Texas Mutual Insurance Company v. Texas Department of Insurance, Division of Workers' Compensation ( 2006 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-05-00776-CV
Texas Mutual Insurance Company, Appellant
v.
Texas Department of Insurance, Division of Workers’ Compensation, Appellee
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 98TH JUDICIAL DISTRICT
NO. GN402619, HONORABLE LORA J. LIVINGSTON, JUDGE PRESIDING
OPINION
This is an interlocutory appeal from an order granting a plea to the jurisdiction in an
employers liability insurance coverage case. Our principal issue concerns whether, as the district
court concluded, the Texas Department of Insurance, Division of Workers’ Compensation (“the
Division”)1 has exclusive jurisdiction over a dispute concerning the coverage period under an
employers liability insurance policy. We also consider whether the district court erred in holding
that a challenge to a Division rule by appellant Texas Mutual Insurance Company (“Texas Mutual”)
was not ripe. We will reverse and remand.
BACKGROUND
1
Effective September 1, 2005, the former Texas Workers’ Compensation Commission was
abolished and its rules and duties were transferred to the Division. See Act of May 29, 2005, 79th
Leg., R.S., ch. 265, §§ 8.001(b), .004(a), 2005 Tex. Gen. Laws 607, 608. For simplicity, we will use
“the Division” to reference both the successor and former entities.
In 2003, Texas Mutual issued a Workers’ Compensation and Employers Liability
Insurance Policy to AJ Commercial Services, Inc. (“AJ Commercial”). The policy is a standard form
promulgated by the Texas Department of Insurance (“TDI”). See Tex. Ins. Code Ann. art. 5.57
(West 1981). The standard form provides two types of coverage contained in different parts of the
policy. The first part is entitled “Workers’ Compensation Insurance” and describes the carrier’s
obligation to pay, on behalf of the insured employer, “all benefits required of [the employer] by the
workers compensation law.” Part two of the policy is entitled “Employers Liability Insurance” and
covers “all sums [the employer] legally must pay as damages because of bodily injury to your
employees” to the extent described in the policy. Part two of the policy expressly does not cover
“any obligation imposed by a workers compensation . . . law.” The policy stated a single coverage
period from February 19, 2003 to February 19, 2004, and a single annual premium amount.
It is undisputed that AJ Commercial did not pay to renew the policy before the policy
period expired, although the parties dispute the circumstances and their significance. On July 28,
2004, an AJ Commercial employee, Jorge Andres Garcia, was killed while working for AJ
Commercial. AJ Commercial notified Texas Mutual of Garcia’s death. Texas Mutual gave notice
to Garcia’s family and the Division denying workers’ compensation benefits on the basis that AJ
Commercial was not covered by a Texas Mutual policy on the date of injury.
The Garcia family has not pursued a claim for workers’ compensation death benefits.
Instead, the family brought a wrongful death action against AJ Commercial in Karnes County district
2
court alleging negligence, premises liability, and gross negligence.2 AJ Commercial demanded a
defense from Texas Mutual under the policy’s employers liability coverage. While maintaining that
AJ Commercial’s policy had expired, Texas Mutual agreed to defend AJ Commercial under a
reservation of rights.
AJ Commercial maintained that section 406.008 of the labor code and Division rule
110.1 operated to extend the policy beyond its stated period through the date of injury because it
never received a notice of cancellation or non-renewal from Texas Mutual. Section 406.008
provides, in relevant part, that an insurance company’s failure to give notice of cancellation or non-
renewal of “a policy of workers’ compensation insurance” to the policyholder and the Division
extends the policy until the date such notice is given. Tex. Lab. Code Ann. § 406.008 (West
2006). Division rule 110.1 provides that the extended coverage date continues until ten days
after the employer receives the notice of cancellation or non-renewal. 28 Tex. Admin. Code
§ 110.1(i) (2003).
