Broker Schmoker

Insurance is a highly regulated industry because it involves lots of money exchanging hands, which influences greed, and some can't control themselves.

Workers' compensation requires even tighter regulation because, in most states, it is essentially a captive market. Where workers' compensation is compulsory, free market theory is not adequate to keep people from getting ripped off.

Deceit is particularly acute when the lexicon of insurance is bandied about in the sales and purchase phase of insurance.

I'm willing to bet that even if you are in the workers' compensation industry, you'd have a tough time with these phrases: guaranteed cost, retrospective rating, reinsurance participation, collateral agreement, reinsurance treaty, retrocession, captive facility....

These are the terms that are at the heart of the California Department of Insurance's action against Berkshire Hathaway affiliates that were ordered to stop issuing or renewing EquityComp policies.

CDI yesterday took the unusual action of issuing a cease and desist order against California Insurance Co. and Applied Underwriters Captive Risk Assurance Co. for failing to file contracts and forms related to those fancy terms a couple of paragraphs up.

The problem, according to CDI, is that contracts that aren't approved by the department modify terms of approved forms and agreements placing policy holders (i.e. employers) at great risk of subsequent substantial debt because the agreements require the employer to reimburse the insurers for claim expenses.

In other words, a guaranteed cost program, where the employer knows up front what insurance is going to cost, gets substituted for a reimbursement program where the employer not only doesn't know what the end cost is going to be, but doesn't have any control over that cost.

Applied Underwriters and California Insurance are appealing CDI's action. They say the paper they are using doesn't require department approval, because of all the fancy terms they contain...

In the meantime, and partly in response to CDI's action, the insurance industry is sponsoring AB 1922, by Assemblyman Tom Daly, D-Anaheim.

The bill would excuse carriers from filing side agreements for policies with a deductible of $250,000 or more for large employers that satisfy three of four criteria, including:

• Being represented by a broker during negotiations as well as a full-time risk manager or attorney.
• Employing 500 or more workers.
• Having annual payroll of $20 million or more.
• Having a manual standard work comp premium of more than $1 million.

Many years ago my law firm was involved in negotiating a "large deductible" policy for an employer of the size described in AB 1922. Brokers were involved. They didn't help. In fact, they hindered the process. Brokers get commissions. Commissions don't get paid to either the buying or selling broker unless there's a sale.

In other words there's great incentive for brokers on both sides to push a sale through regardless of benefit, or detriment, to the employer/customer.

Just because an employer is represented by a broker and/or risk manager and/or attorney doesn't make the employer more sophisticated or less vulnerable to greed.

Racing Risk

I love racing, particularly motorcycle racing.

I grew up on motorcycles. Though I didn't get my first motorized two wheels until age 10, my brother, friends and I would fantasize about having a motor, riding our bicycles and making vroom sounds or using playing cards to create the noise.

Riding bikes is thrilling, but racing takes the experience to a whole new level. Close riding proximity, the test of skills against another rider, competitive adrenaline - if you've raced anything on two wheels you know exactly what I'm talking about.

Zoom...

My last race was a motocross at Piru Race Track 10 years ago. I won my age class, and got third in the age 35-40 age group. I stopped because I realized my motor skills didn't keep up with my mental agility...

But spectating is just as thrilling. Perhaps it is because I can relate from my experience, or perhaps because motorcycle racers aren't hidden from view so you can see what the riders are actually doing; to me it's just much more up close and personal than automobile racing, or any other kind of racing really.

I try to go to a race every year. Usually it's the U.S. round of the World Superbike Championship held at Laguna Seca raceway near Monterey, CA. It's the proverbial child in a candy store adventure for me.

Of course, up on two wheels eventually means going down - as in crashing. Two wheels are inherently unstable. The gyroscopic effect keeps everything in proper order so long as the laws of physics are respected.

Racing always challenges those laws, though. Anyone and everyone that races eventually will get on the wrong side of Newton's laws. Momentum becomes an enemy. Injury and death result.

This past weekend three professional motorcycle racers died.

Luis Salom was only 24, and a rising star in the World Superbike support class, Moto 2.

Just a few days later the Isle of Man, known in racing circles as the most dangerous of courses, took two riders in one day.

Last year, at Laguna Seca, a horrible crash in the last MotoAmerica race of the day claimed two lives.

Of course there are the countless injuries on a daily basis too.

Bikes are dangerous. Risk management is taken beyond science to an art level in motorcycle racing.

Curiously, I know pretty much nothing about how workers' compensation works in professional racing, particularly international racing like World Superbikes, which goes to 13 different countries.

How are racers and crews covered? Who pays for what? What jurisdiction controls? How adequate are benefits (if any)? What is the scope of medical care, both preventive and responsive? How expensive is insurance and how is it rated?

I'm sure there are brokers who specialize in covering motor racing risks, and in particular international motorcycle racing - I hope you'll chime in and educate us domestics about racing risk management and insurance, and in particular occupational risk management...

Adjust The Portfolio

Peter Lynch is probably one of the most famous investors ever.

As the head of Magellan Fund for 13 years, he averaged returns of 29.2% annually. Assets under his management swelled from $18 million to $14 billion. Like a good athlete he left at the top - the size of the fund nearly too large to continue such incredible gains.

Lynch wrote several books on investing and I read a few. I won't say my investment prowess even came close to his.

Not even close.

Peter Lynch

Lack of trust, lack of research, lack of time ...

But the one maxim that Lynch repeated over and over in his writings was to buy what you know.

Lynch would watch the consuming habits of his wife, his kids, his friends - and ask about the products or services that were being purchased and why. Then he'd take a look at the sector, and the companies in that sector to determine whether a company was under valued based on his criteria.

It's really a simple evaluation. Basically, Lynch was interested in the early consumer adoption of a product to predict whether a company making that product would be successful.

The key, according to Lynch, is to buy what you already know and watch the cycles...

With that in mind, I'm intrigued by workers' compensation insurance at this point in time.

Work comp, as we know, is highly cyclical. While the rest of the economy cycles, work comp seems to have higher highs, and lower lows.

The mantra, of course: buy low, sell high.

The trick for investors is to spot the beginning of an up cycle, and it seems like we're entering that phase now.

NCCI, in its last state of the industry observation, noted that carriers for the first time in decades are posting combined ratios below 100. That means they're making underwriting profits - which is nearly unheard of in work comp.

That the business community is tolerating rates and premiums supporting an underwriting profit is unique; work comp carrier profits are typically the product of savvy investments. But investment returns lately have not been good because conservative products, e.g. bonds, have been suppressed by unprecedentedly low interest rates.

There are several trends emerging, though, that fare well for carriers.

In big states California and New York, the minimum wage will increase a third to $15/hour over the next several years. Quite simply, this just means more premium money into carrier coffers because policies are tied to payroll. The more payroll, the bigger the premium, the more money into the insurance company treasury.

In addition, the Department of Labor's recent change to exempt vs. non-exempt/overtime regulations means hundreds of thousands of individuals will see an increase in wages; again, more money in payroll means bigger premiums which means more money to the insurance companies.

The seventh or eighth largest (depending on who is measuring) economy in the world, California, is adding more jobs, faster, than any other state in the nation. The latest unemployment statistics put the state at 5.3% unemployment. More telling, employment in California increased 2.8% in the last twelve months, compared to 1.9% nationally. In addition, most of those jobs are in low risk sectors like IT, or professional services. And the most populous areas, the Bay Area, Los Angeles and Orange Counties, are seeing unemployment rates well below the national average...

