Thompson v. Zurich American Insurance

Case: 10-51013 Document: 00511683982 Page: 1 Date Filed: 12/02/2011

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit

FILED
December 2, 2011

No. 10-51013 Lyle W. Cayce
Clerk

DENNIS THOMPSON,

Plaintiff - Appellant
v.

ZURICH AMERICAN INSURANCE COMPANY; SPECIALTY RISK
SERVICES, L.L.C.; JANET WATSON,

Defendants - Appellees

Appeal from the United States District Court
for the Western District of Texas

Before JONES, Chief Judge, HAYNES, Circuit Judge, and CRONE, District
Judge.*
HAYNES, Circuit Judge:
Dennis Thompson (“Thompson”) appeals the district court’s grant of
summary judgment in favor of Zurich American Insurance Company (“Zurich”),
Specialty Risk Services, L.L.C. (“SRS”), and insurance adjuster Janet Watson
(“Watson”) on his claim for wrongful denial and delay of workers’ compensation
benefits under Texas common law, the Texas Insurance Code, and the Texas
Deceptive Trade Practices Act (“DTPA”). Thompson’s arguments address only
the grant of summary judgment regarding the alleged bad faith denial of his

*
District Judge of the Eastern District of Texas, sitting by designation.
 Case: 10-51013 Document: 00511683982 Page: 2 Date Filed: 12/02/2011

claim, so we find all other claims waived.1 For the reasons set forth below, we
AFFIRM the judgment in favor of Appellees.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
This appeal arises from Appellees’ denial of workers’ compensation
benefits to Thompson after he suffered a torn meniscus while working as a
welder for Zachry Construction. On November 3, 2007, Thompson slipped on a
grading stake while attempting to investigate a possible fire. The company
doctor, Nicholas Baxter, ordered x-rays, which revealed no damage, and Baxter
thus diagnosed Thompson with a sprained knee and ankle. Thompson returned
to work and was put on light duty, yet resigned two weeks later.
After his resignation, Thompson continued to have pain in his right knee.
On February 26, 2008, Thompson sought care from his primary care physician,
Dr. David Drury, who recommended that Thompson obtain an MRI. The
resulting MRI revealed a torn meniscus, so Dr. Drury referred Thompson to Dr.
John Waldrop, an orthopedic surgeon. In response, the workers’ compensation
insurance carrier, Zurich, hired an independent third party service, SRS, to
handle Thompson’s claim. SRS then selected an orthopedic specialist, Dr. Alan
Strizak, to perform a records and peer review. Dr. Strizak concluded that the
meniscus tear was not work related, but was more likely an injury that pre-
dated Thompson’s work accident. On March 14, 2008, Zurich disputed both

1
Because Thompson has not raised any issue on appeal except for the Appellees’
alleged bad faith in denying Thompson’s claim, Thompson waives his other claims under the
Texas Insurance Code—i.e., Texas Insurance Code § 541.061 (misrepresentation). United
States v. Saldana, 427 F.3d 298, 306 n.21 (5th Cir. 2005) (finding that a party who fails to
brief an issue is considered to have abandoned the claim). Thompson also correctly conceded
at oral argument that, after the district court’s judgment in this case, the Texas Supreme
Court eliminated a workers’ compensation claimant’s ability to bring a cause of action under
Texas Insurance Code § 541.060. Tex. Mut. Ins. Co. v. Ruttiger, 54 Tex. S. Ct. J. 1642, 2011
WL 3796353, at *6-12 (Tex. Aug. 26, 2011). Lastly, because “we have determined that he
cannot recover on his Insurance Code claims, we likewise hold that he cannot recover on his
DTPA claim [premised on the Insurance Code violations].” Id. at *14.

