Workers compensation insurance is getting a bad rap these days, with everyone from an investigative media organization to North Carolina’s governor offering criticisms of how “the grand bargain” of state comp systems actually plays out for injured workers.

Executive Summary

The fate of the “exclusive remedy” feature of the workers compensation system rests in the hands of the courts in several states, and a new OSHA reporting rule could deliver a brand new weapon to plaintiffs’ attorneys to erode it in the rest, a comp insurance expert reported last month. Mark Walls, a vice president at Safety National, gave a state-by-state rundown of key issues facing workers comp insurers at the Advisen Casualty Insights conference last month, revealing mounting challenges to recent state reforms and to the concept of the “grand bargain” overall.

A ProPublica/NPR series of articles published in March contends injured workers receive too little from the comp system as a result of benefit cuts and restrictions on medical care over the last decade. Meanwhile, the governor of North Carolina, in a State of the State message earlier this year said state employees are getting too much, pointing to “fraud and abuse” of the system as the culprits.

If that’s not enough drama for the workers compensation insurance industry to deal with, consider the attack on the very constitutionality of Florida workers comp law.

Just days before a three-judge panel in the Third District Court of Appeal in Florida would hear oral arguments to overturn the decision finding Florida’s comp statute unconstitutional in a case commonly referred to as the Padgett case, Mark Walls, vice president of communications and strategic analysis for Safety National, described all these goings-on—and then some—at the Advisen Casualty Insights conference late last month.

With Walls describing states like Oklahoma, Kansas and California dealing with their own challenges to recent reforms of the workers comp system, an audience member asked whether a federal workers comp scheme might just be a better idea.

Dangerous Accident During WorkThat would be a change, but it wouldn’t necessarily be an improvement, Walls said, referring to the federal government’s track record with administering other entitlement programs. “If we could look at the federal government and say, ‘Man, Medicare kicks butt’ and ‘Social Security disability is great’ and ‘the VA is just a model of medical expertise,’ then that might make sense,” he said.

Co-panelist Max Koonce, senior director of risk management for Wal-Mart agreed. The buyer of workers compensation insurance for the nationwide retailer said, “If you look at the way the medical system works within the Fed [federal government]—the way Medicare works, the way Social Security disability works, you don’t see a focus on people getting well. You don’t see a focus on return to work.

“You see a system that really promotes disability rather than ability,” Koonce said. “By having different states, each one is trying to create, in my opinion, a better law,” he said.

California and Florida: States to Watch

The session began with Moderator Chris Flatt, leader of Marsh’s Workers Compensation Center of Excellence, asking Walls to define what is meant by the “grand bargain” of workers comp, and then asking Koonce to discuss how Wal-Mart keeps track of all the constitutional challenges and legislative proposals that surfacing around the country.

For more information on the history of workers compensation, see “Workers’ Compensation History: The Great Tradeoff!” and a related series of articles from Insurance Journal’s Academy of Insurance on Insurance Journal’s website.

Walls said the term “grand bargain” dates back to when workers comp was founded over 100 years ago, and refers to the bargain between labor and employers whereby the injured worker receives statutory benefits under at no-fault system and the employer, in turn, receives tort immunity.

“There has been a push-pull in the system ever since with the plaintiffs’ bar constantly looking for ways to get around the exclusive remedy provided by workers comp, he said. The lawyers may be getting some help from judges in Florida and Oklahoma, and from a new reporting rule put in place by the Occupational Safety and Health Administration, he said later.

Before Walls went on to describe those developments and to give a state-by-state rundown of legislative activity, Koonce said Wal-Mart’s corporate affairs department keeps tabs on what’s happening in all states but ranks them in order to prioritize resources. “No one has enough resources to dedicate to every piece of legislation in every single state that impacts our business,” he said, explaining that the solution is a simple scoring system, designating state activity that could have high, medium and low impact.

“Those that have a high level of impact will be the ones that we intend to spend a significant amount of time on. For medium impact states, if we get the chance we’ll put some resources [to it] but we’re definitely going to monitor.

“And then for those at the low level, we say we’re just going to let those things happen,” Koonce said.

So where should Wal-Mart devote the most resources?

Walls devoted much of his presentation to developments in California, Florida and Oklahoma.

“Ever since the Schwarzenegger reforms of 10-plus years ago [in California], there have been multiple bills in every legislative session—introduced and passed through legislature—to erode them,” he said, noting that both Gov. Schwarzenegger and Gov. Brown vetoed every attempt.

Gov. Brown “has been pretty staunch in his defense of the workers reforms but this one seems to have some legs,” Walls said, referring to the latest attempt—this one aimed at “undermining the apportionment part of the legislation by claiming it has gender bias against women.”

For workers who are permanently disabled, the apportionment provision allows a physician to determine what portion of the disability is linked to an on-the-job injury versus previous health conditions or injuries in order to calculate benefits. In early March, Assemblywoman Lorena Gonzalez, D–San Diego, proposed legislation to amend the apportionment language to include the following amendment:

Apportionment in cases of physical injury may not be based on any of the following conditions: pregnancy, breast cancer, menopause, or osteoporosis. Apportionment in cases of psychiatric injury may not be based on psychiatric disability or impairment caused by sexual harassment, or caused by any of the conditions listed above.

