Website design By BotEap.comOne of the hot dispute resolution issues before the Division of Workers’ Compensation these days is recovery. Recovery is an attempt by an insurance company to recover a claimant’s overpaid benefits by reducing the claimant’s future benefits by a fixed percentage until all overpaid benefits have been recovered. For years, it was an issue of fairness, and the Division made recovery decisions based on fairness. The insurer’s ability to recover overpaid benefits has been significantly reduced, and when it is able to do so, the amount it can reduce benefits may not be based on anything to do with fairness or equity.

Website design By BotEap.comIT’S NOT FAIR!

Website design By BotEap.comRecovery is now governed by Rule 128.1(e). That rule went into effect on May 16, 2002. Plaintiffs did not immediately rush to adopt the windfall gains allowed under the rule, and it was not until nearly two years later that the rule began to be included with some prominence in the Appeals Panel’s recovery discussions. This is due in part to the lack of cases that have been raised on the subject. Even since 2004, when the Appeals Panel issued a “significant” decision on the matter, plaintiffs have not aggressively sought to use the rule to their advantage. That rule, and decisions addressing its interpretation, are now becoming widely known, and cases involving recovery are becoming more common.

Website design By BotEap.comRule 128.1(e) significantly limits an insurer’s ability to recover overpaid benefits. It has been interpreted to limit recovery to only those situations where the overpayment is the result of a calculation error or a change in the average weekly wage (APD 033358-S and 060318). The general rule is that in order to recover overpaid benefits, there must be a legal provision allowing such recovery. In APD 060318, the panel noted provisions such as Texas Labor Code 415.008 (concerning fraudulent obtaining of benefits), 408.003 (concerning reimbursement of benefit payments made by an employer), and 410.209 (allowing reimbursement from the subsequent injury fund for payments made under a Division order that is revoked or modified), as statutory provisions that could allow the recovery of benefits. But these cases are rare.

Website design By BotEap.comThe results of Rule 128.1(e) can be quite harsh and unfair, and certainly may not have any consideration of fairness. The only “significant” decision on this matter is Appeals Panel Decision (APD) 033358-S. The overpayment in this case resulted from a change made to the average weekly wage when the carrier received the DWC-3 wage statement. It was not received until the claim had progressed to one-half of Impairment Income Benefits (IIB) payment based on a fifteen percent impairment rating. The insurer then suspended the IIBs to recover their overpayment with the notion that based on the number of weeks Temporary Income Benefits (TIB) were due and the number of weeks IIBs were due, and multiplying that number of weeks at the benefit rate due, the amount of benefits the claimant was entitled to receive had already been paid. The panel found that logic to be “absurd.”

Website design By BotEap.comThe argument that a claimant will be paid a certain amount of benefits based on the benefit rate and the number of weeks owed is very logical. For example, a claimant with a TIB rate of $250.00 who misses ten weeks of work and has a five percent disability rating should receive a total of $6,250.00 ($2,500.00 TIB + $3,750.00 IIB ) in workers’ compensation benefits. That makes sense and is easy to calculate. But what if a change in the average weekly wage results in a benefit rate of $200.00 and ten weeks of IIB have already been paid? This means that the carrier has paid a total of $5,000.00 under the old rate, and the claimant should only receive a total of $5,000.00 in compensation, with five weeks of IIB remaining to be paid. The panel determined that the claimant is legally entitled to the remaining weeks of IIB, holding that “the amount of recovery is a factor in determining the amount of benefits to be paid to a claimant rather than the amount of recovery being determined by a predetermined amount of total benefits. This means that a claimant may receive more severance benefits than the benefit rate times the weeks owed calculation would yield because the claimant is legally entitled to benefits for a certain period of time based on the impairment rating. If the claimant has a five percent disability rating, fifteen weeks of benefits are due from the date of maximum medical improvement. Any adjustment made in the calculation of benefits due that excludes an income benefit for that legally authorized period violates the first part of Rule 128.1(e).

