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excess

The State of Workers’ Comp in 2016

Over the last two years, employers and groups that self-insure their workers’ compensation exposures have enjoyed reasonably favorable terms on their excess insurance policies. Both premiums and self-insured retentions (SIRs) have remained relatively stable since 2014. This trend is likely to continue through 2016, but the long-term outlook for this line of coverage is less promising. Changing loss trends, stagnant interest rates, deteriorating reinsurance results and challenging regulatory issues are likely to have a negative impact on excess workers’ compensation insurance in the near future.

Predictions for 2016

Little direct information is available on the excess workers’ compensation marketplace even though written premiums well exceed $1 billion nationwide. Accurately forecasting changes in the marketplace is largely a function of the prevalent conditions of the workers’ compensation, reinsurance and financial marketplaces. But, based on available information, premium rates, retentions and policy limits should remain relatively flat on excess workers’ compensation policies for the balance of the 2016 calendar year. This projected stability is because of four main factors: positive results in the workers’ compensation industry over the last two years, availability of favorable terms in the reinsurance marketplace, an increase in the interest rate by the Federal Reserve at the end of 2015 and continued investment in value-added cost-containment services by excess carriers.

For calendar year 2014, the National Council on Compensation Insurance (NCCI) reported a 98% combined ratio for the workers’ compensation industry nationwide. In 2015, the combined ratio is projected to have improved slightly to 96%. This equates to a 2% underwriting profit for 2014 and a projected 4% underwriting profit for 2015. This is the first time since 2006 that the industry has posted positive results. The results were further bolstered by a downward trend in lost-time claims across the country and improved investment returns.

Reinsurance costs and availability play a significant role in the overall cost of excess workers’ compensation coverage. On an individual policy, reinsurance can make up 25% or more of the total cost. Excess workers’ compensation carriers, like most insurance carriers, purchase reinsurance coverages to spread risk and minimize volatility generated by catastrophic claims and adverse loss development. Reinsurers have benefited from underwriting gains and improved investment returns over the last three years. These results have helped to stabilize their costs and terms, which have directly benefited the excess workers’ compensation carriers and, ultimately, the policyholders that purchase excess coverage.

According to NCCI, the workers’ compensation industry has only posted underwriting profits in four of the last 25 years. This includes the two most recent calendar years. To generate an ultimate net profit and for the industry to remain viable on a long-term basis, workers’ compensation carriers rely heavily on investment income to offset the losses in most policy years. For the first time since 2006, the Federal Reserve increased target fund rates at the end of 2015. Although the increase was marginal, it has a measurable impact on the long-term investment portfolios held by workers’ compensation and excess workers’ compensation carriers. Workers’ compensation has a very long lag between the time a claim occurs and the date it is ultimately closed. This lag time is known as a “tail.” The tail on an excess workers’ compensation policy year can be 15, 20 and even as much as 30 years. An additional 0.25% investment return on funds held in reserve over a 20-plus-year period can translate into significant additional revenue for a carrier.

Excess workers’ compensation carriers have moved away from the traditional model of providing only commodity-based insurance coverage over the last 10 years. Most have instead developed various value-added cost-containment services that are provided within the cost of the excess policies they issue. Initially, these services were used to differentiate individual carriers from their competitors but have since evolved to have a meaningful impact on the cost of claims for both the policyholder and the carrier. These services include safety and loss control consultation to prevent claims from occurring, predictive analytics to help identify problematic claims for early intervention and benchmarking tools that help employers target specific areas for improvement. These value-added services not only reduce the frequency and severity of the claims experience for the policyholder, but excess carriers, as well.

Long Term Challenges

The results over the last two years have been relatively favorable for the workers’ compensation industry, but there are a number of long-term challenges and issues. These factors will likely lead to increasing premiums or increases in the self-insured retentions (SIRs) available under excess workers’ compensation policies.

Loss Trends: Workers’ compensation claims frequency, especially lost-time frequency, has steadily declined on a national level over the last 10 years, but the average cost of lost-time claims is increasing. These two diverging trends could ultimately result in a general increase in lost-time (indemnity) costs. Further, advances in medical technology, treatments and medications (especially opioids) are pushing the medical cost component of workers’ compensation claims higher, and, on average, medical costs make up 60% to 70% of most workers’ compensation claims.

