I got an interesting call the other day from an insurance agent, who was trying to figure out how to help a client cover occasional Workers Compensation insurance exposures in other states.  The client was based in Colorado, insured by Pinnacol Assurance.

Now, normally the way to handle occasional exposures in other states is to add them to the policy under Section 3C.  But the agent said that he had gotten some written advice from Pinnacol indicating they couldn't do this.

Then it dawned on me: Pinnacol isn't a regular insurance company.  It's the former Colorado State Fund, transmogrified into the form of an insurance company.  But because of that, Pinnacol isn't approved to write Workers Compensation insurance in states other than Colorado.

It's not a problem limited to Pinnacol.  Not all insurance companies are licensed to write Workers Compensation in all states.  And there are also the group self-insurance trusts that operate in many states.  Many employers have difficulty differentiating between such programs and an insurance policy (they are often marketed in ways that may obscure the important technical differences.)

In the case of the Colorado company that prompted the phone call, it appears their options are to purchase a non-Colorado policy for their incidental out of state exposures, or to replace the Pinnacol policy with a policy from a multi-state insurer who would be able to add other states to a single policy.

Employers need to keep an eye on their incidental out of state exposures, as it can lead to uninsured claims if one isn't careful.

I worked on another recent case where a Louisiana employer had coverage through a group self insurance trust that covered only Louisiana.  When they took a new job in Texas, they ended up with an uninsured claim because they lacked Texas coverage.

Keeping an eye on what states are covered by your policy is an important detail that sometimes gets overlooked, especially by smaller employers.  Since Workers Compensation liability is mainly a state-by-state matter, having coverage in one state does not help if you have workers who are eligible to make a claim under the laws of a different state.

Illinois WC Reforms Signed by Governor

2011 is the one hundredth anniversary of the first U.S. Workers Comp statutes being enacted (first in Wisconsin, then elsewhere in fairly quick succession over the following years.)  So it seems timely that, this year, significant Workers Comp reforms were enacted into law here in Illinois.  While these changes were not all that some business groups wanted, they should have some noticeable impact on rates and premiums.
The biggest impact will likely be from the 30% reduction in the medical fee schedule.

The new law also introduces AMA guidelines for the first time in Illinois, for use in determining the degree of impairment of injured workers. It also allows for the use of PPOs in Workers Comp, although workers can still opt out of such networks and obtain care from a doctor of their own choosing.

The new law also tightens up limitations on benefits when alcohol or drugs are involved--shifting the burden of proof to the worker, applying a blood alcohol limit of .08 and a zero tolerance for illicit drugs.  But the language of the law is that such intoxication must be the "sole cause" of the injury in order for WC benefits to be ruled out.

The reforms also reduce the amount of time paid for carpal tunnel injuries, and strengthens the use of Utilization Reviews.

One thing the new law does not do, to the frustration of some in the business community, is require that workers prove that an injury or illness was caused by work.  In my own view, that might well have been a bit too much, as it would have likely caused some legitimately injured workers to be denied benefits if they could not conclusively prove the injury occurred at work.

All in all, these reforms represent a significant improvement for Illinois employers, while not throwing the baby out with the bathwater.  Now if only someone would consider some of the Workers Comp insurance reforms that I advocated for--but everyone in Springfield was focused on fighting over benefit levels, so the insurance industry got to avoid having some of their practices reined in.

California Woes for A WC Insurer and A Staffing Agency

There have been a couple of developments in the California Workers Comp marketplace that are leaving some employers scrambling. First, regulators have placed Majestic Insurance into conservatorship. Majestic wrote most of its business in California, but also wrote policies in New York, Arizona, New Jersey, Nevada, and some other states.

At the same time, it is reported that a large California temporary staffing agency is prepared to shut down in the wake of disputed multimillion dollar fine by California regulators. Mainstay was created and operated by an Indian tribe in California. Mainstay has been embroiled for years with California regulators over Workers Comp and Unemployment Compensation issues.

