This is the second in a series of articles extracted and edited from a new booklet attorney Michael Sullivan has prepared on the substantial changes to California workers' compensation laws instituted by SB 899. The first article dealt with various implementation time lines and the substantial changes to medical legal procedures.

---------------------------------------

2. Reform of the Legal Standard

Labor Code section 3202 has long been a major weapon for applicants and their attorneys. It mandates that the workers compensation laws "shall be liberally construed by the courts with the purpose of extending their benefits . . ."

That statute remains in place. However Labor Code section 3202.5 is changed. This used to confirm that section 3202 did not relieve the applicant and lien claimants from meeting their burdens of proof. section 3202.5 now states that "All parties and lien claimants shall meet the evidentiary burden of proof on the issues by a preponderance of the evidence in order that all parties are considered equal before the law."

This is not a change in the standard for interpreting legal questions. It is a reaffirmation that all parties have a burden of proof to meet and all are equal.

3. Treating Doctor's Presumption Finally Eliminated

Over the last few sessions, the Legislature has tried to scale back and limit the treating doctor's presumption. Now it is finally eliminated, even in cases of a pre-designated physician. Simply stated, Labor Code section 4062.9 is repealed. This has the effect of eliminating the presumption altogether.

Thus, it appears that as of April 19, 2004, if you have not got an award from the judge based on a presumption, you never will.

4. Limitation of Temporary Disability

In one of the most dramatic parts of this new legislation, the Legislature has decreed that temporary disability may not last for more than two years, following any particular date of injury.

Labor Code section 4656, which had previously provided that temporary disability could not extend for more than 240 weeks within a five year period, has been modified. This statute applies only to those dates of injury which occur on or after April 19, 2004. Labor Code section 4656(c) states specifically that temporary disability for those dates of injury "Shall not extend for more than 104 compensable weeks within a period of two years from the date of this commencement of disability payment."

This does seem to have a serious effect on Labor Code section 4661.5, which had codified a longstanding legal principle: that payment of temporary disability made more than two years from the date of the injury were to be paid at the rate in effect at the time of the payment. This principle will have no force for those cases with a date of injury occurring on or after April 19, 2004. This is especially important in light of the benefit increases enacted in recent years.

Exceptions are made. Any employee who suffers from specified types of conditions has up to 240 aggregate weeks within a period of five years from the date of injury, as per the original law. These conditions are:

A. Acute and Chronic Hepatitis B
B. Acute and Chronic Hepatitis C
C. Amputations
D. Severe Burns
E. Human Immunodeficiency Virus (HIV)
F. High Velocity Eye Injuries
G. Chemical Burns to the Eyes
H. Pulmonary Fibrosis
I. Chronic Lung Disease
5. Regulation of Insurance Rates

As is well known, the Democratic Party attempted vigorously to negotiate for regulated insurance rates as part of any overall workers' compensation reform. This battle continues to wage. It was not part of AB 899.

The bill does, however, throw a bone to the Democratic Party on this point. Labor Code section 138.65 is added. This directs the Administrative Director to contract with a qualified organization to study the effects of the 2003 and 2004 Legislative reforms on workers' compensation. This is to identify and quantify the savings generated by the two reforms. Further, the study is to review workers' compensation insurance rates to see how much of the savings actually got passed to the employers from the insurance carriers. Employers bear some of the cost for this. They are to bear up to one million dollars of the cost of the study.

The Commission is to assess the effect of the reform savings on replenishing surpluses for workers' compensation coverage, and review the overall effects of the reform. The Commission is to review the adequacy and accuracy of the pure premium rate as recommended by the Workers' Compensation Insurance Bureau and adopted by the Insurance Commissioner.

Insurers have to cooperate by providing relevant information. The Administrative Director is then to submit the report to the governor. A progress report is to issue on January 1, 2005, and again on July 1, 2005. A final study is to be given to the governor on or before January 1, 2006. Thereafter, the governor and Insurance Commissioner are to review the results and make some recommendations as to the appropriateness of regulating insurance rates. If it is concluded that the savings have not been passed on to the employers, the governor and insurance Commissioner are allowed to submit proposals to the Legislature. Frankly, this does not seem like a law with much teeth to it. The Governor and Insurance Commissioner presumably can submit proposals any time they wish. For good measure, the bill indicates that, "In no event shall the proposals unfairly penalize insurers that have properly reflected the 2003 and 2004 reforms in their rates, or can verify that they have not received any cost savings as a result of the reforms."

6. Labor Code section 5814 Revisited

Labor Code section 5814 has long been the subject of controversy due to its sometimes dramatic consequences. As is well known, Labor Code section 5814 provides for a 10% penalty where payment due for benefits is unreasonably late. In such an event, a penalty is assessed against not only the amount that is paid late, but also the entire species of benefit to which the applicant is entitled throughout the life of the claim. On the larger claims, this has made for what some view as an unfair windfall to the applicant.

In order to rectify this perceived abuse, the Legislature has made Labor Code section 5814 inoperative as of June 1, 2004, and repealed it, as of January 1, 2005.

A new Labor Code section 5814 is added. It indicates that "When compensation has been unreasonably delayed or refused, either prior to or subsequent to the issuance of an award, the amount of the payment unreasonably delayed or refused shall be increased up to 25%, or up to $10,000, whichever is less." This obviously is a substantial reduction in what would otherwise be owed, despite the higher percentage rate.

