in many instances works in direct opposition to—the Act’s
goals and processes. In part, that tension arises because the extra-statutory cause of action provides
incentive for an injured worker to delay using the avenues for immediate relief that the Legislature
painstakingly built into the law—as happened in Ruttiger’s case. Even if a carrier complies with
the Act’s provisions by timely notifying the employee of its refusal to pay benefits and the specific
reasons why, then participating in a BRC, CCH, and even an appeal to a WCD appeals panel or for
judicial review, the carrier still risks common law liability. That situation distorts the balances
struck in the Act and frustrates the Legislature’s intent to have disputes resolved quickly and
objectively. See Lopez, 259 S.W.3d at 154-56. Further, an extra-statutory cause of action builds
additional costs into the system by increasing litigation expense to employees, insurers, and
employers. See Garcia, 893 S.W.2d at 511-16 (discussing how through the 1989 amendments the
Legislature sought to reduce delay and costs). It also discourages insurers from contesting suspect
35
or questionable claims and medical treatments because of the possibility of unpredictable large
damage awards if the carrier loses its contest, or even resolves a dispute as TMIC did with Ruttiger.
This case is a classic demonstration of how a cause of action for breach of the duty of good
faith and fair dealing can hinder the prompt resolution of disputes through proper use of the Act’s
dispute resolution provisions and increase costs to participants in the system. TMIC timely notified
Ruttiger that it was disputing his claim, why it was doing so, and notified him of his right to a BRC.
When Ruttiger finally requested a BRC to resolve the dispute, one was scheduled and held, the
dispute was resolved, and TMIC began paying benefits. The way the dispute was resolved after
Ruttiger initiated the dispute resolution process is the way the Act is designed to function. The
disruptive factor was Ruttiger’s waiting three months to request a BRC. Such a delay is not what
is contemplated by the statutes, and the time for which Ruttiger delayed in initiating the Act’s
dispute resolution procedures is the basis for his claim for damages in this suit.
The issues underlying the Court’s decision in Aranda were serious. The Legislature
recognized that those issues, as well as other serious shortcomings in the old law, needed to be
addressed and it has addressed them. It was the Court’s prerogative to recognize the need for and
extend Arnold’s extra-contractual common law cause of action when it decided Aranda; it is the
Court’s prerogative and responsibility to recognize if the cause of action is no longer appropriate.
See In re McAllen Med. Ctr., Inc., 275 S.W.3d 458, 461 (Tex. 2008) (“[O]ur place in a government
of separated powers requires us to consider also the priorities of the other branches of Texas
government.”).
36
The Act effectively eliminates the need for a judicially imposed cause of action outside the
administrative processes and other remedies in the Act. Recognizing and respecting the
Legislature’s prime position in enacting, studying, analyzing, and reforming the system, and its
efforts in having done that, I conclude that Aranda should be overruled.
B. Response to the Dissent
The dissent approaches the Aranda issue in two primary ways. In one approach it questions
whether by the Act the Legislature intended to abrogate Aranda’s holding:
The question presented in this case is whether the Legislature intended to abrogate
entirely a common law bad faith remedy when it enacted the Workers’ Compensation
Act. . . .
. . . .
We must decide, then, whether there is “clear legislative intent,” Dealers
Elec. Supply, 292 S.W.3d at 660, to extinguish entirely this settled common law
remedy.
___ S.W.3d at ___ (Jefferson, C.J., dissenting). The dissent concludes that the Act does not reflect
Legislative intent to do so, and I agree. There is no language that TMIC argues shows an intent to
abolish the duty of good faith and fair dealing, the dissent sees none, and neither do I. Further, there
is simply no question about what the Legislature intended. Its intent is taken from what it
enacted—limits on the cause of action. See Entergy Gulf States, Inc. v. Summers, 282 S.W.3d 433,
437 (Tex. 2009). Because the Act contains no language intended to extinguish the action, that
should end the inquiry because this Court presumes the Legislature deliberately and purposefully
selects words and phrases it enacts, as well as deliberately and purposefully omits words and phrases
it does not enact. See Tex. Lottery Comm’n v. First State Bank of DeQueen, 325 S.W.3d 628, 635
37
(Tex. 2010). But although I agree the Legislature did not intend to abolish the Aranda action, I
disagree that whether it did is the question that must be answered. As I have noted previously, the
essential question is not whether the Legislature intended to abrogate the common law bad faith
remedy. The question is to what extent the judiciary will respect the Legislature’s function of
addressing the concerns and adjusting the rights of parties in the workers’ compensation system.
The dissent’s other approach is that sections 416.001 and 416.002 of the Act specifically
recognize the common law cause of action for breach of the duty of good faith and fair dealing
without abolishing it, thereby implicitly ratifying it or giving its existence the Legislature’s stamp
of approval. See ___ S.W.3d at ___ (Jefferson, C.J., dissenting) (“Even after the 1989 overhaul, the
Act’s express language makes plain the Legislature’s intent that common law bad faith claims
remain available to litigants.”). In reaching its conclusion, the dissent inappropriately goes beyond
the language of the Act.
When reading statutes, our goal is to ascertain and give effect to the Legislature’s intent. See
F.F.P. Operating Partners, L.P. v. Duenez, 237 S.W.3d 680, 683 (Tex. 2007). That intent is drawn
from the plain meaning of the words chosen by the Legislature when it is possible to do so, see
Entergy Gulf States, Inc., 282 S.W.3d at 437, using any statutory definitions provided. See TEX.
GOV’T CODE § 311.011(b); Texas Dept. of Transp. v. Needham, 82 S.W.3d 314, 318 (Tex. 2002).
Where statutory text is clear, that text is determinative of legislative intent unless the plain meaning
of the statute’s words would produce an absurd result. Entergy Gulf States, Inc., 282 S.W.3d at 437.
Only when statutory text is susceptible of more than one reasonable interpretation is it appropriate
38
to look beyond its language for assistance in determining legislative intent. See In re Smith, 333
S.W.3d 582, 586 (Tex. 2011).
The Act addresses the Aranda cause of action in two sections of Chapter 416:
Certain Causes of Action Precluded
An action taken by an insurance carrier under an order of the commissioner or
recommendations of a benefit review officer under Section 410.031, 410.032, or
410.033 may not be the basis of a cause of action against the insurance carrier for a
breach of the duty of good faith and fair dealing.
TEX. LAB. CODE § 416.001.
Exemplary Damages
(a) In an action against an insurance carrier for a breach of the duty of good faith and
fair dealing, recovery of exemplary damages is limited to the greater of:
(1) four times the amount of actual damages; or
(2) $250,000.
(b) An action against a governmental entity or unit or an employee of a governmental
entity or unit for a breach of the duty of good faith and fair dealing is governed by
Chapters 101 and 104, Civil Practice and Remedies Code.
Id. § 416.002. The dissent maintains, and I agree, that the language of both sections plainly and
clearly demonstrates the Legislature’s intent to limit the Aranda cause of action. But there is a great
deal of difference between the Legislature’s acknowledging the existence of and limiting the effects
of the Aranda action and its implicitly ratifying or approving the action.
The language of section 416.001 is simple and forthright. And its full intent is clear: carriers
cannot be assessed damages in an Aranda action for conduct pursuant to orders or directives of the
WCD. There is no language in the section to indicate the Legislature intended to ratify or approve
the Aranda action. The statute is completely silent on the issue. Likewise, nowhere in section
416.002’s language limiting exemplary damages can intent to ratify or approve the Aranda cause
39
of action be found. Again, the statute is completely silent on the issue. I presume the silence is a
careful, purposeful, and deliberate choice. See Tex. Lottery Comm’n, 325 S.W.3d at 635.
Even though the dissent does not maintain that the language of either section 416.001 or
section 416.002 is ambiguous, it goes beyond the Act’s language to support its argument for
legislative intent. It notes that the 1989 reform bill as originally introduced contained language
making administrative penalties the exclusive consequence for bad faith or maliciously adjusting
claims, but a committee substitute bill deleted that language and included language that only limited
damages as to such actions. Generally, however, changes to language in bills as they pass through
the legislative process are not relevant to legislative intent regarding legislation eventually enacted.
See Entergy Gulf States, Inc., 282 S.W.3d at 443 (“[W]e attach no controlling significance to the
Legislature’s failure to enact legislation . . . for the simple reason that it is always perilous to derive
the meaning of an adopted provision from another provision deleted in the drafting process.”
(citations omitted)). Language enacted as law frequently differs from a bill as originally introduced
as well as from versions that pass through committee and floor debate in one chamber of the
legislature and then undergo the same process in the other chamber. And in many instances a bill
is finally sent to a conference committee to work out even different compromise language. The
reasons for changes in a bill’s language are not always expressed in hearings or documented in
records. But even if they were, the intent of the Legislature as a whole is not derived from language
that was in a bill at some point or from the perceived intent of a committee that produced a
committee substitute bill. The intent of the Legislature is derived from the language it finally
enacted. Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 651 (Tex. 2006)
40
(“Ordinarily, the truest manifestation of what legislators intended is what lawmakers enacted, the
literal text they voted on.”). The absence of language in the Act abolishing the Aranda cause of
action does not mean the Legislature intended to do the opposite, that is, to implicitly ratify or
approve it.
Moreover, the fact that language abolishing the Aranda action was in the bill as it was
originally filed indicates at least some legislative support for the Joint Select Committee’s
recommendation to abolish the action. On the other hand, the dissent points to no language in any
iteration of the Act through three legislative sessions that shows legislative support for ratifying or
approving the Aranda action. Thus, the dissent’s argument that legislative intent to implicitly ratify
or approve the Aranda action exists because language abolishing it was in the original bill but not
the committee substitute is not only speculative as to the reason for the language’s being removed,
it is also illogical speculation. More logical speculation about the language being in the original bill
and removed is that there was legislative support for abolishing the action, while the absence of
ratification language in any version of the bill as well as the final enactment indicates there was no
legislative intent to ratify or approve of the Aranda action. But in the final analysis, either argument
about legislative intent based on the committee substitute bill can fairly be described as speculative
and inappropriate.
Further, legislative intent emanates from the Act as a whole, and not from one isolated
portion. See Harris Cnty. Hosp. Dist. v. Tomball Reg’l Hosp., 283 S.W.3d 838, 842 (Tex. 2009).
At least two parts of the Act indicate the absence of language abolishing the Aranda action does not
reflect legislative intent to do the opposite and keep it available to litigants. First, the Act
41
specifically provides that under certain circumstances both the WCD and the employee may sue the
carrier, and it specifies what either party can recover in such an action. TEX. LAB. CODE
§ 410.208(a)–(d). If the Legislature intended to ratify or approve an Aranda action, it could have
made its intent clear by simply saying so in Chapter 416 while it was addressing the issue, just as
it said in section 410.208 that both the WCD and employee may sue the carrier. But it did not.
Second, one of the major goals of reform and changes made in the Act was to adopt an objectivebased
standard for determining indemnity benefits in order to reduce disputes and subjective
decision making about them. One of two changes that was the “heart and soul” of the 1989 reforms
was “a different method to compute benefits: the shift from the subjective standard of ‘loss of wage
earning capacity’ for redress of injured workers to the more objective use of an impairment schedule
for a determination of the recoverable loss caused by a compensable injury.” 1MONTFORD, at 3;
see TEX.LAB.CODE § 408.122 (impairment income benefits are not recoverable unless based on an
objective clinical or laboratory finding); id. § 408.124 (impairment income benefits must be based
on an impairment rating determined by use of the “Guides to the Evaluation of Permanent
Impairment,” published by the American Medical Association); see also Garcia, 893 S.W.2d at 523
n.23 (noting the testimony of John Lewis, a workers’ compensation expert retained by the Joint
Select Committee to evaluate the former system: “What goes on in [the old law] system is inherently
subjective . . . . The hope [in fashioning a new system] is to substitute to a greater degree objectivity
so there is less reason to argue, the ability to deliver the benefits much more quickly and without the
need for litigation.” (quoting Meeting of the Legislative Oversight Committee on Workers’
Compensation, April 10, 1989, Tape 4 at 2-3)). One of the Legislature’s unquestioned goals was
42
to make decisions about benefits as objective as possible, and thereby reduce disputes and litigation
over them. The Aranda cause of action with its subjective standards for damages is antithetical to
such a system, and it has no dispute resolution process other than litigation with its associated delays
and expense. Holding that there was legislative intent to implicitly approve or ratify the Aranda
action because of an absence of language either abolishing or approving it would turn logic on its
head when considered in context of the Act as a whole.16
In the final analysis, the Aranda cause of action is a common law one and it is this Court’s
prerogative and responsibility to evaluate whether the cause of action continues to be appropriate.
That evaluation, in light of the workers’ compensation system being wholly a creation of the
16 Because the dissent seeks legislative intent outside the words of the statute, it seems that in fairness to the
issue it would consider other factors outside the enacted language, or, the non-enacted language on which it relies. But
it does not. Other factors would counsel against the conclusion that by its silence the Legislature implicitly ratified or
approved the Aranda action. For example, ratifying or approving the Aranda action would have been diametrically
opposed to the finding of the Legislature’s Joint Select Committee that the action was detrimental to the goals and
interests that had to be balanced in amending the old law, and its recommendation that the action be abolished in favor
of a statutory action. See Joint Committee Report, at 16.
Another factor not discussed by the dissent is that the existing cause of action was a common law action and
legislatively abolishing or abrogating a common law cause of action is a course not lightly undertaken. Allowing
abrogation of an injured worker’s common law cause of action against his employer in exchange for the adequate and
more certain benefits provided by the Act—a cornerstone of workers’ compensation law in Texas—was held
constitutional in 1916. See Garcia, 893 S.W.2d at 521; Middleton v. Tex. Power & Light Co., 185 S.W. 556, 562 (1916)
(upholding constitutionality of the Employers’ Liability Act of 1913). But during the years immediately preceding the
71st Legislature, this Court held that various legislative attempts to “cabin-in”—but not completely abolish—certain
common law causes of action violated the Texas Constitution. See Lucas v. U.S., 757 S.W.2d 687, 691 (Tex. 1988)
(damages caps in art. 4590i §§ 11.02 and 11.03 as applied to catastrophically injured plaintiffs unconstitutional under
due course of law provision); Neagle v. Nelson, 685 S.W.2d 11, 12 (Tex. 1985) (limitations provision of art. 4590i
§ 10.01 unconstitutional under open courts provision); Nelson v. Krusen, 678 S.W.2d 918, 922-23 (Tex. 1984)
(limitations provision of TEX. INS.CODE art. 5.82, § 4 unconstitutional under open courts provision); Sax v. Votteler, 648
S.W.2d 661, 665-67 (Tex. 1983) (limitations provision in TEX. INS.CODE art. 5.82 as applied to minors unconstitutional
under open courts provision). So as of 1989 when the Legislature was struggling to enact reforms, the long-standing
construct whereby employees exchanged their common law negligence claims against employers for workers’
compensation benefits had withstood constitutional challenge, but recent attempts by the Legislature to place limits on
various common law causes of action had not. And opponents of the 1989 reforms promised, and brought, constitutional
challenges to the new law. See Garcia, 893 S.W.2d at 534 (holding the new Act was constitutional and reversing the
court of appeals that had affirmed the trial court’s determination that the entire Act was unconstitutional). Taken in
context of the times, then, the Legislature’s action in even limiting an Aranda cause of action evidenced significant
concern about and intent to control its disruptive effects—not intent to approve of or implicitly ratify it.
43
Legislature as part of its policy-making function, the Legislature’s significant reformation of the
system in 1989, and its continual supervision, monitoring, improving, and managing of the system,
leads to the conclusion that Texas should join the majority of states that do not allow Aranda-type
suits in the workers’ compensation setting.17 If the Texas Legislature determines, in its role of
managing the workers’ compensation system for the benefit of injured workers and employers that
such a cause of action is appropriate as part of the system, I have confidence that legislators will
exercise their prerogative to explicitly provide one.
VI. Conclusion
Justices Hecht, Wainwright, Medina, Johnson, Willett and Guzman join parts I, II, III, IV,
and VI of the Court’s opinion. Justices Hecht, Wainwright, Medina and Johnson join part V of the
opinion, but Justices Willett and Guzman would wait to consider the issues involving Ruttiger’s
claims that TMIC breached its duty of good faith and fair dealing until the court of appeals first
considers them. In light of the foregoing, those six justices join the Court’s judgment remanding
the case to the court of appeals for further proceedings. See Bentley v. Bunton, 94 S.W.3d 561,
607-08 (Tex. 2002).
17 See, e.g., Everfield v. State Comp. Ins. Fund, 171 Cal. Rptr. 164, 167 (Cal. Dist. Ct. App. 1981); DeOliveira
v. Liberty Mut. Ins. Co., 870 A.2d 1066, 1074 (Conn. 2005); Old Republic Ins. Co. v. Whitworth, 442 So.2d 1078, 1079
(Fla. Dist. Ct. App. 1983); Bright v. Nimmo, 320 S.E.2d 365, 381 (Ga. 1984); Walters v. Indus. Indem. Co. of Idaho, 908
P.2d 1240, 1243 (Idaho 1996); Robertson v. Travelers Ins. Co., 448 N.E.2d 866, 870 (Ill. 1983); Sims v. United States
Fid. & Guar. Co., 782 N.E.2d 345, 359-60 (Ind. 2003); Hormann v. New Hampshire Ins. Co., 689 P.2d 827 (Kan. 1984);
Zurich Ins. Co. v. Mitchell, 712 S.W.2d 340, 341 (Ky. 1986); Kelly v. CNA Ins. Co., 729 So.2d 1033, 1034 (La. 1999);
Fleming v. Nat’l Union Fire Ins. Co., 837 N.E.2d 1113, 1121 (Mass. 2005); Gallagher v. Bituminous Fire & Marine Ins.
Co., 492 A.2d 1280, 1283-84 (Md. 1985); Denisen v. Milwaukee Mut. Ins. Co., 360 N.W.2d 448, 450 (Minn. Ct. App.
1985); Young v. U.S. Fid. & Guar. Co., 588 S.W.2d 46, 48 (Mo. Ct. App. 1979); Ihm v. Crawford & Co., 580 N.W.2d
115, 116 (Neb. 1998); Burlew v. Am. Mut. Ins. Co., 63 N.Y.2d 412, 415 (N.Y. 1984); see also Whitten v. Am. Mut. Liab.
Ins. Co., 468 F. Supp. 470, 475 (D.S.C. 1977) (applying South Carolina law).
44
The judgment of the court of appeals affirming the trial court’s judgment as to Ruttiger’s
Insurance Code and DTPA claims is reversed and judgment is rendered that Ruttiger take nothing
on them. The case is remanded to the court of appeals for further proceedings regarding TMIC’s
contentions as to Ruttiger’s claim for breach of the duty of good faith and fair dealing.
________________________________________
Phil Johnson
Justice
OPINION DELIVERED: August 26, 2011

