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Workers’ Comp/Insurance: Bad Faith Exhaustion of Remedies

Posted by Matt Schmidt | Jun 08, 2015 | 0 Comments

Merkens v. Federal Ins. Co., 713 Ariz. Adv. Rep. 28 (App. Div. I, May 21, 2015) (J. Portley)

WORKER MUST FIRST SEEK ADJUDICATION OF DENIAL OF COMPENSATION BENEFITS FROM INDUSTRIAL COMMISSION BEFORE BRINGING LAWSUIT FOR BAD FAITH/ATTYS' FEES UNDER ARS §12-341.01(A)

The plaintiff alleged injury from inhaling toxic substances at work. She brought a workers' compensation claim which was accepted by the carrier and which resulted in payment of ongoing medical expenses and temporary total disability payments. Thereafter the carrier had the plaintiff examined by multiple independent medical examiners. Once one of these IMEs resulted in a finding the plaintiff had not suffered a work related injury and should see a mental health provider, the carrier denied further benefits. The plaintiff then instituted this civil action for insurance bad faith. The carrier moved for summary judgment based upon plaintiff's failure to exhaust administrative remedies by seeking a reversal of the carrier's decision with the Industrial Commission.  The trial court granted the defendant carrier's motion and the Arizona Court of Appeals affirmed.

The court of appeals held that the Industrial Commission has exclusive jurisdiction to determine whether a worker has a right to benefits and if so the amount of those benefits. See Ariz.

Const. art. 18, §8; A.R.S. §§23-901 to -1104; -1022(A).  While Arizona allows a worker to seek bad faith tort damages against a carrier for wrongful denial or delay in paying benefits, the worker must first exhaust the jurisdictionally required remedy of a determination there is a compensable injury and its amount with the Industrial Commission. In the tort action the plaintiff may seek traditional tort damages proximately caused by the denial of workers' compensation benefits (e.g., damages for pain, humiliation and inconvenience, and pecuniary losses),  but not the damages resulting from the workplace injury.

Finally, the court of appeals found the trial court justified in denying the defendant's request for attorneys' fees under Ariz. Rev. Stat. §12-341.01(A) and further denied defendant's request for fees on appeal, because plaintiff demonstrated that she cannot work due to her workplace injury and is, as a result, financially destitute and unable to pay any award.

About the Author

Matt Schmidt

Matt graduated from the James E Rogers College of Law at the University of Arizona in passing the Arizona bar exam in 2010. Matt's primary interest in law focuses on general personal injury and insurance bad faith.

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