September 2005 Archives

September 30, 2005


Wyoming's Supreme Court* will be considering the issue of whether an illegal immigrant who is injured on the job should be entitled to workers comp benefits. In the particular case at hand, one Javier Molina lost a leg after being run over by a piece of construction equipment while at work for Freund Construction. He was denied compensability and turned to the courts for relief.

Compensability for immigrant workers is getting to be a hot issue lately. We recently wrote about a move by legislators in South Carolina to bar benefits for injured immigrant workers.

Providing that the injury meets compensability criteria, what is the thinking in denying benefits to immigrant workers for injuries that occur at work? Didn't the employer enjoy the fruits of that workers' labor? In the Wyoming* case, Molina had been working for Freund for 10 years. More importantly, if an employer doesn't have any financial responsibility for work injuries for one class of workers, wouldn't that provide an incentive for unscrupulous employers to hire that class of worker for the riskiest jobs? That was the thinking of the Maryland Court of Appeals in a recent ruling that upheld benefits for undocumented workers who are injured at work. In commenting on the ruling, attorney Luiz R.S. Simmons who advocated for the injured worker, stated:

"One of the collateral consequences of the ruling is that it will help to discourage unscrupulous employers from hiring undocumented workers and putting them in risky situations. If you are requiring everyone to be covered, you are taking away the incentive to look for and recruit undocumented workers," Simmons said. "If you have tens of thousands of undocumented workers you try to create an environment where employers are discouraged not encouraged to hire them."

Simmons said if undocumented workers would not receive workers' compensation they would be sought out by employers because it is cheaper to hire them.

If a workers' immigration status is legally questionable, that’s a separate issue that can be dealt with by the appropriate authorities. Employers and policymakers who disagree should be careful what they wish for. Workers comp affords two way protection: workers who are injured on the job get medical and wage replacement benefits while they recover, and employers get protection from being sued through “exclusive remedy” provisions of the law.

* Editorial note: The original blog post mistakenly cited "Nebraska" rather than Wyoming in the blog headline & text. I apologize to Nebraska for the error!

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September 28, 2005


There are a lot of solutions floating around with all the debris from Katrina and Rita. Here's one: take all the people without flood insurance whose homes were destroyed and offer them retroactive coverage. They pay ten year's worth of retroactive premiums (paid for out of the settlement) and they collect up to the policy maximum of $250,000. They use this money (minus the retro premiums) to rebuild their homes. These homeowners also agree to continue to pay for flood insurance as long as they own the property. (In my cynic's eye, I can see a flurry of sales to third parties, voiding the indefinite commitment to secure flood insurance in the future. After all, hurricanes don't strike twice in the same place, do they?)

This is a pretty strange notion: buying insurance after you already know you need it. I can hear my actuary friends saying, "Hey, wait a minute. You can't do that!" Well, these are special circumstances, so maybe you can. The problem is, someone has to provide the capital, so that communities can rebuild.

AM Best addresses the fallout from the move in Mississippi to require insurance companies to cover flood damage, the language of the homeowner's policies be damned. "Any sort of move in this direction is an affront to the constitution and sets a horrendous precedent," says Bob Hartwig, chief economist with the Insurance Information Institute. "You cannot have a capitalist economy where contracts are ignored."

Louisiana's insurance commissioner, J Robert Woooley, also thinks that the Mississippi approach is a bad idea. If a law compelled coverage where the contract voids it, there would be a rush of "first one to the door" claims. "If you don't get there first, you're going to get nothing..." Because your insurance company might just crumble under the pressure of these unanticipated payouts.

No Sympathy for Insurers
Famed litigant Richard Scruggs (we've met him before, we'll see him again) has no sympathy for the insurers. "If an insurance company or two has to go broke, I'm sorry. I'd rather see an insurance company go broke than the tens of thousands of my friends and neighbors in Mississippi, Alabama and Louisiana go bankrupt." (Perhaps it does not occur to Scruggs that some of his neighbors might work for insurance companies!) The stakes are enormous -- not just in this particular instance, but in any foreseeable circumstance where public need is perceived to supercede the language of a contract.

The aftermath of the two hurricanes is an unprecedented catastrophe. The scale of the damage raises new and largely unresolved questions of liability. And as in so many of our recent blogs, one of the most compelling questions is relatively simple: "Who pays?" A simple question with no clear response. It's likely to be years before we know the answer.

Special thanks to blogger Martin Grace at, who has been tracking this ongoing saga.

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September 27, 2005


Jeffrey and Michael Derderian, former owners of the Station nightclub in Rhode Island, have filed for bankruptcy. The move surprised absolutely no one, least of all the attorneys on the other side. As owners of a club where 100 people died in a rapidly moving fire caused by illegal fireworks, the Derderians are on the hook not only for the lives of their customers, but for the lives of their employees as well. We pointed out in previous blogs going back to 2003 that the brothers failed to carry workers comp insurance for their employees, four of whom died in the fire. The brothers were fined over $1 million by a workers comp court for failing to carry this mandatory insurance.

The fine has not been paid and, given the chapter 7 filing, it is unlikely that it ever will be. The brothers have been making some sort of payments to the families of their deceased employees, pending resolution of the case in court. According to at least once source, those payments have fallen short of what is owed. Indeed, substantial as it is, the fine is only about 1% of the estimated $100 million in liabilities facing the brothers. They list their assets at $50,000. That's pretty slim pickings for the creditors in this unresolved tragedy.

Searching for Deep Pockets
The brothers are not the only ones facing the harsh reality of financial liabilities for the fire. Foamex, the manufacturer of the highly flammable (and improperly installed) accoustical tiles that ignited, has also filed for Chapter 11 bankruptcy, although it is not clear from their announcement whether the filing is related directly to the fire or involves other business problems.

