Page 1

WINTER 2012 | VOL. 1, NO. 1 Older Workers Not So Bad: NCCI Prescription Drug Abuse on the Rise When Small Cars Meet Big Cars Profile: Church & Co. Adjusting

Find or Verify a Professional State

Choose State/Province

Zip Code

Contractor Specialty

Company Name

Choose Specialty

Remote Control for your Claims ClaimExpress is a do-it-yourself claim & claim project management application designed to simplify and expedite the processes related to natural disaster claims. We are neutral in the process. It takes longer to learn how to use a new smartphone than it takes to learn how to manage your entire catastrophe operations on ClaimExpress.com. Read More

The RRCA is an association of contractors specializing in projects related to insurance claims that have joined together to solve the problems caused by natural disasters including: getting projects approved faster, guaranteeing their access to building materials and subcontractors, getting paid upon completion, maintaining OSHA compliance, lowering the cost of general liability and worker’s compensation and improving the public perception of the marketplace caused by crooked contractors and scam artists.

WINTER 2012 | VOL. 1, NO. 1




NCCI: Aging Workforce Not So Bad


Trip vs. Slip: A Biomechanic View


Auto Injury Claim Costs Rise



Texting Study Shows Slow Response Time

Insurance Companies Dodge Billion-Dollar Bullet in California

9 10 10


Dollars & Sense Ground Motion Study Shows Need to Modify Building Codes


Report Highlights Metal Hip Implant Problems



On-Duty Firefighter Deaths Drop in 2011


On the Scene: Fraud Focus


More Crashes at Intersections With Flashing Lights


Business Crime: Electronic Funds Transfers


Snapshot: Precious Moments

4 Claims Journal | Winter 2012

42 50



Claims Departments on Guard as Prescription Drug Abuse Rises What Happens When Small Cars Meet Big Cars on the Road?

Essentials: Allowing Private Litigation Over Insurer Bad Faith in Workers’ Comp


How to Effectively Use Examinations Under Oath

The Split Over Workplace Safety: Revisiting OSHA’s Role


How Church & Co. Grew From a HomeBased Firm to National

True Costs of Injuries Serve as Best Workplace Safety Motivator


SIU Expansion Reaps Company-Wide Benefits

How to Bridge the Construction Safety Gap


Stats, Laws and Videotape: Workers’ Comp Year in Review

Final Offer: PLRB’s Hugh Strawn

CLAIMS DEPARTMENTS 6 16 20 44 46 48

Opening Note People Business Moves Recalls Web Exchange Calendar of Events







America’s Leading Catastrophe Adjusting Team

1.800.345.2287 pilotcat.com



Point of Pride


elcome to the premier issue of Claims Journal magazine, where property/casualty insurance claims professionals turn for news, trends, analysis and best business practices. Claims Journal magazine is the newest point of pride within the Wells Publishing network that includes www.ClaimsJournal.com, Insurance Journal magazine, www. InsuranceJournal.com, MyNewMarkets.com and the Academy of Insurance. Our hope is that it will become a point of pride within the P/C claims industry as well. Wells Publishing is well-known for its innovation in providing information where and when people want it, whether online, over mobile devices, by email or in print, audio and video. Once again, with Claims Journal magazine, Wells Publishing is taking information to claims insurance professionals how, when and where they want to receive it. Every quarter in 2012, Claims Journal magazine will deliver news analysis from the national level and from the states, where events, economics, laws and rulings that affect claims practices and payments play out. Each issue will include coverage on key court rulings, major loss events, product recalls, fraud and economic trends, laws and regulations, and best practice tips on how claims professionals can improve their operations today. Each issue will also feature recent claims industry company mergers, people promotions and a calendar of industry events. Claims Journal magazine will include special features such as Coverage Corner, with expert coverage analysis; Fraud Focus on fraud, research, trends, investigations and busts; Snapshot, a photo feature documenting a claim case from pre-loss condition to complete restoration or rehabilitation; Profiles and Best Practices, with management advice and best practices and lessons from the field; and Dollars & Sense, highlighting interesting claims numbers, dollars, findings, figures and quotes. We will not only report on national news and trends, but also on what is happening in states in every region of the country, where claims professionals work and deal with local situations, laws, regulations and economics. In this inaugural issue, readers can gain fresh insight into workplace injuries and the role that OSHA plays — or doesn’t play — in reducing those injuries. Also, attorney and risk consultant Rebecca Shafer explains how the true cost of workplace injuries should be measured by a lot more than OSHA fines or loss costs. Denise Johnson, editor of www.ClaimsJournal. com, also provides a special report on the workers’ compensation market. Johnson, who also serves as editor of Claims Journal magazine, brings years of property/casualty claims management experience, having worked for several national and regional carriers. Since joining www.Claims Journal.com in 2010, Johnson has overseen that website’s content and authored numerous popular articles. Her work has spurred new readership and interest throughout the claims industry. With contributions from its own editorial staff and experts from the claims industry, Claims Journal magazine promises to deliver fresh perspectives on a wide range of claims topics every quarter in 2012. Andrea Wells So get ready to be informed, educated, chalEditor-in-Chief lenged, and even entertained. Thank you for reading!

Get ready to be informed, educated, challenged and even entertained.

Claims Journal and Insurance Journal

awells@claimsjournal.com 6 Claims Journal | Winter 2011

Editor-in-Chief Andrea Ortega-Wells | awells@insurancejournal ClaimsJournal.com Editor Denise Johnson | djohnson@claimsjournal.com Vice President Content Andrew Simpson | asimpson@insurancejournal.com Insurance Journal East Editor Young Ha | yha@insurancejournal.com Insurance Journal Southeast Editor Michael Adams | madams@insurancejournal.com Insurance Journal South Central Editor/Midwest Editor Stephanie K. Jones | sjones@insurancejournal.com Insurance Journal West Editor Don Jergler | djergler@insurancejournal.com Insurance Journal International Editor Charles E. Boyle | cboyle@insurancejournal.com MyNewMarkets.com Associate Editor Amy O’Connor | aoconnor@mynewmarkets.com Columnists Steven Plitt Contributing Writers Richard Baratta, Jason Glasgow, Donald Parker, John Sargent, Hugh Strawn, Bob Tyson, Lori Widmer

SALES V.P. Sales & Marketing Julie Tinney (800) 897-9965 x148 jtinney@insurancejournal.com Claims Journal/Southeast Howard Simkin (800) 897-9965 x162 hsimkin@insurancejournal.com West Dena Kaplan (800) 897-9965 x115 dkaplan@insurancejournal.com South Central Mindy Trammell (800) 897-9965 x149 mtrammell@insurancejournal.com Midwest Lauren Knapp (800) 897-9965 x161 lknapp@insurancejournal.com East Dave Molchan (800) 897-9965 x145 dmolchan@insurancejournal.com New Markets Sales Manager Kristine Honey | khoney@insurancejournal.com Classified Advertising (800) 897-9965 x125 classifieds@insurancejournal.com

MARKETING/NEW MEDIA Marketing Administrator Gayle Wells | gwells@insurancejournal.com Advertising Coordinator Erin Burns | eburns@insurancejournal.com (619) 584-1100 x120 New Media Producer Bobbie Dodge | bdodge@insurancejournal.com Videographer/Editor Matt Tolk | mtolk@insurancejournal.com

DESIGN/WEB Vice President/Design Guy Boccia | gboccia@insurancejournal.com Vice President/Technology Joshua Carlson | jcarlson@insurancejournal.com Design and Marketing Executive Derence Walk | dwalk@insurancejournal.com Art Director Jamie Bethell | jbethell@insurancejournal.com Web Developer Jeff Cardrant | jcardrant@insurancejournal.com Web Developer Chris Thompson | cthompson@insurancejournal.com

IJ ACADEMY OF INSURANCE Director of Education Christopher J. Boggs | cboggs@ijacademy.com Online Training Coordinator Barbara Dooley | bdooley@ijacademy.com

ADMINISTRATION Chairman Mark Wells Chief Executive Officer Mitch Dunford Accounting Manager Megan Sinclair | msinclair@insurancejournal.com

FOR QUESTIONS REGARDING SUBSCRIPTIONS: Call: 1-800-897-9965 ex. 144 or You may subscribe or change your address online at

www.claimsjournal.com/subscribe Claims Journal, the National Property Casualty Claims Magazine is published quarterly by Wells Publishing, Inc. 3570 Camino del Rio North, Suite 200, San Diego, CA 92108. Periodicals Postage Paid at San Diego, CA and at additional mailing offices. Subscription Rates: Free to qualified readers. Disclaimer: While the information in this publication is derived from sources believed reliable and is subject to reasonable care in preparation and editing, it is not intended to be legal, accounting, tax, technical or other professional advice. Readers are advised to consult competent professionals for application to their particular situation. Copyright 2012 Wells Publishing, Inc. All Rights Reserved. Content may not be photocopied, reproduced or redistributed without written permission. Claims Journal is a publication of Wells Publishing, Inc. Postmaster: Send change of address form to Claims Journal, Adam Dunford, 3570 Camino del Rio North, Suite 200, San Diego, CA 92108. Article Reprints: For article reprints: For reprints of articles in this issue, contact Rhonda Brown at 1-866-879-9144 ext. 194 or rbrown@fostereprints.com. Visit insurancejournal.com reprints for more information.

The speed you need to run your insurance agency. To go. The Samsung Epic 4G was made for running ™

apps like Openstream Mobile Force Automation. Now you can assign the right jobs to the right insurance professionals, no matter the customers’ needs. Get fast 4G speed with unlimited 4G data on the road. sprint.com/insurance 1-800-SPRINT-1 (1-800-777-4681)

Built-in videoconferencing ability

Full QWERTY keyboard

Super-AMOLED display with touchscreen

Mobile hotspot– enabled

Samsung Epic™ 4G

“Sprint is #1 among all national carriers and most improved in customer satisfaction, across all 47 industries, over the last three years.” -2011 American Customer Satisfaction Index

May require up to a $36 activation fee/line, credit approval and deposit per line. Up to a $200 early termination fee/line applies. Coverage is not available everywhere. Sprint Mobile Hotspot: Optional $29.99 add-on for sharing access to Wi-Fi. No discounts apply. Uses data allowance within your base service plan. Connectivity is dependent upon compatibility. The Sprint 4G Network reaches over 70 markets and counting, on select devices. The Sprint 3G Network reaches over 271 million people. See sprint.com/4G for details. Not all services are available on 4G, and coverage may default to 3G/separate network where 4G is unavailable. Offers not available in all markets/retail locations or for all phones/networks. Pricing, offer terms, fees and features may vary for existing customers not eligible for upgrade. Other restrictions apply. See store or sprint.com/4G for details. ©2012 Sprint. Sprint and the logo are trademarks of Sprint.


Aging Workforce May Not Be So Bad for Workers’ Compensation, NCCI Says By Andrew G. Simpson


he aging workforce may not have the negative impact on loss costs that workers’ compensation insurers have

feared. New research from the industry’s National Council on Compensation Insurance (NCCI) concluded that while loss costs are higher for older workers due to the severity of their claims, these costs tend to be accounted for in higher premiums, which are based on the higher wages earned by older workers. The new study, “Workers Compensation and the Aging Workforce,” found that workers’ compensation claims frequency has fallen across all age groups, and differences by age have narrowed. In fact, the long-held assumption that younger workers have high injury rates is no longer true. The report, authored by Tanya Restrepo and Harry Shuford, addresses the concern about the “potential adverse impact” on workers’ compensation as the average age of the workforce goes up in part because of baby boomers postponing their retirement. The report looks at claims frequency and claims severity across age groups, and then at the combined effects of the trends on loss costs per worker. Key findings of the report include: • In terms of loss costs per worker, the major difference among age groups occurs between the 25 to 34 and the 35 to 44 age groups. All groups of workers age 35 to 64 appear to have similar costs per worker. • The long-standing tenet that younger workers have much higher injury rates is no longer true. Therefore, differences in loss costs by age in recent years primarily reflect differences in severities because differences in frequency by age have virtually disappeared. • Differences in leading types of injuries are a major factor in differences in severity by age. Older workers tend to have more rotator cuff and knee injuries, while younger workers have more back and ankle sprains. • On the indemnity side, higher wages lead to higher costs for older workers. For medical, more treatments per claim are a material factor.

“Overall, the findings can be viewed as reassuring, in that an aging workforce may have less negative impact on loss costs than originally thought,” said the authors Restrepo and Shuford. While differences in frequency by age have diminished, differences in severity by age continue and account for the higher costs for older workers. Claims severity is much higher — about 50 percent — for older workers, in part due to differences in jobs and higher wages of older worker. But, according to the report,

changes in occupational mix have not had a material impact. “Occupational mix may have changed, but all occupations are much safer,” the authors said. As for claims severity, the data show that both indemnity and medical severity have exhibited steady increases over time, with severity for older claimants costing more. Severity for older workers was 56 percent higher than for younger workers for indemnity and 51 percent higher for medical, according to the report. Why is severity higher for older workers? Higher wages is one reason, the report found. (Previous research by NCCI indicated that while the average weekly wage tends to increase with the age of the worker, it reaches a maximum when employees hit their early 50s, and then declines gradually from ages 60 to 64. It then plummets, by as much as 30 percent, for workers aged 65 and older.) Also, Restrpo and Shuford found that the types of injuries also explains the higher severity. Older workers are more likely to experience rotator cuff, knee injuries and lower back nerve pain that have above average severity, while younger workers tend to incur sprains and lower back pain that have below average severity for both indemnity and medical. Overall, workplaces keep getting safer, and that’s true for all occupations, according to the report. CJ

An aging workforce may have less negative impact on loss costs than originally thought. “older” is not really all that old; it seems to start with age 35, with all groups of workers aged 35 to 64 having similar costs per worker. Workers 20 to 24 have “markedly lower” severities and loss costs, while workers 25 to 34 tend to fall in the middle. The study found that frequency has fallen across all age groups, and differences in frequency by age have narrowed. The marked differences observed among age groups in the early 1990s had largely disappeared by 2009. The report addresses whether the narrowing is due to a change in the types of jobs held by younger workers, concluding that

8 Claims Journal | Winter 2012

2012-01-25 Claims Journal.indd 8

1/23/12 10:10 AM

Auto Injury Claim Costs Rise


ew findings from an Insurance Research Council (IRC) study of auto injury claim trends indicate that insurance claim costs countrywide have recently increased, reversing previous trends of declining or relatively stable costs. The report, “Trends in Auto Injury Claims, 2011 Edition,” documents important auto injury claim trends, both countrywide and by state, using private passenger auto claim data from national and state-level statistical reporting agencies. Although injury claim severity (the average cost of injury claims) has been increasing steadily in the past several years, much of the increase has been offset by declining claim frequency, which produced relatively stable injury claim costs per insured vehicle. However, recent data indicate that claim frequency, on a countrywide basis, is no longer decreasing. In the case of personal injury protection (PIP) claims, the effect of rising claim severity has been magnified by a simultaneous increase in claim frequency. PIP claim costs per insured vehicle countrywide increased more than 18 percent from 2008 to 2010. For bodily injury (BI) liability claims, the effect of rising claim severity has

been mitigated somewhat by stabilization, rather than an increase, in claim frequency. However, 2010 marks the first year since 1994 that BI claim frequency did not decline. Much of the deterioration in PIP trends has been concentrated in three of the largest states with no-fault approaches to compensating auto injuries — Florida, Michigan and New York. In Florida, the average PIP claim cost per insured vehicle in the state jumped 62 percent in just two years (2008-2010). PIP costs per vehicle in Michigan have been increasing rapidly for several years — rising more than 120 percent over the past decade. The New York system has seen rising and falling costs driven by a surge in suspected claim abuse in the New York City area. “These are not encouraging findings for insurers or drivers,” said Elizabeth Sprinkel, senior vice president of The Institutes. CJ


$30 Billion Tornadoes and other severe storms caused $30 billion in insured losses in the United States in 2008-2010, according to the Insurance Information Institute.

50% New federal safety data shows texting while driving increased 50 percent in 2011, despite a rush by states to ban the practice.

$10.67 Billion CoreLogic estimates 2011 U.S. flood losses totaled about $10.67 billion. The estimate is based on flooding and storm events recorded in the National Climate Data Center. U.S. flood loss in 2012 is projected at about $3.53 billion.


Texting Study Finds Slower Driver Response Times ew findings from a Texas study show texting while driving is more dangerous than previously thought. Reading or writing a text message behind the wheel can more than double a driver’s reaction time, according to a study by the Texas Transportation Institute. “Our findings suggest that response times are even slower than what we originally thought,” said Christine Yager, a TTI researcher, who managed the study. “Texting while driving basically doubles a driver’s reaction time and makes the driver less able to respond to sudden roadway dangers, if a vehicle were to make a sudden stop in front of them or if a child was to run across the road.” Reaction times slowed from one to two seconds with no texting activity, to three to four seconds while texting, the study found.

Dollars & Sense

The study found very little difference in response times between a driver composing a message and reading one. Researchers studied 42 drivers between the ages of 16 and 54 on a test-track driving course in vehicles equipped with a flashing light and a monitoring system. By comparison, Yager said drivers going 30 mph travel 220 feet in five seconds. At 60 mph, a driver covers 440 feet in five seconds, she said. Drivers in the study were more than 11 times more likely to miss the flashing light altogether when they were texting. Texting and driving has already been deemed dangerous, with 34 states adopting texting and driving bans, according to the Governors Highway Safety Association. The study also found texting impaired the ability to maintain proper lane position and a constant speed. — Associated Press CJ

The 2011 tornado season was the third most active since 1980, with 1,559 storms. The “2011 Super Outbreak” that occurred between April 25 and April 28 has been identified as the largest tornado outbreak, with 336 confirmed tornadoes spread across the South, Midwest and Northeast United States.

$8 Billion 2011 was the most expensive hurricane season for the United States since 2008. While only three named Atlantic storms made landfall — Hurricane Irene, Tropical Storm Lee and Tropical Storm Don — they caused at least $8 billion in damages, primarily from flooding. CJ Winter 2012 | Claims Journal 9


Ground Motion Study May Show Need to Modify Building Codes


n recent decades, population growth and scarcity of undeveloped metropolitan land have changed urban land use patterns and placed an increasing number of people and infrastructure in areas susceptible to topographic effects during earthquakes,” said Adrian Rodriguez-Marek, associate professor of civil and environmental engineering at Virginia Tech. “A major impediment toward understanding and realistically modeling topographic effects has been the lack of a statistically significant number of seismic recordings from densely instrumented sites with topographic features,” RodriguezMarek added. New testing conducted in a steep, mountainous region of Utah, using mining-induced events, is providing a new set of data necessary for better predictions. The testing is part of a large National Science Foundation funded project involving five institutions across the United States, with Rodriguez-Marek of Virginia Tech serving as the principal investigator. This project focuses on increasing the understanding of the effects of surface topography on earthquake ground motions and seismic risk. The goal of the project is to develop design-ready tools to account for the effect of topography on ground motions. In addition to Virginia Tech, the University of Washington, Georgia Tech, the University of Arkansas, and the University North Carolina at Charlotte are also participants.

