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Sorting Through the Fallout from Gov. Newsom’s Executive Order

As many of us know by now, on May 6, 2020, California Governor Gavin Newsom signed an executive order for a COVID-19 presumption for employees.  Specifically, any COVID-related illness is presumed “to arise out of and in the course of the employment for purposes of awarding workers’ compensation benefits…”

There is, of course, fine print.  The presumption is for employees who tested positive for, or were diagnosed with, COVID-19 within 14 days after they last worked at the employer’s place of employment. Further, the diagnosis must come from a California Medical Board licensed physician.

The presumption is for employees who tested positive for, or were diagnosed with, COVID-19 within 14 days after they last worked at the employer’s place of employment.

Secondly, there is a limited 60-day period in effect. The order is retroactive to March 19, 2020 (when the stay-at-home order went into effect) and continues through July 5, 2020.

Additionally, there must be some tangible evidence of industrial exposure at the job site.  The Order applies to employees who had to physically be present at a place of employment.  Therefore, those who work from home are not eligible for this presumption, regardless if deemed “essential” workers or not.

The employee must empty their personal employment benefits first to collect indemnity.  An employee must exhaust paid sick benefits (specifically available in response to COVID-19) before any temporary disability benefits under Labor Code section 4850 take effect.  If an employee has no such benefits to exhaust, they may potentially receive disability payments without delay, as there is no waiting period.

However, there is a stricter check in the system in terms of medical certification.  The temporary disability must be re-certified every 15 days, as opposed to every 45 days, which is typically required for workers’ compensation claims.

The temporary disability must be re-certified every 15 days, as opposed to every 45 days.

What to Do If You Are an Employer or Insurer?

The first thing an employer should do is sound the alarm and scramble like mad.  The time to respond to a claim is shortened from 90 days to 30 days.  Specifically, employers have 30 days from the date the claim form is filed to accept or deny the claim, or otherwise it is presumed compensable (after already being presumed compensable).  

The investigation must be swift and should undoubtedly include a claims adjuster, supervisor, or defense attorney conducting a thorough employer-level investigation to assess the following: the timeline of events, including dates an employee was physically present at the job site, interactions with other employees, any evidence of other employees being diagnosed with COVID, the safety precautions taken, the training implemented, the personal protective equipment provided, the reporting of any issues, the knowledge of any non-industrial exposure to COVID, etc.

Based on the 30-day deadline, employers are tasked with a difficult decision:  should they accept liability for a claim (even when the cause of exposure is unknown) in order to control the medical treatment and care, or should they deny the liability and risk considerable exposure should the claim be later found compensable?  

Employers have very few tools other than the above-mentioned investigation in order to assess exposure.  It is unlikely that any substantial discovery, in the form of written discovery or deposition testimony, can be completed in 30 days.  As the COVID-19 diagnosis must be confirmed by further testing within 30 days of the original diagnosis date, this presents the best opportunity to gather evidence in the claim decision period, including medical evidence that may in fact be dispositive of the threshold issues presented.

There is potential to discover additional evidence after the 30-day decision period and later rebut the presumption, but only if it is determined that the evidence could not have been discovered in the initial 30-day period.  Thus, you will want to exercise your due diligence and ensure that such efforts are well-documented.

The stakes are quite high on these claims.  An accepted COVID-19 claim includes all workers’ compensation benefits, including full medical treatment and hospitalization, indemnity benefits, and death benefits.  The medical expenses, alone, will be taxing.  Self-insurers and employers with large deductibles will be paying considerable out-of-pocket expenses for medical treatment.  Thus, the decision to accept the claim will depend, in part as it generally does, on the cost calculus, a decision process that will, no doubt, be uneasy.  Beyond the cost of medical treatment, the indemnity cost is not significant, at least relatively.  What is significant, however, is liability for death benefits.  With that said, interestingly, the Death Without Dependents division of the Department of Industrial Relations will not be entitled to collect the customary $250,000.00 death benefit payment for COVID-related deaths.  

Why Us?

We are all keenly aware that the State’s resources, especially the unemployment system, are beyond strained.  And you may ask now, why is the State asking the private sector to foot the bill? Why was the workers’ compensation system chosen to be the safety net for this health crisis?

We can only imagine the discussion—that the workers’ compensation system was the only system remotely structured to shoulder this unique burden.  It has a system for providing benefits for loss of pay due to disability.  It has a system for medical certification for disability.  It has large insurers with deep pockets.  

However, for every justification of why the State chose to go in this direction, there are certainly counter arguments.  Why would you want to discourage employers who continue to operate in essential businesses from operating, as they are keeping individuals from the unemployment ranks?  Why would you want to impose liability on them, either directly or through their undoubtedly increased premiums?   Why would you want to tax an overburdened legal system such as workers’ compensation with these voluminous claims?

Regardless of what side you fall on in terms of the debate as to who should shoulder the burden—the role of the State as the safety net or the private sector’s role in stepping up—the fact remains that employers, insurers, and workers’ compensation professionals will feel the added pressure, particularly as “Phase Two” of the California plan to ease the state out of his stay-at-home order begins.  Retail stores, book shops, music stores, clothing outlets, and sporting goods stores will all be opening. Additionally, manufacturers of products for approved businesses will also be allowed to reopen.  With the re-opening of business in the state, employers’ exposure is likewise continuing to open up.

It will be interesting to see whether businesses will be reluctant to re-open at this time, or re-open less aggressively, in light of the executive order and the additional risk of liability it brings.  I suspect that the Order and similar legislature will have at least some chilling effect upon industry and thus the prospect of a rebounding job market. However to what extent, it will remain to be seen.

Rumblings of Constitutional Challenges and What’s Next

There will likely be legal challenges to the Governor’s authority to issue an executive order to regulate the workers’ compensation system with a presumption.  Whether it will be deemed an overreach of executive authority, time will tell.  And while the California Applicant’s Attorney Association (CAAA) lobbied hard for a “conclusive presumption” for all essential workers, a conclusive presumption was doomed to fail, both in terms of gubernatorial overreach and constitutionality of a “conclusive” presumption.  However, it appears that Newsom was moved by the notion to act now, despite numerous Assembly and Senate Bills currently being proposed by the California legislature.  For one, SB 1159 is similar to the Governor’s executive order, which also seeks a rebuttable presumption for employees who contract COVID-19 at work.  

What Newsom may have chosen to do is bridge the gap between now and the time the legislation is passed, and something that lasts for the duration of the pandemic, however long it continues.  The executive order is, after all, a stop gap measure, at best, having only a duration of 60 days.  The Senate Bill, will have a longer duration and some form of sunset provision, depending on the health climate in the future.

The executive order is, after all, a stop gap measure, at best, having only a duration of 60 days.

Governor Newsom’s stop gap “Band-Aid” is a quite costly one from the perspective of insurers, self-insureds, and employers with high deductibles.   The Workers’ Compensation Insurance Rating Bureau (WCIRB) is currently assessing the potential costs.  They had originally opined that the COVID-19 presumption could cost from $2.2 billion to $33.6 billion, with a midrange cost of $11.2 billion.  The medical cost component would be $6.7 billion and approximately $3 billion in wage loss.

Between legal challenges and the legislature that makes its way through, there will be more comprehensive measures to utilize the workers’ compensation system and its presumption tools, via specific regulations that are well thought out to ensure necessary checks and balances.  We will certainly watch closely and keep you apprised.