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2008 ANNUAL REPORT
THE INDUSTRIAL COMMISSION OF ARIZONA

Chairman Brian C. Delfs Vice Chairman Joe Gosiger Commissioner Louis W. Lujano, Sr. Commissioner Marcia Weeks Commissioner John A. McCarthy, Jr. Laura L. McGrory, Director

TABLE OF CONTENTS

INTRODUCTION ............................................................................................................................... 1 LABOR DEPARTMENT .................................................................................................................... 2 CLAIMS DIVISION ............................................................................................................................ 3 ADMINISTRATIVE LAW JUDGE DIVISION (ALJ) ..................................................................... 4 ARIZONA DIVISION OF OCCUPATIONAL SAFETY AND HEALTH (ADOSH) ..................... 6 SPECIAL FUND ................................................................................................................................. 8 LEGAL DIVISION.............................................................................................................................10 DIVISION OF ADMINISTRATION ............................................................................................... 11 CURRENT EVENTS ........................................................................................................................ 13 CHARTS............................................................................................................................................ 14

INTRODUCTION The Industrial Commission of Arizona (ICA) is a regulatory agency that was created in 1925 as a result of legislation implementing the constitutional provisions establishing a workers' compensation system. From 1925 to 1969, the workers' compensation system consisted of the State Compensation Fund, which was then a part of the Industrial Commission, and self-insured employers which generally were the mining and the railroad companies. In 1969 the workers' compensation system was reorganized and expanded to include private insurance companies. The State Compensation Fund was split off from the Industrial Commission and established as a separate agency responsible for providing workers' compensation insurance coverage. The Industrial Commission retained its responsibility as the file of record and its regulatory authority over the processing of workers' compensation claims. Since that time, the role of the Industrial Commission has been expanded to cover other labor related issues such as occupational safety and health, youth employment laws, resolution of wage related disputes, minimum wage, vocational rehabilitation, workers' compensation coverage for claimants of uninsured employers, insolvent insurance carriers and self-insured employers. The policy setting body for the ICA is a five member Commission whose members are appointed by the Governor and confirmed by the Senate to staggered five year terms. The Commission oversees an Agency with approximately 322 employees and an operational budget of approximately $19.8 million. As a non-general fund agency, the Industrial Commission is funded by an annual tax on workers' compensation premiums that cannot exceed 3%. The tax rate for 2007 was 3% and remained the same for 2008.

The mission statement of the Industrial Commission is to efficiently administer and effectively enforce all applicable laws and regulations not specifically delegated to others, relative to the protection of life, health, safety and welfare of employees within the State. Its purpose and objectives are accomplished through seven major divisions which are set out separately in this document.

1

LABOR DEPARTMENT Randall Maruca, Director The Labor Department is a Department that has had a dramatic change in responsibilities over the years. For example, in the 1930's, it was responsible for establishing minimum wages, hours of operations for the railroads, and later enforced the payment of appropriate wages on public works projects within the state. Today, the Labor Department essentially conducts 100% of its activities in four specific areas: youth employment law enforcement, minimum wage law enforcement, resolutions of disputes involving wages, and regulating private employment agencies that charge fees to applicants (these include placement agencies, career counseling firms, modeling and talent firms and sitting services).
YOUTH EMPLOYMENT LAW ENFORCEMENT

RESOLUTION OF WAGE DISPUTES

When a wage owed to an employee is no more than $2,500 and the accrual of those unpaid wages do not exceed one year, then an employee may file a wage claim with the State Labor Department or with the Small Claims Court. Upon receipt of a claim, the Labor Department will notify the employer of the claim and investigate the allegations. The Labor Department will provide a written determination which can be appealed to Superior Court. An employer who does not comply with a Final Order within ten days after the Order becomes final is liable to pay the employee treble the amount of the unpaid wages found to be owed. While every effort is made to resolve the dispute, in some cases there is insufficient information to make a determination. In those cases, a claimant has the right to file a civil action in Justice or Small Claims Court.
FY06 FY07 FY08

Arizona's youth employment laws, which establish the hours a youth can work and prohibit occupations in which they can be employed, are very similar to those on the federal level. The Labor Department utilizes information gathered from the ICA's Claims Division to review and investigate workers' compensation claims involving minors, receives and investigates information from other governmental organizations and complaints filed by the public.
FY06 FY07 FY08

Num ber of Wage Claim s Fil ed / Investigated

2864

2943

3295

MINIMUM WAGE LAW ENFORCEMENT

Number of Injury Reports Involving Minors and Complaints Received Number of Youth Employees Violations Confirmed

1200

1238

1297

52

65

45

Arizona employers are required to pay employees no less than the minimum wage. Any person may file an administrative complaint with the State Labor Department if they are not receiving the minimum wage or have been retaliated against for asserting any claim or right under the Minimum Wage Act. Upon receipt of an alleged violation, the Department will notify the concerned employer and investigate the allegations. Civil penalties can be assessed for violations of the Act. Upon determination that wages or penalties are due and unpaid to the employee, the Department may obtain judgement and execution, garnishment, attachments, or other remedies for collection. The Labor Department will provide a written determination, 2

which can be appealed to the Administrative Law Judge Division of the Commission. The Department may mediate and conciliate any dispute between the parties.
FY07 Number of Minimum Wage Inquiries Number of Minimum Wage Complaints Filed Complaints Resolved Violations Issued Average Months to Complete Investigation On-site Audits and Reviews Completed 1786 21 5 12 1.6 8 FY08 1620 58 15 41 1.7 42