The project uses the Network for Earthquake Engineering Simulation (NEES) equipment sites at the University of California at Davis and at the University of Texas at Austin. The first recordings included more than 50 mining-induced seismic events. Researchers from the University of Arkansas and the University of Texas at Austin gathered this first data. According to Rodriguez-Marek, when

the study is completed, they will have the necessary information to “modify building codes and to improve safety in the building environment.” Hillsides, ridges, and canyons are examples of sites where researchers do not have current reliable data to know how seismic shaking will be impacted by the ground features. Although researchers have documented

effects through observations of damage and the collapse of structures near the top of steep hills or ridges, “proper quantification of these effects” has not occurred because the areas did not have “densely-instrumented sites to record data,” Rodriguez-Marek explained. The test site in Utah stood about 2,000 feet above the long-wall mining activities of Deer Creek Coal Mine. The researchers placed 13, three-component sensors in a three-dimensional array over the ridge and hillside. Data was collected 24 hours a day for seven consecutive days. The 50 seismic events represented the first phase of a multi-phase project. Additional data will be gathered at the Utah site this summer, and from tests at a geotechnical centrifuge at the University of California at Davis. “As real earthquakes are infrequent and unpredictable, the shallow and predictable seismic activity induced by the stress relief that results from long-wall mining provides a good source of seismic energy for this study,” Rodriguez-Marek said. “Preliminary results clearly show higher ground motion intensity near the crest or peak of the slope,” he added. The early data was used to calibrate mathematical models of the effects and to design the second phase of testing that occurred in the summer of 2011. Results are still being processed. CJ

New Report Highlights Metal Hip Implant Problems


odern, all-metal hip implants appear no more effective than traditional implants and may be less safe, according to a new report, a finding that could hurt orthopedic companies that make the devices and accelerate lawsuits. The report, published in December 2011 in the British Medical Journal, found that patients who received so-called metal-on-metal implants were more likely to require repeat surgery than those who received traditional implants. Every year, more than 700,000 joint

10 Claims Journal | Winter 2012

replacements are performed in the United States, of which some 270,000 are hip replacements, according to the report. The materials used in a replacement hip’s ball-and-socket structure can vary to include metal, ceramic or plastic. Metal on metal implants were supposed to be more durable than earlier metal on polyethylene implants. But over the past few years, reports have emerged that the metal implants fail at a greater rate than traditional implants.

The report analyzed the results of 18 studies involving 3,139 patients and more than 830,000 operations reported in registries. CJ

Copyright 2012 Reuters


On-Duty Firefighter Fatalities Decreased in 2011


here were 81 on-duty firefighter fatalities in the United States as a result of incidents that occurred in 2011, according to the United States Fire Administration (USFA), representing an almost seven percent decrease from the 87 fatalities reported for 2010. The 81 fatalities occurred in 33 states, one U.S. territory, and one overseas U.S. military facility. Texas experienced the highest number of fatalities (seven). North Carolina experienced six firefighter deaths and was the only other state with five or more firefighter fatalities. “In 2004 at the initial Life Safety Summit, a number of fire service leaders did not believe we would complete a calendar year with less than 100 firefighter on-duty deaths,” U.S. Fire Administrator Ernest Mitchell said. “We broke through that perceived barrier in 2009, 2010, and now in 2011! We salute and congratulate our fire service family and pledge to continue working closely with the entire fire service community and its

partners to maintain and even accelerate this downward trend in onduty firefighter deaths.” Heart attacks were responsible for the deaths of 48 firefighters (59 percent) in 2011, nearly the same proportion of firefighter deaths from heart attack or stroke (60 percent) in 2010. Ten on-duty firefighters died in association with wildland fires, the lowest number of annual firefighter deaths associated with wildland fires since 1996. Fifty-four percent of all firefighter fatalities occurred while performing emergency duties. Only three firefighters were killed in vehicle collisions. Firefighter fatality statistics for 2011 are

provisional and may change as the USFA contacts State Fire Marshals to verify the names of firefighters reported to have died on duty during the year. The final number of firefighter fatalities will be reported in USFA’s annual firefighter fatality report, expected to be available by July 2012. CJ


CROSS COUNTRY AUTOMOTIVE SERVICES AND ATX GROUP ARE NOW KNOWN AS AGERO Agero is a new name, but our company has been on-scene for almost 40 years, assisting over 100 corporate entities and their 75 million customers, through our claims management, roadside assistance and connected vehicle services. We continually work to optimize processes, protocols, and on-scene decision-making with our: Accident Scene and Vehicle Release Management Award-winning contact centers Unsurpassed national service provider network Proprietary ViewPointTM digital damage assessment

OUR MOST INNOVATIVE OFFERINGS ARE BEING DEVELOPED RIGHT NOW Agero is uniquely qualified to offer industry leading solutions for insurance carriers and their customers, turning moments of truth into moments of trust for your brand. And thanks to our growing strength and breakthrough product offerings, we’re already leveraging our legacy of service excellence in new and richer ways – with much more to come.


Winter 2012 | Claims Journal 11


Okla. Agent Goes to Prison A Stigler, Okla., former insurance agent has begun serving time in prison for insurance-related crimes uncovered earlier this year, the Oklahoma Insurance Department announced. Oklahoma Insurance Commissioner John D. Doak, revoked the insurance license of Amanda Jean Burgess after she was accused by OID anti-fraud investigators of bilking insurance companies she represented and individual customers. She operated under the business name Burgess Insurance Agency. Burgess, 34, waived her right to a trial and pled guilty to four felony counts of embezzlement, three misdemeanor counts of embezzlement, two felony counts of perjury and one felony count of falsely impersonating another person to create liability. She was sentenced to a pair of 10-year prison terms — with all but the first five years suspended — and was remanded to the custody of the Oklahoma Department of Corrections. She will face 15 years of probation upon release. Burgess also was ordered by the court to pay more than $9,100 in fines and court costs, and to make restitution to her victims. Doak said some of Burgess’ victims were unaware that they had no insurance “after an accident left them with large liabilities and no coverage.” Amanda Burgess’ husband, Chris Burgess, is charged with one misdemeanor count of obtaining cash or merchandise by bogus check or false pretenses, and one misdemeanor count of issuing security verification without authority. He faces up to two years in jail and a $2,000 fine.

Both could receive up to life in prison if convicted.

Garnish on Life The government wants to garnish a life insurance policy of former Ball, La., Mayor Roy Hebron to ensure payment of court-ordered restitution for a FEMA theft. Hebron owes $123,518 of the $130,666 in restitution. Hebron pled guilty in 2011 to conspiracy to defraud the U.S. government after a federal investigation into the town’s activities following Hurricane Gustav in 2008. He was sentenced to four years.

$30M Fraud in California An Orange County, Calif., woman was sentenced to a 10 -prison term for committing $30 million in insurance fraud. The case was described as one of the largest-known workers’ compensation insurance fraud cases in California history. Prosecutors say Devon Lynn Kile’s prison term will be stayed pending successful completion of 10 years of probation. Between 2000 and 2008, prosecutors say Kile and her co-defendant husband, Michael Petronella, obtained workers’ compensation insurance for their roofing contractor businesses through the state and fraudulently submitted claims for uninsured injured workers. They also underreported payroll and the number of employees they employed. The couple owned five properties in California and Texas, and owned multiple luxury cars. Petronella was sentenced last year to 10 years in prison.

Burning Down the House

Missing Katrina Boat Shows Up Registered

A St. Louis, Mo., man and his ex-wife face federal indictment for allegedly burning down their home in 2001, a blaze that killed Zach Kemper, their 15-year-old son. Prosecutors allege that the former husband and wife, 53-year-old Steven Henry Kemper and 55-year-old Sandra Kay Bryant, were involved in several schemes to defraud insurance companies, including arsons of two residences in 1997 and 1999, and of a home in Florissant, Mo., in November 2001.

Two Slidell, La., residents have been accused of insurance fraud and other charges linked to a Hurricane Katrina claim. The Louisiana Department of Wildlife and Fisheries reported that enforcement agents cited 78-year-old Robert F. Angle and 77-year-old Joyce G. Angle for theft by insurance fraud, filing false public documents and injuring public records. An investigation began after a boat the Angles claimed as lost following the 2005 storm, showed up registered in Florida. The boat in question has since been seized by detectives in Lee County, Fla. The Angles each face up to 10 years in jail and a $3,000 fine if found guilty of theft by insurance fraud. Injuring and filing false public records each bring a fine of up to $5,000 and up to five years in jail.

12 Claims Journal | Winter 2012

Hawaii Police Officers Get Busted An investigation by the Hawaii Insurance Division’s Fraud Branch led to charges against a Honolulu Police Department (HPD) recruit just weeks before his graduation from the academy. Earl Danielson Jr., 28, pleaded no contest on Dec. 12, 2011, to second-degree insurance fraud and second-degree attempted theft of more than $300. The charges stem from a claim against Progressive Direct Insurance Co. sometime between March 2010 and May 2010. In an unrelated case, a bench warrant was issued for former HPD officer Richard Moerles, 28. Moerles faces charges of second-degree insurance fraud and seconddegree attempted theft. Moerles was indicted in August 2011 on suspicion of false claims against GEICO Insurance Co. Moerles is believed to be living in Idaho.

Pittsburgh Officer Files Bogus Theft Claim A Pittsburgh, Pa., police officer has pled not guilty to a federal mail fraud indictment charging him with staging a motorcycle theft so he could collect nearly $15,000 worth of insurance. Federal prosecutors in Pittsburgh say suspended Kennedy Township Officer Frank Caliguiri Jr. filed the bogus theft claim in 2009, but had really taken the motorcycle to West Virginia where he sold it for a lesser amount. He was indicted on one count of mail fraud for receiving the $14,925 insurance check from Geico on Aug. 26, 2009.

Staged Accidents, False Claims A Buckhannon, W.Va., man pled guilty to defrauding insurance companies by staging vehicle accidents and filing fake claims. Forty-two-year-old Christopher John Thrain pled guilty to one count of mail fraud. U.S. Attorney William Ihlenfeld said Thrain is an auto body repair specialist who talked people into staging accidents. Thrain and others would then file false claims with their insurance companies. Thrain admitted in court that he used the federal postal system to obtain a check for more than $2,700 as part of that scheme. Thrain is free on bond but faces up to 20 years in prison and a $250,000 fine when sentenced. CJ


More Crashes at Intersections With Flashing Lights sionals, so that we can develop countermeasures to reduce the high incidence of crashes and resulting deaths and injuries at intersections,” Bhat said. A key finding of the study is that intersection accidents are affected by the larger traffic network around them, and that fixing a dangerous intersection will reduce accidents on neighboring streets. “If you don’t account for this dependence, which is what almost all earlier studies have done, you underestimate the value of roadway and traffic control improvements,” Bhat said. Intersections with traffic lights are the safest, the study found. But once an accident begins to develop, it is harder to stop, Bhat said.

Researchers will present the findings at the National Transportation Research Board Meeting in Washington next month. CJ

Copyright 2012 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Others get too wrapped up in the numbers. We discover and define financial value. Our Forensic Accountants analyze claims to establish the correct facts and determine the accurate loss amount. We specialize in:

1. 888.RGL.4CPA rgl.com


ntersections with flashing lights have three times more accidents than those with only stop signs, and intersections with highway frontage roads are high risk, reported a University of Texas study released in late December. A civil engineering research team led by professor Chandra Bhat determined which intersections were the most dangerous so that future studies can consider how to make them safer. The team used data collected by the Texas Department of Transportation. Roughly 40 percent of all traffic accidents take place at intersections, Bhat said. His study could not determine if flashing lights at intersections confused drivers or if traffic engineers have placed flashing lights at the most dangerous intersections. Drivers exiting highways are also more likely to crash, either because they are going too fast or switching lanes in a dangerous manner. “Understanding their causes should be a priority for transportation and safety profes-

ȩ Property Claims > Business Interruption/

ȩ Fidelity/Surety Bond

Extra Expense > Business Personal Property/Inventory Claims ȩ Catastrophe Response

ȩ Liability Claims > Product Liability > Personal Injury/

United States



Wrongful Death ȩ Subrogation

Asia Pacific

Winter 2012 | Claims Journal 13


The New Age of Business Crime Protecting Business From Illegal Electronic Funds Transfers

By Jason Glasgow


he cyber world has changed the way we communicate and work, and it also has changed business crime. Business owners are finding that crime has evolved with technology, exposing their businesses not only to employee theft, embezzlement or burglary, but also to cyber crimes such as electronic funds transfer (EFT) fraud. Criminals can carry out an illegal EFT a few different ways. One is simply by accessing a company’s bank account directly through a cyber hack. In other cases, a criminal will use secure information like bank account numbers or social security numbers to conduct a fraudulent transfer of funds. A criminal may even sell the secure information to a third-party, who then can perform the illegal EFT. Today’s cyber crimes pose similar threats as “old fashioned” criminal activities. Thus, protecting electronic information is as important as locking the doors to an office so no one can access physical files.

14 Claims Journal | Winter 2012

example insurance companies such as TravelWithout proper protection, criminals ers have seen all too frequently. For example, can do the electronic equivalent of rifling a company’s finance director opened an through a file cabinet to complete fraudulent EFTs with the potential to completely wipe e-mail with an attached .zip file that contained a virus. The virus obtained the user out a company’s finances. Insurance professionals can help business owners understand ID and password to the company’s account with its bank. Immediately thereafter, a that a cyber crime like illegal EFTs can be just as devastating as a break-in at their comfraudulent electronic wire transfer initiated pany. No business is exempt from this type of threat. Companies often overlook the cost One of the biggest mistakes a company can make is of inadequate safety programs to the to assume that only financial bottom line. Claims managers can help institutions are vulnerable to EFT fraud. Any company that to communicate that information to engages in online banking both safety teams and management. is at risk. Many commercial businesses assume banks cover these incidents the same way they by persons unknown caused $147,000 to be would for an individual. However, banks typi- wired from the company’s bank account to cally don’t provide that protection for busian unknown bank account in Arizona. The ness clients, making it even more important money was withdrawn before it could be for businesses to obtain the proper insurance recovered. protection against EFT crimes. The example of the finance director’s This particular type of cyber crime is an unfortunate run-in with an illegal EFT shows

Knowledge is power. How powerful are you?

It’s really pretty simple. When you’re more knowledgeable, you make better business decisions. And better business decisions yield measurable and meaningful results.

© 2012 American Institute For Chartered Property Casualty Underwriters

just how susceptible a business can be. Because secure information is now digitized, data is immediately accessible. Having unprotected electronic information is the equivalent of a business leaving its doors unlocked. Identifying exposures and implementing best practices is an important component of a smart risk management strategy. There are steps business owners can take to secure their businesses against these exposures. Determining the right type of insurance coverage is a cornerstone to a business’s successful cyber security system. Adding the following steps to a company’s list of security measures can help ward off EFT fraud: Have a Cyber “Alarm” System: Antimalware software for a company’s computers is the equivalent of a home or business’ alarm system. Agents can advise clients to work with their IT personnel to determine what antimalware software package provides the best coverage for their business’s needs, and to make sure this software is renewed regularly. Educate Employees: Rather than being a source of exposure, employees can be a business’ first line of defense. This starts by informing employees on proper risk management practices. For examples, employees should know to avoid e-mails sent by unknown senders; stay clear of unfamiliar Web sites; use company-approved external devices; keep personal passwords private; and alert IT personnel to unfamiliar pop-ups or files that might contain malware. Know the Status Quo: The best way to spot unusual activity within a company’s EFT logs is to be familiar with them in the first place. Business owners should check their bank transfer logs daily. Doing so at night can serve as another measure to prevent fraudulent transfers before they are processed the following day. Business owners also can set up limits on the amount of funds that can be transferred and reserve one computer solely for EFTs. While business crime is evolving with technology, insurance professionals can be a resource for clients by providing the best insurance coverage options and risk management techniques to limit cyber crimes such as EFT fraud. In this new age of business crime, a business can never be too careful. Ensuring businesses on Main Street and Wall Street have a “lock” on the door to electronic assets will help ensure that they thrive and ward off cyber threats. CJ

Whatever you need, The Institutes’ proven knowledge will help you achieve powerful results with a variety of flexible, customer-focused options. In addition to our respected credentials, like CPCU®, AINS, AIC, ARM, ARe, AU, AAI®, and many more, The Institutes also offer: s Flexible Online Learning s Continuing Education through CEU.com s Custom Knowledge Solutions s Insightful Analysis through our Insurance Research Council (IRC) Visit www.TheInstitutes.org for more information.

720 Providence Road, Suite 100 | Malvern, PA 19355 (800) 644-2101 | customerservice@TheInstitutes.org www.TheInstitutes.org

Glasgow is CyberRisk product manager for Travelers Bond & Financial Products. Winter 2012 | Claims Journal 15


Halsey Fischer

Robert O’Brien

APEX Investigation, a California-based business specializing in insurance, workers’ compensation, liability and human resource investigations, named Halsey Fischer president. His responsibilities will include building relationships, overseeing day-to-day operations and managing corporate strategy. Fischer comes to APEX with more than 21 years in the private investigations, insurance fraud and securities consulting fields. Prior to entering the investigating and security consulting arena, Fischer worked in the computer services and data processing industry. Crawford & Co., a worldwide independent provider of claims management services, named Robert O’Brien vice president of account management for its U.S. property/casualty business. He will lead the business unit’s national and regional account management teams. O’Brien has more than 30 years of experience in sales, technology, insurance and management, having held senior sales leadership and director level positions at Willis, HRH, Hobbs Group, ExecuTrain, Lotus Development and Tektronix. Certified Restoration Drycleaning Network

Robert Murray

(CRDN), an international organization of textile restoration specialists serving the insurance industry, named Robert Murray national sales and operations manager. Murray previously spent four years as a customer sales executive with The Hartford. His background includes advanced marketing and business development skills, as well as solid operational expertise.

W.R. Berkley Corp. named William M. Rohde Jr. senior vice president.

William M. Rohde Jr.

