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An open letter to the press, business community and people of North Dakota:

The authors of this letter are journalists, columnists, bloggers and content publishers for the workers' compensation industry across the United States. We are a politically and professionally diverse group. We do not agree on everything, yet find ourselves of one opinion on a highly critical matter. We are competitors who are now colleagues for a common cause; to bring light to a serious injustice being committed within your state.

The prosecution of Charles (Sandy) Blunt was, in our view, an outrageous and almost farcical event. It is, in the final analysis, a travesty that has damaged the national view of your state, hampered the operation of a State agency, and ruined the life of a good man wholly undeserving of such results.

Sandy Blunt was Director of North Dakota's Workforce Safety & Insurance from May of 2004 until December of 2007. He was, as you are likely aware, prosecuted by state authorities for "misspending government funds". Specifically, he was charged and convicted on two counts:

During his almost 4 year tenure his agency spent approximately $11,000 on employee incentive items, including flowers, trinkets, balloons, decorations and beverages for Workforce Safety and Insurance employee meetings, and on gift certificates and cards in small denominations for restaurants, stores and movie theaters. Blunt personally approved some of these expenditures. Others were made by managers as part of daily operations under his watch. Not a dime went into an employee's pocket, nor did Blunt personally benefit from any expenditure.

His agency paid $8,000 to an employee, David Spencer, for sick pay when he was not apparently sick, and it also failed to collect $7,000 from Spencer when he left prior to the end of his employment agreement. The $7000 was for moving expenses incurred that prosecutors felt Spencer owed the state. Blunt's position was that the agency was not entitled to collect these funds, since Spencer's departure was not voluntary.

All told, the state prosecuted Sandy Blunt, and he is now a convicted felon for "misspending" $26,000 of government money.

No one has ever alleged that Blunt personally benefited from any of these expenditures. Blunt was acting like other capable, ethical North Dakota executives ‐ in the best interest of customers and of the mission of his employer. In our industry it is considered a best practice to provide employees and supervisors with incentives. It is not frivolous, it's necessary, and what every employer should do.

The first of these two charges would be, to many people, laughable if it were not for the damaging consequences associated with them. The notion that buying inexpensive incentive items for your employees could result in a felony conviction is simply stunning. This would not be elevated to a criminal status in most states in the nation. The fact that it is in North Dakota should have a chilling effect on businesses looking to move there.

The second and more serious charge, involving the sick pay and moving expenses of employee Spencer, has been fatally undermined by the revelation that the prosecutor in the matter, Cynthia Feland, withheld critical evidence from the defense - evidence that largely clears Blunt in this area. A disciplinary panel for the North Dakota Supreme Court has found on November 7, 2011 that:

"Cynthia M. Feland did not disclose to Michael Hoffman, defense attorney for Charles Blunt, the Wahl memo, and other documents which were evidence or information known to the prosecutor that tended to negate the guilt of the accused or mitigate the offense."

Withholding of evidence by prosecutors is one of the most serious acts of prosecutorial misconduct in North Dakota and all other states. In recognition of this, the panel recommended Ms Feland's license to practice law be suspended. We urge that you read the entire report of the panel, including the penalties the board recommended be imposed on Ms. Feland. For the report, go here.

Had the prosecutor not withheld evidence, in all likelihood the case would never have come to trial, and the reputation of Blunt and the WSI would be free of taint. The evidence in question shows that WSI's auditor's own findings backed Blunt's position on payments related with Spencer. However, those findings were not made available to the defense, and the prosecutor was found to have allowed testimony to be given at the trial that directly conflicted with information she had. As we indicated, Feland, now a judge in your state, has been recommended for suspension and a fine over these findings.

Yet Sandy Blunt remains a convicted felon. His crime? Buying balloons, trinkets and $5 gift cards - for his employees, not for himself. For that, Blunt, who is married with two children, has had to spend half a decade, and untold thousands of dollars trying to clear his name.

Some of us have known Sandy for quite a while. Some have come to know him while learning of his situation. Others of us have never met Sandy, but recognize the tenuous nature of his treatment. Collectively we speak to thousands within our industry every day. Our opinions have been clear; this situation needs the light of truth shone brightly upon it. The time and resources expended prosecuting a man on such questionable grounds should be more closely examined, by the business community, workers compensation professionals and the media in North Dakota.

Sandy Blunt is a good and decent man. He deserves better. So, it would seem, do the people of North Dakota.

Peter Rousmaniere
Consultant & Writer
Working Immigrants

Robert Wilson
President & CEO
workerscompensation.com

Joseph Paduda
Principal, Health Strategy Assoc, LLC
Managed Care Matters

Rebecca Shafer
Lower Your WC Costs

Julie Ferguson
Consultant & Editor
Workers' Comp Insider

David DePaolo
President & CEO
Work Comp Central

Henry Stern, LUTCF, CBC
InsureBlog

Tom Lynch
Founder & President
Lynch, Ryan & Associates, Inc.

Jon Coppelman
Senior Vice President
Lynch, Ryan & Associates, Inc.

Sandy Blunt related articles from these authors:
Blunting Political Vindictiveness
What's wrong with Sandy Blunt
Is justice on the horizon in North Dakota?
Let Me Be Blunt: Sandy Got Screwed in North Dakota
The Square Wheels of Justice in the Peoples Republic of North Dakota

Raymond Letellier co-founded a steel fabrication company in New Hampshire called Steelelements. The company suffered a major fire in March of 2007. They rebuilt, although the cost of the rebuilding, managed by Letellier's partner, exceeded the budget. In October 2009 the company went out of business. Throughout the long, downward spiral, Letellier suffered from stress, hypertension and depression. Soon after the company's failure, he filed for personal and business bankruptcy. At the same time, he applied for workers comp benefits.

Letellier's claim was initially denied, then accepted for the medical costs only, and then denied again. Eventually the claim reached the New Hampshire Supreme Court, where a deeply divided court (3 to 2) ruled against Letellier. The court reasoned that the failure of the company was akin to a personnel action: workers comp does not cover such employer actions as discipline, termination and lay off. In closing the business, Letellier subjected himself - and everyone else - to a lay off. - a non-compensable personnel action.

Work-Related Stress?
Two dissenting judges pointed out that the majority focused almost exclusively on the ultimate failure of the company, the lay off itself. But the extraordinary and relentless stressors in Letellier's life began with the fire and continued throughout the struggle to keep the over-leveraged company in business. This is not the stress of a single event, but the cumulation of stress over months and years. The dissenters noted that Letellier's commute to the factory was 100 miles, so he often slept in his office, where ever-pending doom haunted his every waking moment and his troubled dreams. They opined that his multiple health issues were predominantly caused by work.

Letellier, once the proud owner of a successful business, finds himself in the same situation as laid off workers across America. He is on his own and out of luck.

We will set aside for the moment what may be Letellier's biggest mistake: instead of trying to make things that people can actually use, he should have pursued a career in finance, where he could have sold worthless mortgages, watched his company flounder, and then be rescued by tax-payer bailout, all the while preserving a superbly inflated salary. That's an All-American story of a different sort, albeit fodder for another day.

Florida doctors bought 89% of all the Oxycodone sold to practitioners nationwide last year and thousands of outside visitors flocked to the state to buy drugs at the 1,000+ pain clinics. But armed with new legislation, the state is cracking down hard by shutting down pill mills and suspending the licenses of about 80 physicians who were high-volume prescribers. And physicians are now generally barred from dispensing narcotics from their offices. In October, things will get even tougher as a new prescription drug monitoring system will be implemented.

Lizette Alvarez reports on on the Florida pill mill crackdown in The New York Times, stating that "As a result, doctors' purchases of Oxycodone, which reached 32.2 million doses in the first six months of 2010, fell by 97 percent in the same period this year." This article has some eye-opening observations about the scope of the prescription drug problem: "Last year, seven people died in Florida each day from prescription drug overdoses, a nearly 8 percent increase from 2009. This is far more than the number who died from illegal drugs, and the figure is not expected to drop much this year."

You can read more about how authorities are going after medical licenses of over-prescribers in a Miami Herald article by Audra Burch. This article discusses some egregious abuses, including a physician who dispenses from the back of a car and an office with long lines waiting outside and many cars with out-of-state license plates in the parking lot.

Related Resources
The issue of physician dispensing is one that our colleague Joe Paduda has covered extensively. See:
Physician dispensing - Exactly how much more does it cost?
Why Florida's work comp costs are heading up
Florida's dispensing legislation clarified

The issue of transparency related to a physician's relationship with pharmaceutical companies is one that ProPublica has been taking on in their Dollars for Doctors campaign. See:
Patients Deserve to Know What Drug Companies Pay Their Doctor
Piercing the Veil, More Drug Companies Reveal Payments to Doctors

For more about Prescription Monitoring Programs, see:
Alliance of States with Prescription Monitoring Programs - The Alliance was formed in 1990 to provide a forum for the exchange of information and ideas among state and federal agencies on prescription monitoring programs. Since then, it has grown to be a valuable resource to all those concerned with combating the increase in prescription drug abuse, misuse and diversion. Currently, 48 states and one territory either have operating Prescription Monitoring Programs, or have passed legislation to implement them.

We have been tracking the fate of the FedEx business model in state courts as it collides with increasingly stringent definitions of "employee." FedEx operates under a sophisticated and ingenious contract designed to transform their drivers into "independent contractors." It's been a tough haul. For the most part, FedEx has been losing the argument in courts, state by state, and then delaying any ultimate resolution by filing appeals. Today we examine a similar business model: cleaning operations that are classified as franchises.

Coverall North America is one of the largest franchise cleaning operations in the world, with 9,000 franchise owners, 50 support centers and 50,000 customers. Franchise owners are trained by Coverall, wear Coverall uniforms, use Coverall mandated supplies and receive payment for their work through Coverall. Coverall bills customers and then pays the franchise owners, after deducting management and royalty fees plus any other incurred expenses.

The Massachusetts Standard
Unfortunately for Coverall, they have the burden of demonstrating franchisee "independence" in Massachusetts, which has a very tough, three-pronged standard for independent contracting [Ch. 149, Sec 148B]:
1. The contractor operates free from control or direction
2. The work of the contractor is fundamentally different from the work of the general contractor/owner
3. The contractor operates an independent business and is free to offer services to anyone

Under the MA requirements, independent contractors must meet all three criteria. Coverall first encountered the problem when out-of-work franchisees filed for unemployment benefits. The MA Division of Employment & Training focused on the third prong, determining that franchisees were indeed employees of Coverall, as their work was limited to that secured through Coverall.

In a case brought in Federal Court, franchise owners sought summary judgment against Coverall for the deceptive and unfair labor practice of calling them "independent contractors." U.S. District Court Judge William Young got the case. He focused on the second prong: Coverall had to demonstrate that they were in a fundamentally different business than their franchisees.

Coverall fashioned a clever but ultimately unsuccessful defense: Coverall corporate is not in the cleaning business, but in the franchising business. Coverall corporate trains people who clean offices and Coverall manages the finances of franchisees, but no one in Coverall actually cleans. Judge Young did not buy that argument. He determined that Coverall provides the administration for the franchisees, who provide the cleaning services. One cannot exist without the other. He granted summary judgment to the plaintiffs.

Who Works for Whom?
We are by no means at the end of this seemingly endless attempt to separate independent contractors from employees. What is at stake is pretty obvious: work performed by employees is a lot more expensive than that performed by independent contractors. The lives of most people working as "independent contractors" are difficult; the hours are long, the pay is marginal, the benefits non-existent. And if injured, these folks are usually on their own.

Listen to the names of some of the plaintiffs in this particular case: Aldivar Brandao, Denisse Peneda, Jai Prem, Pius Awuah, Benecira Cavalcante, Nilton Dos Santos. Can you hear exotic music in the names of people born in other lands? And can you hear something more ominous: the dissonence and dislocation of immigration, the struggle to survive in a new land that seemed full of promise from afar, but which has proven to be harsh, stingy and relentlessly demanding?

Welcome to America, employees of Coverall!

We first encountered Montana workers comp judge James Jeremiah Shea last year, when he ruled that Brock Hopkins, a pot-smoking handyman, was eligible for workers comp after being mauled by a bear at Great Bear Adventures. In his ruling, Judge Shea managed to invoke the movie, Harold and Kumar Go to White Castle, to wit:

"It is not as if this attack occurred when Hopkins inexplicably wandered into the grizzly pen while searching for the nearest White Castle. Hopkins was attacked while performing a job Kilpatrick had paid him to do - feeding grizzly bears."

In a more recent case, Judge Shea was confronted with the claim of Bruce Martin, a carpenter seeking treatment for what he insisted was a work-related back problem. While there is no reason to believe that Martin was partaking of Brock Hopkins's favorite recreational drug, he did manage to present a narrative that consistently conflicted with the perceptions of virtually everyone else involved: his employer, Jesse Chase, co-worker Barry Hollander, and claims adjuster Michele Fairclough.

Martin claimed he injured his back while stripping the plastic protective barrier off of metal siding - a relatively light-duty task. But in walking off the job that morning, he stated to his boss that his sciatica was acting up and that it was not work related. Only after going to an Urgent Care clinic did he claim that the injury happened at work. Why? We can assume that he wanted his employer to pick up the tab through workers comp.

My Aching Back
Martin's history of back problems began in the early 1990s, following a motor vehicle accident. He treated sporadically with Dr. Aumann, a chiropractor. Dr. Aumann, sympathetic to his long-term patient, thought that "on a more- probable-than-not" basis that Martin's injury was the result of the work accident he described. Unfortunately for Martin, no one else bought his story, even as the story itself changed over time.

Judge Shea wrote:

Dr. Aumann identified objective medical findings to support Martin's claim of lumbar spine problems. However, Martin has not established that this injury occurred because of a specific event on a single day or during a single shift. I did not find Martin's testimony credible. Neither Hollander, who was working alongside Martin, nor Martin's employer Chase could corroborate Martin's account of injuring his back on June 29, 2010...

It is not altogether impossible to feel a little sympathy for Martin: he has a real back problem. He is experiencing legitimate pain. He has difficulty performing physical work and is not trained to do anything else. He desperately needs income. Martin is like a lot of other American workers in these troubled times, living day-to-day on the edge of disaster. While we can understand why he would try to stretch the facts to fit the workers comp mold, we acknowledge that he was wrong to do it. As Judge Shea concluded, Martin was not injured as the result of an industrial accident. Given that definitive ruling, Martin, bad back and all, is simply on his own.

David Little worked for B & L Ford in Ashland, Pennsylvania. He suffered a shoulder injury in October 2005. He worked light duty up until January 19, 2006, when the employer received a letter from his attorney stating he was unable to perform any manual labor. The employer advised Little to secure a note from his doctor regarding his ability - or inability - to work. His doctor gave Little a letter stating he was unable to work, but before Little had the opportunity to present the letter to B & L Ford, they sent Little a letter of their own, terminating him.

Little spent a weekend brooding over the termination. He called his wife home from her job on Monday. She found Little at the kitchen table, holding the termination letter. He stood up and then collapsed from a heart attack. Emergency workers had to pry the letter from his hand. Little died later that day at a hospital.

Was this a work-related fatality? Little's widow filed two workers comp claims, one for Temporary total benefits up until the death, and one for death/survivor benefits.

Small Victory, Big Loss
A workers comp judge awarded temporary total disability benefits up to the date of Little's death; once Little became "unavailable" for work (i.e., dead), the benefits ceased. On the issue of a work-related fatality, the judge found - and the Commonwealth Court of PA upheld - that the death was not work related, as it neither occurred "in the course and scope of employment" nor did Little's activities on that fatal day "further the interests" of the employer.

There is no question that the loss of his job was a significant, perhaps predominant, factor in Little's death. However, personnel actions (discipline, demotions and terminations) are generally excluded from workers comp coverage. The sequence of events that began with his attorney's letter culminated first in the loss of the job and then in a fatal heart attack.

Given that Little had filed a workers comp claim and the employer apparently fired him because of his injury, the widow might be able to sue for wrongful termination. But the courts have made it clear that aside from a modest indemnity payment for lost time, workers comp will provide the widow no solace and no support for the work-related loss of her husband.

Dr. Jean Zannoni, 77, runs a family practice in Parma, Ohio. It would be a mistake to assume that by specializing in families, she is not interested in treating injured workers. She treats them all right - to pill after pill after pill. She was recently sentenced to two years probation and ordered to pay more than $7,500 in fines and restitution after pleading guilty to theft, attempted workers' compensation fraud and telecommunications fraud.

According to authorities, two Ohio Bureau of Workers Compensation (BWC) undercover agents were provided narcotic medications without proper medical examinations and BWC was billed improperly for the office visit.

Dr. Zannoni instructed her staff (in writing!) to bill all injured workers under the same code and charge BWC $75, regardless of the circumstances of the visit. She also manipulated "pain" ratings to ensure that patients qualified for narcotics. And she continued to prescribe narcotics to patients who were known doctor shoppers, even after receiving warnings from pharmacies, parents, spouses, social service agencies and police departments. Some family, some practice.

A Microcosm
In the scheme of things, Dr. Zannoni is a bit player. But when you try to figure out how narcotics became such a major cost driver in workers comp, you have to take into account doctors like Zannoni, who parlay a little pain into big profits.

Given the scale of her crimes - she overbilled WBC by $65,000 - the penalties in this case (small fine plus probation) seem a bit modest. On the other hand, the (Feel)Good doctor, at 77, is probably nearing the end of her practice, which may well have played into the decision to let her off relatively lightly.

Ironically, if you Google her name, Zannoni's patient ratings are uniformly high (pun intended). One anonymous patient even commented on an article describing her conviction as follows:

This is one of the sweetest most nieve (sic) people on ths planet. I know her personally and she has no idea what goes on. All she knows is how to do is practice medicine and nothing about finances at all. God bless her and I hope everything works out for her sake.

We'll let that stand as written. And one thing is certain: those seeking pills in Parma may not be able to count on Dr. Zannoni any longer, but surely they will find other sources to make their pain go away, to get a little buzzed, and, who knows, make a little money on the side.

Work can be a killer when workers are asked to do too much: intense labor in the heat of summer, the stress of heavy repetitive lifting, moving too quickly among common workplace hazards. But can work kill us from doing too little? Can work-required inactivity lead to a compensable claim?

For twenty five years, Cathleen Renner worked as a manager for AT&T. With a heavy workload, she often brought work home and labored at her computer late into the night. In September 2007, facing a tight deadline, she appeared to pull an all-nighter; she sent an email to a colleague around midnight and was seen at her desk at 7 in the morning, at which time she complained about a pain in her leg. She labored on through the morning. Around 11 am, she had trouble breathing. By the time she reached the hospital, she was dead from a pulmonary embolism (which began with that pain in her leg).

The New Jersey workers compensation had to determined if work was the predominant cause of the death.

Risks in Doing Nothing
Back in May of 2006, we blogged the dangers of inactivity. If people sit still for a long time - for example, during air travel - they are at risk for deep vein thrombosis. It appears that Cathleen's prolonged and unrelieved sitting at her computer caused just such an incident. According to a medical expert, she experienced an "unorganized" blood clot which developed while she was sitting (as opposed to an organized clot, which takes much longer to form). Despite her other risk factors - obesity and the use of birth control pills - the court determined that her death was work related.

The defense argued that Cathleen lived a relatively sedentary life - that her sitting at the computer was no different than her sitting at other times. But her husband countered with the observation that they had school-aged children. Cathleen was always running around, taking the kids to school and appointments, cooking meals, cleaning the house and doing the myriad tasks that virtually all mothers must perform. That's a pretty compelling argument and it convinced the judges: the Superior Court determined that the prolonged sitting while performing work-related tasks caused her death.

Get Out of that Chair!
Savvy employers will note the risks of prolonged sitting and encourage - require! - employees to get up at least once an hour to move around and stretch. (Policies should cover workers in their home offices, too.) Moving around not only prevents blood clots, it also prevents injuries to the spine. Humans are not meant to sit in one place indefinitely. We are built to move and move we must.

With that being stated, I'm going to stand up and stretch a bit. Unless you are reading this on a treadmill, I recommend that you do the same.

In the world of workers comp, chronic pain is a major cost driver. When pain persists beyond expected healing times, the prognosis is grim: injured workers suffering from prolonged pain often drift into anxiety and depression and may even become addicted to powerful pain medications. In the downward spiral of relentless pain, it becomes increasingly difficult to separate physical and psychological issues. The prospect of return to work disappears, the injured worker's life disintegrates and the cost of the claim goes through the roof.

The claims adjusters who are responsible for managing chronic pain injuries usually resist any recommendations for psychological counseling; they avoid such interventions because treatment - whether individual or group therapy - cannot and should not be limited to what is "work related." Pain subsumes the worker's entire life. Yet counseling is often an essential part of what is needed: injured workers talking through their many difficulties and sharing their experience with others.

So is it possible to develop a chronic pain program that limits financial exposures, narrows the treatment options and sets reasonable time frames for completing the treatment cycle? And can pain management encompass at least some focused counseling?

A Guide for the Perplexed?
Massachusetts has taken a shot. The state's Department of Industrial Accidents(DIA) Health Care Services Board has issued draft guidelines (PDF) for managing chronic pain. Under the leadership of Dean Hashimoto, who holds both medical and legal degrees, the draft protocol tiptoes through a minefield populated with poppy plants, doctors with prescription pads and long needles, chiropractors, acupuncturists, counselors and biofeed back practitioners - not to mention the ever-present drug salespeople. The draft guidelines could well serve as a Guide for the Perplexed.

Beginning with the caveat that 10 percent of all chronic pain cases will fall outside of the protocol, Hashimoto's task force tries to set parameters for all types of treatment: the number and type of diagnostic and therapeutic injections permissible; the goal-oriented use of mental health counseling, with specified durations (6 to 12 months); "very limited" use of opioid analgesics, with referral to pain specialists, if needed, and including a detailed list of specific actions designed to avoid addiction.

A Work in Progress
The DIA is soliciting comments on these guidelines. Alas, they are unlikely to hear from the relatively small portion of stakeholders who are profiting from the current chaos: the pill-happy doctors, the attorneys who discourage injured workers from returning to work, the physical therapists and chiropractors who believe that treatment, once begun, should go on forever, and the pharma sales folk who encourage use of the most powerful opiates for what is usually short-term pain.

The draft guidelines are comprehensive and reasonable. As the final guidelines will not and cannot have the force of law, they will not eliminate the abuse that currently exists. But if they help motivated treatment practitioners to offer more effective services, and if they open the door to at least some counseling for injured workers, the guidelines will surely save both lives and careers. That in itself will validate the admirable and essential work of Hashimoto's board.

DeWayne Sutton worked for Tomco Machining in Dayton, Ohio. When he hurt his back while dismantling some equipment, he followed "best practices" and reported the injury immediately to company owner Jim Tomasiak. The boss pulled a "Trump" - deviating 180 degrees from "best practices" by firing Sutton immediately. No reason was given for the termination. As you would expect, Sutton was able to collect comp benefits (termination is no bar to eligibility), but could he also sue for wrongful termination? In other words, was the termination retaliation for reporting the claim?

Under the Ohio statute, employers are prohibited from firing, demoting or taking punitive action against an employee who files a workers comp claim. The question at issue is one of timing: the claim had been reported to the employer, but not yet filed with the insurer. So did Tomasiak violate the law by firing Sutton in the interval between the injury and the report to the insurer?

Begging to Differ
In a sharply divided opinion (4-3), the Supreme Court of Ohio found in Sutton's favor, sending the case back to the lower court for reconsideration. Chief Justice Maureen O'Connor, writing for the majority, notes:

We find that the General Assembly did not intend to leave a gap in protection during which time employers are permitted to retaliate against employees who might pursue workers' compensation benefits.

The alternative interpretation - that the legislature intentionally left the gap - is at odds with the basic purpose of the anti-retaliation provision, which is "to enable employees to freely exercise their rights without fear of retribution from their employers."

The court minority noted that Sutton was able to collect comp benefits - kind of "no harm, no foul." Then, as Justice Terrence O'Donnell notes:

The majority has today expanded the public policy behind the provisions of (state law) to apply to those persons discharged before filing, instituting or pursuing a workers' compensation claim. This allowance is a legislative prerogative, and in my view, we should follow the law as written and defer to the General Assembly, instead of stretching the extent of protection to fit situations not addressed by the statute.

This is familiar territory in the world of law: liberal interpretation (the majority) versus strict construction (the minority). One vote determined the outcome.

The Biggest Loser
Business owner Tomasiak comes away with a double whammy: he is liable for the comp claim through the experience rating process; having fired Sutton, he is unable to lower the cost of the claim by bringing Sutton back to work on modified duty. Then he faces a wrongful termination lawsuit, which he is probably going to lose. The timing of his action, along with the absence of any stated rationale, reak of retaliation.

Tomasiak's impulsive response to Sutton's injury violated Rule Number One for employers: if employees are not working out, fire them before they get hurt. Once they are injured, comp laws pretty much assume that any firing would be retaliation. For Tomasiak, just trying to run his machine shop in Dayton, Ohio, this is a tough - and expensive - lesson in best practices.

Governor Rick Scott has issued Executive Order Number 11-58 compelling all state agencies under his control to implement a comprehensive drug testing program: all job applicants must undergo pre-employment testing. All current employees - regardless of what they do - must be randomly tested every quarter. Because drugs stay in the body for hours and even days after they are used, the governor is attempting to control every waking minute of the state workforce. Not even commercial drivers are subject to such stringent monitoring.

