pendulum  blog

The Pendulum is Swinging

Workers’ Compensation in Florida is facing considerable uncertainty as a result of three recent high court rulings. Here is a summary of how the pendulum is swinging in favor of claimants in those decisions and what we can expect as a resulting impact.

Castellanos v. Next Door Company.  540 days after the opening arguments, the Florida Supreme Court ruled on April 28, 2016 that the mandatory attorney fee schedule that had been in the Florida Statute since 2003 was deemed to be unconstitutional on a state and federal level.  In a nutshell, Castellanos was represented by an attorney in securing $822 in workers’ compensation benefits, with the attorney subsequently earning $164.54 as directed by the fee schedule (coming to $1.53 per hour).  The claimant’s attorney considered this unreasonable and sought approval of a fee based on 107.2 hours at $350 per hour.  The Florida Supreme Court determined that such a statutory limitation is a constitutional violation of due process.  Attorney fees can now deviate from the schedule if the claimant attorney can show the set fee is unreasonable under the Lee Engineering factors (the standard that was in place in 2003).

What does this mean?  We can expect an increase in the number and value of litigated claims, along with an increase in defense costs to maintain employer/carrier positions.  In fact, a number of increased attorney fee decisions have already been made since the Castellanos ruling.  Insurance carriers with a large number of open litigated claims will increase reserves, including retroactive exposure on previously closed claims.  Reserve changes will increase experience modification factors and more than likely bring future rate increases.  The NCCI has proposed a 17.1% rate increase for all policyholders effective August 1st to cover the projected impact of this exposure (the Florida Office of Insurance Regulation will decide on this in July 2016). The Florida legislature may try to intervene by modifying the statute.

Westphal v. City of St. Petersburg.   Within weeks of the Castellanos decision, the pendulum continued to swing as the Florida Supreme Court ruled on June 9, 2016 regarding the Westphal case.  This decision also challenged the constitutionality of the Florida workers’ compensation statute that limited temporary total disability (TTD) benefits to 104 weeks.  The result was revival of the pre-1994 statute that provided for a limitation of 260 weeks of TTD benefits, taking claimants from two years to potentially five years of eligibility for benefits.  The Court did not reference temporary partial disability benefits.

What does this mean?  This will affect any and all claims with dates of accident since 1/1/1994 that have not been settled or the statute of limitations has not expired. Therefore, cases where TTD benefits were suspended at 104 weeks and the claimant was not at maximum medical improvement may now be retroactively eligible for TTD benefits at a maximum of 260 weeks.  The proposed 17.1% rate increase did not contemplate this exposure.

Miles v. City of Edgewater Police Dept. In another decision by the First District Court of Appeal just prior to the Supreme Court ruling on Castellanos, constitutionality of the workers’ compensation law was questioned.  It was determined that the current Florida Statute which prohibited a claimant from hiring an attorney violated the claimant’s 1st Amendment “right to free speech, free association, petition and right to form contracts.” The statute had made it a crime for an attorney to accept a fee that was not approved by a Judge of Compensation Claims (JCC), and a JCC could not approve a fee that is not tied to the amount of benefits secured. The District Court stated a claimant should be able to waive a limitation on claimant attorney’s fees and agree to pay their attorney with their own (or someone else’s) funds, subject to a JCC’s finding that the fee is reasonable.

What does this mean?  While this originally provided a way around the fee schedule, the subsequent Castellanos decision may minimize the impact of this ruling.  However, some believe this could further increase litigation and settlement costs.  Claimants may end up netting less than the total amount they would have otherwise received in settlements. Claimant attorneys will file Retainer Agreements or Contract of Representation which is between the claimant and their attorney, taking it outside of the attorney fee schedule.

The pendulum has obviously swung in a way that will increase cost to employers.  Claim advocacy is critical to control cost in this uncertain environment.  To successfully navigate these times, employers must either have an internal claims manager to monitor the process, or outsource to an experienced claims advocate who can offer expert guidance and bring meaningful solutions in reducing the frequency and severity of claims.  The Lykes Insurance Claim Mitigation Solutions division partners with our clients to serve this purpose.