by G. Spencer Mynko, Esq.
WORKERS COMPENSATION INSURANCE PREMIUM AUDITS CAN DEVASTATE TRUCKING COMPANIES. I’VE HEARD THESE REFERRED TO BY THE TERM “SHOCK AUDITS”.
Unfortunately, trucking companies may go into “shock” when they receive an audit bill for a recently expired Worker’s Compensation insurance policy. Of course, this is due to an unexpectedly high increase in premium from an audit. What is particularly troubling is that the increase in premium can be so high, that the viability of the trucking company is threatened. Hence the term “shock audit”.
Understandably, these audits can result in serious distress and frustration for the owners of a trucking company. And while outrage is a common reaction to being on the receiving end of such an audit, a cool, methodical, and specific analysis of the facts, along with supporting evidence, are what you will need to successfully dispute an unfavorable audit.
Finally, I want to make you aware of a trucking company that is facing CRIMINAL LIABILITY FOR FRAUD in a work comp audit for improperly classifying drivers as ICs.
WHAT DO YOU DO IF YOU WANT TO DISPUTE THE AUDIT RESULTS?
The procedures involved in disputing a work comp audit are specific, detailed and deadline driven. Here is information directly from the WCIRB’s website:
Disputing Your Insurer’s Decision
To dispute a decision made by your insurer, the dispute must be in writing and sent to your insurer’s designated office. Contact information for your insurer’s dispute process is found in a policyholder notice attached to your policy titled “Your Right to Rating and Dividend Information,” under the paragraph “Our Dispute Resolution Process.” Issues disputed with your insurer may include classification assignments or premium issues. Claims-handling issues are not addressed in this procedure and should be directed to your claims adjuster.
Disputing the WCIRB’s Decision
To dispute a decision made by the WCIRB, such as the classification of the operations assigned on a WCIRB inspection report or the calculation of your experience modification, follow the process explained in the
California Workers’ Compensation Uniform Statistical Reporting Plan – 1995, the California Workers’ Compensation Experience Rating Plan – 1995 and the Miscellaneous Regulations for the Recording and Reporting of Data – 1995 under a section titled “Inquiries, Complaints and Requests for Action, Reconsideration, and Appeals.”
Appealing to the Insurance Commissioner
If you have exhausted either your insurer’s dispute process or the WCIRB’s dispute process, and you are still not satisfied with the outcome, you have the right to appeal the issue to the Administrative Hearing Bureau at the California Department of Insurance. When responding to your dispute, your insurer or the WCIRB should provide you with contact information for filing your appeal with the Department of Insurance. The information is also found in the “Your Right to Rating and Dividend Information” policyholder notice attached to your workers’ compensation policy; Part 1, Section V of the California Workers’ Compensation Uniform Statistical Reporting Plan – 1995; and Section VIII of the California Workers’ Compensation Experience Rating Plan – 1995. The appeals process is also found in the California Code of Regulations, Title 10, Chapter 5, Subchapter 3, Article 9.7. When filing an appeal, you should be as specific as possible concerning your issue and include any supporting documentation. You should also clearly explain why you believe your insurer or the WCIRB acted (or failed to act) in error.”
If you happen to be insured by State Compensation Insurance Fund (SCIF), The dispute resolution process is very specific:
A written statement detailing the specific information claimed to be inaccurate must be submitted to the dispute department. Any claim of inaccurate audit information must be supported by a detailed explanation of what is believed to be incorrect and what the correction should be. Copies of original financial and/or other records that support the discrepancy must cover all disputed information. All information needs to be received within 10 CALENDAR DAYS, if not SCIF will consider the matter closed. (You may wish to referred to SCIF’s Premium Audit Guide which is available online.)
Obviously this may seem intimidating and unfair: try to keep these things in mind if you feel your audit is incorrect:
Do not wait until the last minute to respond to the audit; Do not procrastinate. You have to get in front of this! If your account is turned over to a collection agency or a lawsuit is filed against you, you have very limited ability to negotiate directly with the insurance company.
Be proactive at correcting your audit. mistakes occur in a high percentage of audits. Insurance carriers know that. Be proactive at correcting those errors!
Follow the rules established by your insurance carrier for filing a workers compensation audit dispute. And be sure to be aware of the various deadlines in place for filing disputes and the appeal of any unfavorable decision. Again, do not delay.
So what do auditors look for and what are they interested in?
First and foremost: Do the drivers on their own trucks? AB5 and the ABC Test be damned, I have always stated that if the driver owns his own truck, and the truck is registered in the independent contractor’s name, this will get the Company 90 yards down the field toward being successful in their argument that the drivers are properly classified as independent contractors. One of the tests of whether someone is an independent contractor is whether they have made a substantial investment into their business: because a truck clearly qualifies as a “substantial investment”, owning a truck and have it having it registered in the driver’s name goes along way toward establishing that they are independent contractors. However, and many trucking companies may find this frightening, simply because the drivers own their own trucks does not guarantee the Work Comp auditor will agree that they are independent contractors. I have actually had Work Comp auditors decide that the drivers were independent contractors despite the fact that they owned their own trucks.
Who pays for fuel, insurance, and maintenance: Work Comp auditors will almost universally be interested in who is responsible for paying for fuel, insurance, and maintenance. More often than not, independent contractors will purchase fuel and insurance through the company. The critical issue though, is whether the drivers are free to pay for their own insurance and get fuel wherever they choose. As long as the driver is not forced to purchase fuel, maintenance, and insurance through the trucking company, the scale will tilt toward independence.
