In Duncan v. Workers’ Compensation Appeals Bd. (2009)179 Cal. App. 4th 1009, 102 Cal. Rptr. 3d 331, 74 Cal. Comp. Cases 1427, the Appellate Court was tasked with interpreting sections 4453(a) and (b)(7) and 4659(c) of the Labor Code. You will recall that section 4453(a) provides that for temporary total disability and permanent total disability for dates of injury on or after January 1, 2004, the earnings shall be (9) not less than $189.00, nor more than $1,092. Section 4453(b)(7) indicates that except as provided in section 4659 for injuries occurring on or after January 1, 2004, the earnings for permanent partial disability and life pension shall be not less than $157.50 nor more than $405.00.
Labor Code section 4659(c) provides as follows:
For injuries occurring on or after January 1, 2003, an employee who becomes entitled to receive a life pension or total permanent disability indemnity as set forth in subdivisions (a) and (b) shall have that payment increased annually commencing on January 1, 2004, and each January 1 thereafter by an amount equal to the percentage increase in the “state average weekly wage” as compared to the prior year.
In Duncan the injury occurred on January 20, 2004. The injury caused total temporary disability until October 20, 2006, at which time the injured worker had attained permanent and stationary status. Permanent disability was stipulated at 69½%. However, the injured worker was positive for HIV and Hepatitis B such that his overall disability was 100%. He applied for benefits under the Subsequent Injuries Benefit Trust Fund (SIBTF). The SIBTF began making payments to the injured worker as of October 20, 2006, at the rate of $728.00 per week, less the $200.00 per week permanent partial disability indemnity being paid by the carrier. Once the 422 weeks of permanent partial disability were paid out the SIBTF would be liable for the entirety of the indemnity benefit. The injured worker argued he was entitled to increased benefits by reason of the cost of living allowance increases (COLAs) that had occurred. [It should be noted that nowhere in the facts or discussion sections of the Duncan case is there an indication of the average weekly wage of the injured worker – all we know is that he was maximum for temporary total disability at the time of his injury.]
The Workers Compensation Administrative Law Judge found that the injured worker was entitled to the increase in benefits provided for in Labor Code section 4659(c) effective January 1, 2005. The rationale for this finding was that the COLA increase would apply effective on the first day of January immediately following the injury.
SBITF filed a petition for reconsideration arguing that no COLA should be applied to the permanent total indemnity benefit until January 1, 2007, since the first payment of permanent total disability did not commence until October 20, 2006, and the first adjustment for COLAs ought to occur on the following first day of January. (Note: SBITF’s argument would result in an initial payment to the injured worker of $728.00 and then calculation of the rate of indemnity pursuant to Table 14 on page 1572 of the Workers’ Compensation Laws of California, 2009 Edition. (This would result in payments of $764.10 from January 1, 2007, to December 31, 2007, $794.15 per week from January 1, 2008, through December 31, 2008, and $830.26 from January 1, 2009, throughout 2009.)
On Reconsideration, the Workers’ Compensation Appeals Board agreed with the trial judge indicating that each payment of total permanent disability indemnity or life pension benefits received on or after the first of January following the date of injury should be increased, no matter when liability for permanent disability arose or the first payment was made. SBITF filed a Petition for Writ of Review.
On appeal the Court stated that it typically would give great weight to the Workers’ Compensation Appeals Board’s interpretation of the law unless it contravened legislative intent. In determining that intent the Court looked at the clear language of the statute, giving significance to each word and considering the enactment in harmony with the statutory framework as a whole.
In determining the definition of “entitled” as used in Labor Code section 4659(c) the Court stated that by using the words: “an employee who becomes entitled to receive a life pension or total permanent disability indemnity”, the Legislature meant when the right to total permanent disability compensation or a life pension arises. That will not occur prior to the worker’s condition becoming permanent and stationary for total permanent disability. For a life pension “entitlement” arises once permanent partial disability has been paid for the scheduled number of weeks.
The next question addressed is the issue of when the COLA increases begin once entitlement to a life pension or total permanent disability is set. The Court looked to Labor Code section 3202, the liberal construction statute and to the clear language of Section 4659(c) and opined that the Legislature clearly stated that COLAs would commence on January 1, 2004, and be applied each January 1, thereafter. The Court considered the intention of the Legislature to ensure that the most seriously injured employees were protected from inflation.
The Court overturned the decision of the trial judge and the Workers’ Compensation Appeals Board and indicated that COLAs commenced on January 1, 2004, in accordance with the clear language of the statute. Essentially what this means is that for maximum earners with injuries on or after January 1, 2003, the date of payment of total permanent disability benefits or life pension benefits controls the rate at which those benefits will be paid regardless of the permanent and stationary date or the date of injury. That rate will be adjusted on January 1 of each following year.
WHAT ARE THE PRACTICAL IMPACTS OF THIS DECISION?
Although it is not totally clear on how the Appellate Court decision will apply in each situation, the following represents our best assessment:
1. In a case where the date of injury is March 21, 2007, and the average weekly wage is $1,450.00, temporary total disability benefits were paid through March 19, 2009 at $881.66 per week. The injured worker became permanent and stationary on September 1, 2009, and was found to be totally and permanently disabled. The permanent disability is payable at $958.01 based on the COLA adjusted rate in effect January 1, 2009.
