Friday, May 30, 2014

The Misclassification Trend

Misclassification of workers seems to be at the top of news headlines lately.

WorkCompCentral reported this morning that Lowe's Home Centers in California agreed to a $6.5 million settlement of a class action brought by contractors the company hires out to customers to install products it sells.

Another story this morning is about an Arizona contractor that settled a misclassification action with the U.S. Department of Labor, agreeing to pay workers back wages and overtime, and penalties totaling about $600,000.

When I performed a search of the WorkCompCentral database for the word "misclassified" I get nearly 300 news stories returned, and a surprising amount of those stories are quite recent - seemingly every business day in this past year.

While most of these stories involve contractors, quite a few involve other industries.

Law360, a LexisNexis publication, has been replete with misclassification stories of late as well, reporting several class action suits against atypical industries for such activity, such as the banking industry.

What's going on here?

Are all of the businesses really trying to cheat their workers out of employment-based benefits?

Or are the management practices of these employers so flawed that workers get driven into employment relationships?

Or have the plaintiff's lawyers (generically of course) found a new source of revenue?

Misclassification of workers has always been an issue in workers' compensation - most of the time I believe that misclassification happens unintentionally; business just wants to get the job done for the most competitive price possible and whether a worker is called an employee or an independent contractor seems to be an after thought.

For instance, in the Lowe's action, workers in the class action thought they stood to get as much as $33 million in back wages, overtime and other employment related protections had the case gone to trial.

Lowe's disputes that it did anything wrong and says that it did not violate any classification laws or regulations, and to me the settlement of $6.5 million, compared with the plaintiff's estimated jury award, says that it had relatively good defenses.

The lead plaintiff in the Lowe's case was Ronald Shephard. He worked for a Lowe's store in Victorville installing garage doors between 1995 and 2009.

Shepard's complaint alleged that customers paid Lowe’s for the installation work, and the retailer later paid the contractors. Contractors were prohibited from performing any work for a Lowe’s customer that was not arranged and approved by Lowe’s. The store also set the amount of time contractors had to complete a job.

The contractors were also required to wear clothing bearing the Lowe’s logo and identify themselves as employees of Lowe’s, according to the allegations.

Lowe's says that it did not control any of the installers and argued that each installer operated as a separate business, and that the installer companies made all decisions relating to employment matters such that Lowe’s could not be deemed an employer under California law.

The Arizona case involved a drywall contracting firm, Paul Johnson Drywall Inc., which entered into a contract with Arizona Tract in April 2013 that resulted in some 445 employees being as reclassified members or owners.

The Department of Labor said its investigation also revealed that Paul Johnson Drywall, before entering into a contract with Arizona Tract, failed to pay employees who worked more than 40 hours in a week proper overtime at time-and-a-half, and failed to maintain complete and accurate records.

The story does not indicate how much the contractor's workers' compensation insurance companies are going to seek in retroactive premium, but based on the size of the worker population identified in the Department of Labor that amount is going to be quite significant.

Some of these stories appear to be plaintiff lawyer profit driven, others seem to reflect intentional egregious employer activity. There isn't a single state that seems worse than any other and while contractors in general seem to be the biggest offenders the range of industries is broadly represented in the news.

I can't say whether this is all part of an enforcement trend, a legal trend, a business trend, or whatever. And depending on your perspective this is either welcome or despised.

But there's no denying that classifying workers as either employee or contractor has significant implications to both business and workers.

Thursday, May 29, 2014

Truly Imaginative

There's every day run of the mill, garden variety fraud, that we generally see in workers' compensation.

And then there's truly innovative fraud - something much more rare.

This morning's WorkCompCentral News has a story about Carlos Perry, who received a prison sentence for a scheme that is, perhaps, the most imaginative theatrical performance in the world of fraud: playing the roles of employer and injured employees (yes, plural) simultaneously.

Perry, 57, impersonated the owner of a nonexistent business in Virginia and Tennessee, filed fraudulent injury claims on behalf of fake employees, and then impersonated the fake employees and having their fake injuries examined at real doctor’s visits.

In fact, when he was arrested, Perry was at a doctor’s office, once again impersonating a nonexistent injured worker.

Perry used 19 fictitious identities between January 2011 and Jan. 29, 2014 prior to his arrest.

The criminal complaint against Perry said that he established a business in Virginia known as Taylor Heating and Cooling in January 2013. He used a post office box to receive letters from Virginia’s Workers’ Compensation Commission and used three false identities to obtain insurance coverage for employees: Robert Taylor, Matthew Johnson and Kenneth Perry.

Perry filed an accident report claim form for Matthew Johnson in March, and a claim for benefits for Kenneth Perry in early April 2013.

In December 2013, Carlos Perry went to a doctor’s appointment in Bristol, Tennessee, and posed as Kenneth Perry, according to the complaint. Video showed Perry sitting in the lobby and leaving the office, and he was observed leaving in a Ford Explorer with a license plate registered to him. He attended another doctor’s appointment on Jan. 13, 2014, according to the complaint, this time posing as Matthew Johnson.

The National Insurance Crime Bureau referred the case to the Secret Service because identity theft is one of that agency’s primary investigative realms. Perry used the Social Security numbers of real people to establish the false identities of his employees.

According to court documents, Perry had a number of previous convictions, including a fraud conviction in 1981, a conviction for mail fraud and fraudulent use of a Social Security number in 2000. Court documents also stated that when he was taken into custody, Perry had two outstanding warrants for his arrest on a Florida probation violation.

Perry was sentenced earlier this month to 12 years in federal prison and restitution of $324,914.70. He has a history of criminal activity.

Wednesday, May 28, 2014

Washington Defines Compromise

Washington is one of the few completely state run workers' compensation systems in the country - from setting rates, collecting premiums and administrating claims; everything is done by the state.

One of the basic tenets of the Washington system for a long time was that there were no lump sum settlements allowed. Most state systems allow settlement of claims via some full release mechanism.

In 2011 reform legislation allowed injured workers 55 and older to enter structured settlements, which the Department of Labor & Industries through its Board of Industrial Insurance Appeals would oversee to make sure that such settlements were adequate.

Next year the age limitation decreases to 50.

The Washington State Flag

Earlier this month the Washington state Court of Appeals ruled in BIIA v. South Kitsap School District – commonly called the Zimmerman case - that this provision applied only to claimants not represented by attorneys, and that the Board did not have jurisdiction over claims where an attorney represented the injured worker.

BIIA has approved just 10% of settlement agreements it has reviewed, according to officials with the state Department of Labor and Industries. Because fewer settlements than expected are being approved, L&I has reduced projected savings from the settlement provision to $140 million between fiscal years 2012 and 2015 from $545 million.

There are arguments for and against Washington's maternalistic overview of work injury settlements.

Those in favor of liberalizing availability of lump sum settlements point to system savings, arguing that being able to close claims releases cash that can go towards relieving some of the burden on employers.

Those against lump sum settlements say that they allow employers to take advantage of injured workers and their families at times of increased vulnerability.

Recently the Seattle Times editorial board said the Zimmerman case removes one obstacle to an effective program and that lawmakers should further reform the state's system to remove other prohibitions against lump-sum payments and settling medical claims.

“Potential for huge savings remains if age restrictions are eliminated and lump sums are permitted,” according to the editorial board. “One state estimate put potential savings at $1.2 billion over the first two years.”

