Category: Commercial

Predictive Modeling Can Lower Workers’ Compensation Costs

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Recent statistics compiled by the National Safety Council revealed that workplace injuries are at an all-time low.  The costs of workplace injuries, however, have escalated significantly over the past five years.  Employers and industry professionals alike are perplexed by this contradiction, and have struggled to find reasons to support such a paradox.

The following are factors that contribute to higher injury costs:

  • Injuries that are typically short-term are dragged out into long-term medical conditions, and often result in larger settlements.
  • According to the report, about 20% of employee injuries account for approximately 80% of claims.
  • There is no consistency in procedure for a claim; two employees with the same injury may see vast differences in claims cost.
  • The occurrence of “catastrophic injuries” is very low, so the problems are resulting from minor, “typical” injuries.

The most common workplace injuries are back and joint conditions, and cumulative trauma.  Statistics show that only three in twenty of these injuries become chronic, and cause a delayed recovery, which occurs when the length and cost of an injury do not correspond with the severity of the illness or injury.  Pre-delayed recovery intervention could be effective in ensuring employees return to work fully after an injury; however, this would not be cost-effective since only three in twenty injuries cause a problem.

The best strategy would be to determine which injured employees are most likely to experience a delayed recovery.  However, a survey to uncover these details would most likely violate an employee’s rights. So how can an employer effectively predict which employees will have a delayed recovery?

Fifty years ago, the banking and credit industries created a way of scoring loan applicants to determine which would be more likely to default. This is called Predictive Modeling, and is still used today. This same system could be applied to predict which employees are most likely to experience a delayed recovery.

There are several factors that could affect an employee’s ability to return to full productivity at work, beyond the medical concern of the injury:

  • Job dissatisfaction
  • History of prior injury or medical issue
  • Education level
  • Length of employment
  • Lack of available modified or transition duty jobs

Based on these common contributing factors, the Institute of Work Comp Professionals developed a database and questionnaire, which an employer answers for each employee after an injury.  Then, a score is assigned to predict the risk level for delayed recovery (Low, Medium, or High). Pre-developed intervention plans are available at each level.

By predicting which employees will be more likely to have a delayed recovery, and by having an established intervention plan, you can protect your company from prolonged absenteeism and lost productivity.

The Effects on Workers’ Compensation of an Aging Workforce Tapering Off

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Even though the median age of America’s workforce is increasing, its effects on the workers’ compensation system are ebbing, according to Harry Shuford, practice leader and chief economist for the National Council on Compensation Insurance, Inc. This research organization is the oldest and largest provider of workers’ compensation and employee injury data in the nation.

Shuford addressed his remarks to attendees of the annual Workers’ Compensation Educational Conference in a workshop titled “Are Baby Boomers a Bust for Workers’ Compensation?” The session also included Ned Wilson, director of planning and treasury at FCCI Insurance Group. It was one of seven sessions on national trends put on by The National Underwriter Company as part of its partnership with the Florida Workers’ Compensation Institute. The Institute runs the WCEC program, a partnership of the Florida Workers’ Compensation Institute and The National Underwriter Company.

Shuford noted that many workers have been negatively impacted by changes in their retirement systems, which are providing them with less money even though their longer life expectancy has dramatically increased the amount needed for retirement. While older employees in their fifties and sixties are continuing to work, younger workers have been dropping out.

Older workers are injured less frequently than their younger counterparts, but when involved in an accident, they have more severe claims with higher costs and longer recuperation times, Shuford said.One of the reasons for the higher claims costs are replacement wages. Older workers generally receive more compensation because their salaries are higher. In the future, however, differences in average weekly wages may shrink, Shuford added.

Differences in the types of injuries suffered by older and younger workers are also lessening, Shuford stated. However, there is a difference in the treatment cost between the two groups. Workers who are 45 to 65 years of age usually require 40 percent more treatment for an injury than younger workers, and the drugs older workers are prescribed are more expensive.

Wilson mentioned one statistic he couldn’t explain; that medical costs for the 25-and-under age group have risen 10 percent annually while costs in the 35 to 54 year old category have only gone up 7 percent each year.

Shuford noted that even as older workers remain in the work force, the percentage of people over age 65 still working is extremely small and that over age 65, the average weekly wage drops. For workers over 55, nearly 17 percent of their lost work time results from falls. He attributed this rise in fall-related accidents to older worker’s poor eyesight and an inability to move as well as they used to.To counteract these effects of aging, Shuford suggested that company loss control precautions should include better lighting, marking steps clearly and providing handrails.

