Comments

1. #1 Risk Control Dude

   January 25, 2011

   Interesting catch Celeste. Workers comp insurers (or related risk control prevention professionals) often are attempting to improve the safety of their policyholders workplaces (thus reducing risk for the insurer) through the various risk control and safety programs they offer. After all, a stated objective of the workers comp system is to promote safety and injury/illness prevention through both services and pricing of coverages. I have not known Fed OSHA to look at WC but it certainly could establish employer knowledge (e.g. I know property insurance loss control reports were an issue in some of the So Carolina Sugar plant explosion litigation).

   Your questions:
   “Would an insurer void a work comp policies with an employer who shows blatant disregard for safety regulations?” The policy might get cancelled or more likely non-renewed on expiration. If the insurer had sent out risk control staff who made recommendations for improvement that were ignored by the employer then that might an issue. However it would be to hard for the insurer to legally establish blatent disregard as grounds for immediate cancellation. I guarantee that these claims got the attention of all senior management at the carrier.

   “So what is the actual cost of the claim for the insurer? ” I am not an expert at Illinois workers comp law, maybe another reader is, but at http://www.state.il.us/agency/iic/benefits.htm “Death benefits are paid for 25 years or $500,000, whichever is greater.” These are definitely million dollar plus claims. I totally guesstimate the workers comp exposure to be $1.5 Million for both (excluding any civil liability, criminal sanctions, OSHA fines, defense costs) Total cost to the employer will be millions over time (if they survive as a business – maybe they shouldn’t given their practices….)

   “Would other potential costs be incurred by the insurer under a separate liability policy, not workers’ comp?” Possibly, but you can’t insure illegal acts (like arson) so the liability insurer might try to deny coverage on that basis.

2. #2 Seattle Chiroparctor

   January 25, 2011

   That’s so sad…

3. #3 Kate from Iowa

   January 25, 2011

   Although they’ll probably settle, the insurance company would be perfectly within thier rights to deny payment of any claim associated with breach of contract on the part of the insured. Its the same at this scale as it is on an individual scale. We inspect your house/car/you before we cover you. If you don’t keep up your end of the deal (recently we had an insured who’s garage door came off and sat up against the side of the house for months, your policy is not only non-renewed if you show yourself to be a morale hazard (not caring enough to correct the problem) and the company has the option of not covering any claims that arise from the reccomended action not being taken. However, as litigious as people are anymore, it’s generally cheaper to just pay, or if it’s particularly egregious, to let the claimant bring suit against the company and re-examine the company’s options at a later date.

   Grinnell Mutual being a reinsurer though, they probably will just pay.

   The company does have protection from the families of the dead workers though. If you know of a problem and it is spelled out in your insurance contract that you agree as a condition of that contract not to do those things (it’s a lot like saying “I promise not to set my hair on fire” really, it makes more sense to comply than not comply,) then you are liable if something happens, not the insurance carrier. They will have it right there in the documents that the company officer signed that the insured agreed that they would not do A, B, C or D; further that they periodically get a new copy of the policy spelling out thier continued obligation not to do A, B, C or D and that the viability of the contract and application of it’s benefits are contingent on thier continuing to not do A, B, C or D. If they then do those things….well, the contract is void, the insurande company is off the hook.

4. #4 Celeste Monforton

   January 25, 2011

   In response to Rick’s find “Death benefits are paid for 25 years or $500,000, whichever is greater” would this only apply if the decedent had a surviving spouse or dependents? I know of some family members who have lost young sons from fatal work-related incidents and the parents did not receive any death benefits because they were not dependents. (The young man did not have a spouse or children.) The only “benefit” they received was the burial allowance.

5. #5 Tasha

   January 26, 2011

   @Kate – This may be because I’m in Oregon, not Iowa, but I’ve never seen a fatality claim (or any workers’ comp claim for that matter) denied due to “breach of contract” (which I would assume in this case refers to safety violations and the like). The point of coverage is to provide benefits to the worker, not the employer. Therefore to deny benefits to the worker because the employer did something wrong would be completely against the purpose of the system.

