| If you are a contractor, you already know workers’ compensation insurance is not cheap. What many business owners do not realize is that subcontractors without proper insurance can quietly drive your costs through the roof. Every year when audit season comes around, carriers look closely at the payments you have made to subcontractors. If a subcontractor does not carry their own workers’ comp policy, or if you cannot prove it with a valid certificate of insurance (COI), the carrier assumes that payroll is your payroll. That means it gets added back into your premium calculation. Let’s put some numbers to it. Imagine you paid $100,000 to uninsured subs over the course of the year. At audit time, the carrier can reclassify that as part of your payroll. Depending on your class code and rate, that could easily add $10,000 to $15,000 or more to your final bill. Suddenly, that project you thought was profitable just shrank your margins. Why Certificates Matter A certificate of insurance is the only way to prove to your carrier that your subcontractor has their own coverage. Without it, the insurance company has no choice but to assume the risk belongs to you. An expired certificate is treated the same as having no certificate at all. That is why it is not enough to collect COIs once. You need to have a process in place to track them and make sure they stay current. Protecting Your Margins The good news is that you can avoid these costly surprises. Here are three simple steps: Collect COIs before work starts. Never pay a sub until you have proof of active coverage. Verify the details. Check that the policy has not expired and matches the work being done. Track renewals. Set reminders so you are not caught off guard when a certificate lapses mid-project. Contractors who stay disciplined about subcontractor certificates protect their margins, avoid audit shocks, and keep their bids more competitive. The Bottom Line Your insurance carrier is not trying to punish you, they are simply making sure someone pays for the exposure. If your subs do not carry coverage, that responsibility lands on you. If your still unsure how subcontractor certificates affect your workers’ comp premiums, or if you have been blindsided by an audit bill in the past, it is time to have that conversation. A little paperwork upfront can save you thousands at the end of the year. Of course you can always reach out to our friends at DELMARVA Insurance Brokers for help! |
Is Your Agent Really Looking Out for You?
Understanding Workers’ Compensation Rates and LCMs
Do you know if your workers’ compensation policy is costing you more than it should? Most business owners don’t—and that’s where your agent should come in. But the truth is, many agents don’t dive deep enough into key factors like Loss Cost Multipliers (LCMs) that can significantly affect your rates.
Let me break it down for you:
Every state sets base workers’ compensation rates based on claims data, but what you might not know is that insurance carriers take that base rate and add a surcharge. This is called a Loss Cost Multiplier (LCM), and it covers things like carrier expenses, agent commissions, and, of course, profit. A higher LCM means higher rates for you, while a lower LCM translates to better savings.
Here’s the kicker: not all agents know how to work with LCMs to your advantage.
Let’s look at an example. Say you’re a Virginia-based business and your carrier is Erie Insurance. Erie—like many carriers—has different “tiers” or “companies” within their brand. Depending on which tier your policy falls under, your rate could vary significantly—even though it’s all technically the same insurance company.
Now, if your agent isn’t paying attention to the LCM or which tier you’re in, you could be overpaying. How much are you leaving on the table simply because your agent isn’t asking the right questions?
Why do carriers offer different tiers?
Not all businesses are created equal, and insurers price policies based on risk. For example, imagine you’re a drywall contractor with a spotless claims history, $10 million in payroll, and a very low experience rating. You deserve the best rates available! But what if another drywall company hires uninsured subcontractors, uses casual labor, and has a terrible claims history? That company might end up in the highest-rated tier—and if your agent isn’t doing their homework, you could be grouped right alongside them.
So, should you care about your carrier’s LCM?
Absolutely. When you’re shopping for workers’ compensation insurance, the rates you see on a quote might seem straightforward, but it’s important to dig deeper. If your agent isn’t discussing things like LCMs, they may not have your best interests in mind. If you’re with a carrier already, ask your agent, “Why am I in this tier, and is there a better option?”
Here’s the bottom line: You deserve an agent who knows how to optimize your policy and get you the best rates.
