Oklahoma Option Flagged As Unconstitutional

In the 1970s, the Oklahoma Sooners’ NCAA football team successfully began implementing a new offensive system known as the “option offense.” Sooner Coach Barry Switzer has been credited by many for having perfected the use of the wishbone offense, a staple of option offenses. Forty years later, the option returned to Oklahoma, but this time taking the shape of workers’ compensation reform. On May 6, 2013, Oklahoma Governor Mary Fallin signed S.B 1062 into law, creating a new Title 85A of the Oklahoma Workers’ Compensation Act to operate in parallel with existing Title 85, and once again reforming that state’s workers’ compensation laws – including the laws addressing subrogation. 2013 Okla. Sess. Law Serv. Ch. 208 (S.B. 1062). With the new law, Oklahoma joins Texas as the only states that allow employers to opt out of the workers’ compensation system, creating what is known as the “Oklahoma Option.” Known as the “Opt-Out Act”, the law still required employers to provide workers’ compensation coverage and benefits, but they now had two options which were outside the new “administrative” system. It was only a matter of time before the claimant-friendly Oklahoma Workers’ Compensation Commission had its say on the new Act.

This “Omnibus Bill” had three parts: (1) The Administrative Act (transforms the old “court-based” workers’ compensation system into a new “administrative” system); (2) The Oklahoma Injury Benefit Act (the “option” which allows the employer to establish an Occupational Accident Plan); and (3) The Workers’ Compensation Arbitration Act (which allows employers to implement an alternative dispute resolution process to resolve any dispute under the Administrative Act. In 2013, the new Opt-Out Act was held to be constitutional by the Oklahoma Supreme Court). Coates v. Fallin, 316 P.3d 924 (Okla. 2013). The constitutional challenge at that time was whether the Legislature acted outside its constitutional authority by enacting a bill that contained multiple subjects in violation of the Oklahoma Constitution, Articles 5 and 57. However, on February 26, 2016, the Oklahoma Workers’ Compensation Commission, ruling on an appeal under the provisions of the Opt-Out Act, found the Act to be unconstitutional and “not enforceable.”

In Jonnie Yvonne Vasquez v. Dillard’s, Inc., CM-2014-11060 (Oklahoma Workers’ Compensation Commission, February 26, 2016), the facts of the case surround the denial of a workers’ compensation claim filed by Jonnie Vasquez, an employee of Dillard’s department store. Vasquez injured her shoulder and neck while lifting shoe boxes and was diagnosed with an “aggravation of a pre-existing spin injury with radiculopathy.” Dillard’s denied her claim alleging that Vasquez’s injury was “a pre-existing condition and not an ‘injury’ as defined by the Plan.” She was notified of the denial in an Adverse Benefit Determination Letter.

This was the first appeal dealing with the denial of benefits under the new Act. The Commission found that Plans under the new Act did not provide benefits and protections equal to the benefits provided under the Administrative Act and, as a result, determined that this established a dual system under which injured workers are not treated equally. As a result, the Commission ruled that “the Oklahoma Option is invalided under the Oklahoma state Constitution.” The decision was immediately appealed to the Oklahoma Supreme Court.

Dillard’s argued that the Employee Benefit Plan, which included coverage for non-occupational death benefits, in addition to the benefits required under § 203 of the Opt-Out Act, was governed by ERISA and beyond the jurisdiction of the Workers’ Compensation Commission. The Commission agreed, but added that, because Dillard’s elected to provide benefits required under the Opt-Out Act, it did not fall within the ERISA exemption for Plans “maintained solely for the purpose of complying with applicable workmen’s compensation laws” (See 29 U.S.C. § 1003(b)(3), the employer was not free to circumvent Oklahoma law). Administrative agencies normally do not have the power to determine constitutional issues, because the Oklahoma Supreme Court has said that “every statute is hence constitutionally valid until ‘a court of competent jurisdiction’ declares otherwise.” Dow Jones & Co., Inc. v. State ex rel. Okla. Tax Commission, 787 P.2d 843 (Okla. 1990). However, the Legislature has made clear that the Commission does constitute a court of competent jurisdiction when deciding appeals under the Act. 85A O.S. § 211.

Dillard’s also claimed that ERISA preempted Oklahoma state law in this case. It argued that the two-pronged Davila test, used to determine federal question jurisdiction in ERISA matters, was met:

  1. The individual is entitled to coverage only because of the terms of an ERISA-regulated Plan; and
  2. No legal duty (state or federal) independent of ERISA or the Plan’s terms are violated.

Dillard’s claims that the second prong of this test is met because § 209 of the Opt-Out Act provides that a Plan participant’s claim for benefits under a Plan is exclusive and, therefore, a participant cannot have any independent cause of action under state law. Vasquez, however, challenged the exclusivity of § 209, arguing that the Opt-Out Act violates her equal protection rights and her access to the courts. It argued that the requirement that an employer choose the option to establish a benefit Plan under the Act constitutes a “special law” or “local law.” It gave Dillard’s 90 days to “secure compliance with the Administrative Workers’ Compensation Act.” To view a copy of the Commission’s Order, click HERE.

Oklahoma Insurance Commissioner John Doak was quoted in the Claims Journal saying that the Commission’s order “anticipates an appeal and stays its referral until appeals are decided, and I look forward to a complete and careful review of these issues by the judicial branch. My department will continue to perform its statutory responsibilities while this consideration occurs, and we will support our legislators as they continue to develop Oklahoma’s workers’ compensation system this session. I believe that addressing these issues head-on will enable our state to provide the best care possible for Oklahomans at a price employers can afford.”

If you should have questions regarding this article or subrogation in general, please contact Gary Wickert at gwickert@mwl-law.com.

Gary L. Wickert

Gary L. Wickert is an insurance trial lawyer and partner with the law firm of Matthiesen, Wickert & Lehrer, S.C. Gary has 35 years of litigation experience and is regarded as one of the world’s leading experts on insurance subrogation. He is the author of several subrogation books and legal treatises and a national and international speaker and lecturer on subrogation and motivational topics.