Wokers' Comp Challenges

Workers’ Comp Forecast for 2014

Seven issues keeping workers’ comp brokers up at night.
By: | March 3, 2014 • 5 min read
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1. Predictive Analytics.
Using predictive analytics effectively is the holy grail for any large company.
If you are a staffing company, oil field service operation, or retailer working on tight margins, getting this right can mean the difference between a profitable year or needing to increase liability accruals to account for ever-increasing long tail development.

There is a need to not only develop models for making predictions but to be able to provide actionable information that can be used to quantify the cost/benefit of taking very specific actions. If this could be accomplished, insurers and large self-insured companies could efficiently allocate resources to the areas likely to provide the most meaningful benefit.

2. TRIA is Non-Renewed.
The Terrorism Risk Insurance Act (TRIA) or Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) is scheduled to expire on Dec. 31. Even now, as we are without a decision, insurers are being exposed to unlimited terrorism-related workers’ compensation liability (based on an annual policy period).

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TRIA has been in place since 2002, when Congress acted to ensure that there was a market-based solution for insurance losses arising out of terrorist acts. It is generally agreed that the sponsors of that Act suggested that it could one day be phased out, and throughout its life, the protection has been diminished. However, what remains are clear limits that comfort investors and others in the financial community.

While the Act remains unrenewed, it is the witching hour for insurers. Consequently, insurers are in the process of preparing their position with respect to the issue.

3. Loss Costs in California Deteriorate.
When California Gov. Edmund “Jerry” Brown signed the workers’ compensation reform legislation into law Sept. 18, he said that it would reverse a four-year trend of rate increases. According to the data made available to us, the insurance market clearly disagrees.

As a matter of fact, California is the state producing the highest rate increases. Possibly, the reform medicine is slow acting and good news for employers in California is on its way.

The problem in California is not a new one. At one point, the state insurance fund was writing more than 50 percent of the workers’ compensation market. That

Eric Silverstein senior vice president National Casualty Insurance Practice, Lockton Cos.

Eric Silverstein
senior vice president National Casualty Insurance Practice, Lockton Cos.

is the fund that was created to be the market of last resort as it is a government enterprise.

What is clear is it is becoming more common for insurers to place limitations on the amount of California workers’ compensation they will write. The concern is that in the current environment it is simply impossible to be profitable. It is a subtle movement to avoid a head-on clash with regulators.

4. IRS Focuses on Insurers and Captives.
The uniqueness and secret to success for the insurance industry is its favorable tax treatment. Money comes in, expected future losses are deducted and cash is available for investment and growth. The big difference is that expenses do not need to be paid but only accrued to reduce taxable income. That leaves more cash for investment.

There has been discussion about scrutiny of taxation for insurance companies and captives, the alternative risk tool of choice.  Captives are on the short list for IRS auditors and if captives are not properly structured, there is more risk that those captives will now be challenged.

5. Trial Attorneys to Target Non-Subscription.
Approximately one-third of the employers in Texas are non-subscribers. Why? Because it makes sense. It saves on frictional costs, quickly provides benefits to employees who are injured and eliminates much of the soft fraud. It has been so successful that Oklahoma enacted its own reform effort, and Tennessee is considering legislative initiatives to enhance opportunities for non-subscription.

Even without a survey, we can safely assume that the majority of plaintiff’s attorneys are not big fans of non-subscription. Benefits for non-subscription are paid out via the Employee Retirement Income Security Act. There is no need for a legal process. There is no waiting period. There are clear definitions that are subject to arbitration.

In contrast, workers’ compensation commonly requires a legal process. Should an attorney become involved in a case where there is an injury within the course of employment, the attorney’s share, although not as large as in a tort case, is for all intents and purposes no-fault. For legal firms, workers’ compensation is high volume, low risk and considerable reward.

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Consequently, we would think that should non-subscription become popular in Oklahoma and be signed into law in Tennessee that it may become a target of the bar.

6. Medicare Set Asides Become Increasingly Difficult.
MSAs, as they are called, are a complicated thing. In general, money is set aside to pay benefits for costs that otherwise would be funded by Medicare. It applies only to certain classes of individuals. With an aging workforce, it has become a big and expensive issue for insurance companies.

