Most businesses buy their insurance coverage and while it may seem expensive they are content knowing that unforeseen circumstances driven by an unforeseeable event won't financially devastate their company. What if there was a way to shift this traditional model?
I think there are a great many of us who have had the thought that if my premiums aren't used to pay losses for my business why shouldn't I get some of that money back? After all, why should the insurance company make a windfall profit because I do a great job of risk management and preventing losses before they happen?
The purpose of this article is to tell you that there is a way to recoup part of your premiums, while still getting competitive premiums. Insurance is a financial transaction as well as a way to purchase protection for your business. Most of us are familiar with the basics of paying premiums, checking to be sure we have adequate limits of insurance and can tolerate the cost of a claim under our selected deductible. At the same time, we aren't nearly as familiar with the way our premiums are used by the policy issuing Insurance Carrier.
Insurance Carriers use a pooling system to provide protection to policy holders and at the same time maintain adequate financial reserves sufficient to pay claims individually or in the event of a catastrophe. By pooling premiums Insurance Carriers need to write a mix of accounts, both low hazard as well as higher hazard. In addition, the pool needs a balance of profitable and unprofitable accounts, which creates a subsidy for the unprofitable accounts, but enough premiums in the aggregate to pay all claims.
The ultimate goal of the Insurance Carrier is to break even or maybe make a small profit when considering a traditional balance sheet review of their business revenues versus expenses. Unlike many other businesses, the Insurance carrier has a second and more rewarding way to generate profits from the insurance transaction. This additional source of profits is carried on their balance sheets as both assets and restricted assets in the liability column.
A simple example of how this works is easily seen in life insurance. The Insurance Carrier can issue a policy with a 1 million dollar benefit and pay that amount the next day in worst case situations. Obviously, the carrier didn't collect the full premium nor will they on that policy. The assets held on the balance sheet as restricted assets are used to pay this loss. The same dynamics work with the same characteristics in business insurance. The principal lines of business coverage are workers' compensation, auto liability, general liability and health insurance.
The existence of restricted assets on the insurance carrier's balance sheet is also the source of investment income. These assets in commercial insurance are primarily reserve dollars set aside after the occurrence of a claim that are not yet paid. In addition, the carriers set aside reserves allocated for claims, but not yet allocated to a specific claim. Over a period of years these restricted assets can grow to be several times the annual premium written by the Insurance Carrier.
Restricted Assets are invested in secure non-equity investments such as bonds until needed to make claims payments. In many instances, the insurance carrier can generate investment income in the range of 5-50% of annual premium income. This allows insurance carriers to cover unexpected losses and have capital available for growth of their policy count with new business.
Business owners need to know that there are programs and insurance coverage methods that will allow them to take advantage of these income streams for their own benefit. Insurance carriers, while accustomed to taking risk when writing insurance policies, are very comfortable giving up the income potential in return for policyholders taking a portion of that risk. Working for only fee income allows insurance carriers to increase income while limiting risk. At the same time, moving to a program with an alternative structure is a good option for a business. It allows a business to reduce insurance cost through recapture of premiums as dividends. It is a "win-win" situation for everybody and allows a business to build an asset while continuing to protect their business against catastrophic losses.
A careful feasibility study can be completed that will quantify the risk/reward equation for a business owner. Completion of the feasibility study will allow a business to make an informed decision as to whether taking a defined risk is adequately rewarded with reduced cost and dividends, over time.
In addition to building assets on your balance sheet with an alternative approach to insuring risk, you can also gain better oversight of your insurance costs and claims management. Every company of average size should consider having a feasibility study completed. If you are interested in having such a study completed for your company, feel free to contact me.
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Chuck Coppage manages the Alternative Markets Division for <a href="http://www.iwins.com">InterWest Insurance Services</a> where he assists in identifying clients who would benefit from insurance solutions involving risk transfer as part of their overall financial management strategy.
Owner Controlled Insurance Program Liability Claims Challenges, Part 2
In the context of underwriting risks associated with an Owner Controlled Insurance Program, there are four critical issues: (1) marketing, (2) determining who qualifies as named insureds under the program, (3) remembering that the policy protects the contractor rather than the owner for many claims, and (4) how the liability policy interacts with other Owner Controlled Insurance Program coverages.|
This is the second article in an 11-part series on Owner Controlled Insurance Programs. Preceding and subsequent articles in this series can be found here: Part 1, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8, Part 9, Part 10, and Part 11.
Liability Owner Controlled Insurance Program From The Underwriting Perspective
In the context of underwriting risks associated with an Owner Controlled Insurance Program, there are four critical issues: (1) marketing, (2) determining who qualifies as named insureds under the program, (3) remembering that the policy protects the contractor rather than the owner for many claims, and (4) how the liability policy interacts with other Owner Controlled Insurance Program coverages.
Marketing
The starting point for any insurance relationship between a sophisticated carrier and a project owner is through brokers in an arms-length transaction. The insured (or its broker) presents a risk to the insurance company and requests that coverage be quoted. The insurance company decides whether it is interested in that risk and the amount that it will charge in its premium.
In marketing the Owner Controlled Insurance Program, however, the underwriter may become actively involved in convincing the client that the insurance company is the best to underwrite such a large and sophisticated risk. As discussed below, the owner is often the party seeking damages from an enrolled contractor for damage caused by the latter's work. The owner is thereby a potential claimant as well as the named insured.