   @Celeste/Rick – I don’t know the exact rules in Illinois, but generally death benefits, other than burial, are only paid out if the deceased had dependents. Each state defines dependents in their own way. And a few states have additional payments made to the estate if there were no dependents. But generally speaking, the claim itself is only truly expensive if the claimant had a spouse and/or children. In the latter case, it is true that the claim can easily reach hundreds of thousands of dollars.
   But remember, the claim is being paid out by the insurer, not the employer, and the purpose of death benefits is not to penalize the employer but to provide for the family in the case of a death. While it may seem sad to see a small benefit paid out and think it means that that worker’s life was only worth $8,000. But really, what we should be looking at are penalties and (more importantly) efforts to prevent other deaths from happening.

6. #6 Celeste Monforton

   January 26, 2011

   In response to a request I made of OSHA, I received the following from Scott Allen, Director of Public Affairs for Department of Labor Midwest Region (allen.scott@dol.gov)

   “Workers’ compensation has many roles including providing benefits and medical care for those injured on the job, but the system is also intended to provide incentives to employers to reduce hazards and injuries through attention to the risks of work. Most insurers include loss control or loss prevention services to assist employers in making workplaces safe. In our efforts to promote transparency and disclosure, OSHA lists the carrier. Our objective is to encourage workers compensation carriers to work closely with employers to protect worker safety and health.”

7. #7 catherine rylatt

   January 26, 2011

   The whole insurance discussion is very interesting as I did not know that was not a usual step in listing the holders. My question, to make sure I understand what is being said – Suppose an insurer told (and documented) a company you need to do A, B, C – l – and the company does only A – can the insurer deny claims?

   Also, what happens if the workman’s comp insurance was for only x no of employees, and there was actually more? How is it determined if someone was an employee – through a W4 or does it matter?

   Also, very clearly, if the insurer says the company didn’t live up to their agreement and denies a claim- where does that leave the family?

8. #8 Tasha

   January 27, 2011

   @Celeste – Just wanted to clarify one thing from my earlier statement. When I stated that the purpose of WC is not to penalize the employer, I didn’t mean to minimize the incentive role that Mr. Allen mentions. Paying premiums on workers’ comp is indeed an incentive for workplace safety as a better safety record can result in lower premiums. However when a claim is being paid out, the amount of the claim is not meant to be a penalty, any more than an insurer is meant to be penalized by paying your car insurance claim. I only mention this because some people can confuse the two, particularly when death benefits seem inadequately low.

   @Catherine – As I stated before in my earlier post to Kate, I have never seen a claim not paid because the employer did not do what the insurer told them to do. Perhaps they could use this as a reason to cancel a policy, but as long as the premiums are being paid I don’t believe this can be used as a reason to deny a claim. Again, it just wouldn’t make sense. The insurer would basically have to tell the employee that “Yes, we know your employer didn’t follow safety protocol, and that’s why you got injured. However, that’s also why we’re not going to pay your claim.” I’d be very interested to hear from someone more closely tied to the WC insurance industry if there is some stipulation that I am unaware of, or if different states have a different legal standing to this effect, but, again, I have never seen anything like this.

   Interestingly enough, there was a case where a claim was denied because the employee didn’t follow safety protocols. However, the denial was eventually overturned because it violated the basic no-fault premise of workers’ comp. You can read about it here: http://www.workerscompinsider.com/2007/10/bobbing-for-dru.html

9. #9 Celeste Monforton

   January 27, 2011

   I’d like readers of TPH to know that reps from both Grinnell Reinsurance Co. and Westfield Insurance responded very promptly to inquiries I made to them when the OSHA news release was issued. A spokesperson for Westfield sent me today this extended remark:

   “We applaud OSHA for encouraging cooperation between workers’ compensation carriers and the businesses they insure to protect worker health and safety.

   The death of Raymond Nowland is tragic. Because of privacy issues and respect for the parties involved, we do not discuss individual claims. More broadly, however, I can share that Westfield offers our customers access to a wide array of professional risk control services. For many of our customers, these services include on site inspection and counseling. We also offer a robust portfolio of on line tools and information.

   Our web site includes a link to OSHA’s Safety Pays Calculator, which helps businesses estimate cost gains realized through the prevention of occupational injuries and illness claims. Businesses have a financial interest in making workplaces safe, including the affordability of their workers’ compensation insurance. Premiums charged reflect the loss experience of the business.

