Kansas Reform Proves Unintended Consequences Adage

I've written before that "reform" nearly always results in unintended consequences, and the Supreme Court in Kansas affirmed that observation when it ruled that the state's 2005 reform created a fuzzy line of demarcation for making repetitive trauma claims.

In Saylor vs. Westar Energy, Saylor was a 33 year employee of Westar, and had a history of medical treatment to his knees. He never filed a workers' compensation claim for these injuries because he didn't think that workers' compensation applied - after all his knees were wearing out, not an "injury" in the lay-person sense.

The company didn't help either - rather than providing guidance on the issue of compensability the company simply accepted that Saylor was going to get his knees fixed through the general medical plan.

Saylor worked up until Feb. 6, 2006, and underwent knee replacement surgery the next day. His personal health insurance paid the medical bills. But while Saylor was recovering from surgery, a coworker told him that his injury might be considered work related and compensable. Saylor sought the advice of an attorney and filed a written notice of his claim to Westar on March 28, 2006.

Prior to the Kansas reforms in 2005, the state's courts held that a claimant's last day of work is the date of injury for repetitive trauma claims.

The 2005 reforms changed the statutory language to define the date of accident as the date the authorized physician takes the employee off work or places restrictions on the employee's physical activities while at work. If a worker has not been taken off work or placed on work restrictions, then the date of accident is, (1) when the employee gives the employer written notice of his injury, or (2) the date the condition is first diagnosed as work related and reported in writing to the employer, whichever comes first.

In Saylor's case, the date the condition was first diagnosed as work related was 3/28/06 because that was the first time that there was any evidence that a physician tagged his repetitive trauma injury as industrial.

The employer argued that such an interpretation of the plain language of HB 2142 produced absurd results (such as in Saylor) but the Supreme Court said that the Legislature had ample notice and opportunity to change the law, noting that it was warned of such consequences when the bill was in hearing.

The court said that despite conflicting evidence, both the Workers' Compensation Board and the Court of Appeals had ruled that Saylor had shown that Westar was aware Saylor had a work-related injury and did nothing about it. Kansas statute 44-510j(h) requires an employer to pay for self-procured medical treatment if it was aware of a work injury and did not provide medical care.

The consequences for Westar's failure to err on the side of workers' compensation in the handling of Saylor's claim likely means that Westar is out of pocket for the medical expense since the general health carrier will seek reimbursement for the expenses of Saylor's treatment (outside of the work comp medical cost control system), the work comp carrier will claim failure to adhere to the law and policy requirements of promptly reporting a claim, and Westar will also be on the hook for indemnity.

The lesson learned for employers beyond the caveat of "be careful what you wish for" is to err on the side of reporting any potential claim of injury to the workers' compensation carrier. The subsequent premiums might go up, but that's cheaper than paying out of pocket.

NJ Bad Faith Claim to Supreme Court; Sometimes Its Necessary

The New Jersey Supreme Court is considering whether a bad faith claim can be brought outside of the jurisdiction of the state's Division of Workers' Compensation.

The action of the Supreme Court was brought to attention by attorney Jon Gelman in his blog, and was followed this morning in a WorkCompCentral story.

In 2008 the New Jersey legislature passed a series of reform laws, and one of the provisions passed gave Division of Workers' Compensation (DWC) judges the power to impose penalties for parties who fail to timely comply with court orders. Judges were given the power to order 25% surcharges on overdue payments and levy fines of up to $5,000 for parties that fail to comply with court orders. Judges could also hold separate contempt hearings and recommend further action by the New Jersey Superior Court.

The case in question involved allegations of improper delay of medical benefits. After 2 orders to pay past due medical benefits the injured worker sued for bad faith. The superior court denied civil court jurisdiction. The New Jersey Superior Court, Appellate Division agreed, stating that the injured worker still has the option of going back to the workers' compensation judge and seeking sanctions.

The Supreme Court could have easily denied review. The fact that it decided to grant review is significant in that it will either grant the ability to pursue damages in excess of DWC sanctions against carriers engaging in bad faith, or will outline what may or may not constitute an injured worker's remedies.

I decided to search for the term "bad faith" in the WorkCompCentral news database to see how prevalent the cause of action might be in various states. More states than I thought permit bad faith action against carriers even though workers' compensation may have exclusive jurisdiction.

A quick review of search results came up with cases in California, Texas, Florida, Arizona, Ohio, and a number of other states.

The underlying theme of bad faith in these cases is alleged behavior that is particularly egregious, bordering on criminal, and much more than missing deadlines or incorrect payment amounts.

While the remedy of a bad faith civil suit should be a very unusual one and one that carries a very high burden of proof, it is nevertheless unfortunately necessary to ensure that misbehavior is correctable because sometimes administrative penalties just aren't enough incentive in certain situations.

