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STATEMENT OF KEVIN R. TWOHY, GENERAL COUNSEL, CALIFORNIA

SELF-INSURERS' ASSOCIATION, SACRAMENTO, CALIF. Mr. Twory. This is my statement, gentlemen.

My name is Kevin Twohy. I am an attorney, a member of the California State Bar, and am a senior partner in the law firm of Twohy, Wegner & Likens with offices in San Jose and in Sacramento, Calif. For the past 10 years I have limited my practice almost exclusively to the field of workmen's compensation, handling both applicants and defense cases before the Workmen's Compensation Appeals Board of California.

In addition to my private practice, I am also general counsel for the California Self-Insurers' Association, to which in recent months I have devoted a very substantial portion of my time and efforts. It is in this latter capacity, and at the request of the board of managers of the said association that I am appearing before you today.

The association is composed of various corporate employers op; erating in California-utilities, major manufacturing and chemical companies, steel and automotive companies, oil and lumber companies, and many others—who have elected to self-insure for workmen's compensation liability pursuant to the laws of the State permitting such self-insurance. The association is governed by officers and a board of managers who conduct the business of the association between membership meetings. The association office is located in Sacramento, the State capital. It maintains a representative there to attend and testify at all relevant legislative committee hearings, and to follow and analyze all pertinent bills bearing upon workmen's compensation. It works closely with the director of industrial relations, with the manager of self-insurance plans for the State of California, relative to rules and regulations governing self-insurance of workmen's compensation liability, and makes common interest appearances before the workmen's compensation appeal board, division of industrial accidents, and other appropriate and relevant offices touching on this field, and works closely and actively with the State chamber of commerce, insurance and safety organization, and State and National medical and bar associations.

So it is an active and well-functioning organization whose primary concern is the development and maintenance of the workmen's compensation system at the highest level of efficiency and in the best interests of the economy.

I would like to mention the scope of interest of the California Self-Insurers' Association in the proposed amendments to the Longshoremen and Harbor Workers' Compensation Act.

The association numbers among its membership several corporations which have a direct interest in longshore and offshore operations, and who are therefore directly concerned with the proposed amendments to the act. More broadly, however, the association is vitally concerned with the proposed amendments because of what the membership believes will be the ultimate influence of these amendments upon the entire system of workmen's compensation. In the nature of things, Federal legislation in any given field does have an effect, and properly so, upon State and local activities in the same area. Speaking directly to the point, Federal legislation in the area of compensation which is either vastly more liberal or vastly more conservative than State provisions in the same area cannot help but influence, and influence adversely, the system of workmen's compensation that has been developed at the State level.

My clients believe that, (1) the workmen's compensation system in California is a good one, and that its provisions are tied directly and by careful design to the economy of the State; (2) its provisions are essentially serving the best interests, both of the injured workmen and the employer group; (3) that some adjustments in the system have become necessary in order to keep it current with changing economic trends, and that such adjustments are in the process of being formulated at this time; (4) the formulation of these adjustments, by the interaction of management, labor, and legislative groups, is based upon a most painstaking evaluation of current economic trends, making every effort toward coordinating benefits with the economy as closely as possible; (5) that legislation in this area at the Federal level which is grossly out of proportion to the State benefit provisions cannot help but adversely affect these local State efforts to maintain this balance.

It is the earnest belief of my clients, and of myself, that the amendments proposed in Senate bill 2485 will, if adopted, have precisely this effect, and it is for this reason that we have requested an opportunity to be heard before your subcommittee.

Now, in the balance of the time allowed me I would like to do two things: One, I would like to review with you briefly some of the amendments proposed by Senate bill 2485, particularly as respects benefits and as they compare to parallel provisions in the California Workmen's Compensation Act. In the interests of time and brevity, I will confine my remarks to those proposed amendments which we believe are particularly adverse to the efficiency of the compensation system, noting that the omission of reference to the other proposed amendments does not imply either approval or disapproval of them. Secondly, I would like to review with you briefly some areas wherein we believe the compensation system can and should be adjusted to serve the benefit of all interested groups.