In the aftermath of any tragedy, especially one involving negligence, there is an immediate and relentless search for deep pockets. The Derderian brothers have basically announced that theirs are empty. Foamex may also be building a firewall (no pun intended) through its bankruptcy filing. There are other layers: the owners of the building; the town of Warwick which inspected (but did not close) the facility; Great White, the band that set off the fireworks (without a permit). And yes, even Budweiser, the company sponsoring the band's tour. What did they know -- or should have known -- about the illegal pyrotechnics that made a Great White appearance something special (and potentially lethal). Sure, it's a stretch to hold the brewer responsible for what happened, but they at least have liability insurance with the order of magnitude to cover the losses. This may be one of those cases where the brewer has a miniscule portion of the liability, but will bear most of the costs. At this point, only one thing is certain. Someone is going to pay.

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September 26, 2005


The Hill is reporting that insurance lobbyists have been working overtime since Katrina to extend passage of the Terrorism Risk & Insurance Act (TRIA), the federal backstop for insurers that is scheduled to expire on December 31. Many lawmakers think that the voluntary market should be developing alternatives to cover any terrorism risk, but the hard hit that the reinsurance industry is taking post-Katrina may reinvigorate the debate. Renewal is thought to be a particularly significant issue for workers compensation since it is mandatory business insurance. See Doug Simpson's May blog on why TRIA renewal is thought to be vital to the workers comp market.

Free webinar about TRIA renewal
Business Insurance is sponsoring a free hour-long panel - A World Without TRIA: Why A Terrorism Insurance Backstop is Vital - a discussion about what this might mean for your business and for the insurance industry. 1:30 p.m. EDT Oct. 12. You can register here.

The panelists for this event are: Ramani Ayer, chairman and chief executive officer of The Hartford Financial Services Group Inc.; Bradley Wood, senior vp-risk management of Marriott International Inc.; and Joel Wood, senior-vp of government affairs for the Council of Insurance Agents & Brokers. The discussion will be moderated by Business Insurance Senior Editor Mark A. Hofmann.

Prior postings on TRIA:
Terror and risk transfer
Congress considering Terrorism Risk Insurance Act (TRIA) renewal
TRIA set to expire

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September 22, 2005


While the Insider tends to focus on trends relating to workers comp, our esteemed colleague Joe Paduda tracks health care at his Managed Care Matters blog. You don't have to follow health care for very long before it converges on comp. We've been here before and we will be here again.

Health care in this country is already rationed, although you rarely hear that term used. (Here's one doctor not afraid to use it.) Our rationing tool is, quite bluntly, based upon class. Those who can afford health insurance buy it. Those who cannot, don't. The dividing line is not employment: most poor people work, but they still don't have health insurance. They either have employers who don't offer it as a benefit, they work too few hours to qualify for the benefit, or they simply cannot afford it. Nearly 20% of Americans under 65 lack health insurance.

In his September 22 blog, Paduda engages in a hypothetical debate with a libertarian who supports Medical Savings Accounts (MSAs) -- a mechanism by which people are incentivized not to spend their health insurance dollars. Paduda directs us to a paper by the invaluable Kaiser Foundation, which dismantles the MSA approach one vital statistic at a time. Here's the bottom line: most health care expenses are incurred by those who are very ill (gee, that's a surprise!). In fact, 5% of the population burns up over half of all health care dollars. And the sickest 1% account for 40% of the dollars spent. Medical savings accounts would have a trivial impact on this spending, at best.

There are truly ominous trends in health care. Costs continue to go up. In addition to paying higher premiums, insured workers are paying higher deductibles, higher co-pays and more and more for brand name medications. As cost rise, coverage declines. Fewer employers opt to provide health care benefits: in the crucial small employer sector (with between 3 and 199 workers), 68% of employers offered health care back in 2000. In 2004 the percentage dropped to 59%. Beyond that, as costs rise, many people with low incomes are forced to opt out.

Where's Comp?
In a number of fundamentals, health insurance and workers comp diverge. Health insurance is an option; workers comp is mandatory. The employee portion of health care is free to rise at precipitous rates -- as has been amply demonstrated. In stark contrast, employees never pay a penny for the health care benefits associated with workers comp. To be sure, they are entitled only to payment for treatments directly related to their workplace injuries and illnesses. Nonethless, the treatments are free, prescriptions are free, and injured workers often can collect indemnity benefits while they are disabled.

Does this mean we will see more fraud in workers comp, more instances with employees trying to collect comp for non-work related problems? I don't think so. But we should all be concerned with the overall health of the workforce. On some level, those of us on the workers comp side depend upon the conventional health system to prevent illness, stabilize any non-work related conditions and ensure that our workers are fundamentally sound. It's hardly reassuring to think that uninsured workers are slow to report health problems, reluctant to seek treatment and unable to access preventive care. We can and should have a "best practice" approach to safety in the workplace, but no safety program can compensate for workers in declining health. These vulnerable workers stand at the very spot where the health insurance crisis and workers comp converge.

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September 21, 2005


It's the scandal that keeps on giving. The Ohio Bureau of Workers Compensation's (BWC) dubious investment strategy exacted its latest toll with the recent firing of the chief investment officer. Go figure! Who'd have thunk a little speculation in failed hedge funds and rare coins could cause such a ruckus? Coingate has already claimed the BWC director's job; it's also left a trail leading right up to Governor Taft's door, and perhaps beyond. The next victim? Some think it might be the BWC itself. The ongoing investigations have already pushed any workers comp reform off the agenda this year and, unsurprisingly, some are suggesting it might be time for Ohio workers comp to privatize. Ohio is the largest of five monopolistic states. Monopolistic means the state is currently the sole provider of all workers comp insurance - and with a fund exceeding $14 billion, that's hardly chump change. We'll keep you posted.
From the archives: More here and here.