If your current agent hasn’t discussed your LCM, it’s time to talk to someone who will.
For those of you who want to know more…
Below is a good description of an LCM and how it applies. This was taken from the 2021 Report from the Maryland Insurance Administration to the Joint Committee on Workers’ Compensation Benefit and Insurance Oversight Committee. (feel free to skim through the jargon until you get to the “what exactly does this mean?”)
In Maryland, workers’ compensation insurance is a blend of prior approval and competitive rating. In this line, all insurers, with the exception of IWIF, are required to subscribe to a group known as NCCI. NCCI is a licensed rating and advisory organization which files pure premium loss costs with the Md. Insurance Administration or MIA. Pure premium loss costs reflect actual claim information submitted by insurers to the NCCI. Claim information includes lost wages and medical costs. NCCI then aggregates this claim information for use in its pure premium loss cost filings. Pure premium loss costs do not, however, include any other costs associated with writing workers’ compensation insurance, such as profit, commissions, taxes and the expenses associated with providing the benefits to the injured worker (known as loss adjustment expenses). No insurer may use NCCI’s pure premium loss costs until those costs have been approved by the MIA. The rates usually are effective beginning January 1 of each year.
Once the MIA has approved the NCCI’s pure premium loss costs, insurers submit independent rate filings. These filings adopt the NCCI pure premium loss costs and then include the insurer’s expense multiplier. The expense multiplier consists of the following elements from an insurer’s expense and profit information: (1) commission; (2) general expense; (3) taxes, licenses and fees; and (4) profit. In addition, since the NCCI does not include loss adjustment expense in its pure premium loss cost filings, companies modify their expense multiplier to include a component for loss adjustment expense. The insurer’s rates are derived by multiplying NCCI’s pure premium loss costs by the insurer’s calculated expense multiplier. These rate filings are made under competitive rating, which means that insurers may begin to charge premiums based on the specific expense multiplier as soon as it has been filed with the MIA.
Uncovering Loss Cost Multipliers
I’d written previously about knowing your carriers LCM and why that’s important to you. If you don’t know what it is, start HERE.
If you’re ready for step two, I’m sharing links to the various states LCM’s. These aren’t always easy to find and some states deliberately don’t publish them. In some instances, the link will go directly to a list, others will involve another step or two to complete the search.
Note, even if the list is dated as you’ll see in some jurisdictions, even if the filed LCM has changed slightly, it’s most likely the order of the pricing tier remains accurate. For example, if a carrier has 5 pricing tiers in a state and you’re in the highest, even if the LCM has changed slightly, it’s still most likely that carriers highest rated pricing tier.
the officer minimum
The insurance audit…
Rarely do we hear great stories about insurance audits. Seems policyholders often find some unpleasant rules post audit. One of them is the officer minimum payroll. As insurance brokers or agents, of course we tend to think it’s a good practice to INCLUDE yourself on the WC policy for a host of reasons. After all, you know the rate, so it should be relatively easy calculate the total cost to include yourself or your ownership team in coverage.
But…
Then comes the audit. It’s only your first year in business and the agent persuaded you take the safe road and include yourself in coverage. After all, maybe you don’t have a health plan, you are actively working in the field, it’s the right call. You had anticipated paying yourself a modest income during the first few years of business if you could afford it, but really the first six months, it’s all hustle and no compensation to yourself. Of course, the goal is to make more, but step one is making the business profitable above all else. Your first 12 months are in the books and you only paid yourself $21,000.
The WC rate was $2.20.
$2.20 times your salary (WC rates are charged per $100 in payroll) gives you a final estimated premium for yourself of $462.
The audit bill comes in with an additional premium of $1,544.40 for JUST YOU as a single owner. What gives? You request the audit worksheets and the auditor shows your paryoll as $70,200!
Welcome to the officer minimum.
That’s right. There’s a minimum payroll in almost every state for Workers’ Compensation coverage for sole proprietors, corporate officers, LLC members, and partnerships. These minimums have gone up considerably in many states across the country. Again, what you don’t know can hurt you and throw your insurance premiums estimates out the window! To compound the pain, audits typically occur just after the policy renewal which may have had some hefty down payments.
