For the past several years, up to three of the top five concerns expressed by respondents to CFMA's Construction Industry Annual Financial Survey have been insurance-related. And, contractors continue to seek how to leverage their investment in safety and risk management.

The traditional view of safety has been as a line item expense calculated within administrative overhead or as a cost center. Construction Financial Managers use a variety of techniques to evaluate the cost effectiveness of recommended safety and risk reduction investments. These include: ROI, ROE, and/or ROC calculations; cost benefit analyses; and breakeven analyses.

However, some forward-thinking contractors have gone beyond seeing the direct link of profitability from safety and risk management to establishing safety as a profit center. A select few have captured even greater value by making safety part of their brand image.

Either way, a program that measures safety — and risk-related leading indicators, loss analysis rates, and indirect costs can provide contractors with a competitive advantage that goes far beyond lower insurance rates.

Leading Indicators

Some companies understand that the fixed cost of insurance, the premium, is the smallest piece of the insurance pie. They recognize that true savings more often result from decreasing the variable costs of their insurance program — the loss dollars from claims.

These companies have learned that proactive safety and risk management programs increase profitability — they reduce risk, prevent claims, and contain costs through aggressive claims management.

What is their secret? Through the ongoing measurement of risk indicators, these contractors establish goals for improvement and continuously monitor their company's performance. Some traditional measures include such frequency and severity incidence rates as:

• Total OSHA recordable cases
• Total lost workday cases
• Total lost workdays
• Number of fatalities¹

Called lagging indicators, these measures are passive metrics of prior results without consideration of the activities that influence the results. Also called downstream measures or trailing indicators, lagging indicators provide feedback on data collected and analyzed "after-the-fact." These metrics are diagnostic and sometimes prescriptive; they reveal past performance and highlight improvement opportunities.

In contrast, current and leading indicators provide different views of safety and risk performance. Designed to influence real-time outcomes, current indicators provide almost immediate feedback on present activities. Current indicators include a supervisor's same-day completion of an incident report or the number of job safety observations completed on a project each day vs. an established goal.

Leading indicators are proactive measures of focused activities to prevent incidents of a general or specific nature. Also called upstream measures, these metrics are "beforethe-fact"² and can predict future performance.

For example, a high number of safety orientations should help decrease the frequency and severity of onsite accidents. (The first table below compares lagging, current, and leading indicators for safety performance. The second table lists examples of emerging leading indicators for productivity, quality control, and risk management.)

Loss Analysis

While many contractors know their basic loss picture, fewer understand the factors that cause or contribute to accidents and claims. To leverage safety and risk management, contractors need to identify where to invest time, staff, and other resources. An analysis of historical claims and loss experience provides an excellent starting point.

There are many methods of analyzing claim and loss data, but it's important to conduct both macro- and micro-level analyses, which provide the clearest perspective on what types of accidents are loss leaders, in addition to clues about necessary prevention activities. Trend, type, causal, and lost workday case analyses are four basic and reliable methods.

Trend Analysis
A trend analysis determines the number of claims and the total incurred losses (the dollars paid plus the dollars reserved to pay for the future cost development of the claims) for each line of insurance coverage over a period of time. This provides a quick "big picture” view of claim count and loss experience by policy year.

Type Analysis
A type analysis summarizes the frequency of claims and the resulting incurred claim costs by type of loss. This method uncovers the leading types of loss for your company. For example, you may learn that two or three leading types of loss account for greater than 70% of your loss dollars.

By highlighting the areas that have the greatest impact on risk management performance, this analysis helps focus prevention efforts.

Causal Analysis
A causal analysis determines the reasons for accidents and resulting claims by evaluating various causal factors for each leading type of claim. It indicates areas for possible incident prevention activities and safety management controls.

Ideally, you'll be able to determine the job classification with the greatest number of claims and highest claim costs. For example, you might learn that "falls" are your company's leading type of workers' comp claim, making up 20% of your total claim count and 65% of your total incurred losses.

By evaluating the causes of your company's losses, you may discover that 60% of the falls were the result of a fall from an elevated surface — with 40% resulting from slips, trips, and falls on the same level. You might also learn that 10% of the total falls from elevation claims occurred from a scaffold or ladder, but that the other 90% resulted from getting into or out of vehicles or heavy equipment.

