This report is from the Administrative Director of the Division of Workers' Compensation to the Legislature, as required by Labor Code Section 3201.5(i).

The report covers the third full calendar year -- 1997-- of the program established by Labor Code Section 3201.5, commonly known as "the carve-out". The program allows unions and employers engaged in construction to create alternatives to the traditional, state-supervised workers' compensation system. Most important, it allows collective bargaining agreements to establish exclusive lists of medical providers and examiners and to establish alternative dispute resolution systems that bypass the state workers' compensation referees.

All employers participating in the carve-out program are required by regulation to submit limited data to the state. This report is based on aggregated data from 550 California employers in 11 eligible programs. The reported figures provide a snapshot of the program at a point in time 3 months after the close of the reporting year; because the reporting comes so soon after the experience, it is, by definition, relatively immature data. Current regulations do not provide for receiving subsequent reports on the experience, which are necessary to see if the initial results reported stand up over time.

Together, these employers reported 10,372,459 person-hours of labor and $242,577,215 in wages to employees covered by Section 3201.5 during 1997. They reported 661 claims filed in the year. Aggregate incurred losses reported for these claims were $6,481,564. It is anticipated that both the number of claims reported and their aggregate incurred costs will rise over time.
.

Labor Code Section 3201.5 establishes a program in which unions and employers engaged in construction may bargain collectively to create alternatives to the traditional workers' compensation system:
 

3201.5. (a) . . . [T]he Department of Industrial Relations and the courts of this state shall recognize as valid and binding any provision in a collective bargaining agreement between a private employer or groups of employers engaged in construction, construction maintenance, or activities limited to rock, sand, gravel, cement and asphalt operations, heavy-duty mechanics, surveying, and construction inspection and a union that is the recognized or certified exclusive bargaining representative that establishes any of the following:

(1) An alternative dispute resolution system governing disputes between employees and employers or their insurers that supplements or replaces all or part of those dispute resolution processes contained in this division.

(2) The use of an agreed list of providers of medical treatment that may be the exclusive source of all medical treatment provided under this division.

(3) The use of an agreed, limited list of qualified medical evaluators and agreed medical evaluators that may be the exclusive source of qualified medical evaluators and agreed medical evaluators under this division.

(4) Joint labor management safety committees.

(5) A light-duty, modified job or return-to-work program.

(6) A vocational rehabilitation or retraining program utilizing an agreed list of providers of rehabilitation services that maybe the exclusive source of providers of rehabilitation services under this division.

The Carve-Out program was first established in 1993 by SB 983, authored by Senator Leroy Greene. It was modeled on a similar experiment in Massachusetts, where Bechtel Corporation and the Pioneer Valley Building and Construction Trades Council had a collective bargaining agreement governing a single construction project.

When SB 983 first went into effect, several promoters who were clearly outside the intended scope of the program attempted to get the Administrative Director's approval. The Administrative Director received "collective bargaining agreements" from "employers" with no employees and "labor organizations" with no members. One notable "agreement" appeared to be a scheme whereby employers were persuaded to pay money into a "health benefits trust" controlled by the promoter, instead of purchasing a workers' compensation insurance policy as required by law. This placed employers at risk for civil and criminal penalties. The common thread of these early "agreements" was that promoters would approach legitimate employers -- that is, real California companies engaged in real construction -- and persuade them to transfer their employees to the promoter. The promoter would become the nominal employer of the employees, while control over their actual work would remain with the original employer. Conveniently, the promoter would have already signed a collective bargaining agreement with a labor organization that "represented" all the promoter's employees. And, just as conveniently, the agreement would have a carve-out section that was favorable to the employer. The Administrative Director did not recognize any of these "agreements."

In 1994, Senator Greene introduced urgency legislation -- SB 853 --to amend Section 3201.5, tightening the qualifications of the parties. The term "employer engaged in construction" was more narrowly defined. The employees' bargaining representative was required to be a "union." Parties were now required to submit evidence of their eligibility and receive a "letter of eligibility" from the Administrative Director.

To be eligible, an employer must prove that it is engaged in construction and pays a workers' compensation insurance premium of at least $250,000 per year, or belongs to a multi-employer "safety group" which pays a premium of at least $2,000,000 a year. Self-insured employers are also eligible. To be eligible, a labor organization must prove that it is a bona fide union, free of employer domination or support, whose officers have been elected by secret ballot. The union must submit a copy of the latest LM-2 or LM-3 financial disclosure form that it filed with the United States Department of Labor. These forms give information about the unions' sources of income, expenditures, officers, election dates, and other pertinent matters.

Although the parties must establish that they are "eligible," they do not need the administrative director's approval of the collective bargaining agreement itself.

A copy of the current text of Labor Code Section 3201.5 may be found in Appendix 1. Regulations implementing section 3201.5 are at 8 California Code of Regulations, Section 10200 - 10204. They may be found in Appendix 2.

Eleven programs have been certified as eligible and were active during 1997:
 

A. An agreement between the District Council of Painters No. 36 and the Los Angeles County Painting and Decorating Contractors Association. Each individual contract chooses whether to sign the master carve-out agreement.

B. An agreement between the United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry, Local Union No. 342 and Cherne Contracting Corporation for the construction of an oil refinery.