There is no question that drug testing can play an important role in a comprehensive safety program. For workers whose jobs put themselves or others at risk, random testing can be smart policy. For employers struggling with a rampant drug culture, drug testing often makes sense. [I remember discussing this issue at a workers comp seminar some years ago. The owner of a roofing company said, "I could never implement drug testing. Half my guys would fail!" (I made an immediate note to alert the underwriting team.)]

Even as we acknowledge that drug testing is appropriate under certain circumstances, we must recognize its limitations. Testing science itself, while significantly more effective than it was a decade ago, is not 100 percent reliable. The producing and subsequent custody of urine samples is at best embarrassing and at worst an invasion of privacy. Drug testing does send a message, but there are times and circumstances - such as now in Florida state government - when this message is demoralizing and counter-productive.

Within weeks of the issuance of the executive order, the ACLU sued to put a stop to the program.

Ideology and Policy
The testing of all employees, without even considering job function or safety exposure, crosses the line between best practice and rigid ideology. This policy does not stem from "business necessity" nor does it take into account individual freedom and the right to privacy. Using the governor's logic, you could argue that everyone in America should, for one reason or another, be tested for illegal drugs. This is bad policy and, to put it bluntly, unAmerican. Here's hoping the courts toss out this executive order and restore some light to the Sunshine state.

The brinksmanship continues in Illinois. A moderately effective reform bill passed the senate but has been defeated in the house by Republicans, who seek stronger ways to limit compensability. As a result, the Dems are moving forward with the Doomsday option: a bill to abolish workers comp and send each and every claim into the court system. Wow, that's one way to make everyone miserable, above all, injured workers looking for a reliable safety net.

Among other things, the defeated reform bill would have reduced the medical fee schedule by 30 percent, thereby saving (theoretically) $500m to $700m per year. The reduction sounds harsh, but in practice, fee schedules are fluid. For top specialists, the fees are almost always negotiated upward; for run-of-the-mill practitioners - or the Dr. Feelgoods with their pockets full of pills - they can take it or leave it. Lowered fee schedules provide payers with leverage to find the best available doctors - not necessarily a bad thing.

Who Blinks?
At the moment, legislators are playing a classic game of chicken: if we can't reach agreement on reforms, we'll blow the whole thing up. Given that Democrats are behind the Doomsday option, I doubt they will allow things to reach that point, as it would be a disaster for workers. But they are running out of time.

The potential good news for Illinois employers (and there isn't much when it comes to comp) is that even the modest changes in the reform bill will begin to reduce the cost of workers comp, currently the third highest in the nation. The bad news is that further reforms will be needed, most of all, perhaps, involving the de-politicizing of comp in a hyper-political state. My advice to the legislators is simple: take it incrementally. Pass the reform bill pretty much as is and revisit the issue in the next session. In this precarious situation, half a loaf is better than none.

Last year 29 coal miners died in an explosion at Massey Energy's Upper Big Branch Mine in West Virginia. Don Blankenship, Massey CEO, blamed the explosion on federal interference and a gigantic methane bubble that percolated up from below the mine shafts. The bubble has burst, but not in the way Blankenship would have you believe.

An independent team appointed by the former West Virginia governor, Joe Manchin, and led by the former federal mine safety chief Davitt McAteer, has issued its findings, which are both unambiguous and scathing. There was no methane bubble. There was, instead, a pattern of negligence by management that led directly to the deaths of the miners.

As summarized in the New York Times, the report is a searing indictment of Massey's management style:

"The story of Upper Big Branch is a cautionary tale of hubris," the report concluded. "A company that was a towering presence in the Appalachian coalfields operated its mines in a profoundly reckless manner, and 29 coal miners paid with their lives for the corporate risk-taking."

The report goes on to say that a "perfect storm" was brewing inside the mine, combining poor ventilation, equipment whose safety mechanisms were not functioning and coal dust, which, contrary to industry rules, had been allowed to accumulate, "behaving like a line of gunpowder carrying the blast forward in multiple directions."

Given the uncompromising language of the report, Massey management may not enjoy the "exclusive remedy" protections of the workers comp statute. They are now vulnerable to charges of criminal negligence. I suspect that attorneys for the widows and children of the miners will look rather closely at the assets of Massey's (now former) CEO.

Farewell, My Ugly
Don Blankenship resigned from his CEO post in December of last year. Don't bother putting up a collection to buy this ethically-challenged titan of business a gold watch. In 2009 he earned $17.8 million, which does not include deferred compensation of an additional $27.2 million. There is no question that Blankenship's leadership created profits for the company. Unfortunately, these profits came at the expense of the environment and of the men who extracted the coal from the West Virginia mountains.

The anecdote that tells you a lot about Blankenship involves his personal water supply. When Massey Energy activity poisoned the water reaching his own home, Blankenship ran a private pipeline to the next town, where clean water was readily available. His neighbors, lacking Blankenship's resources, have to make do with the local, polluted water.

It will be interesting to see what happens next. In a just world, Blankenship would be held accountable for his actions as Massey's CEO. But we do not live in a world where justice prevails very often. Blankenship will likely continue to enjoy his retirement years, drinking clean mountain waters, railing about government interference, buying a few politicians and generally living the good life. We can only hope that each and every night his dreams are haunted by visions of the 29 miners and their struggling families. That would be one form of justice indeed.

Illinois is struggling mightily with its bloated workers comp system. Currently ranked 3rd highest for overall cost in the Oregon study, the governor and legislature are under intense pressure from the business community to lower the cost of comp insurance. Aiming its powerful bulldozers at the state capital, the Caterpiller Company has threatened to move their business somewhere else if reforms are not implemented immediately. In exploring all options, the legislature has gone so far as to think the unthinkable: abolishing workers comp.

In looking for ways to save money, Illinois does what all states do: first, identify the cost drivers and then try to change the statute to bring down costs. Among the hot issues on the table are the medical fee schedule (too generous), employee choice of doctor (too flexible), duration of benefits (too long), causation (too vague). Ah, behind every cost driver is a vested interest (perhaps literally vested, with many of the lobbyists wearing three piece suits). The common denominator among all states struggling with high comp costs is the omni-present stakeholder, who is deeply committed to the status quo.

Governor Quinn would like to see a number of reforms, including the capping of carpal tunnel benefits, denying claims where employee intoxication is a significant factor, attacking fraud (see our blog on Illinois's dubious arbitration services), capping wage differential benefits at age 67 or five years after an injury, and implementing utilization review for physical therapy, chiropractic and occupational therapy services.

Going Nuclear
The Illinois legislature is so frustrated with the slow progress and with stakeholder resistance to change, they are now threatening to blow up the entire system. Interesting to note, this pressure is coming from the Democrats. John Bradley (D-Marion) has filed House 1032, a bill to repeal the workers comp act and send all workplace-injury issues into the court system. Should this happen, Illinois will find itself in the world prior to 1912, when injured workers had to sue their employers and could collect benefits only if their injuries were caused by someone other than themselves. They would collect no benefits while awaiting adjudication of their claims. They would be out of work and out of luck.

In all likelihood, repeal of workers comp is not a serious option in Illinois; it's a political strategy for getting the attention of inertia-bound legislators. But the prospect of abolition does raise an interesting issue. Workers comp came to America 100 years ago. By the end of the World War II, every state had implemented the program.

What if there were no workers comp programs today? What if each state were starting from the beginning and tackling the issue of protection for injured workers? I find it hard to imagine that state legislatures would be willing to implement a program, totally funded by employers, that provides indemnity for lost wages and 100 percent medical benefits for injured workers. Why so generous? Why so inclusive? It's too expensive. It will create disincentives for working. The cost will drive employers out of business or out of state.

With today's acrimonious, ideology-driven debates, workers comp would be a hard sell. That's too bad, for despite its problems and inequities, despite the wide variations in benefits and costs from state to state, comp is a compelling example of effective social engineering. In Illinois, cooler heads will likely avoid the meltdown option. To be sure, Illinois comp is a mess, but the alternative - a workplace without workers comp - would be far worse.

Edwin Graning drove a van for the Capital Area Transportation System (CARTS), which serves the public in the communities surrounding Austin, Texas. He is also an ordained minister. He was sent to pick up two women and deliver them to the Planned Parenthood office in Austin. He was "concerned" that the customers were going to Planned Parenthood for an abortion, so he called his supervisor and told her that in good conscience, he could not carry out the job. He was instructed to return to the garage, where he was promptly terminated for this refusal to follow orders.

Graning, supported by lawyers from the American Center for Law and Justice, alleged a violation of the Civil Rights Act of 1964. (Goodness, quite a bit of irony in that!) He sued his employer for discrimination based upon religious beliefs. In the lawsuit, he sought reinstatement with backpay, payment for his pain, suffering and emotional distress.

Surely, there is no basis in the law for this claim. Surely, Graning is the one who should be sued. Then again, this is the Lone Star state that some would transform into a sovereign nation.

Unsettling Settlement
Lawyers for CART advised them to settle. Blanco County Commissioner Paul Granberg said that the attorneys "advised the board that it would cost a lot more in attorney fees than it would cost to settle." So they wrote a check to Graning for $21,000. Is there any such thing as principle in law these days? Did CART's attorneys even consider doing what is right and just?

CART, which did nothing wrong, has changed its hiring procedures, to prevent a recurrence of this ludicrous situation. David Marsh, CART general manager, said officials have begun making it clear when drivers are hired "that we have a job to do and we don't decide what destinations are." Boy, that must be a revelation (no pun intended) to people applying for jobs as drivers.

Graning has been amply rewarded for his discriminatory and prejudice-laden act. He had no way of knowing why the customers were going to Planned Parenthood, which offers a wide range of health services, by no means limited to abortion. He was represented in this crackpot lawsuit by attorney Thomas Brandon, Junior, of counsel to Whitaker, Chalk, Swindle & Sawyer. Chalk it up as a Swindle, indeed.

In the ever-useful Oregon rankings, Montana has the dubious distinction of being the second most expensive state for workers compensation. Alaska, with its vast spaces and compelling views of the former Soviet Union, is number one. Gov. Brian Schweitzer recently signed HB 334, a bill designed to lower the mountainous rates. Only time will tell...

It's always interesting to see how a state legislature tackles high comp costs. In Montana, they set out to take a balanced approach, narrowing eligibility but enhancing benefits. While the legislators are patting themselves on the back for achieving their goals, unions have complained that too much of the cost reduction comes at the expense of workers. It usually does.

Here's a glimpse of the bill in action, trying to reduce employer liability for specific exposures:

(2) An injury does not arise out of and in the course of employment when the employee is:

(a) on a paid or unpaid break, is not at a worksite of the employer, and is not performing any specific tasks for the employer during the break; or

(b) engaged in a social or recreational activity, regardless of whether the employer pays for any portion of the activity. The exclusion from coverage of this subsection (2)(b) does not apply to an employee who, at the time of injury, is on paid time while participating in a social or recreational activity or whose presence at the activity is required or requested by the employer. For the purposes of this subsection (2)(b), "requested" means the employer asked the employee to assume duties for the activity so that the employee's presence is not completely voluntary and optional and the injury occurred in the performance of those duties.

At times the revised law reads like a monologue, with legislators trying to anticipate the circumstances of an injury and limiting the comp system in its ability to award benefits.

Rate Pain
The Oregon study illustrates some of the exorbitant (2008) rates paid by Montana employers. For a point of reference, we compare these rates (per $100 of payroll) to those in Massachusetts. (The MA rates are in brackets):

Carpentry shop (2802) $17.85 [$4.53]
Plumbing NOC (5183) $10.44 [$4.10]
Carpentry NOC (5403) $26.91 [$11.80]
Clerical (8810) $0.85 [$0.13]

Massachusetts employers, in a state with six times the population of Montana, spend about $650 million for comp premiums. Montana's current tab - $400 million - is expected to drop about 25 percent as a result of the new law. Even if you reduce the above Montana rates by 25 percent, employers are still confronted with big premium bills. Mount Comp might be substantially lower than it was, but it's still a grueling climb.

We have long puzzled over a peculiar and cruel stipulation in Virginia's workers comp statute that denies coverage to workers with brain injuries, where the injury had no witnesses and the injured could not testify on their own behalf. We first encountered the issue with a trucker named Arthur Pierce, who was found unconscious beside his truck with multiple skull fractures, a sinus facture and head trauma. Had Pierce been found dead at the scene, the injury would have been compensable. But because survived the accident only to die later at a hospital, the system invoked the rule that the claimant must provide direct testimony.

In their denial of benefits, the workers comp commission wrote:

The circumstances surrounding the claimant's injury and death are tragic, and we are certainly sympathetic to the loss his family members have experienced. We are also mindful of the difficulties in obtaining and introducing sufficient evidence to support those claims...It would be purely speculative to infer that the only rationale (for the accident) was a workplace risk.

Purely speculative?. Sure, he might have been knocked off the truck by space aliens (which, to my mind, would still be compensable as he clearly was in the course and scope of employment).

Ever-So-Gradual Justice
We are pleased to report that the Virginia legislature - through a unanimous vote in both house and senate - has corrected the statute, which Governor Bob McDonnell has signed into law. Title 65 of the Code of Virginia now reads:

In any claim for compensation where the employee is physically or mentally unable to testify as confirmed by competent medical evidence and where there is unrebutted prima facie evidence that indicates the injury was work-related, it should be presumed in the absence of a preponderance of evidence to the contrary that the injury was work related.

It's too late for Claire Pierce, Arthur's widow, to benefit from a law that she diligently lobbied for. And while the Virginia legislature would never thumb its nose at the comp board, it would have been nice to call Title 65 the "Arthur Pierce Provision." This grotesque loophole has finally been closed. Unwitnessed brain injuries may now be compensable. It appears to be a no-brainer, but it took the brains of Virginia a rather long time to reach this just conclusion.

Thanks to Workcompcentral(subscription required) for the heads up on this item.

Nearly a year ago we blogged the issue of a medical fee schedule in Maine. The legislature mandated the creation of a fee schedule way back in 1991. Twenty years later, there have been a few reports, a few changes in the membership of the committee trying to establish the fee schedule and, to date, no fee schedule. We now wonder whether neighboring New Hampshire will follow Maine's example, climbing a slippery mountain trail into a deep fog.

New Hampshire, like Maine, has a two tiered system: in the first tier are managed care networks, which negotiate fees with doctors and hospitals. Everyone in the second tier - those outside the networks, the self-insured, smaller carriers, etc. - are stuck with paying the "usual and customary fees." Medical costs account for 71% of total costs - a truly staggering number when compared to the national average of 58%.

Dr. Gary Woods, an orthopedic surgeon and chair of the NH Workers Comp Advisory Council, thinks that the high percentage of medicals is the result of good medical care, combined with a strong return-to-work focus: in other words, indemnity is relatively low because workers are not out of work very long. Well, doc, show me the numbers. I expect that New Hampshire - ranked 14th highest among states for comp costs - is spending too much on indemnity and way too much on medical services. It's no bargain for anyone.

The Fix is (Not Quite)) In
The New Hampshire legislature is contemplating SB 71, which would impose a fee schedule on medical services. The bill proposes that hospitals be reimbursed at a uniform conversion rate of up to 150% of Medicare rates. While somewhat on the high side for such linked payments, it would probably bring down the overall costs of medical services in the state.

SB 71 is going nowhere, at least for the moment. The bill will remain in committee while the lawmakers appoint a study group to review the proposal and make further recommendations.

Ultimately, the details of the fee schedule will be in the hands of the comp advisory council, of which Dr. Woods is the chair. Hmm. This brings to mind the stalemate in Maine, where Dr. Paul Dionne was for a long time chair of the committee responsible for implementing the fee schedule. The group just couldn't come up with a number that would satisfy the doctors. (How would a doctor define a fair fee schedule? "Usual and customary." ) Last June, facing allegations of a conflict of interest, Dr. Dionne finally stepped aside.

Perhaps the good folks in New Hampshire could speed up the fee schedule project by asking Dr. Woods to step aside. No doctor is going to embrace a cut in reimbursement rates. Dr. Woods would have a choice: he could sit on the sidelines and watch the committee hash out the details, or, with his health and well-being in mind, he could put on his hiking boots and climb one of the Presidentials. I recommend the latter, even if the peak is momentarily obscured by the fog.

Thanks to Work Comp Central for the heads up on this issue (subscription required).

We last encountered Brock Hopkins back in June of 2010, when he had secured workers comp benefits for severe injuries incurred while feeding bears. He was a bit stoned at the time. Russell Kilpatrick, owner of Great Bear Adventures in Montana, contended that Hopkins was a volunteer. Judge Jeremiah Shea found in Hopkins's favor. Now the Supreme Court of Montana has weighed in, finding that Judge Shea got it right.

There were three major issues in determining compensability: whether Hopkins was an employee; whether he was in the course and scope of employment when attacked; and whether his marijuana use precluded payment of benefits.

Hopkins frequently worked in the park, performing minor repairs and, yes, feeding the bears.The pay was informal, but Kilpatrick would slip him some money now and then. This "exchange of money for favors" is, well, employment. Thus, Hopkins was an employee, working under the admittedly informal and ad hoc supervision of the laid-back Kilpatrick.

While it is not clear that Kilpatrick wanted the bears fed on the fateful day, he did not tell Hopkins not to feed them. And as Judge Shea deadpanned in his ruling: "...presumably, customers are unwilling to pay cash to see dead and emaciated bears." Hopkins, in other words, was working when he mixed up the feed, set down his marijuana pipe on a fence post and entered the enclosure.

Finally, the judge opined that smoking marijuana while working among bears was "ill-advised to say the least and mind-bogglingly stupid to say the most," being high was not a factor in the attack. Red, the attacking bear, was an "equal opportunity mauler" and likely would have gone after anyone, stoned or sober.

So Brock Hopkins, a loser by most accounts, wins in the courts. He collects indemnity for his (considerable) troubles and has all his extensive medical bills paid through the Montana uninsured fund. Kilpatrick's legal woes continue, as he did not carry workers comp insurance for the employees he didn't think he had. So much for clear thinking in the good mountain air of Montana.

In a move stunning for its contrariness, Vermont is moving toward a single payer health care system. In the course of the debate, the inevitable issue of whether to include workers comp has come up. At this point, a committee will make recommendations on whether to "integrate or align" workers comp with the state's radical reconfiguration of the health care system. (Further details are available at WorkCompCentral - subscription required.)

The Vermont approach would completely separate indemnity from medical benefits. Employers would continue to pay for the indemnity portion, but are unlikely to have any input into treatment plans. The Insider has pointed out - ad nauseum, some might say - that the relatively miniscule comp system is quite different from the behemoth health delivery system. In the interests of saving the Vermont committee a little time, here are a few of the conundrums confronting anyone trying to merge the two systems:

: Comp is paid solely by employers. Injured workers pay nothing (no co-pays, not deductibles, ever).
: Consumers pay quite a bit for conventional health coverage: a portion of premiums along with co-pays and deductibles for treatment and for medications
: Comp has very narrowly defined eligibility requirements, while conventional health has virtually none
: The goal of comp is to provide medical treatment for injured workers and, if possible, return them to work; if return to work is not possible, comp pays lost wage benefits and injury-related medical bills virtually forever.
: The goal of the conventional health system is to take care of people, regardless of the employment implications
: Comp provides indemnity, temporary or permanent, for those unable to work. No such wage replacements exist in the conventional health system
: Perhaps most important, medical services under comp have an occupational focus, with the explicit goal of returning people to their jobs. In the conventional health system, any occupational focus would be subordinate to the goals of the consumer.

Should Vermont achieve its ambitious goal of universal coverage, the presumption is that everyone would have a primary care physician, who would serve as gatekeeper for all medical services. (Let's set aside, for a moment, where the Green Mountain state will be able to find these primary care doctors.) In a unified system, injured workers would go to their primary care physicians for work-related injuries. These primary care docs may or may not focus on returning their patients to work. Many people hate their jobs and might welcome a few weeks or months of indemnity-supported leave. The primary care physician might be quite sympathetic to their cause.

This brings us to the great divide between conventional health care and workers comp: conventional health care may or may not embrace the need for return to work. Indeed, if the work is hazardous - as much work is - the doctor may want to discourage his patient from returning to it. The doctor's goal is to "do no harm" - so why send someone back into harm's way? If the patient suffers from lower back problems and has a job involving material handling, what is the right thing for the doctor to do?

Who Pays?
In the current system, workers comp pays doctors for eligible medical services. Whether or not they like the comp fee schedules, doctors are acutely aware that comp is paying for the services of a particular individual. Often, treatment is provided by occupational specialists, who bring a unique "return-to-work" focus to the treatment plan. These occ docs are often in communication with employers seeking to return injured workers to productive employment. The occ docs specify the restrictions so that employers can design appropriate modified duty jobs. The employers have a sense of urgency, as they are losing the productivity of the individual who is out of work - and of course, they are paying all of the costs associated with the injury.

Under the proposed Vermont system, all bills will be paid the same way. Comp disappears from the doctor's view. Employers may have little input into the choice of doctors or specific treatment plans. The role of occupational doctors is unclear, to say the least. Given that primary care physicians generally lack an occupational focus, return to work may become secondary to the comfort and personal inclinations of the patient. As a result, there is a risk of substantial increases in indemnity costs.

When contemplating change on the scale of Vermont's single payer system, it is tempting to brush aside the implications for something as small as the workers comp system. That would be a big mistake. The system might be small, but the costs to the state's employers are already substantial and have the potential for going much higher. The comp system plays an unique and long-established role in protecting both workers and employers. As they take steps to transform healthcare in Vermont, lawmakers need to remember that workers comp itself is worthy of their protection.

Later this month, we will mark the 100 year anniversary of New York's horrific Triangle Shirtwaist Fire, an event that claimed the lives of 146 garment workers - young girls and women - who had been locked in the sweatshop to prevent theft. Most died in stairwells, jumping down the single elevator shaft, or by hurtling themselves from 9th story windows in desperate attempts to escape the fire. PBS recently ran a special on this disaster. (If you missed it, you can watch online: Triangle Fire). My colleague Jon Coppelman has also written about the fire in his post The Original "No Exit".

This fire was a watershed event that galvanized the nation. It occurred in an era where there were no regulations or labor protections. Workers often worked 12 hour shifts, 7 days a week. There were no child labor laws or safety mandates. Ironically, the day before the Triangle Fire, New York courts had struck down the state's first compulsory workers compensation law as unconstitutional.

This tragedy, along with some of the horrific mine disasters that resulted in wholesale loss of life, were catalysts which led to the enactment of various worker protections - including statutory workers' compensation.

Meanwhile, today in Wisconsin ...
We think this bit of history is an important backdrop to what's going on in Wisconsin today.

Wisconsin has the distinction of being the first state in the union to have enacted a workers' compensation law that survived legal challenge in May of 1911. In fact, the state of Wisconsin has a long, storied and sometimes bloody history of being on the front lines for worker rights. Workers and labor unions were in the forefront of the fight for the 8-hour day and the 40-hour work week. In 1932, Wisconsin was the first state to enact unemployment compensation.

To any who know this history, it comes as no surprise that, once again, Wisconsin is on the front lines in the battle for labor's future.

It's the budget, stupid - or is it?
The ostensible issue, according to Governor Walker, is that the state of Wisconsin is broke and a large part of the problem lies with overly generous benefit packages of public workers - teachers, prison guards and the like - which are said to be crippling the state. He called on unions to do their part and to make a sacrifice for the greater good.

All that might be well and good. The unions have indicated their willingness to take a financial haircut. But the part of Governor Walker's Budget Repair Bill that is going over somewhat less well is a call for the elimination of collective bargaining -- and therein lies the rub.

With a Republican majority in Wisconsin's House and Senate, the bill was all but a given until the Democratic senate contingent fled the state to prevent a vote. Since that time, there have been massive protests over three weeks and the so-called Fab 14 remain holed up in un-named Illinois' hotels. And there has been no shortage of drama in this story: an embarrassing and revelatory 20-minute prank call to Governor Walker from an impersonator of corporate financier David Koch; and a sheriff's refusal to play the role of "palace guard", among other things.

Part of national union busting agenda?
Critics of Walker's Budget Repair Bill say that the issue is not about budget balancing or overly generous benefits, but an ideological push to eliminate or curtail public unions - in a phrase, union busting. Opponents say that this is a corporate-funded campaign to eliminate public unions in Wisconsin and other states, and to privatize many institutions that are currently staffed by public workers. No less a staunch Republican than former Congressman and now host of MSNBC's "Morning Joe" program, Joe Scarborough, has publicly called Governor Walker's actions, "Un-American."

In Wisconsin, suspicions are high because Koch enterprises funded a large part of Walkers gubernatorial campaign. The fact that the budget bill contains a provision authorizing Walker to conduct no-bid sales of some state properties also heightens suspicion. Many are troubled by his plans for privatization of some public services. In his prior role as Milwaukee County Executive, Walker also used budget emergency as a justification for privatizing security guards, a move that proved less than successful.

Other states have also embarked on this path: Ohio may be making more headway in curtailing unions. In Indiana, Democratic legislators have followed Wisconsin's lead and left the state to postpone a vote. In Rhode Island, nearly 2000 teachers have been dismissed. Other states may be contemplating similar measures, although some may be a bit shy of action given the shifting public sentiment, which favors retention of collective bargaining and has given Walker a black eye - to a point where voters say they would not elect him again if they had a do-over. (see Wisconsin Public Research, Rasmussen, USA Today/Gallup, Public Policy Polling and various other polls. )

It's uncertain what will happen in the next chapters, but we will be watching. It is clear this is another watershed point in labor history, a public policy fork in the road, perhaps the beginning of the end of the movement that was propelled into mainstream America by that terrible fire 100 years ago. While polling indicates that sentiment is currently on the side of the teachers in this dispute, the future of public unions is under serious threat. Is the role of unions obsolete? Has the public dialogue achieved an equilibrium between the rights of workers and those of management?