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Thompson’s disability (his inability to obtain and retain employment at pre-
injury wages) and that the injuries identified in the MRI were related to his
compensable injury from November 3, 2007.
Thompson filed an administrative claim with the Texas Department of
Insurance, Workers’ Compensation Division (“WCD”) regarding resolution of the
questions of disability and compensability. As part of those proceedings,
Thompson was examined by Dr. Derry Crosby, who was neutrally appointed by
the WCD. On June 30, 2008, Dr. Crosby provided his written evaluation,
generally disputing Dr. Strizak’s conclusion that the meniscus tear was pre-
existing and suggesting that Thompson should not return to full work duties.
Dr. Crosby did note, however, that there was evidence of a pre-existing
degenerative condition in Thompson’s knee. Following Dr. Crosby’s report,
Appellees continued to dispute liability for the tear. In the November 21, 2008,
Contested Case Hearing that followed, the WCD ruled that Thompson’s
compensable injury did extend to the meniscus tear and that he was disabled as
a result. Zurich promptly instituted Thompson’s benefits, and Thompson began
orthopedic treatment. Zurich declined to pursue further administrative appeal.
On February 20, 2009, Thompson had surgery on his right knee.
Several months later, Thompson filed suit against Zurich, SRS, and
Watson. Thompson alleged common law claims for breach of the duty of good
faith and fair dealing for failure to conduct a reasonable investigation and that
Zurich had no reasonable basis for denying or delaying benefits. During the
course of this case, both Dr. Waldrop and Dr. Drury gave deposition testimony
to the effect that Dr. Strizak’s opinion was unreasonable. Appellees filed for
summary judgment on all claims. The district court granted summary judgment
in favor of Appellees on all grounds and imposed costs on Thompson, but denied
Appellees’ request for sanctions. Thompson timely appealed.

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II. STANDARD OF REVIEW
“We review a district court’s grant of summary judgment de novo, applying
the same standards as the district court.” Noble Energy, Inc. v. Bituminous Cas.
Co., 529 F.3d 642, 645 (5th Cir. 2008). As such, summary judgment is proper
when “there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a). This standard is
based not solely on “whether there is a sufficient factual dispute to permit the
case to go forward, but whether a rational trier of fact could find for the non-
moving party based upon the record evidence before the court.” James v. Sadler,
909 F.2d 834, 837 (5th Cir. 1990) (citation omitted). In addition, we must
“construe all facts and inferences in the light most favorable to the nonmoving
party.” Dillon v. Rogers, 596 F.3d 260, 266 (5th Cir. 2010).
III. DISCUSSION
Thompson’s medical benefits have been paid; the only issue on appeal is
whether Appellees complied with the duty of good faith and fair dealing in
resolving Thompson’s claim. Under Texas law, insurers have long had a duty
to deal fairly and in good faith with an insured in processing and paying claims.
See, e.g., Aranda v. Ins. Co. of N. Am., 748 S.W.2d 210, 212-13 (Tex. 1988);
Arnold v. Nat’l Cnty. Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987).2 To

2
The Texas Supreme Court’s recent decision in Ruttiger casts doubt on a claimant’s
future ability to bring a claim against a workers’ compensation insurance carrier based on a
breach of the common law duty of good faith and fair dealing. 2011 WL 3796353. According
to the four Justices representing the Ruttiger plurality, amendments to the Workers’
Compensation Act eliminated the need for a common law cause of action by addressing the
power imbalance inherent in the workers’ compensation system through a series of changes
aimed at removing insurers’ exclusive control over claim-processing, providing more
transparency to employees through neutral assistance programs, and providing multiple
remedies and penalties for insurers’ violations of the Act. Id. at *17. In their view, an extra-
statutory cause of action “distorts the balances struck in the Act and frustrates the
Legislature’s intent to have disputes resolved quickly and objectively.” Id. at *18.
The three dissenting Justices, however, concluded that the Act does not reflect
legislative intent to abrogate the good faith cause of action and they would thus maintain a

