florida workers compensation 10/1/2016 law-only rate filing … · 10/01/03 litigation activity...
TRANSCRIPT
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Florida Workers Compensation 10/1/2016 Law-Only Rate Filing Overview
Lori Lovgren, JD, CPCUDivision Executive State Relations561.893.3337
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Component Impact
Castellanos (First‐Year Impact) +15.0%
Medical fee change (SB 1402) +1.8%
Westphal +2.2%
Overall: +19.6%
$714M (19.6% x $3.645B)
Components of the Rate Indication
2
Note: Figures are multiplicative, not additive
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
National Council on Compensation Insurance (NCCI)
Established in 1923 around the time states were first starting to adopt workers compensation laws
Licensed as rating/advisory organization and/or designated as statistical agent in almost 40 jurisdictions including Florida
Operates under a not‐for‐profit philosophy
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Quick Facts on NCCI Rate Filings
NCCI rate filings are developed internally by staff and filed first with the OIR prior to sharing with other stakeholders
NCCI is subject to regular exams/audits by the OIR—10 since 2001
Since the 2003 reform, NCCI has made 17 rate filings; 12 of the 17 were for decreases
Florida workers compensation rates are 60% lower today than prior to the 2003 reform
Proposed WC rate increases of this magnitude are rare— last two in Florida were +18.6% in 2008 (split over 2 years) and +21.5% in 2002 prior to the 2003 reform
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Component Impact
Castellanos (First‐Year Impact) +15.0%
Medical fee change (SB 1402) +1.8%
Westphal +2.2%
Overall: +19.6%
$714M (19.6% x $3.645B)
Components of the Rate Indication
5
Note: Figures are multiplicative, not additive
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Today’s Discussion
Key Features of Today’s Florida Workers Compensation System
Castellanos Takes Florida Back to Pre-SB 50A
Environment Since Castellanos
Florida Relative to Other States
Other Considerations
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Key Features of Today’s Florida Workers Compensation System
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
75% of claims in Florida are medical‐only; average cost of a Florida medical‐only claim is $1,378
Medical‐only claims represent 10% of total losses
25% of claims in Florida are lost‐time claims; average cost of a Florida lost‐time claim is $39,296
Lost‐time claims in Florida represent 90% of total losses
Most Florida WC Claims Require No/Little Time Away From Work
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Source: NCCI’s Annual Statistical Bulletin
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Attorney involvement is approximately 25% on lost‐time claims
Since claimant attorney involvement is reported to NCCI as indemnity, a medical‐only claim with claimant attorney involvement would be reported as a lost‐time claim
If 25% of claims are lost‐time and if there is 25% attorney involvement on lost‐time claims, 6.25% of total claims in Florida would have attorney involvementLost time claims with attorney involvement:‐Cost on average approximately 3x more than lost time claims without attorneyinvolvement‐Represent over 40% of total benefit costs
Most Florida WC Claims Are Paid and Closed Without Attorney Involvement
9
Source: NCCI’s Annual Statistical Bulletin
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Percentage of claims associated with attorneys has remained fairly consistent in Florida over time regardless of how attorney fees are awarded
Level of litigation activity associated with these claims has changed in Florida depending on the type of fee schedule in effect
Before SB 50A, ability to deviate up from fee schedule to a higher hourly fee amount led to increased litigation activity on claims associated with attorneys
Limitation to fee schedule under SB 50A reduced litigation activity on claims associated with attorneys
Attorney Involvement Has Two Aspects: Association With and Level of Litigation Activity on Claim
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
From Office of the Judges of Compensation Claims FY 04/05 Report (Dated 11/1/2005)
Then Deputy Chief Judge Scott Stephens wrote about pre-SB 50A attorneys fees:
• Attorneys’ fees are widely and correctly seen as a key driver of workers’ compensation costs, in part because of their direct cost but more fundamentally because of the nature and amount of litigation that result from the litigation incentives built into the system.
• As an unintended consequence of the court’s well meaning decisions in the Davis line of cases, it became commonplace for litigation to be commenced over very small stakes, with lawyers on both sides devoting hours of legal work out of proportion to the value of the benefits in controversy, often resulting in a concession by the carrier having little or no value to the claimant, but resulting in a fee predicated on an hourly rate of $200 to $300 for the attorney.
• It is easy to see that an attorneys’ fee structure that guarantees a “reasonable” hourly rate as a minimum and also holds out the prospect of a windfall (statutory formula) … creates a structure that systematically overcompensates attorneys for each case they undertake.
