Tag Archives: oregon department of consumer and business services

Back to the Drafting Table on Work Comp

Recent Supreme Court decisions in Oklahoma, Florida and — to a far lesser extent — Utah – have touched off a firestorm of debate over the so-called interference of the judiciary in the administration of state workers’ compensation systems. But the real issue in these cases is not the specific interpretations of complex laws; it is how state legislatures wind up passing such complex laws to begin with.

Consider two older Supreme Court decisions: Hayes v. Continental Ins. Co. (1994) 178 Ariz. 264, 872 P.2d 668 and Smothers v. Gresham Transfer (2001), 332 Or. 83, 23 P.3d 333.

In late 1985, the Arizona Court of Appeals recognized a civil action for bad faith by an injured worker against an insurance company. That opinion was not unanimous and seemed to be at odds with prior case law on this issue. Arizona’s legislature generally has short sessions, and, while this cannot be proved, it is likely that a solution to this new case law would have been difficult to arrive at by the May 14, 1986, sine die date in Phoenix. By 1987, the legislature did adopt a bad faith statute, giving the industrial commission the authority to resolve issues regarding unfair claims processing and bad faith actions by claims administrators. The statute begins: “The commission has exclusive jurisdiction as prescribed in this section over complaints involving alleged unfair claim processing practices or bad faith by an employer, self-insured employer, insurance carrier or claims processing representative relating to any aspect of this chapter. The commission shall investigate allegations of unfair claim processing or bad faith either on receiving a complaint or on its own motion.”

That pretty much should have resolved the issue. Why would the legislature adopt a bad faith statute after 75 years other than to make clear that exclusive remedy barred an action by an injured worker for bad faith in the handling of claims and to effectively nullify recent judicial decisions saying otherwise?

In 1994, the Arizona Supreme Court had the opportunity to answer that very question in Hayes. The court began its analysis by noting, “Although the trial and appellate courts assumed that the statute preempts and divests all state courts of jurisdiction over workers’ compensation bad faith cases, Plaintiff correctly notes that the statute does not explicitly say this. In fact, it does not mention either common-law damage actions or divestiture of court jurisdiction.”

See also: Where the Oklahoma Court Went Wrong

That observation signaled where the court landed on the issue, and Arizona workers’ compensation claims administrators — and, recently, the legislature — have tried and failed ever since to limit the ability of an injured worker to access the courts under the theory of tortious bad-faith claims handling by insurers. The issue is far more complicated than simply one of judicial interpretation. The Arizona Supreme Court has yet to reach ultimate state constitutional issues regarding bad faith claims by injured workers because of its somewhat strained interpretation in Hayes of the 1987 law.

At about the same time, the Oregon legislature was addressing a Supreme Court case, Errand v. Cascade Steel Rolling Mills, Inc. (1995), 320 Or. 509, 525, 888 P.2d 544, that called into question the scope of the exclusive remedy of workers’ compensation. The legislation enacted in Salem in response to this opinion included language stating, “(t)he exclusive remedy provisions and limitation on liability provisions of this chapter apply to all injuries and to diseases, symptom complexes or similar conditions of subject workers arising out of and in the course of employment whether or not they are determined to be compensable under this chapter.”

In 2001, the Oregon Supreme Court issued its opinion in Smothers. The court took under consideration the cumulative effect of the very comprehensive exclusive remedy legislation enacted in 1995 and the requirement that workplace conditions be a “major contributing cause” of a claim for compensation arising out of an occupational disease. After an exhaustive analysis, the Supreme Court held that the exclusive remedy statute violated Article 1, Section 10 of the Oregon Constitution, which guarantees every Oregonian a “remedy by due course of law for injury done him in his person, property, or reputation.”

The legislature promptly responded to the court’s decision and in 2001 addressed the ability of an injured worker who failed to meet the major contributing cause standard to bring a civil negligence action against the employer. The legislative resolution preserved the rule of law in Smothers, was constitutionally firm and ultimately resulted in little (if any) of the expected fallout from the court’s decision. As noted by the Oregon Department of Consumer and Business Services in its 2010 Report on the Oregon Workers’ Compensation System, “Although it was estimated that the Smothers decision could affect as many as 1,300 cases per year and cost up to $50 million per year, there have been no known cases in which workers have prevailed at trial; in a few cases workers have received settlements.”

So what do these cases have to do with Maxwell v. Sprint PCS (in Oklahoma), Castellanos v. Next Door Company (in Florida), Westphal v. City of St. Petersburg (in Florida) and Injured Workers Association of Utah v. State of Utah? Everything.

Workers’ compensation legislation has generated volumes of appellate case law across the ages and in all jurisdictions. There are a host of reasons for this, but one major factor is the very nature of workers’ compensation public policy. Rarely is the system going to be reviewed by legislators unless there is a crisis — historically, in the form of high insurance premiums but more recently when self-insured employers call for change and labor is more than willing to sit down with them and negotiate. This leads to prophylactic laws designed to ameliorate a specific situation and are combined with long-term benefit increases. Even Oregon, whose management labor advisory committee (MLAC) is a model for workers’ compensation public policy development, is not immune from these pressures, as Smothers demonstrated more than a decade ago.