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avoid liability for denying or delaying a claim, an insurer must establish a bona
fide controversy with a reasonable basis for denial or delay, “even if that basis
is eventually determined . . . to be erroneous.” Lyons v. Millers Cas. Ins. Co. of
Tex., 866 S.W.2d 597, 600 (Tex. 1993); see also Higginbotham v. State Farm Mut.
Auto. Ins. Co., 103 F.3d 456, 459 (5th Cir. 1997).3
As relevant to this appeal, an insurer has a duty to conduct a reasonable
investigation. Giles, 950 S.W.2d at 56 n.5. In turn, the insurer is allowed to rely
upon experts as to matters requiring expertise (such as medical causation), but
such reliance must be reasonable. See id. at 81 (citing Lyons, 866 S.W.2d at 600-
01)(Enoch, J., concurring); Provident Am. Ins. Co. v. Castaneda, 988 S.W.2d 189,
193 (Tex. 1998); State Farm Lloyds v. Nicolau, 951 S.W.2d 444, 448 (Tex. 1997)).
To determine whether Appellees denied or delayed payment after liability
became reasonably clear, Giles, 950 S.W.2d at 56, one looks to an objective
standard to determine whether “‘a reasonable insurer under similar
circumstances would have delayed or denied the claimant’s benefits.’” Republic
Ins. Co. v. Stoker, 903 S.W.2d 338, 340 (Tex. 1995) (quoting Aranda, 748 S.W.2d
at 213). It is well settled that a physician’s opinion on the medical foundation
for a claim may be a reasonable basis for an insurer to dispute a claim, but it is

common law duty of good faith and fair dealing on insurers regarding workers’ compensation
claims. Id. at *24-27. Two Justices declined to rule, as the matter had not been first
considered by the court of appeals. Because a majority of the court has not yet eliminated the
common law duty of good faith and fair dealing at this time, we address the claim here.
3
Aranda created a two-prong basis for establishing a bad faith claim. The insured
must establish first “the absence of a reasonable basis for denying or delaying payment of the
benefits of the policy”; and second, “that the carrier knew or should have known that there was
not a reasonable basis for denying or delaying payment of the claim.” 748 S.W.2d at 213.
While caselaw often echoes this formulation of the standard, the Texas Supreme Court
clarified the standard in Universe Life Ins. Co. v. Giles, 950 S.W.2d 48 (Tex. 1997), by turning
from a “no reasonable basis” standard to one that requires showing an insurer’s failure to
settle (or pay) “a claim after its liability has become reasonably clear.” Id. at 56.

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not without limits. Nicolau, 951 S.W.2d at 448 (citing Lyons, 866 S.W.2d at
601).
A. Reliance on Dr. Strizak’s Report
Appellees argue they reasonably relied on Dr. Strizak’s peer review, which
determined that Thompson’s injury was pre-existing and thus not compensable.
Thompson, on the other hand, cites Nicolau, which held that a carrier’s reliance
on an expert report may be brought into question if the “report was not
objectively prepared” or “the insurer’s reliance on the report was unreasonable.”
Id. Thompson alleges that Dr. Strizak’s opinion was biased in favor of Appellees
based on several factors, including the contrary expert opinions of three other
doctors, Watson’s failure to contact Dr. Drury about the initial examination, Dr.
Strizak’s repeated employment and compensation by insurance companies, and
Dr. Strizak’s reliance on only fourteen pages of records, rather than examining
Thompson or the MRI films. We will discuss these contentions in turn.
1. Conflicting Expert Opinions
Conflicting expert opinions, by themselves, do not establish that the
insurer acted unreasonably in relying on its own expert. See, e.g., Transp. Ins.
Co. v. Moriel, 879 S.W.2d 10, 18 (Tex. 1994); Lyons, 866 S.W.2d at 600; Guajardo
v. Liberty Mut. Ins. Co., 831 S.W.2d 358, 365 (Tex. App.—Corpus Christi 1992,
writ denied). “In addition to the conflicting expert opinion, the party alleging
bad faith must also bring direct or circumstantial evidence showing that the
carrier’s expert’s opinion was questionable and that the carrier knew or should
have known that the opinion was questionable.” Guajardo, 831 S.W.2d at 365.
Dr. Strizak has well-documented credentials. Thompson was also initially
diagnosed with only a sprain, and the subsequent request for an MRI and
referral to an orthopedist for a torn meniscus was significantly
removed—roughly three months—from the initial work-related injury. On these