CLAIMS DIVISION Noreen Thorsen, Manager Unlike the other Divisions, the historical role of the Claims Division has remained unchanged. Since 1925, the Claims Division has been the file of record for approximately 6 million workers' compensation claims files. Claims are received by the Claims Division from attending physicians and injured workers. The Claims Division, in turn, notifies the appropriate insurance carrier/third party processing agent or self-insured employer so that they can appropriately process the claim. The historical number of claims processed in the last three years are as follows:
FY06 FY07 FY08

LICENSED & REGULATED AGENCIES

Under Arizona law, private employment agencies that charge a fee to an applicant are licensed and regulated by the Labor Department.The Industrial Commission's Employment Advisory Council and the Labor Department investigate the background of each firm applying for a license. Based on their investigation, they recommend approval or denial of a license to the Commission. The Industrial Commission administratively approves or denies the license. An appeal of that administrative decision is made before the five member Commission through an administrative hearing. The Commission's decision is appealable to the Superior Court. Number of Licensed Agencies
FY06 Career Counseling Firms Model & Talent Agencies General Agencies Sitter/Nanny Agencies Domestic Help Agencies 24 23 2 1 1 FY07 27 26 4 2 1 FY08 26 26 4 2 1

Number of Clai m s Processed

131904

121699

122101

Total

52

60

59

In addition to being a file of record, we now have 40 million stored documents on our optical disc system. The Claims Division is responsible for ensuring that the 550 insurance carriers/third party processors and 100 self-insured employers process workers' compensation claims in accordance with existing statutes and rules. The Claims Division, in addition to answering approximately 150,000 telephone inquiries per year, is responsible for processing approximately 6,000 documents per day and making in excess of 31,000 determinations annually that are subject to judicial review. Some of those determinations involve a variety of issues such as allegations of bad faith, awards for facial scaring and loss of teeth, approvals or denials of requests to leave the state, approvals or denials of requests to change physicians, etc. A historical perspective for some of those determinations are as follows:

3

AVERAGE MONTHLY WAGE AWARDS

OMBUDSMAN

The Claims Division establishes the average monthly wage for claimants who have been injured in excess of seven days. The number of wage awards for the last three fiscal years are as follows:
FY0 6 FY07 FY08

Num b er of Wag e Awa rd s

1 41 84

18 45 1

19 12 3

In 1988 the Industrial Commission's Ombudsman's Office was created by statute to provide assistance to injured workers in resolving difficulties encountered during the processing of their workers' compensation claims. The Ombudsman's Office intercedes on behalf of an injured worker to ensure that the worker receives benefits to which the worker is entitled under the law. Personnel in the Ombudsman's Office do not provide legal advice nor do they participate in legal proceedings. A historical perspective of the number of claimants that have received assistance are listed as follows:
FY06 FY07 FY08

LOSS OF EARNING CAPACITY AWARDS

The Claims Division is responsible for determining the "loss of earning capacity" (LEC) for claimants who have incurred a permanent impairment that results in an unscheduled injury. The number of "LEC" awards for the past three fiscal years are as follows:
FY06 FY07 FY08

Num ber of Cl ai m ants Assi sted

2852

2493

2665

ADMINISTRATIVE LAW JUDGE DIVISION (ALJ) Harriet Turney, Chief Judge The ALJ Division is the administrative tribunal of the Industrial Commission. Its mission is to resolve all disputes coming before it efficiently and equitably. The ALJ Division has jurisdiction over disputes that arise under the Arizona Workers' Compensation Act and the Occupational Health and Safety Act (OSHA). It is also authorized to resolve disputes referred from the Department of Labor in the areas of youth employment and minimum wage, though none have arisen in the most recent fiscal year. When fully staffed, the ALJ Division employs 17 ALJs in Phoenix and four in Tucson. In FY 2008, the Phoenix office had two ALJ vacancies. ALJs are active members of the State Bar of Arizona, with a minimum of five years' experience in workers' compensation, labor and employment, or a related field. They are supported by legal secretaries who serve as 4

Number of LEC Awards

2385

2410

2661

The Commission's ability to effectively monitor claims activity and process the large volume of data has been due in large part to the Commission's computer system. In 1991 the Claims Division became the first state workers' compensation program to utilize optical disk technology and go to a paperless system. This technology, which is used in conjunction with new computer software, allows for greater productivity and instant access to claims information. With this system, more than one person can access a file at the same time, and telephone inquiries can be answered immediately. Based upon the ICA's Claims Division's success, a number of other states have adopted this technology.

judicial assistants with responsibility for the administration of the judges' dockets. The legal secretaries and division clerks also provide information and assistance to parties, attorneys, and members of the public. Most of the cases referred to the division are in the area of workers' compensation. In the most recent year for which statistics are available (FY 2008), 6783 workers' compensation claims were referred to the ALJ Division for hearing. It received 77 OSHA cases. Workers compensation cases are referred to the ALJ Division from the Claims Division when an interested party (claimant, employer, insurance carrier or Special Fund) requests a hearing on a disputed issue arising in the administration of a claim. Issues include compensability, entitlement to continuing or additional benefits, and loss of earning capacity. Some claims are referred to the ALJ Division multiple times over the life time of the injured worker. An injured worker may seek to reopen a claim years after it has been closed based on a new, additional, or previously undiscovered condition related to the industrial injury. Either the injured worker or the carrier may seek to rearrange permanent disability benefits based on a change in the worker's earning capacity. Since March 2008, the Claims Division refers all requests for investigation pursuant to A.R.S. 231061(J) to the ALJ Division once they have been docketed and a request for response has been forwarded to the carrier. These so-called "J" requests arise whenever it appears that an injured worker has been denied benefits to which the worker is entitled. They may involve issues on either open or closed claims, such as failure to authorize active or supportive care, failure to reimburse travel expenses, or failure of a carrier to produce its file upon request. Upon referral, the Chief ALJ monitors the "J" files which, if not informally resolved, may require an expedited hearing. When appropriate, clarification, additional information or documentation is requested to further the investigation and determine whether a hearing is needed. Response to this change in the processing of "J" requests has been positive. 5

