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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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