Statements concerning coverage therefore need to be measured carefully. The underwriter or marketing representative is an employee or an authorized representative of the insurance company. He or she is an agent of the insurance company binding the principal to his statements. (Marsh & McLennan of California, Inc. vs. City of Los Angeles (1976) 62 Cal.App.3d 108.) A statement made by an agent is binding upon his or her principal, as if the principal itself had made the statement. (California Civil Code §2298, et seq.; House of Grain vs. Finerman & Sons (1953) 116 Cal.App.2d 485.) Statements made in the marketing of an Owner Controlled Insurance Program have the potential to create confusion and resulting tension.
Some of the more common areas of misunderstanding we have encountered include the following:
Who is responsible for explaining the Owner Controlled Insurance Program coverage, deductibles, etc., to the prospective insureds? As to the sponsor of the program, the owner, the broker will have the relationship and ordinarily represent their interest in the transaction. However, what about the contractors? We have experienced claims where contractors claim that simply setting foot on the Owner Controlled Insurance Program insured project entitles them to coverage.
Exactly what is the process to become enrolled in the insurance program, and when does coverage become effective? In many cases it is the issuance of a workers compensation policy. However, sometimes there is a lapse in the paperwork, and a job site accident occurs before the enrollment is completed. There are ways that Owner Controlled Insurance Program administrators have created to document enrollment. As a general matter, problem areas exist whenever there is an issue beyond the terms of the insurance policy as issued. The owner, broker, and underwriter need to be aware that the ultimate "insureds” under the program are not a part of the marketing and program design. Communications that do not clearly spell out the rights and responsibilities of all the program participants can lead to confusion or, worse, to coverage gaps and uninsured losses which in turn lead to litigation for all of the parties, including the broker, the sponsor, and the carrier.
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Our authors are what set Insurance Thought Leadership apart.
The late Harry Griffith had over 25 years of experience in insurance coverage, trial and appellate work. He was a partner of Branson, Brinkop, Griffith & Strong, LLP, and supervised the coverage group within the firm, which consisted of eight coverage attorneys. Mr. Griffith published numerous opinions in the area of insurance coverage. Mr. Griffith was a named California Super Lawyer both for 2009 and 2010.
Owner Controlled Insurance Program Liability Claims Challenges, Part 1
Owner Controlled Insurance Programs, or OCIPs, are the logical consequence of insurance underwriters and project owners trying to control costs and speed the resolution of construction-related insurance claims (including builders risk, workers compensation, and liability claims).|
Owner Controlled Insurance Programs (OCIPs) present unique challenges in settling claims. Critical aspects of the underwriting process directly affect how coverage will apply to covered contractors and subcontractors. This series examines critical policy provisions that will impact the claims process and offers strategies for smoothing the claim resolution process. A variety of challenging Owner Controlled Insurance Program scenarios will be used to guide brokers, claim professionals, and underwriters in the settlement of claims.
This is the first article in an 11-part series on Owner Controlled Insurance Programs. Subsequent articles in this series can be found here: Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8, Part 9, Part 10, and Part 11.
Owner Controlled Insurance Programs, or OCIPs, are the logical consequence of insurance underwriters and project owners trying to control costs and speed the resolution of construction-related insurance claims (including builders risk, workers compensation, and liability claims). Indeed, it would be difficult to find an experienced claim manager who has not slapped his head (or someone else's) in exasperation over the amount of time and money that it takes to resolve a construction bodily injury or construction defect claim.
For owners, there is a built-in incentive to find a better way to more efficiently manage the claims that inevitably occur on a large construction project. The amount of money spent on insurance premiums is a significant portion of the cost of construction. Moreover, the amount of money spent, not to mention the time commitment, is substantial because of the number of people and interests to protect.
From an insurance company's perspective, an Owner Controlled Insurance Program premium is significant. Further, the ability to receive the premium for all parties on the job site while simultaneously eliminating the allocated expense makes Owner Controlled Insurance Programs an attractive underwriting risk.
An Owner Controlled Insurance Program, or wrap-up policy, may include all or part of the insurance needed on a project, including builders risk, workers compensation, and liability insurance. Experienced professionals in each line of insurance each have their own unique perspective on the process and the effect of insuring all parties on the project. Here, we concentrate on liability claims and policies.
As viewed from the perspective of the people who are attempting to resolve liability claims under an Owner Controlled Insurance Program, the industry is maturing. Underwriters, owners, contractors, construction managers, and brokers are becoming more sophisticated with regard to underwriting and claims presentation. Specifically, in our practice we have noted the following trends in the handling of such claims "in the trenches”:
Owners, as the sponsor of the program, assert control over claims under the insurance program, which can create tension with the insurance company and the contractors on the project.
Brokers are increasingly sophisticated and acting as coverage advisors for the insureds to maximize recovery under the Owner Controlled Insurance Program policies.
There are often differences between the insurance policy issued by the company and the coverage as represented to enrolled subcontractors.
There is an increasing tendency for owners, brokers, and contractors to treat the Owner Controlled Insurance Program as a single program, a concept that is sometimes at odds with the concept of liability insurance.
Inconsistencies between liability policy language, Owner Controlled Insurance Program manuals provided to contractors, and the actual subcontracts blur the definition of what is the governing Owner Controlled Insurance Program contract.
Lack of complete enrollment by all subcontractors on the project or phase complicates the claims process and impacts the cost of the program.
The timing of the inception of a "rolling wrap” can create hybrid liability claims that are partial wrap and partial non-wrap for purposes of a construction defect claim.
Lack of sophistication by subcontractors and their counsel creates tension in the claims process.
The insured contractors must bear in mind what an Owner Controlled Insurance Program is and what it is not. An Owner Controlled Insurance Program is an insurance policy, intended to provide all of the contractors on a job site with necessary coverage. From the perspective of the claims department, the Owner Controlled Insurance Program is not a new kind of insurance. Therefore, this series concentrates on applying existing rules in the context of an all-encompassing policy.