OSHA cases are referred to the ALJ Division from the Arizona Department of Occupational Safety and Health (ADOSH). Disputes arise when a citation has been issued and the employer protests the action taken by ADOSH. Except for "J" requests that require expedited scheduling, hearings in all other cases (workers' compensation and OSHA) are usually scheduled within 60-90 days of referral. Most of the hearings are set in Phoenix or Tucson. Approximately seven percent are scheduled elsewhere around the state in such locales as Flagstaff, Prescott, Lake Havasu, Kingman, Yuma, Lakeside-Pinetop, Show Low, Payson, Globe, Casa Grande, Bisbee, Sierra Vista, and Nogales. Prior to the hearing, the parties engage in discovery, such as depositions (oral examination of individuals who have information relevant to the issues), and interrogatories (written questions). Injured workers are often sent for one or more independent medical examinations scheduled by the employer and/ or carrier, and the parties file and exchange medical documents. Workers' compensation cases usually require more than one hearing to obtain all necessary evidence. The claimant and non-expert witnesses, if any, testify at the first or "initial" hearing. Subsequent hearings, known as "further hearings," are scheduled for medical experts and for labor market consultants, where the issue is loss of earning capacity. The limited availability of medical experts can cause delay in scheduling further hearings. It can take several weeks to several months for further hearings to be completed. The ALJ sits as the trier of fact, similar to a superior court judge in a non-jury trial in a civil case. Once the hearings have been completed and any posthearing memoranda filed, the presiding ALJ issues a written decision that contains findings, legal analysis, and an award. In workers' compensation cases, a party disagreeing with the ALJ's decision may file a request for review that is considered by the ALJ who issued the decision upon hearing. Upon receipt of legal memoranda from the parties, the ALJ issues a written decision upon review that may affirm, reverse,

modify and/or supplement the decision upon hearing. If a party disagrees with the decision upon review, the party may file a petition for special action with the Arizona Court of Appeals within thirty days. The parties are given an opportunity to file briefs, and occasionally are allowed to participate in oral argument. The Court of Appeals issues either a memorandum decision or an opinion affirming or setting aside the decision of the ALJ. Further review is discretionary with the Arizona Supreme Court. OSHA hearings follow different procedural rules. They are often completed in one session. The ALJ issues a written decision at the conclusion of the hearing process. A party who is dissatisfied with the decision may request review. Unlike a workers' compensation case, the presiding ALJ does not conduct the review. Instead, the case is referred to the OSHA Review Board. The Arizona Court of Appeals reviews decisions of the review board. Mediation is available as an alternative to the formal hearing process in both OSHA and workers' compensation cases. It has been successfully used to achieve early resolution in complex cases and to craft solutions that might not otherwise be possible in the formal hearing process. Mediation is offered in all OSHA cases referred to the ALJ Division. In workers' compensation cases, the presiding ALJ may suggest mediation or the parties may request it. All parties must agree and all must be represented by counsel. One or more ALJs act as sole or comediators. As a third party neutral, the ALJ mediator does not resolve the issues presented. Rather, the mediator facilitates communication between the parties and helps them work toward a negotiated settlement of their dispute. Mediation is a confidential process. If a dispute is resolved through mediation, the parties execute a settlement agreement that is submitted to the presiding ALJ. If the dispute is not resolved, the case is returned to the hearing process and nothing revealed in the mediation process is disclosed to the presiding ALJ, without the parties' permission. Any notes or memoranda presented to the mediating ALJ are destroyed and the presiding ALJ renders a decision 6

based solely on the record and evidence presented at the hearing. The ALJ Division has developed Frequently Asked Questions for unrepresented injured workers to assist them in preparing for hearing. The FAQs are sent with the Notice of Hearing whenever the claimant is unrepresented. The FAQs are also available on the ICA website, along with a new Video Guide to Workers' Compensation Hearings that addresses all the stages of the hearing process. The video is also available in CD format upon request. Prehearing conferences are scheduled to advise unrepresented injured workers of their rights and responsibilities. These conferences often have the salutary effect of encouraging communication between the parties, which can result in the narrowing of issues and earlier settlement. Timely resolution of all cases continues to be the ALJ Division's top priority. The division is focused on prompt scheduling of initial and further hearings. Requests for continuance are closely scrutinized and granted only for good cause. Telephonic further hearings for medical experts help reduce scheduling delays. Waiver of live medical testimony and reliance on written reports in some cases has eliminated the need for, or reduced the number of, further hearings. Despite staffing shortages, the number of decisions issues more than 60 days after a case has been deemed submitted has been significantly reduced. TheALJ Division monitors the satisfaction level of its customers through a survey process. The anonymous process measures general satisfaction with the administrative hearing process. The division continues consistently to score at least 3.5 on a 5point scale.
FY06 Cases Referred to the Division Hearings Conducted Average Length of Time to Resolve a Case (Days) 6842 FY07 6809 FY08 6783

