Workers Compensation and Attorney s Fees

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1 Workers Compensation and Attorney s Fees Addressing the Economic and Social Costs of 2009 Florida House Bill 903 and Senate Bill /28/2009

2 Table of Contents Introduction... 3 The Economics of Social Costs... 3 Section 1: Policy and Legislation on Workers Compensation Insurance... 5 Section 1.A: Workers Compensation Intent and Policy... 5 Section 1.B: Workers Compensation Statutory Law... 6 Section 1.C: The Murray Case... 7 Section 1.D: Workers Compensation Insurance Rates and the Effects of Change... 8 Section 2: Externalities and Costs in Workers Compensation Insurance Section 2.A: Effects on Consumer Prices as Workers Compensation Rates Change Section 2.B: Incentives for Fraud by Non-Cost Bearing Beneficiaries and Attorneys Section 2.C: The Cost on Benefits Received by the Worker Section 2.D: The Ideal Workers Compensation Balance Section 3: Policy and Economic Arguments on Current Legislation Regarding Workers Compensation Insurance and Attorney s Fees Section 3.A: The Current Workers Compensation and Attorney s Fees Legislation Section 3.B: The Impact of Current Legislation Section 3.C: Assessment of Current Florida Legislation Conclusion Works Cited P a g e

3 Introduction In the current economic crisis, business are constantly looking to address the costs they face in attempts to reduce them. In the state of Florida, the cost of insurance is a hot topic. For businesses, this includes the cost of workers compensation insurance. With workers' compensation, the subject of attorney s fees for litigation has recently undergone statutory reform and court review. The Florida Legislature passed legislation in 2003 to reform attorney s fees awarded in workers' compensation cases, but the Supreme Court of Florida overturned this legislation. In support of the stated policy of workers' compensation law contained in Florida Statute section , Florida should return to laws reflecting the 2003 reforms by the Legislature to determine the payment of attorney s fees in workers' compensation cases. The Economics of Social Costs Microeconomics teaches that individuals make rational choices, for which they suffer a cost but also receive a benefit. (Bade 11-13) Thus, choices which produce a benefit are worth pursuing while those which produce a cost greater than any benefit received should be avoided. (id.) As such, individuals begin to make choices which best maximize their position while usually not taking into account costs which others may bear as a result of these actions. Robert Coase defines and addresses this problem in his article The Problem of Social Cost. Coase addresses the issue of decisions and actions taken by businesses which have effects on others. (1) These effects are costs which are transferred to others and best defined as externalities to the running of a business. Coase uses the example of a factory which produces smoke that ends up in the air of society as a whole. (id.) This creates a divergence between private and social benefits and costs, to which he proposes the best solution is to efficiently distribute the costs to parties involved or affected by the transaction so that the marginal costs are 3 P a g e

4 lowest and the marginal benefit is the greatest. (id. at 3) The best way to do this, Coase argues, is through an analysis of the opportunity costs of each possible decision or alternative use of factors of production. (id. at 40) The desire should be a system that leads to the employment of factors in places where the value of the product yielded is greatest and does so at less cost than alternative systems. (id.) Coase suggests a change to the way we approach policy and tax issues. Instead of starting from some ideal or hypothetical situation, Coase suggests [a] better approach would seem to be to start our analysis with a situation approximating that which actually exists, to examine the effects of a proposed policy change and to attempt to decide whether the new situation would be, in total, better or worse than the original one. In this way, conclusions for policy have some relevance to the actual situation. (p. 43) Coase notes that all costs must be taken into account, whether they are costs for operating the ideal arrangement, such as market transaction costs or a government department overseeing operation, or the costs to get to the ideal situation, such as movement of the factors of production. (id. at 44) What this paper hopes to achieve is an application of these principles to the issue of workers' compensation insurance in the state of Florida. Section one begins by introducing the basic policy behind the concept of workers' compensation insurance and the current workers' compensation law through the recent Florida Supreme Court decision Murray v. Mariners Health in October of It also looks at the data concerning the changes in workers' compensation rates after the 2003 reform and the ability of injured workers to find representation as attorney s fees decreased. Section two identifies the transaction being studied and results in workers' compensation insurance. It then goes on to explain some externalities and costs associated with the transaction. Finally, section three examines current pending legislation in the Florida House and Senate as of 4 P a g e