US Chamber of Commerce Study Reveals Trends in Product Liability Exposures

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The American tort system is still the most expensive justice system for remedying a civil wrong, costing $260 billion in 2004; this according to a recently published paper authored by experts from the legal and insurance sectors and produced in collaboration with the US Chamber of Commerce. One area proving to be extremely sensitive to tort suits is product liability. The paper notes that product liability exposures present serious and unforeseeable problems for American manufacturers and negatively impact their ability to compete in a global market.

The problems resulting from product liability are caused by a number of sources, including new theories of liability, unexpected liability exposures or commonly used substances that are now alleged to be harmful even in trace amounts opening the floodgates to new litigation.

 The paper goes on to discuss five emergent areas of products liability exposure:

  • Lead paint – Suits are once again being brought against lead pigment and paint manufacturers on a large scale. In the earlier cases, these manufacturers were successful in obtaining favorable rulings by arguing that plaintiffs couldn’t prove it was individual manufacturers that caused the alleged illnesses.

Until recently, lead paint and pigment manufacturers have also been successful in stopping actions filed by federal and state government. However, since mid-2005, two new liability theories have been used to argue cases that will prove to be a problem for manufacturers. State and municipal governments have successfully used the concept of public nuisance, as the basis of their cause of action, saying that the lead paint manufacturers’ failure to abate existing lead paint conditions in homes constitutes a nuisance. The other theory is that of market share liability, which spreads liability to manufacturers in proportion to their market share when a product cannot be traced to any specific maker.

  • Benzene – Benzene exposure has been associated with numerous illnesses, including blood disorders, central nervous system damage, immune system damage, lung and bladder cancer, and female fertility disorders. Millions of American workers are exposed to benzene on the job daily.
  • Pharmaceuticals – Product liability claims are a constant in the pharmaceutical industry. Anyone who reads a newspaper or watches television is aware of the suits involving Vioxx, Fen-Phen, and Rezulin. Plaintiffs in pharmaceutical cases may seek damages for actual or anticipated bodily injuries as well as any related economic loss associated with the use of a drug.
  • Welding rods – Welding rods are a major focus of litigation, with more than 10,000 current plaintiffs nationwide. The basis for this litigation is whether welding rod fumes containing manganese cause neurological damage.
  • Diacetyl – This is a butter-flavored ketone. The Centers for Disease Control (CDC) believes that exposure to this chemical may result in bronchiolitisobliterans, also known as “popcorn packers lung.” The National Institute for Occupational Safety and Health and the United States Environmental Protection Agency have also been studying diacetyl and its negative affects on pulmonary functions.

Responding to Religious and Racial Harassment

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If an employee complains of being harassed on the basis of racial or religious differences, the employer is obligated by federal and state laws to take prompt remedial action. That action should start with conducting an immediate, thorough investigation. When the investigation is over, the employer must determine the best course of action to respond to what was revealed. What the employer does at this point can make all the difference in the world as to whether or not the problem is resolved.

There is more than one scenario that can result from an investigation of this type. The investigation can reveal that some of the conduct complained about was inappropriate, but not illegal. Most employers’ harassment policies make it clear that inappropriate conduct will not be tolerated. But such policies also infer that the employer must follow through and address inappropriate conduct even if it does not violate the law.

In this case, employers have a number of options to resolve the problem, but the resolution must be appropriate to the circumstances. If the conduct was not severe, and happened on only a couple of occasions, an employer can issue verbal warnings, written warnings, or some other form of disciplinary action.  An example would be the ineligibility for promotion or bonuses for a period of time during which the offender’s conduct will be monitored.

On the other hand, if the conduct is severe, the employer may need to take a sterner approach. Depending on the offending employee’s work history, the relationship between the offender and the victimized employee, the type of conduct and the context in which it occurred, the employer still might have alternatives other than termination. Demotions, ineligibility for pay raises and bonuses for significantly longer periods of time, negative employment reviews, and the removal of supervisory duties can be effective in stopping the behavior. These should be accompanied by requirements to attend counseling or special training sessions. The employer should also include training for the entire affected department as part of his/her remediation plan.

It is important to remember that each situation requires an individual determination. The employer must balance the need to stop the conduct, prevent it from happening in the future, reduce liability risks, and maintain an environment that is conducive to productivity. That’s why it is imperative the employer works with human resources professionals and legal counsel to assess harassment complaints. Prompt, effective resolutions will ensure a loyal workforce and minimize the risk of any future litigation.

Liability Insurance Is a Must-Have Protection for ERISA Fiduciaries

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Fiduciary liability under ERISA is an exposure individuals or organizations may have as a result of their position in relation to an employee benefits plan. ERISA fiduciaries can be personally liable for breaches, and can be held responsible for the breaches of co-fiduciaries. Either of these situations can impact a fiduciary financially; for individual fiduciaries, this can mean their personal assets may be at risk. Fiduciary liability insurance can offer some protection against this exposure.