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facts, there is no material dispute that shows Appellees acted unreasonably in
denying Thompson’s claim on the basis of Dr. Strizak’s report.
Thompson nonetheless argues extensively about Dr. Drury and Dr.
Waldrop’s disagreement with Dr. Strizak’s opinion. Texas law, however, is clear
that an insurer’s reliance on an expert’s opinion must be evaluated based upon
knowledge at the time of the dispute, not information that comes to light later.
See, e.g., Stoker, 903 S.W.2d at 341 (“[W]hat is dispositive is whether, based
upon the facts existing at the time of the denial, a reasonable insurer would have
denied the claim.”); Viles v. Sec. Nat’l Ins. Co., 788 S.W.2d 566, 567 (Tex. 1990)
(“Whether there is a reasonable basis for denial . . . must be judged by the facts
before the insurer at the time the claim was denied.”). The record shows that
Dr. Waldrop did not see Thompson until after the benefits dispute was resolved.
Further, even though Dr. Drury disagreed with Dr. Strizak’s findings, he did not
convey his opinion to Appellees or dispute Dr. Strizak’s report because he
regarded Dr. Strizak as an orthopedic surgeon with more expertise on the
matter. Dr. Waldrop’s and Dr. Drury’s opinions may support the inference that
Dr. Strizak was incorrect in his conclusion, but that does not establish bad faith.
See Moriel, 879 S.W.2d at 18.4
2. The Basis for Dr. Strizak’s Medical Opinion
Thompson next argues that Dr. Strizak’s opinion was unreasonable
because it was not supported by Thompson’s medical records. Dr. Strizak’s
opinion, however, was substantiated by an extensive medical analysis of the
effects of certain degenerative conditions. Dr. Strizak may not have found prior
treatment for knee injuries in Thompson’s medical records, but his opinion that
Thompson’s injury was pre-existing was supported by a documented medical

4
Dr. Crosby’s report, discussed more fully below, was not available at the time of the
initial denial and, therefore, cannot be a basis for finding the initial denial to be in bad faith.
See Stoker, 903 S.W.2d at 341.

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basis. To establish bad faith, the plaintiff must show, not an expert’s
unreasonableness, but that the omission in the expert’s investigation is of such
magnitude as to affirmatively cast doubt on the insurer’s basis for denial. See
Lyons, 866 S.W.2d at 601 n.3 (noting that the bad faith claim is based not on the
validity of the claim, but on the reasonableness of the insurer’s conduct in
rejecting the claim). Though Dr. Strizak did not physically treat Thompson—he
relied exclusively on medical reports—Thompson does not raise a fact issue that
Dr. Strizak acted contrary to what a doctor is required to, or should, do in the
process of completing a peer review investigation. See Maynard v. State Farm
Lloyds, No. 3:00-CV-2428-M, 2002 WL 1461923, at *5 (N.D. Tex. July 2, 2002)
(rebuking insured’s claims as to the deficiencies in an expert’s report because the
insured provided no evidence “that such inspectors usually do [differently] in the
process of completing an investigation”). Thompson shows little more than a
“scintilla of evidence” upon which a jury could find in his favor, and that is not
sufficient to escape summary judgment. See Sadler, 909 F.2d at 837.
3. Dr. Strizak’s Alleged Bias
Thompson also argues that Dr. Strizak was biased. To show bad faith and
a pretextual investigation, Thompson must show much more than Appellees’
hiring someone who primarily works for insurance companies. See, e.g.,
Travelers Pers. Sec. Ins. Co. v. McClelland, 189 S.W.3d 846, 854 (Tex.
App.—Houston [1st Dist.] 2006, no pet.).
Thompson’s reliance on Nicolau and State Farm Lloyds v. Hamilton, 265
S.W.3d 725 (Tex. App.—Dallas 2008, pet. denied) is unavailing because his
argument makes inferences that the record does not support. In both cases,
there was evidence that the insurer’s expert was chosen specifically because of
a predilection to decide consistently one way—in favor of the insurer. See
Nicolau, 951 S.W.2d at 449; Hamilton, 265 S.W.3d at 734. For example, the