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September 20, 2005


You may remember the Irish tune about Molly Malone, seller of fresh cockles and mussels.

In Dublin's fair city,
where the girls are so pretty
I first set my eyes on sweet Molly Malone
As she wheel'd her wheel barrow
Thro' streets broad and narrow

Crying "Cockles and Mussels alive, alive O!"
Alive, alive O! Alive, alive O
Crying Cockles and Mussels Alive, alive O!

She was a fishmonger,
But sure 'twas no wonder,
For so were her father and mother before,
And they each wheel'd their barrow
Thro' streets broad and narrow,
(Repeat Chorus)

She died of a fever
And no one could save her,
And that was the end of sweet Molly Malone;
But her ghost wheels her barrow
Thro' streets broad and narrow
(Repeat Chorus)

[Written and composed by James Yorkston]

Poor Molly died of a fever, but more recently, on a cold, rainy night in February, at least 21 illegal Chinese immigrants died while attempting a nightime harvesting of cockles at treacherous Morecambe Bay in northwest England. The Bay is known not just for its beauty, but also for its deadly coastline with fast rising tides and quicksands. The harvesters were caught when the waters rose behind them, cutting off access to the shore. To compound the problem, they were working at night and were unfamiliar with the terrain. Now the master of the crew, Lin Liang Ren, 29 years old, has been charged with criminal negligence in the deaths of the workers.

Why Cockles?
Morecambe Bay is holds millions of pounds worth of cockles, a small mollusc popular in southern Europe, especially Spain. High prices have caused a rush to pick them. The price of cockles has soared from 200-300 pounds per ton, to 1,500 pounds in the past few years, after mechanical harvesting was banned in Holland, making England Europe's only supplier.

Culture Wars
Some of the gatherers are independent local people who can earn a very good living from the difficult harvest. But much collecting has been done by gangs of illegal migrants, crammed into dormitories and indebted to criminals who smuggled them to Britain. The migrant workers often meet fierce resistance from the locals (reminiscent of the lobster wars -- see our August 29 blog.)

Crewmaster Lin hooked up with Tony Eden, proprietor of the Liverpool Bay Fishing Company. Eden agreed to pay £15 a bag for the cockles. The locals were not pleased to see the Chinese workers invade their territory. Police were called to a confrontation 10 days before the tragedy in which a consignment of cockles picked by the Chinese was set on fire and another contaminated with diesel fuel.

That day Tony Eden complained to police that he had received a death threat for buying from the Chinese. A card delivered to his brother Jamie's home read: "Our condolences, Jamie, on your forthcoming bereavement."

Management Accountability
The prosecution has charged Lin with criminal negligence in the 21 deaths. When police first arrived at the scene, Lin denied that he had anything to do with managing the crew -- he insisted that the crew chief was one of the people who drowned! Prosecutors are also alleging that Tony Eden knew "full well" that the cockle pickers were illegal immigrants and was helping them remain in Britain by buying their harvest.

The negligence stems from the conditions on the night of Feb 5: it was no secret that the tide was going to be high and weather wretched. The local cockle pickers either did not go out or went out for a short time and returned to shore well before the tide came in. The Chinese crew, under Lin's direction, stayed out too long and were drowned.

My sympathies, of course, are with the workers, whose faces, full of hopes, dreams and concerns, can be seen here. Escaping poverty and lack of opportunity in their homeland, they were smuggled into England, crammed into horrible living conditions, surrounded by a hostile populace, in constant fear of arrest, not understanding the language, not knowing the land. Theirs was a terrible fate. Now it is a question of management accountability -- something we probe frequently in this blog. While there may be times when managers are held accountable for things well beyond their control, this does not appear to be one of them. Lin could not control the weather, but he was obligated to know the forecast and act accordingly. The rising tide at Morecambe Bay swept away a score of lives and a host of dreams. All for a few dollars worth of "cockles and mussels, alive, alive O."

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September 19, 2005


We don't often toot our own horn but we're in a celebratory mood after marking our second anniversary of blogging this past weekend. When we embarked on the blog, we weren't entirely sure what level of interest we'd find for our news and commentaries, but we were gratified to break the 10,000 visitor mark last month.

We thank you, our readers, for keeping us motivated. We'd like to be sure that we address issues that are relevant to you, so we're running a brief survey to try to learn more about who you are and how we can match your interests. The survey is just a few questions and we respect your anonymity and privacy, so we'd greatly appreciate your participation. Click here to take the survey (Please excuse the pop-up invitation to participate - it should only occur once.)

As part of our anniversary "festivities," we thought that it might be interesting to take a retrospective look at the posts that garnered the most interest from you, our readers.

1. Independent Contractors, Revisited

2. Independent Contractor or Employee?

3. Exclusive Remedy, "Bad Faith" Claims, and the $12 Million Lawsuit

4. Ohio BWC scandal widens

5. Exception to the "Going and Coming" Rule: Operating Premises

6. Alcoholism and Work: The Devil's Brew

7. A new prescription for back pain

8. Measuring Success 2

9. 2004 Workers Compensation Premium Rate State Ranking Summary

10. Blowing the Roof Off Workers Comp

11. The Worst Jobs in History

12. The history of workers compensation

13. Iraq Contractors and Workers Compensation

14. Cell Phones and Driving, Revisited

15. Jockeying for a Safer Workplace

16. Independent Contractors: The Solution is a Problem

17. Guns at Work

18. Insurance Industry Scandal Watch

19. Fixing Workers Comp

20. "What Are My Rights?" Employer Frustration With Workers Comp

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September 16, 2005


We've been tracking the saga of who is going to pay for Katrina's havoc. If Jim Hood, the attorney general of Mississippi, has his way, insurance companies will be on the hook for all the homeowner losses, even those caused by flooding -- despite the fact that floods are excluded from homeowner's policies. Hood has filed a lawsuit against five major insurers, alleging that they're cheating Hurricane Katrina survivors. He asks: "Is it right to write in the fine print a provision that takes away the reason for the contract in the first place?...You can't put this stuff in fine print and bankrupt half the coast and say, `Oh well, they should have known.'"

