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August 26, 2005
Dear Name*,
This is in response to your request for an opinion concerning whether insurance claims adjusters employed
by your client qualify for the administrative exemption under section 13(a)(1)
of the Fair Labor Standards Act (FLSA). You request a reply based on an
analysis of the revisions to 29 C.F.R. Part 541, which were published as a
final rule in the Federal Register on April 23, 2004 (69 FR 22122), with
a scheduled effective date of August 23, 2004. The new Part 541 regulations
apply prospectively, beginning August 23, 2004. Our response is applicable
under both the old and revised version of the regulations, as there were no
substantive changes in the primary duty test requirements for the administrative
exemption.
You state that the claims adjusters in question are employed by your client, which acts as a third party
administrator. The third party administrator at issue exists to sell claims
adjusting and other services to insurance companies, insurance brokers and/or
self-insured companies. Your client charges a fee to provide the claims
adjusting services, typically based upon the number and complexity of claims
handled. A self-insured company may also contract directly with your client to
provide claims adjusting services for their self-insured plan.
Your client employs three levels of insurance claims adjusters:
- Claims Specialist I;
- Claims Specialist II; and
- Senior Claims Specialist.
They are paid on a salary
basis at a rate of at least $455 per week. These Claims Specialists provide
claims adjusting services to customers of your client in two areas: workers’
compensation and general liability. In your letter you describe the duties and
responsibilities of the Claims Specialist I and II and Senior Claims
Specialist. Each position is discussed next.
Claims Specialist I
Claims Specialist I’s perform non-manual work in an office setting. On the general liability side, Claims Specialist I’s primarily handle bodily injury claims stemming from non-employee injuries that occur on the premises of commercial enterprises, and also from product liability claims. On the workers’ compensation side, Claims Specialist I’s handle employee injury claims.
In handling workers’ compensation claims, typically coverage is a foregone conclusion. The Claims
Specialist I investigates the facts relating to the claim. This normally
involves questioning the claimant, the claimant’s employer and the claimant’s
treating physician. Then, in consultation with the supervisor, the Claims
Specialist I sets an initial reserve amount by estimating the ultimate value of
the claim. In arriving at this initial reserve amount, the Claims Specialist I
relies on his experience and knowledge in adjusting claims and on advice from
his supervisor.
The Claims Specialist I maintains and documents the claim file; evaluates the facts and the law to
determine compensability and the amounts owed; makes workers’ compensation
disability determinations; determines whether vocational rehabilitation
services are required; determines whether an injured employee can return to
work and what, if any, accommodations need to be made at the workplace to
facilitate the return; monitors the ongoing need for an accommodation, such as
light duty, after the injured worker has returned to work; evaluates the claim
for possible subrogation opportunities; evaluates the claim for possible fraud;
decides whether additional investigation is needed and attempts to resolve the
claim through settlement. Most of these tasks are performed in consultation
with and under the supervision of the Claims Specialist I’s supervisor.
Each file that is handled by a Claims Specialist I is reviewed by his supervisor periodically for
completeness and to make sure that the Claims Specialist I is handling the file
appropriately. In addition, while it is within the discretion and judgment of
the Claims Specialist I to determine what, if any, additional investigative
actions need to be taken, that discretion and judgment is typically exercised
after discussion with the Claims Specialist I’s supervisor.
If a more-in-depth investigation is deemed necessary, the Claims Specialist I gathers facts such
as the location of injury, time of loss, and the injured worker’s previous
history of filing workers’ compensation claims. The Claims Specialist I, among
other steps, also interviews witnesses, determines whether to pursue
surveillance of claimant, and when necessary, disputes the treating physician’s
diagnosis and prognosis by requesting a medical-legal evaluation of the injured
worker. Many of these tasks are discussed with the Claims Specialist I’s
supervisor.
The Claims Specialist I also assists in administering benefits. He communicates with doctors about the
injured employee’s continued need for treatment, reviews medical and lab
reports, decides whether to extend medical payment coverage and makes decisions
on approving or challenging medical bills, when appropriate. Throughout this
process, the Claims Specialist I consults with his supervisor for advice and
guidance.
