Tag Archives: rico

Taking a New Look at the ‘Grand Bargain’

Workers’ compensation was established more than 100 years ago as a “grand bargain” between employers and labor. Injured workers gave up their right to sue employers in civil court for workplace injuries, making workers’ compensation the “exclusive remedy” for such injuries. In exchange, injured workers received statutory benefits in a no-fault system. Over time, we have seen a number of different challenges to this grand bargain.

Is Exclusive Remedy Exclusive?

The answer to this question is clearly no. Nearly every state has a very narrow statutory exception to exclusive remedy if the injury was caused by an “intentional act” of the employer. Some states have a lower threshold if it is determined that the employer’s actions were “substantially certain” to cause injury. In both of these cases, lawsuits filed by injured workers against their employer rarely succeed, and most suits do not survive past summary judgment.

However, there are many other ways in which the exclusive remedy of workers’ compensation can be circumvented. These include:

  • Statutory Exceptions – New York employers in the building trades are still exposed to civil litigation in addition to workers’ compensation under the Scaffold Law. This allows workers in the construction industry to file suit against their employer if the injury arose from an “elevation-related hazard.” New York is currently the only state that still has such legislation in place, with Illinois repealing its Structural Work Act in 1995.
  • Third-Party-Over Actions – Some states allow civil litigation surrounding a work injury under a third-party-over action. In such cases, the employee sues a third party for contributing to the injury and then the third party brings in the employer on a contributory negligence action. For example, if an accident involves machinery, the machine manufacturer can bring the employer into the suit, alleging that it trained employees inadequately, that the machine was not properly maintained or that it was modified by the employer.
  • Dual Capacity Suits – Dual capacity suits allow the employee to sue the employer as supplier of a product, provider of a service or owner of premises. For example, if a worker is injured using a machine manufactured by the employer, some states allow that injured employee to file suit against the employer based on its negligence as the manufacturer.
  • RICO Suits – Filing claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) is a more recent method to attempt to avoid exclusive remedy protections. This federal law was originally designed to fight organized crime. In Michigan, Colorado and Arizona, the courts allowed injured workers to pursue a RICO complaint against their employer on the grounds that the employer “conspired” to deny medical treatment to injured workers by limiting physician referrals and prescribing practices and exercising undue influence over treating physicians.
  • Constitutional Challenges – Constitutional challenges are the latest avenue for attempting to circumvent exclusive remedy protections. There was much attention given to the Padgett case in Florida, where a judge ruled that the workers’ compensation statutes were unconstitutional because statutory changes that reduced benefits to workers and raised thresholds of compensability had eroded the “grand bargain” to the point that it was no longer valid. This case was reversed on appeal because of a technicality, so the higher courts never ruled on the merits of the argument.

Is No Fault Really No Fault?

Again, the answer is clearly no. Many states allow for a workers’ compensation claim to be disputed if it is proven that the injured worker was intoxicated at the time of the accident. In addition, some states allow for a reduction in benefits if the accident occurred because the worker violated a safety rule, such as not following lock-out/tag-out procedures or not using protective gear.

Unintended Consequences of Statutory Change and Litigation

Courts in Missouri, Illinois and Pennsylvania have ruled that, if a work injury is excluded under the workers’ compensation statutes, the employee can bring a civil suit against the employer. The courts are hesitant to provide no means for an injured worker to pursue compensation, so when statutory language is tightened up and certain conditions are excluded from workers’ compensation coverage it opens the door for potential civil action.

This issues also arises when the workers’ compensation claim is denied because the worker is not in “course and scope” of employment. If the worker falls on the employer’s premises, and the employer denies the claim under workers’ compensation, then the employee can sue under civil liability.

Not All Workers Are Protected

In many states, there are workers who are not required to be covered under workers’ compensation. In 14 states, smaller employers with five employees or fewer do not have to secure coverage. In 17 states, there is no legal requirement for coverage of agricultural workers. Finally, half the states do not require coverage for domestic workers, and five states specifically exclude coverage for these employees.

Opt-Out Legislation

Opt-out legislation, by its very nature, allows for an option to the grand bargain of traditional workers’ compensation. What many do not realize is that workers’ compensation has always been optional in Texas. Both employers and workers can choose to opt out of the workers’ compensation system and, instead, be subject to civil litigation in the event of employee injuries.

