Those of us who have been workers’ comp professionals for a while like to think that there are no new issues. We’ve seen it all, done it all, and have a closet full of T-shirts to prove it. Yet technology, like the proverbial new wine in an old wineskin, can break out of the boundaries created by aged statutes and old case law.
There have been some recent examples of corporate civil liability for employees who are in motor vehicle accidents while using their cell phones for business. This also raises a slightly different and thornier question: What about employees who get into accidents while off work but while making business calls on personal cell phones. Should they, too, be entitled to workers’ compensation benefits?
This issue was addressed in Virginia a few years ago in the case of Donna Turpin v. Wythe County Community Hospital. (http://www.washingtontimes.com/news/2011/oct/9/workers-comp-case-upheld-in-cellphone-related-cras/?page=all)
Here, the claimant was a nurse who was off work, but on call, when she received a work-related phone call. While trying to answer the phone, she lost control of her vehicle and crashed, resulting in moderate injuries.
The fact that nurse Turpin was on call makes the injury arguably more compensable, and the Virginia Court of Appeals agreed. It awarded benefits even though she wasn’t technically at work.
But I have been waiting to see courts address the issue where a business professional is driving his or her car on a Saturday or Sunday, running personal errands and not on call. Then, when he receives a work-related cell phone call, he becomes distracted and is in a motor vehicle accident. Should this be compensable even though the employee is not at work and is doing personal activities?
As you may surmise, the majority of jurisdictions within the U.S. would probably find this injury to be compensable, as there is a benefit to the employer from having the employee take a business call on personal time. Under the “mutual benefit doctrine,” if the employee is conducting legitimate work then the claim is compensable even if the employee is on his way to get donuts for his family.
However, if companies have a policy that prohibits the use of cell phones while driving, how do we resolve the inherent conflict between an injury arising out of work duties and an injury that occurred as the result of a violation of company policy?
Many states (but not a majority) have provisions within their workers’ compensation statute that allow for a reduction of benefits if the claimant is injured as a result of a failure to use safety devices or a failure to follow safety rules.
If you are in a state that has such provisions, this is an added reason why the company policy manual should be updated to prohibit the use of cell phones while driving. That way, even if the claim is compensable, there would still be a reduction of benefits paid.
The response to such policies is typically negative: “Why should the worker be punished when he was injured while trying to do his job?” Valid question. Here is a valid answer: incentive.
I often tell employers that safety rules and policies are not adopted to punish employees but to try to reduce injuries. Everything we do in life has risk. But any risk manager will tell you that the trick is to maximize work efficiency while minimizing (rarely eliminating) the risk. Employees should be penalized for violating safety policies, because without the concern for punishment (like having one’s comp benefits reduced or even eliminated), there is no incentive to follow the policies designed to minimize the risks faced by workers.
I drafted the hypothetical situation because: 1) It could easily happen, and 2) It demonstrates how technology blurs the line between our personal activities and our work activities.
Safety policies should be adopted to minimize risk—like a ban on driving and using cell phones at the same time. Such a policy should not only reduce the risk of injury to your employees but should also reduce the risk of increased insurance premiums.
Now, if only I could figure out a way to craft a policy that eliminated the calories in donuts, I would really be on to something.
The Obama administration has said that the Patient Protection and Affordable Care Act, enacted into law in 2010 and scheduled to take effect on Jan. 1, will reduce workers’ comp claims because so many additional people will be covered under personal insurance policies. But there is reason to think otherwise.
The first issue is that so many companies are reducing the insurance they offer employees or are cutting employees’ hours so much that they fall below the law’s threshold, so employees don’t have to be covered at all. Employees who aren’t covered under corporate policies or who are underinsured are more likely to make workers’ comp claims.
Here are just a few examples from National Review Online:
SeaWorld used to let part-time employees work as many as 32 hours per week, but the company is dropping the limit to 28 hours to keep them under the 30-hour threshold at which it would be required to provide health insurance under Obamacare. More than 80 percent of the company’s thousands of employees are part-time or seasonal.
Carnegie Museum in Pennsylvania scaled back the hours of 48 of its 600 part-time employees to less than 30 hours a week to sidestep the mandate to provide health-care coverage
Virginia Gov. Bob McDonnell decided to limit the state’s part-time employees to 29 hours per week.