The Claims Specialist I is responsible for negotiating a full resolution of the claim. The authority
levels by which the Claims Specialist I can unilaterally settle are generally
$5,000 or less. However, before a Claims Specialist I can settle a claim, he
must frequently seek approval from the customer whose account the Claims
Specialist I is servicing. The Claims Specialist I also consults frequently
with his supervisor to discuss an appropriate amount for which to settle the
claim. Once settlement authority is approved, the Claims Specialist I deals
directly with either the claimant or the claimant’s representative in settling
the claim.
The Claims Specialist I on the general liability side performs similar work and has similar responsibility
and types of supervision. The two positions differ in that the Claims
Specialist I handling liability claims has more leeway in settlement
negotiation. This is because state laws sometimes dictate the value of a
settlement of workers’ compensation claims while no such legal strictures apply
to the settlement of general liability claims. Also, Claims Specialist I’s on
the general liability side spend less time investigating and dealing with vocational
rehabilitation and disability issues. Furthermore, Claims Specialists I’s who
work on the general liability side spend much more time on coverage,
subrogation and contribution issues.
Claims Specialist I’s on both the workers’ compensation and general liability areas tend not to be
assigned complex and difficult claims, such as those that could involve litigation or arbitration. In a discussion with a member of the Wage and Hour
Division staff on November 4, 2004, you stated that new employees are hired as Claims Specialist I’s and after six months to a year of satisfactory employment, Claims Specialist I’s are transitioned to the Claims Specialist II position.
Claims Specialist II
The Claims Specialist II job duties are the same as the Claims Specialist I job duties. However, Claims
Specialist II employees are not as closely supervised as Claims Specialist
I’s. Where every claim that a Claims Specialist I handles is subject to review
by his supervisor, supervisors only spot-check the work of Claims Specialist
II’s. Also, while a Claims Specialist I will typically discuss his plans for
handling each claim with his supervisor both at the outset and as the claim
proceeds, a Claims Specialist II will only have such a discussion with his
supervisor when the Claims Specialist II deems it necessary.
In addition, the cases handled by Claims Specialist II’s tend to be more complex. Compared to their
junior counterparts, Claims Specialist II’s are more likely to evaluate
independent medical examinations and independent investigations of accident
scenes. They are more likely to hire and interact with vocational
rehabilitation specialists and nursing services to assist claimants in their
return to work or in dealing with their ongoing disabilities. Claims Specialist
II’s on the general liability side also handle more severe and complex product
liability claims, which require a higher level of judgment and knowledge.
Claims Specialist II’s handle all claims that are in arbitration or court litigation. Specifically,
Claims Specialist II’s develop strategies with the attorney assigned to the
case as to how the case is to be defended. Claims Specialist II’s approve
litigation strategy, participate in and approve the hiring of experts to
testify and work with counsel for the insured in presenting expert testimony.
Along with counsel, Claims Specialist II’s act as lead negotiators in any
settlement discussions.
Claims Specialist II’s spend a significant amount of their time directly “servicing” the customer. Claims
Specialist II’s meet frequently with the customers of your clients to whom they
are providing claims services to discuss trends in their accounts and
additional safety precautions that can be undertaken to protect them against
further claims, including overall strategies to reduce the costs of claims.
Approximately 20% of the Claims Specialist II’s time is spent in these
discussions that take place on a monthly basis.
Senior Claims Specialist
Senior Claims Specialists perform the same duties as Claims Specialist II’s with no more than the same
level of supervision. The only difference between the two positions is that the Senior Claims Specialists typically have more experience in handling claims
and Senior Claims Specialists tend to handle the most complicated and difficult claims. Senior Claims Specialists also spend at least 20% of their work time
preparing for or engaging in client servicing matters as described above.
