Arizona law states that employers who obtain Workers’ Compensation insurance and their insurance carriers are not liable for damages for injuries or death of an employee, unless the employee rejects Workers’ Compensation and elects to retain his or her right to sue in writing prior to being injured, or unless the employee is injured by the employer’s willful misconduct. In exchange, by law, the employer is responsible for compensating an employee injured while on the job. However, the employer’s liability is limited to specific benefits, including reasonable and necessary medical care for the employee’s injury and limited reimbursement of the employee’s lost wages. The tradeoff for the injured worker’s acceptance of limited benefits and loss of the right to sue is supposed to be quick payment of benefits. The Workers’ Compensation system was designed to avoid disputes and delays by allowing benefits, regardless of whether the injury was the employer’s fault, the injured worker’s fault, the fault of a co-worker or third party, or even an act of nature. Generally, if the injury arises out of work related risks and occurred in the course of employment, it is covered by Workers’ Compensation.
To pay the costs of Workers’ Compensation benefits, an employer can either self-insure, insure through the State Compensation Fund or obtain insurance from a private carrier. Unlike most insurance, Workers’ Compensation “coverage” is established not by a policy, but by law, administrative rules and decisions of courts. By law in Arizona, the initial determination of whether an injured worker is entitled to benefits and the amount of those benefits is made by the insurer, who obviously has a financial incentive to deny or limit benefits. As a result, the Workers’ Compensation system is vulnerable to abuse. An injured worker, without income and without medical benefits is especially vulnerable to manipulation of the system by the insurer. Because an injured worker’s recourse is limited by the system itself, the duty of good faith and fair dealing, implied in standard insurance policies, also applies to Workers’ Compensation claims.
In Arizona a self-insured employer or Workers’ Compensation carrier is required to act in good faith and may be liable for not doing so. Generally, a Workers’ Compensation bad faith claim arises when the carrier denies the employee’s claim, fails to appropriately process the claim, delays processing or paying the claim, fails to pay the full amount of benefits due, or initially pays on the claim but then reduces or terminates benefits. A Workers’ Compensation carrier often acts in bad faith knowing that many injured workers will not challenge the carrier’s claim decision, but that those who do will be subjected to the prolonged and rigorous process of obtaining a final favorable decision by the Industrial Commission. The carriers are armed with administrative and procedural hoops they can force the claimant to jump through to defeat the claim or at least to delay the final decision of the Industrial Commission. Consequently, many Workers’ Compensation carriers see little reason to not limit, delay or deny an injured worker’s claim. However, if the injured worker believes the carrier acted improperly or untimely, he may file a lawsuit for bad faith in court or he may assert a claim of bad faith in the Industrial Commission.
If a claim that a Workers’ Compensation carrier acted in bad faith is made in the Industrial Commission, penalties may be imposed by the Commission upon the carrier of twenty-five per cent of the benefit amount ordered to be paid or five hundred dollars, whichever is more. A history or pattern of violations can result in a penalty of up to $1,000 per violation.
If instead, a lawsuit alleging bad faith is filed in court, the injured employee may seek substantial damages in addition to the cost of his/her medical care and lost wages, including compensatory damages for pain, exacerbation of the injury, emotional distress etc., as well as costs and attorneys’ fees. By filing a Workers’ Compensation bad faith action in court, the injured employee may also seek an award of punitive damages. To win in court, an injured worker suing for bad-faith must effectively prove the objective unreasonableness of a carrier’s conduct and the carrier’s subjective awareness of the unreasonableness of its conduct. “Bad faith may exist if ‘in the investigation, evaluation, and processing of the claim, the insurer acted unreasonably and either knew or was conscious of the fact that its conduct was unreasonable.’”
A bad faith action filed in court usually alleges that the insurer failed to conduct a fair and adequate investigation of the worker’s claim, did not properly evaluate the claim and/or denied the claim without a reasonable basis for doing so. Often, such cases arise from the carrier’s unfair use of what is called an “Independent Medical Examination” (IME). Workers’ Compensation carriers can utilize IMEs to guide decisions regarding the need for ongoing treatment and whether a claimant’s medical condition is stationary. Sometimes however, the carrier utilizes a not-so-independent medical examination done by a known “friendly” doctor to predictably provide “justification” for denying or limiting a claim. It is bad faith for a carrier to utilize biased doctors or to limit or control the information and/or documentation provided to the doctor. A doctor’s bias can be revealed by introducing evidence of the extent to which his practice depends upon IME income from a particular carrier and the frequency with which the doctor concludes that continued treatment of the work-related injury is not necessary. However, discovering such evidence is not always easy, especially for someone not experienced in litigating a Workers’ Compensation bad faith lawsuit.
Recently, some Workers’ Compensation carriers, often with help from outside consulting firms, have developed programs to increase their profits by rewarding their claims adjusters for reducing payments on claims. Adjusters are sometimes paid substantial rewards for meeting targets for closing claims, reducing disability benefits, reducing medical expenses and for maintaining a low average payment per claim. These rewards obviously provide adjusters incentive to not pay the full benefits to which an injured worker is entitled. However, insurers maintain strict confidentiality of these incentive programs, claiming they are proprietary, making their discovery difficult for the unexperienced.
If you have a Workers’ Compensation claim that has been denied, delayed, underpaid and/or reduced, you should consider filing a Workers’ Compensation bad faith lawsuit against the insurer. Such a lawsuit can be filed even without first obtaining a final decision by the Industrial Commission. Although you may already have an attorney who represents you before the Industrial Commission, you should talk to an attorney who specializes in Workers’ Compensation bad faith and is an experienced trial lawyer. I have been litigating Workers’ Compensation cases since 1985, when the small firm I was with first established the right in Arizona of an injured worker to file a lawsuit alleging bad faith against a Workers’ Compensation carrier in court. Franks v. U.S. Fidelity and Guaranty, 149 Ariz. 291, 718 P.2d 193 (App. 1985). I will be happy to talk with you about your Workers’ Compensation claim during a free phone consultation.
 Zilisch v. State Farm Mut. Auto. Ins. Co., 196 Ariz. 234, 238, 995 P.2d 276, 280 (2000).