Perhaps insurance companies should use a larger font in homeowner's policies, so they cannot be accused of hiding the details in "fine print."

Hood has been joined in his effort to redefine homeowner's insurance by the ubiquitous Richard Scruggs, who made his reputation suing the tobacco industry. (By the way, Scruggs is the brother-in-law of former Senate Majority Leader Trent Lott, R-Miss.) Scruggs says he will stand up in court for homeowners by arguing that homes were damaged by wind-driven water, not floods. Let me see if I get this straight: a flood is not a flood when it's wind-driven. Perhaps the only way for a true "flood" to occur is during an eerie calm.

Valued Policy Law
Scruggs is going to file thousands of suits in state courts. He said the effort would be aided by a Mississippi statute known as the "valued policy law." (Read more about this legal concept here.) In a controversial decision last year, a Florida appeals court held that a similar state law required full restitution when a house was partly destroyed by hurricane winds, even though flooding did most of the damage.

"The statute provides in these states that if there's any damage at all by wind, they must pay the full amount," Scruggs said.

A spokesman for the Property Casualty Insurers Assn. of America said insurers wouldn't pay for uncovered flood damage and that adjusters were trained to determine when flooding was the main culprit. See you in court, sonny!

Defending the Insurance Industry
It's never easy defending corporate giants, especially in this type of circumstance where the losses are so heartbreaking. Insurers point out that contracts are contracts -- and that floods are specifically excluded from homeowner's policies. That's why we have separate flood-insurance, backed by the federal government -- under a program managed by everybody's favorite "best practice bureaucracy" - FEMA. (Do I hear a "neigh"?)

FEMA officials have acknowledged that 60 percent of the affected property owners in Katrina's zone of destruction may lack federal flood insurance. To rebuild, they would have to take out low-interest government loans -- unless Hood and Scruggs prevail.

"Insurance policies are legal contracts, specific policy terms and conditions that both sides agree to," said Joseph Annotti, spokesman for the Chicago-based Property Casualty Insurers Association of America, which represents most major insurers. "To come in after the fact and arbitrarily rewrite the policy coverage to cover losses that premiums were never collected on and reserves never set aside for, that's an extraordinary legal precedent to set and a very dangerous one." As it is, the insurance industry is now projected to be on the hook for $40 billion to $60 billion in claims, apart from the Mississippi lawsuit.

We'll All Pay
One thing is certain. If Mississippi prevails and is able to force insurers to pay for flood damage, we will all see our homeowner's premiums rise to incorporate the new risk. At the heart of every insurance policy is the esteemed work of the actuaries. They like to know the parameters of the risk ahead of time -- and I imagine they will be really annoyed if the rules suddenly change after the fact. Stay tuned. Despite the inordinate human calamity and suffering, this is going to be a very compelling -- and at least in some respects entertaining -- drama.

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September 15, 2005


Steven Trucinski, an employee of International Paper Co. in Ohio, was injured in a chemical explosion on October 15, 1998. He sustained severe trauma to his left lower extremity, as well as burns over large portions of his chest, back, and right upper extremity. His leg was amputated above the knee.

Under Ohio law, loss of two body parts automatically entitles an injured worker to permanent total disability benefits. Here's the admittedly gruesome qualifying definition in the comp statute: The loss or loss of use of both hands or both arms, or both feet or both legs, or both eyes, or of any two thereof, constitutes total and permanent disability, to be compensated according to this section. Virtually every state has a similar listing.

The court had to confront the issue of just how many body parts Trucinski lost. Does the loss of a limb above the knee involve a single limb or a leg and a foot? In their opinion upholding the claimant, the court cited a definition of a leg in Webster's Third International Dictionary: "[A] limb of an animal used esp[ecially] for supporting the body and for walking: as a: the part of the vertebrate limb between the knee and foot." If the leg is between the knee and the foot, then any loss above the knee involves two body parts, not just one.

Macabre Math
The gruesome details are compounded by what turns out to be a more positive than expected outcome for the claimant. As it happens, Trucinski recovered from his injuries, was fitted with a prosthetic limb and subsequently found employment (but not at International Paper). Despite his ability to work, he continues to collect permanent total disability benefits. So his former employer appealed to the Ohio Supreme Court, arguing that Trucinski's ability to earn a living proved he was not "permanently and totally disabled." The court ruled in Tracinski's favor, citing the language of the statute and their own unwillingness to intervene in a case by overturning preceeding rulings.

What are we to make of this high stakes dispute? On the one hand, employers and insurers, confronted with paying lifetime benefits, argue that employability -- not loss of specific body parts - should be the determining factor for benefits. On the other hand, representatives of labor, unable to secure well-deserved "pain and suffering" benefits under workers comp, point to the extreme injuries and demand justice for the employee. The court, planted squarely in the middle, upholds the benefits as outlined in the statute, despite what appears to be a huge contradiction: the man with a "permanent and total disability" is actually able to work.

