Can I Opt Out of Workers’ Compensation Insurance?

Employers know that they need to take precautions to make sure their business is adequately protected.  Employers need to carry a variety of types of insurance, ranging from fire insurance to insurance on any vehicles.  Workers’ compensation insurance is another important component to protect your business.  Workers’ compensation provides insurance coverage in the event that your employee sustains a work related injury.  Despite its protections, some employers find the cost of workers’ compensation insurance too heavy a price to pay for that protection.  This leads many employers to wonder whether they can opt out of carrying workers’ compensation insurance.

California labor code section 3700 provides that if a business employs one or more employees, that business is required to carry workers’ compensation insurance.  It is important to note that this requirement includes some workers that you would not ordinarily believe would fall under this requirement, such as nannies or handymen.    It also should be noted that due to recent changes in the law, executive officers and directors of corporations must also be included in workers’ compensation coverage unless the corporation is completely owned by the directors and officers.  In that circumstance, they can opt to be excluded from coverage.  Except for those circumstances, all employers are required to carry workers’ compensation insurance and can face hefty penalties for failure to comply.

In some cases, an employer may decide to self-insure.  Self-insurance requires that you receive state approval.  The business must have a net worth of at least five million dollars with a net annual income of at least five hundred thousand dollars.  The employer must also post a security deposit.  Although this generally means that only larger businesses are able to meet the requirements, some small employers in the same homogeneous industry pool their workers’ compensation liabilities.  If the employer is self-insured, workers’ compensation claims may be administered directly by the employer or the employer may contact with a third party administrator to handle the administration of the case.

If you have questions about whether your business is required to carry workers’ compensation insurance, contact us today.  We can talk to you about your rights and responsibilities.

When Is Self-Insurance Allowed

Workers’ compensation is an important part of our legal system.  It provides support and financial assistance for injured employees.  It also provides immunity from additional tort law suits to the employer, except in limited circumstances.  California has the largest workers’ compensation system in the United States.  Under California law, employers are required to carry workers’ compensation insurance.  There are severe civil and criminal consequences for employers who fail to fulfill this responsibility.  There are a few narrow exceptions to this rule, including self-insurance.

Self-insurance means that the employer has assumed the financial risk associated with providing workers’ compensation benefits to their employees who sustain work-related injuries.  Workers’ compensation benefits can include not only the cost of medical treatment for the worker, but also other monthly benefits.  Clearly, this can represent a significant financial burden, especially for smaller businesses.

California law provides that there are strict requirements before a business can qualify to self-insure instead of purchasing a workers’ compensation insurance policy.  A business wanting to qualify for self-insurance must apply to the California Office of Self-Insurance Plans.  The business will have to provide particular information and evidence to support the application. First, the business must have been a legally authorized business form for at least three years.  Next, the business will have to provide three years of certified, independently audited financial statements with the application.  The business will also have to demonstrate it has an acceptable credit rating for three years preceding applying for self-insurance. If the company has subsidiaries, each subsidiary must file its own application.  The application may be filed separately or together with the parent company’s application.  If a current existing company that already has been approved for self-insurance creates a new subsidiary or affiliate, a new application can be filed.  If the parent company can demonstrate solvency, the subsidiary is automatically self-insured for 180 days.  The parent company must file an application for a permanent certificate during that time.

Once an employer is approved by the state to be self-insured, the employer is still subject to state audits.  The audits check for the accuracy of claims reserving practices as well as the correctness of the reported workers’ compensation liabilities.

If you have questions about workers’ compensation and your rights and responsibilities as a business owner, contact us today.  We can talk to you about your business and the workers’ compensation process.

Why Do We Have Workers’ Compensation and How Does it Benefit My Business?

The workers’ compensation system is firmly entrenched in both federal and state laws in the United States. At its core, workers’ compensation is a form of protection afforded to the employee to make sure that he or she receives compensation for a work-related injury. The first employer liability laws were passed in the United States in 1855, and by 1949, every state had created and enacted its own workers’ compensation statutes. The first employer liability statutes made it possible for an employee to sue the employer for injuries resulting from the employer’s negligent or intentional conduct. Today, workers’ compensation is a “no fault” system. This means that the employee is not required to prove any negligence on the employer’s part before being entitled to workers’ compensation benefits. Although it seems at first glance like it might not be “fair” that an employee does not have to prove the injury was a result of wrongful conduct by an employer, this can actually benefit your business. Having to prove fault can make a case last much longer and make it much more complicated. Protracted litigation is not good for your business, so removing the negligence issue can greatly benefit an employer. Workers’ compensation also means that the employee relinquishes the right to sue the employer. An injured employee may file a claim for workers’ compensation to receive medical treatment and, in some cases, salary replacement. In exchange, however, the employee cannot then also file a law suit. This keeps the employee from being able to “double dip,” meaning he or she cannot get paid twice for the same injury. This provision is good for your business because, again, it will help keep you out of court. If you do end up in a workers’ compensation dispute, California has a special court system set up for workers’ compensation, which helps to speed the process. Workers’ compensation will also benefit your business because it provides a powerful incentive to make sure your employees are properly trained and safe. It also encourages the frequent review and revision of safety protocols, and hopefully reduces the number of injuries suffered by your employees.

