Florida Awaiting Final Workers’ Comp Rate Decision

September 20, 2016 by

The rate impact of recent Florida Supreme Court rulings on the state’s workers’ compensation system is currently in the hands of regulators, as the Office of Insurance Regulation (OIR) decides on the National Council on Compensation Insurance’s (NCCI) filing seeking a 20 percent rate increase.

The fallout is just beginning from the Castellanos v. Next Door Company, 192 So.3d 431 (Fla., April 28, 2016) and Bradley Westphal v. City of Petersburg, 194 So.3d 311 (Fla., June 9, 2016) rulings, and it won’t end with higher rates. The decisions are also expected to increase the amount of litigated claims in the state, as negotiated fee agreements between claimants and attorneys are now permissible, and a claimant’s attorney is no longer prohibited from receiving compensation beyond the state’s statutory fee schedule.

The June 9 Westphal ruling also extends the limitation on temporary total disability benefits available to an injured worker from two to five years before permanent disability benefits may be pursued. This change is expected to increase the value of open indemnity claims involving substantial injuries, as well as re-open claims that were previously closed.

In response to these court decisions, NCCI filed a proposed rate increase of 19.6 percent for all new and renewal workers’ compensation policies with an effective date of Oct. 1, 2016 or later. The filing also requested that increases apply to all existing policies on a pro-rata basis for the remainder of each policy term.

On Aug. 16, 2016, OIR conducted a hearing to consider the rate filing made by NCCI.

“We are here today because the law says that rates cannot be inadequate,” said Lori Lovgren, executive director for State Relations for NCCI. “Because of the significance of these three law changes together, we felt that we needed to come in with an off-cycle filing with a proposed effective date of 10/1.”

During the hearing, individuals on behalf of NCCI cited the Castellanos and Westphal decisions as the two cases impacting rates. The organization argued that these decisions will significantly increase the costs of workers’ compensation claims because higher attorney fees will be awarded and the availability of these fees will drive litigation, with respect to both the amount of claims litigated and the length of the litigation.

Castellanos will have the biggest impact on rates, with NCCI’s filing saying this case accounted for 15 percent of the increase.

In this case, the Florida Supreme Court found that Section 440.34, relating to the mandatory fee schedule for a claimant’s attorney, was unconstitutional as a denial of due process under the Florida and U.S. Constitutions. In so holding, the Court revived the statute’s immediate predecessor, thereby bringing the consideration of reasonableness into the determination of fee adequacy. The Court noted that the fee schedule “remains the starting point,” and only where a claimant can demonstrate that the fee schedule results in an unreasonable fee will the claimant’s attorney be entitled to a fee that deviates from the fee schedule.

However, representatives from NCCI cited specific examples of cases decided after Castellanos where attorneys were awarded an hourly rate even though the application of the fee schedule rate would not have been unreasonable given the value of the benefits awarded.

Lovgren noted that the Castellanos ruling takes Florida back to its pre-workers’ comp reform days, referencing the state’s 2003 overhaul of its workers’ comp system.

“Before [the 2003 reforms] claims took longer to close, the average cost of a claim was higher, and return to work took longer,” she said.

In the second case, Bradley Westphal, a former City of St. Petersburg firefighter and paramedic sustained injuries to his legs in a workplace accident. The injuries required several back surgeries which left the employee unable to return to work.

Under Section 440.15(2)(a), the employee was eligible for 104 weeks of temporary benefits, a time period designed to compensate workers while they heal and then return to work or reach their maximum medical improvement (MMI) status and become eligible for permanent benefits. However, in the Westphal case, the employee exhausted his temporary benefits but had not yet reached MMI and therefore, his physicians could not determine his long term recovery prospects so he was denied permanent benefits.

The Court held that the 104 week limitation on temporary total disability benefits results in a coverage gap in benefits that was a violation of the constitutional right of access to the court. Utilizing the concept of revival, the Court directed that the limitation of temporary total disability benefits be restored to the 1994 version of the statute, which provided for 260 weeks of temporary benefits.

NCCI says Westphal will account for 2.2 percent of the increase. The remaining percentage of 1.8 percent is attributed to a medical fee change from Senate Bill 1402.

In addition to the increased costs of future claims, the NCCI discussed the unfunded liability presented by these court decisions and estimated that it could exceed $1 billion dollars. The NCCI noted that the decisions have a retroactive impact on claims occurring prior to the effective date of any rate increase that remain open or are re-opened.

However, the premiums collected on the expired or expiring policies will not be reflective of the additional costs and exposure resulting from the recent court decisions. As such, these unanticipated costs will be borne by insurance companies, self-insured employers and those employers with deductible policies for years to come. NCCI emphasized that if the filing effective date is delayed or the current amount is not applied to the number of outstanding policies currently in force, the $1 billion figure will increase.

Lovgren said even though the proposed 19.6 percent rate increase is high, if the filing is approved Florida’s workers’ comp rates will still be lower than they have been in the past.

“Since [the workers comp] reform there have been 17 rate filings – 12 of those 17 rate filings were for decreases,” she said. “These rates are 60 percent lower than what they were prior to 2003 reforms.”

No deadline has been set for a decision from the Florida Office of Insurance Regulation on the proposed rate increase. Public comments were accepted until Aug. 23.

Insurance Journal Southeast Editor Amy O’Connor contributed to this story.

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