REFERENCE ACTION ANALYST STAFF DIRECTOR 1) Insurance, Business & Financial Affairs Policy Committee Reilly Cooper SUMMARY ANALYSIS

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1 HOUSE OF REPRESENTATIVES STAFF ANALYSIS BILL #: HB 903 Wrkers' Cmpensatin Attrney's Fees SPONSOR(S): Flres and thers TIED BILLS: IDEN./SIM. BILLS: REFERENCE ACTION ANALYST STAFF DIRECTOR 1) Insurance, Business & Financial Affairs Plicy Cmmittee Reilly Cper 2) General Gvernment Plicy Cuncil 3) 4) 5) SUMMARY ANALYSIS In 2003, Flrida enacted wrkers cmpensatin refrm legislatin (ch , L.O.F.). At that time, Flrida s wrkers cmpensatin insurance rates cnsistently ranked as the mst expensive r secnd mst expensive in the cuntry. The legislatin made varius changes t the wrkers cmpensatin statute, including revising cmpensability standards, indemnity benefit levels, medical reimbursement levels, and amending the prvisin gverning attrney s fees in wrkers cmpensatin, s , F.S. The 2003 legislatin retained a cntingency fee schedule fr attrney s fees, but remved a listing f factrs a judge f cmpensatin claims (JCC) was required t cnsider and upn which the JCC culd increase r decrease the amunt f the award. The factrs included the time and labr required, the difficulty f the case, custmary charges, and the lawyer s experience, reputatin, and ability. Since enactment f this cmprehensive refrm legislatin, the Office f Insurance Regulatin (the OIR) has apprved six cnsecutive decreases in wrkers cmpensatin rates, resulting in a cumulative decrease f the verall statewide average rate by mre than 60 percent. In Octber 2008, the Flrida Supreme Curt in Murray v. Mariner Health and ACE USA determined that the attrney s fee schedule as amended, when read tgether with a prvisin that entitles certain prevailing claimants t a reasnable attrney s fee, creates an ambiguity as t whether the fee schedule is the sle basis fr determining a reasnable attrney s fee. The Curt cncluded that it is nt, and held that the factrs set frth in a Flrida Bar rule fr determining attrney s fees (which includes the discretinary factrs remved frm the wrkers cmpensatin statute in 2003), were t be applied t determine a reasnable attrney s fee when the term is nt therwise defined. Based n this decisin, the OIR has apprved a 6.4% increase in wrkers cmpensatin rates effective April 1, Huse Bill 903 amends the attrney s fee schedule t permit fees n the first $5,000 f benefits secured t be less than r equal t 20 percent f the first $5,000 f benefits secured. Under current law, the fee must equal 20 percent f the first $5,000 in benefits secured. The spnsr f the bill has infrmed staff that she will ffer an amendment t eliminate this change. The bill als addresses the Murray decisin by clarifying that awards f attrney s fees, except in certain medical nly cases, are t be calculated based slely n the fee schedule. This bill shuld have n mre than a minimal fiscal impact n state and lcal gvernments. The bill takes effect upn becming a law. This dcument des nt reflect the intent r fficial psitin f the bill spnsr r Huse f Representatives. STORAGE NAME: h0903.ibfa.dc

2 HOUSE PRINCIPLES Members are encuraged t evaluate prpsed legislatin in light f the fllwing guiding principles f the Huse f Representatives Balance the state budget. Create a legal and regulatry envirnment that fsters ecnmic grwth and jb creatin. Lwer the tax burden n families and businesses. Reverse r restrain the grwth f gvernment. Prmte public safety. Prmte educatinal accuntability, excellence, and chice. Fster respect fr the family and fr inncent human life. Prtect Flrida s natural beauty. A. EFFECT OF PROPOSED CHANGES: Flrida s Wrkers Cmpensatin System FULL ANALYSIS I. SUBSTANTIVE ANALYSIS In the early part f the decade, Flrida cnsistently had the mst expensive r the secnd mst expensive wrkers cmpensatin rates in the cuntry. 1 In 2003, wrkers cmpensatin refrm legislatin (ch , L.O.F.) was enacted in an attempt t significantly reduce system csts. The legislatin made changes t varius aspects f the wrkers cmpensatin law (ch. 440, F.S.) including: Revising eligibility fr permanent ttal disability benefits and eliminating the scial security eligibility standard; Requiring the wrkplace accident t be the majr cntributing cause f the resulting injury; Strengthening anti-fraud prvisins; Increasing medical reimbursements fr physicians and fr surgical prcedures and revising ther reimbursement prvisins; Increasing permanent impairment benefits frm 50 t 75 percent f the temprary ttal disability benefit; Increasing the maximum death benefit; Retaining an attrney s fee schedule, but deleting frm the statute the fllwing list f factrs 2 a judge f cmpensatin claims culd cnsider t increase r decrease the amunt f the fee: The time and labr required the nvelty and difficulty f the questins invlved, and the skill requisite t perfrm the legal service prperly. The fee custmarily charged in the lcality fr similar legal services. The amunt invlved in the cntrversy and the benefits resulting t the claimant. The time limitatin impsed by the claimant r the circumstances. 1 In 2000, Flrida had the highest wrkers cmpensatin premiums in the cuntry, and the secnd highest in See Oregn Wrkers Cmpensatin Premium Rate Rankings fr 2000, These factrs were set frth in Lee Eng g. & Cnstr. C. v. Fellws, 209 S. 2d 454 (Fla. 1968) and subsequently incrprated int s , F.S. Lee Eng g. applied Cann 12 f the Canns f Prfessinal Respnsibility [the predecessr t rule 4-1.5(b) f the Rules Regulating the Flrida Bar]. STORAGE NAME: h0903.ibfa.dc PAGE: 2