Analysis
Under the revised regulations at 29 C.F.R. 541.200(a), “the term ‘employee employed in a bona fide administrative capacity’ in section 13(a)(1) of the Act shall mean any employee:
- Compensated on a salary or fee basis at a rate of not less than $455 per week …, exclusive of board, lodging or other facilities;
- Whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
- Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.”
The administrative exemption thus has requirements pertaining to both the “type of work performed” and “the
level of importance or consequence of the work performed.” See 69 FR at
22139. With regard to the type of work performed, the preamble explains that
the “exemption is intended to be limited…to employees whose work involves
servicing the business itself” and thus inapplicable to employees whose work
relates to the “production” operations of the business. 69 FR at 22141.
Although the production versus staff dichotomy is illustrative, rather than
dispositive, it is a useful tool in appropriate cases to identify employees who
are excluded from the administrative exemption.
We discuss below the second criteria of the administrative exemption, which is then followed by an analysis of whether the primary duty of the Claims Specialist I’s and II’s and Senior Claims Specialists is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.
Directly Related to the Management or General Business Operations
“The phrase ‘directly related to management or general business operations’ refers to the type of
work performed by the employee. To meet this requirement, an employee must
perform work directly related to assisting with the running or servicing of the
business, as distinguished, for example, from working on a manufacturing
production line or selling a product in a retail or service establishment.” 29
C.F.R. 541.201(a).
“Work directly related to management or general business operations includes, but is not limited to, work
in functional areas such as tax; finance; accounting; budgeting; auditing;
insurance; quality control; purchasing; procurement; advertising; marketing;
research; safety and health; personnel management; human resources; employee
benefits; labor relations; public relations; government relations; computer
network, internet and database administration; legal and regulatory compliance;
and similar activities.” 29 C.F.R. 541.201(b).
“An employee may qualify for the administrative exemption if the employee’s primary duty is the performance
of work directly related to the management or general business operations of the employer’s customers. Thus, for example, employees acting as advisers or
consultants to their employer’s clients or customers (as tax experts or financial consultants, for example) may be exempt.” 29 C.F.R. 541.201(c).
“The term ‘primary duty’ means the principal, main, major or most important duty that the employee
performs. Determination of an employee’s primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the
employee’s job as a whole.” 29 C.F.R. 541.700(a).
As you represent, in performing work on behalf of a contracting insurance company, the Claims
Specialist I’s and II’s and Senior Claims Specialists service the insurance
policies sold by your client’s customers. Indeed, for carriers with whom your
client contracts, the Claims Specialist I’s and II’s and Senior Claims
Specialists provide claims adjusting services which are necessary to service
the insurance policy sold by the insurance company. For your client’s other
customers, such as insurance brokers, the Claims Specialist I’s and II’s and
Senior Claims Specialists also provide claims adjusting services for the final
product that the broker in turn sells to his customer. For the self-insured
companies, Claims Specialist I’s and II’s and Senior Claims Specialists adjust
claims brought by employees of the self-insured entity in their every day
business activities. In addition, Claims Specialist II’s and Senior Claims
Specialists frequently discuss certain trends in the customer’s account, and
provide advice regarding additional safety precautions that the clients could
take to reduce the cost of claims.
Thus, the primary duty of the Claims Specialist I’s and II’s and Senior Claims Specialists in either the
workers’ compensation or general liability side is servicing the employer’s
customer’s business through the performance of claims adjusting duties, which
involve work directly related to the management or general business operations
in such functional areas as insurance, safety and health, personnel management,
human resources, legal and regulatory compliance. See 29 C.F.R. 541.201(b).
Based on an analysis of the information provided, we believe that the Claims Specialists I and II and
Senior Claims Specialist positions meet the second criteria of the administrative exemption test in that their primary duty involves the
performance of office or non-manual work directly related to the management or
general business of the employer’s customers. See Opinion Letters dated November 19, 2002
and August 6, 2002(copies enclosed).
We proceed with a discussion of the third criteria of the administrative exemption, which is then followed by an analysis of whether the primary duty of the Claims Specialist I’s and II’s and Senior Claims Specialists includes the exercise of discretion and independent judgment with respect to matters of significance.