Texas Mutual filed suit in Travis County district court seeking a declaration under
the Uniform Declaratory Judgments Act that it had no obligation to defend or indemnify AJ
Commercial in the wrongful death lawsuit because the employers liability policy it had issued AJ
Commercial was no longer in effect. See Tex. Civ. Prac. & Rem. Code Ann. § 37.004 (West 1997).
Asserting that it had twice faxed offers to renew the policy to AJ Commercial’s agent and received
no response, Texas Mutual contended that section 406.008 applies only when a carrier declines to
2
In fact, the Garcia family specifically alleged that AJ Commercial had not provided its
employees with workers’ compensation coverage.
3
renew coverage, not when an employer declines an offer to renew. Texas Mutual also sought a
declaration under section 2001.038 of the government code that Division rule 110.1, by extending
coverage until ten days after the insured receives notice of nonrenewal, conflicts with section
406.008, which extends coverage only until the carrier delivers the notice. See Tex. Gov’t Code
Ann. § 2001.038 (West 2000).3
The Division responded with a plea to the jurisdiction. It asserted exclusive
jurisdiction to determine the dates of coverage under the policy and that Texas Mutual’s declaratory
judgment claim regarding coverage should thus be dismissed for failure to exhaust administrative
remedies. The Division also asserted that Texas Mutual’s section 2001.038 rule challenge was not
ripe unless and until the Division has occasion to determine how rule 110.1 applies to the present
facts. Following a hearing, the district court granted the Division’s plea to the jurisdiction and
abated the case pending exhaustion of administrative remedies. It also found that Texas Mutual’s
rule challenge was not ripe and should be abated pending the exhaustion of administrative remedies.4
From this order, Texas Mutual timely perfected this interlocutory appeal. See Tex. Civ. Prac. &
Rem. Code Ann. § 51.014(a)(8) (West Supp. 2006).
DISCUSSION
Texas Mutual brings two issues challenging the district court’s holdings that (1) the
Division had exclusive jurisdiction to determine whether Texas Mutual’s employers liability
3
In accordance with subsection (c) of this provision, Texas Mutual named the Division as
a party. Tex. Gov’t Code Ann. § 2001.038(c) (West 2000).
4
The district court also heard, but did not rule upon, a motion for summary judgment by
Texas Mutual.
4
coverage remained in effect through the time of injury and (2) Texas Mutual’s rule challenge was
not ripe.
The Division’s jurisdiction
“Under the exclusive jurisdiction doctrine, the Legislature grants an administrative
agency the sole authority to make the initial determination in a dispute.” Subaru of Am., Inc. v.
David McDavid Nissan, Inc., 84 S.W.3d 212, 221 (Tex. 2002). Thus, where an agency has exclusive
jurisdiction, the courts have no subject matter jurisdiction, and a party can turn to the courts only
after first exhausting all administrative remedies. In re Entergy Corp., 142 S.W.3d 316, 321-22
(Tex. 2004); Subaru of Am., 84 S.W.3d at 221. Whether an agency has exclusive jurisdiction
depends upon statutory interpretation, In re Entergy Corp., 142 S.W.3d at 322, and is a question of
law we review de novo. Subaru of Am., 84 S.W.3d at 222.
The Texas Workers’ Compensation Act provides that the “exclusive remedy of an
employee covered by workers’ compensation insurance coverage” for a work-related injury is
“recovery of workers’ compensation benefits” as provided under the Act. Tex. Lab. Code Ann. §
408.001(a) (West 2006). “Workers’ compensation insurance coverage” is defined as an approved
insurance policy, self-insurance, or coverage provided by a government entity that is designed “to
secure the payment of compensation.” Id. § 401.011(44) (West 2006). “Compensation” is defined
as “payment of a benefit.” Id. § 401.011(11). “Benefit” is defined as “a medical benefit, an income
benefit, a death benefit, or a burial benefit based on a compensable injury.” Id. § 401.011(5).
