in Re American Zurich Insurance Company ( 2012 )

Opinion issued July 12, 2012.
In The
Court of Appeals
For The
First District of Texas
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NO. 01-11-00816-CV
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IN RE AMERICAN ZURICH INSURANCE COMPANY
On Appeal from the 151st District Court
Harris County, Texas
Trial Court Case No. 1081742
MEMORANDUM OPINION
This mandamus petition concerns the scope of discovery in a lawsuit arising
out of a workers’ compensation proceeding. Real party in interest, Cathryn
Thompson, sues relators, American Zurich Insurance Company and its insurance
adjuster, Fai Hensel (collectively, “Zurich”), alleging that Zurich wrongfully
denied and delayed payment of workers’ compensation benefits to her in violation
of the Insurance Code and Deceptive Trade Practices Act, and breached its
common-law duty of good faith and fair dealing.
Zurich petitions for mandamus relief from the trial court’s September
23, 2011 order, compelling Zurich to produce monthly operational reports
containing aggregate claims data on its Texas workers’ compensation claims from
January 2006 through December 2009. Zurich contends that the discovery is
foreclosed by Texas Mutual Insurance Co. v. Ruttiger. No. 08-0751, 2012 WL
2361697 (Tex. June 22, 2012) (opinion on rehearing), decided after the trial court
issued its ruling. In addition, Zurich claims that the discovery is irrelevant to
Thompson’s claims and overly broad. We conditionally grant mandamus relief
from the trial court’s order in light of the Texas Supreme Court’s opinion in
Ruttiger.
Background
The Underlying Suit
Thompson alleges that she developed cubital tunnel syndrome while
working for Conn’s as a forklift operator in April 2009. Contending that her injury
entitled her to compensation as a beneficiary of Conn’s workers’ compensation
program, Thompson filed an insurance claim with Zurich, Conn’s workers’
compensation carrier. Zurich refused Thompson’s claim on the basis that
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Thompson had not demonstrated that she sustained the injury within the course and
scope of her employment.
In response, Thompson filed an administrative claim with the Division of
Workers’ Compensation (WCD). See TEX. LAB. CODE ANN. § 410.023(a) (West
Supp. 2011) (authorizing WCD to conduct benefit review conferences to resolve
disputed workers’ compensation claims); see also id. § 410.029 (West 2006)
(disputes may be resolved in whole or in part at benefit review conference). After
Thompson and Zurich were unable to reach a settlement at a benefit review
conference, the matter was set for a contested case hearing to determine whether
Thompson had suffered a compensable injury and whether she had been disabled
as a result of her injury. See id § 410.151–.152 (permitting contested case hearing
before qualified hearing officer). The hearing officer issued a Decision and Order,
concluding that Thompson had suffered a compensable repetitive trauma in April
2009 and, as a result of her injury, had been unable to work for a period of time.
After the WCD found in her favor, Thompson filed this suit in state district
court. Thompson claims that Zurich wrongfully denied and delayed payment of
workers’ compensation benefits due her and, therefore, knowingly violated the
Insurance Code, Deceptive Trade Practices Act and breached its common-law duty
of good faith and fair dealing.
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Discovery Issues
Thompson served Zurich with requests for production and interrogatories.
Relevant to this appeal, Thompson requested that Zurich produce:
Request No. 16: Documents demonstrating American Zurich
Company’s claim denial rate for each year commencing 2006-2010.
Request No. 18: Your report on the total and average claim cost
(indemnity and medical); medial claim cost (indemnity and medical);
number of claim; number of denials (medical and indemnity) for
2006-2010.
Zurich objected to Requests 16 and 18, contending that the requests were overly
broad, irrelevant, and unlikely to lead to the discovery of admissible evidence.
Zurich also responded that it did not maintain any such data summaries.
In reply, Thompson moved to compel Zurich to produce documents in
response to Requests 16 and 18. The trial court granted Thompson’s motion and
ordered Zurich to identify “the report(s) provided to [Zurich claims managers] on a
recurring basis . . . that are or may be responsive to [Thompson’s] Request for
Production 16 and 18 . . . .” In accord with the trial court’s order, Zurich identified
(subject to its objections) monthly operational reports that Zurich distributes to its
team managers. The reports contain workers’ compensation claims data reflecting:
(1) the number of new claims filed, (2) sums of actual valuation reserves and
reserve adequacy, (3) the amount in penalties paid, and (4) amounts paid in
benefits. After reviewing the reports in camera, the trial court granted the motion
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to compel and ordered Zurich to produce all operational reports for the months
January 2006 through December 2009.