Brevard County, Florida told a local television station that the county’s 300-plus part-time employees will be “capped at something less than 30” hours to save the county about $10,000 per employee in health insurance.
Fatburger announced that franchises had begun making efforts to keep employees under the 30-hour threshold, including some franchises’ engaging in “job sharing.”
As more companies shift to shorter work weeks, you can expect claims under workers’ comp to keep climbing.
Proponents of Obamare still say it will decrease workers’ compensation costs in several ways, including through the elimination of lifetime caps on medical insurance coverage. The argument is that these caps on employees’ private policies pushed them to file workers’ compensation claims. Really? Many of the leading cost drivers for work-related injuries are Musculoskeletal Disorders (MSD), better known as soft tissue injuries. According to the Bureau of Labor Statistics (BLS), soft tissue injuries (sprains and strains) accounted for 40% of all work-related injuries that resulted in lost days of work. I do not believe that these types of injuries would affect the lifetime maximum for health insurance, which is typically $1 million.
Proponents also note that a healthcare insurer can no longer refuse to provide coverage because of preexisting conditions, conditions they claim were often not covered by private healthcare and thus encouraged employees to seek coverage under workers’ compensation. While this is a good point, the National Review’s examples show that many people are losing healthcare coverage or will see it reduced, meaning that there will be a greater likelihood of workers’ compensation claims. Yes, there are penalties for not securing healthcare coverage, but they are modest, especially in the early years of Obamacare, and there is no real mechanism for enforcement. The IRS has the responsibility for collecting penalties but has no true powers to do so.
How are people supposed to afford care if their hours have been cut? You guessed it: workers’ compensation.
Workers' compensation laws protect people who are injured on the job. They are designed to make sure that employees who are injured or disabled on the job are provided with fixed monetary awards, removing the need for litigation.
The California Labor Code essentially tells us that anyone working for a homeowner will be an employee unless you can prove otherwise. Further, California Law tells employers — the homeowner in this case — that they must purchase workers' compensation insurance when any employee works for them.
The standard home policy, with liability insurance, includes coverage for “occasional workers' comp risks.” By “occasional,” the policy would be intended to provide insurance for your gardener that swings by once a week or your housekeeper that comes in twice a month, or other folks who perform small tasks at your home. The “occasional worker” is defined as someone who performs less than 10 hours outside of the house work or 20 hours inside of the house work.
When the homeowner is going to reach these thresholds, they should contact their insurance agent to change their Homeowner's policy to cover these new events. The costs for this change can vary quite considerably between companies, but it has been my experience that the additional charges are a fraction of the cost of worker's comp for a business operation.
How do you avoid all of these potential risks and threats, plus involvement in the insurance industry? Here is a short list of steps to simplify your life and avoid becoming an employer. First, hire licensed and insured contractors who have their own workers' compensation insurance. Next, hire other service providers who are licensed, if appropriate, and insured.
Any company or contractor that you hire should have liability and workers' compensation insurance. How to know if they are insured? This is the crucial point to understand. Before any organization, business or contractor begins work for you, ask them to provide you with a Certificate of Insurance which will list all of their insurance policies. This certificate will show that, on that date, there is a list of the insurance policies this business has in place listing their insurance companies, the amounts and types of insurance, and the dates the policy started and are to end.
The homeowner, to further protect themselves, should be listed as a Certificate Holder on this certificate. The Liability insurance listed on the certificate should list the homeowner as an Additional Insured, and the page of their insurance policy that confirms this is to be attached to the certificate.
The workers' compensation insurance should show that the business has provided a Waiver of Subrogation Endorsement on their policy. A waiver of subrogation endorsement requires one party on the contract to waive their right to sue for and recover damages from the other party.
In short, what do these worker's compensation terms mean to the homeowner?
First, the Additional Insured means the insurance for the hired business will provide you with some protection on their policy before your insurance policy may be involved in a claim.
Next, the Waiver of Subrogation means that when the businesses' employee is injured at the homeowner's home, the workers' comp insurance company paying for the employee's treatment can't come back to the homeowner to recover what they have paid injured workers.
