Posts Tagged ‘premium fraud’

A proliferation of premium fraud?

Friday, February 18th, 2005

You know that workers comp is a problem when the so-called mainstream media begin to take note. Normally, workers comp is a topic relegated to the trade journals or the deepest nooks and crannies of the business pages in the daily news. Contrast this with the early 1990s, when headlines screamed about runaway costs and story after story included tales of employers closing shop or moving operations from one state to another due to the burdens of workers compensation.
This month, Forbes features a story about current workers comp woes, and it is interesting to note that this story entitled Workers Con deals primarily with the proliferation of premium fraud.
The story cites a number of examples: a FL PEO that pocketed $600 million in premium leaving employers and their employees uncovered; a California janitorial firm that underreported the number of employees by several hundred; a Texas janitorial firm that played a shell game by switching employees between a number of companies; an Illinois temp service that misclassified warehouse workers as clerical workers, and a California PEO that hid more than a million dollars in wages by calling them “partnership distributions.”
Is employer fraud actually more widespread in reaction to rising costs, or are state regulators just taking a harder look now that reforms have wrung the fat out of other aspects of the system? Hard to say for sure since fraud statistics – both on the employer and the employee side – are often difficult to quantify and generally rather squishy at best. The Forbes article says yes, if the rising number of suits filed by state and private insurers is an indicator.
One thing is for sure – fraud schemes hurt us all: the injured employee is often left without recourse or forced to bring suit to pay for medical care; the honest employer pays higher premiums as insurer costs “trickle down.” In addition, fradulent employers often enjoy an unfair competitive edge. By illegally evafing a cost of business tht can be substantial, fraud perpetrators can offer lower prices in competitve or bidding situations.
Employers that hire contract workers through a third party, such as through a temp agency, or a leasing company, and employers who purchase workers comp packaged in a bundle of other services, such as in a PEO, need to be particularly alert to the issue of coverage lest they find themselves holding the bag. The California Department of Industrial Relations offers an employer tip sheet on ensuring the legitimacy of workers comp coverage. It is worth kicking the tires before cementing any arrangements: check business licenses and verify coverage with a local insurance authority.
Florida uninsured employer jailed for fraud after two deaths

West Virginia is cracking down on deadbeat employers

Ohio getting tough on premium compliance

Insurer insolvencies, guaranty funds, and joint and several liabilities between temp staffing agencies & contracting employers

Florida uninsured employer jailed for fraud after two deaths

Wednesday, December 1st, 2004

In August, we wrote about a terrible construction accident in Florida that claimed two lives. Five other workers, including a 13-year old boy, were injured when a roof collapsed as concrete was being poured. A $2.4 million fine was imposed, and state authorities subsequently shut down the contractor when it was learned that the company did not carry mandatory workers compensation insurance.
Last week, the owner of Macs Construction and Concrete Inc. was jailed. Insurance Journal reports that failure to provide workers compensation coverage is a felony and, if convicted, the employer faces up to five years in prison.
“When workers show up to perform a job, they deserve to be protected in case they get injured. This terrible accident is a perfect example of why workers’ compensation is so important,” said Gallagher, who oversees DFS. “Employers who don’t protect their workers will be held accountable.”
In addition to the obvious and terrible toll that employees face when employers lack coverage, other employers pay the price as well. Competitors face unfair competition, and insured employers generally face higher premiums to cover state costs for any benefits provided to workers.
Jordan Barab at Confined Space also discusses this story. He notes the irony that the charges against the employer stem from lack of insurance rather than the unsafe practices that caused the deaths of the workers.
Related items:
Felony for willful safety violations – legislation gaining traction?.
Jobs that lure Mexican workers to the U.S. are killing them
More on immigrant workers

West Virginia is cracking down on deadbeat employers

Wednesday, October 27th, 2004

West Virginia has a message for employers that have defaulted on workers comp obligations in one company, and moved on to another: You can run, but you can’t hide. The state has an aggressive plan to collect from deadbeat employers who owe the state millions of dollars in unpaid workers compensation claims. We found this story interesting after just having discussed the implications of insolvencies on state guaranty funds a few days ago. It is just such a scenario prompting West Virginia’s crackdown.
“The fund currently has $3.3 billion in unfunded liability because it needs about $4.2 billion invested to cover the projected costs of the claims it will pay out over the next 40 years but only has about $900,000 invested.”
The state has identified deadbeats through a new state Employer Violator System that crosschecks data from the Tax and Revenue Department database to identify ties between active companies and defunct companies, looking for shared officers, owners, and principals. They have identified nearly 400 companies that owe the fund more than $124 million in unpaid debts, and they plan to track them down and take aggressive actions:
“The system was developed to comply with a 2003 legislative mandate that state agencies revoke contracts, yank licenses and permits and otherwise block companies and individuals from doing business in the state if they default on their workers’ comp obligations.”
We’ve certainly heard of many state efforts to crack down on employer fraud – it seems as though this issue is particularly prominent right now. There is no doubt some relation between a tough economy when employers are squeezed and a spike in firms that fail to insure their employees. Add to that, the numbers of companies that fail in a bad economy, defaulting on obligations. By tracking senior managers from one business venture to another to collect debt, West Virginia’s initiative raises the stakes for noncompliant employers, althought there will still be issues to sort out.
“…the agency is still debating is how close the association must be between a defaulted company and other companies before those other companies also end up being barred from doing business in the state.”
This bears watching – some issues will no doubt play out in the courts. It may be good news for injured employees and taxpayers who have been stuck with bills. Compliant employers and insurers who bear a cost burden for the sins of the few should also applaud aggressive efforts to crack down on fraud wherever it occurs.

R.I. Court Holds Nightclub Owners Personally Liable

Thursday, August 19th, 2004

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

Ohio getting tough on premium compliance

Friday, July 16th, 2004

Employers in Ohio would do well to ensure that they keep their workers’ compensation premium payments up to date. The Ohio Bureau of Workers Compensation (BWC) recently issued a press release naming employers who have lapsed premium payments.
Ohio is one of five states where a state fund is the exclusive provider of workers insurance. The other states are North Dakota, Washington, Wyoming, and West Virginia.
According to the release, more than 1,710 Ohio businesses are breaking the law by letting their premium reach a lapsed status of more than $1,000. The BWC takes efforts to bring employers into compliance, but when unsuccessful, the Attorney General pursues legal action. By publicizing the top 150 noncompliant Ohio employers, the state fund is enlisting the help of the public.
“Businesses that do not pay their premiums have an unfair advantage,” [James] Conrad [administrator and CEO] said. “In competitive bidding situations, Ohio employers that do not pay into the workers’ compensation system can undercut competition and unfairly win a job. By stealing from BWC and Ohio, these companies are also stealing work they normally might not win, and it’s imperative the bureau, along with state’s employers and taxpayers, put a stop to this type of activity.”
As part of the push to secure compliance, BWC has added an employer coverage look-up tool to its website. BWC suggests the following scenarios where the tool might be useful:

  • Ohio homeowners who have recently hired a contractor for their services;
  • Ohio employers who are curious about those with whom they do business;
  • Ohio contractors who want to check on the coverage status of subcontractors.

With some few exceptions, failure by employers to secure workers compensation coverage for their employees is illegal in most states, and considered as fraud. Other types of premium fraud include under-reporting the number of employees or payroll, misclassifying employee occupations, or any other scheme to avoid or underpay premium. Many states encourage employees to report any suspected employer fraud to either their state insurance authority or the state