Rich Bladek

Previously, Rohde was president of Acadia Insurance Co., W.R. Berkley Corp.’s regional operating unit based in Westbrook, Maine. Douglas M. Nelson will succeed Rohde as the new president of Acadia Insurance Co. Rohde will assume oversight responsibilities for its regional operating units and report to W. Robert Berkley Jr., the company’s president and chief operating officer. Rohde has more than 25 years of experience in the property/casualty industry.

CNA Select Risk, which includes excess and surplus business, as well as wholesale property accounts, appointed Rich Bladek assistant vice president of Select Risk – Casualty. He will be responsible for creating new strategies to drive profitable growth within the unit’s central region. Bladek brings to CNA 12 years of insurance industry experience in commercial and personal lines, including extensive casualty underwriting experience. He most recently served as an underwriting manager in the Commercial Casualty division of Chartis. As a result of current president and CEO David Moore’s retirement announcement effective Aug. 1, 2012, Shelter Insurance Companies named Rick Means, executive vice president and chief operating officer,

16 Claims Journal | Winter 2012

president-elect as of Jan. 1, 2012. Means will become president and CEO on Aug. 1, 2012. He will become immediately involved in all aspects of Shelter management during the transition process. Means joined Shelter Insurance in May 1977 working in the claims department. He has served as vice president of claims, vice president of underwriting, and has been an executive vice president since 2007. His areas of responsibility have included marketing, information technology, Shelter benefits management, claims and underwriting. Shelter Insurance is a group of companies with two direct personal lines property and casualty companies, a reinsurance company, a life and annuity insurer, and a thrift bank. Shelter offers auto, home, life, farm and business insurance services to customers in 16 states via a network of 3100 local insurance agents. The firm’s home office is located in Columbia, Mo.

XL Group PLC named Ken Riegler president of its North America Property & Casualty unit. Riegler will be based in New York and report to Seraina Maag, XL’s CEO for North America Property & Casualty. Riegler joins XL from ACE USA, where he served as president of the Foreign Casualty group and the North American Multi National Client Group, operating out of home offices in New York and Philadelphia, and managing nine regional and six satellite offices. Prior to his recent position, he was responsible for ACE Risk Management’s business throughout the Western half of the US. Before joining ACE in 1999, Riegler held regional management and underwriting positions with Reliance National and New Jersey Manufacturers Insurance Company. In a separate announcement, Jay Lefkowitz was appointed to a newly created position as head of U.S. Risk Management. Lefkowitz is based in New York and reports to Riegler. Lefkowitz will direct the group’s U.S. Risk Management team, which provides auto liability, general liability and workers’ compensation coverage to US-based businesses. Lefkowitz joins XL from ACE Risk Management, where he most recently served as president of National Accounts, managing all aspects of underwriting, claims, audits and adjustment, staffing, account retention and production. Prior to joining ACE in 1999, he was vice president of AIG’s Risk Management group, where he formed the company’s M&A group which was a multiline insurance products group catering to private equity firms and their portfolio companies. Lefkowitz’s 20-plus-year insurance career also includes underwriting positions with CNA, Atlantic Mutual and Home Insurance Company. York Risk Services Group, a claims administration and risk management services provider, announced that Pat Mulcahy has joined the company as vice president of sales for its south central territory. Mulcahy will have responsibility for sales, market-


ing and business development activities for York’s Risk Management, Alternative Risk and Public Entity divisions in seven states. He is based in Dallas. Before joining York, Mulcahy held a variety of executive sales and marketing positions, most recently serving as director of sales for national accounts for a third-party claims administrator in Texas.

Cunningham Lindsey, a Texas-based provider of independent loss adjusting and claims management services, promoted Chuck Stoll, Joe Christie and Lynn Summers to protégé in its international and executive loss adjusting division. Stoll has more than 36 years of loss adjusting experience. He earned the professional designations of Chartered Property & Casualty Underwriter, Associate in Claims and Associate in General Insurance, and is a Registered Professional Adjuster. He is based in Lombard, Ill. Christie has 21 years of experience and has expertise in commercial and residential property and casualty, including specialty areas of HVAC, plumbing, electrical and mechanical-based losses. Summers has more than 23 years of loss adjusting and management experience,

including property, casualty, environmental casualty, and workers’ compensation.

RLI Corp. a specialty insurance company offering a property and casualty coverages and surety bonds serving niche or underserved markets, named Carol Denzer vice president, underwriting, Contrac Pac, effective January 1, 2012. Denzer will report to Paul Simoneau, vice president of RLI Casualty Brokerage, and will be responsible for leading the growth of Contrac Pac, a product RLI gained through its recent acquisition of CBIC. Denzer has 24 years of experience at RLI and began her career with the company in 1987 as a reinsurance accountant. She has held various positions within the organization and has served as vice president and chief information officer since 2006. Most recently, she led the integration efforts associated with RLI’s acquisition of Contractors Bonding and Insurance Company in April 2011. Employers, a nationwide small-business insurance specialist, announced that Stephen V. Festa, senior vice president and chief claims officer, was named vice chair to the board of governors of the California

Mar 5-7 Mar 20-22


April 23-25


May 8-10 May 15-17

Feb 16-18

Philadelphia Hartford Charlotte

Mar 8-10



Little Rock

See additional dates and locations online: certifiedroofinspector.com

Save $349 when you register for both Certifications back-to-back!†

Robinson has 30 years of experience as an all lines adjuster with management and litigation experience. Prior to State Auto, she was employed with Texas Property & Casualty Guaranty Insurance Association, Texas Department of Insurance, Allstate, Providence Washington Group and Marsh & McLennan. Robinson also has third-party administration experience with several leading companies. CJ

Feb 2-4

Las Vegas

April 2-4

The Austin, Texas, claims facility of State Auto Insurance, now operational, named Sandra Robinson claims supervisor.

Commercial Roof Inspector Certification. $999*.

Residential Roof Inspector Certification. $899*. Feb 13-15

Insurance Guarantee Association (CIGA), a body that pays the claims of insolvent property and casualty insurance carriers. Prior to being named vice chair, Festa most recently served as the CIGA board’s secretary and treasurer. Festa first joined the CIGA board in 2009, representing Employers as an insurer member. He remains the only C-level claims executive to serve on the board. Festa has served as senior vice president and chief claims officer of Employers Insurance Company of Nevada and Employers Compensation Insurance Co. since 2004. She has more than 25 years of industry experience.

Use promo code “CLJ12” to get

Pay only $1549 when you register for both sessions.

* Continuing education fees not included. † Discount only applies when registering for both HCRI courses during the back-to-back session dates. ‡ Fifth registrant free excluding registration for back-to-back sessions.

Dallas Las Vegas

April 26-28


May 22-24

St. Louis

Aug 21-23


Sept 20-22


See additional dates and locations online: certifiedroofinspector.com

Special Early Bird Offer: Get $

Des Moines

-( OFF

Registration Fees

Up to 20 CEs Available.

See website for more details.

Buy 4 Get One FREE!‡

800-527-0168 Winter 2012 | Claims Journal 17


Drug Diversion Rx Claims Departments on Guard as Prescription Drug Abuse Reaches Epidemic Levels By Lori Widmer


f the 2.1 billion prescriptions the American Medical Association estimates are written annually, nearly 25 percent of those were used by approximately 52 million Americans for something other than a medical reason. So says the National Institutes of Health (NIH). While teenagers make up a large percentage of drug abusers, nearly every age group is susceptible to prescription abuse. That makes a claims manager’s job difficult. With billions of prescription drug claims to process annually, claims departments often lack the time or additional resources needed to fully investigate potential fraud. Drug diversion, as inappropriate use of prescription drugs is called, costs insurers nearly $72.5 billion annually, according to a Coalition Against Insurance Fraud (CAIF) report from 2007, the most recent year from which CAIF data is available. Since then, those numbers have spiked, many experts say. The NIH report shows a marked increase in the number of opioid prescriptions filled by U.S. pharmacists, from 192 million in 2007 to 210 million in 2010. Likewise, the number of stimulants spiked from 33 million prescriptions filled in 2007 to 45 million in 2010. “The question is what is the definition of abuse?” according to Dr. Jacob Lazarovic, chief medical officer for Broadspire in Ft. Lauderdale, Fla. “There’s inappropriate use, abuse, fraud, diversion. The prevalence varies, but certainly there are a lot of problems in pharmacy use.” The CAIF report also suggests that insurers could be on the hook for enormous liability judgments if they are sued for failing to “reasonably prevent” rampant fraud schemes. Drug manufacturers and pharmacists already have been hit with such lawsuits, brought by victims killed or injured through their addictions to diverted drugs.

Insurers’ Response With preventable costs that high, insurers should be on top of the problem. Yet they aren’t, according to James Quiggle, CAIF’s director of communications. He said his organization’s report shows that while some health insurers are actively involved in identifying fraud and abuse, many don’t realize there’s a problem. The report surprised him. “The surprise was how Insurers and other large the epidemic of drug diversion really is, and how far payers simply didn’t insurance companies have to go to launch a coordinated recognize the extent assault on fraud,” Quiggle said. “Insurance companies and other payers simply didn’t recognize the extent to which to which they were they were possibly being bled.” Insurers may not be as blind to the problem as CAIF’s possibly being bled report indicates, yet they are certainly silent. No insurer by drug diversion. responded to the request for an interview for this article, an indication according to one source of the industry’s reluctance to publicly address drug abuse as insurance fraud. Claims adjusters and departments can become catalysts for change. Data mining software can be effective in identifying fraud, according to the Insurance Information Institute. Patterns in prescription fulfillment, frequency of prescriptions and “doctor shopping,” in which patients go to different doctors to obtain the same prescriptions repeatedly, can be 18 Claims Journal | Winter 2012

pulled automatically from records. Claims staff can then determine doctors, claims personnel, pharmacies, pain management companies the severity, prioritize and send the data to investigators. and nurse case management — conduct due diligence. Linda Webb, president of Con“That’s aggressive claims handling,” tego Services Group, career fraud Webb said. “It’s important, too, to have Putting claims investigation investigative expert, and star of the early return-to-work programs. That’s one upcoming pilot production “Fraud of the most successful programs because and prevention measures Dog,” said the industry needs to the employee is back working and not rethink the claims process. Putting focusing on pain or drugs.” at the front end of a filing can investigative measures and prevenOne expert believes that current save insurers lots of money. tion at the front-end of a claim filing reporting systems do more to tie the can save untold amounts of money hands of claims professionals than to for companies and insurers, she said. allow them the ability to curb fraud and abuse. “The nurse and “We need to do everything we can within the first seven days. claims adjuster can’t do a darn thing, except [to] notify the providers Wouldn’t you want to know if you have someone who goes to the of possible abuse. That is part of the problem,” said Thomas F. Jan, pharmacy a lot? Wouldn’t you want to know that within the first fellow with the American Osteopathic College of Physical Medicine seven days of the claim?” she asked. & Rehabilitation, and diplomate for the American Academy of Pain Webb suggested claims departments have a strong medical team, Management and the American Board of Addiction Medicine. “The as well as pain management teams monitoring prescription drug providers are the ones that have to address the problem.” use. Understand the claimant and the viability of the claim, Webb He recommended claims adjusters point patients to addiction advised. “Was the claimant actually injured? Have there been muland pain specialists early, and then provide treatment support. That tiple prior claims? How many prior hospital visits and [how much] is less expensive than waiting for addiction to become a months-old pharmacy use is there?” problem, he said. Good medical management and monitoring at the beginning Broadspire’s Lazarovic recommended processing claims through of the claim is Webb’s recommendation for thwarting a problem a pharmacy benefit manager, which can provide data necessary to before it begins. “For claims companies that are very aggressive in detect problems. With workers’ compensation cases in particular, he their investigations, they will see those patterns, and they should said pharmacy benefit managers can provide answers to key quesbe questioning that,” she said. tions. “Are the prescriptions compensable and related to the medical If they or their family members have had multiple claims, that’s injury? Are they all medically appropriate for the condition being also a red flag, Webb added. “We’re in multi-generational fraud treated? And are the dosages correct and appropriate?” he said. cycles,” she said. “It’s been passed down. It becomes a learned Lazarovic also suggested companies set standard usage guidebehavior.” lines and integrate the pharmacy benefit manager within the cliniExperts advise first investigating the drugs most commonly cal program. abused. According to the NIH, these fall into three categories Quiggle believes the claims industry has many tools to thwart — opioids (pain relievers), central nervous system depressants abuse of prescription drugs and fraud. “To a large extent, the data (anxiety/sleep disorder treatments), and stimulants (for conditions are there,” he said. “The question is how do you mobilize that data such as ADHD and narcolepsy). By far the most-abused drugs are to recognize patterns? Then once you recognize the pattern, how pain relievers, accounting for 210 million prescriptions annually. do you respond to it? There needs to be company-wide, payer-wide Pharmacies now are sharing information, which has made it protocols.” CJ easier to monitor patient use of prescription drugs. That, Webb said, has been a huge improvement in the past decade. Still, she Widmer is a Philadelphia-based writer who specializes in insurance and risk management topics. recommended all players in the management cycle — insurers,

Weeding Through Red Tape


f all the prescriptions available for pain management, the one having the toughest time gaining a toehold in the industry is cannabis. Marijuana, an illegal substance in all 50 states, has been approved for medical use in 16 states. What does that mean for patients looking for insurance reimbursement for medically prescribed cannabis? Not much, it seems. Medical marijuana is still listed as a Schedule 1 drug — one with little medicinal value and a high abuse potential. Despite Abbot Laboratories, the makers of Marinol (generic name dronabinol), having won FDA approval for medical marijuana, experts say insurers are still in danger of breaking federal law should

they reimburse for a Schedule 1 drug. So the move to change the classification of medical marijuana is afoot. Vermont Gov. Peter Shumlin is one of the most recent advocates pushing the federal government to reclassify the drug for medicinal purposes. In an interview with NPR in December 2011, Shumlin said this about his decision: “Vermont and Maine happen to share the distinction of having per capita the highest number of residents who are abusing Oxycontin and other opiates that are sold by pharmacies and are legal in America according to the FDA. I personally think that that’s a much bigger crime problem for us and a much bigger addiction problem for us that’s leading to crime, than small amounts of marijuana.” CJ

Winter 2012 | Claims Journal 19


services to a global client base of insurance carriers, public entities, Lloyds of London syndicates, brokers and associations.


Cover-All Technologies Inc.

Colonial Claims Corporation

Cover-All Technologies Inc., a Delaware corporation, acquired the assets of BlueWave Technology, including its insurance claims software, PipelineClaims, in a cash transaction. The Cover-All/BlueWave browser-based claims administration software will be marketed both as a stand-alone product, as well as a fully integrated component within Cover-All’s existing policy and business intelligence products, offering Cover-All customers a fully integrated, full function business technology platform. Cover-All will retain most of the employees of BlueWave, including Alyssa Hostelley, president, and Keith Inouye, chief operating officer. Cover-All also announced that Aaron Herrmann is joining as vice president of sales. Herrmann has more than 16 years of insurance software sales experience and nine years of providing claims administration solutions to the industry.

The principals of Colonial Claims Corp. announced that a subsidiary of Brown & Brown Inc. has acquired certain assets of Colonial Claims Corp., Continental Claims Corp., and Colonial Claims of Kentucky Inc. (collectively, “Colonial Claims”). With combined annualized net revenues of approximately $6.6 million, Colonial Claims provides insurance claims adjusting and related services, including education and training services, throughout the United States. Following the transaction, the acquired Colonial Claims operations will continue to operate from their existing locations in Lexington, Ky., and Dunedin, Fla., under the leadership of Doug Branham. Brown & Brown Inc., through its subsidiaries, offers a range of insurance and reinsurance products and related services.

York Risk Services Group (York) York Risk Services Group, a national provider of claims-management, specialized loss adjusting, insurance pool administration and other insurance services, acquired Dublin, Ohio-based Avizent. The terms of the acquisition were not disclosed. Avizent, a national third-party administrator, provides claims management services, managed care services, alternative risk financing options and a variety of loss control services to clients including public entities, self-insured clients and carriers. 20 Claims Journal | Winter 2012

T&H Global Holdings LLC T&H Global Holdings LLC, a provider of specialized insurance claims services to insurance carriers, insurance brokers, corporations and public entities, announced its VeriClaim Inc. subsidiary acquired Cramer, Johnson, Wiggins & Associates Inc. (CJW), a provider of loss adjusting and third-party administration services to the global property and casualty insurance market. With 11 offices throughout Florida, Texas and Georgia, CJW specializes in both property and liability claims services, including adjustments, investigations, appraisals and surveys. Through its TPA operation, CJW provides property/casualty claims management

Headquartered in San Antonio, Texas, IAS, a claim services provider in more than 27 states, purchased Jim Buckley & Associates of Anaheim, Calif. The regional adjusting firm, also operating under the name JBA Insurance Adjusters, has multiple office locations covering California, Arizona and Nevada. JBA Insurance Adjusters will immediately begin operating as IAS Claims Services. The acquisition gives IAS a footprint servicing more than one-third of the U.S. population for day-to-day property/casualty claims and two-thirds of the U.S. population for catastrophic claims. Buckley, who brings more than 20 years of claims industry leadership, will become a regional vice president of IAS Claim Services in charge of the Western United States. He also will lead IAS Claim Services’ large loss unit across the company.

Engle Martin & Associates Inc. Engle Martin & Associates Inc., a commercial loss adjusting and claims management firm, has extended its national presence with the opening of three new locations during the third quarter of 2011. The company has expanded into Tucson, Ariz., Fayetteville, Ark., and Jackson, Miss., increasing its total number of service locations to 36. The Tucson location marks Engle Martin’s second office in Arizona and will support the established Phoenix office in servicing the entire state. With more than 20 years of insurance industry experience, John Vincent, general adjuster, will lead the new office. Vincent specializes in adjusting multi-line commercial insurance claims, including property, casualty, auto liability and auto physical damage. The new Fayetteville, Ark., office will service a tri-state area, including northwest Arkansas, northeast Oklahoma, and southwest Missouri. Leading the office is Deven Dagen, general adjuster, with more than 30 years of experience in the claims industry. The addition of the Jackson, Miss., office will extend the company’s coverage around the Gulf of Mexico. Patrick Blankenship, general adjuster, will lead the Jackson office, providing the market with 13 years of adjusting experience, as well as a background in commercial property management and commercial real estate. CJ

A division of Weather Decision Technologies, Inc.