When in doubt, call your insurance agent to guide you through this process. There are many talented and knowledgeable insurance agents who can help you. So, ask!
California homeowners have a duty to be aware of the workers' compensation rules to avoid fines and penalties. This knowledge can help them avoid legal problems in case a worker gets injured on their property.
Hiring an insurance advisor to handle your insurance is a critical necessity for a business owner. While many business owners know this, unfortunately, others default to a personal friend, a relative in the insurance business or the sales person that is friendly and wants to save you money. While there is not really anything terribly wrong with this (after all, you should work with someone you like), it is often better to work with someone you respect. That respect should be based upon experience and knowledge. The problem with that sentence is that since you do not understand insurance in all of its complicated glory, how do you select your broker?
Well, nothing is a perfect science, but if we put aside personalities for a little bit, there are some basics that you can follow that will help you make an appropriate decision based upon facts and then can factor in the personalities.
Some Basic Truths
First: Interview a prospective insurance agent/broker and qualify them according to your own needs.
Second: Insurance is a large portion of your annual expenses.
Third: You have a significant potential for uncovered losses that can put you out of business or cause you to lose capital and/or assets.
Fourth: All insurance policies are not created equal.
Fifth: There is no such thing as coverage for every type of loss.
Any insurance broker that starts the conversation by offering to reduce your insurance premium should be shown the door — immediately. If that is all they have to offer, move on.
It's All About Price, Right?
Purchasing insurance is a very serious consideration for the preservation of your business capital and should never be just about price. Every agent/broker will attempt to get the lowest possible premium so that they are competitive. Many businesses have purchased insurance only to find out at the time of a loss, that the insurance was inexpensive because it did not provide proper coverage. Although agents and brokers are licensed, there are great differences of education, knowledge and market understanding among them. An insurance advisor that is at the top end of that scale is an invaluable resource to you and your business.
For illustration purposes, here's a classic example: An underground water pipe breaks and the business owner has to remove a significant portion of paving as well as the pipe and replace both. The cost is $500,000. The insurance coverage placed by their insurance broker paid not a dime. Why? Underground pipes and pavement are often excluded types of property. Here's the pitiful part: Coverage can be provided for these items and at no additional premium (the limit of insurance, however, must include these values).
It is important that you understand which losses you are insuring and which losses you are retaining. A knowledgeable insurance advisor will help you identify your normal as well as unique exposures to loss, offer coverage and, most importantly, be able to explain that coverage in terms that make sense to you as a business owner without a lot of insurance techno-babble.
Think about the many complexities of various contracts you enter into. Insurance is another contract that is just as complex and detailed as your other business agreements.
Keep 'Em Honest
If you are sending your insurance out to quote to “keep your insurance agent honest,” get another insurance agent because clearly you do not trust your current agent.
You should have a trusted advisor that has demonstrated their skill and depth of knowledge, who understands you and your business by asking for information and providing insurance or other risk guidance to you on an ongoing basis. If your business generates significant premium, interview competing agents and select one in addition to your incumbent agent and obtain a coverage review and quotation every three years.
You should create a Request For Proposal in order to provide the same information about your company to each competing broker. Assign them insurance markets. Allow your current advisor first choice for their top three or four insurance companies and have the competing broker identify the three to four insurance companies they will be using. The competing broker cannot use the same markets as those of your current broker. Your current broker should always bring their proposal to you after the competing broker.
Don't Shoot Yourself In The Foot
Never provide one broker's proposal or reveal information to the other. If the competing broker brings significant coverage issues and solutions to the table that your current advisor has never talked about, then perhaps you need to reevaluate your choice. One of the business practices that is the most aggravating to insurance professionals and is just plain wrong is to send everything that a competing broker has developed as risk exposures and solutions over to the existing broker by the owner. If the exposures are significant and the coverage analysis has been performed and specifics given to you, why would you do this?
Let's see if this makes sense: Give someone else's work to the person that has been mishandling your coverage and tell them to fix it. That is not buying insurance based upon real solutions — that is simply buying insurance either from someone you like or because you think they are the cheapest game in town.
