Colorado Legislative Council Staff

STATE

REVISED FISCAL NOTE

No State General Fund Impact

(Replaces Fiscal Note dated January 20, 1998)

TABOR Refund Impact

Cash Fund Revenue and Expenditure Impact


Drafting Number:

Prime Sponsor(s):

LLS 98-542

Rep. Arrington

Date:

Bill Status:

Fiscal Analyst:

April 3, 1998

House Appropriations

Will Meyer (866-4976)

 

TITLE:            CONCERNING ELIMINATION OF THE COMMON-LAW CAUSE OF ACTION FOR BAD-FAITH BREACH OF AN INSURANCE CONTRACT UNDER THE “WORKERS’ COMPENSATION ACT OF COLORADO”, AND, IN CONNECTION THEREWITH, ESTABLISHING ADMINISTRATIVE REMEDIES FOR FAILURE TO PAY BENEFITS WHEN DUE.


Summary of Legislation


            The provisions of this bill eliminate the common-law cause of action for bad faith breach of an insurance contract under the “Workers’ Compensation Act of Colorado” leaving the statutory provisions as the exclusive remedy. The bill also would replace the current statutory penalty provisions of 8 percent (of the amount wrongfully withheld) for failure to make timely payments of medical benefits to a $500-per-day penalty, payable to the injured worker and applicable whenever such payment are more than 30 days past due. The bill will become effective at 12:01 a.m. on the day following the ninety-day period after adjournment sine die of the General Assembly, or on the date of the official declaration of the vote of the people as proclaimed by the Governor, if a referendum petition is filed pursuant to Article V, Section 1 (3) of the State Constitution.


STATE FISCAL IMPACT SUMMARY

FY 1998/99

FY 1999/2000

State Revenues

General Fund

Workers’ Compensation Cash Fund

Workers’ Compensation Cash Fund - Surcharge Increase



($600)



($600)

435,404

State Expenditures

General Fund

Workers’ Compensation Cash Fund

Division of Administrative Hearings - Cash Fund Exempt*


 



435,404

364,145

FTE Position Change

None

3.4 FTE

Local Government Impact — None.

              *This cash fund exempt expenditure is included in the expenditure from Workers’ Compensation Cash Fund.

            This fiscal note has been updated to reflect the estimated potential changes in revenues and expenditures of the Division of Workers’ Compensation, Department of Labor and Employment, to implement the provisions of this bill.

            The bill would explicitly preclude an injured worker from pursuing a tort claim against a workers’ compensation insurer based on the common-law cause of action for bad-faith breach of an insurance contract. The bill would legislatively overrule recent Colorado Supreme Count opinions that found such a cause of action in not precluded by the current workers’ compensation statute. This would have an insignificant impact on the Division of Workers’ Compensation.


            To the extent that workers’ compensation insurance companies willfully fail to make timely payments or willfully stop medical payments and injured workers’ file complaints, the Director of the Division of Workers’ Compensation, Department of Labor and Employment, under current law, would be required to order an Administrative Law Judge (ALJ), Division of Administrative Hearings (DOAH), Department of Personnel, to review the complaint to determine the facts of the complaint. Based upon the findings of this review, the Division of Workers’ Compensation could be required to conduct prehearing and settlement conferences, and ultimately conduct a formal hearing before an ALJ. This would impact the workload of the Division of Workers’ Compensation and the Division of Administrative Hearings.



State Revenues


            The provisions of this bill would result in a minimal decrease in revenues from penalties currently paid into the Workers’ Compensation Cash Fund. It is estimated penalty revenues would decrease approximately $600 a year, beginning in FY 1998/99. The costs of administration of the Workers’ Compensation Act are paid for by a surcharge on the premiums paid on workers’ compensation insurance policies. The amount of the surcharge is adjusted to cover the costs of administration (and would take into account any decrease in penalty revenues). The surcharge would be increased to generate sufficient revenues to cover the additional costs of administration. It is estimated that $435,404 in additional revenues, beginning in FY 1999/2000, would be necessary to cover the additional costs of implementing this bill.


 

TABOR Refund Impact


            Section 20 of Article X of the Colorado Constitution, limits the maximum annual percentage increase in state fiscal year spending. Once total state revenue from all sources that are not specifically excluded from fiscal year spending exceeds these limits for the fiscal year, the state constitution requires that the excess shall be refunded in the next fiscal year unless voters approve a revenue change as an offset. Based on the current Legislative Council economic forecast, it is projected that the state will be in a TABOR refund position during each of the next five fiscal years. Any increase or decrease in state revenue from changes in fees, fines, licenses, or other revenue sources will affect the amount of the state revenue to be refunded.



State Expenditures


            Under current law, the penalty assessed against insurers for willfully delaying payment of medical benefits or willfully stopping payments is 8 percent of the amount of wrongfully withheld benefits, and the penalties are paid to the Division of Workers’ Compensation. Under the provisions of this bill, the penalty for violation of this provision would be changed to $500 per day and would be paid to the injured worker.


            In addition, current statutes provide for a 10 percent penalty against insurers for willfully withholding partial disability benefits. These penalties also are paid to the Division of Workers’ Compensation. Under the provisions of this bill, the penalties would remain the same but be paid to the injured worker. It is assumed that these changes would result in an increase in the number of complaints filed by injured workers with the Division of Workers’ Compensation. The division cannot estimate the number of additional complaints and requests for hearing that would likely result from the provisions of this bill. Therefore, it is not possible to accurately estimate the fiscal impact of this bill. However based on the number of disputes currently received and the number of complaints the division receives, the impact could be potentially large.


            The provisions of the bill would be in effect for cases of injury occurring on or after the effective date of the bill. Due to the fact that it takes some time for injury cases to be filed, then admitted or denied, and for the injured worker to progress through treatment to final resolution, there would no significant expenditure impact in FY 1998/99. The division has estimated the there would be a 25 percent increase in both prehearing conferences (conducted by the division’s ALJ’s) and formal hearings (conducted by DOAH ALJ’s).


            The Division of Workers’ Compensation would require an estimated 1.0 FTE and $71,259 beginning in FY 1999/2000 to implement this bill. These costs include the following: $65,977 in personal services costs, $982 in operating costs and $4,300 in one-time capital costs. Beginning in FY 2000/2001, the division would incur costs totaling $66,959 in personal services and operating costs. The division has requested an appropriation 17,037 hours and $1,456,664 for the services of Administrative Law Judges, Division of Administrative Hearings, Department of Personnel, in FY 1998/99. If the provisions of this bill were to increase the number of hours required to hear the additional cases arising from the provisions of this bill by 25 percent, it would cost the division $364,145 CF (4,259 hours @ $85.50 = $364,145) and require 2.4 FTE each year beginning in FY 1999/2000.

 

Division of Workers’ Compensation Expenditures - HB 98-1196

 

FY 1999-2000

FY 2000-2001

Personal Services

$65,977

$65,977

Operating Expenses

982

982

ALJ Expenses: 4,259 hours @ $85.50 per hour

364,145

364,145

Non-recurring Expenses

4,300

 

Total Expenses

$435,404

$431,104




Spending Authority


            This fiscal note implies that the Department of Labor and Employment, Division of Workers’ Compensation would not require any additional cash spending authority in FY 1998/99. However, beginning in FY 1999/2000, the division would require an estimated $435,404 CF and 3.4 FTE. Out of this additional cash spending authority to the Department of Labor and Employment, the Department of Personnel would require $364,145 additional cash fund exempt spending authority and 2.4 FTE.


 

Departments Contacted


            Labor and Employment          Judicial Branch