Missouri's Second Injury Fund - should it stay or should it go? An examination of the question facing the Missouri State Legislature.

• Author: McClitis, Jason R.

1. INTRODUCTION

   Missouri's Second Injury Fund ("Fund") is a workers' compensation arrangement that provides state assistance to employers by reducing their liability to employees who have preexisting disabilities and are subsequently injured on the job. (1) Throughout 2007 and 2008, the Fund was the subject of numerous headlines and debates that involved all three branches of the state government.

   First, the state's highest court delivered the controversial decision of Schoemehl v. Treasurer of Missouri. (2) Here, the Missouri Supreme Court held that the surviving dependents of a deceased employee were entitled to disability benefits from the Fund under state law. (3) Criticism immediately followed this opinion, as it permitted surviving dependents to step into the shoes of deceased employees and receive benefits for a disability that died with the employee. (4)

   Following Schoemehl, the state's executive officer, then-Governor Matt Blunt, alerted state agencies that the Fund was nearing insolvency. (5) The Governor added that the decision in Schoemehl only complicated the solvency issue because it extended the Fund's disability benefits liability beyond the employee to surviving dependents. (6) Audits and actuarial reviews conducted after the Governor's alert confirmed concerns about the Fund's solvency and projected that its resources would be depleted as early as the end of 2008. (7)

   In response to growing concerns, the state legislature attempted to address the Schoemehl decision and the Fund's imminent insolvency. Subsequently, the legislature only addressed the Schoemehl decision by instituting a "fix" that abrogated future application of the Schoemehl decision. (8) Despite numerous proposals, no legislation was passed to address the financial distress of the Fund. It is now the onus of the 2009 state legislature to decide what course of action to take regarding the Fund's solvency.

   This Law Summary will start by explaining the concepts underlying the Fund within the workers' compensation system. It will then move to an in-depth look at the Fund's recent developments in the judicial, executive, and legislative arenas. Finally, this Law Summary will analyze and attempt to answer the ultimate question facing the 2009 state legislature: what should be done with the Fund? This will include an examination of the Fund's future liability under its current claims and the Schoemehl decision, the need for the Fund in the wake on anti-disability discrimination laws, and adjustments and alternatives for the legislature to consider for increasing the Fund's revenues and decreasing its expenditures.

2. LEGAL BACKGROUND

   1. Workers' Compensation Generally

      Today's workers' compensation laws originated from an early 1900's movement against job-related injuries and deaths resulting from worker interaction with machinery and the inadequate remedies for injured workers in the common law tort system. (9) As a result, workers' compensation laws were established throughout the country to "provide a limited and exclusive remedy for employees injured in work-related accidents." (10)

      In 1927 Missouri established its first set of workers' compensation laws, which provided a no-fault system of compensation for workers. (11) The purpose of workers' compensation laws is to satisfy injured workers' need for financial support that is not always adequately met by private insurance and tort claim awards, and to provide a less costly and more efficient process than such traditional remedies. (12) The workers' compensation system provides an alternative system to ameliorate losses sustained by employees received in the scope of work. (13) In application, the workers' compensation system serves a "dual role"--it protects employers by limiting monetary awards and tortious lawsuits against them, while simultaneously providing employees with medical treatment for work-related injuries, payment of lost wages, additional compensation for permanent disabilities, and physical rehabilitation. (14)

   2. The Second Injury Fund Concept

      Within the workers' compensation system, the Missouri Legislature also created a scheme called the Second Injury Fund to assist employers in compensating employees with preexisting disabilities who were injured on the job. Created in 1943, the Fund operated to financially assist the physically handicapped and individuals with existing work-related disabilities and aimed to encourage employers to hire and retain previously disabled individuals. (15) Specifically, the Fund also sought to limit the liability of employers in situations where an employee with a preexisting disability was injured at work and subsequently incurred a more severe disability. (16) Prior to the creation of the Fund, employers were hesitant to hire such individuals due to the possibility that the preexisting disability would combine with a later on-the-job injury to produce an overall greater disability, and accordingly, increase employer liability. (17) The Fund alleviated these concerns by assuring employers that they would not be exposed to a greater amount of liability than that which resulted from the subsequent work-related injury. (18) Thus, liability for an employee's injury is shared between the employer and the Fund--the employer is responsible for the portion of the disability that can be attributed to the work-related injury, while the Fund is responsible for the remaining disability. (19)

