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IN RE:

Sedgwick Claims Management Services, Inc.

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CONSENT AGREEMENT
Docket No. INS-12-230

This Consent Agreement is entered into by and among Sedgwick Claims Manage­ment Services, Inc. (the “Company”), the Maine Superintendent of Insurance (the “Super­inten­dent”), and the Office of the Maine Attorney Gen­eral (the “Attorney General”).  Its purpose is to bring to a halt, without resort to an adjudicatory proceeding, violations of 39-A M.R.S.A. § 359(2) certified to the Superintendent by the Maine Workers’ Compensation Board (the “Board”) pursuant to that provision.

I
STIPULATIONS

  1. The Superintendent is the official charged with administering and enforcing Maine’s insurance laws and regulations.
  2. The Company is organized and domiciled under the laws of the State of Illinois, and is licensed in Maine as a third-party administrator under License Number AFN55558, first issued in June 1998.  The Company administers claims arising under the Maine Workers’ Compensation Act of 1992, M.R.S.A. Title 39-A, as amended, and regulations of the Board issued there­under (the “WCA”).
  3. In February 2007, the Board’s Monitoring Audit & Enforcement Division (the “MAE Divi­sion”) audited the records of the Company with respect to claims filed under the WCA with dates of injury during 2005.  This audit focused on compli­ance with WCA require­ments for form filing, timeli­ness of indemnity payments, and accuracy of indem­nity bene­fits.
  4. On August 30, 2007, the Board issued a Compliance Audit Report detail­ing its findings (the “2007 Report”). 
  5. In April 2008, the Board and the Company entered into twelve consent decrees, in lieu of administrative hearings, addressing the findings in the Report.  In one such decree (the “Consent Decree”), the Company agreed that it had “engaged in patterns of questionable claims-han­dling tech­niques in violation of Section 359(2)” of the WCA by failing to:
    1. Use licensed claim adjusters,
    2. File or timely file forms with the Board,
    3. Pay medical benefits timely,
    4. Pay Board-approved agreements timely,
    5. Pay claims accurately, and
    6. Correct issues of non-compliance revealed in a prior Board audit.
  6. On April 17, 2008, the Board certified these findings to the Superintendent as required by 39-A M.R.S.A. § 359(2).
  7. Between June 19 and 24, 2008, the Company attended Board training to address the claims-handling issues identified in the 2007 Report.
  8. In September 2008, the Company adopted a Corrective Action Plan at the request of the MAE Division to address specific issues raised in the 2007 Report.  The MAE Division released the Company from the Corrective Action Plan in January 2010.
  9. Between March 29 and April 9, 2010, Bureau staff performed a targeted market conduct examination based on a statistical sampling of all open indemnity claims for the period July 1, 2008 through June 30, 2009, with dates of injury on or after January 1, 1993 (the “Examina­tion”).  The sample consisted of 49 indemnity claims.  The pur­pose of the Examination was to determine whether the viola­tions of 39-A M.R.S.A. § 359(2) agreed to in the Consent Decree still existed as of the Examination period.  The Examination focused on whether the Company timely filed required Board forms, accurately calculated indemnity benefits and timely distributed benefit payments as required by the WCA.
  10. The Examination results showed that the Company’s compliance ratios had generally improved over those established by the 2007 Report, but that the Company had not reached Board benchmarks for timely filing first reports of injury, memoranda of pay­ment, notices of controversy, and initial indemnity payments.  The Company’s accuracy of indemnity payments was 55 percent.  More specifically, 22 of the 49 indemnity claims had inaccurate indemnity payments.  Errors included incorrect weekly compensation rate in one or more calculations in eight claims, unpaid waiting periods in five claims, the lost time claim did not exceed the waiting period in two claims, indemnity was paid beyond the employee’s return to work date in two claims, tabulation errors in two claims, one day unpaid in one claim, and no offset for the employee’s actual earnings in one claim and incorrect calculation under 39-A M.R.S. § 102(4)(B) in one claim.  Cumulative under­pay­ments ($3,186.58) exceeded cumulative overpayments ($1,756.57) in the claim files that had inaccurate indemnity payments.  The Company did correct the underpayments.  Overall accuracy of indemnity payments fell slightly compared to the 2007 Report.  The Company’s accuracy of indem­nity payments was 55 percent.
  11. In March 2011, the Board’s Monitoring Audit & Enforcement Division (the “MAE Divi­sion”) again audited the records of the Company with respect to claims filed under the WCA with dates of injury during 2010.  This audit focused on compli­ance with WCA require­ments for timeli­ness and accuracy of indemnity payments.
  12. On May 26, 2011, the Board issued a Compliance Audit Report detail­ing its findings (the “2011 Report”).  The 2011 Report’s finding relevant to questionable claims-handling tech­niques that violated 39-A M.R.S.A. § 359(2) included inaccurate claims payments.  Cumulative overpayments exceeded cumulative underpayments in the claim files that had inaccurate indemnity payments.  Overall accuracy of indemnity payments fell to 38 per­cent from 55 percent found in the Examination.
  13. In July 2011, the Board and the Company entered into six consent decrees, in lieu of administrative hearings, addressing the findings in the 2011 Report.
  14. The Company has completed some formal reviews, under insurer audits, of claims.