The problem is that claims can’t be settled quickly and efficiently as government sign-off is required. The impact has been a substantial increase in large claims severity. Further, it has helped to create longer tail development. What this means is that all companies will end up with longer periods of loss development in the form of greater IBNR (Incurred but not reported losses). It translates into more collateral, higher costs and higher liability accruals.

7. Bond Yields Plummet.
Nothing has had a greater impact on the insurance market than the change in bond yields post-2008. It required underwriters to make a profit underwriting. That changed the dynamics of the marketplace and the way the big insurers look at their business.

While it is hard to imagine, it is possible that rates of return on bonds could get much lower. Should there be a European meltdown, recession in Asia or the refusal of China and others to continue to fund our deficits, rates will fall. Should this happen there will be no escaping the need for rate adjustments across all lines of insurance as the dynamics of the current market will be left smoldering once again.

Eric Silverstein is senior vice president, National Casualty Insurance Practice, Lockton Cos. He can be reached at [email protected]
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View From the Bench

Workers’ Comp Docket

Significant workers' compensation decisions from around the country.
By: | August 22, 2016 • 10 min read
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Bartender Serves Up Compensable Claim for Injury Due to Hugging Incident

LaFave v. Blue Lounge, 30 MIWCLR 39 (Mich. W.C.B.M. 2016)

Ruling: The Michigan workers’ compensation magistrate awarded benefits to a bartender, who injured her back while hugging an overly enthusiastic bar patron.

What it means: In Michigan, a worker’s injuries are compensable when the accident occurred while she was acting within the scope of her duties.

Summary: The magistrate awarded benefits to a bartender, who injured her back while hugging an overly enthusiastic bar patron. A video showed the two hugging and each woman lifting the other off the ground.

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Finding the incident did not fall within the social and recreational exclusion, the magistrate explained that the bartender was performing her duties when the incident occurred. She was approached by a patron, whom she happened to know, and was hugged. As part of the hug each woman lifted the other off the ground. A bartender is expected to be pleasant and polite to the customers.

Also, immediately before the patron greeted and hugged the bartender and immediately after the incident she was engaged in her regular bartending duties. Being polite to an overly enthusiastic patron would arguably fall within the bartender’s duties.

The magistrate accepted the bartender’s uncontroverted medical evidence of disability and awarded benefits for a closed period. The magistrate denied benefits for her concurrent employment since she continued working there throughout the closed period. The magistrate also found that the bartender was entitled to reasonable and necessary medical expenses related to her treatment for her post-traumatic myofascial pain and low back strain.

Worker Wins Benefits for Accident During Personal Errand

Colquitt v. Starr Aviation, 31 PAWCLR 93 (Pa. W.C.A.B. 2016)

Ruling: The Pennsylvania Workers’ Compensation Appeal Board affirmed the workers’ compensation judge’s finding that an agent’s injury arose out of and in the course of her employment.

What it means: In Pennsylvania, a worker’s temporary departure from performing her work to administer to her personal needs does not take her out of the course and scope of her employment.

Summary: The board affirmed the workers’ compensation judge’s finding that an airport ramp agent, who injured her left leg when the tug she was driving flipped over, was entitled to benefits. Her injuries arose out of and in the course of her employment.

The agent was given permission between flight arrivals to drive the tug to the other side of the terminal to meet her mother, who was bringing her money and feminine hygiene products. The board explained that because the agent was simply going to meet her mother, her injury occurred during a temporary departure from work during regular business hours, and therefore, her work injury fell under the personal comfort doctrine.

The board said that the employer’s arguments would have it consider whether the trip to meet her mother was necessary. The board explained that workers’ compensation is “no-fault” and there was no such precedent, so it rejected the argument.

The board also found that the employer’s argument of whether the agent was on the employer’s premises when she was injured was moot. There was no requirement that the agent be on the employer’s premises at the time of her injury because she was engaged in the furtherance of the employer’s affairs.

Employee Can’t Be Disqualified From Benefits Due to Violent Thoughts

Cory Fairbanks Mazda/The PMA Insurance Group v. Minor, No. 1D15-1600 (Fla. Dist. Ct. App. 05/25/16)

Ruling: The Florida District Court of Appeal held that a worker was entitled to temporary partial disability benefits.

What it means: In Florida, malevolent thoughts alone, without evidence establishing an intent to harm, do not establish misconduct.