At Lynch Ryan, we have great respect for unions, which have historically played a critical check-and-balance role in labor-management power dynamics. They have also been in the forefront of the fight for worker safety and other worker protections. We also admire and respect many employers we have been privileged to work for who are perceptive and wise enough to manage their companies so well that unions are not needed. We'd like to say that all employers are this enlightened and do not need union checks and balances to do the right thing, but unfortunately our experience tells us that this is not always the case.

Amid much controversy, the Texas Legislature is considering SB354, a bill that would allow licensed students and professors to carry concealed handguns on college campuses. The bill has passed a Senate committee and has been referred to the Committee of Criminal Justice, where it will be up for a hearing. (Follow SB354). With support from Governor Rick Perry and more than half the members of the House signing on as co-authors, most observers think that the bill will be passed. But according to an article by Patrick Williams in the Dallas Observer, concealed guns on campus is not necessarily a fait accompli: "[Similar] legislation has failed 43 times in 23 states since Virginia Tech," Malte says, referring to the 2007 campus mass murder that claimed 32 lives. "Every time somebody said this is a done deal over the last three years, it was defeated."

Utah is currently the only state that allows guns on campus, but legislation is on the docket in several other states. Fox Business News reports that eight other states currently have campus carry legislation underway. These include Arizona, Florida, Michigan, Mississippi, Oklahoma, Nebraska, New Mexico, and Tennessee.

With sympathetic Republicans at or approaching supermajority status in a few of these states, the political stars are in alignment for success. Ultimately, the deciding factor may come down to the strength of student and parental support or opposition. Keep Guns Off Campus says that the American Association of State Colleges and Universities (AASCU) and 271 colleges and universities in 36 states - 189 four-year colleges and universities and 82 community colleges and technical schools - have joined the Campaign to Keep Guns Off Campus. (See Listing). On the other hand,
Students for Concealed Carry on Campus point to widespread support - not the least of which is the mighty power and deep pockets of the NRA.

Follow-on to "Guns at Work"
The spate of campus carry legislation is a natural adjunct to the NRA's major "guns at work" legislative initiative, which has been sweeping the country in recent years to considerable success. According to the NRA, there are now 13 states that have laws permitting employees to have guns at work: Alaska, Arizona, Florida, Georgia, Idaho, Indiana, Kansas, Louisiana, Minnesota, Mississippi, Oklahoma, and Utah. While the particulars of these laws vary, such laws generally allow licensed gun owners to keep guns locked in their cars at work, including on employer-owned parking lots. In some states, certain business such as hospitals, schools and prisons are exempt. This is an issue that has pitted the rights of an employer to establish policy for their private property (employer-owned parking lots) against second amendment rights. It's an issue that has been opposed by employer groups and associations.

For more history on the Guns at Work issue, see prior postings on the topic below.
Three new state laws limit employer restrictions on guns at work
Guns at work: coming to a neighborhood near you?
Workers with guns
Guns at work

If Missouri is the "Show me" state, Pennsylvania is in the running for the "show me the documents" state. They have a way of over-engineering solutions to what may or may not be problems. (See our prior post ["Blood on the Forms"] on requiring injured workers to sign 2 forms at the time of injury.) Now the Keystone state weighs in on the independent contractor conundrum through the recently implemented Construction Workplace Misclassification Act, also known as Act 72.

In tackling the problem of misclassification, Pennsylvania has done something smart: they have limited the scope of the law to the construction industry, where the worst abuses abide. (Massachusetts kicked a hornets nest with an expansive definition of independent contractor that extends well beyond construction.) The statute contains the usual and customary language requiring independent contractors to control the work, work for others and provide their own tools. But in its relentless need for documentation, Pennsylvania requires general contractors and subs to get out the pens and archive some paper. Independent contractors must:
- Have a written contract for every job
- Carry at least $50,000 in general liability coverage for the duration of the job (this requires a certificate of insurance from the agent)
- Document a proprietary interest in their business (how would a sole proprietor do this - tax forms?)
- Realize a profit or suffer a loss for the project (an interesting and potentially problemmatic issue for craftsmen whose spouses are not accountants)

Act 72 prohibits general contractors from forcing subs to sign any contract that results in misclassification. It also forbids retaliation against any person who files a complaint under the law.

The Amish Exception
As we pointed out in a previous blog, Pennsylvania's Amish population (roughly 51,000 total) is generally exempt from insurance requirements. Amish employers are not required to provide social security or workers compensation coverage, and it appears likely that the Amish will be exempt from the new health insurance standards. When a need arises, they pass the (rather old fashioned) hat throughout their community.

So what happens when an Amish (or non-Amish) general contractor hires an Amish sub? Which of Act 72's requirements apply to the Amish? Certainly not the general liability insurance. Perhaps not the "profit and loss" and "proprietary interest" documentation. While we are not suggesting that employers seek out Amish subs to avoid Act 72, it might simplify matters. For everyone else in PA, it's time to focus on the paperwork.

We have been tracking the hazardous effort to integrate medical marijuana into the workplace. It's not an easy fit. The burden falls on legislators, who write the laws, and on judges, who interpret these laws. The testing ground is often California, where fantasy and reality are so intertwined, it's getting more and more difficult to separate them.

We read in WorkCompCentral (subscription required) that a state senator named Mark Leno (any relation to Jay?) has introduced a bill to clarify the rights of medical marijuana users in the workplace. Senate Bill 129 gives workers a right to "damages, injunctive relief, reasonable attorney's fees and costs..." if employment decisions are based upon their medical use of marijuana. Then Governor Schwarzenegger vetoed the bill in 2008. Senator Leno is guessing he might have better luck with Governor Brown (AKA Governor Moonbeam).

Joe Elford, chief counsel for Americans for Safe Access, believes that legislation in necessary in order to assure equal rights for medical marijuana users who are not technically disabled: employers have an obligation to accommodate the disabled, but they may not view others the same way. "Under SB 129 you don't have to be disabled, you simply have to be a medical marijuana patient."

He goes on to say that Proposition 215 was not intended just for the unemployed: its protections must include workers in the workplace.

Ah, there's the rub. How do you draw the line between drug free workplaces and medically approved use of marijuana (and, for that matter, opiates and other pain killers)?

Locked Out, Tagged Out, Zoned Out
SB 129 tries to have it both ways. On the one hand, it states: "Nothing in this article shall require any accommodation of any medical use of marijuana on the property or premises of any place of employment or during the hours of employment." Any employee who is under the influence of marijuana at work can be terminated.

On the other hand, the bill tries to protect the rights of at least some employees at work who might in fact be somewhat impaired by their use of pot. While the bill does not provide protection for workers in "safety sensitive" positions, it does protect everyone else. It defines "safety sensitive" as "a job that has greater than normal level of trust, responsibility for or impact on the health and safety of others or where errors in judgment, inattentiveness or diminished coordination could put others in danger."

Hmm, what have these guys been smoking? How many jobs can you think of where "errors in judgment, inattentiveness or diminished coordination" would not be a serious if not immediate problem? Would this legislation actually protect employers from "negligent retention" claims where their (somewhat) stoned workers make marijuana-induced mistakes? "Sure, he messed up the calculation of your benefits. But you'll have to cut him some slack. He was on (medically approved) medication."

I have the greatest sympathy for legislators struggling to balance the rights of workers in need of specific medications with the rights of everyone else. But in this case, they appear to be straddling the Grand Canyon. Is there any job where inattentiveness and diminished coordination would be acceptable? Consulting? Actuaries? (just kidding). I would suggest that the legislators create a specific list of any such jobs. That would make for interesting hearings, at the very least, and the applications for these positions would increase exponentially.

You have a problem with how I'm doing my job? Dude, I'm locked out. Try me a little later.

John T. Dibble is an arbitrator in Illinois. He was very active in the cases for carpal tunnel syndrome filed by 230 guards at the Menard Correctional Center. The guards alleged that their injuries were due primarily to the constant turning of keys in antiquated and rather sticky locks. No diddler, Mr. Dibble approved over half of the repetitive trauma cases filed by the guards, who collected nearly $10 million in a three year period. The repetitive filings for repetitive motion have caught the eye of Illinois Governor Pat Quinn, who has appointed a lawyer to investigate. NOTE to lawyer: WD 40 can do wonders for sticky locks.

It turns out that Mr. Dibble's sympathies run deep. In fact, he has some shared experience with the prison guards who come before him. On November 12, 2009, Mr. Dibble fell on the steps at a hearing office in Herrin. He filed a claim for "post-traumatic carpal tunnel" [whatever that may be], claiming injuries to "both knees, both hands, both elbows and (his) left little finger." That would be the finger he holds up in the air when partaking of his post-hearing tea, I suppose.

Mr. Dibble settled his case for $48,790. The payment included a 17.5% loss of function for each hand and a 7.5% loss of function in his little finger. The check was cut based upon a form signed by three parties: the office of the attorney general, a Central Management Services official and Dibble himself. Mysteriously, the award was not listed in the comp commisioner's online data base. The actual case file has disappeared - and I'm guessing that the medical records have disappeared as well. It would be fascinating to read the doctor's report that resulted in Mr. Dibble's rather generous loss of function awards.

The job of arbitrator in Illinois is hazardous, indeed. Seven of the state's 32 arbitrators either filed for or received a workers comp payment, including three for repetitive trauma. You know what happens: you listen, day in and day out, to the prison guards's tales of woe, and eventually your fingers start to tingle and your wrist aches a bit. It's the price you pay - and perhaps the reward you reap - for lending a sympathetic ear.

Kudos to reporters George Pawlaczyk and Beth Hundsdorfer of the Belleview News Democrat for their coverage of this story.

Two years ago we blogged the sad story of Arthur Pierce, a commercial driver in Virginia who suffered a traumatic brain injury and eventually died from a fall on the job. Pierce's death was deemed non-compensable due to a cruel and rather peculiar glitch in the Virginia comp statute. Under the law, if a worker suffers a brain injury that is not witnessed by others, and the worker is unable to provide details on the injury (Pierce was found in a coma from which he never emerged), the incident is not compensable. There is no room for judicial discretion: no testimony, no benefits.

We also blogged a more recent incident, where Dan Casey, a cable installer, fell off a roof. Again, there were no witnesses and again, in the days and weeks following the incident, Casey had no memory of what happened. Fortunately for him and his family, he eventually was able to remember some of the details. With some reluctance, the insurer settled the case.

The problem, obviously, lies in the Virginia comp statute. Rather than allow the comp system the normal latitude in determining compensability, the law rigidly lays out a harsh standard: if there are no witnesses, the employee must provide the narrative. In the absence of a narrative, there can be no compensability. In the above rare but compelling circumstances, seriously injured workers were unable to provide details on exactly what happened.

The Fix is In?
There is finally some movement toward amending the faulty statute. Here is the language of a bill which recently made its way out of committee, onto the floor of the Virginia House:

Workers' compensation; presumption that injury arises out of employment. Creates a presumption that a workplace injury results from an accident arising out of employment for purposes of the Workers' Compensation Act if the employee is found dead or to have incurred a brain injury resulting from external mechanical force that impairs the employee's brain function to such an extent that the employee is incapable of recalling the relevant circumstances of the accident. A judicially created presumption currently exists when an employee is found dead as the result of an accident at his place of work and there is no evidence offered to show what caused the death or to show that he was not engaged in his employer's business at the time.

Note that the brain injury must be the result of "external mechanical force" - no aneuryisms need apply. This revision would crack open the door to compensability just enough for a grievously injured Arthur Pierce or Dan Casey to slip through.

Pierce's widow has been lobbying the legislature to address this gaping hole in coverage for Virginia workers. She has nothing to gain, as the changes will not be retroactive. But it would be comforting to think that workers who suffer severe brain injuries on the job in the Old Dominion State will have recourse to the protections that are virtually universal for all workers. That would be a sanity clause, indeed.

A deranged man with a high-powered handgun in Tucson, Arizona, has killed six people and wounded many others. We will never really understand what drives an individual to plan and execute this kind of action, just as we cannot fathom why a man (or woman) would in the name of religion strap explosives to their bodies and kill themselves and as many innocent victims as possible. Belief systems are powerful motivators; demented beliefs can bring about appalling results. In these trying times, as the poet Yeats put it, "everywhere the ceremony of innocence is drowned."

Today we limit our meditation to the role of workers compensation in this incidence of mayhem. Congresswoman Gabrielle Giffords (D-AZ) was holding an informal "Congress on the Corner" gathering outside an ironically named Safeway Supermarket, when Jared Loughner walked up behind her and shot her in the head at point blank range. Somehow, she has survived to this point. One of her aides, Gabe Zimmerman, was killed. For what it's worth, both are covered by workers comp, as they were "in the course and scope of employment." A number of Giffords's volunteers were also injured: their medical bills will likely be covered by comp, but they probably will not receive any indemnity benefits. Innocent bystanders are on their own: whether employed or not, their jobs did not bring them to that fateful location.

Federal Judge John Roll, who was killed, is a special case. The justice department will try to prove that his attendance at the event was an official act: that rather than just casually dropping by to see his friend, Rep. Giffords, he was "in the course and scope of employment" when he left his nearby office to attend the meeting. Why? It is surely not workers comp that concerns the feds; they want to include the murder of Judge Roll in the federal charges against Loughner and can only do so if the judge was technically on the job at the time he was assassinated. (Ironically, the judge had received death threats due to recent rulings.)

The Politics of Mayhem
Some have drawn a direct link between Loughner's actions and the inflammatory rhetoric of recent political campaigns. When politicians talk of "second amendment solutions" to ideological differences, they are referencing guns. By placing a cross-hair image over an opponent's photo, they raise the specter of assassination. Based upon the limited evidence of Loughner's web postings, his actions are likely the result of internal demons. His links to the real world were tenuous at best. He may have thought his actions were political, but like his brethren the suicide bombers, any intended political message is subsumed and ultimately obliterated by sheer madness.

This is by no means the first time that humanity has been confronted with such images of meaningless depravity. Yeats published "The Second Coming" in 1920, just a couple of years after the end of the first world war - the "war to end all wars."

Things fall apart; the center cannot hold;

Mere anarchy is loosed upon the world.

There was much anarchy then, much anarchy to follow in the dark days of the second world war and, alas, much anarchy in our time.

You may recall the New York saga of Compensation Risk Managers (CRM), who single-handedly brought down the entire workers comp self-insurance group (SIG) industry in the empire state. Well, CRM is back in the news, this time in California, where their dubious business practices have collapsed a self-insurance group for the construction industry. The name of the failed SIG is "Contractors Access Program - get it? "CAP." As in, "your exposure is capped; you have nothing to worry about." To paraphrase a legendary President, "we have nothing to fear except fear itself" - to which we must add, unfortunately, the legitimate fear of predatory insurance administrators.

New York regulators took a very hard line in their response to the insolvency of a dozen SIGs operated by CRM. Someone had to make up the deficit created by CRM's mismanagement, so they decided to penalize all the SIGs operating by the rules. This harsh and rather expansive definition of "joint and several liability" led the well-managed SIGs to abandon the state.

At this point, it's not clear how California is going to pursue the $38 million shortfall. They will probably go after the actual participants in CAP, but it's highly unlikely they will find anywhere near the cash to cover the insurance deficit. Meanwhile, eleven of the SIG members are suing CRM, the agent who sold the product and the SIG's board of directors (some of whom are SIG members). If you total up the premiums paid by those filing the lawsuit, you only come up with $5.2 million. So the scale of the losses - $38 million - appears large enough to put every one of the SIG members out of business.

Promises, Promises
One of the interesting aspects of the lawsuit is the way the plaintiffs have quoted the marketing spiel right back at the defendents. They were promised "superior underwriting, claims oversight, loss control and administration." The "rigorous underwriting" would provide savings "while preserving the integrity of the program." Potential clients were assured that their exposure was limited to the premiums paid (a complete misrepresentation of the nature of SIGs) and that reinsurance kicked in on any claim above $500,000. (In reality, there was no reinsurance.) The agent who sold this dubious product promised to function as "much more than a broker." They brought "particular expertise" to the program and would serve as the clients's "partners in risk management functions." Some partner!

What apparently was not disclosed to members and prospects was the fact that the SIG was losing money almost from the very beginning. CRM had a fall out with the original broker, which resulted in $6 million of SIG funds being used to pay him off.

The CRM website is still up, where you can read about "the CRM advantage." They have an advantage, all right: they take advantage of naive and trusting companies seeking a little edge in the competitive comp market. It's a killer edge, to be sure.

Thanks to Work Comp Central (subscription required) for the heads up on this case.

On a recent drive through rural Ohio, I was startled by an unusual image: a horse and buggy crossing over the interstate on a bridge. Later, at a rest stop, a long line of Amish folks, dressed as if from central casting, stood patiently in line at the Burger King. When they departed, I went up to the counter and asked what they had ordered. "Burgers and biscuits, mostly." The Amish get biscuits from Burger King?

This memory came to mind when reading at Philly.com of a clash involving roofers in the western suburbs of Philadelphia. It seems that the Amish have an unfair advantage when bidding for roofing jobs against non-Amish contractors. The latter must factor in the costs of social security and workers compensation when bidding for work - and as comp practitioners know, the cost of comp for roofers is, well, through the roof. Under federal law, the Amish are exempt from social security; their religion rejects any form of insurance other than Divine. Under Pennsylvania law, they may opt out of workers compensation as well (though some Amish contractors do not). When you factor the costs of these coverages into the work, it's no surprise that Amish bids are routinely 30% or more lower than non-exempt contractors.

In the good times (remember those?), these differences did not matter much, as there was plenty of work for everyone. Today, however, there is a hard-scrabble search for work. Non-Amish contractors complain that the Amish have an unfair competitive advantage.

Lifestyles of the Not-So-Rich and Famous
The Amish also have a lifestyle advantage. They reject many aspects of modern culture. Many, though not all, refuse to operate machinery. Most do not use electricity. They do not have to worry about flat screened TVs, cable, iPods, iPads, cell phones, etc. They cling to a simple lifestyle that explicitly turns its back on what most people think is essential and necessary.

This brings to mind one more image during my brief encounter with the Amish in Ohio. As I was entering the rest stop, an Amish family was exiting. The father, with his wife a few steps behind, led his six children (their families tend to be large). One of the daughters held the hand of the youngest, a sweet blond 4 year old, who was blind. Bringing up the rear came another daughter, about 16, in a long, plain cotton dress that covered her from neck to ankles, over which she wore big, clunky work boots, laced half way up. Her gaze was indefinite, as if she were oblivious to the prosaic surroundings. She was strikingly beautiful.

I could not help but wonder whether she would remain with the culture that nurtured her, or whether she would yield as most of us do to the temptations of the beckoning world, a world full of greed and gadgets, where insurance is an absolutely necessity ...and by no means divine.

Tasha Dakota Burns lived with Tony Anguiano for four years. After his divorce from his first wife became final, Tony - on several occasions - asked Tasha to marry him. Tasha did not take him seriously, because his proposals only came when he had had a bit too much to drink.Tony gave Tasha an engagement ring for Christmas in 2005. Tasha acknowledged that neither she nor Tony referred to the rings as wedding rings, but it was her intention to marry Tony.

Tasha had one child by Tony, with a second on the way. Then on August 22, 2007, Tony was killed in a work-related accident, thrown from a scaffolding 40 feet in the air. The status of Tasha's relationship to Tony suddenly became paramount. She filed for death benefits under the Kansas comp statute.

At her initial hearing for benefits, Tasha testified that she believed she and Tony were married sometime in 2005 because "he gave me a ring and I gave him a ring and he wasn't going nowhere and I wasn't going to go nowhere." After the two exchanged rings, she said that Tony repeatedly stated, "I'm going to marry this girl or this is my baby and I'm going to marry her." However, Tasha admitted that Tony never stated that the two were actually married.

It is painful and perhaps futile to parse the language of a couple that "ain't going nowhere", but parsing is what the judges in these cases must do. Under Kansas law, to establish a common-law marriage, a plaintiff must prove (1) capacity of the parties to marry; (2) a present marriage agreement between the parties; and (3) a holding out to the public as husband and wife.

"Although the marriage agreement need not be in any particular form, it is essential there be a present mutual consent to the marriage between the parties" [emphasis added].

Ah, there's the rub: a "present mutual consent." We can probably assume that, had Tony been around to answer the question, he would have affirmed his marriage to Tasha. But Tony, alas, is gone and Tasha is left holding the proverbial (empty) bag. The Court of Appeals upheld the workers comp court in its ruling that there was no proof of marriage.

What's in a Name?
In building a case to reject Tasha's claim, the Court pointed to the fact that she continued to use her maiden name. While she claimed that it is uncontroverted that she "holds out to the public her married name, present intent to be married...and a wedding ring on her finger," Tasha testified that she introduces herself to others as "Tasha Burns," her driver's license lists her as "Tasha Burns," she signed her 2005, 2006, and 2007 tax returns as "Tasha Burns," and she never used the name "Tasha Anguiano" in any official capacity.

To which I say to the court, so what? Lot's of women keep their original names after marriage, so a similar standard should be applied to common law marriages.

Tasha took the risk of living with Tony and having his kids, without the protection of formalizing their relationship. Surely, it seemed unimportant at the time, especially as the marriage proposals came only when Tony was a bit looped. But as this tale illustrates, we never know how much time is given to us. The fates can be cruel; the days that seem to stretch far into the future can end abruptly. And the consequences of not explicitly establishing the exact nature of a relationship may haunt us for the rest of our lives.

We have just one item to share today - an important and useful tool from the folks at Oregon's Department of Consumer & Business Services: 2010 Oregon Workers' Compensation Premium Rate Ranking, which ranks all 50 states plus the District of Columbia for rates that were in effect in January 2010.

We've taken the liberty of excepting a graphic to give you a sampling of the information, but you really want to save a copy of the report for future reference - the data is updated every two years. The chart offers a bird's eye comparative view of state rankings; and accompanying chart breaks data down by state. As might be expected, there is more detail for Oregon.

Montana and Alaska continue to be among the two most costly states but shifted order since 2008. In 2008, Ohio ranked third highest costs, but has dropped to #17, while Illinois moves up to the #3 spot, a dubious distinction. North Dakota, Indiana, And Arkansas are the three least costly states in 2010. Massachusetts had previously been #49, rising in the ranks to #44 in a list where higher means less costly. For comparison, see the 2008 report.

For commentary on this report and other related matters, see our past posts:

• 2008 - Part 1: Eight steps to controlling workers' compensation costs in your company; Part 2; Part 3
• Our 2008 post: Oregon's sate rankings for workers Compensation premium rates
• Tom Lynch offers commentary in a 2007 post: Your Government at Work - Worker injury research you can actually use
• Tom Lynch offers commentary in a 2005 post: state rankings for workers compensation in a 2005 post.

In November the voters in the Evergreen state have the opportunity to end one of the few remaining monopolistic systems for workers compensation (the three others are North Dakota, Ohio and Wyoming). As you might expect, there is much fulminating and little rational discourse evident in the pre-election build up on Initiative 1082.

Opponents of privitization project visions of greedy insurers denying claims (Hank Greenberg with an ax?), while proponents lampoon the arrogance and incompetence of a bloated state bureaucracy. (If you want to see what passes for humor in the great northwest, check out this rather lame rap video in support of the initiative.)

It's hardly surprising that opponents of the measure view insurers as a greedy, heartless enemy. On the other hand, it's pretty clear that most monopolies tend to evolve (or is it devolve?) into behemoths slow to respond and slow to innovate. Both visions suffer from inaccuracy and distortion.

Who Pays?
In most states, employers bear the full cost of workers comp: employees pay nothing for the premiums and nothing for the treatments. In Washington, there are three funds supported by comp premiums: an indemnity fund; a medical fund; and a supplemental pension fund. Employees contribute through payroll deduction to the latter two funds. The current deduction is 0.1543 percent of earnings, with no caps. If I've done the math right - a big if, unfortunately! - that's about $76 per year for the average worker. Not a lot of money, but the principle is interesting - employees have a little "skin" in the game. Total employee contribution of premiums does reach the substantial level of about 22 percent.

While you would expect small businesses to embrace competition, some oppose 1082 for the simple fact that it will eliminate the employee contribution to premiums and shift the entire burden onto employers. Costs might go up. On the other hand, competition might bring costs down.

Decision Makers
Currently, costs for workers comp in Washington are modest: they rank 38th for cost in the 2008 Oregon survey, with an average rate of $1.98 per $100 of payroll. If the costs were higher, the pressure for change would probably be much more intense. As it is, voters will go the polls as they often do, with a lot of inflammatory rhetoric (and perhaps an annoying rap song) ringing in their ears. Then they will fill out their ballots. The fate of Washington's comp system is in their hands.

Most of us associate a determination of disability with the inability to perform some or all aspects of a job. But most us do not work in Bell, California.

When former Bell police chief Randy Adams agreed to leave his job as chief in Glendale and run the department in Bell, he entered into an unusual agreement with city administrator Robert Rizzo. The agreement stipulated that Adams was disabled, suffering from the lingering effects of back, knee and neck injuries sustained in his prior public safety jobs. His attorney, Mark Pachowicz, said the agreement was designed to ensure that his client would not have to fight Bell for a medical pension.

Lest you think that Bell simply had an aggressive "hire the handicapped" program, it appears that Adams was able to perform all the duties of his job, with no accommodation required. In other words, this "disabled" hire was indistinguishable from able-bodied applicants for the job. There was a single stipulation of "no heavy lifting" - for a job which required no heavy lifting.

