California Apportionment: Pennies for your Pain?

May 7th, 2007 by

The plaintiff bar in California is very unhappy with the state’s (long overdue) reforms of 2004. One blogger calls for the abolition of comp and a return to the pre-comp days when employees sued their employers for work-related injuries. I would call that a bit emotional, counselor. To be sure, there are real problems in determining permanency benefits, and some adjustments in the current system are undoubtedly needed, but the issues are not so big that the solution is doing away with the entire system. Do you really want to go back to the days of the fellow servant rule, contributory negligence and the assumption of risk – the potent defenses that resulted in an 80 percent win rate for employers? I don’t think so!
While criticizing the payouts for permanent partial injuries, the plaintiff attorneys point to unusually high profits for comp insurers. These profits are the inevitable result of the delay between implementing reforms and adjusting the premiums. They are also the result of long overdue reforms that have significantly reduced losses in the state’s humongous comp system. Eventually, the bottom is going to fall out of the currently inflated premiums. Meanwhile, it’s a great time to write comp insurance in the California (see our prior blog here). And perhaps not such a great time to be a member of the plaintiff bar.
Addition by Subtraction
The state Supreme Court recently issued a ruling on a number of related cases involving the apportionment of permanency benefits. The court addressed this issue: when an employee who received a prior permanency rating and benefits for a work-related injury is subsequently re-injured, how do you determine the benefits?
Let’s take a specific case – emotionally charged, to say the least – involving Ken Welcher’s amputation. In 1990 Welcher was pulled into a conveyer belt, injuring his knee. He was awarded a 62.5 percent disability rating. Under CA law, he received a cash payment of four weeks of benefits for every point of disability: you multiply 4 times 62.5, plug in the wage, and you arrive at a settlement number.
Welcher eventually returned to work as a laborer. He suffered a work-related injury to the same right knee. This time the damaged leg had to be amputated. Under the state schedule, an amputation is calculated as a 71 percent permanent disability.
So how should Welcher be paid? Should you treat the injury as something new, by using the full 71 percent factor? Or should you subtract the original payment (62.5 percent) from the 71 percent, resulting in a new payment of about 8 percent? The court, citing precedent under the pre-2004 reforms, opted for the subtraction method. In terms of dollars, Welcher receives only $3,360 for his amputated leg. Yes, it sounds like chump change for an amputation, but the payment has to be viewed in the context of his substantial prior benefit.
The court cited a compelling argument for using the subtraction approach: if the most recent employer becomes liable for the full disability rating, employers would be very reluctant to hire anyone with a handicap. In effect, the court has limited the exposure of the most recent employer to the increment in disability. No double dipping. No multiple big-cash pay outs. (And no repeat pay days for the plaintiff attorneys.)
So the formula becomes a kind of addition by subtraction: by limiting the exposure of the current employer, the court opens the door to employment for thousands of workers who might otherwise be rejected. The dollar numbers of Welcher’s most recent settlement do seem trivial compared to his suffering, but the reduced amount may ultimately serve the greater good. Ironically, some future employer might look at the disabled Welcher not as unemployable, but as a worker carrying a 71 percent warranty.
Workers comp isn’t perfect, it may not be completely fair, but on the whole there is no better system for balancing the interests of employers and injured workers. Comp may always be in need of reform, but there is no reason at all to abolish it.