Discretion and Independent Judgment
Section 541.202(a) states that in order “[t]o qualify for the administrative exemption, an employee’s
primary duty must include the exercise of discretion and independent judgment
with respect to matters of significance. In general, the exercise of
discretion and independent judgment involves the comparison and the evaluation
of possible courses of conduct, and acting or making a decision after the
various possibilities have been considered. The term ‘matters of significance’
refers to the level of importance or consequence of the work performed.”
As indicated in section 541.202(b):
“The phrase ‘discretion and independent judgment’ must be applied in the light of
all the facts involved in the particular employment situation in which the
question arises. Factors to consider when determining whether an employee
exercises discretion and independent judgment with respect to matters of
significance include, but are not limited to: whether the employee has
authority to formulate, affect, interpret, or implement management policies or
operating practices; whether the employee carries out major assignments in
conducting the operations of the business; whether the employee performs work
that affects business operations to a substantial degree, even if the
employee’s assignments are related to operation of a particular segment of the
business; whether the employee has authority to commit the employer in matters
that have significant financial impact; whether the employee has authority to
waive or deviate from established policies and procedures without prior
approval; whether the employee has authority to negotiate and bind the company
on significant matters; whether the employee provides consultation or expert
advice to management; whether the employee is involved in planning long- or
short-term business objectives; whether the employee investigates and resolves
matters of significance on behalf of management; and whether the employee
represents the company in handling complaints, arbitrating disputes or
resolving grievances.”
Section 541.202(c) describes an employee’s exercise of discretion and independent judgment as including the
authority to make an independent choice that is free from immediate direction
or supervision. However, this section does not imply that an employee does not
exercise discretion and independent judgment if the employee’s decisions or
recommendations are reviewed at a higher level. “The fact that an employee’s
decision may be subject to review and that upon occasion the decisions are
revised or reversed after review does not mean that the employee is not
exercising discretion and independent judgment.”Id. Section 541.202(e) further clarifies that the “exercise of discretion and
independent judgment must be more than the use of skill in applying well-established techniques, procedures or specific standards described in
manuals or other sources.”
Finally, section 541.203(a)provides that insurance claims adjusters “generally meet the duties
requirements for the administrative exemption, whether they work for an
insurance company or other type of company, if their duties include activities
such as interviewing insureds, witnesses and physicians; inspecting property
damage; reviewing factual information to prepare damage estimates; evaluating
and making recommendations regarding coverage of claims; determining liability
and total value of a claim; negotiating settlements; and making recommendations
regarding litigation.” As noted in the preamble to the revised regulations at
69 FR 22144: “…there must be a case-by-case assessment to determine whether the
employee’s duties meet the requirement of the exemption.”
Claims Specialist I
As described in the prior paragraphs, Claims Specialist I’s working in either the workers’ compensation
or general liability side perform several of the duties and responsibilities of
an exempt claims adjuster characterized in section 541.203(a). For example,
the Claims Specialist I’s interview the claimant, the claimant’s employer, and
the treating physician. Claims Specialist I’s review factual information to
set and adjust the initial reserve amount. Also, Claims Specialist I’s decide
whether additional investigation is needed and attempts to resolve claims
through settlement. We note, however, that Claims Specialist I’s in both the
workers’ compensation and general liability areas perform their duties under
close supervision by their managers. As mentioned above, a Claims Specialist I
must consult with his supervisor in setting the initial reserve amount. Most
of the tasks performed after the setting of the initial reserve amount are done
in consultation with and under the supervision of the Claims Specialist I’s
supervisor. In addition, each file handled by a Claims Specialist I is
reviewed periodically for completeness in order to ensure that the files are
handled appropriately.
If a Claims Specialist I
feels that a claim needs additional investigation, the Claims Specialist I must
discuss the investigation with his supervisor and seek approval. If such
actions are deemed necessary, any steps taken are further discussed with the
supervisor. In performing the duties of monitoring the claim and assisting in
administering benefits, a Claims Specialist I consults with his supervisor for
advice and guidance. Furthermore, in settling a claim, a Claims Specialist I
frequently consults with his supervisor to discuss the appropriate amount to
settle a claim.
