Court of Appeals of Texas, Amarillo.
Jose Gilbert APODACA, Appellant,
THE AETNA CASUALTY & SURETY COMPANY, Appellee.
Nov. 23, 1998.
Rehearing Overruled Jan. 6, 1999.
FROM THE 108TH DISTRICT COURT OF POTTER COUNTY; NO. 79,662-E; HONORABLE ABE LOPEZ, JUDGE.
Before REAVIS, JJ.
JOHN T. BOYD, CJ.
*1 In conducting this appeal, appellant Jose Gilbert Apodaca (Apodaca) presents three issues he says require reversal of a take-nothing summary judgment in favor of appellee Aetna Casualty & Surety Co. (Aetna). The underlying suit arises from a compromise settlement agreement of an on-the-job injury. In his issues, Apodaca argues the summary judgment was improper because 1) the trial court had jurisdiction to hear his breach of contract claim, 2) he was not required to bring his breach of the duty of good faith and fair dealing claim to the Industrial Accident Board (the Board)1 prior to bringing suit in district court, and 3) a fact issue existed concerning that claim. We affirm in part and sever, reverse and remand in part.
On July 27, 1988, Apodaca was injured while working for Great Plains Paving in Bailey County, Texas.2 A claim was filed and a compromise settlement agreement was entered into between Apodaca and Aetna on October 22, 1990. The terms of the agreement provided in part that Aetna would pay for “all reasonable and necessary future hospital and medical expenses, if any, resulting from this injury rendered by or at the direction of Dr. Cone and/or Rod Albracht and/or their referrals of any mutually agreeable health care provider.”
In July of 1992, Apodaca requested a pre-authorization from Aetna for neck surgery. On January 7, 1993, Aetna denied that request. The next day, Apodaca requested a pre-hearing conference before the Board regarding the denial. On March 8, 1993, the Board decided it did not have jurisdiction over the issue because the second paragraph of Article 8307, Section 5 of the Texas Revised Civil Statutes prohibited the Board from making an award for medical expenses that have not yet been provided.3 On April 7, 1993, Apodaca made a second unsuccessful attempt to gain approval of the Board under Article 8306, Section 12e4 which permitted the worker to present a demand for a surgical procedure. This request was denied by the Board on March 11, 1994. On April 12, 1994, without serving notice of appeal, Apodaca filed this suit in district court seeking recovery for breach of contract and for breach of the duty of good faith and fair dealing.
In response, Aetna filed a motion seeking summary judgment. In the motion, Aetna asserted that the district court lacked jurisdiction over the dispute because Apodaca did not appeal the Board’s March 11, 1994 denial as required by statute and, because he did not do so, Aetna could not, as a matter of law, have acted in bad faith by not honoring the claim. In granting its summary judgment, the trial court did not specify the basis upon which it was granted. That being so, the summary judgment will be upheld if any of the theories advanced in the motion are meritorious. Carr v. Brasher, 776 S.W.2d 567, 569 (Tex.1989).
Under summary judgment review, when a defendant moves for summary judgment, he has the burden to prove the essential elements of his defense or affirmative defense as a matter of law. Id. at 548-49.
*2 In its motion, Aetna first asserted that the district court lacked jurisdiction to hear Apodaca’s breach of contract claim because Section 5 of the statute.6 Thus, because Apodaca did not go through the specified procedural appeal requirements but, rather, proceeded to file an independent suit alleging a breach of contract, Aetna reasons the trial court lacked jurisdiction to consider the suit in that regard.
In responding to this argument, Apodaca urges that it was not necessary for him to meet the Section 12b appeal requirements because the Board’s March 11, 1994 decision concerned only his Article 8306, Section 12e surgery demand and did not involve the settlement agreement. He reasons that the surgery demand procedure of Section 12e was not his exclusive remedy because he still had the right to sue in district court for direct enforcement of Aetna’s contractual agreement to furnish him medical services which did not require Board action. That being the case, he argues, the failure to appeal the Board’s March 11, 1994 denial did not foreclose his right to seek a judicial remedy. He also argues that the Board only has jurisdiction over medical service disputes when the services have been furnished but are unpaid. That being so, and in a situation like this one, he has no recourse but to go directly to the district court.
Under the Act, a district court does not have original jurisdiction to determine compensation benefits for work-related injuries. Western Alliance Ins. Co. v. Tubbs, 400 S.W.2d 850, 852 (Tex.Civ.App.-Waco 1965, writ ref’d n.r.e.) (reaffirming the jurisdictional rule after the 1957 amendments to the Act). Thus, it was the rule that as long as a medical expense claim was coupled with an appeal of a claim for compensation benefits, a district court had jurisdiction to hear medical expense claims incident to the injury giving rise to the claim, even if they had not first been presented to the Board for resolution.
