IR # 96-39
Friday, September 27,1996

Rick Rice
Troy Swauger
(415) 972-8835

DWC Reports on Construction Industry "Carve-Out" Programs

SAN FRANCISCO--The Department of Industrial Relations' Division of Workers' Compensation has issued its first report on a unique state program which allows unions and employers in the construction industry to create alternatives to the traditional workers' compensation system through the collective bargaining process.

In announcing the report, DIR Director Lloyd W. Aubry, Jr., expressed optimism about the new program, which allows labor-management agreements commonly known as carve-outs. The first carve-out went into effect at the end of 1994, and the program is considered one of the more innovative elements in the state's workers' compensation reform efforts.

"Although the program is still new, and the data we have collected to date is still very limited," Aubry said, "it does appear that the first approved carve-outs have resulted in low losses as well as reduced litigation for the participants. We're hopeful, based on these early results, that this approach may prove to be a successful and equitable alternative for construction industry employers and workers, and that it can be expanded into other industries as well."

Two key elements of carve-out programs are that they allow collective bargaining agreements to establish exclusive lists of medical providers to treat on the job injuries, and they establish alternative dispute resolution systems that may preclude the need to litigate disputed claims before the Workers' Compensation Appeals Board.

The report shows that a total of eight carve-out programs have been approved by the Administrative Director of the Division of Workers' Compensation, Casey L. Young, since October 1994.

Young issued one letter of eligibility in 1994, six more in 1995 and one so far in 1996. The report covers the six programs that were active in calendar year 1995, which included 242 employers, 6,885,221 work hours and 543 workers' compensation claims. Aggregate incurred loses for these claims totaled $3,634,952, according to Young.

Incurred losses per $100 of payroll averaged $2.31, he said, pointing out that expected losses as calculated by the insurance industry for typical contractors on these types of projects would have averaged $3.92 per $100 of payroll.

The carve-out program for the construction industry was created by Labor Code Section 3201.5, one section of which requires the Administrative Director of the Division of Workers' Compensation to report annually to the Legislature on the activities of the program.

Copies of the 1995 annual report are available by writing to the California Division of Workers' Compensation, P.O. Box 420603, San Francisco, CA 94142. It will also be available online at DWC's World Wide Web site, accessible from the DIR home page at

NOTE TO EDITORS: A list of participants who may be contacted for further information appears below.

Please feel free to contact any of the above for detailed information on their individual programs.