The philosophy behind and the purpose of the enactment of theworkers' compensation statutes in the various states was, and stillis, to promptly provide benefits to an injured employee for coveredand compensable injuries with a minimum of delay and hassle.

The workers' compensation system started out with an exclusiveremedy provision that would not allow the injured employee tocollect workers' comp benefits and then sue the employer under atort theory for damages in excess of the workers' compensationbenefits. If the employee elected to pursue workers' comp, thenworkers' comp would be the exclusive remedy allowed to him orher.

When benefits are not properly (and promptly) rendered, manystates provide for penalties and fines while still retaining theexclusive remedy provision. For example, California can—andwill—impose fines and penalties but does not allow bad faithclaims.

A California court stated he underlying philosophy of workers'comp In Hutchinson v. Workers Comp Appeals Board, 209 Cal. App.3^rd 372 (1989):

The underlying policy of the workers' compensationstatutes and their constitutional foundation as well as therecurrent theme of countless appellate decisions on the matter, hasbeen one of pervasive and abiding solicitude for theworker.

The states that do allow bad faith claims generally require thatthe acts of the employer/carrier rise above the level of merenegligence. Acts require a level of both negligence andknowing unreasonableness, such as willful, wanton, conscious, orreckless disregard of the consequences of the action.

Some states, Hawaii for example, will allow bad faith tortclaims to be pursued if the actions of the claims personnel meetthe negligence standard of unreasonably denying or delayingbenefits.

Hawaii statutes actually provide for a presumption of coveragefor a workers' compensation claim unless and until provenotherwise. In most jurisdictions the presumption is part of theindustry standard, subject to reasonable evidence to the contrary.Hawaii Revised Statutes Chapter 386-85 provides:

Presumptions. In anyproceeding for the enforcement of a claim for compensation underthis chapter it shall be presumed, in the absence of substantialevidence to the contrary:

(1) That the claim is for a covered work injury

(2) That sufficient notice of such injury has beengiven,…

According to Steven Plitt, a Phoenix defense attorney:

“In the following states, the courts have held that theworkers' compensation insurer is entitled to immunity under theexclusive remedy provisions of the relevant state workers'compensation act: Alabama, Arkansas, California, Connecticut,District of Columbia, Georgia, Idaho, Illinois, Indiana, Kentucky,Louisiana, Massachusetts, Minnesota, Missouri, Nebraska, NewMexico, New York, Pennsylvania, Rhode Island, South Carolina andWashington.

The states whose courts have allowed a common-law bad faithcause of action against workers' compensation insurers are:Arizona, Colorado, Delaware, Hawaii, Iowa, Minnesota, Mississippi,Montana, Nevada, North Carolina, Ohio, Oklahoma, South Dakota,Texas and Wisconsin.”

New Mexico, which does not allow bad faith compclaims, publishes a booklet titled, “Remedies andResponses to Improper Practices or Bad Acts.” In thebooklet, the state asserts that for the workers' compsystem to function as designed, everyone must be honest andtrustworthy:

The workers' compensation system is intended to provideinjured workers, quickly and efficiently, with the medical care andindemnity benefits to which they are entitled, at a reasonable costto their employers. For the system to function at its best, allparticipants have to be honest and trustworthy. That is a generalstandard, and it applies to everyone in the system.

The workers' comp system in the various states will work as longas all participants are honest and trustworthy. Whenparties to the system forget and depart from the philosophy andpurpose of the comp system is when problems arise which can lead tofines, penalties, audits or bad faith claims.

The Duty to Investigate

If the worker makes a claim for a non-existent, inflated ornon-work-related injury, then the defendants—the employer, carrier,and claims adjuster—hold the purse strings, most of the power andhave a huge bank account with which to investigate and prove thatthe claim is bogus. There is a definite disparityof bargaining power between the employer/carrier and the injuredworker. The employer/carrier must, as many courts have ruled, actin good faith and deal fairly with the parties to the insurancecontract, including the injured worker.

If there is a reasonable basis to believe that the claim doesnot arise out the employment and/or did not occur in the course ofemployment, then the defendants have a duty to investigate and denyif appropriate. Delaying or denying benefits is appropriate if andonly if the defendants promptly, properly and objectivelyinvestigate and evaluate the claim and document the basis for delayor denial.

The workers' comp system was basically designed to benon-adversarial and for the defendants to properly andhonestly pay compensable claims without forcing the injured workerto jump thru needless hoops or file for hearings when benefits aredelayed or denied. The defendants should not force the injuredworker to file for a hearing to collect benefits, unless thedefendants have a genuine and reasonable belief, based on aproper and timely investigation, and have documented a reasonablebasis to contest the claim as non-compensable.