Finally, interest rates are poised to head up. After seven years of near zero interest on Federal Treasury Bonds, the mainstay of the investment community, Wall Streeters are seeing signs that the Federal Reserve is getting ready to slowly raise rates as the global economy starts warming up - and there's no reason not to believe that it will since American consumers will, at least for a short period of time, have a bit more purchasing power due to the aforementioned increases in minimum wage and overtime.

So, lots of fresh money will be heading into insurance company treasuries.

But what about paying out that money in claims?

Here's what we know on a national basis: frequency continues to decline reflecting safety and the ongoing shift in the economy to office-type work; work comp medical inflation is at an historic low (unlike the general health sector); and severity is at an all time low.

So, the work comp line is going to be flush with cash for a few years until those high wage claims start hitting the books - which means that carriers will be investing more money into better instruments to make more money before it is needed to pay claims, thus greater dividends to investors which makes the stock prices go up.

Now, I could be a complete investing moron - certainly my track record does not speak to any Lynch-style wonderment.

And economists who watch the insurance industry, like the great Bob Hartwig, may disagree with my analysis.

But, if we follow Lynch's advise, this is something we know. Seems like a good time to adjust the portfolio...

Too Good for Truth

So much of what we talk about in work comp is related to claims, but we forget that before claims there has to be a policy covering those claims, and those policies are strictly regulated because workers' compensation insurance is a captive market.

Since coverage is compulsory and the business of insurance is complex, California regulations require that anything remotely close to an insurance policy be first filed with the Workers' Compensation Insurance Rating Bureau and the Department of Insurance for review prior to implementation and sale.

Lately Applied Underwriters through its EquityComp program has drawn fire for violating these regulations and is the subject of regulatory review as well as a number of civil lawsuits, including one class action lawsuit.

The allegations are complex, but when we strip away the technical jargon, what Applied is accused of is making promises it didn't, or wouldn't fulfill; i.e .misrepresentation. It might have gotten away with it too except that the carrier came back to the complaining employers to demand more money than they had already paid.

If there's one thing that pisses people off is not delivering what was promised, then demanding even more money for that failed promise.

The employers suing Applied say they were quoted minimum and maximum program costs that didn’t resemble what was actually charged. They claim that they entered into the EquityComp program, then were required to also sign off on reinsurance participation agreements that included provisions that allowed Applied to continue assessments after policies expired - years after policy expiration, like a revolving line of credit with no end.

In other words, the employers ended up paying far more for their work comp coverage than they thought they would be responsible for.

Shasta Linen is one of the complainants. In its lawsuit it says quoted annual costs were to be between $107,541 to $322,623. From 2010 to 2012, the company paid $934,366 - obviously on the high side of the quote. But when the policy expired in December 2012, Applied sent Shasta a bill for $77,592 and another bill in January 2013 for $166,619.

Pet Food Express signed up for EquityComp in 2009. According to its class action lawsuit, the company had actual losses of $724,231 over the three-year coverage period, which meant its premium should have been about $1.2 million according to a program summary it relied on.

Instead, the company said it has paid more than $1.6 million in premiums.

Pet Food Express also alleges other Insurance Code violations such as out of territory arbitration and enforcement of policy disputes; neither the original Request to Bind Coverage and Services nor the reinsurance participation agreement Pet Food Express claims was foisted upon it after coverage started included a notice that dispute-resolution procedures are negotiable, as required by Insurance Code Section 11658.5.

Pet Food Express also argues the reinsurance participation agreement allocates risks in an “unreasonable and unexpected manner,” rendering the agreement unconscionable and void under California Civil Code Section 1670.5. That section allows a court to refuse to enforce an unconscionable contract.

Mike Rose’s Auto Body in Concord, CA on April 11 filed a complaint with the U.S. District Court for Northern California accusing Applied Underwriters Captive Risk Assurance Co. Inc. of fraud, breach of contract and unfair business practices.

According to the complaint, the body shop in September 2009 was told it would pay between $308,796 and $1.15 million over the three-year term of coverage through EquityComp. When the three-year coverage period ended in September 2012, the company says it paid more than $800,000 for $269,075 in claims.

Mike Rose’s Auto Body said it should have about $70,000 remaining in its account, but Applied has refused to return that money.

You'd think that would give the executives at the body shop pause ... Nope, the company re-enrolled in EquityComp in September 2012 based on a quote projecting costs of $403,553 to $1.52 million.

Applied sent the body shop a statement on Oct. 7, 2015, showing the company paid a total of $1.53 million during the latest three-year coverage period. According to the complaint, the statement said the body shop owed $1.44 million, so it had overpaid by about $91,000.

However, after applying provisions contained in the reinsurance participation agreement, Applied determined Mike Rose’s owed another $70,000 in premiums, and on Nov. 9 Applied sent a new statement with $290,452 in “new charges” bringing the balance to $361,000.

Whether Applied engaged in intentional or negligent misrepresentation, the heart of the matter is that expectations were established, and then violated. If the complaints are to be taken at face value, employers thought they were buying one thing, and then were sold another.

The cycle of money in workers' compensation should be straight forward. Employer pays money to carrier, which then uses that money for various expenses and then sets some aside in case a work injury occurs; if the carrier is astute the money sitting on the side lines will generate investment returns sufficient for a profit, and if the carrier's investment savvy is lacking then it loses money.

At the end of the day, the employer should have a reasonable expectation of what its costs will be, and the injured worker should have a reasonable expectation of what his/her benefits will be.

Failing one or the other creates mistrust, disputes, lawsuits, costs and expenses. Failing both causes a fundamental breakdown of the system.

The reason we have laws mandating filing and review of insurance documents is because even the most sophisticated purchaser of insurance products can get duped.

If it sounds too good to be true, it is.

Applied would not comment for this morning's WorkCompCentral story on the cases. The company is a division of Berkshire Hathaway.

Here's a blog from one of Applied's very frustrated customers: (http://www.coyoteblog.com/coyote_blog/2015/04/beware-applied-underwriters-workers-compensation-insurance.html) - he explains how he got into this mess and why he's upset - it's pretty simple. He felt backed into a corner and signed documents he didn't understand...

Harrumph!

The California Workers' Compensation Insurance Rating Bureau will be proposing to the Department of Insurance a mid-year rate decrease of 5% from the rate adopted by the Department in October.

This is the second consecutive proposed rate decrease and is 10.5% lower than the industry average filed rate of $2.57 as of Jan. 1, 2016.

The estimated ultimate medical cost per indemnity claim, including medical cost-containment expenses, is $42,334 for 2015, according to WCIRB data. In 2011, the estimated ultimate medical cost was $45,508.

Claim frequency is also down about 1% from 2014 to 2015.

But average paid allocated loss-adjustment expenses – costs that can be directly linked to a claim such as bill review and defense attorney fees – per indemnity claim increased 10% in 2015 to $975 from $887 in the first 12 months of a claim.

Compare to 2012 when carriers paid an average of $768 per claim in ALAE at the 12-month point.

Other negative trends noted by the WCIRB include a rapid escalation in the number of liens filed and an increase in cumulative trauma claims.

In 2011 463,000 liens were filed. A surge in 2012 after the passage of SB 863 but before implementation of its lien fee provisions isn't counted by the bureau because of that anomaly, but lien filing plummeted to 189,000 in 2014, only to nearly double in 2015, when more than 362,000 liens were filed.