C. An agreement between the Building & Construction Trades Council of Alameda County and Parsons Constructors, Inc. This is a project labor agreement covering all contractors and subcontractors on the $1.2 billion multi-year National Ignition Facility at Lawrence Livermore National Laboratory.

D. An agreement between the California Building & Construction Trades Council and the Metropolitan Water District of Southern California. This is a project labor agreement covering all contractors and sub-contractors on the $1.1 billion, multi-year Inland Feeder Project.

E. An agreement between the Southern California District Council of Laborers and four different multi-employer groups: the Associated General Contractors of California, Inc., the Building Industry Association of Southern California, Inc., the Southern California Contractors' Association and the Engineering Contractors' Association. Each individual contractor chooses whether to sign the master carve-out agreement.

F. An agreement between the Contra Costa Building & Construction Trades Council, AFL-CIO, and the Contra Costa Water District. This is a series of three project labor agreements covering all contractors and sub-contractors on a $200 million, two and one half year dam project called the Los Vaqueros Project.

G. An agreement between TIMEC Co., Inc., and TIMEC Southern California, Inc., and the International Union of Petroleum and Industrial Workers.

H. An agreement between the Southern California Pipe Trades District Council No. 16 and a multi-employer group called the Plumbing & Piping Industry Council, Inc. Each individual contractor chooses whether to sign the master carve-out agreement.

I. An agreement between the Southern California District of Carpenters and its 19 local unions and six different multi-employer groups consisting of about 1000 contractors. Each individual contractor chooses whether to sign the master carve-out agreement.

J. An agreement between the District Council of the International Brotherhood of Electrical Workers and its 20 local unions and a multi-employer group called the National Electrical Contractors Association, consisting of about 300 contractors. Each individual employer chooses whether to sign the master carve-out agreement.

K. An agreement between the California Building & Construction Trades Council, AFL-CIO, and the Metropolitan Water District of Southern California. This is a project labor agreement covering all contractors and sub-contractors on a $2 billion, 5-year reservoir construction project in Hemet, California.

The eleven active and reporting carve-out programs in 1997 reported a total of 10,372,459 person-hours -- equivalent to 5,186 full-time employees figuring 2,000 person-hours for one employee-year.

Labor Code Sections 3201.5(i) and (j) require the administrative director to collect a variety of data from carve-out employers -- payroll, person hours worked, number of claims filed, average cost per claim, etc. -- and to make a report to the Legislature based on the aggregated data. To implement these sections, DWC promulgated 8 California Code of Regulations. Section 10203, requiring employers to report information to the administrative director on a standard form by March 31 following the reporting year. Appendix 3 is a sample reporting form.

As noted above, there are eleven active carve-out programs that reported activity in 1997. DWC has received data from 550 employers participating in those programs. As shown in Table 1, they report a total of 10,372,459 person-hours in 1997, and a total payroll of $242,577,215. They reported 661 claims filed in 1997, a reduction of 205 claims from 1996, and incurred costs of $6,481,564, a six percent increase. As seen in Table 1, most of the reduction in total claims is from a decrease in medical only claims, while claims involving indemnity actually rose slightly.

Table 2 shows more detailed aggregate statistics on claim frequency and average claims costs among each of the carve-out programs. While the table appears to indicate large differences in cost and frequency between individual programs, this may be misleading since some of the programs are quite small. Care must be taken in evaluating the differences. For instance, carve-out #8 has fewer than 50 full time equivalent workers for the year, and numbers 9, 10, and 11 in the table have fewer than 10 FTEs for the year.. In program #9, for example, while the claims frequency is high (about 6 times the average), the per claim cost is very low (one-fourth the overall average). The differences may be due to chance variation or slight differences in the criteria for reporting minor claims. At the other extreme, carveout programs 1, 2, 3, 4, 5, and 7 involve at least 500,000 work hours each; with the larger exposure base, frequency rates and per claim costs are less subject to chance variation.

Notes: * Project involved fewer than 50 FTEs and payroll below $5 million for year.
           ** Projects involved fewer than 10 FTEs, and payroll below $1 million for year.

Table 3 does not include the insurers' operating expenses. Table 3 also does not include the costs of operating the ADR process itself -- the ombuds person's fees and costs, mediator's fees, and so on. Under current programs, the ADR process is administered by, or under the supervision of, a joint labor-management committee or trust. The process is funded by the employers. Employers pay a fee to the trust equal to a small percentage of the insurance premium, or several cents per person hour worked.7

It should also be noted that the 661 claims were all filed in 1997. They are all relatively young claims. As claims become older, incurred costs tend to rise, though it is impossible to estimate how much they will rise. One of the largest groups reporting -- the NECA safety group, which is a subset of the NECA/IBEW program informed the DWC in 1997 that incurred losses for claims initiated in 1995 climbed substantially in 1996 -- from $953,981 to $1,487,600. An analysis of how incurred costs change over time is beyond the scope of this report, given current reporting guidelines.8
 

Were losses in the carve-out program lower or higher than losses experienced by other employers in the construction industry?