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

Texas Family Code – Section 158.206

• 158.206. LIABILITY AND OBLIGATION OF EMPLOYER;

WORKERS’ COMPENSATION CLAIMS.  (a) An employer receiving an order

or a writ of withholding under this chapter, including an order or

writ directing that health insurance be provided to a child, who

complies with the order or writ is not liable to the obligor for the

amount of income withheld and paid as required by the order or writ.

(b)  An employer receiving an order or writ of withholding

who does not comply with the order or writ is liable:

(1)  to the obligee for the amount not paid in

compliance with the order or writ, including the amount the obligor

is required to pay for health insurance under Chapter 154;

(2)  to the obligor for:

(A)  the amount withheld and not paid as required

by the order or writ;  and

(B)  an amount equal to the interest that accrues

under Section 157.265 on the amount withheld and not paid;  and

(3)  for reasonable attorney’s fees and court costs.

(c)  If an obligor has filed a claim for workers’

compensation, the obligor’s employer shall send a copy of the

income withholding order or writ to the insurance carrier with whom

the claim has been filed in order to continue the ordered

withholding of income.

Added by Acts 1995, 74th Leg., ch. 20, § 1, eff. April 20, 1995.

Amended by Acts 1995, 74th Leg., ch. 341, § 4.07, eff. Sept. 1,

1995;  Acts 1997, 75th Leg., ch. 911, § 46, eff. Sept. 1, 1997;

Acts 1999, 76th Leg., ch. 859, § 2, eff. Sept. 1, 1999;  Acts

1999, 76th Leg., ch. 1580, § 1, eff. Sept. 1, 1999;  Acts 2001,

77th Leg., ch. 1023, § 39, eff. Sept. 1, 2001.

Texas Family Code – Section 158.213

• 158.213. WITHHOLDING FROM WORKERS’ COMPENSATION

BENEFITS.  (a) An insurance carrier that receives an order or writ

of withholding under Section 158.206 for workers’ compensation

benefits payable to an obligor shall withhold an amount not to

exceed the maximum amount allowed to be withheld from income under

Section 158.009 regardless of whether the benefits payable to the

obligor for lost income are paid as lump sum amounts or as periodic

payments.

(b)  An insurance carrier subject to this section shall send

the amount withheld for child support to the place of payment

designated in the order or writ of withholding.

Added by Acts 2003, 78th Leg., ch. 610, § 9, eff. Sept. 1, 2003.

Texas Family Code – Section 158.009

• 158.009. MAXIMUM AMOUNT WITHHELD FROM EARNINGS. An

order or writ of withholding shall direct that any employer of the

obligor withhold from the obligor’s disposable earnings the amount

specified up to a maximum amount of 50 percent of the obligor’s

disposable earnings.

Added by Acts 1995, 74th Leg., ch. 20, § 1, eff. April 20, 1995.

Amended by Acts 1997, 75th Leg., ch. 911, § 37, eff. Sept. 1,

1997.

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

CS08-002A (5-08)
1

THE STATE
OF TEXAS
Provided by
Texas Department of Insurance
Division of Workers’ Compensation

Quick for Designated Doctors
The Texas Department of Insurance, Division of Workers’ Compensation’s (TDIDWC)
medical treatment guideline is the Official Disability Guidelines – Treatment
in Workers’ Comp, excluding the return to work pathways, (ODG) [137.100]. Health
care provided in accordance with the TDI-DWC treatment guidelines is presumed
reasonable. The TDI-DWC disability duration guideline is The Medical Disability
Advisor, Workplace Guidelines for Disability Duration, excluding all sections and
tables relating to rehabilitation, (MDA) [137.10]. These guidelines should be used
for the evaluation of expected or average return to work time frames. Workers’
Compensation Health Care Networks may adopt different treatment and disability
duration guidelines. If reference to such treatment and disability duration guidelines
is appropriate, and the Designated Doctor does not follow the TDI-DWC guidelines,
the Designated Doctor should provide an explanation with references to the
guidelines. Designated doctors should render opinions based on a reasonable medical
probability.
When performing an examination, a designated doctor should consider the following
information in order to properly address any of the following issues. The sections
below correspond to the “Reason For Request” section of DWC Form-032, Request
for Designated Doctor.
A. Maximum Medical Improvement (MMI)
• MMI is defined in part as 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 [401.011(30)(A)].
• The date of MMI may not be prospective or conditional, but it may be before the
date of the certifying exam [130.1(b)(4)(C)].
• Do not conduct an IR exam if you find the injured employee is not at MMI.
Designated Doctors cannot be paid for IR exams for an injured employee that is
not at MMI.
When documenting the exam:
• If the determination is that the injured employee has not reached MMI, give the
reasons you believe the injured employee has not reached MMI [130.6(b)(1)].
These reasons should be either consistent with the ODG or sufficient rationale
should be provided why the ODG does
CS08-002A (5-08)
2
• If there was a prior certification of an MMI date by an authorized doctor and you find that the injured employee either was not at MMI or reached MMI on a different date, provide an explanation with clinical documentation to support your MMI date [130.6(b)(2)].
B. Impairment Rating (IR)
• The IR is based on the injured employee’s condition as of the MMI date or the statutory MMI date, which ever is the earliest [130.1(c)(3)]. The statutory MMI date is 104 weeks after the 8th day of disability.
• Impairment is any anatomic or functional abnormality or loss existing after MMI which results from a compensable injury and is reasonably presumed to be permanent [401.011(23)].
• The appropriate edition of the AMA Guides for certifying examinations on or after October 15, 2001, is the fourth edition (1st, 2nd, 3rd, or 4th printing, including corrections and changes as issued by the AMA prior to May 16, 2000) [130.1(c) (2)(B)(i)]. If you are addressing an injury in which the first certifying examination was made before October 15, 2001, the appropriate edition of the AMA Guides is the third edition [130.1(c)(2)(B)(ii)].
• If you were asked to address MMI in addition to IR and determine that the injured employee has not reached MMI at this time, you should not assign an IR [130.6(b)(4)]. Also, do not conduct an IR exam if you find the injured employee is not at MMI. Designated Doctors cannot be paid for IR exams for an injured employee that is not at MMI.
When documenting the exam:
• An IR is the percentage of permanent impairment of the whole body resulting from a compensable injury [401.011(24)]. Assign a whole body IR for the entire compensable injury. Also, rate all parts of the compensable injury and give a 0% IR for parts with no permanent impairment.
• Include a description and explanation of clinical findings related to each impairment and describe how the findings relate to the criteria in the AMA Guides [130.1(c)(3)(D)].
• If you are asked to address an IR in addition to an extent of injury dispute, provide multiple certifications that take into account the various interpretations of the extent of injuries [130.6(b)(5)].
C. Extent of Injury
• An extent of injury question arises when there is a dispute as to whether the claimed compensable injury or established compensable injury includes additional body parts or injury conditions.
• An injury means damage or harm to the physical structure of the body and a disease or infection naturally resulting from the damage or harm. The term includes an occupational disease [401.011(26)].
• An aggravation of a pre-existing condition is included in the compensable injury. An aggravation is an enhancement, acceleration, or worsening of the underlying condition.
CS08-002A (5-08)
3
• Further harm caused by medical care for the compensable injury is part of the compensable injury.
• If a condition arises out of or naturally results from the compensable injury, it extends to and is included in the compensable injury.
When documenting the exam:
• Include in your report the claimed compensable injury or established compensable injury as identified by the information provided by the requestor or other parties. That information should also describe the incident(s) that were a cause of the injury.
• For the extent of injury question, explain whether the work incident that was a cause of the injury was also a cause of the additional injury or condition, or whether the additional injury or condition was a natural progression of the injury.
D. Disability a Direct Result of the Injury
• Disability is an economic concept which means the inability because of a compensable injury to obtain and retain employment at wages equivalent to the pre-injury wage [401.011(16)].
• Direct result may be established by evidence that an injured employee sustained an injury with lasting effects and could not reasonably perform the pre-injury employment.
• The compensable or claimed injury need only be a cause of disability.
When documenting the exam:
• Include in your report the claimed compensable injury or established compensable injury as identified by the information provided by the requestor or other parties. From this information determine and state in your report what the compensable or claimed injury is. Base your direct result determination on your determination of the claimed compensable injury or established compensable injury.
• Explain how the employee’s inability to perform the pre-injury employment is or is not a direct result of the compensable injury.
E. Return to Work
When documenting the exam:
• Explain whether the injured employee can return to any form of employment, and if so, identify any restrictions.
• When applicable reference the MDA in determining the injured employee’s capacity to return to work and explain how the MDA was used in making the determination.
• If it is determined that the employee can return to work, with or without restrictions, file a Work Status Report (DWC Form-73) within seven days of the
CS08-002A (5-08)
4
exam [126.7(o)].
• If you change the injured employee’s work status, provide an explanation on the change in the employee’s condition to support the change in work status. Also, file a Work Status Report (DWC Form-73) within seven days of the exam [126.7(o)].
F. Return to Work for Supplemental Income Benefits
When documenting the exam:
• For the dates covered by the parties, if the injured employee was unable to perform any type of work in any capacity, specifically explain in your report how the injury causes a total inability to work.
• For the dates covered by the request, if the injured employee has any ability to work, describe what the injured employee can do and complete a Work Status Report (DWC Form-73).
G. Other Similar Issues
• When the compensability of the injury has been denied or disputed, determine if there is an injury resulting from the claimed incident.
• An injury means damage or harm to the physical structure of the body and a disease or infection naturally resulting from the damage or harm. The term includes an occupational disease [401.011(26)].
This reference guide refers to Texas Labor Code §401.011 (General Definitions), and 28 Texas Administrative Code §§126.7 (Designated Doctor Examinations: Requests and General Procedures), 130.1 (Certification of Maximum Medical Improvement and Evaluation of Permanent Impairment), 130.6 (Designated Doctor Examinations for Maximum Medical Improvement and/or Impairment Rating), 137.10 (Return to Work Guidelines) and 137.100 (Treatment Guidelines).

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

IN THE SUPREME COURT OF TEXAS

NO. 09-0340

INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, PETITIONER,
v.
CARMEN MURO, RESPONDENT

ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE FIFTH DISTRICT OF TEXAS

Argued March 3, 2011
JUSTICE MEDINA delivered the opinion of the Court.
The Texas Workers’ Compensation Act authorizes the award of lifetime income benefits to
employees who lose certain body parts or suffer certain injuries in work-related accidents. The
specific body parts and injuries that qualify an employee for this type of benefit are enumerated in
section 408.161 of the act. See TEX. LAB. CODE § 408.161(a)(1)–(7). That enumeration includes,
among others, “loss [or lost use] of both feet at or above the ankle.” Id. § 408.161(a)(2), (b).
The question here concerns the standard for awarding lifetime income benefits under section
408.161. The employee in this case injured her hips, an injury and body part not enumerated in
section 408.161. The hip injuries, however, affected the use of her feet to the extent that she could
no longer work. Although her feet were not injured, per se, the employee was awarded lifetime
income benefits because her hip injuries prevented her from continuing to work. The issue then is
whether the statute authorizes the award of lifetime benefits for injuries to body parts not
enumerated in the statute, that is, whether the occurrence of one of the injuries identified in section
408.161 is a prerequisite to the award of lifetime benefits or whether other injuries that result in the
employee’s total and permanent incapacity, such as the hip injuries here, are enough.
Affirming the employee’s award of lifetime income benefits, the court of appeals concluded
that section 408.161 does not limit the award of lifetime income benefits to the specific injuries and
body parts enumerated in the statute. 285 S.W.3d 524, 529 (Tex. App.—Dallas 2009). We
conclude, however, that section 408.161 limits the award of lifetime benefits to the injuries
enumerated therein and that an employee does not lose the use of a body part, within the statute’s
meaning, without some evidence of an injury to that body part. Because there is no evidence that
the employee suffered one of the enumerated injuries in this case, we reverse and render.
I
Carmen Muro was seriously injured at work in 1996. She slipped and fell on a restroom
floor, injuring her hips, lower back, right shoulder, and neck. Her injuries resulted in several
surgeries, including the replacement of both her hips, a surgical repair of her right shoulder, and a
cervical fusion. Complications with her left hip required additional surgery and the replacement of
her first artificial hip. During this period, she received workers’ compensation benefits. Muro
eventually returned to her job in revenue management with her employer but left again in 1999
because she had difficulty walking from the parking lot and sitting at her desk. Unable to work,
Muro sought lifetime income benefits.
2
The workers’ compensation act enumerates certain catastrophic injuries for which an
employee may recover lifetime income benefits. TEX. LAB. CODE § 408.161(a). The enumerated
injuries include the loss of both feet, the loss of both hands, or the loss of a hand and a foot, among
others. Id. § 408.161(a)(2), (3), (4). Muro asserted that she was entitled to lifetime benefits because
her workplace accident caused her to lose the use of her right hand and both feet. Her employer’s
workers’ compensation carrier, the Insurance Company of the State of Pennsylvania, disagreed. It
refused to pay benefits beyond 401 weeks, asserting that Muro’s circumstances did not qualify her
for lifetime income. To resolve this dispute over benefits, the Texas Workers’ Compensation
Commission (“TWCC”) scheduled a contested case hearing.
The TWCC hearing officer concluded that Muro was entitled to lifetime income benefits
“based on the total and permanent loss of use of both feet at or above the ankle, or one foot at or
above the ankle and one hand at or above the wrist.” The TWCC appeals panel declined to reverse
the hearing officer’s decision, and the carrier, having exhausted the administrative process, appealed
to the district court. See id. § 410.251 (authorizing judicial review).
In the district court, a jury heard testimony from several witnesses regarding the nature and
extent of Muro’s injuries and disability. Dr. Hooman Sedighi, a TWCC-appointed physician,
testified that the injuries to, and surgeries on, Muro’s hips and right shoulder limited her ability to
use her legs and right arm and that these limitations likewise affected the use of her feet and right
hand. Muro’s feet and hands, however, were, according to the doctor, “functioning fine” and “near
normal function.” Dr. Sedighi’s neurological exam revealed Muro’s motor assessment to be “fourplus
out of five in both upper and lower extremities without any focal myotomal deficits.” He
3
explained that such testing utilizes a gradation that “goes from zero, meaning absolutely no motor
strength whatsoever, to five, being normal.” Dr. Sedighi further testified that pinprick or sensation
testing indicated that Muro had normal sensation in her feet and hands. Although her feet and right
hand were functional, Dr. Sedighi concluded that the injury to Muro’s shoulder and hips had
“diminished the ability to use both lower extremities and the right upper extremity” to the extent that
she “would be considered totally disabled from any and all work.”
Dr. Charles Crane, Muro’s treating physician, also testified that Muro was completely
disabled. In his opinion, the injury to Muro’s hips had impaired the use of her feet to the extent that
she could no longer obtain and retain employment requiring their use. Finally, Muro and her
daughter testified about Muro’s daily life, her limitations, and her inability to function without
assistance.
The jury found that Muro had the “total and permanent loss of use of both feet at or above
the ankle” and the “total and permanent loss of use of one foot at or above the ankle and one hand
at or above the wrist.” On this verdict, the district court rendered judgment for Muro, awarding her
lifetime income benefits and attorney’s fees. The insurance carrier appealed, and the court of
appeals affirmed the district court’s judgment. 285 S.W.3d 524. A petition for review to this Court
followed, and we granted the petition to consider the requirements of section 408.161 and Muro’s
award of lifetime income benefits.
II
Lifetime income is the greatest income benefit a worker can receive under the workers’
compensation act. In addition to lifetime income, the act provides for three lesser awards: temporary
4
income benefits, impairment income benefits, and supplemental income benefits. See TEX. LAB.
CODE §§ 408.101, 408.121, 408.142, 408.161. These benefits accrue when a compensable injury
causes a decrease in the employee’s earnings and are generally paid weekly by the insurance carrier
“as and when they accrue.” Id. §§ 401.011(25), 408.081(b). A claimant’s combined eligibility for
temporary income benefits, impairment income benefits, and supplemental income benefits
generally terminates 401 weeks after the date of injury. Id. § 408.083(a). But the 401-week
limitation does not apply to lifetime income benefits, which, as the name implies, are payable until
the injured employee’s death. Id. § 408.161(a).
Section 408.161(a) provides for the payment of lifetime income benefits under seven
circumstances:
(1) total and permanent loss of sight in both eyes;
(2) loss of both feet at or above the ankle;
(3) loss of both hands at or above the wrist;
(4) loss of one foot at or above the ankle and the loss of one hand at or above the
wrist;
(5) an injury to the spine that results in permanent and complete paralysis of both
arms, both legs, or one arm and one leg;
(6) a physically traumatic injury to the brain resulting in incurable insanity or
imbecility; or
(7) third degree burns that cover at least 40 percent of the body and require grafting,
or third degree burns covering the majority of either both hands or one hand and the
face.
Id. § 408.161(a)(1)–(7). The statute equates the loss of the use of an enumerated body part with its
loss, stating that “the total and permanent loss of use of a body part is the loss of that body part.”
Id. § 408.161(b). The statute does not elaborate further on what it means to lose the use of one of
5
the enumerated body parts, but we have written on the question under an earlier version of the
workers’ compensation act. See Travelers Ins. Co. v. Seabolt, 361 S.W.2d 204 (Tex. 1962).
III
In Seabolt, the Court “sought to clarify the law regarding the total loss of use” of specific
body parts identified in the workers’ compensation act. Angelina Cas. Co. v. Holt, 362 S.W.2d 99,
100 (Tex. 1962). The act at that time used the term “member” instead of “body part,” but otherwise
equated the loss of use of a member or body part with its loss, as it does now. See Seabolt, 361
S.W.2d at 205 (citing former act).1 Seabolt observed that the phrase “total loss of the use of a
member” embraced two concepts, one narrow, relating to the absence of any utility in the body part,
and the other “somewhat broader concept,” recognizing that the member might possess some utility
as a part of the body and yet “its condition be such as to prevent the workman from procuring and
retaining employment requiring the use of the injured member.” Id. at 205–06.
Seabolt then proposed the following definition:
A total loss of the use of a member exists whenever by reason of injury, such
member no longer possesses any substantial utility as a member of the body, or the
condition of the injured member is such that the workman cannot procure and retain
employment requiring the use of the member.
1 The former act provided that for purposes of lifetime benefits “the total and permanent loss of use of a member
shall be considered to be the total and permanent loss of the member” and that the “total loss of use” of a member is
“equivalent to” and is to “draw the same compensation” as the “total and permanent loss of such member.” TEX. REV.
CIV. STAT.ANN. art. 8306, §§ 10(b), 11a (repealed by Acts 1989, 71st Leg., 2nd C.S., ch. 1, § 16.01(7)–(9), 1989 Tex.
Gen. Laws 114). The act now provides that the “total and permanent loss of use of a body part is the loss of that body
part.” TEX. LAB. CODE § 408.161(b).
6
Id. at 206.2 The insurance carrier points out that this definition uses the adjective “injured” to
describe the affected member, indicating that the enumerated member must itself be injured before
a loss of use can occur. The carrier submits that an employee therefore does not lose the use of an
enumerated body part without some evidence of an injury to it.
The carrier requested a jury instruction on this principle, tendering the Seabolt definition,
but the court refused, submitting the following instruction instead: “‘Loss of use’ means the
condition of the body part is such that the Defendant cannot get and keep employment requiring the
use of that body part. Loss of use does not require amputation.” Because the court’s charge omitted
any requirement of injury to a statutory body part, the carrier complains that Muro was able to
recover lifetime benefits for the total loss of use of her feet and her right hand, even though these
body parts remained uninjured and functional.
Muro responds that the statute does not expressly require evidence of an injury to a statutory
body part but rather only the “total and permanent loss of use” of such body part. See TEX. LAB.
CODE § 408.161(b). Muro submits that any injury that results in the “total and permanent loss of
use” of a statutory body part is enough. Therefore, evidence of her hip and shoulder injuries and
their effect on her feet and right hand are enough to satisfy the statute.
The court of appeals agreed that Muro did not need evidence of an injury to her right hand
and feet to support the jury’s finding of lost use. 285 S.W.3d at 529. Citing five cases from other
courts of appeals, the court concluded “that injury to one part of the body can support a loss of use
2 This definition was subsequently incorporated into the Texas Pattern Jury Charges. See COMM. ON PATTERN
JURY CHARGES,STATE BAR OF TEX.,TEXAS PATTERN JURY CHARGES–WORKMEN’S COMPENSATION PJC 26.04 (1970).
7
finding for another part of the body, bringing the injury within the category of injuries encompassed
by the [lifetime income benefits] statute.” Id. (citing Galindo v. Old Republic Ins. Co., 146 S.W.3d
755, 760 (Tex. App.—El Paso 2004, pet. denied); Hartford Underwriters Ins. Co. v. Burdine, 34
S.W.3d 700,705-06 (Tex. App.—Fort Worth 2000, no pet.); Second Injury Fund of the State of Tex.
v. Avon, 985 S.W.2d 93, 95 (Tex. App.—Eastland 1998, pet. denied); Tex. Gen. Indem. Co. v.
Martin, 836 S.W.2d 636, 638 (Tex. App.—Tyler 1992, no writ); Tex. Employers’ Ins. Ass’n v.
Gutierrez, 795 S.W.2d 5, 6 (Tex. App.—El Paso 1990, writ denied)). In short, the court of appeals
concluded that Muro was entitled to lifetime income benefits because injuries to her hips and right
shoulder affected her ability to use her feet and right hand to the extent that she could not continue
to work.
A
Four of the five cases on which the court of appeals relies were decided under article 8306
of the Texas Revised Civil Statutes, an earlier version of the workers’ compensation act. See TEX.
REV. CIV. STAT. ANN. art. 8306 (repealed by Acts 1989, 71st Leg., 2nd C.S., ch. 1, § 16.01, 1989
Tex. Gen. Laws 114). The Legislature repealed that version of the act when it reformed the
workers’ compensation system in 1989. These reforms created a new regulatory agency, benefits
structure, and dispute resolution process. See generally Tex. Workers’ Comp. Comm’n v. Garcia,
893 S.W.2d 504, 510–16 (Tex. 1995) (discussing changes). The changes were subsequently codified
in Title 5 of the Texas Labor Code. Act of May 22, 1993, 73rd Leg., R.S., ch. 269 § 1, 1993 Tex.
Gen. Laws 987, 1173.
8
Injuries occurring before January 1, 1991 (the effective date of the reform bill), are
commonly referred to as “old-law cases.” Injuries occurring on or after January 1, 1991, are
commonly referred to as “new-law cases.” Old-law cases can be useful in understanding the new
act, but their relevance to any particular provision requires a careful comparison of the old and new
law.
Although the new law significantly changed the workers’ compensation system, it did not
wholly replace the old law’s treatment of lifetime income benefits. The old law enumerated six
injuries for which lifetime income benefits were to be paid, describing the enumerated injuries as
conclusively establishing a worker’s total and permanent incapacity. See TEX. REV. CIV. STAT.
ANN. art. 8306, §§ 10(b), 11a (repealed by Acts 1989, 71st Leg., 2nd C.S., ch. 1, § 16.01(7)–(9),
1989 Tex. Gen. Laws 114). Section 408.161 of the new law incorporates these same six injuries,
adding serious burns as a seventh specific injury qualifying for lifetime benefits. TEX. LAB. CODE
§ 408.161(a)(1)–(7). Section 408.161, however, no longer expressly equates the enumerated injuries
with total and permanent incapacity. Id. § 408.161. But, under either version of the act, lifetime
benefits are payable for certain statutory injuries, such as the loss of both feet, the loss of both hands,
or a combination of the two. Compare TEX. LAB. CODE § 408.161(a)(2)–(4), with TEX. REV. CIV.
STAT.ANN. art. 8306, § 11a(2)–(4) (repealed). And as already mentioned, both versions equate the
total and permanent loss of use of an enumerated body part with its loss. Compare TEX.LAB.CODE
§ 408.161(b), with TEX. REV. CIV. STAT. ANN. art. 8306, §§ 10(b), 11a (repealed).3
3 See supra note 1.
9
The respective laws differ, however, in their approach to other serious injuries, resulting in
a workers’ total incapacity. The new law does not directly address any other serious injuries not
enumerated in the act, while the old law does address the subject, but does so inconsistently.
The old law indicates that the six enumerated injuries are the exclusive means of proving a
worker’s entitlement to lifetime benefits, but the old law also states that the enumeration is a nonexclusive
list. For example, section 10(b) provides that, if the claimant’s injury is “one of the six
(6) enumerated in Section 11a,” the claimant is entitled to lifetime benefits; however, “in no other
case of total and permanent incapacity” can the claimant recover benefits for a period in excess of
401 weeks from the date of injury. TEX. REV. CIV. STAT. ANN. art. 8306, § 10(b) (repealed).
Section 10(b) thus indicates that the nature of the injury (its enumeration in the statute) is more
important than the extent of the incapacity resulting from the injury.
Section 11a, however, indicates the opposite. After enumerating the six injuries, that section
concludes with the following paragraph, commonly referred to as the “other loss” clause:
The above enumeration is not to be taken as exclusive but in all other cases
the burden of proof shall be on the claimant to prove that his injuries have resulted
in permanent, total incapacity.
Id. art. 8306, § 11a (repealed). In contrast to section 10(b), the “other loss” clause focuses on the
nature of the worker’s incapacity, rather than the injury itself, suggesting that the injury’s nature (its
enumeration in the statute) is less important than the degree of incapacity or disability the injury
produces. Clearly, the old law is conflicted on the purpose served by its six enumerated injuries.
Given this inconsistency in the old law, a number of courts opted to apply section 11a’s “other loss”
clause to extend lifetime benefits to workers whose non-enumerated injuries resulted in total and
10
permanent incapacity. See, e.g., City of Del Rio v. Contreras, 900 S.W.2d 809, 810–11 (Tex.
App.—San Antonio 1995, pet. denied) (holding the old law to be “at best ambiguous” on the issue
of exclusivity and resolving the ambiguity in the worker’s favor).
Most of the court of appeals’ case authority here is premised on this application of the “other
loss” clause. See 285 S.W.3d at 529 (citing Avon, 985 S.W.2d at 95 (jury’s finding of total and
permanent loss of use of both legs supports recovery of lifetime income under the provision for the
“loss of both feet at or above the ankle”); Martin, 836 S.W.2d at 638 (total and permanent loss of
use of a leg “necessarily inflicts” the loss of use of the attached foot at or above the ankle);
Gutierrez, 795 S.W.2d at 6 (finding of the total loss of use of a leg encompasses the loss of a foot
at or above the ankle)). The “other loss” clause, however, did not survive the act’s reformation.
Because this provision is not part of the current act, the old-law cases that apply it are neither
relevant nor useful to our understanding of section 408.161.
B
The court of appeals does cite one new-law case that applies section 408.161 under
circumstances similar to the present case. See Galindo, 146 S.W.3d 755. In Galindo, the worker
sought an award of lifetime income benefits after an exposure to sulfur dioxide gas rendered him
a “pulmonary invalid.” Galindo, 146 S.W.3d at 759–60. Pulmonary injuries are not mentioned in
section 408.161. See TEX. LAB. CODE § 408.161(a)(1)–(7) (enumerating the seven injuries that
qualify for lifetime benefits). Because the worker’s injury was not one enumerated in the statute,
the trial court summarily denied the worker’s claim. The court of appeals, however, reversed the
summary judgment, concluding that the worker’s pulmonary injury raised fact questions about
11
whether the worker had permanently lost the use of both hands, or both feet, “or even all four
extremities.” Galindo, 146 S.W.3d at 760. The Galindo court thus focused on the workers’ total
and permanent incapacity rather than the nature of the injury producing that incapacity, just as oldlaw
cases had done when applying the “other loss” clause. Similarly, the court here focuses on
Muro’s incapacity or disability and, as in Galindo, that disability stems from a non-statutory injury
or impairment.
Concepts of “impairment” and “disability” are not interchangeable under the new law,
however. The act defines “impairment” as “any anatomic or functional abnormality or loss existing
after maximum medical improvement that results from a compensable injury and is reasonably
presumed to be permanent.” TEX. LAB. CODE § 401.011(23). “Disability,” on the other hand, is
defined as “the inability because of a compensable injury to obtain and retain employment at wages
equivalent to the preinjury wage.” Id. § 401.011(16). The injuries enumerated in section 408.161
all result in impairments, but whether they also result in disabilities will “depend upon the nature
of the employee’s pre-injury job.” Mid-Century Ins. Co. v. Tex. Workers’ Comp. Comm’n, 187
S.W.3d 754, 760 (Tex. App.—Austin 2006, no pet.). Section 408.161 therefore defines lifetimeincome-
benefits eligibility in terms of specific impairments rather than general disabilities. See id.
(noting that § 408.161 defines eligibility without regard to the existence of a disability); cf. Consol.
Underwriters v. Langley, 170 S.W.2d 463, 464 (Tex. 1943) (noting that “[w]here injury results to
a particular member of the body, compensation for the loss of which is specifically provided by
statute, the liability of the insurer is limited to that amount, even though the loss of or injury to that
particular member actually results in total permanent incapacity of the employee to labor”).
12
The statute merely provides that lifetime income benefits are to be paid for the seven injuries
or conditions enumerated in section 408.161. Compare TEX.LAB.CODE § 408.161, with TEX.REV.
CIV. STAT.ANN. art. 8306, § 11a (repealed). Had the Legislature intended for total and permanent
incapacity to serve generally as the basis for the award of lifetime income benefits under the new
law, it would have retained the old law’s “other loss” clause or replaced the specific injuries and
conditions enumerated in section 408.161 with a disability system focused on the worker’s inability
to work. Because the Legislature chose both to retain the enumerated injuries and to repeal the
“other loss” clause, it clearly did not intend to continue the broader application of lifetime income
benefits formerly recognized by some courts of appeals under the old-law’s “other loss” clause.
C
The evidence in this case indicates that physical injuries to Muro’s hips, shoulder, back, and
neck limited or impaired her ability to use her feet and right hand. There was no evidence, however,
that these physical injuries extended to the hand or feet, either directly or indirectly as was the case
in Burdine, another decision on which the court of appeals relies. See 285 S.W.3d at 529 (citing
Burdine, 34 S.W.3d at 707).
In Burdine, the worker’s injury involved her back and “the associated nerve roots” which
extended “down the legs into the feet.” Burdine, 34 S.W.3d at 706. The treating physician testified
that the injury had caused a “muscular malfunction” rendering the worker unable to lift her feet, a
condition referred to as “footdrop.” Id. The physician further testified that the worker was totally
disabled and that the loss of her legs and feet at or above the ankles was a permanent condition for
which he had prescribed an electric wheelchair. Id. at 706–07. The injury in Burdine therefore
13
extended to the worker’s feet and resulted in her inability to “get and keep employment requiring
[their] use.” Burdine, 34 S.W.3d at 707 (quoting Seabolt’s definition of “total loss of use”). This
evidence of an injury to a body part enumerated in the statute distinguishes Burdine from the present
case.4
Under the old law, we said that an injury to one body part or system could extend to and
affect another body part or system and thereby amplify the benefits otherwise due an injured worker.
Tex. Employers’ Ins. Ass’n v. Wilson, 522 S.W.2d 192, 194 (Tex. 1975); Travelers Ins. Co. v.
Marmolejo, 383 S.W.2d 380, 381–82 (Tex. 1964). But Muro does not contend that her injuries
extended to her feet or right hand. The expert testimony confirms that they did not. Muro urges
instead that injuries to her hips, back, neck, and shoulder were sufficient to support the underlying
award of lifetime income benefits. We cannot agree.
The Legislature has limited the award of lifetime income benefits to the specific injuries and
body parts enumerated in section 408.161; nothing in the statute authorizes the substitution of other
injuries or body parts for those enumerated. TEX.LAB.CODE § 408.161. The injury to the statutory
body part may be direct or indirect, as in Burdine, but the injury must extend to and impair the
statutory body part itself to implicate section 408.161. Because there is no contention here that
Muro’s feet and right hand ceased to possess “any substantial utility as a member of the body”5 and
no evidence of injury to these body parts that prevented her from procuring and retaining
4 Burdine is also an old-law case, and the result in the case might also be justified under the former act’s “other
loss” clause. TEX. REV. CIV. STAT. ANN. art. 8306, § 11a (repealed).
5 Seabolt recognized this as an alternative definition for the “total loss of use of a member.” The Division of
Workers’ Compensation adjudicated the “substantial utility” theory of recovery against Muro, and it is not an issue in
this appeal. See Seabolt, 361 S.W.2d at 205–06.
14
employment requiring their use, we conclude that Muro is not entitled to the award of lifetime
income benefits. See Seabolt, 361 S.W.2d at 206.
III
The insurance carrier also complains about the award of attorney’s fees. An insurance carrier
that seeks judicial review of a TWCC appeals panel’s final decision regarding, among other things,
benefits eligibility is liable for reasonable and necessary attorney’s fees incurred by a prevailing
claimant in the appeal. TEX. LAB. CODE § 408.221(c). Muro was accordingly awarded attorney’s
fees because she prevailed in the district court, and the court of appeals affirmed that award. Our
determination that Muro is not entitled to lifetime income benefits under section 408.161 requires
that we also reverse her award of attorney’s fees.
* * *
The court of appeals’ judgment is reversed and judgment is rendered denying the claimant
an award of lifetime income benefits under section 408.161 of the workers’ compensation act.
_____________________________
David M. Medina
Justice
Opinion Delivered: August 26, 2011