Interest Rates: While the Federal Reserve did increase interest rates by 0.25 percentage point in late December, many financial analysts say that further increases are unlikely in the foreseeable future. Ten- year T-bill rates have been steadily declining over the last 25 years, and the current 10-year Treasury rate remains at a historically low level. A lack of meaningful returns on long-term investments will necessitate future premium increases, likely coupled with increases in policy retentions to offset increasing losses in future years.

Reinsurance: According to a recent study published by Ernst & Young, the property/casualty reinsurance marketplace has enjoyed three consecutive years of positive underwriting results, but each successive year since 2013 has produced a smaller underwriting profit than the last. In 2013, reinsurers generated a 3% underwriting profit followed by a 2% profit in 2014 and finally an underwriting profit of less than 1% in 2015. Like most insurance carriers, reinsurers utilize investment income to offset underwriting losses. As the long-term outlook for investments languishes, reinsurance carriers are likely to move their premiums and retentions upward to generate additional revenue, thus increasing the cost of underlying policies, including excess insurance.

Regulatory Matters: Workers’ compensation rules and regulations are fairly well-established in most states, but a number of recent developments at the federal and state levels may hurt workers’ compensation programs nationwide. The federal government continues to seek cost-shifting options under the Affordable Care Act (ACA) to state workers’ compensation programs. Later this year, state Medicaid programs will be permitted to recover entire liability settlements from state workers’ compensation plans – as opposed to just the amount related to the medical portion of the settlement. At the state level, there are an increasing number of challenges to the “exclusive remedy” provision of most workers’ compensation systems. Florida’s Supreme Court is currently deliberating such a challenge. Should the court rule in favor of the plaintiffs, Florida employers could be exposed to increased litigation from injured workers. A ruling against exclusive remedy could possibly set precedent for plaintiff attorneys to bring similar litigation in other states. Lastly, allowing injured workers to seek remedies outside of the workers’ compensation system would strip carriers and employers of many cost-containment options.

Jurors and Questions on Insurance Coverage

For most potential jurors, questions of insurance coverage do not usually arise in common conversation. Seldom cut and dried, usually subject to numerous definitions and intricacies, coverage issues can be boring and puzzling for even an experienced adjuster. Asking a lay person to try to classify an “occurrence” as defined by a policy, or whether a third party is covered as an additional insured, may prompt, at best, glazed-over eyes or, even worse, a negative commentary about insurance companies. While it may be best in some situations for a judge to determine the issue of insurance coverage, this is not always possible. Sometimes, coverage questions arise in litigation, and those interpreting policy language and determining the outcome are jurors. If jurors are deciding the issues, certain challenges then arise, such as how to clarify policy language, present a clear and concise argument and overcome negative preconceptions about the insurance industry.

Can the Judge Decide Coverage Issues?

In Louisiana, general rules regarding issues that are triable by a jury are set forth in Louisiana Code of Civil Procedure articles 1731 – 1736. These establish the general rule that a demand for a trial by jury will result in a trial by jury of all issues. However, exceptions to the general rule exist when: (a) the parties stipulate that the jury trial shall be as to certain issues only; (b) a party in his demand specifies the issues to be tried by a jury; or (c) the right to trial by jury as to certain issues does not exist. Where a jury trial has been demanded by one or both parties, the case must be tried by a jury unless both parties consent to trial without a jury or the trial court finds that a right to a trial by jury does not exist.

More particularly, La. C.C. P. art. 1562(D) specifically codified the general principle found in La. C.C. P. art. 1736 requiring a stipulation between or the consent of the parties before the trial judge can order that insurance coverage issues be tried separately, with the “court alone” deciding the issue of insurance coverage.

La. C.C.P. art. 1562(D) states:

“If it would simplify the proceedings or would permit a more orderly disposition of the case or otherwise would be in the interest of justice, at any time prior to trial on the merits, the court may order, with the consent of all parties, a separate trial on the issue of insurance coverage, unless a factual dispute that is material to the insurance coverage issue duplicates an issue relative to liability or damages. The issue of insurance coverage shall be decided by the court alone, whether or not there is to be a jury trial on the issue of liability or damages.”

