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In Ogilvie v. Workers' Compensation Appeals Board, the 1st District Court of Appeal recently agreed with an earlier decision that said the schedule used in setting permanent disability benefits is open to challenge.

While the decision answered the two-year uncertainty about injured workers' rights to challenge the payment schedules, it raised many new questions. Workers' comp stakeholders are hoping state regulators will provide answers soon. In the meantime, they expect the latest decision to result in litigation.

At trial, the judge agreed that the rating was too low and came up with his own rating of 40 percent.

The City of San Francisco appealed, leading to a landmark decision by the WCAB in 2009. For the first time, the board said a worker has a right to rebut the scheduled rating to reflect the injured worker's diminished capacity for future employment.

In agreeing with the WCAB decision, the appeals court outlined three conditions under which the schedules can be challenged.

Implications. The ruling has many California workers' comp participants scratching their heads. "One thing we know for sure is the mechanical formula created by the WCAB is gone," said Ted E. Richards, a shareholder with the legal firm Grancell, Lebovitz, Stander, Reubens and Thomas. "Another is that the holes left by the appellate decision will result in considerable litigation."

The problem, as Richards sees it, is the lack of direction provided by the court.

"The appellate court said, 'OK, WCAB, you didn't get it right the first time, do it again.' But they didn't give us the nuts and bolts type guidance we need to approach this after the old formula had been withdrawn," Richards said.

Another question concerns the court's third condition for challenging the schedule -- complicating factors.

"In my opinion, that sort of inquiry opens itself up to expert opinion and it defeats the legislative goals of predictability, consistency, and objectivity and therefore is going to lead to litigation," he said. "It turns into a battle of experts rather than something objective."

Permanent disability benefit challenge. The lack of an objective standard on which to base permanent disability benefits is a problem throughout the country, say experts. "The role of permanent disability in this system is a lot less clear than the role of temporary benefits," said W. Frederick Uehlein, an attorney and the director of Impairment Resources. "It's a hodgepodge all over the country."

Where temporary disability benefits typically pay somewhere around 66 percent of an injured worker's pay, permanent disability benefits don't follow any such rule. "Legislatures don't set benefit rates in relationship to some principle, like economic loss," Uehlein said. "They do when it comes to temporary benefits, but with permanent disability, they just set them. It's just a political process."

The fact that the process is political makes the rates inherently inadequate. "You have a legislature set benefits. Let's say they set them adequately in year one, but they don't go revisit them," Uehlein said. "The real culprit in the system is legislatures getting around to setting rates."

While a solution is not easy, it is not necessarily impossible. As Uehlein sees it, California had the right idea in setting up a system based on facts and evidence to translate functionality/impairment to loss of earning capacity.

"In doing so, they had every intent to eliminate friction costs and get to an answer that was relatively fair," Uehlein said. "But they made a key mistake: When they put it into practice, the rates they set were radically lower -- some say 50 percent -- of the benefit rates previously used. . . . It did an awful lot of harm to the system because it was so great a change it increased friction costs to drive up benefit rates."

The solution, at least in California, may be doable. "Probably what has to happen is that the stakeholders agree on an appropriate level of permanent disability tied to the severity of the injury and work out a permanent disability rating schedule everybody can live with," Richards said. "When that is done, I think you need to make the permanent disability rating schedule a nonrebuttable presumption to avoid all this litigation."

Read more at the WorkersComp Forum homepage.

October 3, 2011

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