What happens if an employer does not comply, is non-compliant or does not allow a workers compensation audit to be performed? It’s a question I’m asked too often!
A workers compensation insurance policy is a contract. A contract between the insurance company providing coverage and the named insured on the policy. Like most contracts, in exchange for some form of consideration, in this case the payment of premium, the insurance company will pay workers compensation claims on behalf of the named insured on the policy. And as with most contracts there are terms and provisions found in the document that are promises of performance based on agreements between the insurance company and named insured.
One of those agreements is that of the premium audit. When an employer secures a workers comp policy they agree, in the provisions and terms of the contract, to allow the insurance company, it’s representatives and or rating authorities to examine and review their company records. So when an employer refuses to allow a workers comp audit to be conducted they are violating a term of the contract in which they agreed and the insurance company will brand them uncooperative.
The consequences for not completing an audit can be far reaching and may include some or all of these items:
- The cancellation of any current workers compensation coverage. If an employer is not compliant with their audit the insurance company will take that as a sign of being uncooperative and will cancel or set for non-renewal their current policy.
- The application of a monetary penalty. Each state has it’s own approved monetary penalty that an insurance company can apply when an employer has been deemed uncooperative. Penalties are usually shown as a percentage to be applied to the original deposit premium. This may be as much as 300% of the original deposit premium! In other words, the insurance company will take the original premium, multiply that by 300% and send the uncooperative employer a bill! And yes…they can collect on that amount!
- The employer may be unable to secure future coverage and is reported to the Advisory Organization. Workers compensation insurance carriers are pretty sophisticated these days. Believe it or not communication does exist! When an employer is deemed uncooperative, they will be reported by the insurance carrier to the advisory organization of jurisdiction. If that employer then seeks future coverage the new insurance company will check and find they were uncooperative with a prior company and may refuse coverage.
- Legal action may be brought against the employer. Remember it’s a contract and when one party refuses to live up to the terms of the contract the other party may have legal recourse. Civil action may be brought against the employer and if fraud is suspected, criminal charges may also be possible.
Insurance companies take the audit process serious. They will use the tools at their disposal to make sure their rights are protected. Do not underestimate that!
What can you do if you find yourself having a problem with a work comp audit or all of a sudden find yourself non-compliant? Make sure you contact an independent workers compensation consultant and ask for help!
So, is it important to make sure your workers comp audit is completed? I think so…
Hope this helps you out! Thanks!