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

July 25, 1988

Mr. Joseph C. Gagen

Chairman

Texas Industrial Accident Board

200 East Riverside

Austin, Texas 78704

Opinion No. JM-931

Re: Authority of the Industrial Accident Board to approve a settlement agreement that would terminate liability for future medical expenses (RQ-1353)

Dear Mr. Gagen:

You ask:

Does the authority of the Industrial Accident Board over medical expenses incurred after a final award, judgment, or settlement, extend to approving compromise settlement agreements that would terminate all liability for future medical expenses?

The Industrial Accident Board (the “board”) is an administrative body created by statute and possessing only those powers conferred on it by statute. Commercial Casualty Insurance Co. v. Hilton, 87 S.W.2d 1081 (Tex.1935). V.T.C.S. art. 8307, s 1.

We believe that the determination of the board’s authority to approve a compromise settlement agreement subsequent to a final award of the board or a judgment of a court is governed by different statutory provisions than those apposite to the determination of the board’s authority to approve compromise settlement agreement subsequent to an original compromise settlement agreement. We will therefore treat these two elements of your question separately.

AUTHORITY OF BOARD TO APPROVE COMPROMISE SETTLEMENT AGREEMENT REGARDING FUTURE

MEDICAL EXPENSES SUBSEQUENT TO FINAL AWARD OF BOARD OR JUDGMENT OF COURT.

Attorney General Opinion JM-361 (1985) dealt with the question of whether the board may approve, while a case is pending before the board, a compromise settlement agreement which terminates liability for future medical expenses, if the carrier had admitted liability and the injury was one conclusively held to be total and permanent pursuant to article 8306, section 11a, V.T.C.S.

Noting that section 12 of article 8307, V.T.C.S., authorized the board to approve a compromise settlement agreement “[w]here the liability of the association or the extent of the injury is uncertain,” JM-361 concluded that where the carrier had admitted liability and where the injury was one for which as a matter of law incapacity was total and permanent, there was no “uncertainty” as to liability or extent of injury within the meaning of section 12. The opinion ruled that uncertainty as to amounts of future medical expenses was not “uncertainty” within the meaning of section 12 such that the board would be authorized to approve a compromise settlement agreement regarding only future medical expenses, where liability and extent of injury had been established.

In our opinion, it follows from the ruling in JM-361 that the board has no authority to approve a compromise settlement agreement that would terminate liability for future medical expenses after a final award of the board or a judgment of a court, because the proceedings of the board or a court in rendering a final award or judgment would necessarily have determined “liability” and “extent of injury” such that there would be no remaining “uncertainty” within the meaning of section 12 which would authorize the board to approve a compromise settlement agreement regarding future medical expenses. That a final award by the board or a judgment of a court [FN1] would have resolved uncertainty as to liability or extent of injury is apparent from a reading of pertinent parts of section 5 of article 8307:

All questions arising under this law, if not settled by agreement of the parties interested therein and within the provisions of this law, shall, except as otherwise provided, be determined by the Board. Any interested party who is not willing and does not consent to abide by the final ruling and decision of said Board shall, within twenty (20) days after the rendition of said final ruling and decision by said Board, file with said Board notice that he will not abide by said final ruling and decision. And he shall within twenty (20) days after giving such notice bring suit in the county where the injury occurred, or in the county where the employee resided at the time the injury occurred (or, if such employee is deceased, then in the county where the employee resided at the time of his death), to set aside said final ruling and decision, and said Board shall proceed no further toward the adjustment of such claim, other than hereinafter provided…. Whenever such suit is brought, the rights and liability of the parties thereto shall be determined by the provisions of this law. (Emphasis added.)

The liability of the association and the extent of the injury are the two key issues to be determined by the board or by a court in a worker’s compensation case. We find no provision of law relieving the board or a court from the duty to determine liability and extent of injury in rendering a final award or judgment. Once liability and extent of injury are finally determined by the board or by a court, there would remain no uncertainty as to the liability or extent of injury that would authorize the board under section 12 to approve a subsequent compromise settlement agreement regarding future medical expenses.

Moreover, section 5 makes the only specific provision for the board’s handling of medical expense claims after a final award by the board or a judgment of a court.

Notwithstanding any other provision of this law, as amended, no award of the Board, and no judgment of the court, having jurisdiction of a claim against the association for the cost or expense of items of medical aid, hospital services, nursing, chiropractic services, medicines or prosthetic appliances furnished to an employee under circumstances creating a liability therefor on the part of the association under the provisions of this law, shall include in such award or judgment any cost or expense of any such items not actually furnished to and received by the employee prior to the date of said award or judgment. The first such final award or judgment rendered on such claim shall be res judicata of the liability of the association for all such cost or expense which could have been claimed up to the date of said award or judgment and of the issue that the injury of said employee is subject to the provisions of this law with respect to such items, but shall not be res judicata of the obligation of the association to furnish or pay for any such items after the date of said award or judgment. After the first such final award or judgment, the Board shall have continuing jurisdiction in the same case to render successive awards to determine the liability of the association for the cost or expense of any such items actually furnished to and received by said employee not more than six (6) months prior to the date of each such successive award, until the association shall have fully discharged its obligation under this law to furnish all such medical aid, hospital services, nursing, chiropractic services, medicines or prosthetic appliances to which said employee may be entitled; provided, each such successive award of the Board shall be subject to a suit to set aside said award by a court of competent jurisdiction, in the same manner as provided in the case of other awards under this law. (Emphasis added.)

The board possesses only those powers conferred on it by statute. We have found no provisions authorizing the board to approve compromise settlements subsequent to board awards or court judgments, or to take other action regarding future medical expenses. Section 5 provides a procedure the board may utilize for the disposition of claims for medical expenses incurred subsequent to a board award or court judgment.

AUTHORITY OF THE BOARD TO APPROVE COMPROMISE SETTLEMENT AGREEMENTS REGARDING

FUTURE MEDICAL EXPENSES SUBSEQUENT TO AN ORIGINAL COMPROMISE SETTLEMENT

AGREEMENT.

We note at the outset that we have found no reported cases dealing with a compromise settlement agreement made subsequent to an original compromise settlement agreement. Many courts have stated that once an original compromise settlement agreement is approved by the board, the agreement is binding on the parties until the original settlement agreement is lawfully set aside by a court. See, e.g., Luersen v. Transamerica Insurance Co., 550 S.W.2d 171 (Tex.Civ.App.–Austin 1977, writ ref’d n.r.e.); Pearce v. Texas Employers Insurance Association, 403 S.W.2d 493 (Tex.Civ.App.–Dallas 1966, writ ref’d n.r.e.), reh’g denied, 412 S.W.2d 647 (Tex.1967), and the authorities cited therein.

In this vein, section 12b of article 8307, V.T.C.S., now specifically provides that the board “shall have no jurisdiction to rescind or set aside any compromise settlement agreement approved by the board or any agreed judgment approved by the court.” Acts 1983, 68th Leg., ch. 501, section 1.

Section 12b now also provides a specific procedure for the board’s resolving disputes as to medical expenses arising pursuant to compromise settlement agreements approved by the board or agreed judgments approved by the court:

Whenever in any compromise settlement agreement approved by the board or in any agreed judgment approved by the court, any dispute arises concerning the payment of medical, hospital, nursing, chiropractic or podiatry services or aids or treatment, or for medicines or prosthetic appliances for the injured employee as provided in Section 7, Article 8306, Revised Statutes, as amended, or as provided in such compromise settlement agreements or agreed judgments, all such disputes concerning the payment thereof shall be first presented by any party to the Industrial Accident Board within six months from the time such dispute has arisen (except where ‘good cause’ is shown for any delay) for the board’s determination….

It is our opinion that approval of a compromise settlement agreement regarding medical expenses subsequent to an original approved compromise settlement agreement would necessarily have the effect of rescinding or setting aside, at least to some extent, the original compromise settlement agreement and would thus be barred by section 12b. Section 12b provides a procedure for the board’s dealing with questions of medical expenses pursuant to a compromise settlement agreement or agreed judgment approved by a court.

SUMMARY

After a final award of the board, court judgment, or compromise settlement agreement which has not been lawfully set aside, the Industrial Accident Board has no authority to approve a compromise settlement agreement to terminate liability for future medical expenses.

Very truly yours,

Jim Mattox

Attorney General of Texas

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

To: Texas Workers’ Compensation System Participants

From: Patricia Gilbert, Executive Deputy Commissioner for Operations

Date: July 14, 2015

RE: Medical Records for Designated Doctor Examinations

The Division of Workers’ Compensation (DWC) reminds all system participants that 28 Texas Administrative Code § 127.10(a)(3) requires treating doctors and insurance carriers to provide all required medical records and any analyses to the designated doctor no later than three business days prior to a designated doctor examination. Additionally, if the required medical records are not received within one business day prior to an examination, the designated doctor shall reschedule the exam to occur no later than 21 days after receipt of the records. A new e-mail address for system participants to request assistance with medical records is listed at the end of this memorandum. Failure to provide medical records in accordance with the agency rule is an administrative violation and prevents the designated doctor from completing a certifying examination of the injured employee. Rescheduled examinations may result in unnecessary delays when processing a claim and bring increased cost to the system. Designated doctors are encouraged to reach out to the DWC for assistance obtaining medical records prior to examinations. DWC staff may contact treating doctors and insurance carriers that have not yet provided a complete set of required medical records to the designated doctor at any time before a scheduled examination, and will take necessary action to ensure all required medical records are received. The DWC asks all insurance carriers and treating doctors for full cooperation when contacted for assistance in obtaining medical records. Please contact DWC staff via e-mail at DDRecords@tdi.texas.gov for any questions.

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Chapter 12

– Independent Review Organizations

SUBCHAPTER A. GENERAL PROVISIONS 28 TAC §12.1 AND §§12.3 – 12.6 SUBCHAPTER B. CERTIFICATE OF REGISTRATION FOR INDEPENDENT REVIEW 28 TAC §§12.101 – 12.111 SUBCHAPTER C. GENERAL STANDARDS OF INDEPENDENT REVIEW 28 TAC §§12.201 – 12.208 SUBCHAPTER D. ENFORCEMENT OF INDEPENDENT REVIEW STANDARDS 28 TAC §§12.301 – 12.303 SUBCHAPTER E. FEES AND PAYMENT 28 TAC §§12.401 – 12.406 SUBCHAPTER F. RANDOM ASSIGNMENT OF INDEPENDENT REVIEW ORGANIZATIONS 28 TAC §12.501 and §12.502

