by Daryl Davis
Many buyers and sellers of “occupational accident”1 insurance struggle with that general term even though it is an intuitive catch-all for injuries that occur during the course of employment. While workers’ compensation (WC) is only one of occupational accident’s various sub-categories, its ubiquity throughout the industrialized world is such that proper categorization can be turned upside down. We frequently hear “WC” used as a blanket term for any or all of the sub-categories of occupational accident, even by industry insiders who should know better. But in using the name “workers’ compensation” to refer to the various types of occupational accident insurance that, in reality, are not WC, employers expose themselves and their companies to unnecessary risks.
Business Staffing, Inc. (et al.) v. Jackson Hot Oil Service (et al.) is a troubling case that exemplifies the importance of understanding exactly what type of occupational accident coverage a company has in place. Beginning in the 1990s, Jackson Hot Oil (JHO) contracted with Business Staffing, Inc. (BSI), a staff leasing business in Texas, for various services including the procurement of WC that BSI was supposed to obtain from its insurance carrier, which had common ownership with BSI.
In March, 2005, a JHO driver received third degree burns on two-thirds of his body after an oil field fire set his truck ablaze. Medical bills eclipsed $1M, and the driver missed more than two years of work due to a prolonged and difficult recovery. Based upon what was communicated between JHO and BSI, this occupational accident claim should have been covered by WC, but BSI’s insurance carrier—from which BSI supposedly procured WC insurance—only paid $13,000 in medical bills and 18 months of partial wage replacement. This was clearly not the way any state designed its WC system to function. These insufficient payments, which amounted to less than 10% of the total losses incurred by 2007, led to JHO filing suit against BSI (as well as the insurance carrier under common ownership) in 2008.
As the court documents attest, BSI reserved the right to subscribe or not subscribe to the Texas WC system at its discretion. Unfortunately for JHO and its driver, BSI wasn’t subscribing at the time of the occurrence. JHO held that BSI had communicated that WC was in place, but at the exact moment when JHO needed its WC policy to respond, some other form of occupational accident insurance was in place. The domestic operations officer of BSI’s insurance carrier testified that his company “was not…capable of paying the claim.” So this story ends after an excruciatingly painful near-death accident exposed some sort of hollow and fraudulent indemnification program that, in turn, led to a multi-million dollar judgment.2 With extreme outcomes and bad faith duly noted in this example, we highlight that whatever type of anemic occupational accident insurance JHO actually bought—and regardless of what they called that insurance—it was not WC.
For our next example, consider the case of a multi-state convenience store chain that opted out of WC in Texas and established its own alternative occupational accident program—a common process in the Lone Star State (and perfectly legal if properly executed). The chain posted notices for its Texas employees that it was “switching to a self-insurance program for its workers’ compensation benefits.”3 Was a self-controlled and—by all accounts—legitimate occupational accident program in place? Yes. Was that program synonymous with WC? No. Due to the popularity of nonsubscription in Texas, such a posting may seem innocent enough, but there is no state in which a non-WC insurance program can be advertised as a WC insurance program. Almost immediately after the convenience store chain posted this notice, an employee initiated what appeared to be a not unusual “WC” claim that led to a drawn-out court battle, in which the convenience store was discovered to be a nonsubscriber to the Texas WC system. A jury found the employer had violated the state’s insurance code—among other things—and a final judgment of over $250,000 was awarded to the employee.
These two examples (especially when viewed from a risk management perspective) should give pause to anyone throwing around the wrong terms within the occupational accident space. Clearly, there can be tremendous value in using the right name. In the following sections of this three-part article, we will compare various types of occupational accident programs.
A Living, Changing Metaphor
To help the reader visualize how workers’ compensation fits within occupational accidents, we cautiously offer the following metaphor: WC is to occupational accidents what a controlled fire is to fires in general. This strange and slightly strained metaphor is helpful in at least five ways:
- The former is a subset of the latter.
- All fires can kill you.
- The vast majority of fires in our industrialized society are controlled.
- Controlled fires can give onlookers a false sense of security.
- Various types of fires may give the appearance of being controlled when, in fact, they are not.
Like all fires, this metaphor will change as we provide more context; and like all metaphors, this one will break down eventually.
Workers’ Compensation: A Controlled Fire?
