Tapia v. Indus. Comm’n of Ariz. – 8/16/2018

September 10, 2018

Arizona Court of Appeals Division Two holds that in evaluating a workers’ compensation claim, a self-insured employer is responsible for its own communications failures.

A cleaner injured herself while working at a hospital.  She completed an incident report with her supervisor and then went to the emergency room at the hospital.  The hospital is self-insured under the workers’ compensation system.  In its initial investigation of the claim, the hospital made an unsuccessful attempt to contact the cleaner’s department for information.  The hospital did not do anything else to verify the claim.  The hospital denied the cleaner’s claim, alleging that she failed to report the incident.  

The cleaner sought review with the Industrial Commission and obtained an award.  She then filed a complaint for bad faith and/or unfair claim processing practice.  After a hearing, the administrative law judge found the hospital acted reasonably.  After review, the judge affirmed the denial.  The Court of Appeals accepted a petition for special action and reversed.

A self-insured employer commits unfair claim processing when it “[u]nreasonably issues a notice of claim status without adequate supporting information in its possession or available to it.” Ariz. Admin. Code R20-5-163(B)(1).  An employer typically needs adequate supporting information for its decisions.  But employers must also promptly report any claim denial.  It is not unreasonable to deny claims when the employer lacks adequate information through no fault of its own.

The Court of Appeals held that the hospital’s denial of the claim here was unreasonable because it failed to conduct even a basic investigation.  The hospital only attempted to contact the worker’s department.  It failed to conduct the industry-standard three-point investigation of contacting the injured party, the supervisor, and the treating doctor.  The hospital also could have requested the claim form from the Industrial Commission.  

Employees, employers, and physicians are all required to report claim-related incidents to the insurer.  The hospital here argued that “a confluence of communication and reporting failures” by other parties caused a good faith mistake.  But the cleaner’s supervisor and the treating physician were both associated with the hospital.  The hospital was responsible for any failure to communicate within the organization or to complete typical paperwork.  The right hand cannot excuse itself for the failures of the left. 

Judge Eckerstrom authored the opinion; Judges Staring and Eppich concurred.