Ethics Matters: Missouri legislature corrects costly error

The crux of the potential crisis was a Missouri Supreme Court ruling in the Schoemehl v. Treasurer of the State of Missouri case that the workers’ compensation act’s Second Injury Fund served as a life insurance policy for a deceased employee’s dependents.

Why it exist

The purpose of the Second Injury Fund is to encourage employers to hire workers with pre-existing disabilities. When an employee’s pre-existing disability combines with a work-related injury, causing an increased disability, the Second Injury Fund pays the injured employee temporary or permanent disability benefits for the increased disability.

In the Schoemehl case, an employee with a pre-existing disability suffered a work-related knee injury. The two conditions combined to disable the employee permanently. Afterward, he received weekly compensation benefits from the Second Injury Fund.

The disabled employee later died of a cause unrelated to his work injury, and his wife claimed the weekly Second Injury Fund payments for her lifetime as his surviving dependent.

Surprisingly, the Missouri Supreme Court ruled in her favor. The court did so because of the workers’ comp act’s wording on injured employees and their dependents. The act stated benefits paid to an injured employee ended with the employee’s death, unless there were surviving dependents. The act also stated any reference to an injured employee included the employee’s dependents. Based on the act’s language, benefits paid under the Second Injury Fund went to the injured employee’s descendents at the employee’s death.

Such a system threatens to increase Missouri’s workers’ compensation costs and the Second Injury Fund’s solvency. Missouri Gov, Matt Blunt noted this dangerous potential in praising the legislation that amended the workers’ compensation act.

Nationally, workers’ compensation costs continue to rise for employers and insurers. According to Marsh Powers of Powers Financial Group Inc., workers’ comp costs for employers trail only workers’ salaries and health costs.

Business Insurance magazine reports that in 2006, insurers’ workers’ comp costs rose by 2.3 percent to $56 billion. Employers’ costs rose by 7 percent to $87.4 billion, and rising costs forced South Carolina to begin phasing out its Second Injury Fund, which ends in 2013.

Curious law

Sure, it is easy to criticize the Missouri Supreme Court’s decision in the Schoemehl case. It is simply unfair to employers and injured employees for the wife of a deceased employee to get lifetime compensation from the Second Injury Fund. The deceased employee’s wife never worked for the employer or received a work-related injury. Common sense says the employee’s Second Injury Fund compensation ends with the employee’s death. The court, however, made the correct decision in applying the law as written. It could not ignore the workers’ compensation act’s plain language in awarding lifetime compensation from the Second Injury Fund to the deceased employee’s wife.

In amending the workers’ compensation act, the Missouri legislature makes it clear the deceased employee’s Second Injury Fund payments end at the employee’s death. The legislation specifically nullifies the Schoemehl decision.

It was the Missouri legislature’s original poor drafting, however, that turned the state’s Second Injury Fund into a life insurance program.

It is inexplicable the Missouri legislature made such an obvious error. The legislature’s recent amendment to the state’s workers’ compensation act only cleans up a mess it made.

John D. Copeland, J.D., LL.M., Ed.D., is an executive in residence at The Soderquist Center for Leadership and Ethics and professor of business at John Brown University in Arkansas.