      The Fund primarily provides compensation to employees with a preexisting disability who sustain either a work-related permanent partial disability ("PPD") or a permanent total disability ("PTD"). (20) Missouri workers' compensation law defines permanent partial disability as "a disability that is permanent in nature and partial in degree." (21) In other words, it is a disability which is permanent in its duration, but is partial in the sense that the disability impairs the individual only to a degree and does not prevent the individual from acquiring some form of gainful employment. (22) An individual that is found to be PPD receives benefits in a fixed amount for a predetermined number of weeks. (23)

      PTD is defined as an "inability to return to any employment and not merely [an] inability to return to the employment in which the employee was engaged at the time of the accident." (24) The phrase "inability to return to any employment" refers to the employee's inability to perform the usual duties of the employment in the manner that an average person engaged in such employment customarily performs such duties. (25) The words "any employment" mean "any reasonable or normal employment" or occupation, as it is not necessary that the employee be completely inactive in order to meet this statutory definition. (26) Individuals who are found to be PTD receive benefits in a flexible manner as the benefits are based on the continuance of payments for this permanent and total liability by using the simple expedient of hiring another switchman." Slusher, supra note 15, at 328. the employee's life and the particular disability that prevents the employee from working. (27)

      Section 287.220.1 of the Missouri Revised Statutes establishes the requirements for employees claiming compensation from the Fund for both PPD and PTD disabilities. (28) For PPDs, a parsing of the statute makes it clear that an employee seeking Fund compensation must first establish a preexisting PPD and a subsequent work-related PPD, both of which must meet certain minimum statutory requirements. (29) Next, and most importantly, the employee must show that the combination of the independent and preexisting disabilities resulted in a substantially greater disability than the sum of the independent disabilities. (30) This showing is critical to qualifying for the Fund. If the two disabilities do not combine to create a greater overall disability, the Fund's liability is not triggered and the employee is limited to recovery from the employer for the degree or percentage of disability which would have resulted solely from the work-related injury without consideration of the preexisting disability. (31)

      The following example illustrates the typical application of the Fund's requirements for PPDs. John Doe, employed by the local lumber yard, previously suffered the loss of his right thumb (i.e., a preexisting PPD). One day, while completing his usual task of chopping down trees, John mistakenly leaves his left thumb in the path of a moving axe and suffers the loss of his left thumb (i.e., a subsequent work-related disability). Independently, the loss of each thumb constitutes a PPD; however, the loss of both thumbs combines to create a substantially greater permanent disability as John will not be able to perform any tasks requiring the use of at least one thumb, such as swinging an axe with a sufficiently tight grip. (32)

      As a result, the employer would be liable for the loss of John's left thumb, the subsequent work-related disability, while the Fund would be liable for the difference between the loss of John's left thumb and John's resulting disability from the combination of the two disabilities, the loss of both thumbs.

      Section 287.220.1 establishes less restrictive requirements for situations when the employee's injury results in permanent total disability. Under this section, the employee must show that the two disabilities combine to create a PTD; no minimum requirements apply. (33) If the employee can make this showing, the employer is liable solely for the disability resulting from the subsequent work-related injury and the Fund is liable for the remainder of compensation that would be due under PTD. (34)

      Returning to the previous example, assume that John Doe previously suffered the loss of his right arm at his shoulder, and subsequently suffers the loss of his left arm at his shoulder in a work-related accident. Under these facts, it is quite possible that this could constitute a...