Arizona: Injured Employee Must Exhaust Administrative Remedies Before Bad Faith Action Against Insurer

An injured worker who was receiving medical treatment expenses and TTD workers’ compensation benefits may not sue her employer’s insurance company for bad faith and to recover unpaid benefits and related damages without first challenging the carrier’s decision to terminate those benefits with the state’s Industrial Commission. The court acknowledged that an employee could, under appropriate circumstances, proceed against an insurer in tort. If, for example, if the carrier’s conduct were independent of the workers’ benefit claim process, such conduct would not fall within the coverage of the Act and a tort action could stand. The court said the appropriate circumstances did not exist in the case, however. After receiving various medical reports indicating the employee’s lung condition might not be causally connected to her work, the carrier stopped paying benefits. The employee did not challenge the insurer’s decision at the Industrial Commission. Rather, she sued the insurance for breach of contract and bad faith. The court indicated the state’s Industrial Commission had exclusive jurisdiction to adjudicate claims for workers’ compensation. It added that to allow a plaintiff to seek damages based on a denial of benefits from the carrier without pursuing benefits through the workers’ compensation system would be akin to ordering that the benefits be paid for, thereby circumventing the Industrial Commission’s exclusive jurisdiction to decide the issue.

Thomas A. Robinson, J.D., the Feature National Columnist for the LexisNexis Workers’ Compensation eNewsletter, is the co-author of Larson’s Workers’ Compensation Law (LexisNexis).

LexisNexis Online Subscribers: Citations below link to Lexis 

See Merkens v. Federal Ins. Co., 2015 Ariz. App. LEXIS 62 (May 21, 2015) 

See generally Larson’s Workers’ Compensation Law, § 104.05 

Source: Larson’s Workers’ Compensation Law, the nation’s leading authority on workers’ compensation law.

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