Paying Claims, Not Bolstering Profits

The temptation on the part of one or more of the defendants todelay or deny comp benefits to further their own financial gain canlead to the mishandling of legitimate claims. The employer, carrieror adjusting outfit may have an incentive or bonus program tied tothe reducing the number of comp claims or reducing the benefitspaid.

In the article, “Slouching to Gomorrah: Adjuster Pay Plansand Bad Faith,” which appeared previously in ClaimsMagazine, Kevin Quinley, CPCU, made some interestingpoints. Although he was addressing insurance carriers and claimsadjusters, the same rationale goes for employers, especially inworkers' comp cases.

“The job of the claims department is to pay claims,” Quinleystated. “The adjuster's job is not to turn a profit, to advance acompany's A.M. Best rating or to max out on the incentivecompensation plan. Once these factors start seeping into theadjuster's consciousness at the file-handling level, mischiefcreeps in. Dysfunctional incentives drive suspect claim practices.”

The delay or denial of benefits may result from an understaffedclaims office, an overworked adjuster, a poorly trained adjuster, avindictive employer, an improper incentive program, or any of anumber of other unacceptable reasons.

Some of the claims handling that has resulted from these reasonsand others led legislatures to impose fines and penalties andaudits on defendants in an attempt to convince the defendants toproperly adhere to the intent of the workers' comp system. Aproblem with the use of fines and penalties is that some stateshave the fines and penalties payable to the governmental body andnot to the injured worker.

While fines against the carrier or self-insured may have somedeterrent effect, they do little or nothing to alleviate thesuffering of the injured worker or to compensate him for beingdeprived of his benefits by the wrongful act of the claimshandler.

Many courts have ruled that the workers' comp carrier has a dutyof good faith and fair dealing to the injured worker underthe workers' comp policy in the same manner as to the named insuredunder any other insurance policy or contract.

If and when these legislative measures fail some of thelegislatures or the courts may conclude that a stronger measuremust be taken, namely to allow bad faith tort claims to be filedoutside of the workers' comp administrative system. The rationaleexpressed by some courts has been that the injury or damage causedby the claims handling arouse out of handling the claim as opposedto arising out of or in the course of the injured workers'employment.

In some states, the courts have reasoned that subsequent to theworker's comp accident and injury, if the unreasonable claimshandling causes additional pain, suffering, distress or damages inaddition to the initial comp injury, the responsible party can besued under a tort theory for knowingly, willfully, or recklesslyinflicting injury or damage.

Certain states will allow the tort claim for bad faith only ifthe injured worker is successful within the comp system, whereasother states will allow suit for damages because of unreasonabledelay and or denial even if the claim is eventually found to benon-compensable.

Romano v. Kroger & SedgwickCMS

A California case still winding through thejudicial system offers insight. Themismanagement of a California workers' compensation claim is beingblamed for an injured worker's severe infection and resultantdeath. The ongoing case is drawing ire fromvarious associations, including the California Applicants'Attorneys Association (CAAA), which is lobbying that criminalcharges be filed against Sedgwick Claims Management Services, thethird-party administrator involved in the claim, as well as one ofits adjusters.

The initial workers' compensation claim originated when CharlesRomano injured his shoulder and cervical spine on Dec. 20, 2003while stocking shelves at a Ralph's grocery store (part of TheKroger Co.) in Camarillo, Calif. After undergoing surgery for theresultant injuries on August 29, 2005, Romano contractedmethicillin-resistant straphylococcus aureus (MRSA), which not onlycaused renal and pulmonary failure but also paralysis below theshoulders (from C8 down).

Romano later sought treatment for the serious infection at theVentura County Medical Center, where he had no choice but to useMedi-Cal—the state's version of Medicaid—because Sedgwick refusedto authorize treatment. In fact, Medi-Cal paid for Romano's medicalbills dating from November 2005 through February 2007, ultimatelypicking up a tab for $300,000.

Fatal Consequences

On October 25, 2006, a workers' compensation judge issued anamended findings and award, ruling that the MRSA infection was a“compensable consequence” of Romano's work injury. Under thejudgment, Sedgwick was required to pay for all reasonable expensesrelated to medically treating the infection. However, theself-insured employer—Ralph's, a Kroger company—as well as SedgwickCMS, the acting TPA, failed to comply. Ostensibly ignoring thejudge's orders, the entities continued to deny and delay Romano'streatment.

Sadly after numerous hospitalizations, Romano's conditioncontinued to deteriorate, leading to his death on May 2, 2008. Hedied at Community Memorial Hospital from cardiorespiratory arrest,respiratory failure, and pneumonia, all caused by his industrialMRSA infection and related medical conditions. Remarkably, Sedgwickdenied payment until the bitter end, refusing to grant treatment atCommunity Memorial.