The supreme court has held that the Division’s exclusive jurisdiction over claims for
“benefits” may extend to issues, albeit raised within common-law claims, whose resolution require
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adjudication of whether a claimant is entitled to benefits under the Act. Thus, the court held that a
common-law claim seeking damages for wrongful deprivation of workers’ compensation benefits
fell within the Division’s exclusive jurisdiction:
Because only the [Division] can determine a claimant’s entitlement to compensation
benefits, it follows . . . that allowing courts to award damages for wrongful
deprivation of benefits would circumvent the [Division’s] jurisdiction and therefore
could not be permitted. Thus, just as a court cannot award compensation benefits,
except on appeal from a [Division] ruling, neither can it award damages for a denial
in payment of compensation benefits without a determination by the [Division] that
such benefits were due. Accordingly, Fodge could not recover damages for
American Motorists’ breach of its duty of good faith to pay her medical expenses if
she was not entitled to medical treatment. The court could not adjudicate her
damages claim without determining her entitlement to medical treatment, a matter
within the [Division’s] exclusive jurisdiction. Her claim for damages from denied
medical treatment is made no more viable simply by restating it under the other legal
theories she asserted—negligence, fraud, and statutory violations. To award damages
equal to the cost of denied medical care is tantamount to ordering that the care be
paid for and would . . . circumvent the [Division’s] exclusive authority to decide that
issue. The same is true for Fodge’s other claims for damages based on a denial of
benefits.
American Motorists Ins. Co. v. Fodge, 63 S.W.3d 801, 804 (Tex. 2001).
Applying the rationale of Fodge, we subsequently held that the Division’s exclusive
jurisdiction over workers’ compensation benefits issues could extend to determining the effective
date of a workers’ compensation policy. In re Texas Mut. Ins. Co., 157 S.W.3d 75, 81 (Tex.
6
App.—Austin 2004, orig. proceeding).5 Texas Mutual is central to both parties’ jurisdictional
arguments.
In Texas Mutual, Goetz Insurors, an insurance agency, obtained for Cattleco, Inc., a
feed lot operator, a workers’ compensation insurance policy from Texas Mutual. Id. at 77. Goetz
contacted Texas Mutual in December 2002, after Cattleco learned that its current workers’
compensation carrier was going to drop coverage at the end of that year. Id. On behalf of Cattleco,
Goetz attempted to procure or verify coverage with Texas Mutual to avoid a coverage gap. Id. In
January 2003, a Cattleco worker was injured during what Texas Mutual contended was a coverage
gap between the effective date of its policy and the expiration of Cattleco’s prior workers’
compensation policy. Id. Because of this alleged gap, Texas Mutual refused to provide benefits. Id.
Cattleco settled with the injured employee, and attempted to provide the employee the compensation
benefits Texas Mutual would have provided under its policy, including medical expenses and
temporary income benefits. Id. Goetz subsequently indemnified Cattleco for these payments, and
Cattleco assigned Goetz its rights against Texas Mutual. Id. As a subclaimant, Goetz sued Texas
Mutual asserting: (1) breach of its insurance contract by refusing to provide coverage during the
disputed period, seeking as damages the amount of benefits allegedly due under the contract; and,
alternatively, (2) negligence in causing a coverage gap between the expiration of Goetz’s prior policy
and the effective date of the Texas Mutual policy. Id. Texas Mutual filed a plea to the jurisdiction
5
See also Howell v. Texas Workers’ Comp. Comm’n, 143 S.W.3d 416, 434-39 (Tex.
App.—Austin 2004, pet. denied) (applying Fodge to health care provider’s claims disputing
adequacy of medical payments and holding that provider was required to exhaust its remedies with
the Division before seeking judicial relief).
7
alleging that both of Goetz’s claims were within the Division’s exclusive jurisdiction. Id. at 78.
After the district court denied its plea, Texas Mutual sought mandamus relief. Id.