The Washington State Labor Council said in opposition that the Times has always been against workers' compensation and that even when the system was created in 1911 the paper opined that it places a burden on all industries in the state that will put many out of business and prevent new businesses from entering the state.

Obviously that prognostication wasn't accurate.

I can't say whether the Labor Council's argument against lump sum settlements - that such settlements will increase employer gaming by taking advantage of vulnerable people - is accurate either.

When we look at statistics from states where lump sum settlements are allowed for unrepresented injured workers it is clear that they get less money than if they had attorneys; but most of these settlements are required to go through some administrative review process before they are approved, so there must be some meritorious adequacy to these agreements.

Ergo, I also believe there is some merit to the Times' argument that there could be significant savings if the settlement restrictions were liberalized.

Really it all comes down to a matter of culture. The Washington State culture seems, to me, to favor a more maternalistic participation of state in pretty much everything, not just workers' compensation.

How much the population actually understands workers' compensation and its financial underpinnings is another matter, but that's not the point.

According to the Labor Council, every county in the state in 2010 voted against privatization of Washington's work comp system, and that vote suggests that the people of the state don't trust the insurance industry or business when it comes to the population's health and welfare.

Last December L&I announced that premiums will increase for the first time in three years with a newly adopted 2.7% rate increase for 2014.

The department said the 2011 reforms reduced its costs, but it needs the increase primarily to rebuild a surplus account that was depleted in recent years because rates have not been in-line with the agency’s operational costs.

Washington also has a unique system in that workers pay a portion of comp premiums. As part of the premium hike, L&I increased the workers’ contributions by 1.7 cents per hour worked, accounting for about 25% of the 2014 premium increase, according to the department.

In addition, while wages increased in the state by an average of 3.4% last year, L&I did not see any additional revenue because premiums are based on hours worked and not payroll.

The department projected the 2014 rate increase would bring in about $55 million in additional premiums.

Employers point to this rate increase as demonstrative that the 2011 reform did not go far enough to put a check on costs.

And apparently employees, who participate in financing the system, are content with system costs as their representative voices have opposed any changes.

Seems to me that the state has it just about right - no one seems truly happy, and that's the definition of compromise that was taught me in law school.

Tuesday, May 27, 2014

It's A Privilege

We get lost in the world of workers' compensation so deeply, it seems, that we sometimes forget what law really governs our actions.

A recent unpublished (which means that the case is not citable in legal proceedings as authority) opinion by the California Fourth District Court of Appeal reminds us that there are times when the Labor Code, the main governing body of statutes in California workers' compensation, takes a back seat.

One of those times is when it comes to evidence.

Shirley Lappi sustained a workplace injury in 2003 while working as an administrative assistant for the University of California at Irvine. Lappi filed a claim for benefits and demanded that her employer and the insurer produce certain documents related to her claim.

The defendants produced most of the documents, along with a privilege log identifying 205 documents that they asserted were not subject to discovery because of the attorney-client privilege and work-product doctrine.

After reviewing the log, Lappi's attorney objected to the defendants' failure to disclose 47 of the listed documents because they were not communications between the defendants and defendants' attorneys.

A workers' compensation administrative law judge ordered the defendants to provide Lappi with copies of some of the documents.

In her order and opinion, the judge stated that she had determined that the documents, which consisted of communications between claims personnel, were not privileged unless they specifically discussed a communication that had been made by counsel. 

The defendants filed a petition for reconsideration in December 2012. They argued that the documents which the judge had ordered them to turn over were communications between claims personnel discussing "action plans," which were based on legal opinions, discussions and advice from defense counsel. They insisted that these documents ought to be deemed privileged and protected attorney work product.

A WCAB panel rescinded the judge's order, but the commissioners said they were not convinced that the documents were, in fact, privileged.

So on remand, the WCAB said the parties have to select a special master, or the judge will have to appoint one if the parties cannot agree on one.

The Board also said the defendants would have to pay the special master to review the substance of the alleged protected documents and prepare a report for the judge and the parties on what he or she considers to be shielded from discovery.

The 4th DCA, on review, said it was "beyond dispute" that the Evidence Code would have prohibited the type of document review ordered by the WCAB if this dispute had arisen in the context of an ordinary civil case.

"(W)hen it comes to the treatment of privileged information specifically, division 8 of the Evidence Code trumps," the court said. 

Division 8 expressly applies to "any action, hearing, investigation, inquest or inquiry (whether conducted by a court, administrative agency, hearing officer, arbitrator, legislative body, or any other person authorized by law) in which . . . testimony can be compelled."

Ergo, the WCAB remains bound by the statutory requirements for dealing with privilege found in division 8. "As a consequence, the WCAB erred in this case when it ordered an in camera review of the University's allegedly privileged documents by a special master for the purpose of assessing the merits of that privilege claim," the court concluded.

The WCAB's order was annulled.

The case is Regents of the University of California v. WCAB (Lappi), No. G048217, 05/23/2014.

By the way - you didn't happen to notice that the date of injury in this case was 2003 ... still messing around 11 years later with legal maneuvering. If anyone want to know what's wrong with work comp, this should be an example.

Friday, May 23, 2014

TX Court Puts Agreement in Fryer

The risk with non-subscription for Texas employers who decide not to carry workers' compensation insurance is, of course, civil suit for work place injuries.

Many of the non-subscribing employers, particularly those with the resources to employ such tactics, use arbitration agreements in conjunction with other risk management and insurance techniques, to mitigate the possibility that an injured worker can get to the civil courts.

One element that some employers may not appreciate, though, is the limited contracting power of minors - and that is a worker demographic that has a higher exposure in certain industries, particularly fast food restaurants.

My first job at age 16 was at the McDonald's restaurant in Torrance, California. I lasted 2 weeks, literally. I'm sure I did what a lot of kids did or still do, just not show up for work one day.

That job wasn't for me...

But for many kids, as we go into the summer months, employment in the fast food industry provides valuable lessons in life, and a couple extra bucks to spend at the amusement park.

A recent Texas Court of Appeals case reminds those non-subscribing employers that minors can't legally enter into a binding contract - and an arbitration agreement is a contract - ergo an arbitration agreement entered into by a 16 year old as a condition of employment is unenforceable if the minor does not wish to be bound.

In PAK Foods Houston v. Marissa Garcia, the 16 year old minor identified as "S.L." signed an agreement as a condition to her employment to use arbitration for any injury claim dispute that arose from her employment.

According to an appellee brief on the case, S.L. was a cashier at at a KFC restaurant operated by PAK Foods. She was injured when she removed corn from a microwave oven “despite having received no training in the operation or use of the microwave oven.” [The case doesn't say how, exactly, S.L. was injured.]
Bucket o' chicken anyone?
I'll stop here and just comment on how silly that sounds - this is not like it's 1972, which is about when my family got its first, mysterious and wonderful microwave oven. At the time of injury we're talking 2012 - the kid likely grew up with microwave ovens, along with computers, tablets, smart phones, video games, etc. Counsel who wrote that the minor lacked "training in the operation or use of the microwave oven" should be embarrassed.

But counsel got the result desired because the 14th circuit agreed with the trial court that S.L.'s signature on the arbitration agreement wasn't worth the food pulled from the microwave.

Garcia, the mother of the injured worker, filed suit individually and on her daughter’s behalf. PAK Foods filed a motion to compel arbitration which was denied by the trial court. The appellate court affirmed that ruling.