Cumulative trauma claims have grown from about 10% of all indemnity claims in 2006 to nearly 1 out of every 5 indemnity claims, 17.9%, in 2014. The trend upwards has been steady: 15.8% of indemnity claims involving a cumulative trauma were filed in 2013 and the number was 12.9% in 2012.

All of this is good and well if you're a workers' compensation insurance company - according to the data the overall cost of managing workers' compensation claims in California costs less than prior to SB 863.

The government will claim (again) SB 863 victorious. The insurance industry will say things are starting to work.

Of course, the advisory rate is illusory - there is no mechanism to force carriers to adopt it, or pass along the savings to employers; this is free market insurance after all.

And the base rate is only one part of the premium calculation. Many employers will wonder why their premiums haven't descended lock step and their workers' representatives will argue that benefits remain inadequate.

It's all sort of Blazing Saddles like.

Governor William J. Le Petomane: Holy underwear! Sheriff murdered! Innocent women and children blown to bits! We have to protect our phoney baloney jobs here, gentlemen! We must do something about this immediately! Immediately! Immediately! Harrumph! Harrumph! Harrumph!

CIGA Technicalities

One of my pet projects is getting the next generation into the work comp world to take up the slack of all us gray hairs (or in my case, no hair) who are moving on to other pastures. In that vein, today I head over to my law school alma mater, Pepperdine University in nearby Malibu for a lunch time lecture on careers in this industry.

I tell the "kids" about the great variety of specialization in work comp, about the mission of doing good things for people in bad situations, and how the technical nuances in work comp law requires particular legal skill and expertise.

Last year we had about 35 "kids" attend, suckered in by a free Chick-Fil-A lunch and then enraptured by the presentation, and ultimately a half dozen or so asking for more information and training to start a rewarding work comp career.

Pepperdine's annual 09/11 memorial display.

For the technical part, I can point to this morning's WorkCompCentral news, where the California Insurance Guarantee Association appears twice today, in court cases that might be baffling to an outsider, but might make perfect sense to one of the Pepperdine law students considering a path into work injury law.

In the first instance, a federal trial judge ruled last week that the California Insurance Guarantee Association cannot avoid its obligation to reimburse the Centers for Medicare & Medicaid Services even though the government did not meet the claims filing deadline under state law.

CMS is asking for $308,401 that it spent on treatment costs for 10 beneficiaries who it says were covered by policies that CIGA was administering on behalf of defunct Fremont Indemnity Co., Legion Insurance Co., and the Superior National Insurance Cos.

The deadline for presenting claims based on those entities had long ago passed, last decade. The court record isn't clear on when CMS made those claims, although there is no dispute that CMS did not meet the deadlines imposed by state statute.

U.S. District Court Judge Otis D. Wright II said the United States is excluded from the operation of such state laws because of its sovereign immunity and ruled that the statutory deadlines are not binding on CMS.

The U.S. Supreme Court's precedent ruling in U.S. v. Summerlin established that once the federal government asserts a claim, "it cannot be deemed to have abdicated its governmental authority so as to become subject to a state statute putting a time limit upon enforcement."

A federal District Court of Massachusetts case back in 2001, which Wright distinguished in his opinion, found that the rule from Summerlin "cannot overcome the particular niche for state authority carved out by the McCarran-Ferguson Act, which was enacted by Congress five years after Summerlin was decided." The 1st U.S. Circuit Court of Appeals affirmed that decision one year later.

Wright said he disagreed because "protecting the insurance business from unwitting federal legislative control is a far cry from subjecting the federal government as a sovereign to state control."

My bet is that CIGA will take this case up the appellate ladder.

Meanwhile the 2nd District Court of California ruled that carriers which have contribution agreements between them arising out of a work comp claim doesn't bind CIGA when one of them goes under.

Ullico Casualty Co. and Care West Pegasus Modesto both wrote policies for Superior Center Concepts. They jointly agreed to settle a workers' compensation claim by Rosa Lopez, a Superior Center employee, before Ullico went bankrupt in 2013.

The terms of the settlement provided that Care West would be responsible for 52% of Lopez's treatment charges and Ullico would be responsible for the remaining 48%. Care West and Ullico also agreed to split the cost of Lopez's medical-legal expenses evenly.

Care West objected to holding the whole bag.

The 2nd DCA said the statute is clear and that Care West is "other insurance" for purposes of Insurance Code section 1063.1.

Mind-numbing technicalities...

Okay, perhaps the "kids" I will lecture to at Pepperdine today won't be so interested in CIGA, CMS and contribution limits, but certainly they can appreciate that the technical aspects of work comp law, and insurance guarantee law, commands a high level of legal prowess, and if another half dozen this time ask for more career information today my job will have been done.

There's a reason workers' compensation was one of the first specializations recognized by the California State Bar back in 1973. That fact should be a source of pride for legal practitioners in the field, and I believe is an achievement goal for this next generation of lawyers ready to graduate in a few months.

Cleaning Up

My broken record mantra: workers' compensation has three stakeholders: employer, employee and government.

Everyone else is a vendor.

Employees get lots of attention because, well, they're the recipients of the system. Sometimes they don't get what they deserve, and sometimes they do.

The government also gets lots of attention because it makes the rules, and then is supposed to enforce those rules. Sometimes the rules are good, and are enforced, and sometimes they aren't.

Employers tend to get the least attention. Sometimes there's a recalcitrant employer who gets punished for cheating or being a schmuck, and on a much more rare occasion there's the employer who is recognized for bucking trends and treating their workers as a valued asset.

Regardless, in between all three stakeholders are various vendors with various "solutions" to problems that may not even exist.

"Solutions" became an overused term when Silicone Valley was growing up, and is still abused today.

I hate that term.

Before there is a "solution" there has to be a problem. 

Vendors are good at creating problems so they can sell their "solution."

Quite often, there are "solutions" that exist only between vendors.

It's these vendor-centric "solutions" that tend to get the attention of one of the stakeholders, principally because of the additional friction created generates heat between the stakeholders: UR, BR, IMR, IBR, etc.

This creates confusion on the part of the public.

Our reporting at WorkCompCentral is guilty of this. All too often, our reporters use the term "employer" interchangeably with the insurance company or third party administrator, when in fact the actual employer, i.e. the person or entity that signs the paycheck to the employee, has nothing to do with the decision making of its carrier or TPA.

So we read about something bad that has happened to an injured worker by his or her "employer" when in actuality the employer likely has no idea what is going on until well after the fact.

A consultant wrote me the other day about an employer he was servicing. The consultant was doing an account review. He noted that the insurance carrier had terminated temporary total disability indemnity to the injured worker when he wandered outside of the carrier's Medical Provider Network, but reinstated it when that worker found his way "home" back into the network.

This is, of course, against the rules, and the carrier is not authorized to do that, and in fact under California law that carrier is now required to pay that balance to the injured worker along with the self-imposed penalty and interest.

But will the carrier step up and own it's mistake and make restitution?

My consultant friend thinks that's unlikely. He thinks they'll institute the "F y'all defense" and make good only if REALLY pressed.

That's a shame. This vendor interposes friction between the employer and its employee. That friction generates heat, and that heat gets misdirected.

Another example - at the Public Agency Risk Managers Association conference this week I met a very long term friend of mine within our industry - we go back to our 20's.

