Recent Appellate Decisions in Workers' Compensation Law

• Publication year: 1997
• Pages: 51

26 Colo.Law. 51 Colorado Lawyer 1997.

1997, December, Pg. 51. Recent Appellate Decisions in Workers' Compensation Law

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51

Vol.26, No. 11, Pg. 51

The Colorado Lawyer
December 1997
Vol. 26, No. 12 [Page 51]

Specialty Law Columns
Workers' Compensation Report
Recent Appellate Decisions in Workers' Compensation Law
by Ralph Ogden

This article discusses recent Colorado appellate court decisions regarding workers' compensation issues. Other recent updates appeared in the May 1997 issue at page 103 and the November 1996 issue at page 119

Common Law Bad Faith Actions

In Travelers Insurance Company v. Savio,1 the Colorado Supreme Court held that injured workers could bring common law bad faith actions against the workers' compensation insurance carriers that paid their workers' compensation benefits. Savio noted that CRS § 8-44-105 requires each workers' compensation policy to contain a clause that makes the insurer "directly and primarily liable" to the injured worker. This means that the injured worker was either an insured or a third-party beneficiary "with the right to sue on the policy."2

In Scott Wetzel Services, Inc. v. Johnson,3 the Supreme Court held that "we can discern no principled difference between self-insured employers and insurance companies in the context of workers' compensation law" and that bad faith actions could therefore be maintained against self-insured employers.4 Johnson also held that because independent adjusting companies "effectively delivered the workers' compensation benefits and took many of the steps necessary to perform the [self-insured] employer's duty of good faith and fair dealing owed to the [injured workers]," these agencies likewise owed a duty of good faith and fair dealing to injured workers.5

In Vaughn v. McMinn and Zurich American Insurance Company v Rael,6 workers who were injured after July 1, 1991, filed separate bad faith actions against their workers' compensation carriers. The district courts in both cases held that Savio and Johnson had been overruled by the 1991 amendments to the Workers' Compensation Act, and that the amended penalty provisions of CRS § 8-43-304(1) were now the workers' exclusive remedy for insurer misconduct. Both courts then dismissed the bad faith claims for lack of subject matter jurisdiction and awarded attorney fees against the workers and their attorneys pursuant to CRS § 13-17-201

While the workers' appeals were pending in the Court of Appeals, the Supreme Court issued an Appellate Rule 50 writ of certiorari and then reversed, thus preserving common law bad faith actions against workers' compensation insurers, self-insured employers, and independent adjusting agencies. It did not address the question of whether, if penalties are assessed under § 8-43-304(1) and a common law bad faith action is then brought for the same misconduct, the amount of the penalty award could be used to reduce any damage award in the bad faith action. It did, however, note that the amendment to § 8-43-304(1) "vests the aggrieved claimant with additional administrative rights to remedy the bad faith conduct of his or her insurance carrier."7

The court reiterated the rule that the General Assembly's "creation of a statutory remedy does not bar pre-existing common law rights of action," and that although the legislature has the authority to abrogate common law remedies, "it must manifest its intent to do so either expressly or by clear implication."8

The court also reiterated that "the standard for abrogation, 'expressly or by clear implication,' requires more than an imagined connection" and concluded: "Even if a connection could be imagined between Savio and the 1991 amendment to section 8-43-304(1), the 1991 amendment does not satisfy the criteria for abrogation of an important common law remedy."9 This was true, the court held, because although § 8-43-304(1) was amended in 1991, 1992, 1994, and 1997, the General Assembly made no mention of any intent to do away with common law bad faith actions. Additionally, although the General Assembly repealed and re-enacted §§ 8-42-102 and 8-42-104, which "explicitly delineate the common law torts abrogated by the Act . . . . no mention is made of the tort of bad faith, which represents a separate injury from the death or personal injury underlying the employee's worker's compensation claim." The court thus affirmed Savio's holding that "an insurer's mishandling of a workers' compensation claim . . . fell outside the reach of the Act."10

CCIA Liability Under 42 U.S.C. § 1983

Although the Colorado Compensation Insurance Authority ("CCIA") is immune from common law bad faith actions, it is no longer immune from claims under 42 U.S.C. § 1983. In Simon v. The State Compensation Insurance Authority,11 the Supreme Court reversed the Court of Appeals12 and held that the CCIA is a "person" within the meaning of 42 U.S.C. § 1983 and that it could therefore be sued for damages.

