Illinois Workers Compensation Insurance Rates and Injury Codes

When analyzing overall work comp costs and rates,  it's important to know how injuries affect your Illinois Workers Compensation Insurance modification factor.  To take full advantage of the Illinois ERA credit it's important to know what these injury codes stand for. 

An injury code is assigned to each claim by your insurer based on the type of injury. Each code is described in the following table.

IJ Code





Permanent total disability


Major permanent partial disability


Minor permanent partial disability


Temporary total or temporary partial disability




Contract medical or hospital allowance


Compromised death (California only)


Permanent partial disability




Common Mistakes Employers Make Regarding Workers' Compensation

Common Mistakes Employers Make Regarding Workers' Compensation

Most employers look at workers' compensation as just another necessary evil and unavoidable cost of doing business. It's usually one of those out of sight, out of mind things when rates are low. It's not until an employer is hit with a rate hike that they really start to give some thought to their workers' compensation rates.

Employers need to constantly look at workers' compensation as a tool to improve their business's bottom line, and they certainly need to make an effort to keep their low rates over the long-term so that they can take advantage of some significant savings.

Here are four common mistakes made by employers that frequently deter their workers' compensation savings:

1. Assuming that lower rates equate to lower costs.

Don't make the faulty assumption that your cost will automatically go down just because your rates have been reduced. Workers' compensation insurers use an experience modification factor to examine the actual losses incurred by the insured company and establish cost. The actual losses are compared to other industry-alike companies. If the insured company's past losses are below average, then the insurer gives the company a credit rating lowering their premium, but an added surcharge is applied to the premium if the insured company's past losses are above average.

2. Believing that employers have little control when it comes to the expense of workers' compensation.

Employers know they've got to have workers' compensation insurance. However, this acknowledgment shouldn't lend to an employer thinking they've got to pay excessively for it; employers don't and shouldn't.
Cost reduction starts at the hiring process. Initiate effective interview techniques and background checks to help ensure the right people are hired for the right jobs. That said, there's no way to completely eliminate the possibility of injuries in a workplace. Therefore, it's equally important to have an effective return-to-work program in place to simultaneously assist injured workers return to work as soon as possible and reduce the cost of their claims.

3. Neglecting or de-emphasizing cost containment and injury management during low rate periods.

Safety should be an unyielding focus at all times. This will not only help a company reduce their claim numbers, but also keep their rates low over the long-term. Employers need to keep an eye on the issues that frequently impact the costs of claims, such as medical care costs and lost wages. Also, remember that open claims mean escalating costs and negative impacts to the company's modification factor. Of course, this causes an increased cost for coverage.

4. Not making the association between cost containment and worker retention.

Studies have shown that fewer accidents occur among skilled workforces, but even skilled workers can have an accident. A large part of whether or not an injured skilled employee returns to work is based on how their employer responds to them during and after recovery. An important part of an employer's response will be in having a return-to-work program that includes maintaining constant contact with all injured workers and their health care providers to monitor how they're recovering and when and how they can get back to work as soon as possible. Skilled employees that are kept in the loop with a return to work program's periodic phone calls about what workplace changes are occurring in their absence are more likely to return. On the other hand, skilled employees that feel forgotten, undervalued, and disconnected aren't very likely to return. 


Workers' Comp Premium Fraud: Don't Do It

Workers' Comp Premium Fraud: Don't Do It

Workers' compensation premium fraud is costing honest employers millions of dollars every year - and endangering workers who are frequently exposed without workers comp protection.

Most people are familiar with fraudulent claims of injury on behalf of workers who fabricate or exaggerate their injuries to collect claims they aren't entitled to.

That's small potatoes next to employers who commit premium fraud.

In one recent case, California prosecutors announced the arrests of three individuals - Osvaldo Molina, 40, of Fresno, Fortino Galeno, 46, of Fresno, and Alicio Galeno, 41, of Los Angeles - for committing workers comp insurance fraud via their company, Floor Care Systems. The company solicited other businesses to clean their store and showroom floors, generally at night.

According to prosecutors, these men had concealed over $5 million in payroll from their insurance carrier. Molina and Fortino Galeno were each charged with 61 felony counts. Alicio Galeno was charged with 23 felony counts. Prosecutors alleged that they paid workers under the table, failed to pay them minimum wage or overtime in accordance with both federal and state laws, and even locked employees in their worksites without supervision. According to the State of California, the fraud has cost insurers an estimated $782,000 in workers' compensation premiums and caused the State to miss out on $187,000 in withholdings.