3 The experience, reputatin, and ability f the lawyer r lawyers perfrming services. The cntingency r certainty f a fee. Sectin , F.S., gverns attrney s fees in wrkers cmpensatin. Pursuant t subsectin (1), a fee may nt be paid fr a claimant unless apprved as reasnable by a judge f cmpensatin claims r a curt having jurisdictin ver the prceeding. Further, an attrney s fee apprved fr benefits secured n behalf f a claimant must equal 20 percent f the first $5,000 f the amunt f benefits secured, 15 percent f the next $5,000 f the amunt f benefits secured, 10 percent f the remaining amunt f the benefits secured and t be prvided during the first 10 years after the date the claim is filed, and 5 percent f the benefits secured after 10 years. The judge is prhibited frm apprving fees in excess f the amunt permitted by this sectin. Generally, a wrkers cmpensatin claimant is respnsible fr paying his r her wn attrney s fees. Hwever, under s (3), F.S., a claimant is entitled t recver a reasnable attrney s fee frm the carrier r emplyer in the fllwing circumstances: 1) claimant successfully asserts a claim fr medical benefits nly; 2) claimant s attrney successfully prsecutes a claim previusly denied by the emplyer/carrier; 3) claimant prevails n the issue f cmpensability, which was previusly denied by the emplyer/carrier; and 4) claimant successfully prevails in prceedings related t the enfrcement f an rder r mdificatin f an rder. Since the 2003 legislatin, the Office f Insurance Regulatin has apprved six cnsecutive decreases in wrkers cmpensatin insurance rates, resulting in a cumulative decrease f the verall statewide average rate by mre than 60 percent. 3 Frm 2002 t 2008, Flrida s wrkers cmpensatin premium rate index decreased frm $4.47 per $100 f payrll t $2.20 per $100 f payrll. 4 In 2008, 26 states had higher wrkers cmpensatin premiums than Flrida. 5 The Flrida Supreme Curt s Decisin in Emma Murray v. Mariner Health and ACE, USA 6 In Murray, a nursing assistant injured while lifting a patient suffered a uterine prlapse and underwent a hysterectmy. In respnse t claimant s petitin fr wrkers cmpensatin benefits, the emplyer and its insurance carrier asserted that n benefits were wed, as the injury did nt arise ut f r in the curse f emplyment. After a hearing, the judge f cmpensatin claims (JCC) fund fr the claimant and awarded $3, in benefits. Pursuant t s (3), F.S., the claimant was entitled t recver a reasnable attrney s fee, as she had successfully prsecuted a claim that had been denied. In determining a reasnable attrney s fee, the claimant s attrney asserted that the JCC shuld cnsider the Lee Engineering factrs that had been remved frm the statute in 2003 by ch , L.O.F. The emplyer and insurance carrier, hwever, asserted that s (1), F.S. cntrlled the fee calculatin. This subsectin requires that any fee paid fr a claimant must be apprved as reasnable by the JCC, must equal the cntingency fee schedule, 7 and prhibits apprval f an attrney s fee in excess f the amunt permitted by this sectin. 3 Office f Insurance Regulatin Press Release dated Octber 29, Fund at: (last accessed March 4, 2009). 4 Oregn Department f Cnsumer and Business Services, Wrkers Cmpensatin Premium Rate Ranking Reprt fr 2002 and 2008 (biennial reprt). Fund at: (last accessed March 3, 2009). 5 Id. Subsequent t publicatin f the 2008 Oregn reprt, there have been tw further rate decreases in Flrida S.2d 1051 (Fla. 2008). 7 Subsectin (1) prvides that any attrney s fee apprved by a judge f cmpensatin claims must equal 20 percent f the first $5,000 f the amunt f benefits secured, 15 percent f the next $5,000 f the amunt f the benefits secured, 10 percent f the STORAGE NAME: h0903.ibfa.dc PAGE: 3