As of April 16, 2013, the date of the Opinion and Decision AfterReconsideration, the medical bills had still not been paid, evenafter the October 25, 2006 award.

Legal and Ethical Oversights

In May of this year, the state Workers' Compensation AppealsBoard (WCAB) referred Sedgwick CMS to the Division of Workers'Compensation's Audit Unit for “unreasonably delaying or denyingtreatment for a patient who was dying from an infection hecontracted after undergoing surgery for a compensable work injury.”

In the decision, Romano v. Kroger Co., the WCAB chargedthat Sedgwick demonstrated “blithe disregard for its legal andethical obligations and a callous indifference to the catastrophicconsequences of its delays, inaction and outright neglect.”

The WCAB upheld penalties imposed against Sedgwick CMS in theamount of the maximum penalty allowed by law—$10,000 for each of 11instances of unreasonably delaying medical care.

Covering the case, Greg Jones, the Western Bureau Chief atWorkCompCentral, reported in “California Applicants' AttorneysAssociation Wants TPA, Adjuster Prosecuted for Workers' Death,”that the CAAA is now urging the Ventura County District Attorney'sOffice to file criminal charges against Sedgwick Claims ManagementServices and Theresa McDivitt, the claims adjuster who handledRomano's case.

The Specter of Bad Faith

Remarkably, in the Romano v. Kroger/Sedgwick case thethreat of fines, penalties and audits apparently did nothing todeter the TPA from what the WCAB, in its April 16, 2013 Opinion andDecision After Reconsideration, called “a callous indifference tothe catastrophic consequences of delays, inaction and outrightneglect,” as noted above.

The WCAB adds that “the adjuster studiously avoided informationthat might lead to the provision of benefits, a tactic that mayhave saved her employer some money in the short run—at great costto Mr. Romano—but which clearly violated the demands of section4600.”

The WCAB further stated the Defendant's Petition forReconsideration “cites no evidence in the record indicating that itmade any serious, timely investigation into the applicant's April2008 hospitalization. This breach of defendant's affirmativestatutory and regulatory duties exemplifies defendant's efforts toevade liability, through a see-no-evil, hear-no-evil, passiveapproach to claims administration in a catastrophic, life-and-deathcase…”

In some other states, when the courts or the legislaturerecognized that fines, penalties and audits were not persuasive inconvincing the defendants to properly handle workers' comp claimsand provide the injured worker with the needed medical care andwage benefits, the tort of bad faith has been allowed. Californiamay soon follow this path.

Avoiding Bad Faith

So what can we, as an industry, learn from the Romano tragedy?Whether your state follows the exclusive remedy rule or allows badfaith lawsuits, the workers' compensation claim should be handledin such a manner as to preclude any allegations of improperconduct.

When the claim is reported or made known to the employer and/orcarrier, the investigation to determine compensability should beprompt, objective, and reasonable. If the injured worker's versionof the accident and injury indicates a compensable claim, and thereis no reasonable basis or red flag to indicate otherwise, then theadjuster should proceed with accepting the claim and providingbenefits as promptly as possible.

James J. Markham, editor of Principles of WorkersCompensation Claims, an Insurance Institute of Americatextbook, explains the Burden of Proof:

“In most areas, the claimant has the minimal burden of proof toshow that he or she sustained an accidental injury arising out ofand in the course of employment. This is not a rigorousstandard. A claimant=s uncorroborated testimony may establisha prima facie case of compensability. Once the claimant meetsthis burden of proof, the burden shifts to the employer/insurer toshow why the claimant's injury is not compensable.”

If there is a reasonable basis or red flag indicating possiblenon-compensability, then an investigation should be promptlyinitiated and completed. The adjuster should give at least equalconsideration to the injured worker and try as hard or harder toprove compensability as he does to prove non-compensability. The claims handler should not focus solely on finding an excuse orbasis for denial or delay. It would be bad faith to ignorefacts supporting compensability while trying to find facts tosupport a denial.

A denial or delay in providing benefits should not be based onspeculation, rumor or ambiguous information. An investigation andcoverage decision cannot rely on a gut-feeling, or a doubt by theemployer or the adjuster. Any denial or delay should be based ondocumented and proven facts and explained as such in thefile. If the adjuster cannot clearly list the facts and proofbeing relied on to deny or delay the claim, then strongconsideration should be given to accepting and paying the claimwithout delay.

To do otherwise is to invite what has become a commonresult—fines, penalties, audits or a lawsuit for bad faith. If yourstate has not allowed bad faith lawsuits in workers' comp cases, anegregious enough case might be a tipping point.