*3 With regard to the payment of medical services under the terms of a compromise settlement agreement, the Legislature added Section 5 of Article 8307 provided that the Board’s decision is final and binding upon the parties if a suit to set aside a final ruling or decision is not filed.11 Therefore, we are constrained to hold that for disputes involving whether medical expenses are to be provided under a settlement agreement, a district court’s subject matter jurisdiction is limited to trial de novo appeal from Board rulings or decisions.
In addition, the second paragraph of Section 5, Article 8307 expressly prohibits the Board and the courts from rendering judgment for any cost or expense of medical services not actually furnished to and received by the employee prior to the date of an award or judgment.12 Thus, neither the Board nor the district courts have original jurisdiction to render an award for medical services not yet provided.
It is undisputed that at the time of the summary judgment, Apodaca had not been given the requested surgical procedure. Thus, not only was the Board prohibited from making an award for unperformed medical services, so was the district court. Inasmuch as Apodaca was seeking a recovery under the compromise settlement agreement, which is a remedy provided by the Act and not an outgrowth of the common law, he was limited to the recoveries provided by the Act and could not pursue any outside remedies. That being so, Apodaca could not seek damages in the district court for medical services not yet provided.
Apodaca also argues that as a matter of public policy, he should not be required to actually incur medical expenses before Aetna became liable under the agreement. In making that argument, he cites to and relies upon Section 5, we do not find Seale persuasive.
*4 The case of Section 5 limitation to medical expenses actually incurred.
Because Apodaca’s breach of contract claim did not concern medical services already rendered, in view of the above authorities, we conclude that the district court had no jurisdiction over Apodaca’s breach of contract claim. Apodaca’s first point is overruled.
In his second issue, Apodaca presents the question that if the trial court had no jurisdiction over his breach of contract claim, would his bad faith claim “become moot and fail as a matter of law?” In his third issue, he presents the question whether there is a material fact issue concerning whether Aetna had a reasonable basis for denying his request for surgery.
As we have noted, in its motion for summary judgment, Aetna argued that the district court had no jurisdiction over Apodaca’s breach of contract claim and, because of that lack of jurisdiction, as a matter of law, Apodaca was not entitled to surgery and was not, therefore, entitled to recover under his breach of good faith and fair dealing claim.13 In the alternative, it maintained that even if summary judgment was not granted on the breach of contract claim, it was still entitled to summary judgment on the breach of good faith and fair dealing claim because the summary judgment evidence was sufficient to prove as a matter of law that it had a reasonable basis for denying his surgery request.
Aetna supported its alternative argument by giving five reasons supporting that denial: 1) a subsequent, non-job related accident caused the injury allegedly requiring surgery; 2) diagnostic tests did not reveal any necessity for surgery; 3) a board-certified neurologist said surgery was not needed and that the injury was not work related; 4) Dr. Citron gave an opinion just prior to the settlement agreement that Apodaca was not a candidate for surgery; and 5) Dr. Fong later gave an opinion that surgery was not required.
It has long been the rule in Texas that “accompanying every contract is a common law duty to perform with care, skill, reasonable expedience and faithfulness the thing agreed to be done, and a negligent failure to observe any of these conditions is a tort as well as a breach of contract.” State Farm Fire & Cas. Co. v. Simmons, 963 S.W.2d 42, 44 (Tex.1998). Although it is the rule that evidence showing only the existence of a bona fide dispute concerning coverage is not sufficient to show bad faith, an insurer cannot insulate itself from bad faith liability by investigating a claim in a manner calculated to construct a pretextual basis for denial. Id.
*5 Thus, the issue in a breach of good faith and fair dealing claim does not focus on whether the underlying claim was valid, but on the reasonableness of the insurer’s conduct in rejecting the claim. Great Am. Reserve Ins. Co. v. San Antonio Plumbing Supply Co., 391 S.W.2d 41, 47-48 (Tex.1965).