Get Involved
Our authors are what set Insurance Thought Leadership apart.
The late Harry Griffith had over 25 years of experience in insurance coverage, trial and appellate work. He was a partner of Branson, Brinkop, Griffith & Strong, LLP, and supervised the coverage group within the firm, which consisted of eight coverage attorneys. Mr. Griffith published numerous opinions in the area of insurance coverage. Mr. Griffith was a named California Super Lawyer both for 2009 and 2010.
Requiring safety management programs is not an either/or dilemma of compliance or safety, and effective safety management does reduce injuries and associated costs.|
OSHA is currently in the process of developing an Injury and Illness Prevention Program (I2P2) management standard intended to be extended to all fifty states. As California is one of only fourteen states to currently have a safety management program requirement in place (Title 8, Section 3203), significant attention has been paid to California's program, the perceived costs and benefits of making safety program management mandatory, and the lessons learned along the way.
Besides cost-benefit, another issue that is often raised is whether mandated compliance, through threat of citation and/or poorly conceived requirements, actually diminishes levels of safety. Dan Petersen, a well-regarded safety professional wrote, "Most organizations I am familiar with have come to believe that, when it comes to safety and health, they have two distinct concerns, which seem to have little to do with each other: preventing accidents and regulatory compliance."
Based on my experience, both as a safety director and a risk management consultant, I am of the opinion that requiring safety management programs is not an either/or dilemma of compliance or safety, and that effective safety management does reduce injuries and associated costs. The fundamental issue has been one of translation — which is to say that the companies that struggle with safety management (as opposed to those that reject the requirements out of hand) are simply unable to translate safety requirements into manageable and sustainable day-to-day policies and procedures, and they ultimately give up. This is an issue Cal-OSHA has addressed but not overcome.
On July 15, 2011, John Howard, Cal-OSHA Chief, gave a presentation entitled Injury and Illness Prevention Program: The California Experience, in Washington D.C. to the Small Business Roundtable. He summarized the pitfalls encountered rolling out the requirement and Cal-OSHA's efforts at supporting implementation (translation). I have not found the transcript of the presentation, but the supporting PowerPoint provides a good overview of the specific topics he touched on.
Early criticisms of SB 198 were that it was “overly broad and burdensome” and that many employers lacked the expertise to develop (translate) requirements into an effective program. Within three years of enactment, the legislature had modified some requirements and Cal-OSHA had produced several model programs (translations) that could be used by a variety of businesses. The programs were followed with the introduction of compliance checklists (translations) that were intended to guide users to the regulatory top of the mountain. However, and as Howard notes, the downside of these support tools was that they often resulted in “paper compliance” that did nothing to enhance actual safety management. What he did not note is that they also did not provide effective compliance translation.
Currently Cal-OSHA Consultation provides on-site assistance and has developed a variety of eTools, including an online IIPP “wizard” to support companies with the development and implementation of their Injury and Illness Prevention Program. Unfortunately, many companies are leery of requesting on-site help, and it is not at all clear whether the web-enabled support helps companies struggling with the core issue of day-to-day management of their safety program.
I do not believe that it does, and would offer the following suggestions to those who have struggled with IIPP implementation:
Cal-OSHA starts with the written program. You should not (but do keep your old program intact while you build the new one).
Do start with the supervisors who oversee the productive part of whatever you do.
Introduce a weekly or bi-monthly form that documents day-to-day behavior reinforcement. A month later add a weekly safety assessment/fix to the mix, the next month add weekly group meetings, all on the same form. Provide training and define expectations as each new component is added. To effectively support these required activities create forms that must be filled out completely in a given time frame. The frequency of completing a form can be adjusted depending on risks inherent in a work area, but the form should always be designed to be filled out completely in any given cycle.
Learn about performance support and job aids, and develop multi-level performance support forms to guide and document your program.
Job Aids Basics – Joe Willmore
Job Aids & Performance Support – Allison Rossett & Lisa Schafer
A simple checklist-style form that includes only basic details can guide and capture essential activities — including behavior reinforcement, safety assessment/fix, and tailgate training. Keep each form to a single page. Also, consider desktop/smart phone/tablet applications as alternatives to paper forms.
This approach is completely scalable. Delegate to all departments and levels — design interlocking performance support forms that culminate in a monthly Safety Activity Report submitted by the safety manager to the owner/CEO. If supervisors are required to engage in behavior support conversations, then the department manager's monthly form should include confirmation that the supervisors are fulfilling the required behavioral support activities and an assessment of the quality of their work, and so on.
Look to the Injury and Illness Prevention Program requirements for those activities that should at some point be integrated into the Safety Performance Support Forms — likely activities include either doing, assessing, or assuring the doing of: behavior enforcement and reinforcement; training (new employee, new hazard, tailgate, etc.); inspection; day-to-day hazard identification and correction; accident investigation; employee suggestions, and so on.
Incorporate other compliance areas (HazCom, Heat Illness Prevention, Lockout/Tagout) into your performance support forms as training, inspection, and behavior reinforcement activities.
Six months after you start this process consider rewriting your IIPP to reflect what you are actually doing.
Russell Lee is not a risk management consultant; he is an organizational change consultant with extensive experience in risk management and loss prevention. He provides companies with the tools and guidance to develop the internal processes and linkages to effectively and sustainably manage risk and reduce losses.