5 April 24, 2009, and the effects it would have. This legislation is judged against the principles identified by Coase to determine if the legislation is economically and socially beneficial in achieving its public intent and purpose. Section 1: Policy and Legislation on Workers Compensation Insurance Section 1.A: Workers Compensation Intent and Policy Workers compensation insurance is unique from other forms of insurance in several ways. According to Black s Law Dictionary, workers compensation is a system of providing benefits to an employee for injuries occurring in the scope of employment (Garner). A unique aspect of workers' compensation is that the receiver of the benefits of the insurance, the employee, is not the payee of the policy. Instead, the employer pays for the insurance while the employee is the beneficiary of the policy. This unique aspect of workers' compensation creates a distinctive relationship between the employee, the insurance company, and the employer. Another aspect of workers' compensation is that the employee gives up the right to sue the employer in tort (Garner) Workers' compensation is designed to protect employees from the consequences of employment-related injuries when the employee can demonstrate the injuries arose out of and during the course of their employment (id.) In Florida, Chapter 440 of the state statutes applies to workers' compensation law. It is the stated intent of the legislature in the state of Florida that the Workers' Compensation Law be interpreted so as to assure the quick and efficient delivery of disability and medical benefits to an injured worker and to facilitate the worker's return to gainful reemployment at a reasonable cost to the employer (FLA. STAT (2003)) In commentary on the statutes, its noted that the workers' compensation law is remedial and social legislation, the fundamental purpose of which is to relieve society and the injured worker of the 5 P a g e

6 burden of caring for an injured employee by placing such burden on the industry involved (Danne) This creates a balance in workers' compensation law between relieving society of the burden of injured workers and an effort to keep the costs reasonable for the employer. Section 1.B: Workers Compensation Statutory Law The applicable law for discussion in this paper comes from of the Florida Statues. This section deals with the payment of attorney s fees in workers compensation claims cases. Since the inception of workers' compensation insurance in Florida, the legislature has attempted to ensure that a bulk of the claim awarded goes to the injured employee and not to the attorney. (Murray at 7) Over the course of time, the legislature has changed the law to included provisions such as the employee/carrier paying for the injured worker to have an attorney and to set boundaries on this fee. (id. at 7-8) In 1977, the legislature amended the statute to codify factors declared by the Supreme Court of Florida for use in determining a reasonable fee for a claimant s attorney s in Lee Engineering & Construction Company vs. Fellows. (id. at 8) These six factors were used as the basis for calculating a reasonable fee until the 2003 reforms took place. In 1979, the legislature re-organized the statute and listed three specific instances where the employer or carrier would be required to pay the attorney s fee. (Murray at 9) This was the substantive law until 2003, at which point the legislature significantly reformed the law. The changes in 2003 were designed to increase the affordability and availability of coverage, expedite the dispute resolution process, provide greater compliance and enforcement authority to combat fraud, and revise certain indemnity benefits for injured workers. This legislation continued the contingency fee schedule for attorney s fees, but eliminated hourly fees. (Jud. Comm. Staff at 1) 6 P a g e

7 This included removing the Lee Engineering factors instituted in (Murray at 8) Instead, the legislature created a schedule of fees to be used while also placing a cap on the total fee that could be awarded. (id.) The new provision was challenged on constitutional grounds in Lundy v. Four Seasons Ocean Grand Palm Beach. (932 So. 2d 506) In this case, the court held that, workers' compensation is a creature of statute governed by the provisions of Chapter 440, Florida Statutes. The legislature may limit the amount of fees that a claimant s attorney may charge because the state has a legitimate interest in regulating attorney s fees in workers' compensation cases. Furthermore, the legislature is charged with setting forth the criteria it deems will further the purpose of workers' compensation law and will result in a reasonable fee. (509) The legislation withheld a constitutionality challenge, but was overturned in 2008 on other grounds. Section 1.C: The Murray Case Murray v. Mariners Health is a 2008 Florida Supreme Court case dealing with attorney s fees in workers' compensation cases. The petitioner suffered an injury at work and underwent surgery. (Murray at 3) The employer and insurance carrier denied any benefits were owed when the claim was filed. (id.) The lower court found that the petitioner s claims were compensable and awarded her benefits as such. (id.) Next, the judge hearing the case looked to establish the attorney s fees. (id.) The judge ruled that determined the fee and awarded what amounted to $8.11 per hour for the attorney, whereas the Lee Engineering factors would have led to an award of $200 an hour. (id.) The First District Court of Appeals upheld the judge s decision, at which point the case was appeal to the Florida Supreme Court. (id.) The Florida Supreme Court held that the statute, when construed according to standard rules of statutory construction, was ambiguous and unclear when it was applied in this case. (Murray at 10) The Court also took the position that the Legislature did not indicate why it 7 P a g e