Based on a review of the information provided, we believe that the Claims Specialist I employed in
either the workers’ compensation or general liability side is so closely
supervised by the Claims Specialist I’s manager in the performance of his
duties that the Claims Specialist I does not have the authority to make
independent choices that are free from immediate direction or supervision. See
29 C.F.R. 541.202(c). Thus, the Claims Specialist I’s fail to meet the third
criteria of the administrative exemption in that the work of Claims Specialist
I’s does not meet the requisite degree of discretion and independent judgment
with regard to matters of significance contemplated under the revised
regulations. Therefore, it is our opinion that Claims Specialist I’s in either
the workers’ compensation or general liability side cannot qualify for the
administrative exemption under the revised regulations at 29 C.F.R. 541.200.
Hence, Claims Specialist I’s are covered by the minimum wage and overtime
provisions of the FLSA. See Opinion Letter dated January 7, 2005 (copy
enclosed); Robinson-Smith v. GEICO, 323 F.Supp.2d 12 (D.D.C. 2004)
(automobile damage claims adjusters not exempt because they do not exercise sufficient
discretion and independent judgment); In re Farmers Insurance Exchange,
336 F.Supp.2d 1077 (D.Ore. 2004) (automobile and certain property damage
adjusters lack adequate discretion and independent judgment, while personal
injury and death claims adjusters are exempt).
Claims Specialist II and Senior Claims Specialist
As described in the prior paragraphs, Claims Specialist II’s and Senior Claims Specialists working in
either the workers’ compensation or general liability side perform the
activities of an exempt claims adjuster characterized in section 541.203(a).
For example, Claims Specialist II’s and Senior Claims Specialists interview the
claimant, the claimant’s employer and the claimant’s treating physician; set
and adjust the reserve amount; evaluate the facts and the law to determine
compensability and the amounts owed; make workers’ compensation disability
determinations; determine whether vocational rehabilitation services are
needed, and also whether an injured employee can return to work and what, if
any, accommodations need to be made at the workplace to facilitate the
employee’s return; identify and pursue subrogation, contribution,
indemnification or other opportunities to force third parties to bear part of
the settlement burden; evaluate the claim for possible subrogation
opportunities and for possible fraud; negotiate settlements; and make
recommendations regarding litigation.
In your letter, you state
that the claims adjusting services that the Claims Specialist I and II and
Senior Claims Specialist provide are important to all of the customers your
client serves, which we take to mean, for discussion purposes, as satisfying
the requirement that the Claims Specialist II’s and Senior Claims Specialists’
exercise of discretion and independent judgment involves matters that are
significant to your client’s customers. See 29 C.F.R. 541.202(a) and
541.202(f) and Opinion Letter dated November 19, 2002
The discussion necessarily turns to whether a Claims Specialist II and Senior Claims Specialist, in the
performance of their claims adjusting duties, have “authority to make an
independent choice, free from immediate direction or supervision,” and also
whether a Claims Specialist II and Senior Claims Specialist’s “exercise of
discretion and independent judgment” in the performance of their work involves
“more than the use of skill in applying well-established techniques, procedures
or specific standards described in manuals or other sources.” Sections
541.202(c) and 541.202(e).
With regard to Claims
Specialist II’s and Senior Claims Specialists working in either the workers’
compensation or general liability side, we note that in handling each claim,
Claims Specialist II’s and Senior Claims Specialists are not as closely
supervised compared with their junior counterparts. Supervisors only
spot-check their work, and any discussions with supervisors dealing with
casework are at the Claims Specialist II’s and Senior Claims Specialists’
discretion. Claims Specialist II’s and Senior Claims Specialists perform their
work more independently than Claims Specialist I’s, typically without
involvement of their supervisor on each claim. Claims Specialist II’s and
Senior Claims Specialists also handle casework that is in arbitration or
litigation. Claims Specialist II’s and Senior Claims Specialists determine the
strategy and tactics to be used during litigation and in the settlement of
litigated claims and also act as lead negotiators in settlement discussions.
