State News

A Cautionary Tale for Non-Subscribers – The Houston Court of Appeals recently affirmed
a $680,000 judgment in a negligence suit against Katy Springs & Manufacturing, Inc. Had the
company acquired workers’ compensation insurance for its employees, the suit would have been
barred by the exclusive remedy provisions of the Labor Code. The accident involved what the
opinion describes to be a company-made wire real that lacked any safety features and which was
recognized by several Katy Springs employees as being unsafe. Katy Springs & Manufacturing, Inc.
V. Joseph Favolora, Houston Court of Appeals – 14th Dist. 2015 WL 5093232.
Big Brother is Watching – Dr. Howard Douglas is the co-founder and medical director of
Western Medical Evaluators, Inc. (WME), a company that provided medical services in workers’
compensation disputes to entities insured by Texas Mutual Insurance Company. WME contracted
with designated doctors to perform designated doctor exams for workers’ compensation claims. Dr.
Douglas routinely billed the maximum compensation of four hours for every functional capacity
evaluation (FCE) performed, even though Texas Mutual’s investigation revealed that the average
time for an FCE by a WME technician was only thirty-nine minutes. Dr. Douglas was convicted
of defrauding Texas Mutual, a third degree felony, and the Court of Criminal Appeals affirmed.
Douglas v. State, No. 03-13-00092-CR, 2105 WL 5097573 (Tex. App.– Dallas August 26, 2015).
Employers and Carriers Beware – Remember that in In re XL Specialty Ins. Co., the Texas
Supreme Court determined that in the statutory workers’ compensation insurance policy context,
the insurer is not the representative of the insured; rather, the insurer is the client and party to a
pending workers’ compensation matter and retains counsel on its own behalf. In a lawsuit involving
a standard liability insurance policy, only the insured is a party to the case, and the insurer retains
counsel on the insured’s behalf. So, in workers’ compensation cases, the communication between
the insurer and the employer is not privileged, but in other cases involving employer liability
coverage, such communications are privileged. We note that attempts at legislation to have the
privilege apply in workers’ compensation failed this past legislative session.

Arthur S. Hernandez, M.D. is forbidden to provide treatment to workers’ compensation patients
beginning March 16, 2016. Chiropractor Hank K. Miller has been removed from the Designated
Doctor list and the MMI/IR certification list as of September 10, 2015. The removal appears to be
permanent.

The new state AWW for dates of injury from October 1, 2015 through September 30, 2016 is
$895.08. The maximum and minimum weekly benefit rates based on the new wage are $895 and
$134, respectively.

It has been the long-time practice of TPAs and insurance carriers to assign their own identifying
number to workers’ compensation claims. This caused problems for DWC in its attempts to link
medical bills to specific workers’ compensation claims. It is often the case that an insurance carrier
will change its TPA during the course of a claim, and thus the identifying number would change in
the EDI transmission. DWC has plans to require the same number to be used throughout the life of
a claim in submitting EDI data, but system participants are balking, given the problems the midstream
change will cause. But the agency is convinced that this will assist it in monitoring treatment

A new BRC pilot program has been implemented in the Dallas field office wherein the parties are
put into different rooms and the BRO shuttles between rooms to facilitate potential agreements as
to the issues. Given that BRCs are typically allotted only 45 minutes, it will be interesting to see
if this type of mediation, which is called “caucus based,” is more effective than what the parties have
come to expect after 25 years of practice before the Division.

The much awaited coding change from ICD 9 to ICD 10 is finally here. It is hard to say what
impact it will have on adjusters and other system participants, but change of any kind has unintended
consequences. And many of us are, frankly, resistant to change! One obvious difference is that
diagnoses will now be even more specific, resulting in more care being taken in evaluating initial
claims of injury. And evaluating extent of injury issues, and the relationship between disability and
the accepted or disputed claimed diagnoses,will require an even higher level of expertise. ICD 10
codes can be accessed on the internet, and we will be keeping the sites busy. There are several
sites, such as www.icd10data.com/Convert that provide crosswalks between ICD 9 codes and ICD
10 codes and descriptions for the new codes.
Here are a couple of entertaining examples of the trend toward specificity: W51.XXA: Accidental
striking against or bumped into by another person, V97.33XD: Sucked into jet engine, subsequent
encounter, S10.87XA: Other superficial bite of other specified part of neck, initial encounter, R46.1:
Bizarre personal appearance. Over time you may be lucky enough to see one of these in a comp
case. After all, there are now well over 60,000 codes in ICD 10, compared to around 13,000 codes
in ICD 9.

