Friday, April 29, 2016

It's That Simple

Just yesterday I posted about Texas attorney fees and the debate in that state about adequacy.

And I previously I opined that 2016 was the year of Comp versus Constitution.

The Florida Supreme Court yesterday blended the two, finding that state's reformed attorney fee provisions, a product of changes made in 2003, to be unconstitutional under both the Florida state constitution and the US Constitution in the Castellano v. Next Door case.

In Castellano, the ultimate hourly fee attributable the work of Castellano's attorney amounted to $1.53 per hour because Florida Statutes Section 440.34 limits attorney’s fees to a sliding scale based on the amount of benefits obtained.

Even I made more than that as a law clerk in my first legal job during my second year of law school ($4.25 per hour...).

Strictly adhering to statutory law, Castellano had no ability to challenge the reasonableness of the $1.53 hourly rate, and both the judge of compensation claims and the 1st District Court of Appeals were precluded by Section 440.34 from assessing whether the fee award—calculated in strict compliance with the statutory fee schedule—was reasonable.

While the court acknowledged that the statutory fee schedule could, in some cases, result in a constitutionally adequate fee, it concluded that the irrebuttable statutory presumption of adequacy was unconstitutional because the fee cap applied to all injured workers regardless of circumstances, consequences or reasonableness: "the statute presumes that the ultimate fee will always be reasonable to compensate the attorney, without providing any mechanism for refutation."

EVERY injured worker is precluded from challenging the reasonableness of a fee is what irked the court.

The Castellano Supreme Court addressed only attorney fees, but dicta in the court's 55 page opinion suggests that, given the right set of facts, it would find other provisions unconstitutional (the court declined to entertain a facial challenge to the entirety of Chapter 440, revoking its grant of review and discharging its jurisdiction by way of a two-paragraph order in Stahl v. Hialeah Hospital yesterday as well).

"Yet, while the Legislature has continued to enunciate this purpose [expediency delivering benefits]," reads the opinion, "in reality, the workers’ compensation system has become increasingly complex to the detriment of the claimant, who depends on the assistance of a competent attorney to navigate the thicket. Indeed, as this Court long ago observed, allowing a claimant to 'engage competent legal assistance' actually 'discourages the carrier from unnecessarily resisting claims' and encourages attorneys to undertake representation in non-frivolous claims, 'realizing that a reasonable fee will be paid for [their] labor.'”

This theme is restated by the court several times in the opinion:

"The statute prevents every injured worker from challenging the reasonableness of the fee award in his or her individual case—an issue of serious constitutional concern given the critical importance, as a key feature of the workers’ compensation statutory scheme, of a reasonable attorney’s fee for the successful claimant."

And, "Stated another way, the statute establishes a conclusive irrebuttable presumption that the formula will produce an adequate fee in every case. This is clearly not true, and the inability of any injured worker to challenge the reasonableness of the fee award in his or her individual case is a facial constitutional due process issue."

Whenever someone has something that someone else wants, there's going to be disputes. Workers' compensation is no different.

The way we handle disputes in our civilization is through litigation. In workers' compensation, most of the time, it is an administrative court system. But there are still rules of procedure. And the substantive law isn't simple any longer either. Reading, interpreting and communicating a legal position takes particular skill - that's what lawyers are for.

When one is injured or ill the faculties for reading, interpreting and communicating, even if it is one's own fate, and even if one is a lawyer, are all compromised.

The payer side of the bargaining table knows this - defense attorney fees in key states have grown exponentially, particularly as compared to those representing injured workers.

I know, I know, I know - everyone hates lawyers.

Until one needs a lawyer.

The big concern from the Castellano opposition is that the ruling will cause insurance rates to increase significantly by encouraging legal participation. But there's a flaw to that logic.

Lawyers are only needed if there's a dispute.

So, either stop creating disputes or concede when a dispute arises.

Some will say it's not that simple.

Um, yes it is.

Thursday, April 28, 2016

Can O' Worms

As much as many like to denigrate the legal profession, attorneys are an important component to our society, in particular regarding the complex world of workers' compensation.

Sometimes lawyers are called upon to protect the legal interests of an injured worker, sometimes it's just to explain the process and answer questions about the law and regulations. Sometimes claimant lawyers can actually smooth the dispute by realigning the expectations of the injured worker.

And sometimes obtuse positions are taken that could be construed as against the interests of the injured worker.

Regardless, when one is hurting, in pain, and confused, dealing with the intricacies of workers' compensation is overwhelming, and legal representation can make a difference between a lifetime of impoverished living and return to normal lifestyle.

How to pay for that legal representation has been a vexing question from the very beginning.

The traditional mode is to base fees on the amount of recovery obtained on behalf of the client - a contingency fee.

Contingency fees have positive and negative attributes, of course, some of which are inconsistent and conflicting.

For instance, if the job of the attorney is to get as much money as possible for the client, then a contingency fee is highly motivating. But the inverse is that the goal in any medical care system is to return the injured to as good of relative health as pre-injury status, not a high level of disability.

And if a case doesn't appear to have an attendant high level of disability, ergo a small fee, then the injured worker may not find any representation - after all the business of law in most attorney practices still overrides charity. There are staff members to pay, electricity and phone bills, and rent...

Texas has a unique system for paying claimant attorneys. There is a maximum hourly rate on fees, a cap based on the value of recovery, and time spent on certain processes is regulated as well.

The hourly rate hasn't changed since 1991 and has been set at $150 per hour since then.

As far as I know, Texas has one of the lowest litigation rates of any workers' compensation system. Many that I have talked to have said this is because it is impossible to make a living representing injured workers based on the fee constrictions, so injured workers go without legal representation.

The Division of Workers' Compensation is now proposing an increase in the hourly rate to $200. While welcomed by the claimant bar, the proposed rate increase is criticized nonetheless as inadequate because it is still short of what it would be based on inflation.

That viewpoint, of course, is based on the assumption that back in 1991, $150 per hour was reasonable - it might not have been...

