5.1.7 Workers' Compensation

• Jurisdiction: Arizona

Arizona's Workers Compensation Act does not bar a common-law tort action for bad faith.^[106] Bad faith is a separate tort that does not occur as a direct or natural consequence of the original compensable injury.^[107] Therefore, the exclusive remedy provisions of the Workers' Compensation Act do not apply.^[108]

After the Arizona courts determined that the exclusive remedy provisions of the Workers' Compensation Act did not bar common-law actions for bad faith, the legislature enacted A.R.S. Sec. 23-930. This statute purported to grant the Industrial Commission exclusive jurisdiction over bad faith complaints,^[109] and established presumptive damages for bad faith claims^[110] and administrative penalties to deter repeated unfair claims processing or bad faith.^[111] A.R.S. Sec. 23-930 also required the commission to adopt by rule their definition of unfair claims processing practices and bad faith.^[112]

A.R.S. Sec. 23-930 was interpreted by the trial and appellate courts as preempting and divesting all state court jurisdiction over workers' compensation bad faith cases. The court recently analyzed this issue and determined that the statute was enacted to establish an administrative forum as an alternative to, or supplement for, the more expensive and complicated legal system.^[113] Therefore, the court held that A.R.S. Sec. 23-930 did not vest the Industrial Commission with exclusive jurisdiction over common-law bad faith claims.

Arizona's workers' compensation statutory scheme provides elaborate requirements for the processing of compensation claims. Checks and balances have been utilized throughout the statutory scheme to balance the interests of the injured worker with the need by insurance companies for claim information. As an example, under AAC R20-5-116, an insurance company is required to pay bills for medical, surgical, and hospital benefits provided under A.R.S. Sec. 23-901 et seq. promptly. At the same time, workers' compensation laws impose upon physicians, who treat industrial patients, certain obligations which are tied to payment. If an employee's disability lasts beyond 7 days, as an example, then the attending physician must provide the insurance company with a report every 30 days describing the treatment being rendered and the employee's prognosis.^[114] Each report must be signed by the physician. An insurance company "may withhold payment to a physician for services rendered to a claimant until the physician complies" with this reporting...