5542

5226

5157

118

113

109

ARIZONA DIVISION OF OCCUPATIONAL SAFETY AND HEALTH Darin Perkins, Director In 1974 Govenor Jack Williams asserted Arizona's right, under the Federal Occupational Safety and Health Act, to retain jurisdiction over occupational safety and health issues within our state, excluding mining operations, Indian reservations and federal employees. This jurisdiction encompasses approximately 2.8 million employees working in 144,000 public and private establishments. In accordance with the Federal Occupational Safety and Health Act, the Arizona Division of Occupational Safety and Health (ADOSH) operates under an approved plan with the U. S. Department of Labor. In 1985 the U. S. Department of Labor designated (ADOSH) as being one of only 26 states and territories that have programs that are "as effective" as Federal OSHA. Given the large scope of responsibility, ADOSH focuses its efforts in four specific areas: compliance, consultation, elevators and boilers. COMPLIANCE ADOSH's compliance activities consist of conducting unannounced inspections of workplaces throughout Arizona to determine whether employers are complying with the Occupational Safety and Health Act and standards. Inspections may be the result of (1) a work related accident, (2) a complaint, (3) a referral, (4) planned inspection, or (5) a follow-up to ensure that previously cited serious, repeat or willful violations have been corrected. Inspections involving work related accidents are generally serious in nature involving multiple injuries or a fatality. A complaint inspection generally is the result of a serious safety/health allegation or a nonresponse to a written inquiry sent to an employer by ADOSH. A referral generally comes from another government source such as Department of Economic Security's Farmworker Outreach Program, 7

Department of Health Services, Police and Fire Departments. Planned or scheduled inspections are those directed at those employers in high-hazard industries or who have a large number of workers' compensation claims, or higher than average injury and illness rates. ADOSH is the only state or Federal OSHA program in the country that has an independent body, (the Commission) that is separate from the OSHA program, that reviews the appropriateness of ADOSH's penalty proposals and either approves, modifies or disapproves the issuance of penalties for violations of Arizona's Occupational Safety and Health Act. Every Thursday at a public meeting before the Commissioners, a representative from ADOSH presents a prima facie case to the Commissioners as to why a penalty should be assessed. The Commission, as a body, reviews the proposal and either approves, modifies or disapproves the proposed penalties based upon the facts presented. All penalties assessed and collected go directly to the State General Fund.
FY06 Serious Willful and Repeat Violations Total Penalties Assessed 989 FY07 865 FY08 777

1.3

1.97

1.04

* in millions

It is important to note that not all violations or inspections result in penalties. In fact, the majority of violations are other than serious and carry no penalty. In addition, for a significant number of inspections we find no violations and determine that the employer is "in compliance" with the Arizona Occupational Safety and Health Act.
FY0 6 FY07 FY08

No nse ri o us V i o l ati on s

2 79 2

24 26

22 49

In Com p l i a nce % Rate

3 7.1 %

37 %

45 %

CONSULTATION AND TRAINING ADOSH's consultation activities consist of providing free consultative assistance to employers who are requesting assistance in coming into compliance with existing occupational safety and health standards. At the request of an employer, a consultation evaluation may involve an individual operation or an entire workplace. No citations or penalties are issued to employers utilizing consultation services as long as the employer corrects the apparent hazards which are noted as written recommendations in a letter to the employer. Free training programs are also provided by ADOSH to business organizations, labor organizations and individual employers upon request. A film library is also available to individual employers who may wish to check-out films to supplement their own safety and health programs.
FY06 # of Hazards Found During Consultations # of Training Programs # of Employees Trained # of Employers Trained 2036 377 6619 1696 FY07 2467 317 5841 1799 FY08 3249 404 6341 3068
Boi l ers Inspected

FY06

FY07

FY08

1982

1869

1615

Defi ci enci es Noted

148

167

1199

FY06

FY07

FY08

El evators Inspected

4289

4504

5847

Defi ci enci es Noted

1593

2047

5431

SPECIAL FUND David Sosa, Special Fund Monitor The Special Fund is a "trust fund" that was legislatively created in 1969 for the express purpose of providing workers' compensation benefits in the following areas:


providing benefits for uninsured claimants, continuing workers' compensation benefits for claimants of insolvent carriers and bankrupt self-insured employers, partial coverage of workers' compensation benefits for second injury claims, vocational rehabilitation benefits, continuing medical benefits for pre 1973 workers' compensation claimants.

BOILERS AND ELEVATORS Unlike the Arizona Occupational Safety and Health Act, the Boiler and Elevator program is equipment oriented, and not based upon employee exposure. As a result, cease and desist orders are utilized without monetary penalties. Once violations are corrected, certificates of operation are issued allowing the employer to utilize the boiler, elevator or escalator. In the Boiler and Elevator statutes, political subdivisions are allowed to retain jurisdiction if they provide a comparable program. The City of Phoenix has retained jurisdiction over elevators within its boundaries. No other political subdivision has retained jurisdiction for boilers or elevators. 8





Functionally, the responsibilities of the Special Fund have historically been relatively stable. The only significant changes that have occurred dealt with the financing of the Special Fund and the creation of an oversight Investment Committee in 1984. The financial integrity of the Special Fund is overseen by a legislatively created Investment Committee. This Investment Committee consists of a representative from the insurance industry, a

representative of the self insured employers, the Chairman and Director of the Industrial Commission. The Special Fund has $412 million in assets which is comprised of the Industrial Commission offices at 800 W. Washington, Phoenix and 2675 E. Broadway, Tucson, and a mix of bonds, stocks and cash. The Special Fund's investment portfolio consists of 48% bonds, 41% stocks,11% cash and short-term investments. The Special Fund's rate of return over the past five years has ranged from 10.4% for FY04, 7.4% for FY05, 3.5% for FY06, 18.2% for FY07 and -7.31% for FY08. The funding source of the Special Fund has changed dramatically over the years. Originally there were two funding sources: the amount unexpended from a fixed 3% Admin Fund tax on workers' compensation premiums and an additional discretionary workers' compensation Special Fund premium tax of 2%. After a legislative change in 1993, the source of funds is now based upon the Special Fund's investment income and a Special Fund discretionary tax of 1.5%, which was 0% from calendar year 1992 through calendar year 2003. The Commission reviews the tax rate each year and has set the Special Fund Premium Tax rate at 1.5% for calendar year 2009. Effective August 12, 2005, any unexpended Admin Fund tax may be transferred to the Special Fund when the Special fund is not actuarially sound. The Special Fund net asset balance deficit of $38.5 million that was reported last year has been reduced to approximately $17 million for fiscal year 2007/2008. The final net asset number for the Special Fund will be available in May of 2009 at the completion of the audit of the State of Arizona by the Arizona Auditor General and the issuance of the CAFR (Comprehensive Annual Financial Report) for State Fiscal Year 2008. Some examples of operational statistics and their financial impact are as follows:
UNINSURED CLAIMS

violating the law and not providing workers' compensation insurance (no-insurance claims). The historical number of no-insurance awards issued are as follows:
FY 0 6 FY 07 FY0 8

