December 6, 2016
Florida’s Mess on Workers’ Comp
by Bob Wilson
Some estimates are that employers and carriers will shell out as much as $2 billion for past workers' comp cases alone in Florida.
Sometimes stories in the news are simply that: stories. You read them; you ponder the significance for those strangers who are affected by the news; and then you move on. Other times, you find yourself directly affected by the news of the day, and it leaves you with a slightly greater awareness as to the potential impact the story might have. Such is the case here in Florida with our most recent twist in the winding tale of workers’ compensation reform.
My company has used the services of a professional employer organization (PEO) for much of its 17-year existence. However, due to growth and multi-state employment needs, we are extricating ourselves from that relationship and taking payroll, benefits and HR administration in-house. That change includes securing a direct workers’ compensation insurance policy for our company.
Now, workers’ compensation in Florida has become anything but mundane, as court decisions in recent months have stripped key sections of the comp code. The two primary cases that have driven the storyline are Westphal and Castellanos. Westphal ended a 104-week cap on temporary benefits. In reality, that decision will only affect a very small percentage of claims in the state. Castellanos, on the other hand, is having much broader impact. It found that income caps on attorneys for injured workers created an imbalanced level of representation, and declared the limits unconstitutional.
To make a long story short, there is now a huge unfunded liability for attorneys’ fees that may be due from any cases still open from much of this past decade. Some estimates are that employers and carriers will shell out as much as $2 billion for past cases alone. Litigation is expected to surge, resulting in a recommended and approved rate increase of 14.5% effective Dec. 1.
That is where the news of the day potentially affects my firm.
See also: How Should Workers’ Compensation Evolve?
My agent sent me a quote for coverage effective Jan. 1, 2017. The quote, of course, included the approved rate increase that would be effective at that time. Just two hours later, a Circuit Court judge in Tallahassee blocked the approved rate increase, declaring that NCCI, which had generated recommendations for the state, violated state sunshine laws by not conducting the analysis in public meetings.
This is going to be a mess.
Litigation is already starting to increase in Florida. According to Deputy Chief Judge David Langham, petition filings rose 12% in 2016 (ended June 30, 2016), and thus far in 2017 (beginning July 1) the petition volume is up an average of 6%.
Ironically, while everybody and their brother knows that an increase in lawyer fees WILL drive litigation and costs up in Florida, it was a lawsuit brought by a plaintiff’s attorney, acting as an employer, that brought a screeching halt to the rate increase. If that group is looking to avoid its share of blame and divert attention for the increasing costs, that strategy is not going to work.
However, there is plenty of blame to go around.
As I’ve said previously, these court decisions “were largely the result of some really shortsighted legislative decisions, which were largely the result of greedy actions on the part of a select few who exploited the system for their own selfish gain, which was largely the result of some people screwing around with claims that should have just been paid to begin with.” There is little doubt that abuse existed in Florida. Before reform, attorneys were entitled to fee awards any time they brought action that “benefited” a client. Stories abound of cases where, technically, benefit was obtained, but it was in no way substantial. There was the case where an attorney gained an increase in weekly indemnity of 10 cents for a client, and received a $16,000 fee for the filing. Yet another (that one of my employees witnessed) where an attorney received a decision that awarded an injured worker $5. The attorney got $2,500 for his efforts.
There is little doubt that the reforms, starting back in 2004, had their intended effect. Fees for attorneys for injured workers, which were $215 million in 2003-04, fell to $136 million in 2014-15. However, the ratio of legal fees between plaintiffs and defense attorneys indicatted future problems. In 2003-04, Florida attorney fees were near parity, with 49% going to plaintiffs’ attorneys and 51% going to defense counsel. By 2014-15, however, that ratio had shifted dramatically, with 37% for plaintiffs and 63% for defense counsel (Source: Judge Langham’s Blog). There was indeed a representation imbalance created, and that caused a lot of problems here for some injured workers, particularly those with very temporary lost time and lower-value cases.
The real problem here in Florida was that our legislature took a very broad brush to stop a few bad actors, and ended up painting everybody into a corner.
But now, attorneys who will be the most immediate financial beneficiary have played a role in blocking the rate increase many know is needed to finance the reversal. Left unresolved, this portends big problems for the state. Carriers, facing certain cost increases but prevented from preparing for them, may simply choose to stop issuing new policies. Longer term, some could leave the state. At a minimum, those employers with a less-than-stellar experience level are most certainly facing the chopping block for their coverage.
As for my company, we’ve had one workers’ comp claim in 17 years. Our current loss run over that time shows zero dollars. We are in pretty good shape, but I do find myself wondering what our agent will be telling me when we chat later today. In the movie O’Brother Where Art Thou, when the boys find themselves surrounded by the law and trapped in the loft of a barn with no apparent way out, Everitt, played by George Clooney, kept repeating the obvious by saying, “Oh, we’re in one heckuva tight spot.”
I know how they felt. Let’s hope that someone comes along to re-write a sensible ending to this scene.