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Workers Compensation Workers Compensation Policy Cancellation Policy Cancellation

PitfallsPitfalls2005 AASCIF Legal Workshop2005 AASCIF Legal Workshop

George M. Parham George M. Parham Chief Legal Counsel Chief Legal Counsel Idaho State Insurance FundIdaho State Insurance Fund

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The Workers Compensation PolicyThe Workers Compensation Policy

Social purpose of workers Social purpose of workers compensation insurance is to protect compensation insurance is to protect the employee as well as of the the employee as well as of the employeremployer– Employee is third party beneficiary of Employee is third party beneficiary of

the workers compensation policythe workers compensation policy– Employer’s breach of the policy will not Employer’s breach of the policy will not

ordinarily be held against the employeeordinarily be held against the employee– Liberal construction in favor of the Liberal construction in favor of the

injured employeeinjured employee

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Consequences for Ineffective Consequences for Ineffective Cancellation of a PolicyCancellation of a Policy

Continued exposure to claims beyond Continued exposure to claims beyond the date of cancellation of the policy the date of cancellation of the policy

Payment of benefits to claimant Payment of benefits to claimant Fines Fines Legal expensesLegal expenses LawsuitsLawsuits

– Breach of Contract Breach of Contract – Tort Tort – Indemnification Indemnification

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Continuous PolicyContinuous Policy

Automatic renewal clause in the policyAutomatic renewal clause in the policy Policy remains in force until it is Policy remains in force until it is

terminated In strict compliance with terminated In strict compliance with statutesstatutes

Non-renewal of the policy still requires Non-renewal of the policy still requires notice of terminationnotice of termination– EmployerEmployer– Compensation Board or CommissionCompensation Board or Commission– Rating Organization (NCCI)Rating Organization (NCCI)

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Cancellation of a Policy Requires Cancellation of a Policy Requires Notice of TerminationNotice of Termination

Policy cannot always be cancelled merely Policy cannot always be cancelled merely by action of the insurer, the employer, or by action of the insurer, the employer, or bothboth

Actual notice to the employer, the Actual notice to the employer, the compensation commission, and/or rating compensation commission, and/or rating organization (NCCI) is ordinarily requiredorganization (NCCI) is ordinarily required

Employer must have sufficient time to Employer must have sufficient time to replace workers compensation coveragereplace workers compensation coverage

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Effective Policy Cancellation Requires Strict Effective Policy Cancellation Requires Strict Compliance with the Law and the PolicyCompliance with the Law and the Policy

Proper grounds for terminationProper grounds for termination– PolicyPolicy– Statutes Statutes – Regulations Regulations – Internal proceduresInternal procedures

Strict complianceStrict compliance– Requirements of the policy, statutes and Requirements of the policy, statutes and

regulationsregulations– Form of the NoticeForm of the Notice– Timeliness of NoticeTimeliness of Notice– Delivery of notice Delivery of notice – Proper partiesProper parties

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Grounds for Termination Grounds for Termination

Expiration of policy/non renewalExpiration of policy/non renewal– Policy period Policy period – Statutory guidelines on non renewal Statutory guidelines on non renewal

Employer’s requestEmployer’s request– Policy requirementsPolicy requirements– Statutory requirementsStatutory requirements

For CauseFor Cause– Failure to pay premiumsFailure to pay premiums– Material representations by the insuredMaterial representations by the insured– Substantial and/or unforeseen changes in the riskSubstantial and/or unforeseen changes in the risk– Substantial breaches of contractual duties or conditionsSubstantial breaches of contractual duties or conditions– Fraud Fraud

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Strict ComplianceStrict Compliance Requirements of statutes, regulations and Requirements of statutes, regulations and

policypolicy– Employer’s dutiesEmployer’s duties

Notice to Fund Notice to Fund Time frame for noticeTime frame for notice Method of noticeMethod of notice

– Insurer’s dutiesInsurer’s duties Basis for cancelBasis for cancel Notice of terminationNotice of termination

– Form of the NoticeForm of the Notice WrittenWritten Oral Oral Electronic Electronic

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Strict ComplianceStrict Compliance– Timeliness of NoticeTimeliness of Notice

Minimum cancel periodMinimum cancel periodCancel date & timeCancel date & time

– Delivery of noticeDelivery of noticeMail Mail CourierCourierFax Fax E-mailE-mailTelephoneTelephonePersonal servicePersonal service

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Strict ComplianceStrict Compliance

– Notice to Proper partiesNotice to Proper partiesEmployerEmployerWorkers compensation board or commissionWorkers compensation board or commissionRating organizationRating organizationCertificate holdersCertificate holdersEmployeesEmployees

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Defenses Available to InsurerDefenses Available to Insurer EstoppelEstoppel Insured has a new policy in forceInsured has a new policy in force Statute of Limitations on the claimStatute of Limitations on the claim Standard defenses to workers Standard defenses to workers

compensation claimscompensation claims Knowledge of employer or the employee of Knowledge of employer or the employee of

the policy cancellation the policy cancellation Substantial breach of contract termsSubstantial breach of contract terms Fraud Fraud Collection of additional premiumCollection of additional premium

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ConclusionConclusion

Review statutory and regulatory Review statutory and regulatory requirements for termination of the requirements for termination of the workers compensation policyworkers compensation policy

Enact procedures that ensure strict Enact procedures that ensure strict compliance compliance

Maintain good records that Maintain good records that demonstrate compliancedemonstrate compliance