A WTF Moment in Illinois Workers Comp

Illinois state representative John Bradley has introduced a bill in the Illinois House to repeal the Illinois Workers Compensation Act. Bradley, a Democrat from Marion, Illinois, reportedly has characterized this as a response to the efforts by the business community to change the causation standard in Illinois Workers Compensation so that the workplace must be the primary cause of a covered injury or illness.

That's right--a Democrat in Illinois has introduced a bill to abolish the Workers Compensation Act. Now, it seems pretty clear that such a proposal will go nowhere, that is intended merely as some kind of protest, but even so...WTF, as they say on the internets.

Illinois Governor Proposes His Version of WC Reform

Illinois Governor Pat Quinn (who is, if nothing else, the rara avis of politics, an honest man) has proposed his own version of Workers Compensation reform for Illinois. There are also several reform proposals still floating around the state legislature (including one bill backed by the Illinois Chamber of Commerce, of which I am a member.)

All of these proposals focus on the claims side of the equation, though. Quinn's version, like some others, would prevent injured workers from collecting Workers Comp if drugs or alcohol played a part. Quinn also proposes putting some limits on medical expenses, and upgrading the caliber of Workers Comp arbitrators by requiring them to be attorneys.

Business groups are less than satisfied, though, as they really want some greater changes, such as requiring that a worker be able to prove that the workplace was the primary cause of the injury, and making the medical fee schedule that was approved a few years ago actually adopt meaningful standards.

But all of these proposals ignore what I think is something important: insurance reform. For most employers, insurance is the only viable way to satisfy their Workers Compensation liabilities, and the insurance regulations in Illinois could be significantly improved to hold down the cost of Workers Compensation insurance.

Many small employers in Illinois are in the Assigned Risk Plan, for instance, only because they are small or new businesses. And the cost of the Assigned Risk Plan is often double what the cost of the same coverage would be in the so-called "voluntary" insurance market.


I've written to Governor Quinn, and Illinois legislators, about what could be done to reform Workers Compensation insurance costs in Illinois. So far, no one has bothered to even respond to me. And I don't think that's likely to happen, either, more's the pity.

Pennsylvania Planning A Change In WC Rules

Pennsylvania is currently considering making a change in the Commonwealth's Workers Compensation rules to allow for partners and members of an LLC to voluntarily elect coverage for themselves. Most other states allow this, but Pennsylvania is unique in some important aspects of their Workers Compensation system.

For more information about how Pennsylvania operates its unique Workers Compensation system, take a look here.

Workers Comp Blitzes Indoor Football Team

The Lafayette Wildcatters, a minor league indoor football team in Louisiana, have announced that they are scrapping their 2011 season because Workers Compensation insurance isn't available at an affordable cost.

I don't know any more about the situation than what is being reported in the press, but it does make me wonder if there was some behind-the-scenes tussling between the Wildcatters and the insurer that serves as Louisiana's insurer of last resort, the Louisiana Workers Compensation Corporation, or LWCC.

I've had a little experience reviewing premium audits done by LWCC, and based on those cases I think LWCC can be a bit aggressive in how they calculate premiums. In one case from a year or so ago, they had ratcheted up premiums by about a million dollars for a client, premium increases that were based on a fundamental mis-reading of manual rules and how they applied to this client. So, without being unfair to LWCC, it strikes me that it might well be that something similar has happened to the Wildcatters.

Of course, it isn't just LWCC that sometimes hammers sports teams over Workers Comp. A couple of years ago, I was able to help the San Francisco 49ers in a very large Workers Comp premium dispute. Although I was able to produce a very beneficial result for them, the details of the matter are covered by a confidentiality agreement that prevent me from providing any details. But the insurance company wasn't LWCC, it was a large national insurer.

It's surprising to some folks that professional athletic teams would have to tussle with Workers Comp costs just like any other business, but state laws are pretty clear in most jurisdictions--just about any business enterprise is responsible for Workers Compensation for its workers. And football players who play for money are not just athletes, they're also employees.

$15,000 Refund For a Waste Hauler

Here's a quick case study from our recent files. We successfully recovered an overcharge of $15,000 for a waste hauler in Lexington, South Carolina. The overcharge had been caused by the failure of their insurer to properly report to NCCI some significant reimbursements the insurer had received from the Second Injury Fund. Under the rules, the insurer should have filed corrected reports with NCCI, so that the experience modifier for the waste hauler could be revised down. But as we often see, the insurer failed to file proper corrected reports. Until we got involved, that is.