Summary: An office worker for Cory Fairbanks Mazda sustained compensable workplace injuries to her head, neck, low back, and left knee as a result of two incidents of being struck by a door opened by a coworker. The worker thought that the coworker intentionally injured her. The worker received medical care for her injuries and returned to work with accommodations.

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Later, the worker’s attorney informed the judge of compensation claims and the employer that the worker “expressed suicidal and homicidal ideation,” but not to the degree of imminent threat. The employer terminated the worker based on the attorney’s representation.

The employer and its insurer argued that the worker was ineligible for temporary partial disability benefits because she was terminated for misconduct. The Florida District Court of Appeal held that the worker was entitled to temporary partial disability benefits from the date of her termination.

After an examination, a psychiatrist described the worker’s expressions of anger as “blowing off steam” rather than declaring an intent to inflict physical harm. The worker said that she told her attorney that she wanted to punch the coworker.

The employer’s allegation of misconduct was based solely on the attorney’s statement that the worker shared that she had suicidal and homicidal thoughts arising from her injuries. The employer argued that the worker intended to harm or kill the coworker.

The court rejected the employer’s argument, stating that malevolent thoughts alone, without the requisite evidence establishing an intent to harm, do not meet the definition of misconduct.

Driver Allowed to Pursue Texas, Oklahoma Benefits Simultaneously

Maxwell v. Faith Transport, LLC, No. 113832 (Okla. Civ. App. 05/25/16)

Ruling: The Oklahoma Court of Civil Appeals held that it had jurisdiction over a claim brought by a driver.

What it means: Oklahoma may hold concurrent jurisdiction over a claim with another state.

Summary: A truck driver, who lived in Oklahoma, worked for Faith Transport, a Texas entity. He was severely injured in an accident while driving on duty in Texas. Faith’s workers’ compensation carrier, Texas Mutual Insurance Co., initiated payments of workers’ compensation benefits to the driver pursuant to Texas law.

Later, Texas Mutual Insurance Co. sent the driver a letter notifying him of the suspension of his benefits. The driver filed a workers’ compensation claim in Oklahoma. Faith rejected the claim, asserting that Oklahoma did not have jurisdiction over the claim. The Oklahoma Court of Civil Appeals held that it had concurrent jurisdiction with Texas.

The court explained that an Oklahoma worker injured while on the job in another state can pursue benefits from both jurisdictions simultaneously. The court rejected Faith’s argument that the driver’s acceptance of the Texas Mutual Insurance Co. checks amounted to an election of Texas law.

The court found that by filing a claim in Oklahoma the driver elected to initiate an Oklahoma claim. He performed no similar act in Texas. The payments the driver received pursuant to Texas law were voluntarily initiated by Texas Mutual Insurance Co.

The receipt of those benefits was not an election to proceed in Texas. The court explained that the right of election for a claim of benefits belongs to the worker, not an out-of-state insurance carrier.

The court explained that logic and statutory construction led to a conclusion that if the election to file a claim in Oklahoma did not prevent Texas benefits, then the receipt of Texas benefits does not prevent the election of a claim in Oklahoma. The court concluded that the driver was not precluded from electing to file a claim in Oklahoma, assuming that no final decision was reached in Texas.

The court found that the suspension of the driver’s Texas benefits was not the equivalent of a “final determination” because the suspension was subject to review or appeal.

Witnessing Aftermath of Car Accidents Created Compensable Mental Injury

Mantia v. Missouri Department of Transportation, No. ED103016 (Mo. Ct. App. 06/14/16)

Ruling: The Missouri Court of Appeals held that a worker’s mental injury was compensable and that she was entitled to benefits for a 50 percent permanent partial disability of the whole body and future medical benefits.

What it means: In Missouri, under the 2005 amendments to the law, evidence of the work stress encountered by similarly situated workers is not required to establish a claim for a mental injury. A worker must show that she suffered a mental injury resulting from stress that was work-related and “extraordinary and unusual” as measured by objective standards and actual events.

Summary: A worker for the state Department of Transportation provided traffic control and assistance at motor vehicle accident scenes. Over her 20-year career, she witnessed the aftermath of a multitude of serious accidents that involved catastrophic injury, dismemberment, and death. She began to suffer significant emotional and psychological symptoms.

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The worker filed a claim for workers’ compensation benefits. The Missouri Court of Appeals held that she was entitled to benefits.