Oklahoma now allows employers an “option” to traditional workers’ compensation. Plans must be approved by the state and must provide the same level of benefits as workers’ compensation. Such plans provide employers greater control over choice of medical providers.

Opt-out legislation is currently being considered in Tennessee and South Carolina, and it is likely that similar legislation will be introduced in additional states in the future.

Causation Thresholds

There is significant variation among states in the threshold for a condition to result in a compensable workers’ compensation claim. In Tennessee, the injury must “primarily arise” from work (50% or greater). However, in California and Illinois, if the work is a contributing factor (1% or greater), the employer is responsible for that condition under workers’ compensation. Employers argue that these low causation thresholds undermine the grand bargain by greatly expanding what is considered a workers’ compensation injury.

Conclusion

As workers’ compensation has evolved, there have been many exceptions to the original premise behind the “grand bargain.” The courts have continued to allow exceptions to exclusive remedy and expanded causation standards. Statutory reforms have also resulted in classifications of employees and work conditions that are excluded from workers’ compensation. These trends are expected to continue.

The Audit Joke in Workers’ Comp

Police officers and firefighters in California and Arizona in separate cases are alleging violations of the Racketeers and Influenced Corruption Act against third-party administrators York and Corvel and the municipalities those companies serviced.

In California, the defendant cities are Rialto and Stockton. In Arizona, it’s Phoenix.The California complaint says the companies “routinely and improperly chose to hurl frivolous and legally unsound roadblock after roadblock to wrongfully deny care” to injured first responders.The plaintiffs believe that a “pattern of practice” at the defendant companies together with the involvement of certain personnel for the defendant municipalities created an enterprise to fraudulently deny benefits in violation of RICO statutes.

Michael P. Doyle, a founding partner of the Doyle Raizner law firm, which filed both complaints, told WorkCompCentral the Arizona case already survived a motion to dismiss, and he anticipates going to trial by the middle of summer. The California case is just getting started, he said.

The defendant cities paid the administrators based on a flat fee per claim and a percentage of savings from utilization-review and bill-review services that were provided, creating an incentive for improper conduct, the plaintiffs claim.

The alleged pattern of denying legitimate claims allowed the defendants to “lower the liability of the city, while at the same time maximizing the TPA’s revenues (and allowing the TPA to maintain and obtain contracts with other public entities based on their ‘outstanding’ financial performance at the expense of public servants).”

The defendant employers conspired with the defendant administrators and “denied claims in hopes that some plaintiffs will simply not continue to seek benefits under workers’ compensation entirely,” the complaint says. The complaint also alleges the defendants ignored California law regarding pre-existing injuries that are aggravated by a new incident, as well as statutes creating a presumption of compensability for certain conditions suffered by first responders.

Representatives for the various defendants would not comment on the cases to WorkCompCentral reporter Greg Jones because of the pending litigation or were not available prior to deadline.

But Jones reports that California Division of Workers’ Compensation audits found claims shops run throughout the state by both firms had numerous violations, including late and unpaid indemnity benefits. In all but one case, the fines were waived because the shops scored high enough to escape financial penalties under the division’s profile audit review program.

York was fined $117,036 after the DWC identified 213 violations during a review of claims processed through its shop in Oxnard. Violations included 26 cases in which the company underpaid indemnity benefits by a total of $84,458.42, according to the DWC’s 2010 audit report.

The DWC identified 45 violations at York’s shop in Fresno in 2010.

The same year, the DWC said it uncovered 80 violations at Corvel’s shop in Sacramento, including $2,147 in unpaid indemnity benefits on nine claims.

In 2011, the DWC identified $92,615 in unpaid indemnity benefits on 26 claims from Corvel’s shops in Camarillo, Rancho Cucamonga and San Diego. The proposed fines, all of which were waived, for 128 violations at the three adjusting locations were $78,790.

York in the same year had unpaid benefits of $31,562 on 28 claims audited at its shops in Upland, Valencia and Concord. The proposed penalties of $51,115 for 157 auditing violations uncovered were all waived, according to the DWC’s 2011 audit report.

In 2012, the latest year for which audit results are available, the DWC said York had unpaid indemnity totaling $7,347 on claims handled by its El Dorado Hills office. The audit also identified 52 cases of failing to comply with the requirements to provide notice to the injured worker of the qualified medical evaluator/agreed medical evaluator (QME/AME) process. York faced penalties of $30,175 for 117 violations, but the fines were waived.

