In our last article in a three-part series where we put cumulative trauma (CT) claims in California under the microscope, we take a look at how these workplace injuries have become a “cottage industry” for attorneys and physicians, wreaking havoc on Workers’ Comp costs for manufacturers and other employers. While employer groups and others call for a change in legislation to stem the high tide of CT claims in our state, the manufacturing industry is seeking solutions on how to manage these types of claims and get their Workers’ Compensation costs under control.
To recap: CT injuries happen gradually at work, over a period of time, or during the course of repetitive action. While there are indeed legitimate workplace-related CT claims, the fact that California experiences a higher CT claims frequency than any other state, and in the last decade has seen these types of work-related lost-time claims more than double, has caused employers, the business community at large, and the insurance industry to pause and take a look at the reasons behind this trend. The high frequency of CT claims in the state in part is due to the threshold for CT compensability in the California Workers’ Compensation system, which is much lower than those in other jurisdictions. According to state law, if one percent of the injury can be attributed to employment, the CT claim, if it satisfies other criteria, is valid. Also, because there isn’t a specific event reporting date for a CT claim, it’s difficult for an employer to prove that the injury wasn’t caused by the employee’s work. You can have a CT claim going back a year ago, or even 15 years. Most employers have an employee handbook that requires all employees to immediately report any and all work-related injuries to their supervisor. A big deal is made out of this to avoid the issue of an employee claiming that he injured himself last week, or a few days ago, etc., after spending the weekend playing football or participating in some other activity that actually caused the injury. The fact that a CT claim has no “event date,” but rather occurs over a “period of time,” opens the door to fraud and all kinds of unscrupulous behavior by the legal profession and employees alike. The plaintiff’s counsel can simply say, for example, that “the injured employee is not a physician and therefore was not qualified to diagnose himself or his cumulative injuries at the time they were occurring and therefore did not report them.”
The high frequency of CT claims in our state with the support – and even encouragement – of the legal community results in higher defense costs and the overall cost of the claim. In fact, the 2016 California Workers’ Compensation Institute (CWCI) study found a strong association between attorney involvement and regional variation in the LA Basin and the high cost of CT claims (see our previous article). Further, workers claiming CT injuries were 10 times more likely to have claimed other injuries against the same employer, according to the study.
CT Claims Driving Up Cost for the Manufacturing Sector
According to the CWCI study, CT claims are most prevalent in manufacturing (see exhibit below). This high frequency of CT claims in our state impacts the experience rating of the industry as well as the experience modifications (X-mods) of individual manufacturers. X-mods are calculated by the state’s governing agency, the WCIRB, to benchmark an individual employer against others in the same industry based on that employer’s historical claims experience. This comparison is expressed as a percentage – the X-mod – that is applied to an employer’s Workers’ Compensation premium. An X-mod of 1.0 is considered the industry average, meaning that the employer experiences the average number of claims for the type of industry he is in and the size of payroll supported by the company. If you have an X-mod lower than 1.0, your losses are better than your industry’s comparative average, resulting in a discounted premium. An X-mod greater than 1.0 means your losses are higher than your industry’s comparative average. Additionally, an X-mod is calculated using three prior policy years. The most recently completed policy year is excluded and the three years prior will be used.
When you have a high frequency of CT claims, not only does this affect the industry’s overall experience, but also the X-mods of individual manufacturers. There are manufacturers paying as much as an additional hundred thousand dollars a year for three years because of CT claims. Even those with a lower incidence of losses than the industry’s experience rating benchmark are seeing their comp premiums spike due to the open season of CT claims being filed within the manufacturing sector in California.
The situation is clearly untenable, with so many illegitimate claims being filed, particularly with post-term employees taking advantage of liberal state laws, court-favored decisions, lucrative awards, and the support of the legal and medical community. Case in point: A Southern California manufacturing business recently attempted to fight several CT claims by former workers. In the first case, a post-term employee who had never missed a day of work or complained about pain received compensation of $32,000 plus medical benefits after the judge determined that working in the industry for 20 years was “bound to have caused some cumulative trauma during that time” for the claimant. The employee was 45 years old and had only worked for this SoCal manufacturer for three years. After “winning” her case, the employee called other recently laid-off colleagues to let them know of her “win.” Three more claims were subsequently filed. The insurance company decided to mitigate the manufacturer’s losses and settled with each former employee (without taking depositions) for $18,000 to $20,000. The manufacturer’s X-mod rate went through the roof. During that time period, it’s important to note that the manufacturer did not have a single legitimate (non-CT) claim.
The extent of the CT claims issue in California not only results in higher comp premiums for manufacturers but it’s also responsible for negligent retention, which results in low employee morale and lost profits that could otherwise have been put back into the business. Employers are hesitant to let employees go because they fear a post-termination continuous trauma claim that can run over $100,000 and increase Workers’ Comp premium costs for their business.
What Can You Do?
To address this issue, a specific claims strategy should be put into place to manage CT claims, with the assistance of your insurance broker and carrier. This includes having a strategy to prevent musculoskeletal disorders (common CT claims) from occurring in the first place. Professional ergonomists can be brought in to address production demand assessments, obesity, age and other population exposures, engineering layouts for efficient, ergonomically designed workstations, and incorporating ergonomics into wellness initiatives. When it comes to Repetitive Motion Disorders (RMDs), a family of muscular conditions, professionals can also conduct on-site analyses of employees performing actual jobs, and leverage industrial engineering methodologies to study the work being performed. They can then present evidence whether or not there is a correlation between employee-reported injuries and the job performed. This can be an essential tool to help an adjuster determine whether an injury is indeed work-related or the result of other non-work related factors such as obesity, diabetes, lifestyle (e.g. sedentary), or even an exercise-induced injury (e.g. cycling, weight lifting).
Part of your claims strategy should also include partnering with your insurance broker to help gain an understanding of your overall exposures and loss history. This involves investigating your claims to identify co-morbidity factors, pre-existing conditions and other claims as well as putting into place strong oversight of the key cost drivers increasing your Workers’ Compensation premiums. A strong legal defense strategy and litigation management are also critical in dealing with these CT claims.
About Precision Manufacturing Insurance Services
Precision Manufacturing Insurance Services (PMIS), specialists in insuring manufacturers throughout California, can provide you with both the Workers’ Compensation coverage you require and the loss control strategies and claims management needed to take CT claims head on. We can also review your X-mod to see whether it accurately reflects your loss experience. Give us a call at 855.910.5788.