If you have questions about workers’ compensation and your business, contact me today at (714) 516-8188. I can help walk you through the process and answer your questions about your business.

Premium Fraud and AA Buffet

Fraud in the workers’ compensation system comes in many forms. It can come from employees, medical providers, and even employers. All types of fraud have a detrimental impact not only on those directly impacted by the case but also on the entire system at large. Fraud costs tax payers millions of dollars and can drive insurance premiums for workers’ compensation even higher. As a result, California takes steps to crack down on fraud, including from employers. Workers’ compensation fraud involving employers can mean that the employer is lying about the nature or number of its workers or about the nature of the work performed. In a March 2017 case, an employer pled guilty to charges arising out of workers’ compensation fraud.

The defendant, Chang Tai Lin, was the owner of AA Buffet. In May 2015, the fraud unit began an investigation into the defendant’s business after receiving a tip from the district attorney. The fraud unit began conducting surveillance, obtaining documents from the police department, health department, insurance companies, and other state agencies. In March 2016, a search warrant was executed not only on the AA Buffet but also at the defendant’s home. As a result of the investigation, it was discovered that from April 2010 through April 2016, the defendant had been underreporting the number of employees working at AA Buffet as well as falsely reporting payroll wages, as he actually paid many of his employees in cash. It was also discovered that the defendant had been committing tax evasion from October 2010 through April 2016 because he failed to accurately report employee wages or payroll taxes to the Employment Development Department. After the investigation, the defendant pled guilty to two counts of making a material misrepresentation in order to obtain a workers’ compensation insurance premium as well as one count of willfully failing to file payroll tax returns with intent to evade tax. Employers are required to accurately report the number of employees to their workers’ compensation insurance company. Failure to accurately disclose the workers or the type of work performed by the company can clearly result in harsh penalties, including both fines and jail time, for offending business owners. It is essential that employers understand and live up to their disclosure obligations to their insurance carriers.

Understanding your insurance obligations is essential to making sure you and your business are not running afoul of the law. Call me today at (714) 516-8188 if you wish to  discuss your business’s obligations.

The Gregory Formula

Workers’ compensation benefits are designed to help an employee who has sustained a work-related injury by paying for related medical expenses.  The injured employee may receive a large variety of treatments including, but not limited to, physical therapy, prescription medication, chiropractic care, psychological services, or the use of durable medical equipment.  An employer may very well be on the hook for the costs of these services.  When providing medical care to an injured employee, medical providers and group health insurance providers may file liens against the workers’ compensation recovery in order to ensure reimbursement for care provided to the employee.  Ultimately an employer and an employee may agree to settle the workers’ compensation claim by a compromise and release agreement.  In a case styled Kaiser Foundation Hosp. v. Workers’ Comp. App. Bd., the WCAB addressed the issue of what happens when the medical providers who have filed liens do not agree with the amount settled on in the compromise and release agreement.

In that case, four separate cases were consolidated for consideration by the WCAB.  The issue revolved around how much a lien claimant should recover in a denied case.  It was proposed that the Lien Claimant should be eligible for the same ratio of recovery that the injured worker accepted as settlement of the case.  Where the lien claimant does not agree with the amount of the settlement compromise, the workers’ compensation referee shall “determine the potential recovery and reduce the amount of the lien in the ratio of the applicant’s recovery to the potential recovery in full satisfaction of its lien claim.”  The court stated that the phrase “potential recovery” means “the amount of recovery which is reasonably probable” in a contested trial, examining the entire record.  The proposed settlement should include the formula for determining the reduction of the lien, called “the Gregory Formula,” and the computation of the potential recovery needs to include a variety of figures, including the percentage of disability, medical expenses, and the duration of future medical expenses.  In the simplest terms the proposed recovery is a fraction, where the actual settlement amount is the top number (numerator), and the total reasonable case value if Worker won at Trial is the bottom number (denominator).  Basically, if the Injured Worker accepted 25% of the potential case value as settlement, that number could be attributed to the lien claimants.  These need to be set forth in specific detail for the judge.  These figures have to be disclosed to the lien holder to allow it to examine the basis on which the settlement would reduce the award against it.  If the Lien Claimant objects to the formula after notice, the WCAB may withhold that lien from resolution, and give the Lien Claimant an opportunity to independently prove up an injury.  The lien claimant then runs the risk of zero recovery if they fail to independently prove an injury.