There are two things that come readily to mind.

First, the DWC audit system in California just doesn’t work. That injured workers have to resort to seeking civil judicial intervention for redress that the state should be taking care of is sad testament to the respect the state gets.

Kind of like a parent who threatens taking the cell phone or Internet away from the teenager for misbehavior – puh-leeze! Oh! That’s a threat…

Second, maybe there’s an intentional manipulation of the system by the defendant, or maybe there’s a dysfunctional culture that allows such transgression without consequence.

Sadly, what will happen is that the RICO cases will end up in some sort of anonymous settlement; there won’t be any penalties or fines from the state auditors; there will be no change to the audit process; and the practices will continue, albeit via some other employers and other administrators.

The heavy penalization system that was so criticized by employers, carriers, TPAs and other payers (Labor Code section 5814) for unwarranted cost and expense to the system, was castrated by SB 899 10 years ago because the audit system was in place and was supposed to do the job of enforcement.

Clearly, that assumption has proven incorrect.

Enforcement by the state is a joke.

I can pretty much guarantee that if the state actually enforced the penalties instead of waiving them all (except for one, as noted) the culture would change, the behavior would change and there wouldn’t be any RICO challenges surviving the initial pleading stage.

The ball is in the state’s hands – the audit and penalty system is administrative in nature and doesn’t need legislative backing to change. All the state has to do is NOT waive penalties.

Until then, expect injured workers to seek civil redress for performing the state’s obligation.

Workers' Compensation No Longer the Exclusive Remedy: RICO on the Radar, Part 2

Understandably, Part 1 of this article series has been met with some controversy and skepticism. The article is not designed to scare employers, as might have been suggested. Its intention is to educate employers about the many issues facing them when an employee becomes injured, that transcend the State Workers’ Compensation System and a workable solution to overcoming the challenges. Employers can no longer afford to bury their heads and rely on the exclusive remedy position. Yes, it may be here to stay, but it is becoming a bit frayed around the edges.

Coincidently, when Part 1 of this article was published, The National Football League (NFL) announced that it had reached a 765 million dollar settlement with players and their families for the settlement and consolidation of approximately 4,500 concussion claims. The players alleged that the NFL hid or ignored the facts that concussions caused brain injuries. Under the settlement, the NFL will pay 675 million dollars to retired players who demonstrate medical evidence of brain injury. Payouts of up to 5 million dollars each could go to players found to have Alzheimer's or Parkinson's diseases or other concussion-related conditions, or to their families. The settlement came just prior to the start of football season and will put an end to the mounting litigation that threatened the multi-billion dollar league.

United States District Presiding Judge Anita B. Brody appointed Judge Phillips to oversee the negotiations. Judge Philips said, “This is a historic agreement, one that will make sure that former NFL players who need and deserve compensation will receive it, and that will promote safety for players at all levels of football.”

 “This agreement lets us help those who need it most and continue our work to make the game safer for current and future players. Commissioner Goodell and every owner gave the legal team the same direction: do the right thing for the game and for the men who played it,” said NFL Executive Vice President Jeffrey Pash. “We thought it was critical to get more help to players and families who deserve it, rather than spend many years and millions of dollars on litigation. This is an important step that builds on the significant changes we’ve made in recent years to make the game safer, and we will continue our work to better the long-term health and well-being of NFL players.”

Once final documentation is completed, the settlement will be filed with Judge Brody, who will then schedule a hearing to consider whether or not to grant preliminary approval to the agreement. The retired players will then have the ability to file objections to the settlement.

One may ask what this has to do with Part 1 of this article.  An important component of this settlement is baseline testing. According to the settlement, baseline medical exams will be provided, the cost of which will be capped at $75 million. This will be a key element in ascertaining the conditions of current and retired players, gauging  the progression of any injuries they may have and having documentation of the medical status. This key component is the subject of Part 1 of this article. Baseline testing is not simply a self-promotion for the EFA-STM, but is a major part of helping injured workers, no matter what their occupations may be.

