NEWSLETTERS NEWSLETTERS

Slaton Insurance
561-683-8383
November 2008
In this issue
• Case Study: CWCA Investigation Leads to Lowering Of Client’s Mod to All-Time Low
• Six safeguards to control Workers’ Compensation costs in a down economy
• Three subcontractor traps to avoid
Case Study: CWCA Investigation Leads to Lowering Of Client’s Mod to All-Time Low
Insured
A contract hauler with annual gross revenues in excess of $6,000,000 that services major building supply companies and contractor equipment dealers in 11 states.

Situation
The company’s Workers' Compensation premium was $140,000 and the Experience Mod was .96, predominantly a result of claims in two states.

Assessment
CWCAs reviewed the company’s operations for state and federal filings and to make sure the coverage was proper. Then they reviewed the Experience Mod worksheet. Careful analysis revealed a number of claims still open, dating back six years with no activity.

Solution
With help from a private investigator, it was learned that two of the claims were fraudulent and quickly closed without payment. Two previous claims, which had excessively high reserves, were amended to less than a quarter of the original. And one remaining claim is pending in litigation, though it is expected to settle for a fraction of the original estimate.

Result
By managing the claims properly, the CWCAs were able to reduce the company’s expiring annual premium from $140,000 to $90,000, and the Experience Modification Factor from .96 to an all-time low of .67.
Six safeguards to control Workers’ Compensation costs in a down economy
The current economic crisis has many employees worried about their future. Feeling stressed over financial matters, employees can be preoccupied and become less productive and attentive to their job, increasing the risk of an injury. Furthermore, anecdotal evidence suggests that fear of layoffs causes claims to escalate as ill-intentioned employees look to Workers’ Compensation as a way to sustain their income.

Here are six safeguards to control Workers’ Compensation in a down economy:

1. Ramp up communication efforts
Employees want reassurance because there is bad news everywhere. According to Richard Guinn, practice leader in communications at Watson Wyatt Worldwide, most employers either provide too much or too little information during a crisis. The important thing is to listen to employees and respond. Employees working under leadership that is truthful, fair and provides support and motivation, have lower levels of stress, anxiety and depression.

Although the message about the economic health of the company best comes from the top, immediate supervisors and managers need to play an active role in reinforcing this message. Studies have shown that workers trust their immediate boss more than they trust the organization’s senior leaders. In addition, they are closest to the employees and should be attuned to growing uneasiness or rumors.

2. Rigorously monitor claims frequency
During an economic downturn, it is particularly important to guard against abuse. While employers should always use analytical tools to monitor the volume and type of claims, identifying up ticks in the volume and patterns of claims will help flag potential abuse. Employers suspecting abuse should immediately discuss the situation with their WorkComp advisor.

3. Watch job classifications
Reductions in the workforce can result in shifting job responsibilities. Workers can be repositioned while others take on duties from those who have left. Be sure that your job classifications are up-to-date.

4. Stay the course with your injury management plan
In all economic environments, there is a constant about Workers’ Compensation – every day an employee is off the job costs the employer money. Although shifting priorities and a reduced workforce strain resources, an unwavering focus on returning every injured employee safely to work as expeditiously as possible is best for the employee and the employer. The longer an employee is out of work, the harder it is to get them back to work and the more costly it is for the employer.

5. Focus on health
If you have not already established a relationship with a qualified occupational medical provider do so now. Find physicians who follow ACOEM (American College of Occupational and Environmental Medicine) and who will take the time to understand your needs. Although it may sound paradoxical, quality, not price, should govern the choice. Seemingly low prices from managed care organizations actually can increase costs.

Do whatever you can to maintain and even expand health-related perks such as wellness programs, fitness opportunities, screenings, healthy food choices etc. as these will help to keep your employees motivated and productive.

6. Provide financial education
Even in good times, managing finances is daunting for many employees. In this time of volatility and uncertainly, they feel overwhelmed and burdened. Holding meetings on reducing credit card debt, maintaining/buying a home, saving for college and investing in tough economic times will show support and help reduce stress. Allowing spouses to attend by scheduling meetings after business hours can also be beneficial.

Tips for managing layoffs
When layoffs are imminent, employers need to vigilant in both controlling claims rates and disability duration. A decline in premiums as a result of a reduced payroll can be more than offset by a rise in claim costs. The resulting increase in the Experienced Mod will have a long-term adverse effect on the company’s bottom line.

Communicate in timely manner
When accurate and complete information is available about layoffs, employers should be honest and direct with their employees. Telling employees too soon can cause confusion and anxiety, whereas waiting too long breeds rumors and misinformation. Timing is critical.