Table 4 compares incurred and "expected" losses of the carve-out employers.9

On the 661 claims, there were incurred losses of $6,481,564. Table 4, Column 6, shows incurred losses per $100 in payroll for each of the eleven active carve-out programs. In aggregate, the six programs incurred $3.24 of losses and loss adjustment expenses for every $100 in payroll.

How does the figure of $3.24 compare to incurred losses of all employers engaged in construction? Table 4 provides "benchmarks" for each carve-out program, based on WCIRB "pure premium rates".

The Workers' Compensation Insurance Rating Bureau publishes "pure premium rates" for every job classification in the state.10 These rates reflect the losses predicted for every $100 in payroll, plus an amount for "loss adjustment expenses."11 Loss adjustment expenses (LAE) constituted 21.2% of the pure premium rate in 1997. As an example, the 1997 pure premium rate for ironworkers on buildings over two stories (Classification #5040) is 13.65. A hypothetical average employer who hires ironworkers to erect a steel frame would expect to incur $13.65 in losses for every $100 in payroll, of which $11.26 would be incurred for benefits and $2.39 for loss adjustment expenses. Pure premium rates vary according to the hazards of the job. For instance, the advisory pure premium rate (losses plus LAE) for lath installers (#5443) is 8.70; the rate for elevator workers (#5160) is 2.99.

In Table 4, Column 7, we have calculated a benchmark for each of the eleven active carve-out programs. They are calculated by weighting the payroll in each job classification, multiplying by the pure premium for each classification, and subtracting loss adjustment expenses. For example, if a particular carve-out program had 60% of its payroll in Classification X with a pure premium rate of 3.00, and 40% of its payroll in Classification Y, with a pure premium rate of 10.00, the weighted average pure premium for that program would be (.60)(3.00) + (.40)(10.00) = 5.80.

The benchmark for that hypothetical carve-out program is $5.80. This is roughly what one might predict as incurred losses plus loss adjustment expenses for that carve-out program per $100 payroll. Of the $5.80, $4.79 is for incurred benefit costs plus 21.2% of that (.212*4.79)=$1.01 is for LAE.. It is important to note, however, that this comparison does not take into account other factors that might affect individual employers, such as their own safety practices or claims history. Indeed, an employer's loss experience may be consistently much better or worse than the loss experience of all employers in the classification. Carve-out participants do not report their claims history to DWC.12

Table 4, Column 8, shows the ratio between the incurred losses for each carve-out program and the benchmark for each carve-out program. All eleven active carve-out programs incurred losses well below the benchmark. In aggregate, incurred losses were 45.5% of what the pure premium rates would predict.

It appears that the first early report of losses in the carve-out program were lower than would be expected of other construction employers. However, it should again be noted that Table 4 is based on claims filed in 1997 that is, on data that is quite young. As claims age, incurred costs tend to rise. As noted above, one of the largest groups reporting -- the NECA safety group, which is a subset of the NECA/IBEW program -- informed DWC that incurred losses for claims initiated in 1995 climbed substantially in 1996 from $953,981 to $1,487,600 . The ratio of incurred to expected losses for that group went from .34 after 12 months of reporting to .53 after 24 months of reporting ending in December 1996. No data was submitted by carve-out programs in the latest reporting period allowing for subsequent evaluation of claims data after another year of maturity.

Were these apparently low losses due to a random fluctuation in the data?

This report is based on 10,372,459 person-hours. That is equivalent to only 5187 full-time employees -- a pool that may be too small to provide reliable statistical data. If the number of carve-out employers increases in the future, the statistical pool will expand and the figures presented will be more reliable.

Despite the limitations of the data, note that losses were low in all eleven programs. If the loss figures were randomly distributed, one would expect to see some programs showing higher than expected losses and some showing less.
Furthermore, the figures this year are roughly equivalent to the figures in our 1995 and 1996 reports.

Were low losses due to carve-out employers' history of low losses? In other words, are carve-out participants self-selected for safety?

We do not have the data necessary to answer this key question.

Were low losses due to fewer claims being filed by carve-out employees?

Carve-out employees filed 661 claims in 1997, equivalent to 12.7 claims for every 100 employees. It is difficult to find an exact comparison for this figure among non-carve-out employees. The California Division of Labor Statistics and Research reports that in 1996 -- the last calendar year for which it has statistics -- there were 10.3 non-fatal occupational injuries and illnesses per 100 employees in the construction industry as a whole. These figures come from injuries and illnesses reported by employers on federal OSHA forms. They are not precisely equivalent to workers' compensation claims, since some injuries might be reported on the OSHA form but not give rise to a claim. Conversely, an employee might file a claim for an injury not reported to OSHA. Nonetheless, there seems to be a rough equivalence between the number of injuries and illnesses that might be expected per 100 employees (10.3) and the number of claims being filed (12.7).

From this limited data, it appears that the carve-out program does not achieve its savings through a decrease in claims.