These cases are just the beginning, and it appears that the exclusive remedy provision for workers' compensation will no longer serve to prevent costly civil litigation as evidenced by the NFL settlement. An employer, insurance carrier/TPA and physician can take several steps to protect themselves. First, evidence-based medicine should always prevail. Objective medical evidence can help protect against claims for fraudulent denials of work-related injuries. Also, employers should accept only claims that arise out of the course and scope of employment (AOECOE). If an employer can objectively document AOECOE issues, fraudulent claims and fraudulent denials can be avoided and most importantly, correct treatment can be prevail.

A good approach to determining AOECOE claims is baseline testing, as it can identify injuries that arise out of the course and scope of employment. When a work-related claim is not AOECOE, as proved by objective medical evidence, such as pre and post assessments, then not only is there no workers’ compensation claim, there is no OSHA recordable claim, and no mandatory reporting issue. Conversely, if there is an injury, the injured worker can get the best site specific treatment and prevent inappropriate treatment and unnecessary progression of the underlying conditions.

The NFL recognized the importance of baseline testing with its recent settlement, and it is only the beginning. MSD for NFL players is also a significant problem. Why not baseline all football players, or, for that matter, all professional athletes, to address any injuries that may occur while playing and return them to the field sooner? This would promote better health and performance and might extend their careers. Professional athletes tend to play through their injuries, potentially causing more harm. An objective baseline test can assist all parties by providing objective medical evidence of an injury and outlining appropriate care. This truly is a win-win situation.

A proven example of a baseline test for musculoskeletal disorders (MSD) cases is the EFA-STM program. EFA-STM program begins by providing baseline injury testing for existing employees and new hires. The data is interpreted only when and if there is a soft tissue claim.  After a claim, the injured worker is required to undergo the post-loss testing. The subsequent comparison objectively demonstrates whether or not an acute injury exists. If there is a change from the baseline, site specific treatment recommendations are made for the AOECOE condition, giving the doctors more information and helping to ensure the injured worker receives the best care possible.

The case of the NFL settlement may not be a RICO claim, but, certainly, it tries the boundaries of the exclusive remedy provision of workers compensation. Baseline tests like the EFA-STM are a proven way to providing better work-related care. It is time for change and to think outside of the box to provide the answers so that we can become proactive, not reactive.

Workers' Compensation No Longer The Exclusive Remedy: RICO On The Radar

Workers' Compensation origins can be traced to the late Middle Ages and Renaissance times in the Unholy Trinity of Defenses, the doctrine that first outlined that work-related injuries were compensable.  This doctrine began in Europe and made its way to America with the Industrial Revolution.  There were so many restrictions with it that changes occurred and led to the doctrine of Contributory Negligence which outlines that employers are not at fault for work-related injuries. This principle was established in the United States with the case Martin vs. The U.S. Railroad. In this case, faulty equipment caused the injuries, but the employee did not receive compensation, as it was deemed that inspection of equipment was part of his job duties. Additionally, the case Farnwell vs. The Boston Worchester Railroad Company led to the “Fellow Servant Rule” where employees did not receive compensation if their injuries were in any way related to negligence from a co-worker.

For awhile, in the United States, we had the Assumption of Risk Doctrine that held employers were not liable for injuries because employees knew of job hazards when they signed their work contracts. By agreeing to work, they assumed all risks. These contracts were often nicknamed Death Contracts. The only recourse an employee had was civil litigation or tort claims. As the nineteenth century continued, employers were faced with increasing civil litigation and employee verdicts.

The basis of our exclusive remedy workers' compensation system had its roots in Prussia with Chancellor Otto Von Bismarck, who, in 1884, pushed through Workers' Accident Insurance which contained the exclusive remedy provisions for employers.  The first Federal Workers' Compensation law was signed in 1908 by President Taft, protecting workers involved in interstate commerce.

Work Reform was slower to progress to America. Early workers' compensation acts were attempted in New York (1898), Maryland (1902), Massachusetts (1908), and Montana (1909) without success.  Finally, in 1911, Wisconsin passed the first comprehensive workers' compensation law, followed by nine other states that same year. Before the end of the decade, thirty other states passed workers' compensation laws. The last state to pass workers' compensation laws was Mississippi in 1948.  The main issue in all the states workers' compensation acts is the no fault system, i.e. employers who participate in the states workers' compensation system are exempt from civil tort litigation, hence the exclusive remedy. In the United States this exclusive remedy for work related injuries has stood, for the most part, until recently.

