AIG Musings

AIG is in the news today again, as Joseph Cassano (former head of the Financial Products Division) testified in Washington that he believes the disastrous derivatives trades that destroyed the company would have ultimately worked out just fine, if only the U.S. had not unwound them so quickly when the Feds had to rescue AIG. I dunno, that does seem to ignore the fundamental point that, if those trades were all so hunky-dory, why exactly did the government have to invest $80 billion or so in loose change to keep the company from going under?

But AIG is (once again) on my radar screen today for another reason as well. I just received a phone call and email from a former policyholder of AIG's who wanted to alert me to another instance (so he says, anyway) of AIG playing fast and loose with the rules.

This former AIG policyholder says that AIG failed to apply the maximum payroll caps that applied on payroll his company paid to New York workers. It was only when he independently learned of these payroll caps from another employer that he was able to get AIG to correct the audits and return the premium overcharges.

Now, it seems to me that knowing what the particular payroll maximums are in a given state is something that premium auditors at AIG should have known about. It was certainly their responsibility to know about that. But beyond the overcharges that happened to this individual employer, he raised an important point to me: how many other New York employers were overcharged by AIG in this manner?

This is a question I cannot answer at present, but I would certainly encourage all New York employers with highly paid individual employees to look into this issue.

Interesting Court Ruling in Minnesota

There has been an interesting court ruling in Minnesota that illustrates the importance of getting the Named Insured correct and exact on a Workers Compensation insurance policy. The case, STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY v. MEYER, was decided in June by the Court of Appeals there. And although it might appear to some to be splitting hairs, in fact the decision makes clear the vital importance of getting the Named Insured exactly right.

In this decision, the Court of Appeals reverses the lower court ruling that a Workers Comp policy that insured "Timothy Pearson DBA Park Rapids Funeral Home," insured Timothy Pearson individually and thus would also have covered a ranch owed by Mr. Pearson. The Appeals Court ruled that the policy did NOT also insure Timothy Pearson as an individual, and thus did not provide coverage for a worker at the ranch owned by Mr. Pearson. But the details of the case are a bit complicated.

It turns out that Park Rapids Funeral Home was a corporation, not a sole proprietorship. The Appeals Court points out in its decision that if the funeral home had been a sole proprietorship, then the d/b/a language WOULD have also covered Mr. Pearson as an individual. But, the court decided, since a corporation is a separate legal entity, in this instance the Named Insured language did not extend coverage to Mr. Pearson as an individual.

To further complicate things, the injured worker involved worked at both the funeral home and the ranch, and at the time of injury was doing work that involved both workplaces. The Appeals Court ruling only means that the policy does not insure the ranch for Workers Comp. If it turns out that the worker is eligible for benefits from the funeral home, then the policy would cover the claim, as the policy clearly covered all workers of the funeral home.

The problems could have been avoided, of course, if the Named Insured on the policy had been set up to properly and accurately reflect the actual needs of the client. The policy should have had as Named Insured the proper corporate name of the funeral home, and the individual owner of the ranch (assuming that Mr. Pearson intended to also cover his ranch operations.)

A Workers Comp policy provides coverage for all workers of the named insured, but getting the named insured right and complete is a basic, but important, aspect of setting up the policy. And it is not uncommon for a WC policy to mistakenly fail to name all the various separate legal entities that should be named (including land trusts, if applicable.

New Georgia Law

Georgia has enacted a law that allows employers who were left stranded by the collapse of Southeastern US Insurance Company to buy coverage from the state's insolvency pool. The collapse of SEUS had left a lot of Georgia employers with Workers Comp claims that were unexpectedly uninsured, as SEUS had not been required to participate in that insolvency pool.

Some private insurers are upset with this development, though. They don't like the idea of giving a break to employers who had chosen to insured with SEUS (which was a captive insurer)instead of with regular insurers (who were contributing to the insolvency fund.)

California Gold Rush Ending for NFL Players?

There has been a recent ruling in California that could put a serious crimp in the trend of former NFL players filing for California Workers Comp benefits.

For those who came in late, former NFL players have been successfully pursuing California Workers Comp claims in recent years, taking advantage of some California rules that are more lenient in some regards than the rules in other states. Thus, players who may have only played a single game in California (or who just participated in a single practice in the Golden State) have been deemed eligible for disability benefits that stem from their professional football careers.

But a recent ruling by the California Workers Compensation Appeals Board may change that. The decision reportedly would require players who played for teams based outside California to make their Workers Comp claims under the statutes of those "home" states. And in many cases, the rules in those other states would not appear to be as friendly to the players' claims as those of California (that's why the players have been making their claims in CA in the first place.)

More information can be found here.

New York WC Rate Increase Sought

WCIRB, the New York equivalent of NCCI, has filed for a 7.7% increase in loss costs. Loss costs are the major component of manual rates, so if this is approved by NY insurance regulators, Workers Comp rates (and thus insurance premiums) will be increasing in the near future.

This increase is reportedly based mainly in an increase in weekly indemnity benefits that had been approved back in 2007.

It's not a sure thing yet that this full increase will be approved by regulators, as Workers Comp rate increases are always a political football, but it sounds as if it is likely New York state employers may be heading for a rate increase.