Ask And Tell Policy
The relationship between you and your insurance advisor must be based upon proper communication. Tell your broker everything about your business and ask questions about your insurance program. Never assume that “your agent is handling” it. Ask your insurance advisor to become involved in contract negotiations or buy-sell agreements before you sign them. Their job is critical to your continued viability as a business: standing between you and your loss of capital and assets. As President Reagan famously said: “Trust, but verify.”
|Agent||Places your insurance coverages through an insurance company with which they have a contract (called an agency appointment). An agent legally represents the insurance company to the buying public. Note that in some states, the state regulations use the term “producer” and may encompass both an “agent” and “broker” in a legal capacity.|
|Independent Insurance Agent||Often represent many insurance companies with which they place insurance. Although legally representing the insurance company, they also represent the insurance buyer and have a different status than agents that represent only one company.|
|Broker||Places your insurance coverages with one or more insurance companies. A broker legally represents the insurance buyer to the insurance company and is not required to have a contract with any insurance company. A broker can go directly to certain insurance companies or may access insurance companies through a surplus lines broker.|
|Surplus Lines Broker||Also known as a “wholesaler”. This is a company through which difficult lines of insurance are written. State laws control how the insurance delivery scheme is enacted. Your broker goes to the wholesaler who places your coverage through an insurance company. The insurance company could be “admitted” or “non-admitted”. You will pay fees to both and these should be completely disclosed to you, in writing. The premium for a non-admitted insurance company does not include taxes and fees; those must be disclosed in writing along with the actual premium.|
|Insurance Market Access||The type of insurance professional that has the widest market access is an independent insurance agent who is also licensed to act as an insurance broker. Although the license name varies by state, the critical question is: Can you only write business through insurance companies with which you have a contract or do you have access to a wide variety of insurance companies directly or through surplus lines brokers? This allows the widest insurance market access to properly transfer your exposures on a competitive basis.|
|Insurance Consultant / Risk Manager||An independent person who works exclusively for the hiring party. This person will provide guidance for managing your risk and will work directly with your agent/broker (or prospective agent/broker) for proper insurance placement. An independent consultant should never actually place your coverage. This person should create insurance specifications that are extensive, provide those to your agent/broker and review the insurance placed and received for conformance. Verify that your consultant does not, in any manner, receive payment or share in the commission from the insurance agent/broker. This creates a conflict of interest and the consultant is no longer acting exclusively for you. A consultant should also never promise to reduce your premium and receive a fee for doing so. This also reduces the altruistic nature of the relationship.|
Over the last 15 years, the nursing home industry has seen substantial changes in the liability insurance markets. At one time, insurers looked at the elderly population in nursing homes using traditional measures of damages like lost income and concluded that the industry was a risk worth insuring. The tidal wave of elder abuse litigation that drove sky-high verdicts changed the insurance landscape dramatically, resulting in a dearth of available coverage and forcing many nursing home entities to become self-insured. Insurance carriers are once again writing policies for the nursing home industry, but with significant changes in how limits of insurance work under some new Nursing Home Liability forms.
Nursing home policies typically combine a Professional Liability policy with a Commercial General Liability policy with limits set for an individual case or claim and an aggregate limit for the facility or company. The policies are written in a way to make sure a claim is covered under either the professional liability side or the commercial general liability side of the policy, but never both. For example, a policy might have a $3M aggregate and a $1M per claim limit. This means that no claimant can ever recover more than $1M on the policy, but the company's overall coverage does not exhaust until all $3M has been paid out. Traditionally, Commercial General Liability policies paid for an insured's defense outside of the per claim or aggregate limit. In other words, a $1M limit could only be exhausted by paying out that sum to a claimant. There was no limit on defense costs at all, which frequently put pressure on carriers to settle cases.
Many of the newer policies for nursing homes are now being written on a “wasting” form where defense costs erode the stated limits of the policy. This means that the insurance company has now capped its liability at $1M per claim, which includes both defense costs and any money paid to settle the case or satisfy a judgment. The effects of this change are profound. Nursing home entities and their defense counsel need to reconsider their limits and how they choose to defend claims. The prospect of an expensive defense no longer concerns insurers the way it used to. Now insureds have to worry about that instead.