I'm an old guy, and one should not rely upon my memory, but in 1991 I recall my hourly defense rate was less than $100 per hour. And that was in metropolitan Los Angeles, which has, generally, a much high cost of living than in Texas. Based on the Bureau of Labor Statistics calculator, that rate would be $174.84 today.

That same calculator returns a value of $262 per hour, noted attorney John Pringle in written criticism about the proposed change to the TX DWC.

Nirvana for everyone except those in the business of law would be to devise a workers' compensation system devoid of dispute. That isn't going to happen, and in fact, we tend to do otherwise and introduce all sorts of procedural hurdles and qualifying rules that seem to provoke disputes.

I don't have a realistic solution. As long as someone has something that someone else wants, there's going to be disputes and rather than resolve those disputes via duels or fisticuffs society has declared it is more civil to air grievances before a tribunal with rules, regulations and ... lawyers.

Just like any dispute, there are going to be winners and losers. That's just the nature of conflict. The key is getting the equation right so that most of the time, most of the disputes get just representation for just results.

Most of the time.

It's the proverbial can of worms and complete satisfaction is unattainable, at least in the current configuration of workers' compensation.

Wednesday, April 27, 2016

Figure It Out

If you're an engineer, like my son, then you see everything as black and white, one or zero, on or off.

There's not much room in an engineer's mind for imprecision, which is why the vagaries of the law can be frustrating.

Which is why a recent Pennsylvania case on the going and coming rule is interesting.

Most states generally (one of those vague terms engineers hate) don't recognize as compensable worker injuries that occur "off the clock" even if it occurs on an employer's premises.

Other states — including Maryland, New Jersey, New York, North Carolina, Georgia, Kentucky, California, Missouri and Ohio — recognize a "premises exception" to the going-and-coming rule: an employee's commute doesn't begin until the employee leaves his employer's premises, which might include the parking lot depending upon the amount of control the employer has over that property.

Pennsylvania treats a worker's off-the-clock injury as compensable if it occurs on an employer's premises within a reasonable time before or after the employee's work shift, and it is attributable to a "condition of the premises or by the operation of the employer’s business or affairs thereon," the Commonwealth Court said on Monday in reversing a Workers' Compensation Appeals Board decision.

In Quality Bicycle Products vs. WCAB, 1570 C.D. 2015 (4/25/2016), James Shaw had been at work in the warehouse on Nov. 13, 2013, when he got a frantic call from his fiancée telling him that their 9-year-old daughter was missing from school. He told his manager he needed to leave right away, then ran to his locker and got his coat and car keys. Shaw tried to clock out, but his manager told him to just go.

Shaw raced out of the building, but he would later testify that he felt a popping sensation in his knee before he got more than 10 to 12 feet across the parking lot.

He said this sensation was followed by excruciating pain, which left him unable to bear any weight on his right leg, causing him to fall to the ground.

A coworker came to his aid, along with Shaw's manager. They called for an ambulance, and while they were waiting for the paramedics to arrive, they learned Shaw's daughter had been found.

Doctors later determined Shaw had cracked his patella, and he underwent surgery on Nov. 20, 2013.

Quality (the insurance company is not identified by the court, a stylistic application which I contend is incorrect because the actual parties are obscured thus mischaracterizing the "employer's actions) contested the claim filed by Shaw for benefits.

The Workers' Compensation awarded benefits to Shaw, and the Workers' Compensation Appeals Board upheld this decision.

Quality sought judicial review, although it settled Shaw's claim while its appeal was still pending. Thus, Shaw did not respond to Quality's petition for review.

The court said that Shaw's injury "was caused by his own act of running, which was not a condition of (his) employer’s premises."

But what about "the operation of the employer’s business or affairs thereon"? The injury occurred on the employer's parking lot where all employees parked under the direction of Quality, and Shaw fell only 10-12 feet from the exit door.

The court noted that, according to Shaw's testimony at trial, his knee had popped before his right foot made contact with the parking lot surface and he collapsed. The parking lot, therefore, "did not cause or contribute to the causative chain to claimant’s injury," the court said.

The courts' job is to deal with the vague and opaque. The law can not precisely define all circumstances all of the time.

The Commonwealth Court may seem to be "splitting hairs" in the Shaw case. But actually they worked in an engineer-like fashion. They dissected the facts and applied the rule systematically - it was black and white, one and zero, on and off...

My son called me from jail one a Sunday evening after getting into trouble during his freshman year of engineering school, looking for bail money.

"How old are you Tony?" I asked.

"Eighteen," was his reply.

"Right," I affirmed. "What does that make you?"

"An adult."

"Correct," I again affirmed. "What are you studying in school?"


"Right again," I said. "And what do engineers do?"

He was silent, then said, "I dunno..."

"They figure it out!"

And I hung up the phone.

He figured it out.

Tuesday, April 26, 2016

$15 to Underground

Los Angeles Times reporter Don Lee extrapolated on four consequences of the new $15/hour minimum wage laws that were rolled out in California and New York - the most interesting to me relative to workers' compensation, and one that I think will come to fruition, unfortunately, is an increase in the underground labor market.

"A lot more are going to get hired off the books," especially immigrant workers, Harry Holzer, a public policy professor at Georgetown University and the Labor Department's top economist in the second term of the Clinton administration, is quoted in the article.

Holzer thinks heavy job losses will occur mostly in the low-skilled, less-educated work force, and consequently those people would feel pressure to accept cash under the table or cut other "underground" deals to keep their jobs.

Just the class of workers most impacted by the lack of work injury protection systems...

So not only will payrolls rise, as will workers' compensation insurance premiums likewise due to increased payroll, costs that employers will have to eventually pass on to consumers, but the impact on uninsured employers funds, and the related enforcement mechanisms, will also feel pressure.

In addition, costs that should be born by workers' compensation, particularly medical care, may get pushed on to the general health care system, particularly those health systems that provide service to the uninsured.

Lest anyone think I'm against the minimum wage increase, that's not necessarily true. Benefits to increasing minimum wage include greater consumer spending power (relative of course, and perhaps not for the long term) and greater tax revenues for government, which should translate to improved services for all citizens.

