Which statement best reflects the action to take if there is a valid claim of employer serious and willful misconduct?

• A. Increase reserves by 50%
• B. Decrease reserves by 50%
• C. No change in reserves
• D. Increase reserves by 60%

Answer: (A)

When a valid claim of employer serious and willful misconduct exists, the reserve should reflect the higher potential liability and penalties that may result. Reserves are the funds set aside to cover anticipated losses, and a finding of serious and willful misconduct signals added exposure beyond ordinary claims. Therefore, the prudent approach is to increase the reserve to account for this extra risk. The standard adjustment is to raise reserves by 50% until the claim is resolved or more precise estimates are available, ensuring there are enough funds to cover the increased liability. Decreasing the reserve or keeping it unchanged would understate risk, while a larger increase such as 60% would be more than the typical adjustment.