A Workers Compensation Policy Name Change – Cancel and Rewrite or Endorse the Policy?

If an employer changes the name of their business should the workers compensation policy be cancelled and rewritten or should the name change just be endorsed to the existing policy? This is a great question because there’s no single answer that applies to all situations other than, it depends! So let’s try to simplify this and come up with a better understanding of the issues surrounding name changes and a somewhat usable answer!

Ask just about any workers compensation underwriter out there about how they want to handle name changes on a policy and they will answer with a series of questions, at least they should. Why the questions? So they can get to the bottom of what’s really going on with a name change. To properly determine if a policy can merely be endorsed with a name change or if the action requires the policy to be completely rewritten depends on specifics surrounding the reason for the name change. Here’s some issues that need to be determined:

  • Does this name change represent a change in ownership? – Changes in ownership require detailed information surrounding the change to be reported to the insurance carrier for most states within 90 days of the change. An ownership change will trigger the need for completion of an ERM 14 which is simply a form that gathers detailed data surrounding the change. This form will then be used by the advisory organization or rating bureau to determine the combinability of experience from the previous ownership with the new ownership. Combinability of experience is a determination as to how experience modification data from the previous ownership will affect the new ownership. The ERM 14 really doesn’t have much at all to do with how the named insured on the policy is handled. Remember, it’s just a form used to report the details surrounding the ownership change to the rating bureau.
  • What constitutes a change in ownership? – It’s generally accepted that if, for example, a sole proprietor dba Paul’s Auto Repair changes its name to same sole proprietor dba Paul’s Super Service Auto Repair there really hasn’t been a change in ownership. You may even understand this to mean if the sole proprietor dba Paul’s Auto Repair decides to form a LLC where the original sole proprietor becomes the only member of the LLC and the name now reads LLC dba Paul’s Auto Repair, while there has been a name change there really has not been a change in ownership. Some may disagree. Consider the situation where LLC dba Paul’s Auto Repair sells the business to Mega Auto Repair Inc, where there remains no common ownership, as a complete transfer of ownership.
  • How does a change in ownership affect the name change? – Follow the entities. Using the above examples, Sole Proprietor dba Paul’s Auto Repair changed to dba Paul’s Super Service Auto Repair is in fact no ownership change at all and would not affect the named insured on the policy which would be Sole Proprietor however an endorsement to the policy may be produced correcting the dba to Paul’s Super Service Auto Repair. Otherwise nothing really happened in that transaction. However when LLC dba Paul’s Auto Repair sold to Mega Auto Repair Inc., an entirely new business entity was formed and the existing policy would need to be cancelled and a new policy would need to be written with the named insured being Mega Auto Repair Inc. 
  • So is this really about Named Insured, Entities and Ownership? – Yes. It’s very important that the named insured on the workers compensation policy be correct. I’m sure you’d be surprised to know how many are not! But think about it. When a business owner changes the entity under which they conduct business could that change be a change in ownership? Maybe. And could that change in ownership trigger a cancel and rewrite of a policy? Maybe.

So if the name change just represents a name change…with no real ownership change…then most insurance carriers will simply be able to endorse the policy. Experience rating information will continue as is. However if the name change represents a real change in ownership then the insurance carrier should cancel the original policy and rewrite a new policy in the name of the new owner or entity. And the effect on experience rating will be determined by the rating  bureau or advisory organization dependent on details reported on the ERM 14.

Don’t underestimate the confusion surrounding name changes, ownership changes, the ERM 14 and their effect on a workers compensation policy!

Hope this helps you out! Thanks for reading!