I just don't believe the consequences were well thought out, in particular relative to the overall work injury protection and safety schema - which can barely stay abreast of current demands. Certainly strategies for these consequences were not part of the bargains.

A rise in informal work translates into more tax avoidance and fewer worker benefits and protections, like unemployment insurance (and work comp) notes Lee.

So, in addition to a significantly greater gap between the normal living wage and the permanently disabled on an indemnity scheme that isn't tied to the wage inflation, the work comp industry will also be grappling with an increase in the underground economic effluent.

Workers' compensation has been down this road before. It just wasn't as bumpy and the potholes weren't as large.

Monday, April 25, 2016

Just Bad Law

There's only so much abuse that people will tolerate. Then, after too many people take too much advantage of a situation, hammers are brought out to not just quell the abuse, but to kill it.

Thirteen years ago the chiropractic community had too many unreasonable people taking advantage of workers' compensation liberality. That abuse had been going on for twenty years. It frankly wasn't uncommon to see workers' comp patients getting chiropractic adjustment, consultation, naturopathy and all sorts of other "treatments" for years on end on a weekly basis - treatment protocol that went way beyond any measure of reasonableness.

Not all chiropractors were engaging in such nonsense, of course. Likely it was just a minority that were out of control. But because neither the professional association that governed chiropractic care, nor the professionals themselves, could seem to supervise that group of carrion, an insurance-charged legislature came along and implemented an artificial limitation on chiropractic and physical therapy care.

In 2003, then California Gov. Gray Davis signed into law SB 228 limiting workers to 24 chiropractic and physical therapy visits per injury unless a carrier authorized additional treatment.

Other states also reacted - Texas and Florida to name a couple. The chiropractic professional community simply could not control members whose primary mission was easy money...

I heard tale after tale of chiropractors shutting their doors after these reforms. Some just scaled down their businesses. Others moved on to other pastures.

In the meantime the frequency for back surgeries escalated and the subsequent opiate crisis is well documented.

The lesson - abuse a system too much for too long, and then watch the door slam shut. Worse, the reputation, credibility and reliability of members who were not part of the billing feast were also cast into aspersion. And even worse yet, the ultimate consumer of workers' compensation goods and services, the injured worker, had even fewer options for care and treatment.

Cris Forsyth, government affairs director for the California Chiropractic Association, told WorkCompCentral that chiropractors have long been pariahs in California’s workers’ compensation industry - and there's good historical reason: this is a group of professionals that were particularly and unreasonably abusive, medical guidelines be damned.

Chiropractors can't be completely blamed for SB 228. The trial level courts shared the responsibility. Judges routinely were granting bills and lien claims of chiropractors over the objections of payers, despite treatment impotence and care that went against medical science.

Frankly, California's workers' compensation judges condoned bad behavior.

So we get artificial limitations that we should not otherwise have.

Now the chiropractors want those limitations lifted and have proposed legislation to do so, but in the wrong way.

Assembly Bill 2407, by Assemblyman Rocky Chavez, R-Oceanside, would amend the Labor Code to require the physician treating a worker with a back injury to perform an assessment of the “level of risk for chronic back pain” and determine whether that worker meets the criteria for a surgical consultation. Surgery could be recommended, but only in a limited number of conditions and if there is sufficient evidence to indicate surgery is more effective than other treatment options.

Alternative “covered treatments” that could be deemed appropriate after the assessment under AB 2407 include:
  • Acupuncture.
  • Chiropractic manipulation.
  • Cognitive behavioral therapy.
  • Medications, including opiates for short-term prescriptions only.
  • Office visits.
  • Osteopathic manipulation.
  • Physical therapy.
  • Occupational therapy.
That's all well and good, but the proposed bill goes beyond amending Labor Code section 4600 in the above particulars by including a slight, though despicable, alteration to the "reasonable" standard of medical care and employer liability.

The existing standard is, "[i]n the case of his or her neglect or refusal reasonably to" provide medical care, then "the employer is liable for the reasonable expense incurred by or on behalf of the employee in providing treatment."

The proposed standard would be, "If the employer neglects or reasonably refuses to provide that treatment...".

Astute legal interpreters should pick up on that instantly: "reasonably refuses...".

So, even if the payer is in the right, by following the Medical Treatment Utilization Schedule or any other treatment guideline, scientific evidence, or other protocol that refutes the services supplied, the payer is STILL liable, because it "reasonably refuses" to pay for the services or goods.

Nice try guys. I'm certain that most don't object to alternative modes of treatment that will provide the best path for return to health of the worker who has a back injury.

But inputting a back door for required payment of services or goods that have no scientific or medical validity is dirty pool.

Listen, we don't really need any artificial limitation on chiropractic, or any other care now. We have guidelines, utilization review and independent medical review. AB 2407 just needs to remove the artificial limitations imposed back in 2003.

As it stands, I'm calling BS on AB 2407. This is just bad law.

Twelve years of experience on the receiving end of denigration, and they still don't learn...

Friday, April 22, 2016

Open Rating Rant

I was talking with Michael Standing, CEO and president of AIM Mutual Insurance Company out of Massachusetts - preparing a guest spot for the Seismic Shifts presentations last year.

("Seismic Shifts: An Essential Guide for Practitioners and CEOs in Workers' Comp," was a special WorkCompCentral report prepared by Peter Rousmaniere last year that investigates commercial opportunities in a shrinking workers' comp industry.)

Standing and I were making some small talk about the market and he floored me when he told me that Massachusetts, a state of about 6.75 million people, and only $1 billion in workers' compensation premium, had 290 workers' compensation insurance companies competing for business.

California, by contrast, has almost 39 million people, a gross written premium of nearly $16.5 billion, but only 218 carriers, many of them sub-carriers or affiliates of larger companies, so the real number of carriers is even smaller.

What's wrong with this picture?