Both labor and management indicate that one of their chief aims in participating in the carve-out program is to replace the state's cumbersome and lengthy dispute resolution system with one that is simpler and faster. Of the eleven active and reporting carve-out programs in California, ten have alternative dispute resolution [ADR] systems. (One carve-out program consists only of an exclusive list of medical providers.)The ADR programs in California are similar, but have some differences. All start with an "ombudsperson" -- a neutral person who is available to all parties. The ombudsperson is supposed to resolve disputes at an early stage, or even before they arise. If the ombudsperson is unsuccessful in resolving the dispute, either party may move the matter to the next step, which is typically formal mediation by an outside neutral. Some programs use a joint labor-management committee at this point. If mediation is unsuccessful, the parties turn to an outside, neutral arbitrator -- typically a retired workers' compensation referee. By statute, the decision of the arbitrator may be appealed to the 7-member Workers' Compensation Appeals Board (Labor Code Section 3201.5(a)(1)).
 

+ Of the 661 claims filed in 1997, a very large majority (419) were reportedly resolved before mediation. They were resolved either because there was never any dispute at all between the injured worker and the insurer -- or because the ombudsperson successfully handled any issues. Nineteen (19) of these claims were resolved with a denial of compensation.

+ Of the 661 claims filed in 1997, only four were taken to the stage of mediation; one was resolved at or after mediation; two claims were resolved at or after arbitration. In 1997 one claim was resolved at or after a WCAB intervention.
 

According to the reports filed by carve-out participants, ten employees subject to an ADR system filed applications for adjudication with the WCAB in 1996. For 1997, the reported number was up to 61 applications filed.

In 1997, programs reported four cases of civil litigation concerning a carve-out claim or program.

On July 17, 1997, in the case of Ramon Becerra v. Eastside Reservoir Project (No. AHM 51304), the WCAB ruled that the proper procedure is for workers' compensation referees to dismiss applications, rather than stay them, if the claim is subject to ADR.

The 61 applications for adjudication represent nearly one in ten claims under the system. This is a much higher percentage of cases than was reported in prior years, where the ratio was closer to one in 50 claims by the time of the employer report. It is notable that medical-legal expenses are still reported at a low level -- $87,582 out of $6,481,564 total incurred costs, or about 1.3%. This figure is consistent with a low level of formal dispute, but is more than twice the amount reported in the prior year. These two figures warrant further review to discern if the large increases are an emerging trend or an aberration.

In aggregate for 1997, employers reported 12 employees participating in vocational rehabilitation and 32 employees participating in light-duty programs. In 1996, four employees were in vocational rehabilitation and 65 participated in light-duty programs No statistically valid conclusions can yet be reached from these figures.

As the carve-out program works through its fourth year, it continues to be a program of limited size. Total aggregate incurred costs rose slightly, while hours worked and total payroll went down. The number of claims fell, with most of the reduction due to decreases in the number of medical only claims. The number of claims regarding the program filed with the WCAB went up considerably, while numbers of cases going to mediation and arbitration stayed low.

There continues to be limitations on the ability to evaluate the program because required data comes in very early in the life of the claim, and is not updated. Therefore, the figures reported here should be used as a jumping off point for further research. Future legislative and regulatory changes should consider the reporting of followup data for at least 2 years after the initial report to see if the apparent cost reductions hold up over time.
 

