Attorneys' fees battle goes into overtime.

"Inevitably, the new law will become the target of repeated attacks, while the three-year reform effort will become fodder for the revisionists. Interested parties will start anew looking for loopholes, trying to game the system. Indeed, despite the best of intentions, no legislative proposal can hope to stand unadulterated by the vagaries of human nature and the passage of time."

--William Stander, Florida Underwriter, December 2003, commenting on the workers' compensation reform bill, SB 50A.

Well, the inevitable is here. In October 2008, the Florida Supreme Court dealt a major setback to the workers' compensation market by reinstating hourly attorneys' fees in its Emma Murray v. Mariners Health/ACE USA ruling. Once again, the insurance and business communities must come together and fight for what is right.

In December, the Florida Office of Insurance Regulation (OIR) released its 2008 Workers' Compensation Annual Report on the state of the market. The report described the market as competitive and healthy. As proof, it pointed to the low policy count in the Worker' Compensation Joint Underwriting Association, and trumpeted the overall average rate decrease of more than 60 percent since the successful 2003 reform effort. The report was right on target.

But now all of that is at risk. The Murray v. Mariners decision singlehandedly reinstated one of the biggest cost drivers in the workers' compensation system. Unless corrected, the awarding of hourly attorneys' fees will severely undermine the positive impacts delivered by SB 50A by re-incentivizing claim churning and benefit-seeking behavior. This will naturally drive unnecessary increased costs into the system.

Prior to the 2003 reforms, the cost of litigated claims in Florida was 40 percent higher in Florida than in any other state. SB 50A eliminated claimants' attorneys' fees based on hours worked, and linked the amount strictly to the value of benefits secured through a sliding fee percentage schedule. The National Council on Compensation Insurance (NCCI) estimates that Florida employers have saved close to $2.9 billion in premiums since the bill took effect.

While eliminating hourly attorneys' fees was only one component of the reforms, PCI believes it was the most important. After the passage of SB 50A, NCCI filed, and the OIR approved, a "law-only" rate filing decrease of 14 percent. Ostensibly, this represented all the savings the market could expect from the legislation. Yet since that time, rates have continued to drop like a rock.

In our support of SB 50A, we said that eliminating the hourly fees would change claimant and claimant attorney behavior drastically, and that only experience would prove it---and it has.

Back to Square One

But now the court's decision has pushed us back to square one. Shortly after the ruling, NCCI made a new filing with the OIR, asking for an 18.6 percent increase over two years. In support of its filing, NCCI stated, "Because workers' compensation ratemaking is prospective only, insurers are not afforded the opportunity to recoup premium to cover such unforeseen increases in system costs. Therefore, it is expected that a significant unfunded liability will be created because of the retroactive impact of this court decision. NCCI has estimated the statewide (including individual self-insurers) magnitude of the unfunded liability at potentially up to $400 million."

The OIR rejected that filing, but ultimately approved a rate increase of 6.4 percent effective April 1 for new and renewal business.

Substantial efforts to reform the workers' compensation system come few and far between, and for good reason. Underlying all insurance is a reliance on stability and predictability. Frequent system changes prevent the orderly adjudication of claims and increase frictional costs. At the same time, participant gaming, conflicting court decisions, and over-litigation can turn an otherwise stable workers' compensation system into disarray.

It took three years of persistent and consistent effort by the Coalition of Business & Insurance Industry to convince the Florida Legislature to pass one of the best reform bills ever deliberated. Yet, in Murray v. Mariners, the Florida Supreme Court chose to substitute its judgment for that of the Legislature. Unless addressed during the 2009 regular session, the reintroduction of hourly attorneys' fees into the workers' compensation system will increase litigation and raise costs.

The Florida Legislature has a full plate this year. Budget issues and the slowing Florida economy will no doubt take center stage, but the Coalition of Business and Insurance Industry, of which PCI is a founding member, will be urging the Florida Legislature to say "we meant what we said when we said it the first time," and once again prohibit hourly attorneys' fees. Especially in these difficult times, Florida cannot afford anything less.

By William H. Stander, assistant vice president and regional manager, Property Casualty Insurers Association of America