At the beginning of the 20th century, the “grand bargain” was enacted. That grand bargain provided:

• 

  Arthur L. Johnson

  Employers would no longer be civilly liable in tort damages for injuries to their employees.
• Rather, the employers, on a no-fault basis, would compensate injured workers through the workers’ compensation system.
• The concept was that “industry should pay for its casualties,” not the public, not the injured workers themselves — but industry should pay for its casualties.

Over the years, however, with pressure from industry and insurance carrier lobbyists, that concept of “industry should pay for its own casualties” has been whittled away. More and more costs are now transferred to the general public, to the federal Social Security system or to the injured workers themselves and to subsequent injuries funds.

The formulation of Subsequent Injuries Benefits Trust Fund protocols has been a major benefit and cost saver to industry over decades. This is because, with the SIBTF liability, industry does not pay for what it causes but pays only for what it does not cause. Some examples:

• The claimant with a missing left arm injures his right arm in a machine so that he cannot now use the right arm. So, he now basically has the loss of both arms. What does the carrier pay? Not for what it causes: The claimant goes from being a one-armed man to a no-armed man, with no useful function of the arms for work. Rather, the carrier pays as if there was no preexisting disability. And SIBTF pays for what it does not cause. For example, if the first arm injury would rate 50%, and the claimant is now 100% disabled, the insurance carrier would pay 50% even though in reality the claimant was taken from a 50% disability to a 100% disability by the subsequent industrial injury. Thus, industry does not pay for what it causes; rather, the SIBTF pays the difference between 50% that already existed and 100% that now exists. And the insurance carrier now skates, paying only for the “preexisting disability” in effect, rather than what it actually causes: the progression of the disability from 50% to 100%.
• The claimant with a back injury 20 years ago, with a settlement based on a 50% disability rating. The claimant is reinjured and now has a useless back because he has constant, severe pain radiating down both legs. The overall disability is 100%. The industrial injury took the claimant from the preexisting 50% to 100%. What does the new carrier pay? It pays 50%, as if the prior 50% did not exist. What does SIBTF pay? It pays for 100%. It pays for what the subsequent industrial injury caused: The disability that took the claimant from a 50% back disability to a 100% back disability.

These two examples show that for decades, and particularly since the apportionment changes in 2005 — changes that greatly benefitted employers — insurance carriers have used the SIBTF as an escape valve.

No wonder SIBTF costs are skyrocketing. The SIBTF is paying for what it has not caused; it pays for what the subsequent industrial injury has caused. It is paying for the subsequent industrial injury itself, and the industrial carrier is paying as if no preexisting disability existed at all. This is a fiction — a fiction that greatly benefits carriers.

This very issue was previously addressed by our Supreme Court 72 years ago. In a unanimous decision in SIBTF v. State of California (Patterson) — with the example of a one-eyed man becoming industrially blind — the court found it reasonable to impose the cost of total blindness on the SIBTF rather than the employer causing that total blindness. This, to encourage employers to “employ the handicapped.”

Now, 72 years later, as a Rand study itself points out, that reasoning is outmoded based on the many other benefits systems encouraging (and requiring) employers to hire the handicapped. But what about those who cannot be hired, those who are totally disabled? It is those workers who are most in need of SIBTF benefits. It is those workers whose benefit this administration-sponsored study seeks to take away, those totally disabled from a combination of industrial and preexisting disabilities — those most in need of those SIBTF benefits.

The SIBTF gift

If the underlying increase in SIBTF costs is being analyzed, the root causes of that underlying cost increase should be looked at. This study is a superficial analysis strictly looking at SIBTF costs, but it does not look at what is the root cause of the increased SIBTF liability based on an underlying gift to employers: The gift of SIBTF.

The gift is that SIBTF actually pays for the cost of the subsequent industrial injury, as the fund now pays the increase from what was the preexisting disability to what is the overall disability. In actuality, the root cause of the increase in overall disability is, in fact, the subsequent industrial injury.

To control the SIBTF costs, a paradigm shift should be made in the compensation system as follows:

• Industry should pay for its casualties. Industry should pay for the increase in disability from the preexisting to the combination of the overall disability: preexisting and subsequent industrial injury combined.
• With that change in costs, the SIBTF costs would plummet, as the fund would actually pay for the preexisting disability (on the basis that its liability is to pay for the preexisting labor disability).
• And industry would pay for what it causes: The injury that takes the employee from the preexisting level of disability to the overall disability (preexisting and the industrial combined).

So, if the SIBTF is being evaluated for policy changes, the present underlying policy of shifting the costs from what industry causes to SIBTF should also be analyzed. And the analysis should be based on the underlying premise from more than 100 years ago that industry should pay for the costs of its casualties.

Currently, SIBTF is paying for the casualties of industry. That analysis was not even mentioned in the SIBTF study.

A study based on inaccurate and incomplete analysis is like a house built on sand, not a good foundation.

Suggested statutory amendments

To ensure the continued solvency of the SIBTF, the following legislative amendments to Labor Code 4663 should be implemented forthwith:

• Labor Code 4663(1): The Subsequent Injuries Benefits Trust Fund shall be liable only for the percentage cost of the preexisting disability.
• Labor Code 4663(2): The employer shall be liable for the cost of the percentage increase in overall disability (preexisting and industrial disability combined).
• Labor Code §4663(3): The intent of this legislative change is to ensure the continued solvency of the Subsequent Injuries Benefits Trust Fund by requiring employers to pay for the actual disability the employment injury causes: the progression from the preexisting disability to the overall combined disability (with the SIBTF paying for the preexisting disability that was present before the subsequent industrial injury).

Arthur L. Johnson is a founding attorney for Butts & Johnson, a workers' compensation and Social Security disability law firm in San Jose. This opinion appears here with permission.