Bills imposing “good faith” on self-insured cities and third-party administrators amended, voted out of committee

Two pieces of legislation that create a duty of “good faith and fair dealing” in workers’ compensation programs managed by self-insured cities or their third-party administrators each passed out of their policy committees with amendments last week.

We wrote about HB 1521 and SB 5524 in Legislative Bulletin a few weeks ago. The bills create a duty of “good faith and fair dealing” for self-insured employers and self-insured employers’ third-party administrators (TPA) towards workers in self-insured workers’ compensation programs. The bills also allow the Department of Labor & Industries (L&I) to write rules outlining “good faith” duties and requiring L&I to investigate and order resolution of claims. Both bills were heard in their respective chambers’ labor committees in early February and were voted out of committee with amendments last week.

AWC has concerns about these proposals. These bills arose out of some cases of first responders having presumptive occupational illness claims denied by a city’s TPA. At least part of this issue is due to recent additions to the list of presumptive occupational illnesses. While many employees view presumptive claims as “automatic” approvals, employers still have the right to exercise due process on examining claims and rebut them if necessary. AWC understands that this can be frustrating to claimants, but it is important for self-insured employers to conduct due diligence and ensure legitimate claims receive adequate benefits.

There is also a misperception that self-insured employers (like some large cities) are not subject to oversight, when in fact they are subject to the full gambit of oversight by L&I – including agency approval of claim denials. Many changes to TPA licensing and regulation have taken place over the past two years, and L&I has not even had a chance to fully implement these changes, let alone know if they would’ve prevented the anecdotal cases of improper denials that were testified to in committee.

HB 1521 received quite a few amendments on a near party-line vote in the House Labor & Workplace Standards Committee, including:

• Specifying that self-insured employers or third-party administrators violate the duty to a worker if it “coerces” (rather than “wrongfully induces”) a worker to accept less than the compensation due under law.
• Reducing the timeline for employers or TPAs to respond to complaints by permitting the employer or TPA to file a written response within 10 working days after receiving notice and request from L&I (rather than requiring a response within 15 working days).
• Specifying that if the employer or TPA fails to file a timely response, then L&I must issue an order based on available information.
• Requiring L&I to issue an order determining whether a violation has occurred within 30 calendar days of receipt of a complete complaint or on L&I’s own motion.
• Increasing the maximum penalty for violating the duty of good faith from 10x the average weekly wage to 52x the average weekly wage.
• Delaying the effective date until July 1, 2024.

SB 5524 received similar (though sometimes different) amendments, also on a near party-line vote:

• Limiting the duty of good faith and fair dealing to apply only to self-insured municipal employers and their TPAs.
• Increasing the deadline for an employer or its TPA to respond to an L&I notice related to a violation be due to 30 calendar days.
• Requiring L&I to withdraw certification of a self-insured municipal employer if they have been found to have violated the duty of good faith three times in a three-year period (three strikes and you’re out).
• L&I may delay withdrawing the certification while the employer has an enforceable contract with a TPA that may not be legally terminated. However, the employer may not renew or extend the contract.
• Making similar amendments as SB 1521 regarding increased penalties, delayed implementation until 2024, requiring L&I to issue an order on available information if it doesn’t receive a timely response from the employer or TPA, and requiring L&I to issue an order within 30 days of receiving a complaint or on L&I’s own motion.

Most of these amendments are not positive developments for self-insured cities. Reducing timelines and increasing penalties both raises the stakes of inadvertent mistakes and makes them more likely as there is less time to comply with the law withing strict deadlines. In addition, permitting L&I to issue orders after only receiving one side of the story is not a fair way to handle investigations or safeguard the public dollars funding self-insured employers’ workers’ comp plans for legitimate claims. The Senate bill’s direct targeting of self-insured cities is also only based on one-sided, anecdotal claims made against cities and TPAs during the bill’s public hearing, and are not based on data showing systemic violations of L&I rules. If any self-insured employer, not just cities, have a pattern of violations they should be subject to revocation of their self-insured status, not just cities.

Both HB 1521 and SB 5524 are awaiting scheduling for floor votes in their respective chambers.