Federal suit could force action on Missouri injury fund

Friday, July 1, 2011

Editor's note: This is the second of two stories examining problems with Missouri's Second Injury Fund. Thursday's story detailed the reasons behind the shrinking fund.

The Missouri Legislature's failure to approve a fix for the state's flailing Second Injury Fund this session leaves the lives of those who depend on it in limbo.

"You don't do what you used to do. You can't. You can't afford it," says Gail Luttrull of Williamsville, Mo., who was awarded weekly payments from the Second Injury Fund in February but hasn't been paid because of the fund's financial problems.

A series of serious work-related injuries to her neck coupled with her microcytic anemia left her unable to work. Earlier this year a judge determined she was permanently and totally disabled, and therefore eligible for weekly payments from the fund equal to two-thirds her previous salary.

"This money would help me to take off a little bit of burden of paying bills. I could actually say, I can pay you for the whole amount this time instead of a little dab here and a little dab there. I could actually buy some meat," she said.

Luttrull is one of 70 people in Missouri who have received permanent and total disability awards from a judge but have not been paid.

Attorney General Chris Koster, the caretaker of the fund, stopped paying new awards scheduled for payment after March 7 because the fund is running out of money.

The Second Injury Fund is a form of supplemental insurance for employers. Missouri Businesses pay a 3 percent surcharge on their workers' compensation insurance to support the fund, but its liabilities are outpacing its income. In 2010, the surcharge generated $40.8 million while its total expenses were $40.4 million, according to the attorney general's office.

"The state has got to honor their obligations eventually," said Luttrull's attorney, Matt Edwards of Burns, Taylor, Heckemeyer & Green in Cape Girardeau. "If the state chooses to continue this path, then what's going to happen is some negative impacts. It could potentially impact their bond rating. That could effect everybody, school districts on up because they are not honoring their obligations."

A federal lawsuit was filed in February representing three people who fear they may lose their Second Injury Fund benefits if the fund becomes insolvent. The suit was recently amended to include a fourth injured worker, who, like Luttrull, was awarded benefits but has not yet been paid.

It could force Missouri to take action to fix the fund and affect all those receiving payments from it. "If we obtain favorable relief for the four, then it seems logical that relief would apply equally to all others who are similarly situated," said lawyer John B. Boyd of Kansas City, who filed the case.

Boyd insists Missouri is violating contracts, depriving injured workers of their property and denying their civil rights.

State law requires Missouri to "sacredly safeguard" the funds collected through the Second Injury Fund surcharge.

"Choosing not to pay isn't sacredly safeguarding those funds," he said.

Several bills filed this legislative session addressed the future of the Second Injury Fund, but none was successful. House Bill 893, sponsored by freshman legislator Rep. Todd Richardson of Poplar Bluff, Mo., called for an elimination of the fund but allowed a temporary increase in the surcharge up to 4 percent to pay off existing claims now over $1 billion.

That bill was supported by the Missouri Chamber of Commerce and Industry but never came to the full House for a vote.

"I don't think it is the right thing for the state to let a federal court decide the fate of Missouri employers and employees," Richardson said.

Attorney Jack Knowlan, who was an administrative law judge in Cape Girardeau deciding workers' compensation and Second Injury Fund cases for 22 years, said he believes the fund should be done away with once its existing obligations are paid.

"After observing it in action all those years, I don't believe that it accomplishes its objective," said Knowlan, who now works with Richardson at the law firm Little, Schellhammer, Richardson & Knowlan, which has offices in Poplar Bluff and Cape Girardeau.

The goal of the fund, established in the 1940s, was to encourage employers to hire workers with pre-existing disabilities. It protected them from liability if workers sustained an on-the-job injury in addition to their pre-existing condition rendering them unable to work.

Without the Second Injury Fund, if the last injury is the prevailing factor in causing someone to be totally disabled, then the employer could be held liable.

"Some argue it serves the employers by spreading the risk. That's not a bad idea if you're going to adequately fund it and efficiently defend it," Knowlan said. But that's not happening. The staff at the attorney general's office doesn't have the same resources that private lawyers do, he says.

"They don't have the money to defend those cases, to hire a doctor or a vocational expert. It's not that they don't have good attorneys. Those attorneys just have a caseload that's unreasonable," Knowlan said.

In a letter to legislators in February, Koster warned the fund was on the verge of insolvency. The fund would soon be unable to pay its claims and its employees, Koster said. The 39 lawyers and staff in the attorney general's office who are defending the more than 28,000 claims pending against the Second Injury Fund may soon be laid off, he warned.

Koster's office declined to comment about potential layoffs to the Southeast Missourian.

His letter said his office would aggressively defend the fund in the federal lawsuit filed by Boyd but that it is possible either the state government of the business community will be held responsible for the fund's insolvency.

If the state eliminates the Second Injury Fund, it would be turning its back on the most vulnerable Missourians, Boyd said.

"It encourages Missouri employers to hire those who have handicaps," Boyd said, and protects job opportunities for servicemen and women returning from Iraq and Afghanistan with injuries.

If the Second Injury Fund is eliminated, those cases now filed against it would be handled in the existing workers' compensation system.

It's likely insurers will increase workers' compensation premiums businesses pay, essentially privatizing the fund, Boyd said.

"The Second Injury Fund doesn't advertise, it doesn't profit, it uses state employees to defend it that are paid less than insurance company lawyers. This is the cheapest way for Missouri businesses to be protected," he said.

The National Council on Compensation Insurance in St. Louis estimates that if the Second Injury Fund is eliminated there will be a one-time increase in workers' compensation insurance in Missouri somewhere in the range of 3 to 7 percent. The estimate is based on what's been observed in other states.

"It shouldn't change the frequency of claims, but we would have to evaluate whether or not it will change the overall payout pattern," said Roy Wood, spokesman for The National Council on Compensation Insurance.

About 19 states have dissolved their Second Injury Funds over the past 10 years, he said.

mmiller@semissourian.com

388-3646

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