My friend has been through the ranks in work comp claims: adjuster, manager, supervisor, etc. He has worked for insurance companies, TPAs, self-insureds; large and small.

He left his last big TPA job because he couldn't stomach the vendor's profits before compassion mentality. He readily admits that the company forced utilization and bill review on every case, for every procedure, because it owned the vendor entities performing those services, and those entities were critical to the TPA's profit margin.

Now my friend is at a very small TPA where the adjusters are trusted to make their own judgment - imagine that, a claims adjuster actually treated as a professional to make independent decisions based on skill, training and knowledge...

The employer gets hosed. The employee gets hosed, except worse.

The vendor gets profits.

Where's the government in this?

Well, the plain fact is that the threat of significant enforcement has been so diluted over the years that the "F y'all defense" is even more strong than ever before.

So what's the "solution"? Where do the stakeholders get resources and traction to ensure the vendors comply with the law.

Well, for one, let's stop confusing who's who in workers' compensation. When we communicate about work comp, we need to stop calling insurance carriers "employers" when the employer is no where to be actually found in a court case (for example, Florida is particularly guilty of this, as nearly all 1st DCA decisions refer to the case defendant as the "employer/carrier" or "E/C").

Secondly, if the government is to be the enforcer, then the government needs to step up and exercise its authority using all means possible. The government has power to fine payers, to impose audits, to suspend or revoke licenses.

But the different governmental departments rarely, if ever, communicate, coordinate or cooperate.

That needs to change.

Third, it's up to US, you, me, and your colleagues, to call attention to WHO is actually doing WHAT.

I don't want to hear the "oh, whoa is me" line from the vendor community, because that's bull. If vending in the workers' compensation system is so burdensome, costly and unreasonable, then make the prudent business decision and take your focus to some other industry.

Employers and their workers are in this together. They both have the same common interest - to make sure that work injury claims are dealt with promptly, expeditiously, fairly and without undue encumbrance.

Call out the vendors interposing their profit will over us.

But also bring attention to those vendors who do their jobs admirably and compassionately.

And in particular, celebrate those employers who don't let vendors get in the way of their employment relationships.

It's been said many times that workers' compensation is a "dirty business."

It doesn't have to be - we just need to clean up after ourselves...

Seven Years Too Long?

How fair does the workers' compensation system have to be to an insurance company?

Certainly an insurance company has much more resources than an injured worker, and more than the vast majority of the insured employer population as well.

But are there times when an insurance company, as an entity, is so deeply prejudiced that it is unfair, despite its resources, to make it pay on a claim?

My bet is that the vast majority of the general population would say "no"; the insurance industry has one of the worst public images, down there with lawyers and used car sales.

Injured workers would likely say there are absolutely no circumstances when an insurance company should be let off the hook on a claim. Policy-wielding employers would likely not be far behind in supporting that view.

But insurance is a business, bottom line. That means it has to make financial sense for an insurance company to do business. Whether or not a company in the business of selling and administering workers' compensation insurance makes money is the product of two basic components: investment income from the money it holds in trust for policy holders; and, relatedly, keeping expenses down (i.e. not paying claims it isn't required to).

There is a long succession of cases out of the United States Supreme Court evolving the rights of corporations. They have religious rights, freedom of speech rights, rights against double jeopardy, etc.

So, do common law notions of fairness and equity also apply to insurance company corporations under workers' compensation systems?

The California Second District Court of Appeals is pondering that question and like many cases where lines in the sand are sought, the facts are on the extreme end of the spectrum.

Truck Insurance wrote a policy for the Har Lam Kee Restaurant.

Image: Google Maps Street View

In January 2005, Ng Fung Kwok fell from the roof of the Har Lam Kee Restaurant in Monterey Park while looking for the source of a leak. No one saw how the 37-year-old came to fall. The accident left Kwok unable to breathe, speak or swallow on his own.

For whatever reason, though, a workers' compensation claim for Kwok wasn't filed until seven and a half years after his accident.

The carrier denied the claim on a statute of limitations defense, a lack of evidence that Kwok's injury arose out of his employment.

A Workers' Compensation Judge determined that his claim had been timely because Kwok's employer had failed to perform its statutory duty to inform him of his right to file a claim.

Truck sought reconsideration by the WCAB, complaining that the judge had not addressed its laches defense; an equitable defense that bars an action when there has been an unreasonable delay in filing the action, and which results in prejudice to the defendant.

Truck's prejudice is: 1) that since Har Lam Kee was a family-owned and operated restaurant, Kwok's employer obviously knew about the injury; 2) Truck was unable to speak to witnesses, locate documents regarding the ownership of the restaurant and Kwok’s wages, or review the insurance policy issued to the restaurant to determine coverage due to the latency in reporting the claim; 3) Truck destroys records after seven years, so it couldn't check to see what coverage it had extended to Har Lam Kee's employees by the time Kwok's claim was filed, which is important because; 4) there was evidence Kwok was the owner of the restaurant and he would likely have been excluded from coverage under normal policy language.

The WCJ recommended that the board deny reconsideration, opining that the carrier's laches defense failed for the same reasons as its statute of limitations defense.

After the board denied reconsideration, Truck sought judicial review.

Kwok's attorneys respond that Truck’s admission at trial that Kwok was a restaurant employee, then it didn't matter that Truck was unable to determine who the actual owner of the restaurant had been. Kwok's attorneys further emphasize that Truck was able to actively participate in contested hearings where testimonial evidence was presented, and that it wasn't Kwok's fault that his wife didn't file a claim sooner.

More interestingly, though, the 2nd DCA questions whether there was coverage, presumably based on the argument that Kwok may have been the owner of the restaurant and thus excluded under the policy.

The real bottom line in the case is why did it take seven and a half years for Kwok's family to make a workers' compensation claim? Something is amiss here.

Which is likely why the 2nd DCA is questioning coverage (in which case it would be referred to arbitration for the factual determination under California law).

As Truck says in its briefing, "The family should not be allowed to extend indefinitely the time for one of its members to file a workers’ compensation claim simply because, despite their actual knowledge, they failed to comply with the technical notice provisions of the workers’ compensation statute."

I think that fairly summarizes why the carrier feels it is prejudiced in this case.

The case is Nu Square Corp. v. WCAB (Kwok).

Keep It Simple

Boscoe is simple...

Workers' compensation is designed to benefit two opposite interests: the people that get hurt doing work and the people that pay for that work to get done.

While these two interests may seem inapposite, the reality is that both have very similar characteristics, namely both groups are highly diversified in terms of sophistication and education, and both groups have deep historical issues with mistrust of the other.

In the middle are the financial services that make the system of workers' compensation possible by providing the method for accumulating and distributing money.

Our stereotype of the employer is of sophistication, and of the worker naiveté. Of course, both applications are erroneous. The fact is that the vast majority of employers aren't sophisticated when it comes to workers' compensation, and many workers have education and knowledge, albeit when it comes to work comp there's a void.

Consequently the third spoke in the workers' compensation wheel of vested interests, government, requires communications to both employers and workers to be at a level where there isn't much dispute or question about what's being said.

Employer contracts, also generically known as insurance policies, must go through an administrative review process and approved by a state agency, typically a department of insurance, before they can be sold out on the insurance marketplace.

And notices or forms to workers about their claims likewise must meet certain understandability standards.

Two WorkCompCentral stories this morning highlight this dichotomy and the government's role as a communications arbiter.