See the table below for the breakdown. Take note, many states increase these figures annually! Know the details BEFORE it’s time for the audit, unless of course you don’t mind the additional premium surprises.
| STATE | OFFICER MIN | OFFICER MAX | PARTNER MAX | POLICY EFF. AFTER |
| Alabama | 54,600 | 213,200 | 53,400 Flat | 3/1/2023 |
| Alaska | 31,200 | 119,600 | 38,800 Flat | 1/1/2023 |
| Arizona ******* | 62,400 | 249,600 | 61,933 Max | 1/1/2023 |
| Arkansas | 52,000 | 202,800 | 51,100 Flat | 7/1/2023 |
| Californiaw | 57,200 | 149,500 | 149,500 Max | 9/1/2022 |
| Colorado | 70,200 Flat | 70,200 Flat | 70,200 Flat | 1/1/2023 |
| Connecticut | 78,000 | 156,000 | 78,500 Flat | 1/1/2023 |
| Delaware ****** | 64,168 | 257,400 | 257,400 Max | 12/1/2022 |
| District of Columbia | 85,800 | 338,000 | 84,800 Flat | 11/1/2022 |
| Florida* | 57,200 | 171,600 | 57,100 Flat | 1/1/2023 |
| Georgia | 62,400 | 254,800 | 63,200 Flat | 3/1/2023 |
| Hawaii | 52,000 | 208,000 | 51,600 Flat | 1/1/2023 |
| Idaho | 46,800 | 187,200 | 23,600 Flat | 1/1/2023 |
| Illinois | 67,600 | 270,400 | 67,700 Flat | 1/1/2023 |
| Indiana | 46,800 | 223,600 | 223,600 Max | 1/1/2023 |
| Iowa | 26,000 | 218,400 | 218,400 Max | 1/1/2023 |
| Kansas | 52,000 | 213,200 | 53,000 Flat | 1/1/2023 |
| Kentucky | 52,000 | 202,800 | 50,800 Flat | 1/1/2023 |
| Louisiana | 54,600 | 161,200 | 53,400 Flat | 5/1/2023 |
| Maine | 54,600 | 213,200 | 53,900 Flat | 4/1/2023 |
| Maryland | 70,200 | 280,800 | 69,600 Flat | 1/1/2023 |
| Massachusetts | 14,560 | 73,320 | 64,300 Max | 10/1/2022 |
| Michigan | 30,264 | 119,600 | 23,900 Flat | 1/1/2023 |
| Minnesota | 66,924 | 267,696 | 267,696 Max | 1/1/2023 |
| Mississippi | 44,200 | 145,600 | 43,000 Flat | 3/1/2023 |
| Missouri | 51,700 Flat | 51,700 Flat | 51,700 Flat | 1/1/2023 |
| Montana***** | 10,400 | 75,920 | 75,920 Max | 7/1/2023 |
| Nebraska | 52,000 | 202,800 | 51,100 Flat | 2/1/2023 |
| Nevada ** | 6,000 | 36,000 | 3,600 Flat | 1/7/1999 |
| New Hampshire **** | 36,400 | 286,000 | 35,900 Flat | 1/1/2023 |
| New Jersey | 41,080 | 163,800 | 163,800 Max | 1/1/2023 |
| New Mexico | 52,000 | 202,800 | 51,300 Flat | 1/1/2023 |
| New York * | 45,500 | 135,200 | 135,200 Max | 10/1/2022 |
| North Carolina | 57,200 | 114,400 | 55,900 Flat | 4/1/2023 |
| Oklahoma | 49,400 | 197,600 | 49,600 Flat | 1/1/2023 |
| Oregon | 70,200 | 275,600 | 68,900 Flat | 1/1/2023 |
| Pennsylvania****** | 62,660 | 156,000 | 156,000 Max | 4/1/2023 |
| Rhode Island | 59,800 | 239,200 | Not Applicable | 8/1/2022 |
| South Carolina | 26,000 | 202,800 | 50,100 Flat | 4/1/2023 |
| South Dakota | 49,400 | 192,400 | 48,600 Flat | 7/1/2002 |
| Tennessee *** | 57,200 | 234,000 | 58,300 Flat | 3/1/2023 |
| Texas | 7,800 | 62,400 | 72,300 Flat | 7/1/2023 |
| Utah | 59,800 | 234,000 | 58,800 Flat | 1/1/2023 |
| Vermont | 28,600 | 223,600 | 27,800 Flat | 4/1/2023 |
| Virginia | 33,800 | 135,200 | 67,100 Flat | 4/1/2023 |
| West Virginia | 49,400 | 197,600 | 49,800 Flat | 11/1/2022 |