Sum me

l Fa



Providing Data and Reports for All Weather Events    






David Versus Goliath Revisited What Happens When Small Cars Meet Big Cars on the Road? By Donald Parker


mall cars have always been with us, but with new incentives driven by the high level of fuel prices in the past few years, automobile manufacturers are introducing a swarm of small and even “micro” cars to an eager buying public. With modern, robust construction and materials, and the latest safety technologies in place, these new small-car entries are in many cases able to attain high marks in federal and insurance crash safety ratings. Yet what do the laws of physics dictate when “David” meets up with “Goliath” on the road? In a certain light, history is repeating itself. In 1973, the first Arab oil embargo caused fuel shortages, quickly escalated gas prices and led the U.S. Congress to first enact Corporate Average Fuel Economy (CAFE) standards. Car sales subsequently stalled, and automakers responded with aggressive plans to introduce smaller and lighter cars. By 1985, cars were an average of approximately 500 pounds lighter than their predecessors. In subsequent years, fuel was again relatively inexpensive, and average car size crept back up. The light truck market of sport utility vehicles (SUVs), pickups and vans grew dramatically, eventually surpassing cars in volume. Unprecedented fuel price increases in 2008 triggered a collapse in large car and light truck sales, and led Congress to mandate the most aggressive fuel economy standards in history. In 2009, the fleet CAFE standard was set at 35.5 miles per gallon (mpg), to be achieved by 2016. In 2011, the standard was updated and set at 54.5 mpg, to be achieved by 2025. Every major auto manufacturer responded by rushing to introduce small cars to meet customer demand and federal CAFE requirements. While it has long been common public perception that the size and weight of a large car generally equates to a safer car, this issue may become somewhat confused by the advent of safety ratings issued by federal and insurance organizations based on crash testing. The two most common and publicly accessible ratings are issued by the National Highway Transportation Safety Administration (NHTSA) and the Insurance Institute for Highway Safety (IIHS). NHTSA issues ratings of between 1 and 5 stars, which signify a statistical risk level of occupant injury in a given crash scenario, with 5 stars being the best rating. IIHS gives a rating of poor-marginal-acceptable-good, based partly on occupant injury risk, but also based on subjective evaluations of vehicle structural performance and occupant movements. These ratings are based on crash tests conducted primarily against a rigid barrier, or a 3,000-pound moving barrier intended to simulate another vehicle in side and rear impacts. There can be no doubt that cars today are safer than ever before because of the continuous development of safety features, including

22 Claims Journal | Winter 2012

seat belts and pretensioners, a variety of air bags and side curtains, electronic traction, braking and stability controls, adaptive headrests, high-strength structural materials, and other technologies. Even so, certain physical laws of nature prevail. It comes down to Newton’s Second Law of physics;

F = ma The change in velocity versus time (acceleration) of an object is directly proportional to the force applied, and inversely proportional to its mass. For frontal crash evaluation particularly, testing is typically done using a rigid barrier. In a simplified sense, the car crashes into the barrier at some predetermined speed and comes to a stop. The change in the vehicle’s speed, in this case to zero, is commonly called the “Delta-V.” In a rigid barrier crash, the Delta-V is theoretically the same as the pre-crash speed (See Figure 1: Understanding Delta-V Vehicle Speed on right). In reality, the Delta-V will actually be a bit higher because the car has a certain amount of spring-back or restitution, and will bounce away from the barrier at a reduced speed. Think of dropping a ball of soft putty (very low restitution) and a golf ball (high restitution) to the floor, and the difference in how high they bounce. In the formula of F=ma, acceleration (a) can be equated to:

Therefore, Delta-V is proportional to the acceleration. In the absence of intrusion into the passenger compartment, the Delta-V is generally an effective indicator of the severity of the collision for the vehicle’s occupants. That is, low Delta-Vs relate to low forces and lower injury risk, higher Delta-Vs relate to higher forces and higher injury risk. Newton’s Third Law of Physics dictates that the forces of action and reaction between any two interacting bodies are equal, opposite and collinear. What this means is that in a given rigid barrier crash test, the car is in essence crashing into the equivalent of an identical car traveling at the same speed in the opposite direction. Everything matches up; they come together in the middle and basically stop. Where it gets more complicated is when the two vehicles coming together are not identical. This article only addresses mass issues. Size and proportional issues, such as bumper and structure height, crush space and stiffness compatibility are complications worthy of lengthy discussion on their own. For simplicity, it is also assumed that in cars, “small” equates to “lighter” and “big” equates to “heavier.” Take, for example, the approximate curb weight of two recent products available on the American market: a 2009 Mercedes C-Class sedan and a 2009 Smart car (See Figure 2: Approximate Curb Weight). No endorsement or criticism of either product is intended, they just are two products from the same manufacturer that had similar safety ratings, yet very

different size and weight characteristics. Both were given safety ratings by both the NHTSA and the IIHS (See Figure 3 Safety Ratings). As noted, Newton dictates that the forces in a collision are equal and opposite. So while the forces acting on the two vehicles are equal, the masses are not — thus the accelerations are not, either. From Formula 1, the acceleration is inversely proportional to the mass. Laws governing Conservation of Momentum come into play. In its simplest form, laws of linear momentum dictate that:

Where W1 and W2 are the weights of vehicles 1 and 2, V1 and V2 are their respective velocities, and V3 is the velocity of the combined vehicles, stuck together after the impact like balls of putty. For simplicity, this ignores any restitution effects, and in essence says that the velocity of the combined vehicles is equal to the sum of the weight of each vehicle multiplied by its speed. This affects a collinear frontal or head-on crash in cars with mismatched weights. In a hypothetical collinear frontal or head-on crash between a C-Class and a Smart car (See Figure 4: Momentum Effects in a Frontal Crash), the speed of each car is 40 mph, so the closing speed is 80 mph. Due purely to mass and momentum effects, the post-crash speed of the combined vehicles is 13 mph in the direction the C-Class was heading, with the Smart car being pushed toward the rear. While the heavier C-Class experiences a Delta-V (acceleration) of 27 mph, the lighter Smart car experiences a Delta-V of 53 mph, nearly twice that of the C-Class. The acceleration experienced by the Smart car during the collision would be higher by the same proportions. Restitution would tend to increase the Delta-V on each car by a few miles per hour, as the cars bounce away from each other a little. The same simplified physics applies easily to a collinear rear crash as well as a frontal crash (See Figure 5). In a situation where the C-Class rearends the Smart car at a closing speed of 40 mph, again ignoring restitution, the C-Class experiences a Delta-V of 13 mph while the Smart Car experiences a Delta-V of 27 mph — twice that of the C-Class (See Figure 6). The numbers illustrate that what happens in a crash all relates to the weight of the vehicles; the C-Class weight is approximately twice that of the Smart Car. The Delta-V for each vehicle is inversely proportioned to its weight. While both cars have similar safety ratings in collisions with solid barriers, the physics is stacked against the small car in a collision with a heavier car. This is reflected in testing reported in an April 2009 IIHS Status Report (Volume 44, Number 4). In that testing, a frontal crash test with a C-Class Mercedes and a closing speed of 80 mph resulted in the Smart car being given a “poor” rating, as compared to a “good” rating based on a 40 mph barrier crash test. As explained, the barrier crash test roughly simulates a frontal crash into another Smart car at a closing speed of 80 mph. The bottom line is that while safety ratings such as those posted by the NHTSA and the IIHS are important and useful indicators, it must also be taken into account how they are developed and what they truly represent. From basic physics, in most collisions between a small car and a big (heavier) car or light truck, the small car occupants will be exposed to greater impact accelerations than those in the heavier car. Consequently, occupants of a small car likely will be exposed to greater injury risk. CJ

Parker is a principal with Exponent Inc. in its Detroit-area office. He spent more than 20 years designing and testing automotive products, with an additional 17 years investigating, researching and reconstructing real-world crashes and evaluating vehicle crashworthiness performance. Winter 2012 | Claims Journal 23


The Split Over Workplace Safety Revisiting OSHA’s Role: Enforcement vs. Education

24 Claims Journal | Winter 2012

By William Atkinson


roviding a safe working environment is crucial to saving lives and saving loss costs. But what works best to motivate business owners and management to seal the cracks in unsafe working conditions? And what role does the government play in reducing workplace injuries today? Since 1970 — the year the law creating the Occupational Health and Safety Administration, known as OSHA, was signed by President Richard Nixon — the federal oversight agency’s mission has been to assure safe and healthful working conditions for working men and women. OSHA sets and enforces standards that businesses must follow and provides training, outreach, education and assistance to employers nationwide. While OSHA’s standards have made working conditions in America safer than 40 years ago, some question the role OSHA should play in the workplace now. Some believe OSHA should focus primarily on promulgating new regulations, performing inspections, and levying penalties for infractions. But others believe OSHA should instead focus on using its resources and knowledge to provide consulting services to businesses and partner with them to reduce workplace injuries and deaths. On this continuum, Marc Freedman, executive director of Labor Law Policy at the U.S. Chamber of Commerce in Washington, D.C., gravitates toward the education and partnerships side. He believes that there are three fundamental problems with an OSHA focused on regulations, performing inspections and levying penalties. “First, if you look at what drives workplace safety and what motivates employers to get serious about it, it is not OSHA,” he states. “It is workers’ compensation and other insurance premiums, the interruption to production, and other inefficiencies.” In other words, according to Freedman, employers are continually trying to reduce costs. Fear of OSHA inspections and fines are near the bottom of the list of concerns. Second, Freedman says that when he talks with employers who are serious and proactive about workplace safety, they aren’t concerned about OSHA. These employers are usually doing far beyond what OSHA requires. “Third, if you go into the small business arena, where employers are the least likely to see OSHA inspections, the question of OSHA’s impact becomes even less,” he maintains.

A third group is composed of employers who want to do the right thing, but don’t know what to do, how to do it, or where to turn. Freedman believes that it is this third group of employers that OSHA should concentrate on. “I think OSHA’s most useful role is to provide employers with a base level of information and a certain structure of what is required of them,” Freedman says. “If employers have nowhere else to turn for workplace safety issues, they should be able to turn to OSHA.” OSHA says it is well aware that the vast majority of employers want to do the right thing, but many need information and assistance to do so. That’s one reason why OSHA’s compliance assistance program works to ensure that employers and employees understand workplace hazards and how to prevent them, an OSHA spokesperson with the Department of Labor’s public affairs office told Claims Journal. According to OSHA, its “compliance assistance activities” include outreach, consultation, training, grant programs and cooperative programs and its On-Site Consultation Program is designed to provide “professional, high-quality individualized assistance to small businesses at no cost.” The consulting service promises free and confidential workplace safety and health evaluations and advice to small businesses with 250 or fewer employees and is separate and independent from OSHA’s enforcement program. OSHA says its compliance assistance programs are run by the states and receive 90 percent of their funding from OSHA. The On-Site Consultation Program is currently funded at $54.8 million, but the fiscal year 2012 budget includes a $1 million increase. Freedman believes that the employers who need and want help, but don’t know where to turn, are where the greatest gains in workplace safety are going to be found. In a lot of cases, these are small businesses that don’t have the resources to hire consultants or safety managers.

What drives workplace safety and motivates employers to get serious, is not OSHA.

Difference in Employers Freedman also believes that there are three types of employers. “A small percentage of employers don’t care about safety and aren’t going to be motivated by OSHA fines or anything else,” he states. “We are not here to defend them. These employers are always going to exist, and we support legitimate enforcement activity that targets them.” A second group of employers wants to do the right thing, knows how to do the right thing, and is doing the right thing.

Not Doing Enough Despite OSHA’s compliance assistance program effort, in Freedman’s opinion OSHA may not be doing a good enough job. “There are questions about how well they fill that role and how concerned they are about filling that role, compared with carrying a big stick and coming down hard on wayward employers,” he said. “The impression I have from employers these days is that OSHA is far more focused on the enforcement side and considerably less on providing guidance and information.” Freedman believes that OSHA would say it is providing guidance and information by creating examples from its enforcement activities. “They want to fine employers as much as they can and scare employers into compliance,” he says. “They don’t believe that employers take workplace safety seriously, and that enforcement is the only thing that will get their attention.” OSHA maintains that the primary purpose of its enforcement program is deterrence but says its enforcement program specifically targets the most dangerous workplaces and the most recalcitrant continued on page 26 Winter 2012 | Claims Journal 25


OSHA, continued from page 25 employers. OSHA is “not just in the business of issuing and enforcing standards,” the spokesperson told Claims Journal. Even so, there are some analysts that view OSHA’s historical enforcement efforts as the primary reason workplaces are safer today. Ross Eisenbrey, vice president of the Economic Policy Institute in Washington, D.C., sees an OSHA environment with strong regulations, inspections and penalties, plus some education as a positive. “People forget how dangerous U.S. workplaces were 40 years ago when OSHA came into existence,” Eisenbrey says. “It is hard to believe that 14,000 people were being killed in workplace accidents each year. Now, it is down to under 5,000, and our workforce has almost doubled since that time.” If there had been no change, according to Eisenbrey, fatalities would now be over 25,000. “This is a success that we should celebrate,” he said. While some people suggest the reduction in deaths can be attributed to numerous manufacturing jobs going overseas in recent decades, Eisenbrey says this is not so. “The manufacturing fatality rate is actually pretty low,” he says. “Construction rates are much higher, and these jobs haven’t gone overseas.”

Despite the reduction in workplace deaths, according to Eisenbrey, there are still many people being “killed in stupid and very preventable ways.” Examples involve having employees work in trenches that are too deep and unshored. “I can’t understand how any employer who has been in the business more than 30 minutes would do this,” he states. To deal with this problem, Eisenbrey believes, OSHA needs to have stronger penalties. “There are still cases where workers are being killed because employers are engaged in serious violations, but the penalties may only be a couple of thousand dollars.” He doesn’t believe that this sends a strong signal to employers. Penalties haven’t been adjusted since 1990, not even for inflation, so the maximum for a repeat or willful violation is still $70,000, according to the Eisenbrey. “As a result, there are still some large corporations that pay very little attention to health and safety,” he claims. “Bigger penalties would be a big help in these situations.”

Attention Grabber

Wayne Gray, professor and chair of the economics department at Clark University in Worcester, Mass., is also a big believer in an OSHA with stiff regulations, inspections and penalties. He agrees nothing puts the attention on workplace safety issues like writing a check. “One reason for OSHA to exist is that machinTotal OSHA Budget $564,788* ery and equipment tend to be safer these days,” (Dollars in Thousands) he states. “That is, there are safety features on *Due to rounding, individual activities may not add to total machinery that were not in existence until OSHA came into existence.” Gray has conducted research over the years SAFETY TRAINING COMPLIANCE examining the impact of OSHA inspections on & HEALTH GRANTS ASSISTANCE injuries and exposures and the effectiveness of STATISTICS $10,709 STATE $34,739 EXECUTIVE OSHA’s enforcement program. 2% $57,890 6% “I have found that inspections that find someDIRECTION 10% $11,491 thing wrong and impose penalties tend to be 2% associated with reductions in future violations,” COMPLIANCE SAFETY & ASSISTANCE Gray claims. He said the biggest impact tends to HEALTH FEDERAL be in the first one or two years after the inspecSTANDARDS $76,355 tions. In other words, he sees a lot of improve$19,962 14% ments after inspections that levy fines, but these 4% improvements tend to level off and stabilize after a couple of years. “However, we don’t see a lot of backsliding after that,” he adds. TECHNICAL In addition, over a period of 10 or 20 years, SUPPORT subsequent inspections of those employers tend $25,819 to show fewer and fewer violations. That is, the 5% first inspection is usually the one that finds the most violations. “This suggests to me that things FEDERAL ENFORCEMENT are getting cleaned up fairly long-term,” he states. $207,753 As a result, Gray’s belief is that OSHA inspections 36% are doing some good. STATE Some people suggest that OSHA should do PROGRAMS inspections and simply suggest ways to improve $104,196 problems when they find violations, rather than 18% WHISTLEBLOWER levying penalties. But Gray’s research shows the $15,873 opposite. 3% “Our research shows that most of the impact of

FY 2012 Enacted OSHA Budget Activity

26 Claims Journal | Winter 2012

inspections on subsequent injuries follows inspections that actually impose monetary penalties,” Gray says. “Having to write a check gets management’s attention.”

Educational Role While Eisenbrey supports OSHA’s regulations, inspections and penalties role, he also believes education can be useful. “OSHA needs the resources to do more education,” he said. For example, he believes that it should be visiting contractor organizations to do talks about fall protection, trenching safety, electrical safety, and similar issues.