In one, an employer represented by attorney Nicholas Roxborough, is asking the California Department of Insurance to make precedent an administrative law judge ruling, adopted by the CDI, invalidating a policy side agreement that would force policy holder Shasta Linen to arbitrate disputes with EquityComp administrator Applied Underwriters in the British Virgin Islands using Nebraska law. 

The ALJ ruling, adopted by the CDI, voided that provision because it wasn't filed with the Workers' Compensation Insurance Rating Bureau or the CDI as required by law. (Applied Underwriters, for the record, disputes this finding and says it is seeking appeal).

And in Texas that state's Division of Workers' Compensation apparently has seen too many forms and notices to injured workers that were either vague, or used incomprehensible technical terms (at least relative to workers), causing it to send a memo reminding insurance carriers and other interested parties about the importance of communicating clearly.

DWC says this type of communication to the insurance industry is routine - a reminder that they need to keep things simple for the consuming public.

The EquityComp plan was the subject of a patent application, which describes the mind-numbingly complex nature of the contract.

"Disclosed herein is a reinsurance-based approach to providing non-linear retrospective premium plans to insureds that may not have the option of such a plan directly," the patent application says. "It also has the surprising ability to enable non-linear plans while at the same time complying with state regulations."

I have no idea what any of that means. I can only imagine how complex the actual language of the policy reads.

The Texas DWC says examples of statements that don’t meet the requirement to clearly explain the basis of the denial or dispute to an injured worker include “under investigation,” “eligibility questioned” and “no medical evidence to support disability.” What they want communicated are the factual basis for denial or delay.

One of the hallmarks of education is an expansion of linguistic abilities - using strings of multisyllabic words in an effort to be precise. But often that is perceived as an obfuscation and magic cards trick to get away with something that otherwise would be objectionable if the reader knew what was actually being said.

Which is why the government has rules in place to keep a check on those with a skill in communication complexity and uses its enforcement power to reel in errant behavior.

Me? I just keep things simple. 

My wife chastised me the other day for my prolific use of a certain four letter word that is associated with carnal knowledge.

"The reason I use that word so much," I replied, "is because it's the only monosyllabic word I know."

Keep it simple and stay out of trouble...

How Good It Is

Most of insured America doesn't know how good it is.

I'm talking about Market Competition for workers' compensation insurance.

And for that matter, most workers' compensation insurance companies don't appreciate how good they have it right now.

For Business America, market competition in the private work injury protection system means that if one company doesn't meet the expectations of the employer there likely is another source.

Since workers' compensation is viewed as a commodity by Business America, quality of service (unfortunately) takes a back seat to prevailing rates, and when coupled with various incentives, discounts and dividends or refunds, price sensitivity is heightened.

This puts pressure on the carriers.

In the past few years low interest rates that have hampered net financial results have been offset with increased rates, known in insurance parlance as a "hardening market."

A big component of pricing workers' compensation is the size of an employer's payroll. Despite increasing payrolls and decreased unemployment, premiums have not risen as fast as some thought.

According to insurance rating agency, AM Best, net written premiums for workers’ compensation increased to $46.8 billion in 2014, up 5.6 percent from $44.3 billion in 2013.

These observations are affirmed by NCCI.

The National Council on Compensation Insurance recently updated its projections for 2015, estimating that net written premium for workers’ compensation will reach $40.7 billion this year, a 5.7 percent increase from 2014. It would be the fifth straight year of growth and a record amount for the past 26 years. It’s also a greater increase than the 4.3 percent seen in 2014.

But rate increases have been slowing, turning into rate decreases for the first three quarters of 2015, company analysts said in a presentation yesterday, and companies want to retain their best accounts so they discount even further.

On average, according to Best, U.S. workers' comp rates have decreased 0.4 percent for this year’s first quarter.

That trend was affirmed by The Council of Insurance Agents and Brokers, which has also noted a softening of workers’ comp rates, as reported in its third-quarter market survey.

CIAB also notes that there are more carriers jumping into the market. It's not because of altruism though.

NCCI forecasts a combined ratio of 96 for 2015, down from 98 in 2014 and 103 in 2013.

Combined ratio is a very basic (and in my mind misleading) indicator of carrier health - it is simply a measure of dollars in and dollars out for any given period of time (and there are "policy year" as well as basic "annual" measurements): one dollar of premium versus X dollars of expenses and claims. If more is going out then the ratio is above 100. If less is going out then the ratio is under 100.

Since 1990, combined ratio has been less than 100 in only two other years: 1995 and 2006. In other words, this is one of the few periods in history that workers' compensation insurance companies are actually making an underwriting profit.

The reason underwriting profits are so rare in workers' compensation is because the system is designed that way - workers' compensation is a cash flow mechanism and insurance profits are to be derived from investment income obtained during the "premium float," the period of time between intake of premium dollars and outflow for expenses and claims.

The projected improvement in combined ratio is due mainly to projected increase in written premium volume, NCCI said.

Whatever the reason - carriers are picking a ripe plum, being that work comp is compulsory in most states and territories of the US. Captive markets are very enticing...

The Federal Reserve in the meantime is expected to start easing interest rates up, which means that Treasury Notes, the most conservative of investments due to the guarantee of the US Government, will start paying a bit more (albeit not much), which ultimately trickles down to the insurance market since conservative investments are favored by carriers and largely mandated by law.

And trickle it will be, because the rate increase is projected to be very modest, so investment returns won't be robust any time soon.

There is an inherent tension in workers' compensation insurance. In order for there to be a viable system, investors have to make money otherwise they will not be incentivized to fund it. But, the profit level needs to be kept in check because the insurance is mandatory, and Business America won't tolerate excess profits and will just "go bare," taking on the risk of non-compliance and financial ruin.

At the end of the day, though, there are only two salient requirements: that Business America has some avenue available to fulfill its mandatory obligations, and that Injured America is sufficiently protected with medical care and income support.

We have decided that it is up to The Market to make that happen. Right now The Market says there's money to be made by insuring the work comp mandate - they're drinking from a flowing fountain.

This is good for Business America because that means good competition for its premium dollars.

Now its up to Business America's management to make sure its employee assets don't have to use that insurance, but if they do, that those assets are protected to the extent that they are valued.

And ultimately, those assets will let Business America know if they feel valued or not.

Getting Along

Show me a business that complains about workers' compensation, and I'll show you a business that's mismanaged with a whole lot more problems than just workers' compensation.

I was at a lunch with some adjusters the other day. One of them had a great comparison story about two mining companies (this was in Nevada) which accounts she worked. 

One was actively involved in their workers' compensation claims, to the point where the CEO took the time to visit injured workers, and they liberally provided their injured everything under the law. They did not dispute much of anything, and if there was a question about compensability, they erred in favor of the employee. They brought injured workers back as soon as possible, even if the usual and customary couldn't be performed, and even if there was no particular position - just get back to the work place. They didn't use work comp to cull their labor force; if an employee wasn’t good for the company then they just let them go. Their experience was very low, and ergo their premiums were very low. 

But the other mining company treated their people like the dirt they were digging, disputed everything (she said EVERYTHING), didn’t communicate with the workers, didn't communicate with the adjuster other than to complain about paying something, and ergo, their experience was sky high and of course they were upset about their workers' compensation program.

