NCCI Sees Continued Deterioration in Workers' Compensation Market

The National Council on Compensation Insurance, Inc. ("NCCI") has issued its annual "State of the Line" study which analyzes the entire workers' compensation market "from the implications of the overall economic environment, to current and expected industry conditions, to political considerations and more."[1]

Unfortunately, the report isn't good:

…our analysis this year shows that conditions in the workers’ comp industry continue to deteriorate. The line continues to experience an ever-lengthening list of challenges, including poor underwriting results, declining (albeit more slowly) premiums, an uptick in claim frequency, and an uncertain regulatory and inflationary climate.

The reserve position of private workers' compensation insurers continued to decline in 2010, sinking another $1 billion since 2009 to an estimated total deficiency of $10 billion, according to the NCCI.[2]

In what it calls a "singularly distressing development," the NCCI reports that, in 2010, the workers' compensation industry has seen an estimated 9% increase in lost-time claims frequency after 12 uninterrupted years of lost-time claim-frequency decreases in NCCI states nationwide.

In somewhat more encouraging news, the "precipitous declines" in net-written premium for workers' compensation experienced by private carriers in the last few years appear to have slowed in 2010. Net-written premium for workers' compensation declined only 1.3% for private carriers in 2010, compared to a 20% decline from 2007 to 2009.

While workers' compensation insurance rates continued to decline in many parts of the country, the NCCI suggests that this trend could be turning around based on filed increases in loss costs/rates for the 2010/2011 filing cycle.

The NCCI notes a number of external forces on the workers' compensation industry, including what unknown residual impact the Patient Protection and Affordable Care Act ("PPACA") may have, as well as other regulatory concerns, such as the following:

The federal government also continues to erect its Federal Insurance Office and the Financial Stability Oversight Council, both entities that may ultimately make recommendations that affect the way that insurance markets in the United States are regulated. With some elements of the government calling for an increase in federal oversight and regulation of insurance, all system participants will be keeping a close eye on developments in the months to come.[3]

Medical-cost containment could be crucial to the workers' compensation insurance industry as a growing percentage of workers' compensation payments are going to medical expenses instead of replacement wages. Some suggest that the industry could see as much as 70% of the comp-claims dollar going to pay medical expenses.[4]

With PPACA looming over the industry and the ballooning costs of workers' compensation medical expenses, some have even suggested that the continued revamping of the health insurance system could eventually absorb the health insurance elements of workers' compensation. If PPACA or its progeny expand to cover workers' compensation medical costs, the future of a replacement wage-only workers' compensation industry is questionable.

The workers' compensation market faces other threats as well, including the ever-present risk of terrorism and the specter of new occupational exposures from emerging technologies.[5]

Additionally, the current trend of an increasingly older-and-aging workforce presents significant problems of its own, including increased severity of claims and potentially higher administrative costs as Medicare Secondary Payor issues become more common.

Finally, the "epidemic proportions" of obesity in the workforce is likely to continue to increase claims frequency and medical expenses.[6]

1. Workers' Compensation Market Continues to Deteriorate, Stephen J. Klingel, National Underwriter P&C, August 22, 2011.
2.  Workers' Compensation Market…, Id.
3.  Workers' Compensation Market…, Id.
4. Workers’ Comp Faces Big Challenges, Changes In Its Second Century, Sam Friedman, National Underwriter P&C, August 22, 2011.
5. Workers’ Comp Faces…, Id.
6. Workers’ Comp Faces…, Id.

Longshore and Harbor Workers' Compensation Act - Permanent Total Disability Benefits - Maximum Compensation Rate for Claimant Receiving "Newly Awarded Compensation"

Brett Mason from Breazeale, Sachse & Wilson, LLP, provides an update on a permanent total disability benefit issue under the Longshore and Harbor Worker's Compensation Act that is now before the U.S. Supreme Court.

W. Brett Mason
brett.mason@bswllp.com
225.381.3175

W. Brett Mason is a Martindale AV-rated partner in the Baton Rouge office of Breazeale, Sachse & Wilson, L.L.P. He represents clients in maritime casualties, toxic tort defense, and class action litigation. Brett has particular experience in limitation of liability actions and class actions involving chemical exposure and catastrophic accidents.