In a similar case last year, the Liberty Mutual Insurance Company obtained a $1.4 million judgment against a company called Viking Industrial Security. In that case, Viking had actually maintained a false set of books. One set had a very small payroll, and that was what they disclosed to their insurers and to tax officials. That payroll was much smaller than their actual payroll. The fraud scheme was detailed and deliberate.

In that case, the insurance company was able to get a court order to download the company's computer records, including its QuickBooks records. This court order allowed Liberty Mutual to prove the payroll fraud, and get a handle on the amounts at stake.

Viking's owners compounded their error by attempting a fraudulent conveyance. That is, they attempted to transfer assets out of their own corporation into a brand new entity. The transfer had no legitimate business purpose other than to shield them from Liberty Mutual. This is illegal, and the courts entered a judgment against the new entity as well as against Viking.

This kind of fraud is much more difficult to detect than worker fraud. But the dollar amounts involved can be substantial.

Workers comp premium fraud, by its very nature, is almost always accompanied by tax evasion, including payroll tax fraud. While prosecutors come down heavy on all forms of fraud, the courts have taken a particularly hostile attitude toward employers who illegally withhold payroll taxes and who fail to deposit Social Security and Medicare taxes with the IRS. Don't count on your corporation to separate your personal assets from your business assets, if you are guilty of this kind of fraud. Courts can and do routinely "pierce the corporate veil," disallowing the limited liability benefits of corporations and LLCs in order to attack the personal assets of business owners who commit this kind of fraud.

Workers' compensation fraud is generally governed by state law, so specifics vary with your jurisdiction. Business owners who commit egregious violations of the law are subject to severe fines and long jail terms, in addition to whatever civil penalties may apply. If a worker is injured, the business and possibly the owner who allowed the workplace fraud generally face liability for the worker's cost of treatment.

For Illinois Workers Compensation Fraud detail CLICK HERE.

And that's before the IRS gets done with you for payroll tax fraud. 


Illinois Business Insurance Premiums

 Why Insurance Premiums are IncreasingIllinois Business Insurance Premiums

Insurance premiums are a function of these factors: The perception of future risks, recent catastrophic claims and the return available on investment. Huge fires and other disasters factor in, such as the Colorado Springs blazes earlier this year and other natural disasters have also forced large payouts. Even the devastating Japanese earthquake and tsunami from 2010 affects insurance premiums in the United States, since insurance companies routinely purchase re-insurance coverage from very large companies. And these reinsurance companies, such as General Re, have been increasing their rates. In addition, jury awards and settlement costs in a variety of commercial fields have put pressure on insurance company reserve funds.

Yes, insurance companies are just like you: They assess the risks they can cover, and then buy insurance themselves to protect themselves against very large but unlikely events that would overwhelm their reserves.

We saw a similar tightening of the property and casualty insurance world across the board, in 2001, following the 9/11 attacks on the World Trade Center. The direct costs themselves were significant, but reinsurance companies also increased their rates then, in order to cover their own risks and ensure clients were protected in case of acts of war, nuclear strikes, chemical strikes, etc.

Fortunately, their worst fears weren't realized, but prudent insurers are in business to cover the worst case scenario, and so they had to plan and set premiums accordingly.

Fast forward to today, though, and we have a different phenomenon at work. Reinsurers had just started to climb out of the substantial capital shocks of 2008 and 2009 when they got hit with the Japan tsunami, which put pressure on capital pools. But as they work to replenish their reserves, all insurers, all over the world, have been forced to reckon with a new reality: Low interest rates.

Insurance companies make money in two ways: Bringing in premiums, and investing the "float." Normally, insurers break even or even run a slight loss on premiums. This keeps premiums affordable, but is only possible because they can invest their accumulated reserves at a profit.

Ten years ago, an insurance company could get 5 or 6 percent on a portfolio of Treasuries. Now that same insurer struggles to get 2 or 3 percent on a AA-rated bond portfolio, and U.S. Treasuries - the traditional mainstay of conservatively-run insurance companies, may well be generating a negative real return after inflation.

Something has to give.

That's what we're seeing now: Actuaries have no choice but to increase premiums to cover anticipated payouts in light of the new lower interest rate environment. To do otherwise risks insolvency, which does no service to the insured at all, and even defeats the purpose of insurance.