Employers Must Prove A Lawful Reason For Denying Reinstatement After FMLA Leave
On March 17, 2011, California's Ninth Circuit Court of Appeals ruled that the employer has the burden of proving it had a legitimate reason for not reinstating an employee to her former position following FMLA leave. The employee is not required to prove that her employer lacked a reasonable basis for its refusal.|
The Family & Medical Leave Act (FMLA) and California Family Rights Act (CFRA) allow employees to take up to 12 weeks of job protected leave for a qualifying reason and to return to the same or an equivalent position at the end of the leave. Interference with Family & Medical Leave Act rights can land you in a lawsuit that may be tough to defend. On March 17, 2011, California's Ninth Circuit Court of Appeals ruled that the employer has the burden of proving it had a legitimate reason for not reinstating an employee to her former position following FMLA leave. The employee is not required to prove that her employer lacked a reasonable basis for its refusal.
Ms. Sanders worked as a utility billing clerk for the City of Newport, Oregon for 10 years. After the City started to use a different type of billing paper, she began to suffer health problems. A specialist diagnosed multiple-chemical sensitivity that was triggered by handling the new billing paper. Sanders requested and received FMLA leave. The City properly notified her that she needed to preent a fitness-for-duty certificate from her doctor "prior to being restored to employment." Sander's doctor cleared her to return with the sole restriction to avoid the billing paper, which the City had already stopped using during her leave. Yet, the City fired her, alleging that "it could not guarantee her workplace would be safe for her due to her chemical sensitivity."
She sued alleging interference with her Family & Medical Leave Act right to reinstatement. The case went to trial and the jury was instructed that Sanders must prove that "she was denied reinstatement or discharged from employment without reasonable cause after she took FMLA leave." The jury sided with the City, and Sanders appealed, arguing that the jury instructions were wrong. The appellate court agreed, emphasizing that to prove a Family & Medical Leave Act interference claim, the "employee must only establish that (a) her employer was governed by the Family & Medical Leave Act, (b) she met the eligibility requirements, (c) she provided sufficient notice of intent to take leave, and (d) the employer denied her Family & Medical Leave Act benefits to which she was entitled. Evidence that an employer failed to reinstate her "to her original (or an equivalent) position establishes a prima facie denial of the employee's rights under the Family & Medical Leave Act."
In California, the right to reinstatement is even stronger, as the California Family Rights Act mandates "the employer shall guarantee that the employee is reinstated to the same or comparable position unless it is legally excused from doing so." California Family Rights Act leave "shall not be deemed to be granted unless the employer provides the (written) guarantee." (Govt. Code §12945.2(a)). A California Family Rights Act "comparable position" means "virtually identical to the employee's original position in pay, benefits, working conditions, privileges, and status." This includes responsibilities and authority. Under the California Family Rights Act, you can only require a "fitness for duty statement" to return to work if you have a "uniformly applied practice of requiring such a release from other employees as a condition of returning to work following illness, injury, or disability."
The right of reinstament is not aboslute. Under the Family & Medical Leave Acts and California Family Rights Act regulations, if an employee is unable to perform an essential job function because of a physical or mental condition, the Family & Medical Leave Act does not mandate a return to work. But remember: an employee who takes leave for a "serious health condition" is also likely to meet the definition of "disability" under California's Fair Employment & Housing Act (FEHA) and the expanded Federal Law. Before refusing reinstatement you must always conduct an interactive process to determine whether the employee can return to work with a reasonable accomodation. And finally, if the employee has exhausted all available FMLA/CFRA leave and job modifications are not reasonable, you must consider whether a leave of absence for a finite and reasonable period of time — as a resonable accommodation — would serve to allow the employee to recover sufficiently to return to work, with or without work restrictions.
Authors
Patricia S. Eyres collaborated with Stu Baron in writing this article. Stu is both President of Workers’ Compensation Claims Control and a principal in the law firm of Stuart Baron & Associates.
This article is an excerpt from the May 2011 edition of From The Hotline published by Stuart Baron & Associates and Workers' Compensation Claims Control. It is used with permission under the copyright of Stuart Baron & Associates.
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Our authors are what set Insurance Thought Leadership apart.
Patricia S. Eyres ("Patti") calls herself a "recovering litigator," who knows first-hand the value of paying attention to prevention. After spending 18 years defending companies in the courtroom, she resolved to help business leaders recognize potential legal landmines before they explode into lawsuits.
Attacking Non-Medical Provider Network Treatment Billing and Liens
Where unauthorized treatment is obtained outside a validly established and properly noticed Medical Provider Network, reports from the non-Medical Provider Network doctors are inadmissible. Defendant is not liable for the cost of the non-Medical Provider Network reports.|
Elayne Valdez v. Warehouse Demo Services; Zurich North America, adjusted by ESIS, (2011 Cal. Wrk. Comp. LEXIS 55), April 20, 2011Summary
After treating in an established Medical Provider Network, applicant's counsel designated a non-Medical Provider Network treating physician who began to actively treat the applicant. After an issue over temporary disability benefits surfaced, applicant's attorney demanded benefits be provided based on the non-Medical Provider network reporting. At trial, the Workers' Compensation Judge deferred the non-Medical Provider Network treatment issue listed by the defendants on the Minutes of Hearing, indicating it was not related to temporary total disability.
After the defense lost the temporary disability issue, they filed for Reconsideration, contending the non-Medical Provider Network reports were inadmissible, and, therefore, there was no substantial evidence to support the temporary disability award. Reconsideration was granted.1Issue #1
If an applicant has improperly obtained medical treatment outside of the employer's Medical Provider Network, are the reports of the non-Medical Provider Network treating physician admissible in evidence?
Holding: No
Issue #2
Is the inadmissibility of the non-Medical Provider Network reports applicable to the determination of both treatment and benefits?
