In a long-awaited and unanimous decision, the Eighth District Court of Appeals largely affirmed the Cuyahoga Common Pleas Court determination that the Bureau of Workers’ Compensation (BWC) had unlawfully administered its group rating plan from 2001 through 2008. San Allen, Inc. v. Buehrer, 2014-Ohio-2071 (May 15, 2014), was commenced in December 2007, by a class of non-group-rated private employers which alleged that the BWC had charged them excessive workers’ compensation premiums when compared with group-rated employers. The trial court had awarded more than $859 million in restitution to the non-group employers.
Presiding Judge Kenneth A. Rocco began his strongly worded decision: “Reduced to its irreducible essence, this appeal is about a cabal of BWC bureaucrats and lobbyists for group sponsors who rigged workers’ compensation insurance premium rates so that for employers who participated in the BWC’s group rating plan..., it was ‘heads we win,’ and for employers who did not participate in the group rating plan, it was ‘tails you lose.’...(T)he BWC allowed nongroup-rated employers to subsidize excessive, undeserved premium discounts to group-rated employers who were handpicked by group sponsors... The temerity of the group sponsors, untempered by any notions of equity from or of the BWC, exacted a heavy price...”
The decision is lengthy (175 paragraphs) and technical in spots. The court affirmed the trial court’s conclusion that the design of the BWC’s group-rating system violated Ohio law in two respects. First, the group-rating system was not based on retrospective rating, which Ohio law required. Second, the system design allowed manipulation of group membership by group sponsors, resulting in excessive discounts for employers who were members of groups, violating the legal requirement of an equitable workers’ compensation system. The BWC’s legislative mandate is to maintain “revenue neutrality,” collecting from employers what it pays out in benefits. That revenue neutrality is necessary to maintain the future solvency of the State Insurance Fund. The result of the faulty plan design of the group-rating system was that, in order to maintain revenue neutrality, the BWC overcharged non-group employers to subsidize the excessive discounts provided to group employers. The testimony of a number of witnesses in the trial court demonstrated that the BWC was aware of the inequities of the group rating system for many years based upon analyses by its own actuaries as well as independent consultants. One witness characterized the manipulation possible by group sponsors under the BWC group rating plan as “...having a fantasy league where the players are chosen after the season had ended.”
The BWC raised nine issues on appeal, and all but one of those issues was rejected by the Court of Appeals. Most importantly, the appellate court affirmed “the Schwartz formula,” the actuarial analysis utilized by the plaintiffs’ expert (and the trial court) to calculate the amounts individual non-group employers were overcharged. The calculation involved the difference between what an individual non-group employer actually paid in premium, and what it would have paid if a corrected “off-balance factor” had been applied to all manual classifications regardless of whether the employer was group-rated.
The BWC did achieve one limited victory. The case has been remanded to the trial court to assess the restitution for “migrating employers,” those plaintiff class members that may have benefited from group rating in some years but were notgroup-rated in others. This status applies to about 30 percent of the approximately 302,000 employers in the plaintiff class. The remaining employers were not group-rated for the entire period. It remains to be seen what impact this may have on the restitution figure of more than $859 million.
The plaintiffs were unsuccessful in the two issues they raised on cross-appeal. The Court of Appeals affirmed the ruling that the BWC group rating plan did not violate the plaintiffs’ rights to equal protection, and similarly affirmed the trial court’s rejection of the plaintiffs’ request to increase the amount of restitution by including BWC investment earnings on the improperly collected premium.
Since the start of this litigation, most observers have predicted that the case may ultimately be decided by the Ohio Supreme Court. The San Allen Court of Appeals decision does not dispel this conventional wisdom but its tone may provide a clue to the ultimate Supreme Court outcome: “In this case, the BWC violated one of the most basic principles of workers’ compensation insurance, i.e., that every employer participating in Ohio’s workers’ compensation system be charged a reasonable, accurate, and equitable premium rate that corresponds to the risk the employer presents to the workers’ compensation system.”