A Sacramento judge has refused to hear an industry association's lawsuit over the legality of the state's permanent disability rating schedule.

Superior Court Judge Cecily Bond said the case presented by the Association of California Insurance Companies against the California Division of Workers Compensation should have been heard by the Workers' Compensation Appeals Board in San Francisco, which handles workers compensation matters.ACIC filed suit in November alleging DWC did not follow proper procedure in implementing the permanent disability rating schedule. The regulations could cost employers upward of $100 million annually.

The association contended that the workers comp division exceeded its authority by adopting revised guidelines for determining permanent disability payments in 1996 without submitting the rules six months in advance to the Commission on Health and Safety and Workers' Compensation.

ACIC had requested an injunction to block the division from further using the revised regulations that went into effect last April. DWC oversees the $5 billion California workers compensation system, the nation's largest.

The 1993 California workers compensation reform legislation mandated changes to the permanent disability rating schedule, including an updating of occupational descriptions in the rating schedule, something that hadn't been done in more than 50 years.

Vice President Doug Widtfeldt did not rule out the possibility of his association taking the case to the Appeals Board.

''We are concerned that unless something is done, these regulations ultimately could drive up the costs of workers compensation insurance by more than $100 million per year,'' he said.

He noted the Insurance Department's Workers' Compensation Rating Bureau last September conducted a cost impact analysis and determined that permanent disability benefit costs, which were approximately $1.2 billion in 1996, would increase by 6.9 percent.

''What is interesting, if not absurd, is that the court appears to have given insurers immunity from any civil penalties that may otherwise be imposed by the DWC administrative director (Casey Young) if an insurer decides to continue using the old rating schedule,'' Mr. Widtfeldt said.

''The bottom line is that the court has yet to consider our fundamental issue that the regulations were adopted illegally,'' he said.

By contrast, DWC's Mr. Young was pleased with the judge's decision.

''We expected to win this, so we're not surprised with the judge's ruling,'' he said. ''The next move is theirs (ACIC). The court agreed with our assertion that it had no jurisdiction over this issue. This is the exclusive domain of the Workers' Compensation Appeals Board in San Francisco.''

The Appeals Board functions as a court on workers compensation matters.

The lawsuit opponents included the American Insurance Association and the California Self Insurers Association.

''We are confident that the issues raised by insurers and employers can be resolved without further litigation,'' said Mark Webb, AIA assistant vice president in Sacramento, Calif.

''We opposed the lawsuit because we felt that the Department of Industrial Relations (which oversees the DWC) was acting in good faith on its promise to deal with the issue administratively. The lawsuit effectively precluded it from doing so,'' he said.

Self-insurers were upset because they ''have been using the rating schedule to set reserves for estimated future liability for permanent partial disability benefits since last April,'' said Joe Markey, manager of California Self Insurers Association in Sacramento.

''A repeal as requested by ACIC would force self-insurers to recalculate all those reserves, which would be a needless, time-consuming and expensive proposition to say the least,'' Mr. Markey said.

California Manufacturers Association lobbyist Willie Washington said his members expect the DWC to now reduce the permanent disability rating schedule by ''5 percent across the board, which has been recommended by workers comp experts.''