I always go back to the experience and great wisdom of Bill Zachry, Albertson/Vons/Safeway's chief risk officer who has managed that business' work comp experience to 40% below industry average, and feels he can trim it another 30% - all without cheating injured workers out of compensation and ensuring that good vendors are paid and utilized. His rules of operation - err on the side of the employee; go beyond the law to provide what is necessary to return an employee to health; deal with all of the issues, not just the work-related/caused issues, and never forget that there is a person at the center of a claim. He holds everyone along the injured worker interaction chain accountable.

It comes down to a very simple algorithm: call everyone to task to follow the rules. Hold them accountable.

Do that and the injured worker will receive the best treatment, and if the best treatment is rendered (including allowance for dealing with psychosocial issues - i.e. treat the "whole" person) outcomes are better, faster and more complete. 

And the great news is, if the employer does this, it will cost the employer less (in premiums) in the long run, AND the employer will experience greater productivity with less lost time for employees which means others don't have to be paid overtime to fill the labor gaps.

There is nothing wrong with the ‘System’. It doesn’t need to be fixed – it needs to heal itself. It is not going to be healed by those who make their living sucking the life blood from both the injured worker and the employer. 

There's no magic here. Carriers don’t pay for benefits. They collect the basis for benefits in the form of dollars via premiums from the employers. Employers collect that money, built into their goods and services, from consumers (except for the recalcitrant cheaters who deservedly should be put behind bars). 

The carriers are gate keepers, and dole the benefits out to everyone else – least of whom is the injured worker. In the process, they keep an amount for themselves to return to investors/shareholders.

Insurers collect capital and deploy it with the intent of earning a return on investment. They even take on a bit of risk – although not exactly with their money (remember, "their" money is actually the employer's, entrusted to the insurance company for reallocation upon the occurrence of certain events).

The answer to the problem isn’t in getting the Department of Insurance, the Workers' Compensation Insurance Rating Bureau, the carriers, the brokers, the providers, and the laws and regulations to do better. 

The answer is to educate the employers that they are the ones in charge. They are paying for a service - mandated, yes, but they are the ones paying.

If you paid for a car repair and it wasn’t fixed, you’d go on a tear and demand it be corrected immediately – OR ELSE! Legal action would pursue vendor inaction. 

Everyone in the chain is responsible – carriers, adjusters, providers, etc. - and should be held accountable.

And everyone already knows that. Carriers, government, defense attorneys, claimant attorneys, medical providers, ancillary vendors: everyone in this industry is well aware of where the money comes from and to whom the obligations are owed. 

When employers press that point to those in the chain of supply (as Zachry does), everyone seems to get along much better. The injured worker and the employer get what they need and are entitled to.

In California we have Section 3762 of the Labor Code. There are two very important mandates in that section: 1) disclose everything that affects the employer’s premium, and 2) provide the employer with sufficient information to design a Return to Work program for the injured worker.

Other states have similar provisions in their laws.

That's all an educated employer needs: did you make that call today and what did you say; did you not make that call; did you authorize a treatment or did you delay/deny it; did you pay benefits on time; did you use stress and duress to extort an injured worker into taking a lesser settlement, etc.?

When the employer knows and understands what is supposed to happen, when its supposed to happen, and why, then accountability follows and everyone gets along just fine.

And the employer can go about expertly managing the rest of its business.

Threat to Market?

Disclaimer - I'm no economist. I leave that stuff up to Bob Hartwig and his team over at Insurance Information Institute.

I just know what I know, and the older I get the more I don't know.

Still, in the world of workers' compensation there are some basic, simple facts that we tend to forget as we get swallowed up in the mire of data that either supports or contradicts our theories and actions.

The single most basic fact about workers' compensation is that it doesn't exist unless there are businesses that employ workers, and there are workers at those businesses.

Bottom line - without work there's no work comp, nor an industry to support it.

This fact was last made painfully aware to us in the Great Recession, when premium dollars dried up, and 2010 saw one of the single biggest jumps in claim frequency in many, many years, producing a couple years of negative combined ratios, followed by years (and continuing) of abysmal investment returns.

Workers' compensation is particularly hurt in troubling economic times when the top tier of the risk categories are impacted: construction, manufacturing, trucking - high risk lines with corresponding high rates and, ergo, high premiums.

And just when we think things are getting better, the global economy gets challenged, which challenges the domestic economy, because in this new world everything is connected.

The Wall Street Journal yesterday ran a story about the ongoing recession (didn't we escape that a couple years ago?) - not an overall recession, but the hard times befalling the industrial sector.

“The industrial environment’s in a recession. I don’t care what anybody says,” Daniel Florness, chief financial officer of Fastenal Co., the WSJ reported he told investors and analysts earlier this month. Fastenal is a NASDAQ traded company and its stock has been trending downward over the past year.

The reason the stock has been slipping is because its customer base isn't buying the nuts, bolts and other factory and construction supplies the company makes. According to the story, Florness said that a third of Fastenal's top 100 customers have cut their spending by more than 10% and nearly a fifth by more than 25%.

That story is repeated by other big, industrial stocks. Caterpillar Inc. last week reduced its profit forecast, citing weak demand for its heavy equipment, and 3M Co., whose products range from kitchen sponges to adhesives used in automobiles, said it would lay off 1,500 employees, or 1.7% of its total, as sales growth sagged for a wide range of wares, according to WSJ.

What's going on?

Energy prices (i.e. oil) has favored fuel consumers, but has killed domestic production and the need for drilling equipment and supplies. China's troubles, including its own interest rate cuts, have stemmed that country's needs for US goods, and other emerging markets such as Brazil aren't able to take up the slack.

According to the WSJ story, profit and revenue are falling in tandem for the first time in six years (six years ago we were in the throes of The Great Recession), with a third of S&P 500 companies reporting so far. Sales are also on pace to fall 4%—the third straight quarterly decline (and we're going into retail's customarily biggest season). The last time sales and profits fell in the same quarter was in the third period of 2009 says the Journal.

Last year, outgoing NCCI president/CEO Stephen Klingel in his State of the Line address opined that the industry was stable and that the future looked promising, but he couched that forecast with some skepticism about the future, and that skepticism seems foretelling. Pricing is being challenged, rates are going down (okay, except in California), investment returns are stagnant ... but claims frequency and severity is ameliorating too.

True - there are sectors that are defying the global troubles: tech, health care, autos, air travel; and most economists don't see a meltdown or overall damage to the economy.

But even construction, which is a high rate, high premium sector for work comp may be a challenge because, believe it or not, the home-building industry is saying they can't find labor to keep up with demand, and the most recent reports show that new home sales are actually cooling off.

It seems the financial world of workers' compensation is challenged. Low interest rates on renewing bonds squeeze investment gains (if at all); high margin risk categories aren't generating the payroll to fortify premium sales; foreign investment in US assets is waning; and the strong dollar abroad is pinching the export/import markets.

Oh, and good heavens, there are economists that are now saying Americans are saving too much!

On top of all this, we are in the midst of radical changes to when, where, how and who does work (and who pays for that work).

Forbes ran a story the other day opining that, "in the 21st-century corporation, whether it’s acknowledged or not, employees own most of the assets because they are most of the assets."

That's a radical concept - it's not the machines, the land, the buildings, the inventory that's important to the 21st Century business, but the people that make that business happen.

And people is what workers' compensation is all about - it takes people to hire people to do the work that people want done to produce the goods and services that people will buy....

So wait! Maybe work comp isn't doomed - the concept of how that insurance is bought, used and/or applied is just changing.