In 1993 "open rating" became the new business model in California. Before the open rating law, all workers' compensation insurance had to meet a minimum pricing standard. In other words, there was a floor on rates - insurance companies could not quote or charge less than what the Department of Insurance said could be charged.

I've ranted before about this.

Before open rating, there were well over 350 insurance companies. They competed on quality of service, the experience rating modification factor (aka "ex mod") being the determining distinction between carriers - the better serviced claims, the lower the ex mod, the less expensive the insurance.

This promoted safety, prompt claims handling, and frankly BETTER claims handling.

Since 1993, however, the standard has deteriorated to least expensive claims handling (which is ironic given the cost of claims has increased exponentially since then, in particular the cost containment component of claims handling).

Open rating was supposed to increase competition.

The opposite has occurred - it has, to the great detriment of the policy purchasing employer population completely stifled competition.

And worse, has focused the industry incorrectly on cost containment rather than quality performance.

At least that's MY opinion.

Ought to be yours...

Thursday, April 21, 2016

Dismantling By Courts

ProPublica declared that corporate America was dismantling workers' compensation piece by piece, state by state.

But 2016 is going to be known as the year that state supreme courts are the ones dismantling workers' compensation piece by piece.

We have seen a very active Oklahoma Supreme Court declare various provisions of that state's 2013 reform law unconstitutional. California courts haven't gone in that direction, yet, though there are still various challenges to the 2012 reform law.

Florida courts have been asked to review various elements of its workers' compensation laws, and yesterday the First District Court of Appeals, in what I think was a surprising decision to many, said that the state's statutory limits on the payment of attorneys for injured workers was unconstitutional.

Florida Statutes Section 440.34 provides that a claimant attorney is entitled to a fee equal to 20% of the first $5,000 in benefits secured for a client, 15% of the next $5,000 secured and 10% of any amount secured in excess of $10,000.

The statute further provides that a judge of compensation claims cannot approve any other payment arrangement, and Section 440.105(3)(c) criminalizes an attorney's receipt of any payment that has not been approved by a JCC.

Many states have similar statutes or regulations limiting fees for attorneys representing injured workers in litigation. These rules not only assume that the only compensation schema applicable to this group of service providers is contingency based upon disability, they essentially perpetuate it thus perpetuating the disability of America.

I'm not sure that the 1st DCA is cognizant of this hypocrisy, but the justices at least acknowledge that an injured person's right to representation in a highly complex, life altering, legal system should not be castrated by a fee regulation that discourages any representation.

That's what occurred in Martha Miles vs. City of Edgewater Police Department, 1D15-0165, 4/20/2016.

Miles was a police officer for City of Edgewater. She alleged exposure from toxic chemicals used to make crystal methamphetamine on two occasions in 2011, and she claims these events aggravated her asthma to the point it became disabling.

She filed a comp claim, but after she voluntarily withdrew it, the city filed a motion to recover the $3,860.82 it said it had expended in preparation to defend itself.

Miles then went to her union for help. The Fraternal Order of Police Lodge 40 said it was willing to pay a law firm for Miles $1,500 for the first 10 hours of work, and Miles agreed to pay the firm $150 per hour thereafter.

But Judge Mark Massey found Sections 440.105(3)(c) and 440.34 prohibited the payment arrangement being proposed by the union and Miles.

Miles refiled her claim and wound up going to trial without an attorney, where she told the JCC that she hadn't been able to find anyone who "works for free." She failed to introduce any evidence to support her claim at the trial, so the JCC denied it.

Miles then hired attorneys Michael Winer and Geoff Bichler to appeal the judge's decision (though it is not clear how these attorneys got paid to make the appeal, but not the trial...). Their argument on appeal was that Sections 440.105(3)(c) and 440.34 violated Miles' free speech right guaranteed under the First Amendment to the U.S. Constitution.

The theory is that free speech is abrogated if an unskilled litigant cannot get adequate representation if no attorney would take the case because of inadequate pay; ergo an individual's right to contract freely (subject of course to legality) is compromised.

In addition the court noted that individuals can waive their constitutional rights, so they certainly should be able to waive a lower standard law, i.e. a fee constriction statute.

But by far the most interesting point made by the court was its overall criticism of legislative attempts to limit litigation: "[In] a free society which attempts to allow individuals the intellectual prerogative to personally weigh the benefits and risk of exercising their statutory right to obtain redress for their injury, we hold that the rational intent to minimize workplace litigation cannot ultimately trump the benefits the public obtains by allowing an injured worker, or one who personally thinks she is injured, to seek redress under law."

Perhaps the Miles case will go up to the Supreme Court, which would make it the fourth case pending before Florida's highest court on constitutional issues, perhaps not.

The wheels of justice, it is said, turn very slowly. While ProPublica observed that state work comp protections have been dismantled over the past decade, perhaps what we are now observing is that those very laws are now in the process of being dismantled by the courts.

Who said work comp wasn't fascinating?

Wednesday, April 20, 2016

Lack Of Control

A case out of Montana demonstrates that whether an injury falls within the ambit of workers' compensation jurisdiction has mostly to do with employer control, or in this case, lack of control.

Tamara L. Holtz worked as a flight attendant for Delta Air Lines. Oh June 21, 2014 she flew out of Salt Lake City and would have a layover in Cincinnati before a return flight to Salt Lake City on June 23.

Delta paid her a $2.40 per hour as a "per diem wage" for her time as soon as she signed in to work in Salt Lake as well as a hotel room in Cincinnati for the layover, but did not reimburse for layover meals. Flight attendant wages were paid as soon as the airplane’s brakes were released until they were engaged upon landing.

Delta neither restricted where Holtz could go nor what she could do during her layovers, but Holtz testified the airline could call "at any point" to tell her it had changed her schedule.

After arriving at her hotel in Cincinnati, Holtz took a nap and then met up with some friends for lunch.

The group proceeded on motorcycles southeast on U.S. Highway 52, also known as the Ohio River Scenic Byway.

The motorcycle Holtz was a passenger on crashed into one of the other motorcycles about 40 miles away from Holtz' hotel, and Holtz suffered a leg injury in the accident.

