Attorney Mark Webb will give us his thoughts on the recent decisions by the California Workers Compensation Appeals Board on Almaraz/Guzman and Ogilvie dated September 3, 2009.

Mark Webb is Vice President for Governmental Relations at Employers Direct Insurance Company.  He interacts with policymakers at the legislative and regulatory levels in California, Arizona and Nevada on workers' compensation issues. Mr. Webb co-wrote the amicus briefs submitted by Employers Direct in the Almaraz/Guzman cases. Mr. Webb is a regular contributor to the LexisNexis Workers' Compensation Law Center.

LexisNexis Podcast of Mark Webb
Posted September 15, 2009
Interview Conducted by John Pillitiere, Esq.

ALMARAZ/GUZMAN II

John:  Nice to talk to you again, Mark.

Mark:  Always a pleasure, thank you.

John:  The board has issued its decisions in Almaraz/Guzman and Ogilvie on the issue of rebutting the 2005 permanent disability rating schedule.  The schedule is based on the 5th edition of the AMA Guides to the Evaluation of Permanent Impairment and both sides applicants and defense have petitioned for reconsideration in these cases. Mark, let's start with Almaraz/Guzman.  What did Almaraz/Guzman II hold?

Mark:  Both the first and second decisions really turned on what constituted prima facie evidence of the permanent disability rating schedule to a degree of permanent disability.  In Almaraz I, what the appeals board said was because it was simply prima facie, you could bring in virtually any type of evidence to challenge the permanent disability rating that came from the proper application of the schedule.

When it came time for reconsideration, four out of the seven commissioners changed and significantly narrowed that original finding and said the legislature intended to use the AMA Guides 5th Edition for the first step in deciding what permanent disability was.

So consequently, in order to rebut the schedule, you had to keep your observations and comments and challenges within, as they call it, the "four corners" of the AMA Guides.  And what that as a practical matter means is that now you have to decide if the work limitations of an injured worker are such that the strict application of the Guides is not an accurate reflection of the work disability that the injured worker has and whether you should analogize because of these work limitations to other impairments in the Guides that would inevitably inflate the permanent disability rating.

John:  Prior to the board agreeing to reconsider the case, the Workers Compensation Insurance Rating Bureau predicted that there would be a significant increase in insurance premiums that employers would have to pay because of the prior decisions in Almaraz/Guzman and Ogilvie. With regard to Almaraz/Guzman specifically, how would the prior decisions have impacted rates that employers would be paying?

Mark:  This is very much analogous to what happened back in 1996.  There was a decision regarding the treating physician presumption that existed in the law at the time.  It is called the Minniear decision [61 Cal. Comp. Cases 1450].  It wasn't until several years later that the cost impact of that decision started being felt by payers. We have a similar situation here.

There is both a short and long-term impact.  The long-term impact was in the first case by having this inequitable, disproportionate, or unfair standard.  Long term, as cases develop, we saw the potential for a very significant cost driver in the system.  Now, what we are seeing is that this is pretty much what the practice has been anyway, post Almaraz/Guzman I, which is this concept of rating by analogy.

Consequently based on what we have actually seen in the system in a very short period of time, we think that Almaraz/Guzman II will have the same short-term effect on raising costs and really not affect how it is valued at this point in time.

John:  So, will Almaraz/Guzman II in your opinion put any less pressure on workers' compensation premiums that employers are paying?

Mark:  Not unless and until the appeals board in subsequent decisions put some parameters around what it is talking about.  There are a couple of concepts important here.

One is, how far does rating by analogy go in the Guides?  Are we talking about different body part systems?  Are we talking only about somewhat similar injuries that may produce different limitations of work?

We also don't know to what extent the fact that the AMA Guides in its strict application is now being given a presumption affecting the burden of proof.

We don't know what type of evidence will be necessary to challenge that presumption in order to have one of these analogous ratings be adopted by a workers' compensation judge.

So until we have that kind of guidance, which may take years to work through the appeals board, the pressure on the severity of permanent disability injuries – in other words, the cost of the permanent disability injuries – is going to continue to increase.

John:  So would you consider Almaraz/Guzman a win at all for employers?

Mark:  I think there are some positives.

First, I think the fact that a majority of the board walked away from the idea of this wide open challenge to permanent disability is a positive.

The legislature clearly defined the nature and extent of the physical injury to mean that it was in the AMA Guides.  So I think that is a positive.

I think it is a positive to say it is presumption affecting the burden of proof.

However, until those terms are worked out and we can get back to the same concept of predictability and replicability that the AMA Guides was supposed to provide, we kind of see this as being litigation business as usual.  It will mean increased PD awards, increased uncertainty in the system, and it may take years for us to get the guidance we need to fully understand the ramifications of this decision.

OGILVIE II

John:  Now let's turn to Ogilvie, if you would.  What did Ogilvie II hold?

Mark:  Ogilvie was basically an affirmation of its original decision.  What the appeals board does there is pretty much the same analysis you see in Almaraz/Guzman, that the permanent disability rating schedule values are rebuttable and they provide some guidance in this case on how to do that rebuttal.

The difficulty in the appeals board analysis is that it goes beyond the idea of benefit equity, which was the hallmark of the future earning capacity modifier.  Instead it becomes a tool for individual benefit adequacies, which is beyond what the legislature intended.

John:  Well, now we have Ogilvie II, and, Mark, do you feel that in your opinion that there is any change from Ogilvie I to Ogilvie II?