Holding: Yes (though this was a split decision)
Where unauthorized treatment is obtained outside a validly established and properly noticed Medical Provider Network, reports from the non-Medical Provider Network doctors are inadmissible. Defendant is not liable for the cost of the non-Medical Provider Network reports.
The Workers' Compensation Appeals Board has ruled non-Medical Provider Network physicians do not qualify as "treating physicians" pursuant to Labor Code Section 4600, nor as medical-legal evaluators under Labor Code Section 4061/4062. Pursuant to Labor Code Section 4616.6, such reports are not admissible on medical treatment issues. Since the reports are neither treating physician reports nor validly obtained medical legal reports, they are not admissible.
"...Therefore, the non-Medical Provider Network physician is not authorized to be a Primary Treating Physician, and accordingly, is not authorized to report or render an opinion on 'medical issues necessary to determine the employee's eligibility for compensation' under section Section 4061.5 and AD Rule Section 9785(d) [Cal. Code Regs. Tit. 8, §9785(d)]. Moreover, for disputes involving temporary and/or permanent disability, neither an employee nor an employer is allowed to unilaterally seek a medical opinion to resolve the dispute, but must proceed under Section 4061 and Section 4062[1]. Accordingly, the non-Medical Provider Network reports are not admissible to determine an applicant's eligibility for compensation, e.g., temporary disability indemnity."
What Will Applicant Attorneys Argue?
The start of an applicant's argument over non-Medical Provider Network care will undoubtedly begin with Labor Code Section 4600. Labor Code Section 4600 states: "An employer is obligated to provide all medical treatment 'that is reasonably required to cure or relieve the injured worker from the effects of his or her injury'" [Labor Code Section 4600(a)]. Labor Code Section 4600(a) further provides: "In the case of his or her neglect or refusal to reasonably do so, the employer is liable for the reasonable expense incurred by or on behalf of the employee in providing treatment."
Applicant's attorney will undoubtedly rely on the Knight decision, 71 Cal. Comp. Cases 1423, which states defendants' failure to provide the required notices to an employee of rights under the Medical Provider Network can render the employer liable for reasonable medical care.
Note, these are also the two of the prime arguments used by lien claimants when demanding reimbursement for their liens!
Despite these arguments, the Valdez court has opined that remedies are already available to the applicant, should there be a dispute over reasonable or necessary medical care. There is no need to self-procure or go outside the Medical Provider Network! Pursuant to Section 4616.3(c), where an injured worker "disputes either the diagnosis or treatment prescribed by the treating physician," he or she "may seek the opinion of another physician in the [Medical Provider Network]," and of "a third physician in the [Medical Provider Network]," if the diagnosis or treatment of the second physician is disputed. The Board further noted even after these remedies had been exhausted, the employee could request an independent medical review of the treatment recommendations as a 4th-level of dispute resolution, via the panel Qualified Medical Evaluator or Agreed Medical Evaluator process.
After the initial medical evaluation arranged by the employer within the Medical Provider Network pursuant to section Section 4616.3(a), "[t]he employer shall notify the employee of his or her right to be treated by a physician of his or her choice," including "the method by which the list of participating providers may be accessed by the employee." [Labor. Code Section 4616.3(b); Cal. Code Regs., Tit. 8, §9767.6(d).] In addition, AD Rule Section 9767.6(e) (Cal. Code Regs., tit. 8, Section 9767.6(e)) provides that "[a]t any point in time after the initial evaluation with a Medical Provider Network physician, the covered employee may select a physician of his or her choice from within the Medical Provider Network."
What about obtaining a separate consultation with a private treating physician at the expense of the applicant?
The Workers' Compensation Appeals Board did consider whether the employee's right to obtain an evaluation under Labor Code Section 46052 with his or her own consulting physician rendered the reports admissible. That idea was rejected. Relying on the previously stated reasoning regarding admissibility of reports under Labor Code Sections 4616.6 and 4061/4062, the majority ruled use of Labor Code Section 4605 does not generate reports which meet the criterion of admissibility. The Workers' Compensation Appeals Board also opined that such reports were not only inadmissible but not the financial obligation of the defendant.
Strategies for Addressing Reports, Liens, Payments of Indemnity Benefits
If we assert that treatment is not valid, we need to provide evidence of submission of MPN notices and posting requirements, which is why it is imperative employers have employees sign documentation acknowledging receipt of the Medical Provider Network documentation.3
Employers should keep track of Medical Provider Network documentation in personnel files, and document how the information was distributed to each employee. Declarations regarding service of documents and proper posting of notices can be obtained from human resource contacts and safety supervisors. Administrative Director Regulation Section 10114.2 allows such declarations to be admitted into evidence where properly served before trial.4
The employee's deposition also provides an opportunity to document Medical Provider Network implementation. It will often be an excellent strategy to confront the employee with a picture of the employer's notices, which he might well remember once shown, as well as any copies of notices. Regardless of the resulting testimony, the defense may still be able to rebut assertions that notices were not properly provided. How many of us have walked into a break room or common area and not seen a posted notice? Hardly ever!
In the event temporary total disability or temporary partial disability is demanded based on non-Medical Provider Network care, first establish that the Medical Provider Network is proper. If you are certain the Medical Provider Network is properly established and the information properly disseminated, issue a benefits denial notice arguing the non-Medical Provider Network care was improperly obtained, inadmissible, and, therefore, cannot support the claim for benefits. While you wait for the inevitable Declaration of Readiness to be filed, collect the information as discussed above.
Liens
If the court in Valdez determined that the defendant is not financially liable for treatment procured outside the Medical Provider Network or under Labor Code Section 4605, why should we pay for liens? Why should we not hold the applicant liable? Ultimately, the decision on liens will come down to negotiation and the desire to settle the claim, as well as the wishes of our clients. That being said, we can:
Agree to settle the claim if favorable and argue the liens are inadmissible at lien conferences and trials.
