When it comes to major changes in the insurance code, they typically follow the same pattern: initially, they are met with some public outcry from consumers that makes its way into the media and generates the kind of political pressure that eventually moves the legislature into action. Then the legislative battles take shape as lawmakers start to react to their constituents, while the various special interest groups start creating the framework for laying out their demands in defending undesirable law changes. Since the hearts of the battles span only a 60-day regular session and often hinge on just a handful of votes, the attention devoted to the issues is widespread and the subject of much debate and education. In the aftermath of the legislative process, there is also a sense of relief after expending an intense amount of energy and concentration when so much is on the line.
While the legislative process is often seen as the conclusion of an issue, the truth is that lawmakers don't have the final word. That privilege is the courts' and within any major insurance issue, whether it be workers' compensation, medical malpractice, or homeowners' insurance, there are innumerable provisions that become the subject of litigation. This is one reason why in the immediate aftermath of a major legislative reform act's passage, there is often a lag between the reform's passage and the market's response.
One such example of this process is the 2003 workers' comp reforms and the changes it made to claimant attorneys' fees. Addressing claimant attorneys' fees was a top priority of employer/carriers and a cornerstone of the 2003 reforms. At issue was the payment of hourly fees, which had its genesis in a 1990 court ruling that found that the state's statutory reimbursement schedule did not adequately compensate attorneys. Critics argued that the court's decision represented a case of judicial activism that overstepped the statutory intent of the law, which contained no reference to hourly fees. As a result, critics argued that the ruling created an environment that led to attorneys filing multiple petitions for benefits and prolonging cases to earn higher fees. A condition made worse by what some considered a low threshold for injured workers to qualify for permanent total disability benefits.
After a tough fight, lawmakers responded by making a series of changes to claimant attorneys' fees. But it has taken three years for those changes to be fully tested by the courts. Now, however, it appears those law revisions have finally passed their final test after the First District Court of Appeals (DCA) and the Florida Supreme Court handed the state's employer/carriers a major victory by upholding the statutory changes. Among other things, the court rulings spelled out the validity of eliminating hourly fees and found no basis that the current statutory fee schedule is preventing claimants from finding attorneys willing to take their cases. The rulings by the DCA in the case of Jean Lundy and Charles Williams v. Four Seasons Open, Grand Palm Beach and the Liberty Insurance Group, and a Supreme Court decision not to review a similar decision in Wood v. Florida Rock Industries, also raised the question of what legal challenges remain open to the attorneys' fee statute.
Background
One of the many debates during the 2003 reforms was the push by employer/carriers to all but eliminate hourly fees on the basis it would reduce overall costs and speed the delivery of benefits to workers. For their part, claimant attorneys argued the changes were too restrictive and would penalize injured workers, especially in cases where the dollar amount of the benefits would preclude attorneys from taking their cases. Also, the attorneys said that by not imposing a similar statutory fee cap on defense attorneys, it created an unfair playing field where employer/carriers could force injured workers to settle for smaller settlements. Despite the opposing arguments, lawmakers agreed to a series of changes designed to curb fees.
Under the 2003 law, lawmakers retained the current statutory fee schedule, which calls for claimant attorneys to receive 20 percent of the first $5,000 in benefits, 15 percent of the following $5,000, and 10 percent of the remaining benefits awarded in the 10-year period following the date of accident. For any subsequent benefits, the attorney would collect five percent.
Two other important changes were also approved by lawmakers. First, claimant attorneys' fees were restricted to $150 per hour up to a maximum of $1,500 for one medical claim per accident. As a means to further ensure that the fee provisions were followed, lawmakers also placed several prohibitions to prevent judges of compensation claims (JCCs) from approving fees higher than what was spelled out in the law. As noted in Chapter 440.34(1), Florida Statutes, "The judge of compensation claims shall not approve a compensation order, a joint stipulation for lump-sum settlement, a stipulation or agreement between a claimant and his or her attorney, or any other agreement related to benefits under this chapter that provides for an attorney's fee in excess of the amount permitted by this section."
Lundy v. Four Seasons
In essence, the Lundy case (31 FLW D1663) challenged the basic validity of the fee changes. The case had its origins in a joint stipulation agreed to by a claimant and employer/carrier whereby the claimant would receive $1,700 in past-due indemnity benefits and $1,900 in fees to the attorney based on 26 hours of work. JCC Shelley M. Punancy, however, denied the stipulation on the basis that she had no authority to approve a fee in excess of the statutory contingency schedule, which equaled $340. On appeal to the DCA, Lundy challenged the judge's ruling on three main points including that the law should be interpreted to allow for a higher fee and, therefore, the judge should have approved the joint stipulation. The appeal also raised a number of constitutional challenges, including whether the fee statute restricted an injured worker's right to counsel based on the premise that attorneys would not take cases due to the low fees.