Standard of Review
Mandamus relief is appropriate only if the trial court abuses its discretion
and no adequate remedy by appeal exists. In re Cerberus Capital Mgmt., L.P., 164
S.W.3d 379, 382 (Tex. 2005) (orig. proceeding) (per curiam); In re Prudential Ins.
Co. of Am., 148 S.W.3d 124, 135 (Tex. 2004) (orig. proceeding); Walker v. Packer,
827 S.W.2d 833, 839–40 (Tex. 1992) (orig. proceeding). An order compelling
discovery that exceeds the proper bounds is subject to mandamus review. In re
Am. Optical Corp., 988 S.W.2d 711, 713 (Tex. 1998) (orig. proceeding) (per
curiam).
Discussion
Zurich contends that the discovery order constitutes an abuse of discretion
because Ruttiger, decided after the trial court ruled, forecloses Thompson’s claims
in this suit. 2012 WL 2361697, at *11–13, *18–19. Alternatively, Zurich claims
that the trial court’s order is overly broad and requires Zurich to produce
documents that are irrelevant to Thompson’s claims.
Generally, the scope of discovery is within the trial court’s discretion;
however, the trial court must impose reasonable discovery limits. In re CSX Corp.,
124 S.W.3d 149, 152 (Tex. 2003) (orig. proceeding) (per curiam); see also Dillard
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Dep’t Stores, Inc. v. Hall, 909 S.W.2d 491, 492 (Tex. 1995) (orig. proceeding) (per
curiam). Texas Rule of Civil Procedure 192.3(a) provides:
[A] party may obtain discovery regarding any matter that is not
privileged and is relevant to the subject matter of the pending action,
whether it relates to the claim or defense of the party seeking
discovery or the claim or defense of any other party. It is not a ground
for objection that the information sought will be inadmissible at trial if
the information sought appears reasonably calculated to lead to the
discovery of admissible evidence.
TEX. R. CIV. P. 192.3(a). “Although the scope of discovery is broad, requests must
show a reasonable expectation of obtaining information that will aid the dispute’s
resolution. Thus, discovery requests must be ‘reasonably tailored’ to include only
relevant matters.” In re CSX Corp., 124 S.W.3d at 152 (citing In re Am. Optical
Corp., 988 S.W.2d at 713).
Thompson contends that Zurich intentionally or knowingly violated the
Insurance Code in (1) failing to effectuate a prompt, fair, and equitable settlement
of her claim, (2) failing to adopt and implement standards for prompt investigation
of claims arising under its policies, (3) failing to promptly explain why it denied
her claim, (4) refusing to pay her claim without conducting a reasonable
investigation, and (5) misrepresenting the terms of the insurance policy under
which Zurich provides workers’ compensation coverage. See TEX. INS. CODE ANN.
§ 541.060(a) (West 2009) (prohibiting unfair settlement practices, including failing
to attempt in good faith to effectuate prompt, fair, and equitable settlement of claim
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where insurer’s liability has become reasonably clear; failing to provide to
policyholder reasonable explanation for denial of claim; and refusing to pay claim
without conducting reasonable investigation); id. § 542.003 (prohibiting carriers
from engaging in unfair settlement practices); id. § 541.061(1)–(3) (providing that
misrepresentation an insurance policy by act or omission is unfair method of
competition or deceptive practice in insurance business).
In Ruttiger, the Texas Supreme Court held that, in light of the procedures
and provisions detailed in the amended Texas Workers’ Compensation Act, the
legislature did not intend to provide for separate causes of action for unfair
settlement practices against workers’ compensation carriers under sections 541.060
and 542.003 of the Insurance Code. 2012 WL 2361697, at *11–13. Given the
extensive statutory framework for workers’ compensation cases, the Court further
held that an injured employee may not assert a common-law claim for breach of
the duty of good faith and fair dealing against a workers’ compensation carrier,
overruling Aranda v. Insurance Co. of North America, 748 S.W.2d 210 (Tex.
