By Judge Allen Phillips, Jackson

“If an employee has previously sustained a permanent disability . . . he shall be entitled to compensation from his employer or the employer’s insurance carrier only for the disability that would have resulted from the latter injury . . . provided, however, that in addition to such  compensation for said subsequent injury, and after completion of the payments therefor, then such employee shall be paid the remainder of the compensation that would be due for permanent total disability out of a special fund to be known as the ‘Second Injury Fund’ herein created.”

With those words, the Tennessee Legislature created our state’s Second Injury Fund in 1945.

Known today as the “Subsequent Injury and Vocational Recovery Fund,” the statute reads largely the same as it did then. Its intent remains the same: to encourage employers to hire disabled workers. E.I. du Pont de Nemours & Co. v. Friar. This post will look at the basics of the statute.

The substantive law of the statute appears in the first subsection of Tennessee Code Annotated section 50-6-208 and contains the necessary elements for recovery against the Fund. Those are:  

1. The injured worker must have previously sustained a permanent physical disability from any cause or origin.
2. The injured worker must have become permanently and totally disabled through a subsequent work-related injury.
3. The employer must have had actual knowledge of the pre-existing permanent disability before the subsequent work-related injury; and
4. The employer must have been “properly insured” or qualified as self-insured under the law.

The first element requires that the employee have a previous physical disability; mental disabilities don’t qualify. Bryant v. Genco Stamping & Mfg. Co. Importantly, the law clearly states that the previous physical disability can be “from any cause or origin,” meaning the previous disability doesn’t have to be the result of a compensable work injury. Whiteside v. Morrison, Inc.

Second, the employee must become permanently and totally disabled after the later work-related injury. An individual is permanently and totally disabled when an injury “totally incapacitates the employee from working at an occupation that brings the employee an income.” Tenn. Code Ann. § 50-6-207(4)(B). The burden is on the employee to establish that he or she is unable to work at any job that would produce an income in the open labor market. Prost v. City of Clarksville.

Third, the statute requires that the employer have knowledge of a previous physical disability to receive benefit of the Fund. “The statute seeks to reward the employer’s humane gesture [of hiring disabled workers]. But there can be no such humane gesture unless the employer acts with the knowledge that he is hiring or retaining the handicapped.” Brown v. John Martin Construction Company. On this point, the employer bears the burden: in other words, the employer must show it was aware of any pre-existing disability (unless it is obvious) and also must show it knew the physical condition would diminish the employee’s competitiveness in the labor market.

An example of facts that would constitute knowledge of the employer is found in Garrett v. Brown, where the employer knew of employee’s previous injuries as shown by accommodating his restrictions. Conversely, in Smith v. Fleeman’s Transport, Inc., the Panel determined that the employer did not have knowledge of the employee’s pre-existing disabilities, where the employer never provided any accommodations, no physician ever assigned the employee work restrictions, and the employee performed his job as he would’ve without having prior injuries.

Fourth, the employer must be insured. The Tennessee Supreme Court has said this section means exactly what it says: the employer must be insured at the time of the employee’s injury. Seiber v. Reeves Logging. The logic clear: the Fund is financed by a percentage of insurance premiums paid.

As in 1945, if the Fund has liability, the employer is only responsible for the disability resulting from the employee’s second injury and not for the total disability when considering what she had before the job.

Under prior law, a “trial court must find what disability would have resulted if a person with no preexisting disabilities, in the same position as the plaintiff, had suffered the second injury but not the first.” Allen v. City of Gatlinburg. For example, in Hill v. CNA Insurance Company, the trial court found a previously disabled employee’s carpal tunnel injury caused a 10 percent permanent disability, and the remaining 90 percent of the permanent total disability was apportioned to the Fund.

Division of the liability between the employer and Fund has yet to play out under the “new law.” In fact, there are only 11 Appeals Board cases in LEXIS and only 27 trial court cases, and most of these are cases where the Fund was simply a party. Only a few address substantive issues, namely where the Fund was involved in a summary judgment proceeding regarding compensability. For example, see Gibbs v. Express Services and Rye v. Calsonic Kansei North America.

So, litigation of how the Fund might ultimately face exposure remains to be seen. But it’s notable that the current wording of the statute regarding these substantive issues is the same as before the 2013 Reform Act.

A final note: Tennessee Compilation Rules and Regulations 0800-02-21-.18(3)(a) (February, 2022) states that when an additional party, including the Fund, must be added after commencement of the action, then the party wishing to add the Fund must file a motion to do so, and the Court will then remand the case to mediation.