Though the insurer has been retreating from the sector, Liberty Mutual scores a victory in a workers’ compensation dispute.
A U.S. District Court in Houston has sided with Liberty Mutual in its lawsuit against an aircraft ground handling firm for additional workers’ compensation premium. In a decision handed down in early July, Servisair, now known as Swissport, is obligated to pay the insurer $3.64 million more under its “guaranteed cost” policy.
As outlined in the “guaranteed cost” policy, an estimated premium was calculated at the onset of the contract based upon Servisair’s payroll classifications. When the policy period ended, an audit would then set the final premium. In doing the review, Liberty Mutual determined Servisair’s payroll classifications weighted more toward less risky clerical employees instead of its workers with higher exposure to risk. Due to the company’s error, Liberty Mutual billed Servisair an additional $3.64 million in premium.
Servisair agreed it had misclassified employees, but argued the error grew from a “mutual mistake” regarding the premium calculation guidelines. The firm also claimed the provision itself was ambiguous.
In its ruling, the court pointed to policy language stating a higher premium would be borne by Servisair if the original payroll classification totals were found to be inaccurate. “By its plain terms, the policy provides that Servisair is responsible for paying more than the estimated premium if the final premium exceeds the estimated premium,” the court document states. “This is an open-ended obligation with no limit on the amount of additional premium Servisair might ultimately owe.”
As for Servisair’s argument the terms “guaranteed cost,” “rules,” and “rating plans” were ambiguous, particularly in regards to their effect on the “schedule ratings” used to calculate the final premium after the audit, the court disagreed. The court rejected Servisair’s underlying claim Liberty Mutual sought a pre-determined profit based on the firm’s loss history when setting the schedule ratings. According to the court document, Servisair argued the insurer “should have adjusted the schedule ratings when calculating the final premium to achieve the exact same profit goal pursued in the estimated premium.”
The court maintained, however, the policy language was unambiguous. The schedule ratings formula was clearly defined and agreed to when the policy was signed and were not altered when the final premium calculation was tallied. “Servisair made a deal that, in retrospect, it did not like. That does not allow it to rewrite or avoid its obligations,” the court concluded.
A Retreat from Workers’ Comp Market
Although Liberty Mutual scored a victory in this workers’ compensation-related lawsuit, the insurer has been pulling back from this marketplace in recent years. A 2015 Boston Globe report noted Liberty Mutual, which launched a century ago by insuring railway, shipbuilding, and tannery workers hurt on the job, had slipped from the top workers’ comp insurer to number four.
Further signaling its retreat, Liberty Mutual sold its workers’ compensation business in Argentina in 2012. A year later, it divested its sole workers’ compensation subsidiary, Summit Holdings Southeast, Inc. Soon after that sale, the insurer paid $3 billion to a Berkshire Hathaway company to handle some of its workers’ compensation claims as well as liabilities associated with asbestos and environmental policies. “They’ve taken pretty aggressive action to de-emphasize workers’ comp,” Michael Lagomarsino, Assistant Vice president at A.M. Best Co., told the Globe. A spokesperson for Liberty Mutual responded the company was “targeting underperforming accounts that were contributing to unacceptable results.”
Meanwhile, insurers have begun to incorporate technology into the workers’ compensation sector as a way to prevent on-the-job injuries reduce payouts. Wearable devices, for example, track a worker’s movements and body temperature, which alerts the person to any potential hazards.
Technology also lowers medical costs after an accident. Automated claim filing ensures the worker gets treatment sooner, while a telemedicine platform connects workers with a nurse. The nurse then assesses the worker’s condition and recommends care options, including scheduling an appointment with a medical provider if necessary.