The leading case on the subject is Citgo Petroleum Corp. v. Yeargin, Inc., 95-1574 (La. App. 3 Cir. 7/3/96), 678 So.2d 936, writ granted, remanded, 96-2000 (La. 11/15/96), 682 So.2d 746 and 96-2007 (La. 11/15/96), 682 So.2d 747. There, the court stated that La. C.C.P. art 1562(D) provided that, if principals of judicial efficiency or justice would be served then the court may order a separate trial on the issue of insurance coverage. However, the trial judge’s discretion is not unfettered. The judge’s ability to take the issue away from the jury is severely restricted because, under the article, all of the following conditions must exist: (1) it would simplify the proceedings, permit a more orderly disposition of the case, or be in the interest of justice; (2) the consent of all parties; (3) the non-existence of a factual dispute material to the coverage issue that duplicates an issue relative to liability or damages; and (4) the order must be rendered before trial on the merits.

Therefore, the requirements set forth in the article effectively leave the judge with no discretion, as it requires the consent of all parties. The court further noted that, while the issue of insurance coverage under an insurance policy is a narrow issue of the law between the alleged insured and the insurer, a jury is not prohibited, by statute or otherwise, from deciding this issue. Further, there is no exception to the right to trial by jury for issues that the trial judge may think are too technical or too complex for the jury to understand. Even if the trial judge believes that he is more capable than the jury of deciding the issue of coverage, he cannot take this issue away from the jury once the issue is included within the scope of issues for which a jury trial was requested, unless the conditions of La. C.C.P. art. 1562(D) are met.

As such, if a trial by jury has been requested, but an insurer is presenting technical questions of coverage and believes that a judge would be best suited to decide the coverage issue, a stipulation or the consent of all parties would be necessary before the judge could take the coverage issue away from the jury. Unfortunately, often the consent of all parties to separately try the coverage issue cannot be obtained, and the insurer is left with a jury to decide intricate and potentially costly coverage issues.

Selecting the Best Jury for Your Coverage Case

If coverage issues must be decided by a jury, the persons who make up that jury can make a difference in the outcome of the case. Questioning prospective jurors in voir dire about their current insurance policies and other contracts can provide some insight into how they view insurance companies and the potential for coverage. People often believe that they are “fully covered” under their insurance policies, and that insurers are large, prosperous companies that should be able to “help out” individuals. However, further questioning can reveal that potential jurors do understand that there are limitations as to what is covered under certain policies and what has been negotiated.

Questioning a potential juror about a policy he may currently have in place, whether that policy has a limit and if he understands that the insurance company would not be required to pay more than that limit, can show that the potential juror does understand some limitations to coverage. Additional questions may involve who the current policies provide coverage to and the limitations on that coverage. Even simple, and almost obvious, questions can help illustrate a potential juror’s understanding of coverage limitations. For example, discussing how an automobile policy might provide coverage for certain damage to an owned vehicle but would not cover general maintenance, oil changes or a monthly car payment can help provide insight into whether an individual may be able to understand the issues and be a constructive juror.

Additionally, general questions regarding the potential jurors’ opinion of insurance companies in general, personal claims experiences or inferences regarding insurers that the potential juror has taken from the media can provide insight into whether the potential juror might be favorable or undesirable from the insurer’s standpoint.

Presentation at Trial – Concise and Comprehensible

After a jury has been selected, helping jurors understand and follow the language and logic of the coverage argument is vital. The following tips may help simplify the coverage case and overcome obstacles when faced with presenting coverage issues to a jury.

1. Walk Jurors Through the Basics

Although often complex, insurance policies are simply contracts. They define a relationship between parties and outline who will do what, when and under what circumstances. Presenting the insurance policy as a simple contract, by identifying the promise between the parties and what each may receive in exchange for their promise, may help jurors be less apprehensive when approaching coverage issues.