| Wisconsin | 18,096 | 90,428 | 60,268 Flat | 10/1/2022 |
* FL Construction MIN 28,600; NY Construction codes MAX: 87,786. ** NV Sole proprietor or partner electing higher benefits: $21,600. *** TN Construction codes MIN $28,600; MAX $85,800. **** NH Officers of unincorporated assoc. MIN 18,200, MAX 145,600. *****MT Individual & Partner MIN $10,800 ****** DE for Individuals or Partners not on payroll MIN $64,170.08; PA for Individuals or Partners not on payroll MIN $66,196. ******* AZ Individual & Partner Min $7,200
State requires a signed waiver for officers to be excluded from coverage.
when do i actually qualify for an experience modification rating?
A. Premium Eligibility
1. Premium
a. Subject Premium
(Additional Rules: FL, TX)
A risk’s eligibility for this Plan is based on the amount of subject premium as defined in Rule 1-C-7. Refer to Rule 2-A-2 and the State Table of Subject Premium Eligibility Amounts to determine premium eligibility for a specific risk.
b. Not Subject to Experience Rating
According to the Statistical Plan, some premium elements are not subject to experience rating. Premium may be charged for these elements under the standard policy. This premium is not:
| • Subject to increase or decrease by an experience rating modification factor • Used to determine premium eligibility for experience rating as detailed in Rule 2-A-2 • Used in the calculation of an experience rating modification, unless otherwise stated in this Plan or the Basic Manual |
2. State Subject Premium Eligibility Amounts
(Exceptions: MA, TX)
(Additional Rules: OR)
A risk qualifies for experience rating when its subject premium, developed in its experience period, meets or exceeds the minimum eligibility amount shown in the State Table of Subject Premium Eligibility Amounts in Rule 2-A-2-c. Refer to Rule 2-E-1 to determine a risk’s experience period.
| a. A risk qualifies for experience rating if its data within the most recent 24 months of the experience period develops a subject premium of at least the amount shown in Column A. b. A risk may not qualify according to Rule 2-A-2-a. If it has more than the amount of experience referenced in Rule 2-A-2-a, then to qualify for experience rating the risk must develop an average annual subject premium of at least the amount shown in Column B. Refer to Rule 2-A-3 to determine average annual subject premium. c. A risk’s rating effective date determines the applicable Column A and Column B subject premium eligibility amounts required to qualify for experience rating. Refer to Rule 2-B for rating effective date determination. State Table of Subject Premium Eligibility Amounts State Rating Effective Date Column A ($) Column B ($) AK 7/1/22 and after 5,500 2,750 7/1/21–6/30/22 5,500 2,750 7/1/20–6/30/21 5,500 2,750 AL 9/1/22 and after 11,500 5,750 9/1/21–8/31/22 11,000 5,500 9/1/20–8/31/21 11,000 5,500 AR 1/1/22 and after 9,000 4,500 1/1/21–12/31/21 9,000 4,500 1/1/20–12/31/20 8,500 4,250 AZ 7/1/22 and after 7,000 3,500 7/1/21–6/30/22 7,000 