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The appetite for opting out of Texas' workers compensation system has remained steady despite a series of significant jury verdicts last year against Texas nonsubscribers, sources said.
Nonsubscription is “still creating a great deal of interest among employers,” said Keith Rosenblum, a senior workers compensation risk control strategist at Lockton Cos. L.L.C. in Kansas City, Missouri.
While choosing not to purchase traditional workers comp coverage has helped nonsubscribing employers save money, experts advise that nonsubscribers need to provide strong safety programs and quick, effective medical treatment to injured workers in order to limit potential liability exposures.
“An effective nonsubscription program should be put together with a variety of different mechanisms to control the potential exposure to large tort losses,” said Eric Silverstein, Dallas-based senior vice president with the national casualty broking practice at Willis Towers Watson P.L.C.
Texas has allowed employers to opt out of the state's workers comp system since its inception more than 100 years ago. Employers that opt out are not required to provide benefits for injured workers, although sources say most sophisticated nonsubscribers do provide a form of recourse.
Companies that purchase or self-insure for workers comp in Texas and elsewhere generally are protected from liability lawsuits by exclusive remedy provisions that prevent workers from suing if they are eligible for workers comp. However, Texas nonsubscribers have no such protection and entertain the possibility of liability lawsuits from injured employees who aren't covered by workers comp.
A spate of liability lawsuits in 2015 highlighted the risks that Texas nonsubscribers face.
In November, a U.S. District Court jury in Sherman, Texas, awarded $2.25 million to a former Tyson Foods Inc. dock worker who was hurt on the job. The worker said in court records that he suffered a severe lower back injury in August 2013 while being required to sort heavy boxes at work, and the jury found that Tyson Foods was negligent in that accident, according to court filings.
Meanwhile, the Texas 14th District Court of Appeals upheld a $780,000 jury verdict in August against Katy Spring & Manufacturing Inc., finding that the Katy, Texas-based nonsubscriber was negligent when an employee was injured by a large-gauge wire that hit him in the chest.
And the state's 7th District appellate court affirmed a $5.3 million liability judgment in January 2015 against West Star Transportation Inc., ruling that the Lubbock, Texas-nonsubscriber did not provide a reasonably safe place to work when an employee suffered a traumatic brain injury after a fall at work.
Chad L. Farrar, equity partner and nonsubscriber defense attorney with Mullin Hoard & Brown L.L.P. in Dallas, who was not involved in any of the cases, said nonsubscribing employers in Texas sometimes are found negligent by juries even though they've worked to provide a “reasonably safe” workplace, as required by Texas law.
“You're going to have occasional cases where there's a rather large verdict that you may not have expected,” he said.
Texas nonsubscription experts say the 2015 liability cases were similar to ones they've seen against nonsubscribers in previous years, and that the frequency of such verdicts has remained rare but stable in recent years.
There were about 100 Texas nonsubscriber negligence liability awards and settlements of $1 million or more in the last 25 years, said Bill Minick, president of Dallas-based PartnerSource, an alternative workers comp consultant unit of Arthur J. Gallagher Risk Management Services Inc.
The opportunity to save money by opting out of the Texas workers comp system has kept employers interested in nonsubscription in spite of potential liability exposures, said Blake Stock, CEO of Dallas-based Combined Group Insurance Services Inc., a managing general agent that provides liability insurance and benefit programs for Texas nonsubscribers.
While the potential for liability lawsuits is a downside to Texas nonsubscription, Mr. Stock said opting out is still seen as attractive by employers who take a hands-on approach to keeping their employees safe and managing claims from injured workers.
“There's a real incentive for Texas nonsubscribers to provide an extremely safe workplace, even more so than is in place for workers comp,” Mr. Stock said. “So we see the system working as it's intended to do and (compensating) those employees that have been legitimately hurt on the job.”
Experts say that employers that opt out of workers comp in Texas can mitigate their liability risks by working to ensure that they protect their employees and take good care of injured workers when accidents do happen.
That includes creating strong safety programs and providing fast access to doctors who will work diligently to return injured workers to health, Lockton's Mr. Rosenblum said.
“That tends to limit the exposure, but also sends a very positive signal to the family of the injured worker that the employer is there to help,” Mr. Rosenblum said.
He and Mr. Silverstein of Willis Towers Watson also advise that nonsubscribing employers place mandatory arbitration clauses in their employment agreements that would require injured workers to negotiate injury claims out of court, therefore bypassing the potential for large jury verdicts.
Lockton's Mr. Rosenblum said employer liability insurance for Texas nonsubscribers also is less expensive than worker comp insurance in the state, allowing employers to cover themselves from liability exposures.
“Even though there is this downside potential to tort liability in Texas for an employer who's opting out of the workers compensation system, you can easily respond to that by layering or buying excess coverage at a very reasonable cost,” he said.