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classifications, multiplied by a standard rate set by the State
for each classification, and further multiplied by an experience
modification factor. The estimated modified annual premium is
the amount initially paid to Liberty Mutual Fire, which is
determined based upon estimates of payroll amounts for the year.
After the end of the year, the audited modified premium is
determined based upon the final payroll figures for the year.
Under the policy, Helmsman Management, a subsidiary within
the Liberty Mutual group, would administer the runoff of the 1979
through 1983 workers' compensation self-insurance plan for
petitioner beginning in 1984 for a flat fee of $250,000. Liberty
Mutual charged petitioner 12 percent of its workers' compensation
losses, subject to a maximum of $1.2 million, for the cost of
handling the workers' compensation claims. Liberty Mutual
charged petitioner 1 percent of its audited premium for excise
tax and 1 percent for management fees. Dividends were to be
declared and paid in accordance with California law and the
determinations of the board of directors of Liberty Mutual.
In 1984, petitioner made premium payments to Liberty Mutual
in connection with the California workers' compensation policy
and received a dividend payment in 1985. During 1984, petitioner
also continued to insure its workers' compensation liability for
most other States with Liberty Mutual. In April 1984, the
estimated premium for petitioner in California was calculated to
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