The court found that under the 2005 amendments to the law, evidence of the work stress encountered by similarly situated workers was not required to establish a claim for a mental injury. The worker had to show that she suffered a mental injury resulting from stress that was work-related and “extraordinary and unusual” as measured by objective standards and actual events.

The court found that the worker met this burden. Both parties’ medical experts agreed that the worker’s work-

related stress was the cause of her disability. The court found that witnessing the aftermath of serious accidents placed stresses on the worker more extreme than most workers would ever experience. The court found that the experiences were “extraordinary and unusual” and also “unmistakably exceptional and remarkable.”

The court found sufficient evidence supporting an award for 50 percent permanent partial disability of the whole body. The court also ordered the department to pay for the worker’s future medical care to treat her mental injuries. The court noted that continued antidepressant medication would likely require ongoing medical management by the prescribing physician.

Medical Evidence Shows Preexisting Conditions Caused Manager’s Disability

Buchinsky v. The Arc of Anchorage, No. S-15547, No. 1585 (Alaska 05/25/16)

Ruling: The Alaska Supreme Court held that a manager was not entitled to benefits because the work-related injuries were not the cause of her disability or need for treatment.

What it means: In Alaska, medical evidence that a worker’s preexisting conditions, rather than her work-related injuries, were the cause of her need for treatment will support the denial of a claim.

Summary: A case manager for The Arc of Anchorage sustained injuries when a filing cabinet fell on her twice in one week. The manager sought benefits. The Arc disputed the claim after its doctor said that the work-related injury was not the substantial cause of the manager’s later need for medical treatment.

The Alaska Supreme Court held that the manager was not entitled to benefits because she did not show that the work-related injuries were the cause of her disability or need for treatment.

The court found that substantial evidence supported a conclusion that the manager’s preexisting orthopedic problems, rather than her work-related injury, were the substantial cause of her disability and need for medical treatment of her knees, back, and neck.

One doctor compared MRIs of the manager’s neck both before and after the work injury and determined that the MRIs were almost identical. Imaging studies of her knees showed considerable arthritis before the work injury. A doctor told the manager after the work injury that she did not need knee surgery because her knee problems were due to her arthritis.

Also, a month before the work injury, the manager and a neurosurgeon discussed neck surgery to resolve her complaints related to pain and numbness.

The court pointed out that continuing pain after a work-related injury does not mean that the work-related incident caused the pain.

The court also noted that in this case the medical records did not show an immediate increase in pain in the period after the injury. The manager’s chiropractor released her to return to work without restrictions less than a week after the second incident. Her pain complaints increased a month later.

Christina Lumbreras is a Legal Editor for Workers' Compensation Report, a publication of our parent company, LRP Publications. She can be reached at [email protected]
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Sponsored: Lexington Insurance

Handling Heavy Equipment Risk with Expertise

Large and complex risks require a sophisticated claims approach. Partner with an insurer who has the underwriting and claims expertise to handle such large claims.
By: | August 4, 2016 • 5 min read
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What happens to a construction project when a crane gets damaged?

Everything comes to a halt. Cranes are critical tools on the job site, and such heavy equipment is not quickly or easily replaceable. If one goes out of commission, it imperils the project’s timeline and potentially its budget.

Crane values can range from less than $1 million to more than $10 million. Insuring them is challenging not just because of their value, but because of the risks associated with transporting them to the job site.

“Cranes travel on a flatbed truck, and anything can happen on the road, so the exposure is very broad. This complicates coverage for cranes and other pieces of heavy equipment,” said Rich Clarke, Assistant Vice President, Marine Heavy Equipment, Lexington Insurance, a member of AIG.

On the jobsite, operator error is the most common cause of a loss. While employee training is the best way to minimize the risk, all the training in the world can’t prevent every accident.

“Simple mistakes like forgetting to put the outrigger down or setting the load capacity incorrectly can lead to a lot of damage,” Clarke said.

Crane losses can easily top $1 million in physical damage alone, not including the costs of lost business income.

“Many insurers are not comfortable covering a single piece of equipment valued over $1 million,” Clarke said.

A large and complex risk requires a sophisticated claims approach. Lexington Insurance, backed by the resources and capabilities of AIG, has the underwriting and claims expertise to handle such large claims.