An Offer He Could Not Refuse
Rizzo considered Adams so capable, he hired him into two positions: police chief and special police counsel. Bell was so anxious to secure Adams's services, they offered him $457,000 a year, double his prior salary. The hiring agreement qualified Adams for a tax-free disability benefit of $205,000 per year. Oh, did I mention that the hiring agreement also provided lifetime health insurance for Adams and his dependents, with no vesting period? Sure, that sounds like a pretty generous package, but Rizzo himself was pulling down $787,000 for taking on the burdens of managing the relatively small (pop. 40,000) working class town.

During his prior employment, Adams settled a workers comp claim for $45,000, following back surgery. He returned to work after a two week absence - which makes the amount of settlement appear rather generous. The comp settlement, however, is chump change compared to the irrestible benefits of working for Bell.

Fortunately for the beleagured Bell (and California) tax payers, this entire corrupt edifice came crashing down with the arrest of Rizzo and his numerous co-conspirators. (Adams has not been charged.) The status of Adams's questionable hiring agreement with the city remains unresolved. As spokesperson for the California Public Employee's Retirement System Ed Fong put it: "You're only supposed to receive a disability retirement if you are disabled and unable to perform the normal duties of your job. If that is not the case, it would be fraud."

In Bell they called it "standard operating procedure." It was lucrative while it lasted. But the bell has tolled, bringing to an abrupt end a corruption scheme of All-American proportions.

Matt Mitchell was an Illinois state trooper. On November 23, 2007, he was bombing along Interstate 64 at 126 miles per hour, on his way to an accident scene. He was chatting with his girlfriend and sending text messages. The road was somewhat clogged with holiday travelers. His speeding was not necessary, as help had already arrived at the accident scene. The distracted trooper crossed over the median and hit a car head on. Two sisters, Kelli and Jessica Uhl, were killed instantly. Two other occupants of the car were injured. Trooper Mitchell suffered severe leg injuries.

Speeding for no reason. Texting and talking unrelated to his job. Reckless. Negligent. And, it appears, compensable.

Mitchell pleaded guilty to reckless homicide and reckless driving and was sentenced to 30 months probation. He resigned his position with the state police. He has filed a claim for workers comp benefits, which is likely to be awarded because Mitchell was in the course and scope of employment. In the stipulation during a civil suit filed by the parents of the Uhl sisters, the Illinois attorney general agreed that, despite the criminal negligence, Mitchell was acting in his capacity as a state trooper when the accident occurred. Yes, the speeding was gratuitous, the texting irresponsible, the girl friend chats unrelated to work. But Mitchell was heading to the scene of an accident. He was a jerk and a menace, but he was working.

On the Hook
Illinois taxpayers face an interesting double jeopardy. They are on the hook for the deaths of the Uhl sisters. And they will soon be on the hook for Mitchell's loss of function payments and possibly for permanent total benefits.

It's worth noting that just three days after pleading guilty to the criminal charges, Mitchell testified in a claims hearing that he was not responsible for the crash.

If Mitchell had not been heading for an accident scene, if he was speeding simply because he wore a uniform that allowed him to get away with it, perhaps his claim would be denied under the concept of "wilful intent." We are reminded once again of comp's cornerstone principle of "no fault." There's plenty of fault in this sorry saga, but it does not - alas, it cannot - matter one bit.

Last year the Insider blogged the unfortunate fate of Arthur Pierce, who died in a work-related accident, but whose claim was denied due to a glitch in the Virginia comp statute. Fearing a rash of bogus claims by workers faking severe brain injuries, the lawmakers allow insurers to deny any unwitnessed incident where the injured worker cannot testify to what happened. If Pierce had died instantly, his claim would have been accepted. By surviving for months without being able to talk, he never collected a dime.

Dan Casey, a columnist for the Roanoke Times, brings us the saga of Mike Gentry, who fell off a roof while installing a satellite dish. He survived, but suffered brain damage and severe physical trauma. While paying the claim at first (Gentry was in a coma and rehab for weeks), the insurer finally got to talk to him. Here is Mike and his wife Andrea's summary of the exchange with the claims adjuster:

"She asked me,'Ever jumped off a roof before? Ever thought of killing yourself?'"

"I said, 'No, and no.'"

And then she said, "Do you remember what happened?"

"And he said no," Andrea interjected. "Because he didn't. And she said, 'OK, that's all I need.'"

Thus, in accordance with the peculiar and patently unfair Virginia law, the claim was denied. Ironically, just 12 days before Gentry fell off the roof, an attempt to change the Virginia statute, instigated by Arthur Pierce's widow, was defeated in committee. The revision would have allowed brain injured workers the same presumption of compensability as workers killed on the job. In the words of insurance lobbyist and attorney Charles Midkiff, any changes in the current law would be "an invitation to fraud."

It was only through the kindness of strangers that Gentry and his family were able to survive the months without any insurance benefits. Then a minor miracle occurred: Gentry's memory of the incident came back. Not all at once, but gradually. First, he remembered that the battery on his power drill died. A few more memories filtered in. Finally, about a month after the initial recall, he remembered everything. He was climbing down to get a replacement battery from his truck, when the ladder slid and he fell.

(Over)Due Process
Armed with this new information, Gentry filed for benefits. The carrier, defended by - who woulda guessed? - attorney Midkiff, managed to delay the hearing for months (from December 2009 until April 2010). Finally, three hours before the rescheduled hearing, the carrier caved and accepted the claim.

Mike Gentry will never work again. He has double vision, his speech is slurred and he is frequently exhausted. He has severe seizures and difficulty thinking. He takes 10 medications daily. But he and his family are finally protected by the workers comp safety net - no thanks to a carrier following the letter of the law, and no thanks to the legislators who think workers are going to fake brain injuries in order to qualify for benefits.

In the words of the immortal Frank Zappa: "The United States is a nation of laws: badly written and randomly enforced." Not true of most laws, but certainly applicable to this bizarre and completely unnecessary provision of Virginia's comp statute.

NOTE: The Insider is quoted in course of Casey's fine article.

Five years ago we blogged the problem FedEx would inevitably run into in Massachusetts, where the definition of "employee" is so inclusive, it's almost impossible to find a truly "independent contractor." Well, the proverbial chickens have come home to roost.

Attorney General Martha Coakley has announced a settlement with FedEx, wherein the delivery giant has agreed to pay a little more than $3 million relating to the status of 13 "misclassified" delivery drivers. Without admitting liability or wrongdoing, FedEx has agreed to refrain from using the "independent contractor" strategy in response to claims for benefit coverage, including payroll taxes, unemployment insurance, and workers comp. In exchange, Massachusetts will refrain from any further legal action for one year. In other words, for the modest sum of $3 million, FedEx has bought itself a year to clarify its business strategy. Therein lies a tale of attorneys, well worth the telling.

FedEx maintains a steadfast commitment to a business model for its ground delivery system where the work is performed by independent contractors. With a healthy scepticism in our hearts, we have frequently blogged the barriers to independence: the drivers wear FedEx uniforms, drive FedEx trucks, adhere to FedEx dress codes and schedules, etc. FedEx ground does not exist without these drivers and that makes them, in effect, employees. The response to the fundamental query "who controls the work?" has been unambiguously, FedEx.

ISP to the Rescue?
As part of its agreement with the Commonwealth, FedEx has outlined its rationale for the independent contractor model. They propose entering into an Independent Service Agreement (ISP) with driver/managers in each service area. Appended to the MA settlement in draft form, the ISP agreement tries diligently to carve out a middle ground where the work is performed independently, but to FedEx standards.

Here are a few of the details:

As you can see, FedEx is trying to establish independence while still maintaining its identity and its standards. The Attorney General has not made any judgment about the validity of this strategy; she has simply cashed a nice check, in exchange for which she has given FedEx a year to work out the kinks. After the year is up, the FedEx model will likely be challenged once again.

Not Quite Independent?
You have to credit the presumably well-paid FedEx team: they have tackled head on the thorny issue of "free from control and direction." On the surface at least, the ISP approach offers a credible if not totally convincing appearance of independence.

Unfortunately for FedEx, the MA standards have two additional components, neither of which appear to be addressed in the draft ISP agreement: independent contractors must provide a service outside of the general contractor's usual course of business (no way FedEx can do this) and their independence is reflected in their marketing of services beyond a single customer (what would this look like?).

It will be interesting to see how FedEx responds when local driver/managers stretch the rules and standards in an attempt to assert some real independence. That's where the rubber will meet the road in this seemingly endless saga: a company with a ferocious need to control, giving up control in order to preserve their idiosyncratic business model.

And some folks say employment law is boring....Stay tuned.

Massachusetts has been in the forefront of the independent contractor issue. The state has narrowed the definition of "independent contractor" to the point where almost anybody can be defined as an employee. But how do you enforce this? Where is the leverage to confront employers who are avoiding comp premiums by misclassifying their employees as independent contractors?

Under the direct influence of labor unions, the Commonwealth has empowered "any 3 persons" to take action against suspected comp fraud. Governor Deval Patrick recently signed a law that allows any 3 people to file suit against an employer who fails to comply with the workers comp statute. If that sounds pretty broad, well, it is. Here is first section of the new law:

Whenever facts exist showing that an employer has failed to comply with this chapter, then any 3 persons may bring a civil action and that civil action shall be deemed a private attorneys general action....Plaintiffs shall prove a violation of this chapter by a preponderance of the evidence.

I do wonder what those "facts" and the supporting evidence might look like. Beyond that, this language invites lawsuits for any violation of the workers comp statute, a very wide parameter of possibilities, indeed. The focus, however, will be on premium fraud: deliberate misclassification of employees; paying people under the table; and failing to carry workers comp insurance altogether. The plaintiffs can collect up to $25,000 in unpaid premiums and an additional $25,000 in damages, plus "costs and reasonable attorneys fees."

These suits must be filed no sooner than 90 days after a policy ends (how would the "3 persons" know this date?). Then the process will take an additional 90 days. So six months after the policy ends, all hell breaks loose.

Bitter Remedy
Where are the "3 persons" likely to come from? I'm guessing that disappointed bidders on (increasingly rare) construction projects are likely to team up with disgruntled (former) employees of the successful bidder to form a merry band of 3. You might find three laid off employees/independent contractors jumping in to get back at their former bosses. Heck, the standard of "3 persons" is so low, this game is not much more difficult than playing the state lottery.

It will be fascinating to watch this new statute roll out. Simmering rivalries are going to boil over. The frictional cost of doing business in the Bay State is about to go up. The ultimate question, of course, is how effective this new weapon against premium fraud will be. To the extent it exposes unfair business practices, it will help level the playing field for all Massachusetts employers. But given the broad and ultimately vague language of the enabling statute, there is plenty of opportunity for abuse in this cure for abuse. From a blogger's perspective, of course, it's just about perfect.

Yesterday was a day of remembrance for the victims of last week's horrifying shootings at Hartford Distributors in Connecticut - our hearts go out to the family, friends, and coworkers of the deceased. Their lives will be forever changed and imprinted by this terrible event.

In chilling testimony minutes before death by his own hand, we hear the shooter in the deadly rampage calmly relaying his motive to a police dispatcher: "This place right here is a racist place...They're treating me bad over here. And treat all other black employees bad over here, too. So I took it to my own hands and handled the problem. I wish I could have got more of the people."

Omar Thornton's murderous acts left eight coworkers dead and two grievously wounded. The horrifying massacre brought to mind another racially-motivated workplace-based mass murder, the 2003 shooting at a Lockheed Martin plant in Meridian, Miss., which left 6 dead and 8 wounded. Unlike last week's shooting for which there were few if any advance clues or hints, the killer in Meridian had left a trail of violent threats and behaviors. Many who knew or had worked with Doug Williams feared and even predicted that his threats would culminate in some terrible event.

Whether racism was a trigger in the Connecticut case or not seems a moot point. Even if it were true that racism occurred, as alleged by the family of the shooter, that would not justify such a heinous and wildly disproportionate reaction. Company and union officials deny the allegations of racism and say that no such grievances had been filed or were on record. Yet Thornton's call and the allegations will likely play a factor as lawyers for the victims seek damages. If victims seek any redress beyond workers compensation, they will face a high hurdle. When litigation is successful at piercing the exclusive remedy shield, it often involves employer misconduct that is highly egregious.

In 2005 and again in 2008, courts barred tort claims for Lockheed victims and upheld workers compensation as the exclusive remedy. Plaintiffs felt they had a strong case and sued Lockheed on the basis of having been deprived of civil rights. They cited a 2004 EEOC report, which stated: "(Lockheed) was aware of the severity and extent of the racially charged and hostile environment created by Mr. Williams, which included threats to kill African-American employees," the determination by the EEOC's Jackson office said. "(Lockheed's) reaction to those threats against African-American employees was inadequate and permitted the racially charged atmosphere to grow in intensity, culminating in the shooting of 14 individuals."

We noted then and note again now that, while often an imperfect and unsatisfying system, workers comp generally holds up as the exclusive remedy in such cases.

Can employers inoculate against such events?
While most workplace risk can be managed and risk mitigation strategies can be adopted to eliminate or minimize hazards, when it comes to the human heart and mind, preventive strategies can be less certain. There are certainly best practices that can be put in place, predictive profiles and warning indicators that can be consulted, and good hiring and supervisory practices that can be enacted.

Connecticut attorney Daniel Schwartz has been following this event and others on his blog. He recalled another terrible CT event on the 10 year anniversary of the 1998 Lottery headquarters shooting, which claimed the lives of four supervisors. Schwatz has revisited the topic of workplace violence on more than one occasion, offering best practice tips and resources for employer vigilance. In light of the recent tragedy, he asks if there are any lessons to be learned from evil. He concludes:

"Despite all the guidance and advice that can be given, the awful truth is that there really is no way to prevent tragedies like this from ever occurring. An employer can do everything "right" and yet still a rampage ensues by someone committed to carrying out a terrible crime.

That's not to say that employers should ignore the issue; they shouldn't. But we also should be careful not to draw conclusions from an incident like this too.

Indeed, as we look for answers from this tragedy, perhaps its best to acknowledge that we can never truly understand what brings people to commit evil and that despite whatever efforts we might make, something like this will sadly happen again."

Erie County (NY) executive Chris Collins was frustrated by an annual outlay of about $11 million for workers comp. So the county implemented a policy requiring workers collecting indemnity (about 300 in all) to pick up the checks in person from the supervisor. Collins hoped that this face to face contact might lead to quicker return to work for employees capable of performing light duty.

Not surprisingly, the state comp board had serious concerns with the new "return to work" program.

"It places an additional burden upon an injured worker at a time when the claimant is not medically able to return to the workplace." Oh, by the way, it's also illegal.

The Collins administration fired back, saying that the board lacks the authority to halt Erie County's new policy and that it will continue, at least for workers with temporary injuries.

Erie spokesman Grant Loomis blasted the comp board: "We were not surprised that a board full of Albany bureaucrats would raise objections to getting municipal workers back to work as soon as possible." (With his demonstrated talent for distortion, Loomis may have a future in politics.)

Loomis said Collins wants to revise the program to call in only the recently injured who might have substantially recovered and can perform light tasks, currently about two dozen people. Collins wants workers to receive their checks directly from their supervisors, who then would ask whether they could return to work in some capacity.

Compounded Errors
The Erie folks are making a couple of basic mistakes: first, they issue a blanket policy covering 300 people, even though they only want to target about two dozen. Then they ask supervisors to do things they are not qualified to do: determine whether injured workers can perform light duty tasks and, while they are at it, distribute checks. All in all, not a very good idea.

The missing piece is obvious: no one is talking to the treating physicians. Only doctors can determine the medically necessary restrictions - what the injured worker can and cannot do - and whether temporary light duty would be appropriate.

Now before Erie County implements a policy requiring doctors to show up in person for their checks, here is an alternative: establish lines of communication with the treating doctors. Track medical visits and ask doctors to update restrictions each time the employee sees the doctor. Supervisors should be kept in the loop, especially in regard to available light duty tasks, many of which are seasonal, but they should not be asked to manage the entire process. That is a job for county administrators. Heck, even Grant Loomis could help out, provided, of course, he takes a class in diplomacy. Angry rhetoric might work for politicians stirring up the masses, but it is usually counterproductive in the challenging world of workers comp.

Today we examine one of the great conundrums in workers comp claims: the old injury that may or may not be defined as a new injury.

In 2006 David Poulton worked for Martec Industries in Rochester, New York, as a laborer. Poulton had a bad back, having already filed workers comp claims in 1998 and 2000. When he visited his treating physician in June 2006, he had the same old complaint: his back hurt, as it had virtually every day since his first injury in 1998. He told his doctor that he re-injured his back at work the prior day while lifting materials. At this appointment, a discouraged Poulton told his doctor he wanted to quit working.

In consideration of Poulton's long-established problem, apparently compounded by the prior day's incident, the doctor disabled him from work. He cited "old injuries and his continued decline." He characterized the situation as involving "episodic increases in pain" that had troubled Poulton for several years. The doctor, in fact, had been encouraging Poulton to stop working prior to this particular visit.

An independent medical exam determined that Poulton suffered from degenerative disc disease and that his disability was caused primarily by preexisting problems.

So is this a new injury, as reported by Poulton, or simply the recurrence of an old one?

Who Pays?
An administrative law judge found in Poulton's favor, determining that the lifting incident at Martec aggravated the pre-existing condition. However, this ruling was reversed by the appelate division of the NY supreme court, which found no evidence of a new injury and remanded the case for further consideration.

Poulton may yet succeed in re-establishing his workers comp claim, but it will draw upon the resources of the carrier for his prior employer, not the carrier for Martec. As is usually the case in workers comp, the narrative is driven by the evidence. In this case, the history of pain and suffering is so unrelenting and consistent, the "new injury" theory goes up in smoke. With his working days apparently at an end, Poulton probably does not care who pays for his troubles. He has suffered for a long time.The remaining question, of course, is who pays and how much.

We return to the beautiful state of Maine, where moose wander the woods looking for whatever interests a moose and where employers self-insured for workers comp look for a fee schedule. The moose are a lot happier than the self-insureds. As we have pointed out in prior blogs, the legislature mandated the creation of a fee schedule for medical services nearly 20 years ago. There is still no fee schedule. So while insurance carriers are free to negotiate with hospitals to determine rates, self-insureds - Bath Iron Works (BIW) the most notable and vocal - are stuck paying the exorbitant "usual and customary" fees.

BIW has sued a number of times to move this process to a conclusion. Most recently, they sued to remove Paul Dionne, chairman of the workers comp board, from heading up the fee schedule committee. Dionne is also board chairman of Central Maine Healthcare Corp., which includes Central Maine Medical Center in Lewiston. While he claims objectivity, Dionne is in an untenable situation: you do not ask a medical provider how much they want to cut their own revenues.

In deference to the "appearance" of a conflict of interest, and perhaps in an acknowledgement that after 20 years, enough is enough, Dionne has recused himself from any further involvement in the fee schedule process.

"It's a hard decision because this is a very important issue for the workers' compensation system," he said. "But I've got a lot of confidence in the board members."

So from here on Dionne will follow the debate from the sidelines: no conflict, but plenty of interest. His confidence in the other board members might give rise to anxiety for BIW. Regardless, this is surely a step in the right direction.

When it comes to the long-mandated, long-absent fee schedule, patience is wearing a bit thin in Maine. The moose may wander where they choose, but self-insureds are caught in a very expensive trap. Too bad they don't sell fee schedules at L.L. Bean.

The saga of the New York self insurance trusts continues. We reported in April that justice had been served by Judge Kimberly O'Connell, who ruled that requiring solvent trusts to pay for the sins of insolvent trusts was unconstitutional. Now, according to Work Comp Central (subscription required), O'Connell herself has been overruled by a four judge panel, which has reinstated the assessments on the solvent trusts. While the justices are undoubtedly correct in their literal interpretation of the law, the ruling comes under the heading of "let no good deed go unpunished." It may be legal, but it is in no way just.

Here's the (rotten) deal: 15 self-insurance trusts are shut down by the state. They ran out of money because they under-priced their premiums, under-reserved claims and sold insurance like a ponzi scheme. Oh, they also paid themselves handsomely for their fine work as administrators. These defunct trusts are in the hole to the tune of $500-$600 million. State oversight? There wasn't any.

Who Pays?
The WCB decides to assess the remaining, solvent trusts to make up the deficit. In other words, the "joint and several liability" within a trust group now expands to include liability for all trust groups. To be sure, the enabling legislation allows the WCB to do this. After all, someone has to pay and this is New York, so deal with it. In this case, the trusts that operated by the rules, fairly pricing and fairly reserving claims, are penalized for the sins of the clowns who are no longer in business.

As we pointed out in yesterday's post, a task force has recommended that New York get out of the self insured trust business. We concur. Any state that loads the dice of "joint and several liability" to this absurd point makes a mockery of the concept. Self-insurance is based upon the ability to limit risk and contain exposures. Given New York's operating rules for self-insured trusts, conventional management tools are rendered useless. The liabilities of operating a group trust are uncontrollable and virtually infinite. Why would any company choose this path for managing risk?

Two years ago, New York Governor Patterson convened a task force to examine the status of self-insured trusts for workers comp. He was forced to take action when a number of trusts failed, most notably those administered by Compensation Risk Managers (CRM). The insolvent trusts left behind a deficit of $500 million. (See our prior blogs here and here.) The task force recently presented its findings to the governor. In 189 pages of closely reasoned text, the commission recommends that New York abandon this particular model for insurance. The risks, in their view, outweigh the benefits and perhaps most important, the state lacks the resources to adequately monitor how these groups operate from day to day. You cannot trust the trusts.

The commission zeroed in on what it considers to be the (fatal) flaws in the group trust model:
: Joint and several liability, where prudent employers are held accountable for the actions of the weakest members
NOTE: it's one thing to have "joint and several" liability; as the commission points out, it's quite another to actually collect on these obligations: less than 15% of what is owed by participants in the failed trusts has been collected to date.
: potential conflicts of interest involving group administrators and TPAs, who seek to grow the business by keeping rates artificially low and by understating losses
: inability of trustees to understand what is really going on
: inability of the state to monitor and assess the true status of each operating trust

Death Spiral
Self insurance groups currently operate successfully in 18 states, but not in New York. As we pointed out in a prior blog, the NY comp board tried to assess all trust members - not just those in the insolvent trusts - to make up the $500 million deficit. The solvent trusts sued and for the moment, have prevailed. (The Held decision can be read in the appendix of the task force report).

There is a certain logic to assessing all members for the failings of a few, but this only works when you are dealing with very large numbers, so the individual assessments are relatively small. This was not the case back in 2008, when there were about 18,000 employers participating in NY trusts. After all hell broke lose, the number dwindled to 4,000.

The crippling assessments issued by the comp board to cover the trust deficit created a death spiral, with solvent trusts folding their tents and moving out of the state. Even though those assessments have been retracted by the courts, that action comes too late to save the viable trusts. New York probably has no choice but to abandon the group trust model.

Rotten Apples
The New York narrative, as written by the governor's commission, attributes the trust failures to fatal flaws in the business model. But where New York sees an insurance approach that cannot work, other states see vulnerabilities that can be addressed through prudent management. Self-insured groups still operate profitably and effectively in many states. What happened in New York was the result of rogue and perhaps felonious trust management combined with inadequate state oversight. The state failed to see the true status of the troubled trusts in a timely manner and then took exactly the wrong action to correct it. That's not a problem with trusts themselves, but with the people entrusted to run them.

There are five towns in Massachusetts that do not carry workers comp insurance for their employees. Four of them - Dana, Prescott, Enfield and Greenwich - are under 412 billion gallons of water: they were submerged during the 1930s in the making of the Quabbin Reservoir, which supplies drinking water to Boston and a number of suburban cities and towns. The fifth, Tewksbury, voted to join the workers comp system way back in 1914, but a clerical error recorded the positive vote as negative, resulting in nearly 100 years of a go-it-alone, pay-as-you-go, hope-for-the-best approach to comp among the residents of the town, now nearing 30,000 people.

To date, Tewksbury has been pretty lucky. The town has paid out between $100,000 and $189,000 per year for claims in recent years. That's not bad, considering that one failed back can run upwards of $500,000. But just because Tewksbury has been lucky does not mean they are going to stay lucky. The liability to the town's tax payers is precariously open-ended. In these challenging times of reduced budgets for all municipal services, the specter of an unanticipated claim could put Tewksbury on the verge of bankruptcy. Because the town did not participate in the comp system, injured workers had the option of suing for damages unavailable in the comp system.

As we read in Insurance News Net, last month the town meeting voted to adopt workers comp coverage. (Presumably, the vote was properly recorded this time.) It will take a few years to develop an experience rating, based upon actual losses and statutory benefits. Overall the cost of insurance will run a bit higher than an average loss year, but that's price you pay for transferring the risk to a third party.Comp will finally become a set cost in the town budget. A workers comp policy comes with a comfort factor that cannot be measured simply in premium dollars: any claims, large or small, any catastrophic losses involving multiple town employees, will now be covered by insurance. That should help town residents and officials sleep a little better at night.

As for the surviving citizens of Dana, Prescott, Enfield and Greenwich, displaced long ago by the state's appetite for water, comp is not a likely component in their dreams. I imagine they welcome a nocturnal glimpse of the communities where they once lived and waken with sense of sadness and of loss.

In the 1930s, when the Fair Labor Standards Act (FLSA) and the National Labor Relations Act (NLRA) passed, these two laws offered labor protections to workers nationwide - with the exception of two large segments of the work population: domestic workers and agricultural workers. These groups were excluded in the interests of political expediency since a large proportion of both groups were comprised of blacks and women, two populations that weren't generally afforded full rights in many public and social arenas at the time.

