Mary Barrow Nichols was a lawyer at Vinson & Elkins in 1995 when she was offered the general counsel’s job at a startup called Texas Mutual Insurance, which was the product of the newly reformed Texas workers’ compensation system.
Nichols decided to take it and called then-V&E partner David Brown, who had been her mentor.
“You are now the person who cares more than anyone else about how the new Texas workers’ compensation law works,” Brown, who is now a lawyer at Copeland & Rice, told the young attorney.
“Those words clarified my approach to the job and provided the North Star for much of my decision-making over what fights were worth having,” she said. “It turns out he has been right for 26 years.”
No one doubts that Nichols has been the most ardent and aggressive defender of Texas workers’ comp. She has taken hundreds of disputes to court and has overseen multiple precedent-setting decisions. Texas Mutual now has annual revenues of $1.4 billion.
Nichols retires this Friday, April 1.
“I have been practicing law for over 37 years, so I am clearly in retirement territory,” Nichols told The Texas Lawbook. “I also have my first grandchild – a beautiful little girl – and I want to spend time with her and her parents, who have recently moved into our neighborhood here in Austin.
“I look forward to seeing what leisure time has to offer,” she said. “I love to travel and very much hope that circumstances will allow more of it.”
Rich Gergasko, president and chief executive officer of Texas Mutual, said Nichols vigorously defended the workers’ compensation system from the start. He pointed out that she and her legal team successfully battled abusive health care practices and convinced the Texas Supreme Court to remove the tort of bad faith from the Texas workers’ comp law.
“From day one, Mary provided sound advice and counsel on many sensitive issues, and she has built an exceptional team in the office of the general counsel to succeed her,” Gergasko said in a written statement. “She fought to defend the system and did so with the utmost of integrity.”
A 1985 graduate of the University of Texas School of Law, Nichols was awarded the Texas General Counsel Forum Magna Stella Award in 2012 for major litigation in support of the workers’ compensation system.
The Texas Lawbook asked Nichols four questions about her career.
Texas Lawbook: We first wrote about you in 2012 when you won the Magna Stella Award. What are two or three of your biggest litigation successes during your time at Texas Mutual and why were they important wins?
Mary Nichols: Some background is necessary. In the 1980s, the Texas workers’ compensation system failed catastrophically, and the commercial carriers largely abandoned the state. In 1989 and 1991, the Texas Legislature did a remarkable job enacting legislation that fully reformed the system and made it viable again. It also created the new entity (now called Texas Mutual Insurance Co.) so that Texas businesses could obtain workers’ compensation coverage. That law is very carefully crafted to give workers and their employers a fair and viable system for compensating injuries and efficiently resolving disputes about them.
Some participants did not like the new playing field. For example, healthcare must be rate-regulated for the system to deliver rapid and complete care to injured workers at reasonable prices. This is particularly important in Texas, which is the only state that allows employers to decline workers’ comp coverage. Healthcare providers of various kinds challenged the system and sometimes tried to game around it. We litigated important issues with hospitals, third-party pharmacy billers and air ambulances, among others. The PHI Air case was particularly important, because PHI and other air ambulance companies claimed that the federal Airline Deregulation Act exempted them from the Texas law. Air ambulances had won this argument in a number of other states. But the Texas Supreme Court, in a well-reasoned 50-page decision, held that these entities had to play by the Texas rules or the insurers would owe them nothing.
Perhaps the biggest success for Texas Mutual and the Texas workers’ compensation system was the 2012 Ruttiger case. That case clarified – in another well-reasoned 50-page decision from the Texas Supreme Court – that the reformed law had no place for the bad faith cause of action. Rather, the Court stated that the Aranda case, which introduced the tort of bad faith into the pre-reformed system, was “rooted in specific claims-handling inequities in the pre-1989 comp system, inequities the Legislature has rebalanced.” If Aranda were not overturned, it said, “the continued existence of bad-faith claims will subvert the Legislature’s meticulous soup-to-nuts system, one augmented by an immense regulatory and adjudicative framework that, taken together, now regulates virtually every aspect of how a carrier handles a workers’ comp matter.” It concluded that “the time has come for the Court – exercising its authority to define and delimit common-law remedies – to overrule Aranda, a judicial gap-filler whose underlying rationale no longer exists.” Lower courts have cited Ruttiger in support of the system more than 180 times.
Lawbook: You have focused significantly on pursuing fraudulent users. I think back on the case against Granbury Contracting and Dr. Howard Douglas. How has insurance fraud regarding workers’ comp evolved over the years and how have your investigations/prosecutions evolved?
Nichols: Before I joined Texas Mutual, I represented the former residual market insurer in pursuing perpetrators of premium fraud, which had racked that company. The pattern of premium fraud has not changed much over the years – one way or another the scheme usually involves hiding payroll – either through misclassification of employees as independent contracts or keeping separate sets of books and records.
On the healthcare front, our antifraud group became more sophisticated in finding billing misrepresentations, which are very labor-intensive but have paid off in big recoveries. For example, the company recovered millions from a scheme in which a provider fraudulently billed for one-on-one physical therapy when in fact group therapy was provided, which is billed at a much lower price. Our use of data analytics has allowed us to speed up these time-consuming investigations.
Finally, the system regulator has information indicating sometimes massive billing fraud committed by claimant lawyers. These are difficult but important cases, as those attorneys’ fees are deducted from the claimants’ income replacement checks. So, although our company is not the victim, it is nonetheless committed to investigating and referring these practices.
Lawbook: What was your best day at Texas Mutual?
Nichols: My two best days were June 22, 2012, and June 26, 2020. These are the dates that the Texas Supreme Court delivered the Ruttiger and PHI Air opinions. They show that our highest state court understands and will protect the Texas workers’ compensation system, which is the only one among the 50 states that has been fully reformed. Such decisions support Texas businesses and workers and are important to the state’s continuing prosperity. Those were two good days for all of us.
Lawbook: How has the role of the general counsel changed over 25 years?
Nichols: In my practice, my role with the board of directors has probably increased over the years, including in particular a greater focus on corporate governance matters. And recent events, such as the pandemic and the consequent changing employment landscape, have taken more time and attention.
Lawbook: During the past decade, we have seen the invasion of the national law firms into Texas. How did that change how you made decisions on hiring outside counsel?
Nichols: That trend has not affected my decisions on hiring outside counsel. From the beginning, I hired outside counsel whose names and reputations I was familiar with over my first 10 years of law firm practice. In particular, several local, smaller firms had hired excellent lawyers away from the big firms. They offered top-level representation more economically than the marquee firms did. So we were able to develop long-term relationships with excellent Austin lawyers. For certain specialized matters, I have used big Texas firms as needed and occasionally a national firm for a particular attorney.