Claimant Must Establish Entitlement to Benefits Before Bad Faith Suit

(Merkens v. Federal Insurance Co., Court of Appeals, Division One, Opinion, Filed 5/21/15)

In this bad faith case, the Court of Appeals was asked to address whether an injured worker, who was receiving active care and temporary total disability (TTD) can sue the workers compensation carrier for bad faith and recover unpaid benefits or damages without first challenging the carrier’s termination of benefits at the Industrial Commission of Arizona.

Merkens was injured in 2010 and Federal Insurance Co. accepted the claim and paid her medical expenses and TTD. Following a series of independent medical exams (IMEs), Federal issued a notice terminating active medical care without permanent disability. She did not protest the closure, but elected to sue Federal in Superior Court for breach of contract and bad faith. The Superior Court judge granted Federal’s motion for summary judgment, ruling that Merkens had failed to establish that any damages she suffered were separate and apart from her workplace injury.

On appeal, Merkens argued that she could pursue her bad faith claim without pursuing her administrative remedies and obtaining a final award from the ICA. The Court of Appeals disagreed. It held that the ICA has exclusive jurisdiction to determine if additional benefits were due by the carrier. If the ICA determined that, in fact, additional benefits were due, then a jury or Superior Court judge could determine if the Carrier’s actions in closing the claim without permanent disability were in bad faith. Without such a finding, no bad faith claim could be pursued.

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