Having to write a check gets management’s attention when it comes to safety. While OSHA’s On-site Consultation Program fills some of this educational role, Eisenbrey is more critical of other OSHA partnership programs such as the Voluntary Protection Program (VPP) and the OSHA Consultation’s Safety and Health Achievement Recognition Program (SHARP), which recognizes small businesses that have achieved excellence. “In order to participate in these programs, employers commit to implement model injury and illness prevention programs that go far beyond OSHA’s requirements. These employers demonstrate that safety pays and serve as role models to all businesses,” OSHA told Claims Journal. However, Eisenbrey says while such partnership programs like VPP and SHARP may be the “nice thing” to do to recognize employers that are doing things right, operating these programs also takes away needed resources from other critical areas within OSHA. “If the VPP is being given to a really good employer, then OSHA is spending a lot of time with a really good employer, when it should be spending more time trying to find the bad employers,” Eisenbrey suggests. Striking a balance between enforcement, penalties and education is not easy, especially when budgets are tight. Jim Johnson, group vice president of workplace safety for the National Safety Council in Itasca, Ill., believes that is exactly what OSHA should aim for — a healthy balance between regulation, inspection and penalties vs. education and partnerships. But finding more resources to focus on education and partnerships tend to be difficult in today’s budget deficit world. “There are great benefits to voluntary programs,” Johnson claims. “These encourage employers to continue to improve in their safety and health processes.” At the same time, he believes, there are companies that do not recognize their responsibilities for safety and health. “In some cases, these companies have a pattern of disregard,” he maintains. “They do not provide the protection that is necessary, and they are regularly not in compliance with the regulations.” In these cases, he believes, inspections and fines are appropriate ways to ensure that these employers correct the hazards that are exposing workers to danger and the risk of injury or death. Nothing puts the attention on safety like a hit to the pocketbook. CJ

True Costs of Injuries Serve as Best Workplace Safety Motivator


SHA rules, regulations and enforcement actions are one way to get businesses to improve safety at the workplace. But improving safety goes far beyond government regulation and enforcement of the law. Some say an examination of the true cost of safety losses is the best way to get businesses and management to improve safety in the workplace. Rebecca Shafer, an attorney and risk consultant specializing in workers’ comp cost containment, says that safety in the workplace begins at the management level. “Safety is a process that requires complete management support and buy-in,” Shafer says. “That’s really where you have to start within an organization because if management doesn’t get it, you really won’t get anywhere, and you’re certainly not going to get a good safety program.” For Shafer, one of the best ways to get employers to adopt better safety practices is to show them the true cost of an injury and a resulting workers’ comp claim. “The best place to start is with communication, and explaining to management what the real costs are of injuries” she says. To do this, Shafer uses the “Sales to Pay for Accidents” calculator located on her website at www.lowerwc.com. For a company with a modest 5 percent profit margin, the cost of a loss of just $15,000 ends up costing the company $300,000 in sales, she says. “A $15,000 loss is going to take them $300,000 to replace the $15,000 on their bottom line, assuming a 5 percent profit margin,” Shafer says. “They might go, ‘Oh, $15,000’ and just write it off. ‘It’s not that important.’ But when you point out it’s going to take them $300,000, really, to cover that cost — that is an eye-opener.” Even without a loss, an employer is still at risk for added costs — sometimes huge costs — when operating a workplace in violation of safety requirements. A relatively small OSHA violation and enforcement of just $5,000 would cost the employer much more when looking at the true costs, Shafer says. As an example, Shafer recalled a business that received a $147,000 OSHA fine. “At a 6 percent profit margin that (fine) really cost them $2,450,000,” Shafer says. In other words, that business will have to sell an extra $2,450,000 worth of product to pay for that enforcement action, she explained. Shafer says when employers see the true cost of OSHA enforcement action losses and workers’ comp claims, they comprehend the importance and value of hiring dedicated safety professionals. Having a full-time, dedicated safety director rather than using the general manager to do the job, might be less in the end. “You really have to show them, ‘OK, here’s what you can do. You can have a safety director, and you might not even need a full-time one. You can have somebody who’s knowledgeable and experienced, and they could be part-time. You can use a contracted safety director, or you might share one with another operation.’” Enforcement actions are often not enough to prompt action when it comes to safety, Shafer says. “Usually what happens is the company gets an enforcement action, they pay a big fine, and they still don’t know what to do,” Shafer says. “You just have to show them.” — Andrea Ortega-Wells CJ Winter 2012 | Claims Journal 27


How to Bridge the Construction Safety Gap A Little Communication with Safety Managers By Claims Departments Can Make a Big Difference By Lori Widmer


onstruction workers who work at least 45 years on the job have a 75 percent likelihood of experiencing a disabling injury, and their chances of dying on the job are one-in-200, according to a recent study by the Center for Construction Research and Training (CPWR). While those numbers may reflect the aging workforce rather than a list of hazards, the construction industry experiences large numbers of employee injuries. Despite risk management plans, four-in-100 workers sustained injuries on the job in 2010, a Bureau of Labor Statistics report shows. That figure was a 7 percent reduction in injuries from the previous year. The “2011 Construction Industry Report” prepared by Aon Risk Solutions shows injuries decreased 5 percent from 2009 to 2011. Injury to workers is ranked seventh on the list of top 10 risks facing the construction industry, according to Aon. Whether the claims department rests with the insurer or within the construction company, claims managers and adjusters often act independently of the safety side of loss management. Some experts say insurer and broker claims departments do a good job of partner-

28 Claims Journal | Winter 2012

ing with safety and risk management teams. On the other hand, claims departments within construction businesses often can be stuck in a reactive mode. “Whether subconscious or conscious, the thinking is that day-today safety would slow down the project,” said Ariel Jenkins, senior risk control manager for Safety National in St. Louis, Mo. “Even with a mid- to full-size contractor who has a full-time estimator and safety professional, if the estimator and safety professional are in silos and don’t plan together, there are a lot of missed opportunities to plan in the cost of safety on a given project.” A little communication between claims and the safety disciplines could vastly reduce risks and improve safety communication among the departments. However, Jenkins said he’s seen two departments operate on opposite sides of the spectrum. “Somewhere inbetween the claims focus and the safety focus of the loss stream, the opportunity for them to communicate is there. But culturally, it’s not always,” he said. Clifton Waters thinks claims should facilitate communication with safety management. Vice president of SIA Group in Greenville, N.C., Waters thinks that cultural change within the organization is overdue. He said adjusters generally do a good job of managing claims and are the perfect catalysts to improve the loss control

department’s efforts. Even insurer-housed claims departments can glean the data they need to help safety managers improve processes. “It’s a total business attitude,” Waters said. “If claims is pulling from the insurer and passing onto the loss control department what they’re seeing, loss control should then be able to pass that to the clients.” Julian Ehrlich, senior vice president of claims at Aon Risk Solutions Construction Services Group, underlined another reason a larger shift in communication is necessary. “The environment in which claims take place is often a legal environment, whether you’re talking workers’ comp, builder’s risk, GL [general liability] or other lines of coverage. And there are constantly changing rules and laws that can have a direct impact on the company’s financial statements,” he said. Additionally, companies often overlook the cost to the bottom line of inadequate safety programs. Claims managers can help to communicate that information to both safety teams and management. Using claims reports, Jenkins said claims teams can build a case to budget safety planning into future projects. “The safety professional can take that information and take snapshots of severe claims using that history to show what happens when they don’t plan,” Jenkins said. “Then they can justify the cost of factoring in safety.”

workers feel [like a] part of the safety program and the company, and shown that they are more likely to have accidents than the younger individuals. Statistics are a great way to prove it.” Ehrlich believes the best way to reduce loss and the number of claims is to establish partnerships with key players in the loss control and claims process. He promotes educating the contractor policyholder in the insurance process, and creating a partnership among the contractor, insurer, broker and with defense counsel, if applicable. If all parties understand the needs and requirements of each other, the business relationship will be stronger, and the better equipped they’ll be to handle claims. “The more these parties work together before claims happen to establish a process — to allocate risk of loss before losses happen, and to have steps in place from practical, field-level to document-level — the smoother it [will be], the more pain-free it [will be], and the better the results,” Ehrlich said. Working cooperatively helps safety departments with pre-planning efforts, according to Jenkins. There’s a wealth of information to share, he said. Claims can be a valuable resource, providing key data that can vastly improve operations. He suggested using compiled loss data to understand loss trends and to build safety into future projects. “If you look at accidents and start peeling back the layers, you’ll see how preventable they are,” Jenkins said. CJ

Companies often overlook the cost of inadequate safety programs to the bottom line. Claims managers can help to communicate that information to both safety teams and management.

Changing the Culture It shouldn’t take much for claims and safety to become more aware of and interactive with each other, according to experts. Waters said it’s as simple as an email from the underwriter or even the claims adjuster. Yet communication doesn’t occur because each department isn’t cognizant of the other’s work processes. “Claims adjusters aren’t going to look at it from an aspect of the account renewing in four months, and the underwriter isn’t going to look at it and think to email the adjuster and find out what’s going on with claims,” he said. Nevertheless, Jenkins said, ongoing communication among safety, risk management, and the claims community is a culture that’s easy to adapt to and one that can help to prevent future losses. He remembers one claim early in his career that punctuates that point. When investigating a crane accident on a job site, he discovered a truck-mounted crane with its outriggers extended. The outriggers should have been stabilized with timbers, but in this case, the workers had taken shortcuts. “One of the outriggers was on top of a piece of plywood, and it was cracked. One of the root causes of that incident was the [workers] were working in soft soil. Also, they were under the gun to keep the project moving. But I believe [the accident] could have been prevented had [the workers] pre-planned to have solid timber at the job site,” he said. In addition to pointing out shortcuts that have caused accidents, companies can use their claims department to teach construction workers and teams smarter ways to do their jobs. Waters said a company’s culture has to be safety-focused, but claims departments can make a strong case for implementing safety programs and teaching workers claims processes. He emphasized that older workers, in particular, need to understand their limitations. “The safety director needs to make older

Widmer is a Philadelphia-based writer who specializes in insurance and risk management topics.

Educate Construction Clients


nderstanding claims from a contractor’s perspective is essential to building a better partnership with construction clients. Because what seems second-nature to claims departments could be information critical to the construction client’s understanding of what it takes to improve claims handling, said Julian Ehrlich, senior vice president of claims at Aon Risk Solutions Construction Services Group. Claims professionals should educate construction clients on the following processes: • Accurate incident/accident reporting. Communicate to contractors what goes into a report and what shouldn’t. Realize there will be many eyes on those reports, possibly years later, and anything written in the reports may affect the outcome of the claim. • Tag and bag evidence. Even tools and clothing should be documented and saved for investigators. • Immediately identify witnesses. Know who was in the area and what they saw. Get their contact information for authorities. • Identify alternatives. Know what safer options were available that the worker knew about but didn’t employ. • Keep sign-in or attendance sheets for safety meetings. When a loss occurs involving a worker and he or she had been instructed at a recent meeting not to do something but did, that could be important for the claim. CJ Winter 2012 | Claims Journal 29


Stats, Laws and Videotape A Year in Review for the Workers’ Compensation Market By Denise Johnson


he number of fatal work injuries increased in more than half of all states, while fraud in the workers’ compensation market skyrocketed. Plus a number of new workers’ compensation laws hit the books as 2011 came to a close. Fatal workplace injuries climbed in many states, according to the U.S. Bureau of Labor Statistics’ (BLS) annual report. Private industry employers reported 4,070 private industry work-related fatal injuries in 2010, the latest data available. The number of fatal work injuries declined in 23 states between 2009 and 2010, while 27 states reported more fatal injuries during the same period.

Washington. During 2010, 86 men and women were killed on the job, according to a report on work-related fatalities by the state’s Department of Labor & Industries (L&I). Among the report’s findings, deaths involving farm workers, loggers and workers in the fishing industry accounted for 20 of the fatalities in 2010. Seven workers died in tractor-related accidents, which prompted L&I to issue a hazard alert to the agriculture industry. In North Carolina, where work place deaths rose as injuries reportedly declined, a reduction in workplace inspections was cited as a reason for the fatality increase. There were 48 fatal workplace accidents in North Carolina in 2010, up from 34 in the previous year.

State Decreases in Workplace Deaths Oregon experienced a decline in workplace fatalities. Seventeen workers died on the job during 2010, according to state figures. The total represents an all-time low in Oregon, where on-the-job injuries have declined in recent decades. Reported workplace injuries decreased more than 50 percent since the late 1980s. New Mexico reported 38 work-related deaths in 2010, a decrease from 2009 figures. The biggest decrease in deaths in 2010 was in fatalities related to transportation.

New Workers’ Comp Laws Take Effect

The sporadic numbers reported in 2010 are the result of a myriad of issues faced by budget-tightening states and industries. While those states reporting fewer deaths touted newly implemented safety measures, those reporting an increase in workplace fatalities cited decreasing inspections and training inadequacies. Construction accounted for the highest rate of fatal injuries, while more than one out of every five fatalities involved highway accidents, according to the report. Men and those workers age 65 and older were more likely to sustain a fatal work injury. Unfortunately, fatal work injuries in the mining sector reportedly increased by 74 percent in 2010, according to preliminary BLS figures.

Across the country, new workers’ compensation laws took effect addressing everything including convicted felons’ and illegal immigrants’ workers’ compensation benefit eligibility to whether two employers can be held jointly responsible for providing benefits. In Illinois, a new law inspired by a former state trooper’s high-speed freeway wreck bars state employees injured while committing crimes from getting workers’ compensation. The measure follows the 2007 wreck involving Matt Mitchell. He was driving more than 100 mph while using his cell phone on Interstate 64 in southwestern Illinois, when his cruiser crossed the median and slammed into a car, killing two sisters at the scene. Mitchell pled guilty to reckless homicide charges and was sentenced to 30 months of probation. His claim for workers’ compensation for injuries sustained in the crash was denied by an arbitrator, who ruled that Mitchell’s injuries resulting from the wreck were not “arising out of and in the course of his employment with the (state).” The arbitrator also concluded Mitchell took “substantial and unjustifiable risk resulting in a gross deviation in the standard of care of his duties as an Illinois State Trooper,” noting that moments before the high-speed wreck Mitchell wrote e-mails on his in-car computer and took a personal phone call.

On the Job Fatalities Increase

Joint Responsibility for Workers’ Comp

One of the states where workplace death rates soared was 30 Claims Journal | Winter 2012

A Massachusetts appeals court ruled that two employers can

be held jointly responsible for workers’ compensation benefits for an injured worker whom they both classified as an independent contractor. Leo Whitman, a construction worker, worked for two businessmen, Stephen Sarcia and John Citrano, who were engaged in the purchase, rehabilitation, and resale of distressed residential properties. The two introduced Whitman to PPM, a similar company, for additional work. Whitman worked full-time for Sarcia, Citrano and PPM for three years. On Dec. 20, 2006, while working on a project for both Sarcia and PPM, a scaffold collapsed, causing Whitman to fall about 16 feet. He suffered serious fractures in his left leg and was rendered partially disabled. Whitman brought his claim for benefits as an employee of Sarcia and/or PPM. Neither maintained statutory workers’ compensation coverage for him since they both characterized him as an independent contractor. The administrative judge concluded Whitman was a covered employee of both firms. In judging whether Whitman was an independent contractor or an employee, the judge calculated that seven criteria favored independent contractor status and five favored an employment relationship. He assigned greater weight to factors supporting employee status, especially the duration, continuity, near exclusivity of the working relationship, the absence of any contract and the resulting exposure of Whitman to at-will termination, and the payments to him as an individual. The employers disputed the finding, arguing that there was no evidence PPM and Sarcia operated as a single employer with common management, ownership and financial controls. The appeals court said state law does not require that joint employers must be integrated or single by ownership, management, and finances. “Workers’ compensation law in Massachusetts allows separate entities to constitute joint employers,” the court said. The court noted PPM and Sarcia controlled the assignment of Whitman’s work and were receiving the benefit of it at the time and place of his injury. Because Whitman worked jointly without coverage for two employers, both employers “must bear the burden or detriment of non-coverage.”

The First District Court ruled the workers’ compensation judge was correct in awarding Aragon wage benefits, saying it was the expressed legislative intent of the state’s workers’ compensation law that even illegal and unlawfully employed workers should be eligible for benefits. “With the lure of cheap labor, we’ve created a black market of humans,” said state Rep. Ritch Workman, R-Melbourne, adding that employers, not insurance companies, should be on the hook for paying benefits. “I don’t care if that puts the employer out of business,” he said.

Fatal work injuries declined in 23 states, while 27 states reported an increase in fatal injuries.

Illegal Residents’ Eligibility Florida employers may be under more pressure to document the status of their workers after a panel of state judges ruled that illegal residents who are injured on the job are eligible for workers’ compensation benefits. In the case of HDV Construction Systems Inc. v. Luis Aragon, the Florida First District Court of Appeals ruled that an employee was eligible for workers’ compensation benefits, despite the fact that he was an undocumented worker. In 2007, Aragon fell 30 feet off a roof causing serious injuries to his foot and arm. The employer’s insurer paid his medical bills, and a workers’ compensation judge awarded him permanent and total wage benefits, despite his illegal status. The insurer asserted Aragon should not be eligible for wage benefits based on his illegal status and the fact he could find other less demanding work. The judge found that the combination of Aragon’s physical injuries, illegal status, and inability to communicate fluently in English, effectively rendered him unemployable. As a result, he awarded Aragon wage benefits. The employer and insurer then appealed the case.

Fraud Runs Rampant

While states addressed workplace injury and fatality statistics and implemented new laws, fraud remained rampant in the workers’ compensation system. Emily Kathleen Everett, also known as Emily Hegner, surrendered as a result of a warrant based on felony charges of workers’ compensation fraud, according to the California Insurance Commissioner’s office. In July 2007, Everett was injured while performing her regular work duties as a health worker for Laguna Hospital. She allegedly slipped and fell on a puddle of water and subsequently complained of right wrist, left knee, and hip area pain and was restricted from returning to work. While receiving total temporary disability benefits, Everett claimed she was in constant pain, experienced severe back spasms, and utilized a wrist brace and cane. Subsequent surveillance revealed Everett had participated in a seven mile race on rugged a course that included an 1,800 foot climb, stairs, sand and rolling terrain for about 1.5 miles, and descending downhill to the finish line for about 2.5 miles. She denied participating in any sports and made material misrepresentations to support the severity and extent of her physical disability. Everett had also requested a handicap placard from her treating physician, according to officials. As a result of Everett’s alleged misrepresentations, she received $9,529 in total temporary disability benefits and $50,267 in paid medical specials. Another example of rampant fraud in the workers’ compensation section can be found in the story of two Aurora, Colo., residents that were indicted, suspected of stealing $140,000 worth of workers’ compensation funds from Pinnacol Assurance. Martin Lobatos first collected workers’ compensation following a September 2008 fall off a ladder while working as a roofer. Lobatos returned to work in October 2008, but still complained of dizziness and vertigo. According to the indictment, Lobatos’ doctors said he fully recovered from these symptoms in April 2009. However, following termination from his job in April and subsequent to him accepting a $20,000 settlement from Pinnacol Assurance in September 2009, Lobatos started to complain of new symptoms, including dizziness, memory loss, difficulty recognizing his own children and other physical problems. Although Lobatos reportedly became fully catatonic by March 2010, surveillance video captured him driving and shopping. Lobatos’ wife reportedly claimed $4,000 a month from Pinnacol to care for her husband between April 2010 and May 2011. Each could face a fine of up to $750,000 and up to 12 years in prison if convicted. CJ

Young Ha, Michael Adams and writers of the Associated Press, including Ben Neary, Bob Moen, contributed to this article. Winter 2012 | Claims Journal 31


Trip vs. Slip: A Biomechanic View Understanding the Legal and Financial Implications Between a ‘Trip’ and a ‘Slip’ By Dr. Richard Baratta


he legal and financial ramifications of an accident on a business’ property balance precipitously on the analysis of a “slip and fall” versus a “trip and fall.” There is a critical distinction between slip hazards and trip hazards. A slip is when there is insufficient friction between an individual’s footwear and the floor surface. The common phrase is, “If it slides, you have a slip.” A trip is something fundamentally different. Rather than a loss of friction, something, possibly including too much friction, prevents the foot from coming fully through its normal swing phase of the walking motion. This can be caused by a tile that sticks up, an irregularity in a surface, broken or cracked sidewalks, the edge of a rug, building entry “walk off” mats, loose tiles, indoor or outdoor planter boxes, or various other problems. The standards for a trip hazard will depend on the area, whether there is a transition between surfaces, or whether the area is a means of egress. And the standards may vary from a quarter inch to a half inch.