8 made the changes in respect to the determination of the amount of a claimant s attorney fees in the history of the statute we have traced or in the 2003 revisions to the subsections. (id.) In particular, the court held that subsection three, a specific subsection regarding exact situations where attorney s fees were required by statute to be paid for by the employer/carrier, and subsection one, a general subsection on calculating fees, were in contrast. (Murray at 10) Accordingly, the specific statute should control the general statute, or as applied in this case, subsection three controlled over subsection one when subsection three applies. (id. at 11). The result is that the court s decision in Lee Engineering controls [their] decision here, which thus reverts the reading of the Florida Statute Section to pre-2003 reform. (id.) Even though the Legislature removed the reasonable fee factors reference in 2003, the court held that the authorization of claimant s attorney s entitlement to a reasonable fee still existed and the Lee Engineering factors still controlled this standard. Section 1.D: Workers Compensation Insurance Rates and the Effects of Change Pre-2003 Rates In 2000, Florida had the highest workers' compensation premiums in the country. (Jud. Comm. Staff at 2). In 2001, Florida was the second highest in the country. (id.) The National Council on Compensation Insurance (NCCI) identified four major cost drivers in the state of Florida prior to the 2003 legislation. (id.) These four factors were the high frequency of permanent total disability claims, the high medical costs for permanent partial disability claims, the high medical costs for temporary total disability claims and the relatively high hospital costs. (id.) NCCI went on to note that attorney involvement in the state of Florida was high, such that when attorneys were involved in cases, Florida s claim size was nearly 40 percent higher than 8 P a g e

9 the national average. (id.) However, if attorneys weren t involved, the difference in claim costs between Florida and the national average was minimal. (id.) Post-2003 rate reductions Since the 2003 legislative reform, the rate charged for workers' compensation in Florida has dropped significantly. Right after the 2003 reform took effect in October of that year, the Florida Office of Insurance Regulation (OIR) cut the rate by fourteen percent. (BestWire) This was closely followed by a five percent cut effective January (id.) The OIR attributed these cuts to the Florida Legislature rework[ing] the state s workers' compensation system to make workers' compensation coverage more affordable. (id.) By mid-year 2007, the rates had dropped by about forty percent in total. (AP Financial Wire) In October 2007, the OIR ordered another eighteen percent reduction in the workers' compensation rate effective January 1, (US States News) It was estimated that this reduction would save over $700 million for Florida employers and created a reduction in the rate of more than fifty percent since the 2003 legislation. (id.) The collective effect was striking: Florida dropped from the top one or two states in workers' compensation rates prior to 2003 to being in the middle of all states by (id.) In 2008, before the Murray decision was published, the OIR ordered rates reduced again by an additional 18.6 percent, the largest one year reduction ever. (US States News)The cumulative net effect of these rate reductions was a net decrease in the rate of more than sixty percent. (id.) It was estimated that the 2008 rate reduction would save Florida employers more than $610 million. (id.) Representation Data pre and post 9 P a g e

10 Many feared legislation and reduction in attorney s fees would reduce the attorney representation available to claimants of workers' compensation cases. However, it appears that this wasn t the case. The Florida Office of the Judges of Compensation Claims indicated that, on average, claimant s attorney fees are higher than defense attorney fees per claim. For fiscal year , the average defense attorney fee per claim was $2,563, and the claimant s attorney fee per claim was $5,231. (Jud. Comm. Staff at 5) The Workers Compensation Research Institute (WCRI) recently published an article analyzing whether the reforms instituted by the Florida Legislature in 2003 reduced the ability for claimants to find attorney representation. The study looked at two situations, whether an average injured worker could find an attorney and whether a worker could find an attorney if the fee earned was likely to be small. (Savych and Victor 5-6) The WRCI report found there was little difference in the ability of the average worker to retain an attorney after the 2003 reforms took effect. (id. at 17) The data showed that pre-2003 reforms, injured workers retained an attorney forty-three percent of the time in workers' compensation claims cases. (id.) Post-reform, this number dropped to thirty-eight percent. (id.) However, when other differences in workers' compensation law besides attorney s fees were taken into account, WRCI found that the total attorney involvement dropped by 3.6 percent. (id.) This is the equivalency of one in twelve workers pre-reform being unable to find an attorney after the 2003 legislative reform. (id. at 18) WCRI also concluded that when the attorney s fee was likely under five-hundred dollars, the evidence showed the 2003 legislation had little effect on the ability of injured workers to find representation. (Savych and Victor 19) WCRI stated, When we control for differences in the characteristics of cases in the pre-reform and post-reform periods, we find mixed evidence on whether the workers had 10 P a g e