SponsoredContent_Lex_0816“Cranes travel on a flatbed truck, and anything can happen on the road, so the exposure is very broad. This complicates coverage for cranes and other pieces of heavy equipment. Simple mistakes like forgetting to put the outrigger down or setting the load capacity incorrectly can lead to a lot of damage.”
— Rich Clarke, Assistant Vice President, Marine Heavy Equipment, Lexington Insurance

Flexibility in Underwriting and Claims

Treating insureds as partners in the policy-building and claims process helps to fine-tune coverage to fit the risk and gets all parties on the same page.

Internally, a close relationship between underwriting and claims teams facilitates that partnership and results in a smoother claims process for both insurer and insured.

“Our underwriters and claims examiners work together with the broker and insured to gain a better understanding of their risk and their coverage expectations before we even issue a policy,” said Michelle Sipple, Senior Vice President, Property, Lexington Insurance. “This helps us tailor our policies or claims handling to suit their needs.”

“The shared goals and commonality between underwriting and claims help us provide the most for our clients,” Clarke said.

Establishing familiarity and trust between client, claims, and underwriting helps to ensure that policy wording is clear and reflects the expectations of all parties — and that insureds know who to contact in the event of a loss.

Lexington’s claims and underwriting experts who specialize in heavy equipment will meet with a client before they buy coverage, during a claim, or any time in between. It is important for both claims and underwriting to have face time with insured so that everyone is working toward the same goals.

When there is a loss, designated adjusters stay in contact throughout the life of a claim.

Maintaining consistent communication not only meets a high standard of customer service, but also ensures speed and efficiency when a claim arises.

“We try to educate our clients from the get-go about what we will need from them after a loss, so we can initiate the claim and get the ball rolling right away,” Clarke said. “They are much more comfortable knowing who is helping them when they are trying to recover from a loss, and when it comes to heavy equipment, there’s no time to spare.”

SponsoredContent_Lex_0816“Our underwriters and claims examiners work together with the broker and insured to gain a better understanding of their risk and their coverage expectations before we even issue a policy. This helps us tailor our policies or claims handling to suit their needs.”
— Michelle Sipple, Senior Vice President, Property, Lexington Insurance

Leveraging Industry Expertise

When a claim occurs, independent adjusters and engineers arrive on the scene as quickly as possible to conduct physical inspections of damaged cranes, bringing years of experience and many industry relationships with them.

Lexington has three claims examiners specializing in cranes and heavy equipment. To accommodate time differences among clients’ sites, Lexington’s inland marine operations work out of two central locations on the East and West Coasts – Atlanta, Georgia and Portland, Oregon.

No matter the time zone, examiners can arrive on site quickly.

“Our clients know they need us out there immediately. They know our expertise,” Clarke said. “Our examiners are known as leaders in the industry.”

When a barge crane sustained damage while dismantling an old bridge in the San Francisco Bay that had been cracked by an earthquake, for example, “I got the call at 6 a.m. and we had experts on site by 12 p.m.,” Clarke said.SponsoredContent_Lex_0816

Auxiliary Services

In addition to educating insureds about the claims process and maintaining open lines of communication, Lexington further facilitates the process through AIG’s IntelliRisk® services – a suite of online tools to help policyholders understand their losses and track their claim’s progress.

“Brokers and clients can log in and see status of their claim and find information on their losses and reserves,” Sipple said.

In some situations, Lexington can also come to the rescue for clients in the form of advance payments. If a crane gets damaged, an examiner can conduct a quick inspection and provide a rough estimate of what the total value of the claim might be.

Lexington can then issue 50 percent of that estimate to the insured immediately to help them get moving on repairs or find a replacement. This helps to mitigate business interruption losses, as it normally takes a few weeks to determine the full and final value of the claim and disburse payment.

Again, the skill of the examiners in projecting accurate loss costs makes this possible.

“This is done on a case-by-case basis,” Clarke said. “There’s no guarantee, but if the circumstances are right, we will always try to get that advance payment out to our insureds to ease their financial burden.”

For project managers stymied by an out-of-service crane, these services help to bring halted work back up to speed.

For more information about Lexington’s inland marine services, interested brokers should visit http://www.lexingtoninsurance.com/home.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Lexington Insurance. The editorial staff of Risk & Insurance had no role in its preparation.Advertisement




Lexington Insurance Company, an AIG Company, is the leading U.S.-based surplus lines insurer.
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