No In su ran ce Award s Issue d

2744

3265

2 74 8

INSOLVENT INSURANCE CARRIERS

The Special Fund is responsible for continuing workers' compensation benefits for those claimants insured by insolvent insurance carriers and bankrupt self-insured employers. The estimated reserves for those claims are as follows: The ten largest carriers
FREMONT COMPANIES 128.9 million RELIANCE INSURANCE 20.9 million LEGION INSURANCE CO 18.8 million GREAT STATES INS. 17.0 million PAULA INS. CO. 16.2 million MISSION INSURANCE CO. 12.1 million SUPERIOR NATIONAL 7.6 million WESTERN EMPLOYER'S INS 6.8 million HOME INSURANCE COMPANY 3.3 million SOUTHWEST SUPERMARKETS 3.0 million ALL OTHER INS. CARRIERS & SELF-INSURED CO. 8.1 million TOTAL OF ALL CLAIMS 242.7 million

VOCATIONAL REHABILITATION

The Special Fund is responsible for providing benefits to injured workers whose employers are

A workers' compensation claimant who as a result of the worker's injury has incurred a permanent impairment that prevents that worker from returning to the worker's date of injury employment and who also has a loss of earning capacity may be eligible for vocational rehabilitation benefits. In 1988 the Commission enhanced its existing vocational rehabilitation efforts by establishing a specific program for injured workers with scheduled injuries. The historical numbers of vocational 9

rehabilitation awards issued are as follows:
FY06 FY07 FY08



# of Rehabi l itati on Awards Issued

151

133

118

Represents the Special Fund in actual/ potential litigation involving most activities of the Special Fund, i.e. uninsured workers'compensation claims, second injury claims, supportive care, and, on occasion, claims involving insolvent carriers/bankrupt self-insured employers. Represents the Arizona Division of Occupational Safety and Health in actual/potential litigation regarding the enforcement of the Arizona Occupational Safety and Health Act. Represents the Labor Division in the enforcement of youth employment matters and wage claim appeals and the regulation of employment agents under the Labor Department's jurisdiction. Provides legal advice to the five member Commission and Division Managers. Represents the agency in personnel matters. Assists Division Managers in the promulgation of rules Ensures that Arizona's employers are providing workers' compensation insurance coverage for their employees. Initiates subrogation of third party no-insurance claims. Operates a program for processing and collection of delinquent accounts.



Our rehabilitation program is focused on providing vocational retraining that will result in meaningful employment. This training includes a variety of college courses to supplement prior education, on the job training where the Special Fund will pay 50% of the salary during training as long as there is a commitment to hire the trainee, and a variety of vocational programs including: bilingual tractortrailer operator, equine instructor, forensics, mortuary science, computer-aided drafting, and pharmacy technicians. For those that are eligible for vocational rehabilitation but are lacking skills to enter a program, the Special Fund offers foundational training in math, reading, and English (ESL) . LEGAL DIVISION Andrew F. Wade, Acting Chief Counsel The Industrial Commission has always had its own legal representation, separate from the Attorney General's Office. In its early years, the Legal Division functioned in a dual role as both hearing officers and legal counsel. With the creation of the Administrative Law Judge Division in 1969, the responsibilities changed and remain the same today. The Legal Division represents the Industrial Commission in the majority of legal matters affecting the Agency. The major responsibilities of the Division are as follows:











A historical perspective of some of the activities of the Legal Division are as follows:
FY06 FY07 FY08

Heari ngs/Legal Proceedi ngs Invol vi ng Speci al Fund and ADOSH

405

405

369

10

INSURANCE COVERAGE

The Legal Division is notified through a variety of sources of those employers who are violating Arizona law by not providing workers' compensation coverage for their employees. The Legal Division investigates each referral and ensures that insurance is obtained.
FY06 FY0 7 FY0 8

efficient and effective operation of the Industrial Commission. The Division provides the following services:
1. 2. 3. 4. 5. 6. Budgeting Accounting Data Processing Purchasing Facilities Management Workers' Compensation Statistical Reporting 7. Printing and Mailing Services 8. Personnel Services 9. Processing & Evaluation of Applications for Self-Insured Employers 10. Federal Grant Administration 11. Special Fund Asset Administration 12. Administration of Assessment on Workforce Compensation Premiums Written.

