Do you think it’s fair that an employer be held accountable at a workers compensation audit for an error their agent made? Maybe I should drop the “fair” part. How about this. Do you think an employer should be held responsible an error the agent made setting up the workers compensation policy? It happens often. Let’s take a look.
For a small employer the process of securing a workers compensation policy can be full of hazards that don’t show up until after the policy has expired and an audit is conducted. Especially if it’s the first time they’ve ever had one of these policies. Innocent errors can be made during the set up of a policy by both the insurance agent and the employer that after audit end up costing the employer several thousands of dollars.
Here’s a sampling of what can go wrong:
- Incorrect Entity – Inclusion or Exclusion of Owners – As an example lets say an employer operates his business as a Corporation but the policy is set up as a Sole Proprietorship. In the employers state Sole Proprietors are excluded from coverage but Corporate Officers must be included. The owners payroll is not included in the original policy. The Corporation entity is discovered at audit and the owners rating payroll is added to the policy which significantly increases the premium. Who made this mistake? The agent? The employer? Both? Should the insurance company underwriter caught the mistake? All of the above?
- Exclusion Form Not Completed or Properly Filed – In this case the employer operates as a LLC and in their state LLC Members are automatically included in coverage but may elect to be excluded. If they wish to be excluded they are required to complete a form and file it with the insurance company at the inception of the policy. Some insurance companies give the employer time to complete and submit the form. Some companies will mail the form with the issued workers compensation policy and provide instructions on how and when it should be returned. In this case the LLC Member indicated to the agent their desire to not be included. The form was either not completed or was not properly filed. At audit rating payroll for the LLC Member was included and a large additional premium bill was sent. Who had the responsibility to complete and file the for, the agent or employer? Both? What if the company mailed the form to the employer but the employer never opened their mail?
- Under Projection of Rating Payroll – In this case the employer was asked by the agent to project their payroll for the 12 month policy period. The employer purposely shorted his payroll projection by a significant amount expecting this would result in a reduced premium. The agent uses the projected payroll provided and issues the policy. The audited payroll more than doubled the final premium. The employer believes there was a mistake because he already paid the premium. Wrong! How could this mistake been prevented? Could the agent have asked for additional information that would have supported the payroll projections? Is this fraud on the employers part?
Beginning to see how easy costly mistakes can occur?
The delivery system in place for most workers compensation policies includes gathering policy information, quoting, issuing and policy audit. Each step in the process has its own set of recurring error possibilities. Employers make mistakes in providing information. Agents make mistakes in applying the information provided by employers. Insurance companies make mistakes in issuing and performing audits. Who’s responsible when something goes wrong? As usual the answer is found somewhere in the details!
If you’re experiencing a workers compensation audit problem be sure to contact our office at WorkCompConsultant.com for help!
Hope this helps you out! Thanks!