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Improper Denial of Worker's Compensation Claim May Lead to Federal Court Suit

Posted on Tue, May 08, 2012 @ 01:45 PM

David J. Schmittby David J. Schmitt

An April 6, 2012 decision by the United States Court of Appeals for the 6th Circuit  in a worker’s compensation related case may have wide-ranging implications for Ohio employers.

The case of Brown v. Cassens Transport, et al, 2012 U.S. App. Lexis 6929 (6th Cir. 2012) arose out of work-related injuries suffered by claimants in Michigan. The employees sought workers compensation benefits under Michigan law, and their claims were denied by the employer’s third-party administrator (“TPA”). As a result, the employees filed suit in federal court against their employer, the TPA, and the doctor who evaluated their injuries (under contract to the employer). In the federal suit, the employees alleged that the defendants had conspired to fraudulently deny their claims, in violation of the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”).

Specifically, the employees alleged that Cassens and the TPA conspired by mail, wire, or other electronic means, to solicit fraudulent medical reports from the physician, who they also claim lacked the expertise in orthopedics necessary to properly evaluate their claims. They claim the doctor was biased by the money paid to him over the years by the employer and the TPA.

The federal district court dismissed the case for failure to state a claim. The 6th Circuit Court of Appeals, however, reversed stating that Supreme Court precedent indicates that RICO is to be read broadly and interpreted liberally. The 6th Circuit also found that the statutory entitlement to worker’s compensation benefits are property and therefore Michigan’s non-discretionary worker’s compensation scheme creates a property interest in the expectancy of worker’s compensation benefits.

Perhaps most importantly, the court found that “even if Michigan law does not create a property interest in such an expectancy, the plaintiffs’ claim for benefits is an independent property interest, the devaluation of which also creates an injury to property with the meaning of RICO.”

The 6th Circuit remanded the case to the district court for further proceedings, stating that for the workers’ RICO action to succeed they must prove that they suffered a quantifiable injury. They will have to show that they would have prevailed in the worker’s compensation claim or obtained a better outcome if not for the alleged fraud and conspiracy between the defendants.

What this means for employers: This decision creates the potential for a routine worker’s compensation case to quickly transform into a federal RICO lawsuit with the potential for triple damages and attorney’s fee awards. While not an exact duplicate, Ohio’s worker’s compensation system is similar to that of Michigan.

Since the 6th Circuit Court of Appeals governs Ohio (as well as Michigan, Tennessee, and Kentucky), employers would be wise to examine their relationships with their TPA’s and any physicians used regularly to evaluate workers compensation claimants to make sure that all of their dealings with these entities are arm’s length transactions.

Tags: 6th Circuit Court, Worker's Compensation, RICO, United States Court of Appeals, Brown v. Cassens Transport