March/April 2002 - Highlight

The Law Court's opinion in Kotch v. Protective Services (2002 ME 19), which was the subject of our last highlight article in COMP, continues to lead the headlines now that the governor has signed legislation modifying the impact of Kotch. It remains to be seen to what extent the newly enacted legislation, a textbook case study in political compromise, will alleviate the financial concerns raised by the Kotch opinion.

The Kotch Holding

In Kotch, the Law Court held that for the purpose of determining durational limits, the Board may "stack impairments" involving separate body parts, including body parts with a preexisting condition, not affected by the work injury. The only requirement for inclusion of a totally unrelated preexisting condition was that it contribute to the employee's loss of earning potential. The opinion predictably raised concerns that the percentage of employees qualifying for lifetime benefits would jump dramatically.

Had the Legislature not addressed the Kotch opinion, its impact still would have been tempered by the statutory requirement that the permanent impairment threshold for lifetime claims be adjusted annually to reflect a qualification rate of 25%. However, the carriers' exposure would have been significantly increased during the inevitable delay in adjusting the threshold appropriately. It could easily have taken years for the actuarial data and adjustment process to catch up with the burgeoning numbers of employees who would likely meet the 11.8% whole person impairment threshold. Furthermore, in the interim at least the short-term lump-sum settlement value of cases would skyrocket.

The New Law's Effect on Injuries Prior to January 1, 2002

The newly enacted legislation, which is retroactive to January 1, 1993 (with minor exceptions), distinguishes between dates of injury prior to January 1, 2002, and injuries on or after January 1, 2002.

For work injuries prior to January 1, 2002, the legislation partially overrules Kotch by removing from permanent impairment calculations those preexisting conditions which are neither aggravated nor accelerated by the work injury, but instead merely impact on the employee's earning ability.

In order to be considered, the preexisting physical condition or injury must be aggravated or accelerated by the work injury.

Under Kotch, preexisting impairment to a totally different body part which was neither aggravated nor accelerated by the work injury had to be considered in overall impairment if that preexisting impairment affected the employee's earning capacity. For example, an employee with a preexisting knee injury who developed work-related carpal tunnel syndrome would be able to argue that the knee impairment was includible in the impairment assessment since it restricted the employee from obtaining work which required climbing steps, or walking on uneven ground. If the Workers' Compensation Board accepted the contention that the additional restrictions attributable to the preexisting condition impacted the employee's ability to earn, then the respective impairment would be included in the overall impairment assessment.

Even under the new legislation, preexisting impairment relating to a different body part may be included if the work injury accelerates or aggravates the preexisting condition. For example, if the employee has a preexisting back condition, and then has a serious knee injury which affects his gait, he may have a medical argument that the abnormal gait aggravates his back problem.

It is also worthy of note that the language "is aggravated or accelerated" by the work injury neglects the prior statutory term of art: "significantly." In scenarios involving different body parts, as in the back/knee example, employee counsel will likely argue that the abnormal gait created by the work injury does not necessarily have to increase the preexisting impairment to the back; instead employee counsel will argue that by omitting the term "significantly," the Legislature "intended" that any discernable aggravation, no matter how minor, be sufficient to trigger inclusion of the preexisting impairment.

Another issue concerns the application of the "aggravate or accelerate" requirement to a preexisting condition involving the same body part as the work injury. That issue is whether the work injury actually has to create additional impairment to trigger inclusion of the preexisting impairment. Take for example an employee who has 12% pre-existing impairment to his back and suffers a work injury to the back which makes the back more symptomatic, but does not actually increase permanent impairment.

Must the Board assess 12% impairment to the work injury because it aggravated the preexisting condition, notwithstanding the fact that the work injury was not serious enough to add any permanent impairment? Although an argument can be made to support this bizarre result, the stronger argument is that a fair reading of the entire legislation should mandate a requirement that the work injury at least increases permanent impairment over that which preexisted the work injury.

The New Law's Effect on Injuries On Or After January 1, 2002

For work injuries after January 1, 2002, the Legislature added, in certain instances, to the type of preexisting conditions which may be included in the impairment assessment the type of condition Kotch allowed: an unrelated condition which is not accelerated or aggravated by the work injury, but merely decreases the employee's earning capacity beyond that decrease which is attributable to the work injury.

However, the Legislature did tack on the following requirements for inclusion of the preexisting condition in permanent impairment assessments of these post-2001 work injuries:

1. The preexisting condition must be on account of a prior compensable Maine Workers' Compensation injury.
2. A First Report of Injury must have been completed pursuant to section 303 in reference to the prior injury.
3. Benefits under the Maine Workers' Compensation Act must have been paid in reference to the prior injury.
4. The employee must not have lump summed the case if the case had a finding of permanent impairment equal to or in excess of the then-applicable permanent impairment threshold. (The editor believes the term "equal to" in this section was oversight, since lifetime benefits are available only when the permanent impairment threshold is exceeded.)

The limiting aspects of these requirements are significant not only in that they exclude conditions not caused by compensable Maine Workers' Compensation injuries, but also in that they limit the class of includible injuries to those which afford the lead carrier potential relief through either direct apportionment against the earlier carrier or possibly an offset against an earlier lump sum settlement.

Actuarial Requirements

The reader should keep in mind that the bulk of the controversy regarding what factors may or may not be included in the determination as to whether or not an employee is qualified for lifetime benefits exists because there is an inherent delay in adjusting the threshold to meet new legal assumptions. If there were a magic formula which instantly adjusted the threshold so that every year 25% of all claimants with permanent impairment would be eligible for benefits for the duration of their disability, then Kotch would not have raised such concern.

Included in the current legislation is Section 4, which is intended to alleviate the delay and inaccuracy inherent in the actuarial process by mandating the following:

1. The Board will retain two actuaries who are fellows of the Casualty Actuarial Society. Management and labor will individually decide upon one actuary so there will be no deadlock up to the point of appointment.
2. The actuaries must, in addition to actuarial modeling, include case data involving known noncausal work injuries for which the permanent impairment level is known or can be determined.
3. The actuaries must each submit a recommendation to the Board as to the adjusted threshold by September 30, 2002.
4. The threshold adjustment must be made by the Board by November 1, 2002.
5. If the Board fails to do so, the matter automatically goes to a non-appealable arbitration which will result in a decision by December 1, 2002.

Conclusion

The 1992 Workers' Compensation Act provides that 25% of all claimants with permanent impairment will be entitled to benefits for the entire duration of their disability notwithstanding the cap, and both business and labor signed on to the 25% concept.

Kotch was a controversial decision not so much because it was too liberal or conservative, but because it altered presumptions leading to the present threshold for lifetime benefits. Whether those presumptions were well founded or not is irrelevant now. The issue is how to temper the effects of the Kotch opinion, and improve the actuarial process so that the expectation of everyone as to what the percentage of claimants with potential lifetime cases would be will be met.

There is a continuing concern among the business community that the present legislation may not be sufficient to counteract the detrimental financial effects of Kotch. On the other hand, labor also has expressed its belief that the legislation is unfair. Hence, there is a likelihood of some continuing debate on the issues raised by the Kotch decision.

- Lawrence Goodglass, Esq.