When a file review indicates a valid claim for serious and willful misconduct by the employer, you should?

• A. Decrease reserves by 20%
• B. Increase reserves by 50%
• C. Increase reserves by 100%
• D. Take no action

Answer: (B)

When a file review reveals serious and willful misconduct by the employer, the claim’s risk profile rises significantly. Self-insurance reserves must reflect the anticipated ultimate cost of claims, including defense expenses and any potential penalties or heightened liability associated with willful misconduct. That elevated risk means you should bolster the reserve to provide a prudent cushion for a potentially larger settlement, longer litigation, or regulatory penalties. The standard adjustment in this scenario is to increase reserves by about 50%, which aligns the funding with the higher exposure without over-allocating funds beyond what the new information supports. Taking no action would leave the reserve short, while decreasing the reserve or doubling it without justification would misstate the current risk. As more information becomes available, the reserve should be reevaluated and adjusted accordingly.