Insurance Re ferral s

172 1

2 626

2 037

COLLECTIONS

The Legal Division is notified when monies owed as a result of Arizona Division of Occupational Safety and Health citations or uninsured workers' compensation claims are delinquent. The collection of delinquent accounts is either addressed in-house or with outside collection counsel.
FY06 FY07 FY08

A more detailed explanation of some of the services provided by the Division are as follows:
ACCOUNTING SERVICES Gary Norem, Chief Financial Officer

Collection Files Opened

347

427

495

Delinquent Collection Accounts to Outside Counsel

149

176

172

The Legal Division is also involved in a variety of miscellaneous legal matters, e.g. ADOSH discrimination cases, Superior Court injunctive activities, attorney fee petitions and certifications of records to the Court of Appeals. DIVISION OF ADMINISTRATION The Division of Administration was created to provide support services necessary to ensure the

In addition to payment of operational claims and purchase orders, the Division is responsible for prompt payment of monthly or semi-monthly payment of compensation and medical benefits provided to those injured workers receiving benefits under the Special Fund. The Division pays compensation within two days and medical and other service providers are paid within thirty days from receipt of billing. A historical perspective of the number of warrants is provided:
FY06 FY0 7 FY0 8

Che cks Issue d

194 11

2 0253

2 0455

11

The other Division services provided by Accounting are budgeting; administration of the self insured employers program; administration of federal grants; Special Fund asset administration; and the administration of the assessments on workers' compensation premiums written. The self insurance program has over 100 companies and organizations participating in it annually. Accounting is responsible for filing and reviewing the annual premium assessment payment from all the self insured companies and organizations and another 720 insurance companies writing workers' compensation policies in Arizona.

MANAGEMENT INFORMATION SYSTEMS DIVISION (MIS) Star Heilman Chief Information Officer In 1991 the Industrial Commission's Claims Division became the first state workers' compensation system in the country to utilize optical disk imaging. The MIS Division provides programming and support services for a variety of stand alone and integrated systems housed on UNIX and Microsoft platforms. These programs and services interface with the optical disk technology and make available to the agency's divisions information pertinent to administering workers' compensation claims. In addition to developing and maintaining inhouse systems, the Division is responsible for the agency's technology infrastructure; instituting GITA initiatives related to data security, privacy, and Systems Oriented Architecture; working with divisions to develop and make available online informational products; and redeveloping the agency's website to conform to AZ.gov standards.

12

Current Events
In Effect as of December 31, 2008

Larry Etchechury retired from the Industrial Commission after completing 37 years of service with the State of Arizona. For the last 23 years, he served as the Director of the agency. Larry served the Commission with exceptional ability and with the highest integrity. He will be greatly missed, but long remembered. The Commissioners appointed Laura L. McGrory as his successor. Laura has worked in the Commission's Legal Division for 20 years, serving as its Chief Counsel for the last six. The Commission entered 2008 optimistic that it would continue to see the fiscal health of the Special Fund improve. The Special Fund is a trust fund that provides statutorily mandated workers' compensation benefits. The Special Fund also functions as a "guarantee fund" by paying the benefits of workers' compensation claims of insolvent insurance carriers and bankrupt self-insured employers. By way of history, as a result of insurance carrier insolvencies that occurred in the earlier 2000s, the Special Fund's actuarial picture changed from a surplus of $80 million to a deficit of $190 million. By the end of 2007, though, the Special Fund's actuarial deficit had been reduced to $38 million. Encouraged that this recovery would continue, the Commission reduced the Special Fund tax assessment from 2 % to 1 % effective January 1, 2008. Unfortunately, and as a result of the devastating economic/market conditions that occurred later in this year, that deficit has increased to approximately $50 million and is expected to grow as the national

and state economic situation continues to deteriorate in the months to come. The fiscal health of the Special Fund relies, in part, on the collection of tax revenues and investment returns. Although both revenues and investment returns have declined and are expected to continue to decline in the coming year, the Commission did not increase the Special Fund tax assessment for the 2009 calendar year. It remains at 1 %. This was done, in large part, because the Commission recognizes that employers are also struggling in these hard times. While the Commission may need to revisit this issue, it is hopeful that it can weather the storm through 2009 without raising the Special Fund tax. From an operational standpoint, the Commission is also impacted by the fiscal crisis facing the State of Arizona. Although the Commission is a non-general fund agency that is funded though a separate tax assessment (currently 3%), the agency is nevertheless subject to the hiring freeze and spending reductions that have been imposed on general fund agencies. The Legislature continues to look to the Commission's Administrative Fund as a source of revenue and has already swept over $10 million from this fund for FY 08/09. We anticipate that additional funds might be swept to address the continuing budget deficit faced by the State of Arizona. But we are hopeful that we can work with the upcoming Legislature to ensure that such additional sweeps do not jeopardize either the solvency of the Special Fund or the Commission's ability to provide the services and benefits required by statute.

13

CHARTS

14

CHART 1. TAXABLE WORKERS COMPENSATION PREMIUMS REPORTED (IN MILLIONS) ON A CALENDAR YEAR BASIS* (2001 - 2007) $1200 $1000 $800 $600 $400 $200 $0

2001

2002

2003

2004

2005

2006

2007
TOTAL 542 571 672 724 844 946 1057

YEAR 2001 2002 2003 2004 2005 2006 2007

INSURANCE CARRIERS 425 440 512 543 615 719 826

SELF-INSURED EMPLOYERS 117 131 160 181 229 227 231

INSURANCE CARRIERS SELF-INSURED EMPLOYERS TOTAL *PREMIUMS WRITTEN LESS RETURNED PREMIUMS, DIVIDENDS, CANCELLED PREMIUMS

15

CHART 2.DIRECT LOSSES PAID (IN MILLIONS) ON A CALENDAR YEAR BASIS. (2002 - 2007)

600 500 400 300 200 100 0 2002 2003 2004 2005 2006 2007

INSURANCE CARRIERS

SELF-INSURED EMPLOYERS

TOTAL

YEAR

INSURANCE CARRIERS

SELF-INSURED EMPLOYERS

TOTAL

2002 2003 2004 2005 2006 2007

328 346 367 369 424 453

75 85 100 112 100 105

403 431 467 481 524 558

16

CHART 3. TOTAL COMPENSATION CLAIMS FILED WITH THE INDUSTRIAL COMMISSION (FY2002-2008)