A good place to start is with the basics of the policy and how it is structured. Discussing the declarations, insuring agreement, exclusions, definitions, conditions and endorsements allows jurors to get comfortable with the policy. After the policy and its purpose are explained, the specific provisions at issue can be addressed. An effective way to do this is by using demonstrative evidence, such as blowups of certain pages or Power Point presentations illustrating specific language and what it means. Presenting the policy through large exhibits helps break down the technicality for jurors and show that it is a logical and consistent contract.

Further, preparing an exhibit naming and listing the experience of all of the individuals who are involved in creating the policy, the claim investigation, adjustment and the coverage decision shows that time and thought of real individuals went into creating a well-organized document and making a well-thought-out coverage decision.

2. Humanize the Issues

Jurors often bring their own experiences to the courtroom and, sometimes, a bad impression of insurance companies. Further, oftentimes coverage disputes are coupled with bad faith claims, exacerbating the notion that insurance companies are malicious. To overcome these perceived notions and prejudices, it is key to humanize the insurer’s operations and show the jurors that real people have drafted the policies and handled the claims. Showing that the insurer is not just a large, faceless corporation, but individuals making decisions and doing their jobs, will help negate the insured’s presented image of an uncaring, profit-seeking business entity. While testimony from a vice president may be impressive, the agent who issued the policy or the adjuster who handled the claim may help put a more relatable face to the company.

Additionally, many insurers have adopted vision statements outlining a code of ethics or a commitment to the community. Using this at trial, and showing how the company is committed to its values or involved in the community, helps dispel negative ideas of an uncaring corporation.

Lastly, insurers should be careful about attacking the insured’s credibility or positions. While it may be necessary, the way this is presented to the jury can have a big impact and can erroneously further the negative ideas about the insurance company.

3. Show All Negotiations

Jurors will generally understand the concept of “you get what you pay for.” They know that if they contracted with their cable company and pay for only the basic channels, they do not get premium channels, such as HBO. It follows that jurors should understand that if underwriting documents or other evidence show what was discussed and understood between the parties, and this is reflected in the contract, this should be what governs. If evidence of negotiations is available, this should be presented to the jury. This concept may be particularly helpful in litigating commercial policies, where there is usually more negotiation, and in showing the application of policy exclusions.

4. Keep It Simple

As a general rule, the simpler the better. It is important to keep the insurance policy language from sounding too technical. Avoid overuse of legal terms and phrases, as this will only confuse jurors and may cause them to fall back on the generally accepted legal principle that “any ambiguity must be construed against the insurer.” A straightforward presentation, relying on only one or two strong coverage arguments, should be used. Presenting every argument possible is not always the best strategy, as this could bog down the jury and cause them to lose focus. When one or two key arguments are made, the case is tight and allows jurors to concentrate on the big picture, rather than trying to follow several moving parts.

Another tactic that may help bring the issues to a comfortable level is to compare the policy to other contracts jurors may have entered into. Outlining the limits and duties imposed by contracts that jurors may be more familiar with, such as a purchase agreement for a car, or a lease agreement for an apartment, may also help jurors realize that there are also limitations and duties imposed by insurance contracts, just like the contracts with which they are more familiar.

Additionally, working backward from the result being sought provides a road map for a streamlined argument and helps create a unifying theme throughout the litigation. Starting from the verdict form or jury instructions helps to keep concentration on the elements that need to be established or explained.

5. Apply Basic Jury Concepts

Basic concepts of persuasion, which apply to all jury litigation, can also be used effectively in a coverage case. Fairness must be stressed and run as a theme throughout the presentation of the coverage case. Jurors want to be fair and will try their best to do so. Additionally, any obvious weaknesses in the case should be addressed. Holes in the case, if not admitted to or explained, will create doubt.

Presenting a coverage case to a jury is sometimes unavoidable, but need not be too difficult or incomprehensible for jurors. Carefully questioning and selecting potential jurors, along with presenting a simple yet logical argument, while humanizing the insurance company, can help achieve a successful presentation of the case in the courtroom and, with that, a successful result.

The Biggest Medicare Fraud Cases of 2015

Medicare does not keep records of how much it loses annually because of fraud, but the FBI, which oversees the investigation and prosecution of those alleged to have participated in fraud, estimates that 3% to 10% of all Medicare billings are fraudulent. The FBI task force believes that healthcare fraud costs taxpayers “tens of billions of dollars a year.”