Appendix 1

Labor Code Section 3201.5

3201.5. (a) Except as provided in subdivisions (b) and (c), the Department of Industrial Relations and the courts of this state shall recognize as valid and binding any provision in a collective bargaining agreement between a private employer or groups of employers engaged in construction, construction maintenance, or activities limited to rock, sand, gravel, cement and asphalt operations, heavy-duty mechanics, surveying, and construction inspection and a union that is the recognized or certified exclusive bargaining representative that establishes any of the following:
(1) An alternative dispute resolution system governing disputes between employees and employers or their insurers that supplements or replaces all or part of those dispute resolution processes contained in this division, including, but not limited to, mediation and arbitration. Any system of arbitration shall provide that the decision of the arbiter or board of arbitration is subject to review by the appeals board in the same manner as provided for reconsideration of a final order, decision, or award made and filed by a workers' compensation judge pursuant to the procedures set forth in Article 1 (commencing with Section 5900) of Chapter 7 of Part 4 of Division 4, and the court of appeals pursuant to the procedures set forth in Article 2 (commencing with Section 5950) of Chapter 7 of Part 4 of Division 4, governing orders, decisions, or awards of the appeals board. The findings of fact, award, order, or decision of the arbitrator shall have the same force and effect as an award, order, or decision of a workers' compensation judge. Any provision for arbitration established pursuant to this section shall not be subject to Sections 5270, 5270.5, 5271, 5272, 5273, 5275, and 5277
(2) The use of an agreed list of providers of medical treatment that may be the exclusive source of all medical treatment provided under this division
(3) The use of an agreed, limited list of qualified medical evaluators and agreed medical evaluators that may be the exclusive source of qualified medical evaluators and agreed medical evaluators under this division. (4) Joint labor management safety committees
(5) A light-duty, modified job or return-to-work program
(6) A vocational rehabilitation or retraining program utilizing an agreed list of providers of rehabilitation services that may be the exclusive source of providers of rehabilitation services under thisdivision
(b) Nothing in this section shall allow a collective bargaining agreement that diminishes the entitlement of an employee to compensation payments for total or partial disability, temporary disability, vocational rehabilitation, or medical treatment fully paid by the employer as otherwise provided in this division. The portion of any agreement that violates this subdivision shall be declared null and void. (c) Subdivision (a) shall apply only to the following:
(1) An employer developing or projecting an annual workers' compensation insurance premium, in California, of two hundred fifty thousand dollars ($250,000) or more, or any employer that paid an annual workers' compensation insurance premium, in California, of two hundred fifty thousand dollars ($250,000) in at least one of the previous three years
(2) Groups of employers engaged in a workers' compensation safety group complying with Sections 11656.6 and 11656.7 of the Insurance Code, and established pursuant to a joint labor management safety committee or committees, which develops or projects annual workers' compensation insurance premiums of two million dollars ($2,000,000)or more
(3) Employers or groups of employers that are self-insured in compliance with Section 3700 that would have projected annual workers' compensation costs that meet the requirements of, and that meet the other requirements of, paragraph (1) in the case of employers, or paragraph (2) in the case of groups of employers
(4) Employers covered by an owner or general contractor provided wrap-up insurance policy applicable to a single construction site that develops workers' compensation insurance premiums of two million dollars ($2,000,000) or more with respect to those employees covered by that wrap-up insurance policy
(d) Employers and labor representatives who meet the eligibility requirements of this section shall be issued a letter by the administrative director advising each employer and labor representative that, based upon the review of all documents and materials submitted as required by the administrative director, each has met the eligibility requirements of this section
(e) The premium rate for a policy of insurance issued pursuant to this section shall not be subject to the requirements of Section 11732 or 11732.4 of the Insurance Code
(f) No employer may establish or continue a program established under this section until it has provided the administrative director with all of the following:
(1) Upon its original application and whenever it is renegotiated thereafter, a copy of the collective bargaining agreement and the approximate number of employees who will be covered thereby
(2) Upon its original application and annually thereafter, a valid and active license where that license is required by law as a condition of doing business in the state within the industries set forth in subdivision (a) of Section 3201.5
(3) Upon its original application and annually thereafter, a statement signed under penalty of perjury, that no action has been taken by any administrative agency or court of the United States to invalidate the collective bargaining agreement
(4) The name, address, and telephone number of the contact person of the employer
(5) Any other information that the administrative director deems necessary to further the purposes of this section
(g) No collective bargaining representative may establish or continue to participate in a program established under this section unless all of the following requirements are met:
(1) Upon its original application and annually thereafter, it has provided to the administrative director a copy of its most recent LM-2 or LM-3 filing with the United States Department of Labor, along with a statement, signed under penalty of perjury, that the document is a true and correct copy
(2) It has provided to the administrative director the name, address, and telephone number of the contact person or persons of the collective bargaining representative or representatives
(h) Commencing July 1, 1995, and annually thereafter, the Division of Workers' Compensation shall report to the Director of the Department of Industrial Relations the number of collective bargaining agreements received and the number of employees covered by these agreements
(i) By June 30, 1996, and annually thereafter, the Administrative Director of the Division of Workers' Compensation shall prepare and notify Members of the Legislature that a report authorized by this section is available upon request. The report based upon aggregate data shall include the following:
(1) Person hours and payroll covered by agreements filed
(2) The number of claims filed
(3) The average cost per claim shall be reported by cost components whenever practicable
(4) The number of litigated claims, including the number of claims submitted to mediation, the appeals board, or the court of appeals
(5) The number of contested claims resolved prior to arbitration
(6) The projected incurred costs and actual costs of claims
(7) Safety history.
(8) The number of workers participating in vocational rehabilitation
(9) The number of workers participating in light-duty programs
The division shall have the authority to require those employers and groups of employers listed in subdivision (c) to provide the data listed above.
(j) The data obtained by the administrative director pursuant to this section shall be confidential and not subject to public disclosure under any law of this state. However, the Division of Workers' Compensation shall create derivative works pursuant to subdivisions (h) and (i) based on the collective bargaining agreements and data. Those derivative works shall not be confidential, but shall be public. On a monthly basis the administrative director shall make available an updated list of employers and unions entering into collective bargaining agreements containing provisions authorized by this section
 

Appendix 2

Chapter 4.5. Division of Workers' Compensation
Subchapter 1.8. Collective Bargaining Agreements Under Labor Code Section 3201.5

As used in this subchapter:
(a) "Employee" means an employee actually engaged in construction, construction maintenance, or activities limited to rock, sand, gravel, cement and asphalt operations, heavy-duty mechanics, surveying, and construction inspection in California.
(b) "Employer" means a private employer or group of employers actually engaged in construction, construction maintenance, or activities limited to rock, sand, gravel, cement and asphalt operations, heavy-duty mechanics, surveying, and construction inspection in California. A public entity may be a member of a group of employers.
(c) "Provision of a collective bargaining agreement" under Labor Code section 3201.5 (or "3201.5 provision") means a provision, clause, addendum, or other section of a collective bargaining agreement that establishes or would establish any program permitted under Labor Code section 3201.5(a). Such a program shall be maintained solely for the purpose of complying with the requirements of Division 4 the Labor Code and shall be administered separately from any other employee benefit plan.
(d) "Union" means a bona fide labor organization that is the recognized or certified exclusive bargaining representative of the employees of an employer. A labor organization is bona fide under this regulation if:
(1) it actually represents employees engaged in construction, construction maintenance, or activities limited to rock, sand, gravel, cement and asphalt operations, heavy-duty mechanics, surveying, and construction inspection in California as to wages, hours and working conditions,
(2) its officers have been elected by secret ballot or otherwise in a manner consistent with federal law, and
(3) it is free of domination or interference by any employer and has received no improper assistance or support from any employer.
NOTE: Authority cited: Sections 133, 3201.5 and 5307.3, Labor Code. Reference: Section 3201.5, Labor Code.
HISTORY
1. New subchapter 1.8 and section filed 8-8-95; operative 8-8-95. Submitted to OAL for printing only pursuant to Government Code section 11351 (Register 95, No. 32).

