I was recently asked to review a Kansas assigned risk workers compensation policy for a Missouri insured. A Missouri based employer who was only performing work in Missouri. I’ll share a few things with you about this situation. Here’s some facts:
- The insured bought the policy from a Kansas insurance agent.
- The policy is an assigned risk policy.
- The insured was and continues to be a Missouri based operation.
- They operate as a partnership.
- Both partners were excluded under the policy.
- Employees are all from and continue to reside in Missouri.
- The insured performs all of their work in Missouri.
- Seems the agent was made aware of the work situation for the insured.
- Kansas is the only state listed in Item 3A.
Let me be blunt! There is no coverage under this policy for a Missouri worker in Missouri!
I’m not sure whether this was just a fraudulent situation from the beginning or what but I do know that this policy would be great evidence at an E & O trial for the insurance agent!
There’s so many things going on here I just about don’t know where to start. If the agent was fully aware of the work situation then:
- …they either didn’t know what they were doing, or
- …they did it on purpose.
Does this have to do with someone trying to deceive the system? Maybe. You see the insured is in the construction business and primarily performs commercial framing operations. They sometimes work without employees and at other times have a crew of employees working with them at their job site. Remember they only do work in Missouri.
According to Missouri Statute, an employer in the construction industry operating within the state is required to provide Missouri workers compensation protection when they have one (1) employee. This means that the employer in question was operating outside state statute and subject to stiff fines and penalties.
Here’s what Missouri says about uninsured employers: “An employer who knowingly fails to insure its workers’ compensation liabilities is guilty of a class A misdemeanor and may be liable to the state of Missouri for a penalty of up to three times the annual premium or up to fifty thousand dollars, whichever amount is greater. A subsequent violation is a class D felony. Failure to maintain workers’ compensation insurance should be reported to the Fraud and Noncompliance Unit of the Division of Workers’ Compensation.”
But the employer secured a certificate of insurance from the insurance agent that sold the policy! Why wasn’t coverage valid?
Good question! To find the answer you have to know a little about coverage triggers and how a workers compensation policy works. If you’ve spent anytime reading our blog or have visited our website you probably already know the answer. It has to do with coverage in other states and how that coverage is triggered by the states listed in Item 3A of the workers compensation policy.
So how can you tell if coverage applies?
Take a look at the information page of a policy. It’s the page that shows the named insured, address, and other policy information. Find Item 3A. Under 3A you’ll find a listing of states, maybe only one state as in the case of this employer. Item 3A states something like this: “Workers Compensation Insurance, Part one of the policy applies to workers compensation law of the states listed here: ” The policy will go on to state something like this: “Workers Compensation Law means workers or the workers compensation law and occupational disease law of each state or territory named in 3A of the information page.”
In order to have coverage apply for current operations or ongoing operations in a specific state at the effective date of the policy the state must be listed in 3A. And for this employer only Kansas was listed and that means no coverage in Missouri under his policy.
So what happened here?
- It appears that an agent sold an employer a policy that did not provide coverage in the state the employer resided, operated their business and hired employees.
- Was the employer enticed to buy the policy because it was cheap? Probably.
- Did the employer and agent collude in order to avoid requirements under state statute to save premium dollars or because of cost? I don’t know, maybe.
- What if an employee was injured? No Missouri coverage.
- Would the employer have been sued? Probably, along with state fines and penalties assessed.
- Would the agent have been sued? Probably.
The Take Away: You must be careful when securing a workers compensation policy. Be especially careful if you are dealing with an Assigned Risk Workers Compensation Policy because they usually have state restrictions! For a small employer the cost of workers compensation insurance can be a real burden and many are enticed by the lure of a cheaper price. If you are an employer, do your homework, find and work with a reputable insurance agent or broker. One who’s experienced and knows what they’re doing with a workers compensation policy!
Hope this helps you out! Thanks for reading!