A Nationwide Network of Law Firms Practicing in Workers' Compensation

MARK W. HAMBERGER DAVID L. SNYDER

RONALD E. WEISS F. DANIEL BOWERS

DAVID F. DAVIS MARK C. SOMERS

SUSAN R. DUFFY RENEE E. HEITGER

BARBARA J. PLECKAN RUSSELL D. HALL

PETER M. KAPLAN MARY KAY LAFORCE

GREGORY A. SAXUM

SPECIAL COUNSEL

HAMBERGER & WEISS

ATTORNEYS AT LAW

ONE SOUTH WASHINGTON STREET

SUITE 500

ROCHESTER, NEW YORK 14614

Tel. 585-262-6390 Fax 585-262-6399

www.hambergerandweiss.com

E-Mail: rochester@hwcomp.com

Writer's Ext.: 234

Writer=s E-Mail: rweiss@hwcomp.com

JANICE M. ATWOOD S. PHILIP UNWIN

PRUDENCE F. PHILBIN JOSEPH P. DECOURSEY

NICOLE CHRISTOU KEVIN R. DOERING

RICHARD L. HOLSTEIN KRISTIN M. MACHELOR

KAREN M. DARLING CORY L. LOUDENSLAGER

JOSHUA S. ROBERTS MEREDITH A. VACCA

COLLEEN L. WILLIS TIMOTHY R. HEDGES

KIM M. BREWER JOHN A. TERZULLI

MELANIE M. WOJCIK JOHN M. CORDON, JR.

VAN M. THAI KERRY M. MORRISS

JOHN M. COYLE KIMBERLY A. JETTY

RODNEY D. BUTLER JULIA E. ROBERTS

THE 2007 WORKERS= COMPENSATION BENEFIT INCREASE & REFORM BILL

This white paper attempts to analyze provisions of the 2007 Workers' Compensation Benefit Increase & Reform Bill that affect handling of Workers' Compensation claims. This legislation was announced by the Governor, legislative leaders and the Business Council and AFL-CIO on February 27, 2007 as a landmark accord designed to increase benefits to claimants and make reforms saving employers 10-15% of premium costs. The Act was passed by the Senate and Assembly on March 6, 2007 and signed into law by Governor Spitzer on March 13, 2007. It is effective immediately unless otherwise indicated.

Benefit Rates

(Applicable to accidents on or after 7/1/07)

Maximum weekly indemnity benefits levels are raised from $400.00 for new accidents as follows:

$ $500.00 for accidents or deaths on and after 7/1/07

$ $550.00 for accidents or deaths on and after 7/1/08

$ $600.00 for accidents or deaths on and after 7/1/09

$ Two-thirds of the New York State average weekly wage for accidents or deaths on and after 7/1/10, reindexed to the State average weekly wage annually on 7/1 thereafter

The minimum weekly rate is raised from $40.00 to $100.00 for accidents on and after 7/1/07. If the claimant=s wages are less than $100.00 per week, claimant will receive his or her full wages.

Caps on Permanent Partial Disability Indemnity Benefits

(Applicable to accidents on or after 3/13/07)

Compensation for claimants classified with permanent partial disabilities is to continue to be two-thirds of the difference between the average weekly wage and the claimant=s wage earning capacity. For accidents and dates of disablement on and after the legislation=s effective date (3/13/07), weekly benefits for permanent partial disabilities are capped based on percentage loss of wage earning capacity according to the following schedule:

% Loss of Wage Earning Capacity

Maximum Benefit Weeks

Number of Years

1% - 15%

225

4.33

16% - 30%

250

4.81

31% - 40%

275

5.29

41% - 50%

300

5.77

51% - 60%

350

6.23

61% - 70%

375

7.21

71% - 75%

400

7.69

76% - 80%

425

8.17

81% - 85%

450

8.65

86% - 90%

475

9.13

91% - 95%

500

9.62

96% - 99%

525

10.10

COMMENTS: The caps on indemnity benefits for PPD apply only to cases with dates of accident or disablement on or after 3/13/07. Since in practice claims are not stable for classification until two or more years after the date of injury, this means that any savings to employers or carriers that may be realized from the caps will not accrue until some years from now. Employers and carriers will presumably be able to take down reserves on some new cases expected to classify. In the meantime, some provisions of the new statute, especially the mandatory ATF payment discussed below, may add greatly to carrier costs.