Thousands 160
148.326

140 120 100 80 60 40 20 0

137.099 135.645 139.121

132.904 121.699 121.932

2002 2003 2004 2005 2006 2007 2008

17

CHART 4. TOTAL TIME LOST CLAIMS FILED WITH THE IN DUSTRIA L COMMISSION (2000-2006) (CALENDAR YEAR)

25 20 15 10 5 0 2000 2001
YEAR 2000 2001 2002 2003 2004 2005 2006

2002

2003

2004

2005

2006

TOTAL TIME LOST CLAIMS 19752 19095 17298 16109 15902 14294 15796

18

CHART 5. LOST WORKDAY CLAIMS 2002-2007 by MAJOR INDUSTRY DIVISION
Thousands 5

4

3

2

1

2002 2003 2004 2005 2006 2007

0
or es tr y rt at io n ic ul tu re ra de nc e, In su ra nc e Se rv ic N es on -c la ss ifi ab le in in g ct io n rin g fa ct u Tr a an u an sp o le sa le R et ai lT ,F on s tr u M de

C

W ho

Tr

M

A gr

Major Industry Division
Agriculture, Forestry Mining Construction Manufacturing Transportation Wholesale Trade Retail Trade Finance, Insurance Services Non-classifiable

2002
606 132 2767 1226 1483 695 2660 345 3619 117

2003
488 107 2491 1142 1481 610 2467 318 3162 83

Fi na

2004
533 141 2569 1243 1502 687 2608 291 3218 86

2005
443 154 2657 1123 1395 639 2370 279 2928 81

2006
464 152 2866 1101 1472 714 2503 251 2896 111

2007
473 147 2792 1027 1469 713 2584 302 4045 159

INCLUDES ALL PRIVATE SECTOR LOST WORKDAY CLAIMS THAT WERE RECEIVED DURING CALENDAR YEARS 2002, 2003, 2004, 2005, 2006 and 2007.

19

CHART 6. LOST WORKDAY CLAIMS 2002-2007 by NATURE

6 5 4 3 2 1 0
Sp ra in s, st ra in s Fr ac tu Cu re ts s ,l ac er Br at ui io se ns s, co nt us io ns H ea tb ur Ch ns em ic al bu rn s Am pu ta tio M ns ul tip C ar le pa in ju lt rie un s ne ls yn dr om e Te nd on iti s O th er

2002 2003 2004 2005 2006 2007

NATURE
Sprains, strains Fractures Cuts, lacerations Bruises, contusions Heat burns Chemical burns Amputations Multiple injuries Carpal tunnel syndrome Tendonitis Other

2002
4795 1413 1072 795 162 34 110 708 139 46 4379

2003
4335 1187 1013 833 143 27 141 677 80 28 3887

2004
4519 1324 1123 871 149 35 128 782 128 29 4094

2005
4366 1346 1107 775 123 28 138 680 83 25 2786

2006
4460 1443 1084 875 120 30 119 538 57 27 3200

2007
5325 1674 1320 1048 166 44 124 589 61 29 4078

INCLUDES ALL PRIVATE SECTOR LOST WORKDAY CLAIMS THAT WERE RECEIVED DURING CALENDAR YEARS 2002, 2003,2004, 2005, 2006 and 2007.

20

CHART 7. LOST WORKDAY CLAIMS 2002-2007 by PART OF BODY

8 7 6 5 4 3 2 1 0
ck ck e ne e He ad W r is A nk l ul tip l Ne Ba K M O th er t e

2002 2003 2004 2005 2006 2007

PART OF BODY
Head Neck Back Wrist Ankle Knee Multiple Other

2002
617 197 2603 681 598 1575 1232 6150

2003
439 168 2388 607 560 1319 1165 5705

2004
533 172 2280 611 523 1453 1423 6187

2005
564 143 2004 530 547 1334 1211 5752

2006
430 172 2038 553 587 1379 1077 6255

2007
830 211 2355 647 780 1794 1349 6973

INCLUDES ALL PRIVATE SECTOR LOST WORKDAY CLAIMS THAT WERE RECEIVED DURING CALENDAR YEARS 2002, 2003, 2004, 2005, 2006 and 2007.

21

CHART 8. LOST WORKDAY CLAIMS 2002-2007 by EVENT OR EXPOSURE

5 4 3 2 1 0
tr i ps ns ct ts ve ve er t io io ce ct je en le ot le io ob ta an we r re x cid s, m e os st Sl ip i th m ive ac pl ub sa tw ve lo ex io l en O th er n l n l s s

2002 2003 2004 2005 2006 2007

ti t

n

ls

ac

lt

pe

lt

t io

s, Fi re As s

Fa l

Fa l

Re

rm

r ta

nt

Co

ha

to

EVENT OR EXPOSURE
Contact with object Fall to lower level Fall to same level Slips, trips Overexertion Repetitive motion Exposed to harmful substances Transportation accidents Fires, explosions Assaults, violent acts Other

2002
3368 1123 1928 283 3939 407 261 673 56 253 1362

2003
3071 1151 1719 184 3573 342 229 652 49 238 1143

Ex

po

se

Tr a

d

2004
3343 1308 1927 143 3535 442 248 750 56 218 1212

ns

po

2005
3197 1214 1976 52 3146 315 187 618 43 246 1081

au

l ts

fu

,v

o

O

o

2006
3140 1373 1975 37 3188 282 213 671 27 248 1391

2007
3595 1401 2501 156 3448 295 288 774 58 461 2061

INCLUDES ALL PRIVATE SECTOR LOST W ORKDAY CLAIMS THAT W ERE RECEIVED DURING CALENDAR YEARS 2002, 2003,2004, 2005, 2006 and 2007.