Vincent Burley was a resident of Georgia, and in May 2000, U.S. Foods, Inc. offered him employment as a delivery truck driver.  This offer of employment was extended by letter, which Mr. Burley signed.  He was in South Carolina when he signed the offer letter and was assigned to South Carolina by the company.  His responsibilities as a delivery truck driver included deliveries in Georgia and South Carolina, but no travel to North Carolina.  In 2002, U.S. Foods merged with another company and stopped operating in South Carolina.  U.S. Foods gave Mr. Burley the option of either terminating his employment and receiving a severance package, or transferring his assignment and supervision to North Carolina.  He elected to transfer to North Carolina.  After the transfer, Mr. Burley made deliveries to different customers and earned more money, but still never had any deliveries in North Carolina.  On September 23, 2009, he suffered a back injury during a delivery in Georgia.  His claim was accepted under the Georgia Workers’ Compensation Act and he received benefits for the injury.  On July 8, 2011, Mr. Burley filed a claim for benefits with the North Carolina Industrial Commission.

After the hearing, the Deputy Commissioner held that the Commission did not have jurisdiction over the claim.  The Full Commission affirmed, and the Court of Appeals reversed.  The Court held that Mr. Burley’s transfer to the North Carolina division involved modification of his employment contract, which was enough to find that a contract was “made” within North Carolina for purposes of establishing jurisdiction.  There was a dissent by Judge Dillon noting that the modification of the employment contract was insufficient for the Commission to have jurisdiction. 

The Supreme Court reversed the Court of Appeals holding that modification of an employment contract does not change the location of that contract.  The Court indicated that there can be only one contract of employment.  The Court noted that once an identifiable site has been established and there has been an offer and acceptance of the employment contract, that location will be used for purposes of jurisdiction regardless of subsequent contract modifications.  The Court further noted that N.C.G.S. § 97-36 included plain language regarding where a contract for employment was “made” and not where the contract was “modified.”

In this case, Mr. Burley executed his contract in South Carolina when hired by U.S. Foods.  The Court held that the subsequent internal transfer of supervision and assignment failed to establish a new employment contract, and the site of the original contract controlled for jurisdiction.  The Court characterized Mr. Burley’s situation as a mere internal transfer of supervision without a change in work capacity.  Justice Hudson dissented, noting that the Court’s holding barred jurisdiction even where there were substantial modifications to the employment contract and employment relationship.  Judge Hudson noted that this went against the spirit of the North Carolina Workers’ Compensation Act to be liberally construed to provide benefits to injured employees.  Instead, Judge Hudson saw the modification as establishing a new employment contract based on the facts of the case, thus changing the location of the contract to North Carolina for purposes of jurisdiction.

Risk Handling Hints:  The decision in Burley seems to establish that, short of a drastic modification of the employment contract, there will be only one location for purposes of jurisdiction.  The location where the employment contract was made, once “identifiable,” will be the site for jurisdiction.  The Court did not outline specific factors to consider when determining whether a modification is significant enough to establish a new employment contract.

Cases in the Third Circuit Court of Appeals have great importance for New Jersey employers in connection with the FMLA.  The case ofHansler v. Lehigh Valley Hosp. Network, 790 F.3d 499 (2015 U. S. App. LEXIS 10444) (3d Cir. June 22, 2015) is worthy of study.  It involved a technical partner who was hired in 2011 and began to have shortness of breath, nausea, and vomiting in 2013.  The cause of these symptoms was unknown at the time she submitted her medical certification for intermittent leave under the FMLA.  The medical certification form requested intermittent leave at a frequency of two times weekly starting March 1, 2013 and lasting for a probable duration of one month – or until April 1, 2013.

Hansler was unable to work on March 13, 14, 23, 24 and 25.  Lehigh Valley terminated her employment at the end of her shift on March 28, 2013 for excessive absenteeism.  The hospital did not seek further information about the medical certification submitted on March 13^th.   Hansler protested that she had requested FMLA leave but the hospital advised her that her request was denied.  However, Hansler was unaware of this until she got a letter around the last day of her absences.  This letter stated that he leave request was denied because her condition did not qualify as a serious health condition.  In early April 2013 Hansler was diagnosed with diabetes and high blood pressure.  She alleged in her law suit that these previously unknown diagnoses were the cause of her absences.

In her law suit for interference with her FMLA rights, Hansler argued that she had a chronic serious health condition and the hospital failed to allow her seven days to cure the vague certification she submitted. Lehigh Valley countered that a chronic condition must continue over an extended period of time, and one month is not enough.  The District Court agreed with Lehigh Valley but the Third Circuit Court of Appeals reversed in favor of Hansler.  It said there is a difference between a negative medical certification and an incomplete or vague certification in that the latter requires the employer to allow the employee seven days to cure.