A New paradigm?
Workers comp in this country is nearly 100 years old. When the statute wound its way through each of the states, it was a radical and long-overdue idea: a no-fault system which protected employers from lawsuits, while it ensured that lost wages, medical bills and scheduled benefits (scarring, loss of limbs, etc) were paid to injured employees. It's the first and only form of universal disability insurance protecting almost every American worker. As we move into the new century, it's becoming clearer that the industrial model lying at the heart of workers comp no longer reflects the realities of the new working world.

In today's workforce, people change jobs frequently. There are massive layoffs and restructurings in virtually every industry. Yesterday's corporate giant might be out of business today. Workers, caught in the middle of all this turmoil, might have to retrain three or four times during their careers. A person with one set of limited skills is simply unprepared for the challenges of today's workplace.

The comp benefit structure, visible in stark outline in today's case from Ohio, was based upon the old industrial model of employment. Fifty years ago, if a worker lost two body parts, he or she was totally disabled, unable to pursue gainful employment. Modern medicine, combined with high tech applications, create myriad possibilities even for people with severe disabilities.

With all the changes taking place in the workplace, it may well be time to re-invent workers comp. Rather than paying people not to work, let's use our resources to enable people to find gainful employment. Let's focus on skills development rather than disability. It might open the workforce to people who face artificial barriers. And it might help us focus on the real bottom line: the ability of people to earn a living wage in a job worth doing. That would surely involve a paradigm shift from the current state-by-state morass that is the workers comp system in America.

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September 13, 2005


The Insider has been pretty tough on Walmart, and for good reason. In their passionate pursuit of lower costs, they squeeze vendors, they squeeze contractors, they occasionally lock cleaning crews into the buildings at night, and. perhaps most egregiously, they squeeze their own employees to the point where many require public assistance to survive. In his invaluable book, The World is Flat, the brilliant Tom Friedman details the many reasons why Walmart is in the forefront of today's business models. They are really good at a lot of things. Friedman attributes the company's tin ear on issues of worker fairness to their rural Arkansas origins. I suspect that Friedman is implying that they do what they do because they are rednecks. Maybe so, but they are rednecks with dazzling business acumen.

It would be foolish to question the efficiency of the Walmart model. This efficiency came into dramatic play in the days following the disastrous landing of Katrina. No one was better than Walmart at analyzing and delivering the goods that are most needed in the storm-ravaged regions of the south. Whatever we may feel about the impact of Walmart on small town America, there is little question that the world's biggest retailer is uniquely situated to analyze post-hurricane needs and deliver the goods. It would be nice if FEMA could do the same, but they certainly can't under the current inept leadership, and it's hard to imagine any government program matching the efficiency of a Walmart.

Friedman's book, written prior to Katrina, outlines the Walmart scenario for responding to lesser storms:
During hurricanes...Walmart knows that people eat more things like Pop-Tarts -- easy-to-store, nonperishable items -- and that their stores also sell a lot of kid's games that don't require electricity and can substitute for TV. It also knows that when hurricanes are coming, people tend to drink more beer. So the minute Walmart's meteorologists tell headquarters a hurricane is bearing down on Florida, its supply chain automatically adjusts to a hurricane mix in the Florida stores -- more beer early, more Pop-Tarts later.

We read at Investors. com that Walmart has given generously to relief efforts — upward of $20 million — and was able to take decisive action to ship urgently needed goods to the region.

Wal-Mart's efficient supply chain and logistics network were durable enough to take the hit and keep on operating. While local and federal groups suffered communications problems and bickered over who was in charge, Wal-Mart sprang into action.

"We are uniquely positioned to aid the community because we have got stores in so many places," said Wal-Mart spokesman Marty Heires. "This is Wal-Mart country." By Thursday, it had shipped more than 2,400 trailer loads of water and other emergency supplies to the region.Over $3 million in supplies were given directly to shelters, providing a lifeline for stranded residents.

"They maintain one of the world's largest (private) communications networks with lots of redundancies," says Bruce Richardson, an analyst with AMR Research. The retailer also maintains massive databases on sales and merchandise, and its trucks are constantly on the road. That let the company find needed goods in inventory and ship them out in record time.

Wal-Mart did this despite already suffering big losses due to closed and damaged stores. Total losses to Wal-Mart could easily hit $500 million, Richardson said.

I think it is possible to salute Walmart for their hard-earned capacity to deliver in a time of need, and at the same time continue to question the true costs of some of their business practices. Government has a lot to learn from Walmart -- and Walmart has a lot to learn, too. Friedman thinks they are listening to the criticism and may even get better at the things that offend some of us the most. I hope so. In the meantime, let's give credit where it is due. When the winds and waters wreaked havoc in the south, government at all levels simply floundered, while Walmart responded with its legendary efficiency and an inspired generosity.

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September 12, 2005


On the anniversary of 9/11, many of us took time to honor the victims of that sad day, including the many working heroes who gave their lives to try to rescue others. Last Friday, President Bush presented posthumous Medals of Valor to the families of 443 first-responders who were killed on the scene. But one sad story that is getting short shrift is the fact that while we honor the dead, we are ignoring the plight of many of the still-living heroes of that day who are suffering severe and incapacitating disabilities.

Few are aware that the death toll among rescue workers is still mounting. NYC EMT and volunteer firefighter Timothy Keller recently died after succumbing to respiratory problems related to his rescue efforts four years ago. And despite $7 billion in funds earmarked for victims, Keller died in poverty and financial ruin. Until weeks before his death, he had been denied both workers compensation and line of duty injury benefits.

