Filed Under:Agent Broker, Coverage Issues

Workers' Comp & Bad Faith: Unacceptable Oversights

The Insurer's Duty and the Romano Case

The philosophy behind and the purpose of the enactment of the workers’ compensation statutes in the various states was, and still is, to promptly provide benefits to an injured employee for covered and compensable injuries with a minimum of delay and hassle.

The workers’ compensation system started out with an exclusive remedy provision that would not allow the injured employee to collect workers’ comp benefits and then sue the employer under a tort theory for damages in excess of the workers’ compensation benefits. If the employee elected to pursue workers’ comp, then workers’ comp would be the exclusive remedy allowed to him or her.

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

Presumptions. In any proceeding for the enforcement of a claim for compensation under this chapter it shall be presumed, in the absence of substantial evidence to the contrary:

There is a definite disparity of bargaining power between the employer/carrier and the injured worker. The employer/carrier must, as many courts have ruled, act in good faith and deal fairly with the parties to the insurance contract, including the injured worker.

If there is a reasonable basis to believe that the claim does not arise out the employment and/or did not occur in the course of employment, then the defendants have a duty to investigate and deny if appropriate. Delaying or denying benefits is appropriate if and only if the defendants  promptly, properly and objectively investigate and evaluate the claim and document the basis for delay or denial. 

The delay or denial of benefits may result from an understaffed claims office, an overworked adjuster, a poorly trained adjuster, a vindictive employer, an improper incentive program, or any of a number of other unacceptable reasons. 

Some of the claims handling that has resulted from these reasons and others led legislatures to impose fines and penalties and audits on defendants in an attempt to convince the defendants to properly adhere to the intent of the workers’ comp system. A problem with the use of fines and penalties is that some states have the fines and penalties payable to the governmental body and not to the injured worker. 

The ongoing case is drawing ire from various associations, including the California Applicants’ Attorneys Association (CAAA), which is lobbying that criminal charges be filed against Sedgwick Claims Management Services, the third-party administrator involved in the claim, as well as one of its adjusters.

The initial workers’ compensation claim originated when Charles Romano injured his shoulder and cervical spine on Dec. 20, 2003 while stocking shelves at a Ralph’s grocery store (part of The Kroger Co.) in Camarillo, Calif. After undergoing surgery for the resultant injuries on August 29, 2005, Romano contracted methicillin-resistant straphylococcus aureus (MRSA), which not only caused renal and pulmonary failure but also paralysis below the shoulders (from C8 down).

In the decision, Romano v. Kroger Co., the WCAB charged that Sedgwick demonstrated “blithe disregard for its legal and ethical obligations and a callous indifference to the catastrophic consequences of its delays, inaction and outright neglect.”

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

In some other states, when the courts or the legislature recognized that fines, penalties and audits were not persuasive in convincing the defendants to properly handle workers' comp claims and provide the injured worker with the needed medical care and wage benefits, the tort of bad faith has been allowed. California may soon follow this path.

Avoiding Bad Faith

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