The Court gave an example of a negative certification as one in which the medical certification flatly says that the employee is not incapacitated from working.   There would be no need to ask the employee to cure this sort of certification.  But in this case, the court found:

In short, we hold today simply that when a certification submitted by an employee is ‘vague, ambiguous, or non-responsive’ (or ‘incomplete,’ for that matter) as to any of the categories of information required under 29, U.S.C. 2613(b), the employer ‘shall advise the employee . . . what additional information is necessary to make the certification complete and sufficient’ and ‘must provide the employee with seven calendar days . . . to cure any such deficiency.’ 29 C.F.R. 825.305(c). The plain and mandatory language of the statute and regulations requires no less.

The Third Circuit presented the following rationale for its holding: “Rather, because a ‘sufficient certification’ for intermittent leave under 29U.S.C. 2513(b) must address both ‘the expected duration of the intermittent leave’ and the ‘probable duration of the condition,’ and because the certification here failed to specify whether the ‘probable duration of the one month’ referred to the duration of the leave request, the duration of the medical condition, or both, the certification was not a ‘negative certification,’ but was instead ‘vague, ambiguous, or non-responsive,’ meeting the definition of ‘insufficient.’”  In short, the Court felt that the certification was vague in regard to the meaning of duration:  was it the duration of the leave request or the medical condition?

The Court said that Lehigh Valley should have advised Hansler that the certification was insufficient and stated in writing what additional information was required.  In addition, the hospital should have allowed her an opportunity to cure or clear up the ambiguity.  The Court was also critical of Lehigh Valley for not advising Hansler right away that her request had been denied.  The Court concluded, “Faced with nascent symptoms from a yet-to-be diagnosed condition, an employee’s physician may need some additional time to provide the required elements of a certification.”

This case is important because it focuses on a situation where an employer tends to jump the gun in termination decisions.  If in doubt, the employer should allow the seven days to cure unless it is absolutely clear from the certification that the employee is not incapacitated from working and therefore does not have a covered serious health condition. 

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John H. Geaney, Esq., is an Executive Committee Member and a Shareholder in Capehart Scatchard's Workers’ Compensation Group.  Mr. Geaney concentrates his practice in the representation of employers, self-insured companies, third-party administrators, and insurance carriers in workers’ compensation, the Americans with Disabilities Act and Family and Medical Leave Act. Should you have any questions or would like more information, please contact Mr. Geaney at 856.914.2063 or by e‑mail at jgeaney@capehart.com.  

Florida’s First District Court of Appeal (“1st DCA”) did not agree. It reversed and remanded the case to the JCC to apply theDaubert standard which the JCC had, as described above, declined to do. In its brief opinion, the 1st DCA reiterated the applicability ofDaubert and referred the JCC toBooker v. Sumter County Sheriff’s Office/North American Risk Services, 166 So. 3d 189 (Fla. 1st DCA 2015) for the specifics regarding theDaubert analysis. Given that inBooker the 1st DCA had noted that “[t]he test for admissibility, given its broad application to all manner of expert opinion testimony, must be flexible” and went on to provide “some of the flexible and non-exclusive factors which a judge may consider” (emphasis added), perhaps all the JCC needed to do was say that he consideredDaubert and accepted the employer/carrier’s independent medical examination report as sufficiently trustworthy. It does, nevertheless, appear that the 1st DCA intendsDaubert to be applied in every instance in which an expert’s opinion is not otherwise deemed admissible without its application.

The case of Jose Moreira v. Carlos Peixoto, et. al., A-5741-12T1 (App. Div. September 10, 2015) presents a complex tale of insurance fraud that ends with an important clarification about the lien rights of an employer and the potential challenges to lien calculations by employees.

Jose Moreira was injured working privately on a house owned by a manager of Macedos Construction Company, Inc. (Macedos).  The company (Macedos) fraudulently reported to its workers’ compensation carrier, Virginia Surety Company (VSC) that Moreira was a full-time employee of the company.  In addition to this misrepresentation, Moreira signed a written statement to VSC’s adjuster stating that he was a full-time employee of Macedos who had been hired and injured on the same day, namely October 1, 2005.  Moreira also filed a claim petition asserting that he worked for Macedos when he was injured.  Based on these misrepresentations, VSC paid $260,864 in workers’ compensation benefits for Moreira.

Astonishingly, Moreira next filed a civil law suit against Macedos, alleging that he was a “business invitee” of Macedos on the day of his accident and not an employee.  He settled this case for $3.7 million against Macedos.  VSC filed a counterclaim against Macedos alleging that the company committed fraud under the Insurance Fraud Prevention Act and under the New Jersey Workers’ Compensation Fraud Act.  The jury in the fraud trial exonerated Moreira of fraud, but the jury did find Macedos guilty of fraud under both Acts.  For reasons that are unclear, the jury awarded VSC no damages for the fraud violations.  However, the judge awarded VSC $1,031,330 for counsel fees and trebled that amount under the Insurance Fraud Prevention Act.