The Montana Workers' Compensation Court granted summary judgment in favor of the Delta's carrier, Indemnity Insurance Co. of America (the court opinion does not say why Montana was the state of jurisdiction).

Holtz was on a "break" from her employment during her layover, the court said, because "it was an interval within her scheduled work time when she was not required or expected to perform her job duties, and could attend to personal matters."

In addition, the court opined, it would be ludicrous to find that "the greater Cincinnati metropolitan area, in its entirety" was a Delta "worksite."

The coup d' grace was a slate of Montana high court rulings that essentially make the "lunch hour" non-compensable because the employer lacks control over the employee's activities during that break period.

The foundation for the Arising Out Of/Course Of Employment rule lies in the master/servant relationship. The characterization of that relationship is all about control - when the master has control over the servant then there shall be liability on the master for what happens to the servant when providing service or acting under the direction of the master.

Unfortunately for Holtz, hitching a motorcycle ride on a layover took her activity outside the control of Delta. That would seem to be a logical conclusion, but this is workers' compensation ... I guess the risk of asserting a claim did not offset the potential of success.

The case is Holtz v. Indemnity Insurance Co. of North America, No. 2015-3577, 04/06/2016.

Tuesday, April 19, 2016

Too Good for Truth

So much of what we talk about in work comp is related to claims, but we forget that before claims there has to be a policy covering those claims, and those policies are strictly regulated because workers' compensation insurance is a captive market.

Since coverage is compulsory and the business of insurance is complex, California regulations require that anything remotely close to an insurance policy be first filed with the Workers' Compensation Insurance Rating Bureau and the Department of Insurance for review prior to implementation and sale.

Lately Applied Underwriters through its EquityComp program has drawn fire for violating these regulations and is the subject of regulatory review as well as a number of civil lawsuits, including one class action lawsuit.

The allegations are complex, but when we strip away the technical jargon, what Applied is accused of is making promises it didn't, or wouldn't fulfill; i.e .misrepresentation. It might have gotten away with it too except that the carrier came back to the complaining employers to demand more money than they had already paid.

If there's one thing that pisses people off is not delivering what was promised, then demanding even more money for that failed promise.

The employers suing Applied say they were quoted minimum and maximum program costs that didn’t resemble what was actually charged. They claim that they entered into the EquityComp program, then were required to also sign off on reinsurance participation agreements that included provisions that allowed Applied to continue assessments after policies expired - years after policy expiration, like a revolving line of credit with no end.

In other words, the employers ended up paying far more for their work comp coverage than they thought they would be responsible for.

Shasta Linen is one of the complainants. In its lawsuit it says quoted annual costs were to be between $107,541 to $322,623. From 2010 to 2012, the company paid $934,366 - obviously on the high side of the quote. But when the policy expired in December 2012, Applied sent Shasta a bill for $77,592 and another bill in January 2013 for $166,619.

Pet Food Express signed up for EquityComp in 2009. According to its class action lawsuit, the company had actual losses of $724,231 over the three-year coverage period, which meant its premium should have been about $1.2 million according to a program summary it relied on.

Instead, the company said it has paid more than $1.6 million in premiums.

Pet Food Express also alleges other Insurance Code violations such as out of territory arbitration and enforcement of policy disputes; neither the original Request to Bind Coverage and Services nor the reinsurance participation agreement Pet Food Express claims was foisted upon it after coverage started included a notice that dispute-resolution procedures are negotiable, as required by Insurance Code Section 11658.5.

Pet Food Express also argues the reinsurance participation agreement allocates risks in an “unreasonable and unexpected manner,” rendering the agreement unconscionable and void under California Civil Code Section 1670.5. That section allows a court to refuse to enforce an unconscionable contract.

Mike Rose’s Auto Body in Concord, CA on April 11 filed a complaint with the U.S. District Court for Northern California accusing Applied Underwriters Captive Risk Assurance Co. Inc. of fraud, breach of contract and unfair business practices.

According to the complaint, the body shop in September 2009 was told it would pay between $308,796 and $1.15 million over the three-year term of coverage through EquityComp. When the three-year coverage period ended in September 2012, the company says it paid more than $800,000 for $269,075 in claims.

Mike Rose’s Auto Body said it should have about $70,000 remaining in its account, but Applied has refused to return that money.

You'd think that would give the executives at the body shop pause ... Nope, the company re-enrolled in EquityComp in September 2012 based on a quote projecting costs of $403,553 to $1.52 million.

Applied sent the body shop a statement on Oct. 7, 2015, showing the company paid a total of $1.53 million during the latest three-year coverage period. According to the complaint, the statement said the body shop owed $1.44 million, so it had overpaid by about $91,000.

However, after applying provisions contained in the reinsurance participation agreement, Applied determined Mike Rose’s owed another $70,000 in premiums, and on Nov. 9 Applied sent a new statement with $290,452 in “new charges” bringing the balance to $361,000.

Whether Applied engaged in intentional or negligent misrepresentation, the heart of the matter is that expectations were established, and then violated. If the complaints are to be taken at face value, employers thought they were buying one thing, and then were sold another.

The cycle of money in workers' compensation should be straight forward. Employer pays money to carrier, which then uses that money for various expenses and then sets some aside in case a work injury occurs; if the carrier is astute the money sitting on the side lines will generate investment returns sufficient for a profit, and if the carrier's investment savvy is lacking then it loses money.

At the end of the day, the employer should have a reasonable expectation of what its costs will be, and the injured worker should have a reasonable expectation of what his/her benefits will be.

Failing one or the other creates mistrust, disputes, lawsuits, costs and expenses. Failing both causes a fundamental breakdown of the system.

The reason we have laws mandating filing and review of insurance documents is because even the most sophisticated purchaser of insurance products can get duped.

If it sounds too good to be true, it is.

Applied would not comment for this morning's WorkCompCentral story on the cases. The company is a division of Berkshire Hathaway.

Here's a blog from one of Applied's very frustrated customers: ( - he explains how he got into this mess and why he's upset - it's pretty simple. He felt backed into a corner and signed documents he didn't understand...