§10201. Procedure for Determining Eligibility.

(a) Every employer and union proposing to establish any program permitted by Labor Code section 3201.5 shall jointly request the Administrative Director to determine eligibility, as follows:
(1) Employers shall submit the following documents:
(A) Upon its original application and whenever it is renegotiated thereafter, a copy of the underlying collective bargaining agreement and the approximate number of employees who will be covered thereby. The collective bargaining agreement shall be complete, including side letters and all appendices and other documents referred to in the agreement that relate to the program permitted by Labor Code section 3201.5, including but not limited to trust agreements and agreements concerning providers. If the application is on behalf of a group of employers, the application shall clearly define the group and shall state whether all the members of the group are bound by the 3201.5 provision, or whether each member must individually agree to be bound.
(B) Upon its original application and annually thereafter, evidence of a valid and active license where that license is required by law as a condition of doing business in the state within the industries set forth in subdivision (a) of Section 3201.5.
(C) Upon its original application and annually thereafter, a statement signed under penalty of perjury, that no action has been taken by any administrative agency or court of the United States to invalidate the collective bargaining agreement.
(D) Upon its original application and annually thereafter, the name, address, and telephone number of the contact person of the employer.
(E) Upon its original application and annually thereafter, evidence that the employer is actually engaged in construction, construction maintenance, or activities limited to rock, sand, gravel, cement and asphalt operations, heavy-duty mechanics, surveying, or construction inspection in California, or has a plan for immediate engagement in one of those businesses.
(F) Upon its original application and annually thereafter, evidence that the employer:
(i) is developing or projecting an annual workers' compensation insurance premium, in California, of two hundred fifty thousand dollars ($250,000) or more, or has paid an annual workers' compensation insurance premium, in California, of two hundred fifty thousand dollars ($250,000) in at least one of the previous three years; or
(ii) is a group of employers engaged in a workers' compensation safety group complying with Sections 11656.6 and 11656.7 of the Insurance Code, and established pursuant to a joint labor management safety committee or committees, which develops or projects annual workers' compensation insurance premiums of two million dollars ($2,000,000) or more; or
(iii) is an employer or group of employers that is self-insured in compliance with Section 3700 that has projected annual workers' compensation costs that meet the requirements of, and that meet the other requirements of, paragraph (i) in the case of employers, or paragraph (ii) in the case of groups of employers; or
(iv) is an employer, who is properly signatory to a project agreement, and is covered by an owner or general contractor provided wrap-up insurance policy applicable to a single construction site that develops workers' compensation insurance premiums of two million dollars ($2,000,000) or more with respect to those employees covered by that wrap-up insurance policy.
Every member of a group of employers must maintain separately administered workers' compensation insurance of a self-insurance program distinct from all other types of insurance. Every member must maintain this insurance or self-insurance in one of the ways enumerated in Labor Code section 3700; but it is not necessary that all members maintain insurance or a self-insurance program in the same way. Every member must meet one of the minimum premium or cost requirements listed in paragraphs (i) through (iv) above.
(G) Upon its original application and annually thereafter a statement that it is able and willing to supply the data required by Labor Code section 3201.5(i).
(H) If the application is on behalf of a group of employers, evidence that:
(i) membership in the group is limited to employers that meet all the criteria of Labor Code section 3201.5 and these regulations;
(ii) the group shall, on behalf of its individual members, provide the data required by Labor Code section 3201.5(i);
(iii) the group shall maintain records of its membership satisfactory to the Administrative Director for the purpose of readily ascertaining the facts required by Section 10202(c). Membership records shall include evidence of security for the payment of compensation for each member, including the insurance policy number, or a copy of the certificate of self-insurance issued pursuant to Labor Code section 3700. Membership records shall also include the approximate number of employees for each individual member of the group who is bound by the collective bargaining agreement. Copies of membership records shall be delivered to the Administrative Director on request.
(2) Unions shall submit the following documents:
(A) Upon its original application and annually thereafter, a copy of its most recent LM-2 or LM-3 filing with the United States Department of Labor, along with a statement, signed under penalty of perjury, that the document is a true and correct copy.
(B) Upon its original application and annually thereafter, the name, address, and telephone number of the contact person or persons of the collective bargaining representative or representatives.
(c) Upon its original application and annually thereafter evidence that the union is a bona fide labor organization in that:
(i) it actually represents employees engaged in construction, construction maintenance, or activities limited to rock, sand, gravel, cement and asphalt operations, heavy-duty mechanics, surveying, and construction inspection in California as to wages, hours and working conditions,
(ii) its officers have been elected by secret ballot or otherwise in a manner consistent with federal law, and
(iii) it is free of domination or interference of any employer and has received no improper assistance or support from any employer.
It will be presumed that a union is bona fide if for a period of five years it has actually entered into collective bargaining agreements with employers in California and has filed all appropriate reports with the United States Department of Labor in that period. If a union is not presumed to be bona fide, it shall present evidence satisfactory to the Administrative Director that it meets the criteria of a bona fide labor organization.
(3) Any person may submit documents to the Administrative Director that bear on the eligibility of an applicant. Copies of all such documents received shall be sent to the applicants for comment.
(b) [Reserved for regulation relating to confidentiality]
(c) Issuance of a Letter of Eligibility
Within 30 days after receiving an application, the Administrative Director shall notify the applicants that the application is complete or shall specify what further information is needed to complete the application. Within 30 days after the time an application is completed, the Administrative Director shall either (1) issue a letter of eligibility, or (2) deny eligibility. If eligibility is denied, the Administrative Director shall inform the parties of the reasons therefor. For good cause and upon written notice to the applicants, the Administrative Director may extend the periods of notification for an additional 30 days.
(d) Period of Eligibility
The letter of eligibility shall state the beginning date of eligibility, which shall be no earlier than 15 days before the parties submitted their request to the Administrative Director under this section. A letter of eligibility shall remain valid for the same period as the 3201.5 provision of the collective bargaining agreement, but no longer then three years from the date of issuance of the letter. Upon the effective date of this regulation, the Administrative Director shall re-issue letters of eligibility to parties which have already received them.
NOTE: Authority cited: Sections 133, 3201.5 and 5307.3, Labor Code. Reference: Section 3201.5, Labor Code.
HISTORY
1. New section filed 8-8-95; operative 8-8-95. Submitted to OAL for printing only pursuant to Government Code section 11351 (Register 95, No. 32).