With the 33-28 vote passage of the New York State Domestic Workers' Bill of Rights in the Senate, New York is likely to become the first state in the union to remedy that. The Bill is not yet final law - first, the Senate bill needs to be reconciled with the bill passed by the state Assembly and then Governor Patterson must sign it.

Bill Number S2311D would "... amend the labor law, the executive law and the workers' compensation law, in relation to establishing regulations regarding employment of domestic workers including hours of labor, wages and employment contracts." The purpose of the bill is stated as being to: "... provide domestic workers with a Domestic Workers' Bill of Rights which would set out the responsibilities of employers and employees as well as rules for paid holidays, paid vacations and standard overtime."

It's estimated that there are about 200,00 domestic workers in New York, 93% of which are women and 95% of which are people of color. Because the Bill covers all domestic workers - both legal and illegal - it's been fairly controversial. Opponents decry the increase in regulation, which some say will result in fewer jobs. Many opponents also bridle against any protection for illegal workers, feeling that offers a legitimacy. Proponents say that it will go a long way to regulating an industry that has no standards or oversight and afford basic worker rights to a largely ignored worker population. Many of those in favor of the bill also think that shedding light on some of unregulated business segments which have historically been magnets for undocumented workers will be an important step in coming to grips with the hiring of illegal workers.

In a column in the New York Daily News, Albor Ruiz notes the irony that although we trust these domestic workers with our children, our elderly parents and our homes, they are among the most exploited of society's laborers. He cites a study by Domestic Workers United and DataCenter, which found that, "...26% of domestic workers make less than the poverty line or the minimum wage rate. Also, 33% say they have been abused verbally or physically, and half report working overtime but not being paid for it. Health insurance from their employer is a rare luxury - only 10% get it."

From our viewpoint, we think all employers have the responsibility to provide a fair and safe workplace for all employees, regardless of the work population involved - legal, illegal, here in the US, or offshore in other countries. It's simply the right thing to do. But for those who don't share this value, it generally makes sense from a cost perspective, too. In our experience, doing the right thing by employees is less costly in the long run.

Related:
Domestic workers and workers' compensation requirements by state

As a service for Insider readers who do not follow the Flathead Beacon, we bring you the western Montana saga of Brock Hopkins, who either was or was not an employee of Great Bear Adventures when he had a great bear adventure of his own, much to his detriment. Hopkins, 23 at the time, appears to have been an occasional worker at the seasonal attraction. On November 2, 2007, he showed up at the park, took a few hits on his marijuana pipe (not prescribed by a doctor) and checked in with the park owner, Russell Kilpatrick, who was on the phone at the time.

Kilpatrick wanted Hopkins to repair a gate. After completing the task, Hopkins went to ask Kilpatrick if there was anything else that needed doing, but Kilpatrick was asleep (hibernating?). So Hopkins, after carefully placing his marijuana pipe on a storage shed outside the bear pen, mixed up some feed and entered the pen. He was attacked by a bear and sustained severe injuries to his legs. He barely managed to crawl out of the pen.

Contract of Hire
In subsequent court proceedings, Kilpatrick argued that Hopkins was a volunteer at the park. While he denies asking Hopkins to feed the bears, he admits that he did ask him to adjust the gate. And, yes, he did slip him $300 shortly after he was released from the hospital.

Judge James Jeremiah Shea, of the Montana Workers' Compensation Court, disagreed with Kilpatrick. In his written decision, Judge Shea managed to reference the (marijuana stoked) comedy, "Harold & Kumar Go to White Castle:"

"It is not as if this attack occurred when Hopkins inexplicably wandered into the grizzly pen while searching for the nearest White Castle. Hopkins was attacked while performing a job Kilpatrick had paid him to do - feeding grizzly bears."

Kilpatrick denies asking Hopkins to feed bears, who may or may not have needed feeding. And one might be inclined to raise the issue of the marijuana impeding Hopkins's judgment. Judge Shea took these factors into account and concluded that there was contradictory testimony on the issue of feeding the bears and most important, even though Hopkins smoked marijuana on the job, his being stoned was not a significant contributory factor in the injury. (If Hopkins could fix a gate while stoned, he could presumably feed the bears.)

Management's Burden
Kilpatrick is appealing the ruling. He has a high mountain to climb if he wants to prove that Hopkins was not an employee. I'm not sure he is helping his cause when he indignantly stated the following:

"I became very very angry because I then knew what had happened. In my opinion Brock could not resist one last time of harassing the bears with his habit of blowing smoke in their faces for God only knows what reason and in direct defiance of my telling him NOT to disturb them!!!"

Alas, Kilpatrick is learning a tough lesson in management: you are responsible for the (stupid) actions of people who perform work-related tasks for you, whether or not you formally hired them - and in this case, whether or not you specifically asked them to perform a given task. (If a supervisor is napping, employees are pretty much on their own.)

The fact that Hopkins was prone to blowing smoke at the bears and Kilpatrick still allowed him on the property weakens his case considerably. (As Hopkins left his pipe on the shed prior to entering the pen, it is unlikely that he provoked the bear in this particular manner on that fateful day.)

Meanwhile, the youthful Hopkins has knee problems and possibly permanent muscle damage. He may want to find himself a medical practitioner to write him a script for marijuana, which is available legally in Montana. Blowing smoke can ease the pain, as long as you don't direct it into the face of a sleepy or hungry bear.

With a population around 1.5 million and a land mass the size of New England, Idaho is probably not the first state that comes to mind in the national struggle to contain medical costs. Nonetheless, orthopedists in Idaho have managed to attract the attention of the federal government in their effort to increase rates of reimbursement for services. The feds are not happy with the Idaho docs.

The first problem came with the workers comp fee schedule. The "Resource-Based Relative Value system" set a price of $88 for most orthopedic procedures. The 65 or so orthopedists in Boise got together and decided to refuse to treat workers comp cases. As a result, the Industrial Commission raised the rates by 61 percent. Score one for the docs.

Emboldened by their success, the docs refused to accept Blue Cross patients under the prevailing fee scheme. But in taking on the conventional health care (as opposed to the state-based workers comp system), the docs crossed a line from a program run exclusively by the states into a behemoth system in which the federal government plays a big role. The feds came down hard with charges of violations of the Sherman Anti-Trust Act. Prosecutors sued five doctors, the Idaho Orthopaedic Society and the Idaho Sports Medicine Institute in Federal Court. If you think about it, it's not hard to see how a bunch of doctors agreeing to hold out for higher reimbursements might fall under the general heading of "price fixing."

As we have blogged rather frequently, Massachusetts has the lowest fee schedule in the nation. Most orthopedists have responded by refusing to accept the (ridiculously low) rates. But unlike the orthos in Idaho, the MA docs deal with the palty rates on their own. By refusing to accept them, they compel insurers to negotiate higher rates. These negotiated rates vary from doctor to doctor. There is simply no way and no need for the hundreds of orthopedic doctors in MA to agree on rates:it would be like the proverbial herding of cats.

In Idaho it's different. The state's unique characteristics - the large land mass and relatively small population - make a genuine "conspiracy" possible. The docs all know one another. So what seemed to them a fairly innocent attempt to leverage the system for higher reimbursement rates appeared to the feds as a conspiracy. In other words, their mistake was in sharing information about the rates and in uniting to take action against them. Had they acted individually, there would have been no violation of the anti-trust act.

War on Docs?
One blogger with roots in the libertarian Ludvig Von Mises movement sees in the government action a declaration of war against doctors. He believes that doctors will be "forced" to accept the government rates. Not exactly. As we have seen in Massachusetts, individual doctors can accept or reject patients as they please. What they cannot do is collude with fellow doctors to achieve a fee schedule to their liking.

With rising medical costs looming over every aspect of our economy, this little skirmish in Idaho is simply the opening salvo in what is likely to be a prolonged and painful battle to contain the costs of health care. It's no accident that the Obama health care bill punted on the cost containment issue. One person's cost containment plan is inevitably another's cut in pay.

In the coming months, the battle of Idaho will move into the great metropolitan areas of our country. Just imagine the formidable barricades to be erected by the men and women in blue scrubs! This will be an interesting brouha, to say the least.

The Insider scans the world of risk in a risky world. We try to zero in on hazards that might be overlooked in the rush of daily commerce. In that spirit we bring you the distasteful but necessary tale from the New York Times involving bus drivers in New York City, a number of whom have suffered prolonged disability due to the unsanitary habits of riders.

Unhappy riders may express their displeasure in any number of ways, including the unfortunate choice of spitting on the bus driver. I am sure we all sympathize with these uniformed public servants who are simply doing their jobs. You cannot please everyone all the time, especially in the Big Apple.

It's what happens after these incidents that is really puzzling. One third of all the assaults that prompted a bus operator to take paid leave in 2009 involved spitting, 51 in all. The MTA defines these "spat upon" incidents as assaults. The 51 drivers who went on paid leave after a spitting incident took, on average, 64 days off work -- the equivalent of three months with pay. One driver spent 191 days on paid leave.

Before we jump to conclusions like irate citizens running after a bus, let's listen to John Samuelson, president of the transit union:

"Being spat upon -- having a passenger spit in your face, spit in your mouth, spit in your eye -- is a physically and psychologically traumatic experience. If transit workers are assaulted, they are going to take off whatever amount of time they are going to take off to recuperate." [Emphasis added.]

Mr. Samuelson has given us one of the most compelling definitions of disability I have ever encountered: workers are going to "take off whatever amount of time they are going to take off to recuperate." It's not a matter of medically (or psychologically) necessary time away from work, but the amount of time the worker deems necessary. Who needs a doctor when the drivers are empowered to determine the extent of their own disabilities?

Tough Times, Not-So-Tough Drivers
The MTA is facing a budget shortfall of $400 million. It's tempting to conclude that tightening up a bit on eligibility for "Post Traumatic Spitting Syndrome" (PTSS - you first read about it here!) might help reduce that deficit. Heck, it might even make the riding public a bit more sympathetic to bus operators.

Nancy Shevell, the chairwoman of the transit authority's bus committee, questions whether three months' off is a bit excessive.

"You have to wonder if you can go home and shower off, take a nap, take off the rest of the day and maybe the next day," she said. "When it gets strung out for months, you start to wonder."

As we peruse the annals disability - mostly real and painful, occasionally trumped up - we do indeed begin to wonder who is in control in New York, just who is driving - in this case, not driving - the bus.

Arizona has been getting a lot of criticism lately. Frustrated by the federal government's inability to confront the undocumented worker problem, they took matters into their own hands and passed their own law. Now police are required to stop anyone who "looks illegal" and ask for papers. I'm not sure that illegal immigrants from Ireland have much to worry about, but Hispanics - who make up one third of the state's population - had better be careful. The Arizona legislature missed an opportunity by not requiring Hispanics to wear their documents in a packet around their necks. Perhaps they can amend the law.

I have been on board with the need to deal with illegal immigration. Back in 2006 I strongly endorsed the congressional initiative to build a wall at the Mexican border. This new version of the "Great Wall" offered an tremendous opportunity to ineffectively seal the border, build a tourist attraction/theme park and temporarily employ thousands of undocumented workers until the project was finished, at which point we would escort the workers through the wall back to Mexico.

Some people feel that Arizona has created a law that penalizes people simply for looking Hispanic. Others believe that only the federal government has the power to deal with immigration issues. As we await the legal challenges that may or may not resolve the issue, we need to shift gears and recognize an area where the maligned state has actually gotten it right.

Public Versus Private
I am referring, of course, to the decision to privatize the state fund for workers comp insurance. Arizona has provided insurance since 1925 through the State Compensation Fund (SCF). With 40 thousand employers and $191.8 million in premiums, SCF is the largest workers' compensation carrier operating in the state, with a 31.5 percent market share.

One of its subsidiaries, SCF Premier Insurance Co., is the second-largest, with $34.1 million in 2009 direct premiums written. Another subsidiary, SCF Western Insurance Co., is the 10th-largest, with $10.7 million in 2009 direct premiums written. In other words, SCF is by far the dominant player in the insurance market for comp.

Under the recently signed law, SCF will become a mutual fund in 2013. This move should open the door for more carriers to do business in Arizona, which will join the vast majority of states in operating a private insurance system for workers comp. I find it encouraging that in this area, at least, the goal is not to make the rest of us "Arizonians," but to have Arizona join the mainstream of American culture. Bienvenida, las damas y caballeros!

Massachusetts has the lowest workers comp rates among the major industrial states and just about the lowest rates in the nation. The cost of comp in the other New England states is roughly double that in the Bay state. So you would think that the rates in MA would at best stay the same from year to year, or increase slightly. Well, think again. Martha Coakley (yes, that Martha Coakley), the current and future Attorney General, has brokered a deal for yet another rate reduction: an average of 2.4 percent across all classifications. The insurance industry had argued for an increase of 4.5 percent. I guess they did not exactly convince Martha.

The AG thinks that the insurers are overstating future losses. In my experience with carriers operating in MA, they are actually understating losses, but that's a matter for the actuaries. If, as the AG argues, rates are too high in MA, what can you possibly make of rates in the other New England states and across the country? Are MA employers really that much better at preventing injuries and at getting injured workers back to their jobs? If you buy that argument, I have a nice bridge spanning the Mystic River that you might be interested in owning.

The trends in MA are no different from those across the country: while frequency is down, severity is rising at an alarming rate. In MA, severity is spiraling out of control. The state's generous wage benefit structure, combined with a first rate (and pricy) medical system and a judiciary that tilts strongly toward the injured worker, are making six figure reserves all too common. It's truly puzzling that the AG can look at the performance numbers for the insurance industry and conclude that rates are too high. They are way too low.

Politics: Local and Loco
It's not hard to fathom why an elected official chooses to drive deflated rates even lower. It's politically popular; any rate increase - even the marginal bump proposed by the industry - would be met with howls of outrage from small businesses, who are already under seige in a struggling economy. Strange to say, the depressed cost of comp is subsidizing the otherwise high cost of doing business in MA.

The AG is not finished with her rate scalpel: she thinks a few more points can be carved out next year. It will be fascinating to see how the carriers respond. Not too many folks think there is much money to be made in MA comp. And that rapidly dwindling club is about to get a lot smaller.

We recently blogged the collapse of the self-insurance trust market in New York. When CRM Holdings, a Bermuda based operator of self insurance groups (SIGs), folded like a house of cards, the New York comp board went after the healthy SIGs to cover CRM's liabilities. They hit these innocent folks with a whopping $11 million assessment. As a result, a number of SIGs abandoned the New York market, only to learn two years later that the comp board's assessments were illegal. Oh, well. It seemed like a good idea at the time.

Now we move a few miles to the east and find a similar situation brewing in Connecticut. Municipal Interlocal Risk Management Agency (MIRMA) has been writing comp policies for municipalities since 2002. The great thing about comp is that it's so easy: offer coverage at rates lower than competitors, collect the premiums and pay the claims as they come in. Unfortunately, the premiums MIRMA has been collecting are not covering the claims generated by the insured municipalities. So MIRMA is in the uncomfortable position of trying to collect additional funds from cash-strapped municipalities. For example, North Branford owes $600,000, Westbrook owes $158,000; and Killingworth owes $71,188. In these trying times, that's not exactly chump change.

The legislature passed a bill to give the municipalities more time to come up with the money. The bill would have amended the amount MIRMA was required to keep in its reserves, and thereby allow the towns to pay the amounts they owe, interest free, over four years. Governor Jodi Rell is not buying that approach; she vetoed the bill. The governor issued a statement:

MIRMA has been undercapitalized since its creation. Although it has been given several years to remedy its financial situation, it has failed to do so. Now, providers are not being paid and injured workers are at risk of not being treated. MIRMA can no longer exist in its current state of outright capital inadequacy.

The governor went on to state that MIRMA stopped paying workers' compensation claims simply because it does not have the money to pay, which is "wholly unacceptable." She wrote that MIRMA's deficit has grown by more than 300 percent in the last six years, and is predicted to reach well over $15 million by 2013. That might seem small by CRM standards - their deficit was upwards of $50 million - but then again, Connecticut is a lot smaller than New York.

Untrustworthy Trusts
The governor has ordered a complete review of MIRMA's finances. I could write the report without even looking at the books. In their effort to build market share, MIRMA underpriced their policies. They probably spent a lot on marketing and frills. To balance the books, they under-reserved claims, hoping to cover the cash short-fall by building market share. It worked until it didn't. Now they have run out of money, so they cannot pay the claims. If the auditors have a sense of history, they will conclude that MIRMA operates like a subsidiary of CRM.
NOTE: CRM, still operating in California, appears to be on the ropes.

Connecticut's short term solution - requiring the insured municipalities to come up with the money - is fair, if hardly feasible. At least Connecticut is not going to penalize the municipalities who declined to participate in what appears to be MIRMA's modified Ponzi scheme. That's good. But it remains to be seen how cash-strapped municipalities - already facing substantial budget cuts - are going to come up with these substantial sums of money.

When it comes to self-insurance trusts in the Empire and Nutmeg states, it's time to put away the beer kegs and cancel the golf outing: the party is over.

We have been following the implosion of self insurance groups (SIGs) in New York. Back in June 2008, SIGs operated by Compensation Risk Management (CRM) collapsed. CRM had grown their business by offering comp coverage at very low rates. For a long time, they were able to maintain an illusion of profitability by under-reserving losses. Eventually, it all caught up with them.

When the CRM SIGs went belly up, the state worker's comp board looked around for some free cash to pay for the $450 million in unfunded liabilities incurred by CRM. They decided to penalize all the SIGs that had been operating in the black. In a move stunning for its arrogance (facilitated by legislation passed in 2008), they decided to raise assessments on these SIGs from the modest annual total of $104,000 to a whopping $11.1 million.

In other words, the insurance groups operating prudently - charging adequate premiums, controlling losses and turning a modest profit - were forced to make up the losses incurred by a company operating like a ponzi scheme. Well, as they like to say in New York: "You gotta problem with that?"

Acting state Supreme Court Justice Kimberly O'Connor had a problem with it. She ruled on April 14 that the 2008 laws that empowered the comp board to assess the SIGs were unconstitutional, as were the assessments issued by the board.

Justice Too Late
Unfortunately, judicial relief comes long after the once-profitable SIGs have folded their tents. First Cardinal once operated 13 SIGs in New York, with $166 million in premium. When hit with the exponential increase in assessments, First Cardinal decided to move its business out of the state (in itself a sure sign of management that was paying attention). They stopped writing in New York and laid off the 57 (innocent) workers who were doing a good job of managing the New York business.

You may recall the old saying: "The wheels of justice grind slow but they grind exceeding fine." In this case, justice - and fairness - were eventually served. But the pace of the process seems to have crushed the parties harmed by an unjust law.

Of course, the comp board believes that the assessments are legal and is planning to appeal. That should add a few more months to this ridiculous situation.

"You gotta problem with that?" Indeed, I do.

Alan Schwarz of the New York Times has written a fascinating series on workers comp in California: specifically, a cottage industry that has sprung up securing comp benefits for retired National Football League (NFL) players. The interesting part is that the claims are not limited to players from teams based in California. In its effort to protect transient workers (e.g., truckers, flight attendants), California offers recourse to anyone who temporarily passes through the state. Thus, professional athletes on any teams that compete in California can file for benefits, even if years have past and even if it was just a single game. Needless to add, the carriers for these out-of-state teams are trying to get the California system ruled off-side.

There are currently about 700 former NFL players pursuing benefits. Most of the injuries are orthopedic - bad backs, shoulders, knees, ankles. (We will deal with a claim for dementia in a future blog.) Two points should be made about these orthopedic injuries: many are cumulative in nature, so there need not be an acute injury specific to the sporting event in California; and virtually anyone who played professional football is likely to have one or more injuries directly related to the game.

Attorneys Take the Field
Behind every loophole lurks an attorney. In this situation, two former NFL players, now attorneys, are leading the charge: Ron Mix, a lineman for the San Diego Chargers in the 1960s, and Mel Owens, a linebacker for the Los Angeles Rams in the 1980s. Mix and Owens help former players from teams across the country to file claims in California. There is some question, however, about the quality of help that they offer.

Once deemed eligible for benefits under California law, players could opt to receive lifetime medical benefits for any medical expenses related to their football years. Think about it. That might include shoulder and back surgeries, hip and knee replacements, not to mention treatment for dementia related to on-field concussions.

Would it surprise you to learn that over 90 percent of the players entering the California comp system decline the lifetime medical coverage and instead, settle for a lump sum payment? Most players have accepted an extra $60,000 to $100,000 to settle their claim for future medical coverage. That amount would pay for one, maybe two surgeries.

Why settle out the medicals? Settling avoids the necessity of a trial (in these instances, not by jury but by administrative law judge). It puts a significant amount of money in the players's pockets sooner rather than later. And, of course, it puts money in the pockets of the attorneys, which lifetime medical benefits do not.

Faulty Judgment?
Judge Norman Delaterre, who sits in Santa Ana, notes that judges must consider whether proposed settlements are fair. "These players are represented by experienced, competent attorneys - the players themselves, they're adults. Presumably they've discussed the ramifications of the various types of settlements with their attorneys and they've come to a decision to accept the lump sum. Even though the judge in the back of his mind is thinking, you know, if it were me, maybe I wouldn't do this."

Hey, it's all just a game, right? The players took their chances on the field. Now they roll the dice in the corridors of comp system. If they end up doing what's in the best interests of their attorneys, what harm is there in that? They get some cash, the attorney gets a nice fee, the insurer gets a settled claim with no future exposure. One door opens, another one closes. When and if the future medical issues arise or the dementia sets in, well, someone else will be on the hook for that.

There are a lot of people unhappy with California's wide open door, above all, team owners and insurance carriers outside of California. They are going to do their best to shut the Golden State's door - the only such door, we should add, that is available to the walking wounded veterans of the NFL wars. We will keep readers posted on any developments.

But enough with the old folks who can no longer play and whose names we barely remember. The NFL draft is just weeks away. Hope springs eternal for every team, even the Detroit Lions. I can't wait to see what happens.

In our first blog of the Upper Big Branch mine disaster that took 29 lives last week, we made no attempt to point fingers. It was a time for mourning, for acknowledging the sacrifices of the brave men whose jobs never see the light of day. Well, now that the final death toll has been rendered - there were no survivors - it's time for some accountability. Let's begin at the top.

The CEO for Massey Energy is Don Blankenship. He is a man of humble and hard-scrabble beginnings, raised by a single mother. He worked as a union miner (an irony that will soon become evident) and attended Marshall University, where he received a degree in accounting. He worked for Massey Energy in the accounting department. where his fiscal skills and his penchant for cost controls helped him rise in the ranks, culminating in his becoming CEO in 2000. He is a vehement foe of organized labor, along with government regulations and the "the hoax and ponzi scheme" of global warming. (His business is coal, so his disbelief in global warming runs as deep as his mines.) Blankenship constantly battles regulators over safety infractions, including adequate ventilation of the mines (which at this point appears to be a major factor in last week's exlosion).

While famous for his focus on production, Blankenship does give lip service to safety. In a July 2008 depostion defending Massey Energy's safety record, he appears to talk the talk:

"As an accountant, I know that safety is an important cost control. So even if I were so calloused, which I am not, as to believe that safety should be sacrificed for production, I would understand that it doesn't make any sense because the accidents and so forth cause you to have more costs."

But somehow, in the dust and drive of production goals and profits, safety falls by the wayside. Blankenship does not walk the walk - or, as we are talking mines, he does not crawl the crawl.

Management Styles
There are clues to his management style in his personal life (a rather critical summary of which appeared in Business Week). His maid quit, saying the working conditions were intolerable. Ever the bean counter, the politically connected Blankenship successfully fought her application for unemployment benefits. The case wended its way to the West Virginia Supreme Court, where the maid prevailed. Two of the court's justices said that "the unrefuted evidence" before the state unemployment agency showed that Blankenship "physically grabbed" the maid, threw food after she brought back the wrong fast-food order, and tore a tie rack and coat hanger out of a closet after she forgot to leave the hanger out for his coat.

"This shocking conduct" showed that she was, in effect, fired because she felt compelled to quit, the justices said. They said the conduct was "reminiscent of slavery and is an affront to common decency."

The same, alas, could be said of Blankenship's management of Massey Energy.

Humble No More
Don Blankenship earned about $11 million in 2008. Not bad for a man of humble beginnings. As for the survivors of the miners killed last week, they must turn to the West Virginia workers comp system, which will provide indemnity for widows and dependents. (It appears that Massey Energy is self insured for comp - a penny-pinching decision that is about to haunt Blankenship, big time.)

The company is also vulnerable under West Virginia law for civil suits: comp's "exclusive remedy" provision can be transcended if you can prove "deliberate intent." I would say that repeated stalling, appealing, stonewalling and dismissal of documented safety violations is likely to reach the "deliberate" standard.

You may remember the song "Sixteen Tons" - made famous by Tennesse Ernie Ford:

You load sixteen tons, what do you get?
Another day older and deeper in debt.
Saint Peter, don't you call me, 'cause I can't go;
I owe my soul to the company store.

Surely the miners had souls to put in hock. That may be more than can be said for the man who currently runs the company store.

Dr. Diane Shafer practices medicine in the Tug Valley area of West Virginia. The Tug River runs along the Kentucky border. It's a hard-scrabble part of the state, famous mostly for the Matewan coal mine strike in the 1920s. (Mother Jones, featured recently in one of our blogs, led the miners in an unsuccessful attempt to establish a union.) With a declining population and a median household income of $27,000, the area is dirt poor.

Which brings us to Dr. Shafer, an orthopedic surgeon. She may practice in a desperately poor part of a relatively poor state, but she is doing pretty well for herself. We read in the Insurance Journal that prosecutors have been very busy tracking her activities. A January raid of her bank holdings yielded more than $500,000 in cash and valuables. About half that haul consisted of stacks of $100 bills found in one of her safety deposit boxes.