11 greater difficulty retaining an attorney in these smaller fee cases. For example, for cases with PPD and/or lump-sum payments of under $2,500, the fraction of workers who had attorneys after the reforms was 0.9 percentage points lower than among similar cases prior to reform not surprisingly, this was not statistically significantly different from zero. However, we find small but statistically significant effects of the reforms on attorney involvement for the analyses that examine cases with PPD and/or lump-sum payments under $1,500 (lower by 3.4 percentage points). Hence we conclude that the evidence is mixed. However, the evidence is consistent that any effect was likely to be small. (WCRI 18-19) Thus, the overall conclusion reached by WCRI was that, despite the limitations imposed on the study, the overall effect of the legislation on an injured workers ability to retain an attorney was small. (id. at xiii) Murray effect on rates and cases Since the Murray decision in October 2008, the Florida Insurance Commissioner Kevin McCarty has approved a 6.4 percent increase in workers' compensation insurance rates, effective as of April 1, (Simpson) The increase was meant to reflect the anticipated legal costs since the Florida Supreme Court decision eliminated the statutory caps. (id.) This increase will work in combination with the previously-approved decrease of 18.6 percent to create a net rate decrease of 12.2 percent for (id.) NCCI had recommended a higher rate increase of 8.9 percent for 2009 and a total two year increase of 18.6 percent, but Mr. McCarty disagreed. (id.) However, Mr. McCarty did note that a lack of any legislation to change the Supreme Court s decision would cause rates to increase. (Kallestad) Not only affecting rates, the Murray decision also influenced the course of other workers' compensation cases before the district courts of Florida and the Supreme Court. Several cases have been sent back to be reconsidered using the application of the Supreme Court s 11 P a g e

12 interpretation in Murray. 1 These are just the beginning of cases who s results will be different under the Murray rule than under the 2003 legislation. The effects of workers' compensation law, reforms, and cases are far and wide, which creates a complex stage for finding a solution. Section 2: Externalities and Costs in Workers Compensation Insurance Although there are many costs and factors which affect workers' compensation insurance, workers' compensation is actually a cost of another much bigger transaction. This transaction is the production of goods and services by a business for the sale to and purchase by consumers. It has served as the basis for economic exchange since the beginning of time. However, there are costs, or externalities, that occur during the production of goods. One such externality is the constant risk of a worker being injured while performing tasks on the job for the employer. Coase s theory would suggest that this cost needs to be distributed so that the parties involved in the transaction pay for their portion of associated risks and costs. This is where workers compensation insurance comes into effect. When a worker is injured during the course of employment, someone will need to pay for the medical bills and the care of the injured worker as well as any living expenses or loss suffered as a result of the injury. As previously noted, the Florida Legislature intends workers compensation insurance to account for this possible cost to society by relieving society of the burden to care for the injured employee and instead placing this cost back on the employer. Thus, employers are statutorily required to purchase workers' compensation insurance for the benefit of the possibly injured employee. Multiple factors affect and determine the workers' compensation rate charged to the employer by the carrier. These factors include the inherent risk for the industry or business of the employer, the benefits paid out of the policy to the injured worker, and the expected average cost to the carrier to resolve litigation. In the state of Florida, the third cost has been affected by legislation and the Supreme 1 For examples, see Buitrago v. Landry s, No. SC07-762; Lowry v. Central Leasing Management, No. SC ; Pittman v. Palm Beach County School District, No. SC08-352; Miles-Young v. Staff Management Solution, Inc., 1 So.3d 394; and O Shea v. Progress Energy, 993 So.2d P a g e