Section 1983 is the federal civil rights statute. It states in part that "Every person who, under color of state statute, ordinance, regulation, custom or usage, of any state or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or any other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the injured party in an action at law, suit in equity, or other proper proceeding for redress . . . ." [Emphasis added.]

The claimant in Simon was a sole proprietor who was injured on the job in January 1995. The CCIA initially denied benefits on the ground that as a sole proprietor, he was not covered under the policy. Both an ALJ and the Industrial Claim Appeals Office disagreed and ordered the CCIA to pay benefits. The CCIA then disputed the claimant's entitlement to either temporary disability or medical benefits, and the claimant was again successful in defeating its arguments before an ALJ and the ICAO.

After the second appeal, the CCIA filed a general admission of liability and claimed an offset for amounts that the claimant had received in a third-party settlement. The claimant objected and was yet a third time successful in defeating the CCIA's claims before an ALJ and the ICAO. The CCIA failed to make any disability payments until September 1992, some seven years after the claimant was injured. In the meantime, the claimant had become involved in lobbying the General Assembly on workers' compensation issues. He alleged that as a result of this involvement, the CCIA released confidential information about him. He also alleged that the CCIA made false statements about him and that both the confidential and the false releases were made in an effort to discredit him. His § 1983 lawsuit claimed that the above conduct violated state and federal law and his rights to equal protection and due process of law.

The sole question before the Supreme Court was whether the CCIA was a "person" within the meaning of § 1983 or whether it was "an arm of the state" and therefore not a "person" under § 1983. After thoroughly analyzing federal law on the "arm of the state" determination, the court concluded that the CCIA was indeed a "person" subject to suit under § 1983, concluding:

Finding that the CCIA may be sued under section 1983 is consistent with our case law specifically protecting the ability of litigants to sue political subdivisions of the state when the law is unclear. For example, in Bertrand v. Board of Commissioners of Park County, 872 P.2d 223 (Colo. 1994), we held that because the Governmental Immunity Act was in derogation of common law, it must be strictly construed and unless immunity is clearly established, an entity is liable to suit. Similarly, under the facts of this case, sound public policy requires that any doubt be resolved in favor of allowing the section 1983 suit to proceed.

. . . [T]o hold otherwise would allow the CCIA to enjoy the benefits of acting as a private enterprise without the associated costs and liabilities. . . .13

"Although the CCIA is
immune from common law
bad faith actions, it is no
longer immune from claims
under 42 U.S.C. § 1983."

After Simon, then, private insurance carriers but not the CCIA can be sued for the common law tort of insurance bad faith because the CCIA still enjoys immunity from bad faith lawsuits under the Governmental Immunity Act. The CCIA, however, can be sued for damages under § 1983 if it deprives an injured worker of "any rights, privileges, or immunities secured by the Constitution and laws [of the United States]. . . ." Thus, if the CCIA violates an injured worker's federal statutory rights, or his or her rights to due process, equal protection, or any other constitutional protections, it would be liable in damages under § 1983 and for attorney fees incurred in prosecuting the § 1983 claims.

The Supreme Court was not asked to, and did not, address in dicta the question of whether the claimant's complaint stated facts on which relief could be granted under § 1983, and did not indicate what specific misconduct by the CCIA might be actionable. Case law on this question will be discussed in a future article in this column.

Equal Protection Challenges

Axelson v. Pace Membership Warehouse14 dealt with the relationship between temporary disability benefits and unemployment benefits. The claimant was injured in June 1990 and continued working through July 12, 1990, when she terminated her employment because of her injury. When the employer refused to pay total temporary disability ("TTD") benefits, she filed an administrative appeal and also...