When Injured Employees Act Anything But

At Olsten Corp., workers' compensation costs are out of sight, tripling over four years, to $10.3 million annually. The problem, as the large Westbury (N.Y.) temporary-employee service sees it, is a matter of checks, lies, and videotape.

Olsten contends in an $18 million lawsuit that its insurer, CNA Insurance Cos., is not doing a good job keeping down the caseload by weeding out fraud and faulty medical diagnoses. So, unwilling to pay ever-higher premiums for the disability coverage, Olsten hired a detective agency to prove CNA wasn't screening claimants well. The camera-equipped sleuths videotaped one Olsten worker out on disability -- purportedly due to an injured back -- changing a tire on his car, a job that involved bending over, working the jack, and hoisting the old tire around.

Olsten, which had 1991 revenues of $843 million, may be the largest employer to sue its insurer over surging workers' comp costs, but it's not the only one. Dockets are beginning to fill up with other disgruntled corporate policyholders. Fast Motor Service Inc., a Brookfield (Ill.) trucking company, last year won a $75,000 judgment against its former insurer, National Surety Corp., in a Chicago appeals court. Like Olsten, employers argue that their insurers don't rigorously evaluate medical evidence, don't interview claimants to ensure that they are legitimately laid up, and set far higher claims-payout reserves than warranted. Reserves are funds set up for long-term cases; most cases last only a few weeks before employees are fit for work. Insurers, grouses Olsten Chief Executive Frank N. Liguori, "are spending our money willy-nilly."

The reason, employers charge, is that most insurers earn a flat fee -- around 18% to 20% -- on claims payouts; hence, insurers lack the incentive to whittle down the caseload. Insurers deny this, arguing that such a cavalier attitude would lose them business. CNA says it has been diligent at rooting out abuses. "Strange how some employers want us to control their own employees," says CNA Senior Vice-President James B. Mullins, who insists that CNA's workers' comp line is not profitable.

Workers' comp costs are a steadily intensifying headache for companies across America, up threefold over the past decade, to $62 billion in 1991. This year, predicts the Workers' Compensation Research Institute in Cambridge, Mass., total premiums could hit $70 billion. The nation's steadily mounting health care prices are a big culprit, says Richard A. Victor, executive director of the research center. Workers' comp medical benefits, he says, "are more generous than you'll see elsewhere, with no deductibles and no co-payments, with few limits on the type and cost of treatment." Then there are income-replacement payments: two-thirds of a claimant's income, tax-free, up to the state's average wage. "That often amounts to 90% of a worker's aftertax income," says Victor. Small wonder that fraud abounds with workers' comp -- an estimated 20% of all claims.

The main flash point between employers and their insurers is spotting claimants who shouldn't be on the rolls, whether through fraud or medical error. In its $600,000 suit against Liberty Mutual Insurance Co., HGO Inc., a King of Prussia (Pa.) janitorial services company, chronicles several cases of laid-up workers the employer alleges were healthy.

PINKY PATROL. One is a police officer who hurt his pinky finger while moonlighting for HGO. He collected $16,800 over three years while continuing to work as a cop. Another is a woman who suffered a head injury and got paid $24,900, even though, according to an informant, she danced every Saturday night at a local social club. Liberty Mutual in Boston dismisses the cases, saying that the policeman can't perform janitorial work because of his injury and that HGO's informant in the dancing case didn't personally see her. More broadly, Liberty Mutual disputes accusations of negligence by HGO, which dropped the insurer in 1987, after using it for two years. Liberty counsel Susan E. Grondine concedes that HGO's caseload had soared but attributes much of this to HGO's rapidly expanding work force -- more people on the payroll means more potential injuries.

Olsten has been unusually aggressive in battling its insurer. Before the two ended their four-year association in 1989, Olsten says it examined case files in the insurer's offices and discovered many hadn't been reviewed in a long time. And Olsten maintains it has proved that its $5.9 million in long-term workers' comp reserves were inflated. The company says it forced CNA to pare them by one-third. The insurer won't comment on this.

The temp company's office file on the videotaped tire-changer shows how murky these disputes can get. Olsten reasons that the man must be able-bodied to replace a tire. But CNA, in a rebuttal letter to Olsten, says that doesn't mean he is fit to return to strenuous activity as a factory worker.

The growing employer feistiness has prompted CNA to run newspaper and magazine ads promoting its fraud-investigation efforts for workers' comp, which is 40% of its business, and other coverage. With Corporate America upset over insurance bills, insurers are now realizing they have a big public-relations predicament, as well as a legal one.

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