A long-standing workers’ compensation claim can be enough to put a company out of business, take away the owner’s ability to stay profitable, or wrap them in years of bureaucratic red tape. The latter was the case for one Washington-based construction company owner who is still financially affected by a fraudulent workers’ comp claim which began four years ago.
Since Washington state lacks a private workers’ compensation option, most businesses purchase insurance through the Department of Labor and Industries (L&I). They pay premiums based on their “experience rating,” which is how well the firm handles workers’ compensation claim costs compared to competitors within the same industry.
Premium rate adjustments are made based on the total number of employees, the frequency of claims, how much those claims cost, the type of work completed and the amount of time off an injured worker claims, according to L&I’s “Employer Return-to-Work Guide.”
Businesses begin with an “experience modification factor” of 1.0 used in L&I’s formula to calculate workers’ comp insurance premiums. L&I multiplies that factor by the L&I hourly rate per worker for providing workers’ comp benefits.
Expensive or unresolved claims can increase that factor, which causes the employer to pay higher premiums for each employee per hour.
In the construction world, too high a factor can threaten a contractor’s ability to be awarded a job as it represents their ability to operate safely. For many small businesses, the system of purchasing workers’ comp insurance through L&I makes it difficult to deny claims, and too many claims can become too burdensome for a firm to continue operating.
“As a business, it kind of kills you if you are not careful,” said Christopher Thomas, president of Thomas Fragnoli Construction. The Seattle-based business provides external and internal home renovations for Seattle and San Juan Islands homeowners.
The maximum payout for L&I is $225,000 and the claim in this case is approaching that number, Thomas said. The estimate doesn’t include money spent on an attorney, private investigator costs or increases in hourly rates from L&I.
“The implications for this business are just massive,” said Natalee Fillinger, a former self-insured program manager for L&I, and now an attorney for Holmes Weddle & Barcott. Thomas Fragnoli Construction is one of her clients. “I’m just frustrated how this claim has cost them so much money and how long it will take them to recover,” she said.
“When I first worked this claim you could tell this was an incredibly painful and difficult claim that was costing them huge money and impacting their ability to have a successful business,” she said.
According to Thomas, a former employee strained his back while working in late 2013, and took a few days off. He returned to work performing light duty jobs until he ruptured his Achilles’ heel tendon over a weekend claiming it was from his prescribed physical therapy exercises.
The company paid for his surgery and physical therapy. Once he returned to work in 2014, the claim was closed and he moved to another state to work for another company.
Around one year later, L&I reopened the claim when the former employee went on disability leave. He eventually admitted to Thomas he worked for cash while still receiving L&I compensation for his injury.
The former employee then hired an attorney and Thomas said there has been a “constant stream of medical bills associated with an injury” while “all this time we assume he is working.”
In response, the company hired a private investigator to follow around and film the former employee for a few days who was eventually found roofing a house and working at a lumber yard. According to Fillinger, the video shows him lifting heavy wooden beams and failing to use fall protection safety measures. At one point, he slips on the roofing.
“I feel like if we could have afforded to have the private investigator firm we paid $12,500 to watch this guy continue for 30 days, we would have had the claim closed in 2014,” said Fillinger. That $100,000 price would have been less than the current claim has cost the business, which Fillinger says is approximately $140,000 out of pocket, not including additional fees. Larger businesses aren’t going to sink or swim on a claim of that size, she added.
“This is a small employer and from their perspective, they have not been able to retain employees because of the cost associated with the workers’ comp premiums. Their only open claim is this one, and the employee is still receiving benefits underneath it,” said Fillinger.
What Thomas is experiencing happens to small employers from time to time, she continued, where “they just don’t have a voice” and “get lost in the shuffle.”
“This is a small company trying to absorb $140,000 in costs…you feel helpless in the face of an overwhelming financial burden and your voice of saying ‘I know he’s working under the table’” becomes diminished,” she said. “(Small businesses) are going to pay the cost of a legitimate case, of course, but you’re looking at claims that don’t really feel like they are being managed appropriately and there’s nothing you can do.”
“The only good news for us as a smaller business is we’ve continued to grow and be profitable and afloat through this,” said Thomas. “If it were a smaller company, I could see it essentially putting you out of business.”
This is part two in a series of stories regarding Washington’s workers’ compensation system and its effect on the business community. Read the first story here.