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22. Can Texas injury benefit plans simply reduce benefits after an injury occurs?

No.  In general, the right to alter benefits is reserved to the employer in all Texas injury benefit plans and has long been recognized with respect to all ERISA welfare benefit plans. [8]  However:

  • Benefit durations coincide with the statute of limitations on negligence liability.  Most Texas injury benefit plans promise voluntary benefit payments for at least two years.[9]  This voluntary, no-fault benefit obligation coincides with the two-year statute of limitations for an injured employee to file a negligence liability claim.  Employers with no Texas workers’ compensation insurance lose the “exclusive remedy” defense – exposing them to such liability claims by injured workers, including all actual damages (like medical bills, lost wages, loss of earning capacity, pain and suffering, etc.), as well as punitive damages. To pursue such a claim, an injured worker need only show the employer was responsible, in some small measure, for a failure in safety or training.  In addition to the other reasons described below, this liability exposure strongly deters an employer from making (and its insurance carrier from ever agreeing to) any plan amendment that would reduce benefits or otherwise be adverse to the interests of an injured worker.  Unlike the typical group health plan for non-occupational illness or injury, changes to Texas injury benefits cannot be made solely based upon the cost of benefits.  Any change in benefits must also consider this negligence liability exposure. 
  • Desire for an enforceable agreement to arbitrate negligence liability claims.  To avoid some of the common delays, expense and unpredictability of going to court on negligence liability claims, the vast majority of Texas companies sponsoring an injury benefit program require arbitration of negligence liability claims as a condition of employment. [10] Contractual consideration for such an arbitration requirement is the employee’s mutual promise to arbitrate, continued employment by the employer, and/or the employee’s eligibility for injury benefit coverage.  Texas case law [11] has made clear that if the employer reserves the unilateral right to change or terminate an arbitration agreement (in particular, with regard to a past incident), the agreement is illusory and unenforceable. 
  • Benefit reduction is prohibited by the terms of most injury benefit plans. Employers and their liability insurance carriers want these arbitration agreements to be enforceable under state law, and ERISA also relies on state contract laws.  So, the following (or similar) language can be found in most Texas injury benefit plans:
    • “The Company shall have the right and power at any time and from time to time to amend this Plan, in whole or in part, on behalf of all Employers, and at any time to terminate this Plan or any Employer’s participation hereunder; provided, however, that no such amendment or termination shall reduce the amount of any benefit payable to, or with respect to, a Participant under the Plan in connection with an Injury occurring prior to the date of such amendment or termination.”
  • Fiduciary responsibility also restricts any administrative effort to reduce benefits.  Due to the application of ERISA, Texas injury benefit plans must be administered by fiduciaries in the best interests of the injured worker.  Once the terms of a Texas injury benefit plan are confirmed in writing by an employer in a non-fiduciary (settlor) capacity, all administration of benefits under such plan is a fiduciary act. 
  • Full communication to all covered employees of any material change in a Texas injury benefit plan.  ERISA requires the terms of these plans to be fully communicated to all covered employees, including any material change in coverage or other plan amendment.  The impact of a reduction in benefits on employee morale, as well as the time and expense of such communications, are strong disincentives to any alteration of benefit plan terms that are adverse to covered employees. 
  • Actual industry administrative practice.  Employers, insurers and claim administrators understand that contractual commitments in the injury benefit plan cannot be altered after the date of injury for the reasons above.

[8] See, e.g., McGann v. H&H Music Company, 946 F.2d 401 (5th Cir. 1991).

[9] Beyond the benefit duration limits, employers and insurers rely on individual supplemental plans and negligence liability settlement agreements between the employer and injured employee to fund additional medical and disability payments, as well as other compensation for loss of earning capacity, physical and mental impairment, pain and suffering, harm to family members, punitive damages, etc.

[10] Note that ERISA prohibits mandatory arbitration of injury benefit claims.  Also, the requirements for and enforceability of an agreement to arbitrate negligence liability claims have been established through decisions of the U.S. Supreme Court and Texas Supreme Court over several decades.  Arbitration does not waive any substantive rights of the worker, who can fully pursue the negligence liability claim and the same remedies available at the courthouse.  Both federal and state court decisions have also imposed numerous standards of fairness on such arbitration agreements for selection of the arbitrator by both parties, cost sharing, discovery, etc.  These standards of fairness are also dictated by arbitration administration service providers.

[11] See, e.g., Davidson v Webster, 128 S.W. 3d 223 (Tex.2003).  For example, in the “Analysis” section of this opinion, see section C.1. on “The ADR Policy does not contain consideration.”

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