Oregon Supreme Court Quashes Exclusive Workers’ Comp Remedy

In the multi-decade card game that is the Oregon workers’ compensation system, the state Supreme Court trumped the Legislature (and employers) by issuing a unanimous decision that erodes the exclusive remedy statute.

In Terry L. Smothers v. Gresham Transfer Inc., the court ruled that workers whose claims are denied because they can’t prove that a work-related incident was the “major contributing” cause (at least 51 percent) of their injuries or illness cannot be denied access to the legal system.

The decision chipped away at the efficacy of the major contributing case provisions in the law that were a result of workers’ comp reform legislation passed in 1995. The ruling also came at a time when the Legislature was engaged in delicate negotiations on the latest comp reform measure, SB 485.

Oregon has an unofficial tradition of enacting comprehensive workers’ comp reforms every five years or so, largely in response to judicial decisions handed down in the interim. The Legislature enacted a comprehensive reform during a special session in 1990, when Oregon’s litigation-riddled system was one the costliest and least efficient in the nation. The 1995 reform came because of several worker litigation-friendly court decisions since 1990, which threatened to undo the legislation that had rescued Oregon from the nation’s comp pit.

Ironically, SB 485 has language that would soften the major contributing cause rule and eliminate the sunset clause on the exclusive remedy (no worker lawsuits against their employers allowed) provision. The two parts of SB 485 were designed to be two of many elements of a compromise between management and labor.

“That management inducement [removal of the sunset clause] has been greatly devalued,” said Jack Munro, lobbyist for the American Insurance Association in Oregon.

The Smothers ruling cast a pall of uncertainty over SB 485, as well as what the Legislature might do to “correct” the decision. In the immediate wake of the ruling, legislators sounded a lot more interested in an immediate fix than did insurance companies, many of which have made public statements expressing a desire to wait until the impact of the ruling can be assessed.

“We don’t believe the sky is falling,” said Chuck Lundeen, vice president and corporate counsel for Portland-based Liberty Northwest Insurance Corp., the second-largest comp insurer in Oregon, with about 23 percent of the market.

“Right now, we need to get some experience and find out how much this is going to cost us,” said Chris Davie, government affairs coordinator for Salem-based SAIF Corp., the quasi-public entity that is easily the state’s largest comp insurer, with about 40 percent of the market.

A true fix, returning the system to the pre-Smothers rules, would require a constitutional amendment that would have to be approved by the voters. Given that the Oregon Legislature is close to adjournment and that it still has to wrestle with redistricting, such a constitutional amendment won’t fly this session.

“Nobody knows how the Legislature might react,” Davie said. “There are already 10 different ideas out there.”

Since the Oregon Legislature doesn’t meet again in a regular session until January 2003, unless the issue is deemed worthy of a special session, employers and their comp insurers will have to live with Smothers for a while. While it’s clear the decision will have an impact on costs in the system, the degree of that impact is uncertain.

Lundeen noted that 85 percent of workers’ comp claims in Oregon are paid immediately. Studies of the Oregon system have shown that of the claims denied, the major contributing cause standard is cited in 40 to 45 percent. (SAIF places the figure much lower, 20 to 25 percent.)

Of those claims that are denied for any reason, less than 50 percent are currently appealed, according to Davie.

Finally, the Smothers decision requires the employer to be negligent in some way. As such, Smothers could apply to, at most, 3 to 5 percent of the claims in Oregon.

However, “these types of claims are the most expensive claims in the system,” Lundeen said.

Davie strongly suggested that SAIF will make few changes in how it handles claims. “As far as we’re concerned, the workers’ comp law hasn’t changed,” he said, noting that Smothers didn’t strike down the major contributing cause standard; it merely allows workers affected by it to pursue legal avenues outside the comp system.

The Smothers ruling also left several unresolved issues, including:

• To what extent must workers whose claims have been denied because of the major contributing cause standard exhaust their administrative remedies within the comp system before the workers can pursue a lawsuit? “That’s an issue that will be litigated further,” Lundeen predicted.

• What about claims that are initially accepted, but later denied?

• To what extent must a work-related incident be a contributing cause in order to enable an employee to sue? “Does the court really mean there’s a 1-percent contribution standard in Oregon? Or any contribution standard?” Lundeen asked.

Topics Legislation Claims Workers' Compensation Oregon