The appellate court said, “It has long been the law in Texas that a contract executed by a minor is not void, but it is voidable by the minor. … It is well settled that a minor’s contracts are voidable at the minor’s instance, and they may be either disaffirmed by the minor or ratified after the minor reaches majority.” The decision stated that while the filing of a lawsuit may not necessarily disaffirm an arbitration agreement, Garcia’s filing of an opposing response to the motion to compel arbitration definitively did so.

In the dissenting opinion, Chief Kem Thompson Justice Frost wrote that if minors are allowed to disaffirm a condition of their employment that applies to adult workers, the minors “may find it harder to obtain employment.”

That's just a plain fatuous argument. My guess is that kids just don't work fast food or similar jobs all that much anymore - the "kid" behind the counter nowadays is likely 18 or over. When I was a teenager that age of majority was still 21, so there was a big employable demographic that lacked the power to legally contract. That gap largely doesn't exist any longer.

And the demographic that may be shut out of fast food jobs per Justice Frost is likely very, very small; most of that population is too busy writing mobile phone apps or Facebook games, if they're working at all.

But the case is a reminder to non-subscribing Texas employers that an arbitration agreement is not a total risk panacea. Sometimes you can have your fried chicken and eat it too, but not all of the time.

Thursday, May 22, 2014

Proposed CA Copy Rules Nonsensical

You already know how I believe that California workers' compensation is so sensationally micro-managed with complex regulations that the attempts at generating savings ends up costing more. I think this is what the proposed copy service fee schedule regulations are about to accomplish.

Here are the issues:

Define "Authorization"

The Statement of Reasons for proposed regulation section 9980 states, “It is necessary to define each of the key terms used in the copy service fee schedule to ensure that their content and meaning are clearly understood by the workers compensation community.”

The word “authorization” is used several times in the series of new regulation sections, yet there is no definition of “authorization” in regulation section 9980 (Title 8, California Code of Regulations), or anywhere else for this important term. If a term is going to be used in several different places for different purposes there should be a definition unless there is a clear and unambiguous general meaning.

In the case of these proposed regulations there is no clear, unambiguous meaning of "authorization" because of the contexts in which the term is used.

What California Code, Regulation or authority is referred to when the regulations speak to using an “authorization”? While many copy services depend upon Evidence Code 1158 for the use of an “authorization,” that Evidence Code section clearly does NOT apply once the Application for Adjudication has been served and a case number assigned, or the defendant has appeared on the case: "Whenever, prior to the filing of any action or the appearance of a defendant in an action, an attorney at law or his or her representative presents a written authorization therefor..." [emphasis added].

In other words, the term "authorization" as defined by Evidence Code section 1158 doesn’t apply to the very situations described in the proposed fee schedule.

That’s a problem… and the DWC has no authority to change the Evidence Code or incorporate any other Codes other than the Labor Code into its regulatory references, and even then only with whatever express authority that is contained in the Labor Code. This not nit picking. Rather than provide “clarity,” I see this and other parts of these proposed regulations creating entirely NEW copy service disputes and friction within the system (ergo more costs).

Continue reading...

The Declaration of Completion

Section 9981(b)(2) -  Bills for records obtained by the so called “authorization” must include a declaration of completion of records pursuant to section 9984(a)… And 9984(a) requires SOMEBODY (otherwise completely unidentified) sign an affidavit under penalty of perjury itemizing in detail all the records produced, etc.

So, who is to sign this affidavit, the COPY SERVICE? Because if it’s the Custodian of Records, what authority will the copy service have to COMPEL the Custodian to sign such a thing? Again, what is the authority for the “authorization” in the first place? What Code or Regulation is the DWC referring to so that copy services can OBTAIN this CRITICAL document from WHOEVER should sign it, and that MUST BE attached to the copy service Bill for services? The copy service can’t sign such a declaration because they aren’t PRODUCING any records – they are only COPYING the records. 

Consequently the bill from the copy service is apparently INVALID and not subject to payment if the copy service was na├»ve enough to use an “authorization” - as described in this regulation - to obtain the records, and was not able to convince the custodian to sign one of these declarations.

Record custodians are NOT going to sign a Declaration attesting to records produced by a signed authorization. They don’t have to, and they know it.

Curiously though, the proposed regulations fail to require the defense to certify the records they produce to the applicant. 

Billing Codes

I can't make sense out of the 9981(b) - Billing Codes. I don't know what HCPHCS level 2 codes are. I went to "" to look these up - I don't see anything there about copy services. Maybe "temporary codes," but even that doesn't make sense. Listen, I was an English major in college, and yeah I have an MBA so I can read a balance sheet, but I guess I just don't understand billing code nomenclature and process application.

There are charges listed in Regulation 9983 in subsections: (1), (2), (4)(a), (4)(B), (4)(C) and (4)(D). How would the three (or is it just two?) Billing Codes listed in 9981(b) be applied to the various approved charges in 9983? The Statement of Reasons for the regulations said the Regulations were to simplify the copying industry, and reduce dispute. Then why start with an unintelligible Billing Code section and require compliance on every copy service bill?

Allowable Services

Section 9982 (a) through (d) describe several situations where services are “allowable,” but does this mean services are allowed if ANY of these situations arise, or only if ALL of the situations arise?

That’s important - is the copy service “all clear” if no records were produced under regulation 10608 within 10 days (plus mailing time), or must the copy service ALSO wait for 30 MORE days? This is not giving me “clarity”… Especially since (b), (c) and (d) are situations where services are allowed, but (a), (e) and (f) are situations where services are NOT covered by the fee schedule, or are NOT allowed. 

And, nobody OTHER THAN A PROFESSIONAL PHOTOCOPIER would have authority to “produce” or “serve” records on the applicant under 9982 when the “request” is made via a form or document that is clearly titled “Authorization and Request to Produce Records Under Labor Code Section 5307.9 and Regulation 9982(c).”

In other words, if the applicant makes their request to be served with records that are in the “Claims Administrator’s” possession, as required by Labor Code 5307.9 and these regulations, with something called an “authorization,” it would FORCE the Claims Administrator to produce the AFFIDAVIT or DECLARATION under Section 9984(a).

At least I would assume the California Applicant's Attorney Association will interpret it this way, or something similar, because they want some sort of ASSURANCE that all the records were served - and not tampered with.

I've written before that mistrust is what drives workers' compensation - so let's create more mistrust, more procedural litigation, more cost and expense that was supposed to be controlled by this fee schedule...

139.32 Declaration

My last rant: I like the declaration about not violating LC 139.32, but nobody has a clue how that code section is to be interpreted relative to copy services, so that requirement doesn't seem like it's worth anything but another dispute driver. DWC should provide some clarity as to how LC 139.32 must be complied with (by copy services) in this regulation if we are to cleanup the copy service industry. 

The copy service fee schedule has been a long time coming since SB 863 passed in 2012 and most of the debate has been what the actual fees were going to be. I think most of the debate needs to be how to make this work without unduly burdening the entire system with more nonsensical detail that doesn't get to the heart of what the underlying issue was - a level playing field for copy services and reduction of friction in the system.

The DWC will hold a public hearing on the proposed rules on July 1 at 10 a.m. at the Elihu Harris state office building, 1515 Clay St., in Oakland. Written comments will be accepted until 5 p.m. on that day.

Wednesday, May 21, 2014

NM & Medical Pot - No Big Deal

Big news of the day is that a Court of Appeal in the state of New Mexico supported an order from a workers' compensation judge mandating that the employer/carrier reimburse the injured worker for expenses related to acquisition of medical marijuana.