Monday, April 18, 2016

The Oklahoman

On Friday The Oklahoman editorial board published a critical opinion of that state's Supreme Court's rulings that, so far, have declared various provisions of the 2013 workers' compensation reform law unconstitutional (Rulings Blunt Effects of Oklahoma Work Comp Reform -

The editorial board claimed that, "For decades before the law was changed, the system mostly benefited the handful of law firms that specialize in workers' compensation cases. The system was a huge burden on Oklahoma businesses, which saw their annual workers' comp rates rise through the years, even as the number of claims filed by injured workers decreased."

Advising that the state's legislature should probably take up revising it's attempt at reform sooner than later, the opinion exclaims, "In the end, though, the high court may force the
system back closer to the old status quo. As with lawsuit reform measures, the workers' comp decisions affirm the notion that legislative fixes never end a problem. They only seem to reveal another series of problems. In this case, the empire has struck back with a vengeance. The winners could be injured workers, to be sure, and their lawyers. The losers? Everyone else."

Submitting letters to the editor is limited to 250 words, and certainly I had  more to say about this editorial than 250 words would allow. Regardless, the following is my reply. I do not know if the editors published it.


 Re editorial 4/15/2016:

While not from Oklahoma, I am founder and CEO of WorkCompCentral, a specialty media firm for the workers' compensation institution. We are neutral to any side other than to advocate for a healthy work comp program as it is an essential underpinning to the modern economy.

I appreciate that the editorial board, and perhaps the general population of Oklahoma, may be frustrated with the legal dismemberment of the 2013 reform, but let's be clear on one thing: if a law violates a state's constitution then it is not good for ANYONE.

Oklahoma certainly has had its share of workers' compensation frustration, but abrogating citizen's constitutional rights will not solve anything. Back to the drawing board? Perhaps.

But, you erroneously propose that the winners are injured workers and their lawyers, and that the losers are "everyone else."

If you work, you have a job. If you have a job then you, under the state constitution, are to be afforded work injury protection in the manner dictated by the legislature and consistent with the constitution.

There are about 3.9 million people in Oklahoma. Each and every one of them that works could be injured on the job at any time.

Work comp is not about just "injured workers and their lawyers." It is about every single citizen contributing to the economy, i.e., your "losers." Everyone loses when their constitutional rights are destroyed...

Friday, April 15, 2016

Eliminating Fenders

Yesterday I installed a "fender eliminator" kit on my Honda CBR250R (i.e. "The Sewing Machine").

This is a rare bike modification for me because it really has no function other than, hopefully, improve the visual appearance of the bike, or what I call a "vanity mod."

One would think this would be a relatively simple modification because it is only removing the rear fender of the bike and, essentially, replacing it with not much more than the license plate.

The kit comes with instructions. I have the official Honda service manual for TSM. I'm a reasonably adept mechanic; I've been messing up my motorcycles since I started riding at age 10 because that's what gear heads do.

As you know I've done my share of tearing apart and putting back together TSM in the name of performance: shock, forks, handlebars, rear set pegs, tires, etc.

None of that was as challenging as replacing the stupid rear fender.
This doesn't look THAT complicated, does it?

I had read the reviews - nice piece of equipment once it's installed, but the instructions are terrible, even if you do have a service manual - but I felt my skills were sufficient; shouldn't take more than an hour, maybe a bit more, I thought.

Wrong - it was a frustrating afternoon. All of the little parts that make up the rear fender assembly are so interconnected with hidden fasteners, incomprehensibly located bolts, etc. meant that the installation process was much more difficult than anticipated.

Kind of like work comp - it seems like a simple project, but there are so many interconnected parts that once into the process, navigating and moving about is daunting.

Like many of you, one of the first things I do when I can see in the morning is read WorkCompCentral news - obviously it's my business, but it's also my industry. I need to know all that is going on in our industry. I care about it. It's an important component to the overall economy.

I forget about its complexity, until I read about things like spinal surgery fraud accusations, utilization review companies liable for malpractice, the impact of fees on litigation rates, constitutional challenges, cost studies and rate changes....

And we all know there's more than just those big picture items - procedure and substance combine to make workers' compensation incredibly detailed and nuanced.

For a system that is supposed to be, for the most part, self-executing, there are an unimaginable number of obstacles for non-professionals to navigate.

Like TSM, there are service manuals and diagrams to help, but even professionals, those who interact with work comp on a daily basis, need guidance and information.

The difference is that professionals know the nuances. They know where there are interlocking tabs that just need a gentle tug to pull apart, or where a particular piece of hardware will require a special tool - stuff that's not in the instructions or service manual.

I could have paid a mechanic to install the fender elimination kit. A good motorcycle mechanic charges around $100 an hour now a days, and probably would have taken less than 2 hours to complete the job.

I did it myself though. It took me a lot longer than I anticipated. I got frustrated. But I also learned a lot.

The biggest lesson I learned, however, simply affirmed my first inclination when I bought TSM: don't mess with it.

Too late.

I think the next project is an electronic fuel and ignition controller.

Like work comp, a motorcycle just begs to be modified to fit the user's preferences. But we forget how complex everything is...

Thursday, April 14, 2016

Right To Carry and Comp

Sometimes workers' compensation is a predictor of future economic or social trends. Sometimes it is reactionary.

And sometimes it is caught in the middle, trying to figure out what, when and how it fits in.

That's the curious, and interesting (at least to me) aspect of work comp - it's unique socio-economic place in our daily lives.

We see this as marijuana laws get liberalized across the country. New Mexico, with its courts ruling that medicinal marijuana must be reimbursed via work comp, is at the foreground of this movement, and Colorado with its even more liberal laws not far behind.

We also see this, as pointed out by WorkCompCentral's Sherri Okamoto in this morning's news, in state "right to carry" firearms laws.

22 states allow employees to store firearms in their cars while on employer parking lots.