Where did the cash come from? Don't bother looking for surgical fees. Dr. Shafer sells drugs. A state-federal probe tracked hundreds of people who entered Shafer's storefront clinic daily, paid between $150 and $450 cash, and left with pain drug prescriptions. Evidence included photos showing a line of people waiting to see Shafer that reached the sidewalk and stretched down the street, with as many as 30 people waiting outside. Dr. Shafer was not just running the most popular ortho practice in Mingo County, population 26,000. It must have qualified as the most popular ortho practice in the world.

FBI Special Agent James Lafferty said in a sworn statement: "The condition of Dr. Shafer's office during the execution of the search warrant indicated that it would be physically impossible for her to utilize her examining tables. She indicated that she examined her patients 'at another location.''' In the back of her pick up truck, perhaps?

Dr. Shafer has parlayed her wealth into an interest in politics. She is running for the state senate with the slogan "You are Safer with Shafer." Well, you certainly feel less pain when she is doing her thing. On her platform, outlined in rather primitive form at her website, she proposes giving free prescriptions to senior citizens. She does not specify which drugs she has in mind, but we can probably guess.

This is not the good Doc's first encounter with law enforcement. Her license was suspended in the 1990s for bribery and falsification of evidence in a workers comp case. (Why am I not surprised?) Eventually, her license was reinstated. The latter court noted: "The evidence is undisputed that the appellee is a hardworking, valuable member of her medically under-served community, and her technical ability to practice medicine is unquestioned."

History Repeating Itself.
Mingo County may be poor, but it has a fascinating history, summarized here. The origin of the county is worthy of a Faulkner novel:

Mingo County is the youngest county in the state, formed by an act of the state legislature in 1895 from parts of Logan County. Its founding was related to a legal protest by a moonshiner who claimed that the Logan County Court that had found him guilty did not have jurisdiction over his case because his still was actually located in Lincoln County. A land survey was taken and discovered that the defendant was correct. The charges were then refilled in Lincoln County court. Although the moonshiner was ultimately found guilty of his crime, the state legislature was made aware of the situation and determined that Logan County was too large for the expeditious administration of justice and decided to create a new county, called Mingo. The county was named in honor of the Mingo Indian tribe that had been the earliest known settlers of the region.

Dr. Shafer appears to be carrying on in the tradition of Mingo's founding moonshiner. She is also likely to end up as he did, with a conviction. The shutting down of her wildly popular practice may well drive the good folks of Mingo back into the hills in pursuit of more traditional methods of mitigating pain: no prescription is required; the medication comes only in liquid form; and there are no warning labels, but the risks of consuming it are beyond calculation.

Henri Cyr was a part-time mechanic for McDermott's, a Vermont company that transports milk from dairies to processing plants. A co-worker offered Cyr a bottle of Mountain Dew. As he was not thirsty at the time, he put the bottle in the workplace fridge. About a week later the fridge was cleaned out, so Cyr took the bottle home.

Some time later, Cyr came home after a workday, drank a couple of beers and then, feeling thirsty, he opened the bottle of Mountain Dew and took a deep swallow. Alas, the bottle contained toxic cleaning fluid. Cyr felt a severe burning sensation in his mouth, throat and stomach. He was rushed to the hospital, where blood work and urinalysis revealed that his blood alcohol level was .16, well above the legal limit for driving.

So here is the question for workers comp aficionados: is Cyr's (severe) injury compensable under workers comp?

The initial claim was denied by the Vermont Department of Labor because Cyr was intoxicated and intoxication is an "absolute bar" to benefits - even though, we might add, the intoxication did not in any way contribute to the injury.

Now the Vermont Supreme Court has ruled that Cyr may indeed have a compensable claim. They have remanded the case back for consideration as to whether the injury arose out of "the course and scope of employment." The majority wrote:

Here, we find that claimant's injury arose out of his employment when he accepted the bottle containing the caustic chemicals. That act put the mechanism of injury in motion. This is not to suggest that his injury was inevitable once he received the bottle or that no superseding, intervening factor--such as intoxication--could have prevented his injury or altered its mechanism. However, no one suggests he was intoxicated at that time. ...His injury would not have occurred had not his employment created the dangerous condition.

In his dissent, Justice Reiber returns to the language of the statute that precludes compensability for any injury "caused by or during intoxication [emphasis added]" He believes that compromising this absolute language in the statute runs contrary to legislative intent.

Whether he was technically drunk or sober, poor Henri Cyr was the victim of horrifying circumstances when he took a swig from the bottle mislabled "Mountain Dew." He would have been better off if he had resorted to the beverage transported by his employer, wholesome milk.

The lingering mystery in this sad tale is how the toxic chemicals got into the Mountain Dew bottle: who did it and why? Such questions may be beyond the technical issue of compensability, but surely they are the questions most in need of answers.

Four years ago (time flies when you're having fun!) we blogged the saga of Thomas Noe, the power broker who parlayed his relationships with highly-place politicos into lucrative contracts with the Ohio workers comp bureau. The state invested $50 million of comp funds in his coin business. Unfortunately, Noe's inventory of coins and his tracking of the funds fell short of bookkeeping standards. He was convicted on both federal and state charges. The "Coingate" scandal brought down some heavy hitters, including the governor.

In an article in the Columbus Dispatch by Mark Niquette and Joe Hallet, Noe outlines his next moves.

"God has a plan for me, and what I'm going to do (is) I'm going to make the best of my time in Hocking {Correctional Facility]," he says. Much of his time is tied up in his appeal, which is wending its way to the Illinois Supreme Court, where he subliminally hopes the judges remember him fondly: last time around, five of the seven judges removed themselves from a previous case because they had taken campaign contributions from the ever-generous Noe.

His appeal appears to be based upon a technicality: "Believe me, I'm not sitting here saying I didn't make mistakes. I made a lot of mistakes. I'm just saying I'm not guilty, in my opinion, of what they said I'm guilty of."

To put it mildly, the prosecutors aren't buying Noe's claiming of innocence.

Assistant Lucas County Prosecutor John Weglian says: "He's a liar."

"There isn't a single embezzler in the history of embezzling, I think, who has not intended to pay the money back," Weglian said. "They all say that. ... He's a salesman; he's trying to market himself." (With all due respect, Mr. Weglian, Bernie Madoff knew all along he was never going to pay people back.)

Accentuate the Positive
For the disgraced Noe, the marketing options from a jail cell are clearly limited. But Noe prides himself on being a positive person.

"I've always said a negative thought's a down payment on failure. I'm not going to fail. I'm not going to fail on the outside. I'm not going to fail as a prisoner."

One might argue that Noe's conviction on multiple charges of corruption was a failure on the outside, and that his prospects for success from the "inside" are remote. But as Noe says, it's just part of God's plan - a plan, at the moment, that calls for another decade or so in Hocking. The former high roller used to enjoy steaks and cabernet at the best restaurants in Ohio. His current fare falls rather dramatically short of that standard, but, heck, it's free and there's no tipping.

It would be nice to think that if he ever gets another opportunity to make business decisions on the outside, Noe will have learned how to say "no way" to the Noe Way. I'm not exactly holding my breath.

In December we blogged the horrendous case of Carla Nash, a lovely woman who was mauled by a chimpanzee owned by Sandra Herold, a friend. The 200 pound chimp literally ripped her face apart. Nash, who lacks health insurance, has been hospitalized for over a year at the Cleveland Clinic. The attack destroyed her vision and rendered her face unrecognizable (and unviewable). Doctors have determined that she is not ready for a facial transplant. She has sued Herold for $50 million. Her medical bills will easily run to 7 figures; who will pay has yet to be determined.In our prior blog, we noted that Herold was trying to limit the exposure to her workers comp policy.

A little lost in Nash's tragedy is the fate of Frank Chiafari, the Stamford, Connecticut police officer who came to Nash's aid. The raging, blood-covered chimp approached Chiafari's cruiser, tore off the mirror, ripped open the door and tried to attack the policeman. Chiafari shot and killed the chimp.

In the weeks and months following the incident, Chiafari suffered from post-traumatic stress disorder (PTSD); he experienced anxiety, flashbacks, mood swings and nightmares. He underwent counseling. (It's not clear how much time, if any, he was away from work.) Chiafari's workers comp claim was denied: under Connecticut law, public safety officers are eligible for PTSD benefits only when they shoot people - not animals.

Compensating for the Uncompensated
The good news is that Stamford has been covering Chiafari's medical bills, although they did require him to switch to a therapist of the city's choosing. The even better news is that Chiafari has literally been working his way through this work-related nightmare. He is still on the job.

There is movement in the Connecticut legislature to amend the workers comp statute so that public safety officers are covered for PTSD resulting from the use of deadly force involving animals. As is so often the case, the law will be adjusted long after the incident that exposed the gap in coverage. Fortunately for officer Chiafari, the city, despite the comp denial, recognized the legitimacy of his claim and paid for the needed counseling. They did the right thing for an officer who did the right thing. Nothing will erase the horrible images from that fateful day last February. But life for Chiafari can go on in all its ordinary splendor - more than we can say, alas, for the ill-fated Carla Nash.

We recently blogged a "to and fro" case involving a meandering motorcycle ride back to work from a conference. The cycle crashed and the employee filed for workers comp. The court in Wyoming determined that the accident took place during a deviation from the direct route home and thus was not compensable. Some readers commented that the employee was following his supervisor's lead, so the injury should have been compensable. "To and fro" often raises issues in the gray zone. Here's another gray area: coffee breaks.

Jesse Cooper, master plumber and foreman, needed to consult with someone at the union hall in Winslow Township, New Jersey. His contact was teaching a class, so Jesse decided to take a coffee break. He preferred the coffee at a deli some five miles down the road. On his way to a good cuppa, he was involved in a serious accident, breaking his arm and both legs.

Personal Comfort or Personal Errand?
Cooper's employer, Bernickel Enterprises, argued that the coffee break was a personal errand. Workers comp judge Bradley Henson determined that a coffee break was part of the working day and that Cooper was under the "coming and going" rule while on his way to a somewhat distant cup of joe*. He found the injuries to be compensable.

Henson describes Winslow Township as a "rural area", so the options for coffee are somewhat limited. In his summary of the case, New Jersey comp guru John Geaney notes that there were other coffee options closer than the deli; the judge, however, "accepted as credible that petitioner knew the deli had good coffee."

This ruling certainly stretches the parameters of the "personal comfort" doctrine to its outer limits. One wonders when that hypothetical line between work and personal might actually be crossed: if I have a sudden craving for a Caramel Brulee Latte (not likely, mind you) and the nearest Starbuck's is 15 miles out of the way, am I still "working" when I head in that direction?

The Driving Hazard
These two cases share one important characteristic: both involve accidents while driving, statistically the most dangerous part of the working day. As risk managers contemplate enhancements to safety programs, they would do well to put safe driving near the top of the list.

* Why do they call it a "cup of Joe"? Check this link for a possible if not entirely plausible answer involving a former Secretary of the Navy.

Richard Selest worked for the state of Wyoming Department of Transportation. He was asked to attend a training session 100 miles away from his office. Given the nice June weather, Richard, his supervisor and a co-worker decided to ride their motorcycles. (This surely would not have been an option in January!) On the way back to the home office, they discussed taking a scenic route, but no final decision was made. When they arrived at the intersection for the scenic road, the supervisor, riding in front, turned off. Richard and the co-worker followed. In the course of the ride, Richard lost control of his motorcycle and suffered serious injuries. Compensable under comp?

Richard's claim was initially denied on the theory that the scenic route - 50 miles longer - was a deviation from the road back to the office and thus not compensable. Richard countered that his supervisor approved the deviation and that he was not on any specific "personal errand." He merely was going back to his office, albeit in a meandering fashion.

The case, like the scenic road, wended up to the Wyoming Supreme Court, where Richard once again lost. The court found that the choice of a scenic road was purely personal and a clear deviation from the "course and scope" of employment. Even though Richard had no specific goal in taking the longer road, and even though he was in fact heading back to the office, the deviation in route was substantial, thus taking him outside of comp's protective umbrella.

One justice dissented, but I think the majority acted appropriately. Despite the fact that Richard was paid for the entire trip (which took one hour longer than the direct road) and despite the fact that he followed his supervisor's lead, the deviation had nothing whatsoever to do with work. As all good claims adjusters know, this is a matter of reading a map: the presumptive route to the office is a (relatively) straight line. Richard and his co-workers were seduced by the curvy call of nature, for which poor Richard has had to pay a very steep price.

Back in June we blogged the resignation of Zach Weiss from one of the more difficult jobs in America: head of New York's workers comp board. Weiss had been appointed by former governor Elliot Spitzer (whose libidinous indiscretions, we note in passing, were relatively modest, at least when judged by the new standard set by Tiger Woods). After two years mired in New York's deeply adversarial system, Weiss quit to become an administrative law judge.

Governor David Patterson, who stepped in when Spitzer stepped down, has announced the appointment of Jeffrey Fenster as the new director of the board. Today is Fenster's first day on the job. Fenster is a lawyer who once worked for WR Group Holdings, a hedge fund group based in Connecticut. The company website features a picture of the Connecticut shore with a lighthouse in the distance. The sea is absolutely calm - not exactly indicative of the world of hedge funds, or the world of workers comp, for that matter.

If nothing else, Fenster's experience in hedge funds prepares him for the complex risks involved in his new position. He now manages one of the most expensive, frictional, cumbersome, and ineffective comp systems in America. Despite recent reforms, rates are still too high, benefits are too low, fraud is rampant and virtually all stakeholders are miserable. The Empire state is a mess. I have no idea what Governor Patterson promised Fenster for taking the job, but it probably wasn't enough. Fenster is likely to look back on his presumably hectic hedge fund days as the calm before the storm, which is not exactly high praise for his new job. Good luck to him and to all who labor in New York's challenged and challenging comp system.

We conclude this bi-polar year with a risk-related story that is both a phenomenal high and a pathetic low. In what appears to be a record-breaking performance - at least for South Dakota - police found Marguerite Engel passed out behind the wheel of a stolen delivery truck. The article does not specify the contents of the vehicle, but if Engel had her Christmas wish, it was full of alcoholic beverages. Her breathalizer test revealed a blood-alcohol level of an astounding .708. That's some serious drinking: a level of .40 is fatal for about half the adult population.

You might think that Engel's dubious achievement qualifies for the Guinness Book of World Records. Not even close. According to Wickipedia, the record belongs to an unnamed Pole: in March 2009, a 45-year-old man was admitted to the hospital in Skierniewice, Poland after being struck by a car. The blood test shows blood alcohol content at 1.23%. The man survived. He did not remember either the accident or people he drank with. With that much alcohol in his system, it's a wonder that his brain can retain anything.

As we say farewell to the decade that gave us x-rays of shoes, Octomom and the I-Phone, we ring in the new year with a toast: "May the gifts of moderation be yours in abundance. Salud!"

You probably never heard of Gilby, North Dakota, population 226. Edith Johnson, 56, worked as a teller in the town's bank, which, somewhat surprisingly, has been robbed three times. Edith was in the bank during two of the robberies. The last one was especially traumatic: she was handcuffed and placed face down on the floor with a sawed off shotgun pressed against her head. After this incident, she became too afraid to return to her job. Diagnosed with post-traumatic stress syndrome, she filed for workers comp. The claim was denied. North Dakota, like many other states, will pay a "mental" claim only if it is precipitated by a physical injury.

Edith has an attorney and is appealing the denial of her claim. Given the way the law is written, she is unlikely to prevail.

The irony, of course, is that with just a bit of coaching at the time of the incident, it would have been easy for Edith to collect comp. All she would have had to do is complain about a pain in her wrist and shoulder, caused by the handcuffs and the awkward position on the floor. Even without objective medical evidence, these physical complaints would have opened the door to her claim of post-traumatic stress.

Coming from a small town and working as a bank teller, Edith is undoubtedly the soul of rectitude. She is not about to tell a lie. Unfortunately, she is up against the letter of the law, which, in North Dakota, is very clear. Workers Safety and Insurance director Bryan Klipfel explains the denial: “A post-traumatic stress disorder that is directly related to a physical workplace injury may be compensable if it can be shown that it was primarily caused by the physical work injury, as opposed to all other contributing causes.”

Letter and Spirit
Edith's dilemma reminds me of the scene in the immortal Marx Brothers movie, "A Night at the Opera." Groucho (Otis. B. Driftwood) and Chico (Fiorello) are discussing the proposed language of a contract. Every time Chico objects, Groucho tears the page from the contract.

Fiorello: Hey, wait, wait. What does this say here, this thing here?

Driftwood: Oh, that? Oh, that's the usual clause that's in every contract. That just says, uh, it says, uh, if any of the parties participating in this contract are shown not to be in their right mind, the entire agreement is automatically nullified.

Fiorello: Well, I don't know...

Driftwood: It's all right. That's, that's in every contract. That's, that's what they call a sanity clause.

Fiorello: Ha-ha-ha-ha-ha! You can't fool me. There ain't no Sanity Clause!

With that impeccable logic, the Insider wishes the beleagured Edith and the citizens of Gilby all the best and we bid our readers a splendid holiday. Every week we try to invoke the "sanity clause" in risk management and workers comp. It's not always easy. We sincerely hope that Santa - whether or not he exists - rewards you for all the good that you have done this year.

It's hard to think of anyone bullying Bath Iron Works, the General Dynamics subsidiary that builds destroyers for the U.S. Navy. But they are being kicked around like the proverbial 90 pound weakling by the workers comp system in Maine. Two years ago we blogged the inability of Mainers to come up with a viable fee schedule for workers comp medical costs. The legislation authorizing the fee schedule became law in 1992. Now we approach 2010 - nearly 20 years! - and there's still no fee schedule.

Workers comp insurers are free to negotiate rates for medical services. In effect, they develop their own de facto fee schedules. Bath Iron Works (BIW) is self-insured for comp. They do not have the leverage to negotiate fees. So when a local hospital sent a bill for $107,000 for treatment of two injured workers, BIW filed a lawsuit. They lost: they had to pay the hospital's "usual and customary" fees - an ironic appelation if there ever was one. The only suckers stuck with paying the full boat (so to speak) are self-insureds and uninsureds.

So how is the fee schedule coming along? And why the inordinate delays?

The rule-making group charged with developing the fee schedule is trying to come up with something acceptable to the medical providers. That's like asking an employee how much of a pay reduction they would like. How about nothing? In the current draft, total billings of $80 million would fall by about $1 million. In other words, a drop of less than 1 percent. That's a fee schedule only a medical provider could love!

The Massachusetts Model
Maine officials are worried that low fees would drive doctors away. Paul Dionne, executive director of the Maine Workers’ Compensation Board, says he heard from a group of orthopedic doctors who said if the board made the new base fee too low, “they weren’t going to treat injured workers. They’re private, they can do that.”

That's not what happens in Massachusetts, which has the lowest fee schedule in the nation. Everyone recognizes that the fee is too low. So insurance carriers and TPAs routinely negotiate a reasonable fee with doctors on an individual basis. For example, the scheduled fee for hand surgery is only $725. The "usual and customary" fee of a skilled surgeon might be $5,000. The insurer and doctor would settle somewhere in the middle, perhaps $3,000 for the service. It sounds frictional and inefficient and to some degree it is, but overall, medical costs remain unusually low in Massachusetts, doctors continue to provide services and injured employees are satisfied with the results. The system is working despite what appear to be severely deflated medical rates.

One unusual and perhaps unintended benefit of the low fee schedule is the leverage it provides against medical providers who refuse to treat with a return-to-work focus. If "Dr. Feelgood" insists on keeping a marginally injured employee out of work, the adjuster can dig in and offer to pay only the deflated fee schedule rates. That will get the doctor's attention immediately.

Maine used to be part of Massachusetts. If they want to solve this particular problem, they might consider re-joining the Commonwealth, or at least copying Massachusett's highly successful comp model. Step one involves some tough negotiations - with or without the doctors in the room. Thus far, by trying to please everyone, Maine is punishing some of their most valued employers. Nearly twenty years into a failed process, it's time to face reality: a fee schedule is a cut in pay. If the doctors are happy, it's not an effective fee schedule.

Meanwhile, it looks like a bleak Christmas for the mighty folks at Bath Iron Works. There are undoubtedly a lot of nice goodies under their tree, but a fee schedule is not among them.

Back in June we blogged the failure of several self-insurance groups (SIGs) in New York, all run by Compensation Risk Managers (CRM). There was bad news all around: participants in CRM SIGs were suddenly without coverage; and participants in other (non-CRM) SIGs were hit with a huge surcharge to make up the deficits created by CRM's deficient management. Now the proverbial "other shoe" (presumably a Gucci) has dropped, directly on the heads of CRM managers: the company has been indicted by Attorney General Andrew Cuomo for fraud and sued by the state comp board. CRM is having what appears to be a well deserved, terrible, horrible, no good, very bad week.

In their own defense, CRM asserts that problems are industry wide:

According to the WCB's website, of the 65 self insurance workers compensation trusts authorized by the WCB and subject to its oversight and regulation, as of November 2009, 32 were either insolvent, being terminated or were underfunded, 13 had been voluntarily terminated and only 20 were operating with no fiscal issues and no regulatory restriction. Compensation Risk Managers managed 8 of these 65 trusts. The Company believes that an industry-wide problem exists and that the WCB has unfairly singled the Company out. The Company intends to defend the WCB litigation vigorously and prove that the WCB's unsubstantiated allegations are utterly without merit.

In other words: don't hold us accountable for something everyone is doing.

Well, maybe other SIGs are in bad shape, but CRM is under fire for operating the insurance equivalent of a Ponzi scheme: the indictment charges that they deliberately under-reserved claims, leading to under-stated losses. The resulting "healthy" loss ratios became the basis for under-pricing the rest of the market, which led to increased membership in their self-insurance groups. The new premiums helped CRM keep up with increasing payments. It all came crashing down when insufficient reserves ran out and payments exceeded available cash. Heck, the experts at Madoff Consulting guaranteed that it would work... right up until the moment it didn't.

Joint and Several Liability
Most people buy insurance with stand-alone policies. Each company is the master of its own fate. If the company performs well, they benefit from lower premiums. If losses are high, the experience rating process leads to higher premiums. As long as the carrier remains solvent (not a given these days), there are no big problems.

Self-insurance groups are different. They involve a much higher level of trust (and risk): not only are you accountable for your own losses; you are on the hook for the losses of other group members. A SIG is only as strong as its weakest member. Indeed, SIG participants in New York discovered that they were on the hook for losses in other SIGs, through a painful surcharge imposed by the comp board.

This brings to mind the response of the immortal Groucho Marx to an invitation to join an exclusive club: "I don't want to belong to any club that will accept me as a member." That's just the kind of thinking that might have helped the unfortunate companies who find themselves swinging in the wind at the end of CRM's tattered rope.

The state of Ohio has attained considerable notoriety for its workers comp program. Unfortunately, the fame derives from a scandal, dubbed Coingate, in which high level officials were implicated in the diversion and theft of comp funds. There are a number of political operatives spending this Thanksgiving in jail. Now we read of a state senator who has proposed legislation to explicitly exclude undocumented workers from the Ohio comp system. It appears that one bad turn in Ohio deserves another.

We all recognize the ambiguous state of undocumented workers in the American workforce. But virtually all states - with the exception of sparsely populated Wyoming - have provided comp coverage to illegal workers once they are injured. It's a matter of common sense and fundamental decency: we may question how these workers came here, but once hired and in the workforce, they must be afforded the same protections given to other workers. Otherwise, we create a second-class workforce subject to exploitation and substandard working conditions - not exactly the American way.

Turkey of a Bill
Enter one Bill Seitz, a state senator who graduated summa cum laude from the University of Cincinnati and from the University of Cincinnati School of Law, where he was Law Review and Order of the Coif. I have no idea what "Order of the Coif" is, but you can see Bill having a reasonably good hair day here.

Seitz says he was shocked to learn that the Ohio Bureau of Workers Comp does not require injured workers to document their status before receiving benefits. (Why is he shocked? No state has any such requirement.)

According the AP:

Seitz's bill would place the burden of proof on the injured worker to demonstrate he or she is a legal worker by showing documentation such as a birth certificate or a visa. It would establish immunity from civil lawsuits for businesses in cases in which their workers' claims are denied by the bureau because the worker is illegal, except in cases in which the business knew the worker was illegal or if it intentionally hurt the worker.

I particulary like the immunity from civil suits. This bill would not just eliminate the "exclusive remedy" of comp - it would strip away any remedy for injured, undocumented workers. It's an invitation to employers to actively recruit illegal workers: they won't be held responsible for hiring them, they won't have any responsibility for workplace injuries that occur and they can avoid other forms of liability, provided, of course, that they did not "intentionally hurt" the worker. Seitz has stacked the deck against an already vulnerable population.

David Leopold, a Cleveland attorney and president-elect of the American Immigration Lawyers Association, thinks Seitz is engaged in a publicity stunt. "It seems to me to be a waste of time to even be talking about this. Beyond being cruel, it's senseless because it's not going to address the problem. If he has no statistics to back this up, he hasn't shown a problem exists."

Thanksgiving
As all of us gather for this most generous of our holidays, let's give thanks for our many blessings. Let's say a prayer for all of the families - native born, immigrant, legal and undocumented - struggling to make ends meet in this most difficult of times. And let's hope that the good people of Ohio focus on fixing the real problems in their comp system, not the imaginary ones that trouble the waking hours of the well-dressed, well-coifed Mr. Seitz.

