Bill Proposes Overhaul of Rate-Making and Attorney Fee Provisions

Monday, March 6, 2017 | 0

Legislation introduced Friday would overhaul Florida’s entire workers’ compensation rate-making process by converting it into a loss cost state and would also limit defense attorney profits while paving the way for higher claimants’ attorney fees.

Sen. Bob Bradley

Sen. Rob Bradley, R-Fleming Island, said Senate Bill 1582 would make sweeping changes capable of withstanding judicial review, and stabilize rates in the wake of two state Supreme Court decisions and an opinion by the 1st District Court of Appeal, all in the spring of 2016.

Florida is one of seven states that uses an administered-pricing system, while 38 others use some type of loss cost system in which a rating or advisory organization files the rates that are projected to cover losses, Bradley said. Insurers then are required to separately file the remaining components of the rates needed to cover expenses and profit, known as loss cost multipliers.

SB 1582 would end the practice of the National Council on Compensation Insurance recommending full rates on behalf of every Florida comp carrier, a process used in only three other states — Arizona, Idaho and Iowa.

NCCI did not answer an emailed request for comment.

The proposed bill also deems an insurer’s defense and cost-containment expenses excessive if they exceed 15% of the insurer’s incurred losses for the average of the three most recent calendar years. Each insurer would be required to return amounts over 15% to employers in either a cash refund or credit toward the future purchase of insurance.

Efforts to reach several defense attorneys by phone and email were unsuccessful.

“Making meaningful comprehensive changes that can withstand judicial scrutiny should be the goal,” Bradley said Friday in a press release. “This legislation incorporates significant provisions that will stabilize rates and bring Florida in line with 38 other states that encourage more competition among insurers, and limit the amount of the insurer’s defense fees that can be passed on to businesses, while not subjecting businesses to a tug-of-war between the Legislature and the judiciary.”

Bradley did not return two telephone calls for comment Friday.

He said his bill addresses a number of legal challenges and outlines reforms “needed to bring stability” to the system.

His proposal would require insurance carriers to authorize or decline requests for authorization from health care providers within three business days and would deem those requests authorized if the carrier fails to respond. Claimants would have to state with specificity the amount of each requested benefit disputed in a petition, while judges of compensation claims would have to dismiss petitions that contain no specifics.

The bill amends statutes relating to temporary total disability and temporary partial disability benefits, and increases them from 104 weeks to 260 weeks, consistent with the Florida Supreme Court’s decision last spring in Bradley Westphal v. City of St. Petersburg.

The bill also incorporates the high court’s decision in Martha Miles v. City of Edgewater — Bradley’s press release incorrectly says Clearwater — by deleting the prohibition against claimants’ attorneys receiving fees, gratuities or other considerations unless approved by a compensation judge.

SB 1582 would retain the current statutory formula for claimants’ attorney fees: 20% of the first $5,000 in benefits secured; 15% of the next $5,000; 10% of the remaining amount during the first 10 years after the date the claim is filed; and 5% of the benefits secured after 10 years.

However, the legislation would allow compensation judges to increase or decrease attorney fees based on a maximum hourly rate of $250, if warranted. For example, the fees would take into consideration the time and labor involved, the novelty and difficulty of the case, fees customarily charged in certain localities, the amount involved in the controversy and benefits awarded to the claimant, and the “experience, reputation and ability of the attorneys performing services.”

That provision is a nod to the Lee Engineering & Construction Co. v. Fellows case from 1968, in which the high court rejected a strict attorney fee formula that did not allow for reasonable awards.

Florida businesses were hit with a 14.5% rate increase Dec. 1, partly a result of the Westphal decision but mainly stemming from last spring’s state Supreme Court decision in Marvin Castellanos v. Next Door Co. The 5-2 ruling invalidated as unconstitutional a strict cap on attorney fees.

SB 1582 and its provision for $250-an-hour claimants’ attorney fees will be an “incredible cost driver” for the business community, employers and insurers, said William W. Large, president of the Florida Justice Reform Institute, whose mission is tort reform.

“This is going to lead to big awards over low dollar amounts,” Large said. “We want to avoid a culture of litigation over low dollar amounts. A better solution would be to focus on a certain statutory guideline fee that’s fair and equitable to all parties concerned.”

The crisis in Florida’s workers’ compensation costs will continue to dramatically increase until lawmakers stop providing incentives for claimants’ lawyers to “game the system at the expense of workers and businesses,” said Tom Feeney, president and CEO of Associated Florida Industries.

“Any bill that does not focus on taking away incentives for abusive plaintiffs' lawyers to engage in frivolous procedures to get employers to pay for unnecessary fee claims will deny injured workers the health care resolution they need and force businesses to reduce their workforce or move activities to competing states,” Feeney said in an emailed statement.

Miami claimants’ attorney Richard Chait, chair of the workers’ compensation section for the Florida Justice Association and a partner with Touby, Chait & Sicking, said his team was still reviewing SB 1582 on Friday but that early indications are it’s a “step in the right direction.”

“Our priorities continue to focus on rate-making reform which provides for competition in the market and promotes transparency, some element of choice in medical treatment for injured workers, a meaningful post-MMI benefit for those who are unable to return to their former employment, and the responsibility for insurance carriers to pay reasonable attorney’s fees when benefits are wrongfully denied,” Chait said in an emailed statement.

Miami claimants’ attorney Mark Zientz applauded the provisions in the Bradley bill but said any formula that caps attorney fees, and does not increase them yearly, is “arbitrary and capricious.”

“What the legislation doesn’t do is curb the bad-faith claims handling that results in fees in the first place,” Zientz said.

Florida Chamber of Commerce members were still reviewing the bill and did not yet have a comment, said Carolyn Johnson, the chamber’s director of business, economic development and innovation policy.

The American Insurance Association said its members are “comfortable” with the loss cost rate-making model but that the key issue in Florida remains uncapped attorney fees.

“AIA believes the appropriate way to address the incentives for excessive litigation in the Florida workers’ compensation system would be to provide for claimant-paid fees as is done in the majority of the states,” said Ron Jackson, vice president for state affairs, Southeast region.

Jackson said he had never seen a proposal like the one regarding defense attorney fees.

David Langham, chief deputy judge of the state Office of Judges of Compensation Claims, called SB 1582 “interesting.”

“The attorney fee language is really just a reversion back to 2001,” he said. “There will be those who argue that going back to 2001 will lead us back to whatever crisis was perceived that led to changes in 2003.”

If passed, SB 1582 would take effect July 1.

“While I believe comprehensive legislation to overhaul the entire workers’ compensation system and reduce rates is our ultimate goal, the current cycle of enacting laws that impact businesses, only to have those changes overturned by the courts, creates instability for businesses that must be avoided,” Bradley said in the press release. 

“My goal in filing this bill is to concentrate efforts on stabilizing rates and introducing more competition between insurers. The bill also incorporates recent court decisions to avoid costly and protracted litigation,” he said.

A Senate summary of SB 1582 is here.