Keller's story is not unique:

A study by the World Trade Center Medical Monitoring Program, a federally funded program following 12,000 Sept. 11 responders, found last year that half of more than 1,000 examined had persistent respiratory and mental health problems. "We remain surprised and disturbed at how chronic the World Trade Center consequences are," said Dr. Robin Herbert of Mt. Sinai Medical Center, which administers the program.
"We're still seeing a record number of new patients as well as follow-up visits for respiratory and mental health issues," said Dr. David Prezant, deputy chief medical officer for FDNY. Prezant said that between July of last year and June of this year, the fire department's Bureau of Health Services has seen about 2,000 firefighters and EMTs with respiratory complaints and another 3,500 with mental health issues connected to Sept. 11 -- not including those already on medical leave.

Fighting for benefits
Many other 9/11 rescue workers are suffering similar ailments and are having trouble securing workers compensation or disability payments.

A group of Ground Zero recovery workers made a trip down to Washington, D.C., last week to lobby Congress about the $125 million that is slated to be taken away from the New York Workers' Compensation Fund. The money had been earmarked for Sept. 11 claims, and workers blame the state for dragging its feet in distributing the money.
The funds are still being debated as part of the 2006 federal budget - a move which angers and surprises many Sept. 11 responders. "This is something I can't comprehend as a person of faith," said Joann Hale, a member of the United Church of Christ - one of the denominations that has actively funded and participated in the Sept. 11 recovery.
"It's amazing that these were the people who were risking their lives trying to save others and keep the area safe - just trying to help their fellow person. I don't quite understand why they have to be penalized for that."

Other rescue workers, other risks
Today in New Orleans, we may have a similar situation brewing. Rescue workers are saving lives and recovering bodies while working in a toxic environment with dangers that are not yet fully documented. These workers risk their lives while giving little thought to the potential longterm effects on their own health. Shouldn't it be part of our public trust that we care for our rescue workers if they suffer long term debilitation related to their efforts? We should do better by our heroes than posthumous medals.

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September 9, 2005


KY: "Joint and several" liability at work
A Circuit Court judge has ruled that members of the failed AIK Comp self-insurance group must pay millions in assessments to cover benefits for injured employees. We wrote about this matter in December, discussing the concept of joint and several liability and the so-called 'long tail' of workers comp claims. At that time the liabilities were in the $50 million range - the deficit is now more than $97 million, the expected costs to pay employee claims. Ouch. The moral of the story here is not to get in bed with a group of other employers unless the group has been carefully vetted for management practices of both the group administrator and the individual members.

OH: Another BWC official fired in Coingate
The chief investment officer of the state's beleaguered Bureau of Workers Compensation was fired yesterday for poor performance in handling the $14 billion investment portfolio. The Bureau has been under scrutiny since a $50 million investment in rare coins came to light in April. About $13 million of that investment is "missing." In all, about $300 million has been lost, much of the losses stemming from investment in controversial hedge funds. For a complete roundup of the evolving scandal see:
May 13: Ohio's Great Workers Comp Coin Caper?
May 27: First Head Rolls in Ohio Coin Caper
August 23: Governor Taft's Ethic Violations

CT: Broker probe results in $30 million settlement
Joe Paduda reports that another large broker - HRH (Hilb Rogal and Hobbs) - has agreed to pay $30 million to a compensation fund and a $250,000 fine in relation to rebating, account steering, and compensation practices in Connecticut. Joe notes that this hefty penalty is associated with one client in one state and wonders if there are other shoes to drop.
Joe has been a good watchdog on these matters. See also: Insurance Industry Scandal Watch

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September 8, 2005


As the water levels finally begin to recede in New Orleans and the astonishing scale of the property damage throughout the region becomes clearer, the question for many people is painfully simple: who is going to pay for the damage? Thousands of homeowners are facing an enormous problem of coverage. If hurricane winds destroyed the house, they are covered. If, on the other hand, the rising flood waters caused the damage, homeowners may not be able to collect, due to a standard policy exclusion for flood damage. The stakes couldn't be higher.

One news article put it this way: falling water is covered by homeowner's insurance, but rising water is covered only if you carry optional federal flood insurance. So if your roof blows off and rain falls in, that's a homeowner's insurance issue. But if the levee breaks and water floods into your home, you need flood insurance.

It's not difficult to imagine the arguments between insurers and homeowners: sure, the wind damaged your house, but the floods destroyed it, so we're only paying for part of the damage. Yikes! The Wall Street Journal, in an article by Theo Francis and others (subscription required) quotes a lawyer, formerly the proud owner of a coastal home in Gulfport with 6,000 square feet of living space: "I know when I file a claim, the insurance company is going to say the house was destroyed by flood...A neighbor down the street saw our roof and furniture flying by his house long before the deluge, so I know it was the wind that knocked the place down." I can hear defense counsel already, cross-examining the neighbor: "How did you know for sure that the sofa flying past at 100 mph belonged to Mr. Woodall?"

Good News May Be Bad News
One of the many ironies in all this: if your house is still standing, relatively intact, you may have a harder time collecting on your homeowner's policy. For homeowners whose houses were totalled, the insurer will have difficulty separating the damage caused by the wind from that caused by the rising water. There is simply no evidence to examine. If the house is still standing (which under ordinary circumstances would be good news), it will be relatively easy to distinguish between wind damage (covered) and flood water damage (denied). So the "lucky" homeowner with less damage (but a home rendered uninhabitable by toxic waste and mold) might be confonted with bad news indeed.

Class Action Litigation
The Journal article notes that famed class action litigator Richard Scruggs has taken the hurricane personally and is contemplating a loss suit against all the insurers. Scrugg's own beachfront house in Mississippi, which carried flood insurance, was partly destroyed by Katrina. Mr. Scruggs said he plans to urge Mississippi Attorney General Jim Hood to try to override flood-exclusion clauses in homeowners' policies in that state in the interest of public policy, a move that could force insurers to pay many billions more toward rebuilding costs. Through a spokesman, Mr. Hood said: "I'm reviewing these contracts to determine if there are unconscionable provisions."