The tightening of the reinsurance market, combined with adjustments to account for the lower returns on assets, is now making its presence felt on Main Street: Aggregate commercial insurance ratios increased for the fifth consecutive quarter, and by 5 percent in the first quarter of 2012 alone. That's the biggest increase we've seen since 2004 (remember those summer hurricanes in Florida that year?)

The two lines responsible for the largest increases, according to a Towers Watson survey, were the two segments most vulnerable to jury award and medical cost increases (workers compensation), and increased reinsurance costs from megadisasters and lower interest rates (commercial property insurance), respectively.

Insurance markets tend to cycle along with other industries. As reinsurance pools of capital get replenished, or as interest rates rise, allowing carriers to generate more revenue from the "float" rather than rely so much on point-blank premium collection, rate increases tend to moderate, and new carriers spring up to compete for business.

So if you are seeing rates increase, it's more a matter of prudence in the face of risk and low returns on capital, which affect all carriers everywhere. As a result rates increase to make sure there are enough in reserves to cover future claims . No one is exempt, and it's a bigger issue than any single insurance agency, carrier, or insurance line. 


A Workers Compensation fraud story

This isn't related to an Illinois Workers Compensation Business but thought it was worth sharing.  It happened in New Jersey where an employee of a grocery stroe faked a fall.  The only problem was that her acting was caught on tape.  Pretty funny stuff...


Getting Workers Compensation Quotes is important each year but loss control is also very important.

Surveillance and video monitoring have become very affordable, easy to implement, and effective. For very little investment, cameras can stream video onto the internet so the owner can monitor and record activities in their business, on site or remotely.

Data storage, that is image storage, is almost limitless; and the video history of the store can be kept in multiple locations for safety and replacement ease. Keeping logs and indexes simplifies filing to a few mouse clicks.

This video record has multiple uses. In real time, monitoring can deter violent crime, shoplifting, or employee theft. It can help address customer service by dispatching employees to underserved areas of a store, recognize a need for restocking merchandise, or securing a blind area on the premises.

Monitoring your business from any remote location allows you the freedom and capacity to balance your family and professional life better.

Historically, employee surveillance focused on stolen trade secrets and theft of goods. When computers became mainstream, production, sales, key strokes, and time wasting became monitor-able issues. The company would sweep off all games and lock out internet sites, monitor key strokes for productivity, even keep hours worked time cards based on key strokes.

Call center managers then recorded and/or listened in on calls for training purposes. With video capability, safety and security concerns are addressed.

Employees trained in safe behavior and conflict resolution may be better than those who are simply monitored; watching does not replace training. So, what are the effective uses of monitoring and surveillance?

Certainly watching the perimeter of the business, exits, entrances, and sensitive areas prevents break-ins and provides evidence when crimes occur. Monitoring the inside of the business after hours does much the same and helps detect fires, water leakage, earthquake damage, and other losses where quick response is vital.

When the public is on the premises, crime prevention, safety, and liability loss prevention top the list of concerns. Video has been used to discourage criminals from choosing businesses as a target, to witness parking lot dings and accidents, to prove the illegitimacy of slip and fall claims, and generally to keep records of what did and did not occur.

The video record of events is a great training tool. Choose examples of good customer service, poor service, difficult customers, identify good customers on sight for new employees, good lifting techniques and other safety tips, correct and incorrect behavior, or any other teaching moment gleaned from the tapes can become a lesson viewable at the convenience of the employee rather than holding a formal session on expensive company time.

One restaurant client even holds an "Academy Award" dinner with tapes from the year. Worst tray spill, funniest moment, most bizarre event, or any other noteworthy clip.

Perhaps if a customer goes out of their way to help a lost child or carry bags for an elderly patron, you can reward them with a framed picture of the event or a gift card.

You cannot possibly see and know everything that goes on in your business without employing many eyes. Cameras and surveillance equipment work 24 hours a day, seven days a week for a one-time cost which is very affordable. No vacations, no health benefits, reliable, accessible from anywhere at any time. And, their memories are flawless. 


Illinois Workers Compensation Rates

In an article posted by Best’s Review in their November issue…   they’re reporting concerns with the claim vs. premium experience in workers compensation.    In summary:


  • Calendar-year combined ratio increased 7 points to 118.1% in the last 10 years.
  • Premiums have declined 30% since 2005.
  • Negative ratings for insurance companies have outpaced positive ratings.