InId. at 567. Because of the significance of that holding in the instant case, Viles warrants some discussion. The case arose out of a claim under a homeowner’s policy for extensive moisture damage to the foundation of a house. Although the homeowners had promptly notified their insurance agent of the claim, they did not submit a sworn proof of loss within 91 days as required by the policy. However, there was considerable activity during that period of time, including contacts with an insurance adjuster as well as an inspection of the premises by an engineer. The activity culminated in the adjuster’s denial of the claim which occurred prior to the expiration of the 91-day notice period. Based upon favorable jury question answers, the trial court entered judgment for the plaintiffs on the basis of a breach of the duty of good faith and fair dealing. In reversing that judgment, the court of appeals held that “as a prerequisite to maintaining a successful suit for breach of the duty of good faith and fair dealing,” the plaintiff must have submitted jury questions as to compliance with the terms of the policy or a waiver of those terms, and the failure to do so prevented their recovery. Id. at 567. En route to reversing the court of appeals, the supreme court made the holding which we have quoted above. The court also noted that “[w]hile the failure to file a proof of loss, if not waived by the insurer, bars a breach of contract claim, it is not controlling as to the question of breach of the duty of good faith and fair dealing.” Id. It also commented that in certain circumstances, the failure to file a proof of loss might constitute a reasonable basis for denial of the claim, however, whether that was so, “must be judged at the time the claim was denied.” Id.
*6 As related to the instant case, the teaching to be gleaned from these authorities is that if Apodaca could meet the requisite standards, he would have a cause of action for breach of the duty of good faith and fair dealing separate and apart from his underlying claim for medical services. That being so, the fact that the district court lacked jurisdiction over Apodaca’s breach of contract claim would not prevent him from pursuing his bad faith claim. As we have discussed, in order to recover for such a claim, Apodaca must show that Aetna had denied the claim when it was reasonably clear that it had an obligation to honor it. Giles, 950 S.W.2d at 56. With that in mind, we must review the summary judgment evidence to determine if it is sufficient to establish Aetna’s right to a summary judgment on that question.
Aetna’s first assertion was that their denial of Apodaca’s request for surgery was reasonable because a subsequent non-work related accident caused the aggravation of his neck injury and any subsequent need for surgery. It is undisputed that Apodaca was injured after his original on-the-job injury on February 12, 1991, when a car fell on top of him. Aetna submitted a medical report concerning those injuries and relied upon the statement in the report that Apodaca was unable to work because of chronic neck pain. Apodaca responded that, read in its proper context, the report does not show that his neck was injured in the accident but did show that he suffered blunt trauma to the chest, right rib fractures as well as an AC separation. We agree that the report does not show conclusively that Apodaca’s neck was injured during the accident and, viewed in the light by which we must view it, it is reasonable to conclude that Aetna’s interpretation of the report was skewed to justify its denial of Apodaca’s surgery request.
Aetna also asserted that none of Apodaca’s diagnostic tests revealed a need for surgery. In considering that claim, the record reveals that Apodaca presented summary judgment evidence with his response showing that Dr. Wayne S. Paullus, a fellow of the American College of Surgeons, recommended surgery. This recommendation was made to Aetna prior to its denial of Apodaca’s surgery request. Although Aetna contended there were no tests conducted that showed a need for surgery, Dr. Paullus’s recommendation, which shows to have been based upon an MRI and other tests, was before it. Viewing that evidence in the light by which we must view it, a factfinder could reasonably infer that Aetna had before it a recommendation for surgery based upon accepted tests, and chose to ignore it.
Additionally, without citation to the record, Aetna contended that a board-certified neurologist recommended surgery was not needed and that the injury was not work related. It also asserts, again without a cite to the record before us, that just prior to the compromise settlement agreement, Dr. Citron opined that Apodaca was not a candidate for surgery. However, Aetna did not cite to the record, either in its motion for summary judgment nor in its appellate brief, as to where such evidence exists. If there was evidence before the trial court that supported the appellate position of a party, it is the duty of that party to ensure the evidence is in the record and in its appellate brief to cite to the location of that evidence in the record. See Saldana v. Garcia, 155 Tex. 242, 285 S.W.2d 197, 201 (1955).
*7 Aetna also argues that the report of Dr. Don Leon Fong, a Diplomate of the American Board of Orthopedic Surgeons, stating that Apodaca was not a candidate for surgery also demonstrates the reasonableness of its denial of Apodaca’s surgery request. However, the record shows Dr. Fong’s report was dated January 3, 1994, almost one year after Aetna had denied Apodaca’s claim. However, it is the rule that whether a carrier has a reasonable basis for denying a claim must be determined by the facts existing at the time it denied the claim. Viles, 788 S.W.2d at 567. Thus, an event occurring almost a year after the denial cannot be relied upon by Aetna in justifying its denial.