Work Comp auditors will ask whether the drivers drive for other companies. Obviously, if you work with independent contractors who actually drive for other companies, you want the work comp auditor to be aware of that. If they don’t drive for other companies, then you need to make it clear to the auditor that they have the freedom to drive for any company they choose to, but simply choose to only drive for your company. Again this is a huge issue.
Work Comp auditors will always ask whether drivers are free to accept or reject loads. If the driver accepts 100% of the loads they are offered, the work comp auditor maybe skeptical of their true independence. That is why it is so important to convince the auditor that the drivers are truly free to accept or reject loads as they please. Furthermore, there can be no reprisal for rejecting a load. It also needs to be made clear to the auditor that there are no guaranteed number of loads, and just because the driver gets a load this week, doesn’t mean he will get another load next week or for that matter, ever again.
Operating authority: Work Comp auditors always ask whether drivers have their own operating authority. While it is common industry practice for independent contractor drivers to drive under the companies’ authority, and I think it’s proper to do so, they still ask whether they have their own authority. This is why I always advise clients to work with drivers who do have their own authority, even if it is simply a CA number. Obviously, it’s nice if they have their own MC or DOT number, but some authority is better than no authority.
Contracts: Work Comp auditors always ask whether the independent contractor driver has a written contract establishing that the driver is in an independent contractor relationship with the company. While having a contract in place stating that “I am an independent contractor” is necessary in my opinion, it is not sufficient, nor will it guarantee, that a driver is an independent contractor. Auditors will always look beyond the contract and scrutinize the actual conduct of the parties.
Instructions and training. Remember, an independent contractor decides how to do the job and will establish his or hour and procedures, and act without supervision. So as far as a trucking company is concerned, the trucking company should only be concerned that the driver gets the freight from point A to point B The “how” that happens is entirely up to the driver. A company should never admit to providing the driver with “training” . Again, the driver uses his own methods and receives no training from the trucking company. Nor should the driver be required to attend meetings
Does the driver have any proof or indicators that he or she is truly in business for him or herself. Things like business licenses, incorporation, business cards, website, etc. are all important indicators that the driver is genuinely in business for himself. This is another reason I encourage companies to work with drivers who are incorporated. I’ve had work comp auditors clear drivers if they are incorporated and the 1099 that the company issues is attached to an EIN number as opposed to a Social Security number. Remember, an independent contractor is supposed to be in business for him or herself, and hold him or herself out to the general public as a professional driver who is free to drive for any company he or she chooses.
Membership in Owner Operators Independent Drivers Association. Membership in OOIDA helps make a driver look as if he’s truly independent.
Occupational accident Insurance: I have always felt it is a great idea to work with contractors who carry their own occupational accident Insurance . First of all, it makes them look independent if they purchase insurance to protect themselves against injury. Secondly, it protects the company if, God forbid, something horrible happened.
Understandably, these audits can result in serious distress and frustration for the owners of a trucking company. And while outrage is a common reaction to being on the receiving end of such an audit, a cool, methodical, and specific analysis of the facts are what you will need to successfully dispute an unfavorable audit.
The starting point in your fact-finding mission will include the original policy, the audit billing statement, and the audit worksheets.
A company will need to examine how the estimated original premium was calculated. Critical to this analysis are two important considerations: 1) what classification codes were used, and 2) how much payroll was assigned to each classification. For example, this frequently becomes an issue where the auditor assigns clerical workers into the higher risk “truckmen’s” classification. Another example is where independent contractor truck drivers are considered to be company or employee truck drivers. If the auditors misunderstood the nature of work done by some employees, the auditor may have misclassified certain workers into the wrong classification.
Certainly, estimated payroll on the original policy will need to be compared with the payroll used in the audit. Furthermore, any increase in additional premium will need to correlate with an increase in payroll. If you receive a significant audit bill, but any increase in payroll does not justify such a large additional premium bill, there may be a problem. Furthermore You must also compare the experience modification factor on the policy to the experience modifier on the audit.
What About Those Criminals You Mentioned Earlier?
OK, first of let me say I’m referring to “alleged” criminals since everyone is presumed innocent until proven guilty beyond a reasonable doubt. Here’s the link to the story: California Trucking Firm Owners Charged in Alleged $450K Workers Comp Fraud
“Trucking company owners were charged this week with multiple counts of insurance fraud after allegedly misclassifying employees as independent contractors in a scheme to underreport payroll by more than $1.4 million, resulting in a $234,000 loss to their insurer and a $220,000 loss to the Employment Development Department. [The owners] were doing business as Trust Transport Inc., a long-haul trucking company based out of their residence in Sacramento and a separate trucking yard in West Sacramento. From Feb. 25, 2014 through Oct. 20, 2016, Trust Transport maintained workers’ compensation insurance coverage with State Compensation Insurance Fund and reported $105,811 in payroll.”
“SCIF conducted audits to confirm the payroll and found that several workers were issued 1099s and had been misclassified as independent contractors.
California Department of Insurance detectives served a search warrant at Trust Transport’s bank for financial records and discovered roughly $1.4 million in unreported payroll from the misclassified “independent contractors.” The investigation reportedly revealed [the owners] fraudulently misclassified these employees in order to avoid paying higher workers’ comp insurance premiums.”
Don’t be those guys.
Finally, if you are unsure as to what you need to do, contact someone who does. If you find yourself at risk for undergoing a workers compensation premium audit or you are in the midst of one or you have been assessed, call Transportation Attorneys ASAP.