Missouri faces two court cases over insolvent Second Injury Fund

With cases against it pending in both federal and state court, Missouri may soon be ordered by a judge to pay Second Injury Fund benefits it stopped paying earlier this year.

If that happens, the state is certain to pass the cost on to employers, said Richard Moore, assistant general counsel and director of regulatory affairs for the Missouri Chamber of Commerce and Industry. He spoke to business leaders in Jackson about Missouri's insolvent Second Injury Fund last week.

The Second Injury Fund provides supplemental insurance for employers to encourage them to hire people with disabilities or pre-existing injuries because it shields them from liability if they are reinjured. Missouri businesses pay a 3 percent surcharge on their workers' compensation insurance to support the fund. However, the fund's liabilities are outpacing its income.

To keep the fund solvent, Attorney General Chris Koster in March stopped paying people who were granted permanent total disability awards by a judge. As of Sept. 1, 105 people were not receiving their benefits. Those individuals, on average, are owed more than $67,500 for a total of $7.1 million, Moore said.

About a dozen people are in that situation in Southeast Missouri, said Matt Edwards, who specializes in workers' compensation cases at Burns, Taylor, Heckemeyer & Green in Cape Girardeau.

The fund also pays the medical expenses of injured employees whose employers failed to obtain workers' compensation insurance, but Koster recently stopped paying those claims as well.

Since the attorney general's office stopped settling cases against the fund in 2009, more than 30,000 cases are now pending and about 700 cases are filed each month waiting to be adjudicated. Not counting those cases, the fund's estimated liability for awards already approved by judges is $1 billion.

At the 3 percent surcharge rate capped by law in 2005, it would take about 30 years to pay the fund's current liabilities, Moore said.

"There is no good solution. We are looking for the best-case scenario out of horrible options," he said.

In 2006, the 3 percent surcharge brought in $63 million. Due to fewer workers since the recession and lower workers' compensation premiums, the fund only received about $41 million last year, and its expenses, without settling pending cases or paying permanent total disability claims since March, were $40.4 million. Its obligations last year if it had been settling cases are estimated at $76 million, Moore said.

Workers' compensation attorneys have known for years the Second Injury Fund's revenue couldn't continue to meet its growing obligations, said Sharon Jones, director of government relations for the Missouri Association of Trial Attorneys.

"Since 2006, MATA has been saying 'This is a problem. We need to fix it,'" Jones said. "In 2005, we sent a letter to Gov. Matt Blunt saying you can't pass this bill because you will have this problem. The legislature has decided not to fix it even though we've been telling them for the last six years."

To force a resolution to the fund's insolvency, a federal lawsuit in Missouri's Western District challenges the legality of the 3 percent surcharge cap by claiming it doesn't provide enough revenue to pay benefits already awarded. The case is set for hearing next spring.

Meanwhile, a class-action lawsuit in Cole County circuit court claims all those who were awarded Second Injury Fund benefits before the 3 percent surcharge cap was imposed in 2005 are protected and should receive their full benefits.

More lawsuits expected

Moore said he expects more lawsuits to be filed on behalf of the 105 people who have been awarded benefits since March, as well as on behalf of the 30,000 people with cases that have yet to be reviewed.

Jones said there has been discussion among association members about such suits, but they may not be necessary depending on the outcome of the federal case.

"There was some thought that if we just waited to see how the federal suit worked out, that may solve all the problems, but we haven't been getting really favorable orders out of it at this point," Jones said. "Let me just say, it's in the ether."

The Missouri Association of Trial Attorneys worked with the Missouri Chamber earlier this year, unsuccessfully, to push legislation reforming the Second Injury Fund through the legislature.

"MATA wants to make sure people injured at work are being compensated for their second injury, whether that's through the Second Injury Fund or the individual employer," Jones said. "What we're really hoping is the court says the state has to pay it, now go figure out how to pay it."

Legislation to raise the surcharge cap without reforming the fund is unlikely to pass, Moore said.

The Missouri Chamber is advocating the Second Injury Fund be limited to workers whose first injuries were obtained while on active military duty or at work. Another possible solution Moore suggested is doing away with the Second Injury Fund and transferring current liabilities to employers and their workers' compensation insurers.

"My personal theory is that the insurance companies wanted this outcome. They get to keep more of their money and get the benefit of paying less in claims," Edwards said. "If either of the chamber's proposals actually go through, they will likely have a twofold effect. One, the insurance companies will demand higher premiums from businesses for the increased liability, and two, businesses will be less likely to risk hiring workers with pre-existing injuries."

Moore said his recommendation is not for businesses to insure themselves.

"It is more beneficial to have a second injury fund of some kind, reform it, bring it back into financial solvency and then start moving forward," he said.

As long as the second injury fund doesn't pay injured workers who have been awarded settlements by judges, the financial burden is being shifted to Social Security, Edwards said.

Social Security Disability is the sole source of income for virtually all of the injured workers not being paid by the fund, he said.

mmiller@semissourian.com

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