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Legally Speaking

 

Issue: June, 2009
Author: George Santini

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Changes Leave Room for Improvement: The 2009 Workers’ Compensation Legislation

The first Wyoming Workers’ Compensation Act was enacted by our Legislature in 1915. A constitutional amendment authorizing the creation of a workers’ compensation fund passed overwhelmingly during the 1914 general election. That amendment to Article 10, Section 4 of the Wyoming Constitution authorized the creation and maintenance of a fund for payment of compensation to injured workers or the families of deceased workers in lieu of their common-law rights of action against the employers in the event of work-related injuries or death.

In the 94 years since its enactment, the Wyoming Workers’ Compensation Act has undergone a multitude of changes. The fund, which initially had a balance of a few hundred thousand dollars, has grown to more than $1 billion. Throughout the course of its history, there have been some predominant themes and conflicting interests at play – the most prominent of these being the dynamic tension between the desire of injured workers to maintain benefits at as high a level as possible and the conflicting interest of the employers in keeping premium rates as low as possible. Over time these conflicting interests have been the focal point of numerous legislative battles.

The most recent of these battles occurred during the 2009 General Session of the Wyoming Legislature and culminated in the passage of House Enrolled Act No. 92 (HEA92). Passage of this bill was particularly notable as it marked the first time employee benefits had been significantly increased in more than 20 years. The 2009 bill provides a stark contrast to the 1994 Workers’ Compensation Reform Act, which lifted the legislative ceiling on employer premium rates at the cost of greatly reducing permanent disability benefits and the imposition of significant procedural hurdles for injured workers to overcome if they sought to collect benefits.

Though, in my opinion, the 2009 legislation represents a step in the right direction, employee benefits are still substantially lower than the benefits available under the pre-1994 act. The 2009 workers’ compensation bill reflects the ongoing tension between providing higher benefits and maintaining low employer premiums. The trade-off for increased benefits in the 2009 bill was a provision allowing the Wyoming Workers’ Safety and Compensation Division to grant premium credits across the board to all employers who had paid premiums in the prior year and whose accounts were current. This premium credit is totally discretionary with the Division and theoretically would allow the reimbursement of any excess amounts in the fund after payment of costs and reserves back to employers. The practical effect of which would be there will be no surplus in the fund to pay for future benefit increases and any enhancement of benefits would directly raise employer premium rates.

The benefit modifications which were provided for under HEA92 focused primarily on increasing benefits paid to surviving spouses and dependent children, increasing the number of months upon which permanent physical impairment benefits are calculated and, for the first time, providing a cost of living adjustment in some permanent disability benefits. Additional provisions regarding the sharing of costs and attorneys’ fees in the event of third-party recoveries and expansion of elective coverage to include partnerships and sole proprietorships were also included in the legislation.

Much of the reason for the passage of the 2009 legislation was due to complaints by injured workers and others to their legislators concerning the general inadequacy of benefits and the perception of hostility toward injured workers on the part of the Wyoming Workers’ Safety and Compensation Division. During the course of committee hearings on HEA92, industry representatives also voiced dissatisfaction with the level of benefits, primarily as it related to death and benefits to dependent children.

The Legislature was made aware of the existence of a substantial surplus in the workers’ compensation fund over and above the amounts necessary to pay benefits and for necessary reserves for future benefit payments as a result of the Division seeking authority to grant premium credits. The surplus, at various points, was estimated to be anywhere from $77 million to $260 million.

Originally, the Division made no mention of the possibility of using a portion of the surplus to fund increased benefits; instead, the Division actively campaigned against any direct increase in benefits. Among the proposals advanced by the Wyoming Workers’ Safety and Compensation Division was to set aside a portion of the surplus in a separate catastrophic reserve fund. This suggestion was not adopted due in part to testimony by the Division’s own actuaries that such a fund was unnecessary and the desire to use some of the surplus to enhance benefits and reduce employer premiums. In general, by the time the Legislature convened, the Division was still opposed to any increases in benefits other than marginally increasing death benefits and dependent children’s benefits.

It was disclosed by the Division during the course of legislative hearings that there were only a few death or permanent total disability benefit cases per year in the state of Wyoming and that the costs of benefits in those cases were extremely small in comparison to nearly $325 million per year worth of revenues the Division collected in fiscal year 2008. Total benefits paid that same year were $136.3 million; the Division’s cost of operations was $17.0 million; and claims case costs, including the cost of fraud investigations and administrative hearings, were $4.0 million. If the Division was analyzed as a for-profit industry, its net income was over $166.8 million for 2008. In fiscal year 2007, the net income was over $152.5 million.

