Another Small Business Destroyed by Workers Comp Insurance

 I just had to write a very frustrating email to a potential client, a small construction company in Georgia. They bought a Workers Comp insurance policy for $1,500 and now have an audit bill for $136,000, and I don't see any way to help them--outside of a courtroom, at least, I'm not an attorney but I do a lot of expert witness work in litigation over Workers Comp premiums. But fighting these kinds of audits is expensive, with no guarantee of success.

The trap this small business fell into is one I see often. The people selling the insurance sell them what is known as a Minimum Premium policy, without explaining that the ultimate premium could well be much, much more. Typically, the insurance agent doesn't do a very good job explaining how the insurance company typically charges premium for uninsured independent contractors, the same as for regular W-2 type workers.

And the shitty thing is, insurance agents typically aren't required to explain that kind of thing. Because insurance agents aren't held to the kind of professional standards that attorneys or accountants are. Insurance agents generally only to have to be an honest order taker. If they get you the insurance you asked for, and don't steal your money, they've typically satisfied their legal requirement. It's only if they voluntarily act as an insurance advisor that an agent can create for himself or herself a higher duty to actually offer accurate and reliable advice.

It's actually a common practice for insurance agents to sell these Minimum Premium policies to small contractors and never warn them about the possible ruinous consequence of a huge premium audit after the policy expires. I get calls and emails all the time about this issue, Sometimes, I can help reduce the bill. This time, it doesn't look like I can.

Insurance regulators and insurance companies often claim that Workers Comp insurance is the most regulated line of insurance, and that's technically true. Yet for something supposedly so regulated, insurance companies sure as hell get away with destroying a lot of small businesses, when Shock Audits for Workers Comp arrive in the mail.

This problem could be fixed, if so much money wasn't made with the existing shitty system.

For instance, insurance agents could be held liable for providing genuine advice about these kinds of things, by statute, instead of being left with no more liability than a kid working at McDonald's.

Or limits could be placed on the ability of insurance companies to issue audit bills that are far, far in excess of what the original policy premium was.

Or states could establish requirements for clear and understandable warnings to be given to businesses about this potential audit landmine, at the time they purchase Workers Comp insurance.

Or states could create administrative systems with authority to provide clear guidance to employers about when an independent contractor is subject to the Workers Comp Act, and when they are not, an administrative system that doesn't require fighting an expensive lawsuit.

But at the moment, small companies, especially small construction companies, continue to exist under this existential threat of obliteration by their insurance company, over insurance coverage they are forced to purchase. No other industry I can think of could operate in such a fashion, selling a product initially priced like a bicycle but later sending a bill for a goddamn Ferrari.