Texas is the only state that doesn’t make workers compensation insurance mandatory for at least some employers. This is a shame, because workers’ compensation insurance is beneficial to both employees and employers as Sally Spooner, a school teacher, and the Cody School District, her employer, recently found out.

The Cody School District is the local school district in Cody, Wyoming. Recently, the district decided to discontinue providing workers compensation insurance for their employees as the superintendent and school board felt that $175,000.00 in annual premiums was not a good way to save money for the district. They couldn’t have been more wrong. One of their teachers, Sally Spooner, slipped and fell and ended up having to have her right let amputated just below the knee after suffering serious injuries. Now, this incident will likely cost the district far in excess of what they would have paid in annual workers’ comp premiums.

This incident illustrates the give and take of the workers’ compensation system. For employers, workers’ compensation insurance protects them from the big money judgments for pain and suffering, loss of future earning capacity, loss of consortium, disfigurement, etc. Typically, workers’ compensation claimants recover their medical expenses, lost wages and some kind of future impairment benefit. They downside for the employer is that workers compensation is no-fault insurance. Thus, even if an employee is injured through no fault of the employer, the insurance compensates the claimant. For the claimant, obviously they receive benefits without having to prove fault–and typically those benefits start being paid very quickly versus the length of time it would take if you had to prove negligence in a court of law. However, the injured claimant gives up the right to sue their employer for their employer’s negligence in causing the injury. Thus, the injured party cannot recover the big money damages that we often hear about in the news. Thus system serves both parties equally. But more importantly, providing workers’ compensation insurance for employees is the right thing to do. Just look at the comments to the hyperlinked article about Ms. Spooner, above, to see what I mean.

This week the Eastland Court of Appeals affirmed an order by the trial judge for sanctions against two Attorneys General for frivolous filing of a lawsuit.

The case, titled State Office of Risk Management v. Foutz, involved a Texas Department of Criminal Justice corrections officer who witnessed the stabbing and murder of an inmate and was powerless to stop the event. As a result, she developed Post-Traumatic Stress Disorder, or P.T.S.D., and filed a workers’ compensation claim. The State Office of Risk Management (SORM) is the state agency charged with handling workers compensation claims for state employees. SORM disputed the claim but requested that Officer Foutz be seen by one of their doctors. When even SORM’s own doctor concluded that Officer Foutz suffered from PTSD, the Division of Workers Compensation found in favor of Officer Foutz. As a result, SORM appealed the division finding by suing Officer Foutz in state court to overturn the Division of Workers’ Comp’s finding. After a jury heard the evidence and ruled for Officer Foutz, the trial judge ordered the two trial attorneys to explain why they and SORM should not be sanctioned or fined for taking up the Court’s time by filing such a frivolous lawsuit. After hearing their explanation, the trial judge sanctioned the two attorneys $5,000 and $3,000 and sanctioned SORM $100,000. The Court of Appeals upheld the sanctions but sent the matter back to the trial judge to explain the $100,000 sanction against SORM.

What is important about this case, besides the fact that this brings to light the misdeeds of SORM, is that in Texas you cannot sue the State Office of Risk Management for bad faith handling of a workers’ compensation claim. The only way to punish SORM is through the imposition of sanctions. Thus, until the Texas Legislature changes the law to allow its own employees to seek justice when their workers claims are mishandled, we will have to rely upon the courage of judges like those in the Foutz case. Unfortunately, the trial judge in this case was retiring (which may explain his courage in assessing these sanctions). Judges in Texas are elected and are often reluctant to impose sanctions despite such egregious behavior because of the effect it might have on their re-election efforts.

While large, multi-national insurance companies like AIG are struggling to stay solvent, one workers compensation carrier in Texas is doing quite well. Texas Mutual Insurance Company is the largest workers compensation insurer in the state. It was created in 1991 by the Texas Legislature because of the lack of insurers doing business in Texas. In 2001 the Texas Legislature redesigned their charter and they became a mutual insurance company. What this means is that the company is owned by the policy holders rather than being a publicly held corporation. What this also means is that instead of paying dividends to stock holders, it pays dividends to its policy holders.

Yesterday, Texas Mutual Insurance Company announced they were paying $818,000 in dividends to policy holders in the retail and construction purchasing groups. What this means is that retailers like Walmart or construction companies like Linbeck Construction, if they have workers compensation insurance with Texas Mutual, enjoyed a rebate check from Texas Mutual for the financial success Texas Mutual is experiencing. This announcement comes on the heels of a $446,000 dividend payment in November to policyholders in the manufacturing group.

Even more significant was the announcement by Texas Mutual that in the past ten years they have paid policyholders more than half a billion dollars in dividends. Those familiar with Texas politics are aware that the favorite whipping boy of the insurance industry and the Texas Legislature is the workers compensation industry. While Texas Mutual is enjoying healthy profits, in the last ten years claimants have seen increasing restrictions to their right to recover benefits.