1988). Id. at *18–19. We conclude that Ruttiger forecloses Thompson’s claims
under sections 541.060 and 542.003 of the Insurance Code and her claim for
breach of the duty of good faith and fair dealing. Thus, the trial court had no
discretion to order discovery directed to those claims. See id. at *11–13, *18–19
(holding that no action may be brought by insured against workers’ compensation
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carrier under sections 541.060 or 542.003 of the Insurance Code based on delay or
denial of workers’ compensation benefits and concluding that claim for breach of
duty of good faith does not obtain in light of amendments to
workers’ compensation scheme).
Ruttiger does not foreclose Thompson’s claims that Zurich misrepresented
its workers’ compensation policy in violation of section 541.061 of the Insurance
Code and engaged in deceptive trade practices in violation of the DTPA. We next
consider whether the operational reports are within the scope of permissible
discovery with respect to these claims.
1. Section 541.061 of the Insurance Code
A plaintiff may sue her insurer for misrepresentations about the scope of
coverage under the Insurance Code and the DTPA. See TEX. INS. CODE ANN.
§ 541.061 (prohibiting misrepresentations of insurance policies); see also Brown &
Brown of Tex., Inc. v. Omni Metals, Inc., 317 S.W.3d 361, 381 (Tex. App.—
Houston [1st Dist.] 2010, pet. denied). Thus, evidence supporting allegations of
misrepresentation is discoverable.
Discovery of the operational reports, however, is not reasonably calculated
to lead to evidence that supports Thompson’s remaining claim under these
provisions. The reports are internal communications distributed to Zurich’s Team
Managers. They contain monthly data summaries, revealing the number of new
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claims filed, Zurich’s claims reserves, penalties paid, and amounts paid in benefits.
The reports do not interpret, represent, or analyze Zurich’s workers’ compensation
policies generally. Thompson does not contend that the reports contain any
representation regarding her workers’ compensation policy individually. Nor does
she allege that Zurich misrepresented its workers’ compensation policy to her
based on information contained in these reports—they instead reflect general
claims handling for all of Zurich’s Texas workers’ compensation claims for a
three-year period. Because the reports sought relate neither to Thompson’s claim
or injury specifically, nor to interpretation of the insurance policy generally, we
conclude that the operational reports are not relevant to Thompson’s section
541.061misrepresentation claim. As the reports are not relevant to Thompson’s
misrepresentation claim, the request for discovery of the reports to prove an
intentional or knowing violation of the Insurance Code based on Zurich’s alleged
misrepresentation of its workers’ compensation policy’s coverage is similarly
overbroad at this stage of the proceedings. See TEX. INS. CODE ANN. § 541.152(b)
(authorizing damages for knowing violations of Insurance Code); see also In re
Allstate Cnty. Mut. Ins. Co., 227 S.W.3d 667, 670 (Tex. 2007) (per curiam)
(granting mandamus relief when trial court ordered claims-handling information
that was overbroad as to time, location, and scope).
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2. Deceptive Trade Practices Act
As pleaded, Thompson’s DTPA claim turns on whether or not Zurich
misrepresented its insurance policy in violation of section 541.061 of the Insurance
Code. See TEX. INS. CODE ANN. §§ 541.061, 541.151 (authorizing action under
DTPA for Insurance Code violation, including misrepresentation of insurance
policy); see also TEX. BUS. & COM. CODE 17.46(b) (West 2011). Because we
conclude that the operational reports are not discoverable as they do not relate to
Thompson’s claim under section 541.061 of the Insurance Code, we likewise hold
that the reports are not relevant to her DTPA claim. See Ruttiger, 2012 WL
2361697, at * 14 (dispensing of DTPA claim in workers’ compensation case when
claim depended on Insurance Code misrepresentation claim and evidence was
insufficient to support finding that carrier misrepresented policy).
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Conclusion
In light of the Texas Supreme Court’s intervening decision in Ruttiger, we
conclude that ordering discovery of claims handling operational reports was error.
We therefore conditionally grant mandamus relief and direct the trial court to
vacate its discovery order. We are confident that the trial court will promptly
comply, and our writ will issue only if it does not.
Jane Bland
Justice
Panel consists of Justices Bland, Massengale, and Brown.
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