The Calif. Lien Problem: Cure the Disease, Not the Symptoms

Monday, January 10, 2011 | 0

By David J. DePaolo
WorkCompCentral

The issue of liens clogging the Workers Compensation Appeals Board District Offices, particularly in Southern California, is vexing and difficult to tackle. Recently the Commission on Health Safety & Workers’ Compensation (CHSWC) issued a report and solicited input from participants both through written testimony and at its meeting Jan. 5.

To be clear about my position, many of the suggestions made by both the report authors and the participants in their testimony to CHSWC are excellent and I have no doubt would go a long way towards making a dent in the total volume of liens.

But there is a distinct issue that was not researched by CHSWC and only alluded to by commentators: the issue of liens has a uniquely Southern California flavor. Why is this?

Perhaps the answer is in the comment submitted by Peter J. Spalding of Glendale Commercial Market Claims. In his Dec. 20 comments to CHSWC, Spalding states that “the reason why liens don’t exist in northern venues (at least not to a significant extent) is because the behavior is simply not tolerated.”

One can easily argue that part of the reality of that statement is due to the simple fact that the population base of Southern California, and in particular the Greater Los Angeles area, is much larger than that of Northern California and thus will produce a greater number of lien disputes (Wikipedia at http://en.wikipedia.org/wiki/Southern_California states that the seven counties constituting what is generally regarded as Southern California make up 61% of the state’s overall population).

But I tend to believe that Mr. Spalding’s opinion is in the right direction and after reading all of the comments and the report (including an excellent nine-page response by former Judge Pamela Foust in behalf of the Zenith Ins. Co.) THIS MAKES IT SOUND AS IF SHE IS RESPONDING TO SPALDING. IS THAT THE CASE? I am generally convinced that the culture that has arisen based on unsubstantiated interpretations of the Labor Code are the underlying reason for this crisis and that while many of the proposed “fixes” to the lien problem are good, all of them will ultimately fail because they all add another layer or two of complexity. And as we have seen in the past, increased complexity ultimately only exacerbates the problems rather than solving the problems.

In other words, while the Commission and commentators make good points, all of them address symptoms rather than dealing with the actual cause of the disease. Treating only the symptoms and not the disease itself may temporarily ease the pain, but ultimately the disease process will take over and we will have the same issues again, perhaps in an exacerbated fashion.

What I believe is needed is a wholesale reconfiguration of the culture in work comp practice and this may not even require additional or changed regulation (though I suspect regulation would be the preferred method to stimulate change). But the fortitude of the community (and in particular the WCAB) to stand up and just enforce the Labor Code as written in its black letter law will be tested.

The culture that precedes the problem, in my opinion, is that there is no single person who is responsible for management of “lien claim” vendors until after all services are provided and claims are made to get paid, then the person responsible is the carrier/employer who is at a significant disadvantage because it is operating after the fact.

This scenario does not have to be his way, and in fact is operationally counter to the black letter law.

The opening paragraph of Labor Code Section 4903 starts with, “The appeals board may determine, and allow as liens against any sum to be paid as compensation...” (emphasis added).

If taken literally, then, no lien would be allowed except as against money (i.e. “sum”) to be paid as “compensation.” “Compensation” is defined in Labor Code Section 3207 awkwardly and redundantly (as so often happens in our statutes) as: “compensation under this division (Division 4) and includes every benefit or payment conferred by this division upon an injured employee, or in the event of his or her death, upon his or her dependents, without regard to negligence.”

Thus, under the black letter law, liens may only be allowed against money that is to be paid to the injured worker.

This is not the procedure that is now custom and practice. Custom and practice is that liens have distinct and separate lives apart from the “sum” (i.e. money) paid or conferred upon an injured employee. The practice now is to provide the injured worker with specified sums (i.e. indemnity) and to pay vendors separately.

In the normal context this practice works just fine and frankly most injured workers who receive only medical treatment without having to make a claim for indemnity are not affected.

The issue becomes relevant only in a litigation setting (i.e. where liens “clog” the WCAB), and in the vast majority of litigated cases the injured worker is represented by an attorney. Presently there is no incentive for the injured worker’s attorney to control vendor claims, because vendor claims are paid outside of any sums to be paid the injured worker. There is no law for this, there is no rationale for this, other than this has become custom and practice over the many years that workers’ compensation litigation practice has evolved.

So the politically incorrect and difficult to swallow solution is really quite simple: the injured worker attorney should be responsible for negotiating a global resolution of the entire claim, inclusive of vendor claims. Period.

This is not a proposition that will sit well with the applicant attorneys. But it could be palatable if custom and practice also recognized that the total value of the claim from which attorney fees are calculated included the total value of “every benefit or payment” under the attorney’s management.

In a practical process the applicant attorney will manage the medical much as he or she may manage the claim presently. But the applicant attorney will also be responsible for managing his or her preferred vendors because the net amount of money that goes to both the attorney and the injured worker is affected directly by the amount of money that is “allowed” by the WCAB against the gross “sum” awarded or settled.

This would be a monumental shift in workers’ compensation litigation culture, and perhaps could not be effected without regulatory force. But the way I see it, this is how the Labor Code is written and is the only truly effective manner to reduce liens in litigation.

David DePaolo is the founder and chief executive officer of WorkCompCentral.