Workers’ Comp “Opt-Out” Bill Introduced in Tennessee Legislature

Senate Bill 721

On Wednesday, state senator Mark Green (Republican from Clarksville), introduced Senate Bill 721 to the Tennessee legislature. If enacted, many Tennessee employers would be allowed to opt-out of the state’s traditional workers’ compensation system, providing coverage with private benefit plans somewhat like those chosen by some Texas employers for their employees. Green is a physician, with specialized training in emergency medicine. The bill would enact a new chapter 50 to the state code to be known and cited as the “Tennessee Employee Injury Benefit Alternative.”

Basic Provisions of the Opt-Out Bill

In relevant part, the Injury Benefit Alternative would:

  • Apply only to employers with five (5) or more employees;
  • Exclude construction services providers as well as those sorts of employment—e.g., casual labor, domestic servants, farm or agricultural laborers and employers, or other employment arrangements set out in Tenn. Code Ann. § 50–6–106(1)-(7);
  • Require the employer to adopt a written benefit plan providing at least the following:
    • Medical expense coverage for at least 156 weeks and $300,000 per employee;
    • Temporary Total Disability benefits of at least 70% of AWW up to 110% of the state AWW for at least 156 weeks;
    • Death and scheduled dismemberment benefits of up to $300,000 per employee:
    • A combined single limit for all benefits payable due to an occupational injury; provided, that the combined limit is at least $750,000 per employee and $2,000,000 per occurrence.
  • Not generally limit the right of the employee or the employee’s personal representative, dependents, or next of kin to recover under a cause of action for employer negligence.

Plans Would Be Subject to ERISA

Under proposed Tenn. Code Ann. § 50–10–106, a qualified employer’s injury benefit plan established in compliance with proposed Chapter 50 is not maintained solely to comply with the state’s workers’ compensation law and is the sort of welfare benefit plan that is subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA) (29 U.S.C. § 1021–1191c). This provision is hugely important as it effectively pushes all qualifying plans outside the oversight and supervision of Tennessee courts and administrative agencies.

No Exclusive Remedy Defense for Opt-Out Employers

As mentioned above, under proposed Tenn. Code Ann. § 50–10–108, an employer who utilizes proposed Chapter 50 to opt out of the traditional workers’ compensation system will generally forfeit the exclusive remedy defense in any civil action filed against the employer by the employee (or the employee’s personal representative, dependents, or next of kin). The plaintiff in such a civil action must, however, prove negligence of the employer or of an agent or servant of the employer acting within the general scope of the agent or servant’s employment.

Damages in such civil actions would be limited, however, as follows:

  • Economic damages in an amount not to exceed $1,000,000 per employee and $5,000,000 per occurrence;
  • Noneconomic damages as determined under Tenn. Code Ann. § 29–39–102; and
  • Punitive damages as determined under Tenn. Code Ann. § 29–39–104.

Allowed Employer Defenses in Negligence Civil Action

In any such civil action, the employer would not be able to defend on the ground that the injury was caused by a co-employee’s negligence. The employer would be able to defend on grounds that the employee’s injury was caused by the employee’s sole negligence, by the failure of the employee to follow known safety rules, or that the injury was occasioned by the employee’s willful act or due to the employee’s intoxication.

Tennessee System Would Resemble Texas—Not Oklahoma

Senate Bill 721, if enacted as introduced, would produce a system that somewhat resembles Texas, and not Oklahoma. I say “somewhat resembles” because, as I have publicly argued at several workers’ compensation conferences in the last several years, Texas is not an opt-out state. Texas is rather an opt-in state, since employers there need not provide any coverage or protection for work-related injuries at all. In Texas, an employer has three options—to do nothing at all, to procure workers’ compensation insurance (or self-insurance) under the state comp act, or to provide some measure of benefits under an employee benefit plan. Texas employers enjoy the exclusive remedy defense only if they choose to come in under the “traditional” workers’ compensation law.

In Oklahoma, employers who opt out of the traditional system and who establish written plans nevertheless enjoy the exclusive remedy defense.

Disparate Treatment?