3,500 7/1/20–6/30/21 6,500 3,250 CO 7/1/22 and after 10,000 5,000 7/1/21–6/30/22 9,500 4,750 7/1/20–6/30/21 9,000 4,500 CT 7/1/22 and after 12,500 6,250 7/1/21–6/30/22 12,000 6,000 7/1/20–6/30/21 11,500 5,750 DC 5/1/22 and after 8,500 4,250 5/1/21–4/30/22 8,000 4,000 5/1/20–4/30/21 8,000 4,000 FL 7/1/22 and after 12,000 6,000 7/1/21–6/30/22 11,500 5,750 7/1/19–6/30/21 11,000 5,500 GA 9/1/22 and after 12,000 6,000 9/1/21–8/31/22 11,500 5,750 9/1/20–8/31/21 11,000 5,500 HI 7/1/22 and after 6,000 3,000 7/1/21–6/30/22 6,000 3,000 7/1/20–6/30/21 5,500 2,750 IA 7/1/22 and after 9,000 4,500 7/1/21–6/30/22 8,500 4,250 7/1/20–6/30/21 8,500 4,250 ID 7/1/22 and after 7,000 3,500 7/1/21–6/30/22 7,000 3,500 7/1/20–6/30/21 7,000 3,500 IL 7/1/22 and after 12,000 6,000 7/1/21–6/30/22 11,500 5,750 7/1/20–6/30/21 11,000 5,500 IN 7/1/22 and after 6,000 3,000 7/1/21–6/30/22 5,500 2,750 7/1/20–6/30/21 5,500 2,750 KS 7/1/22 and after 9,000 4,500 7/1/21–6/30/22 8,500 4,250 7/1/20–6/30/21 8,500 4,250 KY 7/1/22 and after 12,000 6,000 7/1/21–6/30/22 11,500 5,750 4/1/20–6/30/21 11,000 5,500 LA 11/1/22 and after 11,000 5,500 11/1/21–10/31/22 11,000 5,500 11/1/20–10/31/21 10,500 5,250 MD 7/1/22 and after 11,500 5,750 7/1/21–6/30/22 11,500 5,750 7/1/20–6/30/21 11,000 5,500 ME 10/1/22 and after 11,000 5,500 10/1/21–9/30/22 10,500 5,250 10/1/20–9/30/21 10,000 5,000 MO 7/1/22 and after 8,500 4,250 7/1/21–6/30/22 8,000 4,000 7/1/20–6/30/21 7,500 3,750 MS 9/1/22 and after 10,000 5,000 9/1/21–8/31/22 10,000 5,000 9/1/20–8/31/21 9,500 4,750 MT 1/1/22 and after 10,000 5,000 1/1/21–12/31/21 10,000 5,000 1/1/20–12/31/20 10,000 5,000 NC 4/1/22 and after 12,000 6,000 4/1/21–3/31/22 11,500 5,750 4/1/19–3/31/21 11,000 5,500 NE 8/1/22 and after 7,000 3,500 8/1/21–7/31/22 7,000 3,500 8/1/20–7/31/21 7,000 3,500 NH 7/1/22 and after 13,500 6,750 7/1/21–6/30/22 13,000 6,500 7/1/20–6/30/21 12,500 6,250 NM 7/1/22 and after 10,500 5,250 7/1/21–6/30/22 10,000 5,000 7/1/20–6/30/21 9,500 4,750 NV 9/1/22 and after 7,000 3,500 9/1/21–8/31/22 7,000 3,500 9/1/20–8/31/21 6,500 3,250 OK 7/1/22 and after 11,500 5,750 7/1/21–6/30/22 11,000 5,500 7/1/20–6/30/21 10,500 5,250 OR 7/1/22 and after 6,000 3,000 7/1/21–6/30/22 6,000 3,000 7/1/20–6/30/21 5,500 2,750 RI 2/1/22 and after 11,500 5,750 2/1/21–1/31/22 11,000 5,500 2/1/20–1/31/21 11,000 5,500 SC 8/1/22 and after 10,500 5,250 10/1/21–7/31/22 10,000 5,000 10/1/20–9/30/21 10,000 5,000 SD 1/1/22 and after 9,000 4,500 1/1/21–12/31/21 8,500 4,250 1/1/20–12/31/20 8,500 4,250 TN 9/1/22 and after 10,500 5,250 9/1/21–8/31/22 10,500 5,250 9/1/20–8/31/21 10,000 5,000 UT 7/1/22 and after 8,500 4,250 7/1/21–6/30/22 8,000 4,000 7/1/20–6/30/21 8,000 4,000 VA 10/1/22 and after 8,000 4,000 10/1/21–9/30/22 8,000 4,000 10/1/20–9/30/21 7,500 3,750 VT 10/1/22 and after 9,500 4,750 10/1/21–9/30/22 9,000 4,500 10/1/20–9/30/21 9,000 4,500 WV 5/1/22 and after 10,500 5,250 5/1/21–4/30/22 10,500 5,250 5/1/20–4/30/21 9,500 4,750 |
3. Average Annual Subject Premium