Next VSC pressed its subrogation rights against Moreira since he recovered $3.7 million dollars in his settlement with Macedos.  Even though Moreira had filed a claim petition asserting that he was an employee, he raised a rather bold defense.  He contended that since he was not in fact an employee of Macedos, the workers’ compensation lien did not apply.  The judge ruled that Moreira could not have it both ways, stating that since “Moreira was believed to be an employee of Macedos and actually received the workers’ compensation benefits, the lien was valid even though Moreira was not an employee.”  This meant that VSC would be entitled to reimbursement of two thirds of its payments or about $172,877.

On appeal to the Appellate Division, Moreira argued both that he was not an employee and should not have to pay back the lien.  Further, he argued that VSC failed to prove that the medical costs were reasonable and necessary.  The Appellate Division rejected flatly the non-employee argument:

Here, Moreira held himself out as an employee of Macedos when he submitted the written statement to VSC’s adjuster and applied for workers’ compensation benefits.  Although the jury found he did not act fraudulently, he still received workers’ compensation benefits on his representations.  Thus, permitting Moreira to retain the workers’ compensation benefits paid by VSC would allow him to obtain a double recovery to which he had no more right than if he was a legitimate employee of Macedos.  Accordingly, we conclude that VSC has a valid lien on the settlement proceeds.

The next issue which the court considered related back to an important case,Raso v. Ross Steel Erectors, 319N.J. Super. 373 (App. Div.),certif. denied, 161N.J. 148 (1999).  That case focused on what payments are lienable underN.J.S.A. 34:15-40 and held that ordinarily rehabilitation nursing expenses are only lienable if the employer can prove the care benefited the employee and was reasonable and necessary.  Moreira argued that the judge improperly included in the lien calculations non-reimbursable payments made to VSC’s claims administrator and a medical case management company. 

The Appellate Division made a key distinction at the outset between care selected by the employee and care selected by the carrier. “Moreira cannot argue that the workers’ compensation payments VSC made directly to him or to health care providers he selected were not reasonable and necessary to cure or relieve his injuries.”  Having said this, the court went on to discuss the differences between care chosen by the employee or by the employer/carrier:

Because N.J.S.A. 34:15-15 addresses the different issue of what an insurer can be forced to pay, and because an employee should not be able to select treatment providers and accept treatment and then claim it was unnecessary, we decline to extendRaso beyond insurer-selected medical providers.  Moreover, we do not require the insurer to carry its burden regarding insurer-selected providers until the plaintiff provides some evidence, such as a medical report or medical witness as inRaso, that the treatment was unnecessary, which Moreira did not do here.

In essence, the court held that as to care selected by Moriera, those bills could not be questioned at all regarding reasonableness and necessity.  As to care selected by the carrier, Moreira must first offer evidence that the treatment was not necessary before he can challenge the reasonableness and necessity of the care. 

Lastly, the court remanded the case for a determination of whether VSC included non-reimbursable payments made to VSC’s claim administrator and a medical case management company in calculating the lien amount.  The court cautioned, “Just as ‘medical expenses’ under N.J.S.A. 34:15-40(b) should not include the salaries an insurer pays its employees for administrative work, it also should not include the fees the insurer pays an outside entity to do outsourced administrative work.”

This case is important for many reasons, and it is regrettable that it has not been published.  It offers one of the few serious discussions of theRaso case in regard to when an employee can challenge the reasonable and necessary standard with respect to lien inclusion.  It sets a new distinction between care chosen by the employee and care chosen by the carrier.  The case also provides a warning to employers to be careful not to include administrative charges in lien calculations.  For this reason, claimants’ and plaintiffs’ counsel routinely ask for a breakdown of the lien calculations to make sure the lien numbers are valid.  The case is also helpful in discussing two parallel fraud statutes, namely the Insurance Fraud Prevention Act and the New Jersey Workers’ Compensation Fraud Act.

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John H. Geaney, Esq., is an Executive Committee Member and a Shareholder in Capehart Scatchard's Workers’ Compensation Group.  Mr. Geaney concentrates his practice in the representation of employers, self-insured companies, third-party administrators, and insurance carriers in workers’ compensation, the Americans with Disabilities Act and Family and Medical Leave Act. Should you have any questions or would like more information, please contact Mr. Geaney at 856.914.2063 or by e‑mail at jgeaney@capehart.com.