Important Ruling by Illinois Department of Insurance

The Illinois Department of Insurance has just recently made a determination in a legal hearing that has important implications for every employer in the state. In this hearing, the Department has officially held that an insurer may not retroactively adjust the schedule credits or debits on a Workers Compensation insurance policy to offset a premium refund owed to the policyholder.

I testified at this hearing back in 2005 (although the ruling was only made recently in 2010) about the past policy of the Department of Insurance in the regard. In my experience as a consultant, the Department had always held that an insurer could not retroactively change schedule credits or debits just to offset a refund owed to the policyholder. But in the instance of this one particular policyholder, an official at the Department of Insurance had ruled in favor of Liberty Mutual and allowed an exception in this one instance, for unspecified reasons.

This legal determination by a hearing officer at the Department of Insurance has ruled that it was improper of Liberty to make this change in schedule credits, as Liberty's filing with the Department about schedule rating had made it clear that specific criteria would be used as the basis for such adjustments. The ruling upholds that earlier informal policy that an insurance company may not adjust schedule credits and debits just to manipulate premiums and avoid making a return of premium that is otherwise owed.

In this particular case, Liberty had used the wrong governing classification for several years to compute Workers Comp premiums. After NCCI ruled that a less expensive classification was really correct for this company, Liberty was asked to recalculate premiums and refund the overcharge (as required by Illinois law).

Liberty refused, saying they would just adjust schedule credits to offset the return premium owed because of any classification change. So a complaint was filed with the Illinois Department of Insurance. But this time an exception was allowed, for reasons that were never made clear.

That triggered a request for a formal legal hearing at the Department. And even though it took five years for the final determination to be made, that ruling is now out. Liberty was wrong to retroactively change schedule credits to offset these premium refunds, as Liberty's filing with the Department about schedule rating made it clear that such schedule adjustments were to be based on very specific criteria, not just Liberty's desire to manipulate premium charges.