13 Court both weighing in with different opinions on the amount of a claimant s attorney s fees. As the amount of the attorney s fee changes, the cost of litigation changes, thus changing the cost to the carrier and eventually the employer. These cost changes go on to affect businesses Holy Grail, the production and sale of goods and services. Ideally, the only costs that should be distributed back to the employer are the actual legitimate costs associated with injuries occurring to workers on the job. Any fraudulent claims which are allowed will increase the cost to the employer beyond the actual cost imposed by the employer. This increased cost is passed back to the consumer of the good, which is in effect society, through an increase in the price of the good or service. Effectively, we don t want the employer or the employee to gain beyond their actual costs nor do we desire to impose a cost on them or society beyond the actual costs. In effect, the ideal legislation would account for these competing interests and allocate costs accordingly. There are multiple factors, or costs, which vary and change as the laws surrounding attorney s fees change. First, as touched on above, there is a possibility of a cost to consumers as the price of goods vary. Second, there is a possible incentive for fraud which must be limited or eliminated. Finally, the changes in attorney s fees can vary the benefits received by the injured worker. Section 2.A: Effects on Consumer Prices as Workers Compensation Rates Change When the employer purchases the insurance premium, this cost must be accounted for somewhere within the business. Thus, each item produced and sold, whether it s a widget or a service, has priced into it some portion of the workers' compensation insurance premium purchased by the employer. This cost is known as overhead and is an external cost to the consumer of the good. Since the 2003 legislation, the cost to the consumer has decreased in real terms compared to the pre-2003 price of goods and services. This results from the fact that the premium rate has decreased for workers compensation by nearly sixty percent since (US States News) This lowered cost to business has most likely resulted in some cost savings to the consumer. Even if 13 P a g e

14 the product purchased didn t decrease in price, it is likely that an increase was avoided or smaller than it otherwise would have been since workers' compensation insurance became cheaper for the business to purchase. If the cost of premium increases, as it has since April 1, 2009, the business will be forced to make a decision on how to handle the new cost. It can choose to either pass the increased cost onto the consumer or reduce its profit for the current year. However, if the long run cost increases enough the business will be forced to pass on the cost to the consumer or go bankrupt. Whether a savings or increase in price is passed on to the consumer, either situation is an externality of the transaction between the employer and the carrier. Section 2.B: Incentives for Fraud by Non-Cost Bearing Beneficiaries and Attorneys Since the beneficiary of the workers' compensation insurance policy, the worker, does not pay the cost to receive the policy and any subsequent changes or increases in the rest of the policy, there is a level of incentive to the worker to file false claims in hopes of receiving benefits. While this level of incentive can be controlled somewhat through requirements to prove the accidental compensable injury or death arouse out of work performed in the course and scope of employment (FLA. STAT (2003)) and other control factors, there still exists some incentive to try and manipulate or beat the system. This incentive, however large or small it might be, is an externality of the transaction between the employer and carrier. There is an almost greater incentive for fraud if the law is structured to support it. This incentive is for the attorney to bring false claims if there is a chance of the claim being settled despite its illegitimacy. For such an incentive to occur, the statutory language needs to encourage carriers to settle claims rather than litigate them. If this trend is encouraged, attorneys would 14 P a g e

15 have an incentive in bringing a false claims brought to them by a worker in order to get the settlement payment. Section 2.C: The Cost on Benefits Received by the Worker A more remote and harder to demonstrate externality or cost is the effect of the attorney s fees on the benefits provided to the worker. However, a line can be drawn. It may be best explained with a concrete example. Employer E purchases workers' compensation insurance from insurer I for the benefit of worker W. If the costs associated with the premium for I increase, one of two courses of action are available as recourse to I. Either I must increase its price of the premium charged to E or reduce the costs associated with the premium. If the regulating agency doesn t allow a premium rate increase by I to cover this increased cost, I will be forced to reduce costs associated with the premium. This can come in a reduction of the benefits to W, as allowed by statute, or by making it more difficult for W to receive the benefits of the premium. Either way, W is affected in this transaction. Attorney s fees paid to the claimant s attorney by the insurer are a prime example of this process. If attorney s fees are a driving cause of rate premiums, as suggested by William Stander 2 and NCCI 3, an increase in the attorney s fees likely to be paid by the carrier to the claimant s attorney will increase the costs to the carrier. In Florida, the employer purchases workers' compensation insurance from the carrier for a rate governed by the state regulation body. Should the OIR not allow rates to increase in correspondence with the increased costs in attorney s fees, the carrier will need to find a way to cut costs. The carrier could then take actions such as reducing the benefits to the worker allowed by statutory limits or make it more difficult 2 See Hemenway, Chad. Florida House Passes Workers Comp Bill to Reinstate Cap on Attorneys Fees. BestWire, March 31, See Jud. Comm. Staff Report cited within. 15 P a g e

