Thursday, March 12, 2015

Proof In The Penalty

Last week I wrote about the Texas Supreme Court closing the door on civil actions against workers' compensation insurance companies, giving them the same protection of exclusive remedy that their insureds' enjoy.

I said:

"Making the Texas Department of Insurance and Division of Workers' Compensation administrative penalty process the only remedy is the proverbial fox in the henhouse situation. Administrative penalties are a cost of doing business.

"Sure claims payers don't like administrative penalties, but nothing gets the attention of shareholders, Wall Street and the investment community like a nice big award of punitive damages - that's when behavior changes."

This morning, WorkCompCentral journalist Joey Berlin reported that Ace American Insurance Co. was fined $250,000 for for failure to timely pay benefits and other infractions related to the death claim of the widow of Wayne Davis who was killed in a 2012 traffic-accident while working as a sales, profit and operations coach for Burger King.

The case was highlighted in the Texas Tribune series last year called “Hurting for Work” about the industry - part of a growing string of negative press concerning the workers' compensation industry and the laws and regulations that govern it.

After Wayne Davis was killed in the crash, Ace American, Burger King’s insurer, denied and delayed death benefits, arguing that Davis was not in the course and scope of his employment at the time of the crash.

Davis was driving a Burger King vehicle to a company-related appointment, and his supervisor at the time believed he was “definitely in his workday,” according to the Tribune.

Crystal Davis defeated Ace in dispute-resolution proceedings and began receiving benefits, but Ace sued Davis and her two children, ages 6 and 2 at the time, to stop the payments, dropping the action less than a week after the Tribune series first featured the Davis story.

The division’s Feb. 18 enforcement order cited Ace for failing to timely pay death benefits and accrued interest on death benefit payments, failing to timely take action on a request for burial benefits, and failing to timely and accurately notify the division of actions taken on a claim.

$250,000 sanction included:
  • A $100,000 administrative penalty.
  • Required adoption of an enhanced compliance plan and a minimum investment of $50,000 to implement that plan.
  • Establishment of a Texas branch of the charity Kids’ Chance, which provides scholarships to the children of injured workers, with an initial donation of $100,000.
  • Participation in all division audits for a three-year period.
Ace Insurance 10 year stock price
This is all super-dee-duper, but is an ineffective solution in my mind.

I'm glad that Crystal Davis and her children are NOW, finally, getting benefits that they are statutorily entitled to, particularly when the EMPLOYER said Wayne Davis was working at the time.

But they were subjected to unnecessary, humiliating action by Ace, and while I don't know their financial condition, my bet is that they are one of the many "paycheck to paycheck" families where that bi-weekly benefit check is the difference poverty and turning on the heat in the winter.

Ace American is a multi-billion dollar company that publicly trades on the New York Stock Exchange that reported record operating income of $3.3 billion in 2014, up 4.7 % per share.

It's stock price has gone from $95 per share to a close of $110 yesterday, and a high of $115, over the past year. In 10 years the stock price has grown from about $45 per share.

It's a highly diversified insurance company, with international operations.

Trust me that this little administrative fine won't even make news up to the C-suite.

And it's nice that as part of their penalty the company gets a tax deduction.

As I said in my earlier piece about Texas' Supreme Court's ruling in In Re Crawford & Co. , don't get hurt in Texas.

And invest in Texas workers' compensation carriers and administrators.

The proof is in the penalty, and the stock price...

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