There are a number of ways to purchase workers comp insurance: most companies secure stand-alone policies. Under experience rating, if the company has losses, their costs go up; if they have lower than average losses, they benefit from reduced premiums.
Some companies join with others to form a self-insurance group (SIG), where individual companies are no longer in charge of their own destiny. Group performance determines future costs. Needless to add, it's important to limit group membership to companies fully committed to good loss controls and to proper management of injured employees. The shared liability for losses is known in the insurance world as "joint and several liability." There is some risk involved: one company might be loss free, but the losses of other companies in the group could still drive up the cost of insurance for all.
Except in Ohio. Ohio has an unique set of rules for groups, which brings us to the saga of Corky & Lenny's, a deli operating for half a century in Cleveland. Until recently, Corky & Lenny's participated in a workers comp group. Unfortunately, they had a few claims. In most group situations, their losses would have been averaged against the performance of the group as a whole, thereby ameliorating the impact on the deli's comp premiums.
Instead, the group threw Corky and Lenny's out of the group, forcing them to secure individual coverage. Naturally, with their recent losses factored into their premium, Corky and Lenny's were suddently faced with a dramatic increase in costs. So they did what one of their customers would do after slipping on a stray piece of pastrami: they sued.
Re-establishing Joint & Several Liability
Common Pleas Judge Richard McMonagle found merit in the lawsuit and has issued a restraining order against the Ohio Bureau of Workers Comp (BWC). Here is the problem with the BWC approach to group insurance: the bureau assesses a group's risk at the beginning of a policy year and sets premiums based on the claims history. Members of the group are offered deep discounts. At the end of the year, group managers would toss out any members with substantial losses during the year. These unfortunate companies would take their losses with them. Instead of "joint and several" liability, the high loss companies, like Corky and Lenny's, were suddenly on their own, facing doubled premiums. Companies remaining in the group, freed from the losses of expelled members, experienced premium reductions of 20 percent or more.
As you can see, the Ohio rules really defeat the purpose of group insurance. Judge McMonagle has ruled that state law requires that the rating plan be retrospective, taking into account the actual performance of each and every group member. The BWC agrees, but they are hoping for some time to work out the details. In the interim, they have agreed to cap increases for companies tossed out of the group at 100 percent - which does not sound like a bargain, but some were facing increases substantially higher than that.
Judge McMonagle has moved this unfair situation in the right direction. He deserves a nice pastrami sandwich on rye bread with a little mustard. Under ethics rules, of course, he'll have to pay for it himself.