With regard to dependent children’s and survivors’ benefits, the 2009 legislation had the effect of increasing the monthly award for dependent children in the event of permanent total disability or death from $150 to $250 per month until the child dies or reaches the age of 21 years old. Dependent children enrolled in a four-year college, community college or private trade school are eligible to continue to receive the benefit until they reach the age of 25. Additionally, the amount of the monthly award is to be adjusted annually for inflation using the lesser of the increase in the consumer price index or 3%.

Surviving spouse’s benefits were increased from a base of 54 months to 100 months. Additionally, benefits for parents of employees who died without a surviving spouse or dependent children, but with surviving parents, were also marginally increased.

The formula under which temporary total disability benefits were calculated was also adjusted to provide for the so-called “high income earner.” High wage earners can now receive as much as 75% of their actual monthly earnings at the time of their injury, capped at two times the statewide average monthly wage for the year preceding the quarter in which the employee was injured. The bill also tried to help part-time employees by setting a floor of 30% of the statewide monthly average wage not to exceed the employee’s actual monthly earnings at the time of injury was instituted. In a major improvement, permanent total disability benefits were also given a cost of living adjustment.

One of the concerns raised by members of the public before the Joint Labor Health and Social Services Committee, which held hearings concerning workers’ compensation issues during its interim work, involved injured workers with injuries that prevented them from returning to work who had been receiving temporary total disability benefits whose benefits were terminated as a result of reaching a point of ascertainable loss or receiving a permanent physical impairment rating. In many such cases, the committee learned there was a lengthy delay between the termination of temporary disability benefits and the beginning of payment of any permanent impairment or disability award. The committee heard from injured workers and their family members who had to wait months between the stoppage of temporary total disability benefits and the beginning of payment of the permanent physical impairment or disability award. Often the employees/claimants and their families would be left without any source of income or support during this time frame, which could last for several months. This caused severe hardship in many lives. To address this situation, the committee amended the temporary total disability statute to provide that temporary total disability benefits would continue until the employee receives his first monthly payment for either permanent partial impairment or permanent total disability benefits.

Since its inception, the Wyoming Workers’ Compensation Act has recognized that when an employee recovers damages from a third-party as a result of injuries for which the employee receives workers’ compensation benefits, the fund is entitled to share in such recovery. The reimbursement statute, which remained unchanged since 1986, provided that the fund was entitled to reimbursement for all payments made under the Act or to be made under the Act on behalf of the employee up to, but not to exceed, one-third of the total amount of recovery. The statute also provided that the fund’s entitlement to reimbursement could be compromised or reduced for purposes of facilitating settlement of the third-party action. The Division’s interpretation of how the fund’s right of recovery was affected by costs of recovery, including attorneys’ fees and litigation costs, and its willingness to compromise its claim for reimbursement has not been consistent. In general, prior to the mid-1990s, the State would negotiate with attorneys concerning the amount of the State’s subrogation lien on a case-by-case basis. From around 1994 until 2001, the Division applied a different rule of thumb, codified in its Rules, that it would reduce the amount of the State’s subrogation interest by 1/3 and agree to share in the costs of recovery by one-third. Since 2001, the Division’s policy has generally been that it will not negotiate on its subrogation lien, demanding 100% reimbursement, if possible, of its full one-third. In cases where negotiation was agreed to, the Division would ordinarily only reduce its lien by 8% in recognition of costs and seek to leverage a waiver of future benefits as a precondition to reduction.

In response to the Division’s arbitrarily and inconsistently applied rule, the Legislature, in the 2009 bill, added a section which requires the workers’ compensation fund to reduce its amount of recovery pro rata for attorneys’ fees and costs in the same proportion as the employee is liable for the attorneys’ fees and costs. This change in the enactment was opposed by the Wyoming Workers’ Safety and Compensation Division, which sought to have the provision stripped from HEA92.

Other provisions of the 2009 bill include an extension of the period of time in which vocational disability benefits could be paid, but not increasing the amount of benefits; a section limiting the amount of time in which the Division can seek to recover for benefits paid by mistake or error to one year; and granting additional money from the fund for an additional position in the Office of Administrative Hearings. The amendments go into effect on July 1, 2009.

Looking forward, there were a number of issues left unaddressed by the Legislature. These issues included providing for additional claims analysts to work within the Division to ensure a quick and prompt resolution of claims. Statistics brought forth before the committee indicated that the current case load of Division case analysts greatly exceeds industry standards; however, the Division did not support any additional staffing.

The compensability of mental or emotional injuries arising from workplace accidents was also much debated, but left unchanged in the face of opposition from the Governor’s office.