We had to bug the insurer to file the corrected reports, then follow up with NCCI to make sure the experience modifiers were recalculated, and then finally we had to work with subsequent insurers of the waste haulers to get audits revised to use the now-lower experience mods.

Sad to say, this is far from an isolated case.

Helping Small Biz With Workers Comp

Now here's an idea that might have some merit. A legislator in California is proposing to give small businesses a 20% discount on their Workers' Comp insurance. Assemblyman Anthony Portantino has proposed the credits, and I have to admit this would directly address one of my own long-standing concerns about the Workers' Comp system in most states: small employers get the shaft.

Larger employers tend to have insurers competing on price for their business. Smaller employers just get tossed into Assigned Risk plans (where costs tend to be much higher and service really crappy.) A 20% credit for smaller employers would be an effective way to shift some of this unfair burden.

Here in Illinois (where AIM is based) small employers usually get shunted to the Assigned Risk plan, where insurance costs can often be double what the cost would be in the so-called "voluntary market".

Price competition in Workers' Comp insurance tends to only exist for larger employers, even though the majority of businesses are small business.

So here's to Assemblyman Portantino for cutting right through this Gordian knot with a straightforward approach that actually could help small business.

More Musings on Stealing Big

Yesterday I wrote about the Matt Taibbi article in Rolling Stone that details how Joe Cassano, former head of AIG Financial Products, got away with what would appear to be serious financial misrepresentations without ever being criminally charged. In my blog piece, I noted that AIG's actual insurance operations had always been profitable.

Today, I was reading through the original 2007 federal civil complaint that NCCI (National Council on Compensation Insuance) filed against AIG on behalf of all the other insurance companies that write Workers' Comp insurance in the U.S. That lawsuit sought one billion dollars in damages, and made detailed allegations that AIG had, for decades, lied about how much Workers' Comp insurance it actually wrote, so that it could dodge out of AIG's fair share of Assigned Risk losses and assessments.

That lawsuit, by the way, was recently settled by AIG. In a settlement with all Workers' Comp insurers except Liberty Mutual, AIG has agreed to pay $450 million dollars. Liberty is still pursuing separate legal action against AIG. And that $450 million is on top of $146 million paid by AIG to state regulators last December over the same improprieties, and $750 million AIG agreed to pay investors for financial improprieties, and then the $330 million AIG paid way back when as a settlement to New York state when Eliot Spitzer first figured out how the insurer was playing fast and loose. It's little wonder a federal judge once characterized AIG as having been run as a "criminal enterprise."

Here's the thing: the Matt Taibbi story asked why Cassano and some other titans of finance aren't doing time, or at the least aren't busily defending themselves against criminal charges. And reading this complaint by NCCI against AIG, I am left with a similar question: why the hell isn't Maurice "Hank" Greenberg sitting in a cell next to Bernie Madoff?

Or at the very least, why hasn't this man faced a criminal prosecution for the misdeeds that he reportedly instigated and oversaw at AIG for decades?

The NCCI complaint quotes extensively from internal AIG reports and investigations that state that Greenbert knew all about these schemes, and that he in fact insisted that they be carried out. So (if the NCCI and the internal AIG reports were right) it would appear that Mr. Greenberg presided over a billion dollar, decades-long scheme of financial fraud, and yet has never had to answer for this.

Sometimes the inconsistent enforcement of our laws can be a little depressing. I've served as an expert witness in two federal criminal trials, where individuals allegedly profited far, far less than Mr. Greenbert allegedly did. Those individuals ended up serving time in the federal penitentiary. And in one of those cases, I remain convinced to this day that the federal prosecutor managed to convict entirely innocent people.

If you're going to steal, steal big.