REMOVAL OF COMPENSATION LIMIT

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Section 3(b) of the Senate bill 2485 would amend section 14 of the act by eliminating subsection (m), thus removing any limit upon the total aggregate money benefits in connection with any disability less than total permanent. We look upon this proposal with grave concern because it, in effect, would make adequate loss reserving practically impossible. Under the present provisions of the act the ceiling of $24,000 at least gives all interested parties some range within which to assess potential liability in connection with any given loss. It gives the referee a point of reference in determining the value of awards in cases of less than total permanent disability, for example. It also provides a frame of reference within which employers and insurance carriers can adequately reserve losses, and we believe the $24,000 figure is an adequate one in cases of less than total permanent disability. If it is felt that the Jimit should be increased, we would seriously urge that at least a new, definite, and certain top

figure be inserted, rather than leaving the area wide open to uncertainty and conjecture.

California law currently provides a maximum of 240 weeks total temporary disability within a 5-year period, and permanent partial disability is limited and defined in all cases of 69 percent or less disability. Seventy percent or more falls into the so-called pension category in which, at the end of 400 weeks of permanent disability payments the injured employee is then entitled to receive certain benefits for the remainder of life. Even these pension payments are limited and described, and are based upon 112 percent of average weekly earnings for each 1 percent of disability in excess of 60 percent. These pension provisions, it is pointed out, are applicable only in the extremely high ranges of permanent disability.

Thus, there is in the California Compensation Act a degree of certainty and a flexible but definable limit of liability within which proper reserving techniques can be applied. We believe any Federal action that would set a precedent towards removing a definable limit of compensation payments would work to the detriment of the compensation system.

LIFE PENSION IN CASES OF LESS THAN TOTAL PERMANENT DISABILITY

Section 6 of Senate bill 2485 would amend section 8(c) by adding paragraph (23). This amendment, as I understand it, would add to the act the concept and provision of a life pension commencing at the end of the scheduled award in cases of partial as well as total disability. The parallel provision under the California Compensation Act is for payment of permanent disability benefits based upon a percentage of total disability. In arriving at the percentage of total disability all medical and subjective and objective factors are taken into consideration, and a finding is made as to the percentage of disability, in much the same manner as within the Bureau of Employees' Compensation. The pension provisions under California law are restricted to the very highest permanent disability ratings.

We believe that to add a life pension in all cases at the conclusion of the permanent disability payments destroys the concept of the scheduled award. We submit that excepting cases of the most severe permanent disability, the concept of life pension and the concept of percentage of disability are mutually exclusive, if the percentage of disability schedules have any validity at all.

We realize that the proposed amendment contemplates an actual injury-incurred wage loss as a prerequisite to the life pension. However, we do not believe that this is what the amendment would, in effect, accomplish. The amendment proposes "two-thirds of the difference between the injured employee's average weekly wages before the injury and his wage earning capacity after the injury in the same or other employment.” We submit that "wage earning capacity” after the injury can be affected by many factors other than the injury-conditions in the labor market in general, the normal aging process of the employee, the appearance of other and nonindustrial degenerative diseases, to name only a few. Also, the amendment does not set forth any period of time within which the "wage loss" must occur, so that a loss of wage earning capacity occurring for any one of a number of nonindustrial reasons many years after the injury would entitle the employee, under the wording of this amendment, to a life pension, but beginning when ? At the time of the loss of earning capacity manifests itself, or retroactive to the conclusion of the scheduled payments?

We earnestly submit that this proposed amendment is unsound both in principle and in practice, and further that it would result in a great deal of confusion and a mass of futile and unnecessary litigation. We therefore earnestly request its reconsideration.

AUGMENTING OF DISABILITY PAYMENTS WHERE EMPLOYEE HAS

ONE OR MORE DEPENDENTS

Section 8(a) of the proposed bill would add section 8(j) to the act, which would increase the weekly basic compensation for scheduled disabilities by 813 percent of average weekly wages, and a related increase for nonscheduled disabilities, while the employee has one or more dependents.