Determine a risk’s average subject premium on an annual basis for experience rating eligibility purposes as follows:
| Total Subject Premium | x | 12 | = | Average Annual Subject Premium |
| Total Months of Experience in Experience Period (excluding gaps in coverage) |
When the average annual subject premium is determined, refer to Column B in Rule 2-A-2 for premium eligibility requirements. The reference to total months of experience in this calculation includes partial months.
If you haven’t seen our seminar, there’s still time to schedule near you!
Call or email to see if we can schedule for your organization today.
Jason@ManageYourMod.com or call 443-300-7722
Can’t Miss Events
Reservations Required
CLICK HERE TO REGISTER NOW!
New Dates and Locations Updated Regularly
Proudly Sponsored by:
COVID Business InCOME Claim status nationwide
A colleague of mine shared an incredibly valuable site he ran into as a claims advocate for our commercial clients. This site by PENN Law tracks various stages and appeals on COVID insurance claims.
WC Premiums and “Idle Time”
Wages paid to employees not actively working is nothing new. So how are wages handled for WC premiums if the employees aren’t actually working? Despite what many of us might think, determining what payrolls to charge for is not entirely to the carriers or auditors. This is actually up to the regulatory bodies in each state. For example, the Pennsylvania Compensation Rating Bureau specifically addresses “Idle Time” in their workers’ compensation manual.
PENNSYLVANIA WORKERS COMPENSATION MANUAL SECTION 1 UNDERWRITING RULES EFFECTIVE DATE: APRIL 1, 2015 Page 24
Wages Paid for Idle Time a. The entire amount of wages paid for idle time shall be included as payroll. b. Wages paid for idle time due to the following causes shall be assigned in their entirety to the classification which applies to the work normally performed by the employee involved: 1. Suspension or delay of work on account of weather conditions. 2. Delays while waiting for materials. 3. Delays while waiting for another contractor to complete certain work. 4. Delays arising from breakdown of equipment. 5. “Stand-by” time where employees such as operators of cranes, hoists or other equipment are on the job but their active services are not required continuously. 6. Special union requirements or agreements between employer and employees calling for pay for idle time under specified circumstances. 7. Other cause of similar nature. c. Wages paid to key employees of construction, erection or stevedoring risks, such as superintendents, foremen or engineers, for periods during which no jobs are in progress, shall be assigned to the classification applicable to the work which each one normally performs. (Exception: Reference Strike Periods – Wages Paid.) d. The entire amount of wages paid for idle time to an employee engaged in work other than construction, erection or stevedoring must be assigned without division to the classification which normally applied to that employee.