New Article on AIG Implosion Raises Serious Questions

There's a new piece in Rolling Stone by Matt Taibbi (the writer who compared Goldman Sachs to a "great vampire squid wrapped around the face of humanity".) Taibbi here examines the alleged deceptions and other transgressions of Joe Cassano, former head of the AIG Financial Products division. AIGFP was the cause of AIG's implosion and subsequent rescue by the federal government (the actual insurance operations of AIG have always been quite profitable.) Cassano made some very optimistic statements about the financial health of AIGFP, just before the whole thing went kablooey and took down the entire company.

According to this article, there were some very serious misrepresentations made by AIG concerning the actual state of AIGFP, misrepresentations serious enough to make one question why those responsible haven't been charged with criminal wrongdoing. Take a look at the article and judge for yourself. Taibbi is a bit of a rabble-rouser when it comes to financial reporting, but the extraordinary financial crisis we've all lived through these past few years make it difficult to quibble with many of his assertions.

The article covers far more territory than just AIG, though. The article suggests that some major insider trading was protected and covered up by means of high level political interference. The article names names and gives specific instances of some rather suspicious financial activity by some very well known captains of finance.

Wasn't there a line in a movie a few years ago, "If you're going to steal, steal big"? Meanwhile, in the aftermath of the financial crisis these captains of finance created, we get record unemployment, a housing and foreclosure crisis, and states slashing funding for education. It sure feels like we've all been played for suckers.

Interesting Iowa Supreme Court Ruling

The Iowa Supreme Court has issued an interesting ruling that an insurance agent did not have a duty to advise a client about insurance coverage that the client did not inquire about. This case involves several important issues, not only what the duties of an insurance producer are, but also involving Workers Compensation insurance for a self-employed truck driver.

Timothy Merriam was a self-employed truck driver who purchased various personal lines of insurance from Farmers' agent Steven Stonehocker. Stonehocker had discussed some other coverages that Merriam might consider, but did not ask about whether or not Merriam might need Workers Compensation coverage, and Merriam did not raise the issue. Merriam later was severely injured on the job, and was not apparently covered by the Workers Compensation coverage of the company using his services.

The suit had claimed that Stonehocker had a duty to advise Merriam on the need to obtain Workers Compensation coverage for himself, and had failed to do so. But the Iowa courts found otherwise.

The decision noted that the relationship between the agent and the client had been of short duration, and that the agent's advice to add auto coverage did not create a duty to advise about other coverage areas that were not raised by the client.

This case illustrates an important and often-misunderstood point about insurance agents: their duties to clients are limited, unless certain circumstances serve to increase them. Having a long-standing relationship with a particular client can serve to increase the duty owed, and so can the agent's holding himself out as having particular expertise in certain insurance areas.

But without those special circumstances, an agent may only have a duty to be an honest and accurate order-taker.

This can fly in the face of the expectations of clients, who often assume that an insurance agent automatically will serve as an insurance advisor and point out potential problem areas involving insurance.

Many insurance agents voluntarily do act as insurance advisors, of course, and once they do so they then create a higher duty for themselves towards clients. But insurance consumers need to be aware that not all agents choose to serve as advisors, and in those cases the duty the agent owes may well be more limited.

The particulars of just what duty an insurance agent owes to a particular client can be a bit complicated, and depend significantly upon the unique circumstances of the particular agent/client relationship, and also upon the state where the insurance transactions occurred (many states have statutory or case law requirements that bear on this subject.)

But insurance consumers would be wise to make explicit any desires for their insurance agent to provide insurance and risk management advise, to avoid unhappy disputes such as this one.

The other interesting aspect of this case is that it involves a self-employed truck driver who apparently was not covered by the company he was working for. Again, this is a subject that is very much dependent upon the particular state involved, as statutory and case law can vary significantly from one jurisdiction to another. Many states have, in recent years, addressed the issue of how "self employed" workers, particularly truck drivers, are treated under Workers Compensation, so the rules on this have been evolving in many jurisdictions.

The Bad Penny of Workers Comp Turns Up In Montana

When I was a kid, I remember the Red Skull telling Captain America, "Like a bad penny, I always turn up." I wasn't really sure what that meant, as I hadn't ever seen a bad penny, but nonetheless the phrase stuck in my head. Now, in Montana, a perennial bad idea in Workers' Compensation has turned up once again: denying illegal immigrants Workers' Compensation statutory rights and benefits.

