Proponents of a bill that would bar employees from suing for damages over bad-faith denials of workers’ compensation claims headed off a contentious fight, at least for now, by putting the proposal on hold for the remainder of the 2014 session.
Business and insurance associations had hoped to add the proposal, which stalled earlier in the session, onto another bill in committee. But they decided to shelve the plan in the face of stiff opposition from trial lawyers, the firefighters union and others who worried the bill would severely restrict the amount of damages employees could receive when their claims are denied in bad faith.
Rep. Karen Fann, R-Prescott, whose bill the proposal was to be tacked onto, said she will hold stakeholder meetings in the offsession to try to find a solution that both sides can accept.
Lobbyist Marc Osborn, who represents the Property Casualty Insurers of America, said the proposal, which was originally introduced as HB2455, may have still had enough support to pass. But advocates of the plan were trying to avoid the tremendous fight it would have caused.
“The question was a matter of, did you want to have a very intense battle on this issue?” Osborn said. “Could we have got it passed? We think so. We’re not quite sure. I think we felt pretty confident we could’ve gotten out of the Senate. The House is probably a bigger question.”
Under state law, workers’ compensation claims go before the Industrial Commission of Arizona. But a 1990s Arizona Supreme Court ruling gave workers the right to sue for damages in Superior Court over claims that are denied or unnecessarily delayed in bad faith. HB2455 would have given the Industrial Commission exclusive jurisdiction over such cases, which proponents say have spiked since the Supreme Court ruling.
Rep. Eddie Farnsworth, R-Gilbert, who sponsored the bill, said HB2455 will simply return exclusive jurisdiction to the Industrial Commission, which it had prior to the court ruling.
“We now have law firms that are mining files to try to get them into Superior Court where they can get punitive damages,”
Farnsworth told the House Insurance and Retirement Committee in February. “So we’ve seen a proliferation of these bad-faith tort claims in workmens’ comp.”
That didn’t sit well with opponents, who say the elimination of their ability to sue in court would dramatically reduce the amount of money that could be awarded to people who are unfairly denied workers’ compensation claims.
INCREASING THE PENALTY AND DAMAGES
The bill would have increased the damages that the Industrial Commission could award from $500 to up to $5,000, and increased the penalty for repeat offenders to $10,000 from $1,000. But that is still a far cry what some workers need, some say.
Attorney Richard Langerman, who lobbies for the Arizona Trial Lawyers Association, said large amounts of damages are warranted in some extreme situations. He cited a recent case in which a McDonald’s employee won damages after repeated denials of her workers’ compensation claims caused other serious health problems.
“If this bill was the law, all of that intentional misconduct and the fact that it caused her injuries, it would have been too bad. If you win, you can make McDonald’s pay a $5,000 fine,” Langerman said.
Some employees would still be able to sue in federal court under federal antiracketeering laws. A group of Phoenix firefighters last year sued their insurance provider under the federal Racketeer Influence and Corrupt Organizations Act, more commonly known as RICO.
But those kinds of cases require plaintiffs to show a pattern of offenses. Most bad-faith claims wouldn’t meet the standards for such cases, Langerman said.
“That’s not the behavior you normally see that leads to problems,” he said. “That’s not criminal racketeering. That’s just greediness or stupidity.”
During a committee hearing in February, Rep. Debbie McCune Davis, DPhoenix, suggested that HB2455 would make it more profitable for an insurance carrier to pay a relatively small fine instead of a $20,000 medical procedure.
But Osborn said the recent increase in bad-faith claims is a “disturbing trend” that must be addressed.
“I think under the current system it’s kind of jackpot justice where they’re going after huge penalties. They use that as leverage,” Osborn said.
While the Industrial Commission can’t order the same kinds of damages as a Superior Court judge, Osborn noted that the bill would have increased the amounts it could award, and that insurers would face multiple penalties for multiple violations. And the lower number would, in part, be offset by the fact that the commission could settle claims far more quickly than the court system, which is expensive and can drag on for a couple of years, he said.
“What we were proposing is a fast, quick remedy with enough penalties that would deter bad actors,” Osborn said.
Osborn and lobbyist Jeff Gray, who represents the Arizona Chamber of Commerce and Industry and the Arizona Self-Insurers Association, said they’d be open to exempting public employees. Gray said public employees already lack the ability to bring bad faith claims in Superior Court, though Langerman and others disagreed.
But some public employee groups say they still wouldn’t support the bill if they were exempted. Mike Colletto, a lobbyist for the Professional Fire Fighters of Arizona, said his group still wouldn’t support the bill in that situation.
“How could we look at the public that we serve and say, ‘We cut a deal for ourselves and you’re out?’ That’s just not right,”
Fann, R-Prescott, said the intent of the bill is good. But she said she’s concerned that it would have unintended consequences for employees.
“We need to make sure that if we’re going to do laws that they are protected as well,” Fann said. “I just wasn’t 100 percent comfortable that that other side had been addressed yet.”