Under ERISA, a fiduciary is any person (or organization) who the plan names as such, or who exercises discretionary authority or control with respect to the management or administration of a plan or its assets. This broad definition encompasses the plan sponsor, plan administrator, trustees, investment managers, consultants and actuaries, to name a few. On an individual level, it can snare the small business owner and employees who are involved in plan administration or management.

Legal liability can arise for plan fiduciaries when they are alleged to have failed in the obligations that ERISA establishes (prudence, acting in the best interests of plan beneficiaries, etc.). You don’t need a high-profile situation like Enron to trigger allegations of a fiduciary breach. Claims that a fiduciary duty has been breached can involve situations such as benefit claim denials; a reduction in benefits; inadequate plan funding; plan terminations; or questionable choice of an outside service provider, insurance company, or investment management firm. These claims can be filed by plan participants or beneficiaries, by a government agency (such as the Department of Labor), or by another fiduciary.

Fiduciary liability insurance can protect an insured fiduciary against the legal liability arising from alleged breaches of the duty, including the cost of the fiduciary’s defense. Fiduciary liability insurance should not be confused with a fidelity bond or with employee benefits liability insurance. A fidelity bond (also known as an ERISA bond) is for situations involving dishonesty, and its protections are for the plan and its beneficiaries. Employee benefits liability insurance protects against claims of administrative errors, and thus is quite narrow in its scope. Neither of these affords protection to a fiduciary that, for example, is alleged to have been imprudent in selecting an investment management firm for the company’s 401(k) plan.

Like any type of insurance, fiduciary liability insurance policies can vary, and finding the policy that is the best fit for you and your business requires research and understanding of the available options. The International Foundation of Employee Benefit Plans posts on its Web site a “Short List” of questions to ask when investigating these policies. For example, whom does the policy cover? Does the policy cover multiple plans and, if so, to what limits, and what would be the cost of covering each plan separately? Are defense costs counted against the plan’s indemnity limit? Is there coverage for penalties, fines or taxes assessed against fiduciaries?

These and other questions should form the basis for your conversation with your insurance broker when assessing the type of fiduciary liability insurance that is best for you and your business.

Thorough plan oversight, use of qualified benefit plan professionals, and proper training of employees who handle benefit plan functions are the key elements to ERISA compliance. However, an appropriate fiduciary liability insurance policy is a must for those situations when, for whatever reason, a fiduciary breach is alleged to have occurred.

Employee or Independent Contractor?

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A common scenario many business owners face is hiring an independent contractor, who operates as a sole proprietor, for a task where the possibility for injury exists. Yet, you fail to obtain workers’ compensation coverage for this person because you assume if they were injured on the job, their independent contractor status would prohibit a claim against your insurance.

What you may not realize, however, is that just because someone is a sole proprietor of a business doesn’t automatically make them an independent contractor if they come to work for you. They may very well be considered an employee.

Determining whether someone is an employee or independent contractor is complicated by the fact that three separate agencies, your state Workers’ Compensation Board, your state Department of Labor and the IRS, each make a determination of status based on their own criteria. The IRS requirements can be found online at http://www.irs.gov. You can obtain state requirements by contacting your local Workers’ Compensation Board and Department of Labor office.

In spite of all of this seeming confusion, there are general rules of thumb you can utilize to determine if a worker should be considered an employee. The commonality among these criteria is that the employer directly controls the how, what, and when of the worker’s employment.

DIRECT EVIDENCE OF THE RIGHT TO CONTROL

-Do you have the right to require compliance with your instructions?

-Will you be training this person through meetings, classes, or apprenticeship with a more experienced worker?

-Will the worker’s services be integrated into your overall business operations?

-Do you set the number of hours this person will work?

-Will the worker devote full time hours to your business?

-Do you determine the order or sequence in which the worker’s tasks are performed?

-Is the worker required to submit regular oral or written reports?

-Do you pay the worker’s business expenses?

METHOD OF PAYMENT

-Do you provide this person with hourly, weekly, daily, monthly or other regular periodic payments?

FURNISHING OF EQUIPMENT

-Is the work being performed on your premises?

-Do you provide the worker with tools, materials, or other equipment?

RIGHT TO TERMINATE RELATIONSHIP WITHOUT LIABILITY

-Do you have an ongoing relationship with the worker?

-Do you have the right to discharge the worker without liability?