The safety and risk management controls for each of these causes are different. Depending upon the findings in the causal analysis, additional drill-downs should provide even better clues.

The success of this analysis hinges on the depth of your company's accident reporting and investigation process, as well as the quality of the claim coding information. Some of the best factors to evaluate include:

• Day of week
• Time of day
• Date of loss vs. the date of hire
• Objects and materials involved in the loss

Lost Workday Case Analysis
Why focus on lost workday cases? After fatalities, lost workday cases are among the most serious type of workers' comp claims.

Greater than a third of all workplace injuries result in lost workdays. According to the National Safety Council, the average cost of lost workday cases across all industries in 2005 was $38,000, an increase from $28,000 in the year 2000.³

The average for the construction industry is not calculated separately. However, the construction industry figure should be significantly higher for three reasons:

1. The median number of days for each lost workday case is higher for construction than across all industries. The Bureau of Labor Statistics (BLS) reports seven days as the median number of lost workdays per case for all private industries in 2005.

   In contrast, the median is eight days on average for specialty trade contractors, nine days for general building contractors, and 11 days for heavy and civil contractors.

2. The construction industry has some of the highest average labor wage costs among major industry groups.

3. Modified or restricted duty assignments in formal return-to-work programs appear to be increasing throughout the construction industry.

   Yet, pockets of resistance still exist among some employers, employees, labor groups, and medical practitioners — even though such resistance results in longer absences and higher costs per case.

A lost workday case analysis determines the number, type, and severity of lost workday cases by occupation and body part. The most important portion of this analysis is the comparison of minor and major lost time cases.

"Runaway claims" can be identified by comparing the average length of cases greater than nine days (the overall median for the construction industry) vs. the average for cases less than nine days.

The distribution of lost workday cases by duration metric helps underscore the need to evaluate policies, procedures, and administrative controls to improve accident prevention and claim management.

Here's how it works: The chart below summarizes one contractor's average duration of lost workday cases. The contractor's totals were benchmarked against the average Bureau of Labor Statistics totals for the construction industry. In this case, 54% of lost workday cases exceeded 31 days of lost time, slightly more than double the construction industry average.

Further analysis revealed that the median number of lost workdays for each case was 37 days (four times higher than the figure for the construction industry). The average length of cases less than nine days was only three days each; however, the average for cases longer than nine days was 90 days.

This meant that, on average, this contractor incurred a "runaway" claim after the fourth day of lost time for every injured worker. In effect, excessive days of lost work time unnecessarily increased this contractor's total loss costs.

From the contractor's point of view, this analysis helped demonstrate the importance of injury prevention. Severity reduction of lost workdays was identified as the goal and the contractor decided to partner aggressively with the claim service team on:

• prompt reporting and thorough investigation of all injuries;
• coordinated identification of modified duty assignments; and
• better nurse case management to help injured employees return to work sooner.

Indirect Cost Assessments

New, sophisticated tools are now available to help contractors measure, monitor, and align safety and risk goals with overall financial performance.

As already mentioned, risk performance metrics provide useful information about the following key performance indicators:

• leading types of losses,
• their causal factors, and
• possible corrective actions.

The next factor plays to the Construction Financial Manager's expertise: demonstrating the financial impact of insurance claims.

Not only does this metric show the financial benefits of safety, but it also creates a compelling business case for proactive safety and risk management.

Direct vs. Indirect Costs
Like other areas of construction financial management, insurance claims have both direct and indirect costs. For our purposes, the insured loss costs are considered direct costs, and the uninsured loss costs are indirect costs.

The indirect costs are the "hidden" costs and share three key characteristics:

1. They act as a multiplier upon direct (insured) costs that increases the total cost of insurance claims.
2. They are often not captured or calculated and, therefore, are not consistently charged-back or recovered in job costing systems.
3. The net effect of factors one and two is a drain on contractor profitability.

There are many different estimates used by safety and risk management professionals for calculating the impact of indirect costs. Safety industry sources indicate an average ratio of indirect to direct accident costs from 2:1 to 4:1.

One conservative method is available at the OSHA Web site, where a sliding scale multiplier is provided that depends on the total direct cost. Note that the indirect cost multiplier decreases as direct costs increase. To calculate your company's ratio using this method, go to www.osha.gov/Region7/fallprotection/safetypays.html.