What does this mean for the average business owner? Premium increases in workers compensation rates!!!   It’s time to setup procedures to help control your costs.



Our agency helps employers in the Chicago Illinois area to control and monitor Work Comp Premiums. Give me a call if I can be of any assistance for your business.

Dan Zeiler


Illinois Workers Compensation Rates

The key components of the recent workers compensation reform bill are aimed at reducing costs:


  • 30% reduction in the Medical Fee Schedule
  • Utilization of preferred provider organizations (PPO’s) which will heighten competition
  • Elimination of lifetime wage differential payments
  • Improved efficiencies in medical bill processing and automation

While these workers compensation measures are welcomed by Illinois businesses... the savings by the insurance carriers won’t be known for some time.   I believe the immediate 8% rollback on the rates was more of a political “feather in the cap” rather than a true measure of what this reform package will bring to Illinois businesses.   


According to the NCCI, insurance companies in Illinois saw a combined ratio of 123% in 2010. And, the proposed overall rate change for our workers compensation premiums will be an increase of 3.5% for 2012.  


  • Manufacturers 4.2%
  • Goods and Service Companies 3.7%
  • Contractors 2.3%
  • Clerical 1.2%
My hope is that the reform bill will maintain the same level of service to our workers and bring down the combined ratio of our insurers. 

Independent Contractors vs. Employees

Just picked this up from a WallStreet article:

by William Spain

CHICAGO (MarketWatch) -- The Department of Labor is inking agreements with nine states to share information as it begins a new crackdown on companies that cheat workers out of their earnings, the Associated Press reports. The program is designed to help ferret out businesses that improperly deem workers to be independent contractors so as to deprive them of minimum wages and overtime pay. Such tactics also let employers evade paying workers compensation, unemployment insurance and federal taxes. Patricia Smith, the department's lead lawyer, told the AP that sharing information between state and federal agencies could mean multiple fines for violators. "There's more of an incentive to be in compliance because the cost of what we consider to be illegal activity has increased," she said.


Illinois Workers Compensation Experience Modification

Have a contractor client who had an employee with a bad back.  He was under medication and having regular treatments right up to the validation date.  Talking with the claims adjuster shortly before the validation date, we still weren’t sure if surgery was going to be needed.   Validation date hit and a $69,000 claim was added to the mod.   A month or so later there was no medical activity with the employee and he was on the job – actually he never took any time off.  Adjuster agreed to close the claim which went from $69,000 Med + Indemnity to $9,000 Med only.

I braced the employer as to the consequences of this claim and the effect on the mod.  Mod jumped 10 points to 1.05 and for the first time this employer did not qualify for the IL Contractor Credit…  another 40 points.   My plan was to work with the underwriter on additional scheduled credits to take the bite out of the additional premium for this one policy year.

A few weeks ago I received a call from the underwriter who was already working on this October renewal…  he noticed the huge premium increase.  I actually had to do a little explaining on the claim situation but he agreed to contact his NCCI unit at Hartford and see what he could do to refile the unit stat detail - which was done.  I just received the notification of the mod adjustment and we’re back under 1.00.  Employer is thrilled.

Thanks Hartford!


Hiring to Reduce Work Comp Risk

We welcome the news that in February employers hired workers at the fastest pace in nine months. The jobless rate is at a nearly 2 year low of 8.9% and employment rose across almost all sectors including factory, construction and service jobs. This is a sign that the economic recovery is finally on its way. 

Finding new employees will be the trend for many employers. We want encourage them to focus on finding the right people for their open positions and to avoid the hiring mistakes that can lead to injuries, claims and increased workers compensation costs. The process that we would recommend is:

·         Resume/applicant screening

·         Interview

·         Background check

·         Conditional Offer of Employment

·         Post-offer pre-employment exam

When a candidate successfully completes the initial hiring process (screening, interview, background check) and is deemed to be a good fit for the position, the job offer is made. The offer should be made in the form of a Conditional Offer of Employment. Employment is conditioned upon the candidate being physically able to perform substantially all of the essential job duties of the position with reasonable accommodations for any mental or physical disability. The use of a Conditional Offer of Employment can help employers hire the best person for the job instead of hiring the next workers compensation claim!