Much of the Lundy case rested on one part of the statute, the interpretation of which was the subject of debate even as lawmakers were casting their final votes on the workers' comp reform bill. Namely, the opening sentence in Chapter 440.34(1), which found that "A fee, gratuity, or other consideration, may not be paid for a claimant in connection with any proceedings arising under this chapter, unless approved as reasonable by the judge of compensation claims."
The section is a prime example of the legislative process'pitfalls when numerous proposals are being considered in a contentious atmosphere, fueled by intense political pressure, and confined to a 60-day regular session or a special session lasting only days. The main challenge in the Lundy case hinged on the inclusion of the word "reasonable," which lawmakers were silent about defining. From the claimant's point of view, the word "reasonable" opened the door to receiving higher than the statutory fees, which legal experts opined would probably apply to cases where the benefit amounts were smaller. Another concern was that if the claimant's argument was accepted it could result in judges' awards varying from district to district, a situation that was the object of much criticism in prior years.
The argument in Lundy followed a similar case in Wood v. Florida Rock Industries, where the DCA had previously considered this issue. And in ruling on the issue raised in Lundy, the court relied on its reasoning in Wood. Specifically, that the court found that the legislature defined "reasonable" as applying to the "benefits secured" as opposed to any "services rendered." As such, the statutory fee schedule remains intact since it exclusively applies to the amount of benefits awarded. Per the Lundy ruling, "A JCC may approve a fee as reasonable under section 440.34(1), when the fee equals the statutory percentage of benefits secured." The court applied the same line of reasoning as to whether the JCC was correct in rejecting the $1,900 in attorneys' fees in the joint stipulation and following the statutory formula equaling $340.
Constitutional Issues
In addition to the more technical aspects of the law, Lundy also raised several constitutional issues, which require a high burden of proof given that the statute has the presumption of being valid. To overturn the law based on a constitutional challenge requires the claimant to successfully argue that the law is, in effect, unfair under any scenario that could be envisioned when the law is applied. For that reason, few laws of any kind are ever successfully overturned on constitutional grounds, which was the case in Lundy.
In Lundy, the claimant maintained that the attorney fee provisions violated a series of constitutional provisions, including the argument that the legislature overstepped its authority by restricting the judges to only apply statutory benefits. As to that point, the court noted that since the workers' compensation system is a creation of the legislature, "the state has a legitimate interest in regulating attorneys' fees."
More to the point was the argument that the attorney fees' provisions penalized injured workers by infringing on their right to representation by precluding them from contracting with attorneys for higher fees. As noted in the DCA's decision, "Chapter 440.34(1), is not discriminatory, arbitrary, or oppressive because it applies to all claimants in a workers' compensation proceeding, and sets forth a definitive formula for determining attorneys' fees so as to protect the claimant's interest in retaining a substantial portion of the benefits secured." The court also found there was no evidence to suggest that the statute is impairing the ability of injured workers to find attorneys willing to take their case.
Going Forward
Having been ruled on by the DCA, the question is whether the Supreme Court will have the final say. In a separate written opinion, DCA Judge J. Carr agreed with the court, but did offer some dissent with regard to the law. In regards to Lundy, Carr noted that JCC Punancy was constrained by the law to award only $340 in fees for the $1,700 benefits, which equals an hourly rate of $13.08–an outcome that Carr said "simply cannot be said to conform to the current, commonly understood definition of the term 'reasonable.'"
On the other hand, Carr noted that if an attorney secured $400,000 in benefits for a claimant within the first 10 years following an accident, the statutory fee would equal $40,750.
Based on his opinion that if "the hours reasonably expended [by the attorney] were, say, 65, the hourly rate would be $626.92," an amount that Carr suggested would be seen by most as reasonable, if not generous. For that reason, the court agreed to request that the Supreme Court consider whether the statute clearly and unambiguously establishes the percentage fee formula as the sole standard for determining whether a fee is reasonable.
But the one indication that the Supreme Court may decline to review the case is its recent decision to allow the DCA's decision in the Wood case to stand. In so doing, it reinforces the likelihood that any subsequent legal challenges to the fee schedule will have a high burden to be successful.
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