Needless to say, the insurers are not impressed with his argument. Industry officials argue that they can't afford to take on flood risks because they haven't been paid to do so.

"Where does that money come from?" said Allstate Corp. spokesman Mike Trevino. "We didn't collect any premiums that contemplated flood as an exposure that we would have to cover."

I tend to agree with another attorney, Stephen Cozen, whose Philadelphia firm does extensive work for the insurance industry: "This is not a public-policy issue. This is simply an insuring agreement between two parties in plain English where there's plenty of notice." It's a simple and painful matter for thousands of homeowners: read the words in your policy (which you probably never read before) and weep.

Everyone Pays
All we know for sure is that Katrina has caused damage in the vicinity of $100 billion, with around 25% of it covered by conventional insurance. It's also safe to say that one way or the other, we are all going to pay for it. The greatest and least quantifiable cost falls on the homeowners themselves, whose lives have been utterly compromised. For the rest of us, it's a matter of rising costs in fuel, insurance premiums and goods from the regions damaged by the storm. Given the proposed federal expenses beginning at $50 billion, there should be the shared cost of increased taxes, but somehow I think that's just not going to happen -- we'll put it on the deficit tab for future generations to pay. All this is a reminder that despite our presumption that we are in control of our destinies, nature calls the shots. No word-smithing of insurance policies or act of congress is going to change that.

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September 7, 2005


There are some interesting developments impacting workers compensation stress claims in our neighbour to the north, Canada. Here in the States, comp stress claims are very difficult to prove. Most states require that the "predominant cause" of stress in the claimant's life must be work related. This tough standard leads directly to a defense strategy of aggressive discovery: every aspect of the employee's private life is fair game. Whatever the causes of stress at work, they must exceed the stressors at home. For most of us, that might be difficult to prove -- and too embarassing to risk.

In the lovely Canadian Province of Nova Scotia, government employees are now explicitly covered for two types of stress claims: post-traumatic stress and gradual onset stress. While we are all pretty familiar with the former, the latter is something new. Unlike traditional "traumatic stress" -- which involves a single event -- "gradual onset stress" is a reaction to unusual and excessive work-related stressors acting over time. (Keep in mind that these new protections are limited to government employees.)

Policy wonks can view the policy here. A detailed discussion is available here.

Setting the Bar
Nova Scotia has taken some prudent steps to limit the application of the new diagnosis. Claims for psychological or psychiatric injuries resulting from gradual onset stress may be compensable if all of the following four criteria are satisfied:

i. The work-related events or stressors experienced by the worker are unusual and excessive in comparison to the work-related events or stressors experienced by an average worker in the same or similar occupation;
ii. The worker is diagnosed with a mental or physical condition that is described in the DSM IV;
iii. The mental or physical condition is caused by the work- related events or stressors; and
iv. The condition is diagnosed in accordance with the DSM IV by a health care provider being either a psychiatrist or a clinically trained psychologist registered with the Canadian Register of Health Service Providers in Psychology.

In addition, government employees may not site ordinary employment actions (performance evaluation, demotion, termination) as "gradual stressors."

Nova Scotia has set a reasonably high standard of proof. For example, the stressors must be unusual and excessive for the work. In other words, in confronting daily situations of violence and stress, police and prison employees might have a difficult time proving that the stressors were unusual and excessive. (We discuss just such a situation below.) On the other hand, workers in normally sedentary jobs would have an easier time meeting the standards.

Not covered by Comp: You can Sue!
At first impression, those of us who monitor comp developments might assume that in establishing the gradual onset diagnosis, Nova Scotia has opened the door to a rash of new claims. It's important to keep in mind, however, that by recognizing that stress might occur over time, the province has actually insulated itself against lawsuits. In Nova Scotia, an employee suffering from what may be gradual onset stress would have to pursue a remedy through the comp system. On the other hand, across the water in Newfoundland, the opposite is true: because their comp statute omits any reference to gradual onset stress, employees can go outside of the comp system (under which you cannot sue your employer) and file a lawsuit.

Here's a real-life example:

A jail guard in an Royal Canadian Mounted Police (RCMP) lockup in Grace Harbour, Newfoundland, sued the federal government for damages suffered from severe harassment at the hands of his supervisor. The harassment began after the guard gave a damaging statement during a force investigation into conduct by his supervising corporal. The guard understood that the statement would remain confidential; in fact, it was disclosed to the supervisor during disciplinary proceedings, which culminated with a dismissal or withdrawal of all allegations against the supervisor. After returning to work, the supervisor retaliated against the guard with repeated verbal threats, aggression and intimidation. RCMP officials were aware of the harassment, but did not assist the guard and a 1999 harassment investigation conducted by the force dismissed the complaint for lack of corroborating evidence.

As a result of the harassment, the guard gradually became anxious, insecure and, ultimately, suicidal, eventually being diagnosed with post-traumatic stress disorder (perhaps more accurately, with gradual onset stress disorder). In 2000, he commenced a court action against the supervisor and the RCMP. One of the issues was whether the guard could sue in the courts or was barred from suing because he was entitled to workers’ compensation benefits.

The trial judge concluded that the guard’s emotional condition was not covered by the Newfoundland comp legislation. The condition was not recognized by the comp system. As a result, he was entitled to file a lawsuit. The judge found the guard’s psychological condition to be “extremely" disabling and awarded almost $500,000 damages, including $376,000 for loss of income, $90,000 for pain and suffering and $30,000 aggravated damages.