4 The JCC calculated the attrney s fee under bth subsectins, finding that the fee award wuld be $ (a rate f $8.11 per hur) if calculated under the fee schedule f subsectin (1), but $16,000 (135 hurs at $125 an hur) if calculated under subsectin (3). Finding that the fee award under subsectin (3) was gverned by the fee schedule f subsectin (1), the JCC awarded an attrney s fee f $684.84, which was subsequently affirmed by the First District Curt f Appeal. The Flrida Supreme Curt (the Curt) reversed, finding that when subsectins (1) and (3) f s , F.S., are read tgether an ambiguity exists as t whether subsectin (1) is the sle basis upn which t calculate a reasnable attrney s fee. As a review f the Legislative histry f the attrney s fee prvisin, including the 2003 amendments, did nt prvide reasns fr the changes made, the Curt relied n tw rules f statutry cnstructin t clarify the ambiguity and determine legislative intent: (1) The specific prvisin cntrls the general and (2) a statute will nt be cnstrued in such a way that it renders meaningless r absurd any ther statutry prvisin. The Curt determined that subsectin (3), which specifically pertains t situatins in which attrney s fees can be awarded, cntrls ver subsectin (1), which addresses the calculatin f attrney s fees in general. Additinally, the Curt stated that the reasnable attrney s fee language f subsectin (3) wuld be rendered meaningless if it were cnstrued as being cntrlled by the fee schedule f subsectin (1), as applicatin f the fee schedule wuld result in excessive fees in sme cases and inadequate fees in thers. Thus, the Curt cncluded that reasnable attrney s fees fr claimants, when nt therwise defined in the wrkers cmpensatin statute, are t be determined using rule 4-1.5(b) f the Rules Regulating the Flrida Bar. This rule sets frth factrs t be cnsidered as guides in determining a reasnable fee, including the Lee Engineering factrs that had been remved frm the wrkers cmpensatin statute in Accrdingly, the prevailing claimant was entitled t recver a reasnable attrney s fee f $16,000. Effect f the Bill Huse Bill 903 amends the attrney s fee schedule t permit fees n the first $5,000 f benefits secured t be less than r equal t 20 percent. Current law prvides fr attrney s fees f 20 percent f the first $5,000 f benefits secured. Further, the bill remves statutry language prviding fr a reasnable attrney s fee and specifies that fee awards cannt exceed the amunt authrized by the attrney s fee schedule. Thus, attrney s fees in wrkers cmpensatin will be calculated in the manner they had been frm the effective date f the 2003 refrm up t the decisin in Murray. B. SECTION DIRECTORY: Sectin 1. Amends s. 434, F.S., relating t attrney s fees in wrkers cmpensatin. Sectin 2. Prvides fr the bill t take effect upn becming law. II. FISCAL ANALYSIS & ECONOMIC IMPACT STATEMENT A. FISCAL IMPACT ON STATE GOVERNMENT: 1. Revenues: Nne. 2. Expenditures: remaining amunt f the benefits t be secured t be prvided during the first 10 years after the date the claim is filed, and 5 percent f the benefits secured after 10 years. STORAGE NAME: h0903.ibfa.dc PAGE: 4

5 Nne. B. FISCAL IMPACT ON LOCAL GOVERNMENTS: 1. Revenues: Nne. 2. Expenditures: Nne. C. DIRECT ECONOMIC IMPACT ON PRIVATE SECTOR: The Office f Insurance Regulatin apprved a 6.4% increase in wrkers cmpensatin rates based upn the Flrida Supreme Curt s decisin in Murray. Huse Bill 903 will likely result in a wrkers cmpensatin rate filing seeking t unwind this increase. 8 D. FISCAL COMMENTS: T the extent that gvernment emplyees injured at wrk are entitled t recver an attrney s fee award in wrkers cmpensatin prceedings, it appears that this bill will likely decrease the attrney s fees awards paid by state and lcal gvernments. A. CONSTITUTIONAL ISSUES: III. COMMENTS 1. Applicability f Municipality/Cunty Mandates Prvisin: This bill des nt require cunties r municipalities t spend funds r take an actin requiring the expenditure f funds. The bill des nt reduce the percentage f a state tax shared with cunties r municipalities. The bill des nt reduce the authrity that municipalities have t raise revenue. 2. Other: Nne. B. RULE-MAKING AUTHORITY: Nne C. DRAFTING ISSUES OR OTHER COMMENTS: The bill amends the attrney s fee schedule t permit the fee n the first $5,000 f benefits secured t be less than r equal t 20 percent. Currently, s (1), F.S., prvides that the fee must be 20 percent f the first $5,000 f benefits secured. As the bill des nt prvide guidance as t hw a judge f cmpensatin claims is t determine the percentage t be applied in calculating the fee payable n the first $5,000 f benefits secured, it appears t intrduce subjectivity int the calculatin f attrney s fees and require cnsideratin f external factrs, such as thse set frth in Lee Engineering and which were used t determine a reasnable attrney s fee in Murray. The spnsr f the bill has infrmed staff that she will ffer an amendment t eliminate this change. 8 Crrespndence frm the Natinal Cuncil n Cmpensatin Insurance (NCCI) n file with staff f the Insurance, Banking & Financial Affairs Plicy Cmmittee. STORAGE NAME: h0903.ibfa.dc PAGE: 5

6 IV. AMENDMENTS/COUNCIL OR COMMITTEE SUBSTITUTE CHANGES STORAGE NAME: h0903.ibfa.dc PAGE: 6