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Moore: Premium Audit Dispute Delay Can Be Very Costly

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Over the last 13 years that I have been writing articles for the J&L website, I have warned very heavily against any type of premium audit dispute delay. Delaying a dispute of or ignoring a bill from your current or prior carrier often turns into money lost from your company’s budget. 

James Moore

James Moore

OK, you or your company may not agree with the workers' comp premium audit. Many times, your company must act quickly regardless of the circumstances. 

This website and I provided many articles on this very subject. Why? Because I see the leftover problems once a company contacts J&L too late in the premium audit dispute process.  

By the way, thanks to William Rabb and the folks over at WorkCompCentral for providing me with the location of the ruling on a major premium dispute delay.

The lawsuit can be found here. I recommend you take a few minutes to read over the decision. In the proverbial nutshell, this is what happened: 

  • A company separates from its parent company.
  • The company then requests a policy from a carrier. 
  • The rating bureau gives the new company a higher X-mod than the parent company.
  • The carrier provides the company with an endorsement on the higher X-mod.
  • The company thought the X-mod should have been from the parent company.
  • At the premium audit, the company is charged with the higher X-mod, which sharply increases the premium.
  • The carrier sends out the premium audit bill. 
  • The company does not think it should pay it due to verbal guarantees.
  • The company does not file a timely response to the collection lawsuit.
  • District and appellate courts say "pay up."

Experience modification and not premium audit dispute delay?

I will not cover the ownership rules or what happened when the companies split. I do not have that information and will not attempt to assess what happened in that part of the dispute. 

If your company disagrees with an experience modifier decision by the workers' comp rating bureau, here are the time rules right out of the manual (note there are some exceptions to the rules; these are the GENERAL rules).

In the event of the discovery of an error in the current experience modification or the two immediately preceding experience modifications, a revised experience modification shall be published and be effective as follows:

  • a. The revised experience modification shall be effective as of the effective date of the erroneous experience modification, provided:
    • (1) The revised experience modification is less than the erroneous experience modification.
    • (2) The revised experience modification is published within three (3) months of the effective date or publication date of the erroneous experience modification.
    • (3) The WCIRB was notified, in writing, within three (3) months of the effective date or publication date of the erroneous experience modification of a possible error.
    • (4) Or, the WCIRB notified the carrier of record, in writing, within three (3) months of the effective date or publication date of the erroneous experience modification that the erroneous experience modification was under review.
  • b. Except as provided in paragraph a, the revised experience modification shall be effective as of the date it is published provided, however, that the revised experience modification shall not be applied if it is published three (3) months or less prior to its expiration.

The timetable represents very distinct periods of time on the X-mod changes after a policy goes into effect. 

Endorsements can completely change aspects of any policy 

Any changes to a policy once issued are accomplished by endorsements. I have written or spoke on endorsement many times. The endorsement letters from the insurance carrier may be more important than the policy itself. Check out this article on endorsements. I have written at least seven articles on the subject. 

I have seen up to 75 endorsements on a large company’s workers' comp policy.  

Carriers now using collection agencies, with different response timetables 

Once an insurance carrier turns over a premium audit bill to collections, a new timetable, besides any of the insurance timetables, kicks in and must be handled properly.  

Knowing your local collection rules/laws may be helpful. The best tactic to use is responding ASAP to any collection notice in writing with a certified return receipt.

We often hear from policyholders with a premium audit bill after the collection agency contacts them. Please refer to this article on collection agencies. 

No matter if a policy generates a premium audit dispute or an X-mod dispute, the clock is ticking.

This blog post is provided by James Moore, AIC, MBA, ChFC, ARM, and is republished with permission from J&L Risk Management Consultants. Visit the full website at www.cutcompcosts.com.

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