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insurer in Nicolau hired an expert with a specific and well-known opinion about
whether water leaks cause foundation damage. Nicolau, 951 S.W.2d at 448-49.
In fact, out of nearly one hundred reports conducted by the expert, only two
found damage that would contribute to insurer liability. Id. at 449. Moreover,
the insurer admitted knowing this when the expert was hired. Id. at 448-49.
Thompson argues that Dr. Strizak is biased because Appellees pay him
handsomely, he works extensively for insurance companies, and SRS’s adjuster
could not name any other doctors that SRS used. However, there is nothing in
the record showing that Dr. Strizak gave opinions predominantly in favor of
insurers or that Appellees had knowledge of such a predisposition. Ultimately,
it would be far too demanding and impractical to require insurers to hire a
different doctor for every medical record review or be faced with judicial review
of its decision to rely upon a credentialed expert. We thus conclude that
Thompson has not raised a material factual dispute on this issue.
B. Aggravation
Aggravation of pre-existing injuries is included in the definition of a
“compensable” injury under Texas law. See, e.g., Kreinik v. Ne. Indep. Sch. Dist.,
No. 04-06-00079-CV, 2007 WL 602606, at *1 (Tex. App.—San Antonio Feb. 28,
2007, no pet.); Allstate Tex. Lloyds v. Mason, 123 S.W.3d 690 (Tex. App.—Fort
Worth 2003, no pet.). Thompson thus argues that Appellees must completely
rule out aggravation by showing that a pre-existing condition is the “sole cause”
of the present incapacity for an insurer to reasonably deny coverage on that
basis. See Tex. Emp’rs Ins. Ass’n v. Page, 553 S.W.2d 98, 100 (Tex. 1977). This
argument ignores Texas authority requiring that the injury be a “producing
cause” of the complained incapacity, “defined as a substantial factor in bringing
about an injury or death, and without which, the injury or death would not have
occurred.” Transcon. Ins. Co. v. Crump, 330 S.W.3d 211, 223 (Tex. 2010)

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(emphasis added). Dr. Strizak’s report found the injury “not causally related to,
aggravated by, or accelerated by” the incident. This is precisely the rationale
Appellees relied on in denying the claim initially. Without any evidence that
Appellees had knowledge to the contrary at the time of the initial denial,
Thompson cannot establish bad faith as a matter of law.
C. Appellees’ Continuing Duty to Investigate
Though Thompson has not raised an issue of material fact that could
establish Appellees initially denied coverage even though it had become
“reasonably clear,” Giles also established that “[a]n insurer will not escape
liability merely by failing to investigate a claim so that it can contend that
liability was never reasonably clear. . . . [A]n insurance company may also
breach its duty of good faith and fair dealing by failing to reasonably investigate
a claim.” 950 S.W.2d at 56 n.5; see also Hamburger v. State Farm Mut. Auto.
Ins. Co., 361 F.3d 875, 880 (5th Cir. 2004) (noting that Texas courts do not
require an insured to be legally entitled to recover to find coverage is “reasonably
clear”). The question then centers around the intervening months between Dr.
Crosby’s opinion (as the WCD designated doctor) and the ultimate decision to
pay after the adverse ruling in the Contested Case Hearing. We bear in mind
also that even though Dr. Crosby’s analysis ultimately found “conflict with the
overall outcomes suggested by Dr. Strizak,” he agreed “with Dr. Strizak in the
fact that the popliteal cyst probably predated the injury” and that there “may
have been some degenerative changes.”
Giles clearly establishes that an insurer may not summarily reject an
initial claim, thereafter refusing to undertake additional investigation or
consider the merits of an insured’s claim. The Texas Supreme Court has,
however, limited an insurer’s duty to continuously investigate a claim, simply
stating that “[a]n insurance company’s obligation to investigate is obviously not