Post-offer pre-employment exams allow medical professionals to screen a hire before they start the job and verify that they are able to perform the physical demands of the job for which they are hired. The timing of the exam and the manner in which it is performed is critical. 

An effective hiring process will include a relationship with an occupational clinic or other medical resource that can efficiently schedule and complete the exam so that there is minimal delay. The employee will have been supplied a medical questionnaire to complete before the exam so that the medical personnel will know any pertinent history. This is where prior injuries can be flushed out. 

The medical examiner will need a detailed job description in order to know the job requirements. (See blog on job descriptions.)  The exam should be tailored to the job for which the employee is hired.   The exam may also include an initial drug screen if the employer has a drug policy in place. Once the exam is complete, the medical professional will advise the employer as to the employee’s ability to perform the job and any accommodations that the employee may need. 

Following a clear and consistent hiring process that includes a post-offer pre-employment exam will help to reduce work comp claim potential and decrease work comp premiums in the long run. Follow the link below for guidance from the EEOC for employers on what questions can be asked and how exams can be performed.

Here’s to a healthier economy, a healthier workforce and contolling work comp premiums!


Illinois Workers Compensation - Are you training your supervisors?

Who is Luis Urzua? He was the shift foreman and the last miner to be freed from the San Jose mine in Chile. From all accounts he is one heck of a Supervisor!

Imagine what he faced: 32 members of his team trapped over 2000 feet below the surface. Food rations for 2 days and no reason to believe that he and his crew could be rescued.

What Mr. Urzua demonstrated is that it is possible, despite horrific conditions and fear, for a well trained Supervisor to create a sense of team and over come challenges most of us will never know. His enforcement of rules and rationing of supplies along with his determination and ability to strengthen the spirit of his crew led to the successful outcome we witnessed on TV.

Now most of our businesses won't face these conditions or challenges the lessons of team work, safety and how to manage a crisis are important regardless of the industry.

Supervisors like Luis Urzua play an incredibly important role in reducing the number, cost and duration of employee injuries. I am almost certain that facing the same set of circumstances a Supervisor that did not have the respect of his team or the knowledge of Mr. Urzua would have had a very different outcome.

What training programs does your business have for your front line Supervisor?


What is Workers' Compensation Fraud in Illinois?

From the Illinois Workers' Compensation Commission website - Fraud Unit...

Read what constitutes fraud and the associated penalties in the Illinois Workers' Compensation Act - 

     Section 25.5.  Unlawful acts; penalties.

Read the list of Convictions Resulting from Workers' Compensation Fraud Unit Investigations in 2008 & 2009 - 

    WCFU Convictions

Workers' Compensation Fraud is a Crime -  Posters.

It is illegal for anyone—a worker, employer, insurance carrier, medical provider, etc.—to intentionally do any of the following:

• Make a false claim for any w.c. benefit;

• Make a false statement in order to obtain or deny benefits;

• Make a false statement in order to prevent someone from filing a legitimate claim;

• Make a false certificate of insurance as proof of insurance;

• Make a false statement in order to obtain w.c. insurance at less than the proper rate;

• Make a false statement in order to obtain approval to self-insure or reduce the security required to self-insure;

• Make a false statement to the state’s fraud and noncompliance investigation staff in the course of an investigation;

• Help someone commit any of the crimes listed above;

• Move, destroy, or conceal assets so as to avoid payment of a claim.

A “statement” includes any writing, notice, proof of injury, or any medical bill, record, report, or test result. 

Anyone found guilty of any of these actions is guilty of a Class 4 felony, punishable by 1-3 years imprisonment and a $25,000 fine.
The guilty party shall be required to pay complete restitution, and may be found civilly liable for up to three times
the value of benefits or insurance coverage that was wrongfully attained.


Contact information
You must submit complaints in writing.  You must identify yourself and, at some point, the person you are reporting will be given your name.
You must provide a written complaint, provide enough information to cause the unit to open an investigation, and be prepared to testify. 
Anyone who intentionally makes a false report is guilty of a Class A misdemeanor, punishable by up to 12 months imprisonment and a $2,500 fine.

Northern Illinois

Adam Monreal
Workers' Compensation Fraud Unit
Illinois Department of Insurance
toll-free 877/923-8648
100 W. Randolph St. 9th floor
Chicago, IL 60601


Francis "Buzz" Walsh
Workers' Compensation Fraud Unit
Illinois Department of Insurance
toll-free 877/923-8648
320 W. Washington
Springfield, IL  62786



What are the penalties for not carrying Workers' Compensation insurance in Illinois?

