The Duncan Case

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The Duncan Case
Not Good News for the California Workers’ Compensation Industry

What you Should Know

In November 2009 the 6th District Court of Appeal handed down a decision on the (Duncan v. WCAB) case. The end result of this decision, if it stands, will be that the claims that are already the most severe and overall costly will become increasingly severe and costly. These are the Total Permanent Disability & Life Pension claims.

Why this is Important

Claim costs continue to rise, fueled in part by regulated escalating benefit rates that are largely driven by automatic annual increases and Cost of Living Adjustments (COLA). The Duncan case specifically impacts the Cost of Living Adjustments for Total Permanent Disability & Life Pension claims.

Background Information

The Labor Code states that the benefit payments should be "increased annually commencing on January 1, 2004, and each January 1 thereafter." This COLA is applied each year based on the increase in the State Average Weekly Wage (SAWW). When applied reasonably compounded adjustments can result in significant (but appropriate) benefit increases over the lifetime of an injured worker. The Duncan case set out to interpret the legislative intent of the code and contemplated three possible interpretations:

Adjustments are applied beginning 1/1/04 to all claims regardless of the date of loss - (worst case for insurance industry & California businesses)
Adjustments are applied beginning 1/1 of the year following the date of loss
Adjustments are applied beginning 1/1 of the year following Permanent and Stationary status

Ultimately, the Court of Appeal interpreted the Labor Code according to scenario number one and decided that COLA should be applied beginning 1/1/04 regardless of the date of loss. This means that all claims will be subject to prior COLA’s retroactive to 1/1/04 regardless of the date of injury.

How the Controversial Decision Will Impact Your Claims:

•	The average annual Cost of Living Adjustment increase over the last 50 years is 4.7%
•	Future claims will automatically receive COLA’s for years prior to the actual date of injury
•	The application of COLA’s could actually result in a benefit greater than an employee’s earnings
•	COLA increases are compounded annually, resulting in significant benefit rate increases. For example, a weekly total permanent disability benefit paid at today’s rate of $986.69 will be $2,361.39 in 20 years and $3,737.96 in thirty years!
•	Compounded COLA’s will result in substantially higher reserves today.

CASE UPDATE

On March 24, 2010 the California Supreme Court rejected the Appeals Board decision and voted to grant a review of the Duncan decision. No date has been set for oral arguments, and a final decision is not expected until 2011.
– STAY TUNED