Required Revenue Replacement
Achieving buy-in for safety and risk management programs from other construction executives and operational managers can be a challenge. However, the revenue replacement tool is a convincing way to show the additional sales needed to offset the cost of insurance claims.

This number varies based upon total cost of losses and the company's profit margin expressed as a percentage:

Annual Losses (in dollars) ÷ Company's Profit Margin

With this metric, it's simple to see the total additional sales required to offset the cost of claims. Once upper management appreciates how substantial claim costs can be, it's much easier to obtain buy-in for proactive safety and risk management practices.

Conclusion

The most important outcome of risk performance metrics is the focus on continuous risk improvement initiatives. Incident prevention and claim management initiatives can significantly improve a contractor's jobsite productivity, quality control, risk management, and safety programs.

The net effect of this investment is a potentially significant increase in profitability, not to mention a bidding advantage for contractors.

More Resources

1. National Safety Council
2. BLS Table R65: Number of nonfatal occupational injuries and illnesses involving days away from work by industry and number of days away from work, 2005
3. BLS Table R66: Number and percent distribution of nonfatal occupational injuries and illnesses involving days away from work by occupation and number of days away from work, 2005
4. Harvard Business Review: "Competing on Analytics" by Thomas H. Davenport (January 2006)

Endnotes

¹ Petersen, Dan, "Setting Goals, Measuring Performance: Frequency Versus Severity," Professional Safety, Vol. 50, No. 12. December 2005, pp. 43-48.

² Janicak, Christopher A., Safety Metrics: Tools and Techniques for Measuring Safety Performance, Government Institutes/ABS Consulting, Rockville, 2003.

³ National Safety Council. (2006). Injury Facts®, 2006 Edition. Itasca, IL.

In 2012, Illinois Governor Pat Quinn decided to cut $1.6 billion from the state's Medicaid program to help get the state's finances under control. Among the benefits slashed was dental coverage for adults.

The Land of Lincoln was only the latest cash-strapped state to scrap dental coverage under Medicaid, joining the likes of Pennsylvania, Massachusetts, California, and Washington.

States must do something to prevent Medicaid from taking over their budgets entirely. But these cuts in dental benefits may only deliver temporary fiscal relief — and end up costing states more in the long run.

Fortunately, there's a way out of this conundrum. It's called a "dental service organization" (DSO). The Pacific Research Institute recently released a study by Wayne Winegarden and Donna Arduin entitled "The Benefits Created by Dental Service Organizations" that illustrates how dental service organizations are leveraging the power of market competition to deliver dental benefits cost-effectively now — with an eye on avoiding even more expensive dental and medical procedures later.

In most states, low-income Americans have little to no access to dental care. Only about half of state Medicaid programs cover anything beyond treatment of dental pain and emergency room visits for their poor.

In states where Medicaid does cover trips to the dentist, many beneficiaries can't find a doctor who will see them, thanks to the program's absurdly low reimbursement rates.

According to a Pew Research Center study, Medicaid pays dentists around 60 cents on the dollar in 26 states. Just one state paid dentists 100 percent of their normal fees, while 14 paid less than half.

As a result, only a third of dentists will treat Medicaid patients. A Government Accountability Office (GAO) report found that in many states, most dentists "treat few or no Medicaid patients."

So the poor don't get many check-ups. According to the Agency for Healthcare Research and Quality, only one-third of poor children saw a dentist in 2008. In contrast, nearly two-thirds of those from high-income families did so. A Pew Center study found that one in five poor children — 17 million in total — go without dental care each year.

This has serious long-term consequences. The GAO found that one in three children had untreated tooth decay — twice the rate of those covered by private insurance — and one in nine had untreated decay in three or more teeth.

"Dental disease remains a significant problem for children aged 2 through 18 in Medicaid," it concluded.

The Pew study notes that "a 'simple cavity' can escalate through their childhoods and well into their adult lives, from missing significant numbers of school days to risk of serious health problems and difficulty finding a job."

And it's these significant health problems that can quickly erase any savings a state thinks it generates by eliminating dental coverage under Medicaid.

As the Children's Dental Health Project explains, when the poor go without routine dental care, they often end up in emergency rooms. A three-year comparison found that treating dental problems in emergency rooms cost 10 times more than preventive treatment provided in a dentist's office.

States could simply pay dentists more. One study found that dentists' participation increased by at least a third, and sometimes more than doubled, in states that boosted Medicaid payments.

