Academic journal article Journal of Risk and Insurance

Models for Reducing Workers' Compensation Litigation

Academic journal article Journal of Risk and Insurance

Models for Reducing Workers' Compensation Litigation

Article excerpt


In the search to contain workers' compensation costs, efforts to reform state workers' compensation systems have become more common. Reform advocates cite unnecessary litigation as among the most prominent cost-drivers. Litigation also delays the delivery of benefits to injured workers, and litigation costs are deducted from their benefits. We have conducted studies of the litigation process in four states--two with high levels of litigation and two with much lower levels (Boden 1986, 1987, 1988; Boden, Kern, and Gardner, 1991). The contrast provides evidence about which system features encourage or discourage litigation. This article describes the evidence and the studies from which it comes.

We begin with a brief overview of the data used in the four studies, followed by a summary of features common to the two litigious systems and those shared by the two less litigious systems. From there, we turn to the attributes that distinguish litigious and nonlitigious systems, analyzing how they either encourage or discourage legal dispute.

The Studies

These studies of four states' workers' compensation systems focus on the resolution of back injury claims with permanent partial disability (PPD). Employers pay PPD benefits to workers who never fully recover from their injuries. Generally, medical or vocational experts evaluate the extent of disability or expected wage loss. The parties frequently disagree about the extent of impairment or disability, typically expressed as a percentage. PPD back injuries are the most commonly litigated and the most costly, so, if a workers' compensation system can avoid litigation in these cases, it can do so for most other types of claims.

We studied dispute resolution in two litigious systems (Maryland and New Jersey) and two less litigious systems (Wisconsin and Oregon). Table 1 presents data on the rate of attorney involvement and other litigation measures in each of the four states. The litigious systems are typical of many in the United States, in which resolution of permanent partial disability claims regularly involves attorneys and partisan experts. Still, a select number of states have designed systems that deliver PPD benefits without regular resort to attorneys and partisan experts--and their attendant costs and delays.

Table 1

Measures of Litigiousness: Lower-Back Permanent Partial Disability Claims

                    Worker                                    Resolved by
                  Represented                   Awarded at     Voluntary
                  by Attorney    Disputed(a)     Hearing       Payment(b)
                    %   S.D.       %   S.D.      %   S.D.       %   S.D.

Oregon             50    50       45    50      12      33     49    50
Wisconsin(c)       32    47       24    43       3       6     76    43
Maryland           92    27       94    24      53      50      1     l
New Jersey        100     0      100     0      62(d)   48      0     0

Note: S.D. = standard deviation.

a Resolved by settlement, stipulation agreement, or award at hearing.

b Payment of PPD by defendant, no appeal, and no attorney involved.

c Wisconsin has two PPD systems. The one in this table contains system
features that reduce disputes and litigation. The other lacks these features
and achieves litigation rates found in typical systems.

d This overstates the proportion of New Jersey claims in which the parties
could not reach voluntary resolution, because some of these claims are really
settlements that require formal judicial approval (see Boden, 1987, p. 15).

We collected detailed data from representative samples of claim files of insurers in the four states and examined how claims were resolved. Our data include information on injury severity, litigation, impairment evaluation, medical treatment, and benefit payments. The number of claims studied varies from 204 in Maryland to 336 in Oregon. …

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