The general criteria for determining whether a worker should be considered an independent contractor or employee are as follows:

-Does the worker perform services for several unrelated persons or firms at the same time?

-Does the worker make their services available to the general public on a regular and consistent basis?

-Does the worker realize profit or suffer a loss as a result of his/her services beyond the profit or loss ordinarily realized by employees?

-Does the worker invest in facilities used in performing services that are not typically maintained by employees?

-Will the sale of business assets provide the worker with a gain or recovery?

-If the worker suddenly stops working, is there contractual liability?

Remember, a worker’s status is subject to the particulars of the specific work to be performed. While someone may qualify as an independent contractor for one assignment, they may become an employee for the next job. Therefore, you must always re-evaluate the worker’s status on regular basis to ensure compliance.

Understanding the Difference Between Claims Made & Reported and Pure Claims Made

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Under a claims-made policy, the insured is required to file claims during the policy period or during the extended reporting period (ERP), if applicable. However, there are two distinct types of claims-made policies. One is the “Claims-Made & Reported Form” and the other is the “Pure Claims-Made Form.” While the differences of the policies are subtle, not understanding the differences can have a significant impact on your coverage.

The most commonly used claims-made policy is the “Claims-Made & Reported Form.” This policy requires that not only must the claim be made during the policy period or ERP; it must also be reported during this same period. This means that the insured has a designated time frame within which claims can be filed.

The “Pure Claims-Made” Form is less prevalent. It also requires that a claim be made during the policy period or the ERP. However, the major difference between this and the “Claims-Made & Reported Form” is that under this type of policy, the insured is only required to report the claim as soon as possible. This means that the report of a claim may happen after the policy’s expiration.

If your company’s professional liability policy is a “Claims-Made & Reported Form,” then time is an important factor when a claim needs to be filed. It is your obligation to report a claim or a potential circumstance that could lead to a claim to your carrier within the policy period or the ERP. If you attempt to handle the situation internally to avoid reporting it to your carrier, the delay could negatively affect your coverage. Professional liability polices are very specific as to how and where to report a claim. Failure to comply with these provisions can negate your coverage. The “Pure Claims-Made” policy, on the other hand, only requires that the claim be reported as soon as practical, which allows for more flexibility. This means that the claim can be reported at any time in the future even after the policy expires.

In addition to the issue of claim reporting time, many “Claims-Made & Reported Form” policies have an awareness provision that allows the insured to report any circumstance that may lead to a future claim. Such notice must also be given during the policy period or ERP.

When a circumstance is reported, it’s considered to have been reported during that policy period even if it results in litigation after the policy has expired. Because each policy has a different reporting provision, it is important that you know your policy’s reporting requirement to ensure your coverage remains in effect.

Keep in mind that any extended reporting period provided by the policy only extends the period in which a claim may be reported. The wrongful act that precipitated the claim must have taken place before the policy expired.

Closing the Coverage Gaps in Your Lawyer’s Professional Liability Insurance Policy

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Having gaps in your liability coverage is like venturing out into a snowstorm without an overcoat. In either case, it’s tough to succeed without protection. Before purchasing any insurance policy, you need to fully understand the basic structure of the contract in terms of what’s covered and not covered.

In general, liability policies are written as “claims-made” policies; that is, the claim for a wrongful act, error or omission must be made and reported to the carrier while the policy is in effect. This means that should your current insurance policy terminate for any reason, such as the insurer refusing to renew or your firm allowing the policy to lapse while shopping for new coverage, any wrongful acts occurring during this gap between the expiration of the old policy and the start date of the new one will not be covered unless you have either “prior acts coverage” or “extended reporting endorsements.”

The first of these, “prior acts coverage” is written into your new policy.  This allows for all incidents leading to claims after your former policy expired to be covered regardless of when they happened provided the coverage is written without a time limitation. There is generally a surcharge for this unlimited coverage based upon how many previous years you want covered. A carrier will not always write this type of “full prior acts” coverage even if you agree to the surcharge. For example, a carrier may refuse because information on your application indicates a high level of risk. Another alternative may be that the carrier provides full coverage, but only within a more restrictive policy. The carrier may also elect to provide prior acts coverage but with the stipulation that coverage would not be in effect under certain circumstances, such as a claim in which the firm knew of the wrongful act, error or omission or should reasonably have know about it prior to the start date of the policy.

Adding “extended reporting endorsements” or “tail” coverage to your current liability policy allows you to make and report claims for prior wrongful acts, errors or omissions after the policy has expired for a specific period of time. There are several instances when this type of coverage is critical. The first is when the insured is changing carriers and “prior acts coverage” is not available or is too restrictive in scope. Secondly, this coverage is even more important when the carrier change is necessitated by the insurer’s refusal to renew coverage and your law firm doesn’t have an alternative yet. There is an additional surcharge for extended reporting coverage.

