COVID-19 and Workers Comp

Our collective coronavirus crisis has upended lives and businesses in an unprecedented manner. It has abruptly and rudely shoved millions of people into the ranks of the unemployed. It has also shut off many businesses’ cash flow just as abruptly and rudely. But once we get past these initial existential threats (assuming we do, of course) there are likely going to be unexpected ramifications to threaten those workers and businesses that survive the immediate disasters.

One question being asked is whether COVID-19 infections could be the basis for Workers Compensation claims by workers who feel they likely contracted the virus through work. At the moment, the best answer appears to be that’s unlikely for many workers, possible for some, and subject to change depending on future actions by state legislatures.

Workers Compensation is primarily a state matter, and the particulars of Workers Compensation statutes can vary significantly from one state to another. Many states exclude “ordinary diseases of life” from the occupational diseases covered by Workers Compensation. But there are occupational exposures where that could be a different matter — healthcare workers, for example. But even for those workers, there likely will be significant disputes over coverage.

And since, in most states, Workers Compensation coverage is provided by private insurance companies (although mandated by state laws and subject to the specific benefits established by the varying states) initial decisions about coverage for COVID-19 will be made by insurance company claims people, subject to review and determination by state adjudicators, when a worker disagrees with a decision by an insurer.

Another potential complication: health insurance routinely excludes coverage for injuries and illness covered by Workers Compensation. And employers commonly use different insurers for health insurance and Workers Comp insurance.

It is conceivable workers could be caught between different insurance companies, each claiming the other should be responsible for paying for COVID-19 medical costs. And while those insurers try to pass the buck between themselves, the healthcare providers may well come after the worker for the unpaid bills.

Some state legislatures have already voiced interest in addressing these issues, so it may be likely that at least some states will address COVID-19 coverage issues in the near future. But given the patchwork nature of the Workers Compensation system in America, these decisions will also likely be a patchwork of differing rules.

For businesses that survive these initial disruptions, there may well be later significant financial threats to them, thanks to Covid-19 and Workers Compensation. And that has to do with the fact that in most states, businesses obtain their Workers Compensation coverage from insurance companies. And those insurance companies base premium charges, in large part, on payroll.

On March 26, 2020, the National Council on Compensation Insurance(NCCI) issued a FAQ on the subject of COVID-19 and Workers Compensation insurance. NCCI is the insurance industry trade organization that writes the manual rules that govern Workers Compensation insurance premiums in most states. And in that FAQ, NCCI revealed the likely causes of this coming financial threat to employers.

For one, NCCI spells out that, in cases where employers continued to pay people even when they were not working, insurance companies will count that payroll when they compute premium charges for Workers Compensation insurance. So if employers pay out significant remuneration to workers who are not actually working, no good deed will go unpunished when it comes time to compute Workers Compensation insurance premiums.

NCCI also made it clear that employers will need to clearly document when certain workers shifted their duties in response to the crisis in such a way as to potentially become eligible for a less expensive rate for Workers Compensation insurance. Without such documentation, the NCCI’s arcane rules will deny any adjustment in rate by insurance companies.

Because Workers Compensation insurance premiums are based on payroll, and use obscure rules to determine the rates assigned to those payrolls, there can be very significant additional premium charges that are billed to employers after a policy ends. This is a routine and fairly well understood aspect of Workers Compensation insurance, although newer businesses can often be unpleasantly surprised by it.

Insurance companies audit the payrolls and operations of insured businesses after policies end, and sometimes those audits produce unexpectedly large bills for additional premiums. Given the complexity of the rules involved, it is not uncommon for insurance companies to make errors in computing these additional premium charges, even in normal times. These times are not normal.

Insurance companies are not currently conducting in-person audits for Workers Compensation insurance, and it is unclear at this writing when they may resume that practice. They will still adjust premiums after policies end, of course, but now they will rely on information provided by phone or online. And since employers typically don’t understand the complicated rules about these things (Does overtime pay get counted? Whose pay goes into the cheap clerical class? What about vacation pay? Sick pay? COVID-19 time-off pay?) the odds of errors and overcharges likely will increase.