II
MAINE LAW

  1. 39-A M.R.S.A. § 359(2) provides in part that:

[T]he [workers’ compensation] board … upon finding, after hearing, that an employer, insurer or 3rd-party administrator for an employer has engaged in a pattern of question­able claims-handling techniques or repeated unreasonably contested claims … shall cer­tify its findings to the Superintendent of Insurance, who shall take appropriate action so as to bring any such practices to a halt.

III
CONCLUSIONS OF LAW

  1. The Company violated 39-A M.R.S.A. § 359(2) by engaging in a pattern of ques­tion­able claims-handling techniques through April 17, 2008. 
  2. The Superintendent is required, pursuant to the Board’s April 17, 2008 certification of its findings that the Company engaged in a pattern of ques­tion­able claims-handling tech­niques, to take appropriate action to bring those practices to a halt. 

IV
COVENANTS

  1. The Company shall comply with each provision of this Agreement.
  2. The Company shall bring to a halt the pattern of questionable claims-han­dl­ing tech­niques as set forth in this Agreement.
  3. Within thirty (30) days after executing this Agreement, the Company shall adopt, and deliver to the Superintendent for approval, with a copy to the WCB Deputy Director, MAE Division, written procedures that ensure that all claims for indemnity benefits under the WCA are paid in compli­ance with Maine law. 

At a minimum, such procedures must include plans for:

  1. ensuring compliance with the benchmarks in Exhibit A;
  2. ensuring that supervisory and front-line staff are experienced in handling workers’ compensation claims in Maine;
  3. training in-house claims personnel for the Company on the provisions of the WCA concerning derivation of benefit levels from average weekly wages and accuracy of indemnity payments;
  4. ensuring that employers cooperate in meeting the reporting requirements of the WCA;
  5. maintaining claims payment standards through education and super­vision of in-house claims personnel handling claims for the Company;
  6. implementing adequate claim review procedures, to include monitoring the accu­racy and timeliness of WCB form filings and indemnity payments; and
  7. auditing, on at least a quarterly basis, all indemnity claims to measure compliance with the bench­marks in Exhibit A.

The Company shall deliver to the Superintendent and the WCB Deputy Director, MAE Divi­sion, the results of the audits referred to in sub­paragraph (g) for four (4) suc­ces­sive calendar quarters starting with the fourth quarter of 2012.  The Company shall deliver each audit report within thirty (30) days after the end of the applicable calendar quarter.  Within forty-five (45) days thereafter, the Superinten­dent may call a meeting with the Company to discuss any concerns he may have with the Company’s claims performance during the period covered by such audit report.  Fail­ure to call any such meeting shall not waive any of the Super­in­tendent’s or the Attorney Gen­eral’s rights under this Agreement.  The Company shall deliver with the last audit report (the “Final Self-Audit Report”) a certification in the form attached as Exhibit B, attesting to the accuracy of all claims performance audit infor­mation required under this Agree­ment.  The Company shall also deliver, upon the Superintendent’s or the WCB Deputy Director’s request, any and all work papers and documents, in any format, in its posses­sion, custody or control, related to any Self-Audit Report.  The Company may assert the confidentiality of any work papers and documents so delivered as to any entity other than the Board or the Attorney General.