1. INTRODUCTION. The Texas Department of Insurance (TDI) adopts amendments to 28 TAC §§12.1, 12.3 – 12.6, 12.101 – 12.110, 12.201 – 12.208, 12.301 – 12.303, 12.401 – 12.406, 12.501, 12.502, and new §12.111, concerning independent review organizations (IROs). TDI adopts the new section and amendments with changes to the proposed text published in the November 28, 2014, issue of the Texas Register (39 TexReg 9310). Two correction of error notices were published in the December 12, 2014, (39 TexReg 9738) and December 19, 2014, (39 TexReg 10083) issues of the Texas Register to correct errors in the proposal published in the November 28, 2014, issue of the Texas Register (39 TexReg 9310). In response to comments on the proposal, TDI added the phrase “if any” in §12.103(4)(A) to track Insurance Code §4202.004(6)(B). Also in response to comments, TDI deleted “a letter from the Texas Secretary of State” and added “a copy of the Certificate of Formation from the Secretary 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 2 of 139 Chapter 12 – Independent Review Organizations of State” in §12.103(8)(a) to reflect the formation and existence requirements of Business Organizations Code §3.001. In addition to changes made in response to comments and to conform to the agency’s current style guidelines, TDI deleted “as of September 1, 2013,” in §12.1. TDI deleted “applications for a certificate of registration as an IRO, and for a renewal of a certificate of registration as an IRO” and “April 1, 2015,” and added “This chapter is effective on July 7, 2015,” and “July 7, 2015” in §12.4 to clarify that all of 28 TAC Chapter 12 is effective on July 7, 2015. TDI revised §§12.5(20), 12.5(22), 12.101, 12.103, 12.104, 12.107, 12.108, 12.111, 12.206(d)(7), 12.208(f), 12.302(f), 12.401(a), and 12.406 to replace “certified,” “renew,” and “certification.” The term “certification” refers to an issuance of the certificate of registration. For consistency of terminology throughout 28 TAC Chapter 12, TDI removed references to the term “certification,” instead referring to a “certificate of registration.” As a conforming change, TDI also changed the title of Subchapter B. TDI deleted “pertaining to” and added “on” in §12.5(15) to conform to current agency writing style. TDI deleted “including” and added “includes” in §12.5(23)(a) to conform to current agency writing style. TDI capitalized deleted “Federal” and added “federal” in §12.5(25)(E)(i) to conform to current agency writing style. TDI deleted “pertaining to” and added “about” in §12.5(32) to conform to current agency writing style. TDI deleted “where the activities and computer systems described in” and “are maintained, performed, and located” and added “the IRO’s primary office” in §12.5(30) 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 3 of 139 Chapter 12 – Independent Review Organizations to implement Insurance Code §4202.002(c)(2)(A)(i), which requires the IRO to maintain a physical address in Texas, and Insurance Code §4202.002(c)(2)(A)(iv), which requires the IRO to maintain its primary offices in this state. TDI also made these changes throughout 28 TAC Chapter 12 for consistency. TDI added “in Texas” in §12.5(32) for clarity and to implement Insurance Code §4202.002(c)(2)(A)(i). TDI deleted “pertaining to” and added “about” in §12.5(32) to conform to current agency writing style. TDI made a nonsubstantive correction to punctuation in §12.5(35). TDI deleted “Certification” and “Organizations” and added “Certificate” and “IROs” in the title of subchapter B to correct the existing title and to comply with current agency writing style. TDI deleted “to” and added “in an IRO application form for” in §12.102(a) to be consistent throughout 28 TAC Chapter 12. TDI made nonsubstantive corrections to punctuation throughout §12.103. TDI deleted “title” and added “chapter” in §12.103(1)(E) to conform to current agency writing style. TDI deleted “title” and added “chapter” in §12.103(1)(E) to conform to current agency writing style. TDI deleted “above” and added “in subparagraph (A)” in §12.103(4)(B) to conform to current agency writing style. TDI moved “for an applicant that is publicly held” from the end to the beginning of §12.103(8)(B) to better track Insurance Code §4202.004(a)(1). TDI deleted “IRO” and added “applicant” in §12.103(8)(D), §12.103(8)(E), and §12.103(11)(D) to be consistent with existing language. TDI deleted “subchapter” and added “chapter” in §12.103(11) to conform to current agency writing style. TDI deleted “noted on the application” and added “included on the IRO application form” in §12.103(13)(A) for consistency and to conform to current agency 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 4 of 139 Chapter 12 – Independent Review Organizations writing style. TDI made a nonsubstantive amendment to renumber the paragraphs in §12.104 by deleting “4” and adding “3.” TDI replaced “will” with “may” in §12.106(a) to clarify that TDI conducts examinations at its discretion. TDI made a nonsubstantive correction to punctuation in §12.104(2)(B). TDI deleted “or the commissioner’s designee” in §12.106(a) because the commissioner’s designee is included in the definition of commissioner in §12.5(8). TDI deleted “Prior to” and added “Before” to the title of §12.107 to conform to current agency writing style. TDI added “of” to §12.108(a) to correct a grammatical error. TDI moved “Every two years” to the beginning of the sentence in §12.108(a) to conform to current agency writing style. TDI deleted “not” and added “no” in §12.108(a) to conform to current agency writing style. TDI deleted “responses” and added “responded” in §12.108(e)(2) to correct a grammatical error. TDI replaced “may” with “must” in §12.110(a) for consistency with §12.102(a), which requires the use of the IRO application form for reporting a material change. TDI also deleted “applicant’s” and added “purchaser’s” in §12.110(a) for consistency. TDI replaced “addresses” with “address” to clarify that the IRO is only required to maintain one physical address under Insurance Code §4202.0029(a)(2)(A). TDI deleted “not” and added “no” in §12.110(a) to conform to current agency writing style. TDI deleted “prior to” and added “before” in §12.110(c) to conform to current agency writing style. TDI deleted “§12.102” and added “§12.103” in §12.111(a) to cite to the correct section about reporting a material change. TDI deleted “not” and added “no” in §12.111(a) to conform to current agency writing style. 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 5 of 139 Chapter 12 – Independent Review Organizations TDI deleted “A” and added “a” in §12.201(1) to conform to current agency writing style. TDI deleted “utilize” and added “use” in §12.201(3)(A) to conform to current agency writing style. TDI deleted “utilize” and added “use” in §12.201(4)(A) to conform to current agency writing style. TDI made a nonsubstantive correction to punctuation in §12.202(a). TDI deleted “the” and added “who are” in §12.202(d) to conform to current agency writing style. TDI deleted “by” in §12.202(d) to conform to current agency writing style. TDI made a nonsubstantive change to the requirement in §12.202(d)(1) for readability and clarity. TDI deleted “screening criteria” and added “review criteria” in §12.202(c)(1). Proposed §12.202(c)(1) referred to the term “screening criteria” to describe the criteria used in the IRO’s review process. However, screening criteria applies more appropriately to the utilization review process than the independent review process, while review criteria is more reflective of the independent review process. TDI deleted “prior to” and “being” and added “before” and “is” in §12.202(g)(4) to conform to current agency writing style. TDI moved language about the definition of control from §12.203(b) to §12.5(9) to clarify that the language applies to the entire chapter, and further defines the term “control.” TDI removed the subsection numbering because there are no longer subsections within §12.203. Also in §12.203, TDI replaced “pursuant to” with “under” to conform to current agency writing style. TDI made a nonsubstantive correction to punctuation in §12.203. TDI added “and Relationships” to the title of §12.204 to correct the existing title. TDI deleted “not” and added “no” in §12.206(b) to conform to current agency writing style. TDI deleted “not” and added “no” in §12.206(c) to conform to 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 6 of 139 Chapter 12 – Independent Review Organizations current agency writing style. TDI deleted “prior to” and added “before its” in §12.206(d)(11)(F) to conform to current agency writing style. TDI made nonsubstantive corrections to punctuation throughout §12.208. TDI deleted “as” in §12.302(a) to conform to current agency writing style. TDI deleted “a” and “case” and added “cases” in §12.302(c) to conform to current agency writing style. TDI deleted “prior to” and added “before” in §12.502(f)(1) to conform to current agency writing style. 2. REASONED JUSTIFICATION. The amendments and new section are necessary to implement HB 2645, 83rd Legislature, Regular Session (2013), which amended Insurance Code Chapter 4202, relating to the certification and operation of IROs in Texas. HB 2645 allows TDI to continue to regulate IROs after January 1, 2016. It also establishes an advisory group. In addition, TDI has determined that other amendments are necessary to enforce Insurance Code Chapter 4202. The entire adoption order is part of the reasoned justification for the amendments and new section. Insurance Code §4202.002, concerning adoption of standards for IROs, requires the commissioner to adopt standards and rules for the certification, selection, and operation of IROs that perform independent reviews described by Insurance Code Chapter 4201, Subchapter I; and for the suspension and revocation of the certificate of registration issued to IROs. Insurance Code §4202.002(c) specifies that the commissioner must adopt standards and rules that prohibit an individual who serves as an officer, director, manager, executive, or supervisor of an IRO from serving as an officer, director, manager, executive, supervisor, employee, agent, or independent 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 7 of 139 Chapter 12 – Independent Review Organizations contractor of another IRO. Amendments to §12.204(d) implement the prohibition of persons from serving in certain positions with other IROs mandated in Insurance Code §4202.002(c). HB 2645 amends Insurance Code §4202.002, in part, to require an IRO to maintain a physical address and a mailing address in this state, to notify TDI of an agreement to sell the IRO or shares in the IRO, and to complete the transfer of ownership after TDI has sent written confirmation that the requirements are satisfied. Amendments to §12.103(13)(A) provide that an IRO must locate and maintain its primary office at the physical address in this state as noted on its application. Amendments to §12.103(13)(A) further require, as a condition of holding a certificate of registration to conduct the business of independent review in this state, that the physical address of the IRO’s primary office be maintained in this state. New §12.5(30) defines “physical address.” The existing definition of “primary office” is redesignated in §12.5(32) and adds the requirement that an IRO “maintain its physical address in Texas.” These amendments are necessary to implement Insurance Code §4202.002(c), which requires an IRO to maintain its primary office at a physical address in this state. Amendments to §12.110 are necessary to ensure TDI receives notice of an agreement to sell or transfer the ownership or shares in the IRO, and require the IRO to release certain information to TDI. HB 2645 adds Insurance Code §4202.002(f), which, in part requires the commissioner to adopt standards that require that the IRO’s primary office is equipped with a computer system capable of processing requests for independent review, that all 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 8 of 139 Chapter 12 – Independent Review Organizations records are maintained electronically, that records are made available to TDI on request, and that independent review offices located in residences are located in a room set aside for business purposes to ensure confidentiality of medical records. Amendments to §12.103(13) add a new subparagraph (B) to require an applicant for an initial or renewal certificate of registration to submit as part of the application process evidence that the applicant’s primary office is equipped with a computer system capable of certain requirements. Amendments to §12.103(13)(D) require that if the IRO’s primary office is in a residence, dedicated space is set aside for business purposes. HB 2645 amends Insurance Code §4202.003, which requires each IRO to make the IRO’s determination for a life-threatening condition, as defined by Insurance Code §4201.002, no later than the earlier of the third day (rather than the fifth day) after the date the IRO receives the information necessary to make the determination. With respect to a review of a health care service provided to a person eligible for workers’ compensation medical benefits, the IRO must make its determination for a lifethreatening condition by the eighth day after the date the IRO receives the request that the determination be made. HB 2645 amends Insurance Code §4202.004, which requires a description of any relationship the applicant or the named individual has with specified entities. It also requires the IRO application form to include information about an applicant’s procedures for verifying physician and provider credentials, including the computer processes, electronic databases, and records used, if any, and the software used by the credentialing manager for managing the processes, databases, and records. Insurance 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 9 of 139 Chapter 12 – Independent Review Organizations Code §4202.004(a)(8) requires the IRO application form to include a description of the applicant’s use of communications, records, and computer processes to manage the independent review process. Insurance Code §4202.004 also requires the commissioner to establish certifications for independent review of health care services provided to persons eligible for workers’ compensation medical benefits and other health care services, after considering accreditation, if any, by a nationally recognized accrediting organization that imposes requirements for accreditation that are the same as, substantially similar to, or more stringent than TDI’s requirements for a certificate of registration. HB 2645 amends Insurance Code §4202.004(g), which requires that the certification be renewed biennially. HB 2645 amends Insurance Code §4202.005(c), which requires that information about a material change be submitted on a form adopted by the commissioner no later than the 30th day after the date the material change occurs. If the material change is a relocation, §4202.005(c) requires the IRO to inform TDI that the new location is available for inspection by TDI before the date of the relocation, and that an officer of the IRO must attend the inspection on TDI’s request. Amendments to §12.5(22) define “IRO application form” to include that the IRO application form must be used to report a material change to TDI. Amendments to §12.102(a) require an IRO to report a material change in an IRO application form by submitting the IRO application form to TDI. In compliance with new Insurance Code §4202.011, the commissioner appointed an IRO advisory group on July 31, 2014, composed of members as required by Insurance Code §4202.011(a). 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 10 of 139 Chapter 12 – Independent Review Organizations TDI has also determined that other amendments are necessary to enforce Insurance Code Chapter 4202. Insurance Code §4202.002(a) requires the commissioner to adopt “standards and rules for…the certification, selection, and operation of independent review organizations.” Under Insurance Code §4202.002(b), these standards must ensure the qualifications and independence of each reviewer, the fairness of the procedures used by an IRO in making review determinations, and that the procedures maintain the confidentiality of medical records transmitted to an IRO. TDI adopts amendments throughout the rule text to correct grammar and punctuation, and to make other nonsubstantive changes to update and conform rule text to the current agency writing style. TDI posted a concept draft of these rules to its website and held a public stakeholder meeting on November 20, 2013; posted to its website an informal draft of the rules on August 5, 2014; and held a public hearing on the proposed rules on December 15, 2014, under Docket Number 2776. In response to both written comments and comments made at the hearing, TDI made several changes to the proposal, but none of the changes made to the proposed text or form in this adoption materially alter issues raised in the proposal, introduce new subject matter, or affect persons other than those previously on notice. Section §12.1. Statutory Basis. Section 12.1 changes the existing provisions relating to the statutory basis for the rules in Subchapters A through F to reflect that the adopted rule amendments incorporate the most recent amendments to Insurance Code 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 11 of 139 Chapter 12 – Independent Review Organizations Chapter 4202. TDI adopts nonsubstantive amendments to §12.1 to conform to current agency writing style. Section §12.3. Effects of Chapter. TDI adopts nonsubstantive amendments to §12.3 to conform to current agency writing style. Section §12.4. Applicability. Section 12.4(b) specifies the applicability of Insurance Code Chapter 4202 to independent review requests filed with TDI before the effective date of the rules. The effective date of July 7, 2015, in §12.4(b) gives IROs time to comply with the amendments and new sections in 28 TAC Chapter 12, and allows time for IROs to complete any remaining reviews assigned to them under the current rules. TDI also adopts nonsubstantive amendments to §12.4 to conform to current agency writing style. Section 12.5. Definitions. New §12.5(4) adds the definition for “biographical affidavit.” This new definition is necessary to specify that the biographical affidavit form used in IRO applications must be the National Association of Insurance Commissioners biographical affidavit form. This amendment establishes the standardized form for submitting biographical information as required under Insurance Code §4202.004(4). New §12.5(9) adds the definition of “control.” This new definition is necessary to clarify how an IRO may comply with Insurance Code §4202.008, which prohibits an IRO from being a subsidiary of, or in any way owned or controlled by, a payor or a trade or professional association of payors. The definition of “control” is also necessary to clarify the use of the term in the existing definition of “affiliate” in §12.5(2), for disclosure to TDI 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 12 of 139 Chapter 12 – Independent Review Organizations in the original application under §12.103(10), and for determining whether control exists under §12.203. Insurance Code §4202.002(a)(1) requires the commissioner to adopt “standards and rules for … the certification, selection, and operation of independent review organizations.” The definition of “control” under new §12.5(9) will assist TDI in its goal to ensure compliance with Insurance Code Chapter 4202, and also to ensure that there are no conflicts of interest involving an IRO being controlled by a payor or professional association of payors. TDI defined this new term based on its rulemaking authority under Insurance Code §4202.002(a)(1). New §12.5(22) adds the definition of “IRO application form.” The definition is necessary to clarify the form to use to apply for a certificate of registration as an IRO in Texas, for renewal of a certificate of registration, and for reporting a material change to an IRO application for a certificate of registration previously submitted to TDI. Insurance Code §4202.004 requires an organization to submit an application in the form required by the commissioner. This definition also implements Insurance Code §4202.005(c), which provides that an IRO shall report any material change to the information submitted on a form adopted by the commissioner no later than the 30th day after the date the material change occurs. New §12.5(30) adds the definition of “physical address.” This definition is necessary to clarify the use of the term in amended §12.103(13)(A), which implements the requirements in Insurance Code §4202.002(c)(2)(A)(i) and (f). Insurance Code §4202.002(c)(2)(A)(i) requires the commissioner to adopt rules that require IROs to 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 13 of 139 Chapter 12 – Independent Review Organizations maintain a physical address in this state. Insurance Code §4202.002(f) requires the commissioner to adopt standards requiring an officer of an organization to attest that the organization’s office is located at a physical address in its application for certification. The requirement in new §12.5(30) that the IRO have personnel reasonably available by telephone at least 40 hours per week during normal business hours is an existing requirement in existing §12.207(a). Amendments to the definition of “primary office” in §12.5(32) delete “based upon the totality of the business activities related to independent review performed under this chapter” and add “maintains its physical address in Texas” to implement the requirements in Insurance Code §4202.002(c)(2)(A)(i) and (f). Insurance Code §4202.002(c) requires the commissioner to adopt standards and rules that require an IRO to maintain a physical address in this state. Insurance Code §4202.002(f) requires the commissioner to adopt standards requiring that, on application for certification, an officer of the IRO attest that the office is located at a physical address. TDI clarifies that the primary office cannot be virtual and must be at a physical address. Amendments to §12.5(32) also replace the term “stored” with the phrase “maintained and accessible” regarding the IRO’s books and records. These amendments are necessary for TDI staff to conduct on-site examinations that include an examination of the IRO’s records as part of its ongoing oversight requirement under Insurance Code §4202.007, and to ensure continued compliance with Insurance Code Chapter 4202 and 28 TAC Chapter 12. 