“Their main talking point, if you read their press releases, focuses on a claim for a worker who had breast cancer that was found related to employment and whether or not there was permanent impairment involved with that,” Walls said, referring to media statements from the bill’s proponents. “But if you really dive into the weeds you realize, this isn’t really about that. It’s mostly about carpal tunnel and osteoporosis.

“There’s a lot of scientific evidence out there that women over a certain age are more prone to developing carpal tunnel and osteoporosis. So the people introducing this legislation are saying that allowing for apportionment for those conditions is creating a gender bias in the workers comp system,” he said, suggesting that this argument could have more traction than prior efforts to erode California’s reforms.

In Florida, the ongoing challenge to reforms over the past decade started with a ruling from a Miami-Dade County Circuit Court judge, Walls reported, referring to the ruling in Padgett v. State of Florida in August 2014 which declared the state workers comp statute unconstitutional.

“This has always been a battle in workers comp—with plaintiffs’ bar trying to get around exclusive remedy, to pursue litigation in that regard,” Walls said, commenting that Padgett was a “very hand-picked case” in his view.

Mark Walls

“There was a lot of reaction to this but I would temper with the fact that this was a setup,” Walls told the Advisen conference audience. “They found a judge in Miami-Dade Florida. They found the right case. They didn’t even put the state attorney general’s office on notice about the hearing,” he said, explaining why the AG’s office did not defend the workers comp law.

“The reality is any state that has had a rollback in their workers comp benefits in the last few years, could see this litigation,” says Safety National’s Mark Walls, referring to Padgett-style litigation.
Essentially, the 11th Circuit Court judge “ruled that the workers comp statutes in the state of Florida were unconstitutional on their face because they no longer provided the ‘grand bargain’ to the injured worker,” Walls said. To support the finding, what the plaintiffs’ representatives and ultimately the judge “pointed to was the fact that in the last 10 or 15 years, there have been a number of bills passed in the state of Florida that reduced benefits, increased thresholds for compensability—things that they felt tipped the scales from being balanced against the injured worker.”

A Florida district court heard the appeal at the end of March, but no decision on the appeal had yet been reported when this article went to press. (Articles about the appeal appeared in Florida press reports on March 30, 2015, including these: Is Florida’s Workers Comp System Unconstitutional? in the Palm Beach Post and Florida workers’ comp law challenged as unconstitutional in the Tampa Bay Tribune.)

“Nobody really expects this to last,” Walls said. Still, no matter what the appeals court rules, the impact is being felt elsewhere—all the way in Kansas, for example.

Walls noted that there was a bill introduced in Kansas proposing to roll back medical guidelines for workers comp medical claim payments back to AMA 4 from AMA 6 (the fourth edition of American Medical Association guidelines rather than the sixth.) The sixth edition of AMA medical cost guidelines reduced benefits from the more generous ones based on the fourth edition.

The good news for comp insurers is that the bill stalled in committee. “It’s dead for now,” Walls said.

The bad news: the bill’s introduction was an example of a reaction to Florida’s Padgett case, he said. “That came from the Attorney General’s office. And the reason he was pushing that was fear of Padgett-style litigation in the state of Kansas.”

“Their AG felt that by rolling back to AMA 4 they could prevent this from happening,” Walls said.

“The reality is any state that has had a rollback in their workers comp benefits in the last few years, could see this [type of] litigation,” he added. “One thing we know about plaintiffs’ attorneys is they are very good at imitating success….So [if] they see it work in Florida, we’re going to see this challenge in other states,” he said.

‘Exclusive Remedy’ Under Siege

Walls pointed to the litigation in the state of Oklahoma and the ProPublica articles as other noteworthy challenges to the “exclusive remedy” promise of the workers compensation system.

In Oklahoma, the latest reform legislation “is getting so much litigation, I have lost track of how many constitutional challenges” there are, he said. Of particular concern is the ruling of a district court judge referring to language of 2013 reforms bill eliminating “foreseeable injuries” from workers comp coverage.

Verdict“The intent of that was focused on eliminating degenerative conditions and repetitive issues.” But the judge in a back strain case for a tire shop worker said that “given the type of work, they knew this was a foreseeable injury and therefore it’s out of the workers comp statute,” paving the way for the worker to sue for negligence. (The January 2015 ruling was reported in The Oklahoman in an article titled, “Judge’s Ruling Could Turn Oklahoma Workers Comp System Upside Down.”)

“When you think of that, what percent of workers comp claims would be foreseeable under that definition,” Walls asked rhetorically.

“Most of them,” he answered.

The fact that there’s a lot of commentary swirling around this suggesting that the judge “is completely misinterpreting the statute [and] the legislative intent” of the reforms isn’t comforting to Walls, who recalled a similar circumstance from the state of Missouri.