   While a good safety record is rewarded by lower premiums, insurance carriers cannot, of course, force employers to implement best practices in safety. Only OSHA has the authority to enforce compliance. Workers’ compensation is required by statute and, fortunately, insurance carriers are there to pay claims even when an employer may not observe the safety standards that OSHA prescribes.

   Our company welcomes people to consult the risk control tools provided at westfieldinsurance.com. Most are non-restricted and available to the public. These tools include a Risk Control Assessment that helps businesses identify issues they might have with workplace safety. We also created our Risk Factors blog as a source of knowledge and expertise to help businesses manage and reduce risk.”

   Gary A. Christy
   Westfield Insurance

10. #10 Risk Control Dude

    February 1, 2011

    Risk Control Dude here again: This is great discussion. After working in workers comp risk control for > 20 yrs, I have these thoughts:

    Celeste: I think you’re correct in your reading of Illinois workers comp law. However I still guess that claims cost excluding death benefits will approach mid 6 figures because of the medical and related costs. Plus I later read about the child labor laws violated and the substantial fines just for that crime.

    Tasha: “I’ve never seen a fatality claim (or any workers’ comp claim for that matter) denied due to “breach of contract” (which I would assume in this case refers to safety violations and the like). The point of coverage is to provide benefits to the worker, not the employer.”

    I agree – Workers comp is the original no-fault insurance. If the injury is AOE/COE (arising out of employment or in the course of employment) then it is covered regardless of what the employer did or didn’t (in this case it seems) do.

    Catherine: “Suppose an insurer told (and documented) a company you need to do A, B, C – l – and the company does only A – can the insurer deny claims?”

    No, but the employer may be liable for other actions both in and outside workers comp. For example in the Golden State of California, from whence I write, serious & willful misconduct (S&W) within workers comp has a penalty of 50% of all compensation paid including medical, not insurable. I also think that insurance risk control recommendations create employer knowledge even if the employer doesn’t read what we send them.

    “..if the workman’s comp insurance was for only x no of employees, and there was actually more? How is it determined if someone was an employee – through a W4 or does it matter?”

    The basis of premium for workers comp (yes it covers more than work-men now) is payroll. Most policies are premium audited after expiration to find actual payroll and calculate a final premium. The question of whether or not someone is an employee is a big debate with various government agencies & courts imputing employment relationship. We all know that some companies run their people as fake “independent contractors“ to avoid paying workers comp and other employment fees. California has had a multi-agency enforcement program targeting the underground economy: the claims ALWAYS end up in the system even if the premium is evaded.

    “.. if the insurer says the company didn’t live up to their agreement and denies a claim- where does that leave the family?”

    The claim will not be denied because of poor employer practices as Tasha says above. Ultimately these families are in a very unfortunate and grieving position: Imagine losing YOUR child to a known preventable hazard. This is what keeps us prevention types going in the face of a lot of ignorant push back.

    Gary Christy’s statement: I am happy that the workers comp carrier responded, as almost all carriers devote resources (some more than others) to preventing injuries and illness thereby improving the risk. The OSHA Safety Pays calculator models work by workers comp carriers (Argonaut Ins – RIP). The goal is to show skeptical managers that the ‘hidden‘ costs of injuries far exceeds the amounts paid by insurers. The problem is that managers who don’t get it don’t believe the numbers. But the costs are there nonetheless as shown by the societal costs research just released by NIOSH.

    The underwriting dilemma is that even the worst employer will buy insurance from some carrier, so there is a balance between assuming the risk of employers liability (which is what workers comp is) and getting premium revenue vs imposing conditions for improving the risk and not getting revenue. As an old insurance adage goes, there is no such thing as a bad risk, only a bad price. I have rarely seen any policy cancelled for failure to comply with risk control recommendations unless the carrier wanted to get off the risk for class/marketing reasons. Usually policies get cancelled for non-payment of premium as risk control recommendations can be subjective but failure to pay is an indisputable fact.

    The US workers comp industry has tens of thousands of dedicated risk control and safety/health professionals who work with many employers everyday to improve their operations. Most labor in obscurity. The payoff is that many employers welcome constructive input and do it. As one of my clients once said “Employees shouldn’t get hurt on the job.” Well duh! Who benefits? Employers, insurance companies and most of the all the workers who don’t get hurt or sick.