The capping of permanent partial disability benefits will inspire more claims for permanent total disability on which compensation is for life. On the same date that he signed the legislation, Governor Spitzer sent a letter to the WCB Chair, Superintendent of Insurance and Commissioner of Labor to direct that task forces be established, including one to design and implement medical guidelines by 12/1/07. It is hoped that these new medical guidelines will make the determination of permanent total versus partial disability as objective as possible. Nevertheless, litigation on the issue of PPD v. PTD will probably increase and lead to negotiation by the parties and perhaps more '32 settlements on this issue.

A significant concern also exists with regard to the other end of the scale as to what will qualify a claimant to be classified as a permanent partial disability at the lowest threshold. A mere 1% permanent loss of wage earning capacity will be sufficient to entitle a claimant to a permanent partial disability classification and benefits after classification up to 225 weeks.

Note that the caps apply only to accidents or deaths occurring on or after the effective date of the Act, 3/13/07. They do not apply to cases with dates of accident prior to 3/13/07 regardless of the date of classification.

The combination of caps, rate increases, and the ATF payment described below make determination of the date of accident or disablement much more significant than in the past. Assessment of rates, likelihood of classification and return to work among other factors will figure into your litigation strategy. The dilemma can be illustrated by the following example.

EXAMPLE: The claimant files an occupational disease claim in July 2007. On 3/1/07, he first sees his doctor and is diagnosed with the disease. On 5/1/07, he sees his doctor again and the doctor renders an opinion that his disease is causally related to his work. On 7/1/07, the claimant begins to lose time from work due to the disease. Assume the claimant's average weekly wage is $750.00. Assume also the claimant remains out of work and is eventually classified with a permanent partial disability. Assume also that the employer is insured by a private carrier. The carrier's liability will vary greatly depending on which of the above three dates is chosen by the Board to be the date of disablement.

(1) If the date of disablement is 7/1/07, the claimant will be entitled to a $500.00 maximum rate. PPD benefits will be capped, and if the claimant is out of work at the time of classification the present value of those capped benefits will have to be paid into the ATF.

(2) If the date of disablement is 5/1/07, the maximum rate will be $400.00. PPD benefits will be capped and if the claimant is out of work at the time of classification the present value of the capped benefits will have to be paid into ATF.

(3) If the date of disablement is 3/1/07, the maximum rate would be $400.00. PPD benefits will not be capped, and if the claimant were out of work at the time of classification, the present value of PPD benefits over the claimant's lifetime, without cap, would have to be paid into the ATF. One can see here that potentially the worst result for the carrier would be a 3/1/07 date of disablement even though it may entail paying the claimant $100.00 per week less in benefits at the outset.

1. The maximum benefit period cap is calculated from the date the claimant is classified as being permanently partially disabled.

COMMENTS: This means that for a claimant who is classified with a 10% loss of wage earning capacity and has received two years of indemnity benefits before classification, an additional 4.33 years of benefits (for a total of 6.33 years) may be paid. For some levels of disability, the cap may exceed the level at which cases are currently settled under WCL '32 and will be at higher benefit rates. Claimants= attorneys may try to delay classification to maximize benefits.

Self-insured employers and the State Insurance Fund will always want to accelerate classification. Private insurance carriers will have a dilemma. An early PPD finding will start the clock on the cap but trigger an ATF payment, absent a '32 settlement (see below).

2. Percentage losses of wage earning capacity are not defined in the statute.

COMMENTS: The Workers' Compensation Law has always stated that permanent partial disability indemnity rates are to be based on loss of wage earning capacity. In practice, however, rates have been set based on medical opinions regarding degree of disability expressed in accordance with the Board=s Medical Guidelines. These guidelines evaluate disability as mild, moderate and marked with percentages of 25%, 33-1/3%, 50%, 66-2/3% and 75%; not in 15%, 10% and 5% increments for loss of wage earning capacity, as in the new statute.

Unlike the cap legislation proposed in 1996, which incorporated the AMA Medical Guidelines, the new statute makes no mention of AMA or any other guidelines for determining degree of disability. The task force directed by the Governor to design new medical guidelines is to have them finalized by 12/1/07. It is hoped that these guidelines will be based upon objective medical criteria only. Whether the caps serve to pay out more or less to permanent partially disabled claimants than the present system will depend in large part on how the percentage loss of earning capacity is determined.

The Law Judge is charged with deciding percentage loss of wage earning capacity. Even with objective medical guidelines, therefore, the determination of percentage loss is bound to be somewhat subjective and may lead to much more negotiation or litigation than under the old system.

