Cynthia Kane, 58, allegedly suffered shortness of breath due to breathing in petroleum fumes over a prolonged period. Kane had already “lawyered up,” so a statement was out of the question. Her file during her 15 years with Union Manufacturing raised no suspicions. Kane was a nonsmoker, and she had never complained to the company nurse about pulmonary problems.
I arranged to tour Kane’s work location. It was separated from the machine shop, where the actual manufacturing took place, by a floor-to-ceiling wall with glass windows. The assembly area was not particularly dirty, and I verified that the HVAC system was up to specifications and maintained twice annually.
Kane didn’t appear to be in any distress as she did her job.
Kane’s shift ended at 5 p.m., so I returned to the plant at 4:45 that afternoon and waited in the parking lot. I followed her as she made her way home in a fairly new two-door sports car. She stopped at a dry cleaner on the way. I parked and waited nearby for 10 minutes. When she didn’t come out, I decided to
This was a large operation with the cleaning machines in the back room. There were huge fans throughout the store, but even so there was an unmistakable kerosene-like smell from the solvents used in the dry cleaning process.
At the counter, I asked the clerk about dry-cleaning bedspreads while I strained to see into the back of the store. It was evident Kane was working.
I scratched my head. Why didn’t her attorneys name the shop as a co-defendant on the claims petition? It had far greater pulmonary exposure to airborne contaminants than Union Manufacturing.
The next day, I went back to the dry cleaner and asked to speak with Kane. The flustered counter person said they had no employee by that name. I went back to the dry cleaners three more times during the next two weeks, and each time, I saw Kane’s car there.
I arranged to have a disability evaluation by a pulmonologist, who confirmed that Kane had a mild pulmonary disability (5 percent PPD rating). After reading my report, the doctor concluded the condition was not due to her work at Union Manufacturing. Kane’s attorney had a disability report rating Kane at 25 percent PPD.
I couldn’t fault Kane for wanting a part-time job to help pay for living expenses (and her sports car), but she left me no choice but to deny the claim against Union.
I called her counsel and explained that we’d have to go to trial. He was incredulous, until I explained my findings.
“Your client didn’t tell you about her ‘under the table’ deal at Salerno’s Dry Cleaning, did she?” I asked him. “I personally observed her working there on three different occasions, and noted the smell of the dry cleaning solvent was very strong.
“I am willing to bet that exposure is the proximate cause of any pulmonary disability she has, rather than from a clean and temperature-controlled environment at Union Manufacturing Co. My examining physician agrees.”
The attorney reluctantly agreed to withdraw the petition. Kane continued to work at Union, and whether she kept her night job at the dry cleaner wasn’t my concern. A good investigation paid off and the claim against Union Manufacturing hit a snag.
Is a Pre-Hire Injury Compensable?
An applicant sought employment with the Medical Center at Bowling Green as a registration clerk. She sat for two face-to-face interviews and received a written job offer contingent on passing a physical examination and a drug screen. The medical center was clear that she would not be hired until she completed these.
Two days later, the applicant submitted for the physical examination. As part of the exam, she was asked to perform a functional capacity evaluation to determine whether she had the capacity to carry out the physical demands of the position.
During the FCE portion of the exam, she was asked to lift weights ranging from 10 to 61 pounds. She claimed that while lifting the heavier weight she felt pain in her neck but did not inform the individual administering the examination.
The applicant ultimately passed the physical examination and the drug screen. The medical center officially hired her in the following days.
Three weeks after the physical examination, she reported to work and the neck pain lingered. She underwent neck surgery for the injury that she allegedly sustained during the physical examination. She missed a considerable amount of work, and the medical center terminated her.
The applicant filed a workers’ compensation claim for the injury she sustained during the physical examination. The medical center denied the claim on the ground that she was not an employee at the time of the injury. The administrative law judge agreed with the denial of the claim. The Workers’ Compensation Board affirmed. The applicant appealed.
Was the ALJ correct in denying the applicant’s claim?
- A. No. The applicant’s completion of the physical examination was a service in the course of the medical center’s business.
- B. Yes. The applicant was not an employee of the medical center at the time of the physical examination.
- C. No. The preemployment physical examination was considered part of the employment.
A is incorrect. The court said that it did not consider the physical examination “work” in furtherance of the medical center’s business. The applicant offered the medical center no material benefit, and it was of no consequence to the medical center whether she completed the examination or not.
The court also found that the applicant could not expect payment for the physical examination, even absent the medical center’s statement that passing the exam was a prerequisite to her employment. The court doubted that the claim would exist if the applicant had failed the exam and the medical center declined her employment.
C is incorrect. The court found that Kentucky is a jurisdiction that does not treat a preemployment examination as employment for purposes of workers’ compensation coverage. The court has held that if employment is contingent upon a preemployment physical examination, the individual is not covered as “employed” until the examination is completed.