Different Injuries Slips and trips present different sets of injuries, but a careful analysis of those injuries can lead a skilled biomechanical engineer to answers on how exactly the person fell. The injuries themselves — forearm fractures, shoulder dislocations, knee ligament damage or head injuries — are all part of cause-effect relationships that provide clues to what and how the fall happened. Where a person was before he or she fell, where he or she landed and how he or 32 Claims Journal | Winter 2012

she was moving is critical to understanding the incident and its consequences. By definition, biomechanics is applying principles of engineering mechanics to biology and medicine. In terms of injury-related accident analysis, there are two fundamentally different things that can come into play: first, an analysis of human motion (the forces and speeds that are involved in how people move) and second, the relationship between forces and injuries. Biomechanists look at human tissues as an engineering material: What does it take to cause a failure? What is its tolerance? What are the mechanisms that are involved in causing a specific injury or failure to the tissue? And most importantly in the context of motion, what are the mechanisms that result from each type of fall?

Inspect and Analyze Not surprisingly, the common culprits for slip hazards are wet floors, resulting in a reduction of the friction between foot and flooring. It is critical to have a civil engineer and/or a biomechanical engineer inspect and notate the condition of the area where the slip occurred as soon as possible, because floor covering and floor maintenance can affect the evidence. If there is any change in the flooring prior to inspection of the surface weeks or months down the line, there is a possibility the factors that could have provided critical information for establishing the cause and effect relations will be gone. Carpets get replaced, tiles are changed, and even something as innocuous as a change in cleaning contractors can affect the friction of the surface, effectively erasing important evidence. The first step in analyzing an accident is to gain an overall understanding of what happened. Witness statements are always


good to have, but even more effective “down the road” is the skillful pened in the accident from what was happening immediately prior analysis of an engineer with the ability to inspect the area and conto the accident. Most importantly, it can be determined what has duct modeling that captures the dynamics involved in the evolution been scientifically proven to be unrelated. of the accident. This information will be essential in recreating When a fall occurs, whether injuries are reported or not, the the incident months or years later, when eyewitness accounts and incident may carry consequences well into the future. Biomechanimemories may prove unreliable under legal examination. cal engineers can help when: The second step of the analysis is to gain an understanding • Documenting a scene after a reported incident, because injuries of the injuries the person sustained, or the injuries the person may not be claimed or reported until months or years afterward. is claiming. A multi-disciplinary • Questions arise about the type or engineering approach can effectively severity of a person’s injuries that are When a fall occurs, whether ascertain not only the particular inconsistent with what is claimed injuries are reported or not, the injuries, but also help to clarify the • Investigation is needed to discern diagnosis in relation to the specific whether the property complies with incident may carry consequences all required codes or recommended effects of the individual’s fall. standards. Step three is to gain an underwell into the future. standing of the relationship between • It is not clear whether the incident the accident and the individual’s injuries, and then to identify all was due to a slip or a trip hazard. of the evidence that will lead to a proper assessment of whether it In all incidents involving injury-related accidents, the best was a trip or a slip. That also will help to identify and correct the strategy is to work with a firm that has forensic experts with the hazard or hazards that caused the incident. This critical step is interdisciplinary experience and insight to assess the potential risks often missed. of exposure. It also may be beneficial to find a firm familiar with the legal and financial ramifications from a slip or trip accident that can take many different twists and turns. CJ How Biomechanics Can Help It is imperative to understand the biomechanics the person underwent during the accident. Was the person carrying something? Dr. Baratta is vice president with Rimkus Consulting Group Inc. in Houston, where he provides consulting expertise on injury causation What thing(s) did he or she strike? How did the person fall? Which biomechanics, accident reconstruction, medical device failures and parts of the body made contact with objects or surfaces? What kind intellectual property. He also provides expertise in relation to modified, of mechanisms were the person’s body tissues exposed to, and are high-performance and racing automobiles, and high-performance vehicle those mechanisms causally related to the diagnosis by physicians? occupant protection systems and injury analysis. Given that information, it is possible to distinguish what hap-

On the Go? Get G et tth the he IIn Insurance ns n surance Journal Jour nal News News Ap A App pp Today! pp Tod To oda day ay! y!

Brought Brou Br ough ou gh h t to you y ou b byy these thes th ese es e sp sponsors: p on onso sors so rs:: rs

Winter 2012 | Claims Journal 33


Insurance Companies Dodge Billion-Dollar Bullet in California Court Limits What Medical Bills Juries Can View


nsurance companies, and ultimately California consumers, avoided a windfall sought by the Consumer Attorneys of California to the tune of more than $3 billion dollars per year. On Aug. 18, 2011, the California Supreme Court settled a widely followed, long-simmering dispute concerning the appropriate damage awards for claimed medical specials in tort litigation. The near-unanimous decision (6-1) in Howell v. Hamilton Meats & Provisions, Inc. (52 Cal.4th 541) puts to rest the outrageous claims by plaintiffs that they are entitled to recover the total amount of medical bills, as opBy Bob Tyson posed to the much lesser amount that is actually paid by health insurers on their behalf. Pursuant to Howell, plaintiffs in California now seeking to recover medical expenses in personal injury, products liability or other matters are only entitled to recover what was actually paid for treatment by health insurers, not the full, inflated medical bills. It is, of course, hoped that this well-reasoned decision will have a positive ripple effect across the country so insurance companies and their clients can benefit nationwide.

Greed Is Not Good Contrary to Gordon Gekko’s famous quote — “Greed, for lack of a better word, is good” — in the movie “Wall Street,” this was not the case for an aggressive plaintiffs’ bar. In California, like many states, the plaintiff’s bar had a good thing going. For more than 20 years, plaintiffs in tort litigation had an extremely favorable interpretation of the collateral source rule. The collateral source rule is the evidentiary rule that prevents a jury from knowing a plaintiff’s damages have been paid by another source. The most common example is an injured plaintiff in a personal injury action who has his medical bills paid by his own health insurer. Admittedly, having the medical bills already paid by a health insurer and then recovering this expense again in litigation is a double recovery. The rationale behind the collateral source rule is that between a wrongdoer defendant and an innocent plaintiff who had the foresight and thrift to purchase insurance, any financial windfall should go to the plaintiff. However, the plaintiff’s bar was not happy with just a windfall. It wanted a “super windfall.” This would, of course, be at the 34 Claims Journal | Winter 2011

expense of insurance companies and consumers. In any case involving medical expenses, plaintiffs previously had been able to show the jury the full amount of the medical bills. The jury was never told that what was actually paid for these bills was a lesser amount. For example, a plaintiff is injured using a product and had $100,000 in hospital and medical bills. But the plaintiff had health insurance and all that was paid for these bills was $20,000. For more than 20 years, plaintiffs in California could show juries the full $100,000 in medical bills, although all that was actually paid was $20,000. After trial, a post-trial motion pursuant to Hanif v. Housing Authority (1988) 200 Cal.App.3d 635, would be filed and the damages award would be reduced to what was paid, or $20,000. The good news for plaintiffs and their attorneys was that they could show the jury $100,000 in medical bills and argue for much higher pain and suffering awards based on the large medical bills. The jury never knew a much lesser amount was paid for the bills.

A Super Windfall Putting big numbers before juries and arguing for large pain and suffering awards was not enough for plaintiff’s attorneys. The plaintiff’s bar got greedy. The plaintiff’s bar not only wanted to show the jury the full medical bills that were never paid or owed to anyone, they also wanted to recover the full amount of the medical bills. The difference between what a hospital charges and what a hospital is actually paid by insurance is very significant. It’s not unusual for a hospital to accept $20,000 or less from a health insurer on a $100,000 bill. When this difference is multiplied by the number of lawsuits in California, it is more than $3 billion per year in litigated claims alone. The real number to insurance companies is much higher, as most claims are not even litigated. One-third, or perhaps even 40 percent of billions of dollars, proved too tempting for plaintiffs’ attorneys to resist. So the Consumer Attorneys of California traveled up and down the state to find the right cases on appeal to expand the Collateral Source Rule and recover a super windfall. The first case they found was Howell.

The Facts of Howell Plaintiff Rebecca Howell was injured in a traffic collision with a truck owned and operated by Hamilton Meats & Provisions Inc. Liability was admitted by the defense at trial, with only the issue of damages to be determined. The defense moved to exclude from


evidence the full billed amounts of the plaintiff’s medical bills, pursuant to Hanif, because plaintiff’s medical providers accepted approximately $130,000 less than the billed amount in full satisfaction of the bills. Hanif held that a Medi-Cal recipient could not recover an award for medical specials greater than what Medi-Cal paid to satisfy the plaintiff’s medical bills. Hamilton’s motion was deferred until posttrial, at which time the trial court granted the defendant’s motion and reduced the medical specials award by approximately $130,000 (to about $60,000, down from the original $190,000). The plaintiff, with the help of the Consumer Attorneys of California, appealed to the 4th District Appellate Court in California. In November 2009, that court reversed the trial court and held the plaintiff should recover the full amount of medical specials as billed, regardless of what her providers accepted as full payment from her health insurers. The court reasoned the $130,000 difference fell under the collateral source rule, which permits plaintiffs to recover from defendants amounts paid by plaintiffs’ own insurers. This was obviously a very big win for the plaintiff’s bar.

One-third, or perhaps even 40 percent of billions of dollars, proved too tempting for plaintiffs’ attorneys to resist. The Supreme Court’s Reasoning On appeal by the defense, the California Supreme Court reversed the appellate court decision and affirmed the trial court’s decision to remove $130,000 from plaintiff’s medical specials award. The final decision rests on several main points, which hopefully will be followed in other states that have not addressed this issue legislatively. First, the court agreed with Hanif that a plaintiff may recover as economic damages no more than the reasonable value of the medical services received. In other words, the medical specials in Hanif were limited to the amount actually “paid or incurred.” Hanif, 200 Cal.App.3d at 64. Second, the court recognized the “highly complex” nature of medical billing and the fluctuating rates depending on the consumer or location. For example, “chargemaster” rates, which hospitals bill for procedures such as a chest x-rays, can vary from $200 to $1,500 depending on the provider’s location. Moreover, those without insurance are often provided deep discounts by medical providers. These realities rendered moot the plaintiff’s argument that defendants will gain a “windfall” if required to only pay the discounted amount of medical bills, as the discounted amounts are not mere arbitrary reductions but reflect a true “market value” because of their negotiated nature. Third, the court also rejected the main thrust of plaintiff’s argument that the difference between the full billed amount and the reduced accepted amount is an insurance benefit (i.e., collateral source benefit) recoverable by the plaintiff. The court noted the plaintiff never incurred liability for her provider’s full bills because when the charges were allegedly incurred, the providers had

already agreed on a different price schedule for particular insureds, such as the plaintiff. Having never incurred the full bill, the plaintiff could not recover it in damages for economic loss.

Maybe Greed is Good? One final, and possibly most important, outcome of Howell, is that plaintiffs’ attorneys can no longer show the inflated medical bills to juries and argue for large pain and suffering awards. Now plaintiffs are only allowed to introduce the much lesser amount that was actually paid or they will risk a mistrial. Therefore, to the extent that pain and suffering awards are in any way related to the amount of medical specials (multiple of medical expenses for instance), overall jury verdicts in California may be reduced as well. This will obviously benefit all California consumers and companies that do business there. The hope is other states will follow this well-reasoned approach. With smaller jury verdicts in California and possibly throughout the country as a result of the actions of the plaintiff’s bar, perhaps greed is good! CJ

Tyson is the managing partner of Tyson & Mendes and he represents insurance companies and their insureds in all types of litigation throughout California. He argued the Howell case on behalf of the defendants before the California Supreme Court last year and also tried the underlying lawsuit. Email: rtyson@tysonmendes.com. Winter 2012 | Claims Journal 35


Essentials: To Sue or Not To Sue Allowing Private Litigation Over Insurer Bad Faith in the Workers’ Compensation Context


ourts and state legislatures have variously resolved the question of whether state-specific workers’ compensation legislation precludes common-law tort actions for insurer bad faith conduct in mishandling a claim for benefits. The threshold question is whether the exclusive remedy provisions that are uniformly part of state workers’ compensation acts preclude a private right of action for bad faith claims arising out of the administration of workers’ compensation benefits. The courts are almost equally divided on this issue. In the following states, the courts have held that the workers’ compensation insurer is entitled to immunity under the exclusive remedy provisions of the relevant state workBy Steven Plitt ers’ compensation act: Alabama, Arkansas, California, Connecticut, District of Columbia, Georgia, Idaho, Illinois, Indiana, Kentucky, Louisiana, Massachusetts, Minnesota, Missouri, Nebraska, New Mexico, New York, Pennsylvania, Rhode Island, South Carolina and Washington. The states whose courts have allowed a common-law bad faith cause of action against workers’ compensation insurers are: Arizona, Colorado, Delaware, Hawaii, Iowa, Minnesota, Mississippi, Montana, Nevada, North Carolina, Ohio, Oklahoma, South Dakota, Texas and Wisconsin.

Barring Bad Faith Lawsuits Many of the courts that have imposed the exclusive remedy bar have done so without significant analysis. These courts find that the workers’ compensation statutory exclusive remedy bar is to be broadly interpreted foreclosing common-law bad faith lawsuits. These courts generally find that the existence of a penalty for late payment of claims indicates generally that the state legislature had intended to expand the state’s statutory exclusive remedy provision to bar bad faith claims arising from the delayed payment. While some courts note that statutory penalties do not adequately compensate the employee for damages caused by late pay36 Claims Journal | Winter 2012

ments, the courts nevertheless find that the imposition of a penalty, irrespective of its adequacy, reveal a legislative intent to preempt common-law causes of action. Some of these courts have held that a common-law bad faith cause of action does not arise from delayed payment of a workers’ compensation claim unless the insurer or selfinsured employer has committed offenses greater than mere delay of payment. Joel E. Fenton, in his book, “The Tort of Bad Faith in Iowa Workers’ Compensation Law,” observed: “The exclusivity principle is the great fence that seeks to enclose all work-related tort-like injuries. The overriding fear is that the exclusivity principle will begin to disintegrate, with each new application of judicial gloss forcing the law to ‘become honeycombed with independent and conflicting rulings of the courts.’” (45 Drake L. Rev. at 848 (citing Noe v. Travelers Ins. Co., 342 P.2d 976, 979 (Cal. Dist. Ct. App. 1959))).

‘The exclusivity principle is the great fence that seeks to enclose all work-related tort-like injuries.’ An example of this approach can be seen in the Connecticut Supreme Court’s decision in DeOliveira v. Liberty Mut. Ins. Co., 273 Conn. 487, 870 A.2d 1066 (2005). In DeOliveira, the court held that Connecticut would not recognize a common-law cause of action for bad faith handling of a workers’ compensation claim. Central to the court’s ruling was the conclusion that the statutory penalties within Connecticut’s Workers’ Compensation Act demonstrated a legislative intent to confine the available remedies to those provided by the relevant penalty statutes. The court bolstered its legislative intent analysis by examining the legislative history of the Workers’ Compensation Act. Focusing on legislative testimony, the court noted there was legislative testimony at a time when the act underwent major revisions


that described “horrific circumstances” that resulted from bad faith claims handling in the workers’ compensation context. From this legislative history, the court concluded that “the legislature clearly was aware of the scope and nature of this problem and presumably crafted the remedies that it deemed fit.” Id. at 1073-74. Based on the legislative history, the court in DeOliveira found that bad faith claims handling was a “risk contemplated by the compensation bargain,” and therefore fell within the Act’s exclusive remedy provisions. Id. at 1076. The court found that the various statutory penalties for undue or unreasonable delay were “broad enough to encompass the bad faith processing of a workers’ compensation claim,” thus preempting a judicially created common-law cause of action. Id. at 1077.

Where Lawsuits Have Been Allowed A central viewpoint of courts that have allowed a common-law tort of bad faith in the workers’ compensation context finds that a cause of action that reaches the status of an intentional tort is not within the purview of the exclusive remedy provisions of their respective state workers’ compensation act. These courts find that the exclusive remedy provisions are only designed to insulate the employer against common-law liability for the ordinary hazards of employment. Central to this analysis is the observation that a common-law “bad faith” tort requires the insurer to indulge in intentional misconduct, which places it outside the framework of a state’s workers’ compensation system. Therefore, the insurance company, by its own conduct, abandons the protection of exclusive remedies when the insurer commits bad faith. See, e.g., Spearman v. Exxon Coal USA, Inc., 16 F.3d 722 (7th Cir. 1994), finding that a bad faith cause of action is a fault-based tort and does not arise under workers’ compensation laws. An example of this approach can be found in the Iowa Supreme Court’s decision in Boylan v. American Motorists Ins. Co., 489 N.W.2d 742 (Iowa 1992). The court in Boylan disregarded the penalty provisions of the Iowa statute applicable to an insurer’s wrongful conduct in the administration of benefits. See Iowa Code § 86.13 (1991). The court in Boylan concluded that it was unlikely that the legislature intended the penalty provisions to be the sole remedy for all types of wrongful conduct by insurers, with respect to the administration of workers’ compensation benefits. The court gave the following reasons for reaching this conclusion: 1. Looking at the specific terms of the penalty provisions, the penalty provisions were focused only on the delay in commencement or termination of benefits; 2. The penalty provisions did not contemplate the “willful or reckless acts” necessary for a bad faith cause of action, but only negligent conduct; 3. The penalty provisions did not provide a remedy for delay or failure to pay medical benefits; and 4. Other jurisdictions had held that a common-law bad faith action was not precluded by penalty provisions for mere delay in payment or improper termination of benefits.

Partial Immunity A few courts have used a hybrid approach, finding that their state’s workers’ compensation statutes grant immunity to insurers for routine bad faith delay claims but allow a common-law tort action where extreme misconduct is involved. See, e.g., McCutchen v. Liberty Mut. Ins. Co., 699 F.Supp. 701, 710 (D. Ind. 1988) and Continental Cas. Ins. Co. v. McDonald, 567 So.2d 1208, 1219 (Ala. 1990). An example of this approach can be seen in the Alaska Supreme Court’s decision in Stafford v. Westchester Fire Ins. Co. of New York Inc., 526 P.2d 37 (Alaska 1974). In Stafford, the court found that Alaska Stat. § 23.30.155, Alaska’s penalty statute, was enacted by the Alaska Legislature to cover situations where the employer or insurer negligently, or willfully, failed to make timely compensation payments to claimants. Id. at 43. However, the court held that the penalty statute was not intended to operate as the exclusive remedy for all intentional wrongdoings. In those circumstances where there had been tortious conduct that went beyond the bounds of untimely payments, the court in Stafford held that exclusive immunity from suit provided by the Workers’ Compensation Act was lost. Id.