This is a bad idea for a number of reasons, but the reason that I think might be most persuasive is this: it would encourage employers to hire illegal immigrants.

This would happen because if illegals were to be denied Workers' Comp rights and benefits, then injuries to such workers would not show up on the employer's experience modification factor. That would make Workers' Comp insurance premiums lower for employers who use illegals than for employers who follow the rules. Surely it cannot be the intention of legislators in Montana to encourage the hiring of illegal immigrants.

I would expect their intentions are merely to make it possible for some employers to maim and occasionally kill such undocumented workers with impunity, as a way (so they think) of discouraging such workers from migrating to their state. A little blood on the workshop floor, a few missing fingers or arms, would be a small price to pay for making a principled political stand to earn a few votes, as long as the blood and fingers belong to folks who won't vote anyway.

That's why I point out the economic flaw in their proposal, rather than the cold blooded disregard for human life that it entails. Their vindictive little proposal, if ever enacted, would actually serve to create an economic incentive to hire illegal workers over legal ones.

Even in Montana, unintended consequences can be the most long lasting ones.

Competition in Workers' Comp Insurance

There's an interesting article in the Insurance Journal today, about how "competitive" Florida's Workers' Comp insurance market is. This got me to thinking about this subject, about what it really means for a state's Workers' Compensation insurance marketplace to be "competitive".

Actually, my home state of Illinois is even more "competitive". We have around 400 different insurance companies admitted to write Workers' Compensation insurance here. This point was noted recently in a hearing at the Illinois Senate (which I attended) by different witnesses, to make rather different points.

Illinois appears to be the most "competitive" state in the union, by the way. We have more insurance companies admitted to write Workers' Compensation insurance than any other state. But what does it really mean, from an employer's point of view, to have such a number of insurers writing Workers' Comp?

As one witness at the hearing pointed out, one thing it means is that insurance companies find it profitable to write Workers' Compensation insurance in Illinois. That's why more carriers are active here than in other states.

Illinois is profitable for these insurers because Illinois has long had open rating for Workers' Compensation insurance premiums. Insurance companies have great flexibility in pricing Workers' Compensation insurance--even though rates are subject to review and approval by the department of insurance.

The reason is that, first off, insurers in Illinois are allowed to file and use "Schedule Rating" plans that give them the ability to make very large rate adjustments. These adjustments can be either credits (when an insurer wants to reduce premiums for an attractive account) or debits (when the insurer thinks it needs higher premiums than the usual rating procedures would produce).

Additionally, insurers in Illinois are free to file their own schedules of manual rates, so they can adjust the manual rates for various classifications to focus which kinds of employers they want to be competitive on.

But all this talk of a "competitive" marketplace for Workers' Compensation insurance misses some important points. For one thing, many smaller or newer businesses don't get the benefit of that rate competition. Many smaller or new businesses end up in the Assigned Risk Plan, where there is no competition, and rates can be double what they would be in the so-called "voluntary market" (that is, the non-Assigned Risk insurance companies.) But since those voluntary market insurance companies are free to compete only on those accounts they think will be most profitable, the small employers may not ever get the benefit of that theoretical price competition.

The Assigned Risk Plan is a very expensive place to get Workers' Compensation insurance, and it can severely penalize a small business just for being small.

The "Competitive" voluntary market tends to mainly interested in larger accounts, so smaller employers never see much benefit from the competitive market for Workers' Comp. And the current Assigned Risk plan is rather punitive towards small businesses (not to mention larger ones, who may have ended up there because of insurance market fluctuations).

And larger employers in the Illinois Assigned Risk Plan can really get clobbered if they become large enough to get forced into the Loss Sensitive Plan that is used for employers whose premium is over $200,000. It's a very unattractive Retro style plan that can make WC costs really, really painful.

All of which is not to say that there are not real benefits to having a competitive Workers' Comp market, such as in Illinois and Florida. Those benefits are quite real, it's just that they are not always as widely distributed among employers as they could or should be.