I know there's going to be lots of commentary about the validity of the court's action, and perhaps about the sanity of such a ruling, but the court was very, very careful in what it ruled and under New Mexico law it appears the it's rationale is sound.

Remember that workers' compensation is uniquely state based - each state defines what it wants its workers' compensation system to be, and most states have broad statues that cover work injury programs. Many states have constitutional provisions authorizing workers' compensation programs.

So the first argument that any entity objecting to medical marijuana in a workers' compensation context is going to raise is that doing so violates federal law.

The New Mexico court put this to rest quite readily because of the way that the workers' compensation judge issued his order: injured worker puts himself at risk by buying the goods first then is to seek reimbursement from the carrier.

What this does is puts the injured worker at risk, if any, of violating federal law (and that risk is increasingly low with every new state that adopts medical marijuana laws, and even lower in Washington and Colorado where recreational use has been authorized under state law).

The employer/carrier does not violate any law by reimbursing the injured worker. It may violate federal law by paying directly for the drugs, but reimbursement has not been held to be violative of any law; and certainly the employer/carrier could seek a directive from the Federal Department of Justice to either get out of reimbursement or obtain some clarification of liability.

But will the DoJ really take the time to deal with "big boys" who are likely perceived as just not wanting to pay for something? I doubt it...

In the New Mexico case the justices cite a DoJ memorandum that pretty much summarizes what is of concern to the federal government - getting pot into the wrong hands, doing anything with it on federal land or creating a public nuisance or danger.

The memo lists 8 areas "of concern" to the DoJ:

(1) Preventing the distribution of marijuana to minors;
(2) Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;
(3) Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
(4) Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
(5) Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
(6) Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
(7) Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands;
(8) Preventing marijuana possession or use on federal property.

Is the New Mexico ruling going to change work comp? Nah ... there are many other areas of technical workers' compensation laws and regulations that eventually will come into play: fee schedules, treatment guidelines, utilization review, etc. In reality, just as in all other areas of medical treatment under workers' compensation schemes, medical marijuana will be highly regulated.

So for now, fire up a fat one and just chill dude...

NFL Suits Bring Awareness

A new study on football players shows why the National Football League, and other professional sports, have been so active in workers' compensation to limit their exposure.

According to a paper published by the Journal of the American Medical Association last week, there is a relationship between playing football and having a smaller hippocampus.

The hippocampus is a part of the brain which is associated with memory - sometimes called the memory center.

The study followed collegiate football players who had a history of concussions and compared the population with football players who had no such history, and a control group of people who have never played football or soccer.

The results according to the researchers are remarkable: college football players with a history of concussions had "significantly" smaller hippocampus than the control groups, by up to three quarters the size of the non-football control group.

And the hippocampus of football players lacking a concussion history were also markedly smaller than the non-football control group, about five-sixths the size of the non-football control group.

In addition, there was a correlation between years on the gridiron and slower reaction time on tests.

What is different about this study from earlier research on brain trauma in football players is that this is the first to study relatively young athletes - collegiate players. Prior studies focused on middle-aged or older populations.

What this means is that the damage to the brain starts at a young age and likely with less relative exposure than previously thought.

The working theory by doctors and researchers is that football, and other contact-type sports like hockey, induce an inflammatory reaction that might cause cells in the hippocampus to rev into an excited state, and eventually die.
NFL suits bring attention to work place safety

More importantly to workers' compensation is that the study supports a working theory of injury that is recognized in only a few states, most notably California, to the chagrin of those with conservative views on injury mechanisms: that cumulative trauma is a real medical risk and not just a contrived legal concept.

Albeit, the study populations were small - only 25 people in each category - but the statistical relationship from such a small population should be of concern.

I have been highly critical of professional sport's jurisdictional limitations in workers' compensation legislation, and it seems that their lobbyists and supporters may have had some foresight in doing so - the big argument for AB 1309 was that California's liberal worker protection laws were being abused by out-of-state professional athletes because it is one of the very few states that recognizes the cumulative trauma source of injury.

While those with the checkbooks don't like it, it seems to me that California's law is actually in line with the science - that cumulative trauma is real, can be measured, and can result in significant, life long disability.

There are quite a few who take issue with out of state employees using California to process claims that no other state will recognize - but that's not the issue.

The issue is that the legal theory of cumulative trauma actually has some scientific merit - it's evidence based!

I'm not saying that ALL cumulative trauma claims are real. Certainly that can't be said for ANY injury. But naysayers who doubt the science need a reality check.

At least the NFL is prepared to set up a trust fund for brain injured athletes, though frankly I don't think that the $765 million is sufficient to really take care of athletes whose loss of memory is going to impair their ability to make a living after their sports careers end.

One of the issues with that pending settlement is that those who do not have a history of concussions or milder forms of dementia would not receive payouts – they would only get tests that would help doctors monitor their health and assess whether they might be eligible for payouts in the future.

And if the NFL didn't have enough labor relations issues arising out of work injuries, yesterday the Associated Press reported that a group of retired players have brought suit, again seeking class action status, against the league for either intentionally obtaining and dispensing drugs illegally to players, or being so negligent in the action as to amount to a gross abuse.

According to the story, players were not told about broken bones or other serious injuries, and were placed back on the gridiron with drugs dispensed without physician's orders or oversight and without following Food and Drug Administration protocol and regulations, sometimes for years on end.

Drugs allegedly included pain killers, anti-inflammatories, and other highly regulated pharmaceuticals. The suit says that the league actively concealed from players the extent of their injuries, the nature and risks of the drugs being provided, and that they were sent back out on to the field with serious medical conditions without being told of the injuries.

Keith Van Horne, formerly of the Chicago Bears, said he was made to play on a broken leg. Bears quarterback Jim McMahon said he had a broken neck and ankle and was just given pain medication and "pushed back on to the field."

Trainers and doctors employed by teams allegedly failed to keep required records or explain side effects of the drugs dispensed.

The spat of lawsuits and push back by the NFL in the guise of legislative activity may be viewed as meddlesome, or perhaps exploitative by lawyers bullying the league out of money, but I see this as welcome acknowledgement by anyone who follows sports that it is a job.

Professional athletes provide a service, entertainment, at the direction and control of an entity that makes money off of such service - and if the evidence demonstrates that there is injurious exposure that results in long term disability in the employees then the risk of such hazard needs to be absorbed by the employer.

Perhaps the cost of that risk gets passed along to the consumer in various forms of higher ticket prices or restricted television contracts, but that's the economy - we decided a hundred years ago that people who get hurt at work should be taken care of.

Certainly the league will argue that the player's complaints should be the sole purview of workers' compensation laws, and the players will argue that such remedies are no longer available due to the intentional concealment of known risks and outcomes.

The positive aspect of all of the attacks on the NFL and other professional sports leagues is the awareness these suits bring to the masses about the potential of work injuries and death.

Most workers don't think about workers' compensation, how it works and the affects the system will have on their lives until they get hurt at work - then it's too late.

Most employers don't think about workers' compensation, and the trauma the system can induce to a business until an employee makes a claim - then it's too late.

Perhaps a few more than the small percentage of aware workers and employers will become a little more educated on work safety, injury prevention and the affective workers' compensation system, and become more proactive as a result.

Tuesday, May 20, 2014

Sometimes the right thing does happen in workers' compensation though it may take a while for that right thing to transpire.

The Florida First District Court of Appeals, which has original jurisdiction over all appeals from Florida Workers' Compensation Courts, did the right thing when it ruled Monday that a grocery store worker who was run over by the jealous boyfriend of one of his coworkers as he was gathering shopping carts in the store parking lot arose out of his employment.