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
From Office of the Judges of Compensation Claims FY 04/05 Report (Dated 11/1/2005)
Then Deputy Chief Judge Scott Stephens wrote about post-SB 50A attorneys fees:
• Tying the attorney’s pay to the amount of benefits secured aligns the interest of the attorney with that of the client—the attorney gets more only if the client gets more.
• The incentive structure of the statutory formula causes attorneys to focus on larger cases in which the insurer’s refusal to pay is of greater economic consequence, but like all the rest of civil litigation it provides little incentive for attorneys to take on cases having small economic values.
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Castellanos Takes Florida Back to Pre-SB 50A
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Castellanos By the Numbers
Benefit for Injured Worker
Attorney Fee Based on
440.34 BeforeCourt Decision
Attorney Fee Based on
440.34 AfterCourt Decision(Requested)
Impact on Claim Cost Before
Court Decision
Impact on Claim Cost After Court Decision
$822.70
$164.54
(20% of first $5K benefits secured)
$37,520
($350/hour x 107.2 hours)
$987.24
($822.70 +$164.54)
$38,342.70
($822.70+$37,520)
Before Castellanos, attorneys fees were awarded based on a fee schedule (sliding scale percentage of benefits secured for the injured worker)
After Castellanos, attorneys fees are awarded based on the fee schedule with deviation (hourly fees)
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Castellanos Applied in Practice Court in Castellanos states the fee schedule is the starting point and only
if that fee is unreasonable will the claimant attorney be entitled to a fee that deviates. Is this any different than pre-SB 50A in practice? No.
Pre-SB 50A, there was a sliding scale attorney fee schedule, with deviation permitted based on the Lee Engineering factors, and the Alderman case which maintained the fee schedule as the floor.
NCCI has reviewed attorney fee awards by JCC’s based on Castellanos Most of the awards to date are based on hourly fees rather than the
fee schedule This has not been limited to the Castellanos fact situation of many
hours spent to obtain a relatively low dollar benefit for the injured worker. Example: Heinle v. Miami Dade Public Schools. Benefit secured: $17,401. Fee schedule: $1,753. Hourly fee awarded: $92,446.
Also similar to pre-SB 50A, there is at least one case where the fee schedule amount was awarded when the hourly fee would have been less
NCCI’s assumptions are consistent with early post-Castellanos awards
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Florida History
2004 to
2006
2010 to
20162003 2016
SB 50A
Economic Boom
Economic Bust
HB 903
Emma Murray
2007 to
2009
8
Economic Recovery
Castellanos
2001 to
2002
FL 1st/2nd
Highest Rates
HB 1803
& SB 108
Post SB 50A Reform Period
SB 1402
16
Westphal
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Trends During Post-Reform Period (Through 2006)Reduced average cost
per case (indemnity/medical)
Quicker return to work
No significant change in
percentage of claims with attorney
involvement
DOAH petitions dropped
Claims with attorney
involvement closed quicker
Reduced claim frequency
Reduced rates (rates dropped
50%)
17
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Florida Roofing Rate At Lowest Was 68%Below Pre-Reform Rate
0
10
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60
1/1/20
01
8/1/20
02
4/1/20
03
10/1/200
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1/1/20
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1/1/20
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1/1/20
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1/1/20
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1/1/20
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4/1/20
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7/1/20
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1/1/20
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1/1/20
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10/1/201
6*
Class Code 5551
High of $53.69
Low of $17.10
18
Current $18.60
$ Dollars
Proposed $22.23
* Pending
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Stakeholders Believe Change in Attorneys Fees Was Linchpin of SB 50A
During the first year post-reform, stakeholders implemented other aspects of SB 50A but attorney behavior did not change
For example, permanent total (PT) claims were reduced, in part, because of changes to the PT statutory definition (captured in initial pricing of SB 50A); changing the attorney fee schedule reduced litigation activities that typically led to PT claim status (captured in years subsequent to SB 50A)
As attorney behavior started to change in the post-reform period, there was a corresponding period of 4 years of double digit declines representing, in large part, the impact that changing the attorney fee schedule had on total claim costs
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Attorneys Delayed Behavioral Changes After SB 50A
2003 2004 2005 2006 2007 2008
Reform10/01/03
Litigation activity mostly status quo
Majority of petitions filed relate to pre-form DOA’s
In Wood, lst DCA holds reasonable fee is based on statutory guidelineFebruary starts
trend where majority of petitions filed are for post-
reform DOA’s
Majority of attorney fee awards relate to pre-reform DOA’s
Wood and Lundy reach 1st DCA
S.C. accepts Emma Murrayeven though questions are the same as Wood and Lundy
S.C. issues decision in Emma Murray
First year majority of attorney fee awards relate to post-reform DOA’s
In Lundy, 1st DCA rejects con law challenge
S.C. refuses to hear Wood or Lundy
Part of trial bar maintains status quo confident courts will reverse reform. Part of trial bar starts to turn away WC cases, reduce WC advertising, and diversify their law practice.