Long before the birth of the United States of America, employees in common law societies had the ability to sue their employers for bodily injury torts that occurred during employment. This was a poor arrangement for the employer—but even worse for the less capitalized employee. Accepted as “good enough” for centuries, this inefficient and lopsided legal solution was eventually deemed superannuated (since its slowly evolving case law was unable to keep up with the torrid pace of the Industrial Revolution). Labor relations, which had been heating up for decades, began to boil over by the end of the 19th century as workers took on greater physical risks without commensurate compensation. For many employers, increasing profits and superior legal footing contributed to an attitude of complacency with respect to workplace accidents.4
Starting about one century ago, we collectively cried “mercy” as various laws were introduced—both at the federal and state levels—to address what had become an untenable position for employees and society at large. The statutorily dictated Grand Bargain of the 1910s was straightforward: Workplace injuries would be deemed no fault; employees could not sue their employers for negligence in bodily injuries arising during the course and scope of employment; and employers would promptly cover employees’ medical expenses as well as lost wages. That patchwork of laws has evolved into what we now call workers’ compensation.5
By their very nature, WC laws are designed to protect the employer and employee from damaging each other. Metaphorically speaking, the employer and employee are no longer susceptible to the various uncontrolled fires of centuries past; they are instead placed within the secured firewalls of WC, escorted by a select crew of trained and licensed professionals6 who are allowed inside these firewalls to ensure that everything is up to code and no one gets burned by the remaining controlled fire. And, in reality, the WC system is very controlled—especially from a governmental perspective once a claim is filed.
But the players within the restricted firewalls of the WC space have created their own new fires: unacceptable medical outcomes for employees; unnecessary friction between employer and employee facilitated by legal representatives; overutilization facilitated by medical providers; a tendency for non-occupational medical conditions to get pulled into the WC system; fraudulent activities; and the perverse incentives of those trained and licensed escorts to ensure the demand for their expertise grows. These problems are not lost on the employer, of course, who begrudgingly writes an annual insurance check to fund this expanding bureaucracy. Indeed, today’s inefficient solution is even more lopsided than a century ago.
Blockheads and a Seditious Backflash
Social challenges and unintended legal consequences combine to create one uncontrolled fire within WC that is especially difficult for onlookers to delineate from the larger controlled burn. Friederich von Schiller offers context on the social front: “Anyone taken as an individual is tolerably sensible and reasonable—as a member of a crowd, he at once becomes a blockhead.” People in groups make strange, irrational and unsafe decisions, and all of this is certainly true in the workplace.
When that annual WC insurance check is written, the rational and singularly articulated message from on high is very clear: “No more accidents!” But that message gets diluted quickly as it spreads amongst the employees who, when assembled in groups, communicate and act like blockheads. Managers are juggling various priorities, and many may not understand how best to improve safety. In the social setting of the workplace, everyone has a different perspective, incentive and communication style—confounding the efforts of the most gifted leaders.
To get these groups of blockheads to focus on any plan of action—per conventional business wisdom—requires a company’s leaders to use the following process standard (or something similar): Establish the plan of action as priority at the executive level; communicate the plan as priority throughout the organization; provide explanations and documentation to managers rationalizing why the plan is priority and how success will be achieved; empower those managers to provide summaries of the plan (with the attendant over-utilization of bullet points) to front-line employees; assemble meetings amongst the company’s various factions to discuss the plan;7 create metrics to measure, track and report success; incentivize the workforce to own the plan; establish and continually enhance best practices (again with the bullet points); audit results; analyze results; and, eventually, refresh the entire process by starting over.
All of that vetting and bullet pointing still leads to a disturbing lack of success in executing most plans of action for most companies. The sales process—one of the first to go through a process-setting standard—frequently calls for some sort of tracking mechanism (e.g., spreadsheet, funnel report, logging system, etc.) that is to be used by incentivized salespeople to document steps achieved throughout the sales cycle. This task—of typing words to describe steps taken—is one of the simplest that can be imagined and expected from an individual employee—an individual who is “tolerably sensible and reasonable.” And yet many managers review these tracking mechanisms knowing full well that basic steps will not have been documented. Even at the individual level, failure is commonplace in spite of the above detailed efforts—which are sometimes herculean.
A safety program—by its nature—is a social effort. Individuals executing their responsibilities, taken in aggregate, either increase or decrease dangers to others. Even further, one individual’s ideas about safety may fall well short of the sensible and reasonable standard that, ultimately, must be instituted throughout, within and for the benefit of an entire group. We argue that the subject of safety, at a high level, offers the single best example of the blockheadedness of people in groups. More specifically, a riotous or inebriated crowd may offer the popular mind an intuitive picture of the unfathomable risks these groups take with respect to bodily injury. As vivid as these Bacchic examples may be, a workplace group only solidifies our argument precisely because its senseless decisions and poor execution are carried out by trained blockheads confined to dispassionate and sober circumstances. The reader need not be an insurance claims adjuster to picture how baffling some of these decisions are. Anyone can witness an adequate—though limited—sample of such buffoonery by simply searching internet images under “unsafe work practices.”
It is very easy for an executive to say, “No more accidents!” But the reality is that only the upper echelon of companies can overcome the idiocy of social dynamics to successfully execute anything close to this ideal. To do so requires total commitment at all levels and the utmost discipline in execution at all times. It is one of the biggest challenges within business.