We held that the breach-of-contract claim was within the Division’s exclusive
jurisdiction because it “presupposes the existence of a workers’ compensation insurance policy and
quite plainly seeks benefits due under that policy.” Id. at 80-81. And to determine whether Goetz
was entitled to those benefits, we recognized that the Division would necessarily have to decide
whether the Texas Mutual policy was in effect at the time of injury. Id. at 81. Thus, we rejected an
argument asserted by Goetz that the Division’s exclusive jurisdiction categorically did not extend
to threshold questions over whether or when the policy was formed. In that context, we explained
that “[t]he legislature has granted the [Division] exclusive jurisdiction over claims for policy
benefits. In adjudicating such claims, the [Division] will necessarily have to interpret compensation
policies and determine the period in which coverage existed.” Id. at 81.
By contrast, we concluded that the negligence claim was beyond the Division’s
exclusive jurisdiction because it presupposed that no workers’ compensation policy was in effect;
thus, the district court could adjudicate the negligence claim “without determining Goetz’s
entitlement to workers’ compensation benefits.” Id. We abated both claims, however, because the
Division’s determination of whether coverage existed, as necessary to determine whether Goetz was
entitled to benefits under its breach-of-contract claim, would also “be determinative of a portion of
Goetz’s negligence claim” because the latter claim had been premised upon the absence of coverage.
Id. at 82; see also Metro Temps, Inc. v. Texas Workers’ Comp. Ins. Facility, 949 S.W.2d 534, 536
(Tex. App.—Austin 1997, no writ).
8
The Division construes Texas Mutual as confirming its “exclusive jurisdiction to
determine the dates of workers’ compensation coverage.” The present dispute implicates this
jurisdiction, the Division urges, due to the structure of the standard form workers’ compensation and
employers liability policy. The policy “provides a single period of coverage” for both the employers
liability portion and the workers’ compensation portion. For this reason, the Division reasons that
judicial determination of the employers liability coverage period would either have preclusive effect
over, or conflict with, a subsequent determination of the workers’ compensation coverage period by
the Division, if and when a benefits claim is made. Such a result, the Division maintains,
“would circumvent the Division’s exclusive jurisdiction to determine the dates of workers’
compensation coverage.”
Texas Mutual questions whether the legislature could have intended the Division to
have exclusive jurisdiction over employers liability coverage disputes where, as it urges, “the Labor
Code never mentions employers liability insurance.” It also disputes the Division’s reading of Texas
Mutual as recognizing exclusive jurisdiction “over every dispute involving a workers’ compensation
policy, or even every dispute involving the effective date of a workers’ compensation policy.” That
case, Texas Mutual urges, merely “held that the Division may decide those issues when they arise
in the context of a workers’ compensation benefits dispute.” There is no basis for the Division’s
assertion of jurisdiction here, Texas Mutual reasons, because there is no workers’ compensation
benefits dispute. Texas Mutual also observes that courts have frequently decided issues of workers’
compensation insurance coverage in at least one context not involving a benefits claim: the
application of the “comp bar” defense. See Tex. Lab. Code Ann. § 408.001(a) (West 2006) (court
9
must determine that employee is “covered by workers’ compensation insurance coverage”); Garza
v. Excel Logistics, Inc., 161 S.W.3d 473, 477 (Tex. 2005).
We agree with Texas Mutual. The foundation of our analysis in Texas Mutual and
the supreme court’s analysis in Fodge was a pending claim whose resolution required a
determination of a claimant’s entitlement to workers’ compensation benefits. Requiring such claims
to be first brought in the Division is necessary to effectuate the legislative intent that “recovery of
workers’ compensation benefits” in the manner prescribed in the workers’ compensation act be the
“exclusive remedy of an employee covered by workers’ compensation insurance coverage.” Tex.
