Alaska Supreme Court Eases Written Record Requirement for SIF Reimbursement

      In its recent decision in VECO Alaska, Inc. v. State of Alaska,
Department of Labor, Opinion No. 6291 (July 25, 2008), the Alaska
Supreme Court enunciated a standard that appears to make it easier for
employers to fulfill the written record requirement for Second Injury Fund
(SIF) reimbursement.   The SIF statute at AS 23.30.205(c) provides that
employers must establish by written records that the employer had
knowledge of a permanent physical impairment before a work injury and
that the employee was retained in employment after the employer had that
knowledge. Partial reimbursement of benefits may occur if the work injury
combined with the pre-existing impairment to cause greater disability than
would have occurred from the work injury alone. Under prior case law, an
employer was required to produce a written record that created a
reasonable inference that the employer had knowledge not only that the
employee suffered from a physical impairment, but also had knowledge of
the specific qualifying condition the employee suffered from. However, in
the new VECO Alaska decision, the Supreme Court found that an
employer was not required to establish written knowledge of the specific
qualifying condition. Instead, an employer is only required to show that,
prior to the work injury, it had a written record showing that the employee
had a permanent physical impairment of some kind, without requiring the
employer to establish knowledge of the specific qualifying condition. By
not requiring an employer to prove it had written knowledge of a specific
qualifying condition, it should be easier for employers to satisfy the written
record requirement for SIF reimbursement.

      In the VECO case, the employee, Bucky Huizenga, incurred an injury
to his low back in 1988 while working for a private contractor. As a result
of this injury, the employee underwent back surgery. When he
subsequently began working for VECO in 1999, the employee completed
health questionnaires where he disclosed he had a "back operation,
compression 5 lower vertebrae, December 21, 1989, Dr. Voke," but
Huizenga denied that he had ever been advised to limit his activities in any
way or that he was told he had arthritis. In October 2000, the employee
incurred a second injury to his back at work. This second injury resulted in
multiple surgeries and led to the employee eventually being declared
permanently and totally disabled.

      VECO filed a claim for reimbursement from the SIF of time loss
benefits paid in excess of 104 weeks. As part of the claim for
reimbursement, VECO claimed written knowledge that the employee had
arthritis prior to the second injury and attached copies of the employee's
health questionnaire's in support of this assertion. The Fund disputed that
VECO had established by written record that it had knowledge of the
specific qualifying condition for SIF reimbursement (arthritis).

      After a hearing, the Board concluded that the employee's answers on
the health questionnaires were not a written record from which prior
knowledge of the employee's arthritis could fairly and reasonably be
inferred. The Board concluded that the employee's disclosure that he had
a prior back injury and surgery was an insufficient record, as a matter of
law, to establish knowledge of the employee's arthritis. The Board also
noted that the employee himself was not aware that he had arthritis until
2004 – several years after he completed the employer health
questionnaires.

      VECO appealed the Board's decision to the Superior Court, which
affirmed the Board's ruling.

      On appeal to the Supreme Court, the court reversed the Board's
decision and found that the written record standard applied by the Board
was too restrictive.   The Court concluded that the Board erred in requiring
VECO to establish not only that it knew the employee suffered from a
permanent impairment, but also had knowledge of a specific qualifying
impairment (i.e. arthritis). The Court felt that by requiring VECO to
present evidence that showed unequivocally that it knew the employee had
arthritis rather than simply a permanent impairment, the Board imposed a
requirement that went beyond what the Supreme Court had previously
required an employer to show in order to obtain reimbursement from the
Fund.

      The Court expressed concern that the strict standard applied by the
Board created the wrong incentive for employers. The Court noted that
one of the underlying purposes of the Fund is to encourage employers to
hire workers who are known to suffer from a permanent physical
impairment and expressed concern that the Board's strict standard could
discourage employment or retention of any employee who appears to have
an impairment unless the impairment could be easily and explicitly pinned
to one of the specific qualifying SIF conditions.   The Court found that this
purpose is satisfied if the employer's written record shows a preexisting
permanent condition that "could be a hindrance to employment", even if
the employer cannot identify the specific medical condition. The Court held
that the employer can show after the work injury through written records
that the pre-existing permanent impairment was in fact one of the
qualifying conditions. For example, the Court suggested that leave records
that an employee was on sick leave for back problems would be enough to
show that an employer had knowledge of an impairment. Thus, if a written
record shows that an employee had a permanent or chronic condition that
could be a hindrance to employment, the written record requirement is
satisfied. The Fund should reimburse the employer so long as the
underlying impairment is in fact one of the conditions listed in the statute
and the other statutory requirements are met.

      Though the Court implies that the written record standard outlined in
this decision is the same standard that they had applied in prior cases, we
believe that the court has actually loosened the written record standard by
no longer requiring prior knowledge of a specific qualifying condition. With
this new standard, we believe that obtaining reimbursement from the Fund
will be easier. We recommend employers and carriers take a look at their
files with potential for SIF reimbursement to determine if the new written
record requirement is met. If there are any questions about potential SIF
reimbursement, please contact an attorney to discuss the specific facts of
your case(s).

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      We are pleased to offer this information to help keep you informed.
But since we are lawyers, we include the following caveat: the information
contained herein is not intended as legal advice. Independent research and
analysis may be required in order to determine what effect recent decisions
or changes may have on your unique situation.

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Copyright © 2003 Russell, Wagg, Gabbert, & Budzinski P.C.
All rights reserved.

Alaska Supreme Court Eases Written Record Requirement for
SIF Reimbursement

RUSSELL, WAGG, GABBERT & BUDZINSKI