One of the hot topics of dispute resolution before the Division of Workers’ Compensation these days is recovery. Recovery is an attempt by an insurance company to recover overpaid benefits from a claimant by reducing the claimant’s future benefits by a set percentage until all overpaid benefits have been recovered. For years, it was a question of equity, and the Division made recovery decisions on the basis of equity. The insurer’s ability to recoup overpaid benefits has been significantly reduced, and where it can, the amount that can reduce benefits may not be based on anything to do with fairness or equity.
THAT’S NOT FAIR!
Recovery is now governed by Rule 128.1 (e). That rule went into effect on May 16, 2002. Plaintiffs were not immediately quick to accept the windfall gains allowed by the rule, and it wasn’t until nearly two years later that the rule began to feature prominently in recovery discussions. of the Appeals Panel. This is partly due to the lack of cases that were raised on the subject. Even since 2004, when the Appeals Panel issued a “significant” decision on the matter, the plaintiffs have not aggressively pursued the use of the rule to their advantage. That rule, and the decisions that address its interpretation, are now widely known, and cases involving redress are increasingly common.
Rule 128.1 (e) significantly limits an insurer’s ability to recover overpaid benefits. It has been interpreted to limit recovery only to those situations in which the overpayment is the result of a calculation error or a change in the average weekly wage (APD 033358-S and 060318). The general rule of thumb is that in order to recover overpaid benefits, there must be a legal provision that allows such recovery. In APD 060318, the panel noted provisions such as Texas Labor Code 415.008 (on fraudulently obtaining benefits), 408.003 (on reimbursement of benefit payments made by an employer), and 410.209 (allowing reimbursement from the fund of Subsequent Injuries from Payments Made Under a Reversed or Modified Division Order), as statutory provisions that could allow recovery of benefits. But these cases are rare.
The results of Rule 128.1 (e) can be quite harsh and unfair, and they certainly can be without any consideration of fairness. The only “significant” decision on this matter is Appeals Panel Decision (APD) 033358-S. The overpayment in this case resulted from a change made to the average weekly wage when the carrier received the DWC-3 wage statement. It was not received until the claim had progressed to half of the Impairment Income Benefit (IIB) payment based on a fifteen percent impairment rating. The insurer then suspended the IIBs to recoup its overpayment based on the notion that based on the number of weeks temporary income benefits (TIB) were owed and the number of weeks the IIBs would be owed, and multiplying that number weeks for the benefit rate owed, the amount of benefits that the claimant was entitled to receive had already been paid. The panel found that logic to be “absurd.”
The argument that a claimant will be paid a certain amount of benefits based on the rate of benefit and the number of weeks owed is very logical. For example, a claimant with a TIB rate of $ 250.00 who misses ten weeks of work and has a disability rating of five percent should receive a total of $ 6,250.00 ($ 2,500.00 in TIB + $ 3,750.00 in IIB) in benefits from workers’ compensation compensation. That makes sense and is easy to calculate. But what if a change in the average weekly wage results in a benefit rate of $ 200.00 and ten weeks of IIB have already been paid? This means that the carrier has paid a total of $ 5,000.00 below the above rate, and the claimant should only receive a total of $ 5,000.00 in compensation, yet five weeks of IIB remain to be paid. The panel determined that the claimant is legally entitled to the remaining weeks of IIB, holding that “the amount of recovery is a factor in determining the amount of benefits to be paid to a claimant rather than the amount of recovery being determined by a predetermined amount of total benefits. ” This means that a claimant may receive more compensation benefits than the benefit rate calculation multiplied by weeks owed would get because the claimant is legally entitled to benefits for a certain period of time based on the impairment rating. If the claimant has a five percent impairment rating, they are owed fifteen weeks of benefits from the date of maximum medical improvement. Any adjustment made in the calculation of benefits owed that excludes an income benefit for that legally authorized period violates the first part of Rule 128.1 (e).