Where carrier behavior borders on criminal activity, involving a high degree of intentional malfeasance, then a civil remedy with the threat of a large penalty for pain, suffering and punitive damages should be available.

CA Proposed Lien Regulations - A Mixed Bag

The California Division of Workers' Compensation (DWC) yesterday announced proposed regulatory changes for the adjudication of liens that it says should reduce the amount of filings with the Workers' Compensation Appeals Board (WCAB) and expedite the processing of those liens that are left in the system.

Liens in the California system have been a burden for years, and the volume has been increasing. The Commission on Health, Safety and Workers' Compensation (CHSWC) had issued a report earlier this year making recommendations to reduce the impact of liens on the system. The report was criticized by several different sectors of the industry as being incomplete, largely on the basis that the report did not get to the underlying cause of the problem, only addressing the symptoms expressed in the system.

I fear that the newly proposed regulations likewise address symptoms without seeking to influence the cause of these symptoms.

Nevertheless, the new regulations, at least initially, will not reduce the amount of liens being filed, but in fact I believe the reverse will occur - that filings and litigation activity regarding liens will increase.

New proposed Title 8, section 10582.5 would allow a lien claim to be dismissed if the lien claimant does not file a declaration of readiness to proceed (DOR) within one year of becoming a party to the case, or within one year of an order taking a lien conference or trial off calendar, whichever is later. The effect of this section may initially catch some lien claimants off guard, but eventually the savvy will institute more sophisticated and complete calendar management systems that will alert them when time deadlines approach so that they file more DORs more often.

When a case gets dismissed for lack of prosecution under 10582.5, another round of litigation concerning the appeal of the dismissal will take up more WCAB resources.

To make 10582.5 really effective, DWC should (assuming it has the regulatory authority to do so) force lien litigants to arbitration, with the right of trial de novo if the arbitrator makes an egregious error. 

Arbitration could be provided by independent services, or staffed with DWC resources (but that takes budgetary dollars that likely aren't forthcoming in the current economy). And arbitration could be initiated at any time since lien litigation would not be distracting the WCAB from the case in chief - at least until such time as a trial de novo is requested, which should not be granted until after the case in chief is resolved.

I do like the proposed change to regulation 10770, which would provide that it is unnecessary to file supporting documents with the lien form (though service of supporting documents would still be required). This would reduce the amount of errors that lien claimants introduce into the Electronic Adjudication Management System (EAMS), free up DWC resources presently used to "screen" EAMS filings, and free up the amount of electrons floating around the ether-world. The WCAB does not need to see an itemization of the billing until such time as the lien comes before the WCAB for adjudication - only the defense really needs to see the underlying billing.

In addition it is a good rule to keep amended liens out of the system until such time as adjudication is warranted. Filing amendments does nothing to support the lien - the initial filing secures the lien claimant's position in the claim. Amendments are only for the purpose of putting the payor on notice that the amount has changed - the WCAB does not need to know about that until the lien comes up for adjudication.

Requiring the parties to a lien claim dispute to go through the machinations of a mandatory settlement conference, with the completion of a conference statement and designation of evidence and witnesses is good IF there is first an arbitration. I think this provision would be better applied in a trial de novo situation on an arbitration appeal. 

But this is all digression. I understand that the DWC has limited authority on what it can do within its legal structure and that these proposed regulatory changes are an attempt to address the burden imposed on the DWC as a consequence of the Labor Code - something that only the Legislature can fix, and likely won't in the near future.

So, here's my bottom line: I like the provisions that reduce the amount of paper (real or digital) that would be required to be filed. I don't like the new time frames and punitive enforcement measures - I think those will actually increase the litigation burden on the WCAB. I think that the idea of moving lien claim litigation to arbitration should be part of the resolution.

But I think the first step in all of this should be a more complete study as to the underlying reasons for liens in the first place - there are as many reasons as there are parties to litigation, and there are common themes I'm sure. When we understand the behavior that causes the filing of liens then we can institute law and regulations to properly influence that behavior but until then we are treating the symptoms, not the disease.

Have You Stopped Settling Future Medical?

In a recent LinkedIn group discussion (Work Comp Analysis Group) the debate started with a question about how many states permit settlement of future medical rights.

Like a lot of forum threads, the discussion went slightly off topic, and several comments were made that there seemed to be less future medical settlement activity as a consequence of the dabbling of the Centers for Medicare and Medicaid Services (CMS) into claims because of the increased costs in complying with CMS reimbursement negating any savings that might occur from such settlements.

In the closed world of workers' compensation, the ability to settle out claims for future medical care provides a very important economic benefit to both claimants and employers.

Claimants receive typically much needed cash up front - while that cash is ostensibly to provide for needed medical services, my guess is that more often than not it is spent on something other than future medical services. Regardless, that cash provides a small economic boost.

