Retroactive application of worker’s compensation statutes unconstitutional

By Joe Forward, Legal Writer, State Bar of Wisconsin

July 16, 2010 – The Wisconsin Supreme Court recently struck down as unconstitutional the retroactive application of worker’s compensation statutes that reopened a private insurers liability for compensation claims.

In Society Insurance v. LIRC, 2010 WI 68 (July 8, 2010), the supreme court affirmed the circuit court’s conclusion that retroactive application of Wis. Stat. section 102.17(4) and 102.66(1), as amended, violated Society’s due process rights and impaired its contractual obligation.

Facts

Gary Liska sustained a work-related injury in 1982 that required amputation of his right leg below the knee. Society Insurance, his employer’s insurer, paid worker’s compensation benefits of approximately $32,000 through 1990.

In 2002, 12 years after Society’s last payment, Society’s worker’s compensation liability to Liska expired under the section 102.17(4) statute of limitations period.

In 2004, Liska filed for $14,364, and made additional claims thereafter. Society rejected the claims as time-barred under the statute’s limitations period.

However, in 2006, the Wisconsin Legislature removed the time limitations period for traumatic injuries. The amendment required insurers to continue payments for traumatic injuries that became due after the 12-year limitations period expired.

The Work Injury Supplemental Benefit Fund (Fund), which supplements worker’s compensation benefits in addition to what insurers are required to pay by statute, covered those expenses rejected by Society after the 12-year expiration.

The Fund began forwarding Liska’s treatment expense invoices to Society. That is, the Fund asserted that statutory amendments applied retroactively to reopen Society’s liability.

After two administrative hearings, the circuit court concluded that retroactive application of sections 102.17(4) and 102.66(1), as amended, violated Society’s due process rights and the contract clause of both the U.S. and Wisconsin constitutions. The appeals court certified the case for supreme court review.

Wis. Stat sections 102.17(4) and 102.66(1)

Amended section 102.17(4) provides, in pertinent part, that in the case of traumatic injury, including impairment of a leg, “there shall be no statute of limitations.”  

That is, “benefits or treatment expense for a traumatic injury becoming due 12 years after [the last payment of compensation] shall be paid by the employer or insurer.”

In addition, amended section 102.66(1) removed “traumatic injuries” from the category of meritorious claims entitled to supplemental benefits from the Fund. Under this amendment, Liska was not entitled to payments from the Fund after the statute’s effective date.

As the court explains, and as the parties conceded, the legislature intended these amendments to apply retroactively, meaning Society, and not the Fund, was liable for claims that arose beyond the 12-year limitations period previously in place.

However, the supreme court held that retroactive application, as applied to Society, “unconstitutionally deprives Society of property without due process of law and violates the contract clauses of the state and federal constitutions.”

Due process

Noting a two-part test to determine whether retroactive statutes comport with due process, the supreme court held that retroactive application violated Society’s due process rights.

First, the court must determine whether the statute has a retroactive effect. The statute has a retroactive effect if the challenging party has “vested right,” the court explained.

Here, the statute had a retroactive effect because Society had a “vested right” in its statute of limitations defense, which became effective 12 years from the date of its last compensation payment to Liska, the court concluded. In other words, the retroactive legislation renewed Society’s liability, impacting Society’s vested right to “fixed exposure to liability.”

Second, the court must determine whether the retroactive statute has a rational basis, the court explained. That is, the court must determine whether the public interest in applying the retroactive statute outweighs the private interest that retroactive application would affect.

Here, Society’s potential liability for future claims is significant, the court explained, and retroactive application “deprived Society of any meaningful notice of the potential increase in exposure to claims.” Retroactive application also prevents Society from recouping, through increased premiums, the expense of increased exposure, the court noted.

The Fund argued that the public interest was keeping the Fund solvent, but the court noted that nothing in the record suggested that retroactive application would impact the Fund’s solvency. Thus, the court held that Society’s interest outweighed the interest of Fund and therefore, there was not a rational basis for retroactive application.

Contract clause

Retroactive legislation may not unconstitutionally impair contract obligations under the contract clauses of the U.S. and Wisconsin constitutions, the court explained, and “we generally interpret the state and federal contracts clauses coextensively.”

The court noted a “multipart test to analyze whether retroactive legislation impairs a contractual obligation such that it rises to the level of a constitutional violation.”

The first step is to determine how severely the legislation impairs the contractual relationship. The more severe the impairment, the higher the level of scrutiny, the court explained.

Here, the court concluded, retroactive application altered Society’s expectations under the contract with Liska’s employer by renewing Liska’s claims after expiration, and the impairment was substantial, the court wrote.

Substantial impairment requires the legislation to have a significant and legitimate public purpose, the court noted. Because “the retroactive legislation is not justified by a rational legislative purpose,” the court wrote, “we must necessarily conclude that it is not justified by a significant and legitimate public purpose.” Thus, the court held that retroactive application violates both state and federal contract clauses.

Dissent

Justice N. Patrick Crooks filed a dissenting opinion that was joined by Chief Justice Shirley S. Abrahamson and Justice Ann Walsh Bradley.

Justice Crooks argued that statutes are presumed constitutional, the challenging party bears the burden to prove otherwise beyond a reasonable doubt, and “the record was missing facts necessary” to weigh public versus private interests.

Attorneys

Assistant Attorney General David Hart III, and Attorney General J.B. Van Hollen represented the Work Injury Supplemental Benefit Fund. James Goonan and Grace Kulkoski of Peterson, Johnson & Murray S.C., Madison, represented Society Insurance and James Meyer Inc.