In a curious sentence following this language, the Legislature provides that the Appeals Board "shall use its discretion to accomplish a fair balance and substantial justice between the parties." It is unclear to what extent this sentence modifies its predecessor. It is unclear whether this is meant to allow the judge to exceed the limits given here, or to provide penalties of a lesser amount.

The Legislature provides that if the defense discovers prior to an employee claiming a penalty an unreasonable payment, within 90 days of the date of that discovery, it may self-impose a ten percent penalty. This is in lieu of the 25% penalty that would be due on the payment unreasonably delayed or refused. This self-assessment must be made before the applicant makes a claim for a penalty, and must be made within ninety days of the discovery of the "potential violation".

Note that Labor Code section 4650(d) has not been repealed. That section provides that when an indemnity benefit is paid late, it is to be increased by ten percent, regardless of whether the delay was unreasonable. Failure to comply with this requirement can result in a separate penalty under section 5814, old or new.

However, a new Labor Code section 5814(d) does allow that any payment under section 4650(d) reduces the liability under section 5814(a). Presumably then, if a $400 indemnity payment is paid late, $100 would be owed in penalty. A self-imposed penalty under section 4650 would also be owed in the amount of $40. However, this would reduce the original 5814 penalty to only $60. One is given to wonder whether, if the error was discovered within ninety days and before a penalty demand, that ten percent payment under 4650 would also count as the payment under 5814(b), and eliminate the $60 balance as well. This may be unlikely since section 5814(d) makes reference only to section 5814(a).

The Legislature has provided some protection for the defense on issues of penalty in regards to resolution of cases. The new Labor Code section 5814(c) indicates that it is conclusively presumed that any claims for penalties have been resolved, whether a Petition for the penalty has been filed or not, when the Court approves a Compromise and Release, a stipulated award, or issues a Finding and Award, unless a claim for penalty is expressly excluded in the Order or Award. Furthermore, it is conclusively presumed that any issue or claim for penalty has been resolved when the case is submitted for determination at a regular trial hearing, if the penalty issue has not been specifically raised in the pre-trial statement.

There is further protection available as well. The new Labor Code section 5814(e) indicates that "No unreasonable delay in the provision of medical treatment shall be found when the treatment has been authorized by the employer in a timely manner, and the only dispute concerns payment of a billing submitted by a physician or medical provider." This is a real change, as previously parties were able to request penalties based on an unreasonable refusal to pay a lien.

Finally, it is specified that nothing in this new Statute shall be construed to create a civil cause of action. In a final act of protection for the defense, the new Labor Code section 5814(g) indicates that "Notwithstanding any other provision of the law, no action may be brought to recover penalties that may be awarded under this section more than two years from the date the payment of compensation was due." This is a new statute of limitations for penalty issues.

The new section becomes operative on June 1, 2004. Furthermore, it is specifically indicated that this penalty reform applies to all injuries without regard to when they occurred. Therefore, it appears that if a party is not able to get a judicial award regarding a penalty before June 1, this reform will eliminate pursuit of the claim under the original statute.

Probably to address concerns regarding insurers or self-insured's taking advantage of this situation to deliberately delay payments, Labor Code section 5814.6 is enacted, and provides for a $400,000 punishment for any such organization that "knowingly violates section 5814 with a frequency that indicates a general business practice." Any assessment will be deposited in the Return-To-Work fund. This reform also becomes operative on June 1, 2004. In order to protect against employees trying to institute civil actions as a result of this section, Labor Code section 2699 of the Labor Code is amended. This section provides that employees can pursue civil penalties through a civil action on behalf of that person or other current or former employees where that civil penalty could otherwise be assessed and collected by the Labor and Workforce Development Agency or any of its Departments, Divisions, Commissions, Boards, etc. The new Subsection (k) of this Labor Code Section specifies that Labor Code section 2699 does not apply to the recovery of administrative and civil penalties in connection with the workers compensation law.

7. Immediate Medical Care

Section 5402 of the Labor Code is well known by all parties in the system. That section does provide that a claim must be accepted or denied in ninety days.

This section has been amended to indicate that an employer must, during the delay period preceding denial, provide medical treatment to the applicant. Specifically, the new Labor Code section 5402(c) specifies that within one working day after the employee files a claim form, the employer must authorize the provision of all treatment consistent with the utilization guidelines. This treatment is to continue until the date that liability for the claim is accepted or rejected. It is not too hard to see some issues arising from this rule, such as the consequences of the employer failing to offer such treatment, or the employer's duty to provide allegedly unnecessary care. It appears that under the current law the employer does maintain medical control for at least the first thirty days.

There is a $10,000 limit on the expense of this medical treatment up until the time of denial or acceptance of the claim. Furthermore, it is specified in Labor Code section 5402(d) that this treatment provided does not give rise to a presumption of liability.

The next article in this series will review the redefinition of medical treatment, the fee schedule, permanent disability reform and other issues.

Article by attorney Michael Sullivan. Mr. Sullivan can be reached by e-mail at mike@mikeslaw.com, or by phone at (310) 337-4480.

-------------------

The views and opinions expressed by the author are not necessarily those of workcompcentral.com, its editors or management.