Supreme Court Weighs in on COLA Start Date

Thursday, November 17, 2011 | 0

The California Supreme Court has issued its decision in Baker v. WCAB (S179194), deciding the highly contested question of when the start date for cost-of-living adjustments (COLA) calculations should begin for life pension and total permanent disability awarded claims.

The Court found that the Legislature intended that COLA’s be calculated and applied prospectively commencing on the Jan. 1, following the date the worker was permanent and stationary, and annually thereafter or, in the case of life pension payments, the date on which partial permanent disability benefits become exhausted.

This ruling put to rest the controversy over when a COLA should begin, which has been disputed since the COLA adjustment was added to Labor Code Section 4659 in 2002 via AB 749. Labor Code Section 4659(c) which states, in part, that for injuries occurring on or after 1/1/2003, life pension or total permanent disability payments “shall have that payment increased annually commencing on Jan. 1, 2004, and each Jan. 1 thereafter, by an amount equal to the state average weekly wage”. This language is the source of the polarizing legal disputes that left the courts to decide the date on which the applicable payments should be adjusted for those claims.

The case was initially brought to the Court’s attention by the Subsequent Injuries Benefit Trust Fund (SIBTF) as represented by the Department of Industrial Relations director in a petition for reconsideration of the trial judge’s determination.

In that decision, the Workers' Compensation Appeals Board held in an en banc decision that the COLA increase for total permanent disability or life pension claims should be increased as of Jan. 1, following the initial date of injury. The WCAB in their en banc decision supported the workers' compensation judge's opinion that the legislature “clearly wanted to increase benefits to severely injured workers by enacting protection from inflation” and did so by not tying the calculations to the first payment of these benefits, which can be paid years after the original date of injury. The WCAB ruled that the COLA rate for the first payment of permanent & total disability or life pension should have been calculated retroactively to the Jan. 1 that occurred after the original date of injury.

The SIBTF, through the DIR director, appealed the decision to the Court of Appeal, arguing that the payments to be increased should be paid prospectively, calculated to a time for which the applicant is entitled to the payments in question. Their position was that the payments should be increased on the January 1 following the permanent and stationary date and annually thereafter.

Much to the surprise of the defense community, the Court of Appeal reversed the WCAB’s en banc decision and adopted the amicus argument put forth by the California Applicants’ Attorney’s Association that was based on the literal reading of the statute: that each payment of total permanent disability or life pension must be retroactively calculated back to Jan. 1, 2004, regardless of the date the first payments are made or whether the employee’s date of injury was subsequent to the 1/1/2004 date.

However, the Supreme Court found that the Court of Appeal’s literal interpretation of the statute to be inconsistent with the intent of the Legislature and at odds with other language in  Section 4659(c) that the applicant must first “become entitled to receive a life pension or total permanent disability indemnity” before COLA’s may be applied to such payments. The Supreme Court further reasoned that the Legislature could not have intended an escalator of such magnitude and that the Court of Appeal’s interpretation produced an absurd result. Therefore, the Supreme Court ruled that the Legislature intended that COLA’s be calculated and applied prospectively commencing on the January 1, following the date the worker was permanent and stationary, and annually thereafter or, in the case of life pension payments, the date on which partial permanent disability benefits become exhausted.

This ruling resolves an important and costly issue. For employers the cost savings based upon this ruling are significant. Without this ruling, employers would be paying a cost for these high exposure claims that were seemingly unintended by the Legislature and overly burdensome on the employer or the insurer of the claim.

Max Breall is a senior associate managing attorney in the Greater San Francisco Office of Grancell, Lebovitz, Stander, Reubens and Thomas law firm. This column was reprinted with the permission from the firm's quarterly newsletter.