So just when surviving businesses may be trying to get back on their feet, the bills for additional Workers Comp insurance premiums may be coming in. And insurance companies historically have not been overly patient with policyholders when they think those policyholders owe them money.

Worse yet, recent changes to the rules allow for punitive premium increases if an insurer feels a policyholder has not cooperated with a premium audit. So business owners who have already been stressed to the breaking point may find they unexpectedly are dealing with an insurance company demanding money they cannot afford to pay, based on payrolls that happened in the past, before we were all living in a disaster movie.

Insurance companies historically have not been hesitant to file suit over additional premiums they feel are owed them, even when those additional premiums have been erroneously calculated. And insurers have another powerful hammer to hold over employers: they can get current Workers Comp coverage cancelled over unpaid bills for past policies.

Workers Compensation insurance is subject to the oversight and regulation of the various state insurance regulatory agencies. And those agencies have been far from vigilant in limiting errors and abuses by insurers over Workers Comp insurance premiums. State insurance regulators have, in recent decades, largely abandoned rigorous oversight of Workers Compensation insurance premiums, adopting an attitude that price competition will serve to prevent overcharges. That laissez-faire approach has left insurers free to overcharge with abandon, in my experience, even in normal times.

In the times to shortly come, alas, American employers may find that their recovery is threatened even more than was formerly the case, by an insurance industry that gets to largely write its own rules, in language that is far from accessible, for insurance coverage that is required by law if the employer wants to be in operation.

Of course, for the moment, workers and employers have far more immediate concerns. But once this storm runs out of rain, we will be mopping up for quite a while.

We Need A Coronavirus Lifeline for Business on Workers Comp Audits

We're in the midst of an unprecedented pandemic emergency. Entire categories of business have been abruptly shut down by authorities in the desperate attempt to curtail the growth of this dangerous infection. Workers in the restaurant and hospitality industries have just been tossed to the curb en masse. And a great many other businesses are trying to survive in a world where no one has any damn idea what their cash flow will be next month--or next week.

Pennsylvania's governor has just ordered the closure of all "non-essential" businesses. There are serious plans to suspend evictions and foreclosures. Courts all over the country are closed for business.

But the insurance industry shows no sign of relenting on Workers Comp Shock Audits. If anything, the industry may be intensifying its efforts.

I got an email from a client I helped last year. Back in 2019 I got an insurance company to correct their excessive audit for this client. Now, a year later, the apparently panicked insurer has informed them they are now retroactively reversing the correction, and if they don't pay up promptly they will file suit.

Well, I'm not sure what court these geniuses will file in at the moment, but beyond that, I'm starting to get other phone calls and emails that make me realize the insurance industry has not the slightest intention of giving employers any slack in billing for additional premium generated by Workers Comp audits.

So businesses that are abruptly being shut down by government order are still facing financial ruin over their past Workers Comp insurance. And businesses that, while still in business but may be struggling to cope with a workforce suddenly displaced to working from their kitchen tables, will still be vulnerable to the often error-riddled audit charges for their past Workers Compensation insurance coverage--coverage from, you know, back before we were all living in a real world horror movie.

What businesses need right now is a moratorium on insurance companies billing additional premium charges for audits of past policies.

Without that relief, the insurance industry's habit of issuing Shock Audits for Workers Comp insurance (many of which are improperly inflated by technical errors) will be the final nail in the coffin for many of these operations.

Sure, it looks like this self-serving practice by the insurance industry looks likely to generate lots of additional work for us here at A.I.M. But we were plenty busy before this crisis.

I used to joke that the insurance industry must be worried about the Priz boys not having enough work, so they set out to traumatize employers with Shock Audits. Now that joke isn't funny any more.

It's not like insurance companies are likely to be able to collect a lot of the additional premiums they bill out now. You can't get blood from a stone, and all that. But apparently that won't stop them from trying. So once the courts open up again for business, there may be a lot of lawsuits filed by insurers over uncollected Workers Comp premiums.