My blog post of last Thursday (19 November 2009) addressing why workers’ compensation costs in Massachusetts are the lowest in the nation, while benefits are among the highest drew a mild pushback from Mark Walls, who manages the excellent LinkedIn Workers’ Compensation Forum. Mark wrote:

"Working for an excess carrier, I would never have expected Massachusetts to be considered a "low cost" state. In Massachusetts you cannot settle medical, and there are COLA's on the lifetime benefits. In my world, it's a high cost state.

I guess it's all about your perspective."

And he’s right- it is all about perspective. Mark also wrote, “I’m a claims guy,” and the blog post in question was all about premium rates. Sometimes, what appears logical when looking at claims can appear illogical when viewed through the prism of premium rates.

I can certainly understand why claims professionals in Massachusetts might be a bit frustrated, because not being able to settle the medical portion of a claim, along with having to contend with annual Cost of Living Adjustments, tends to obliterate predictability.

The perspective Mark mentions changes, however, when one considers a workers’ compensation program unique to the Massachusetts voluntary market, a program that substantially increases premium collected in the state while not driving up premium rates: the All Risk Adjustment Program, or, as it’s better known, the ARAP Surcharge.

In all 38 NCCI states, the ARAP, a sort of second experience modification that penalizes severity more than frequency, exists as the Assigned Risk Adjustment Program and is found in the Residual, but not in the Voluntary, market. This is supposed to provide even more of an incentive for employers in the Pool to do the right things to get themselves into the voluntary market. It’s a debit mod only. In Massachusetts, however, the ARAP can be found in both the Residual and Voluntary markets. If an employer in the Voluntary market has a high experience modification, it will also most likely find itself with an ARAP surcharge, anywhere from 1% to 25%, which is applied to the standard modified premium.

For example, say a company in the Voluntary market has a manual premium of $100,000, an experience modification of 1.5 and an ARAP of 1.2. The resultant total premium will be $180,000. Think of the $30,000 ARAP charge as compound interest. This means that Massachusetts premiums are more sensitive to losses than premiums in other states, even “loss cost” states.

And why shouldn’t an employer with high claim severity pay more for workers’ compensation? Why should employers with low claim severity subsidize those with high claim severity? Although many in industry abhor the idea of the Voluntary market ARAP, it seems to me that Massachusetts is doing the fair and reasonable thing.

In 2007, ARAP surcharges in Massachusetts brought in additional premium of $60 million, or about 7% of total premium in the state. However, this should decline fairly significantly in 2008 and going forward for two reasons:

• First, until 2008, the maximum ARAP surcharge was 49%; in 2008, the maximum was lowered to 25%;
• Second, Massachusetts has been hard hit by the recession, causing payrolls to decrease substantially; lower payrolls result in lower premiums.

The Massachusetts Workers’ Compensation Rating and Inspection Bureau is now engaged in the monumental task of putting together a rate filing to be submitted in 2010. It will be interesting, indeed, to see to what extent lowering the maximum ARAP surcharge from 49% to 25% impacts the filing.

Recently, in one of his Risk & Insurance columns, our friend and colleague, Peter Rousmaniere, wrote a piece examining workers’ compensation costs and benefits among the various states. There are a few organizations that do this annually. In my opinion, the most scholarly work is done by The National Academy of Social Insurance. However, the Academy, created in 1997 after the Social Security Administration stopped producing annual comprehensive national data and estimates on workers’ compensation benefits and costs, doesn’t really rank states in terms of either costs or benefits; it just lays out a mountain of interesting data .

The most incisive ranking of state benefits and costs is done by three organizations: the Oregon Department of Business & Consumer Services, the actuarial consulting firm, Actuarial & Technical Solutions (ATS) and the National Foundation for Unemployment Compensation and Workers’ Compensation (UWC) headquartered in Washington, DC, which has, since 1984 published annual, and class specific, comparative state data. (We’ve blogged reports from these organizations whenever they’ve been published. Go here and here.

Rousmaniere used reports from Oregon and ATS to construct a sort of consensus ranking of the 50 states. In his ranking, Massachusetts emerged with the lowest costs and the highest benefits. How can that be? It sounds paradoxical. To answer the question, I thought it might be useful to peel the Massachusetts onion a bit, because Massachusetts is the Insider’s home state, and we at Lynch Ryan played an active role in the turnaround.

Why does Massachusetts have low costs?
Throughout the mid-1990s, Massachusetts had some of the highest costs in the nation – annually about $2 billion in premium, compared to $878 million today.
Reform happened in 1992 (after a failure of reform in 1986). Here are some important reform initiatives:
• Indemnity wage replacement was lowered from 66 2/3% of an injured worker’s average weekly wage to 60%. This provides incentive for injured workers to stay out of work no longer than is medically necessary. (A case can certainly be made that this somewhat gratuitous cut in benefits is unfair to injured workers.)

• The state introduced the lowest medical fee schedule in the nation (there is no pharmaceutical fee schedule).

Currently, the fee schedule for physicians is about 100% of Medicare rates, but that just became effective in April, 2009. Prior to that, the rate was about 95% of the Medicare rates of 2004. Hospital rates are even lower. The result is that the medical portion of loss costs in Massachusetts now hovers around 40%, significantly lower than the rest of the nation.

However, physician specialists no longer accept fee schedule rates (as my colleague and fellow blogger, Jon Coppelman, puts it, “Any hand surgeon that accepts the fee schedule of $725 will be doing hand surgery in the back seat of a Buick.”) So, insurers must now negotiate fees with specialists (or with the consulting negotiators representing them – I’m not making this up!). The back and forth negotiating can delay care, frustrate employers and anger injured workers. Over time, we believe that the medical share of loss costs will rise in Massachusetts. It is interesting to note that, despite the low fee schedule, injured workers report satisfaction with their medical treatment.

• In the early 1990s, premium in the Assigned Risk Pool, the Residual Market, was $1.2 billion; today, it’s $117 million, or 11.7% of the entire insured market. A number of initiatives contributed to this decline. Lynch Ryan offered a program recommendation that became one of the most influential: the QLMP, or the Massachusetts Qualified Loss Management Program (We might have designed the program, but we sure didn’t pick the name!)

This program allowed employers in the state’s Assigned Risk Pool to receive intense and in-depth training and education in managing their workers’ compensation and injured employees from consulting firms that “qualified” to provide it. Firms became “qualified” by having their entire Massachusetts book of business analyzed by the Massachusetts Workers’ Compensation Rating & Inspection Bureau. The Bureau designed a special one-year experience modification for each consulting firm’s total book of business, comparing the Mod in the year prior to the consulting firm working with a client to the Mod in the year following the work. Consulting firms were then awarded a credit, graduated from zero to fifteen percent, depending on the decline in the Mod of their books of business in the year following the work. This credit was passed on to any company in the Pool that hired the consultant, and the consultant’s fee would come out of the passed-on credit. This program gave Pool employers a way out, and was later replicated in Missouri and West Virginia.

We think it an elegant program, because each consulting firm had to re-qualify every year. Under Paul Meagher’s steady leadership, The Rating Bureau has done an excellent job managing this program, which continues to this day.

• The state lowered attorney fees: a prudent and necessary move to reduce frictional costs (but the howls of protest still echo in the legislative chambers). They also hired and trained more judges, making the entire system more efficient.

Why does Massachusetts have high benefits?
Central to the reform effort was pegging the maximum temporary total disability (TTD) benefit to the average industrial weekly wage in the state. The maximum benefit is currently $1,094 per week. However, only if an injured worker’s pre-injury weekly wage is $1,823 or more will he or she receive this generous maximum. Thus, while indemnity only covers 60 percent of the average weekly wage, the maximum of $1,094 is substantially higher than what is available in most states.

There were many other reforms, but, to my mind, these have been the most influential. After twenty years, it is clear that the Massachusetts workers comp reforms were well crafted. The legislators, regulators, insurance executives, union representatives and employers who spent long days and nights dissecting the workers’ compensation crises of the early 1990s built a system that has stood the test of time. As I tell clients, “There may be reasons for not doing business in Massachusetts, but workers’ compensation isn’t one of them.”

Fernando Martinez worked for the D. H. Smith Company, as did his two sons. The company provided Martinez and his sons a Ford F350 flatbed to drive to and from work. Because Martinez did not have a driver's license, only the sons were to operate the vehicle. In June 2007, Martinez and his sons were on their way to a construction site, with the elder Martinez behind the wheel. Martinez rear-ended another vehicle on the freeway, injuring himself and his son. At first, Fernando and his son lied to the investigating officer from the Califomia Highway Patrol about who was driving the company truck. However, marks on their bodies from their seatbelts showed that Fernando was driving and his son was a passenger at the time of the collision. They eventually fessed up to the fact that Fernando was driving.

Both filed workers comp claims. There is no doubt that the son's injuries are compensable. But what about Fernando?

At first, Fernando's claim was denied. Here is an excerpt from the initial ruling:

After consideration of all of the evidence, testimony at trial and in deposition, and the demeanor of witnesses, it was found that applicant's conduct in driving the company truck to work without a driver's license, against the express orders of the employer, was a cause of the injury, and takes the activity in which the injury occurred outside the course of employment. The conduct of driving the company truck on public highways against the express order of the company was more than the manner of performing duties. It was different duties than he was employed for. It appears that applicant did drive the truck before his sons were licensed, contrary to the testimony of defendants. However, on the evidence it is clear that he was not allowed to drive after they were licensed, and he and his sons were well aware of that...Applicant's conduct in this case posed an increased hazard to his own safety and life, to that of his son and members of the public, and greatly increased the risk of liability to the employer for damage to property and injury.

Sounds reasonable, but remember, this is California. The review board overturned this decision. They found the injuries to Fernando were compensable, as he was in the course and scope of employment and furthering the interests of the employer, even though he was disregarding the employer's instructions pertaining to his driving.

Golden State Precedents
The review board cited some fascinating cases to support their contention that the injuries were compensable:

Benefits not barred for injury incurred following a high-speed chase through heavy traffic after employee had run a red light [Williams v. Workmen's Comp. Appeals Bd. (1974)];

Bus driver who sustained injury as a result of nearly hitting an oncoming vehicle while recklessly driving his bus not barred from recovering workers' compensation benefits for the injury [Westbrooks v. Workers' Comp. Appeals Bd. (1988)]

With precedents like these, it would be hard to come up with a case where employee misconduct resulting in an injury was not compensable. In California at least, virtually anything you do at work is compensable.

The review board goes on to say:

In this case, it does not matter that applicant may not have been authorized by defendant to drive the truck because his travel to the job site in the truck was authorized by the employer and was of benefit to the employer.

A distinction must be made between an unauthorized departure from the course of employment and the performance of a duty in an unauthorized manner. Injury occurring during the course of the former conduct is not compensable. The latter conduct ... does not take the employee outside the course of his employment.

It is apparently not a concern to the review board that the "unauthorized manner" in this particular case involves an illegal activity (driving without a license).

The End of "To and Fro"?
Finally, California has interpreted the "coming and going" rule in the most generous manner. In most states, commuting "to and fro" is generally not compensable, even when the employee is operating a company vehicle. The workday usually begins at the worksite. Not in California: "When the employer provides the means of transportation, the course of employment begins when the employee begins to travel."
NOTE to CA employers: you may want to bag it on the company cars.

Workers comp costs in California are the highest in the country, despite the fact that employee benefits are relatively stingy. The high costs derive from many factors, one of which is revealed in this particular case. There are embedded in case law deeply rooted concepts that tilt the interpretation of compensability in the direction of injured employees. In many states, defense could certainly raise the issue of whether Fernando's insistence on driving the truck without a license crossed the line into "serious and wilful misconduct." You know, the concept of personal responsibility. That might be a reasonable argument in some states, but it doesn't hold any water in California.

The Insider just returned from a speaking engagement in Stillwater, Oklahoma. The occasion was the annual workers comp conference sponsored by the judiciary that manages comp in the state. I was invited by fellow blogger Judge Tom Leonard, whose blog provides valuable information to comp practitioners in the state.

As a relatively high-cost state, Oklahoma is experiencing rumblings in the state legislature to switch to an administrative - as opposed to judicial - system. In theory, this makes sense, as a formal judiciary with its due process rules can slow down the resolution of claims. But this is no simple problem, with no simple solutions. The first event at the conference featured a panel of legislators who were involved in crafting the systemic fix: in general, republicans were pushing for change, while democrats cautioned that the interests of injured workers may be compromised.

While the Insider does not take a formal position on the controversy, we did caution all parties to "beware the law of unintended consequences." Every "fix" contains the seeds of both success and failure. The prudent legislator would do well to examine the problem from all sides and fashion a dispassionate solution - much as the talented and compassionate judges currently operating the Oklahoma system approach every claim.

Six Humongous Problems
The insider was invited to provide a national perspective on workers comp to the conference's 400 participants. We focused on six looming crises facing comp across America. Here is a brief summary of our concerns:

1. The Original workers comp model is obsolete: Comp is nearing its 100th anniversary (New York 1911). The workplace at the beginning of the 20th century was very different from what confronts us today. Legislatures struggle to modify the initial legislation to keep pace with change.

2. The economic collapse is a game changer: The comfortable assumptions of financial planners (stocks rise inexorably over time) have disintegrated in the world-wide collapse that began just over a year ago. This collapse has implications for workers comp, with employment shakier than ever and the retirement plans of millions in tatters. Which leads to:

3. The Aging American workforce is going to get older: With baby boomers approaching retirement age, the workforce is already at its oldest. As retirement accounts sink with the economy, more and more workers are finding themselves in a bind. They do not have enough money to retire. These older workers bring skill and experience to the workplace, but their aging bodies are breaking down. The comp system is not built to handle workers in their late 60s and 70s who plan to keep on working. Will comp become the retirement plan of choice for workers with no other choices?

4. Undocumented workers are half in and half out: most states cover the medical costs and indemnity for injured, undocumented workers, but draw the line at vocational rehabilitation. By definition, these folks are not "available for work." Will Congress create some form of amnesty, thereby opening the door to complete workers comp coverage for foreign workers?

5. Insurers are in big trouble: There may be low hanging fruit in the insurance world, but not in workers comp. There is a nation-wide suppression of rates, which is compounded, of course, by the idiocy of carriers who drop steep discounts on top of inadequate rates. Carriers may dream of a hardening market, but it never seems to arrive. Meanwhile, the bottom line continues to erode.

6. The federal government might mess everything up: The Medicare Secondary Payer program has invaded the settlement process for comp claims, creating chaos and uncertainty and increasing the costs. [Check out Judge Leonard's blog for some excellent materials on the Secondary Payer program.] Now we have national health insurance on the immediate horizon. No, it's not "death panels" or alleged coverage for undocumented workers that concern us. It's the more basic issue of who will choose doctors, under what circumstances, and what impact this might have on workers comp.

We have covered all of these crises in the Insider and will continue to do so in the coming months. I'm not sure that the good folks in Oklahoma found much solace in the fact that their own little comp crisis is dwarfed by issues that transcend state lines. Meanwhile, I did learn a thing or two about Oklahoma. It all comes down to this: Sooners versus Cowboys. No, I'm not going to explain. You have to be there to really understand.

As a follow up to Julie Ferguson's gruesome imagery from Monday's blog, we find Clyde Haberman's entertaining piece in the New York Times about the state's new statute outlawing texting. As of November 1, it will be illegal for anyone to drive and text in the Empire State. Haberman goes on to write:

If any law may be described as a no-brainer, this one is it. You have to be certifiable to think that you can stare at a small screen and thumb-type on a tiny keyboard for five or six seconds while going 65 miles an hour, and not be a potential threat to everyone in your path. In the opinion of many safety experts, self-deluding multitaskers have had their way long enough. It's time for some multi-tsking to rein them in.

Bravo, Clyde! But Haberman goes on to say that the new law is pretty toothless. "It doesn't throw the book at texters so much as it tosses a few pages in their direction." (Shades of Keith Olbermann?)

The problem is in enforcement. The new statute will only receive "secondary" enforcement, which means that a fine may be imposed only if the police find some other violation, such as speeding or running a red light. Beyond that, the maximum penalty is only $150. That's chump change for the high rolling multi-taskers who clog New York's multitudinous arteries.

Live Free and Die?
Haberman interviews Judith Lee Stone, president of Advocates for Highway and Auto Safety, a Washington lobbying group. She says "secondary enforcement is not OK, and there's no reason for it."

The good folks in New York like to creep up on enforcement. When they first initiated a seat belt law, they began with secondary enforcement and eventually moved to primary status. All states now require seatbelts, with the notable exception of New Hampshire, which exempts adults over 18 from the mandate.

"It must be that "Live Free or Die" spirit," Haberman quips.

To which Stone responds, "Live free and die, I'd say."

The low budget ($20,000) video was produced by the Chief Constable of the tiny town of Gwent in SE Wales UK. The video has become a You-Tube sensation. The Insider humbly suggests that New York legislators check it out and then revisit the enforcement section of the new law. No one wants to suffer injury or even death just because some twit can't wait to for the proper time to communicate something that, in the scheme of things, most certainly can wait.

Wyoming might be a good place to work, but it's also a good place to die at work. The mortality rate for occupational injuries is three times the national average, with 15.6 fatalities per 100,000 workers. Many of these fatalities occur in the oil fields, where "roughnecks" make pretty good wages in exchange for working in relatively dangerous conditions. As DeeDee Correll writes in the Los Angeles Times, everyone shares the goal of improving safety on the far-flung job sites, but there is a continental divide in how to achieve that goal.

Most oil workers are employed by independent contractors, who provide the bodies for the intense work in the fields. The fields are owned by big corporations. On one side of the fence you find workers and their advocates, who want to be able to hold the big corporations liable for what happens on the job. They want to be able to sue the big corporations when they suffer catastrophic injuries or deaths on the job.

The counter argument says that workers comp - carried by the employers of these field workers - should be the exclusive remedy for work-related injuries.

At issue here is the question of accountability and control: under current Wyoming case law, injured workers have to prove that the operator maintained "pervasive" control over the site. This is a very high standard, because the daily operations at these sites are primarily under the control of the independent contractors. By lowering the standard of control, worker advocates would make it easier for workers to sue the oil companies for damages.

Denim Versus Suits
The battleground for this dispute is the Wyoming legislature. As is so often the case, there is considerable theatricality on display. Many of the roughnecks lobbying for a change in the law show the scars of their chosen occupation. They are dressed in denim and baseball caps. Their opposition, lawyers for the oil companies, wear the indispensable dark suits.

The "suits" counter the compelling visual evidence of the roughnecks with some dubious arguments, maintaining, for example, that any change in the law would expose home owners to liability for injuries to contractors working on their houses. That's a red herring, as homeowners rarely exercise significant control over the work environment of their contractors.

There should be enough middle ground in this dispute to fashion a meaningful compromise. Wide-open litigation is rarely the best way to go. The legislature should set specific standards for safe operating procedures in the oil fields. Oil companies should be held accountable for meeting these standards. Only if they are demonstrably negligent in maintaining and documenting these standards should the door be opened to law suits. At the same time, the state should bolster the benefits available to workers who are killed or severely injured on the job.

The "exclusive remedy" provision of workers comp is a standard well worth preserving. It's tempting to carve out exceptions, but each exception becomes a fault line in the fundamental compromise that is workers comp. We are nearing the 100th anniversary of comp in America (New York 1911). For the most part, it is a remarkably successful experiment in public policy. The law makers of Wyoming would do well to keep this success in mind: by all means tinker with the statute to make it more responsive to 21st century working conditions, but don't mess with the premise. This is not the time to find fault with "no fault."

California has a California-sized fraud problem, with much of action in the medical arena. Unscrupulous providers are billing for services that are never provided, often under the names of people who have never been injured. It's identity theft targeted at businesses, not individuals. In California's $7 billion comp system (down from $21 billion just a few years ago), fraud is a significant cost driver.

Here is just one example of medical billing fraud, involving the Los Angeles Unified School District. In August of 2006 the district received a bill for lab services involving a principal injured in a fall the previous May. Unfortunately for the perpetrator, one James Wilson, the principal had died prior to the date of the lab test. (Comp is rarely interested in post-mortems.) Wilson was a financial rep at Cedars-Sinai Medical center - a highly reputable institution - and had access to patient medical records. He was convicted on five felony counts and sentenced to 4+ years in prison.

As we read in the LA Times, a task force of private and public employers, including the Walt Disney Co., came up with an intriguing solution: require insurers to send notices to injured workers to check whether they actually received all the medical services billed. To eliminate the suspense, I will tell you now that the bill died in committee, at the request of the insurance industry. As much as the Insider detests fraud, we're with the carriers on this one.

Junk Mail?
The fraud problem is very real, but this particular solution is flawed. Too many assumptions are embedded in the approach. The bill assumes that:
- the carrier has a valid address for the individual
- the individual will read and understand the mailing, which is likely to contain technical information on treatments provided. (The claimant may be non-English speaking and/or illiterate.)
- the individual will take the time to fill out the form and respond, even though there is no direct incentive to do so
- the individual is not a willing participant in the fraud (having received a few bucks for the effort)

The fundamental flaw is that injured workers have no direct financial stake in fraud: they are held harmless in the comp system, with no co-pays, no deductibles and no premiums. The stake holders are the employer, who either pays for insurance or is self-insured, and the carrier/TPA, who under this bill is confronted with the significant cost of mailings (perhaps multiple mailings to individual claimants) and the arduous task of logging responses, which would be random: most would indicate no problems, while those pointing to fraud might well come from folks who simply did not understand the questions. This solution is equivalent to using a shotgun to eliminate a bunch of (very pesky and rather deadly) mosquitoes.

There may be a quick fix to make this approach somewhat more effective: send the confirmation of services to the employer. That way a vested stake-holder would be given useful information and would have an incentive to follow up on it. The employer could sit down with the individual and verify the treatments. Any problems could be relayed to the carrier. In this approach, the scale of the effort becomes more manageable, as the burden falls on hundreds of thousands of employers, as opposed to a few hundred carrier/TPAs.

A cost-benefit analysis would probably place this fraud buster where it currently resides, in the circular file. It's always tempting to legislate solutions to intractable problems, but alas, mandated solutions often become a new set of problems. Administrators, employers and carriers need a variety of tools to tackle fraud. This aborted bill is not exactly what the prudent doctor would have ordered.

The King Arthur Lounge in Chelsea, MA does not exactly bring to mind the Knights of the Round Table. It's a tough place in a tough town - a strip joint with a motel attached (don't ask, don't tell). The strippers had to work under some pretty difficult conditions. They were hired as independent contractors. They paid a $35 fee for every shift. There were no wages, just customer tips. They provided their own (easily removable) costumes. When they moved to the darker regions of the bar and provided "private shows" (please don't ask, don't tell!), they had to turn over one third of their earnings to management.

Jonathan Saltzman tells the story in the Boston Globe: About 70 strippers, led by Lucienne Chaves, a 32 year old former stripper, filed suit, alleging in a class action that they were not independent contractors, but employees entitled to minimum wages and benefits. Their lawyer, Shannon Liss-Riordan, compared the strippers to indentured servants: "They weren't making any wage. Imagine a restaurant where a waiter has to pay to come to work and hand over a portion of the tips."

Robert Berluti, King Arthur's lawyer, countered that some strippers made hundreds of dollars a shift. He argued that the strippers were truly independent contractors, picking their own music, costumes, partners and routines.

Judge Frances McIntyre did not buy management's argument. "A court would need to be blind to human instinct [indeed!] to decide that live nude entertainment was the equivalent to the wallpaper of routinely-televised matches, games...and sports talk in such a place. The dancing is an integral part of King Arthur's business." She went on to say that the club hired and fired strippers, determined their hours and made hiring decisions solely on looks. In other words, the strippers were employees.

Mr. Berluti lamented the burden of overcoming Massachusett's strict standards for independent contractors. "This was a case where the judge was saddled with a MA law that makes it an outlier with respect to the rest of the country." Does Berluti really think the outcome would have been different if the law had been more ambiguous?

Debt Collection
The strippers have been awarded thousands of dollars in damages. It will be interesting to see if they can collect. As noted above, King Arthur's Lounge is a tough place. Back in 1982, there was an argument between Alfred Mattuchio and an off-duty Everett MA police officer named John McLeod. The cop left the lounge and returned with several fellow officers, armed with nightsticks, baseball bats and tire irons. They attacked a dozen patrons and employees, one of whom was beaten to death. Four cops were indicted and three were convicted. The Insider wonders which, if any, of the King Arthur employees injured in the fracas collected workers comp.

The chivalry of the original Round Table still lives in some places, but not, alas, in the dank recesses of King Arthur's Lounge.

There is an ongoing debate concerning the compensability of injuries that occur during company sponsored recreation. As Dr. Suess might say, "These things are fun and fun is good," except when your employer makes you do it. There is a fine line between employees participating because they want to, as opposed to feeling that they have to.

Clark Kauffman has a nice summary of the compensability issues in the Des Moines Register. He sites the case of Robert Powell, an employee of the Cedar Rapids Gazette, who injured his back bowling at a "Family Fun Fest" sponsored by his employer. His injury was compensable - to the tune of $100,000 - because the employer urged participation: "Don't make us cancel this event from lack of interest/attendance."

Iowa has some interesting case law regarding compensability:
Hunting: way back in 1933 Claire Fintzel was trying to close a deal while pheasant hunting with a business associate. He was shot in the leg. He received $15 a week for 100 weeks (a paltry sum, to be sure, but this was back in the depression).

Boating: In 1941 Roy Linderman, a salesman for Cowie Furs, won a company-sponsored contest for highest sales. His prize? A fishing trip, during which, alas, he drowned. His death was deemed compensable.