All too frequently we in Wyoming like to think of our state as being somewhat apart from developments on the national political scene. One such development which could greatly impact the Wyoming workers’ compensation system is the development of a national healthcare system.

A substantial portion of the amount currently spent on healthcare, in Wyoming and nationwide, is made up of workers’ compensation medical expense claims. During fiscal year 2008 alone the Division paid approximately $93.6 million in medical expenses. Assuming that some sort of national healthcare system is enacted, it appears that the healthcare dollars currently paid as medical expenses by workers’ compensation systems will be part of that overall system. The question of how work-related injuries are to be compensated for as far as disability or death benefits is one which will in all likelihood need to be addressed separately. Workers’ compensation as we know it may no longer exist.

One of the problems that plagues Wyoming because its monopolistic state-run fund is the only provider of coverage under the Act, is the inherent conflict of interest between the Workers’ Safety and Compensation Division acting as the administrator of the fund at the same time it participates as a party in adjudications to entitlement to benefits. The Wyoming Workers’ Safety and Compensation Division has developed a very strong pro-employer bias in the manner in which it does business. The problem with this system is not simply that the Division has a pro-employer bias, but rather that there is no effective means of holding the Division accountable when it oversteps its authority or mishandles claims. In most states, workers’ compensation coverage is provided by insurance companies which are subject to regulation under the Insurance Code and bad faith laws. The Wyoming Workers’ Safety and Compensation Division is obviously immune from suit absent a waiver of immunity under the Wyoming Governmental Claims Act or violations of civil rights redressable under federal law. There simply is no effective legal recourse against the Division where it denies or unreasonably delays payment of claims without adequate justification.

One suggestion based upon the recognition that the Wyoming Workers’ Safety and Compensation Division is, at its core, nothing less than a very successful insurance company would be to hold it to the same standards of conduct that other insurance companies are held to. Namely, amend the Wyoming Governmental Claims Act to allow suits to be brought against the Wyoming Workers’ Safety and Compensation Division for bad faith denial of claims. Other states have adopted workers’ compensation statutes calling for penalties in the form of enhanced benefits or fines for similar violations by employers or their insurer.

Other problems with administration include the Division’s inability or reluctance to act against employers who are either delinquent or not paying their premiums. The interim study found that nearly 9% of all employers paying into the system were delinquent in paying their premiums. Increased emphasis on enforcement of collection of premiums and additional staffing seems to be in order.

Many persons who defend the current system rightly point out that in the vast majority of cases the Wyoming workers’ compensation system works effectively. In the vast majority of cases, an employee who is injured on the job receives medical care and treatment necessary for his/her injuries and returns to work without any long lasting disability or impairment. It is in those 5-10% of cases which involve injuries which result in either permanent impairment or disability that the Wyoming workers’ compensation system is falling short of the promise implicit in the compromise approved by the voters in 1914 that the cost of industrial accidents would be borne by industry and not on the backs of the injured worker. Those who claim that the effectiveness of the system is demonstrated by the number of claims in which there are no problems ignore the human cost of those cases in which the system fails. No one would be satisfied if one out of every 20 times we got in our cars they failed to start. No one should be satisfied if one out of every 20 people who are injured in the state of Wyoming in work-related accidents is not fairly and adequately compensated. By and large, my experience in representing both injured workers and employers is that Wyoming citizens want their system to work fairly, efficiently and at a low cost. As a state, we can and should do better.

Between 1987 and 2009, except for one or two very minor instances, workers’ compensation benefits have been decreasing. That is, the injured workers have been receiving few and lower benefits despite inflation and the rising costs of living and providing for a family in Wyoming. At least for now the pendulum may be swinging back in favor of the employee, but don’t count on it for long unless we all keep involved about what’s going on and do our part to keep the focus on the employee and not just for the employers’ or the Division’s pocketbook.

George Santini is a member of the firm of Ross, Ross & Santini, L.L.C., and practices in Cheyenne where he was born and raised. He attended the University of Wyoming where he obtained his Jurist Doctorate in 1981. Upon graduation from law school he clerked for the Honorable Richard V. Thomas at the Wyoming Supreme Court prior to entering private practice. Currently his practice emphasizes in the areas of Personal Injury Litigation, Workers' Compensation and Employment issues. He is past president of the Wyoming Trial Lawyers Association and has been selected for inclusion in The Best Lawyers in America. Santini currently chairs the Wyoming Permanent Rules Advisory Committee, Civil Division and is a frequent lecturer at continuing education programs.

Copyright © 2009 – Wyoming State Bar

     

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