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 14 of 139 Chapter 12 – Independent Review Organizations TDI also adopts nonsubstantive amendments to §12.5 to conform to current agency writing style. Section 12.6. Independent Review of Adverse Determinations of Health Care Provided Under Labor Code Title 5 or Insurance Code Chapter 1305. TDI adopts nonsubstantive amendments to §12.6 to conform to current agency writing style. Section 12.101. Certificate of Registration for Independent Review. Amendments to §12.101 change the heading of the section from “Where to File Application” to “Certificate of Registration for Independent Review” to more accurately reflect the content of the section. TDI also adopts nonsubstantive amendments to §12.101 to conform to current agency writing style. Section §12.102. IRO Application Form. Amendments to §12.102 include changing the title of the section to “IRO Application Form,” and other amendments to conform to current agency writing style. Amendments to §12.102(a) delete the adoption by reference of Form No. LHL006 (IRO Application Form). Amendments to §12.102(a) also instruct applicants to use the IRO application form to report a material change to a certificate of registration and require IRO applicants to use the IRO application form prescribed by TDI. These amendments are necessary to implement Insurance Code §4202.005(c), which requires that information about a material change be submitted on a form adopted by the commissioner no later than the 30th day after the date the material change occurs. Insurance Code §4202.005(c) also provides that if the material change is a relocation of the IRO, the IRO must inform TDI that the location is available for inspection by TDI before the date of the relocation, and an IRO officer must attend 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 15 of 139 Chapter 12 – Independent Review Organizations the inspection on TDI’s request. Amendments to §12.102(c) are necessary to provide the correct Internet and mailing addresses from which an applicant may obtain the form. TDI also adopts nonsubstantive amendments to §12.102 to conform to current agency writing style. Section §12.103. Information Required in Original Application for Certificate of Registration. Amendments to §12.103 change the name of the section from “Information Required in Application and Renewal Form” to “Information Required in Original Application for Certificate of Registration” to distinguish the requirements for an original application for certificate of registration from the requirements for a renewal of a certificate of registration. Amendments to §12.103 also delete the reference to Form No. LHL006 to conform to adopted amendments to §12.102. Amendments to §12.103(1)(C) replace “an authorized representative” with “the IRO’s medical director” as the person who must sign the certification that criteria and review procedures for review determinations are established with input from appropriate health care providers and physicians under existing §12.201(3). The requirement that a medical director sign the certification ensures that an appropriately qualified individual approves criteria for a higher quality of review. These amendments are necessary to implement Insurance Code §4202.002(b)(3) and (4), which require the commissioner to adopt standards to ensure the qualifications and independence of each reviewer, the fairness of the procedures used by an IRO in making review determinations, and the confidentiality of medical records transmitted to an IRO. They are also necessary to implement Insurance Code §4202.007, which requires TDI to maintain oversight of 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 16 of 139 Chapter 12 – Independent Review Organizations IROs to ensure continued compliance with Insurance Code Chapter 4202 and 28 TAC Chapter 12. Amendments to §12.103(1)(D) delete “§12.105(d)” and add “§12.111(a)” to more accurately reflect the new content of the section. New §12.103(1)(E) requires an IRO applicant to include a summary of the description of criteria and review procedures to be used by the medical director to conduct quality assurance audits under §12.202(c)(2). As in the paragraph above, new §12.103(1)(E) is also necessary to implement Insurance Code §4202.002(b)(3) and (4), and §4202.007. Amendments to §12.103(3) require an officer, director, or owner of the IRO to certify compliance with Insurance Code Chapter 4202 and 28 TAC Chapter 12, instead of only an authorized representative. The officer, director, or owner of the IRO must also certify that any party that performs an IRO function through contracts and subcontracts will comply with Insurance Code Chapter 4202 and 28 TAC Chapter 12. The certification must also state that the IRO retains responsibility to ensure compliance. Insurance Code §4202.002(a), in part, authorizes the commissioner to adopt standards and rules for the certification, selection, and operation of IROs to perform independent review. As outlined in paragraphs above, these amendments are also necessary to implement Insurance Code §4202.002(b)(3) and (4), and §4202.007. Amendments to §12.103(4) replace “credentialing” with “their credentials” for clarity and delete “relating to Personnel and Credentialing” to conform to agency writing style. New §12.103(4)(A) and (B) require an IRO applicant to include in the original 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 17 of 139 Chapter 12 – Independent Review Organizations application for a certificate of registration a description of the credentialing and recredentialing procedures, computer processes, electronic databases, records, and software used by the applicant to verify physician and provider credentials. These amendments are necessary to implement the requirements in Insurance Code §4202.004(a)(6)(B) and (C), which require the IRO application form to include a description of the procedures used by the applicant to verify physician and provider credentials, including the computer processes, electronic databases, and records used, if any, and the software used by the credentialing manager for managing those processes, databases, and records. New §12.103(6) requires the applicant to include a description of the applicant’s use of communications, records, and computer processes to manage the independent review process. This amendment is necessary to implement Insurance Code §4202.004(a)(8), which requires the IRO application to include a description of the applicant’s use of communications, records, and computer processes to manage the independent review process. New §12.103(7) requires the applicant to include a description and evidence of accreditation from a nationally recognized accrediting organization, if any, that imposes the same, substantially similar to, or stricter requirements than TDI’s certificate of registration in the IRO application form. Section 12.103(7) provides that TDI will maintain evidence of accreditation on file for the applicant, and allows the applicant to request expedited approval of the application for a certificate of registration based on the evidence of accreditation. These amendments are necessary to implement 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 18 of 139 Chapter 12 – Independent Review Organizations Insurance Code §4202.004(b), (e) and (f), which establish requirements for certifications for independent review of health care services provided to persons eligible for workers’ compensation medical benefits and other health care services after considering accreditation, if any, by a nationally recognized accrediting organization that imposes the same, substantially similar to, or stricter requirements than TDI’s requirements for accreditation. Insurance Code §4202.004(e), in part, requires that an IRO that applies for a certificate of registration to review health care services that is accredited by an organization described Insurance Code §4202.004(b) provide TDI with evidence of the accreditation. Insurance Code §4202.004(e) requires the commissioner to consider the evidence if the accrediting organization publishes and makes available to the commissioner the accrediting organization’s requirements for and methods used in the accreditation process, and authorizes an accredited IRO to request that TDI expedite the application process. HB 2645 amended Insurance Code §4202.004(f), in part, to authorize a certified IRO that becomes accredited by certain organizations to provide evidence of that accreditation to TDI and requires that evidence be maintained in TDI’s file related to the IRO’s certification. Amendments to redesignated §12.103(8)(A) require the applicant to submit written evidence that the applicant is incorporated in this state, which may include a copy of the Certificate of Formation from the Secretary of State. These amendments are necessary to implement Insurance Code §4202.002(c)(2)(A)(ii), which requires an IRO to be incorporated in this state. Amendments to §12.103(8)(A) also delete language requiring the applicant to submit documents relating to its internal affairs, such 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 19 of 139 Chapter 12 – Independent Review Organizations as bylaws, because TDI has included more specific requirements about the information necessary for the commissioner to determine whether an applicant is qualified to obtain a certificate of registration as an IRO in amended §12.103. Amendments to §12.103(8)(B) require the applicant to submit the address and Federal Employer Identification Number (EIN) for each stockholder or owner of more than 5 percent of the applicant’s stock or options if the applicant is publicly held. These amendments are necessary under Insurance Code §4202.002, §4202.004, §4202.005, and §4202.007 for TDI staff reviewing IRO applications for certificates of registration, renewals of certificates of registration, and reports of material changes to quickly and efficiently verify the identification information submitted by the applicant in the IRO application form. TDI recognizes that IROs and IRO applicants benefit from a more efficient process. Amendments to §12.103(8)(D) clarify the contents of the chart of contractual arrangements to include contracts between the applicant and any persons and all subcontracts with other persons to perform any business or daily functions of an IRO. New §12.103(8)(E) requires the applicant to submit copies of the contract and subcontract the applicant has with any person who will perform IRO functions, and new §12.103(8)(E)(i) – (iv) lists the elements those contracts must include. These amendments are necessary to implement Insurance Code §4202.002(a) and §4202.007, ensuring that the IRO is responsible for compliance with Insurance Code Chapter 4202 and 28 TAC Chapter 12 and to ensure TDI is aware of the actual parties conducting IRO functions. 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 20 of 139 Chapter 12 – Independent Review Organizations Amendments to redesignated §12.103(10) require the applicant to submit the address and EIN of any organization the applicant controls or is affiliated with. These amendments also implement Insurance Code §4202.002(a) and are necessary for TDI staff reviewing IRO applications for certificates of registration to quickly and efficiently verify the identification information submitted by the applicant in the IRO application form. TDI recognizes that IROs and IRO applicants benefit from a more efficient process. Amendments to redesignated §12.103(11) change “Form No. FIN311 (Biographical Affidavit)” to “biographical affidavit” to conform to new §12.5(4). New §12.103(11)(A) requires the applicant to submit fingerprints for each director, officer, executive, owner, or shareholder of the applicant. These amendments are necessary to implement Insurance Code §4202.004(d), which, in part, requires the commissioner to obtain from each officer of the applicant and each owner or shareholder of the applicant, or, if the purchaser is publicly held, each owner or shareholder of more than 5 percent of any of the applicant’s stock or options, a complete and legible set of fingerprints for obtaining criminal history record information from the Texas Department of Public Safety (DPS) and the FBI. It also requires TDI to conduct a criminal history check of each applicant using information provided under this section, by obtaining information made available to TDI by the DPS, the FBI, and any other criminal justice agency under Government Code Chapter 411. Additionally, 28 TAC §1.501(b)(1)(B) authorizes TDI to determine a person’s fitness for holding a certification or registration or a person’s fitness to have the ability to control entities when that person has committed a criminal 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 21 of 139 Chapter 12 – Independent Review Organizations offense or has engaged in fraudulent or dishonest activity, including applicants for a certificate of registration under Insurance Code Chapter 4202. Title 28 TAC §1.503, in part, provides that the fingerprint requirement in 28 TAC §1.504(a) applies to applicants for certificates of registration under Insurance Code Chapter 4202. Amendments to redesignated §12.103(11)(B) delete the application of the fingerprint requirement because that requirement is found in new §12.103(11)(A). Amendments to §12.103(11)(D) require the applicant to submit a list of any outstanding loans or contracts to provide service to “any other person relating to any functions performed by or on behalf of the applicant.” These amendments are necessary to implement Insurance Code §4202.004(d). New §12.103(12) requires the applicant to submit documentation from the comptroller demonstrating the applicant’s good standing and the right to transact business in this state. This amendment is necessary to implement Insurance Code §4202.002(c)(2)(A)(iii), which specifies that the commissioner must adopt standards and rules that, among other things, require the IRO to be in good standing with the comptroller. Amendments to redesignated §12.103(13) require a sworn statement from an officer of the IRO. The information required in the sworn statement in amendments to §12.103(13)(A) – (D) is necessary to implement Insurance Code §4202.002(f), which requires the commissioner to adopt standards requiring that: (i) on application for certification, an officer of the IRO attest that the office is located at a physical address; (ii) the office be equipped with a computer system capable of processing requests for 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 22 of 139 Chapter 12 – Independent Review Organizations independent review and accessing all electronic records related to the review and the independent review process; (iii) all records be maintained electronically and made available to TDI on request; and (iv) in the case of an office located in a residence, the working office be located in a room set aside for independent review business purposes and in a manner to ensure confidentiality. New §12.103(13)(E) adds a requirement for the sworn statement that medical records be maintained according to §12.208. This amendment is necessary to implement Insurance Code §4202.002(e), which requires that the standards to ensure the confidentiality of medical records transmitted to an IRO under Insurance Code §4202.002(b)(2) require IROs and utilization review agents (URAs) to transmit and store records in compliance with the Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. Section 1320d et seq.)(HIPAA) and the regulations and standards adopted under that Act. TDI also adopts nonsubstantive amendments to §12.103 to conform to current agency writing style. Section 12.104. Review of Original Application. TDI changed the title of the section from “Review of Application” to “Review of Original Application” to reflect that the content of the section is for review of an original application. New §12.104(1) and §12.104(2)(a) – (c) delete the current process for TDI’s review of an original application and replace it with a new process that mirrors TDI’s review of certification or registration of URAs in 28 TAC §19.1704(e) and (f), and §19.2004(e) and (f). These amendments are necessary to maintain consistency across TDI’s processes. TDI has determined 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 23 of 139 Chapter 12 – Independent Review Organizations that the process for reviewing original applications for certificates of registration as IROs should be consistent with the process for review of applications for certification or registration of URAs. This change streamlines processes and enables TDI to process both types of applications efficiently for the benefit of regulated entities. TDI recognizes that uniform standards offer a more consistent process for ease of stakeholder interpretation and compliance. New §12.104(1) provides that TDI will grant or deny an original certificate of registration within 60 days of receipt of a complete original application. This section also provides an applicant the right to waive the 60-day time limit. New §12.104(2)(A) provides that TDI will send the applicant written notice of any omissions or deficiencies in the original application. New §12.104(2)(B) changes the requirement in existing §12.104(2) by lessening the number of days that an applicant has to correct any omissions or deficiencies in the application from 30 days to 15 days from the date of TDI’s latest notice of the omissions or deficiencies. This reduction in applicant response time is necessary to streamline the application process by providing TDI with necessary information more quickly. These amendments implement Insurance Code §4202.002, which requires the commissioner to adopt standards to ensure the qualifications and independence of each reviewer, the fairness of the procedures used by an IRO in making review determinations, and the confidentiality of medical records transmitted to an IRO. They are also necessary to implement Insurance Code §4202.007, which requires TDI to maintain oversight of IROs to ensure continued compliance with Insurance Code Chapter 4202 and 28 TAC Chapter 12. New 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 24 of 139 Chapter 12 – Independent Review Organizations §12.104(2)(B) also provides that the applicant may request in writing additional time to correct the omissions or deficiencies in the application. TDI clarifies that the request for additional time must be approved by TDI in writing for the requested extension to be effective. New §12.104(2)(C) provides that an applicant’s failure to correct omissions or deficiencies within the time frame provided will result in the application being closed as incomplete and provides that the application fee is not refundable. This amendment is adopted under the commissioner’s authority in Insurance Code §4202.004(a) to prescribe the application form and its authority to adopt standards and rules for the certification, selection, and operation of IROs to perform independent review, and the requirement in Insurance Code §4202.007 for TDI to maintain oversight of IROs to ensure continued compliance with Insurance Code Chapter 4202 and 28 TAC Chapter 12. TDI also adopts nonsubstantive amendments to §12.104 to conform to current agency writing style. Section 12.105. Revisions During Review Process. Amendments to §12.202(b) include renumbering subsections. Amendments to §12.105 clarify that revisions made by the applicant must be submitted electronically in the manner specified by TDI in correspondence with the applicant or sent by mail. Amendments to §12.105 also correct the mailing address where applicants send revisions to TDI. Amendments to redesignated §12.105(b) make a conforming change to delete the requirement that revisions to bylaws be accompanied by a notarized certification 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 25 of 139 Chapter 12 – Independent Review Organizations because the requirement to submit bylaws in existing §12.103(8)(A) is also adopted for deletion. Amendments to redesignated §12.105(b) also delete “to be,” “all copies of,” and the quotes around “red-lined” to conform to current agency writing style. Additionally, amendments to redesignated §12.105(b) delete “or otherwise clearly designated” after “red-lined” to ensure that all revisions submitted to TDI are uniform and easily understood. Amendments to §12.105(d) – (f) delete the requirements for an applicant to report material changes to the application because that information is in new §12.111. TDI also adopts nonsubstantive amendments to §12.105 to conform to current agency writing style. Section 12.106. Examinations. TDI adopts an amendment to this section’s title from “Qualifying Examinations” to “Examinations” to reflect that this section applies to all IRO examinations. Amendments to §12.106 include reformatting to add subsections. New §12.106(a) also clarifies that the examination will be at the applicant’s primary office and is necessary to implement Insurance Code §4202.013, which requires an IRO to maintain its primary office in this state. New §12.106(b) clarifies that TDI may conduct examinations as often as the commissioner deems necessary to determine compliance with Insurance Code Chapter 4202 and 28 TAC Chapter 12. Insurance Code §4202.007 requires the commissioner to provide ongoing oversight of IROs to ensure continued compliance with Insurance Code Chapter 4202 and 28 TAC Chapter 12. 