Website design By BotEap.comThis does not mean that an adjustment is not made to allow the insurer to recover an overpayment resulting from a change in the average weekly salary of future benefits. Rule 128.1(e)(2) determines the amount of recovery that will be allowed. If the claimant’s benefits are reduced to pay attorneys’ fees or to recover an advance of benefits approved by the Division, then the insurer may recover the overpayment at a rate of ten percent. If the claimant’s benefits are not reduced to pay attorneys’ fees or an retainer, then the insurer may recover at a rate of twenty-five percent.

Website design By BotEap.comIn APD033358-S discussed above, the insurer determined that it had paid all benefits due in accordance with the calculation of the benefit rate for weeks due. She then suspended benefits to recover the overpayment. In essence, she decided on her own to recover at a rate of one hundred percent. The Appeals Panel determined that this was inconsistent with the rule. The rule only allows a ten percent reduction in benefits or a twenty-five percent reduction in benefits, depending on the circumstances. The rule does not allow a one hundred percent reduction in benefits. That panel ordered a ten percent reduction in benefits because the claimant’s benefits were being reduced to pay attorneys’ fees.

Website design By BotEap.comOR IS THAT?

Website design By BotEap.comThe problem with the result in APD 033358-S is that the carrier did not avail itself of the protections offered in Rule 128.1(e)(2)(c). The last section of the rule is a return to the fairness analysis. Allows recovery at a rate greater than that allowed in Rule 128.1(e)(2)(A) or (B) if the carrier reaches a written agreement with the claimant, or is unable to do so, by applying to the Division to approve a higher recovery rate. The rule specifically states that the primary factor the Division must use in determining the recovery rate is the likelihood that the entire overpayment will be recovered. It states that “the rate must be set in such a way that it is likely that the entire overpayment can be recovered.” The rule further states that the Division must also consider the cause of the overpayment and the financial hardship that may arise for the claimant. This is the equity analysis.

Website design By BotEap.comThe bottom line here is that if the overpayment is due to a change in the average weekly wage, that overpayment can be recovered at whatever rate the insurer can obtain for the Division to approve, but must request that the rate be set by the Division in instead of setting the rate itself. If no rate is requested from the Division, the default recovery rates of Rule 128.1(e)(2)(A) and (B) will apply.

Website design By BotEap.comThere are procedural questions that remain unanswered by the rule and the Appeals Panel. How does a carrier request a recovery rate higher than the predetermined rates? A quick review of the Division’s website shows that there is no form that can be submitted for this purpose. Does the time of application matter? Do the default rates control until the date the insurer requests a change in recovery rate from the Division similar to a contribution case? Who makes the decision in the Division about the amount of recovery allowed prior to a benefit review conference or contested case hearing? Does the carrier have to provide evidence that he sought settlement from the claimant as a precondition for the Division’s approval of a recovery rate change?

Website design By BotEap.comThere are no answers to these questions, which will surely be litigated over time. It appears that the carrier should attempt to reach an agreement with the claimant before requesting a change in recovery rates from the Division. Then, there must be a request made to the Division to approve a recovery rate based on the actions of Rule 128.1(e)(2)(C). At that time, the carrier would be protected by the Rule and in any subsequent dispute resolution proceedings, the carrier could request a higher recovery rate than the predetermined rates based on fairness and justice.

Website design By BotEap.comCONCLUSION

Website design By BotEap.comThe carrier’s ability to recover an overpayment of indemnity benefits from future indemnity benefits has been greatly limited by Rule 128.1(e). The Appeals Panel has determined that in order for an insurer to recover overpaid benefits, there must be a legal provision allowing such recovery. Rule 128.1(e) only allows recovery when the overpayment results from a change in the average weekly wage. When this occurs, the default recovery rates are 10 percent or 25 percent, depending on the circumstances. If the carrier wants to recover the overpayment at a rate higher than the predetermined rates, the carrier must request that the claimant accept a higher rate. If the claimant does not agree to a higher recovery rate, the carrier must request that the Division approve a higher rate based on the equities of Rule 128.1(e)(2)(C). If the carrier does not make this request to the Division, the carrier will be limited to the predetermined rates of Rule 128.1 (e) (2) (A) and (B).