Legislative Intervention In a few instances, state legislatures have reacted to their state’s judicial adoption of a common-law bad faith tort in the workers’ compensation context by passing legislation strengthening the exclusivity provision of their workers’ compensation act to include bad faith misconduct. These corrective legislative attempts have experienced mixed success. As an example, the Wisconsin and Indiana Legislatures were successful in reestablishing exclusivity after their courts had permitted a common-law tort of bad faith (see Wis. Stat. Ann. § 102.18(3)(bp) (West. Supp. 1984) and Ind. Code § 22-3-4-12.1(a)), while the Arizona Legislature was unsuccessful (see, e.g., Hayes v. Continental Ins. Co., 178 Ariz. 264, 872 P.2d 668 (1994)). CJ

Plitt is a nationally recognized expert in insurance law. He has authored numerous insurance treatises and articles. He has a national expert witness practice. Email: SP@kunzlegal.com. Winter 2012 | Claims Journal 37


How to Effectively Use Examinations Under Oath By Denise Johnson


n examination under oath is one of the most useful tools available to insurers and when done right, can also be a help to insureds. An examination under oath (EUO) is a formal proceeding during which an insured, under oath and in the presence of a court reporter, is questioned by an insurance company representative. Property insurance policies typically set forth an insurer’s right to demand an EUO, along with all records and documents to support a claim. An EUO enables an insurer to obtain all knowledge and information regarding the facts to decide its obligation and protect against false claims. It can help insurers determine the legitimacy of a first party claim and obtain evidence, like documents and witnesses, to help evaluate and adjust the claim. “It’s one of the better tools to get information that you can use,” said Richard E. King, an insurance defense attorney and director at the law firm of Galloway, Johnson, Tompkins, Burr & Smith. “Widely used in Hurricane Katrina, not because insureds were being evasive, but because records were lost or destroyed.” King was one of the presenters at a Property Loss Research Bureau Large Loss Conference who discussed examinations under oath. “It [an EUO] can jumpstart an investigation,” said another presenter, Joffre Mishall, manager of general and executive adjusters at Zurich. “It’s a tool we can use to help prevent fraud.” An EUO can uncover misrepresentations and assist in coverage decisions, according to Mishall. It can also help to impeach future testimony during litigation. According to Mishall, the insured can benefit from an examination because it provides an opportunity to detail the claim at length. If the insured’s testimony is substantive enough, and documentation no longer exists, it may be enough to support the claim. Another benefit is that it allows the parties to come together and focus on issues surrounding the claim, King said.

who may have specialized knowledge of the insured business, or multiple examinations may focus on different aspects of a claim. According to Mishall, those who can be present at an examination include the: • insured, insured’s attorney, and/or insured’s public adjuster; insurer, adjuster and attorney; court reporter or notary. Unlike during a deposition, while attorneys may be present, they cannot participate in an EUO. Questions asked must be relevant and material to the loss, Mishall said. Reasonable questions include requesting information about an insured’s finances, possible motives for fraud and claims history. Because the insurance contract is a voluntary one, an insured cannot plead the Fifth Amendment in refusing to comply with a demand for an EUO. “It is grounds for voiding the policy,” Mishall said. Although an insured must comply to avoid breaching the policy condition, there are some valid excuses for an insured’s refusal to comply, according to the presenters. These include a defective notice of intent to examine, objection to unreasonable time and place, and denial of the insured’s right to have an attorney present. In addition, if an insurer denies coverage prior to the end of the time period to submit a proof of loss, it excuses the insured from complying with the demand.

EUOs are effective tools for preventing fraud.

EUO Demand An insurer must provide a demand for an EUO in the form of a written notice in order to schedule one. According to King and Mishall, the letter to the insured should include the following: • The name of the insured representative who will be examined. • The time and place of the examination — must be reasonable and convenient. • A list of documents needed prior to the scheduled examination. • The name of the individual who will be conducting the examination. • Reservation of rights in order to designate additional individuals. Mishall said that it’s important to note that an insurer can schedule more than one EUO with an insured. Examinations can be scheduled with various individuals within an insured company 38 Claims Journal | Winter 2012

Useful Tool EUOs are extremely useful in evaluating first-party property claims. “It’s a useful information-gathering tool,” King said. In fact, an insurer may receive the needed documents prior to a scheduled examination. In that case, the examination can be continued until it is determined whether it is still necessary to the evaluation of the claim. In addition to aiding the claim evaluation, an EUO can result in information useful to retained experts. “It cuts down on the time it takes to evaluate damages and costs,” said Tracy Dodd, another PLRB presenter and toxicologist with U.S. Risk Management LLC. Preparing for the examination requires formulating effective questions, the presenters said. They recommended comparing the insured’s claim with documents and expert reports produced by the insured. Discrepancies should be noted for further explanation during the examination. CJ


Before and After: Precious Moments A family in northern Ohio returned home late one night to find their house burned to the ground. Looking at the devastation, no one thought anything could be saved. CRDN of North Central Ohio was called in by the board-up company and met the family that night. CRDN spent hours sifting through the rubble, and one of the team’s first responders found two dolls in the center of the source room on a table. Everything around it was totally gone, but a piece of wet ceiling had fallen on top of the dolls, somewhat shielding them from the heat. Everyone on the loss site said the dolls couldn’t be saved and should be thrown out. When the homeowner came and saw the dolls, she quietly asked the first responder to try. The dolls were bubble-wrapped and taken to CRDN of North Central Ohio’s hand-washing department. After an hour of working with mild cleaning solutions, the dolls’ faces came clean and the rest followed just as successfully, resulting in CRDN being able to restore two treasured sentimental items from this devastating fire. CJ

Winter 2012 | Claims Journal 39


From Home to National How Church & Co. Grew From a Home-Based Firm to a Full-Service Independent Adjusting Company in 50 States


alk to someone in insurance and chances are they have a relative in the business. That’s how it started for Gregory M. Church, CEO and owner of Church & Co. Adjusting and Consulting Services LLC, based in Houston, Texas. For Church, a business degree with a risk management focus, time spent working in his father’s brokerage office and a stint as a claims adjuster led him to open an independent adjusting firm. Gregory M. Church “I brought on my first account, which enabled me to open up Church & Co. It basically morphed from a business that I started out of my home, literally out of my extra room in my house, to within six months having an office, employees, staff and slow growth,” Church said. “I think I averaged about a 15 percent growth annually — so, where we started from my home, to now every state in the United States and in every major city.” In an interview with Claims Journal Editor Denise Johnson, Church described how he expanded his independent adjusting firm from a single room in his house to a national operation, as well as described the important roles marketing, customer service and adaptability have in running a successful business.

Can you tell me a little bit about your background in insurance? Gregory Church: My father was an insurance producer/broker in Southwest Washington. For the better part of my young and maturing years and through college, I worked in his office during my breaks, basically learning the business of underwriting and basic principles of claims adjusting and selling. I graduated from Washington State University with a business administration degree with a focus in risk management, which took me into the insurance industry. I chose to work outside of my father’s firm because I had the need to be an entrepreneur and gain some experience on my own. I accepted a claims position in Hawaii that eventually moved me to California, where I was a staff adjuster for a couple of larger national firms. I then became an independent adjuster who managed and marketed clients, or insurance companies, in the Southern California area. I brought on my first account, which enabled me to open up Church & Co.

Can you explain a little bit about Church & Co.’s adjusting services? Church: Church and Co. provides essentially two services: loss 40 Claims Journal | Winter 2012

adjusting and third-party administration. It is a U.S.-based operation. We offer our services in all 50 states. Currently our core focus is loss adjusting, which is property and casualty claims adjusting from full assignment. We have a third-party administration facility in our corporate office in Houston. That’s where we have a lot of our key managers and can offer up the third-party administration solutions there.

Did you have a specific vision or growth strategy for your firm when you started it? Church: No. At the time, it was just very myopic. I saw an opportunity with one single client that was a rather large client at the time. I thought, well, let’s just learn the business, let’s provide good customer service and see where this goes. Get as much market penetration as I can with this account and hopefully word of mouth will build my business. I was out there in the field doing claims, billing, administering and supervising. Really thinking about growing my business with other accounts was essentially an afterthought. I allowed and continued to allow word-of-mouth advertisement for the growth of my business for many years. It wasn’t until that large client … changed their philosophy on the use of independents. They no longer outsourced. It was at that rude awakening period of my life, which was about five years into my business, that told me, OK, now you need to refocus here. You have to have a strategy. You need to develop actual sales experience. Go out there and solicit other accounts. So it was kind of like trial by fire at the time. About 15 years ago, that’s when I started developing a strategy as far as marketing and growth.

‘You have to have a strategy. You need to develop actual sales experience.’ Was the sales aspect the biggest challenge that you faced when you decided to go national? Church: Sales, obviously, was very important. But, our commitment to customer service and the client, and knowing their needs and understanding what their needs are was what I preached to all of my team members. With that, sales were easy because we were able to obtain good word-of-mouth referrals, as well as from adjuster migration from company to company. They move to a new company, we get a call, we get a new account. So that’s the type of word of mouth that was the success of my business.

Was there a particular business strategy that you implemented along the way that led to the most significant growth in your firm? Church: The one that comes out most is market penetration. Sell as much as you can to the account that you have. The larger insurance


companies have multiple offices all over. Get to know who they are and develop a relationship, because our business is relationshipdriven. Network yourself further and further. Market penetration is what I preached and practiced myself.

Is there anything that you think sets your independent adjusting firm apart from competitors? Church: Good question. We essentially all sell the same thing. We sell a service. What separates Church & Co. from brand X, I would have to say, is our adaptability to the client’s needs; our understanding of their needs. Our understanding of customer service and how important it is to keep everyone along the insurance claim process line happy. The insured, the broker, the underwriter, the adjuster; those are all people that Church & Co. serves as our masters, all along providing them a good quality product at a reasonable price. That constitutes the value-added phrase that I speak of quite a bit in our meetings. One of my friends, who is in the packaging business, was complaining about client retention. He asked me … “How Church & Co. retains clients?” Before I had a chance to respond, one of my guests, who is my oldest client, interrupted and … said “Let me answer this, Greg. There are three things that will create client retention and successful growth. The first, customer service; the second, customer service; the third, and most important, customer service.” I just looked at him and said thank you. I couldn’t have answered it any better. It was a nice compliment because he understood my business and how I grew it. It was validation for me. But that’s something that I practice on a daily basis: Understanding what our clients’ needs are and delivering those services.

How difficult is it to hire the right kind of people in today’s world? Church: It’s always a challenge. Fortunately, for me and Church & Co., we’ve had a lot of quality people that are either referred to us

through our valued clients or are part of our existing network whom we’ve done business with. So, we already know and understand what their reputation is and what they can provide, and how better of a product we can put out to the client with them. Our core group are people that I’ve known for a number of years in the business and

‘Market penetration is what I preached and practiced myself.’ have grown with, and I’ve kind of put in place so they can succeed. So it hasn’t been too much of a challenge, but as we grow, that’s where the challenge will come from. The resourcing for experience level, the integrity; because those are core values that I instill in my company and as we go forward.

What is your perspective on the claims outlook for 2012? Church: I’ve never really predicted or forecasted claims volume. I understand the principles out there. We’ve got A.M. Best as a resource, the Weather Almanac as a resource. I do follow them. I kind of go off of the principle that we’ve got an increasing population every year. Because of that, we’re going to have more claims, naturally. The weather is also a focus. We always hear about an El Nino or La Nina situation, earthquakes in the western region. I expect claims volume to increase in 2012 percentage-wise over 2011. I couldn’t even begin to guess, but our message to our clients is that we are ready, willing and able to handle any needs or catastrophic response that they may have a need for. We don’t go out and solicit other new accounts for those catastrophic responses. We only provide our services to our valued clients. That’s what we market and we assure them that we’re prepared and can respond. CJ To listen to the podcast interview of Gregory Church, chief executive officer and owner of Church & Co., visit: http://www. insurancejournal.tv/videos/6285/ Winter 2012 | Claims Journal 41


SIU Expansion Reaps Company-Wide Benefits Leveraging Fraud Investigator Relationships to Assist Company Departments

By John Sargent


or many years, MetLife Auto & Home’s special investigations unit (SIU) has cultivated a strong reputation as a top-tier fraud-fighting operation. Part of the reason for its success is the company’s vigilance in fraud prevention, particularly using today’s technology. About seven years ago, then-president of MetLife Auto & Home Bill Mullaney recognized the good work that the SIU was doing and believed the approach could be applied on a broader scale to all of MetLife. Flash forward seven years later, and MetLife now has one consolidated SIU department, handling fraud operations for most of the company’s U.S. Business operations. Despite the wide variety of products and services offered, the unit retains its focus on the fundamentals of fraud prevention. In restructuring the SIU to meet the needs of different lines of business, emphasis was placed on transparency. The company developed a strong field operations unit flexible enough to investigate fraud wherever it is suspected, in any type of situation. To accomplish that, the company cross-trained staff — those who manage investigations from the desk and those in the field — to support one another. Previously within new lines of business, the majority of investigative work had been accomplished solely at the desk level, with suspected fraud handled in-house using limited resources. That presented challenges, because the fraud department didn’t possess the same scale as its Auto & Home counterpart. In contrast, the reconfigured model provides all business lines with access to an analyst group, a major case team and the expertise of a trained cadre of field investigators. A whole array of new possibilities exist, and the head of any department within the U.S. Business group can feel comfortable knowing that his or her people are working with trained specialists who have the resources and capability to investigate any suspicious activity. The bottom line is that by aligning resources, all areas now have a much deeper pool. As an example in practical terms, say an inside investigator working on a disability claim talks to a claimant, whom he begins to suspect is performing duties inconsistent with the alleged disability. Rather than assigning the matter to a private investigator, the

42 Claims Journal | Winter 2012

inside investigator now assigns the request to a field investigator for handling. In addition to saving money by keeping the costs in-house, the move places a consistent MetLife “face” on the investigation, instead of an anonymous hired hand. The united front has been shown to make a world of difference. For example, the company recently had a request from its disability area on a case that took place in Puerto Rico. The company already had an investigator on assignment there for an unrelated case, so it was simple to have the investigator contact the claimant in question and ask to meet with him. Upon making the call, the claimant refused to meet, but mysteriously offered to reimburse any money he may have accepted in error. Shortly after, the claimant withdrew his claim. From an investigator’s standpoint, the configuration allows MetLife to maximize abilities. Investigators enjoy branching out into different areas, because it provides more variety than handling the usual staged claim or medical mill operations. From a company perspective, because of their years of experience in the field, investigators are able to leverage connections they’ve made with local law enforcement to aid in investigations in other areas — connections smaller operations would not have access to. Simply put, Auto & Home SIU investigators have opened doors that other lines of businesses are now able to walk through. Of course, there’s the technological aspect, too. The current configuration allows other MetLife lines of business to take advantage of technological expertise, particularly the ability to data mine. Previously, other departments lacked the size and scale of their Auto & Home counterparts. Fraud operations within other lines of businesses were not able to embrace technological enhancements with quite the same vigor as Auto & Life had, because it was difficult to justify the expenditure. There since has been a smoother transition into Auto & Home’s data-driven operating model. SIU’s technological expertise has benefited, for example, the dental unit, because it’s been able to identify abnormal patterns of practice. Before data mining techniques were employed, MetLife’s dental experts had to take a conservative view regarding some charges that seemed out-of-the-ordinary. Through data mining, it has become infinitely easier to demonstrate that an individual’s pattern of practice does not conform to general dental industry practices. By demonstrating this objectively, it is now far more difficult to be dismissive of these abnormalities, because they no longer can be explained away. Data mining techniques have allowed the unit to take a closer look at the bigger picture and protect the dental


benefits of customers. The SIU also has benefited from the knowledge and expertise of other parts of the MetLife enterprise. This is particularly true in technology. One relationship the unit has cultivated is with MetLife’s quantitative research and modeling (QRM) department.

Data mining modeling technology is not just for SIU anymore, but it plays a larger role in the company. A few years back, the company discovered that both departments used the same outside vendor for data mining modeling technology. Once this connection was made, David McMichael, assistant vice president within QRM, took a real interest in fraud. The result was a proposal for his department to build the modeling technology it was paying an outside vendor to build. The company now uses a proprietary MetLife solution, which not only has reduced expenses, but it dramatically improved results as well. The same technology is being used to benefit pricing and risk, too. The technology is not just for SIU anymore, but it plays a larger role in the company. In order for companies to replicate MetLife’s success, several

critical elements needed to be in place. • A company must be willing to break down silos, as well as to step beyond traditional departmental functions. • Of course, the company must possess the size and scope to generate the critical mass necessary to make such an operation feasible. • Finally, support of all layers of the organization is needed — including senior officers, such as the chief claim officer and CEO, as well as investigators who are charged with doing the difficult day-to-day work. The lessons MetLife learned from its successful auto and home fraud prevention program are ones that other companies can learn. The trick is to achieve the appropriate balance between all of the elements and to allow it to endure for the long-run. That balancing act is one MetLife believes it has been fortunate enough to maintain for quite some time, and one that will allow the company to be nimble enough to weather whatever the future has in store. CJ

Sargent serves as director of MetLife’s Special Investigations Unit. He was recently elected chair of the New York Alliance Against Insurance Fraud and the treasurer of the Coalition Against Insurance Fraud. He has more than 25 years of experience in the investigation field.