When Missouri removed the term “occupational disease” from its statute, the action was the byproduct of sloppy drafting. “It wasn’t their legislative intent,” Wall said, referring to that state’s lawmakers. Still, the language in Missouri’s reform bill just wasn’t tight enough, and a judge chose to interpret it one way. And as that passed through the courts, other judges agreed, he reported. “The next thing you know, Missouri was faced with a situation where occupational disease claims were outside of workers comp and subject to civil litigation,” he said. “That’s similar to what’s going on in Oklahoma right now.”

And similar situations could arise in other states, he suggesting, drawing the audience’s attention to the ProPublica series of articles—“The Demolition of Workers Comp.

“That’s really focusing a lot on these Padgett– style cases—the erosion of benefits, changing thresholds” and other reform changes.

Speculating about another avenue for litigation that might surface in the near future, Walls noted that every state allows injured workers and plaintiffs lawyers to get around exclusive remedy by alleged that an injury was the result of an intentional act.

In general, it has been “very difficult to prove intentional act,” but OSHA rules on reporting could make this easier, he suggested, noting that OSHA proposes to provide an online database that is accessible to the general public about employers’ injury histories.

“There’s fear that this is going to lead to increased penalties from OSHA because instead of just walking into one factory or one store and looking at that record, they’ll be able to look at the records across your entire enterprise at a glance and see that you’ve got 10 different injuries on this machine at your 20 different plants.”

“Suddenly you’ve got not just a regular violation. You’ve got a willful violation.”

“It’s not a big stretch to think that the plaintiffs’ bar will try to use the same information to try to open that door on ‘intentional act,'” Walls said. “If they can show there’s a pattern of injuries from a certain thing, if they can show OSHA issued a violation for ‘willful,’ you start to wonder is that enough to survive that summary judgment and get in front of a jury on the question whether or not this constitutes an intentional act,” he said.

Turning to the brokers in the room, he asked where they might find coverage for intentional acts causing injury to workers.

“The answer is that there is no coverage by design” under workers comp or commercial general liability (where bodily injury to your employees is excluded). “It is public policy that there’s no coverage, and in many state statutes it flat-out says you cannot get coverage for intentional acts.”

Walls concluded: “If we start to see this litigation around ‘intentional act,’ it’s really a scary proposition for employers because there is no coverage [and] the question of coverage on defense costs becomes a sticky situation.”

Other State Activity

3D Map of the United States, U.S. mapDuring the Advisen session, Walls also reported briefly on developments in other states, including these:

• North Carolina

The media—and state employees—are all over the state’s governor’s comment delivered in his February State of State address—that 40 percent of the workers comp costs for state employees are related to “abuse or outright fraud.

“He hasn’t proposed any specific legislation around this even though what he’s talking about doing is changing the oversight of state employees’ claims,” Walls said.

• Wisconsin

In a budget proposal for the year, the governor recommended a realignment of the Division of Workers Compensation. The biggest change that would come as part of that would be that the Division of Hearings and Appeal is taking over workers comp litigation.

“This is the area creating a lot of concern in the workers comp industry,” Walls said, noting that this means that instead of having judges who are dedicated exclusively to comp cases, they will be cross-trained so they will be handling, workers comp, unemployment and employment practices liability claims. “There is that concern about diluting knowledge of workers comp [and] getting inconsistent decisions,” he said.

• Illinois

Here, the newly elected Republican governor promised workers comp reforms during his campaign, with a focus on raising the “predominant cause threshold” for an injury to be compensable.

Right now, Illinois statutes say that if the working environment contributes 1 percent, “you get stuck with 100 percent of the claim. They are looking to raise that to what states like Missouri and Tennessee recently have enacted, where you have to go over that 50 percent line for it to be related to work injury.”

Multiple bills have been introduced but there is a question about whether anything will get through because Democrats control the legislature, Walls said.

• Tennessee

Opt-out legislation has been introduced in Tennessee, which Walls described as a blend of opt-out schemes that exist in Texas and Oklahoma.

“Texas is a yes or no. You’re in you’re out. Oklahoma has very specific guidelines where you have to replicate the benefits provided in the workers comp system.”

According to Walls, “the bill is getting a little more opposition than people thought it would going in” given that it was debated last year and came close to passage.

• New Mexico

In New Mexico, a bill that would stop benefits for anyone who refused to return to work when an offer was made “breezed through the House with unanimous passage but one senator on a committee killed it. So that bill is stalled,” Walls reported. He also said a second bill is advancing in the state that will allow for benefit reduction if a worker was intoxicated at time of injury.

• Arizona

There are two bills in Arizona—one that would restrict bad-faith litigation and another bill relating to medical workers comp payments for the use of medical marijuana. (The marijuana bill clarifies that comp insurers do not have to pay for medical marijuana.)

• Connecticut

Connecticut has proposed a bill to add a cancer presumption for firefighters.

Topics Lawsuits California Florida Legislation Workers' Compensation North Carolina Kansas Oklahoma Tennessee Missouri