From the Illinois Workers' Compensation Commission's Handbook on Workers' Compensation and Occupational Diseases:

An employer that negligently fails to provide coverage is guilty of a
Class A misdemeanor for each day without coverage, punishable by
up to 12 months imprisonment and a $2,500 fine.

An employer that knowingly fails to provide coverage is guilty of a
Class 4 felony for each day without coverage, punishable by 1-3
years imprisonment and a $25,000 fine.

An uninsured employer may be also fined up to $500 for every day it
lacked insurance, with a minimum $10,000 fine.

An uninsured employer loses the protections of the Workers’
Compensation Act for the period of noncompliance. That means an
employee who was injured during the period of noncompliance may
choose to sue in civil court, where there are no limits to awards.

In addition, if the Commission finds that an employer knowingly
failed to provide insurance coverage, it may issue a stop-work order
and shut the company down until it obtains insurance.


Workers Compensation Experience Rating Formula

What is the average cost per claim for losses used in experience rating in Illinois?

Published in the NCCI Experience Rating Plan Manual, the Illinois Table of Expected Loss Rates and Discount Ratios includes includes the Table of Weighting Values and Table of Ballast Values, in addition to several limiting factors that are used to determine your experience rating. 

According to the Experience Rating Plan Manual:

Experience rating modification factors determined by the formula in Rule 2-D-1 are subject to a cap if the debit modification exceeds a specific amount. The risk-specific maximum debit modification is determined as follows:

Maximum Debit Modification = 1 + {(0.00005)[(Total Expected Losses) + (2)(Total Expected Losses)/(G)]}

The maximum debit modification for an interstate risk is limited to the cap for the state with the largest amount of expected losses.

“G” is a factor equal to a state's average cost per claim for losses used in experience rating, divided by 1000.   For Illinois in 2010, "G" is 13.70. 

Therefore, the average cost per claim for losses used in experience rating in Illinois is $13,700.



Illinois Workers Compensation: Waivers of Subrogation

Here's a good article posted by IRMI (International Risk Management Institute)

Examining WC Waivers of Subrogation

May 2010

There is no doubt that workers compensation waiver of subrogation requirements are extremely common in today's contracts, particularly construction contracts. What is less clear is why. Perhaps the contracting party hopes the waiver will provide immunity from a third-party claim arising out of their subcontractor's workers compensation claim. If this is the hope, it's a false one.

by Glenn Brown
Albert Risk Management Consultants

A waiver of subrogation does not prevent an injured subcontractor's employee from filing suit against the contractor. It only bars the subcontractor's workers compensation insurer from initiating a subrogation action and/or from enforcing its lien on a third-party claim. Possibly, the only winner from the waiver is the injured employee who might actually receive a double recovery if the workers compensation lien does not have to be repaid to the employer. The contracting party loses or at least doesn't win since the waiver did not have the desired effect of preventing a third-party claim. The workers compensation insurer loses because its right of recovery was forfeited. The biggest loser is the subcontractor who:

1.    Pays an additional premium to add the waiver of subrogation to its workers compensation policy.

2.    Faces a premium increase because the lack of a recovery on its workers compensation lien inflates its loss experience.

3.    Takes a double hit when its own general liability coverage is used to resolve its employee's third-party claim due to a likely indemnification provision in its contract.

In theory, a waiver could eliminate a third-party exposure. Many jurisdictions give insurers an independent right to pursue subrogation if the injured employee opts not to bring a third-party claim. With a waiver, the insurer loses this independent right. As a practical matter, it is quite rare for an insurer to independently initiate a third-party claim. It faces the prospect of funding an attorney to pursue subrogation without a guarantee of a recovery. This pursuit becomes even riskier if it is undertaken without the cooperation of the star witness, the injured employee. The elimination of this sort of theoretical third-party claim hardly justifies a waiver of subrogation requirement.

Typical Scenario

It is far more typical for third-party claims to be initiated by the injured employee as opposed to the workers compensation insurer. Most often, the employee retains an attorney on a contingency basis to seek compensation beyond what he has received in workers compensation benefits from an at-fault party. In a third-party claim, the employee can be awarded damages for pain and suffering in addition to the lost wage and medical benefits that are also available through the workers compensation system. In the absence of a waiver of subrogation, the workers compensation insurer can place a lien on any third-party settlement or verdict to recover the benefits paid to the injured employee. In this circumstance, the insurer recovers up to two-thirds of his workers compensation payments lien while conceding one-third to cover the attorney's contingency fee (assuming a one-third contingency fee arrangement).