Many of us will be poring over Tennessee S.B. 721 in greater depth over the next few days, but at this early stage of examination, I’d point out one problem that I see with the bill. It provides for limited medical benefits in a fashion that appears to be different than that required for employers who provide traditional, standard workers’ compensation coverage in the state. Under my reading of the existing Tennessee Comp Act, which was amended heavily effective July 1, 2014, employees who have suffered a compensable workplace injury are entitled to receive continuing medical benefits for as long as the authorized treating physician relates it to the work-related injury, including future medical benefits after a claim is resolved. There is no 156 week/$300,000 limitation.

Does S.B. 721 set up two groups of employees who will be treated differently without sufficient justification? Consider group A, employees under the traditional system who are catastrophically injured solely through their own negligence and who require long-term medical treatment and group B, employees under the opt-out system who are similarly injured. Group A would appear to enjoy unlimited medical coverage; Group B not so.

I’m going to reach out to some of my Tennessee colleagues to determine if my reading of the existing Act that provides unlimited medical coverage is correct. I’ll let you know what I determine.

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2 Responses to Workers’ Comp “Opt-Out” Bill Introduced in Tennessee Legislature

  1. Robert L. Coleman says:

    Thank you for your post, Mr. Robinson. I am in the process of writing a letter to the Tennessean, plus posting my own comments on this on Facebook, etc. Frankly, this Bill scares me to death for both the workers AND the employers. Here are some of the things that frighten me: 1) I’m pretty sure the TN Workers’ Compensation does, indeed, currently provide for “unlimited” Medical benefits. 2) What will be the financial criteria for employers that choose to opt-out of the WC plan? 3) If these employers go bankrupt and can’t pay the claims, who does pay the injured employees? 4) Will the bankrupt employers attempt to be bailed out by the taxpayers? 5) What kind of specific and excess ( reinsurance) coverage will be required of the employers, as well as their ability to provide proper administration, prompt and fair payment of claims, effective loss control, etc., etc. In other words, will they be made to provide the same financial and other protections, now required for self-insurance?
    Basically, I see this as another attempt to gut the existing laws, to the detriment of the employees, plus establishing a grave (financial) situation for many, many employers who, like so many before, think this would be a piece of cake and save them money. Not! Unless an employer is prepared to assume this burden, they can be in for a rude awakening. Just ask the ones who tried and failed miserably. And, this includes some fairly strong entities, including big state governments. Can you say, Ohio? When all is said and done, it’s only a very small minority of employers that can handle something like this as well as a quality WC insurance carrier, and the only motivation they have is the prospect of saving money.
    Do you have any statistics, showing how things have fared in Texas and Oklahoma? I would be interested in knowing this, and would appreciate your response. Thank you.

    Bob Coleman
    Franklin, TN
    5 years as Property & Casualty Underwriter ( Royal-Globe Insurance), 37 years as agent, broker and consultant (Marsh & McLennan), and retired in 2002. I’m not anti-change, nor am I taking sides, but, obviously, I have seen this from both sides of the fence, as an impartial agent, broker and consultant.

    • Indeed, my reading of Tenn. Code Ann. § 50-6-204 would say that as long as the medical expenses are appropriately tied to the work-related injury, there is no limitation on the amount of medical bills in a Tenn. comp case. While there are important issues to be considered when it comes to comparing self-insured employers with those who secure insurance through typical channels, I think the Tennessee bill will be largely agnostic on the issue. That is to say, I suspect the same restrictions on self-insurance under the “old” comp act would continue to be applicable under the opt out bill, if it becomes law. I don’t know of any statistical studies in Texas–the Oklahoma law is so new there won’t be any statistics from which to draw–but I would be surprised if there is any significant difference in the number of bankrupt self-insured employers who have ERISA plans in place and employers who have opted to go with the more traditional workers’ compensation scenario in Texas (standard sort of policy through an insurer). The size of the employer is always important in the self-insurance situation. I don’t think that will be any different in TN if the law moves forward.

      I think the big issue in Tennessee (and elsewhere) is whether the current administrative or court run system is so inefficient that it should be jettisoned for something else, say an opt out scenario? Both OK and TN were known as inefficient states. Opt out legislation is most susceptible in states with broken systems.

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