While these social challenges are universal in occupational accidents, they can be compounded when combined with the tort immunity of WC. There are dozens (if not hundreds or thousands) of priorities vying for executive attention within any company. When determining how much of a priority safety is or is not, an executive can always hope that this particular controlled fire will die down of its own volition. After all, thanks to the tort immunity statutorily afforded the company within the WC system, it need not worry about scary bodily injury lawsuits. Safety problems—as a controlled fire—may be put on the backburner as other priorities—like the out-of-control sales program—take precedence. Who knows where the “Safety First!” priority might have fallen without that legal protection? But with tort immunity secured, a false sense of security can befall onlookers very quickly. Complacency towards workplace safety, not unlike that which existed in the 19th century, is alive and well under a WC system that has bloated our expectations along with every unnecessary layer of bureaucracy foisted upon us. This, certainly, is an unintended legislative consequence of the Grand Bargain of the 1910s.
Since the inception of WC, both the frequency and severity of workplace injuries have diminished, and our society is much better for it. But over the last few decades, as the employer-funded $40B sprawl of the workers’ compensation industrial complex continues to expand, and employees continue to monopolize benefits of the doubt, employers have increasingly thrown their hands into the smoke-filled air. As those hands continue to fly up, a fire called "complacency" breathes new life again and burns stronger within the firewalls of WC. Complacency with regard to safety was one of the major uncontrolled fires that precipitated WC to begin with. Today’s variety of complacency must be viewed within the modern context of safety standards and workers’ rights—but that complacency is as rampant and dangerous as a phoenix rising from the ashes of the Industrial Revolution. Our society will eventually deem the sprawling complex of WC superannuated. And whatever solutions we come up with to replace WC, complacency will again be cited as a major contributing factor in the burning down of this weighty institution.
To update our changing metaphor: The legislatively controlled fire of WC has done a fantastic job of controlling the employer/employee firestorm that existed a century ago, but its firewalls are clearly vulnerable as some of its least controlled flames threaten it and its onlookers.
In the real world of occupational accidents, we’ve seen four consecutive generations of workers come to perceive WC as the assumed norm. But we must not blithely miscategorize all workplace accidents into WC. In our next two editions of the Workplace Guardian, we will focus on alternatives to workers' compensation. Texas nonsubscription is the most famous, but the nascent Oklahoma option could prove to be the tipping point for the creation—or allowance—of more alternatives to WC. We’ll conclude this three-article series with a brief review of occupational accident coverages for 1099s, athletes and volunteers.
Legal Disclaimer: The above article was written from the perspective of risk management and is not to be construed as offering any legal advice.
1 Other intuitive terms that sit at or near the top of the occupational accident categorization chart are “occupational injury,” “workplace accident” and “workplace injury.” The term “workers’ compensation,” despite its ubiquity, lacks such intuitiveness.
4 Prior to the advent of WC, employers in common law societies could use three very powerful common law defenses in bodily injury suits from employees: contributory negligence, assumed risk, and the fellow-servant doctrine. For more detail, see Employer Liability: From Sumerians to Oklahomans.
5 Most libraries offer an abundance of reading on the subject of workers’ compensation, but we point anyone interested in the aforementioned “patchwork of laws” to a wonderful and affordable publication used by industry experts throughout the country: The U.S. Chamber of Commerce’s Analysis of Workers’ Compensation Laws (order 2013 edition here). This annual publication offers tremendous detail in easily digestible charts for the 50 separate state-run systems as well as Federal and American Territory practices.
6 The “trained and licensed professionals” from our metaphor translate in reality to occupational safety inspectors, insurance brokers, medical providers, administrators, lawyers and administrative law judges.
7 The meetings called to establish processes are remarkable as many of them accomplish nothing but are universally purported to be necessary for the success of the business. This is reminiscent of that famous section of John Kenneth Galbraith’s The Great Crash of 1929, in which he offers a scorching analysis of the “no-business meeting.” We take this opportunity to reprint these two hallowed paragraphs from that book:
Men meet together for many reasons in the course of business. They need to instruct or persuade each other. They must agree on a course of action. They find thinking in public more productive or less painful than thinking in private. But there are at least as many reasons for meetings to transact no business. Meetings are held because men seek companionship or, at a minimum, wish to escape the tedium of solitary duties. They yearn for the prestige which accrues to the man who presides over meetings, and this leads them to convoke assemblages over which they can preside. Finally, there is the meeting which is called not because there is business to be done, but because it is necessary to create the impression that business is being done. Such meetings are more than a substitute for action. They are widely regarded as action.
The fact no business is transacted at a no-business meeting is not normally a serious cause of embarrassment to those attending. Numerous formulas have been devised to prevent discomfort. Thus scholars, who are great devotees of the no-business meeting, rely heavily on the exchange-of-ideas justification. To them the exchange of ideas is an absolute good. Any meeting at which ideas are exchanged is, therefore, useful. This justification is nearly ironclad. It is very hard to have a meeting of which it can be said that no ideas were exchanged.