Byline Article by Wes Strickland and Matthew Scarfone: Workers’ Comp. Appeals Could Feed Rate Hikes
Dec 8, 2014
Reprinted with permission from the December 8, 2014 issue of the Daily Business Review© 2014 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.
By: Nate Wesley “Wes” Strickland and Matthew C. Scarfone
Based upon the findings in a recent order issued by the Florida Office of Insurance Regulation (“OIR”), the workers’ compensation insurance market in Florida appears to be stable and healthy, but several cases pending appeal in the Florida courts could negatively impact the market.
The National Council on Compensation Insurance, Inc. (“NCCI”), the organization responsible for filing workers’ compensation rates in Florida, recently requested a statewide average decrease of 3.3% in workers’ compensation rates. After a public hearing in October 2014, OIR issued an initial order disapproving the 3.3% rate decrease, and finding that certain parts of NCCI’s filing were not justified.
OIR rejected NCCI’s proposed increases in the profit and contingencies (“P&C”) factor, which allows insurers to earn a profit on premiums, and disagreed with NCCI’s assumptions regarding the medical loss trend and production. NCCI accepted OIR’s proposed adjustments to the rate filing, which resulted in an additional decrease of 1.9% in the overall statewide average rates, and OIR issued a final order approving an average statewide rate decrease of 5.2% on November 12, 2014.
This is a positive development for employers operating in Florida, and reflects the success of major legislative reforms that were enacted in 2003. Although the OIR has approved modest rate increases during the past few years, since 2003 the overall statewide workers’ compensation insurance rates have decreased on average by more than 50%. In the wake of this success, there are several cases on appeal that threaten to impede the progress realized through workers’ compensation reform.
In Westphal v. City of St. Petersburg, an injured worker who was totally disabled at the expiration of his eligibility for temporary benefits was denied permanent disability benefits. The First DCA reversed on appeal, receding from its precedent in Matrix Leasing, Inc. v. Hadley. In Hadley, the court held that after temporary benefits expired (104 weeks), the claimant must be able to show that he or she is totally disabled, and will remain totally disabled after the date of maximum medical improvement.
The First DCA explained that the Hadley rule creates a “gap” in benefits for any person who is totally disabled, but has not yet reached maximum medical improvement after 104 weeks, and cannot prove that they will remain disabled in the future. Relying on the plain language of the statute, the First DCA held that the Legislature did not intend to create such a gap.
Instead, the court held that the statute requires a determination of whether the claimant has reached maximum medical improvement before their temporary benefits expire. A claimant that remains totally disabled at that time is deemed to be at maximum medical improvement, and is eligible for permanent benefits. The First DCA certified this issue to the Florida Supreme Court as one of great public importance, and oral arguments were held on June 5, 2014.
In Morales v. Zenith Ins. Co., a worker was killed by palm tree that was being unloaded from a truck. His employer maintained a workers compensation and employer liability insurance policy with Zenith. The policy contained an exclusion for “any obligation imposed by a workers compensation… law.” The deceased’s estate (the “Estate”) brought a wrongful death action against the employer, and Zenith provided a defense. When the employer refused to cooperate, the Zenith attorney withdrew, and a judgment for $9.525 million was entered against the employer.
Meanwhile, Zenith settled the workers’ compensation claim with the Estate. The settlement agreement stated that it constituted an election of remedies “as to the coverage provided to the employer.” The Estate filed a lawsuit against Zenith, and Zenith sought summary judgment, arguing that (1) the Estate elected workers’ compensation as its exclusive remedy, (2) the workers’ compensation exclusion negated coverage, and (3) the Estate lacked standing. The district court granted summary judgment in Zenith’s favor. On appeal, the Eleventh Circuit certified all three issues to the Florida Supreme Court as questions of great public importance.
Oral arguments were heard on April 10, 2014 and on December 4, 2014, the Florida Supreme Court found that, although the Estate had standing to bring suit against Zenith, the Estate had elected workers’ compensation as the exclusive remedy and the policy’s workers’ compensation exclusion negated coverage. The court further determined that the workers’ compensation release was valid and thus the default judgment entered against the employer was not collectible. This opinion is subject to rehearing and reconsideration if the Estate files the appropriate motions.
Castellanos v. Next Door Company involves the constitutional validity of a statute governing the award of attorney’s fees in workers’ compensation claims. The claimant’s counsel was awarded a total attorney’s fee of $164.54 for 107.2 hours of legal work, which the court found was reasonably necessary to secure benefits. The First DCA concluded that the statute limiting attorney’s fees is constitutional, but certified this issue to the Supreme Court as a question of great public importance. Oral arguments were held on November 24, 2014.
Finally, on August 13, 2014, a Circuit Court Judge Jorge E. Cueto in Miami-Dade County held that the “exclusive remedy” provision of the Workers’ Compensation Act is facially unconstitutional because it violates the due process clause and prevents access to courts. In Florida Workers’ Advocates, Workers’ Injury Law & Advocacy Group, Elsa Padgett v. State of Florida, Judge Cueto found that, after the recent reforms, the benefit provided by the workers’ compensation system no longer justifies limiting a claimant’s constitutional right of access to the courts. This decision is being appealed to the Third DCA.
Each of these appeals threaten to increase costs for workers’ compensation insurers, increase rates for employers, and reverse the progress achieved by workers’ compensation reform. While the Zenith decision is favorable, it is not final at this time. If an unfavorable decision in any of these cases is reached prior to the next rate filing in August 2015, NCCI would likely take the probable effect of such decision into account when proposing new rates.