Here is an overview of some of the biggest Medicare fraud cases of 2015:

  1. In June 2015, 243 healthcare providers across the country were charged individually with Medicare fraud. This was the largest-ever coordinated takedown in the history of the National Medicare Fraud Strike Force history. Doctors, nurses, pharmacists, home health workers and other healthcare professionals were all indicted for falsely billing Medicare for approximately $712 million in various fraudulent schemes. The healthcare providers allegedly:
  • Billed for services that were not rendered
  • Charged for equipment that was never delivered
  • Billed for care that was not needed

Specific criminal charges include:

  • Conspiracy to commit healthcare fraud
  • Violating anti-kickback statutes
  • Money laundering
  • Identity theft

Healthcare providers nationally were included in the sweep of the task force. Charges were brought in Texas, Louisiana, Florida, California, New York and elsewhere. The defendants face years in prison in addition to having their assets forfeited to the government and having to repay the amount of money they fraudulently obtained.

In a press release announcing the takedown, the attorney general for the U.S. expressed the commitment of the Department of Justice to continue its “focus on preventing wrongdoing and prosecuting those whose criminal activity drives up medical costs and jeopardizes a system that our citizens trust with their lives.”

  1. Also in June 2015, the former president of a Houston hospital was sentenced to more than 40 years in federal prison and ordered to pay $46.8 million in restitution to Medicare. His son and two other co-conspirators were also found guilty of receiving kickbacks, conspiracy to commit Medicare fraud and money laundering. The scheme involved billing Medicare for psychiatric services that were never provided to patients. The total amount of money fraudulently received by all participants was estimated to equal $158 million.
  1. In October 2015, Millennium Health in Boston, formerly Millennium Laboratories, admitted to billing Medicare and other governmental healthcare programs more than $256 million for laboratory tests that were either unnecessary or never actually performed. The lab also provided kickbacks to physicians for referring patients for testing. Millennium, with headquarters in San Diego, is one of the largest urine-testing laboratories in the U.S. According to the Massachusetts U.S. attorney, “Millennium promoted indiscriminate and unnecessary testing that increased medical costs without serving patients’ real medical needs. A laboratory which knowingly conducts medically unnecessary testing operates unlawfully and squanders our precious federal health care resources.”
  1. In August 2015, a New York man who operated several healthcare clinics for treating HIV/AIDS patients was sentenced to more than seven years in federal prison for defrauding Medicare out of more than $31 million. He billed for treatment that patients did not need and often were not given. Medicare was billed for infusion or IV treatment for many patients who never received treatment. Some patients who were provided infusion therapy were administered doses that were highly diluted.
  1. Two psychologists were recently added to an indictment to join two of their cohorts who had previously been charged with defrauding Medicare of more than $25 million. The psychologists are owners of two companies that provide psychological testing to nursing home patients in four Gulf Coast states: Alabama, Florida, Louisiana and Mississippi. The problem is that the psychologists allegedly billed Medicare for tests that were not medically necessary and, in many cases, were never performed. The case is pending, and the press release notes that the defendants are presumed innocent until proven guilty.

The Medicare Fraud Strike Force, since its formation in March 2007, has charged 2,300 defendants with fraudulently billing more than a total of $7 billion. The task force is committed to continuing its work to hold providers accountable so that the number of fraudulent providers will decrease.

‘Twas the Night Before Mediation

‘Twas the night before mediation
And all through the firm
Not a creature was stirring,
Not even a worm

But then one lawyer
Asleep on a couch
Shot up, hit his head
And said with an “Ouch”

Oh my, I’ve got
That mediation tomorrow
I didn’t do a brief
Much, much to my sorrow

Then what to his exhausted eyes should appear
But a mediator with news of good cheer

You don’t need it fancy
You don’t need it long
Just give me some clues
So the time’s not spent wrong

Just send me an “e”
It’s all confidential
Tell me the issues
What’s the dollar potential?

With that she was gone
The lawyer banged out a brief
He’d be ready tomorrow
Oh what a relief.

This holiday season
When your time seems too short
Turn to mediation
And stay out of court.

