By DAN REYNOLDS, senior editor of Risk & Insurance®
The attorney arguing a landmark workers' compensation case in California thinks there is much to celebrate in a ruling handed down by the Court of Appeals of California, Sixth Circuit, earlier this month.
What's become known in the industry as the "Guzman" case involves the trials and tribulations of Joyce Guzman, a clerical worker for the Milpitas Unified School District, a district located in the San Francisco Bay Area. Guzman tripped over her office computer cables in November 2003, fell and injured herself, leading to a permanent disability claim and the use of antidepressants to treat a related psychological malaise.
Guzman's case, along with two others, Ogilvie v. City and County of San Francisco and Almaraz v. Environmental Recovery Services, are three key pieces in what has become a tough battle to control workers' compensation costs in California.
Back in 2004, Gov. Arnold Schwarzenegger took aim at those costs with Senate Bill 899, which limited unnecessary medical expenses and allowed employers to create pools of medical providers that would treat injured workers responsibly and not game the system by jacking up costs.
But California's applicant attorneys, those that represent injured workers, have received in the cases known colloquially as "Almarez" and Guzman rulings that give physicians a wide range of discretion in interpreting the American Medical Association (AMA) Guidelines for Permanent Disability. The Almaraz case involved a back injury to a truck driver from Fresno. His attorneys argued for a liberal interpretation of the AMA guidelines, leading to his case being combined with Guzman for purposes of adjudication because they touched on similar issues.
The Ogilvie case made a diminished future capacity ruling rebuttable, which has also hiked costs.
Together, the three rulings have ended up helping to erode the gains produced by SB 899.
Now, physicians taking a wide interpretation of the guidelines can, for example, link a back injury to such things as a sleep disorder or sexual dysfunction, leading to much higher permanent disability ratings and higher settlement costs.
Don Barthel, the attorney arguing the case for the district and other parties that have filed supporting briefs in Guzman, believes there is much to be hopeful for in this latest ruling in his appeals effort.
"My perspective is, if you read the first page of the decision, you conclude, 'Oh this is not good for employers of the world.' You read the next 24 pages, you start to realize there is some really great language here," said Barthel, a founding partner of Ontario, Calif.-based Bradford & Barthel LLP, a firm that specializes in workers' compensation cases.
For one, Barthel interprets this latest ruling to drastically narrow the circumstances under which doctors and judges can apply differing sections of the AMA guidelines to cases that qualify as "extraordinary and complex cases." No longer would doctors be able to link a sleep disorder to a back injury in fairly standard workers' compensation cases.
Darrell Brown, a senior practice leader for workers' compensation for national claims administrator Sedgwick Claims Management Services, wasn't as sanguine about the ruling as Barthel was, but did express some cautious optimism.
"It seemed to limit the application of this approach to complex and extraordinary cases, and I think that is a new addition and I think it is an improvement," Brown said.
The appeals court ruling comes at a time when workers' compensation costs are again spiraling toward a height that could precipitate another cost crisis, such as the one that triggered Gov. Schwarzenegger's reforms of 2004.
Earlier this month, California's Workers' Compensation Insurance Ratings Bureau (WCIRB) proposed a 30 percent increase in workers' compensation premiums. Even if that hike comes through, it may be too late for some insurers.
Many carriers have decided to write workers' compensation business elsewhere because of the high costs of claims. Written premiums in California for workers' comp have plummeted in recent years. According to the WCIRB, written premium for workers' compensation in California was about $23.5 billion in 2004. By 2009, that fell to $8.9 billion, based on preliminary data.
The bureau estimates that the combined ratio for workers' comp insurers was 108 percent in 2008, 17 points higher than in 2007. The agency warns that 2009 will probably be "considerably higher."
The second-quarter results for insurer SeaBright Holdings Inc., which has a substantial book of workers' compensation business in California, showed just how scary the workers' compensation market is. Seattle-based SeaBright reported a net loss of $15.5 million for the quarter, leading Bijan Moazami, an analyst with FBR Capital Markets, to suggest that the business was so damaged it should be sold.
August 27, 2010
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