1 Workers Compensation Policy Cancellation Pitfalls 2005 AASCIF Legal Workshop George M. Parham Chief Legal Counsel Idaho State Insurance Fund

2 The Workers Compensation Policy  Social purpose of workers compensation insurance is to protect the employee as well as of the employer –Employee is third party beneficiary of the workers compensation policy –Employer’s breach of the policy will not ordinarily be held against the employee –Liberal construction in favor of the injured employee

3 Consequences for Ineffective Cancellation of a Policy  Continued exposure to claims beyond the date of cancellation of the policy  Payment of benefits to claimant  Fines  Legal expenses  Lawsuits –Breach of Contract –Tort –Indemnification

4 Continuous Policy  Automatic renewal clause in the policy  Policy remains in force until it is terminated In strict compliance with statutes  Non-renewal of the policy still requires notice of termination –Employer –Compensation Board or Commission –Rating Organization (NCCI)

5 Cancellation of a Policy Requires Notice of Termination  Policy cannot always be cancelled merely by action of the insurer, the employer, or both  Actual notice to the employer, the compensation commission, and/or rating organization (NCCI) is ordinarily required  Employer must have sufficient time to replace workers compensation coverage

6 Effective Policy Cancellation Requires Strict Compliance with the Law and the Policy  Proper grounds for termination –Policy –Statutes –Regulations –Internal procedures  Strict compliance –Requirements of the policy, statutes and regulations –Form of the Notice –Timeliness of Notice –Delivery of notice –Proper parties

7 Grounds for Termination  Expiration of policy/non renewal –Policy period –Statutory guidelines on non renewal  Employer’s request –Policy requirements –Statutory requirements  For Cause –Failure to pay premiums –Material representations by the insured –Substantial and/or unforeseen changes in the risk –Substantial breaches of contractual duties or conditions –Fraud

8 Strict Compliance  Requirements of statutes, regulations and policy –Employer’s duties  Notice to Fund  Time frame for notice  Method of notice –Insurer’s duties  Basis for cancel  Notice of termination –Form of the Notice  Written  Oral  Electronic

9 Strict Compliance –Timeliness of Notice  Minimum cancel period  Cancel date & time –Delivery of notice  Mail  Courier  Fax   Telephone  Personal service

10 Strict Compliance –Notice to Proper parties  Employer  Workers compensation board or commission  Rating organization  Certificate holders  Employees

11 Defenses Available to Insurer  Estoppel  Insured has a new policy in force  Statute of Limitations on the claim  Standard defenses to workers compensation claims  Knowledge of employer or the employee of the policy cancellation  Substantial breach of contract terms  Fraud  Collection of additional premium

12 Conclusion  Review statutory and regulatory requirements for termination of the workers compensation policy  Enact procedures that ensure strict compliance  Maintain good records that demonstrate compliance