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Rise and Fall of the COLA: How It Affects the Attorney’s Fee in California

February 28, 2012 (10 min read)
Calculation of attorneys’ fees has always been a hot-button issue for the WCAB. When the calculation involves a lifetime award of permanent total disability (PTD) benefits, the issue ratchets up a notch. Lately, several conflicting panel decisions have issued discussing how an attorney’s fee should be calculated under these circumstances.
Note: The 2012 panel decisions and Policy and Procedural Manual cited below can be accessed for free. Lexis.com subscribers can link to all other cases, statutes and rules cited below.
Cost of Living Adjustment
Calculation of Attorney’s Fee for PTD Award
Usually, an applicant attorney is awarded a fee somewhere in the range of 9% to 15% of an injured worker’s total award, depending upon a variety of factors. (See Policy & Procedural Manual Section 1.140, WCAB Rule 10775, and LC Sections 4903(a) & 4906.) But when the award is for 100% PTD with a life pension, questions have arisen as to whether or not it is reasonable to commute a 15% attorney fee from the present value of the total award, given that the injured worker is entitled to an undetermined “state average weekly wage” (SAWW) increase every year under LC Section 4659(c). (The SAWW is basically a cost of living adjustment (COLA) and the two terms are often used interchangeably.)
LC Section 4659(c) provides as follows:
“…an employee who becomes entitled to receive a life pension or total permanent disability indemnity…shall have that payment increased annually commencing on January 1, 2004, and each January 1 thereafter, by an amount equal to the percentage increase in the “state average weekly wage” as compared to the prior year.” (Emphasis added.)
What Is the Most Accurate Percentage for the “SAWW Increase”/COLA?
During the process of calculating the attorney fee, the issue becomes what is the “amount equal to the percentage increase in the ‘SAWW’”? In 2011, the Disability Evaluation Unit (DEU) presented a seminar, including this very topic, at the 18th annual DWC conference. The materials for that program can be found at: http://www.dir.ca.gov/dwc/educonf18/Commutations/Commutations.pdf.
The DEU rater discussed a variety of options and on Slide #28, the DEU rater indicated that a 4.6% COLA would be the designated default percentage used in these types of calculations. This 4.6% was based on the 50-year average of the SAWW increase from 1962-2011.
Recently, this issue has found its way into several WCAB panel decisions with different results as discussed below.
WCAB decision - Estela Luis – 4.6% = COLA
In the case of Estela Luis v. Community Bridges, SCIF, (2011) 2011 Cal. Wrk. Comp. P.D. LEXIS 328, the Workers’ Compensation Judge (WCJ) affirmed the DEU’s use of a 4.6% COLA and stated the following:
“The WCJ utilized 4.6% as the projected annual increase in the state average weekly wage (SAWW) based upon the DEU report and based on the fact that over the last 50 years the state average weekly wage (SAWW) has increased at an average rate of 4.6% per annum. Defendant has introduced no evidence to refute these projections.”
The defendant filed a Petition for Reconsideration, which the WCAB granted. The WCAB returned the case to the trial level to allow the defendant an opportunity to rebut the DEU’s use of the 4.6% SAWW increase.
At the subsequent trial, the only evidence presented by defendant was the testimony of the DEU rater who explained that the 4.6% was based upon the 50-year average of the SAWW increase from 1962-2011. Even though the WCJ agreed that the methodology used by the DEU does not have the effect of a regulation, he stated that using this approach will “result in an expeditious resolution of calculating attorney fees without delaying resolution of these cases and without flooding the WCAB’s calendar.”
In addition, the WCJ explained that no rebuttal evidence was presented by defendant as to what COLA percentage would be more accurate than the 4.6% used by the DEU. The WCAB affirmed this decision on Jan. 19, 2012. (See Estela Luis v. Community Bridges, SCIF, (2012) 2012 Cal. Wrk. Comp. P.D. LEXIS --- [free temporary access])
WCAB decision - Lena Wilson – 3.0% = COLA
In the permanent total disability (PTD) case of Lena Wilson v. Piedmont Lumber and Nursery, SCIF, (2011) 2011 Cal. Wrk. Comp. P.D. LEXIS 196, the WCJ initially held that the applicant attorney was entitled to a fee of 12% of the injured worker’s award, which resulted in an attorney fee of $33,217.95. The WCJ used the increase of 3% found in LC Section 5101(b) to calculate the present value of the award, as opposed to the COLA increase found in LC Section 4659(c). LC Section 5101(b) provides as follows:
LC Section 5101(b) If the injury causes permanent disability…, the appeals board… shall estimate the present value thereof, assuming interest at the rate of 3 percent per annum…”
