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An insurer which overcharged an employer for workers’ compensation insurance, and which then tried to avoid refunding the overcharge by retroactively eliminating certain credits it issued to the employer for implementing safety measures, must refund over $600,000 to the employer, according to an order issued by the Illinois Department of Insurance.
The Department of Insurance in a final administrative decision, has ruled that a major Illinois Workers Compensation carrier charged its client, a medium-sized Rockford-area manufacturer, too much money by assigning an incorrect, more expensive class code in calculating the manufacturer's premiums between 1996 and 2000. As a result of the carrier's error, the manufacturer paid the carrier $606,524 too much in premiums. The Department of Insurance has ordered the carrier to refund the $606,524.
After the manufacturer hired AuditRate, Inc. of Chicago, which discovered the overcharges, the carrier still refused to refund the money for two reasons. First, the carrier claimed that it had used the correct class code in calculating the manufacturer's premiums, and that it therefore owed no refund to the manufacturer. Second, the carrier argued that even if it had overcharged the manufacturer by using an incorrect, more expensive class code, it could retroactively delete certain schedule credits that it issued to the manufacturer for maintaining a safe workplace. Such schedule credits reduce an employer's premiums as an incentive to keep their workplace safe.
The manufacturer and AuditRate hired attorney Bob Neiman of Chicago's Much Shelist to recover the premium overcharge. Neiman filed a complaint with the Department of Insurance seeking a refund. After an 11 day administrative trial, the Department of Insurance ruled that the carrier had overcharged the manufacturer by using an incorrect, more expensive class code, and that the carrier could not retroactively delete the schedule credits it had issued to the manufacturer for maintaining a safe workplace to offset the premium overcharge.
"This ruling is a huge victory for all Illinois employers," Neiman said. "Insurers will think twice before assigning more expensive class codes to generate higher premiums, and can no longer retroactively delete the safety-related schedule credits when they get caught overcharging employers."
AuditRate's Rich Swoik, who discovered how the carrier had overcharged the manufacturer, agreed. "The Department of Insurance has sent a clear message to Illinois Workers’ Compensation insurers that they can no longer overcharge employers and then refuse to refund those overcharges when they get caught," Swoik said. "Insurers tend to have their way when it comes to these kinds of regulatory enforcement actions, but this case means 'insurers beware.'"
When a workers’ compensation insurer calculates an employer's premiums, it assigns a class code for each different kind of task the employees perform. Each different job has different risks of employee injury, and so the more dangerous the job, the more expensive the class code and the premiums become.
Illinois law requires that insurers always assign the correct class code that most closely fits the jobs performed, and requires insurers to refund premiums to the employer if they assign an incorrect, more expensive class code.
When underwriting a policy and calculating premiums, insurers visit the employer's workplace to evaluate if it's safe. Insurers file with the Department of Insurance a list of safety–related criteria, called a schedule rating plan, that the insurer will use to increase or decrease premiums, depending on whether it thinks the employer's workplace is safe or unsafe.
Department of Insurance Hearing Officer Timothy Cena disagreed with the carrier's contention that it could retroactively delete the schedule credits it issued to the manufacturer if the Department ruled that the carrier had used the incorrect, more expensive class code to calculate the manufacturer's premiums. The carrier's "initial use of the schedule credits does not become 'incorrect' because one of the other components of the premium calculation has been deemed incorrect," Cena ruled. "In order to remove the initial schedule credits from the revised premium calculations, the Hearing Officer finds that the carrier must show that something changed in the manufacturer's business operations during the policy periods that made the manufacturer ineligible for the credits. The Hearing Officer finds that this Record contains no such evidence."
The full report can be found on the Illinois Department of Insurance's website: http://www.insurance.illinois.gov/orders/2010/Mar/qualitymetal.pdf
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