Merkens v. Federal Insurance (CA1 5/21/15)

Explaining a procedural requirement for a bad-faith claim in workers’ compensation.

Merkens received workers compensation benefits after inhaling a toxic substance at work. An IME eventually said she wasn’t harmed so Federal terminated the benefits. She sued it for breach of contract and bad faith. Federal moved for summary judgment, arguing that she first had to challenge its decision before the Industrial Commission. The Superior Court granted the motion; she appealed. The Court of Appeals affirms.

The court first reviews the history of workers’-compensation bad faith. “To date, the Arizona cases addressing a bad faith claim in the workers’ compensation context have involved injured workers who had or were pursuing a compensability determination before the Industrial Commission.” “Here, however, Merkens did not seek a determination from the Industrial Commission that she was entitled to continuing benefits. Instead, she claims she is entitled, in her superior court action, to recover the unpaid compensation and medical benefits related to her injury caused by Federal’s termination of her benefits, as well as related tort damages.”

And that’s why her claim fails. “Even if we assume [bad faith], the finder of fact would have to make a compensability determination to find that Federal unreasonably terminated Merken’s benefits.” But “the Industrial Commission has the exclusive jurisdiction to determine whether the injured worker is entitled to benefits and the amount of those benefits.” Franks (1985), allowing workers’-compensation bad faith, did not – and could not because its constitutional law – change that.

The court also affirms the trial court’s denial of fees, and itself denies costs, on hardship grounds. That would be unremarkable except that the court sees fit to throw in that “the hardship [was] caused by Federal’s decision.” So Federal “caused” Merken to be poor by not paying her money she has shown no right to? And if she did have workers’-comp benefits, that would be enough to defeat a claim of hardship? We wonder what the court thinks the quoted phrase adds to the opinion.

(link to opinion)