Melvin Pivaral-Ramirez a father of two, had been the front-end manager for the King's Food and Meat Bazaar store. One of his normal job duties was to collect shopping carts from the store parking lot.

On the evening of June 5, 2011, Christopher Polanco, who believed Pivaral-Ramirez had been sexually harassing his girlfriend (a cashier at the store), executed on a plan he had been brewing for weeks by using a borrowed car to run over Pivaral-Ramirez.

Pivaral-Ramirez suffered severe brain injuries leaving him in a vegetative state, and he died two weeks later. His family filed a claim for death benefits.

By the way, there was no evidence that Pivaral-Ramirez had ever harassed the cashier/girlfriend of Polanco.

Polanco confessed that he had been planning the attack for several weeks and had knowledge that Pivaral-Ramirez collected shopping carts from the parking lot of the King's Food in West Palm Beach each night.

The Judge of Compensation Claims found that Pivaral-Ramirez was in the course and scope of his employment but that the injuries he sustained did not arise out of employment because there was nothing about Pivaral-Ramirez's employment that put him at risk of being murdered.

The 1st DCA reversed because the JCC analyzed the facts incorrectly.

The court explained that generally, "when a work-related risk brings about injury, the injury is compensable," but injuries that "are brought about by risks personal in nature," are not compensable.

Some jobs, the court acknowledged, are "more prone to workplace assaults than are others," depending on the nature of the duties of the job, and the nature of the environment of the job.

In this case, the court reasoned that the environment was what had put Pivaral-Ramirez in harm's way by placing him in a dark parking lot to collect shopping cars.

In other words, whether it was Polanco doing the driving, or someone else who was just negligent, Pivaral-Ramirez was at risk collecting shopping carts in a parking lot.

In a footnote the court explained that the error in analysis is common:

"This case presents a classic example of how courts can hyper focus on motive of a third party causing injury to an employee, ignoring a dangerous environment that also facilitated the injury. As Larson’s points out, “[t]he error here is a simple one: The court assumes that the claimant must prove both that the environment increased the risk of the attack and that it was motivated by something related to the employment. The correct rule is that either one or the other is sufficient to establish the causal link.” [Citing 1 Lex K. Larson, Larson’s Workers’ Compensation § 8.01[1][b] (rev. ed. 2013).]

That Pivaral-Ramirez had 2 children probably didn't help the defense on this case - dependency claims are always going to be more difficult to deny when there actually are dependents.

Those interviewed for the WorkCompCentral story this morning generally opined that the case didn't make any new law, and that such cases are highly fact dependent.

Though the family of Pivaral-Ramirez had to go through litigation to obtain benefits, the right result, albeit 3 years later, was obtained. The system sort of worked.

I say sort of because, in my mind, this is a case that should not have had to go to litigation to get what should be administratively delivered. But I also realize that this is the system that was devised to govern Florida's workers' compensation structure.

The opinion does not indicate whether the store was self insured or whether it had insurance - that the claim was denied in the first place tells me that a carrier or third party administrator, i.e. an entity that was not necessarily looking out for the best interests of the employer (and obviously not the best interests of the employee's dependents), was making the compensability decision.

The denial of benefits could have exposed the employer to civil damages for failing to provide a safe working environment for employees - i.e. a dark parking lot.

At the end of the day, though, the dependent/beneficiaries were vindicated. Hopefully there was still plenty left of the $150,000 death benefit to put to good use.

Polanco, who was 23 at the time of the killing, was convicted of second-degree murder in February 2013. He is now serving a 26-year sentence at the Desoto Annex prison in Arcadia, Florida.

Monday, May 19, 2014

Make The Mission

I blew it.

By declaring I wasn't going to post on this blog, taking Monday off, I cheated myself.

It's hard for me to keep my fingers from expression of opinion. Traveling to and from Arcata, watching with huge parent pride my daughter graduate from college and spending some great time with my kids and wife in the magic of the Northern California redwood forests, inspiration is hard to ignore.

Panorama from the top of Trinidad Head
Remember that 41M doesn't have an operable auto-pilot presently and that I had to fly round trip without the magic of that computer - and that this made my wife nervous.

Obviously we made the trip successfully and safely. It was a lot more work than with an auto-pilot, and there were some moments where it was obvious to me that hand flying across county for 3 or more hours with additional landings en route induced a bit of fatigue.

The thing with airplanes is that they operate in a true three dimensional world. There are about 600,000 people in the United States that understand this implicitly (that's the approximate number of licensed pilots according to the Federal Aviation Administration). Most everyone else does not appreciate this fact because if you don't experience it first hand (i.e. fly an airplane) it is very difficult to comprehend.

Most of us live in, essentially, a two dimensional world, dictated by gravity. We know maneuvering forward and backward and side to side.

Up in the air, though, one can maneuver up and down (pitch), side to side (yaw) and one tilt to the other (roll). There isn't the security of gravity underneath us.

Without an auto-pilot this three dimensional world in an airplane requires constant monitoring and machine handling adjustments as the pilot attempts to maintain altitude and course within FAA prescribed standards: check this instrument, make that adjustment; oops that affected some other flight characteristic, check some other instrument, make another adjustment, etc., etc., etc.

This happens probably hundreds of times an hour, even with a perfectly trimmed aircraft; stuff that is easily handled by a computer to better standards than a tired human.

The job gets more difficult when the air isn't smooth, and all of those adjustments are made even frequently.

In the meantime there's the job of paying attention to and talking on the radio, dialing different frequencies on several different radios, programming or altering the programming in the GPS system, making minor course corrections, looking out for other aircrafts - the tasks are endless.

And the biggest burden on the pilot become even more obvious - decision making. None of the inputs to control or manage the aircraft comes without decision making.

An auto-pilot handles a lot of decision making: pitch up or down, rolls side to side, all in response to the dynamics of air flow and desired time and place in space. Being without an auto-pilot heightened for me the pilot's responsibility for the task of decision making because of the greatly increased frequency for doing so.

Workers' compensation has a lot of automation in it now - we've gone over this in prior posts. The automation generally comes about from the law or regulation: utilization review, bill review, medical guidelines, billing codes, office processes, etc. If you really take a look at how workers' compensation is managed in the present time much of it is left on auto-pilot.

There are rules and regulations that dictate that one process happens before another process. In many cases procedure trumps substance and form dictates function.

Decision making has been relegated to programmed procedure.

As a consequence every one is expected to do more with less: doctors are to do more with less autonomy, claims examiners are to do more with fewer resources, nearly everyone is expected to keep costs down by managing increased volume.

Lost in the volume is the impact on the claim; the individual at the center of the claim, the injured worker, many times doesn't get the benefit of experienced decision making because the professional's experience is delegated to a process dictated by law or rule.

We think that the laws, regulations and rules are things we can't do anything about. But there is an overriding rule in aviation that should apply to workers' compensation - at the end of the day it is up to the pilot in command to make the final decision: whether to accept an instruction from Air Traffic Control, whether to fly in questionable weather, whether to land on a particular runway, what altitude to fly, when to climb or descend.

The decisions are multitudinous and continuous, all have an impact on the quality and safety of flight, and all of that decision making doesn't end until the engine is shut down and everyone has exited the plane.

And all of that decision making is up to the single most important factor in any flight: the pilot.

