Thursday, May 5, 2011

Duncan On Calendar ... Finally!

Yes I know I'm in Florida and at the NCCI Annual Issues Symposium (AIS), but WorkCompCentral News this morning reported that the California State Supreme Court has finally calendared oral arguments in Duncan vs. WCAB.

For those of you outside California, the Duncan case represents a potentially huge cost adjustment factor for employers exposed to life pension or permanent total disability claims originating after January 1, 2004.

The law was part of the "step reform" bill AB 749 and included modifications to Labor Code section 4659, creating a cost of living adjustment (COLA) to life pension or permanent total disability claims. The precise issue is when the COLA starts.

My black letter reading of the section, and the 2nd Appellate Court's reading (from whence the Supreme Court's review originated), is that the COLA adjustment started 1/01/2004, effective 1/01/2005, regardless of date of injury. The business/insurance community argues that the COLA is claim specific and does not start until the January 1st after the date of injury. This can make a huge difference in the starting indemnity rate for qualifying claims.

I believe the Supreme Court will affirm the 2nd DCA's interpretation. The purpose of a COLA is to keep an annuity current with the rate of inflation. Making the COLA effective after the date of injury means that indemnity for future injuries will fail to keep pace with inflation.

The Supreme Court will look to the intent of the legislature in this sloppily written piece of law, and I think the intent of the legislature is evident in Labor Code section 4453, amended by a different bill about the same time as LC 4659.

LC 4453 provides that calculation of average wages for purposes of determining the temporary total disability (TTD) indemnity rate "shall be increased by an amount equal to the percentage increase in the state average weekly wage as compared to the prior year" starting 1/01/2007. Since then the plaintiff in the Duncan case (the Division of Industrial Relations) has dutifully followed the statute and increased the maximum wages for TTD.

How is it that the same agency that promotes inflation protection factors for TTD opposes the same protection for life pension or PTD claims?

It's all politics.

Duncan is gone, Schwarzenegger is gone. The recession appears to be easing. How will the Supreme Court go?

I urge the Supreme Court to do the logical thing and uphold the 2nd DCA's ruling. If the legislature didn't intend for life pension and PTD claims to keep pace with inflation then it would have been very easy to say so right in the code section. In addition, starting the indemnity rate at 2004 levels makes no sense for a claim originating 10 or 20 years hence - all one has to do is look at the price of fuel in 2004 (about $1.70) to today (about $4.00) - inflation ravages the annuity.

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