Trial bar confidence in reversal wanes
20
OJCC reportsattorney attempts to restore revenue by circumventing law
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
From OJCC FY 04/05 Report (Dated 11/1/2005)
Deputy Chief Judge Scott Stephens wrote:
• It is estimated that just over half of the full litigation cost reduction effect of the 2003 amendments has been realized in the most recent fiscal year, and by the end of FY 2005‐06 the bulk of the cost reductions from the new act will have been experienced.
• The attorney fee limits in the 2003 reforms have been spectacularly successful in reducing the volume and cost of litigation, with new filings declining by about 30% since the law took effect.
• This year, the offices began to eliminate the backlog that had built up during the time when the structure of the attorney fee law provided an incentive to litigate extensively every issue, including those involving minimal stakes.
• In 2004‐05, the OJCC began clearing out a backlog of cases that built up when attorney fees often amounted to 40% of the clients’ recovery, and for the most part the judges now strictly enforce the 2003 reforms.
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Less Incentive to Delay Behavioral Changes After Castellanos
After Emma Murray in 2008, reaction was not immediate: Court decision turned on the presence of a single word
“reasonable” within 440.34 Stakeholders thought court decision could be quickly and fully
addressed by the legislature Attorneys had “wait and see” attitude NCCI responded with slower rollout of increase (+18.6% over
two years)
After Castellanos, reaction has been more immediate: Court decision based on constitutional grounds Not as easy to address quickly and fully as a single word Evidence suggests there is no attorney “wait and see” attitude NCCI is responding to difference with a faster rollout to match
the environment (+15% as first-year impact)
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Environment Since Castellanos
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Carrier Survey Results SuggestCastellanos Has Changed Environment
NCCI conducted survey mid-June/mid-July 2016 of 10 large Florida writers representing 66.5% of Florida workers compensation market share (excluding self-insurers)
Before Castellanos, many carriers noted environmental changes starting to occur in anticipation of the Castellanos decision: Delayed settlements Delayed claim closure High/low fee arrangements
After Castellanos, many carriers noted: Reopening of older claims Higher attorney involvement Higher hourly fees Claims are harder to settle Increased petitions Increased depositions Increased petitions on minor issues - average weekly wage, fringe
benefits, and mileage requests
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Claimant Attorney Advertising Up Slightly (TV, Radio, Newspaper)
By Top 20 Filers of Petitions with OJCC
18,739
19,925
18,000
18,500
19,000
19,500
20,000
20,500
Jan‐Apr May‐Jul
+6% Average Month Number of Spots
25
$1,311,788
$1,364,719
$1,280,000
$1,300,000
$1,320,000
$1,340,000
$1,360,000
$1,380,000
Jan‐Apr May‐Jul
+4% Average Month Spend
Source: Media Monitors Competitive Spend Reports 2015/2016. Florida market.
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Google Search Term Volume for Workers Compensation Lawyer/Attorney
Keywords Increased in 2nd Quarter
1,200 1,230 1,250
1,910 1,8402,000
Jan‐16 Feb‐16 Mar‐16 Apr‐16 May‐16 Jun‐16
Search Volume increased by over 50% between March
and April
26
Source: Google AdWords, Search terms included: Workers Compensation Lawyer, Workers Compensation Attorney, Workers Comp Lawyer, Workers Comp Attorney, Work Injury Lawyer, Work Injury Attorney. Location of searcher was limited to the state of Florida.
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
Petitions for Benefits Up After Castellanos
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Jan‐Apr May‐Jul
20152016
+8%+13%
27
2,200
2,300
2,400
2,500
2,600
2,700
2,800
Jan‐Apr May‐Jul
20152016
+7%
+5%
Petitions for BenefitsMonthly Average
Claims FiledMonthly Average
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© Copyright 2016 National Council on Compensation Insurance, Inc. All Rights Reserved.