We believe that aside from vastly increasing compensation costs, this proposed benefit increase is unrealistic and does violence to the basic concept on which benefit payments is founded.

Again, if I may refer to the parallel California workmen's compensation provision, the amount of total temporary disability weekly payments is based upon the ratio or 65 percent of average weekly earnings, roughly two-thirds. This percentage reflects, we believe, realistically, a figure very close to actual wage replacement, after deducting amounts not payable by the employee while he is disabled—such as uniform or clothing costs, transportation to and from work, income taxes, and other work-related expenses. Thus, under this concept, which we believe is valid, an injured employee within the average weekly wage, will receive by way of compensation approximately the same number of spendable dollars for his support and the support of his family as he would have been receiving had he continued working. We believe that this ratio is valid whether or not the man has one or more dependents, and that, therefore, the payment of additional benefits because of the existence of one or more depandents is unrealistic and unsound.

Now, it is true that not every injured worker receives two-thirds of his spendable dollars by way of compensation. Those employees at the higher end of the wage bracket obviously are paid less by way of compensation than two-thirds of their particular average income. Whether this is an area that should be corrected or not is another question.

Speaking directly on the issue of the proposed amendment for augmented benefits because of dependents, we believe this concept is a departure from the basic principles of the workmen's compensation system, and, again, we urge the subcommittee careful reconsideration of it.

PROPOSED AMENDMENT IN RE LEGAL FEES Section 12 of the proposed bill would amend section 28(a) 10 provide that the carrier or employer pay, in addition to the compensation award, an amount for legal services for the employee in those cases "where an award is made or increased after payment under the act is resisted."

We take very strong exception to this proposal. It not only does great violence to our accepted adversary proceedings by requiring, as a matter of law, that one party litigant pay the legal fees of his adversary, but we believe its net effect would be to vastly increase litigation in an area where all efforts should be directed toward a decrease in litigation. We believe this proposal is unsound from both standpoints, and we would be distressed to see the Federal Government, in amending the Longshoremen's and Harbor Workers' Act, set a precedent for its adoption in any jurisdiction.

PROPOSED PAYMENTS INTO A SPECIAL FUND AND PROPOSED

ASSESSMENTS TO DEFRAY EXPENSES

I would like to treat the proposals for payment into the special fund for assessment to defray cost of administration of the safety program, and for assessment to defray expenses of administration as a unit, since they are similar in their effect and we strongly believe do the utmost violence to the principles of good government and set a dangerous and possibly irreversible precedent on the field of special assessments and unequal taxation.

All three of these functions—the "special fund” established under section 44(a) of the Longshoremen's Act, the safety and investigating program of the Department, and the administration of the Department itself in implementing the Longshoremen's Act--are services of value to the entire economy and to all segments of the economy. We believe that a provision which places the burden for the support of these functions upon any one segment of the economy is both unfair and unrealistic. We believe these functions, together with the functions of government in general, of which they are a part, are the logical and proper responsibility of the taxpayers in general, who are the real recipients of the advantages and benefits which these functions create. To say that only those who drive the highways benefit from the highway program, or that only those who are directly involved in police work benefit from the functions of the Attorney General's office or the Federal Bureau of Investigation and therefore they, alone, should support these functions would obviously be wrong.

The welfare of the injured worker and his family is not the private preserve nor the exclusive concern of the employer group and/or the insurance carriers, any more than is the maintenance of the highway transportation system the exclusive concern of the highway users. The entire economy and the whole society is affected for good or ill by the welfare or the distress of any one of its parts, and the necessary cost of maintenance and administration of programs looking toward the general welfare or any part of it is the proper responsibility of the general taxpayer. We believe that to single out one or two component parts of the economy to bear the cost of administering a function simply because they are somehow directly concerned with the programs involved is unrealistic and unfair. We believe these proposals, further, set a dangerous precedent for the spread of the fallacy into other areas, resulting in a fragmented and unduly burdensome system of levies, special assessments, and unequal tax burdens. Further, we believe the concept of handing Government, or any department of Government, a virtual blank check to spend money outside of tax revenues at the expense of any one or

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