Mass. Biz Owner to Pay $42K for Workers’ Comp Premium Avoidance Scheme

February 20, 2013

Authorities announced that a Nantucket, Mass., business owner has pleaded guilty to charges he failed to accurately report his total payroll, number of employees, and misclassified his business to avoid paying thousands of dollars in insurance premiums.

“Premium avoidance is a serious crime that undermines the insurance system and puts lawful employers at a disadvantage,” Massachusetts Attorney General Martha Coakley said on Feb. 15. “The prosecution of these schemes prevents the increase in insurance premiums that often result from these crimes.”

Attorney General Coakley’s office said James Lydon, 63, pleaded guilty in Suffolk Superior Court to the charge of workers’ compensation fraud (5 counts). After the plea was entered, the court sentenced Lydon two years of probation and ordered him to pay a lump sum of $42,000 in restitution.

Lydon is the owner of James Lydon, Sons & Daughters (Lydon & Sons), a roofing and siding company based on Nantucket. Lydon & Sons was insured by Travelers Companies Inc. from November 2000 through November 2008 and by Liberty Mutual from November 2008 through November 2010 and to the present.

In an effort to evade high insurance premiums, Lydon misrepresented to his insurance companies the true number of employees and misclassified the work performed by his employees, according to Attorney General Coakley’s office.

Based on his reporting, Lydon was granted the minimum premium rate on his policy. As a result of this scheme, Lydon put Travelers and Liberty Mutual unknowingly at risk to cover any employees who were not disclosed for injuries that occurred or may have occurred during the policy periods.

Contrary to reports made to his insurance providers, Lydon employed at least four full-time between 2005 and 2009 and misclassified the work of his company during the same period. As a result of this premium avoidance scheme, Lydon underpaid his workers’ compensation insurer thousands of dollars in premium payments, Attorney General Coakley’s office stated. The Insurance Fraud Bureau of Massachusetts (IFB) referred this case to the Attorney General’s Office after an investigation into reports that the company was committing insurance fraud.

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