Likewise, closing out medical for the employer means the claim closes faster, ergo less impact on the "long tail" affecting the employer's experience modification.

And carriers can enjoy the investment power that comes from freeing up cash that is otherwise tied up in future medical reserves.

But when carriers start pulling out of the settlement of future medical because the cost of settlement actually exceeds the cost of holding onto that reserve, then there is a serious problem. The financial wizards that count the beans at the top of the insurance heap know that their calculators do not lie - as long as the data input is correct, the numbers are typically pretty accurate, and the numbers are saying hold on to the reserves.

There has been talk of CMS reforming its procedures to be more efficient and stable, but laws attempting to accomplish such have died.

Something as obscure and confusing as CMS' interaction in workers' compensation settlements is a very difficult topic for legislators to understand, much less comprehend how CMS can affect the economy.

So the path to a more efficient CMS is going to be through regulation. CMS would need to be convinced, in these budget-challenging times, that it can intake more cash by streamlining its processes than it currently is experiencing. CMS did create a workers' compensation Medicare set-aside web portal as a step in the right direction, though the review and decision processes are still mired in complexity and uncertainty.

Still the question remains whether the industry is experiencing fewer future medical settlements. I'm interested in your comments - post them here.

Dogging Contractors and Fitted Bed Sheets

Butte County in California is targeting contractors who operate without workers' compensation insurance by demanding proof of insurance prior to issuing permits.

This is a pilot program the county is rolling out and will initially apply only to roofing and swimming pool contractors, until the county understands the labor and operational requirements to make the program applicable to all contractors.

Butte County is ahead of the state government, which is considering a bill that would require proof of insurance before a contractor can renew its licence with the Contractors State Licensing Board. AB 397 by Assemblyman Bill Monning, D-Carmel, would require contractors to show proof of comp coverage or exempt status when renewing licenses before the State Contractor Licensing Board.

The bill is up for a third and final reading in the Senate.

Contractors have a notorious reputation for failing to either carry any workers' compensation insurance, or grossly underreporting payroll, claiming independent contractor status of workers that otherwise would be considered employees for work comp insurance purposes.

AB 397 is a good step in the right direction, but would be more effective if it also provided that a contractor's license could not be renewed if there was proof that the contractor was engaged in either underreporting payroll or misrepresenting its payroll.

On another note, pending before the California legislature is SB 432, introduced by Sen. Kevin DeLeon, D-Los Angeles, that would mandate hoteliers use fitted sheets and provide long handled tools to housekeeper employees.

The hotel industry opposes the bill because of expense and the intrusion of greater regulation, stating that there is no evidence that providing fitted sheets would prevent injuries. Unions and the California Applicant Attorneys Association support the bill, stating that it would reduce injuries to housekeepers.

In general I'm opposed to increased regulation on businesses that otherwise operate in an ethical and sensitive manner.

On the other hand, as a frequent hotel guest, I HATE flat sheets! They always come undone from under the mattress, bunch up, and make for an uncomfortable night of sleep.

I wouldn't mind paying a couple extra dollars (make it $5) to get a fitted sheet for a night of good sleep. Can't there be some middle ground?

Work Comp Complexity - Just Part of Life

Workers' compensation law is so complex, even the higher courts don't understand it, or get it right.

That appears to be the sentiment following Friday's release by the California First District Court of Appeal's opinion in Ogilvie.

The injured worker's attorney, Mark Gearheart, told WorkCompCentral, "I think it's likely that this decision will not end the litigation and confusion about how to use future earning capacity evidence, but will engender another round as the parties try to do it again. The battle will go on."

And the defense bar is also decrying the court's seeming lack of sophistication when it said that "loss of earning capacity" and "ability to compete in the open labor market", the former substituting the latter in the landmark reform bill SB 899, as being synonymous.

The California Division of Workers' Compensation (DWC) has a new Administrative Director (AD) coming on board, and presumably one of the major actions that the new AD will be taking is instituting a new permanent disability rating schedule (PDRS), which DWC was required by law to have implemented last year (a law that the DWC under the Schwarzenegger Administration conveniently ignored).

Some in the community are hopeful that a new rating schedule can be constructed to deal with vagaries that have been introduced by court decisions, and in particular the Ogilvie case.

I am less optimistic.

The court decisions throughout the years, well before SB 899, have consistently upheld the concept that factors in the PDRS can be rebutted. There has been some guidance, but this being case law, unique facts underlying the opinions make the standardization of any specific factor very difficult.

While the WCAB may have exceeded its authority in ascribing the technique to be used to rebut the diminished future earnings capacity (DFEC) component of a rating, it was a solid attempt at bringing some stability and predictability to rating. If you could provide the specific evidence documenting supporting numbers, you know what the answer would be, given the WCAB's original formula.