Suffice it to say, our review of the summary judgment evidence in regard to Apodaca’s breach of the duty of good faith and fair dealing claim does not negate a reasonable inference that the dispute between Apodaca and Aetna goes beyond a mere disagreement over coverage and warrants resolution of fact issues by a trier of fact.
Accordingly, while the portion of the summary judgment disposing of Apodaca’s breach of contract claim is affirmed, that portion of the judgment disposing of his breach of the duty of good faith and fair dealing is severed, and that portion is reversed and remanded to the trial court for further proceedings not inconsistent with this opinion.
Currently known as the Texas Workers’ Compensation Commission. See Tex. Lab.Code Ann. § 401.011(8) (Vernon 1996).
Under the Workers’ Compensation Act, the statutes in force at the time of the accident determine the rights and duties of the parties. Gibson v. Grocers Supply Co., 866 S.W.2d 757, 759 (Tex.App.-Houston [14th Dist.] 1993, no writ).
Workers’ Compensation Act, 65th Leg., R.S., ch. 412, § 1, 1977 Tex.Gen.Laws 1113, 1113-1115, repealed by Workers’ Compensation Act, 71st. Leg., 2nd C.S., ch. 1, § 16.01(10), 1989 Tex.Gen.Laws 1, 114.
Workmen’s Compensation Law, 35th Leg., R.S., Part, sec. 12e, 1917 Tex.Gen.Laws 269, repealed by Workers’ Compensation Act, 71st Leg., 2d C.S., ch. 1, § 16.01(7), 1989 Tex.Gen.Laws 1, 114.
Workers’ Compensation Act, 68th Leg., R.S., ch. 501, § 1, 1983 Tex.Gen.Laws 2934,2934-35, repealed by Workers’ Compensation Act, 71st Leg., 2d C.S., ch. 1, § 16.01(10), 1989 Tex.Gen.Laws 1, 114.
At the time in question, and in relevant part, Article 8307, Section 5 provided that “[a]ny 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.” See footnote 3.
Article 8307, Section 5 provided: “If the final order of the Board is against the Association, then the Association and not the employer shall bring suit to set aside said final ruling and decision of the Board, if it so desires, and the court shall in either event determine the issues in such cause, instead of the Board, upon trial de novo, and the burden of proof shall be upon the party claiming compensation.” See footnote 3.
Workers’ Compensation Act, 68th Leg., R.S., ch. 501, § 1, 1983 Tex.Gen.Laws 2934, repealed by Workers’ Compensation Act, 71st Leg., 2d C.S., ch. 1, § 16.01(10), 1989 Tex.Gen.Laws 1, 114.
Workers’ Compensation Act, 68th Leg., R.S. ch. 131, § 1, sec. 3(a), 1983 Tex.Gen.Laws 613, repealed by Workers’ Compensation Act, 71st Leg., 2nd C. S., ch. 1, sec. 3(a), § 16.01(7), 1989 Tex.Gen.Laws 1, 114; Workmen’s Compensation Law, 35th Leg., R.S., ch. 103, part I, sec. 3a, 1917 Tex.Gen.Laws 269, 270-71, repealed by Workers’ Compensation Act, 71st Leg., 2d C.S., ch.1, § 16.01(7), 1989 Tex.Gen.Laws 1, 114.
See Workmen’s Compensation Act, 35th Leg., R.S., ch. 103, part II, sec. 12, 1917 Tex.Gen.Laws 269, 287, repealed by Workers’ Compensation Act, 71st leg., 2nd C.S., ch. 1, § 16.01(10), 1989 Tex.Gen.Laws 1, 114; Hilton, 87 S.W.2d at 1084 (holding that section 12 renders a compromise settlement ineffective until approved by the Board); Workmen’s Compensation Act, 65th Leg., R.S., ch. 667, § 1, sec. 12a, 1977 Tex.Gen.Laws 1686, repealed by Workers’ Compensation Act, 71st Leg., 2d C.S., ch. 1, § 16.01(10), 1989 Tex.Gen.Laws 1, 114.
See footnote 3.
In relevant part, at the time in question, Article 8307, Section 5 provided: “[n]otwithstanding 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 times of medical aid ... 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.” See footnote 3.
In this appeal, Aetna argues that because medical services must first have been rendered to Apodaca before it was obligated to compensate him under the settlement agreement, it could not have breached its duty of good faith and fair dealing. However, because this argument was not asserted in its motion seeking summary judgment, we will not consider it. See City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 675 (Tex.1979).