A week ago, in Thompson v. Zurich American Insurance Company, No. 10-51013 (5th Cir. Dec. 2, 2011), the Fifth Circuit affirmed a district court’s grant of summary judgment in favor of Zurich American Insurance Company, Specialty Risk Services, and insurance adjuster Janet Watson on the claim of Dennis Thompson for wrongful denial and delay of workers’ compensation benefits under Texas common law, the Texas Insurance Code, and the Texas Deceptive Trade Practices Act (“DTPA”).

The appeal arose from the denial of workers’ compensation benefits to Thompson after he suffered a torn meniscus  while  working  as  a  welder.   Thompson  slipped  on  a  grading  stake  while  attempting  to investigate a possible fire.  Thompson was initially diagnosed with a sprained knee and ankle.  After his resignation, Thompson continued to have pain in his right knee and his primary care physician recommended that Thompson obtain an MRI. The resulting MRI revealed a torn meniscus, so he was referred to an orthopedic surgeon. In response, the workers’ compensation insurance carrier, Zurich, hired an independent third party service, SRS, to handle Thompson’s claim. SRS then selected an orthopedic specialist, Dr. Alan Strizak, to perform a records review and peer review. Dr. Strizak concluded that the meniscus tear was not work related, but was more likely an injury that predated Thompson’s work accident. Subsequently, Zurich disputed both Thompson’s disability and that the injuries identified in the MRI were related to his compensable injury.

Thompson   filed   an   administrative   claim   with   the   Texas   Department   of   Insurance,   Workers’ Compensation Division (“WCD”) regarding resolution of the questions of disability and compensability. As  part  of  those  proceedings,  Thompson  was  examined  by  Dr.  Derry  Crosby,  who  was  neutrally appointed  by  the  WCD.   On  June  30,  2008,  Dr.  Crosby  provided  his  written  evaluation,  generally disputing Dr. Strizak’s conclusion that the meniscus tear was preexisting and suggesting that Thompson should not return to full work duties. Dr. Crosby did note, however, that there was evidence of a pre- existing degenerative condition in Thompson’s knee. Following Dr. Crosby’s report, Zurich continued to dispute  liability  for  the  tear.  In  the  Contested  Case  Hearing  that  followed,  the  WCD  ruled  that Thompson’s compensable injury did extend to the meniscus tear and that he was disabled as a result. Zurich promptly instituted Thompson’s benefits, and Thompson began orthopedic treatment. Zurich declined to pursue further administrative appeal. On February 20, 2009, Thompson had surgery on his right knee.

Several months later, Thompson filed suit against Zurich, SRS, and Watson in which he alleged common law claims for breach of the duty of good faith and fair dealing for failure to conduct a reasonable investigation and that Zurich had no reasonable basis for denying or delaying benefits.  During the course of this case, both Dr. Waldrop and Dr. Drury gave deposition testimony to the effect that Dr. Strizak’s opinion was unreasonable.  The defendants moved for summary judgment on the bad faith claims and the trial court granted summary judgment in favor of the defendants against Thompson.

Thompson then appealed and alleged that Dr. Strizak’s opinion was biased and reliance upon it in the face the contrary expert opinions of three other doctors was not reasonable. Thompson argued that reliance on Dr. Strizak’s opinion was unreasonable because it was not supported by Thompson’s medical records. Thompson also argued that Dr. Strizak was biased because Zurich pays him well, he works extensively for insurance companies, and SRS’s adjuster could not name any other doctors that SRS used.

The 5th  Circuit found the opinions of the other doctors may support the inference that Dr. Strizak was incorrect in his conclusion, but that does not establish bad faith.  The court stated that, although Dr. Strizak did not physically treat Thompson – he relied exclusively on medical reports - Thompson did not raise a fact issue that Dr. Strizak acted contrary to what a doctor is required to, or should, do in the process of completing a peer review investigation.  The court found nothing in the record that showed Dr. Strizak gave opinions predominantly in favor of insurers or that Zurich had knowledge of such a predisposition.

Because aggravation of pre-existing injuries is compensable, Thompson also argued that Zurich must completely rule out aggravation by showing that a pre-existing condition is the “sole cause” of the present incapacity for an insurer to reasonably deny coverage on that basis.  The court noted that Dr. Strizak’s report found the injury “not causally related to, aggravated by, or accelerated by” the incident, which is the rationale relied on in denying the claim initially. Without any evidence that Zurich had knowledge to the contrary at the time of the initial denial, the court found Thompson could not establish bad faith as a matter of law.

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