The other scenario in which this coverage is vital is when a lawyer is no longer actively practicing. When an attorney retires, becomes a judge, or goes from private practice to in-house counsel, the exposures that may arise from the former practice can be covered by “extended reporting endorsements.”

The time to determine what kind of extended reporting your policy provides is before you purchase. Each carrier determines how long an extended period they will provide, under what conditions this coverage can be purchased, and the cost for such an endorsement. In some cases, the coverage is sold in multiples of the policy premium; while in other cases, the cost is the rate that is in effect at the time the endorsement is purchased.

What Factors Influence Malpractice Premiums?

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According to a November 2005 article published in the Insurance Journal entitled, “How to Write the Diverse Business of Lawyers Professional Liability,” between $1.5 and $2 billion is spent annually on Professional Liability coverage. With numbers such as these, it is important that any firm in the market for this insurance understand the factors affecting coverage rates.

Determining premium rates is a complex matter based on a combination of factors. However, there are two main factors insurers review when underwriting an insurance application. The first is your geographic location, because each state has a different risk assumption.  The level of risk is measured by the number of suits brought against other lawyers in your area. The second important factor is your practice area(s). You can expect to pay more for coverage if you specialize in high-risk areas such as securities, banking and/or real estate.

Other factors that insurers consider include:

  • Liability limits and deductibles selected
  • Breadth of coverage desired (prior acts, extended reporting, etc.)
  • Number of attorneys covered
  • Personal claims history of your firm’s attorneys
  • Length of time covered attorneys have been associated with your firm
  • Number of malpractice prevention controls utilized by your firm

The length of time covered attorneys have been associated with your firm is important, because insurers typically use step rates to calculate premiums for a new attorney.  Risk exposure increases during the initial years that an attorney practices as the number of potential plaintiffs increases with every new case. After a certain point, this risk flattens out.  So premium rates on a new attorney will automatically increase in set steps until the risk exposure matures.

It is also important to realize the significance reinsurance holds in determining premiums. Insurance is a way of transferring risk. You transfer risks to an insurance carrier, and the carrier will often transfer some of that risk to another company. By reinsuring, a carrier increases its capacity to underwrite more policies.  When reinsurance rates rise, the increased cost can be transferred to you in the form of higher rates.

Worker Found Eligible for Compensation from Seizure Related Injury

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In an August 2006 ruling, Connecticut’s Supreme Court ruled that the claimant in the case of Michael G. Blakeslee Jr. vs. Platt Brothers & Co, who was injured when co-workers tried to help during a seizure, is entitled to workers’ compensation benefits. Typically, workplace injuries caused by a seizure wouldn’t be eligible for compensation because the injuries arise from the medical condition itself and not from conditions in the work area. In the Blakeslee case, the claimant received two dislocated shoulders on February 13, 2002, when three co-workers tried to restrain him during his seizure. He had fallen near a large steel scale, and then started flailing his arms and legs as he regained consciousness.

The claimant filed a workers’ compensation claim contending that because the actual injury resulted from the restraint, and not the seizure itself, the shoulder injuries should be covered. The claimant argued that an injury received during the course of employment is eligible for compensation even if infirmity due to disease originally set in motion the final cause of the injury. The claimant also asserted that an injury inflicted by a co-employee is eligible for compensation, unless the injured employee engages in unauthorized behavior or the injury is the result of an intentional assault.

Initially, a workers’ compensation commissioner decided that Blakeslee was not entitled to workers’ compensation benefits. The commissioner determined that the claimant’s injuries resulted from a chain of events set off by a grand mal seizure unrelated to his employment. A workers’ compensation review board agreed with the finding. The review board stated that there is a prerequisite requirement for eligibility for compensation, which the claimant overlooked. The cause of the injury must arise out of the employment and work conditions must be the legal cause of the injury. The review board contended that the claimant’s seizure caused the need for first aid, which caused the injury. There was no element of the claimant’s employment involved.

Five out of seven Supreme Court justices reversed the board’s ruling. They were not persuaded by the argument posed by Platt Brothers, and the employer’s insurer, Wausau Insurance Co., that finding for the defendant would be in direct opposition to public policy because it would prevent employees from assisting co-workers in future medical emergencies. The majority noted that the co-workers restrained Blakeslee to keep him from harming other employees as well as himself. Their actions benefited the employer. The action was directly related to the employment and would therefore be eligible for compensation.

The two dissenting justices argued that the Supreme Court should not have accepted review of the case.