The legal and regulatory framework surrounding workers’ compensation is continuously tested as employees seek to have employment-related injuries or illnesses covered under state workers’ compensation statutes. Alabama and Florida in particular have recently seen court challenges that could have a significant impact on expected future loss costs.
Two cases decided in 2016 by the Florida Supreme Court infused additional uncertainty into determining the future costs of providing workers’ compensation benefits in Florida.
Castallenos v. Next Door Company
In the Castallenos case, the Florida Supreme Court ruled that Florida’s statutory sliding scale limitation on attorney’s fees was unconstitutional. In effect, the cap on attorney’s fees was eliminated by this decision. Attorneys representing injured employees may now charge “reasonable fees,” some of which may be paid by insurers if the claim, or a material aspect thereof, is contested and subsequently determined to be compensable.
Westphal v. City of St. Petersburg
In the Westphal case, the Florida Supreme Court ruled that Florida’s 104-week limitation in statutory benefits for Temporary Total Benefits was unconstitutional and reverted to their 260-week limitation. It remains to be seen whether or not the 260-week limitation is sufficient to withstand future challenges.
Based on the impact of these two cases, the National Council on Compensation Insurance, Inc. (NCCI) projected the associated increase for Florida’s workers’ compensation rates to be 19.6%. Ultimately, a 14.5% rate increase was approved by the Florida Office of Insurance Regulation. Absent further legislation, we are anticipating additional rate increases when the NCCI determines appropriate Florida rates at the end of the year.
In neighboring Alabama, a more recent case was decided by the Circuit Court of Jefferson County on May 8, 2017, with similar findings as to the unconstitutionality of particular statutes contained in Alabama’s Workers’ Compensation Act.
Nora Clower v. CVS Caremark Corp.
In this case, the Court found that capping Permanent Partial Disability (PPD) benefits at $220 per week was unconstitutional on the basis of the Equal Protection of clause of the U.S. Constitution.
Further in this case, the Court ruled that capping attorney fees at 15% of the amount awarded or paid was unconstitutional based on due process and separation of powers as framed in the Alabama Constitution.
Because the Alabama Workers’ Compensation Act does not contain a severability clause, which would simply allow the unconstitutional statutes to be voided, the entire Act is at risk of being declared unconstitutional. The Court provided for a 120-day stay to allow the legislature time to adjust the Act, as the judge recognized the magnitude of this ruling.
These precedent-setting cases have attracted a lot of attention and we believe the plaintiffs’ bar is actively searching for opportune cases to try in other states. These rulings reinforce the need for insurers, TPA’s, and employers to be ever vigilant in their claim interactions and pay the required statutory workers’ compensation benefits owed quickly and efficiently. Allowing the courts to weigh in on compensability and benefit amounts appears to have become a risky strategy for employers and the insurance industry.
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