See also: Appellate Court Rules on IMR Timeframes  

There is no justification to suggest that every element or iteration of workers’ compensation laws passed for well over a century is somehow immune from judicial scrutiny. Indeed, most states have, within their body of case law, important decisions redefining the law that are the result of appeals from employers rather than injured workers. These frequently result from interpretation of laws from administrative tribunals, as is noted in the lengthy line of cases over the past 10 years in California of appeals from decisions of the Workers’ Compensation Appeals Board. Furthermore, the courts cannot be held to a legislative agenda that is the result of one particular group or another successfully negotiating the political winds of the time. The stakeholders of the system are not immune from suggesting ill-conceived laws any more than legislatures are immune from passing them.

None of this is to suggest that the majority opinions in these recent cases represent good legal scholarship. It is to say, however, that when going back to the respective state legislatures to address these cases, a more careful consideration of policy — even at the expense of losing a bit of the singular focus on costs — could lessen the possibility of unintended consequences.

And, as for “due process,” we should all remember New York Central Railroad Co. v. White, (1917) 243 U.S. 188 also contained the following language when holding that the New York compensation scheme under review met due process standards:

“This, of course, is not to say that any scale of compensation, however insignificant, on the one hand, or onerous, on the other, would be supportable. In this case, no criticism is made on the ground that the compensation prescribed by the statute in question is unreasonable in amount, either in general or in the particular case. Any question of that kind may be met when it arises.”

The recent challenges and questions raised over workers’ compensation reform throughout the states over the past 20 years suggest we are closer to “the question of that kind” arising. Whether it does is in large part because of what stakeholders and policymakers determine should be done, rather than what one side or the other knows it can do simply because it has the votes.

Oregon Study Shows Which States Are Next

The biennial study on workers’ compensation premium rates issued by the Oregon Department of Consumer and Business Services (DCBS) was released last week, and, as always, is worthy of a review by those of us entrenched within the industry. The study ranks all 50 states and Washington, D.C., based on rates that were in effect Jan. 1, 2014. This year’s results show that major reforms don’t always gain the results that were intended or marketed to the industry; and while the results may not accurately reflect legislative intentions of the past, the report may be a better predictor of major reforms to come.

The study shows that, despite extensive reforms designed to lower costs, California now has the most expensive rates in the nation, followed by Connecticut. North Dakota had the least expensive rates. In the Northwest, Idaho’s rates were the 14th most expensive, followed by Washington. Oregon researchers also compared each state’s rates to the national median (midpoint) rate of $1.85 per $100 of payroll — California, for instance, was almost twice the median

According to Mike Manley, one of the co-authors of the survey, “We continue to see a trend in the distribution of state index rates in our study clustering in the middle of the distribution. A record 21 states are within plus or minus 10% of the 2014 study median. This makes the rank values more volatile from one study to the next. I would recommend that states look also to their ‘Percent of study median’ figure for comparisons over time.”

Because states have various mixes of industries, the study calculates rates for each state using a standard mix of the 50 industries with the highest workers’ compensation claims costs in Oregon. Details about how the study was conducted can be found here. A summary of the study was posted Wednesday, Oct. 8; the full report will be published later this year.

The summary report, available here, provides the complete ranking of the states premium rates. I have taken that data and added a comparative column that shows at a glance how far up or down the scale a state has moved since the last report in 2012. The table presents an interesting view, particularly juxtaposed with the knowledge of what states have undergone significant reforms in the past few years.

table1bob

We can see that there were major drops in premium rank for both Kentucky and Wisconsin. Kentucky moved from 22nd-highest in the nation to 40th, improving by 18 positions. Wisconsin moved down 11 spots, from 12th-highest to 23rd. While Wisconsin did enact some changes in 2012, neither state is considered to have been a major reform state over the last few years.

For a couple of those states undergoing dramatic reforms, Oklahoma and Tennessee, it is too early to tell the effect, as they are just implementing changes this year. Others, however, including California and Kansas, saw premium costs as a comparative rise despite reforms intended to do otherwise. Illinois, another reform state, did see some positive movement, but it is probably not statistically significant given the weight of the costs and issues in that state.

I would postulate based on this report that people in New Mexico, Hawaii, Missouri and Delaware may be thinking of what changes should be in order, because they had dramatic negative movement on the scale this year. Even if past reforms overall are not creating significant improvement in these numbers, I am pretty sure they will be a better predictor of what states may be facing reform in the future.

Oregon has conducted these studies in even-numbered years since 1986, when Oregon’s rates were among the highest in the nation. The department reports the results to the Oregon legislature as a performance measure. Oregon’s relatively low rate today reflects the state’s workers’ compensation system reforms and its improvements in workplace safety and health.

Here are some key links for the study/workers’ compensation costs:
• To read a summary of the study, go here.
• Prior years’ summaries and full reports with details of study methods can be found here.
• Information on workers’ compensation costs in Oregon, including a map with these state rate rankings, is here.