Lab. Code Ann. § 408.001(a). “Because only the [Division] can determine a claimant’s entitlement
to compensation benefits,” such an issue, even if raised by or subsumed within common-law claims,
falls within the Division’s exclusive jurisdiction. Fodge, 63 S.W.3d at 804; see also In re Texas
Mutual, 157 S.W.3d at 80-81 (breach-of-contract claim “quite plainly seeks benefits due under that
[workers’ compensation] policy”). Texas Mutual merely recognized that the Division’s resolution
of a workers’ compensation benefits dispute may require it to address coverage issues as necessary
to resolve the dispute; it does not mean that the Division has exclusive jurisdiction over any and all
workers’ compensation coverage disputes wherever they might arise. See Texas Prop. & Cas. Guar.
Ass’n v. National Am. Ins. Co., No. 03-05-00401-CV, 2006 Tex. App. LEXIS 2605, *19 (Tex.
App.—Austin Mar. 31, 2006, pet. filed) (opinion) (“We have recognized that a threshold coverage
dispute may be within the exclusive jurisdiction of the [Division] if it arises in a claim for
compensation benefits, but ordinarily not if presented by a claim predicated upon the absence of
coverage.”) (citing In re Texas Mutual, 157 S.W.3d at 80-82).
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Neither Texas Mutual’s declaratory judgment action nor the underlying wrongful
death suit concerns an entitlement to workers’ compensation benefits. Instead of seeking workers’
compensation benefits, the Garcia family is alleging that AJ Commercial was negligent in failing to
provide insurance on the date of Garcia’s injury. This claim is similar to the negligence claim in
Texas Mutual, which we held to be beyond the Division’s exclusive jurisdiction. In re Texas
Mutual, 157 S.W.3d at 81. Any duty Texas Mutual has to defend or indemnify AJ Commercial
would arise under the employers liability coverage in the policy, not the workers’ compensation
coverage. Consequently, Texas Mutual is seeking a declaratory judgment that the employers liability
coverage was not in effect on the date of the injury. The district court in this case can determine the
dates of coverage of the employers liability insurance “without determining [the Garcia family’s]
entitlement to workers’ compensation benefits.”6 Id.
We disagree with the Division’s contention that the workers’ compensation coverage
and the employers liability coverage are “inextricably bound together” in any manner relevant to our
6
We also observe that courts in the past have decided employers liability insurance coverage
issues in declaratory judgment actions. See, e.g., Tri-Coastal Contractors, Inc. v. Hartford
Underwriters Ins. Co., 981 S.W.2d 861, 863-64 (Tex. App.—Houston [1st Dist.] 1999, pet. denied);
Vandewater v. American Gen. Fire and Cas. Co., 910 S.W.2d 614, 616 (Tex. App.—Austin 1995,
writ denied); Flores v. Great Am. Ins. Co., 401 S.W.2d 690, 692-93 (Tex. Civ. App.—Waco 1966,
writ ref’d n.r.e.). Although the Division is correct that these cases do not address the specific
contention that the Division has exclusive jurisdiction over this dispute, they at least recognize our
starting point: such disputes are within the general jurisdiction of trial courts. Subaru of Am., Inc.
v. David McDavid Nissan, Inc., 84 S.W.3d 212, 220 (Tex. 2002). “Courts of general jurisdiction
presumably have subject matter jurisdiction unless a contrary showing is made. The Texas
Constitution provides that a trial court’s jurisdiction ‘consists of exclusive, appellate, and original
jurisdiction of all actions, proceedings, and remedies, except in cases where exclusive, appellate, or
original jurisdiction may be conferred by this Constitution or other law on some other court, tribunal,
or administrative body.’” Id. (citing Tex. Const. art. V, § 8).