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 26 of 139 Chapter 12 – Independent Review Organizations New §12.106(c) deletes “Documents that support the application for the certificate of registration of renewal of the certificate of registration” and adds “The following documents.” New §12.106(c)(1)-(8) are documents that an IRO must make available for review during the examinations. New §12.106(d) requires the IRO’s owner and staff to be available at the IRO’s primary office during the on-site examination. These amendments implement Insurance Code §4202.002(a) and Insurance Code §4202.007 and are necessary for TDI staff conducting on-site examinations to quickly and efficiently verify the IRO is in compliance with Insurance Code Chapter 4202 and 28 TAC Chapter 12. TDI also adopts nonsubstantive amendments to §12.106 to conform to current agency writing style. Section 12.107. Withdrawal of an Original Application Before Granting a Certificate of Registration and Subsequent Renewal Applications. Amendments to §12.107 revise the section title to more accurately reflect the content of the section. TDI also adopts nonsubstantive amendments to §12.107 to conform to current agency writing style. Section 12.108. Renewal of Certificate of Registration. Amendments to §12.108(a) and (b) change the requirement that an IRO must apply for renewal of its certification of registration from every year to requiring renewal every two years to implement Insurance Code §4202.004(g), as amended. Amendments to §12.108(b) replace references to “Form No. LHL006” and “renewal form” with “IRO application form” to conform the new reference to language in the adopted amended §12.102. TDI 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 27 of 139 Chapter 12 – Independent Review Organizations adopts amendments to §12.108(b) and the deletion of sections (e) – (g) to remove the requirements about reporting material changes because those requirements are adopted in new §12.111. Amendments to §12.108(b) and (d) delete the requirement that an IRO submit a summary of their current review criteria with the completed IRO application form. This summary submission will be unnecessary because TDI will already have this information from either the original application for a certificate of registration or the IRO reporting it as a material change required under new §12.111. TDI also adopts nonsubstantive amendments to §12.108 to conform to current agency writing style. Section 12.109. Appeal of Denial of Application or Renewal. TDI adopts nonsubstantive amendments to §12.109 to conform to current agency writing style. Adopted §12.110. Effect of Sale or Transfer of Ownership of an Independent Review Organization. Amendments to §12.110 replace existing requirements for the sale of an IRO and the prohibition on transferring an IRO with requirements for the sale or transfer of ownership of an IRO to implement Insurance Code §4202.002(c)(2)(C), as amended. New §12.110(a) requires the IRO to notify TDI of the agreement to sell or transfer the ownership of the IRO no later than 60 days before the date of the sale or transfer of ownership, and provides the TDI address where the owner must send the notification. New §12.110(a)(1) requires the IRO to submit the name of the purchaser and a complete set of fingerprints for each officer, owner, and shareholder of the purchaser. New §12.110(b) provides that TDI will send the IRO written confirmation that the requirements under Insurance Code Chapter 4202 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 28 of 139 Chapter 12 – Independent Review Organizations and 28 TAC Chapter 12 have been satisfied before the sale can be completed. These sections are necessary to implement amendments to Insurance Code §4202.002(c)(2)(C), which require an IRO to: (i) notify TDI of an agreement to sell the IRO or shares in the IRO; (ii) no later than the 60th day before the date of the sale, submit the name of the purchaser and a complete and legible set of fingerprints for each officer of the purchaser and for each owner or shareholder of the purchaser or, if the purchaser is publicly held, each owner or shareholder of more than 5 percent of the IRO’s stock or options, and any additional information necessary to comply with Insurance Code §4202.004(d); and (iii) complete the transfer of ownership after TDI has sent written confirmation that the requirements of 28 TAC Chapter 12 have been satisfied. Amendments to §12.110 also delete existing requirements for sale of an IRO and the prohibition on transferring an IRO to implement Insurance Code §4202.004, as amended. New §12.110 (a)(2) requires an IRO to notify TDI of any material changes in its notice of intent to sell or transfer ownership. Insurance Code §4202.005(c) requires the IRO to submit information about a material change to TDI no later than the 30th day after the date the material change occurs. In the case of a sale or transfer of ownership of an IRO, TDI has determined that this rule is necessary under TDI’s rulemaking authority in Insurance Code §4202.002(a), the requirement under Insurance Code §4202.007 to provide ongoing oversight of IROs to ensure continued compliance with Insurance Code Chapter 4202 and 28 TAC Chapter 12, and for TDI staff to review all changes about an IRO sale or transfer of ownership at the same time for the sake of 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 29 of 139 Chapter 12 – Independent Review Organizations efficiency. The amendments to redesignated §12.110(c) add the phrase “the sale or transfer of ownership” for consistency throughout §12.110. TDI also adopts nonsubstantive amendments to §12.110 to conform to current agency writing style. Section 12.111. Regulatory Requirements Subsequent to Certificate of Registration. New §12.111(a) adds the requirement that an IRO must report to TDI a material change in the information required in the IRO application form no later than the 30th day after the date the change takes effect. New §12.111(b) contains the requirements for reporting a material change if the material change is a relocation of the IRO’s primary office. These sections are necessary to implement Insurance Code §4202.005(c), which, in part, requires that information about a material change be submitted on a form adopted by the commissioner no later than the 30th day after the date the material change occurs. Insurance Code §4202.005 also requires the IRO, if the material change is a relocation of the IRO, to inform TDI that the location is available for inspection by TDI before the date of the IRO’s relocation, and that an officer of the IRO attend the inspection on TDI’s request. New §12.111(c), an existing requirement that was formerly in deleted §12.108(f), exempts IROs from compliance with §12.111(a) in the event a contracted specialist IRO reviewer is unavailable and immediate contracting with a new specialist is necessary to complete an independent review. New §12.111(d), an existing requirement that was formerly in deleted §12.108(g), requires the IRO to notify TDI within 10 days after it 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 30 of 139 Chapter 12 – Independent Review Organizations enters into any new contracts under subsection (c), and requires the notification to include a complete explanation of the circumstances. TDI also adopts nonsubstantive amendments to §12.111 to conform to current agency writing style. Adopted §12.201. Independent Review Plan. Amendments to §12.201 delete “a physician” and adds “the IRO’s medical director” to clarify that the medical director must review and approve the IRO’s independent review plan. Insurance Code §4202.007 requires the commissioner to provide ongoing oversight of IROs to ensure continued compliance with Insurance Code Chapter 4202 and 28 TAC Chapter 12. These amendments are necessary because TDI has determined that a physician medical director is best qualified to ensure the qualifications and independence of each reviewer, the fairness of the procedures used by an IRO in making review determinations, and the confidentiality of medical records transmitted to an IRO. These are standards for which the commissioner must adopt rules under Insurance Code §4202.002(b). TDI adopts nonsubstantive amendments to §12.201 to conform to current agency writing style. Adopted §12.202. Personnel and Credentialing. New §12.202(a)(1) requires personnel conducting independent reviews for health services to hold an unrestricted license, an administrative license, or otherwise be authorized to provide the same or similar specialty health services by a licensing agency in the United States. New §12.202(a)(2) requires personnel conducting independent reviews for workers’ 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 31 of 139 Chapter 12 – Independent Review Organizations compensation health services to hold an unrestricted license, an administrative license, or otherwise be authorized to provide the same or similar specialty health services by a licensing agency in this state. Amendments to §12.202(b)(1) require the IRO to provide the commissioner, in addition to the existing requirements, the name, license number, state of licensure, and date of contract of personnel employed or under contract to perform independent reviews. Amendments to §12.202(b) include reformatting to add paragraphs. New §12.202(b)(2) deletes language about the IRO’s maintenance of reviewer qualification records and profiles of reviewers. These requirements are now in §12.202(d). Amendments to §12.202(c) add “medical director who is a” before “physician,” and add “The medical director functions must include, but are not limited to, conducting.” New §12.202(c)(1) – (3) describe the functions of the IRO’s medical director. These functions include, but are not limited to, the annual review and approval of review criteria, annual quality assurance audits of at least 25 percent of all decisions, and annual quality assurance audits of at least 25 percent of all assignments. New §12.202(d) requires the IRO to maintain credentialing and recredentialing files of personnel employed or under contract to perform independent reviews. This is an existing requirement moved from §12.202(b)(2). New §12.202(d)(1) – (4) lists the minimum types of credentialing and recredentialing information that the IRO must maintain current and that must be available for review by TDI. Amendments to §12.202(d) also delete existing language about the IRO’s credentialing requirements because they are redundant in light of the more detailed credentialing requirements in 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 32 of 139 Chapter 12 – Independent Review Organizations amended §12.202. New §12.202(g) requires the providers conducting independent review to sign and date the certification of independence and qualifications of the reviewer in the format prescribed by TDI. New §12.202(g)(1) – (8) list the required elements of the certification of independence and qualifications of the reviewer. New §12.202(h) provides that the information required in §12.202 must be available for examination and review by TDI and TDI-DWC personnel on request. New §12.202(i) requires IROs to require providers conducting independent reviews to notify the IROs of any changes in the information in §12.202(d). New §12.202(a)(1), §12.202(a)(2), §12.202(c)(1) – (3), §12.202(d)(1) – (4), and §12.202(g)-(i) and amendments to §12.202(b)(1) and §12.202(c) are necessary to implement Insurance Code §4202.007 and Insurance Code §4202.002(b). Insurance Code §4202.007 requires the commissioner to provide ongoing oversight of IROs to ensure continued compliance with Insurance Code Chapter 4202 and 28 TAC Chapter 12. TDI has determined the enhanced personnel and credentialing requirements of amended §12.202 are necessary to ensure the qualifications and independence of each reviewer and the fairness of the procedures used by an IRO in making review determinations, standards for which the commissioner must adopt rules under Insurance Code §4202.002(b). TDI also adopts nonsubstantive amendments to §12.202 to conform to current agency writing style. Section §12.203. Conflicts of Interest Prohibited. Amendments to §12.203 delete “is a subsidiary of, or in any way owned or controlled by” and add “has any 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 33 of 139 Chapter 12 – Independent Review Organizations ownership interest in or control over the person, or if the person has any ownership interest in or control over a payor” for clarity and to conform to current agency writing style. Section §12.204. Prohibitions of Certain Activities and Relationships of Independent Review Organizations and Individuals or Entities Associated with Independent Review Organizations. New §12.204(d) prohibits an officer, director, manager, executive, or supervisor of an IRO from serving as an officer, director, manager, executive, supervisor, employee, agent, or independent contractor of another IRO. This amendment is necessary to implement Insurance Code §4202.002(c)(1)(E). Insurance Code §4202.002(c) requires the commissioner to adopt standards and rules that prohibit an individual who serves as an officer, director, manager, executive, or supervisor of an IRO from serving as an officer, director, manager, executive, supervisor, employee, agent, or independent contractor of another IRO. TDI deletes §12.204(h) because the “December 26, 2010,” applicability dates are no longer relevant. Existing §12.204(g) is redesignated as §12.204(h). TDI also adopts nonsubstantive amendments to §12.204 to conform to current agency writing style. Section §12.205. Independent Review Organization Contact with and Receipt of Information from Health Care Providers and Patients. Amendments to §12.205(a) delete “preclude” and add “as the initial contract prevent” to clarify an existing requirement. Amendments to §12.205(e) delete “such expense shall be reimbursed by the” and “as expense of independent review” and add “The” and “must 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 34 of 139 Chapter 12 – Independent Review Organizations pay these unreimbursed costs to the health care provider” to clarify an existing requirement. TDI also adopts nonsubstantive changes to conform to current agency writing style. Section §12.206. Notice of Determinations Made by Independent Review Organizations. Amendments to §12.206(c)(1) and new §12.206(c)(2) and (3) require IROs to make a determination on a life-threatening condition within three days after receiving the information necessary to make a determination or, with respect to workers’ compensation medical benefits, within eight days after receiving the request to make a determination. These amendments are necessary to implement Insurance Code §4202.003(1), which provides that the standards adopted under §4202.002 require each IRO to make the IRO’s determination for a life-threatening condition as defined by §4201.002 no later than the earlier of the third day, rather than the fifth day, after the date the IRO receives the information necessary to make the determination. With respect to a review of a health care service provided to a person eligible for workers’ compensation medical benefits, the IRO must make its determination for a lifethreatening condition by the eighth day after the date the IRO receives the request for determination. With respect to a review of a health care service other than services provided to a person eligible for workers’ compensation medical benefits, the IRO must make its determination by the third day after the date the IRO receives the request that a determination be made. An amendment to §12.206(e) updates the web address for TDI’s forms. 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 35 of 139 Chapter 12 – Independent Review Organizations TDI also adopts nonsubstantive amendments to §12.206 to conform to current agency writing style. Section §12.207. Independent Review Organization Telephone Access. Amendments to §12.207(a) change “both time zones in Texas” to “both Central and Mountain time zones” for clarity. Amendments to §12.207(b) require an IRO’s phone system to be “dedicated.” TDI clarifies that a dedicated telephone system is a phone system intended primarily for use in the IRO business. These amendments are necessary to implement Insurance Code §4202.002(a) and (b). They are also necessary for TDI staff to be able to contact the IRO as part of its ongoing oversight of IROs under Insurance Code §4202.007. Moreover, the amendments ensure the IRO is preserving the confidentiality patient records. TDI also adopts nonsubstantive amendments to §12.207 to conform to current agency writing style. Section §12.208. Confidentiality. New §12.208(b) prohibits IROs from disclosing patient information protected by HIPPA to implement Insurance Code §4202.002(c)(1)(F). New §12.208(c) adds a reference to HIPAA to implement Insurance Code §4202.002(c)(1)(F). Amendments to redesignated §12.208(h) require IROs to transmit and store records in compliance with HIPAA to implement Insurance Code §4202.002(c)(1)(F). Insurance Code §4202.002(c), in part, requires the commissioner to adopt standards and rules that prohibit publicly disclosing patient information protected by HIPAA or transmitting the information to a subcontractor 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 36 of 139 Chapter 12 – Independent Review Organizations involved in the independent review process that has not signed an agreement similar to the business associate agreement required by regulations adopted under the HIPAA. TDI also adopts nonsubstantive amendments to §12.208 to conform to current agency writing style. Section §12.301. Complaints, Oversight, and Information. TDI adopts nonsubstantive amendments to §12.301 to conform to current agency writing style. Section §12.302. Administrative Violations. TDI adopts nonsubstantive amendments to §12.302 to conform to current agency writing style. Section §12.303. Surrender of Certificate of Registration. Amendments to §12.303(a) clarify when an IRO must surrender its certificate of registration. Amendments to §12.303(a) delete “while the organization is under investigation or as part of an agreed order” to implement Insurance Code §4202.002(c)(2)(B) as amended by HB 2645. Amendments to existing §12.303(b) delete the definition of “investigation” to conform to changes to §4202.002(c)(2)(B), as amended by HB 2645, which deleted the term. Amendments to existing §12.303(c) delete “a certificate of registration that is surrendered under this section is temporarily suspended while the investigation is pending” also to conform to changes to §4202.002(c)(2)(B). Amendments to §12.303 delete existing §12.303(f), which states that §12.4 only applies to IROs licensed on or after December 26, 2010, or IROs with certificates of registration renewed in Texas on or after December 26, 2010, as the applicability of this chapter is addressed in amended §12.4. 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 37 of 139 Chapter 12 – Independent Review Organizations TDI also adopts nonsubstantive amendments to §12.303 to conform to current agency writing style. Section §12.401. Fees. TDI adopts nonsubstantive amendments to §12.401 to conform to agency writing style. Section §12.402. Classification of Specialty. TDI adopts nonsubstantive amendments to §12.402 to conform to agency writing style. Section §12.403 Fee Amounts. TDI adopts nonsubstantive amendments to §12.403 to conform to agency writing style. Section §12.404. Payment of Fees. Amendments to §12.404(c) change the number of days within which URAs or payors must pay IROs from 30 to 15. These amendments implement Insurance Code §4202.002(a) and are necessary because TDI has determined 15 days is a sufficient amount of time for URAs or payors to pay IROs. TDI also adopts nonsubstantive amendments to §12.404 to conform to current agency writing style. Section §12.405. Failure To Pay Invoice. TDI adopts nonsubstantive amendments to §12.405 to conform to agency writing style. Section §12.406. Application and Renewal of Certificate of Registration Fees. Amendments to §12.406 change the fee for an original certificate of registration as an IRO from $800 to $1000, and the fee for renewal of a certificate of registration from $200 to $400. The increase in the fee for an original certificate of registration is necessary because the new fee better reflects the cost to TDI of regulating IROs. The amendment to the fee for the renewal of a certificate of registration is necessary 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 38 of 139 Chapter 12 – Independent Review Organizations because the renewal is now every two years instead of every year. TDI clarifies that the net cost of renewal for an IRO will remain the same. TDI clarifies that there is no fee for reporting a material change to a certification as an IRO. These amendments are adopted under TDI’s rulemaking authority in Insurance Code §4202.002(a)(1). TDI also adopts nonsubstantive amendments to §12.406 to conform to current agency writing style. Section §12.501. Requests for Independent Review. Amendments to §12.501 include inserting “Chapter 4201,” a reference to “Subchapter U,” and a reference to “Chapter 134 of this title.” These amendments are necessary under Insurance Code §4202.002(a) to properly cite the sections of the Insurance Code about utilization review. TDI also adopts nonsubstantive amendments to §12.501 to conform to current agency writing style. Section §12.502. Random Assignment. TDI adopts nonsubstantive amendments to §12.502(b) to conform to agency writing style. 3. SUMMARY OF COMMENTS AND AGENCY RESPONSE. General Comment: Commenters express their support for the proposed amendments. Agency Response: TDI appreciates the supportive comments. 