Little Explanation for Large Increase in SIF Costs

Published 12/7/17 on WorkCompCentral, by Greg Jones

California employers will pay more in assessments for subsequent injury claims next year than they have in each of the three years combined, and the reason why isn’t exactly clear.

Applicant’s attorneys say they haven’t seen notable increases in claims against the fund, which was created to encourage employers to hire workers with pre-existing disabilities by picking up part of the costs of any subsequent claims. Defense attorneys don’t work much on subsequent injury claims because their clients have no direct liability for that portion of a claim.

A Department of Industrial Relations spokesman said the wildfires in Southern California prevented him from answering questions on Wednesday regarding the $50.4 million increase in next year’s assessment for the Subsequent Injuries Benefit Trust Fund.

Overall, the 2018 assessment is increasing by $182.1 million to $506.8 million, from $324.7 million. A major driver is a $106.4 million increase in the surcharge for the Workers’ Compensation Administrative Revolving Fund, which the Department of Industrial Relations said is largely a result of increased payments from the $120 million supplemental benefit program created by Senate Bill 863, and less revenue from lien fees as the volume of new filings has dropped off.

The next-largest driver of the assessment increase is the charge for the subsequent injury fund. The 2018 assessment of $87.1 million is more than double the $36.6 million assessment from 2017 and $33.1 million assessment in 2016, and six times greater than the $14 million assessment in 2015. Next year’s surcharge is nearly four times the average of $22.7 million that employers paid from 2009 through 2017.

Little data is readily available on the number and cost of claims filed against the subsequent injury fund, apparently because the Legislature in 2012 decided it wasn’t worth tracking.

In the fiscal year ending in 2010, the fund paid $18.6 million on 2,086 subsequent injury claims, according to the last report  he Division of Workers’ Compensation prepared for lawmakers.

In 2012, the Legislature passed Senate Bill 71 repealing the section of the Labor Code directing the DWC to deliver an annual report detailing the number of subsequent injury claims paid in the previous fiscal year, the cost of the claims, levels of reserves on incurred claims, associated administrative costs and projected costs for the upcoming fiscal year.

Gov. Jerry Brown’s administration in 2011 submitted a list of 375 reports that could be eliminated or modified, according to an analysis of the bill presented to the Senate in August 2012. The second injury fund data was not included among the 100 reports that an Assembly Accountably Administrative Review Committee and an Assembly budget subcommittee determined were necessary to ensure the public continued to receive “information necessary for proper review and oversight,” the analysis says.

Jason Marcus, a partner at the Law Offices of Marcus, Regalado & Marcus in Sacramento and president-elect of the California Applicants’ Attorneys Association, said he doesn’t know why the subsequent injury assessment is increasing as much as it is next year.

“I haven’t seen any appreciable change in my own practice and how those claims are being filed,” he said. “It’s kind of been the same as it’s been for a number of years.”

Applicants’ attorney Alan Gurvey, managing partner of Rowen, Gurvey & Win in Sherman Oaks, said he found the increase “rather baffling.”

“There is certainly nothing that I have seen to suggest that SIF business is booming versus in the past,” he said. "In fact, we continuously hear that attorneys find SIF somewhat burdensome and at times confusing, notwithstanding it provides valuable benefits to those seriously injured.”

Gurvey said benefit increases in recent years have created a potential for higher payouts on larger cases, but he has not personally seen any increase in the volume of subsequent injury fund claims. And he says he hasn’t noticed more court time going to claims against the fund.

The Subsequent Injuries Benefit Trust Fund pays a portion of the permanent disability benefits owed to those with a permanent partial disability who suffer a second injury that, when combined with the effects of the pre-existing condition, has a PD rating of at least 70%. The program was created to encourage employers to hire people with a disability by covering the portion of the compensation not directly attributable to the last on-the-job injury.

Although practitioners on the front lines aren’t seeing any change in subsequent injury cases at the Workers’ Compensation Appeals Board, a recent decision by a California appellate court could explain why the DIR needs more money for the account this year.

The 6th District Court of Appeal in July ruled that the DIR, which administers the Subsequent Injuries Benefit Trust Fund, must start paying benefits to qualifying workers at the same time that the employer starts paying permanent disability benefits.

In so ruling, the appellate court affirmed a Workers’ Compensation Appeals Board case and rejected the department’s argument that benefits from the Subsequent Injury Fund “always commenced on the date when the injured worker reached maximum medical improvement and was declared permanent and stationary.”

Established practices may inform a court’s interpretation, but “does not in itself provide a compelling reason to continue the practice,” the 6th DCA said in Baker v. WCAB (Guerrero). That is particularly true when the Legislature has changed the law governing the timing of benefit payments, as it did in 2004, according to the court’s decision.

Before the reforms of the early 2000s created the 104-week cap on temporary disability benefits, TD was paid until a person returned to work or the injury was deemed permanent and stationary. To avoid a gap in payments to those not declared permanent and stationary after 104 weeks, lawmakers also changed the law to require permanent disability benefits to commence when temporary disability benefits stop.

The DIR argued that lawmakers did not change Labor Code Section 4751 when they revised statutes governing permanent and temporary disability benefits, and thus did not intend to change the timing of when the Subsequent Injury Fund started paying benefits.

“The fact that the Legislature chose not to amend section 4751 when it changed the time for payment of permanent disability benefits actually weakens petitioner’s argument,” the court said. “Had the Legislature intended for SIBTF benefits to be payable upon a declaration of permanent and stationary status (as petitioner urges) rather than being paid in addition to permanent disability payments from the employer (as the statute reads), it could have changed section 4751 to so provide — but it did not.”

Jake Jacobsmeyer, a founding partner of workers’ compensation defense firm Shaw, Jacobsmeyer, Crain and Claffey, said he doesn’t really handle subsequent injury fund claims, but he said he thinks the 2004 statutory change that the 6th DCA alluded to in its decision might be only part of the explanation for the higher assessment.

Another change coming from the reforms of the early 2000s resulted in “fixed permanent disability awards.” Once a court has issued its findings as to the extend of permanent disability apportionable to the work injury, that number can’t be changed. The change regarding the finality of PD awards took effect in 2004, meaning that by now applicants could be suffering a second or third injury, and the cumulative effect of the prior PD awards could push an overall disability rating above the 70% threshold needed to qualify for subsequent injury benefits.

Jacobsmeyer also said overall increases in permanent disability benefits might have made it more feasible for injured workers to pursue payments from the Subsequent Injury Fund.

And he said the Subsequent Injury Fund rarely settles cases. Its administrators prefer to pay benefits out over time. In that sense, he said the spike in the assessment may not be a one-off.

“It's probably not going to be a one-time thing,” he said. “This is probably something to catch up on it, and it may not be as bad next year, but it's certainly not going to go back to the prior levels."


DIR spokesman Peter Melton said in an email to WorkCompCentral on Wednesday that the agency was preoccupied with issues relating to the fires in Southern California, and he was not able to answer questions about the assessment increase. He said he was “hopeful” that he could provide answers today.