PD Overpayments: A Sixty-Second Seminar in Workers’ Compensation Claims Handling

California workers’ compensation law requires that permanent disability (PD) advances be issued upon termination of temporary disability (TD) entitlement and/or when the injured worker reaches maximum medical improvement (MMI) status, provided that there is a reasonable expectation PD will be found. Pursuant to Labor Code § 4650(b)(2), there are two exceptions allowing for non-payment of PD advances where payment would otherwise be owed. Both exceptions pertain to injuries after 1/1/2013 where one of the following applies:

1. The employer offers the injured worker a job that pays at least 85% of wages and compensation earned at the time of injury; or
2. The employee is working elsewhere at the time PDA payments would otherwise be owed and earning at least 100% of the average weekly wage on the date of injury.

Sometimes PD is accidentally overpaid because of rating errors or apportionment issues. For example, an anticipated 65% PD rating may be significantly reduced to only 15% upon newly discovered evidence of apportionment. However, PDAs may have already been issued for months based on an anticipated 65% rating, resulting in a tremendous overpayment and leaving no money for the applicant attorney fees. In Sierra Pacific Industries v. WCAB (Lewis) (1979) 44 CCC 573 (writ denied), the appeals board ruled that when PD is overpaid the applicant’s attorney is still entitled to a fee, even if it results in double liability for the claims administrator. This means that despite the overpayment, the administrator remains liable to satisfy the applicant attorney fee.

Unfortunately, the news gets worse. In our example above a 15% PD is worth only $14,645. Yet the claims department paid $90,000 in PDAs. We therefore ask, “What is the applicant attorney fee in this claim?” Most adjusters can do the math. They calculate the fee at 15% of PD. Therefore, 15% of $14,645 produces an attorney fee of $2,196.90, which is payable over and beyond the overpayment. But wait! That’s not what the WCAB says. In its recent decision in Eugene Weerasekera v. Built By Design, 2022 Cal. Wrk. Comp. P.D. LEXIS 280, the Board calculated the attorney fee to be much higher. Surprisingly, the Board held that the fee was not 15% of PD, but instead 15% of all benefits paid, including the overpayment! Therefore, 15% of the $90,000 in paid in this claim yielded a fee of $13,500. Certainly, the applicant’s attorney in this case realized a tremendous windfall due to the overpayment.

As a practical matter, the solution to this dilemma is for the claims administrator to withhold 15% from every PDA check and apply it towards anticipated AA fees. Instead of issuing a check for $580 every two weeks, the amount paid should be reduced to $493, with $87 withheld for fees. It’s bad enough when an injured worker becomes MMI for their income to be drastically reduced to an unlivable wage of $290 per week, but now per the Weerasekera decision, the injured worker’s meager PDA benefit is to be reduced even further by an additional 15%, to only $246.50 per week. Applicant attorneys can congratulate themselves for this reduction thanks to their insistence on being compensated when an accidental overpayment occurs.

One issue the Board neglected to address: who would be liable for applicant attorney fees if a PD overpayment were attributed to an applicant’s deliberate and fraudulent suppression of evidence in an attempt to hide apportionment?

The attorneys at Friedman + Bartoumian are ready to assist you as to your PD overpayment issues. Do not hesitate to reach out to us!