Put the employee/applicant attorney on notice that our clients will withhold sufficient sums from permanent disability to cover the lien claim. Failure to do so may expose our clients to the costs of the lien.
Not resolve the claim with the employer agreeing to hold the applicant harmless on liens.
Finally, see also Scudder v. Verizon California regarding admissibility of non-Medical Provider Network care. In that case, the Workers' Compensation Appeals Board determined applicant's pre-designated treating physician did not refer him to the doctors. Instead, applicant's attorney made the request for treatment to a physician (non-Medical Provider Network), who in turn made a referral to another non-Medical Provider Network for a surgical consultation. Always map out from where the referrals for care come!
1 The court assumed that The Medical Provider Network was validly established and that all proper notices regarding the Medical Provider Network were provided to the applicant.
2 4605. Nothing contained in this chapter shall limit the right of the employee to provide, at his own expense, a consulting physician or any attending physicians whom he desires.
3 For examples of half-page notices that can be provided to clients and to employers, please contact me.
4 The written affidavit or declaration of any witness may be offered and shall be received into evidence provided that (i) the witness was named in a witness list exchanged either through agreement of the parties or pursuant to an order issued under section 10113.5 (c), (ii) the statement is made by affidavit or by declaration under penalty of perjury, (iii) copies of the statement have been delivered to all opposing parties at least 20 days prior to the hearing, and (iv) no opposing party has, at least 10 days before the hearing, delivered to the proponent of the evidence a written demand that the witness be produced in person to testify at the hearing. The Hearing Officer shall disregard any portion of the statement received pursuant to this regulation that would be inadmissible if the witness were testifying in person, but the inclusion of inadmissible matter does not render the entire statement inadmissible.
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Our authors are what set Insurance Thought Leadership apart.
Timothy Rose is a Workers' Compensation Insurance Defense attorney with the Law Offices of <a href="http://www.bradfordbarthel.com">Bradford & Barthel, LLP</a>. He earned his Juris Doctorate at the Thomas Jefferson School of Law in July of 2007. Prior to his work with Bradford & Barthel, Timothy was a claims examiner with American International Group, Inc. and Insurance Company of the West, Inc.
___ Contact emergency services by dialing 9-1-1.
___ Call the Company emergency hotline (as appropriate)/Corporate Office and Team Leader.
___ Contact the Corporate Safety Director.
___ Determine who the witnesses are and debrief as quickly as possible.
___ Initiate site control and determine if the site should be shut down.
___ Conduct a head count to make certain that all employees are accounted for.
___ Do not move anything that could be classified as evidence. Keep intact until Safety Representatives (or other appropriate company official) is onsite.
___ Ensure telephone coverage at the site. Restrict use of two way radios.
___ Inform site personnel to direct requests from outside groups to you.
___ Post workers to restrict entry to the site. Only those authorized will be permitted entry and identification must be shown.
___ Keep selected individuals on-site to help with the incident. Be aware of possible second entry attempts.
___ Notify the crisis management Team Leader.
___ Establish a command center.
___ Select a temporary spokesperson to issue a buy-time statement if the media arrives (see below).
___ If the site will be shut down, tell workers when they are to report back to work and that critical incident stress debriefing (CISD) will be available (if applicable). Also, to direct information requests from outside groups to you and to contact their families to let them know they are OK.
What To Say If The Media Calls
“My name is ( ) and I am (title) with (Company name). The incident has just happened and I am not prepared to answer any questions at this time. Please stay in this safety area so we can do our job and take care of the situation. I need to return to the site, but either (spokesperson) or I will be back at (time) with an update. Thank you.
Important: Do not take any questions at this time. If badgered, simply state that you need to get back to the site and you will return at stated time.
Step Two: Team Leader
___ Determine what happened, when/where it happened, and who is involved.
___ Verify the current status of the site (shut down?).
___ Determine whether you and/or spokesperson are needed on site.
___ Notify corporate management.
___ Advise the receptionist on how to route calls.
___ Identify potential spin-off crises.
___ Notify Corporate Human Resources and/or Corporate Industrial Relations.
___ Initiate conference call number and have time/number available for crisis management team for status updates.
Step Three: Safety Representative
___ Contact the Corporate Safety Director.
___ Call the Corporate emergency number.
___ Coordinate with team leader for critical incident stress debriefing (CISD).
___ Gather number/names of injured and/or fatalities and obtain phone number(s) of the spouse(s)/family(ies). Contact the team leader to determine who should notify the spouse(s)/family(ies).
___ Debrief workers who witnessed the incident.
___ Begin incident investigation.
___ If necessary, initiate a post-incident drug/alcohol test (call Industrial Relations).
___ Designate someone to stay with the injured worker(s) at the hospital until family members arrive.
___ Document the incident in writing and on film.
Step Four: Team Leader
___ If there is an employee injury/fatality, determine who will notify spouse(s)/family(ies). A fatality may require a personal visit.
___ If the injury/fatality is a subcontractor's employee, it is the subs responsibility to notify the spouse/family.
___ If a non-employee is hurt/killed, allow the authorities to make the notification. Call the Corporate emergency number.
___ Inform any surrounding areas that may be affected by the incident.
___ Instruct employees at the incident site to contact their families to let them know they are okay.
Step Five: Spokesperson
___ Write, and get clearance for, all statements and releases.
___ Designate someone to screen your calls from the news media.
___ Complete the media log sheets.
___ Anticipate media questions. If possible, role play a media interview with a colleague before going live.
___ Assemble necessary background information and literature.
___ If you elect to give the media a tour, make certain that the area is safe and that they are escorted by a company representative. Issue safety equipment and require a hold-harmless agreement be signed, if necessary.