If you are reading this blog then you are someone who is a pilot in command of the airplane we call workers' compensation. Understand the risks, know where you want to go, and don't let automation get in the way of a successful mission.

Friday, May 16, 2014

My Daughter's a Lumberjack!

I'm taking the next few days off from posting on this blog.

Hope you don't mind - my daughter is a graduating Lumberjack.

"Jack" is the official mascot of Humboldt State University, which also happens to be the second college in the California state university system. The institution is celebrating it's hundredth anniversary this year.

My daughter, fortunately, weathered the recession and budget cuts, and completed her Bachelor of Arts degree in four years from the university's College of Professional Studies, department of Recreational Management. Her minor is in Business Administration.

So I'm taking the day off from workers' compensation, and taking Monday off too. I'll be back on Tuesday.

In the meantime, I'm heading up to Arcata in N6641M (in aviation speak, pronounced November Six Six Four One Mike) with the family to celebrate the fact that:

My Daughter's A

Thursday, May 15, 2014

Cycling In The Wind

The full moon coincided with huge high pressure over the west to create a spectacular moonset on my bicycle ride yesterday morning.

A full moon means wildly swinging tides, and in this case, the spectacle accompanied days long Santa Ana conditions which meant the morning was abnormally warm, and calm - before the winds out of the north east picked up.

I got on the bicycle a bit earlier than usual that morning because I knew the winds would eventually fill in to the beach.

Santa Anas are a katabatic wind—katabatic meaning "to flow downhill" in Greek. The National Weather Service defines Santa Ana winds as "Strong down slope winds that blow through the mountain passes in southern California. These winds, which can easily exceed 40 miles per hour (18 m/s), are warm and dry and can severely exacerbate brush or forest fires, especially under drought conditions."

If you have been watching any news whatsoever you know that the north San Diego County area was particularly hard hit with fires provoked by the wind.

Surface winds are highly influenced by geography. In the normally cooler months, the Southern California deserts are cool. The high pressure pushes the air from the desert areas out towards the coast, channeled down the valleys and canyons and through the major mountain passes.

As the wind descends, the air not only becomes drier, but also warms adiabatically by compression.

Consequently, the Southern California coastal region gets some of its hottest weather of the year during autumn while Santa Ana winds are blowing. During Santa Ana conditions it is typically hotter along the coast than in the deserts.

Moonset in Ventura, 5/14/14 before the wind.
I can testify first hand that this is true. The Oxnard Plain in Ventura County always seems to be the epicenter of Santa Ana wind events.

Because of the geography of the region, the winds seem to occur suddenly - from zero to thirty miles an hour out of nowhere, and because the wind encounters many geographic features as it travels to the coast it tumbles, creating significant turbulence (what we on the ground refer to as "gusty" wind).

Riding a bicycle in thirty mile an hour wind (gusting to forty) is no fun. I'd rather just ride uphill. The gusty nature of Santa Ana winds makes bike handling much more difficult and sometimes dangerous when going downhill.

Because the winds gust so dramatically it is also much more fatiguing to ride in these conditions. But if you plot the right course you may be lucky enough to have a tail wind home - and the winds can get you consistently moving over 30 miles per hour on flat ground with very little effort.

California workers' compensation is like riding a bicycle in Santa Ana winds.

So I guess it was fitting that I was part of a panel speaking to a packed house of members of the Ventura County Employer Advisory Council about workers' compensation.

The attendees were truly engaged and wanted to understand why the system does what it does and how that affects what they pay for insurance.

Part of my opinionated pitch was, as you might guess, that workers' compensation has become much more about procedure than the substantive job of delivering benefits.

Procedure is wielded by both the applicant and the defense sides depending on perceived advantages. It goes both ways.

So it was serendipitous I suppose that a panel opinion by the Workers' Compensation Appeals Board last month said that a defensible position for defendants is that requests for treatment must follow specific form protocol, otherwise it can be denied. The request doesn't actually need to be on a specified form but it must be made in writing, and clearly state "Request for Authorization" at the top of the first page of the document.

The first page must also list all the requested medical services, goods or items and the request must be accompanied by documentation substantiating the medical necessity for the requested treatment, according to the Division of Workers' Compensation.

In Torres-Ramos v. Marquez, No. ADJ982471, the applicant had suffered a compensable industrial injury in May 2005 and his treating doctor sent him for a consultation with a pain management specialist in June 2013 (over eight years later!). The specialist then requested authorization to provide percutaneous peripheral nerve stimulation to Torres-Ramos while weaning him off his narcotic medication.

The specialist did not make this request on the required, specific DWC Form, but rather, mentioned it in his report to Redwood Free Insurance Co. and Berkshire Hathaway on Sept. 23. Berkshire Hathaway denied authorization by letter dated Sept. 29 and sought invocation of the Utilization Review process.

At issue before the Workers' Compensation Judge was whether there was a proper request for authorization for treatment and a timely denial. The WCJ essentially said no to the first, so the second was moot.

Torres-Ramos petitioned for reconsideration of the WCJ's decision, and the defendants sought removal of his referral of the dispute to IMR.

Explaining his ruling, the WCJ opined that the fact that the request for treatment had been improperly made did not mean that the defendants didn't have to provide the treatment, but the dispute had to go to IMR for a determination of medical necessity.

The WCAB adopted the rationale of the WCJ.

It feels like each California work comp reform, in this instance the 2012 adoption of SB 863, puts high pressure on the system. The pressure creates winds of case law that sweep down through the valleys and passes of procedure, tumbling, gusting, turbulent.

And you never really know when these winds are going to actually arrive at the coast. It could be calm one moment, and the next moment you will be heading for cover from all of the dust and debris carried by the winds.

One thing for sure, the winds affect everyone in the path indiscriminately. Hopefully one can seek shelter.

But if you're out on a bicycle hopefully you have a tail wind home. Otherwise it is a very fatiguing ride, and sometimes dangerous.

Wednesday, May 14, 2014

Presumptions and Tails

In the past I have opined that presumptions more often than not, in workers' compensation cases, result in more litigation rather than lessen the burden.

The reason is largely psychological - there are many employers, even in government settings where most presumptions seem to apply, who feel offended for some reason when an employee gets to receive benefits under the name of workers' compensation when the qualification seems tenuous.

A recent Colorado Court of Appeals case highlights this conflict.

Colorado Revised Statutes Section 8-41-209 provides that cancers of the brain, skin, digestive system, hematological system, or genitourinary system in firefighters will be presumed to have been caused by their employment if they have been on the job five years or more.

Colorado is one of 32 states that have some form of firefighter/cancer presumption in their workers' compensation laws.

Russell Andrews was hired as a firefighter for the City and County of Denver in October 2004, but for the first 17 weeks of his employment Andrews was enrolled at the Rocky Mountain Fire Academy as a probationary firefighter. He wasn't sworn in as a member of the fire department until February 2005.

But Andrews had spent four years as a volunteer firefighter for the Elbert Fire Protection District before being employed by Denver.

Doctors diagnosed Russell Andrews with chronic myelogenous leukemia in February 2010 – almost five years to the day after he took his oath of office as a firefighter.

Andrews filed a claim for workers' compensation benefits for his cancer treatments, seeking to invoke the Section 8-41-209 presumption. Denver denied the claim, arguing that Andrews did not meet the statute's mandate of five-years of "employment as a firefighter" to trigger the presumption.

Denver lost at the trial level.

The trial judge ruled that Andrews' four years as a firefighter in Elbert County and his time spent at the fire academy could be included in the length-of-employment calculation, giving Andrews more than the required five years of service.