But the reality is that they can't afford to do so — as their strained budgets have caused them to cut dental coverage in the first place.

Enter the dental service organization. Starting in the late 1990s, dentists began banding together under dental service organizations, taking advantage of economies of scale in order to cut overhead costs and provide quality service at much lower prices. The dental service organization handles marketing, human resource support, accounting and billing, spreading costs efficiently across several practices.

Today there are more than 3,500 dental service organizations in operation, according to the Dental Group Practice Association. And according to a 2012 study by Laffer Associates, the cost per patient among dental service organizations operating in Texas was almost half that of traditional dental offices — $484, versus $712. At one dental service organization, Kool Smiles, the per-patient cost was just $345.

Because dental service organizations can operate more efficiently than a single dentist office, they can cope with Medicaid's low reimbursement rates and heavy paperwork requirements, providing care for the poor without losing money on each patient they see.

And they're starting to make an impact. The Children's Dental Health Project has found that over the past decade, the share of poor children who've seen a dentist has climbed, and it attributed 20 percent of that increase to the expansion of dental service organizations.

Dental service organizations stand out as an excellent example of private-sector innovation that can help solve a serious public health problem — while saving taxpayers money.

That's something to smile about.

In almost 25 years in this industry, I have never seen such desperation. One of the unfortunate results is that many good agencies that have worked hard, done things well, and are not grasping at straws, are still at a competitive disadvantage. It is much like the situation faced by the most responsible citizens bailing out the most irresponsible or incompetent (take your pick) individuals and companies.

The categories in which this is occurring are widespread. Here are some important examples:

1. Certificates of Insurance. The changes to certificates have caused widespread carnage, frustration, anger, and virtually every other negative emotion imaginable. One item that is not being discussed much publicly is the difference between agencies following the rules versus agencies that are not following the rules. In particular, the question is whether to issue certificates that violate contracts, copyrights, and regulations. There is no question some agencies are doing so knowingly or, if ignorant, they are living in a deep, dark hole.

Neither companies nor associations nor many regulators (the Wisconsin Department of Insurance is a notable exception and there may be others of which I am not aware) have done much to correct the abusers. The result is that sometimes the agency willing to violate the rules, contracts, and copyrights make sales they would not otherwise make. By being silent on this issue, companies, associations, and some regulators are assisting the irresponsible — and the responsible are paying the price.

2. Premiums payable. An even more verboten subject is whether all companies and brokers are truly requiring all agencies to pay premiums on time. My theory, based on my experience, is they are not. I understand that many companies are so desperate to hang onto whatever premium they can that they would prefer to work this out rather than lose their premiums. But the best agencies lose as a result because this amounts to a handout.

3. Giving away free services. The debate that is occurring between agencies and brokers and even among regulators on whether it is ethical for agencies to give away free services such as loss control in order to get accounts is eye-opening.

The average agency makes zero dollars of profit on a commission basis per the last Growth and Performance Standards (GPS) study by the National Alliance Research Academy. So how do these firms plan on increasing their costs without going broke? Free services require significantly good management and good cost accounting methodology, which are severely lacking in most agencies and even large and supposedly sophisticated brokerages. I suspect many of these accounts will cost the agency much more than it makes — either that or the free services being offered are not that real.

More than one agency/brokerage advertises services they don't deliver. Sometimes they don't deliver because they don't actually offer the service. Sometimes they have the service but the producers won't deliver it because the producers have to pay for it through a lesser commission.

On the other hand, the desperation of this market has clearly changed buyers' perspectives of what they are buying. They understand better now that the insurance policy is only one aspect of their purchase. So moving forward, it is no longer an issue of whether these services need to be offered to adequately complex commercial accounts. Burying your head in the sand while thinking important clients will never demand these services is pure denial of reality. The real issue is what price an agency will charge for these services.

4. Companies buying into agencies. Companies cannot figure out how to grow themselves, but they are convinced they can grow agencies so their strategy is to buy into agencies. Insurance companies may not be able to grow, but they have a lot of excess cash and are desperate to invest that cash, just like they are desperate to grow. It is too early to know, but the question worth asking is whether an agency owned wholly or even partially by a carrier will treat all carriers equally? Will they treat other agencies equally?

