New Rules on Workers’ Comp Coverage Disputes Can Help Employers

If you’re among the tens of thousands of California employers hit by big increases in workers’ compensation insurance premiums, the state Department of Insurance might have good news for you.

The department issued regulations two years ago giving employers a new means of resolving certain disputes with workers’ compensation insurers short of litigation. The regulations don’t cover every dispute, and they are complex enough to make it a good idea to get legal help if you want to avail yourself of them. But they might help employers scrambling to do something about soaring workers’ comp insurance costs.

In essence, the regulations give employers a new means of resolving two kinds of disputes with their workers’ comp insurers:

* Disputes stemming from the insurer’s rate filings--for example, disputes over rates, credits and debits and discriminatory pricing. Complaints about such matters go first to the insurer and then, if not resolved, to the insurance commissioner or to the Workers’ Compensation Insurance Rating Bureau.

* Disputes alleging insurer violations of state regulations governing workers’ comp premiums--for example, disputes over claims data, employee classifications or “experience mods” (insurance-speak for the mechanism by which insurers increase or decrease premiums to reflect the claims experience of the individual employer). Complaints about such matters go to the rating bureau.

The regulations do not cover complaints that an insurer has acted in bad faith, has mishandled claims or has improperly canceled or refused to renew coverage, said Arthur J. Levine, a former workers’ comp insurance underwriter who now practices law in Fullerton, specializing in workers’ comp premium disputes. Employers who wish to press such complaints must do so via private mediation or arbitration--or in court.

Nor do the regulations give employers a sure-fire way to fight all premium increases as such, Levine adds, since not all rate increases violate state law. Insurers--who won the freedom to set their own rates six years ago when California launched its current “open rating” system for workers’ comp--remain largely free to set their own premiums.

They must, however, file the rates they intend to charge with the state and give the policyholder 30 days’ notice if they intend to increase rates by more than 25%.

Insurers now enjoy wide latitude in setting premium rates, but they can’t run roughshod over employers, according to Levine. The regulations give employers a means of bringing some disputes to the attention of the state and might help some who face big increases in their workers’ comp insurance premiums.

“There are some protections in the law for employers with respect to cancellations,” Levine said. “An insurance company can’t cancel coverage mid-term except for certain limited reasons--for example, the premiums have not been paid or there has been some egregious safety violation or the carrier finds out that the employer lied on the application.

“But if the insurance company just feels that its premium is too low or its losses are too high, these are not valid reasons for cancellation. But the employer may have to go to court to seek redress because the new regulations don’t cover those disputes.”

Larry White, who wrote the regulations as a senior staff counsel for the Department of Insurance in San Francisco, noted that the department has only 58 complaints under review--a tiny number given the hundreds of thousands of employers who buy workers’ comp insurance either from private insurers or from the State Compensation Insurance Fund.

He added that this does not mean the regulations can’t help. Instead, it probably means that few employers know about the regulations--not surprising since few had any reason to make use of them while workers’ comp premiums remained low.

“Simply increasing premium rates by any amount is permissible so long as the insurer gives proper notice. But employers faced with very large increases in premiums are going to be looking for other issues, and if the dispute is one that the insurance commissioner or the rating bureau can resolve, these regulations offer an effective way of doing so.”

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Recent Financing and Insurance columns are available at http://161.35.110.226/finin. Juan Hovey can be reached at (805) 492-7909 or at jhovey@gte.net.