11
analysis. The fact that TDI has combined the two coverages in a standard form policy does not
expand the scope of the Division’s jurisdiction. The question of whether an agency has exclusive
jurisdiction is resolved by determining legislative intent—not agency intent. See Subaru of Am., 84
S.W.3d at 221 (“An agency has exclusive jurisdiction when a pervasive regulatory scheme indicates
that Congress intended for the regulatory process to be the exclusive means of remedying the
problem to which the regulation is addressed.”).7
As Texas Mutual observes, there is no indication that the legislature intended the
Division to determine disputes concerning employers liability insurance coverage. In stark contrast
to the elaborate procedures it established for resolving workers’ compensation benefits disputes, the
legislature did not provide any procedures for the Division to adjudicate disputes concerning
employers liability claims. See Tex. Lab. Code Ann. §§ 410.002-.308 (procedures for determining
workers’ compensation benefit claims); Juliff Gardens, L.L.C. v. Texas Comm’n on Envtl. Quality,
131 S.W.3d 271, 278 (Tex. App.—Austin 2004, no pet.); see also Butnaru v. Ford Motor Co., 84
S.W.3d 198, 207-08 (Tex. 2002) (motor vehicle code’s failure to establish procedure for agency
resolution of prospective transferee’s claims against manufacturer demonstrated that Motor Vehicle
Board did not have exclusive jurisdiction over such claims); City of San Antonio v. BSR Water Co.,
190 S.W.3d 747, 756 (Tex. App.—San Antonio 2005, no pet.) (water code’s failure to establish
7
Therefore, we do not find compelling the Division’s citation to TDI’s policy manual, which
provides: “Workers’ Compensation as used in this Manual means workers’ compensation or
occupational disease and, except when otherwise stated, also refers to employers liability insurance.”
Texas Basic Manual of Rules, Classifications and Experience Rating Plan for Workers’
Compensation and Employers Liability Insurance, Rule 1A (1994).
12
process for agency resolution of contract dispute between utility and private party supported court’s
conclusion that agency did not have exclusive jurisdiction over such disputes).
“There is no presumption that administrative agencies are authorized to resolve
disputes. Rather, they may exercise only those powers the law, in clear and express statutory
language, confers upon them. Courts will not imply additional authority to agencies, nor may
agencies create for themselves any excess powers.” Subaru of Am., 84 S.W.3d at 220; see BCY
Water Supply Corp. v. Residential Invs. Inc., 170 S.W.3d 596, 600 (Tex. App.—Tyler 2005, pet.
denied) (“Courts will not divine by implication additional authority to agencies, nor may agencies
create for themselves any excess powers.”).
Whatever the merits of the Division’s concerns regarding when and if Garcia’s
children someday seek workers’ compensation death benefits, we cannot permit the Division to
augment its statutorily-conferred jurisdiction merely because it asserts reasons of policy or
practicality to do so. Such policy determinations belong to the legislature, not the courts. See
Mid-Century Ins. Co. v. Texas Workers’ Comp. Comm’n, 187 S.W.3d 754, 758 (Tex. App.—Austin
2006, no pet.) (“the legislature, in fact, carefully balanced the competing interests of injured
employees, employers, and insurance carriers in an attempt to create a viable compensation system,
all within constitutional limitations”).
We sustain Texas Mutual’s first issue.
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Ripeness
In its second issue, Texas Mutual contends that the validity of Division rule 110.1 is
ripe for adjudication. Ripeness is an element of subject matter jurisdiction and is a legal question
we review de novo. Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 928 (Tex. 1998).
