Hb 17-1119 Brings Reform To Workers' Compensation, 1117 COBJ, Vol. 46, No. 10 Pg. 58
WORKERS’ COMPENSATION LAW
This article discusses the changes HB 17-1119 has made to workers' compensation.
On June 5, 2017, Governor John Hickenlooper signed HB 17-1119, enacting the most significant reform to workers' compensation in Colorado in 27 years. The bill creates the Colorado Uninsured Employer Fund (CUE Fund or fund), which will redirect funds received from penalties to pay benefits to workers injured while employed by uninsured employers. It also refines the process for fining employers who fail to maintain appropriate coverage and provides a new exemption for certain out-of-state workers performing services in Colorado.
Problems with workers' compensation drew attention over the summer of 2016 when numerous media outlets began reporting on the significant fines being imposed by the Division of Workers' Compensation (Division) on employers for failure to insure.[1] These stories highlighted a need for reform in the rigid statutory mechanism for imposing fines as well as a need for a fresh look at ways to protect workers injured while employed by entities that do not comply with the statutory requirement to provide workers' compensation coverage.
The General Assembly passed the bill with bi-partisan support, recognizing a significant need to protect workers in Colorado who otherwise would have substantial difficulty in obtaining benefits. The bill took effect July 1, 2017.
Fines for Failure to Insure
Penalties for failure to insure are imposed on a daily basis, to a maximum of $250 per day for first offenses and $500 per day for second offenses.2 For second offenses the minimum fine is $250 per day.3 Given the large number of employers in Colorado and the limited capacity for enforcement, it can be some time before violations are identified and fines are imposed. The longer the violation, the more fines accumulate. In one case, the fines imposed exceeded $842,000.4
With such devastating fines comes the risk that the employer will fail to pay the fine and even declare bankruptcy. In addition, if there is a pending claim, the claimant may be unable to obtain any benefits from the uninsured employer.
Before the passage of HB17-1119, the statute was absolute with regard to second offenses; the Division had no discretion to reduce the fine below the floor of $250 per day. For an employer who was uninsured for one year, the maximum total fines imposed under the previous system would be $173,700. Even at the minimum of $250 per day the employer would still owe $91,250 for the duration of the violation. For a violation that lasted five years, the minimum penalty was $456,750.
HB 17-1119 retains the minimum and maximum penalties but gives the Division director discretion to enter into settlements for less than the minimum fine for a subsequent offense.5 During numerous legislative hearings, the intent was expressed that this authority be exercised only with regard to legitimate mistakes and that it not be used to reduce penalties imposed against "bad actors," such as employers who fail to carry workers' compensation insurance as part of their business plan, allowing them to undercut their competition. The Division director's discretion relates to settling fines for failure to carry workers' compensation insurance after those fines are imposed. It does not alter the legal liability of the uninsured employer, and no employer is ever entitled to demand a settlement, nor is die director required to grant a settlement request.
In addition to discretion in settling fines, HB 17-1119 provides greater clarity to Colorado employers regarding the duration of fines. Under the new system, the imposition of fines will be limited to the three years before a notice of violation.6 But there is no limit on fines imposed after notice from die Division. An employer who remains out of compliance following notice from the Division will continue to accrue fines on a daily basis.
Finally, a failure to insure will only be considered a second offense if it occurs within seven years of the prior fine being imposed.7 In other words, if an employer has maintained continuous workers' compensation coverage for at least seven years, any violation after that time would be considered an initial violation subject to the lower fine maximum of $250 per day. Together, these new provisions provide a flexible framework for the imposition of realistic fines.
Colorado Uninsured Employers Fund
Along with changes to the system for issuing fines, HB 17-1119 creates a new mechanism to insulate Colorado workers from the harmful effects of employers who fail to comply with die law. Starting in 2020, workers injured while working for uninsured employers will be able to seek payment of benefits from the CUE Fund.8 The CUE Fund will be administered by an independent board comprising representatives from key stakeholder groups (insurance companies, employers, claimant's attorneys, and labor representatives) and die Division director (collectively, board).9The board is charged with enacting a plan of operation that will set forth the actual procedures for individuals to claim benefits from the fund.10 The board is also empowered to enter into contracts with third-party administrators, attorneys, and anyone else necessary to carry out its mission.[11] The board will be appointed by the Governor and approved by the Senate.12 Members will serve three-year terms, with the initial terms staggered: initially, one member will serve three years, two will serve two years, and one will serve a single year.13 Board members may be reappointed, but may serve no more than three consecutive terms.14 Board members are immune from liability for actions undertaken in the performance of their duties.15
Funding
The CUE Fund will draw its funding from three sources: penalties and fines, collections from uninsured employers, and payments on fatal claims with no dependents. The fund does not draw any money from the state's general fund, nor does it rely on the Workers' Compensation Cash Fund, which comprises premium surcharges paid by insurance carriers and self-insured employers.
Penalties and fines. As of July 1, 2017 penalties imposed under the general penalty statute will be directed into the fund.16 This represents the bulk of penalties imposed by die Office of Administrative Courts and those penalties imposed by die Division director with regard to individual claims.
The bill also creates a new...
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