5. Rising rates in a poor economy. Most people in this industry have never experienced a hard market in a poor economy. Customers will shop harder than ever when rates rise. They will be susceptible to promises that they don't need limits and coverages. They'll be susceptible to buying insurance from poorly rated carriers and ignorant agents. The question is, what are you doing to protect yourself and your agency when the market turns hard in a poor economy?

Most employers know they must maintain accurate records showing the specific time when nonexempt employees begin and end each work period. This requirement includes ensuring that the in and out times for meal periods and split shifts are also accurately kept. Although many employers still use handwritten timecards or punch machines to meet the recordkeeping requirements, an increasingly large number have moved to electronic timekeeping systems such as a card swipe, keypad entry or computer login. In addition to simplifying the act of timekeeping and the calculation of the hours worked for payroll, more sophisticated systems produce state-of-the-art reports and can be extremely helpful in defending against wage claims.

Regardless of the timekeeping system used, a large number of employers round employees' actual recorded time up or down to determine the hours to be paid. Unfortunately, many engage in the practice without a full understanding of the legal ramifications.

Under a 50-year-old federal regulation, employers have been permitted to round the recorded starting and stopping times of nonexempt employees to the nearest 5 minutes, or to the nearest one-tenth or one-quarter of an hour as long as the rounding does not result over time in the failure to compensate employees properly for all the time they work. The California labor commissioner has long followed this same rule in interpreting state law. Until recently, however, the California courts had not ruled on the practice of rounding.

In a recent decision, the California Court of Appeal confirmed that employers can lawfully use time rounding practices. The court's decision highlights, however, the fact that not all rounding practices are lawful, and that employers should use extreme caution in adopting and utilizing rounding policies. While a rounding policy may be presumed valid on its face if it rounds up and down in a neutral fashion, it can still be challenged by an individual employee or class of employees. The challenge could prove successful if it is shown that, over time, the amount employees would have been paid based on actual recorded time is less than they were paid under the "rounding" policy.

Moreover, the proof in this kind of litigation can be very costly because it involves extensive statistical analysis by expert witnesses. A successful challenge will expose the employer to liability for unpaid wages, potential overtime wages, penalties, attorneys' fees, costs and interest. Even with tiny amounts of time involved each day, the total exposure could be huge.

Rounding is not required. In the absence of strong practical and operational reasons for time rounding, employers with modern electronic timekeeping and payroll systems should avoid rounding and pay employees based on the actual time entries recorded. If a rounding policy is used, the following important points should be considered:

• Statistics will play a large role in any litigation concerning rounding. Make sure your timekeeping system rounds up and down, so that both the employer and employee get approximately equal benefit from rounding over time. Rounding techniques that only round time down (to the employee's detriment) will on their face be invalid.
• Educate your staff to know the capabilities of your electronic timekeeping system. Many organizations are using the software without knowing its full capability and restrictions and do not understand what the reports actually mean.
• Utilize your organization's IT resources to analyze the electronic timekeeping system's accuracy and integration with the payroll system. Make sure that you do not end up with two separate databases (timekeeping system and payroll system) with conflicting records.
• Make an informed decision about the purpose of adopting a rounding policy. Understand the risks associated with rounding and make sure that the policy adopted accomplishes a legitimate purpose.
• Run reports and conduct analyses periodically to confirm that over time your system is not underreporting employees' actual hours worked.
• If you are using an electronic system, get a clear understanding of what manual changes are allowed in the system and how those changes are electronically tracked. This could be crucial evidence in wage and hour litigation. Likewise, the failure to retain such tracked evidence may also be used against an employer.
• Develop and publish appropriate personnel policies.

In addition to rounding policies, some employers use electronic systems to set up grace periods for clocking in, automatic 30-minute meal period deductions and other devices. These are all extremely risky in today's environment and should be carefully evaluated to ensure legality.

Imagine, if you will, twin boys born on some sunny day not too long ago. Neither one of the boys, nor their parents, nor even the delivering doctors knew that both boys were born with a heart condition. This congenital heart anomaly, a patent foramen ovale, left a small hole open in the walls of each brother's heart, exposing them to higher risks of stroke.

These twin brothers, let's call them Keven and Kenny, seemed to be joined at the hip. They enjoyed all the same activities, all the same food, went to the same school, and, when they decided it was time to purchase homes of their own, bought two adjacent houses. Being as close as they were, they tore down the fence between their properties and right in the middle built a small gazebo where they could enjoy breakfast with their families every weekend morning.