Racketeer Influenced and Corrupt Organizations, more commonly known as RICO, is a federal law that provides for criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization. This act focuses specifically on racketeering, and it allows the leaders of a syndicate to be tried for the crimes which they ordered others to do or with which they assisted. It was enacted October 15, 1970 and was in widespread use to prosecute the Mafia. It has become more widespread and now plays a significant role in work-related injuries.

RICO on the Radar

One of the most recent significant cases is Brown, et al v. Cassens Transport, et al No. 08a0385. In summary, The United States Court of Appeals, Sixth District (Michigan), acting on a remand from the United States Supreme Court, has held that employees may have an action based on the civil provisions of the RICO Act against not only employers but their agents (carriers and doctors).  This is an important decision which could affect employers in the 6th district, Michigan and Illinois, because it involves a Federal statute where the United States Supreme Court has held that the plaintiffs need not prove reliance that the defendants’ actions resulted in detrimental consequences to the plaintiff.

In the instant case, Brown v. Cassens, decided October 23, 2008, the Supreme Court had merely restated its opinion in Bridge v. Phoenix, decided June 9, 2008, where it originally held that the plaintiff need not prove that it relied on the alleged RICO violation. This case allows the Plaintiffs to sue the Employer (Cassens Transport Company), the TPA (Crawford and Company) and the doctor (Dr. Margules).

The Plaintiffs allege that the defendants engaged in a civil conspiracy and racketeering to deny them workers' compensation benefits. Specifically, the Plaintiffs allege that the employer and TPA hired unqualified doctors to issue fraudulent medical findings to deny them workers' compensation benefits.  The case alleges at least 13 predicate acts of fraud by mail and wire all relating to the fraudulent denial of the workers' compensation benefits under the Michigan Workers' Disability Compensation Act. For more specifics, please refer to the case citations. Suffice it to say here that the Court has allowed this case to proceed forward, taking away the employers exclusive remedy. Furthermore, RICO cases are not covered by insurance, making this very costly for the employer, carrier and physician.

Many say that the this case has a long way to go before employers have to be concerned about  the exclusive remedy position being taken away, but that may no longer be true. In November 2012, a landmark settlement was reached in Josephine et al v.Walmart Stores, Inc., Claims Management, Inc., American Home Assurance Co., Concentra Health Services, Inc.; Defendants. Civil Action No. 1:09-cv-00656-REB-BNB (USDCT Colorado). This RICO case was allowed to proceed against defendants under a state RICO statute in Colorado in March, 2011. In November, 2012, a settlement was reached between the parties for $8 million.

And most recently, June, 2013, the Sixth Circuit heard arguments in Jackson v. Sedgwick Claims Management Serv. This RICO case will determine if Michigan’s workers’ compensation laws provide the exclusive remedy for injured workers, or whether injured workers can sue under RICO for an alleged conspiracy to file false medical reports to cut off workers’ compensation benefits. 

These cases are just the beginning and it appears that the exclusive remedy provision for workers' compensation will no longer serve to prevent costly civil litigation. An employer, insurance carrier/TPA and physician can take several steps to protect themselves. First, evidence-based medicine should always prevail. Objective medical evidence can help protect against claims for fraudulent denials of work-related injuries. Also, employers should accept only claims that arise out of the course and scope of employment (AOECOE). If an employer can objectively document AOECOE issues, then no claim exists, hence no fraudulent denials.

A good approach to determining AOECOE claims is baseline testing, as it can identify injuries that arise out of the course and scope of employment. If a work-related claim is not AOECOE, as proven by objective medical evidence such as a pre- and post-assessment where there is no change from the baseline, then, not only is there no workers’ compensation claim, there is no OSHA-recordable claim, and no mandatory reporting issue. If the baseline testing is evidenced-based medicine and objective, this can further protect employers against RICO claims.

A proven example of a baseline test for musculoskeletal disorders (MSD) cases is the EFA-STM program. EFA-STM Program begins by providing baseline injury testing for existing employees and new hires. The data is interpreted only when and if there is a soft tissue claim.  After a claim, the injured worker is required to undergo the post-loss testing. The subsequent comparison objectively demonstrates whether or not an acute injury exists. If there is a change from the baseline, site-specific treatment recommendations are made for the AOECOE condition, ensuring that the injured worker receives the best care possible.