By 
One of the hot topics of dispute resolution before the Division of Workers’ Compensation these days is recovery. Recapture is an attempt by an insurance company to recover overpaid benefits from a claimant by reducing the claimant’s future benefits by a fixed percentage until all overpaid benefits have been recovered. For years, it was a matter of equity and the Division made decisions regarding recovery on the basis of equity. The insurer’s ability to recover overpaid benefits has been significantly reduced, and when it can, the amount it can reduce benefits may not be based on anything to do with fairness or equity.
THAT’S NOT FAIR!
Recovery is now governed by Rule 128.1(e). That rule went into effect on May 16, 2002. Claimants did not immediately rush to adopt the windfalls 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 recovery discussions of the Appeals Panel. This is partly due to the lack of cases that were 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 the decisions that address its interpretation, are now becoming widely known, and cases involving recovery are becoming more common.
Rule 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 miscalculation 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 (regarding fraudulent obtaining of benefits), 408.003 (regarding reimbursement of benefit payments made by an employer), and 410.209 (allowing fund reimbursement for subsequent injuries for payments made under a Division order to be revoked or modified), as statutory provisions that could allow recovery of benefits. But these cases are rare.
The results of Rule 128.1(e) can be quite severe and unfair, and certainly may not have any consideration of equity. 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 half of the Impairment Income Benefit (IIB) payment based on a fifteen percent impairment rating. The insurer then suspended the IIBs to recover their overpayment with the notion that depending on the number of weeks Temporary Income Benefits (TIB) were due and the number of weeks the IIBs were due, and multiplying that number of weeks times the benefit rate due, the amount of benefits the claimant was entitled to receive had already been paid. The panel found that logic “absurd.”
The 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 in TIB + $3,750.00 in 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 above rate, and the claimant should only receive a total of $5,000.00 in compensation, and there are still five weeks of IIB to be paid. The panel determined that the claimant is legally entitled to the remaining weeks of IIB, holding that “the amount of the recovery is a factor in determining the amount of benefits to be paid to a claimant rather than the amount of the recovery being determined by a predetermined amount of total profits”. This means that a claimant may receive more severance benefits than the benefit rate multiplied by 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 is rated five percent disabled, fifteen weeks of benefits are due from the date of maximum medical improvement. Any adjustment made to the calculation of benefits due that excludes an income benefit for that legally authorized period violates the first part of Rule 128.1(e).
This does not mean that an adjustment will not be made to allow the insurer to recover an overpayment resulting from a change in the average weekly wage for 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 a Division-approved benefit advance, 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 advance, then the insurer may recover at a rate of twenty-five percent.
In APD033358 discussed above, the insurer determined that it had paid all benefits owed pursuant to the benefit rate calculation for weeks due. She then stopped 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 for a ten percent reduction in benefits or a twenty-five percent reduction in benefits, depending on the circumstances. The rule does not allow a 100 percent reduction in benefits. That panel ordered a ten percent reduction in benefits because the claimant’s benefits were being reduced to pay for attorneys’ fees.
OR IS THAT IT?
The 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 equity analysis. Allows recovery at a higher rate than allowed in Rule 128.1(e)(2)(A) or (B) if the carrier reaches a written agreement with the claimant, or if unable to do so, by requesting 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 probability that the entire overpayment will be recovered. It states that “the rate should be set in such a way that it is probable that the full 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.
The bottom line here is that if the overpayment is due to a change in average weekly wage, that overpayment can be recovered at whatever rate the insurer can get the Division to approve, but you 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 in Rule 128.1(e)(2)(A) and (B) will apply.
There are procedural questions that remain unanswered by the rule and the Appeals Panel. How does a carrier request a recovery rate higher than the default rates? A quick check of the Division’s website shows that there is no form that can be submitted for this purpose. Does the timing of the application matter? Do they control the default rates up to the date the insurer requests a change in the Division’s recovery rate similar to a contribution case? Who makes the decision in the Division about the amount of recovery allowed before a benefits review conference or a contested case hearing? Does the carrier have to provide evidence that it sought an agreement from the claimant as a precondition for the Division to approve a recovery rate change?
There 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 the Division’s recovery rates. Then, there must be a request made to the Division to approve a recovery rate based on Rule 128.1(e)(2)(C) actions. At that point, 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.
CONCLUSION
The 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 statutory provision allowing such repayment. 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 either ten percent or twenty-five percent, depending on the circumstances. If the carrier wants to recover the overpayment at a rate higher than the predetermined rates, it must request that the claimant agree to 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, it will be limited to the default rates of Rule 128.1(e)(2)(A) and (B).