“New Cases” Stable During Recovery from Recession But Showing Recent Increase
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
PFBs New Cases
28
“New Cases” and PFB Filings
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If Growth in Florida Construction JobsWere the Reason for Recent Uptick in New Cases,
Uptick Would Likely Have Started Years Ago
0
100
200
300
400
500
600
700
800
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016p
All Employees (‘000s)
June of Each Year
29
p PreliminarySource: U.S. Bureau of Labor Statistics , June 2016
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Florida Bucks Trend: Claim Frequency Traditionally Up During Tough Times and
Down During Good Times/RecoveryContracting Industry Group
Lost-Time Claims at First Report per $1M of Payroll
30
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Freq
uency
Policy YearExcludes large deductible policiesPayroll is adjusted to current wage level
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Sample JCC Attorney Fee AwardsPost-Castellanos*
Benefits Secured Fee Awarded Fee Schedule
$8,956 $42,000 $1,583$93,000 $25,000 $10,050
$352,935 $51,112 $36,044$6,200 $15,000 $1,180
$17,401 $92,446 $1,753$1,150 $5,025 $287
$38,798 $15,431 $4,630
$200 $7070 $40
Average (8 Cases) $31,636 $6,946
31
* Cases as of early August in which benefits secured, fee awarded, and fee schedule were available.
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Florida Relative to Other States
32
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Florida’s Historical Rate Changes
2.50.0
2.7
12.9
-14.0
0.0
-5.1
-13.5-15.7
-18.4 -18.6
6.4
-6.0 -6.8-4.2
7.8 8.96.1
-0.7
0.7
-5.2 -1.9
19.6
-35.0
-25.0
-15.0
-5.0
5.0
15.0
25.0
No Filing
Cumulative 10/2003–1/2016: –60.3%
Calendar Year
Emma Murray-Related
*Pending
Percent
33
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Current Average Voluntary Pure Loss Costs Using Florida’s Payroll Distribution
(Pure Loss Cost—All Classes)
0.99 1.021.12 1.14
0.850.94
1.05
0.84
1.18
FL AL GA LA MS NC SC TNState
2016 2016*Based on the latest NCCI approved rates and loss costs in the various states*Represents the FL pure loss cost multiplied by 1.196 (1.18 = 0.99 x 1.196)
$ Dollars
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Florida’s Oregon Ranking by Year(1 is Highest Cost, 51 is Lowest Cost)
1 2 36
28
40
29 28
2000 2002 2004 2006 2008 2010 2012 2014Year
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Other Considerations
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Not Considered in October 1, 2016 Filing
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Impacts related to Miles v. City of Edgewater Police Department (“Miles”) declaring unconstitutional certain restrictions on claimant‐paid attorney fees
Other first‐ or subsequent‐year impacts related to Castellanos or Westphal that NCCI is unable to
quantify
Unfunded liability
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If the filing effective date of 10/1/2016 is delayed, each month of delay would likely increase the unfunded liability in the tens of millions of dollars
Cost will be borne by insurance companies, individual self‐insured employers, and employers with deductible policies
Court decisions have retroactive impact on claims occurring prior to 10/1/2016 that remain open or are re‐opened
Statewide unfunded liability related to Emma Murray, Castellanos, and Westphal could exceed $1B
Unfunded Liability
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NCCI Proposing No Annual Experience FilingFor January 1, 2017
Data collected by NCCI would need to be supplemented to reflect the post-Castellanos/ Westphal environment
NCCI would need to review additional data and information from external sources as part of its ratemaking analysis
NCCI does not expect that such data will become available in 2016
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In Summary
Rates today are down 60% from prior to Senate Bill 50A; 50% during the post-reform period which lasted through 2006
There’s good reason to believe that the change in attorney fees was the linchpin of SB 50A (remember: not just the fee itself but how it drives the level of litigation activity; both impact average cost of claim)
Other SB 50A reform elements were implemented first year; attorneys did not change their behavior immediately but once they started to, the level of litigation activity began to drop and significant additional savings rolled in
The Castellanos puts the law on attorneys fees back to pre-SB 50A; Miles and Westphal are aggravating factors (ie these cases further incentivize increased level of litigation activity)
In just over 3 months, there are already signs of increased attorney involvement – carrier survey, advertising, web hits, petitions, fee awards – and no signs of a “wait and see” attitude
Impacts 6% of total number of claims but over 40% of total costs (claims with attorneys 3x higher than claims without attorneys now; 4x higher prior to SB 50A)
+19.6 only includes 1st year impact of Castellanos; insurers/employers also dealing with unfunded liability potentially over $1B
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