Happy Holidays!

Appeals Court Settles Key Work Comp Issue

The U.S. Court of Appeals for the 9th Circuit has issued its long-awaited decision in the Angelotti Chiropractic Inc. v Baker case. In what can only be considered a resounding win for both the legislature’s power to create the workers’ compensation system and the Department of Industrial Relation’s authority to enforce the provisions of SB 863, the appeals court has, in its 32-page decision, upheld the portions of the lower court’s decision that were favorable to the DIR and reversed the portion that had challenged the validity of the statutory scheme. The result is a knockout, but not necessarily final, victory for the legislature and employer community’s efforts to rein in lien litigation madness.

One of the hallmarks of the most recent reforms to the worker’s compensation system in SB 863 was the adoption of both lien filing and lien activation fees. The intent of the fees was to filter out some of the less valid liens, encourage realistic settlement of liens before litigation and ultimately reduce the backlog of pending liens. Under the structure legislatively created, liens filed before Jan. 1, 2013, (the effective date of the statute) would be subject to an “activation fee” of $100 to actively pursue the lien before the W.C.A.B. Additionally, all pending liens as of Jan. 1, 2013, were required to have paid an activation fee by Jan. 1, 2014, or else be dismissed by operation of law. The second prong of the effort to reduce the backlog was to require lien claimants filing after Jan. 1, 2013, to pay a $150 filing fee. The challenge in this case was to the lien activation fee only, but the case has been watched carefully as similar arguments have been made in opposition to the lien filing fee. For many, Angelotti was considered a bellwether case on the lien fee validity.

Not surprising, shortly after its passage, the issue of the validity of the lien fee provisions in SB 863 was attacked in court with various challenges. In a ruling with what appeared to have the most potential for the challengers, a lower court had previously ruled that the plaintiffs in the Angelotti litigation had demonstrated a substantial likelihood of prevailing in their efforts to have the lien activation fee provisions declared unconstitutional. While by no means final, the resulting decision was accompanied by a temporary restraining order prohibiting the DIR from enforcing the lien activation fee provision. In its decision, the lower court rejected some of the plaintiff’s arguments that the lien activation fee violated constitutional prohibitions under the takings clause and the due process clauses of the U.S. Constitution. That part of the claim was dismissed. The lower court, however, was much more impressed with the equal protection arguments advanced by the plaintiffs, finding that the different treatment of institutional lien claimants vs. direct medical providers did not constitute a rational distinction. As a result of the temporary injunction, the DWC suspended its enforcement of the lien activation fee provisions but appealed the ruling.

In its decision, the appeals court upheld the district court’s rulings dismissing the plaintiff’s causes of action based on the takings and due process arguments, finding that the lower court’s rationale was well-founded. (The dismissal of those issues had been sought by the Angelotti plaintiffs.) However, in response to the defendant’s appeal of the restraining order and the failure to dismiss the equal protection claim, the court soundly rejected the lower court’s ruling that plaintiffs had established a probability of prevailing on an equal protection argument, reversing that holding and vacating the existing restraining order prohibiting the DIR from enforcing the lien activation fee provisions. That argument was based on the different treatment between institutional lien claimants (such as insurance companies) and private lien claimants (such as individual practitioners).

In reversing the lower court, the circuit court found the distinctions created by the legislature were both rational and within the wide latitude of the legislature to create:

“The legislature’s approach also is consistent with the principle that ‘the legislature must be allowed leeway to approach a perceived problem incrementally.’ Beach Commc’ns, 508 U.S. at 316; see also Silver v. Silver, 280 U.S. 117, 124 (1929) (stating that ‘[i]t is enough that the present statute strikes at the evil where it is felt and reaches the class of cases where it most frequently occurs.’). Targeting the biggest contributors to the backlog-an approach that is both incremental, see Beach Commc’ns, 508 U.S. at 316, and focused on the group that “most frequently” files liens, see Silver, 280 U.S. at 124,-is certainly rationally related to a legitimate policy goal. Therefore, on this record, ‘the relationship of the classification to [the Legislature’s] goal is not so attenuated as to render the distinction arbitrary or irrational.'”