Brett Mason's profile

On November 16, 2011, the U.S. 11th Circuit Court of Appeals (which encompasses Florida, Georgia and Alabama) held that the maximum compensation rate for a claimant receiving "newly awarded compensation" for permanent total disability benefits pursuant to the Longshore and Harbor Workers’ Compensation Act ("LHWCA") is governed by reference to the national average weekly rate in effect on date when he received his award.[1] The question presented on appeal was whether the date on which disability occurred, or the date on which the injured employee was awarded benefits for such disability - determines the maximum weekly rate of compensation for a permanently totally disabled employee who is "newly awarded compensation."

Bernard Boroski worked for DynCorp International in Tusla, Bosnia, as a sheet metal mechanic from January 2000 to April 2002. Boroski was exposed to various chemicals during his employment and stopped work on April 20, 2002, after his vision had become severely impaired. Boroski is now legally blind in both eyes and has been permanently and totally disabled since April 20, 2002. DynCorp contested that it was the cause of Boroski’s blindness.

Boroski timely applied for workers compensation benefits under the LHWCA, which applied to him by operation of the Defense Base Act.[2] Boroski’s claim was adjudicated before an administrative law judge ("ALJ") who held that Boroski was entitled to compensation for permanent and total disability beginning April 20, 2002 (the "Compensation Order"). He ordered DynCorp to pay permanent total disability compensation to Boroski from April 20, 2002, and continuing at the maximum compensation rate. The ALJ did not specify the maximum compensation rate that was applicable or calculate the amount owed to Boroski.

DynCorp and its insurer took the position that the maximum compensation rate applicable to Boroski was determined by reference to the date when the benefits became payable, and not by reference to when the benefits were awarded to him. The District Director agreed and Boroski appealed to the Benefits Review Board of the United States Department of Labor. The Benefits Review Board affirmed the decision of the ALJ. Boroski appealed to the United States District Court for the Middle District of Florida. The district court affirmed the ruling of the Benefits Review Board. Boroski appealed to the United States Court of Appeal for the Eleventh Circuit.

The Eleventh Circuit rejected the district court's reliance on a Ninth Circuit case, Roberts v. Director, Office of Workers' Compensation Programs[3] and followed the holding of a Fifth Circuit case, Wilkerson v. Ingalls Shipbuilding, Inc.[4] The Eleventh Circuit was persuaded that an employee is "newly awarded compensation" at the time of a formal compensation order and held that the maximum compensation rate for a claimant receiving "newly awarded compensation" for permanent total disability benefits pursuant to the LHWCA is governed by reference to the national average weekly rate in effect on date when he received his award.

Thus, a claimant in the Eleventh Circuit (Florida, Georgia and Alabama) or Fifth Circuit (Texas, Louisiana, and Mississippi) who receives "newly awarded compensation" for permanent total disability benefits pursuant to the LHWCA will have his/her maximum compensation rate governed by reference to the national average weekly rate in effect on date he/she receives an award. A claimant seeking similar benefits in the Ninth Circuit (California, Arizona, Alaska, Nevada, Oregon, Idaho, Montana, Washington) will have his/her maximum compensation rate governed by reference to the national average weekly rate in effect on the date of the onset of the disability.

This split between the circuits has yet to be addressed by the Supreme Court. However, at the end of Q3 the Supreme Court granted a writ in the Roberts case to resolve this issue.[5] Oral argument is scheduled on January 11, 2012. Thus, the dichotomy between the circuits should be resolved in 2012. Stay tuned for additional updates as things unfold.

1. Boroski v. Dyncorp International Insurance Company of the State of Penn., No. 11-10033 (11th Cir. 11/16/11), 2011 WL 5555686.
2. 42 U.S.C. §§ 1651-55 (2006).
3. 625 F.3d 1204 (9th Cir. 2010), petition for cert. granted sub nom. Roberts v. Sea-Land Services, Inc., ___ U.S. ___, 132 S.Ct. 71, 180 L.Ed.2d 939, 80 U.S.L.W. 3179 (Sept. 27, 2011) (No. 10-1399).
4. 125 F.3d 904 (5th Cir. 1997).
5. 132 S.Ct. 71, 180 L.Ed.2d 939, 80 U.S.L.W. 3179 (Sept. 27, 2011) (No. 10-1399).