In choosing a profession, Keven wanted a job that would keep him physically fit while allowing him to serve the community and even save the lives of his fellow citizens. So he became a firefighter. The job kept him physically fit and allowed him to maintain a clean bill of health ... except for that congenital heart anomaly, which no one knew about.

Kenny, on the other hand, decided to pursue the absolute highest calling — the profession which the bravest and noblest aspire to. He didn't want to become a physician, or an engineer, or even a scientist. He decided to become a workers' compensation defense attorney (not unlike your humble author).

Still, the two twin brothers were in every other respect exactly alike, and spent every Sunday morning having breakfast together in that shared gazebo, along with their wives and children.

Then, tragedy struck! One morning, as Kenny and Keven sat next to each other, enjoying the morning air, each with a newspaper in the left hand and a piece of toast in the right, they suddenly sat straight up, looked into each other's eyes, and both collapsed to the ground with strokes.

Their families rushed them to seek medical treatment and, fortunately, each of the two brothers recovered. Before long, they were sitting next to each other in their shared gazebo, when Kenny had an idea. Why not file workers' compensation claims for the strokes — surely, the stress of being a firefighter caused Keven's stroke. And, if being a firefighter is stressful enough to cause a stroke, then being a workers' compensation defense attorney is even more so!

As the cases progressed, each of the two brothers agreed to use an Agreed Medical Evaluator, and each AME came to the same conclusion: the AMEs both found that, in their respective cases, the "stroke ... occurred in an individual whose only major risk factor for stroke in terms of this industrial analysis appears to be his congenital heart defect ... all of his conditions apportion 100% to non-industrial causation."

Kenny was crushed — his case was effectively at an end as the workers' compensation Judge ordered him to take nothing. After all, the Agreed Medical Evaluator had found that there was only one cause for his stroke — a non-industrial condition acquired at birth. How could any legal system, short of denying a defendant-employer due process, require workers' compensation payment for something so patently and obviously unrelated to any work causes? Keven's case, on the other hand, was just warming up.

Keven's attorney argued that, under Labor Code section 3212, "any heart trouble that develops or manifests itself during a period while [the firefighter] is in the service of the office, staff, department, or unit ... shall be presumed to arise out of and in the course of the employment."

Now, isn't that presumption rebutted? After all, as in both the case of Kenny and Keven, the Agreed Medical Evaluators have found that the sole reason for both strokes was the congenital heart condition — exactly 0% of the causation had anything to do with work as a firefighter or as a workers' compensation defense attorney.

Well, as Kenny feels once again misused and ignored by the system he so gallantly serves, Keven has another line of defense: "The ... heart trouble ... so developing or manifesting itself ... shall in no case be attributed to any disease existing prior to that development or manifestation."

Keven's attorney would have to prove that Keven is a firefighter — something he could establish without much difficulty (showing up at the Board with a fire axe is not recommended, even if you believe you've got "an axe to grind"). Then, he would have to prove that Keven's injury could be considered "heart trouble." This should be no problem, considering the fact that case-law has established that there are very few non-orthopedic injuries that might be considered not heart trouble (Muznik v. Workers' Comp. Appeals Bd. (1975)).

But what about that pesky requirement of "in the service of the office ..." as required by Labor Code Section 3212? If the firefighter is sitting in his and his brother's gazebo, drinking coffee on a beautiful Sunday morning and indulging in that antique of an information-delivery device that people so often read, is he really in the service of the fire department?

For example, the Court of Appeal in Geoghegan v. Retirement Board (1990) upheld a retirement board's denial of benefits for a firefighter who sustained a heart attack while skiing.

Now, before the applicants' attorneys out there start mumbling something about a ski-lodge burning and a San Francisco firefighter being called in to ski down the slopes and shovel ice onto the flames, your humble author assures you, this was a vacation. The treating physician found that the heart attack was caused by the altitude and Mr. Geoghegan had recently passed the fire department's physical exams with skiing flying colors.

The Board of Retirement had rejected Geoghegan's application for retirement benefits, and he appealed. There, the Court of Appeal rejected Geoghegan's argument that Labor Code section 3212 applied and that he should be, at that very moment, counting his money instead of appealing his case, because the trial court had found that "the conclusion is inescapable that plaintiff's disability was due to the myocardial infarction caused by the cold and altitude encountered while skiing."