This does not mean that an adjustment is not made to allow the insurer to recoup an overpayment resulting from a change in the average weekly wage for future benefits. Rule 128.1 (e) (2) determines the amount of recovery that will be allowed. If the claimant’s benefits are reduced to pay attorney’s fees or to recover a Division approved advance payment, then the insurer can recover the overpayment at a rate of ten percent. If the claimant’s benefits are not reduced to pay for attorney’s fees or an advance, then the carrier can recover at a 25 percent rate.
In APD033358 discussed above, the insurer determined that it had paid all the benefits it owed based on the calculation of the benefit rate multiplied by weeks owed. He then suspended benefits to recover the overpayment. In essence, it determined on its own to recover at a rate of one hundred percent. The Appeals Panel found this to be inconsistent with the rule. The rule only allows a 10 percent reduction in benefits or a 25 percent reduction in benefits, depending on the circumstances. The rule does not allow a 100% reduction in profits. That panel ordered a 10 percent reduction in benefits because the claimant’s benefits were being reduced to pay for attorneys’ fees.
OR IS THAT?
The problem with the result in APD 033358-S is that the carrier did not avail itself of the protections offered in Rule 128.1 (e) (2) (c). The last section of the rule is a return to equity analysis. It allows recovery at a rate higher than that allowed in Rule 128.1 (e) (2) (A) or (B) if the carrier reaches a written agreement with the claimant, or if it cannot do so, requesting the Division pass a higher recovery rate. The rule specifically states that the primary factor the Division must use in determining the recovery rate is the probability that all of the overpayment will be recovered. It states that “the rate must be set in such a way that it is probable that the entire overpayment can be recovered.” The rule also states that the Division must also consider the cause of the overpayment and the financial hardships that it may create for the claimant. This is an equity analysis.
The bottom line here is that if the overpayment is due to a change in the average weekly wage, that overpayment can be recovered at whatever rate the carrier can get the Division to approve, but you must request that the Division set a rate . Division rather than setting the rate itself. Failure to request a fee from the Division will result in the predetermined recovery fees in Rule 128.1 (e) (2) (A) and (B).
There are procedural questions that are left unanswered by the rule and by the Appeals Panel. How does a carrier request a recovery rate higher than the predetermined rates? A quick review of the Division’s website shows that there is no form that can be submitted for this purpose. Does the time of application matter? Do you control the default rates up to the date the carrier requests a change in the recovery rate from the Division similar to a contribution case? Who makes the decision in the Division on the amount of recovery allowed before a benefits review conference or a contested case hearing? Does the carrier have to provide evidence that it sought settlement from the claimant as a precondition for the Division to approve a change in the recovery rate?
There are no answers to these questions, which will surely be litigated in time. It appears that the carrier should attempt to reach an agreement with the claimant before requesting a change in recovery rates from the Division. Then, there must be a request to the Division to approve a recovery fee based on the actions of Rule 128.1 (e) (2) (C). At that time, the carrier would be protected by the Rule and in any subsequent dispute resolution proceedings, it could request a recovery rate higher than the default rates based on fairness and fairness.
CONCLUSION
The carrier’s ability to recover an overpayment of indemnification benefits from future indemnification benefits has been largely limited by Rule 128.1 (e). The Appeals Panel has determined that for an insurer to recover overpaid benefits, there must be a legal provision allowing that recovery. Rule 128.1 (e) only allows recovery when the overpayment results from a change in the average weekly wage. When this occurs, the default recovery rates are 10% or 25%, depending on the circumstances. If the carrier wishes to recover the overpayment at a rate higher than the predetermined rates, it must request that the claimant accept a higher rate. If the claimant does not agree to a higher recovery rate, the carrier must request that the Division approve a higher rate based on the actions of Rule 128.1 (e) (2) (C). If the carrier does not make this request to the Division, then it will be limited to the predetermined rates in Rule 128.1 (e) (2) (A) and (B).