Mark:  As a practical matter, as a cost driver in the system we view this as no change.  This is going to have to be a case the appellate courts need to weigh in on and provide a direct guidance to the appeals board as to the very narrow requirements for the diminished future earning capacity modifier as embodied in current Labor Code section 4660.

It is the law just as Almaraz is the law.  We have not seen it have the kind of impact we think Almaraz has had in the short term, especially in Southern California. Part of that is because of the continuing complexity of what type of evidence should be brought forward in order to rebut this part of the permanent disability rating schedule.

As this gets validated, we can certainly anticipate it may be used more often.   But given what the court did in Almaraz, we may find it will take time before Ogilvie's concepts work their way into every day litigation in the system.

In other words, we now have an Almaraz that's easier to use, and requires less advancing of costs in order to establish the proofs.  That may be the preferred challenge to ratings.

What is intriguing, and which we have not seen yet, is there is no reason why these two cases cannot be used simultaneously in the same case because they are dealing with different parts of the permanent disability formula.  Once we see something like that, then truly the consequences of these two cases will be visited in a most unusual way.

But, I do think that in this case, because it is such a significant departure from the underlying premise of the specific language in the Labor Code, that this is one where the Court of Appeal and maybe even the Supreme Court is even going to have to weigh in and issue something more definitive.

John:  With regard to the financial impact on employers, then, what was the primary concern with regard to the first Ogilvie decision?

Mark:  I think the primary concern was, again, the uncertainty and the cost of the evidence that would be necessary to develop a different diminished future earning capacity modifier.  Those costs would be chargeable ultimately to the employer if successful and, consequently, the employer would need to consider through its insurance company or claims administrator whether to establish rebuttal testimony.

So you start looking at wage reports, occasional testimony - a number of things that would go into even making a relatively minor case very costly from the expense side.  And so the concern of a case like Ogilvie is that the cost associated with it would outweigh potentially a somewhat inflated settlement value of the case early on, but it would still be a cost driver for the system.

John:  The workers' compensation reform was intended to reduce the overall cost of workers' compensation.  How did Ogilvie do in that regard?  Can we anticipate it will have less of a cost impact on employers in your view?

Mark:  I think especially given that the two to three years following an injury, an injured worker who is out on temporary total disability will rarely have income during that period of time.  Now state disability income and temporary disability benefits from the workers' comp system are not included in that income.

So we have that fairly typical situation there is easily a scenario on the lower end of the permanent disability schedule where ratings will be increased by as much as 13 points as we have seen from a number of commentators out there on how to deal with this formula.  This will clearly be a cost driver.

If it becomes a regular part of the system - if it gets used as part of the analysis in virtually all permanent disability cases where you have an injured worker who has not been brought back to work and who doesn't have income during this evaluation period - this is clearly a cost driver.

John:  So I take it you would not consider Ogilvie to be a win for employers?

Mark:  No.  Not the first time or the second.  As a government relations person, let me make a point here.  The intent of SB 899, as it relates to permanent disability, was to take out the frictional costs associated at arriving at a permanent disability rating.  Consequently the adoption of the AMA Guides - the adoption of a formula that was supposed to have almost rote application in assigning a number to make sure that that benefit was more equitable.

This is not to say that benefits are adequate in the system but in order to get adequate benefits, you increase benefits.  You don't try to make the permanent disability system as inconsistent and costly as it was prior to 2004.  That is for the legislature to do and for a governor to sign.  But that is how you get to the issue of benefit adequacy.

John:  So, where do we go from here?  Will these cases go to the appellate court?

Mark:  There is certainly discussion about that.  I think that, as real parties of interest to evaluate this and understand their time frames, those decisions will probably be made within the next week or two.

The appeals board has shown they are not interested in staying the application of either of these decisions.  So they are the law of the land. They do control the actions by the workers' compensation judges.

Whether the appellate courts will stay the application of these decisions pending appeal is unknown.  They certainly have not shown an interest in doing that in the many cases that SB 899 has engendered to date.  I would be frankly surprised if they would do it for these.

John:  In light of the potential for appeal and these recent decisions, what approach should a defense attorney, employer, or claims adjuster take until these issues are finally decided?

Mark:  I think there are a number of things that should be done, many of which should be claims practices, even at this point in time.

The first is to make sure your employer has a good functional job description for that employee.  From that job description the assessment of impairment and the assessment of disability can be made much more accurately.

And from that, based on the experience that so many claims professionals have, also start to analyze whether the permanent disability based on the strict application of the AMA Guides really is an accurate reflection of how the injured worker will continue to interact in the workplace.

If there is a decision because of these cases early on that given the job description, what’s available in terms of modified work, and what this injured worker can be expected to do, then you can decide whether you are going to make an offer of a rating that is higher and one that perhaps may be more reasonable early on in the process.

If, on the other hand, you don't have that good job description and you have a report that says, “here are the AMA Guides - take it or leave it,” then these cases open the door for significant additional cost and litigation that doesn’t necessarily improve the lot of the injured worker or the employer in that regard.  It is going back to the basics and understanding how this injury affects this worker and make sure the employer is engaged from the inception of the claim.  If you do that and work with your providers who are doing the treatment and writing these reports, they are still going to drive costs, but they will do so in a more manageable way.

John:  Well, Mark Webb, thank you for your thoughts on these cases and for being a part of this LexisNexis podcast.  This has been a LexisNexis Law Center podcast.

 To listen to the podcast of this interview, click here.

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