Previous decisions, as cited by the Geoghegan Court, included Turner v. Workmen's Comp. App. Bd. (1968) and Bussa v. Workmen's Comp. App. Bd. (1968). In Turner, a police officer's heart attack sustained while on duty after a day off spent abalone fishing was found non-industrial, and the presumption of Labor Code Section 3212.5 was rebutted. In Bussa, a firefighter's exertions on a second job were used to rebut the presumption of industrial causation for his heart attack.

Well, Keven's attorney could easily fire back that those three cases can be distinguished because they don't touch on the anti-attribution clause ("[t]he ... heart trouble ... so developing or manifesting itself ... shall in no case be attributed to any disease existing prior to that development or manifestation.") And, as the Agreed Medical Evaluator in Keven's case had found that 100% of the disability was caused by a congenital heart defect, that leaves (let me get my calculator here ...) 0% available for causes not "attributed to any disease existing prior to that development or manifestation."

Geoghegan was already a firefighter when he sustained his heart attack; Turner was already a police officer when he sustained his heart attack; and Bussa was already a firefighter when he had his heart attack. On the other hand, each of these cases showed an injury attributed to something other than a condition in existence prior to the start of the applicant's career with the fire or police department.

Keven, on the other hand, was not exerting himself at all — he was having coffee with his twin brother and their respective families over a relaxing Sunday breakfast.

But doesn't something seem strange about sticking the fire department with the bill for a condition which existed at birth? After all, we're talking about medical care and temporary disability and permanent disability and maybe even a pension. That's not to mention the litigation costs. The city in which Keven is a firefighter could be deprived of a firetruck or several firefighters' salaries if it is liable for Keven's stroke.

Your humble author directs you to the recent case of Kevin Kennedy v. City of Oakland. Mr. Kennedy, a firefighter, had sustained a stroke while he was off work and filed a workers' compensation claim against the City of Oakland, reasonably arguing that the stroke was "heart trouble" as contemplated by Labor Code section 3212. After an Agreed Medical Evaluator found that Mr. Kennedy's stroke was entirely caused by a congenital heart anomaly, and had nothing to do at all with any work-related activities or trauma, the workers' compensation judge found that the City of Oakland was not liable for the injury.

Mr. Kennedy's attorney made a fairly logical argument: Labor Code Section 3212 prohibits the attribution of heart trouble to "any disease existing prior to that development or manifestation" of heart trouble. Additionally, the same Labor Code section requires heart trouble in firefighters to be presumed industrial, although this presumption may be rebutted by other evidence. Here, there is no evidence available with which to rebut this presumption, because the AME found that 100% of the causation should be attributed to the congenital heart condition.

The workers' compensation Judge, however, found that Mr. Kennedy could not recover — based on the opinions of the AME, the stroke had absolutely nothing to do with Mr. Kennedy's employment.

Applicant petitioned for reconsideration, and the Workers' Compensation Appeals Board granted reconsideration, reasoning that Mr. Kennedy's patent foramen ovule was a condition existing prior to the development or manifestation of the stroke, and that Labor Code Section 3212 necessitated a finding of compensability. The Court of Appeal denied defendant's petition for a writ of review.

In issuing its opinion, the Workers' Compensation Appeals Board was consistent, echoing a similar decision in the matter of Karges v. Siskiyou County Sheriff, finding a deputy sheriff's congenital heart condition compensable under Labor Code section 3212.5.

So ... what's to be done? Common sense and a basic inclination for fairness militate against this outcome. We're not talking about a weak heart being aggravated by work conditions, but rather a firefighter at peak physical fitness succumbing to a condition with which he was born and an illness in which his work played no part. It's entirely possible that if Mr. Kennedy had spent his life behind a desk, much like his imaginary twin brother Kenny, his heart would have been strained by office junk food and a sedentary lifestyle, much like your humble author's.

As promised, here are a few crackpot arguments to be used only by the most desperate in such cases. Your humble author doesn't know if these will work, but if they are the only alternative to writing a big check, perhaps they are worth exploring.

1. As with the Karges decision, the argument should be raised that Labor Code Section 4663 is the more recent law, and therefore reflects the more current legislative intent. In litigated matters, judicial authority should be used to further this Legislative intent and not find impairment caused entirely by non-industrial factors to be compensable.