§10202. Effect of Letter of Eligibility.

(a) A letter of eligibility is a determination by the Administrative Director that the parties meet the eligibility requirements of Labor Code section 3201.5. A letter of eligibility is not a determination by the Administrative Director that the collective bargaining agreement or any part of it is in compliance with Labor Code section 3201.5.
(b) A 3201.5 provision is valid and binding only if there was a letter of eligibility in effect at the time of inquiry.
(c) A letter of eligibility issued to a group of employers shall be valid as to an individual member of the group if all the following facts are established as of the time the provision is alleged to be in effect and at the time of injury:
(1) the group of employers possessed a current letter of eligibility;
(2) the individual employer was a member of the group;
(3) the individual employer had signed the 3201.5 provision;
(4) the individual employer was actually engaged in construction, construction maintenance, or activities limited to rock, sand, gravel, cement and asphalt operations, heavy-duty mechanics, surveying, or construction inspection in California and possesses a valid and active license as required by Labor Code section 3201.5(a); and
(5) the individual employer was is compliance with Labor Code Section 3201.5(c).
NOTE: Authority cited: Sections 133, 3201.5 and 5307.3, Labor Code. Reference: Section 3201.5, Labor Code.
HISTORY
1. New section filed 8-8-95; operative 8-8-95. Submitted to OAL for printing only pursuant to Government Code section 11351 (Register 95, No. 32).

§10203. Reporting Data.

(a)(1) On or before March 31 of every year, every employer that has received a letter of eligibility shall file a report on a form prescribed by the administrative director containing the information specified in subsection (b) for the previous calendar year.
(2) Groups of employers shall report the information required by this section on behalf of its members. The information shall be reported as to every individual employer covered by the 3201.5 provision. Groups shall also report aggregated figures for all employers in the group covered by the 3201.5 provision.
(b) The report shall contain the following information:
1. The name of the individual employer and the union.
2. The principal business of the employer.
3. The dates the 3201.5 provision were in effect during the previous calendar year.
4. The name of the insurer, if any, and the insurance policy number.
5. The name, address and telephone number of any administrator, ombudsperson, mediator or arbitrator employed in an alternative dispute resolution system.
6. Hours worked by covered employees, reported by trade or craft.
7. Payroll in accordance with the rules of the Workers' Compensation Insurance Rating Bureau [WCIRB]. Payroll shall be reported by class code as set by the WCIRB.
8. The number of claims filed in the previous calendar year pursuant to Labor Code section 5401. The claims shall be reported in the following categories:
A. The number of claims that were medical only. As to those claims, there shall also be a report on the total amount of paid costs and the total amount of incurred costs.
B. The number of claims that included a claim for indemnity. As to those claims, there shall also be a report on total amount of paid costs and total amount of incurred costs in each of the following categories: temporary disability, permanent disability, life pensions, death benefits, vocational rehabilitation, medical services, and medical-legal expenses.
9. The number of claims filed pursuant to Labor Code section 5401 in the previous calendar year that were resolved and the number that remained unresolved on December 31 of the previous calendar year. These numbers together should equal the total number reported in sub-section (8) above. For the purpose of this section, "resolved" means one in which ultimate liability has been determined, even though payments may be made beyond the reporting period.
10. Of the claims that were filed and resolved in the previous calendar year, the number that were resolved with a denial of compensability.
11. Of the claims that were filed and resolved in the previous calendar year, the number that were resolved before mediation, at or after mediation, at or after arbitration, at or after the appeals board, and at or after the court of appeals.
12. [For future use -- to report resolution of claims filed in one calendar year but resolved in a later year.]
13. The title and number of every application filed with the appeals board in the previous calendar year concerning a claim alleged by any party to fall within the 3201.5 provision, regardless of whether the employee had the right to file such an application.
14. The title and court number of every civil action, including petitions for writs and injunctions in any court, state or federal, filed in the previous calendar year, that concerned a claim alleged by any party to fall within the 3201.5 provision.
15. The number of injuries and illnesses reported on the United States Department of Labor OSHA Form No. 200 for those employees covered by the 3201.5 provision. The same number multiplied by 200,000 and divided by hours worked (as reported in sub-section 6 above).
16. The number of employees covered by the 3201.5 provision who participated in vocational rehabilitation.
17. If the 3201.5 provision established a light-duty program, the number of employees who participated in that program.
(c) In addition to the data above, the employer may include in its report any explanatory material, narrative account, or comment that the employer believes is necessary to understand the data.
(d) The data obtained by the Administrative Director pursuant to Section 10203 shall be confidential and not subject to public disclosure under any law of this state. However, the Division of Workers' Compensation may create derivative works based on the collective bargaining agreements and data. Those derivative works shall not be confidential, but shall be public.
NOTE: Authority: Sections 133, 3201.5, 5307.3, Labor Code. Reference: Section 3201.5, Labor Code.
HISTORY
1. New section filed 2-14-96; operative 2-14-96. Submitted to OAL for printing only pursuant to Government Code section 11351 (Register 96, No. 7).
2. Amendment of subsections (a)(1), (b)3., (b)8., (b)9.-11. and (b)13.-15. filed 12-27-96; operative 12-27-96. Submitted to OAL for printing only pursuant to Government Code section 11351 (Register 96, No. 52).