Now we are back to a case-by-case basis in determining not only what can rebut a rating, but what a rating may be given any similar set of facts.

That will not change with a new rating schedule - the DWC lacks the authority to overturn by regulation what has been upheld as case law for many years.

If anything, a new rating schedule will introduce more confusion and complexity since it will apply only to injuries incurred after the effective date of its introduction (unless perhaps there is some legislation to make it retroactive, in which case that may open up older cases to new litigation).

Such is life in the California workers' compensation system.

Ogilvie Court Does a Disservice to California

The news of the morning actually occurred late Friday afternoon: The California First District Court of Appeals (DCA) handed down its review of the Ogilvie case, disapproved of the formula the Workers Compensation Appeals Board (WCAB) had devised to standardize rebuttal of the Diminished Future Earnings Component (DFEC) of a permanent disability rating string, and opened the gauntlet to further indemnity unpredictability and litigation.

The court upheld the WCAB's conclusion that nothing in SB 899 changed the ability of an injured worker to challenge a permanent disability rating. But it didn't like the WCAB coming up with a formula for doing so, stating that the WCAB exceeded its authority.

There are three avenues for challenging a rating according to the 1st DCA:

• A factual error in the calculation of a factor in the rating formula or its application.
• The applicant is "not amenable to rehabilitation" because of his injury and therefore suffered a greater loss of future earning capacity than was reflected in the scheduled rating: 

“Another way the cases have long recognized that a scheduled rating has been effectively rebutted is when the injury to the employee impairs his or her rehabilitation, and for that reason, the employee’s diminished future earning capacity is greater than reflected in the employee’s scheduled rating….An employee effectively rebuts the scheduled rating when the employee will have a greater loss of future earnings than reflected in a rating because, due to the industrial injury, the employee is not amenable to rehabilitation…”

• The omission of medical complications aggravating the injured workers' disability: 

“The briefs and arguments of the parties and amici also point out a third basis for rebuttal of a scheduled rating that is consistent with the statutory scheme. In certain rare cases, it appears the amalgamation of data used to arrive at a diminished future earning capacity adjustment may not capture the severity or all of the medical complications of an employee’s work-related injury. After all, the adjustment is a calculation based upon a summary of data that projects earning losses based upon wage information obtained from the California Employment Development Department for a finite period and comparing the earnings losses of certain disabled workers to the actual earnings of a control group of uninjured workers. (Working Paper at p. 3.) A scheduled rating may be rebutted when a claimant can demonstrate that the nature or severity of the claimant’s injury is not captured within the sampling of disabled workers that was used to compute the adjustment factor. For example, a claimant who sustains a compensable foot fracture with complications resulting from nerve damage may have greater permanent effects of the injury and thereby disprove the scheduled rating if the sampling used to arrive at the rating did not include any workers with similar complications.”

The first avenue is easy since it is a factually based element that is easy to rule on, easy to implement, and plug back into the rating formula.

The second and third create a destabilizing effect and will increase litigation at the trial level, and perhaps increase litigation at the review levels as well.

We are left without any guidance as to how to prove a loss of future earnings capacity. "Not amenable"? What does that mean? Does that include cases where the injured worker just says "no" to some form of rehabilitation?

At least the WCAB gave us a methodology for doing so, albeit a complicated one.

The 1st DCA said that everything we ever needed to know about DFEC has been published in earlier case law because even though SB 899 changed everything we thought we knew about permanent disability rating, it actually didn't:

“Senate Bill No. 899 amended section 4660 in two ways that affect the issue presented in this proceeding. The statute now provides that “an employee’s diminished future earning capacity shall be a numeric formula based upon empirical data and findings . . . prepared by the RAND Institute for Civil Justice.” (§ 4660, subd. (b)(2).) And a permanent disability award must now reflect consideration of an injured employee’s “diminished future earning capacity,” rather than the “ability of such injured employee to compete in an open labor market.” (Former § 4660, subd. (a).) This latter change is readily addressed… Indeed, the terms “diminished future earning capacity” and “ability to compete in an open labor market” suggest to us no meaningful difference, and nothing in Senate Bill No. 899 suggests that the Legislature intended to alter the purpose of an award of permanent disability through this change of phrase. Nor does its use suggest that a party seeking to rebut a permanent disability rating must make any particular showing.”

So we're back to "ability to compete in the open labor market" as a standard for challenging a rating without "any particular showing."

I think that participants in California workers' compensation want specificity, want routine, want clear direction. It benefits injured workers because then they don't have to spend a lot of time in litigation to either get, or not get, more money. It benefits employers and carriers because then they know exactly what they have to pay. Both benefit by getting cases get closed faster.

The 1st DCA creates a new level of pandemonium and litigation induced claim delay at a point in time when all of the participants in work comp cases are looking for some stability and predictability.

The court did a disservice to both the injured workers and employers of California.