Keep accurate and detailed records
Since it is possible for Workers’ Compensation claims to increase when layoffs appear imminent, employers need to be especially diligent in documenting equipment condition, housekeeping inspections, and industrial hygiene as well as work schedules, accident reporting and investigations. Videotaping work areas and activities can also be helpful.

Investigate accidents immediately and thoroughly
Accident investigation is always important in controlling comp costs and takes on increased importance when ill-intended employees view Workers’ Comp as an escape from unemployment. Get signed statements from the injured employee and witnesses, interviewing each person separately. Immediately remove faulty equipment from use and address any hazards that may have caused the accident.

Signed verification forms
Have employees sign a form verifying whether they have experienced any accidents on the job that have not been reported. Such documents can be valuable should claims arise once employment has ended. Contact us for sample of form.


Provide employee assistance programs
If employees feel the employer is supportive and concerned about their well being, they are less likely to abuse the system.

Red flags of fraud
While most claims do not involve fraud, look for the red flags that a claim might require additional scrutiny.

Know the law
The Worker Adjustment and Retraining Act (W.A.R.N.) imposes certain obligations on employers with 100 or more employees who shut down or downsize their operations. The EEOC carefully monitors discriminatory actions in layoffs. In addition there may be state laws that apply. Have an attorney review all aspects of the reduction in force procedures.

Communicate goals – support those who are staying
During economic downturns, the need to keep and motivate the best talent remains. Layoffs are emotionally charged events, even to those who maintain their jobs. Clearly communicate the goals associated with the layoff, the structure of the emerging company and the employees' continuing role.
Three subcontractor traps to avoid
With more and more subcontractors looking for ways to cut costs and become more competitive, some may try to circumvent their Workers’ Comp obligations. While it may be tempting to accept the lower bid, the risk is substantial. Here are three common traps to avoid:

Contractor is "exempt"
There are several ways a subcontractor can claim to be "exempt." One common practice among out-of-state subcontractors is to apply exemptions from one state to another or to claim that the other state’s coverage is sufficient. It is becoming increasing challenging to address multi-state issues as states adopt statutory changes. Don’t accept the subcontractor’s position as fact - be sure you understand the applicable laws.

Certificate of insurance is cancelled
While it is a best practice to require certificates of insurance from subcontractors to provide evidence that they have their own Workers’ Comp, this is not sufficient. The certificate verifies that the contractor had coverage on the date the certificate was issued. If the policy gets cancelled for non-payment or another cause, your company is exposed. Require in your contract and on the certificate of insurance that you receive a notice of cancellation.

Certificate of insurance lapses
A certificate of insurance is only good for the policy inception and expiration dates shown on the certificate. To ensure that there is no gap in coverage, there should be a system in place to monitor expiration dates and require updated certificates of insurance before the policy lapses.

Handbook language can lead to unintended FMLA liability
Based on employee handbook language granting leave under the Family and Medical Leave Act (FMLA), the 7th U.S. Circuit Court of Appeals held that an employee can proceed with state law claims for breach of contract or promissory estoppel even though the employer had fewer than 50 employees. While employers can certainly offer more generous FMLA-type leave benefits if they so choose, inadvertent exclusion of FMLA eligibility requirements from an employee handbook might subject employers to unintended liability based on implied contract theories.

In Peters v. Gilead Sciences, Inc., an employee who suffered a shoulder injury and underwent corrective surgery, took what he thought was FMLA leave, as outlined in the employer's handbook and as further explained to him in letters from the employer outlining his rights under the FMLA. The handbook and letters recited the 12-month, 1,250-hour prerequisites for FMLA eligibility, however, made no mention of the other key statutory eligibility requirement that the employee be working at a worksite with at least 50 employees within a 75-mile radius. In fact, the employer did not have 50 employees within a 75-mile radius.

During a second leave, the employer replaced Peters with another employee and sent a letter designating him as a "key" employee. Peters sued in federal court alleging violations of the FMLA and state-law claims. Although the FMLA claims were dismissed on summary judgment, the court found that, based on the employee handbook and letters to the employee, the employee could bring a state-law claim for promissory estoppel because of the employee's detrimental reliance on the letters and handbook. The court concluded that the employer offered "FMLA-like" leave benefits, using eligibility requirements less restrictive than those in the FMLA (and had offered FMLA-like leave to employees who worked at a worksite that did not have at least 50 employees within a 75-mile radius).

To avoid unintended liability, employers should ensure that their FMLA policies and related documents reflect exactly the leave they intend to grant.


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