16 for the worker to receive the benefits of the premium. Either way, the benefits the worker ends up receiving can be adversely affected depending upon how the transaction between employer and carrier is allowed to progress. Section 2.D: The Ideal Workers Compensation Balance When looking at workers' compensation insurance, finding an appropriate balance between its many caveats can be tough. The burden the employer could place on society by being responsible for injured workers who are temporarily or permanently unable to work again is a very real externality of running a business. Workers' compensation needs to work to transfer this cost back to the employer, but the number of factors affecting it make it hard to stabilize. One must balance the Legislatures desire to enact a social policy to prevent society covering business costs with the simultaneous desire to limit the employer to only those costs that actually result from production. Ideally, business would only be charged the appropriate workers' compensation premium rate necessary for the carrier to cover all expected legitimate injured workers claims and their associated costs. There would be no incentive in the system for fraud and any time fraud could be identified, it would be eliminated. This would achieve the objective of relieving society of the cost of injured workers for injuries that result from employment but keep the cost to business at a level of the actual resulting costs. 4 Section 3: Policy and Economic Arguments on Current Legislation Regarding Workers Compensation Insurance and Attorney s Fees The 2009 legislative session has been busy for both the Florida House and Senate. They have been working to deal with a budget shortcoming, an insurance catastrophe fund, and even been working on legislation dealing with workers' compensation and the effects of the Murray 4 As noted earlier, Coase suggest looking first to policy and then to law to determine the ideal outcome and correct assessment of costs. The correct balance between these two objectives is the major goal. 16 P a g e

17 decision. While the House Bill and the original Senate Bill seem to align with both social and economic policies that are beneficial, the amended Senate Bill on workers' compensation insurance would vastly change the system and make it worse than before the 2003 reform. Section 3.A: The Current Workers Compensation and Attorney s Fees Legislation In the 2009 regular legislative session, both the Florida House and Senate have taken a look at bills meant to overturn or rework the law in regards to workers compensation. As of April 24, 2009, the Florida House has passed a workers compensation bill while the Florida Senate is still working on its version of the bill. (Kallestad) The Florida House overwhelmingly passed House Bill 903 on March 31, 2009, at a rate of over 2 to 1. (Hemenway)The House Bill attempts to reinstate the ban on hourly attorney s fees. (id.) The bill looks to clear up the ambiguity noted by the Florida Supreme Court in the Murray case. It changes the language of the statute to directly mention the other associated subsections that apply, a key factor in the Supreme Court s decision. (2009 H.B. 903 lines 35, 68-69) It leaves in tack the language and formula used to calculate attorney s fees on the basis of a percent of benefits collected. (id. at lines 18-25) This would essentially return the statute to a pre-murray reading and understanding of the statute. (Hemenway) The Florida Senate Bill is still pending as of April 24, The original bill, Senate Bill 2072, intended to mirror House Bill 903. (Royse) The Bill has had a few amendments proposed while it was in committee. First, in the Senate Judiciary Committee an amendment was offered and approved which increases the rate at which attorney s fees were paid and would allow injured workers to sign an agreement with their lawyers to exceed the cap. (id.) This essentially guts the bill according to backers of the original bill. (id.) 17 P a g e