In the scenario where the employee initiates the third-party claim, and there is a waiver of subrogation endorsement attached to the workers compensation policy, the contractor who required the waiver receives absolutely no benefit from the waiver. The claim is not barred because the injured employee who initiated the claim is not bound by the waiver. The third-party award does not get reduced even though the workers compensation insurer has waived their right to recover its payments from the award. In many jurisdictions, when there is a waiver, the injured employee gets to keep the full award which essentially gives the employee a double recovery for the indemnity and medical benefits already received through the workers compensation claim. Giving a double recovery to an injured employee while providing no benefit to the contractor that included the waiver of subrogation in its contract was certainly not the intent of requiring the waiver, but in many cases, it is the reality.

Why Do It?

With such questionable value, why are subrogation waivers routinely required in contracts? There are many culprits. General liability insurers look favorably on companies that obtain waivers from their subcontractors. It is a fairly standard question on general liability applications and the right answer can affect the insurer's appetite for the risk and the premium charged. Requesting waivers has also become a "best practice" for brokers, insurance advisers, and risk managers. Few are willing to have their competence questioned because they failed to follow an industry norm—even if the norm is largely pointless.

It is advisable for subcontractors to resist workers compensation waiver of subrogation requirements whenever possible. The problem is they lack the leverage necessary to force the general contractor to drop this requirement. Unless their bargaining position changes for the better, subcontractors will likely need help from state legislatures or will need to mount court challenges to rid themselves of the waiver of subrogation requirements that they now face.

State Response

New Hampshire has taken a lead in this area by amending its workers compensation law in 2004 to make waivers of subrogation against public policy. Section 281–A:13 (VI) now prohibits any provision in any agreement that requires an employer or an employer's insurer to waive any rights of subrogation. Similarly, Kentucky, New Jersey, and Missouri have declared waivers of subrogation contrary to public policy and therefore null and void.

The Maine courts have also weighed in favorably for subcontractors on this issue. In Fowler v. Boise Cascade Corp., 948 F.2d 49 (1st Cir. 1991), the court held that a waiver of subrogation did not prevent the employer from enforcing its lien against the employee who made the third-party recovery. In a bit of an end-around, the employer could not enforce its lien against the contractor that required the waiver, but it could enforce its lien directly against the employee who received the third-party settlement. While not completely declaring waivers of subrogation contrary to public policy, Wisconsin—like Maine—allows employers to recover on their liens even when there is a waiver of subrogation endorsement.


While the preceding paragraphs highlight some states where subcontractors aren't required to forego a third-party recovery even when there is a waiver of subrogation in place, these states are very much in the minority. It is a cruel irony for subcontractors that they are forced to accept waivers of subrogation to secure work from general contractors, and, yet, the waiver may not benefit the general contractor but could cause great harm to the subcontractor's loss experience. Until universal change comes to the industry, subcontractors can only push back on waivers where they can and, of course, work as safely as possible to avoid the multiple claim hits that can come from injuries to their employees.



Illinois Workers Compensation: Opportunity Costs

Have you ever considered the true cost of a work related claim? We’re all learning the direct result on your workers compensation experience modification factor and how your insurance premiums are affected… but what about indirect costs or opportunity costs?

  • Some of the your customers are now requiring a modification factor below 1.00.
  • If you’re a contractor… a mod over 1.00 will disqualify you for the Illinois Contractor Credit.
  • Working Capital:  the money you’re spending on premiums are misdirected.
  • Downtime: The injured employee, supervisor and others.


Can you afford not to implement a strategy to control your workers compensation expenses?


Illinois Workers Compensation Insurance: Post Offer Medical Exams

We all get busy and side step important work processes. Problem is that... it will eventually catch up to us. 


Post Offer Medical Exams:  after you have completed your interviews and have selected a new job candidate, a conditional offer of employment must be part of your hiring processes.   The Americans with  Disabilities Act  (ADA) allows for Post Offer Medical Exams and it is important that you seek advice prior to implementation. There are many do’s and don’ts in order to avoid discrimination issues.


