Unfair and Inequitable

Rating a permanent disability in the California system prior to SB 863 included a function known as the Diminished Future Earnings Capacity modifier.

The DFEC element in the rating string was meant to compensate for disparity in pre-injury income, and the affect a disability has on the earning capacity post injury.

It's a noble sentiment and is based on research that demonstrated significant disparities in the earnings of workers of various occupations.

The problem with the DFEC is that it is another element of the California workers' compensation system that opens up debate, argument, disagreement, and ultimately litigation.

And we know from many studies that litigation is a huge cost driver, directly and indirectly.

Which is why SB 863 eliminated that portion of the rating string and substituted a flat modifier of 1.3 to all ratings regardless of occupation and alleged impact of disability on a worker in that category.

So while the First District Court of Appeals for California is finally going to render a decision in Contra Costa County v. WCAB (Dahl), No. A141046, having assigned responsive dates for the Workers' Compensation Appeals Board to deliver the case record, the case itself will have very limited application.

Doreen Dahl suffered a cumulative trauma industrial injury to her neck and shoulder in 2005, while working for Contra Costa County as a medical records technician.

Based on the agreed medical examiner's evaluation of Dahl's whole-person impairment and the 2005 Permanent Disability Rating Schedule, the Workers' Compensation Judge issued Dahl a 59% permanent disability rating.

The WCJ rejected Dahl's argument that her permanent disability should have been awarded at a higher rate because her decreased future earning capacity was greater than that reflected in the rating schedule.

59% rating

Dahl based her argument on a 1983 California Supreme Court case called LeBoeuf v. WCAB.

In LeBoeuf, the California Supreme Court allowed a worker to establish a permanent total disability based on vocational rehabilitation testimony showing his injury effectively rendered him unable to compete for jobs in the open labor market.

The WCJ ruled that LeBoeuf was inapplicable to Dahl.

Following the 1st DCA's 2011 decision in Ogilvie v. City and County of San Francisco, the WCJ concluded that an injured worker could not rebut the rating schedule's diminished future earnings capacity adjustment through vocational rehabilitation testimony unless her injury caused a total loss of future earning capacity and a 100% permanent disability.

The WCAB in a panel decision reversed the WCJ.

79% rating

"Ogilvie does not preclude a finding of permanent disability that takes into account the injury's impairment of rehabilitation and its effect upon the worker's (decreased future earning capacity)," Commissioner Frank M. Brass wrote in his decision for the panel.

After the case was sent back to the trial level, the WCJ determined that Dahl had a 79% permanent disability, based on her vocational rehabilitation expert's testimony that Dahl had suffered a loss of future earnings that was greater than what was reflected by the PDRS.

A WCAB panel upheld Miller's decision last January. Contra Costa County petitioned for judicial review last February.

And that's the reason why DFEC was eliminated from the PDRS by SB 863.

Because this case is representative of another friction point in the workers' compensation process - a delay on the case of untold years. Dahl's injury was in 2005, and the court may finally hear arguments some 10 years later, on whether Dahl is entitled to a few more thousand dollars. Maybe the court will issue an opinion within a year.

Maybe.

I'm all for trying as hard a possible to make a system fair and equitable.

But there are limitations built into the workers' compensation system; it can not be everything for everybody.

And there lies the issue: by design workers' compensation is NOT fair and equitable. At best, the indemnity portion of workers' compensation, whether temporary disability or permanent disability, is a temporary financial relief.

Any attempt to make the indemnity portion of work comp actually meet some compensatory goal of returning someone to a certain financial level will fail because the variables are too great.

California is famously a liberal state. The citizens, for the most part, want fair treatment of everyone. In the California Nirvana, everyone should have an equal chance and be treated with equanimity.

The real world doesn't work that way however - and frankly I think it's time to stop the fairy tale that workers' compensation should be fair and equitable, because it isn't and never will be.

There are minimums and maximums to indemnity. There are limitations on medical procedures. There are restrictions on benefits.

Are there devastating disabilities? Yep. Are some worse than others? Yep. Is each case different? Yep.

Does each case deserve to be treated differently? Not necessarily.

The concept of workers' compensation is that everyone compromises. That dialogue has been repeated over and over and over again - everyone gives up something for security.

The employer's security is supposed to be protection from civil lawsuits. The employee's security is supposed to be the promise of prompt medical care and an allowance to stave off financial ruin.

What happens when a system tries to be fair and equitable is exactly what happens to Doreen Dahl - a case that lingers for ten years while other people argue about a small component to the overall scheme because the variables make it worth while to do so.

The financial difference to Dahl is about $100,000 in gross indemnity, plus a "life pension" of about $73.00 per week.

The financial incentive to argue this small point of the rating string demonstrates how friction gets created out of "fair and equitable."

I don't know what Dahl's age was at the time of injury (the panel opinion from which the appeal was taken doesn't provide that detail) but let's assume that she was 50 years old for ease of calculation. And let's also assume that she was permanent and stationary 2 years post injury after her temporary disability indemnity ran out.

That brings us to 2007, and 52 years old. At that time Dahl would have an average life expectancy based on US life tables of about 30 years - to age 82.

Let's also assume a 5% return on investment rate.

The gross value of the 79% PD award, inclusive of the present value of the life pension, is about $215,000.

Fifty nine percent doesn't merit a life pension, so the gross value of that is about $80,000.

$80,000 invested at 5% in 2007 will generate about $38,000 in interest. And if none of that money is touched the gross amount today would be almost $120,000. If left alone for 12 years it grows to over $130,000, and if left alone for 15 years it grows to nearly $170,000. For 30 years the value grows to about $350,000.

And Dahl gets to move on with her life in 2007.

Let's assume that the court renders its decision this year, 2015 - that means according the life tables there's 22 years left in Dahl's life expectancy. $225,000 at 5% for 22 years generates a gross return of about $630,000.

And Dahl gets to move on with her life in 2015, with potentially twice the financial gain.

It's a trade off, for sure. I'm not saying whether one result is better than the other. What I am saying is that in an attempt to make a system "fair and equitable" the system itself became unfair and inequitable by implanting points of friction - and Dahl may be better off financially because she got an attorney than someone who didn't.

A truly fair and equitable system would not create incentives for people to get lawyers to maximize an award. A truly fair and equitable system would eliminate the difference having an attorney on a case could make.

The DFEC component was eliminated by SB 863, so that point of contention is gone. But there are many others.

Complexity begets litigation because an attorney can make a difference. And as we can see, sometimes a big difference.

The cost to the system is delay and uncertainty.

In order for workers' compensation to be fair and equitable, it has to be less fair and less equitable...