The appellate court further noted it was the plaintiff’s burden to negate “every conceivable basis” that might have supported the distinction between exempt and non-exempt entities. The circuit (appellate) court said the district court did not put the plaintiffs to the proper test in this regard, instead rejecting the argument made by the defendants (DIR) that the activation fee was aimed at clearing up a backlog of liens. The circuit court found multiple flaws with the lower court’s analysis on this argument, including that it failed to give proper deference to the legislature’s fact finding. Instead, the court held the proper application of correct legal principles demonstrated the plaintiffs, rather than showing a likelihood of success, actually showed no chance of success:

“…that plaintiffs have no chance of success on the merits because, regardless of what facts plaintiffs might prove during the course of litigation, ‘a legislative choice is not subject to courtroom fact-finding and may be based on rational speculation unsupported by evidence or empirical data.’ See Beach Commc’ns, 508 U.S. at 315. Thus, the presence in the commission report of evidence suggesting that non-exempt entities are the biggest contributors to the backlog is sufficient to eliminate any chance of plaintiffs succeeding on the merits.”

While the plaintiffs in this matter have further appeal rights, it does not appear that under this decision the plaintiffs will be entitled to a trial at the lower court. The court not only vacated the injunction but took the unusual step of reversing the trial court’s denial of defendant’s petition to dismiss the equal protection cause of action. As noted in the above quote, the legislative authority to fashion a remedy effectively eliminated any chance of plaintiff’s prevailing.

Comments and Conclusions:

While the decision in this appeal took some time to come, the finality of the decision, and the tenor of the court’s ruling, will undoubtedly be considered well worth the wait. By reversing the lower court’s failure to dismiss the equal protection clause, the appellate court left very little opening for preservation of this lawsuit. While the plaintiffs can both ask for a rehearing and appeal to the U.S. Supreme Court, those levels of appeal come with rapidly diminishing probability of success.

With the DIR no longer hamstrung by the restraining order, we can anticipate a rapid enforcement of the lien regulations requiring activation fees. What will be a fascinating sideshow to this will be what happens to the provisions of Labor Code § 4903.06(a)(5), the requirement to pay the activation fee on any pre-1/1/13 lien claim on or before 1/1/14, a date long since passed. The DWC stopped collecting activation fees pursuant to the now vacated restraining order shortly after the TRO issued. Interestingly the language on the W.C.A.B.’s website indicated lien claimants were not obligated to pay the activation fee to appear at a hearing or file a DOR. However, it makes no mention of the dismissal language in 4903.06.

It is highly likely that few if any lien claimants paid activation fees by 1/1/14. It also seems unlikely, though not necessarily impossible, that the DIR or W.C.A.B. will be able to enforce the dismissal by operation by law provisions without allowing some kind of grace period for lien claimants to comply with the activation fee requirement before lowering the boom on liens without such fees. Lien claimants are now in something of a no man’s land with the faint hope that a further appeal may save them from the lien activation cost, but the compliance clock will probably be ticking, and once it stops the jig will be up on their liens.

It would certainly make sense for any current lien claimants, especially those who are set for hearings, to start looking into complying with the activation fee requirements. Showing up at the W.C.A.B. on a pre- 1/1/13 lien claim without having paid the activation fee may very well result in dismissal in the very near future. For defendants, with the TRO no longer in force, it is game on as far as activation fees are concerned. I intend to start raising the issue tomorrow…(or at least at my next hearing with a pre-1/1/13 lien claim).

On a side note, a similar case in state court, Chorn v Brown, was also recently decided in an unpublished decision. In that case, a lien claimant had challenged the lien statutes on both activation and lien filing fees. The case has been dismissed for lack of subject matter jurisdiction in the superior court. As a practical matter, the dismissal is really more of a procedural issue than a substantive one. The court of appeal noted the proper remedy for Chorn was to pursue a petition for writ of mandamus in the court of appeal, a step Chorn has actually initiated. However, a petition for writ of mandamus requires an appellate court to decide the issue has merit, a rather dubious proposition at this point. However, it is one more step to finally clearing up the DIR/DWC/W.C.A.B.’s authority to deal with the lien morass that, while somewhat abated in the past couple of years, continues to plague the system.