The Eight District Court of Appeals unanimously affirmed an award of more than $850 million in restitution damages to a class of approximately 302,000 employer plaintiffs in the recent Ohio workers’ compensation case San Allen, Inc. v. Buehrer. The class sued the Ohio Bureau of Workers’ Compensation (“BWC”) in 2007 after more than 15 years of paying inflated insurance premiums to offset generous discounts for group-rated employers.

The strongly-worded, 175-page opinion, issued May 15, 2014, details the BWC’s group-rated insurance plan, which the court found to have significantly disadvantaged nongroup-rated employers. “For more than 15 years, the BWC allowed nongroup-rated employers to subsidize excessive, undeserved premium discounts to group-rated employers who were handpicked by the group sponsors to participate in the BWC’s group rating plan,” the court held. In total, nongroup-rated employers paid more than $859 million in subsidies.

Under Ohio law, the BWC is required to develop and implement a plan that groups employers for rating purposes and “pools the risk of the employers within the group.”¹ The organization is afforded considerable discretion in setting premium rates for such plans, provided it complies with statutory mandates and workers’ compensation insurance principles. However, the code specifies that “[i]n providing employer group plans, the administrator shall consider an employer group as a single employing entity for purposes of retrospective rating.”² (Emphasis added.) Under retrospective rating, an employer (or group of employers) assumes some of the risk during the policy period, and the total premium is determined after the policy has ended. Instead, the BWC chose to implement only prospective rating plans, where premium rates are based on past claims experience, with “premium discounts provided to those insured with favorable past claims experience.”³

When first introduced in 1989, group rating was believed to provide employers with incentives to foster safe working conditions and control claims costs. It was anticipated that “group members with good safety records would not allow employers with poor safety records to join or remain in the group or would pressure those employers to improve their safety records.”⁴ Because group-rated employers received substantial discounts under the BWC’s plan, it became very popular.⁵ BWC’s system was revenue neutral. Accordingly, as more employers opted into group plans – sometimes receiving discounts off their base rates as high as 90 percent – premium obligations for nongroup-rated employers rose in excess of the “risk they presented to the workers’ compensation system.”⁶

These increased premiums for nongroup-rated employers stemmed primarily from BWC’s methods for group formation and accounting for employers’ experience. BWC determined group membership on an annual basis, and each year groups were permitted to change their member employees. Therefore, “an employer’s experience affected the experience rating of the group only so long as the employer was a member of the group.”⁷ As one consultant described the plan, it was akin to “having a fantasy league where the players are chosen after the season has ended.”⁸ This method yielded a significant understatement of the risk presented by employers in a given group; accordingly, group-rated employers were being undercharged premiums, while nongroup-rated employers subsidized the discounts with inflated base rates.⁹

In 2007, the BWC recognized that its group-rating plan significantly penalized nongroup-rated employers. Yet it was not until 2009 that the organization began making significant changes to the system.¹⁰ By that time, nongroup-rated employers had already incurred huge, disproportionate costs. The injured employers certified a class and brought action against the BWC for the return of the specific premiums they claim were unlawfully collected.¹¹

Following the district court’s holding in 2012, the BWC appealed on numerous accounts, including several procedural and jurisdictional issues. On the issue most pertinent to employers – the award of restitution damages – the Eighth District Court of Appeals affirmed the judgment, holding that the “BWC knowingly maintained an inequitable rating system” in violation of R.C. 4123.24(C).¹² The court did, however, remand the case for recalculation of the portion of restitution damages awarded to employers who were group rated during a portion of the class period.¹³ The court provided no guidance on the method for recalculating such awards.

On May 27, the BWC filed a motion to stay execution of the judgment, pending appeal to the Ohio Supreme Court. The plaintiffs replied with a motion in opposition on May 30. The court has yet to respond.

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¹ San Allen, Inc. v. Buehrer, 2014-Ohio-2071, ¶ 20 (8th Dist.). See also ORC Ann. § 4123.29, ORC Ann. § 4123.34 (2014).
² 2014-Ohio-2071 at ¶ 21.
³ Id.
⁴ Id. at ¶ 23.
⁵ 2014-Ohio-2071 at ¶ 21.
⁶ Id. at ¶ 24-25.
⁷ Id. at ¶ 26.
⁸ 2014-Ohio-2071 at ¶ 27.
⁹ Id.
¹⁰ Id. at ¶ 37.
¹¹ Id. at ¶ 61.
¹² 2014-Ohio-2071 at ¶ 112.
¹³ Id. at ¶ 174.