The Industrial Claim Appeals Office upheld the judge's decision. 

In a unanimous panel decision last Thursday, the Court of Appeals agreed, noting that the state Workers' Compensation Act expressly includes "all members of volunteer fire departments" within the definition of an "employee." 

Denver also argued that Andrews' time as a probationary firefighter should not be included in the calculation of the length of his employment, trying to use a California case to support its position.

Rejected! Because firefighters and fire recruits are each specifically defined by California's statutes, while Colorado law makes no such distinction, the court did not find the citation persuasive. 

I know that municipalities try to guard every penny, particularly when it comes to ameliorating workers' compensation costs.

So presumptions, particularly about cancer for public safety personnel, chafe the human resources and risk management departments of government.

And these presumptions do not have solid support in the medical and scientific communities.

Last November, the National Institute for Occupational Safety and Health released a study indicating that numerous cancers already targeted by state presumption statutes do not have a significant excess incidence or mortality in firefighters as compared to the rest of the population.

The Washington-based National League of Cities made a similar assertion in a study it conducted in 2009, although the International Association of Fire Chiefs later attacked that report as being based on "a subjective and highly questionable methodology to review the literature on cancer among firefighters."

But frankly it doesn't matter what the studies say. As mentioned, nearly every state has some public safety presumption statutes and those are the product of what drives most everything in workers' compensation: politics.

In the world of politics the people who provide us with safety services wield a lot of power - trying to topple presumption statutes, or challenging them in court, is nearly impossible.

So, while I find presumptions not particularly helpful in workers' compensation cases, the reality is that they are a part of our workers' compensation statutes, and attempts to defeat presumptions rarely succeed - they only drive up the cost of litigation, and in the end, the cost of claims when benefits are not quickly provided and that experience modification factor trails years behind when a case should have closed...

Tuesday, May 13, 2014

Golfing To A Resolution

The Workers Compensation Research Institute has published a study reflecting that California's medical-legal process is more expensive, by quite a bit, that any of the other 15 study states, which includes some of the bigger players such as Florida and Texas.

Here's some of the basic conclusions (but don't rely on these, you should purchase the study to get the full picture):

General medical-legal expenses (includes medical-legal evaluations and reports, independent medical evaluations, depositions and medical expert fees) increased by between 7% and 11% annually from 2006 through 2012, depending on claim maturity.

That growth rate exceeded the average among 15 other study states, including Illinois, Florida and Texas, WCRI said.

Average med-legal expenses per claim with 12 months of experience increased 7% between 2006 and 2011 in California, compared to the 5% average growth in the study states. The average med-legal expense per claim with 36 months of experience increased 11% from 2006 to 2009, almost doubling the 6% average increase among the other states.

The average medical-legal expense for California claims with at least seven days of lost time was $3,200 for 2009 claims with three years of experience. California's average cost was about 20% more than in Minnesota, which had the second-highest average med-legal expense per claim.

This of course is not the whole story. For instance California requires payment to applicant attorneys fees for attending depositions of their clients, in addition to the fees that are paid to defense attorneys for conducting the depositions.

In the WorkCompCentral story about the report this morning, Rui Yang, author of WCRI’s report, said that one of the reasons may be that California's processes are more complicated than those used in other study states.

Below is an excerpt from the WorkCompCentral 2014 Flowchart that highlights the medical-legal process for resolving disputes concerning only disability questions and some other disputes other than treatment (which are now the purview of Independent Medical Evaluations).

Frankly, to make this process better graphically literate it should be broken down into several more steps, but there's only so much room on a piece of paper that is 3 feet tall and 4 feet wide...

I haven't seen any other state's medical-legal process graphically depicted so I can't say whether California is more or less complicated than any comparison state, but remember that the California system has evolved substantially in the 30 plus or so years I've been around work comp.

Which brings me to golf.

Yesterday was the Pepperdine School of Law 9th Annual Golf Tournament held at the Calabasas Country Club. I have attended this annual event for the past five years with my closest law school buddies.

Other than the complication of keeping track whose drive qualifies, the rules are pretty simple, particularly since there really aren't any course monitors, and the event is designed to raise money for the school's Global Justice Program, which funds international human rights projects, summer stipends in public interest work, and students' efforts to help establish the rule of law around the world.

It's a noble and worthwhile fund raising tournament.

What I do is not called playing golf, but I do get lucky enough to actually hit the ball and make it go where it's supposed to go once in a while.

The rules for the shotgun start, best ball play require that at least one drive of every team member be used towards the final goal of getting to the hole.

I'm proud to say that I contributed twice to this grand effort. It took me the front nine to get "my game" and then I was reasonably consistent with my drives, but the field game was still questionable.

Honestly, the tournament yesterday has nothing to do with workers' compensation, except that getting to the goal (putting that stupid little ball into the equally stupid little hole several hundred yards away) required a team effort.

Workers' compensation is a team effort. We essentially play "best ball" in work comp claims. No one is so good, so right, so perfect that they dominate the game of work comp.

But I suspect that someone, somewhere, is going to point to the WCRI study and lobby for some changes to "simplify" workers' compensation and attempt to save money on claims, incognizant of the team effort that is required to put the ball into the hole.

We would have a very difficult time unraveling the complications put into the workers' compensation system that have become part or the processes over the past 25 years. Doing so would, I believe, just introduce more complications and issues.

California's claims processes, including medical-legal processes, are more costly than other states because we have allowed them to be by introducing new processes and other micro-management systems over the years.

The truth is that in most instances we have failed to use "best ball."

If the problem is complications resulting in higher costs, the answer is not more complication. The answer is figure out how to get the ball to the hole using the best efforts of everyone involved.

Monday, May 12, 2014

Autopilot Fear

My wife was a little anxious the other day when we flew N6641M down to San Diego to visit Mom.

The Tuesday before when I took a short flight down to Santa Ana's John Wayne airport for a business meeting the autopilot decided to go wacky while on final approach on the 19R instrument landing system procedure, initiating an un-commanded roll to the left when I hit the "approach" button.

The system had done this once before - almost exactly one year ago. Some capacitors in the 35 year old servo that controls the left aileron decided to check out. The system was repaired by one of the only facilities authorized by the Federal Aviation Administration to do such work and it performed flawlessly ... until Tuesday.

And of course coming up this week is a scheduled long flight to Arcata for Daughter's college graduation ceremony (yeah!).

I love auto-pilot. Computers can fly better than humans most of the time. And letting the machine do what it was designed to do frees up a whole lot of gray matter in the head to focus on flight parameters, dynamics and characteristics, or just goofing off and looking out the windows or playing with different toys in the cockpit.

In other words, when using autopilot brain bandwidth is freed up for all of the rapid fire decisions that have to be made on a continual basis, particularly when in the clouds where there is no ground reference.

So with the auto-pilot, flying the plane is just plain easier (sorry - couldn't resist the pun).

Easier in a lot of cases also means safer - and I do think that flying with the autopilot, especially when in Instrument Meteorological Conditions (i.e. in the clouds and you can't see anything) is safer.

Note that I put an "r" at the end of "safe."

My wife, when I told her that we would not have the convenience of the autopilot, forgot about the "r" and her mind, illogically she'll admit, translated that reality to "not safe."

In particular she knows that flying into Arcata, more often than not, involves flying into IMC. Arcata airport has the distinction of having the most overcast days of any airport in the nation. I think I read somewhere that the airport averages some 285 days or more of overcast conditions.

