The Senate Judiciary Committee is now considering proposed Federal legislation that will have significant impact upon Workers' Compensation systems throughout the United States. Since the enactment of workers' compensation legislation decades ago, asbestos and other latent disease claims continue to be an enormous challenge to compensation programs.

Following years of debate, Congress has embarked upon consideration of a universal system to provide benefits to the victims of asbestos exposure. The legislation promises to deliver an estimated $140 billion over the next 30 years to hundreds of thousands of injured workers and their families.

The proposed Federal legislation, S. 852, Fairness in Asbestos Resolution Act of 2005, sponsored by Sen. Arlen Spector (R-Pa.) with support from Sen. Patrick Leahy (D.-Vt.), would establish a privately funded , publicly run trust fund. Public Citizen has reported that the legislation is heavily supported by the Asbestos Study Group (several Fortune 500 Companies), many large asbestos firms and Goldman Sachs, a leading Wall Street investment banking firm, all of who will reap vast economic benefits should the legislation be enacted.

The legislation will create massive inequities in the current compensation system, will generate havoc and chaos with the presently functioning workers' compensation systems through out the country and will ultimately place a greater burden upon the Federal Medicare system. The proposed legislation will encourage forum shopping in workers' compensation actions and circumvention of the traditional compensation payment process to avoid payments that would be potentially subject to subrogation.

The State workers’ compensation programs were enacted almost 100 years ago as remedial social legislation. They function as an efficient and effective method of providing benefits to injured workers in an expeditious fashion by use of an administrative process as an alternative to civil litigation. 

Shifting the Economic Burden
If Congress enacted with the proposed subrogation provisions claimants would be encouraged not to file a State workers’ compensation claim and instead merely file a claim solely against the Federal Asbestos Injury Resolution Fund. This would shift the economic burden from the employers and their workers’ compensation insurers in those jurisdictions.

Since the cost of workers’ compensation insurance is based on wages in effect at the time of employment, the insurance premiums for employees exposed to a substance such as asbestos with a disease latency of 30 or years, would have been paid by employers to insurance carriers and may never be used to pay claims.

Workers’ compensation insurance carriers are in most cases not the same carriers who insure third party defendants. Such activities will result in a degradation of the workers' compensation program by shifting liability to those who were not primarily responsible for providing workers' compensation coverage including Medicare and Social Security.

If State workers' compensation systems no longer pay workers for their lost wages and medical bills, Social Security and Medicare will likely do so, creating an additional economic burden on those programs. Medicare is acutely sensitive to reimbursement issues and is presently aggressively and successfully seeking reimbursement of conditional payments from Workers' Compensation insurance carriers for post enactment exposures under the Medicare Secondary Payment Act. 

A recent report revealed that Medicare is already recovering $23 Billion in medical costs that should be paid by the workers' compensation system. JP Leigh & JA Robins, "Occupational Disease and Workers’ Compensation: Coverage, Costs, and Consequences", Milbank Quarterly, Vol. 82 (2004).

A Threat to the Diverse State Systems
The proposed subrogation provisions will create geographically imposed financial inequities since all State workers' compensation systems do not mandate liens and offsets of liability awards from workers' in a uniform fashion. While some State systems provide that an injured worker is required to reimburse the 3rd party defendant (ultimate wrongdoer) others do not.

In some States there is no lien for sums paid pursuant to a workers' compensation resolution and in other States a lien exists only for compensation, medical, surgical or hospitalization benefits paid by the workers' compensation carrier. Additionally, the State workers' compensation systems differ on whether reimbursement includes the amount of the costs and expenses incurred in the prosecution of the 3rd party claim.

The State workers' compensation programs differ on what benefits if any are subject to subrogation from recovered benefits in workers' compensation dependency actions. In most jurisdictions benefits awarded in a workers' compensation dependency claim are not subject to reimbursement to the workers' compensation carrier if there is a third party award or settlement.

Furthermore, what constitutes dependency status in a workers' compensation claim differs statutorily in each State jurisdiction. Each State has its own eligibility criteria, period of payment and amount of payment for dependency benefits.

