NCCI Reaches Settlement in Latest Court Fight over Loss Costs

August 29, 2012

By Michael Whiteley, Eastern Bureau Chief

South Carolina Consumer Advocate Elliott Elam Jr. and a group of small businesses reached a settlement in the latest in a series of administrative court battles with the National Council on Compensation Insurance (NCCI) on Monday and agreed to a 3% increase in loss costs, effective Sept. 1.

Elam and the South Carolina Small Business Chamber of Commerce said the agreement, approved by Chief Administrative Law Judge Ralph K. Anderson III on Monday, resolves a three-year legal challenge over loss-cost notice requirements.

The agreement cuts NCCI’s pending loss-cost request by more than half. Last February, NCCI had filed for a 7.3% loss-cost increase to take effect on July 1.

Elam said Acting State Insurance Director Gwendolyn Fuller McGriff also approved the settlement. The South Carolina Insurance Department did not return telephone calls on Tuesday.

As part of the settlement, NCCI also agreed to drop its appeal of a Feb. 22, 2012, ruling by the South Carolina Court of Appeals that required the Insurance Department to post notice of all loss-cost changes, regardless of whether overall averages increase or decrease.

Both NCCI and McGriff argued state law requires notice only when the average for loss costs covering the state’s 700 job classification codes goes up.

Elam argued that, without official notice, he had no standing to challenge loss-cost changes and ask the state’s Administrative Law Court to force NCCI to divulge the details of its filings.

“This brings certain stability back to the market, and now we can start moving forward,” Elam said on Tuesday. “With every loss-cost filing, regardless of whether the overall average increased, somebody was getting a rate increase.”

Small Business Chamber President and Chief Executive Officer Frank Knapp Jr. said the settlement makes it clear that Elam and his successors can challenge loss-cost filings even when overall averages decline.

“These filings are a little bit math and a little bit art,” Knapp said. “We’re quite pleased that the proposed rate increase has dropped by more than 50%.”

The South Carolina Consumer Advocate’s Office has filed a series of challenges to NCCI’s filings dating back to 2001. Elam said South Carolina law does not provide for rate hearings within the Insurance Department.

NCCI’s call to boost loss costs by 32.9% in 2005 led to more than a year of legal wrangling in the state administrative law court. Former Chief Judge Marvin Kittrell reduced the increase to 18.4%, effective Dec. 1, 2006.

NCCI filed for another 23.7% increase in April 2007, but reached a settlement with Elam and the Small Business Chamber in May 2008 that limited the overall increase to 9.8%.

The double-digit increases prompted a series of workers’ compensation reforms approved by the South Carolina Legislature in June 2007.

Following the reforms, NCCI obtained Insurance Department approval to cut loss costs by 0.3% in 2009 and by another 9.8% in 2010.

But Elam contested both filings, arguing that the South Carolina Insurance Department provided no notice of the filings and did not make the data available. Elam lost the challenge to the notice requirement in state administrative court and took the case to the state Court of Appeals.

The appeals court ruled on Feb. 22, 2012, that South Carolina employers have a right to know when loss costs change, because it can affect their individual premiums.

“Under the DOI’s interpretation, an insured might get notice of the filing one year and might not get notice the following year, even though that insurer’s loss costs increased in both years,” the appellate court ruled. “Such an arbitrary result cannot have been intended.”

Both McGriff and NCCI filed writs of certiorari asking the South Carolina Supreme Court to intervene. The petitions were pending when the parties reached the settlement on Tuesday.

The settlement calls for:

The state to approve an increase in loss costs averaging 3% in the voluntary market and to reduce loss costs by an average of 3.1% for “F” classifications – which apply to workers covered by the U.S. Longshore and Harbor Workers Act.
The Insurance Department and NCCI to withdraw their petitions for certiorari within 10 days of the settlement’s approval.

Elam to withdraw pending challenges of previous loss-cost changes.

The parties to agree that NCCI’s filings for 2009, 2010 and 2011 were not “excessive, inadequate or unfairly discriminatory.”

NCCI State Relations Executive Amy Quinn could not be reached for comment on Tuesday.

In its annual state advisory forums, NCCI reported that, prior to the settlement, South Carolina would have experienced the third largest loss-cost increase in the Southeastern region. Mississippi regulators approved a 9.9% loss-cost increase that took effect on March 1.

Florida Insurance Commissioner Kevin McCarty approved an 8.9% rate increase, effective Jan. 1, 2012, and is considering NCCI’s call to increase rates by another 6.1% next January.

NCCI reported that 2012 loss costs or rates increased in seven states in the region and declined in five others. Alabama regulators approved a decrease of 9.3%, the steepest cut in the region, effective March 1.

Knapp said the settlement will streamline future loss-cost challenges.

“Small businesses now can be assured that any overall changes in workers’ compensation rates will be based on an objective vetting of premiums paid and carrier payments made to workers and health care providers,” Knapp said.

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