41M - don't need no stinking autopilot!

Anyhow, San Diego was sort of test flight to see if I wanted to endure a 3 hour flight to Arcata piloted all by hand. San Diego is less than an hour flight.

So flying down to San Diego, even though it was on a day of visual flight conditions, caused my wife some anxiety.

It's a matter of the known and the unknown. My wife knows that the airplane can fly, and be hand flown quite safely. In fact she rationally knows that the autopilot is disconnected at various points in the flight regardless of its presence, such as on final approach, or on take off, and that the plane flies just fine with me doing all of the work.

Even in the clouds, sometimes there is no autopilot and its just me, my brain and my decision making inputs.

But it was the fear of the unknown. It's been a few years since she had been in an airplane without a functioning autopilot. She let that fear take over her imagination which raised her anxiety level.

We see that in workers' compensation - processes dictated by either law or an interpretation of the law become, essentially, automated in the name of operational efficiency. But this automation lull us into a sense of safety and we ignore our prior experiences that allowed us to achieve proficiency without the crutch of an autopilot.

Workers' compensation has gone to a place where so much is taken away from human decision making that we have a difficult time "going back" and relying on the skills and knowledge that allowed us to successfully navigate to our destination - reasonable claim closure.

Think about all of the processes that are now outsourced to other companies, people or computer programs; that are mandated by either law, or corporate dictum.

Medical bill payment, request for medical treatment, medical procedures, legal bills, document copies, interpreter services, etc. - all of these, and more, are no longer the purview of some professional with years of experience making an informed decision at a human level.

Each of these processes are now the subject of either some guidelines that are deemed impervious to challenge, or some computer system that has no ability to be overridden, or some management rules that were made to control the outlying 15 percenters.

People involved in the processing of work comp claims, be they adjusters, doctors, attorneys, voc rehab providers, etc., are allowed very little professional judgment any longer.

Sure, there is some skill and intelligence necessary to do the work, but the focus seems to have changed from working towards claim resolution to working to make sure that some rule or process hasn't been forgotten or misapplied.

I've written before that the art of talking reasonably with each other towards the goal of case closure no longer seems applicable.

This is not unlike my wife and her misguided assumption that lack of an autopilot means that safety is compromised.

It's not - it simply means that the pilot just has to exercise more skill, knowledge and intelligence.

Frankly I'm glad that the autopilot went out. I CAN fly that plane! And I can fly it very well in turbulence, in the clouds, when I take off and on approach to landing - all without an autopilot.

Yes, I will be flying 41M to Arcata all by hand. Maybe it's more work, but I've done it before, and it's perfectly safe, and in fact may be more so as my alertness will be enhanced since I won't be lulled into complacency by a computer.

We need those reminders every once in a while. So go out and fly that claim without an autopilot on occasion. You won't crash and you might find that it's likely just as efficient, if not more, and just as safe. It's okay to use your own brain to deal with claims.

Friday, May 9, 2014

My Lesson About Insurance

What did I learn at NCCI's Annual Issues Symposium?

I learned that the workers' compensation line in the property & casualty insurance business did much better than it has in the past 5 years - the overall national combined ratio for private carriers in the business is down to 101 based on calendar measures, and accident year measure is estimated to be 99.

Those are near perfect numbers indicating that the private carrier market is operating at almost perfect efficiency.

On top of that, investment gains were much more robust than previously forecast, with the work comp line ending up as one of the more profitable lines in the P&C industry.

Operating gains rose sharply, measured at 14%, up from 5.6% the year before and the second highest since 1997. These numbers were attributed to strong underwriting results (see above!).

NCCI reported that there was a 5.4% increase in written premium from the year before at $37 billion. The rate of increase was above the P&C average of 4.6%

With regard to investment returns, embedded yields were called "notably higher" than new money yields and return on surplus was reported at 10.3%. This is WAY better than past 5 years and was attributed to unexpectedly good results from Wall Street as carriers sold stocks and bonds for solid (taxable) gains.

Of course there was the caveat that equities comprise only about 20% of carrier portfolios so a strong bond market was key; but as was noted in the past the older  high yield bonds are being replaced with new low yield bonds, so the NCCI wonks are still conservative about calling this a trend.

Nevertheless the investment returns being reported were much better than previously forecast.

So, to summarize, this overall industry profitability occurred because of lower expenses, better than anticipated returns on stocks (not so much bonds) and lower resistance to increased rates and premiums.

I can already hear the objections from those who have some dislike of insurance companies, and I can certainly understand because it is sometimes difficult to have the warm and fuzzies for folks that take money from you and then seem to delay or fail to pay it back when something happens.

Fair enough - reality is that everyone at some point in time hates insurance, even insurance professionals. Insurance touches us at a very deep, emotional level - when we have a claim it is generally a moment when we are the most vulnerable and need the services or benefits.

Others decry industry warnings from time to time about threats to the industry and carrier profitabilities. But the reality is that this is America, a capitalistic economy. People in this country don't do things unless money can be made - profit.

The insurance industry and particularly workers' compensation, is heavily regulated, and returns on the line of business can be notoriously fickle with all sorts of unseen risks interjecting into balance sheet.

The truth is that insurance companies need to make a profit and generate a return on investment to shareholders. If they don't then shareholders ("equity investors" part of the risk formulation) go elsewhere. The fact that there is an insurance industry (i.e. people) that is willing to take on workers' compensation liability should be rewarded.

That does not mean that every insurance company should be applauded, or that all insurance companies are good.

But without insurance companies willing to take on the risk of covering the risks generated by our laws, we can't have a competitive workers' compensation system.

I do believe that the vast majority of the workers' compensation insurance industry is motivated to do the right thing within the framework of the laws and regulations that created and manage the system.

Yes, that motivation is propelled by money. Money comes in the door in the way of premiums and allows the risk of work injury and disability to be spread against a large population so everyone bears some part of this social risk.

The social risk is not limited to work injury and disability either. Insurance operations (along with all of the other financial intermediary businesses created by modern economies) create a huge amount of jobs.

Not just insurance jobs, but employment across the economic spectrum. Lawyers get employed (representing both carriers and injured workers), doctors get referrals, brokers, agents, safety and risk people; all are examples of indirect employment through insurance.

Through insurance investments other jobs and contributions to the economy occur. For instance, the Southern California town of Rancho California near Temecula started out as a long term investment of Prudential Insurance (okay, not a work comp carrier, but a life insurance company that probably does buy long tail comp books of business investments too...). That huge long term investment created construction jobs, financial jobs, and the community built provides ongoing economic activity with stores, infrastructure, schools, etc.

Healthy, strong, financially motivated insurance companies serve as a critical intermediary between risk and stability.

It IS a good think when the insurance industry is making money. Granted, there of course needs to be tight regulation because it is too easy for unscrupulous operators to take advantage of the public in an involuntary "free" market such as work comp - that there are people willing to step up, meet the regulatory challenge, fulfill that critical intermediary role and provide that economic lubrication should be rewarded.

That reward is called, "profit."

There's always going to be that faction which is critical of the fat cat insurance carriers taking the public to the cleaners, and leaving the injured worker destitute and ripping off employers.

I can't do anything about those sentiments other than to suggest that those who have those feelings invest in workers' compensation insurance companies.

MY CONCLUSION - unexpected investment returns, low resistance to premium increases and continued decreasing in losses produced better than expected  results for the industry - i.e. carriers are making money! At least on the macro level.

And that's okay.