If you have a question about how the Gregory Formula could help reduce the financial liability of your business during a workers’ compensation case, contact me today at (714) 516-8188.  We can discuss your business and your options.

Reducing Your Business’ Workers’ Compensation Costs and Liability

Every employer should maintain the important goal of reducing work-related injuries to their employees as much as possible.  Not only is this the ethically and morally right step, but it can prove to help an employer with their bottom line.  By taking steps to reduce work-related injury, an employer may be able to reduce the workers’ compensation premiums paid, the risk of serious and willful claims, or the risk of a 132a issue arising.  There are some good steps that any employer can take to reduce his or her business’ workers’ compensation costs and liability for future costs.

First, almost all employers are required to maintain workers’ compensation insurance in the state of California.  There are some exceptions, but by and large, failure to adhere to this requirement can result in hefty penalties, both civil and criminal, for an employer.  Like shopping for health insurance or life insurance, a business owner should get more than one quote for workers’ compensation insurance.  Getting competitive quotes can help to reduce the ultimate cost of insurance premiums.

Second, an employer must pay special attention when submitting insurance information.  This is two-fold.  An employer must first be accurate when submitting information to the insurance company to purchase the policy, as well as keep the information updated.  Moreover, when submitting information about any work-related injury to the insurer, the employer must also be certain to submit accurate and detailed accounting of what happened, together with the necessary paperwork and witness statements.  Although an employer may be initially convinced that not reporting all his or her employees for the premiums or maybe omitting certain details of an injury will help reduce the up-front cost, this is fraud and can ultimately cost the employer much more in penalties.  It   can also end up resulting in no insurance at all to help with the costs.

Third, an employer can implement a good, solid safety program.  Some employers choose to set up safety committees made up of employees, to help create safety policies as well as help implement safety programs.  Rotating the members on the committee as well as making changes to a safety program on a regular basis can help keep the program fresh and keep employees from becoming complacent.

Finally, an employer can create an incentive program to adhere to safety standards.  Financial bonuses, trips, or extra time off for meeting certain safety goals can help create a work-place atmosphere that encourages adhering to safety standards.

If you have questions about how you can reduce your business’ workers’ compensation costs and liabilities, contact me today at (714) 516-8188.  We can discuss your business and what we can do for its financial future.

State Compensation Insurance Fund

Under California law, almost all employers are required to maintain workers’ compensation insurance.  This insurance will cover the costs of medical treatment for an employee who sustains injury while working on the job.  California law provides harsh criminal and civil penalties for those employers who fail to abide by this requirement.  In some cases, though, an employer may have difficulty obtaining insurance.  Some companies provide services that are considered “high risk,” and so insurance companies are reluctant to provide insurance to those companies. 

To address this problem, the California State Labor Department created the Workers’ Compensation Joint Underwriting Associations.  The purpose of the WCJUA is to provide a resource for those high risk employers who have a hard time purchasing workers’ compensation insurance.  The primary WCJUA in California is called the State Compensation Insurance Fund (SCIF).  The SCIF may provide workers’ compensation insurance to those businesses that are otherwise unable to obtain coverage on the open market.  SCIF is a non-profit organization and provides the same services as other workers’ compensation insurance providers.  Although the SCIF was established by the California state legislature in 1914, it is not a branch of the California government.  SCIF provides insurance to all types of employers, but is an especially crucial resource for those employers who are unable to purchase insurance elsewhere.  The types of employers who are typically in need of insurance through SCIF are new business owners, business owners with poor premium payment history, or those in a high risk industry.  Typically, in order to be considered hard to place or high risk, an employer must have been rejected by at least three other open-market insurance companies.

There are some drawbacks to the system.  Employers should be aware that even though the state has made it possible for them to buy insurance despite being high risk, the premiums will still be higher than they otherwise would be if they were not engaged in a high risk industry.  The underwriting guidelines for the SCIF are also exceptionally strict and subject to heavier state regulations.  The application is long and meticulous, taking up to a month to obtain an insurance policy.  Finally, out of state work is often excluded from coverage.  If a business has branches in other states, the business may have to purchase insurance in that state as well.  However, on the plus side, the SCIF makes it possible for high risk businesses to comply with the state law requirement to carry workers’ compensation insurance.

Workers’ compensation insurance is a complicated issue and can become further complicated if your business is difficult to place. Call me today at (714) 516-8188 and let me talk with you about your business and workers’ compensation.

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