B is correct. In Rahla v. Medical Center at Bowling Green, et al., No. 2014-SC-000236-WC (Ky. 03/17/16), the Kentucky Supreme Court held that the applicant was not entitled to benefits.
She was not employed by the medical center when she participated in the physical examination. She received confirmation of her hiring after the examination was completed and started work three weeks later.
Editor’s note: This feature is not intended as instructional material or to replace legal advice.
Helping Investment Advisers Hurdle New “Customer First” Government Regulation
This spring, the Department of Labor (DOL) rolled out a set of rule changes likely to raise issues for advisers managing their customers’ retirement investment accounts. In an already challenging compliance environment, the new regulation will push financial advisory firms to adapt their business models to adhere to a higher standard while staying profitable.
The new proposal mandates a fiduciary standard that requires advisers to place a client’s best interests before their own when recommending investments, rather than adhering to a more lenient suitability standard. In addition to increasing compliance costs, this standard also ups the liability risk for advisers.
The rule changes will also disrupt the traditional broker-dealer model by pressuring firms to do away with commissions and move instead to fee-based compensation. Fee-based models remove the incentive to recommend high-cost investments to clients when less expensive, comparable options exist.
“Broker-dealers currently follow a sales distribution model, and the concern driving this shift in compensation structure is that IRAs have been suffering because of the commission factor,” said Richard Haran, who oversees the Financial Institutions book of business for Liberty International Underwriters. “Overall, the fiduciary standard is more difficult to comply with than a suitability standard, and the fee-based model could make it harder to do so in an economical way. Broker dealers may have to change the way they do business.”
As a consequence of the new DOL regulation, the Securities and Exchange Commission (SEC) will be forced to respond with its own fiduciary standard which will tighten up their regulations to even the playing field and create consistency for customers seeking investment management.
Because the SEC relies on securities law while the DOL takes guidance from ERISA, there will undoubtedly be nuances between the two new standards, creating compliance confusion for both Registered Investment Advisors (RIAs)and broker-dealers.
To ensure they adhere to the new structure, “we could see more broker-dealers become RIAs or get dually registered, since advisers already follow a fee-based compensation model,” Haran said. “The result is that there will be likely more RIAs after the regulation passes.”
But RIAs have their own set of challenges awaiting them. The SEC announced it would beef up oversight of investment advisors with more frequent examinations, which historically were few and far between.
“Examiners will focus on individual investments deemed very risky,” said Melanie Rivera, Financial Institutions Underwriter for LIU. “They’ll also be looking more closely at cyber security, as RIAs control private customer information like Social Security numbers and account numbers.”
Demand for Cover
In the face of regulatory uncertainty and increased scrutiny from the SEC, investment managers will need to be sure they have coverage to safeguard them from any oversight or failure to comply exactly with the new standards.
In collaboration with claims experts, underwriters, legal counsel and outside brokers, Liberty International Underwriters revamped older forms for investment adviser professional liability and condensed them into a single form that addresses emerging compliance needs.
The new form for investment management solutions pulls together seven coverages:
- Investment Adviser E&O, including a cyber sub-limit
- Investment Advisers D&O
- Mutual Funds D&O and E&O
- Hedge Fund D&O and E&O
- Employment Practices Liability
- Fiduciary Liability
- Service Providers D&O
“A comprehensive solution, like the revamped form provides, will help advisers navigate the new regulatory environment,” Rivera said. “It’s a one-stop shop, allowing clients to bind coverage more efficiently and provide peace of mind.”
Ahead of the Curve
The new form demonstrates how LIU’s best-in class expertise lends itself to the collaborative and innovative approach necessary to anticipate trends and address emerging needs in the marketplace.
“Seeing the pending regulation, we worked internally to assess what the effect would be on our adviser clients, and how we could respond to make the transition as easy as possible,” Haran said. “We believe the new form will not only meet the increased demand for coverage, but actually creates a better product with the introduction of cyber sublimits, which are built into the investment adviser E&O policy.”
The combined form also considers another potential need: cost of correction coverage. Complying with a fiduciary standard could increase the need for this type of cover, which is not currently offered on a consistent basis. LIU’s form will offer cost of correction coverage on a sublimited basis by endorsement.
“We’ve tried to cross product lines and not stay siloed,” Haran said. “Our clients are facing new risks, in a new regulatory environment, and they need a tailored approach. LIU’s history of collaboration and innovation demonstrates that we can provide unique solutions to meet their needs.”
For more information about Liberty International Underwriters’ products for investment managers, visit www.LIU-USA.com.
Liberty International Underwriters is the marketing name for the broker-distributed specialty lines business operations of Liberty Mutual Insurance. Certain coverage may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds. This literature is a summary only and does not include all terms, conditions, or exclusions of the coverage described. Please refer to the actual policy issued for complete details of coverage and exclusions.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty International Underwriters. The editorial staff of Risk & Insurance had no role in its preparation.