In addition, Claims Specialist II’s and Senior Claims Specialists meet
frequently with the employer’s customers to whom they are providing claims
services to discuss trends in their account and additional safety precautions
that can be undertaken to protect them against further claims and overall
strategies to reduce the costs of claims.
After reviewing the information provided, we believe that Claims Specialist II’s and Senior Claims
Specialists in performing their work have “authority to make an independent
choice, free from immediate direction or supervision.” 29 C.F.R. 541.202(c).
We also believe that performing the duties and responsibilities of the Claims Specialist II’s and
Senior Claims Specialists require “more than the use of skill in applying
well-established techniques, procedures or specific standards described in
manuals or other sources.” 29 C.F.R. 541.202(e). For example, Claims
Specialist II’s and Senior Claims Specialists, compared to their junior
counterparts, handle more complex cases. Claims Specialist II’s and Senior Claims
Specialists are more likely to evaluate independent medical examinations and
independent investigations of accident scenes. Claims Specialist II’s and
Senior Claims Specialists are also more likely to hire and interact with
vocational rehabilitation specialists and nursing services to assist claimants
in their return to work or in dealing with ongoing disabilities. Claims
Specialists II’s and Senior Claims Specialists on the general liability side
also handle more severe and complex product liability claims, which require a
higher level of judgment and knowledge. Furthermore, as stated earlier, Claims
Specialist II’s and Senior Claims Specialists handle claims that are in
arbitration or court litigation. Specifically, Claims Specialist II’s and Senior
Claims Specialists approve litigation strategy, participate in and approve the
hiring of experts to testify and work with counsel for the insured in
presenting expert testimony. Also, along with counsel, Claims Specialist II’s
and Senior Claims Specialists act as lead negotiators in any settlement
discussions.
We conclude that these facts demonstrate that Claims Specialist II’s and Senior Claims Specialists exercise
a great deal of discretion in deciding how to handle all types of claims. They
are not merely using a standardized format for resolving claims, but rather are
using their own judgment about what the facts show, who is liable, what a claim
is worth, and how to handle the negotiations with the claimant or the
claimant’s representative in order to achieve a successful resolution. Hence,
Claims Specialist II’s and Senior Claims Specialists employed in either the
workers’ compensation or general liability side exercise the requisite
discretion and independent judgment in matters of significance in the
performance of their work as contemplated in the revised regulations. Claims
Specialist II’s and Senior Claims Specialists meet all three criteria of the
administrative exemption. Therefore, based on the information provided, it is
our opinion that Claims Specialist II’s and Senior Claims Specialists qualify
for the administrative exemption under section 13(a)(1) of the FLSA and its
revised implementing regulations at 29 C.F.R. 541.200.
This opinion is based exclusively on the facts and circumstances described in your request and is
given on the basis of your representation, express or implied, that you have
provided a full and fair description of all the facts and circumstances that
would be pertinent to our consideration of the question presented. Existence
of any other factual or historical background not contained in your request
might require a different conclusion than the one expressed herein. You have
represented that this opinion is not sought by a party to a pending private
litigation concerning the issue addressed herein. You have also represented
that this opinion is not sought in connection with an investigation or
litigation between a client or firm and the Wage and Hour Division or the
Department of Labor. This opinion letter is issued as an official ruling of
the Wage and Hour Division for purposes of the Portal-to-Portal Act, 29 U.S.C.
259. See 29 C.F.R. 790.17(d), 790.19; Hultgren v. County of Lancaster, Nebraska, 913 F.2d 498, 507 (8th Cir. 1990).
We trust that the above is responsive to your inquiry.
Sincerely,
Alfred B. Robinson, Jr.
Deputy Administrator
Enclosures: Opinion Letters dated January 7, 2005;
November 19, 2002
August 6, 2002
*Note: The actual name(s) was removed to preserve privacy in accordance with 5 U.S.C. 552 (b)(7).
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