3. How the maximum permanent partial benefit cap is to be paid out is not defined in the statute.

Question 1: At what weekly rate is a claimant found to have a particular percentage loss of wage earning capacity to be paid? In the past, if the claimant had a $600.00 AWW and was found to have a moderate (50%) permanent partial disability, benefits for lost time after classification would be at $200.00 per week (50% of the $400.00 rate). Under the new statute, assume that a claimant, with a date of accident between 3/13/07 and 6/30/07, is classified with a 15% loss of earning capacity, which would cap entitlement to benefits for permanent partial disability at 225 weeks. Would lost time benefits for that schedule be paid at $60.00 per week ($400.00 x 15%), or at the full $400.00 rate? (Note that if the accident occurred on or after 7/1/07 the $100.00 minimum rate would apply). This remains an open question.

We would argue that nothing in the law has changed the way in which the weekly partial disability benefit is calculated; it is based on loss of wage earning capacity so that the rate in this example should be $60.00 per week. If the answer in this example were that benefits would be paid at $400.00 per week, the new capped system could very well result in payment of higher weekly benefits to permanently partially disabled claimants than under the current system.

Question 2: Do all defenses to permanent partial disability benefits remain? In the past, a claimant needed to be out of work or at least have reduced earnings to collect permanent partial disability benefits after classification. We assume that this remains the case. We also assume that the defense of voluntary labor market withdrawal would remain available to employers and some carriers (about which we will say more below) paying permanent partial disability benefits.

Question 3: How is the maximum permanent partial benefit (cap) measured? We know that the cap applies beginning with the date of classification for accident dates on or after 3/13/07. In the case of an individual with a 15% loss of earning capacity, the maximum benefit would be 225 calendar weeks. Does this maximum benefit period expire 225 weeks after the date the claimant is classified? Or if the claimant is working during some of the first 225 weeks (4.33 years) after the classification, would the claimant be able to receive the remainder, if any, of the 225 weeks of benefits if any of those weeks fell beyond 4.33 calendar years after the classification date? This could be a particular problem in cases involving claimants who are working at the time of classification, but years later retire and successfully claim that their permanent partial disability contributed to the retirement. Will such individuals be entitled to have the full benefit cap to commence as of the retirement, years after classification? If so, and the retirement was more than seven years after the date of accident and three years after the last payment of compensation, will the Stale Claim Fund under '25-a become liable for the indemnity?

4. Medical benefits continue after completion of the indemnity cap, but carriers and employers may apply to suspend or discontinue medical services. Law Judge decisions stopping treatment will be subject to independent review by an outside agent chosen by the Board.

COMMENTS: Caps on PPD benefits present the opportunity to transfer liability for medical benefits to the Stale Claim Fund under WCL '25-a three years from the last indemnity payment in cases that may have otherwise entailed lifelong medical coverage.

5. Safety Net provisions are created as a new WCL '35 for PPD claimants who are Acapped out@.

A. A return to work task force under the Commissioner of Labor is to report findings and recommendations by 12/1/07.

B. The claimant=s right to apply at any time for total industrial disability under current case law is incorporated into the statute.

C. Extreme hardship. Claimants with greater than 80% loss of wage earning capacity may apply within a year prior to scheduled expiration of indemnity benefits for PTD or TID reclassification due to factors (undefined) reflecting extreme hardship.

COMMENT: Expect claimants to push for classifications of greater than 80% to be afforded this considerable safety net. Employers and carriers will want to work to avoid classifications above this level. What constitutes extreme hardship meriting reclassification will need a great deal of refinement.

D. Annual Safety Net Reporting. The Commissioner of Labor is to report annually starting 12/1/08 regarding the number of permanent partial disability claimants who (i) have returned to work; (ii) have been re-categorized as totally industrially disabled; (iii) continue to receive benefits; and (iv) have not returned to work but whose indemnity benefits have expired. The Commissioner is also to report on steps necessary to minimize the number of workers who have not returned to work or have been re-categorized from permanent partial disability.

The ATF Surprise

(Applicable 7/1/07)

WCL '27(2) was amended to provide:

[I]f any such award made on or after July first, two-thousand seven requires payment for permanent partial disability under paragraph w or subdivision three of section fifteen of this article by an insurance carrier which is a stock corporation or mutual association...

a mandatory payment of the present value of the award must be made into the Aggregate Trust Fund (ATF).