If you are involved in risk management for a nursing home entity, you need to know whether or not your liability policy includes defense costs within the stated per claim limit. If it does, you have what insurance lawyers refer to as a “wasting” policy. The following examples demonstrate the way a wasting policy is different from traditional Commercial General Liability policies.
Suit Filed — General Negligence. Taking the case to trial results in Defense Costs of $500,000 and a Verdict for $1,000,000 Standard Commercial General Liability Policy with $1M per claim limit pays all defense costs incurred and the jury verdict. Insured would be responsible for paying any deductible or self-insured retention.
Suit Filed — Professional Negligence. Taking the case to trial results in Defense Costs of $500,000 and a $1M Verdict Commercial General Liability “Wasting” Policy with defense costs eroding limits. Insurance carrier pays $500,000 in defense costs and $500,000 towards the jury verdict. Nursing home is liable for remaining $500,000, as well as any deductible or self-insured retention.
As Example 2 demonstrates, if you have a wasting policy, a $1M per claim limit will be reduced by costs incurred to defend the case. Under a traditional Commercial General Liability policy, the insured could afford to take an aggressive stand in litigation and try to wear down plaintiff's counsel through use of extensive discovery, filing motions for summary judgment and even taking an appropriate case through trial. After all, the aggressive defense was being paid for by the insurance carrier, not the insured nursing home. Under a wasting policy, this litigation strategy can be disastrous. A nursing home could end up spending almost its entire limit defending a serious case, only to end up funding a large settlement or verdict out of its own pocket.
A wasting policy also has significant implications for defense counsel. Normally, insurer-appointed defense attorneys never want to get involved in questions regarding insurance coverage. They cannot afford to alienate the insurers that hire them as panel counsel, so they only want to focus on defending the underlying case. When defense costs are outside of limits, avoiding all things insurance is a safe course for appointed defense counsel. All of this changes, however, when you have a wasting policy because every dollar the lawyer spends on defense will not be available for settlement. It is imperative to know at the outset of a case if you have a wasting policy. If it is, liability needs to be assessed quickly and realistically in order to preserve as much of the limits as possible for settlement. Failure to do so may result in unfortunate consequences.
Nursing home insureds are also frequently defended under a reservation of rights from their insurer that may entitle them to hire independent counsel at the insurer's expense. Whether or not you are entitled to independent counsel based on a given reservation of rights is beyond the scope of this article, but risk managers for nursing homes need to know that insurers issuing wasting policies will take the position that the cost of independent counsel will also come out of the available limit. Therefore, requesting independent counsel who bills at a higher rate than counsel assigned by an insurer can have the unfortunate effect of depleting limits even faster.
Nursing home entities also need to consider the impact of wasting limits on the aggregate limit covering all claims in a given policy year. Where defense costs erode both individual claim and aggregate limits, a nursing home entity could successfully defend a number of cases and pay out no money whatsoever in liability, but still exhaust all available insurance coverage. For instance, a company with a $3M aggregate limit could successfully defend five cases to verdict at a cost of $600,000 per trial and have no remaining insurance whatsoever. While that example may seem unlikely, you have to look at your own company's claims experience to consider what type of limits are appropriate if you have liability coverage written on a wasting form.
Risk Managers should review all pending litigation and the policies that are covering those claims to determine whether or not defense costs are eroding limits. Talk with your broker about what types of liability coverage are currently available in the market. If you can purchase policies with defense costs outside of limits, that may be worth paying a higher premium. If your broker can only find insurers willing to write liability insurance on wasting forms, revisit your per claim and aggregate limits with your broker to determine if you are adequately covered.
If the thought of actually reading an insurance policy is too painful to contemplate, hire coverage counsel to do it for you. Of course, this assumes you have a copy of your policy. In many cases, brokers bind coverage and the policy is not issued for months. If you are about to purchase a new policy, make sure your broker confirms the type of policy form it will be issued on. Once the policy arrives, make sure it is what you were promised. Finally, if your liability insurance is written on a wasting form and you do get sued, have a frank discussion with your defense counsel at the outset of the case before significant defense costs are incurred. Get a budget and a liability assessment as soon as possible. If you don't, the financial consequences could be painful indeed.