Your review of a file indicates the employee has a valid claim for serious and willful misconduct of the employer. You should?

• A. Increase the reserves by 50%
• B. Decrease the reserves by 50%
• C. Pretend nothing happened
• D. Increase the reserves by 40%

Answer: (A)

When there’s credible evidence of serious and willful misconduct by the employer, the financial exposure tied to the claim rises beyond ordinary benefits. Reserves should reflect that higher risk, including potential penalties, larger indemnity costs, and legal/defense expenses. Increasing the reserves by 50% aligns the reserve level with the increased liability and helps ensure the self-insured program can cover the anticipated costs if penalties or additional expenses arise. Understating the reserve (or ignoring the issue) would leave the program inadequately funded for this elevated risk, while a smaller increase wouldn’t fully capture the potential exposure.