ALERT: This provision, sought by some in Labor, impacts the way in which PPD indemnity benefits are to be paid by private insurance carriers for cases classified as PPD on and after 7/1/07. It does not apply to self-insured employers or the State Insurance Fund. Although the amendment does not apply to any classifications prior to 7/1/07, it does apply regardless of accident or disablement date. Benefits awarded for classifications made between 3/13/07 and 7/1/07 would not require a payment into ATF by private carriers. Any classification made on or after 7/1/07 on a case covered by a private carrier on which the claimant is out of work at the time of classification will require the carrier to pay the present value of the benefits to ATF immediately after classification. This may lead to some startlingly large payments into ATF.

EXAMPLE 1: A claimant with a 4/1/07 accident is out of work and classified after 7/1/07 with a capped PPD at 75% loss of earning capacity at $400.00 per week. The claimant could receive capped payments for 400 weeks (7.69 years) totaling $160,000.00. It is approximately $140,000.00 that would be payable to ATF as the present value immediately after classification.

EXAMPLE 2: A claimant with a 7/1/07 accident is classified after 7/1/07 with a capped PPD 75% loss of wage earning capacity at $500.00 per week. The claimant would receive capped payments for 400 weeks (7.69 years) totaling $200,000.00. A present value of at least $160,000.00 would be payable to ATF.

EXAMPLE 3: If a claimant with a pre-3/13/07 date of accident is out of work and classified on or after 7/1/07, the present value of his classification award payable to ATF would be based on his weekly rate over his life expectancy. Assume claimant is a 50-year-old male with a 28.5 year life expectancy and a $400.00 per week classification rate. The estimated benefit payout would be $592,800.00 [$400.00 x 1482 weeks (28.5 years)], present valued at approximately $300,000.00.

SPECIAL ALERT: Because the ATF payment is required of private carriers, and only for classifications on or after 7/1/07, carriers will want to try to have claims ripe for permanency assessment classified before 7/1/07. On the other hand, expect claimants= attorneys to attempt to delay such classifications on private carrier cases until on or after 7/1/07.

1. The prospect of mandatory payment into ATF will serve as a disincentive to claimants insured by private carriers from returning to work before classification. Attorneys for such claimants can be expected to demand, and carriers will want to consider, entering into '32 settlements below the present value payment carriers would have to make into ATF.

2. On cases headed for classification on or after 7/1/07, carriers and employers will want to investigate, raise and litigate the issue of voluntary labor market withdrawal now. A finding of voluntary labor market withdrawal, which would result in no compensation being awarded to the claimant at the time of actual classification, could result in no payment into ATF, as opposed to the prospect of a payment of hundreds of thousands of dollars. Carriers and employers should be sending out benefit affidavits, making bona fide offers of light duty work,

and conducting surveillances on such cases now in an effort to develop a voluntary labor market withdrawal defense that can be raised before classification.

3. Claimants= attorneys may contend that the amendment applies to any Aaward@ to a PPD claimant made on or after 7/1/07, i.e. bringing the weekly award to date even if the claimant was classified before that date. We believe this interpretation would be in error, as the term Aaward@ in WCL '27 means the first award upon the classification in cases of permanent total disability or the finding of entitlement to death benefits, but it is possible the statute could be interpreted otherwise. If the interpretation that the ATF payment is required any time a monetary award for a permanent partial disability is made, even if it is on a previously classified case, the effect on carriers could be cataclysmic. Claimants= attorneys could seek a reopening of all existing permanent partial disability cases simply to have weekly awards brought to date to force substantial '32 settlements from carriers who would otherwise face mandatory ATF payments.

4. Even after payment into the ATF, the carrier retains liability for medical. This legislation provides an inducement for carriers prior to an ATF contribution to enter into '32 settlements for indemnity only, to position themselves to transfer medical liability to the '25-a Fund.

5. No payment into ATF is required if a '15-8 has been established, or if a '15-8 claim or third party action is pending. Within the new limitations on filing of '15-8 claims described below, insurance carriers should expedite '15-8 filings on any cases with pre-7/1/07 dates of accident that may be headed for an ATF payment.

6. Other items that can forestall an ATF payment include showing that the claimant=s medical status is unstable and not ready for classification, or that entitlement to compensation because of fraud under WCL '114-a is in issue. Carriers will need to engage IMEs and investigators on these issues.

7. Carriers may face multiple payments into ATF. If after the carrier has paid the present value of a PPD classification into ATF, the claimant is reclassified as PTD or TID, a second ATF payment would be required from the carrier immediately following the PTD or TID classification.