OK, with that being said, what presumably wasn’t expected when this was written was what we’re seeing today with COVID-19 and the federal assistance that has come with it. Fast forward to today and your company has just received a PPP Loan- Congratulations, let’s hope we can keep our businesses alive until things get back to normal… One of the keys to the PPP loan is to use at least 75% of the loan for payroll, even if the employees aren’t actively working. Well regardless of what type of company you have or the rate for your WC, your most likely hoping to NOT pay WC premiums on wages made to employees not actually working… I don’t blame you. So you talk to your carrier, broker, or an auditor to get the answer. Depending where you are or when you asked you may not like what you hear.
As a result, regulatory bodies are working hard to find a solution for this new type of wage payment.
NCCI recognizes that the circumstances around COVID-19 were extraordinary and, as a result, submitted an expedited rule change (Item Filing B-1441) to address the question of payroll for employees who are being paid but are not working as it relates to the basis of premium. Upon approval, this rule change will be distinct from “idle time” under our current Basic Manual rules (Rule 2-F-1), and a corresponding code 0012 will be created for reporting these payments. These payments will not be used in the calculation of premium.
The details of the rule changes proposed in Item Filing B-1441 were submitted to state regulators in all NCCI states.
https://www.ncci.com/Articles/Pages/Insights-Coronavirus-FAQs.aspx
Let’s start with the good news. Most states in the US have already approved a new classification code for payroll to be allocated for employees not working as a result of COVID-19 but still getting paid.
Disclaimer: This is an ever changing situation. Information is recorded as accurately as possible at the time posted. The information will continue to change and we’ll do our best to update accordingly. For the most accurate information check with your state rating bureau or commission.
Payroll during COVID-19 Code 0012 is approved in the following states as of May 4, 2020.
Alabama
Arkansas
Arizona
Colorado
Connecticut
District of Columbia
Florida
Georgia
Iowa
Idaho
Illinois
Indiana
Kansas
Kentucky
Louisiana
Maryland
Maine
Missouri
Mississippi
Montana
Nebraska
New Hampshire
New Mexico
Nevada
Oklahoma
Ohio Employers are not required to report to BWC the wages paid to employees who are idle at home because of the COVID-19 pandemic. Ohio is not using code 0012.
Pennsylvania – Just approved the exclusion of wages per circular released 5/5/2020. PA doesn’t use the same classification system, code 0012 is not applicable. PCRB CIRCULAR NO. 1740
Rhode Island
South Carolina
South Dakota
Tennessee
Utah
Vermont
West Virginia
To date (5/4/2020) the following states have not made an exception to the exclude wages paid for employees not working during COVID-19, or the exception just isn’t approved yet:
Alaska
California – The WCIRB is working to determine the scope of any emergency regulatory changes to be proposed to the California Insurance Commissioner. We anticipate completing this time sensitive effort within the next few weeks. Approval is in the works in California- https://www.wcirb.com/content/wcirb-july-1-2020-special-regulatory-filing
Delaware
Hawaii
Massachusetts
Michigan
New York
North Carolina- Pending Approval
Oregon
Texas
Virginia- Pending
Washington
Wyoming
Even if you find yourself in one of the states on the second list, it’s highly recommended you record any payroll made to employees not actively working- OR ANY other payroll abnormalities due to COVID-19. There may be options available come policy audit and it’s easier to have the breakouts done prior to the audit than trying to go back and recreate the records.
Many of the states have legislation pending, even if it’s not found on the commission or bureau site at this time. Track it so if it is approved, you don’t pay WC premiums where you shouldn’t have to!
Insurance Coverage and COVID-19
We’ve added a video summary of the original post below. The date of the video below is 04/16/20
At the time of this writing (03/22/20), there are 30,347 infected and over 388 fatalities due to COVID-19 in the US alone. Businesses across the country are shuttering in the wake of unprecedented government-imposed restrictions and recommendations by the CDC, NIH and others for individuals to stay home in self quarantine.
Businesses are left wondering what options they have to stay afloat or at the very least replace some of the lost revenue. One of the first places companies turn to is their commercial insurance policies. The most common question we see is “Does my business income coverage apply to a shut down or income loss due to COVID-19?”.