Basketball: In 1982 Professor Charles Campolo of Briar Cliff College was partcipating in a faculty-student basketball game. At age 40, Campolo had a known heart condition. He died in the game's final seconds. Because the school derived a benefit from his participation, the death was compensable.

State by State
Kauffman takes a brief look of the compensability issue from state to state. It usually boils down to this: is the event truly voluntary? Does the employer derive a direct business benefit from the activity? To some degree the burden of proof is on the employer to demonstrate that there is no pressure on employees to participate - that participation is not the only true measure of "team spirit."

The state of Tennessee recently revised their comp statute, to provide clarification on the compensability issue. The statute is brief but comprehensive:

Public Chapter 407 (SB1909/HB1500) excludes from workers' compensation injuries that occur during recreational activities that are not required by the employer, and do not directly benefit the employer. Workers’ compensation injuries that are covered under workers’ compensation include those that occur where participation: 1) was expressly or impliedly (sic) required by the employer; or 2) produced a direct benefit to the employer beyond improvement in employee health and morale; or 3) was during work hours and was part of the employee’s work duties; or 4) occurred due to unsafe conditions the employer had knowledge of and failed to curtail or cure the unsafe condition.

This statutory language summarizes the issues without tying the hands of judges unnecessarily. It's a good model for legislators contemplating changes. Beyond that, it's good policy guidance for employers who want to encourage team building and fun, without creating inadvertant comp exposures.

NOTE: Our collegue Julie Ferguson has related blogs here and here.

Back in April we blogged some of the formidable problems facing the obsolete, friction-ridden comp system in New York. Two years ago, Elliot Spitzer appointed Zach Weiss to clean up the mess, just as voters had chosen Spitzer to clean up the mess in Albany. As of last week, both Spitzer and Weiss had resigned their positions, albeit for different reasons.

Weiss announced that he is stepping down in order to become an administrative law judge, which he describes as a "higher paying and more secure job." Weiss will don robes for the Social Security Administration and issue rulings on disability cases. The onerous comp job paid a relatively paltry $120,800. The initial salary at his new job is $131,000.

Beyond the dollar difference, Weiss's new job entails making real decisions. What he says as a judge, goes. This will be in stark contrast to the job he just abandoned, where competing interests, deep pockets and decades of bitter rivalries have resulted in chaos and paralysis.

Weiss said of his new position: "It might seem like a step down for me. But it's really a good job. You have an opportunity to make a very consequential decision in people's lives." It pays more. People listen with respect. Your word is law. Gee, Zach, that's hardly a step down!

Back in April we linked Weiss's thankless task running New York's comp system to Barack Obama's challenges as the new president. The satirical news source The Onion announced Obama's election with the headline: "Black man given worst job in America." Well, by those standards Zach Weiss might have had the second worst job in America. Not any more.

Roberto Ceniceros of Business Insurance has been tracking the potential impact that a Chrysler bankruptcy and sale could have on state workers comp systems. In a story last week, he reports that Michigan Attorney General Mike Cox has taken legal action to protect the state. Cox stated that Michigan's Self-Insurers' Security Fund could face insolvency as a result of Chrysler's bankruptcy and sale.

Now, Ohio state officials are raising concerns about how the Chrysler sale could affect Ohio's workers comp system. This week, Ohio's Attorney General Richard Cordray has filed a "limited objection" to the pending sale. "While Chrysler’s bankruptcy filings show the automaker is committed to fulfilling its workers comp obligations, the filings do not hold a new owner to the same conditions, the attorney general said." According to a news report in Columbus Business First, there are about 5,000 Chrysler workers in the state.

It is likely that this issue is on the radar screen for other stat attorneys general, too. Ceniceros states that, "As of Dec. 31, Chrysler had 38,257 U.S. employees. It purchases workers comp insurance in some states while self-insuring in others, according to various state regulator databases."

And beyond Chrysler, there is the matter of whether General Motors is another likely candidate for bankruptcy - many expect this to be the case - see key dates in GM run-up to bankruptcy deadline. GM is a much larger company so problems could be multiplied, a matter that we discussed in our December posting about Maryland officials monitoring GM solvency related to workers comp.

For more on the way bankruptcy works for both insured and self-insured entities, see our postings of Robert Auerbach's three-part series on bankruptcy and workers compensation, part 2, part 3.

Colorado, like most states, is facing a serious budget deficit. They are scrambling to balance the budget. So the legislature came up with the brilliant idea of tapping the reserves set aside by Pinnacol, the state's largest provider of workers comp coverage, with 70 percent of businesses in the fold. Pinnacol began as a state operation and was subsequently spun off. It now operates - very profitably - as a mutual insurance company.

The state, facing a budget deficit of $1.4 billion, has its eye on $500 million that Pinnacol has set aside to cover the future costs of current claims. They have proposed a Rocky Mountain two step: first, make Pinnacol a state agency, as it once was, thereby assuming control of the company's assets. Then, draw $500 million from the reserves and use them to cover a chunk of the current budget deficit.

As is so often the case, Pinnacol is being punished for being successful. Despite having reduced comp premiums by 42 percent over the past four years, and despite having set aside the funds needed to cover future obligations on current claims, Pinnacol is now the proverbial sitting duck. Blinded by cash in the coffers, legislators are poised to make two big mistakes: deprivatize a successful privatization and destabilize a financially stable operation. What are they smoking in the thin mountain air?

Mediocre Alternatives
A consortium of Colorado businesses has lined up against the ill-advised measure. As an alternative, they suggest three steps to close the budget gap:
: "tobacco securitization" - selling bonds against future tobacco settlements [after the economic debacle of the past 8 months, you might label this proposed process insecuritization.]
: sell state buildings [in a depressed market???]
: Reduce the pay of all state employees across the board [easy for the private sector folks to say]

At this point, I'm not convinced that either plan is worth pursuing. As a general rule, it is a bad idea to solve big,short-term problems by making bigger, long-term mistakes. Here's hoping that cooler heads in the clear, mountain air of Colorado kick back with a Coors and figure out a better path toward solvency .

The New York Times has a fascinating, two-part article about serious problems in New York's workers comp system (parts one and two). New York has long been famous for its bizarre system, which is among the most expensive in the nation, even though its benefits have been among the lowest. There's a lot of money moving around, but not much of it ends up benefitting injured workers.

New York's system is the most frictional in America: virtually every step of every claim is reviewed by a judge. The lawyers make their money simply by showing up at hearing after hearing.

This cumbersome system routinely results in inordinate delays for injured workers. In a review of 2007 claims, AIG found that even unchallenged cases plod on much longer than necessary. Lost time claims took on average 802 days to reach a final stage, 30 percent longer than in the rest of the country. In comp, time is money, but not necessarily money well spent.

The Times article zeroes in on an area where you do not expect to find friction: the independent medical exam (IME).

In most states, IMEs are commonly used to establish a (relatively) objective profile of an injury. Representing neither the injured worker nor the insurer, IMEs try to separate fact from fiction and provide a road map to future management of the claim. It is in the best interests of insurers, employers and injured workers to make the IME process as objective as possible.

In New York, the IME system is corrupt and chaotic. IMEs are routinely performed by retired doctors who have little or no interest in fair outcomes. It appears that many IME doctors slant their results toward the insurer, under the dubious notion that "he who pays gets his way."

The NY statute allows injured workers to videotape the IME exams: based upon the findings in these articles, this is a right that every injured worker should exercise routinely, even if it means using the taping capabilities of a cell phone.

Here's just one of a number of appalling examples of IME corruption in New York:

Dr. Hershel Samuels, 79, with a radiant smile and a burst of snowy hair, stopped doing surgery years ago. Until recently he commonly filled his days performing insurance exams on workers, sometimes as many as 50 in an afternoon, he said in his small office in Borough Park, Brooklyn. [Fifty exams in one day!]

“You obviously can’t spend a lot of time with that volume pushing up your back,” he said. “You have to assume there are going to be errors. Look, there are a lot of holes in this thing.”

At times, evidence shows, Dr. Samuels’s official reports were quite different from what he appeared to find during an exam.

Consider his 2007 examination of Johanne Aumoithe, a pastry chef who said she had hurt her arm and neck. On a videotape that Ms. Aumoithe recorded on her cellphone, Dr. Samuels comments that she had limited range of motion. His written report concluded the opposite.

Asked about the discrepancy in an interview, Dr. Samuels chuckled and said he could not even recall the people he saw yesterday. The way he worked, he said, was to submit a checklist to a Queens company called All Borough Medical, which transformed it into a narrative.

“I never write a sentence,” he said. “It’s really crazy, but that’s how it’s done.”

He often inserted numbers in the checklist — say, a measure of hand strength — after the person left, rather than as he performed the tests.

Was he sure they were correct? “I’m not sure of anything,” he said. “They’re just a guess in the first place.” [I wonder how occupational doctors feel about that.]

The law requires a doctor to attest to the accuracy of a finished report before signing it, but Dr. Samuels said he rarely read them. He doubted he had read the Aumoithe report. “I just sign them,” he said.

If he seldom read them, how did he know they were correct?

“I don’t,” he said. “That’s the problem. If I read them all, I’d have them coming out of my ears and I’d never have time to talk to my wife. [Kudos to Dr. Samuels for wanting to talk to his wife!] They want speed and volume. That’s the name of the game.”

Dr. Samuels said he generally received about $100 for one of these exams.[That's about $95 too much. And by the way, Dr. Samuels is no longer performing IMEs.]

Under the circumstances, IMEs should be dubbed "insurer medical exams" or perhaps just "Incoherent Mediocre Estimates." It is not surprising to find that many judges in the New York system ignore IME results and rule in favor of injured workers. But that begs the question: why does New York tolerate a system that routinely delivers unreliable information? Zach Weiss, the new chairman of the workers’ compensation board, said that he found the disparities in medical opinions shocking and that use of independent examiners was “off the charts.” But then again, there is a limit to how many problems he can tackle at one time.

The Burden of History
New York's comp system grew directly out of the adversarial relationship between labor and management that characterized the early years of the 20th century (and which still exists in many places today). The continuing, pervasive use of judicial review for routine claim transactions is an indication that distrust between workers and management is built into the system's archaic infrastructure. (As appalling as the pro-management corruption of the IME process is, I am sure that equally repellant stories about worker fraud can be uncovered in the Empire state.)

When Barack Obama was elected president of the United States, the satirical Onion News headlined, "Black man given worst job in America." With all the problems facing the New York Comp Board, Zach Weiss can make the case that his job is ridiculously difficult, too. And, alas, it comes with no where near the perks.

Barry Estabrook of Gourmet takes a look at the tomato harvesting industry in Florida and it's not pretty. In Politics of the Plate: The Price of Tomatoes he suggests that if you've eaten a tomato this winter, it's likely that it was picked by a virtual slave. He focuses on Immokalee county, which a chief assistant U.S. attorney based in Fort Myers terms as "ground zero for modern slavery." Estabrook paints a dismal portrait of immigrant workers who are exploited, cheated, threatened, injured, and abused - some literally being locked up or chained to prevent escape. Estabrook notes that since 1997, law-enforcement officials have freed more than 1,000 men and women in seven different cases ... and those are only the instances that resulted in convictions. Given the illegal status of most of the victims, many are intimidated or reluctant to press charges.

We've covered the issue of modern day slavery in Florida before - same issues, but this time with oranges. Our posting covered the Palm Beach Post's stunning three-part special report on how Florida's famous orange juice comes with hidden costs.

Most people have a tendency to think of slavery as happening elsewhere but in reality, it exists right here in the land of the free. The Baltimore Sun recently featured an expose on slavery in America citing reports that "thousands [are] annually trafficked in America in over 90 cities; around 17,000 by some estimates and up to 50,000 according to the CIA, either from abroad or affecting US citizens or residents as forced labor or sexual servitude." According to a 2004 U.C. Berkeley study, these people can be found working in:

• prostitution and sex services - 46%
• domestic service - 27%
• agriculture - 10%
• sweatshops or factories - 5%
• restaurant and hotel work - 4%
• the remainder coming from: sexual exploitation of children, entertainment, and mail-order brides

The article goes on to discuss each of these "employment" sectors, citing other studies and reports and summarizing the scope of the problem. In terms of farmworkers, it cites a 2004 Oxfam America report that found nearly two million farmworkers living in "sub-poverty misery, without benefits, without the right to overtime," without a living wage, or other job protections, including for children. The Oxfam report noted that most state laws perpetuate inequality, especially Florida and North Carolina.

This issue is largely but not exclusively one of immigrant workers. We've talked about the issue of illegal immigrant workers many times before as the issue relates to workers comp - or lack of it. There are many hardliners who feel that if a worker has illegally entered this country to work, well the heck with them - they get what they deserve. We strongly disagree. We believe that employers everywhere at minimum owe workers a safe workplace, good working conditions, fair pay, dignity, and basic fairness. Worker exploitation diminishes us all. In many industries, state and federal laws protect workers. But legal protections for some industries such as farmworkers and domestic workers are weak, fall under the radar.

In Estabrook's Gourmet article, he ends on a somewhat hopeful note in discussing how wholesale buyers - large supermarket chains and fast food restaurants - could make an enormous difference in the situation by refusing to deal with exploitative growers. So far, several fast food chains - Yum! Brands, owner of Taco Bell, Pizza Hut, KFC, Long John Silver’s, and A&W; McDonald’s, Burger King and Subway, and only one grocery chain, Whole Foods, have all signed on to the Campaign for Fair Food, an initiative of the Coalition of Immokalee Workers, a grass roots worker organization that is fighting for: "a fair wage for the work we do, more respect on the part of our bosses and the industries where we work, better and cheaper housing, stronger laws and stronger enforcement against those who would violate workers' rights, the right to organize on our jobs without fear of retaliation, and an end to indentured servitude in the fields."

Back in December we blogged the sad story of Taneka Talley, who was stabbed to death while working as a clerk for Dollar Tree. Her assailant, Tommy Joe Thompson, singled her out simply and solely because she was black. At first, Dollar Tree denied the claim, under the theory that Talley's race - not her employment - was the cause of the attack. After public outcry, Dollar Tree's insurer decided to pay death benefits to Talley's 11 year old son.

This case generated a lot of comment from Insider readers, who were divided on the whether the incident should have been compensable under workers comp. Now a California assemblywoman, Mariko Yamada (D-Davis), has filed a bill to address the ambiguities of this case. AB 1093 would forbid the denial of a comp claim where the motivation for the injury or death was related to an "immutable" personal characteristic - such as race, age or gender.

Here is the proposed language to amend Section 3600 of Labor Code:

(c) No workers’ compensation claim shall be denied solely because the motivation behind what caused the employee’s injury or death was related to an immutable personal characteristic of that employee.

"By introducing 'Taneka's Law,' I hope that no other family in California will ever have to endure the unspeakable pain that the Talley family experienced," Yamada stated.

Chain of Ambiguities
The proposed language raises an interesting issue: what exactly is an "immutable" personal characteristic? Would this include mental disabilities (such as "intermittant rage disorder") or would such diagnoses be considered mutable? In terms of physical disabilities, where is the line between "permanent" (immutable) and "temporary" (mutable). Does anyone at maximum medical improvement (MMI) by definition have an "immutable" charateristic?

This bill is designed to close a loop hole in workers comp coverage. Should it become law, it will be interesting to track the inevitable loop holes that the new statutory language (inadvertantly) creates.

Audeen Jacobs was a teacher in the Clark County (Kentucky) school system. She retired in June 2003, but was hired back on a 100 day contract in the fall of that same year. In addition to her teaching responsibilities, she volunteered to sponsor the high school's Beta Club, an honor society that requires students to maintain a specific grade point average.

On December 6, 2003, she accompanied the students to a Beta convention in Louisville. She was paid while attending the conference and had secured permission from the high school principal to attend. In other words, Jacobs was clearly "in the course and scope of employment" when she fell from a set of bleachers and severely injured her left shoulder.

The Clark County school board denied the claim, lost at the initial and appeal levels, and lost for the last time at the Kentucky Supreme Court. The board argued that participation in the Beta club was not required and, like other extracurricular activities, the club was of "intangible benefit" to students.

The judges did not buy this specious argument. They pointed out that Beta club activities were directly connected to educational goals and that participating students had access to scholarships only available to Beta members. Jacobs was off-site, but directly involved in school-related activities.

History Lessons
Audeen Jacobs gave a lot to the kids in Beta. Maybe it's time for the kids to give something back. The Insider would like to propose an extracurricular project: a presentation to the school board on the history, purpose and importance of workers compensation. The kids might even ask Audeen Jacobs to attend, to share her experience of being injured and unable to work, the pain and shock of the initial fall, the subsequent operations, the medications, the indemnity payments that helped her pay her bills.

While the kids have the attention of a board that is clueless about comp, they might want to take the opportunity to provide an historical lesson in irony and ambiguity. Their high school is named for a revolutionary war hero. Here, courtesy of Wikipedia, is a little background on Mr. Clark:

George Rogers Clark (November 19, 1752 – February 13, 1818) was a soldier from Virginia and the highest ranking American military officer on the northwestern frontier during the American Revolutionary War. He served as leader of the Kentucky militia throughout much of the war, Clark is best-known for his celebrated capture of Kaskaskia (1778) and Vincennes (1779), which greatly weakened British influence in the Northwest Territory. Because the British ceded the entire Northwest Territory to the United States in the 1783 Treaty of Paris, Clark has often been hailed as the "Conqueror of the Old Northwest."

Clark's military achievements all came before his 30th birthday. Afterwards, he was disgraced and accused of being drunken on duty and therefore left Kentucky to live on the Indiana frontier. Never fully reimbursed by Virginia for his wartime expenditures, he spent the final decades of his life evading creditors, living in increasing poverty and obscurity, and often struggling with alcoholism. He was also involved in two failed conspiracies to open the Spanish controlled Mississippi River to American traffic. After suffering a stroke and losing his leg, he was aided in his final years by family members, including his younger brother William, one of the leaders of the Lewis and Clark Expedition. Clark died of a third stroke on February 13, 1818.

The name of George Rogers Clark graces the facade of the county high school. I wonder how many school board members - let alone kids in the school - appreciate the rich history behind that simple name.

Arthur Pierce worked for a trucking company in Virginia. In September 2006 he was found lying beside his dump truck. He had suffered a severe brain injury and was unable to communicate any details about what had happened. Physicians speculated that he had fallen from the truck (falls are the number one cause of injuries to drivers), but there was no proof and no witnesses. The unfortunate driver required constant care until his death in January 2008.

Due to the uncertainty of the circumstances surrounding the injury, Pierce was denied workers comp benefits. (This would have been a very large claim.) Ironically, if he had been found dead, the death would have been deemed compensable: when an employee is found dead at work, the fatal injuries are presumed to arise out of employment, unless there is a "preponderance of evidence" to the contrary.

Legal Remedy Fails
Lawmakers in Virginia, sympathizing with the plight of Pierce and his widow, proposed changes to the state's comp statute. Senate Bill 821 was aimed specifically at employees who suffer severe brain injuries and are unable to recall the relevant circumstances of the accident. (How many of these cases would there be in a year - or even a decade?)

Alas, SB 821 died in committee. Opponents feared that the bill would increase the likelihood of workers' comp fraud. They were actually concerned that employees would fake severe brain injuries to secure benefits. To be sure, fraud can be a real problem, but how can you possibly fake a brain injury?

SB 821 would have come too late to help Pierce, and was so specific in nature, it would probably never have been helpful to severely injured workers. It was a mostly a symbolic gesture toward a family that was not served well by the Virginia comp system. Arthur Pierce's work-related fall simply fell through the cracks.

Cody, Wyoming, was founded in part by "Buffalo Bill" Cody, the renowned slaughterer of buffalo. The town bills itself as the eastern gateway to Yellowstone National Park. "A small western town with a big city attitude." Sally Spooner, a long-time school teacher in the town, might question the "big city attitude." Sally tripped and fell at school in December. She suffered serious injuries, resulting in the amputation of her right leg below the knee. A simple matter of workers comp, right? Think again, cowboy.

The Cody school district, along with 45 of 48 districts in the state, has opted out of comp coverage for most teachers. (Wyoming, a monopolistic state, does not require coverage for all employees.) Using a rather crude risk management assessment, the Cody district provides comp coverage only for "higher risk" teachers: those working in wood and machine shops, along with those in special ed and transportation. The rest - the "low risk" employees" - are factored out of the comp premiums. Nothing ever happens to ordinary classroom teachers, does it?

Superintendent Bryan Monteith admits to feeling terrible about Sally Spooner's situation, but he has no regrets about the decision to eliminate comp coverage for most teachers. "We looked at it and said spending $175,000 a year for workers comp was not a good use for our money in terms of providing risk protection for the district. We decided using the money for salaries was a way to benefit the entire district."

Monteith admits that Sally is a great teacher. They would like to do something for her, but given "fiduciary responsibilities" to the district and the potential for setting a bad precedent, they probably will let Sally fend for herself. Call it frontier justice.

Pretty Scenes, Ugly Scenario
I expect that Sally will pursue a little frontier justice of her own. Because she is not subject to the "exclusive remedy" of workers comp, Sally can sue the district for her lost wages and medical bills. In addition, she can access the open-ended benefits excluded by comp, including her (considerable) pain and suffering and possibly loss of consortium. Depending upon the school's insurance arrangement for general liability, the ultimate cost of the settlement might wipe out the relatively modest comp savings.

Despite its cost, comp is generally a good deal for employers. For a relatively small premium, you are protected from the usually unforeseen, large losses like Sally Spooner's. Tort liability is off the table. Even more important, comp provides an immediate safety net for the employee: there is no anxiety about the (extraordinary) medical expenses and lost wages in the days, weeks and months following an injury.

Given a choice, Sally Spooner probably would have preferred the prompt, if somewhat limited, payments of comp, as opposed to the potential down-the-road payoff of a lawsuit. Alas, she is the victim of frontier justice, and unlike Old Faithful in Yellowstone, it's not a pretty sight.

We have been following the developments in West Virginia, where a once monopolistic state for workers comp insurance has been transformed into a competitive market. The well-designed transition began in 2006 with the creation of BrickStreet Mutual Insurance Company, which for a couple of years offered the only available insurance to employers. Last year other carriers entered the state; Bricksteet, faced with competition and a reduction in market share, had to lay off some staff. Now they are shedding some bad risks.

Gary Burton, BrickStreet's President, announced that the carrier is dumping about 1,000 risks, most of which will end up in the state's new assigned risk pool. These accounts sport combined ratios (losses compared to premiums) in excess of 200 percent. Burton mentioned one with a whopping ratio of 14,000 percent: akin to $140,000 in losses for $1,000 in premium. From an underwriting perspective, those numbers might have been acceptable for a subprime mortgage, but they don't work very well for conventional insurance.

West Virginia's new assigned risk pool will be managed by NCCI, a natural choice as they already administer pools in 20+ states. The servicing carriers are Travelers, Liberty Mutual and American Mining. Employers unable to secure coverage in the open market are likely to pay significantly higher premiums in the pool.

Thus far, West Virginia's transition to a competitive market seems to be going smoothly. The pain has been distributed across the board: to a population of workers that had long viewed comp as an entitlement, to employers in favored industries who long benefitted from suppressed rates for coverage and to some of the former state employees who ran the old, rather bloated system. No one would describe the new approach to workers comp as perfect, but the competitive market appears to offer a reasonable balance between the often conflicting interests of workers and employers. The creation of an assigned risk pool for poorly performing employers is simply one more necessary step in the eternal search for an effective and equitable system.

For many of us, Amityville NY brings to mind a book (and movie) called the Amityville Horror, which tell the story of an innocent couple moving into a house whose prior inhabitants had been murdered. The house is haunted by the ghosts of the deceased. If the story were to happen again, the house would surely be cleaned by Icon Cleaners.

New York's Labor Department has determined that Icon Cleaners unlawfully deducted hundreds of thousands of dollars from the paychecks of their 170 cleaners. Icon called these people independent contractor "technicians" - all of whom wore Icon uniforms, worked under Icon control and used Icon equipment. Not only were they not independent, they labored under conditions of virtual servitude.

Here's how Icon functioned: each employee was forced to pay a $500 security deposit upon being hired at the company, which could either be paid for up front or deducted from subsequent paychecks. ("Congratulations on your new job, sucker!"). Technicians often found their paychecks reduced for a variety of (illegal) reasons:

- In the event that a customer was not satisfied with the service provided by the company, or if the wrong services were rendered, a deduction was made from the employee’s paycheck.
- In instances where the company was doing a promotional campaign on discounted services, these discounts were taken out of employee paychecks.(!)
- If an employee indicated that he or she needed extra assistance on a particular project, in some instances Icon Cleaning would provide another worker for the project and that worker’s wages were deducted from the requesting employee’s paycheck.
- If a customer provided a check to the employee and it bounced, the employee was required make up for the lost revenues through payroll deductions.

Technicians worked up to 12 hours a day, 60 hours a week cleaning air ducts and carpets in private homes and businsses. After the illegal deductions had been made, some workers brought home less than $100 in a given week. They had been taken to the proverbial cleaners.

It's not surprising to find that customer satisfaction mirrored the working conditions; you can read some disgruntled customer comments here.

There is no mention of worker immigration status in the press release from the Department of Labor, but I suspect that illegal workers would be more likely to tolerate these intolerable working conditions. It's ironic, of course, that Icon is in the cleaning business. When it comes to fundamental employee rights, it doesn't get any dirtier than this.

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.

Florida employers have seen about a 60% rate decrease since the 2003 workers compensation reform but it looks like all that is about to change. NCCI has just filed for an 8.9% Florida rate increase in the wake of a recent Florida Supreme Court ruling. This is an enormous change, particularly in light of the 18.9 percent decrease that had been proposed prior to the ruling.

Why such a giant leap? In