___ Instruct reporters on your safety procedures before going on-site. If they violate any of the procedures, you have the right to ask them to leave.
___ Advise reporters of a time and place for future updates.
___ Follow-up on additional media inquiries.
Step Six: Team Leader Coordination With Corporate
___ Identify the audiences that need to be contacted for update purposes.
___ Gather details on past negative issues which the media may refer to.
___ Fax/e-mail/voice mail all employees and job sites to notify them of the incident and tell them to whom they should direct media/general information calls. Provide on-going updates.
___ Establish an emergency message mailbox for employees to access if office operations have been impacted.
___ Track all media coverage via a monitoring service and the Internet.
___ Secure and offer critical-incident stress counseling for employees who witnessed the incident or were nearby.
Step Seven: Executive Management
___ Maintain close contact with the team leader to determine involvement.
___ Approve all statements/communications to the outside world.
___ Work closely with legal counsel.
___ In the event of injury/fatality be prepared to make the visit/call to the family.
___ In the event of a highly visible crisis be prepared to make the initial statement to the news media…with no Q & A.
___ Establish and maintain communication with employee base and other audiences.
It is important to remember, this is the list of action items just within the first two hours of a crisis. This does not solve the whole crisis. This is one part of a comprehensive crisis communications plan. Training, education and practice are keys to success in this process.
Your front-line folks will do a marvelous job for you, yet need to know how this fits into the overall success of a company’s crisis communications plan. A crisis can go on for days, be prepared and be crisis plan smart!
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Our authors are what set Insurance Thought Leadership apart.
Nancy Moorhouse, CSP is a multi-faceted, multi-talented business partner in the risk management/workers' compensation/safety consulting industry. With more than 28 years of experience, she influences clients in culture change and progress.
There are some common sense approaches to Utilization Review that can minimize the unintended consequences, and make your program both effective, and efficient. Suggestions include:
Tighten protocols to allow Adjusters to approve standard diagnostic tests and treatments. Allow early physical therapy treatments to ensure that injured workers get started on treatment immediately and have the benefits of immediacy of care.
Review your costs carefully to be sure you are paying competitive rates. Dig deep to understand what the rates really are, given the wide variances in how charges are applied (See # 2 above). And consider the following ....
Evaluate your medical networks to focus on Physicians who achieve the outcomes that make a difference. Select the "best" Physicians to be in the medical networks — defining "best" based on outcomes (including return to work).
Empower those "best" Physicians to gain the trust of their patients by eliminating the delays and second guessing that comes with requiring the Physician to wait for Utilization Review approval. This can be accomplished by reserving Utilization Review for very complex or non-standard procedures. This can reduce expenses dramatically by eliminating the Utilization Review costs for treatments and tests that are reasonable, necessary and prescribed by Physicians we have identified as the "best."
You can then reserve Utilization Review (for those Physicians) for those types of procedures that may still benefit from a second look — i.e. surgeries, advanced rehab techniques, and non-standard therapies.
Not only can empowering "best" Physicians reduce costs, but it may very well reduce the litigation and protracted claims outcomes that may actually begin when we unintentionally drive that wedge between the treating Physician and the Injured Worker.
Continually measure outcomes in order to reevaluate which physicians are deserving of exemption. Provided physicians with benchmarks of their outcomes (i.e. Return to work, etc.) in order to give them a means to compare their performance and earn "best" status.
Ultimately, if Injured Workers are treated only by the "best," perhaps Utilization Review would become unnecessary. Perhaps we would eliminate the built in delays that Utilization Review causes, eliminate the expense of unnecessary Utilization Reviews, and focus all our resources on the Physicians and treatments that are likely to result in recovery and return to work.
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Our authors are what set Insurance Thought Leadership apart.
Judy Adlam is president and CEO of LWP Claims Solutions, an organization that leverages a culture of teamwork and excellence to consistently deliver results that are far superior to industry standards. She is a chartered property casualty underwriter (CPCU) and a senior claims law associate (AEI).
Can there be too much of a good thing? The answer here is a definite "yes." While Utilization Review can be used to ensure that medical treatment for injured workers is based on evidence-based protocols, it definitely comes at a cost — sometimes a very high cost. Too much Utilization Review can have several unintended consequences that impose "costs" — both monetary and otherwise. These include:
#1 — Delay In Treatment
Utilization Review is not instantaneous. Guidelines allow claims payers five days to turn around the Utilization Reviews. While five days is certainly reasonable in terms of the need for referral, review and approval/modification/denial, it is quite a long time when viewed through the lens of the waiting injured worker and the physician. It can mean five days of extra pain, and five days of added uncertainty.
#2 — Rising Costs
The cost of Utilization Review is not insignificant. Most range from $100 - $300 or more. Considering that this can be more than the cost of some therapies, it becomes evident that unnecessary UR reviews serve to drive up costs, rather than contain them.
#3 — The Wedge
This is likely the most serious of the consequences. Most of us have at some time experienced the frustration of being told by our physician that we need a procedure or a test, but that it has to first be approved by "the Insurance Company." Although we may have become used to this, it certainly causes us to leave the doctor's office uncertain about what the next steps will be.
In the case of Work Comp and Utilization Review, the regulations allows for up to five days for the UR process to be completed. Therefore, the Physician must wait before scheduling the procedure, diagnostic test or therapy session. And the irony is that in many cases, "the Insurance Company" selected the Physician or developed the network, and then is "second guessing" the network Physician, driving a wedge between the Physician and patient when we should be supporting the very relationship that is fundamental to returning the Injured Worker to pre-injury condition.