One of my Illinois Employers hired a new employee.  The third day on the job this employee slipped and fell from the second step of a ladder.  Fractured vertebrae in his back!   But the plot thickens… allegedly - word is that this employee had a preexisting vertebrae issue. 


There are many many unanswered questions right now but the fact remains that a Post Offer Medical Exam was NOT performed.  We don’t even know if an exam would have disclosed this potential preexisting condition or if it would have impaired the ability of this employee from doing this job.  What we do know is that this incident will cost this employer tens of thousands of dollars with the affect this claim will have on his workers compensation experience modification factor over the three years this claim will appear on his mod.


We are just getting our feet wet on this one and we are sitting on a $40,000 hospital bill form the initial visit.

Medical Bill


Lowering Your Workers Compensation Costs - Post Injury Process

Knowing what to do when you have an injured employee is the key first step to managing your workers compensation costs and returning that employee to work.  Employers must have a clearly defined process in place and all employees, not just supervisors and managers, should be trained on proper post-injury management. 

It seems quite simple but the failure to have a post-injury process in place or employees who don't know what to do, can have a dramatic impact on the outcome of that workers comp claim. 

An effective process will start with an emphasis on reporting the claim immediately to the workers compensation insurer.  This is key because the experienced claims handler can immediately acclimate the injured employee with the claim process. They can explain the work comp laws, how bills for services will be handled and if lost income is an issue, when payments will be made.  This will usually put the employee at ease and reassure them that they are being treated fairly.  Putting them at ease can also help reduce the likelihood of an attorney's involvement in the claim.  This can significantly help in reducing the overall claim cost.

Having a process in place will also help to reduce the anxiety co-workers might feel when there is an injury. Knowing what to do to aid an employee will allow co-workers to respond immediately and contribute to the care of the injured employee.

The goal of this process is to allow the injured employee to return to work as quickly as possible, reduce the impact of that claim on your workers compensation experience mod and overall work comp rates.  Have you checked you post-injury process yet? 

Workers Compensation Premium - Illinois Employer

All claims paid by the insurance company will affect your Workers Compensation Premium. 


Just received a call from an Illinois workers comp client who had an employee smash his finger and loose his finger nail. He was back to work the next day on normal duty with little ramifications from the injury. The following day the doctor’s office called to schedule therapy. Yep…   therapy!


My first reactions was – FRAUD, SCAM, WHAT ARE THEY THINKING!   Then I settled down to realize that our injured employee was probably just plugged into the standard care processes of the occupation clinic. Probably no intend to abuse the system but it’s still our job as employers and agents to monitor  the  workers compensation program which includes secondary injury management. These expenses will affect your workers compensation experience modification and the work comp premium.


In this case we asked the nurse how the treatments would help and if the employee can do the therapy exercises at home.  She was going to check with the doctor and get back to us. That was last week and we haven't’ received the return call yet.  Employee is still fine.


Secondary Injury Management is just one key area affecting your workers compensation premiums. We can help you manage them all.


Experience Rating Adjustment

Understanding your Workers Compensation Experience Modification will help you prepare how to react to work related injuries. 

It's right there, smack dab in the middle of your Experience Rating Worksheet...


What is ERA?

A)  Earned Run Average
B)  Equal Rights Amendment
C)  Laundry Detergent
D)  Experience Rating Adjustment

For this illustration, answer D)  Experience Rating Adjustment.

In ERA States, the Experience Modification Factor allows for the 70% reduction in the reportable amount of medical-only claims.

That is, for claims where there has been no payment to the injured worker for lost time, the medical only loss is reported at only 30% of the actual claim.

Why was this implemented by NCCI? 
 It gives employers an incentive to report all claims to their insurers, rather than trying to pay for medical-only claims out of pocket.   Reason being, Claims are handled more efficiently by Insurance Companies rather than Work Comp Employers.

Why is this important to an employer? 

Discounting medical-only claims in the experience mod calculation significantly reduces the impact of medical-only claims on the modifier.

What processes can you put in place to take advantage of this 70% credit?

1)  Establish Occupational Health Clinic Relationships and Educate Management on proper procedures when an employee is injured at work.

2)  Establish Return to Work Guidelines, including well-supervised and medically-appropriate temporary transitional work.

3)  Coordinate with Treating Physicians, Management, and Employees.

Managing your Experience Modification and work related injuries will help reduce your Work Comp Rates!