18 The bill was then referred to the Senate Committee on General Government Appropriations, which also looked at a committee amendment to the bill. (Senate 2072: Relating to Workers' Compensation) The effect of the changes this bill would have on current law are vast. First, it would exempt attorney s fees for lump sum settlements from the schedule mandated in (Gen. Gov. App. Comm. at 6) The new lump sum settlement rates are higher than they were before the 2003 reform, with settlements of up to $1 million receiving 33.3 percent of the recovery and the percentage decreasing in steps to an attorney s fee of 20 percent of any settlement over $2 million. (id.) The bill also increases the fee schedule paid to claimants attorney s over the House Bill schedule for the same payouts. (id. at 7) Beyond this, the amended bill doesn t truly cap a claimant s attorney s fee because it may be increased up to the fee paid by the employer or carrier to the employer s or carrier s attorney if it is determined that the employer or carrier engaged in bad faith denial of benefits, unreasonably delayed furnishing benefits, or unreasonably continued or increased litigation expense. (id.) Also, it doesn t allow for the carrier to recoup attorney s fees costs through a rate increase, a major factor to consider. (id.) Senate Bill 2072 is up for hearing in the Senate on April 27, (Senate 2072: Relating to Workers' Compensation) Section 3.B: The Impact of Current Legislation The impact of H.B. 903 and the original S.B is a polar opposite of the consequence of the amended versions of the Senate Bill. The House Bill and its counterpart in the senate would effectively reinstate the 2003 reforms to the statutes, thus overturning the Supreme Court s decision in Murray. (Kallestad) The amended Senate Bill, on the other hand, would create several new and possibly damaging effects. First, since the bill eliminates the current fees caps and authorizes hourly fees and provides additional fees for claimant attorney if certain 18 P a g e

19 conditions are met, there may be a financial incentive for defense and claimant attorneys to increase litigation. (Gen. Gov. App. Comm. at 8) If this happens, it could lead to higher workers' compensation costs for employers as carriers increase their rates to cover these higher costs. (id.) Also, because the lump sum settlement percentages increased under the amended S.B. 2072, injured workers will get less of the settlement than they would under current law. (id.) Currently, over 80 percent of benefits secured in litigated cases are resolved by lump sum settlements. (id. at 6) If the objective is to put money in the injured workers pocket and charge employers only for the risk they are responsible for in the workplace, larger percentages of lump sums going to attorneys seems to be in contradiction with this principle. Finally, since a rate filing increase by the carrier won t be allowed to account for the increased costs of claimant s lawyer s fees in litigation, carriers will have an incentive to litigate few claims. Carriers will alter their behavior so as to not incur the possible attorney s fee for which they can t account. (Gen. Gov. App. Comm. at 8) This will likely again lead to a long run adverse effect on the total rate for workers' compensation insurance and possible fraud by attorneys hoping to take advantage of the changes. (id.) The National Council of Compensation Insurance notes that prior to the 2003 reform, lump sum settlements resulted in an attorney s fee of approximately fifteen percent. (Gen. Gov. App. Comm. at 9) However, the bill more than doubles the claimant fees for lump sum settlements, which NCCI believes will result in a greater financial incentive for attorney involvement in cases and an ultimate increase in employer rates. (id.) In the end, NCCI has indicated that the current amended Senate Bill would raise costs higher than the Murray decision if it was enacted. (id. at 8) 19 P a g e

20 Section 3.C: Assessment of Current Florida Legislation While House Bill 903 and its mirror counterpart in the Senate is generally a good bill which accomplishes many economic and social benefits, the amendments to the Senate version result in an almost opposite outcome. Whereas H.B. 903 works to reinstate the 2003 reforms that reduced workers' compensation rates by sixty percent, C.S./C.S./S.B will increase the workers' compensation rates and premiums. This increase in cost isn t necessarily going to the worker in the form of better benefits, but instead is going to the attorney and higher litigation costs. ((Gen. Gov. App. Comm. at 7-8) These costs will be passed on to business, who will be forced to pay higher rates over time. (id. at 9) In turn, this increased overhead expense will be ultimately passed on to consumers in the form of higher prices to cover greater the expenses. Whereas the 2003 reforms created a healthier workers' compensation insurance market in Florida and reduced the costs to business, S.B in its amended form as of April 22, 2009, will raise rates and hurt the market. Another discussed issue with any legislation is the creation of an incentive for fraud present within the system. H.B. 903 and the original S.B works to reduce the incentive for fraud by capping the attorney s fee, thus taking away the incentive for attorney s to bring fraudulent claims. The amendments to S.B have the opposite effect. By eliminating the cap on fees if it can be determined that the employer or carrier engaged in bad faith denial of benefits, etc., the carrier is more likely to pay claims even if fraud is suspected in order to avoid risking paying high litigation costs for the claimant s attorney. (Gen. Gov. App. Comm. at 7,9) This incentive for fraud doesn t serve the Legislature s stated intent in Instead, S.B as it is now amended seems to go against the stated policy of the legislature. 20 P a g e

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