If I were an Injured Worker who visited a Network Provider at the direction of my Employer, and then was told by that provider that I'd have to wait for "the insurance Company" to approve the test, I might wonder why I should trust a Physician that "the Insurance Company" doesn’t even trust!
Get Involved
Our authors are what set Insurance Thought Leadership apart.
Judy Adlam is president and CEO of LWP Claims Solutions, an organization that leverages a culture of teamwork and excellence to consistently deliver results that are far superior to industry standards. She is a chartered property casualty underwriter (CPCU) and a senior claims law associate (AEI).
Each employer in an acquisition transition should determine if its group health plans are subject to COBRA. If they are, the parties should decide how COBRA is going to be handled and make it part of the purchase agreement.|
Recently, we have received a number of questions from business lawyers and their clients regarding the responsibilities of the parties in an acquisition transaction (i.e., a stock sale or an asset sale) under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). As you probably know, COBRA requires many group health plans to offer to current participants and their beneficiaries the ability to continue coverage under the plan after certain qualifying events occur that would otherwise result in the termination of an individual's coverage. Here is an overview of how the COBRA rules work in an acquisition.
Questions That Need To Be Asked
In general, these are the questions that need to be asked and considered:
Has there been a stock sale or an asset sale?
If so, who (if anyone) has had a COBRA qualifying event?
If there has been a COBRA qualifying event, which employer is responsible for providing COBRA continuation coverage?
Stock Sale Or Asset Sale?
The Treasury regulations governing this area are phrased in terms of stock sales and asset sales. A stock sale is a transfer of stock in a corporation that causes the corporation to become a different "employer" taking into account the controlled group rules. For example, if Corporation A owns 100% of Corporation B and sells its stock in Corporation B to Corporation C (that is not related to Corporation A), a stock sale has occurred because Corporation B ceases to be a member of Corporation A's controlled group and becomes a member of Corporation C's controlled group. An asset sale is a transfer of substantial assets, such as a plan or division or substantially all the assets of a trade or business.
M&A Qualified Beneficiaries
If either a stock sale or an asset sale has occurred, we must identify the group of individuals who must be offered COBRA continuation coverage — the so-called "M&A qualified beneficiaries." An "M&A qualified beneficiary" is a qualified beneficiary whose qualifying event occurred prior to or in connection with the sale and who is, or whose qualifying event occurred in connection with, a covered employee whose last employment prior to the qualifying event was associated with:
The acquired organization in the case of a stock sale; or
The assets being sold in the case of an asset sale.
Qualifying Event
Once we have identified the M&A qualified beneficiaries, we must determine if they have experienced a qualifying event. COBRA continuation coverage need not be offered to an M&A qualified beneficiary unless the individual has had a COBRA qualifying event. In the case of a stock sale, the sale itself is not a COBRA qualifying event if the employee of the acquired organization continues to be employed by the acquired organization after the sale (even if the employee is no longer provided with group health plan coverage after the sale).
However, an asset sale results in a qualifying event with respect to a covered employee whose employment was associated with the purchased assets unless either (i) the buying group is a "successor employer" (see below) and the employee is employed by the buying group immediately after the sale, or (ii) the covered employee does not lose coverage under a group health plan of the selling group after the sale.
A "successor employer" is an employer that falls into one of the following categories:
It continues the business operations associated with the purchased assets without interruption or substantial change;
It results from a consolidation, merger or similar restructuring of the employer; or
It is a mere continuation of the employer.
Who Is Responsible?
If an M&A qualified beneficiary has had a COBRA qualifying event in connection with a stock sale or an asset sale, we must then determine which employer is responsible for providing COBRA continuation coverage. The "employer" that is responsible is either the "selling group" or the "buying group."
The selling group is the controlled group that either (i) includes the corporation being acquired in a stock sale or (ii) includes the trade or business that is selling the assets in an asset sale. The buying group is the controlled group that either (i) includes the corporation that has been acquired in a stock sale or (ii) includes the trade or business that is buying the assets in an asset sale.
If the selling group continues to maintain a group health plan, the selling group has the responsibility for making COBRA continuation coverage available to the M&A qualified beneficiaries. If, however, the selling group does not continue to maintain a group health plan in connection with the sale (a question of fact), the result depends on whether the acquisition transaction was a stock sale or an asset sale:
If it was a stock sale, a group health plan maintained by the buying group has the responsibility for making COBRA continuation coverage available to the M&A qualified beneficiaries.
If it was an asset sale, a group health plan maintained by the buying group has the responsibility for making COBRA continuation coverage available to the M&A qualified beneficiaries only if the buying group continues the business operations associated with the assets without interruption or substantial change.
Can You Negotiate Your Way Out Of COBRA Responsibility?
The seller and the buyer can allocate by contract the responsibility to make COBRA continuation coverage available to the M&A qualified beneficiaries. However, if the responsible party under the contract fails to perform, the party described above continues to have the responsibility for making COBRA continuation coverage available to the M&A qualified beneficiaries.
What To Do?
First, each employer should determine if its group health plans are subject to COBRA. If they are, the parties should decide how COBRA is going to be handled and make it part of the purchase agreement. If you need help with your COBRA obligations, please contact me.
Get Involved
Our authors are what set Insurance Thought Leadership apart.
Ken Ruthenberg has practiced exclusively in employee benefits law since 1979, covering qualified retirement plans, nonqualified deferred compensation plans, and welfare benefit plans. He has served as chairman of the State Bar's Taxation Section's Employee Benefits Committee.