Georgia gives an employer immunity from "any criminal or civil action for damages resulting from or arising out of an occurrence involving (the lawfully stored firearm)," unless the employer had reason to know the person who used the gun was going to commit a criminal act on the employer's premises.

Idaho, Texas and Oklahoma expressly provide immunity from a "civil action" only, while Wisconsin says an employer will be "immune from any liability" for allowing workers to carry weapons.

Maine provides employer immunity from civil liability for individuals who are injured or killed as a result of the employer's compliance with the statute — but it does not eliminate the potential for workers' compensation liability if a properly stored firearm were used against another employee.

The Tennessee right to carry law does not provide for immunity at all.

And right to carry or store doesn't stop with immunity for injury or death - last month the Mississippi Supreme Court ruled that that a worker could maintain a wrongful termination claim on the grounds that he was fired for lawfully having a gun in his car.

The insurance industry doesn't like guns, particularly on or near the work place, because it is a risk that can't adequately be controlled through normal safety channels, and they're rightfully concerned about the statistical assertion that work place homicide is 5 times more likely where guns are allowed than not.

Some carriers simply won't take on employers that permit guns on or near the work place; others provide exclusionary endorsements.

This is why workers' compensation remains, in large part, a state by state concern. Each state has laws that are unique to its culture and people. Some states are tolerant of guns, others not. Some states feel okay with pot (pun intended), others don't.

There's been lots of talk and speculation lately about the federal government intervening (or, perhaps, interfering) in state work comp programs to level the playing fields and establish minimum standards, but you can see the difficulty in doing so - the myriad of other social or economic policies of different states make any sort of overall standard very, very difficult lest such run afoul of The Constitution and its provisions for state's rights.

Against this backdrop, it's easy to see how interwoven workers' compensation is with our society and the impact unrelated laws have on work place safety and injury protection systems.

Work comp is complex, because the issues in our society and economy are complex.

Wednesday, April 13, 2016

Quality Controlled

When the sausage that we call legislation is made it is subject to a quality control process. The ingredients get tested to make sure that everything is wholesome and has some nutritional value.

QC is performed by the courts. The tough part about legislative QC is that it takes real people with real cases butting against The System to get the testing done.

Someone has to get hurt to initiate legislative QC.

Lots of people have been getting hurt and performing QC in Oklahoma, and yet another declaration that the sausage isn't made of wholesome ingredients was declared by that state's Supreme Court yesterday.

There are a myriad of provisions in the 2013 Administrative Workers' Compensation Act that offend the sensibilities, but none worse, I think, than the revocation of permanent disability indemnity if the injured worker returns to work.

The Oklahoma Supreme Court sees it that way too.

AWCA Section 45(C)(5) also impermissibly "creates a subclass of employees subject to differential treatment" depending on whether the employees were able to return to work, the court said.

In addition the court said that disability from injuries to "scheduled members" cannot be determined through the use of the 6th Edition of the American Medical Association's “Guides to the Evaluation of Permanent Impairment.”

But the bigger part of the ruling is the court's disdain for disparate treatment among workers with regards to permanent partial disabilities.

The court said Section 45(C)(5) was unconstitutional. That statute provides that the amount of a worker's PPD award shall be reduced by 70% of the average weekly wage for each week he works in his pre-injury or equivalent job.

The court's rationale is that injured workers have a vested property interest in an award of PPD, and "these benefits replace something the employee lost for which the employer is liable." But with Section 45(C)(5), "the monetary award based on the physical disability rating to the employee's body becomes meaningless once the employee returns to work," as the statute allows for the award to be depleted if the claimant works long enough.

The court further said there was no valid reason to treat workers who are able to go back to work differently than workers who cannot.

Two justices dissented in part, on the grounds that if one provision of the AWCA is unconstitutional (indeed, it's turning out that much more fails QC testing) then the entire act is because everything is interwoven.

In other words, like a Federal Food and Drug Administration enforcement act, the entire batch of sausage needs to be recalled.

By the way, one commentator to the WorkCompCentral story on the case said that the "employers who are effectively held at gunpoint by the attorneys throughout the state at the mere 'claim' of a workplace injury" are the big losers because attorneys are paid contingent on the amount of disability.

Simple resolution - come up with a payment system for lawyers dedicated to protecting those hurt at work based on something other than a disability outcome. Failure to do otherwise simply reveals hypocritical bias (and dismisses the lawyers dedicated to a cause rather than a pay day).

To read the court's decision, click here.

To read the dissent, click here.

Tuesday, April 12, 2016

Anxiety Resolution

After so many years traveling the workers' compensation conference circuit, absorbing all of the education, statistics and analysis, it's nearly indisputable that perceived conditions of employment have more to do with a person's perception of injury than any actual injury itself - what the experts like to categorize as biopsychosocial factors.

These factors lead to seemingly incomprehensible case outcomes.

Like the recent Connecticut Supreme Court affirmation that an athletic FedEx driver was totally disabled for nearly 11 months despite running 4-minute miles working out during that same period.

William Hart exercised vigorously about 2 hours every day before reporting for work as a delivery driver for FedEx. He was a model employee from 1987 until June in 2009 when he received 2 written warnings: One causing a fuel spill when he failed to secure the cap on his truck's gas tank, and the other was for exceeding his allowable vacation time when he missed five days of work after his mother died.

Hart claimed he was very distressed by the reprimands and began to fear he would lose his job.

While he was at work on Sept. 15, 2009, Hart said he began to feel ill and light-headed after falling more than an hour behind schedule on his route. He said he was experiencing a fluttering sensation in his chest and a shortness of breath, along with a growing sense of panic, as he rushed through his stops.

After making a delivery to the fire station on Liberty Street in Pawcatuck, Hart asked a paramedic to check him out. The fire department summoned an ambulance after determining Hart's heart rate was over 200 beats per minute.

After he got to the hospital and doctors began tracking his pulse, Hart's heart rate went up to over 300 beats per minute (compare to normal which is between 60 and 100 BPM).

[DePaolo's Note: these are classic symptoms of a panic attack, usually associated with an anxiety disorder, which is not necessarily related to any physical or situational stimulus.]

