WC audit and subcontractors

[etimer]

A quick question.

I just received a call from the bookkeeper of a client and in their State Workers Comp Fund audit, SWCF is charging them for their sub-contractors that didn't carry WC. Ok, that can happen. The bookkeeper said she has never seen SWCF or any other insurance companies charge for non-covered WC sub-contractors that were found during an audit. Hm?

The bookkeeper also said she had her client place everyone under the lower code, even though the workers do some work under the higher code. In my State misclassifying on purpose is fraud.

I know that I have WC companies that will charge the General's when subs don't have their own WC. I have the State Workers Comp Law and in my State it is a rule that the General can be held for any WC injuries.

[MAG]

There may be states where carriers do not charge for uninsured subs but not in any of the states that I have provided WC coverage for.
I have never seen a carrier that did NOT charge for uninsured subs on an audit. As an agent, we should tell all of our contractors who use subcontractors, to make sure their subs are insured and if they are not, they will be charged for them on their audit as if they were employees. And yes, the employees of uninsured subs can file claims on the contractors' insurance, I have seen it happen and have a current client with a very large claim that was from one of their uninsured subs. (subcontractor policy lapsed for non-payment and notice did not go to the contractor because they were not included as additional insured - as we had recommended) If an insured does not split payroll records according to each specific class code an employee may perform under, the auditor puts the entire payroll in the highest rated class. It sounds like the bookkeeper is counseling her clients to commit insurance fraud. I think you might want to discuss the possible fraud issue with your insured so they can be aware and maybe have a discussion about insurance carrier audit procedures.

[etimer]

I'm going to be quoting the WC and hopefully become the BOR. Even if I am not the BOR for the WC I'm still going to consul the owners. On the State Workers Comp website it states: "Premium/Insured Fraud: committed by underreporting payroll or misclassifying payroll/job classifications."

Maybe all the owner's need is a link to the web site.

There may be states where carriers do not charge for uninsured subs but not in any of the states that I have provided WC coverage for.
I have never seen a carrier that did NOT charge for uninsured subs on an audit. As an agent, we should tell all of our contractors who use subcontractors, to make sure their subs are insured and if they are not, they will be charged for them on their audit as if they were employees. And yes, the employees of uninsured subs can file claims on the contractors' insurance, I have seen it happen and have a current client with a very large claim that was from one of their uninsured subs. (subcontractor policy lapsed for non-payment and notice did not go to the contractor because they were not included as additional insured - as we had recommended) If an insured does not split payroll records according to each specific class code an employee may perform under, the auditor puts the entire payroll in the highest rated class. It sounds like the bookkeeper is counseling her clients to commit insurance fraud. I think you might want to discuss the possible fraud issue with your insured so they can be aware and maybe have a discussion about insurance carrier audit procedures.

[jinman]

I know that here in Texas there is an actual form that the Texas Department of Insurance produces regarding uninsured subs on the WC. It basically states that if the sub signs the form, he agrees that he is completely barred from any of the benefits that might be afforded him if he were an employee. If these get signed, no audit issues. If they don't then you have audit issues.

Of course, this has nothing to do with the GL. Audit issues all over the place on that one.

[CATHIEA]

Etimer, what you stated in your original post happens rather alot here in Az. Whether the bookkeeper committed fraud falls into that gray area we all know too well. I would not begin to give opinions of her culpablity without knowing the extent of her experience. As to state comp funds, SCFofAZ deals directly with insureds (they compete directly with us and currently have the largest book of WC in the state - not including assigned risk business). They do not provide adequate training or advise clients about classifications let alone coverage. They operate the same way a bad non standard agency does with respect to their clients - minimum coverage requires minimum questions. And as if this isn't bad enough - add in the "bookkeepers" and accountants that tell clients that they should call everyone a sub contractor! These are the people out there that are running around without work comp thinking that just because they don't do payroll taxes they don't have employees.... These are your client's true uninsured subs.

[darnovak]

Hey MAG, what state are you writing in? I have never heard of a third party being added as an A/I on a WC policy but I only know what flies (or doesn't fly) in NY. I could understand a "third party notification" being used. Anyone who writes in NY ever heard of a "Third Party Notification" and/or an A/I ever being added to a WC policy? We have the labor contractor endorsement, but that's as close as I have seen to anything similar to an A/I endorsement for WC.
Regards, Dar Novak AAI

[Almost40]

California State Fund will add Additional Insured Endorsements to their policies. My 40 years experience always dictated no AIs on work comp. Well SCIF proved me wrong. Just goes to show everything in our industry is subject to change which continues to keep me on my toes. Nothing is for sure!

[MAG]

Darnovak: I did not say Additional insured on WC specifically. What I did say was that the employees of uninsured subs can file claims on the GC's policy and as an example I cited one of my clients now has a pending claim due to an uninsured sub that provided a certificate of insurance but the insurance lapsed for non payment of premium and because my insured was not listed as "additional insured" on the GL policy there was no notice to my client. Yes, Darnovak, Additional Insured refers to the GL. In the instance, I didn't think I needed to specifically say that in this forum. The subs entire account cancelled for non-payment of premium and had there been an additional insured endorsement on the GL my client would have received notice that the insurance (including the WC) had been cancelled and could have refused to allow the sub to work. That was the point I was trying to make and I apologize if I was not clear.

[etimer]

Here's from my State's WC Act:

(a) A contractor who subcontracts all or any part of a contract and his insurer shall be liable for the payment of compensation to the employes of the subcontractor unless the subcontractor primarily liable for the payment of such compensation has secured its payment as provided for in this act. Any contractor or his insurer who shall become liable hereunder for such compensation may recover the amount thereof paid and any necessary expenses from the subcontractor primarily liable therefor.

(d) A contractor shall not subcontract all or any part of a contract unless the subcontractor has presented proof of insurance under this act.

Sole Proprietors with no employees are not required to carry workers' compensation insurance. However, detailed information must be provided to prove that the individual is a true independent contractor.

So in my State, if you even contract with someone that "should" carry WC but doesn't carry it, you are in violation of the Act.

Darnovak: I did not say Additional insured on WC specifically. What I did say was that the employees of uninsured subs can file claims on the GC's policy and as an example I cited one of my clients now has a pending claim due to an uninsured sub that provided a certificate of insurance but the insurance lapsed for non payment of premium and because my insured was not listed as "additional insured" on the GL policy there was no notice to my client. Yes, Darnovak, Additional Insured refers to the GL. In the instance, I didn't think I needed to specifically say that in this forum. The subs entire account cancelled for non-payment of premium and had there been an additional insured endorsement on the GL my client would have received notice that the insurance (including the WC) had been cancelled and could have refused to allow the sub to work. That was the point I was trying to make and I apologize if I was not clear.

[darnovak]

I did not see any reference to GL in your first post.