Are Negligent Third Parties Increasing Your Client’s Experience Mod?

Albert was driving to pick up the office mail from the post office when another driver ran a red light and smashed into the driver side door. Albert was transported to the hospital and spent several days there recovering from his injuries. 

Workers’ compensation paid for Albert’s medical treatment and his time away from work, costing the insurance company well over $100,000 and ultimately increasing Albert’s employers experience mod. Did it have to be that way? Did the disaster that Albert suffered also have to wind up hitting his employer in the wallet? Maybe not. 

In this kind of situation, workers’ compensation will always be primary and will start paying the bills right away. However, when a negligent third party is involved, the insurance company can subrogate to recover that money. 

There are three pieces to this puzzle. First, the insurance company must pursue legal action against the negligent third party. Keeping in touch with the claims adjuster to find out if the carrier is taking those steps is key. 

Once the carrier has won the subrogation, then they have to actually collect the money they were awarded. You’ll want to be checking in with the carrier to see when they receive this money, because once they do, step three kicks in. 

Step three is getting the claim revised and experience mods re-promulgated. Subrogation can take a long time and there are special rules to deal with revising mods impacted by subrogation. (The specifics I'm discussing here are NCCI rules; however, all non-monopolistic jurisdictions have similar rules.)                                  

Generally when a mistake is found in an experience mod you can correct the current and two prior mods. This means if you have an experience mod effective 1/1/2012 you could fix that mod and also 1/1/2011 and 1/1/2010 (assuming all three were affected by the error).

With adjustments caused by subrogation recoveries, you have an even wider range. You can still only fix three mods, but those three mods can be the current mod up through the next four mods.

So, for a June 1, 2012 effective date, that means you could fix:

  • 1/1/2012
  • 1/1/2011
  • 1/1/2010
  • 1/1/2009
  • 1/1/2008

If you look more closely, the time frame impacted is even larger than it appears. The 1/1/2008 mod would have the 1/1/2006, 1/1/2005 and 1/1/2004 policies included in it (all of this assumes there has been no changes to effective dates during this time span). This means that if a subrogated claim from 2004 was collected on 8/15/2012, the insurance company would have to report that recovery to the bureau, which would then issue a new 1/1/2008 experience mod and the carrier that was on the policy in 2008 would have to refund money to the employer for the difference in the experience mod.

So, what should you do as an agent? First and foremost, you have to know when a claim happens. The earlier in the process you get involved, the better. If you believe that a claim should be subrogated, then ask the carrier to do so. They don’t have an obligation to subrogate, it’s their choice, but it never hurts to ask.

Once the insurance company wins the subrogation, consistently follow up to check if they have collected the money. Once they collect the money, be sure that they modify the claim records and notify the unit statistical department so they can transmit the new data to the rating bureau for mod adjustment.

Failing to keep track of subrogated claims can damage your client’s bottom line. Accidents caused by negligent third parties are some of the most difficult to prevent and they can be traumatic for the injured employee and the business. Don’t compound that disaster by failing to pay attention and following up on subrogation claims.

Kevin Ring is the Director of Community Growth for the Institute of WorkComp Professionals, which trains insurance agents to help employers reduce Workers’ Compensation expenses. A licensed property and casualty insurance agent, he is the co-developer of a new Workers’ Comp software suite that will help insurance professionals in working with employers. He can be contacted at 828-274-0959 or Kevin@workcompprofessionals.com.

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