Litigation – Is Your Company At Risk?

Written by Joanna Morrow

Joanna Morrow, Principal and Founder of Employer Benefits & Advice, is an employer consultant and advocate who has worked in the employee benefits industry for over two decades. She works diligently to help employers overcome obstacles in their business by sharing her expertise in Human Resources, Benefits & Compensation, Process Mapping, Risk Management and ERISA/DOL/IRS compliance. She is a licensed life and health insurance professional in the State of Arizona and is an active member of the National Association of Health Underwriters (NAHU).

Litigation – Is Your Company At Risk?

Looking out for the best interests of your business can seem like a daunting task at times, regardless of size or years in business.  The constant pressure of staying informed, having the right people in the right positions, and the pressure to make good decisions all of the time, can leave business owners feeling like they’re alone in the deep end.  At times, in an effort to put out small fires you inadvertently create bigger ones.  In becoming better at protecting yourself and your business from unnecessary risk it’s important to see the big picture.  Fear can motivate you to make rash decisions.  Fear of increased costs, insurance premiums, litigation, or job loss can impact how a decision-maker may go about solving a problem. Here are a couple of real life examples I’ve encountered in my career.

See if you can spot the problem in these scenarios.

Example 1 – Taken to the Cleaners by the ER Department

One of my clients called me to ask what the going rate was on an emergency room (ER) visit.  Upon further probing he explained that he was trying to negotiate with a hospital that had treated one of his employees following a work-related injury.  The worker had fallen from his truck and sustained a head and back injury.  Rather than file a Workers Compensation (WC) claim, the employer had advised the employee to go to the ER and have the hospital forward the bill to the company.  A bill for $19,000 arrived.  In attempting to negotiate the bill, the employer countered with an offer to the hospital of $3,000.  The hospital snickered, politely declined, and discounted their final offer to $17,000.   In addition, the employee was having ongoing issues and was claiming he was unable to work.  My client now found himself wearing the hat of the insurance company without the insurance company dollars, contract or negotiating clout.

Example 2 – Falling Cow Heads

Years ago I had a large, international food distributor as a client.  One afternoon I received a call from the Senior VP of Health & Safety who immediately informed me I was on speaker and that he had four other department heads in the room including their own in-house counsel.  Seems they had worked themselves into a bit of a pickle and needed some direction.

They went on to share that 7 months earlier a delivery man had come on to one of their cattle processing properties and made a delivery to the rendering area.  As the delivery man was exiting the building, a worker on the roof was discarding cow heads into a large bin on the ground below.  One of the cow heads unfortunately missed the bin and struck the delivery man on the head.  He suffered moderate head, neck and back injuries as a result.

The delivery man was self-employed and was not carrying personal WC coverage.  He also claimed he was unable to work due to his injuries.  It goes without saying that my client should have consulted with an attorney to formally establish liability as a first course of action.  Instead my client chose to reimburse the delivery man for lost income and medical expenses.  The problem?  It was now 7 months later and there was no end in sight.   It ended up being settled out of court but not before it cost my client several thousands of dollars in medical and legal fees.  My point is that even large employers get themselves into hot water at times.

Without a disability indemnity contract formally establishing your financial obligations you are an open check book stumbling aimlessly in the land of liability.

The Problem

When you purchase disability insurance whether it be through Worker’s Compensation (WC) or a private disability carrier, never underestimate the power of the contract designed to protect you in the event of a loss.  Making the decision to pay someone outside of that indemnity contract can make it virtually impossible to stop the bleeding should it start – no pun intended.  That employee, his providers, his attorney or all three can come back at you for years demanding ongoing compensation, income replacement, medical and legal expenses.

Some of the most important disability contract provisions that protect you are:

  • Definition of Disability – defines the types of injuries/illness that are eligible under the contract
  • Rate of Income Replacement – defines how much the contract is required to pay
  • Duration of Benefit – defines the maximum for which the contract will pay (example:  13 weeks or until such time as the injured party no longer meets the contractual definition of disability)
  • Maximum Benefit – defines the cap placed on the weekly or monthly amount
  • Return to Work Rehab Incentives – defines steps each party has to take to demonstrate a willingness to return to work
  • Compensable Parties – defines who will be compensated according to the contract, including providers and binds them to a contracted amount on services

Consult with an Expert

From time to time your business will reach into complex areas such as law, taxes and insurance.  As a business owner you may encounter only one very unique issue every few months or years, but your advisors deal with them every day.  Unfortunately we often have the added benefit of experience with clients who learned things the hard way.  Don’t be one of them.  When it comes to problem solving a good rule of thumb is “when in doubt, source it out”.