§10204. Annual Reports.

(a) On or before March 31 of every year, the parties shall submit updated copies of the documents and other evidence required by Section 10201. However, if certain documents and other evidence are completely unchanged since the previous submission, the party responsible for submitting the annual update may instead submit a statement under penalty of perjury that there has been no change in the document or evidence since the previous submission. The Administrative Director may nonetheless require any party to submit the actual documents or evidence.
(b) If the parties have not submitted the updated documents required by this section, or if the employer has not timely submitted the data required by Section 10203 the Administrative Director may after notice and an opportunity to respond revoke a letter of eligibility or take such other steps as he or she deems necessary to secure the parties' compliance with reporting requirements.
NOTE: Authority cited: Sections 133, 3201.5 and 5307.3, Labor Code. Reference: Section 3201.5, Labor Code.
HISTORY
1. New section filed 8-8-95; operative 8-8-95. Submitted to OAL for printing only pursuant to Government Code section 11351 (Register 95, No. 32).
2. Amendment of subsection (a) filed 2-14-96; operative 2-14-96. Submitted to OAL for printing only pursuant to Government Code section 11351 (Register 96, No. 7).
 

Footnotes:
1 1Based on eleven active carve-out programs reporting 1997 activity
2 200,000 person hours = 100 full-time employees.
3 In California, an indemnity claim involves lost time of 3 days or more.
4 Incurred loss = amount paid out plus any amount reserved to pay over the life of the claim.
5 In California an indemnity claim means a claim involving lost-time of at least three days.
6 Based on annual reports submitted by all eleven active and reporting carve-out programs.
7 For instance, NECA employers enrolling in the carveout program authorized the administering insurer to assess and transmit to the labor-management trust a fee of 2% of premium earned by the carrier. In the case of the Southern California Carpenters carveout, the employer agreed to contribute to the trust a sum of seven cents per hour worked by employees performing work under the agreement.
8 A report analyzing longer term experience of the carveout programs is being done by UC-Berkeley and Stanford University for the Commission on Health and Safety and Workers' Compensation. Using data obtained from the Workers' Compensation Insurance Rating Bureau for a subset of carveout programs, this report attempts to quantify the changes in incurred costs over time.
9 To protect the confidentiality of the programs, individual payroll and incurred losses for each program are not shown. The figures in the expected losses column (7) are based on the WCIRB pure premium rates published in the California Workers' Compensation Uniform Statistical Reporting Plan -- 1997. Expected losses are calculated for each program by weighting the payroll in each job classification and multiplying by the pure premium. For example, if a particular carve-out program had 60%of its payroll in Classification X, with a WCIRB pure premium of 3.00,and 40% of its payroll in Classification Y, with a pure premium of 10.00,the weighted average for that program would be (.60)(3.00) + (.40)(10.00)= 5.80. WCIRB pure premium rates include "loss adjustment expenses "of 20.1%. Deducting this 20.1% from the weighted average leaves a figure representing expected losses. The figure shows the expected incurred losses per $100 in payroll. In our hypothetical example, this would be (.799)(5.80)= 4.63. For every $100 in payroll in our example, one would expect $4.63in incurred losses.
10 See California Workers' Compensation Uniform Statistical Reporting Plan -- 1997.
11 1Loss adjustment expenses = the insurer's average costs for handling a claim.
12 This area is addressed in the CHSWC report.