On April 1, 2011, the WCAB returned the case to the Workers’ Compensation Judge (WCJ), for further proceedings on the calculation of the present value of the PTD award. In this decision, the WCAB noted that the attorney was entitled to a fee of 15% (and not 12%) of the injured worker’s award. In addition, the WCAB explained that the DEU is the entity initially charged with the task of calculating the present value of a PTD award. The WCAB added that the COLA increase set forth in LC Section 4659(c) was the appropriate tool to use in this case, not the 3% interest rate found in LC Section 5101(b). Although the WCAB acknowledged that, at the time, 4.7% was the current default rate used by the DEU in these types of calculations, this policy was not a regulation and therefore was not mandatory. The WCAB pulled a quote from prior cases in support of this position:
"Where life expectancies are used for purposes of establishing the present value of an award, and in order to comply with Labor Code section 4659(c), some type of formula or approach is necessary to establish a percentage figure for purposes of the statewide weekly wages factor, because the statute in fact requires that an injured worker's 100% permanent disability indemnity rate will be continually adjusted in the future. In the absence of evidence to the contrary, the use of the 50 year average of 4.7% is a rational and reasonable formula to satisfy the requirements of section 4659(c) and to determine the present value of the award and the correct attorney's fee." (Pan v. State of California (2007) 2007 Cal. Wrk. Comp. P.D. LEXIS 227 and Bacha v. State of California (2009) 2009 Cal. Wrk. Comp. P.D. LEXIS 613.)
In accordance with the WCAB’s instructions, the WCJ then developed the record to determine a reasonable attorney fee following the procedures set forth in the Policy & Procedural Manual Section 1.140, WCAB Rule 10775, LC Sections 4903(a) & 4906. The WCJ instructed the DEU rater to calculate the present value of the award using a 0% COLA (as opposed to the default 4.6% COLA). This resulted in a present value calculation total of $276,816. The WCJ multiplied this number by 15% for an attorney fee award of $41,522. The WCJ explained his reasoning as follows:
“In making the above finding, consideration has been given to the applicant attorney’s request for a fee of $100,000… (i)t appears that the applicant attorney is claiming approximately 93 hours of legal services in relation to this case which is equivalent to a fee of approximately $1,075 per hour. The awarded attorney’s fee of $41,522 represents a fee of $446 per hour…”
The WCJ felt that $446 per hour was more in line with what would be considered a “reasonable” attorney fee, than a fee of $1,075 per hour.
The applicant attorney filed a Petition for Reconsideration from this decision, which was granted by the WCAB. The WCAB issued their opinion on January 17, 2012. (See Lena Wilson v. Piedmont Lumber and Nursery, SCIF, (2012) 2012 Cal. Wrk. Comp. P.D. LEXIS --- [free temporary access]) In the second WCAB decision in this case, the commissioners held that a COLA increase of 3% was the appropriate percentage to use. Using a 3% COLA, rather than a 0% COLA, the present value of the award more than doubled, resulting in an attorney fee in the amount of $84,814.
The WCAB was concerned about the decreasing trend in the average weekly wage calculations over the past several years and how it might negatively impact the payout of the injured worker’s award. They clearly wanted to place the risk of a slowing economy (and a reduced COLA) more on the attorney, than on the injured worker. The WCAB stated their rationale for selecting the 3% COLA as follows:
“We find the use of 3% as the assumed annual SAWW increase to be reasonable in view of the 50-year (4.58%), the 30 year (4.14%) and the 5 year (3.19%) SAWW increases… The use of 3% is also reasonable in light of the factors set forth in LC Section 4906(d) and WCAB Rule 10775...”
Conclusion
This issue may become a moving target over the next several months, given that the economy has slowed quite a bit in recent years. There is no guarantee that the SAWW will continue to increase on average at 4.6% as it has for the past 50 years. The 4.6% default increase currently used by the DEU may well be in jeopardy, and the parties, the Judge or the WCAB may begin to instruct the DEU to use a lesser percentage in these types of cases. It will be interesting to see what type of evidence, if any, will be used in support of an alternate percentage and what burden of proof will be necessary to sustain such a finding.
Practice Tip
When requesting a DEU calculation on this issue, it is prudent to use the formal DEU commutation request form which can be found at: www.dir.ca.gov/dwc/forms/DEU_CommutationRequest.xls.
© Copyright 2012. LexisNexis. All rights reserved. This article will appear in a forthcoming issue of the California WCAB Noteworthy Panel Decisions Reporter (LexisNexis).

 

 

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