Immunity Doesn’t Protect Local Governments from Administrative Penalties, Texas Court Rules

Political subdivisions in Texas can’t use governmental immunity to evade administrative penalties for failing to timely pay workers’ compensation benefits, a state appellate court ruled Tuesday.

A panel of the 3rd District Court of Appeals in Austin upheld a trial court ruling that the Texas Political Subdivisions Joint Self-Insurance Fund must pay $132,500 in administrative penalties and attorney fees for paying claims late, or not at all. The panel rejected an argument by the fund that the legislature did not pass a statute to waive governmental immunity until 2019, so it cannot be assessed penalties for violations that occurred in before then.

The appellate panel said the statute adopted in 2019 simply clarified existing law.

“Construing the provision at issue as a codification of existing law is consistent with the relevant common law and with the structure of the Workers’ Compensation Act as a whole,” the opinion says.

The Texas Division of Workers’ Compensation asked an administrative law judge to sanction the Self-Insurance Fund in November 2019 after an audit identified multiple instances where the fund had failed to accurately pay death benefits or accurately report claim data. Separately, the DWC sought penalties against the fund for failing to timely pay benefits to an injured worker that should have started in October 2017.

An administrative law judge found the the fund had underpaid death benefits in three cases by a total of $384,132 and levied $125,000 in administrative penalties. The ALJ also agreed with the division that the injured worker’s benefit payments were late and levied a $7,500 sanction against the fund.

The Self-Insurance Fund sought judicial review in Travis County District Court. Judge Madeleine Connor upheld the sanctions. The fund appealed again.

The 3rd District panel noted that the appellate court first ruled in 2020 that political subdivisions are subject to administrative penalties assessed by the division, which was called the Workers’ Compensation Commission at the time. In a case that involved the city of Eagle Pass and the Texas Municipal League Workers’ Compensation Joint Insurance Fund, the court held that “because municipalities and other political subdivisions of the state exist under the authority of the state and are subject to the state’s regulatory authority, such entities do not enjoy sovereign immunity from state regulatory authority.”

The Self-Insurance Fund argued that lawmakers did not waive immunity until they passed Senate Bill 2551 in 2019. The DWC countered that the statute simply clarifies existing law.

The appellate panel agreed with the DWC. The purpose of SB 2551 primarily was to change the claim process that governs workers’ compensation claims by first responders’ for death or disability from cancer, the opinion says. One provision of the new statute states that political subdivisions that self insurer are liable for administrative penalties and other sanctions.

The appellate panel said that an analysis of the bill by Senate staff called the new language a “non-substantive” change. What’s more, the panel said the Texas Supreme Court has never overruled its holding in Eagle Pass and in fact had cited the case that found the state was allowed to seek money damages form a political subdivision.

The panel affirmed the trial court’s decision finding the Self-Insurance Fund liable for the administrative penalties and attorneys’ fees.

Self-Insurance Fund Executive Director Scott Payne said the fund is disappointed by the decision and is evaluating its next steps. He said the fund is a “good performer” and administrative penalties against it are infrequent.

A spokesperson for the DWC said the division does not comment on pending litigation.