To answer this question, we have to first take a closer look at business income coverage. For the purpose of this writing, I am referring to the most common policy forms nationally. Such forms are created by ISO (Insurance Services Offices, Inc.) and adopted by carriers and state insurance departments. Business income coverage triggers as a result of direct physical loss or damage from a covered cause of loss. What many policy holders may not realize is that business income coverage is a part of the commercial property policy (CP 00 99 04 or CP 00 10) are two examples. This means that coverage must be triggered or started by a covered direct physical loss on the property policy. While many property policies are written with an “All-Risks” property insurance coverage form, the All-Risks policy covers losses arising from any loss except those specifically excluded. The stance taken by many insurance carriers to date is that the presence of Coronavirus is not a direct physical loss or damage to property. 
Under this interpretation of the virus, coverage does not apply under business income, civil authority, or contingent business income. (CP 00 30 and CP 00 32) two common business income coverage forms. The most thorough coverage interpretation on the grounds of a denial I have found thus far is from Zelle, LLP, a firm representing Lloyds of London against a lawsuit defending their denial of Coronavirus claim from Oceana Grills. A link to the white paper can be found here. The publication by Zelle, LLP, also goes into detail regarding the coverage or lack of triggering events from Civil Authority and the limitations of contingent business income.
Another excellent read on coverage concerns relevant to claims being filed today is from Strook & Strook & Lavan, LLP, a team of transactional, regulatory, and litigation lawyers.
Read their article here.
To further exacerbate coverage concerns, there is an endorsement that is mandatory in many states where approved that specifically excludes coverage that is the “loss or damage caused by or resulting from any virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness or disease.” (CP 01 40)
In response to the initial denials, the argument from policyholders and advocates on behalf of policyholders is contrary to the opinion expressed by Zelle, LLP that Coronavirus doesn’t cause direct property damage. Coronavirus lives on surfaces for days at a time and as a result the contamination itself would be a direct physical loss and thereby should trigger the business income coverage. Under this scenario, complications still arise for those policyholders with the endorsement (CP 01 40), exclusion for loss due to virus or bacteria.
While none of this seemingly gives comfort to business owners looking for answers it does give us the direction on what needs to be done next. Filing a claim for damages or loss. Unfortunately, discussions with your agent are likely to be unsatisfying as agents themselves don’t have the authority to make coverage determinations on behalf of the carriers. Your agent may tell you the unfortunate news that they have yet to see a carrier accept coverage or make a claim payment, but you shouldn’t let that discourage you from actually filing a claim. By filing a claim, you force the carrier’s hand to make the official determination of coverage. With a coverage denial the carrier has to give you the policy provisions they determine provide the exclusion or coverage limitation giving them the authority for the denial.
Your state insurance administration has likely published a bulletin or notice advising of current actions regarding to coverage under COVID-19.
One such notice is below by the Maryland Insurance Administration
|
||||||
Although it’s not the news you want, it is what you need on hand in the event things do change. How or why can things change? State insurance departments, state and federal officials, litigation, the courts, and others will all play a role in what happens in the weeks and months ahead. While coverage may not exist today by the carrier’s interpretation, those interpretations may not hold up or simply be overruled by regulators or legislators. Policy holders should be cautioned however that failure to file a claim in a timely fashion could further jeopardize coverage leading to additional complications in an already complex scenario.
Bottom line, file the claim now. If you’re looking for immediate premium relief, you may also want to consider reducing the payrolls on your workers’ compensation and ratable exposures on your liability policy (likely paryoll or sales). Many carriers have also adopted grace periods or are providing premium payment flexibility during the pandemic. Some have even suspended cancellation notices for non-payment of premiums. Reach out to your broker or carrier billing department to see what options may be available to you.
Jason Rilley is Vice President at The Jacobs Company, Inc. in Columbia, MD. Jason is a licensed Insurance broker for over 18 years and holds several professional designations, Commercial Lines Coverage Specialist (CLCS), Certified Professional Insurance Agent (CPIA), an Professional Workers’ Compensation Adviser (PWCA).