A case is not ripe when its resolution depends on contingent or hypothetical facts, or
upon events that have not yet come to pass. Patterson v. Planned Parenthood of Houston &
Southeast Tex., Inc., 971 S.W.2d 439, 442 (Tex. 1998); Save Our Springs Alliance v. City of Austin,
149 S.W.3d 674, 683 (Tex. App.—Austin 2004, no pet.). “For a controversy to be justiciable, there
must be a real controversy between the parties that will be actually resolved by the judicial relief
sought.” State Bar of Tex. v. Gomez, 891 S.W.2d 243, 245 (Tex. 1994); Save Our Springs Alliance,
149 S.W.3d at 683. An action for declaratory judgment will lie when the fact situation manifests the
presence of “ripening seeds of a controversy.” City of Waco v. Texas Natural Res. Conservation
Comm’n, 83 S.W.3d 169, 175 (Tex. App.—Austin 2002, pet. denied); Texas Dep’t of Pub. Safety
v. Moore, 985 S.W.2d 149, 153-54 (Tex. App.—Austin 1998, no pet.). The doctrine has a
pragmatic, prudential aspect that is directed toward conserving “judicial time and resources for real
and current controversies, rather than abstract, hypothetical, or remote disputes.” Mayhew, 964
S.W.2d at 928. Moreover, avoiding premature litigation prevents courts from entangling themselves
in abstract disagreements, while allowing other branches of government and governmental agencies
to perform their functions unimpeded. Patterson, 971 S.W.2d at 443. A claimant need not show
that an injury has occurred, provided that injury is imminent or sufficiently likely. Waco Indep. Sch.
Dist. v. Gibson, 22 S.W.3d 849, 852 (Tex. 2000); Patterson, 971 S.W.2d at 442. To determine
14
ripeness, we must examine both the fitness of the issues for judicial decision and the hardship
occasioned by the court’s denying judicial review. Office of Pub. Util. Counsel v. Public Util.
Comm’n, 843 S.W.2d 718, 724 (Tex. App.—Austin 1992, writ denied).
Texas Mutual has brought its challenge to the validity of Division rule 110.1 pursuant
to section 2001.038 of the Administrative Procedure Act, which provides that:
The validity or applicability of a rule . . . may be determined in an action for
declaratory judgment if it is alleged that the rule or its threatened application
interferes with or impairs, or threatens to interfere with or impair, a legal right or
privilege of the plaintiff.
Tex. Gov’t Code Ann. § 2001.038(a).
Texas Mutual has alleged that AJ Commercial has threatened to apply Division rule
110.1 in a manner that would interfere with or impair Texas Mutual’s legal right not to defend AJ
Commercial in the Garcia family’s wrongful death suit. This is not a hypothetical dispute. The
wrongful death suit is currently proceeding and Texas Mutual is currently defending AJ Commercial
under a reservation of rights. Whether or not Texas Mutual must continue defending the suit
depends in part on the validity of Division rule 110.1. Clearly, the validity of the rule is an actual
controversy that is ripe for adjudication.
The Division asserts that Texas Mutual’s challenge to rule 110.1 is not ripe “until the
Division has applied the rule.” However, section 2001.038 expressly provides that a “court may
render a declaratory judgment without regard to whether the plaintiff requested the state agency to
rule on the validity or applicability of the rule in question.” Id. § 2001.038(d). In fact, the purpose
of section 2001.038 is to obtain a final declaration of a rule’s validity before the rule is applied.
15
Charlie Thomas Ford, Inc. v. A. C. Collins Ford, Inc., 912 S.W.2d 271, 275 (Tex. App.—Austin
1995, writ dism’d); see also State Bd. of Ins. v. Deffebach, 631 S.W.2d 794, 797 (Tex. App.—Austin
1982, writ ref’d n.r.e.) (“[O]ne is not required to wait until the rule is attempted to be enforced
against him before he may resort to declaratory relief.”). To require Texas Mutual to wait to
challenge the rule until the Division has applied it to the facts of this case would defeat the purpose
of section 2001.038. Additionally, Texas Mutual’s rule challenge will not require the determination
of any facts and involves a pure question of law—the facial validity of Division rule 110.1. Given
the current controversy between Texas Mutual and AJ Commercial, we conclude that this question
is ripe for adjudication. We sustain Texas Mutual’s second issue.
CONCLUSION
Having sustained Texas Mutual’s issues on appeal, we reverse the judgment of the
district court and remand this case for further proceedings consistent with this opinion.
Bob Pemberton, Justice
Before Justices B. A. Smith, Pemberton, and Waldrop
Reversed and Remanded
Filed: December 15, 2006
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