In a reversal of a prior Labor Department ruling, the Rhode Island Workers Compensation Court ruled that Michael and Jeff Derderian, owners of The Station nightclub, could be held personally liable for their failure to obtain workers compensation coverage for their employees. According to Insurance Journal:
“The ruling means that the brothers’ personal assets can be tapped to pay the more than $1 million fine levied against their company, Derco LLC, for not having the insurance in place when their nightclub burned, killing 100 people including four employees.
The ruling is under appeal. There is some legal wrangling going on about whether owners and managers of limited liability companies can be held personally responsible for fines and penalties. Suffice it to say that state authorities take a dim view of this type of employer fraud and penalties can be severe. Employers can be required to pay compensation plus a penalty for any injuries or deaths. Other penalties might include substantial fines or jail time. Also, because the employer has not held up their responsibilities under law, the “exclusive remedy” shield may be pierced, exposing the employer to civil suits.
Last week, we wrote about another case of on-the-job fatalities in Florida where the employer did not have workers compensation coverage. In this case, as they have done in other premium fraud cases, Florida authorities issued a stop work order, shutting the business down.
Many experts think that failure to secure workers compensation coverage may well be the largest single source of workers compensation fraud. And like all insurance fraud, it is often the honest insureds that pay the freight one way or another. In California, for example, caring for injured workers of uninsured employers costs the state almost $25 million a year. However, the parties that generally pay the steepest price for this type of fraud are the injured or deceased employees and their families.
More on this topic:
Workers’ Comp and the Station Nightclub – Workers Comp Insider archives, December 2003
Ohio Getting Tough on Premium Coverage – Workers Compensation archives, July 2004
Nolo’s Quick LLC: All You Need to Know About Limited Liabilities – Chapter 1 is available online