Keep Employees in the Comp System
There is in all of this a valuable lesson for state legislatures. It's usually best to recognize and contain all employee injuries within the comp system. Maintain comp's role as the "exclusive remedy" for emploiyees. To be sure, comp can be idiosyncratic and expensive, but awards are limited to medical bills, lost wages and loss of function payments. With its "no fault" premise, workers comp does not recognize pain and suffering or loss of consortium. Had Newfoundland incorporated the Nova Scotia standards for gradual onset stress into its statute, the injured guard would have been limited to a workers comp remedy.

Some might fear that in creating the new diagnosis of "gradual onset stress" that Nova Scotia has thrown open the door to dubious claims. I don't think so. They have recognized that work-related stress might not occur just in response to a single event. In doing so, they have extended the safety net for government workers and at the same time, limited their exposure to lawsuits. Not a bad move -- and one which I expect will gradually move southward, one state at a time.

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September 6, 2005


Local reports from the blog community: Noted legal weblogger Ernie the Attorney, a New Orleans resident, has been posting his perspective of Katrina-related events, along with resources and links to reports from other local bloggers. We're relieved that he is OK, and we extend our condolences to him for the tragedies that are befalling his beloved city.

GruntDoc is a blog by an emergency physician in Texas who has been posting some great items about medical response, medical issues, and first-person accounts from medical staff. Two that we found interesting were five days of reports from Dr. Mattox at the Astrodome and a reporter's notebook about treating those left behind.

For other local reports: The Times Picayune has a breaking news weblog; WWLTV, Channel 4 in New Orleans, also has a breaking news weblog; and The Interdictor is a blog run by an entrepreneur who runs a network operations center in downtown New Orleans. He's kept the business running throughout the entire disaster, all the while posting regular updates about the experience. He also has had a webcam trained on Poydras Street throughout.

Job loss and employment: One of our readers recently posted a comment about how a job is closely entwined with identity, so loss of a job as a result of a disability can add insult to injury. It's a good comment, and we can't help but note that this loss of job/identity will be one more blow for many of Katrina's victims. Many lives that are already shattered may suffer further devastation from loss of job and livelihood. HR Blog looks at the anticipated toll on jobs in the Delta region, and Strategic HR Lawyer posts about some preliminary employer responses to Katrina. George's Employment Blawg urges employers to hire refugees and posts a message from SHRM on the importance of jobs.

Regulatory relief: Two interesting posts from BenefitsBlog. One is about the status of federal courts affected by hurricane Katrina and another discusses relief measures that some federal agencies offer affected employers in terms of filing requirements for benefits.

Economic and insurance costs: Katrina's economic impact could be much broader and more prolonged than originally thought. Several bloggers are discussing the specific impact on insurance. Specialty Insurance Blog discusses Katrina and insurance prices; RiskProf specifically addresses Katrina's effect on Florida insurance prices; and Joe Paduda discusses Katrina's anticipated impact on specific insurers.

Giving or getting help: RawblogXport suggests some ways to help. Inter Alia points us to a site by the American Bar Association offering Katrina-related resources for victims, for lawyers needing help, lawyers wanting to volunteer, military personnel needing help. MSSPNexus suggests that this might be a good time to review your FEMA's Emergency Preparedness Information.

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September 1, 2005


With my mind reeling from images of devastation in the aftermath of Katrina, I try to focus for a moment just on the implications for workers compensation. The hurricane hit on a weekend, so most people were not working. But some were -- working for companies that may have been obliterated: no payroll records, no employment records, nothing left. How would you prove that you were an employee? How can you file a claim when the entire apparatus governing workers compensation has disintegrated?

We tell employees that the first step in managing injuries is to report to your supervisor and then secure appropriate medical treatment. In all this chaos, how can I possibly find my supervisor? How can I secure medical treatment when the hospitals are on the verge of collapse, their generators running out of gas, their harried personnel stretched to the limit? I hope I don't need an ambulance, because there aren't any -- there aren't any roads, for that matter. There is no way for the medical provider to verify insurance coverage or talk to my employer. When I list my home address, does it matter if the building has been lifted off the foundation and collapsed on a lot three blocks north?

Old Cases are History
What happens to the hundreds of cases in litigation prior to the hurricane? From law offices to government offices, the files will be inaccessible for months and may have been destroyed. The people familiar with the details are living in distant cities or have disappeared altogether. Indeed, the claimants themselves may or may not be alive to pursue their day in court. Are the key witnesses still alive and if so, how can we possibly find them? What happens to statutory time limits when the courts are under water?

Unacceptable Risks
We can assume that many of the rescue workers are employed. They may be covered by workers comp. They face ubiquitous and unprecedented exposures: fetid water covering everything; bodies floating along with oil, excrement and chemicals; no running water or toilets; a simmering rage among the desparate people they are trying to help. Toxic mold will be a constant risk in the coming months. If you follow the general duty of clause of OSHA literally -- as we are all supposed to do -- you cannot allow anyone to work, because under these horrendous conditions there is absolutely no way you can provide a safe workplace.

Our World = Third World
It is eerie to watch these third world images of despair and dysfunction rolling out in our own country. It's something we are used to seeing in remote corners of the world, not on our own shores. But this is all too real: the total disintegration of civil society, the uselessness of the usual management "best practices." This is a crisis where the most rudimentary needs -- food, clothing, water and shelter -- cannot be provided. Between the Christmas tsunami and Katrina, two things have become all too clear: when confronted with the full brunt of nature's power, we are defenseless against the blow and pitifully ineffective in response. Let's keep that in mind when we position our species -- and our country -- in the forefront of all things civilized.

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