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Gwendolyn Davis is at a professional crossroads. The San Francisco solo, who represents applicants for workers’ compensation, says new state reforms will force her into another line of work. “I figure I won’t have a workers’ comp practice next year,” said Davis, who works exclusively on such claims out of her home office. Applicant firms expect the new permanent disability awards schedule enacted Jan. 1 to slash worker benefits, and thus their own workload and contingency fees. They claim workers’ benefits will drop by 40 percent to 70 percent, pushing smaller comp shops out of the business. In response, insurance industry groups have decried them as Chickens Little. But compensation expert Frank Neuhauser backs the plaintiff lawyers’ forecast. “It’s going to be extraordinarily harsh on the applicant attorneys,” said Neuhauser, a policy researcher at the UC-Berkeley Survey Research Center who is preparing compensation studies for the state and several insurance firms. “I, as a rule, don’t have much faith in [applicant attorneys'] research, but in this case I think they’re right.” Applicant lawyers say bigger comp firms will weather the changes, but smaller firms and solos will likely be forced to shift to other practice areas. “The type of practice that will be hurt is the practitioner that handles small- to medium-sized workers’ comp cases,” said James Butler, who handles comp and personal injury cases with the Law Offices of William Veen. A relatively large, diversified firm such as Veen’s can afford to continue taking comp claims, if only to attract clients to other practices, said Butler. “For the most part, they’re a loss leader,” he said. These firms — such as Davis, Cowell & Bowe and Sacramento’s Mastagni, Holstedt, & Amick — have labor or personal injury practices to pick up the slack. But smaller firms don’t. “One-third to one-half of them will be out of business,” Butler said. The American Insurance Association happily predicts there will be less lawyering to do. “I’ve heard that people are getting out of the business,” said AIA spokeswoman Nicole Mahrt. Joe Edwards, an AIA consultant and former insurance superintendent for the state of Maine, agreed. “There should be a dramatic reduction in litigation if this works,” he said. Workers’ comp tends to be a labor-intensive field where low profit margins and formulaic cases mean that individual attorneys have up to 250 cases at a time. So solos such as Davis with little capacity for more cases may not be able to adapt. “They do a whole bunch of work, but the only work they make money on is the collection of a permanent benefit,” said Butler. He expects the bigger firms to adapt by changing the way they handle comp. Many will push harder on lost wage claims, he said, since they promise more money than simple disability awards. “Some of the smarter attorneys I’m talking to will, rather than double their caseloads, halve their caseloads and work them up like a personal injury suit, with an economist to determine lost earnings,” he said. The AIA’s Mahrt and several comp defense lawyers pointed out that when plaintiff cases dwindle, so too does defense work. “In the worst-case scenario, if the awards get small, and a lot of applicant attorneys leave the business, and their business dries up, the defense attorneys will go away as well,” said Ronald Peters, who represents employers as a partner in Littler Mendelson’s San Jose office. But Peters predicts a far less dire outcome. “There will be some sort of general contraction in the business on both sides,” he said, but the lawyering will continue as applicant attorneys find new ways to sue. Michael Marks, a former applicant lawyer and current defense attorney agreed, saying a one- or two-year lull would eventually give way to renewed legal wrangling. “It’s going to settle into the same amount of litigation when the applicant attorneys learn how to game the system,” said the partner at Finnegan, Marks, Hampton & Theofel. “But they haven’t been able to do that yet because they’re busy playing Chicken Little.”

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