Winter 2012 | Claims Journal 43


USDA’s Food Safety and Inspection Service said in a statement that the problem was discovered through routine monitoring that confirmed a positive result for E.coli. No reports of illness have been received. E.coli is a bacterium that can cause bloody diarrhea, dehydration and, in the most severe cases, kidney failure. The very young, elderly and those with weak immune systems are the most susceptible. — Associated Press

Johnson & Johnson Pulls 12 Million Motrin Bottles Off Shelves

GM Recalls Chevrolet Sonics to Check Brake Pads General Motors Co. is recalling more than 4,000 of its 2012 Chevrolet Sonic subcompact cars to check for missing brake pads. Some Sonics could be missing an inner or outer brake pad, which could increase stopping distance. GM said there are no known crashes or injuries related to the issue. The recall involves 4,296 of GM’s 2012 Sonics sold in the United States. Affected models are from the Orion Township, Mich., assembly plant, which makes Sonics for the U.S. and Canadian markets. Dealers will inspect front brakes on Sonics for missing inner or outer pads and install new pads, if necessary. Customers affected by the recall started receiving dealer letters on January 14. — Associated Press

Ford Recalls Fusion, Mercury Milan Sedans Ford Motor Co. recalled nearly 129,000 Ford Fusion and Mercury Milan sedans in the United States, citing a risk that the wheels may fall off, U.S. safety regulators said. The cars, from the model year 2010 and 2011, are equipped with 17inch steel wheels. Ford said the wheel studs may fracture, causing the car to shake. If ignored, the wheels may fall off while the car is moving, according to a posting on the National Highway Traffic Safety Administration Web site. The problems may be caused by steel wheel mounting pads or rear brake discs that have been incorrectly built and cannot properly support the wheel, Ford said. Ford found one case when the front wheel fell off and five cases where the rear wheel dropped off that are possibly due to these problems. Cars with alloy wheels are not affected. Ford said 128,616 cars are affected by the recall. — Reuters

Nebraska Company Recalls Ground Beef Over E.coli Concern A Nebraska meatpacker recalled more than 40,000 pounds of ground beef products distributed in 16 states after a test confirmed the presence of E.coli. The products were shipped to institutions and distributors in Alabama, California, Florida, Georgia, Illinois, Indiana, Kentucky, Louisiana, Mississippi, New York, North Carolina, Ohio, South Carolina, Tennessee, West Virginia, and Wisconsin. Tyson Fresh Meats Inc. of Dakota City, Neb., recalled 10-pound chubs of chuck fine ground beef 80/20, packed in cases containing eight chubs. 44 Claims Journal | Winter 2012

Johnson & Johnson, plagued by product recalls in the past two years, said it is voluntarily asking retailers to remove about 12 million bottles of Motrin pain relievers from store shelves. The coated caplets may not dissolve as quickly as intended when they near their expiration dates, the company found when testing product samples. The company is not asking consumers to return the caplets. The bottles were distributed in the United States, Puerto Rico, Bahamas, Fiji, Belize, St. Lucia and Jamaica. Three McNeil manufacturing plants have been under stepped-up U.S. government supervision since last March, following a rash of consumer product recalls. — Associated Press

Smucker Recalls Jars of Chunky Peanut Butter J.M. Smucker Co. is recalling thousands of 16-ounce jars of its Smucker’s Natural Peanut Butter Chunky because of possible salmonella contamination. The Ohio-based company says the jars covered in the recall would have been purchased in early November. They have “Best if Used By” dates of Aug. 3, 2012, and Aug. 4, 2012, plus the production codes 1307004 and 1308004. Smucker says 3,000 jars were recalled from stores. Another 16,000 had never left warehouses. Smucker says no illnesses have been reported. The product was distributed in: Arkansas, Colorado, Delaware, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Michigan, Minnesota, Missouri, Nebraska, New Jersey, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Texas, Virginia, Wisconsin and the District of Columbia. — Associated Press

Harley-Davidson to Recall Over 300,000 Motorcycles Harley-Davidson Inc. will recall some 308,474 motorcycles worldwide due to problems with the rear brake light switch. Certain 2009-2012 Touring and Trike models are being recalled because the rear brake light switch may be exposed to excessive heat from the exhaust system. The excessive heat may cause the switch to not activate the brake lamp or activate the brake lamp when no brake is applied. It may also cause a fluid leak at the brake light switch, Harley-Davidson said in notice to the National Highway and Transportation Safety Administration. The company is recalling about 250,000 units in the United States and about 50,000 outside. Harley shipped 210,494 motor-


cycles internationally and shipped an average of 306,000 motorcycles each month from 2000 to 2010. The company has issued other smaller recalls in recent years, including one for 142,000 motorcycles in November 2009 for an issue related to fuel tank mounts. A spokesman noted that Harley-Davidson voluntarily issued the recall to ensure customer safety. — Reuters

Nissan Recall Two Vehicles Because of Engine Stalling Nissan is recalling nearly 34,000 Sentra compact cars because of a battery cable problem that could cause the engines to stall. Documents filed with the National Highway Traffic Safety Administration say that a zinc coating on the cable bolts could be too thick. That can cause a voltage drop that can damage the engine control computer. The documents say the cars can stall while moving, and it may not be possible to restart them, increasing the risk of a crash.

The problem affects some 2010 and 2011 Sentras equipped with MR-20 engines. Nissan says it will replace the positive battery cables free of charge. Nissan also is recalling more than 28,000 Juke small crossover SUVs from the 2011 model year. A turbocharger bracket problem can cause engine stalling. — Associated

Press Toyota Recalls 550,000 Vehicles on Steering Issue Toyota Motor Co is recalling 550,000 vehicles worldwide, including more than 420,000 in the United States, to replace an engine component that could hamper steering. Models involved include the Toyotabranded Camry sedan, Solara coupe, Highlander SUV, and Sienna minivan for the 2004 and 2005 model years. The recall also covers the 2004 Toyota Avalon sedan and 2006 Highlander HV. Toyota luxury brand Lexus models recalled were the 2006 Lexus RX 400H SUV as well as the 2004 and 2005 ES330 sedan and RX330 crossover. The recall is the latest in a reputationdamaging series that began in the fall of 2009, mainly involving complaints of

unintended acceleration linked to defective floor mats and gas pedals. This recall affects 283,200 Toyota and 137,000 Lexus vehicles in the United States, bringing the total recalls in 2011 to an estimated 3.3 million vehicles. Toyota will replace the crankshaft pulley on the six-cylinder engines of the models. The company said the outer ring of the pulley may not be aligned with the inner ring. If the condition were not fixed, a component of the power steering pump could be detached from the pulley and force the driver to put in more effort to steer. About 27,000 vehicles were recalled in Canada and 38,000 recalled in Japan, a Toyota spokesman said. — Reuters CJ

Winter 2012 | Claims Journal 45


ClaimsJournal.com Reader Poll

The Role of Appliances in Residential House Fires http://www.insurancejournal.tv/videos/5899/

Which of the following is THE most responsible for customer satisfaction? 0







Policy pricing

8.68% (147 votes)


2.66% (45 votes)

Claims handling service Carrier customer admin & services

67.51% (1143 votes) 5.02% (85 votes)

Insurance agency services

14% (237 votes)


2.13% (36 votes)

Total Votes: 1,693

IJ Video Highlights Trends in Professional Liability Claims http://www.insurancejournal.tv/videos/6132/ With certain professions seeing a rise in claims, Gerry Merritt, president of Hanover Professionals, discusses the reason for the increase and the main targets of such claims, in this interview with Claims Journal and Insurance Journal at the 2011 annual Professional Liability Underwriting Society (PLUS) conference in San Diego.

The Scope of Intellectual Property http://www.insurancejournal.tv/videos/6126/ Robert Fletcher, president of the Intellectual Property Services Corp., explains a business’ IP, how it is valued and the costs associated with litigating IP claims, in this interview with Claims Journal and Insurance Journal at the 2011 annual Professional Liability Underwriting Society (PLUS) conference in San Diego.

Podcast Highlights An Interview with Pam Stiefel, IASIU Investigator of the Year http://www.insurancejournal.tv/videos/6261/ Pam Stiefel, a special investigator with The Hartford, talks about how a single auto theft referral led to an investigation of an international, organized title washing ring operating through the Texas Department of Motor Vehicles and how she busted the criminals with the help of federal investigators in an undercover sting operation. 46 Claims Journal | Winter 2012

Although the risk of a house fire caused by a defective appliance has gone down through the years, appliances should still be examined as a potential ignition source, says John Mulcahy, a forensic electrical engineer with NEFCO. In an interview with Claims Journal, Mulcahy describes common electrical components in appliances, their hazards and how appliance manufacturers are identified post-fire.

In a Reader’s View South Carolina Woman Sues Bar for Failing to Check ID A woman is suing a Bluffton, S.C., bar because a bartender didn’t check her age before serving her on the night of the 2009 wreck that paralyzed her. Chelsea Hess, who was then 20 years old, is a paraplegic because of the accident. Hess’ lawsuit says she was served at Jock’s Sports Grill, but the bartender failed to check her ID or to determine if she was already drunk. She’s also suing the state Department of Transportation, saying the agency failed to properly maintain the shoulder of the road where her car crashed. Lawyers for both defendants say Hess is responsible for her accident. AP The story generated outrage among readers. Read a few of the comments below:

Renee says: She and her attorney should have to pay for all property damage/attorney fees/court expenses caused by her accident/lawsuits against the various parties — This is NOT A CASE THAT DESERVES “THEIR DAY IN COURT” AS MANY DON’T. It is a clear case of responsibility and common sense. Our Court System needs to punish these types of cases immediately when filed and stop the COURT SYSTEM ABUSE. It cost all us taxpayers our hardearned money, and I work too hard for my money to be wasted this way!!!!!!

Gene Pool says: IMO, the problem is not with plaintiffs, but with the attorneys out to make their 1/3 to half the award. You can’t tell me this drunk came up with suing on her own. EU doesn’t have this problem as the suit loser pays all court AND legal expenses of the winning party. That tends to take away the no-risk suit process we have here. Of course, we’ll never have true tort reform as lawyers make the laws.

Agent says: Mandating that we have to buy a product or service is hardly promoting the General Welfare Clause. These Progressive Liberals think they have to regulate and control every aspect of our lives. We have had enough of their control and regulation. It has basically bankrupted our country and Obamacare will put the final nail in the coffin. Has anyone seen their health premiums go down since this law was passed? It is not uncommon to see 15 percent increases on Individual and Group policies. How is this reducing the cost for us? CJ


Insurance Journal

Academy of Insurance With changing technologies, economic instability, and a saturated job market, it’s more important than ever to be the best. Fortunately, we offer a wide variety of interactive webinar courses taught by successful industry professionals. So whether you want to learn new skills or just brush up on the basics, you’ll stay ahead of the curve with the Insurance Journal Academy of Insurance.

For a list of all our upcoming webinars, visit www.ijAcademy.com

CLAIMS DEPARTMENTS | CALENDAR OF EVENTS Salt Lake City, UT Contact: www.xactware.com/user-conference/2012/registration-information. html

March 2012 24th Annual Combined Claims Conference (CCC) A two-day conference offers continuing education for CPCU, RPA, MCLE, CIPI, CALI and the California Department of Insurance for independent adjusters, attorneys, investigators and brokers. Speakers will present on three parallel tracks (SIU, property, liability) covering social media investigations, mock depositions and expedited jury trials. The closing session will feature a live demonstration using accelerant detection dogs. March 12-14, 2012 Long Beach, CA Contact: jmcdonald@combinedclaims.com or call 714-321-3847

January 2012

April 2012

2012 Loss Executives Annual Meeting

PLRB/LIRB Claims Conference & Insurance Services Expo

The annual meeting provides a forum for discussion, study and consideration of common loss adjustment problems to explore options and alternatives. An executive forum is restricted to insurance company property loss management personnel. Sessions will address e-discovery, contingent business interruption, recent developments in cyber risk and claims, pictometry and a property case law update.

The annual conference, offering educational and networking opportunities, offers nearly 100 claims-related sessions in 12 curriculum tracks, including property, casualty, general interest, large loss, property coverage, subrogation, special investigations/fraud, claim management and technology.

January 18-20, 2012 Tampa, FL Contact: www.lossexecutives.com, Peggy Reilly at 201-569-3346

April 15-18, 2012 Orlando, FL Contact: Valerie Berka, Meetings Manager, vberka@plrb.org, 630724-2227

2012 Windstorm Insurance Conference

May 2012

The annual conference provides a forum for review and discussion of windstorm and related property insurance issues. It is the only conference of its kind focusing solely on windstorm claim issues and is geared to many different levels and professions in the industry.

NICB Special Investigations Academy – Basic and Specialized Tracks

January 30-February 2, 2012 Orlando, FL Contact: WIND’s meeting planner, MMG, at 813-988-0737 or e-mail meetingplanner@windnetwork.com

The SI Academy offers basic and specialized tracks concurrently at the same location and date, with practical information for onthe-job use. Attendance is restricted to the direct (not contracted) employees of member companies, NICB, government agencies and law enforcement.

February 2012

May 7-10, 2012 St. Louis, MO Contact: www.nicb.org or contact Melitta Kewitz at 800-447-6282 ext. 7024, mkewitz@nicb.org CJ

NAMIC Claims Conference and Exhibit Show Designed for claims managers, claims operations managers and claims adjusters, the conference offers presentations from insurance company experts and industry consultants. Topics covered include fraud, performance management, electronic payments, measuring and managing claims leakage and catastrophe management February 8-10, 2012 Savannah, GA Contact: www.namic.org to register online

Xactware User Conference 2012 Conference sessions address market value versus replacement cost, the effects of foreclosure and bankruptcy on the industry, driving technologies and industry standards, and sketching complex roofs. February 16-17, 2012 48 Claims Journal | Winter 2012

Claims Journal Advertisers Index Agero www.agero.com 11 ClaimExpress www.claimexpress.com 2 Haag Engineering Company - Education www.haagengineering.com 17 IICF www.iicf.org 45 Pilot www.pilotcat.com 5 RGL Forensics www.rgl.com 13

Sprint www.sprint.com/insurance The Institutes www.theinstitutes.org Videofied www.videofied.com Wardlaw Claims Services, LLP www.wardlawclaims.com Weather Forensics www.weatherforensics.com

7 15 52 3 21

Want to Increase Your Advertising Results in 2012?

Find out what our current advertisers already know. Contact Howard Simkin at 800.897.9965 x162 or hsimkin@claimsjournal.com


Claims Departments to the Rescue Adjusters Play Unsung Heroes in 2011


laims departments of property/casualty insurers were essential players in the economic recovery of cities across America in 2011 following catastrophes that generated record numbers of claims. The losses, both insured and uninsured were staggering as the billion-dollar catastrophe became a new norm. The greatest dollar loss for catastrophes in the past 20 years occurred in 2011. Insurance company claims departments helped numerous communities recover. While media attention following a disaster focuses on disaster declaration, and when Federal Emergency Management Agency will arrive on the scene, the financial reality is that most of the money to rebuild comes from property insurance policies By Hugh Strawn purchased by the people affected by the disaster. Although the media attention is scant, the policyholders are usually pleased with the rapid response of insurance company catastrophe teams. The well-trained cat adjuster who helps traumatized policyholders get back on their feet and resume their lives is frequently saluted in letters to company presidents. Disaster survivors often cite their realization that things will be OK when they arrive at a mobile catastrophe center to begin their claim, follow-up with questions, or seek expert advice. The greatest praise is often for the individual adjuster who takes the time to listen to a policyholder to learn what is most important to them and resolves those issues fast. Catastrophe adjusters are often viewed as “heroes” by policyholders for facilitating a rapid recovery from the disaster. The catastrophes that produced the largest insured losses were primarily caused by severe thunderstorms and wildland fires. Flooding produced enormous, and mostly uninsured, losses from the Plains and Midwest to New England. Adjusters helped policyholders recover after these disasters and move on with their lives. Severe thunderstorms in spring 2011 produced mega-tornadoes. The insured losses in April, which included the Alabama tornadoes in Birmingham and Tuscaloosa, have been estimated at about $7.3 billion by Property Claim Service (PCS). PCS estimates the insured

Well-trained adjusters helped the traumatized policyholders get back on their feet and resume their lives. losses in May, which included the Joplin, Mo., tornado, to be about $6.5 billion. The wildland fires in the Southwest and on the Southern Plains, mostly in Texas, have estimated insured losses of $3.6 billion. All of these disasters and many smaller less spectacular occurrences, such as “routine” hail storms, generated thousands of claims. In every event, adjusters were on the scene immediately to help policyholders with their claims. Hurricane Irene tracked along the East from Florida to New England. Although the wind velocity was “low,” the insured losses were about $4 billion, according to PCS. Irene proved that a hurricane does not have to be a mega-storm to produce big losses. 50 Claims Journal | Winter 2012

Insurance claims departments helped many homeowners recover from flood damage in 2011. ©2012 AP Images. Following Irene, adjusters were in the field contacting insureds and settling losses. In many cases, they also helped insureds without coverage; insureds who suffered catastrophic flood damage. As Irene moved inland, it generated heavy rain in the Northeast and New England. Vermont sustained widespread catastrophic flood damage. There was little flood coverage in place. Adjusters nevertheless responded to the policyholders’ calls for assistance, if only to deny coverage and to help provide the information necessary to complete paperwork needed during FEMA’s emergency loan and grant process. A claims executive in New England said those inspections and claims denials increased the company’s claims expense. But, he noted, “these people are our policyholders. They need help, and we have the expertise to help them through the FEMA process.” The flooding of 2011 once again demonstrated the value of having insurance versus seeking help from FEMA after a disaster. On June 22, 2011, Minot, N.D., survived disastrous flooding when the Souris River flowed over the top of emergency levees. About 4,000 homes, nearly 25 percent of the city’s housing stock, were flooded with up to 12 feet of water that was polluted with agricultural chemicals and sewage. Close to 12,000 people were displaced. There was little coverage in place from the National Flood Insurance Program, despite a campaign urging people to buy the coverage. Today, many of the survivors of the Souris River flooding in Minot have little or no money to repair or replace their houses. Many people are faced with spending a harsh winter in trailers provided by FEMA. Those who did have flood coverage have had their claims settled, for the most part, and are rebuilding or relocating. The catastrophe adjusters received scant recognition as heroes, but they were among the most crucial players in the long-term recovery of the damaged communities as they began to rebuild. CJ

Strawn is vice president of catastrophe services for the Property Loss Research Bureau. Website: www.plrb.org. E-mail: hstrawn@plrb.org.

(You can also subscribe by mailing us the attached subscription card.)

Loss Control With A Badge PROBLEM : In many cities police no

SOLUTION : Police give priority response to

longer respond to traditional alarms because they consider traditional burglar alarms a waste of time - 98% end up being false.

video intrusion alarms and make arrests. Videofied alarms send a video clip of the intrusion and are dispatched by the 911 center as a crime-in-progress. Videofied alarms deliver loss control with a badge.

Mo S e ntio n sor






Get Arresting Results The Videofied MotionViewer™ detects intruders and sends a 10 second video clip of the incident over the cell network for immediate response – and arrests. Videofied alarms are endorsed by law enforcement for priority response; officers making thousands of arrests protecting commercial/residential property from burglary, vandalism, and copper theft. Videofied delivers loss control with a badge for satisfied policy holders - and profitability. Call to learn more about our loss control program and reduce the cost of underwriting and claims. 877-206-5800 or visit: www.videofied.com Endorsed by the National Sheriffs Association


“ I have made over 150 arrests working with this system. It’s the best I have seen.” Officer John Greene, K-9 Officer of the Year 2010 Police K-9 Magazine

Profile for Insurance Journal

Claims Journal Magazine - Winter 2012  

Welcome to the premier issue of Claims Journal magazine, where property/casualty insurance claims professionals turn for news, trends, analy...

Claims Journal Magazine - Winter 2012  

Welcome to the premier issue of Claims Journal magazine, where property/casualty insurance claims professionals turn for news, trends, analy...