2. Where an injury occurred on March 1, 2004, and the injured worker’s earnings were $1,200.00 per week, temporary disability was paid through February 28, 2009 at $833.33. The injured worker became permanent and stationary on September 1, 2009, with permanent disability of 75% payable at $270.00 per week for 491.25 weeks. At the expiration of the 491.25 weeks of indemnity, the life pension benefits will commence, payable at the COLA adjusted rate as of the date of commencement of the life pension since that rate takes into consideration the COLA adjustments made every year beginning January 1, 2004.
3. Where an injury occurred on March 1, 2004, and the injured worker’s earnings were $1,200.00 per week, temporary disability was paid through February 28, 2009 at $833.33. The injured worker became permanent and stationary on September 1, 2009, and was found to be totally and permanently disabled. Is his rate capped at $833.33 until the minimum wage for temporary disability exceeds that level?
4. Assuming a date of injury of March 1, 2004, an average weekly wage of $1,500.00 per week, and payments of temporary total disability through February 28, 2009, at the weekly rate of $881.66. The injured workers’ condition became permanent and stationary on September 1, 2009. Permanent disability advances had been made at the weekly rate of $200.00 per week pending trial. The rate was based on a panel QME whose report rated out to 60%. At trial the injured worker was found to be totally and permanently disabled with benefits payable at the weekly rate of $958.01. The carrier will need to pay the difference between that rate and $200.00 per week for the period from March 1, 2009 through the date the award is paid and then $958.01 thereafter always mindful of the COLAs that will come into effect on each January 1st, thereafter. When the state average weekly wage exceeds $1,500.00 per week which they probably will do in the next year, will further COLAs apply or not?
WHAT THE COURT DID NOT ADDRESS:
Where the injured worker’s wages are less than maximum, at what point, if ever, will the COLAs apply? In example 3 above, is the rate for the permanent disability benefit capped at $833.33 or will it be adjusted pursuant to the COLAs? Since there are both maximum and minimum levels for both life pension benefits and permanent total disability benefits, it is likely that there will not be an adjustment in the rate of payment in example 3 until the COLA-adjusted minimum average weekly wage exceeds $1,200.00 per week. So although it is unlikely that there will be a COLA adjustment for the injured worker in example 3 above, should the COLA adjusted minimum rate of indemnity reach his earnings of $1,200.00 he would then be entitled to COLAs annually thereafter.
Similar reasoning would apply to stop doing annual COLA adjustments in example 4 once the state average weekly wage exceeds $1,500.00 and in example 1 when the state average weekly wage exceeds $1,450.00. Whatever level of payment the injured worker would be entitled to receive at that point would remain the same. This may or may not be a scheduled rate. Since the current rate is based on maximum earnings of $1,437.01, it is likely that the next COLA adjustment will bring the maximum earnings level to about $1,498.00 and the next adjustment (2011) to about $1,561.00.
The injured worker in example 1 would have been entitled to the COLA adjustment in place for 2009, but likely not the full COLA adjustment for 2010. Assuming the state average weekly wage increases by the typical 4.25%, the maximum wage in 2010 will be about $1,498.08. That exceeds the wages of the worker in example 1. So the new COLA-adjusted rate would be this worker’s average weekly wage of $1,450.00 multiplied by .6667 to get his permanent total disability indemnity rate of $966.72.
The injured worker in example 4 would be entitled to the full COLA adjustment for 2010, but probably not for 2011. The new rate for 2011 would have to be calculated by multiplying his average weekly wage of $1,500.00 by .6667 – something a little less than the COLA-adjusted maximum rate for 2011 is apt to be.
This is a complicated decision with further appeals pending. Applying the law as argued by the WCAB in its recent Petition for Rehearing would somewhat simplify the issues and certainly would impact each of the examples given.
As a result of this decision it will be difficult to reserve for life pension benefits or permanent total disability benefits since payments may be occurring years away from the award and the first payment date of permanent disability. It will also be difficult to calculate the present value of those benefits for settlement purposes. An estimate given by the Department of Industrial Relations of the State of California is that the state average weekly wage increases by approximately 4.25 % per year. Perhaps that figure will give a rough estimate for reserving purposes of how the COLAs will affect indemnity payments year by year.
As a practical matter, benefits administrators will have to revisit all total permanent disability cases and all life pension cases where the dates of injury were on or after January 1, 2003, to make sure that benefits were properly paid. Failure to make that adjustment in benefits could result in penalties on the unpaid benefits of up to 25% pursuant to Labor Code section 5814.
PLEASE NOTE: The SIBTF petitioned for Rehearing before the Appellate Court. The petition was joined in by the WCAB which argued that the key issue had not been briefed adequately. Rehearing was denied. A Petition for Review was then filed with the Supreme Court of the State of California on November 25, 2009, and the Supreme Court initiated a case. No action has yet been taken on that Petition. The crux of the appeal by SIBTF is that the interpretation of the code by the Appellate Court causes a double increase in the life pension or total permanent disability benefits if the increase is retrospectively applied to January 1, 2004. The Board argues that since temporary disability benefits are being adjusted annually the COLA adjustment to total permanent disability benefits would result in an increase not contemplated by the legislature if the increase is applied retroactively to January 1, 2004.