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Fla. workers' comp industry braces for fallout from Castellanos ruling

FloridaInsurance Commissioner Kevin McCarty warned that a legislative remedy will be necessaryto prevent "significant increases" in workers' compensation rates followingan April 28 ruling by the Florida Supreme Court that struck down mandatory attorneyfee schedules established by a 2009 statute.

"Consideringthat the right of a claimant to obtain a reasonable attorney's fee has been a criticalfeature of the workers' compensation law, we conclude that the mandatory fee schedulein [the applicable statute], which creates an irrebuttable presumption that precludesany consideration of whether the fee award is reasonable to compensate the attorney,is unconstitutional under both the Florida and United States," the court'smajority opined in Marvin Castellanos v. NextDoor Co., et al.

The Judgeof Compensation Claims, constrained to the statutory fee schedule, had awarded Castellanos'attorney an "absurdly low" fee of $164.54 for 107.2 hours of work, thecourt's majority stated. The statute, according to the court's majority, does notpermit the Judge of Compensation Claims to deviate from the stated formula, evenwhen the amount of the fee is found to be unreasonable.

"Statedanother way, the statute establishes a conclusive irrebuttable presumption thatthe formula will produce an adequate fee in every case," the court's majorityopined. "This is clearly not true, and the inability of any injured workerto challenge the reasonableness of the fee award in his or her individual case isa facial constitutional due process issue. … Virtually since its inception, theright of a claimant to obtain a reasonable prevailing party attorney's fee has beencentral to the workers' compensation law."

Upondeeming the statute unconstitutional, the court's majority said the ruling has theeffect of reviving its immediate processor unless and until the Florida Legislaturetakes action. The court's majority said it had previously interpreted the predecessorstatute to provide for a "reasonable" award of attorneys fees.

The Judgeof Compensation Claims must now allow a claimant to present evidence showing thatthe statutory fee schedule will result in an unreasonable fee, and the court's majorityadded that the fee schedule should be viewed only as "the starting point."At the same time, the court's majority said its ruling does not mean that attorneyswill receive a windfall.

"Onlywhere the claimant can demonstrate, based on the standard this Court articulatedlong ago … that the fee schedule results in an unreasonable fee — such as in a caselike this — will the claimant's attorney be entitled to a fee that deviates fromthe fee schedule," the court's majority stated.

FloridaSupreme Court Justice Charles Canady argued in his dissent that the majority hadfailed to address the actual policy of the statute. He noted that the claimant inCastellanos had sought a fee of nearly 45x the $822.70 amount of his recovery, illustratingthe rationale for legislation requiring that the attorneys fee be commensurate withthe recovery obtained.

"Ourprecedents and federal law provide no authority to support the proposition thatdue process — or any other constitutional requirement relied on by the petitioner— requires that statutory fee awards fully compensate for the effective litigationof all claim," Canady opined in the dissent.

Oralarguments before the Florida Supreme Court took place in November 2014.

The FloridaOffice of Insurance Regulation said it would work with the National Council on CompensationInsurance, which files rates on behalf of workers' comp companies in the Floridamarket, and other stakeholders to evaluate the impact of the decision.

McCartysaid limiting attorneys fees had been "an important factor in reducing workers'compensation rates."

The commissionerordered a 4.7% reductionin workers' comp rates in November 2015, effective Jan. 1, following FLOIR's effectivedisapproval of a proposed 1.9% decrease the NCCI originally submitted. Florida workers'comp rates have declined on a cumulative basis by approximately 60% since the implementationof market reforms in October 2003.

The NCCItold a Florida state advisory forum in September 2015 while the original rate requesthad been pending that court cases such as Castellanos could potentially result inrate increases, some of which may be significant. Florida workers' comp rates havebeen increased 6% or more on five occasions in the past 16 years, according to theNCCI: 12.9% in April 2003, 6.4% in April 2009, 7.8% in January 2011, 8.9% in January2012 and 6.1% in January 2013.

A reviewof statutory data finds that the AmTrustFinancial Services Inc. group as it is currently consolidated by S&PGlobal Market Intelligence to incorporate the recently completed of Republic Cos. Inc.ranked as Florida's largest workers' comp insurer at the group level, based on $328.4million in pro forma direct premiums written. American Financial Group Inc., which also expanded in theFlorida workers' comp market in recent years by way of acquisition, ranked second with in-market premiumof $301.9 million. Travelers Cos.Inc. placed a distant third with in-market 2015 direct premiums writtenof $147.5 million.

Floridaworkers' comp insurers combined to produce a direct incurred loss ratio of nearly57.3% in 2015, up from 55.3% in 2014, on direct premiums earned of $2.61 billion.It was the industry's highest direct incurred loss ratio on Florida workers' compbusiness since 2010.

Resultswere compiled April 28 and are subject to change. Market share, premium and lossdata are limited to entities that file annual statements with the NAIC.