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 39 of 139 Chapter 12 – Independent Review Organizations Comment: A commenter requests that all agency responses in the adopted rules implementing HB 4519 from the December 17, 2010, issue of the Texas Register (35 TexReg 11281) be reviewed and that the precedents set in the rulemaking phase of HB 4519 be used in rulemaking for HB 2645. A commenter states that the proposed rules have an “overly broad” interpretation of HB 2645 and that substantial portions of the proposed sections have no legislative authorization in HB 2645. Agency Response: TDI declines to make the suggested change. TDI emphasizes that the amendments and new section are necessary to implement HB 2645, 83rd Legislature, Regular Session (2013), which amends Insurance Code Chapter 4202, relating to the certification and operation of IROs in Texas. In addition, TDI has determined that other amendments are necessary to enforce Insurance Code Chapter 4202. TDI clarifies that in the December 17, 2010, issue of the Texas Register, adopted rules implementing HB 4519 were published (35 TexReg 11281), and reconsideration and application of HB 4519 agency responses would be redundant. Comment: A commenter requests the commissioner change the deadline for the submission of written comments on the proposed rules and delay the rule proposal public hearing for 30 days. The commenter states that IROs do not have full-time regulatory and advisory attorneys to prepare comments on new rules to determine constitutional issues such as legislative authority. The only option for IROs would be to retain law firms. Small IROs have had no surplus earnings to retain an attorney 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 40 of 139 Chapter 12 – Independent Review Organizations because average caseload was down to four per month in 2014. The commenter states that executives of the IROs prepare the comments and need more time. The commenter states that legislators who managed the passing of HB2645 should have additional time to review the proposed new rules to determine whether the rules faithfully implement the legislation that passed by overwhelming majorities in both houses and that was approved by the office of the governor. The commenter further explains that TDI has allowed IROs to comment on two draft proposals before publication of the proposed rules, but that the comments many submitted have not led to dialogue or discussion, and the same rules that were proposed will now be adopted. Agency Response: TDI declines to provide additional time for submission of comments because TDI provided a reasonable opportunity for all interested persons to submit data, views, or arguments, orally and in writing as required under Government Code §2001.029(a). TDI provided many opportunities for public comment, including a public stakeholder hearing, two advisory group forums, a public hearing on the rule proposal with oral testimony, and both a concept draft and proposed rule comment period. Comment: A commenter expresses concern that a currently filed bill will jeopardize confidentiality of the IRO panels of reviewers. The commenter states that IROs will no longer be independent if the reviewers’ identities are known. Agency Response: TDI asserts that proposed legislation is outside the scope of the proposed IRO rules. 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 41 of 139 Chapter 12 – Independent Review Organizations Section 12.4 Applicability Comment: A commenter recommends changing the applicability date in one of two ways: (i) at the time of the renewal application in the first renewal period after the publication of the adoption, or (ii) 120 days after the publication of the adoption. The commenter states that at least 120 days may be required to comply with the provisions of the new rules that require IROs to develop software to manage IRO processes, including a system for credentialing verification. The commenter states that while some IROs have software, others do not, and software experts tell the commenter that it may take as long as 180 days to develop and test the new software. The commenter states that it may take IROs a considerable amount of time to contract with medical directors, and with reviewers whose contracts must be changed to disclose that another physician without the same specialization of the reviewer will be auditing their work product. Agency Response: TDI agrees to change the effective date of the rule, but disagrees with the commenter’s suggested change. As explained in the reasoned justification, TDI has determined that the effective date of the adopted rules, which gives stakeholders until July 7, 2015, is sufficient. Based on this effective date, TDI also clarifies that existing IROs have an obligation to update their applications, but their submission of updated information does not change their existing renewal date. TDI asserts that IROs that have been granted a renewal of a certificate of registration before the effective date of this rule must report any material change, which will include new 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 42 of 139 Chapter 12 – Independent Review Organizations requirements of §12.103, no later than the 30th day after the date on which the change takes effect under Insurance Code §4202.005(c). TDI deleted the phrase “applications for a certificate of registration as an IRO, and for a renewal of a certificate of registration as an IRO” in adopted §12.4 to clarify that IROs must comply with the adopted amendments on the effective date of the rule. However, all independent reviews filed with TDI before the effective date of the rule are subject to the rules in effect at the time the independent review was filed with TDI. TDI clarifies that amended §12.103(4)(A) and (B) does not require IROs to develop software to manage IRO processes. But amended §12.103(4)(A)and (B) does require an IRO to include in its original application the procedures used by the IRO applicant to verify physician and provider credentials and the computer processes, electronic databases, and records used to make the verification, if any, and the credentialing software used by the applicant for managing the processes, databases, and records. An extension of the effective date is not necessary for an IRO to develop and test the new software, because an IRO is not required to purchase new software under the proposed rules. TDI clarifies that the new and amended rules neither require the IRO to change its contracts with reviewers nor require an IRO to disclose to reviewers that the medical director will perform quality assurance audits. Section 12.5. Definitions 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 43 of 139 Chapter 12 – Independent Review Organizations Comment: A commenter states the definition of “adverse determination” should be amended to highlight that a determination that a health care service is experimental or investigational is not an adverse determination for purposes of health care provided under workers’ compensation insurance. Section 12.5(1) should be amended to be consistent with the definition of adverse determination for utilization review in §19.2003(b)(1) and state specifically that a determination that a health care service is experimental or investigational is not an adverse determination for purposes of health care provided under workers’ compensation insurance. The commenter recommends that the definition of “adverse determination” include the sentence, “For purposes of workers’ compensation, a determination that health care services are experimental or investigational does not constitute an adverse determination.” The commenter states that the definition of “independent review” in amended §12.5(19) should be modified by removing the language after adverse determination. The commenter states this would permit the same definition of the phrase for both workers’ compensation and group health, without continuing the misstatement that a determination that proposed health care is experimental or investigational is a basis for denial in workers’ compensation. The commenter states the changes to both §12.5(1) and §12.5(19) provide precision and clarity as to the meaning of the rules. Agency Response: TDI declines to make the suggested change. TDI did not propose amendments to the existing definition of “adverse determination” because existing §12.6(b), in part, provides that IROs and personnel conducting independent reviews must comply with Labor Code Title 5 and applicable TDI-DWC rules. For workers’ 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 44 of 139 Chapter 12 – Independent Review Organizations compensation, in the event of a conflict between 28 TAC Chapter 12 and the Labor Code, the Labor Code controls. It is TDI’s and TDI-DWC’s position that, based on Labor Code §408.021, an injured employee under both network and nonnetwork coverage is entitled to all medically necessary health care services, including experimental and investigational health care services. Labor Code §408.021 entitles an injured employee, under both network and nonnetwork coverage, to health care reasonably required by the nature of the injury as and when needed. Additionally, under §12.206(d)(15), the IRO’s review outcome in the notice of determination must clearly state whether medical necessity or appropriateness exists for each of the health care services in dispute and whether the health care services in dispute are experimental or investigational, as applicable. Comment: A commenter welcomes the replacement of the term “stored” with “maintained and accessible” in proposed §12.5(32) because most micro businesses, and businesses in general in the current technological environment, store their records in secure remote servers, accessible from their office computers. These records are “maintained and accessible” and managed by the computer in the office of the business. This contrasts with the past technological environment where business records were stored in file cabinets in physical offices. Commenters also state that a short inspection of the computer system at the office of an IRO would allow TDI to verify both that an IRO has a physical office in the state and that the required records are “maintained and accessible” from the IRO’s 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 45 of 139 Chapter 12 – Independent Review Organizations computer. A commenter states that the same records could be accessed by IRO staff at a computer at the TDI offices, which would allow TDI to hold examinations in a government office rather than in the home offices of small, micro businesses. Agency Response: TDI appreciates the supportive comment but does not agree that TDI can access the IRO’s computer from the TDI offices. Remotely accessing the IRO’s records would require TDI to expend additional resources obtaining a system capable of such access and potentially jeopardize both the IRO’s and TDI’s security as well as patients’ and reviewers’ confidentiality. In addition, TDI does not agree with the commenter’s recommendation that TDI could hold examinations in TDI’s offices. Existing §12.106(c) requires that documents that support the application for certificate of registration or renewal must be available for inspection at the primary office of the IRO. In addition to examining records, TDI staff must go on-site to determine continuing compliance with Insurance Code Chapter 4202. Under amended §12.106(c), TDI specifies that documents must be available for review during an examination at the IRO’s primary office located in Texas, including information required in the original application for a certificate of registration. TDI will conduct an on-site examination at the applicant’s primary office to ensure compliance with TDI’s rules, including amended §12.106, §12.208, and §12.103(13), existing §12.204(c), and in the case of an office located in a residence, verifying that the office is located in a room set aside for IRO business. 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 46 of 139 Chapter 12 – Independent Review Organizations Section 12.103. Information Required in Original Application for Certificate of Registration. Comment: A commenter recommends clarifying in §12.103(1)(B) that the summary of review criteria and review procedures that will be used to determine the experimental and investigational nature of health care will have no application for IROs performing review of health care provided in workers’ compensation. The commenter suggests adding “provided outside of workers’ compensation” to the end of existing §12.103(1)(B). Agency Response: TDI declines to make the suggested change. TDI clarifies that existing §12.6(b), in part, provides that IROs and personnel conducting independent reviews for workers’ compensation must comply with Labor Code Title 5 and applicable TDI-DWC rules. In the event of a conflict between 28 TAC Chapter 12 and the Labor Code, the Labor Code controls. It is TDI’s and TDI-DWC’s position that based on Labor Code §408.021, an injured employee under both network and nonnetwork coverage is entitled to all medically necessary health care services, including experimental and investigational health care services. Labor Code §408.021 entitles an injured employee, under both network and nonnetwork coverage, to health care reasonably required by the nature of the injury as and when needed. Under §12.206(d)(15), the IRO’s review outcome in the notice of determination must clearly state whether medical necessity or appropriateness exists for each of the health care services in dispute and whether the health care services in dispute are experimental or investigational, as applicable. 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 47 of 139 Chapter 12 – Independent Review Organizations Comment: A commenter that is an accreditation board asks TDI to state whether its accreditation standards for IROs are substantially similar to TDI’s requirements. Agency Response: TDI will consider an organization’s accreditation standards at the time an IRO applicant submits an application for or renewal of a certificate of registration. Comment: A commenter requests that new §12.103(8)(A) state “the applicant shall submit written evidence in the form of a copy of the Certificate of Formation issued by the Texas Secretary of State, and nothing in this rule shall be taken to mean that the applicant must submit any additional ‘letter’ or other documentation from the secretary of state.” Agency Response: TDI agrees to amend §12.103, but disagrees with the suggested language. TDI deleted the phrase “a letter from the Texas Secretary of State” and added the phrase “a copy of the Certificate of Formation from the Texas Secretary of State” in §12.103(8) to reflect the formation and existence requirements of Business Organizations Code §3.001. Comment: A commenter disagrees with TDI’s proposed deletion of existing §12.103(8)(A), requiring an IRO to submit documentary evidence including the applicant’s bylaws, rules, and regulations in the IRO application. The commenter requests that §12.103(8)(A) require an IRO to provide: 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 48 of 139 Chapter 12 – Independent Review Organizations (A) Written evidence that the applicant is doing business in this state in accordance with the Business Organizations Code, which may include: (i) a letter from the Secretary of State indicating the entity has filed the appropriate information to conduct business in this state; and (ii) the bylaws, rules, and regulations, or any similar document regulating the conduct of the internal affairs of the applicant with a notarized certification bearing the original signature of an officer or authorized representative of the applicant that they are true, accurate, and complete copies of the originals. Agency Response: TDI declines to make the suggested change. New §12.103(12) requires the IRO applicant to submit to TDI documentation from the comptroller demonstrating the applicant’s good standing and the right to transact business in Texas. Insurance Code §4202.002(c)(2)(A)(ii) requires an IRO to be incorporated in this state. TDI deleted the phrase “a letter from the Texas Secretary of State” and added the phrase “a copy of the Certificate of Formation from the Texas Secretary of State” in new §12.103(8)(A) to reflect the formation and existence requirements of Business Organizations Code §3.001. TDI deleted language requiring the applicant to submit documents relating to its internal affairs, such as bylaws, because TDI has included more specific requirements about the information necessary for the commissioner to determine whether an applicant is qualified to obtain a certificate of registration as an IRO in amended §12.103. 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 49 of 139 Chapter 12 – Independent Review Organizations Comment: A commenter states that new §12.103(8)(E) has no legislative authorization, is not in HB 2645, and is not in Insurance Code §4200.002(a) or any other section of the Insurance Code. Insurance Code §4200.002(a) requires IROs to submit a list of any contractors, and a list follows of the types of businesses, all of which are in the health care industry. The commenter suggests TDI make it clear that IROs must submit a list of contractors in the medical industry where there might be a conflict of interest, but this is not a demand for lists of contracts for any and all contractors, especially if not in the medical industry or if the contractor is not involved in processing cases and does not have access to medical records. A commenter requests that TDI continue the same practice that has been in place for over a decade, requiring IROs to submit lists of contractors in the health insurance industry. If the contractor has access to medical records, the contractor must sign a business associate agreement, as per HB 2645. A commenter states that until 2014, IROs were not required to submit either copies of contracts or lists. Agency Response: TDI declines to make the suggested change. TDI clarifies that Insurance Code Chapter 4202 does not contain a requirement that IROs submit to TDI only a list of health care industry contracts. Insurance Code Chapter 4202 gives the commissioner the authority to adopt standards and rules for the certification, selection, and operation of IROs. Insurance Code §4202.007 requires the commissioner to provide ongoing oversight of IROs to ensure continued compliance. TDI’s oversight of IROs includes oversight of contracts and subcontracts with third parties who perform any IRO functions on behalf of the IRO. TDI staff must determine compliance with all 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 50 of 139 Chapter 12 – Independent Review Organizations requirements of Insurance Code Chapter 4202, including processing the independent review requests that TDI assigns to the IRO, maintaining confidentiality, and credentialing of reviewers. To do so, TDI staff must be aware of all parties performing IRO functions. TDI clarifies that new §12.103(8)(E) is necessary to implement Insurance Code §4202.002(a) and Insurance Code §4202.007, to ensure that IROs retain responsibility for compliance with Insurance Code Chapter 4202 and 28 TAC Chapter 12. Section 12.104. Review of Original Application. Comment: A commenter states that the existing 30-day time frame for an applicant to correct omissions or deficiencies in the application should be retained unless TDI publishes and makes available to applicants a guide to application for a certificate of registration as an IRO, in which case the proposed 15-day requirement would be sufficient. At one time before HB 4519, TDI published such a guide, but no such guide has been available since 2009. The commenter states that a guide would streamline the application and renewal process, and any audit or examination process. The commenter states that a guide would make TDI’s understanding of the IRO process clear, and how to be successful and avoid lengthy disputes with IROs that have been certified as IROs. Agency Response: TDI declines to make the suggested change. TDI clarifies that the requirement in new §12.104(2)(B) that an applicant correct omissions or deficiencies in the application within 15 days of the date of TDI’s latest notice of omissions or 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 51 of 139 Chapter 12 – Independent Review Organizations deficiencies only applies to original applications for certificates of registration, and does not apply to renewals, audits, or examinations. TDI determined that 15 days is a sufficient amount of time for applicants to respond to TDI’s notice of omissions and deficiencies. Additionally, new §12.104(2)(B) provides that an applicant may request additional time, not to exceed 30 days, in writing to correct omissions or deficiencies. TDI is not aware of any guide that TDI published for use by IRO applicants. The current and past application forms (LHL006) include and have included instructions for applicants. TDI has also prepared a Frequently Asked Questions page for IROs, available on TDI’s website at www.tdi.texas.gov/hmo/irofaqs.html. Section 12.106. Examinations. Comment: A commenter commends TDI for establishing that the commissioner or the commissioner’s designee will conduct an on-site examination of the IRO applicant’s primary office. The commenter agrees that an on-site examination is the most effective mechanism for ensuring compliance with the requirements to be certified as an IRO. Agency Response: TDI appreciates the supportive comment. Comment: A commenter states that HB 2645 does not directly address examinations, either before or after certification, but it does address computer systems required at the office of the IRO, and the required use of electronic records by IRO. A commenter recommended that HB 2645 include a provision that IROs move to computer systems 3927 TITLE 28. INSURANCE Adopted Sections Part I. Texas Department of Insurance Page 52 of 139 Chapter 12 – Independent Review Organizations and electronic systems in the hope that TDI would see how these provisions would streamline the examination and certification process by making a form of eRegulation possible. The commenter states that in TDI’s adopted rules in November 2010, implementing HB 4519, TDI declares that on-site examinations of IROs are necessary in order to examine the books and records of the IRO, which at that time were usually in file cabinets at the IROs primary office in Texas. The commenter states that HB 2645 requires IROs to maintain electronic records that are accessible from the computer systems in the IRO’s offices. A commenter states that proposed amended §12.106 was not required by HB 2645 and is not addressed in the Insurance Code. The commenter requests that TDI amend §12.106 to state: “Prior to Certification: Prior to issuing a Certification, TDI will conduct an onsite ‘Inspection’ of the executive office of the IRO to verify that the IRO has a physical office, and that it is equipped with a computer system where records are maintained and accessible. Continued:  https://www.tdi.state.tx.us/rules/2015/documents/order3927.pdf

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