The method for determining an award due to asbestos exposure in a workers’ compensation action differs from jurisdiction to jurisdiction. Each jurisdiction has different definitions of disease, eligibility criteria and disease factors in imposing workers’ compensation liability. In many jurisdictions workers’ compensation disability is awarded for pulmonary and internal residuals, including malignant conditions.

The awards are not separated as to specific industrial causation since the industrial environment where the worker was exposed contained many toxic substances and the resulting disease process occurred as a result of the synergistic effect of the exposure to many toxic substances over a long exposure and latency period.

In some jurisdictions traditional factors are taken into consideration including tobacco exposure and in others pre-existing diseases may be discounted in reaching the ultimate compensation resolution. Further disparity exists in the apportionment of responsibility, statute of limitation issues, and, payment rates.

The priority of payment and reimbursement benefits to workers’ compensation insurance carriers from third party defendant recoveries differs from jurisdiction to jurisdiction. In some jurisdictions benefits are paid by workers' compensation insurance carriers, some are paid by self-insured employers and some are paid by pooled insurance funds.

Workers' compensation insurance is usually sold based upon experience rating of specific industries, and based upon the wages in effect at the time of employment and retroactively assessed after the policy period. The priority of reimbursement is not uniform in each jurisdiction where subrogation is now mandated. This inconsistency is partially based upon the fact that the periods of payment vary in each jurisdiction.

Each State compensation system has different rules creating a unique national mosaic of benefits. The individual State programs have separate rules to qualify for benefits and they vary greatly with regard to the amount of benefits paid. Therefore the liens which employers and insurers may place on third party awards to recoup benefits vary.
Additional inconsistencies exist in each State's subrogation rules, customary negotiation procedures and amounts subject to liens. In many claims the employer or insurance carrier do not perfect a lien against the third party wrongdoer. In many instances there is no subrogation of claims at all. A federal law that permits subrogation of workers' compensation awards would create an inconsistent and inequitable compensation program to asbestos victims and their dependents.

The mechanisms for distribution of benefits in the workers' compensation arena vary by jurisdiction. The proposed law will generate great inconsistency in reimbursement since the State laws vary so greatly on what is in fact subject to a lien. In some instances court approved judgments and orders approving settlements are utilized and in others options are available for the payment of lump sum benefits that are not consider traditional workers' compensation payments.

In many of the lump sum resolutions the payment is not deemed to be a payment of workers' compensation benefits except for insurance purposes only and therefore are not subject to subrogation liens by the ultimate wrongdoer.

In some jurisdictions the subrogation reimbursement can be avoid entirely by the dismissal of the workers' compensation action and the subsequent payment through the release and dismissal of the appeal. Some workers’ compensation statutes provide that a workers’ compensation award paid pursuant to a lump sum payment my not be lienable and not subject to subrogation by a third party defendant in a civil action since the payment is not considered a payment of workers’ compensation benefits. 

A similar result will occur when a matter is settled for a lump sum through a release and dismissal of a right to an appeal in the workers’ compensation action. Furthermore, some jurisdictions permit lump sum payments to be paid to injured workers for unauthorized medical treatment which are also not considered to be payments of workers’ compensation benefits.

The potential adverse consequence of enacting this legislation is enormous. In its present form, by allowing subrogation of workers' compensation claims, the proposed legislation would cause major inconsistencies and inequities in the delivery of State workers’ compensation benefits to asbestos victims. In many instances it would eliminate the incentive of filing State workers’ compensation claims.

It would also shift and generate additional economic burdens upon the Federal benefit system. It would impair Medicare’s ability to recoup conditional medical payments from responsible workers' compensation insurers and the Social Security Administration’s ability to offset benefits workers’ compensation awards.

By Jon L. Gelman.
Jon L. Gelman, presented testimony to the US Senate Committee on the Judiciary concerning the Fairness in Asbestos Resolution Act of 2005 at a hearing in January 2005.

Cite as:
9 Workers' Compensation & Workplace Injury Section Newsletter 2, p.1, ATLA, Summer 2005.