  1. The Company shall, for the period starting January 1, 2005 and ending as of the effective date of this Agreement:
  1. submit to the Bureau of Insurance within thirty (30) days of the effective date of this Agree­ment, an electronic spreadsheet listing all claims adjusted in the above time period presented to the Company under the WCA, for the purpose of allow­ing the Bureau to designate a statistically valid random sample of claims, selected in accordance with National Association of Insurance Commissioners (“NAIC”) standards to produce a 95 % confidence level and a 5 % upper error limit, for each calendar year (the “Desig­nated Claims”) for further review by the Company as set forth in this paragraph;
  2. upon receiving the list of Designated Claims from the Superintendent, review the inca­pacity periods, and indem­nity benefits, penalties and interest originally paid thereon;
  3. recalculate the benefits, penal­ties and interest for the Designated Claims to ensure their compliance with the WCA;
  4. pay to the appropriate claimants for the Designated Claims any deficien­cies, with the penalties and interest provided for in the WCA, and file with the Board such related forms as the WCA requires; and
  5. deliver to the Superintendent and the WCB Deputy Director, MAE Division, by the date the Company must deliver the Final Self-Audit Report, an electronic spreadsheet report viewable in Microsoft Excel listing each claim so reviewed (the “Look-Back Report”).  The Look-Back Report shall contain the follow­ing data, safeguarded in accordance with the WCA, for each claim: 
  1. the Board number, if known;
  2. the claim­ant’s Social Security number (gen­eral for­mat/no dashes);
  3. the claimant’s last and first name (in that order);
  4. the date of injury;
  5. insurer name and claim file num­ber; the incapac­ity periods;
  6. the amount of indem­nity originally paid;
  7. whether or not the claim was settled under 39-A M.R.S.A. § 352 (Y or N) and the date of such settlement;
  8. the amount of indem­nity paid after review;
  9. the amount of penal­ties paid after review;
  10. the amount of inter­est paid after review;
  11. the amount of overpayment upon review; and
  12. the name of the person con­ducting the review. 

The Company shall deliver with the Look-Back Report a certification attesting to the accuracy of all information in the report, in the form attached as Exhibit B.  
This paragraph shall not apply to any claims that are subject to the audits described in paragraph 20, to any claims that have been discharged under 39-A M.R.S.A § 352, or to any claims that were previously presented to the Company or entities for which the Company handles claims that were previously audited by the Board and subse­quently corrected by the Company or other entity.

  1. Should the Superintendent, in his sole and absolute discretion, determine, within twelve (12) months after receiving the (i) Final Self-Audit Report or (ii) Look-Back Report, that the Company:
    1. did not meet or exceed on average the benefit payment and form filing bench­marks in Exhibit A during the self-audit review period described in paragraph 20, then the Company shall deliver to the Superintendent a civil penalty to be determined at the sole and absolute discretion of the Superintendent, not to exceed Fifty-six Thousand Two Hundred Fifty Dollars ($56,250), within thirty (30) days of receiv­ing the determination, or
    2. failed to correct deficiencies in indemnity benefits as required by 21.c., with the penalties and interest due thereon, pursuant to the WCA, in at least 93 percent of the claims required to be reviewed pursuant to paragraph 21, then the Company shall deliver to the Superintendent a civil penalty to be determined at the sole and absolute discretion of the Superintendent, not to exceed Eighteen Thousand Seven Hundred Fifty Dollars ($18,750), within thirty (30) days of receiv­ing the determi­na­tion.