We think of insurance as a capital intensive business, particularly workers' compensation insurance where laws dictate minimum capitalization and liquidity to meet claims needs.

Many industries in the past used to be thought of as capital intensive, which created barriers to entry: transportation, lodging, information...

What we are seeing though, is that technology is enabling the redistribution of risk, and therefore capital requirements are not so intensive any longer: Uber, AirBnB, Facebook and Google - each of these new generation businesses have in common a basic business fundamental of redistributing the risks of operation making the revenue/profit per employee (i.e. asset) much, much higher than traditional models.

The old capital intensive requirement is a part of what we like to call "friction" but as this "new economy" is showing, that friction is being reduced dramatically. Work that used to require factories, offices, commuting, and risk, is now delegated to the most competitive workers throughout the world - what is now called the "gig economy".

So maybe work comp carriers don't need that much capital other than what the law says. Maybe the industry's traditional financial thinking is looking too much at the past, rather than recasting for the future.

There's a lot more to this story than I can give credence because there are so many moving parts.

Workers' compensation is over 100 years old; and while you can't teach an old dog new tricks, you can build upon the foundation.

I think that's what is happening - and we're seeing this happen before our eyes at a pace that is relatively slow so that the disruption is not as abrupt as in other industries. Berkshire Hathaway, Insureon, Intuit, and others, are all moving towards digitization of the workers' compensation insurance market.

At the end of the day it's understanding the risk requirements, which dictates the capital requirements. Knowing what the risk requirement is at a minute, detailed level means allocation of capital to meet that risk can also occur at a minute, detailed level - i.e. greater efficiency means less capital in the traditional sense.

Short term, the traditional stalwarts of work comp will be challenged. Over time, though, as efficiencies work their way into the economy those efficiencies will be translated to the work comp insurance line. I think we're going to see some exciting, new, and radical changes in the next decade as our "old world" industry becomes imbued with new world understanding.

Times A Changin'

I buy pretty much everything over the Internet now.

Looking at my receipts over the past couple of months: there were motorcycle and bicycle parts, shoes, shirts, a leather riding suit, tires, oil and filter for Forty One Mike.

About the only thing that I don't buy over the Internet these days is groceries.

And insurance.

And even the insurance part is not entirely true - insurance for The Sewing Machine was purchased on line through Progressive.

But all of my other insurance, business and personal, general liability, homeowners, auto, umbrella, directors & officers, cyber-liability, employee practices, health, dental, and yes, workers' compensation (geez, how much insurance can one person purchase?) - all via my broker Mike and his agents.

Why is that?

Is is too complicated? I don't think so - every insurance policy I have purchased, including workers' compensation, requires only the completion of an application. Those applications may be lengthy and ask really dumb questions that don't seem to either have any relevancy or are just in-artfully drawn, but nonetheless, there's nothing magical about the application process that requires human assistance.

Are there services that a human provides in the insurance procurement process that can't be replicated by a computer? I don't think so, at least not in my case. My agent has never helped me complete an application. Once his office assisted in getting records sorted for an audit, but I could have had a staff member do that. Otherwise, I'm not really sure what value my agent brings to the table for his commissions and fees.

One thing that a human agent can do that has not been replicated on line, yet, is easily shopping multiple carriers along multiple lines to make my purchase single decision easy. But even then, that's half-assed; it's just research and I'm sure he does that all on line... And I still have to write multiple checks several times a year to different companies for all of that ridiculous over-coverage I carry.

Employers Direct Insurance, started by Jim Little over a dozen years ago, was one of the first insurance companies that was started with the consumer direct model for workers' compensation. Eventually the company went the traditional broker model.

Little told WorkCompCentral reporter Elaine Goodman that they found people were "more comfortable keeping it all together with their ‘trusted adviser.”

Overstock.com began selling business insurance, including workers’ compensation coverage,through its website last year.

Berkshire Hathaway is in the process of getting regulatory approval for all 50 states to sell workers' compensation insurance direct to the consumer, presumably through the Internet. Berkshire owns Geico, which has been selling auto and motorcycle insurance direct to consumer through the Internet for years now.

Berkshire has formed a new company for the venture, Berkshire Hathaway Direct Insurance Co., to start selling workers' compensation insurance in all 50 states to small businesses. It has approval now in 46 states.

A 2013 insurance survey by Deloitte Center for Financial Services found that 16% of all surveyed were very likely to purchase their insurance on line. 35% said they were somewhat likely to do so. Millenials scored highest in the survey, of course.

What's different now than in 2002 when Little tried the direct experiment? Probably just the passage of time which breeds familiarity and comfort.

I originally started WorkCompCentral in 1999 to be the document intermediary for service of legal papers in workers' compensation via the Internet. That concept was way too early for adoption by the industry, so WorkCompCentral became a media outlet, publishing news and education.

But a couple of years ago it seemed that the industry had caught up to technology, so DocuCents was formed and has been growing like gangbusters since. And we know the concept has validity because there are competitors...

For the Berkshire experiment to work, they will need to offer a whole suite of business insurance, make the process simple and elegant (by storing information and pre-filling applications with that repetitive data), and of course price competitive which they should be able to do by eliminating brokerage and agent fees and commissions.

I hope it works. There's no reason why it shouldn't if it is done right, and Berkshire certainly has the resources to experiment, to use the lessons learned with its Geico branded on-line service, and try again if it isn't satisfied.

And I'm happy to save a few hundred dollars on every policy.

Sorry Mike - I like you and appreciate the candy you send every holiday season. But other than that, if I can save money going direct and on-line, then that's where I'm going.

I think, as Bob Dylan wrote, "the times they are a-changin'."

A Side Note

Going or coming?

One rule of statutory construction is that the courts make assumptions based on prior law - that is if a legislature does, or doesn't in some cases, specifically deal with or mention a particular concept of law, such as the "going and coming rule" in workers' compensation, then the courts will assume that the law makers didn't want to mess with the "old" law.

This is particularly true when the legislature does deal with other details.

The Oklahoma Court of Civil Appeals reminded the state's work comp participants of this propensity in a recent case, Robinson Medical Group/Castlepoint Insurance vs. True (113,528 - 10/07/2015).

Tommy True worked as a registered nurse for the Robison Medical Resource Group. His job required that he work at various hospitals throughout northeast Oklahoma – mostly in Claremore, Pryor and Mayes County and occasionally other locations.

True was supposed to go to Claremore to work on March 8, 2014, but Robison asked him to go out to Grove since a sleet storm had left the hospital there short of staff.

True testified that he negotiated a higher payment at a rate of $40 per hour representing his hourly rate of $37.50 and an extra $2.50 per hour for his mileage. Castlepoint did not offer any rebuttal testimony on payment arrangement.

On his way home from work, True's car hydroplaned when he swerved to avoid a deer. He crashed into a tree, sustaining severe injuries that almost cost him his leg.

The Administrative Law Judge found True's accident to be compensable last June, and Castlepoint appealed.

The Commission upheld the ALJ.

The Court of Civil Appeals found there was substantial competent evidence to support the ALJ's finding that Robison had compensated True for his mileage in driving to and from the Grove hospital because although Castlepoint offered evidence that the payment arrangement was not standard, there was no evidence to rebut True's testimony as to the specifics of pay.

The question then became whether Robison's payment of compensation for True's travel time kept him within the course and scope of his employment, even though he had already left work and was heading home on a public roadway, the court said.