2. In the writ denied case of Michael Yubeta v. Workers' Compensation Appeals Board, a corrections officer's claim for heart disease was ruled non-compensable when the Agreed Medical Evaluator found cardiovascular disease manifested prior to the start of his tenure with the Department of Corrections. In the Kennedy, matter, the defense might argue that the patent foramen ovule is the "heart trouble" contemplated by section 3212, and it manifested itself at birth, before the term of service with the fire department. Mr. Kennedy's stroke, being directly and exclusively caused by this manifestation, should not be presumed compensable.

   After all, the poor guy had a hole in his heart — not in the sense that he couldn't love or open up to other people, but the wall to his heart had an actual hole. Studies had shown that this practically guaranteed that he would sustain a stroke at some point in his life. (Understandably, this one is a stretch).

3. Webster's dictionary defines "attribute" as "to regard as resulting from a specified cause." However, as the Labor Code does not use the words "apportionment" and "attributed" interchangeably, we can only suppose that they mean two different things. So, while section 3212 prohibits us from attributing heart trouble for purposes of AOE/COE (Arising Out Of Employment/In The Course Of Employment), perhaps we are still permitted to "apportion" the heart trouble to non-industrial causes. If such is the case, the Kennedy matter should have found the stroke compensable, and yet apportioned 100% to non-industrial causes.

   In other words, Mr. Kennedy should get the medical treatment but not the permanent disability indemnity.

Under the new requirements of SB 863, California private (non-public entity) workers' comp self-insured employers and self-insured groups (SIGs) starting this year are required to submit an actuarial study and an actuarial summary form to the Department of Industrial Relation's Office of Self-Insured Plans (OSIP). Private self-insured employers' actuarial submissions are due on May 1 and SIGs are due on April 15. The new actuarial study and summary form must both be prepared by a qualified actuary, as defined by OSIP.

Under SB 863, the method for calculating OSIP's required security deposits has changed from the old method involving the Estimated Future Liabilities (EFL) formula (multiplied by a factor of 1.35 - 2.00) to the new actuarial methodology. This is considered the "gold standard" by insurers, captives, and other state Guaranty Funds as well. Self insurers are still required to submit their self-insured employers' annual reports to OSIP as they have always done. This annual report covers the self-insured entity's open workers' comp claims by calendar year.

Those 340+ self-insured entities in the Alternative Security Program (ASP) of the Self-Insurers' Security Fund (SISF) are part of the annual composite deposit program wherein SISF provides OSIP with their security deposit guarantee. They post nothing. Therefore, their security deposits are "notional" since SISF covers them. SISF's ASP member assessments in July, 2013 will be adjusted (i.e. rebalanced) to reflect the new actuarial standard. Some ASP entities may experience increases or decreases in their annual assessments as a result of their restated open claim liabilities using a uniform actuarial standard. Currently, SISF member security deposits are based on factors of 135% to over 200% of their total EFL.

SISF's excluded entities are those that are required to post collateral (cash, LOC, securities, or security bonds) with OSIP. The 25 active California SIG's already post security deposits based upon an actuarial figure, but in 2013 SIG security deposits — like individual self-insureds — is at the undiscounted "expected level" versus the previous standard of an 80% confidence level.

Each self-insured's actuarial report must include: Incurred But Not Reported (IBNR) liabilities, Allocated Loss Adjustment Expense (ALAE), and Unallocated Loss Adjusted Expense (ULAE), less any credit for applicable excess insurance. Each of these amounts will be reported on the actuarial summary form. There are currently 55 single-entity self-insureds that will now be required to post their OSIP security deposit based upon their 2012 actuarial report submittal.

The new OSIP self-insured actuarial summary form was just placed on the OSIP website on February 14, 2013. (Note: These new requirements do not apply to government entities and JPA's).

The actuarial valuation report of the self-insured's open workers' comp claims must be as of December 31 of the previous year (i.e. 12/31/2012). Actuaries may roll forward liabilities to the December 31 date instead of having a separate study performed if the self-insured already has actuarial studies that use a different valuation date.

It's important to note that with nearly 500 self-insured entities being impacted in 2013 by SB 863 changes, exceptions to the requirement to file an actuarial summary are being developed and will be contained in a regular rulemaking package that should be publically announced within the next four to six weeks. The proposed exceptions will most likely only pertain to self-insurers that have a few open claims or a very low total ELF.