The doctors at the hospital diagnosed Hart with a "paroxysmal atrial flutter," a malfunction in the right atrium, the heart’s natural pacemaker.

Doctors also determined that he had a low level of potassium in his body, which was indicative of dehydration. Hart remained in the hospital overnight, during which time his heart rate returned to normal.

Two weeks later, he was back at the gym and working out once more, although he said he was doing "less strenuous" exercises that he had previously done. His doctors continued to monitor his heart and kept him off work until Aug. 7, 2010.

Hart also began seeing a psychologist, who diagnosed him with post-traumatic stress disorder, depression, panic disorder with agoraphobia, and hypochondriasis.

Meanwhile, Hart returned to his normal workout routine, which including running on a treadmill at a 15.2% grade and a pace of 4.2 miles per hour, for 30 minutes.

FedEx's expert witness cardiologist testified that most people could not sustain that pace for three minutes.

Hart has not worked since September 2009 though, and he has been collecting Social Security disability benefits since May 2012.

The Workers Compensation Commission ruled Hart's claim compensable, and that was upheld by the Review Board.

FedEx then sought judicial review, and the Appellate Court transferred the case straight to the Supreme Court., in part arguing that Hart's physical condition was precipitated by lawful personnel actions, which the law says can not be compensable.

The Supreme Court upheld the Commission ruling because FedEx didn't present "any plausible explanation as to how the dehydration and resultant mineral deficiencies that precipitated the claimant’s heart problems and associated PTSD could have been the result of personnel decisions, real or imagined."

The court also said there was evidence that "other factors arising from the claimant’s employment, factors that were unrelated to any actual or potential personnel actions, also were substantial factors in causing his PTSD and associated anxiety, panic and depression" and that his "exemplary physical condition and impressive exercise regimen" didn't mean he couldn't still suffer a work-related heart injury.

My bet is that Hart would still be working today, and would have dismissed his anxiety attack (which, by the way, is not necessarily a psychological issue) as a personal issue had there not been the reprimands, particularly the time off for his mother's death.

Animosity towards the employer manifested via claim of work-induced physical symptoms is, despite all of the evidence, statistics and research, still not well appreciated.

Which is why workers' compensation is often referred to as the working person's dispute resolution system...

To read the court's decision, click here.

Monday, April 11, 2016

The Grill Box

A few years ago my wife came home from the local building materials charity store with a large wooden box. It has a hinged lid, and caster wheels. We painted it, lubed it and put all of our grill accessories in it.

The grill box is very functional. It holds the charcoal, lighter fluid, incendiary device, fire extinguisher and a couple of other nic-nacs necessary for a complete grill experience. Utensils and other cooking paraphernalia (such as the requisite glass of wine) can be placed conveniently atop the lid while cooking.

The box stays outside, so it gets weathered and requires periodic maintenance. It had been a while since any had been done though.

Cleaning and lubricating the grill box was one of those projects that just kept moving down the priority list.

It's a very easy job. Tighten up the screws and oil the lid hinges, flip the box over and lubricate the caster wheels.

That's it - an easy 3, maybe 4, minute job.

But for whatever reason, every weekend, I'd have that nagging feeling that I forgot to do something. I'd ponder. I'd ask my wife. We couldn't remember.

Maybe the job was so trivial, perhaps it was so easy, or just too small in relation to all the other, bigger, household projects that its insignificance left no impression on the memory.

The California Supplemental Job Displacement Benefit is sort of like my grill box - apparently it's one of those things that is easy to forget, but just takes a little maintenance.

The $120 million annual fund that was created at the last minute by the legislature to get SB 863 passed was based on a Rand Corp study that estimated there were about 24,000 people who would qualify and benefit from this supplemental fixed payment of $5,000.

Injured workers are eligible for the voucher if the employer does not offer re-employment within 60 days of the treating physician or evaluator declaring the applicant to be permanent and stationary, and issuing a report outlining job restrictions.

The benefit replaced a voucher program that had graduated levels of benefits based on disability but was too complex to administer.

The Division of Industrial Relations sent 3,955 workers $5,000 checks from the fund between April 13, 2015, and the middle of February. The total, $19,775,000, is only 16.5% of the gross available.

Consequently, if Rand's estimates are correct, there are 20,005 injured workers who received a voucher before April 13, 2015, but will not be eligible to apply for payments after Wednesday because of the time limit.

Either the Rand estimate was too high, or the availability of the supplemental payment isn't well advertised, or....?

“While 8 CCR 17303 required claims administrators to provide notice of eligibility via a cover sheet accompanying all vouchers issued until the voucher form was amended by DWC, the department has been informed that at least some vouchers issued prior to Dec. 1, 2015, were not accompanied by the required notice,” the DIR said in a statement.

Rules that went into effect when the program launched in April 2015 require an injured worker to apply for payments from the fund within one year after receiving the Supplemental Job Displacement Benefit voucher, or one year from the effective date of the regulations. 

So the Division of Workers' Compensation is contemplating extending the deadline to one year from the date of receiving the updated voucher form, or one year from the effective date of the amended regulations for those who received vouchers before Dec. 1, to apply.

The state has a very nice, easy explanation of the benefit in Chapter 8 of its guidebook for injured workers. There are other notices that are to be issued that explain the benefit's availability.

Whether these publications are absorbed by the recipients is another matter of course.

I think what's really going on is that the supplemental benefit is just another layer of complexity in an already overly complex system. Another detail to attend to when so much is already going on ...

Truth be told though, the legislature should just take that money and revise the permanent disability indemnity benefit instead. That's a matter for another day.

This weekend I tightened up the hinges and put oil on them as well as the wheels. It's in tip top operational shape now and I used it to grill up a tasty rib eye steak for dinner last night!

The DWC might do some maintenance to the supplemental benefit program. It has scheduled a hearing on extending the deadline to apply for the benefit is at 10 a.m. April 15 at the Elihu Harris state office building, 1515 Clay St., in Oakland.

I don't think they're serving steak though.