22

CHART 9. LOST WORKDAY CLAIMS 2002-2007 by SOURCE

5 4 3 2 1 0
er s ur es s ne ce oo cle ts ia l uc in er al od rf a ta An an ac Fi Ve at Pr M M Su on re , C & H Al lO im xt hi dt hi th er ry ls s s s

2002 2003 2004 2005 2006 2007

&

tu

rts

ic

ts

Fu rn i

m

he

Pa

Pl

an

,C

s,

ls

on

ic a

C

he

SOURCE
Chemicals, Chemical Products Containers Furniture, Fixtures Machinery Parts & Materials Persons, Plants & Animals Floor, Ground Surfaces Handtools Vehicles All Other

m

2002
86 1807 452 912 1491 2718 3327 867 1204 789

2003
72 1635 412 807 1399 2366 3097 766 1135 662

Pe

rs

Fl

oo

r, G

2004
100 1599 400 840 1549 2430 3505 854 1247 658

ro u

nd

al

2005
69 1419 380 845 1413 2068 3454 772 1053 602

2006
75 1554 319 843 1400 2249 3566 776 1149 614

2007
88 1613 430 893 1538 3351 4259 928 1256 682

INCLUDES ALL PRIVATE SECTOR LOST W ORKDAY CLAIMS THAT W ERE RECEIVED DURING CALENDAR YEARS 2002, 2003,2004, 2005, 2006 and 2007.

23

CHART 10. LOST WORKDAY CLAIMS 2002-2007 by OCCUPATION

5 4 3 2 1 0
Cr af le rv ic on in to Sa ,F ish br ic a si Se es ca Pr of ti o n, l, tr y Fa O th er s s al e rs g t

2002 2003 2004 2005 2006 2007

ni

Fo re s

ch

uc

er ia

Te

od

Pr

g,

ag

n

an

in

is

io

rm

OCCUPATION
Managerial, Professional Technical, Sales Service Farming, Forestry, Fishing Precision Production, Craft Operators, Fabricators Others

2002
896 1924 2066 629 3503 4535 100

2003
786 1772 1863 504 3110 4158 158

Pr ec

M

Fa

2004
792 1688 1815 552 3514 4583 238

O

pe

ra

to

rs ,

l,

2005
739 1566 1713 482 3196 4122 257

2006
695 1674 1666 496 3300 4527 187

2007
1116 2044 2931 511 3610 4591 235

INCLUDES ALL PRIVATE SECTOR LOST W ORKDAY CLAIMS THAT W ERE RECEIVED DURING CALENDAR YEARS 2002, 2003,2004, 2005, 2006 and 2007.

24

CHART 11. LOST WORKDAY CLAIMS 2002-2007 by AGE

5 4 3 2 1 0
19 34 54 24 44 64 de to to to to un to to 16 25 45 55 20 35 an an d d ov er r

2002 2003 2004 2005 2006 2007

AGE
15 and under 16 to 19 20 to 24 25 to 34 35 to 44 45 to 54 55 to 64 65 and over

15

2002
9 384 1357 3220 3925 2987 1380 341

2003
1 315 1189 2918 3464 2799 1331 281

2004
3 360 1255 3053 3534 3023 1577 323

2005
4 342 1216 2706 3142 2855 1441 313

65

2006
1 387 1336 2781 3085 3027 1546 343

2007
4 364 1371 3224 3765 3690 2109 476

INCLUDES ALL PRIVATE SECTOR LOST W ORKDAY CLAIMS THAT W ERE RECEIVED DURING CALENDAR YEARS 2002, 2003, 2004, 2005, 2006 and 2007.

25

CHART 12. DISTRIBUTION OF FATAL OCCUPATIONAL INJURIES BY EVENT OR EXPOSURE ARIZONA, 2002 - 2006
35 30 25 20 15 10 5 0
lls ec t ts ic id e ts Fa en bj en id m O In c Ho by In c id O th er s

2002 2003 2004 2005 2006

ay

ru ck

gh w

St

EVENT
Highway Incidents Homicides Struck by Object Falls Aircraft Incidents Other

Hi

2002
26 18 6 10 9 21

2003
24 6 7 10 5 28

Ai

rc ra

ft

2004
25 11 5 9 13 21

2005
33 14 12 9 0 31

2006
32 15 9 15 11 30

SOURCE: CENSUS OF FATAL OCCUPATIONAL INJURIES, INDUSTRIAL COMMISSION OF ARIZONA

26

CHART 13. DISTRIBUTION OF FATAL OCCUPATIONAL INJURIES BY AGE ARIZONA, 2002 - 2006
35 30 25 20 15 10 5 0
4 4 4 4 -3 -4 -5 de -6 un 25 35 45 55 an an d d ov er r

2002 2003 2004 2005 2006

AGE
24 and under 25 - 34 35 - 44 45 - 54 55 - 64 65 and over

24

2002
5 26 27 31 8 4

2003
6 17 27 14 12 3

2004
5 24 17 16 15 5

65

2005
9 18 25 27 13 4

2006
13 21 27 31 11 9

SOURCE: CENSUS OF FATAL OCCUPATIONAL INJURIES, INDUSTRIAL COMMISSION OF ARIZONA

27

CHART 14. ARIZONA WC RAT ES
10 8.4 7.9

5

2.4

0

0.06

-3.1 -5 -4.3

-7 -7.8 -10 2000

2001

2002

2003

2004

2005

2006

2007

Workers Compensation Variables

S OU R C E : N ational C ouncil on C ompensation Insurance, Inc.

*P E U R MI MS WR T E L S R T R E P E U , D V D N S C N E L D P E U I T N E S E U N D R MI MS I I E D , A C L E R MI MS

28