The Company agrees that (i) any civil penalties assessed under subsection (a) or (b) above will have resulted from its continued failure through the delivery date of either the Final Self-Adult Report or the Look-Back Report, to halt the pattern of ques­tionable claims-handl­ing tech­niques established by the Consent Decree, (ii) in declaring any civil penalty due, the Super­in­tendent may rely on the Self-Audit Reports and the Look-Back Report as conclusive evidence of the fact and extent of such failure, and (iii) the amount of this penalty will not limit fur­ther measures, penalties or remedies that the Superinten­dent or the Attorney General may impose or seek under paragraph 30 below.

  1. Should the Superintendent, in his sole and absolute discretion, determine, within nine (9) months after receiving the Look-Back Report, that the Company, for any calendar year for which Designated Claims were reviewed, failed to achieve a 93% compliance rate in accurately calculating (a) average weekly wage, (b) weekly compensation rate, (c) partial benefits, or (d) indemnity benefits, he may, in his sole and absolute discretion, order the Company to review up to all other claims paid Company during the period identified in paragraph 18 for the specific purpose of identifying and correcting inaccurate payments to claimants.

Should the Superintendent order such an expanded review, the Company shall (i) com­plete the review within the time specified by the Superintendent, which shall be no less than three (3) months but not more than nine (9) months, (ii) upon completion of the review, submit a report to the Superin­tendent, in the format required for the Look-Back Report, listing each claim so reviewed, and (iii) provide, upon the Superintendent’s request, any additional documenta­tion necessary for the Superintendent to verify that the review was properly completed.  Within thirty (30) days of receiving notice from the Superintendent of any improperly calculated element, specified in the subparagraph above, in a reviewed claim, the Company shall correct such element and pay the related benefits, penal­ties and interest as required by the WCA.

  1. The Company shall pay, as provided by law, the Superintendent’s reason­able costs and expenses of monitoring its compliance with, and enforcing the Company’s obligations under, this Agreement.

V
MISCELLANEOUS

  1. The Company waives any:
    1. hearing rights arising from this Agreement,
    2. objection to any action that may be taken by the Superintendent pursuant to this Agreement, including but not limited to the imposition of the civil penalties speci­fied in paragraph 19 and agrees it will make no appeal from this Agreement; and
    3. objection to the Board’s release to the Superintendent and the Attorney General of  “audit working papers,” as defined in section 153 of the WCA, related to any audit of the Company and, in connection with this waiver, to the use of such papers by the Superintendent and Attorney General for purposes related to the implementation and enforcement of this Agreement.
  2. The Company acknowledges that this Agreement is a public record within the meaning of 1 M.R.S.A. § 402 and will be available for public inspection and copying as provided for by 1 M.R.S.A. § 408, and will be reported to the Regulatory Information Retrieval Sys­tem database at the NAIC.
  3. The Company has been advised of its right to consult with counsel before executing this Agreement.
  4. This Agreement does not bind any person or entity not a party to this Agreement, or limit the Superintendent’s ability to seek any available legal remedy for alleged or actual viola­tions of the WCA or the Maine Insurance Code against any Company affiliate or subsidi­ary not a party to this Agreement.
  5. Nothing in this Agreement shall limit the ability of the Superintendent, in his sole and absolute discretion, in order to determine whether the Company has brought to a halt all violations of 39-A M.R.S.A. § 359(2) established by the Consent Decree, to investigate the:
    1. handling of the Company’s indemnity claims having dates of injury after Decem­ber 31, 2005;
    2. accuracy of the self-audit quarterly review described in paragraph 18; or
    3. accuracy of the indemnity claim review described in paragraph 19.
  6. The purpose of the self-audit quarterly review described in paragraph 20 and the indem­nity claim review described in paragraph 21 is to bring to a halt the violations established by the Consent Decree.  Therefore, in consideration of the Company’s execution of this Agreement, the Superintendent and the Attorney General shall not pursue civil penalties, disciplinary measures or other civil or administrative sanctions, other than those agreed to herein, for violations established by the Consent Decree that continue through the period of the paragraph 18 and paragraph 19 reviews.  However, the Superintendent or the Attorney General may pursue any available legal remedy, including without limitation imposition of additional civil penalties and the limitation, suspension or revocation of workers’ compensation authorities issued to the Company by the Superintendent should the Company:

    a.  engage in conduct that violates 39-A M.R.S.A. § 359(2) after the period of the paragraph 18 and paragraph 19 reviews; or
    b.  violate any provision of this Agreement other than as described in subsections (a) and (b) of paragraph 19; or
    c.  otherwise violate Maine law.

  1. The effective date of this Agreement is the date entered in the Superintendent’s signature line below.
  2. This Agreement may be modified only by the written consent of all parties.

Dated:                        , 2012

Sedgwick Claims Management Services, Inc.

 

By:______________________________________
Its:______________________________________

 

 Printed Name and Title

Subscribed and sworn to before me this _______ day of ________, 2012.

____________________________

Notary Public
____________________________
Printed name
____________________________
Date commission expires

 

Dated:                        , 2012

OFFICE OF THE MAINE ATTORNEY GENERAL

 

________________________________________
Jonathan R. Bolton
Assistant Attorney General

 

Effective
Date:                        , 2012

MAINE BUREAU OF INSURANCE

 

________________________________________
Eric A. Cioppa
Superintendent


Exhibit A

Form of Self-Audit Worksheet

 

FROI Timely Filed

Wage Statement (WCB-2) Filed Timely

Schedule of Dependents (WCB-2A) Filed Timely

MOP (WCB-3 or -4A) Filed Timely

Modification/Reduction (WCB-4, -4A or -8) Filed

Discontinuance (WCB-4, -4A or -8) Filed

NOC (WCB-9) Filed Timely

Initial WCB-11 Filed Timely

Annual WCB-11 Filed W/in 15 Days of Anniversary of Claim

Initial TTD Timely

Subsequent TTD/TPD Timely

Payment of Medical Bills Timely

Payment of Approved Agreements, Orders, Decisions

TTD/TPD Accurate

Average Weekly Wage

Weekly Benefit Rate

Partial Indemnity

Bench­mark (%)

85

 75

75 

85

90 

75

90

80

80

87

87 

80 

90 

75 

80 

 75

75 

mm/yy

(#/#) xx%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Exhibit B

Form of Certification

IN RE:
Sedgwick Claims Management Services, Inc.

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AFFIDAVIT OF CORPORATE OFFICER

Docket No. INS-12-230

The undersigned, being duly sworn, says:

  • Terms used but not defined in this affidavit shall have the meanings given them in the Consent Agreement entered into between the above Company, the Superintendent and the Attorney General under Bureau docket number INS-12-230. 
  • I have read and understand the Consent Agreement and exhibits attached thereto.
  • I understand that the Board and Bureau may rely on the truthfulness of the information contained in and materials attached to this affidavit and that the truthfulness of this information is material to the ability of the Superintendent and the Board to evaluate the Company’s compliance with the Consent Agreement.
  • I have read the materials attached to this affidavit.  They accurately and completely summarize the information contained therein, as required by [paragraph 20/paragraph 21] of the Consent Agreement. 
  • I hold the position identified below and have obtained all necessary authority from the Company to give this affidavit on its behalf in connection with the proceedings undertaken as Bureau Docket No. INS-12-230. 

______________________________________
(name typed or printed)
______________________________________
(position typed or printed)
Sedgwick Claims Management Services, Inc.

Acknowledgement
State of _______________
County of _____________

            Personally appeared before me on _____________, 2012, the above named ___________ __________________ and, being duly sworn, affirmed that this affidavit is based upon his or her personal knowledge and is true and correct.
 
                        Before me,
________________________________
Notary Public/Attorney-at-Law
[seal]                                        Printed Name: _____________________
My Commission Expires: ___________


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Last Updated: September 28, 2012