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unlimited.” State Farm Fire & Cas. Co. v. Simmons, 963 S.W.2d 42, 44 (Tex.
1998). The standard Simmons articulates is notably dependent on the
circumstances of the dispute—“[t]he scope of the appropriate investigation will
vary with the claim’s nature and value and the complexity of the factual issues
. . . .” Id. at 44-45. In addition, the temporal inquiry must “begin[] by
determining whether liability became reasonably clear and end[] by focusing
upon the insurer’s actions thereafter.” Tucker v. State Farm Fire & Cas. Co., 981
F. Supp. 461, 466 (S.D. Tex. 1997).
In the case before us, roughly three months elapsed between the time
Appellees initially denied Thompson’s claim and Dr. Crosby issued a report
contradicting Dr. Strizak. Another five months passed until Zurich paid
Thompson’s claim. We are thus faced with the question of Appellees’ obligations
in light of new contradictory evidence. See City of Keller v. Wilson, 168 S.W.3d
802, 818 (Tex. 2005) (“[W]hile an insurer’s reliance on an expert report may
foreclose bad faith recovery, it will not do so if the insurer had some reason to
doubt the report.” (quoting Nicolau, 951 S.W.2d at 448)). Though most Texas
insurance cases in this area deal with an insurer’s duty at the time of initial
denial, Simmons, Tucker, and Giles illuminate the proposition that an insurer
does have at least some continuing duty to the insured even after an initial
reasonable denial.
Given the case-specific nature of this inquiry, see Simmons, 963 S.W.2d at
44-45, we examine Thompson’s evidence against the backdrop of the Texas
Workers’ Compensation Act’s strict dispute resolution process. See generally
Am. Motorists Ins. Co. v. Fodge, 63 S.W.3d 801, 802 (Tex. 2001) (holding that
extra-contractual exposure for the denial of a non-covered claim is not possible
due to the detailed regulatory process encompassed in the Workers’
Compensation Act). This process involves a four-tier system: the parties first

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participate in a benefit review conference, followed by a contested case hearing,
review by an appeals panel, and finally judicial review. TEX. LAB. CODE ANN. §§
410.021, 410.104, 410.201, 410.251 (West 2006). This process is detailed and
comprehensive, incorporating a “conveyor-belt” approach, where “once the
administrative dispute resolution process is initiated, a dispute continues
through the process until the dispute is either resolved by the parties or by a
binding decision through the resolution procedures.” Ruttiger, 2011 WL
3796353, at *9. This administrative process is also governed by extensive
penalty and sanction provisions for “failing to process claims promptly and in a
reasonable and prudent manner, controverting a claim if the evidence clearly
indicates liability, and failing to comply with the Act.” Id. (citing TEX. LAB. CODE
§§ 409.021(e), 415.002(a)(11), (18), (22)). It is within this framework that
insurance companies are required to participate in resolving workers’
compensation disputes.
Although Thompson may hypothesize over countless additional
investigatory steps, Appellees followed their standard peer review process and
relied on their expert’s advice, then dutifully participated in the WCD’s
administrative proceedings. Though one neutral doctor partially controverted
Appellees’ expert, Appellees only denied coverage until resolution of the
Contested Case Hearing—the second step in the administrative process.
Appellees then promptly paid Thompson’s claim without availing themselves of
the last two steps of review, knowing full well that an insurer is within its right
to dispute a claim despite conflicting expert opinions. Ultimately, insurers do
not have a “duty to leave no stone unturned,” State Farm Lloyds, Inc. v. Polasek,
847 S.W.2d 279, 288 (Tex. App.—San Antonio 1992, writ denied), especially
when undergoing the administrative process the legislature created for this
purpose.

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The “Texas Constitution confers an exceptionally broad jury trial right
upon litigants.” Giles, 950 S.W.2d at 56. Nevertheless, the plaintiff still must
show there is a material issue of fact about whether the insurer denied coverage
despite an indication that coverage had become “reasonably clear” or the insurer
acted unreasonably in failing to investigate. Construing “all facts and inferences
in the light most favorable to the nonmoving party,” Rogers, 596 F.3d at 266,
there is no material factual dispute at issue.5 The evidence that puts reliance
on Dr. Strizak’s report in doubt was gathered during the course of this post-
payment litigation, not the administrative process. We conclude that Thompson
has failed to raise a material fact issue with respect to his common-law bad faith
cause of action.
AFFIRMED.

5
Because we hold that Thompson has presented no issue of material fact in dispute
regarding Appellees’ duty of good faith under these facts, we need not further discuss the
specific parameters of the extent to which a carrier must continue to investigate a claim after
the initial denial of benefits.

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