And since a fair number of those premiums will likely be improperly inflated by technical errors regarding classifications, payroll audits, experience modifiers, and other underwriting and auditing errors. we're likely to be busier than ever.

But it really shouldn't be that way.

Roofing Estimators and NCCI Rules

I've spent years arguing that insurance companies were wrong to assign salespeople/estimators for roofing into the same roofing classification as those doing the actual roofing work, and now NCCI, the Workers Comp rating bureau in many states, has made a filing that agrees with my views.

NCCI, the National Council on Compensation Insurance, creates the classification rules used in most states for Workers Compensation insurance. And their new filing with state insurance regulators explicitly assigns such salespeople/estimators into Code 8720, the classification I have advocated for in the past for such work exposures.

In the past, the NCCI manual rules didn't really address the issue of proper classification of such estimators, but many insurance companies "interpreted" those manual rules in such a way that they would place payroll for such estimators into the roofing classification, Code 5551. NCCI itself would typically support such an "interpretation" by member insurance companies, although nothing in the actual filed manuals supported such an interpretation.

Now NCCI has officially changed this position, although the new filing isn't approved yet in all states (but is likely to be) and only makes the change on a "going forward" basis, which means that all those roofing companies who, in recent years, have been gouged by their Workers Compensation insurers via this "interpretation" will have a difficult time seeking any retroactive adjustments.

Of course, "difficult time" is not the same thing as "impossible". Stay tuned.

Today's Shock Audit email

...is from an Illinois one man roofing company that paid a couple of thousand dollars per year Workers Comp premium for the past few years has gotten a Shock Audit for over $200,000 covering three years. Insurer is apparently coming up with some estimate of payroll that based on cash withdrawals used to pay dumping fees. Insurer is treating this as if it these withdrawals were for labor, paid under the table. Policyholder says this is not so. Insurance company is being, shall we say, less than cooperative in reducing the audit billing.

So we're going to take a look and see how much, if any, of this audit billing the insurance company is actually entitled to. Stay tuned.

California Insurance Commissioner and Applied Underwriters

I've written in the past about how a Berkshire Hathaway owned Workers Comp insurer, Applied Underwriters, has sold some types of policies that are, essentially, incomprehensible in the details of how premium charges will be ultimately calculated. Incomprehensible to many of the folks who bought the damn policies, at any rate.

California insurance regulators finally yanked on the leash of Applied Underwriter's Equity Comp program, as did some other state regulators. But more recently, California's new insurance commissioner and his staff took steps to undo some specific actions against the insurer. And that has created some rather negative news coverage of the commissioner.

It turns out, you see, that this newly elected insurance commissioner took some significant campaign contributions from Applied Underwriters. Oops.

The entire situation does call into question the wisdom of electing insurance commissioners, given the ability of the insurance industry to influence elections with significant campaign contributions.

Of course, appointed insurance commissioners often have very significant ties to the insurance industry as well, so this is a problem that is yet to be solved, I fear. Stay tuned.

Nice News For A Client

We've just seen the revised audit we arranged for a client, a New York small contractor. The new audit bill reduces the total premium by about $4,000.00. This wasn't a huge case, the way some of ours are, but it was a big deal for this small business.

Total cost of our involvement: $600. Money well spent, I might immodestly suggest.

Selective Memory, Perhaps.

Two interesting quotes on a current case.

In a letter from Travelers insurance to my client:
"We are not willing to provide additional detail regarding the schedule debits, as the pricing was fully disclosed and agreed upon prior to the 6/1/2018 renewal."

From the NCCI Basic manual:
"At the time that the schedule rating factor is applied, the carrier must have documentation on file detailing the basis for the credit or debit. This documentation must be provided to the insured on request."

Methinks we shall be referring this to the Department of Insurance. Fascinating how insurance companies fail to read the manual rules that apply to their policies.