Section 2(13)(a) of the AWCA defines the "course and scope of employment" as excluding a worker's travel to and from work, the court noted. "(T)his language is substantially similar to what, under the Workers' Compensation Act, was the general rule," often referred to as the "going and coming rule," the court said. Thus, the court reasoned Section 2(13)(a) represented "an express attempt by the Legislature to adopt that general rule."

The court observed that the AWCA expressly adopted, abrogated and modified many of the formerly recognized exceptions to the going and coming rule.

Under the Workers' Compensation Act, the going and coming rule did not apply when a worker was hurt while traveling to or from his workplace to perform a special task outside of his regular work hours, at the request of his employer, for the employer's benefit, the court said.

So, since there were expressed limitations and exceptions, etc. in the Act, the legislature's failure to eliminate the special task exception meant that it still applied.

As "Legislative silence on a well-established point of law is not indicative of the abrogation of the prior law," the court said it had to find the paid-travel exception "survives intact under the AWCA and it applies to this case."

Now, a side note.

You may have noticed that I inserted the insurance company's identity in place of the employer's identity relative to the procedural decisions in this case.

I will do this in the future when possible - the reason: employer's don't make litigation decisions (unless they are self insured/administered) in the vast majority of cases (and if an employer does direct the litigation, then YOU let me know!).

Overwhelmingly, the decision to deny, defend, litigate, etc. is delegated by the employer to the insurance company via the insuring contract.

Robison's, in this instance, would not have wanted this case to fall outside the exclusive remedy of workers' compensation because of the exposure to civil liability - which, by the way, would have been denied by the general liability carrier as a work comp claim: the proverbial Catch-22.

The courts are largely responsible for confusing the responsibilities of the employer and carrier because the courts have made it a habit, either through procedural rules or just customary practice, to lump the two together.

But an employer has distinctly different interests than the carrier does. That's the nature of the insurance relationship.

So, unless an employer actually does control litigation decisions and that point is distinctly available from the record, I'm going to assume that it's the insurance company that makes those decisions - and will criticize (or praise) accordingly.

In this Robison case, it is quite obvious to me that the decisions were those of the carrier. And, by the way, the management of evidence, particularly witness rebuttal to True's pay testimony, is telling - there was no evidence to rebut True, and that should have driven Castlepoint's decision to drop the litigation and pay the claim.

But other interests got in the way - and that's a rant for another day.

The Feed

Dyea (pronounced "dieee") went from a couple hundred residents to about 10,000 in a year as it was the entrance to the Yukon Gold Rush. Everyone that wanted to get to Whitehorse had to come through Dyea because it was the head of the Chilkoot Trail, the only passage through the mountains to gold country.

But the Yukon Gold Rush didn't last long - about a year - and when the gold dried up, so did the "stampeders" and Dyea was abandoned.

Years later the neighboring city of Skagway, which has a natural deep water port, grew from a hunting and fishing town to support a seasonal tourist industry.


Each town experienced (and still does) major disruptive forces, huge changes in lifestyles. Fortunes were made, fortunes were lost, most people were lucky just to survive. The disruptions were quick and radical, and largely unforeseen but by a few.

Now Dyea is mostly a memory, a few cemeteries, remnant pilings from a dock, and some false store fronts.

Skagway on the other hand bustles during the tourist season with jewelry stores, souvenir shops and restaurants. The town swells by 10,000 when a couple ships tie up for the night, employing a couple thousand seasonal workers.

The world of workers' compensation has for some time been experiencing the disruption that is challenging a lot of other industries. Every state "reform" is disruptive. New trends and unforeseen, unintended results, is disruptive. Old vendors succumb or adapt, new vendors sprout up and some don't flower.

And like other industries, technology is poised to alter in ways we can't imagine, the insurance market place, particularly in workers' compensation.

CitiBank isn't in the business of insurance directly, but I'm sure they are lenders and investors in the market. That gives their team of analysts on the insurance industry a little bit of credibility - it's in their interests to understand what might go on with the market because they make money financing and supporting insurance.

Todd Bault, James Naklicki, and Alex Gifford at Citi recently opined that the Internet of Things, which they have renamed for their purposes, "The Feed," is not only going to disrupt the insurance market in huge ways, but is also going to disrupt the public's interaction with insurance, and I see this especially applicable to workers' compensation.

There's big debate about the shared, or "gig" economy and the tests it is putting on the standard duopoly relationship between worker and employer, independent contract0r versus employee.

Academics and others are starting to argue that there should be a third category, the Dependent Contractor, that blends the stability of the employee relationship with the freedoms of independent contractor status.

In order for that to work there has to be viable insurance alternatives, and what is really keeping the insurance industry from endorsing this sort of change is the ability to know when someone is working as a DC, or as an employee or IC.

In reality, this concern has always been present, and has always been a challenge, except that the option was limited to black and while, on and off, either or.

There has never been a maybe. Technological advances, the IoT, the Feed, will increase the possibility of a "maybe" category.

Technology, as argued by Bault, Naklicki and Gifford, will enable the insurance industry to determine, in real time, what relationships exists and when (among other important risk factors), and consequently coverage can be tailored to the exact moment in time something bad might happen.

"But the potential here seems higher for commercial lines: with fewer or no privacy issues, and existing pervasive automation, it seems like a smaller step to embed IoT into industrial (manufacturing) and service (venues) processes, not to mention commercial auto activities like trucking and livery," said the analysts. "Employees in certain high hazard occupations could even be wired and monitored, though there could be resistance here."

This isn't going to happen overnight - but a multistage revolution in the insurance industry is, in my mind, certain to happen.

First, since data can be compiled by the insurance providers themselves, they can use that to make a quote and receive a claim, possibly cutting insurance brokers out of the process.

Next, the analysts envision that insurance companies could adjust their prices based on the level of risk being undertaken by the company at different points in the work process and time of day.

"With continuous monitoring of the Feed, we could learn when companies present exposures or not (e.g., the plant is closed, the venue is empty) and with what intensity (e.g., the plant is running hot, the venue is only at half capacity)," wrote Bault, Naklicki, and Gifford. "This could allow insurance to be metered like a utility, and at different rates depending upon exposures and intensity."

Further developments — like tailored risk-management training and the ability for companies to shop individual elements of their business to different insurance firms — could also follow.

This would be a multistep process, because laws need to change to allow insurance to exist in this manner. Insurance, in the workers' compensation field, needs to be able to rate individuals, not companies. Individual risks will be more granularly assessed, and actuarial models will be created on the personal level.

There doesn't need to be confining job descriptions along with their respective class codes and risk ratings - the actual work that truly does pose a risk can be singled out rather than rating at the highest level of risk an employee might engage in, even if they don't do that activity but 10% of their work exposure.

Professional Employer Organizations and other temporary employment systems will benefit immensely, as will their insurance companies. Opt out may not be relevant any longer.

Oh, and uninsured employers would no longer be able to hide so long as a worker is "wired" to the Feed.

Sports wear vendors are already embracing embedded technology and building it into their clothing.

Privacy? pffft - I think darn near any employer will accept a lower price for engaging in the system more efficiently, and workers will just have to accept that as a part of their employment, or work elsewhere.

In fact, such IoT implementation may actually work to engage and retain employees, something the learning community calls "gamification."

The Feed portends disruption to the insurance market, and work comp is a natural fit. This isn't the Yukon Gold Rush. It's more like Skagway's tourist rush.

We're just scratching the surface. This industry is going to look a lot different in 20 years, or sooner.