Sometimes stories in the news are simply that; stories. You read them, you ponder the significance for those strangers who are affected by the news, and then you move on. Other times, you find yourself directly affected by the news of the day, and it leaves you with a slightly greater awareness as to the potential impact the story might have. Such is the case here in Florida with our most recent twist in the winding tale of workers’ compensation reform.
My company has used the services of a Professional Employer Organization (PEO) for much of its 17-year existence. However, due to growth and multi-state employment needs, we are in the process of extricating ourselves from that relationship and taking payroll, benefits and HR administration in house. One of the functions involved with that includes securing a direct workers’ compensation insurance policy for our company.
Now, workers’ compensation in Florida has become anything but a mundane topic. The news stories of recent months have told us of court decisions that have stripped key sections of the comp code over issues of constitutionality. The two primary cases that have driven the storyline are Westphal and Castellanos. Westphal stripped a 104 week cap on temporary benefits. In reality, that decision will only affect a very small percentage of claims in the state. Castellanos, on the other hand, is having much broader impact on employers and the comp industry. It found that income caps on injured workers’ attorneys created an imbalanced level of representation; an imbalance that led to those limits being declared unconstitutional.
To make a long story short, there is now a huge unfunded liability for attorney’s fees potentially due from any cases still open from much of this past decade. Some estimates are that employers and carriers will shell out as much as two billion dollars for past cases alone. An expected surge in litigation for new and future cases resulted in a recommended and approved rate increase of 14.5% effective December 1st. That is where the news of the day potentially impacts my firm.
Wednesday afternoon my agent sent me a quote for coverage effective January 1, 2017. The quote of course included the approved rate increase that would be effective at that time. Just two hours later, a Circuit Court Judge in Tallahassee blocked the approved rate increase, declaring that NCCI, which had generated recommendations for the state, violated state Sunshine Laws by not conducting their analysis in open and public meetings.
This is going to be a mess. Litigation is already starting to increase in Florida. According to Deputy Chief Judge David Langham, Petition filings rose 12% in 2016 (ended June 30, 2016), and thus far in 2017 (beginning July 1) the petition volume is up an average of 6%.
Ironically, while everybody and their brother knows that an increase in lawyer fees WILL drive litigation and cost upwards in Florida, it was a lawsuit brought by a plaintiff’s attorney, acting as an employer, that brought a screeching halt to the rate increase. If that group is looking to avoid their share of blame and divert attention for the increasing costs, that strategy is not going to work.
However, there is plenty of blame to go around.
As I’ve said previously, these court decisions “were largely the result of some really shortsighted legislative decisions, which were largely the result of greedy actions on the part of a select few who exploited the system for their own selfish gain, which was largely the result of some people screwing around with claims that should have just been paid to begin with.” There is little doubt that abuse existed in pre-Florida reforms. Attorneys at that time were entitled for fee awards any time they brought action that “benefited” their client. Stories abound of cases where technically benefit was brought, but it was in no way substantial. There was the case where an attorney gained an increase in weekly indemnity of 10 cents for their client, and received a $16,000 fee for the filing. Yet another (that one of my employees witnessed), where an attorney had claimed underpayment for the injured worker, and received a decision for their client awarding him $5. The injured worker told his attorney he paid the babysitter $15 to be there that day. The story does have a happy ending, as the attorney got $2500 for his efforts.
There is little doubt that the reforms, starting back in 2004, had their intended effect. Injured worker attorney fees, which were $215 million in 2003-04, fell to $136 million in 2014-15. However, the ratio of legal fees between plaintiffs and defense attorneys was an indicator of future problems. In 2003-04, Florida attorney fees were near parity, with 48.73% going to plaintiffs’ attorneys and 51.27% going to defense counsel. By 2014-15, however, that ratio had shifted dramatically, with 36.73% and 63.27% respectively (Source: Judge Langham’s Blog). There was indeed a representation imbalance created, and that caused a lot of problems here for some injured workers, particularly those with very temporary lost time and lower value cases.
The real problem here in Florida was that our legislature took a very broad brush to stop a few bad actors, and ended up painting everybody into a corner.
So now, attorneys who will be the most immediate financial beneficiary of the newly restored previous standards, have played a role in blocking the increase many know is needed to finance the reversal. Left unresolved, this portends big problems for the state. Carriers, facing certain cost increases but prevented from preparing for them may simply choose to stop issuing new policies. Longer term some could leave the state. At a very minimum, those employers with a less than stellar experience level are most certainly facing the chopping block for their coverage.
As for my company, we’ve had one workers’ comp claim in 17 years. Our current loss run over that time shows zero dollars. We are in pretty good shape, but I do find myself wondering what our agent will be telling me when we chat later today. In the movie O’Brother Where Art Thou, when the boys find themselves surrounded by the law and trapped in the loft of a barn with no apparent way out, Everitt, played by George Clooney, kept repeating the obvious by saying, “Oh, we’re in one heckuva tight spot”.
I know how they felt. Let’s hope that someone comes along to re-write a sensible ending to this scene.