California Contractor Associatons, Unions Form Trust to Administer Workers’ Comp Carve-Out Program

December 6, 2004

Northern California contractors and unions representing carpenters, laborers and operating engineers have formed a labor-management trust to administer a collectively bargained workers’ compensation carve-out program, the Building Industry Trust announced.

This new Basic Crafts Workers’ Compensation Insurance Program reportedly seeks to reduce costs by creating an Alternative Dispute Prevention and Resolution Program (ADR) designed to speed treatment, resolve claims more quickly and reduce litigation.

“We’re delivering a better product for less money,” said Robert Alvarado, executive officer of the Northern California Carpenters Regional Council. “The crucial element of the ADR is an ombudsman, who has the duty to prevent or limit disputes by informal conciliation and arbitration as soon as possible after an employee is injured. Employees benefit from free expert help and informal resolution of disputes without having to hire an attorney. Employers benefit from paying lower workers’ comp premiums and becoming more competitive in the marketplace. We’ve retained a top-notch ombudsman for our program — the honorable Steve Siemers, who formerly served as Chief Judge for the State of California’s Workers’ Compensation System.”

James Losch, chairman and founder of Santa Clara-based Hallmark Construction Inc. and a trustee of the Building Industry Trust, said the ADR Program is similar to a Carpenters-Contractors Workers’ Comp Trust for Southern California where employers receive a negotiated discount of 15% in their premiums.

“The concept helps keep attorneys out of the process,” said Losch, who is also past-president of the Construction Employers’ Association (CEA). “We have formed a trust fund that administers the ADR Program, retains and directs an ombudsman and establishes a safety program. The Trust also utilizes an exclusive list of approved medical providers. The system is designed to get employees back to work more quickly. It cannot provide fewer benefits for the employee, and it can provide more. The cost savings come from the handling of claims. The system works in Southern California, and we don’t see any downside for employers or employees.”

From the employer side, individual contractors and four contractor associations have adopted the ADR Program. The groups are the Associated General Contractors of California, Engineering and Utility Contractors Association, Construction Employers’ Association and the Association of Engineering Construction Employers.

The unions are the Northern California Carpenters Regional Council Northern California District Council of Laborers and Operating Engineers Local Union No. 3. Collectively, they represent approximately 100,000 employees working throughout the 46 counties of Northern California.

The Workers’ Compensation ADR Program has six stated purposes:

1. Provide employees with improved access to treatment and prompt compensation,

2. Reduce the number and severity of disputes,

3. Provide a better method to resolve disputes,

4. Improve labor-management relationships, job security and organization effectiveness,

5. Provide long-term stability for workers’ comp, and

6. Provide an opportunity for employers with one or more collective bargaining agreements to voluntarily participate.

On projects where the owner, developer or general contractor supplies wrap-up insurance that includes workers’ comp coverage, the individual employer may suspend the new system for work on that specific project.

Workers’ comp insurance has become an increasingly heavy burden for the construction industry and now reportedly averages about 20% of total payroll costs.

Between 1995 and 1999, the State Division of Workers’ Compensation issued five annual reports on carve-outs showing that they saved from 41% to 71% in premiums. An example of potential savings is medical lien claims, a significant factor in litigation because no claim can be closed until the medical lien dispute is resolved. Attorneys typically receive 10% to 15% of the award in a lien resolution.

Since the new trust maintains an exclusive list of medical providers who are under contract regarding their fees, medical liens should reportedly diminish.

The State Legislature enacted legislation in 1993 enabling employers and unions in the construction industry to establish “carve-out” programs through their collective bargaining agreements to create alternatives for workers’ comp benefit delivery and dispute resolution (Labor Code Section 3201.5).

The Building Industry Trust is a partnership between 900 responsible builders, comprising more than 700 independent contractors and six contractor associations, and the Northern California Carpenters Regional Council, which represents more than 37,000 union members from 30 local unions throughout the 46 Northern California counties. It is supported by employer contributions based on hours worked by carpenters and related trades.

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