Calif. court decision expected to lower workers’ comp rates

In Star Roofing Company Inc. v. The Workers’ Compensation Insurance Rating Bureau (WCIRB), the California Insurance Commissioner recently issued a ruling that could affect the way workers’ compensation premiums are calculated for California employers covered by a carrier that subsequently was liquidated or became insolvent.

“California employers who work hard at minimizing their claims losses and expenses should not be punished by a carrier’s insolvency and the way their claims history is rated,” said Nicholas Roxborough, managing partner of Los Angeles-based law firm Roxborough, Pomerance & Nye LLP. “We are pleased the Department of Insurance recognized this fact in the Star Roofing case and issued an Administrative Law decision that can now be cited in subsequent cases as precedent.”

In the case, the Commissioner ruled that similarly situated employers whose workers’ compensation carriers went into liquidation and reported statistical information to the WCIRB in an untimely fashion can now request under certain circumstances their “ex mods” to be recalculated using the late reported data from the insolvent carrier. The ex mod is a percentage figure that is used to adjust an employer’s workers’ compensation premium, based on the employer’s previous three years of claims experience, the firm said.

Until now, WCIRB, a rating organization licensed by the Commissioner, would not use data that was submitted untimely from an insolvent carrier, and there were no exceptions.

Rather than rewarding California employers with a low experience modification for demonstrating a proven safety record, the practice penalized some because it could result in higher premiums if they obtained insurance from a now insolvent carrier who had failed to report data to the WCIRB within a specific time period, the firm claimed.

The new ruling, according to the law firm, states that if the WCIRB or an Administrative Law Judge finds the data reliable, regardless of the carrier’s status, the data may be used in the recalculation. Additionally, the firm explained, the court opened the door for other employers as well when it applied the law of “equitable relief” finding that a specific section of the Experience Rating Plan should be “waived” to prevent retroactive application of an ex mod above 100 percent that is effective between April 1, 2002, and Dec. 31, 2003, (if the ex mod has been promulgated without experience data from an insolvent insured).

Applying the rules expressed in this decision, the Department of Insurance (DOI) ruled:

However, the court indicated that while it agreed that the policyholder had no duty to investigate the financial condition of the insurer, it did “not want to leave the impression that brokers have no obligations to their clients regarding an insurer’s financial security.”

Topics California Carriers Workers' Compensation