The employer is guilty of serious and willful misconduct and as a result of the injury the employee has lost both hands. What percentage should you increase reserves by?

• A. 10%
• B. 20%
• C. 50%
• D. 70%

Answer: (C)

When there is serious and willful misconduct by the employer, the insurer must account for a substantially higher potential liability in the reserves. The combination of egregious conduct and a severe outcome—loss of both hands, indicating a very high disability level—means the reserve should reflect that amplified exposure.

In this context, the standard adjustment used is a fifty percent uplift to reserves. This amount appropriately captures the increased risk without over- or underestimating beyond what guidelines suggest. Smaller increases (like ten or twenty percent) would understate the exposure from willful misconduct, while a much larger boost (such as seventy percent) would go beyond the typical guideline.

So, the correct approach is to increase reserves by fifty percent.