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Court rulings prompt increase in comp costs, litigation

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Major state Supreme Court decisions in Florida and Oklahoma will impact workers compensation costs in these states, according to officials with Marsh L.L.C.

In April, the Florida Supreme Court ruled in Marvin Castellanos v. Next Door Co. et al. that the state's attorney fee schedule violated due process under state and federal law as it hindered an injured worker's ability to obtain legal representation.

In June, the Florida Supreme Court ruled that the state's 104-week cap on temporary total disability benefits was unconstitutional.

Both cases will impact workers compensation rates in Florida, which will rise for both new and renewing policies by 14.5% effective Dec. 1, 2016, as agreed to by the National Council on Compensation Insurance Inc. and the Florida Office of Insurance Regulation, Thomas Ryan, managing director, Marsh’s Workers’ Compensation Center of Excellence Market Research leader in New York, said during a webinar on Wednesday.

About 10.1% of the rate increase is directly attributable to the Castellanos decision in the first year, but the ruling could ultimately increase workers comp costs in the state by as much as 38%, according to NCCI.

“The long-term impacts could be much greater,” he said. “The expectation is that it will take a few years for the long-term cost impact to actually emerge.”

Since workers comp claims are expected to increase in Florida because of these rulings, Marsh also expects the costs of securing workers comp coverage to also rise depending on the type of structure and the significance of the exposure, said Dan Aronson, managing director, Marsh’s U.S. primary casualty placement leader.

“We’ve already seen workers comp insurers requesting increases for Florida workers comp coverage as we approach year-end renewals,” he said.

Employers should be proactive in trying to minimize the impact of these rulings, Mr. Ryan said.

“Avoiding civil litigation will be a key factor,” he said. “It will also be important to get the injured workers back to work in order to avoid paying permanent TD benefits and to be willing to settle cases that are ripe for resolution before reaching the courthouse.”

In Oklahoma, meanwhile, the state Supreme Court in September ruled Oklahoma’s Employee Injury Benefit Act, which took effect in 2014 and allowed employers to opt out of the state’s workers comp system by providing alternative benefits plans for injured workers, unconstitutional.

“Opt-out option in Oklahoma could only be reinstated by new legislation, but given that workers compensation rates in Oklahoma have declined significantly, it seems doubtful there will be any traction to push through an opt-out bill again,” Mr. Ryan said.

More than 50 companies that opted out have been given 90 days to either buy traditional workers comp insurance or become qualified in Oklahoma as a self-insured employer for workers comp.

“Many of those employers were in guaranteed cost programs previously,” he said. “We expect these employers will face very skeptical underwriters because of that missing period in their loss histories and because of that these employers will likely be paying a premium for coverage.”

“There’s some concern that employers that had opted out could face civil litigation since courts have invalidated their coverage, but we’ll have to wait and see if that litigation ever develops,” Mr. Ryan added.