Unemployment & Worker’s Compensation – Two Traps for the Unwary

The Trade Adjustment Assistance Extension Act of 2011 contains a little known provision that can have a significant impact on insurance agencies and all other employers who are subject to the unemployment compensation tax.  Beginning on October 21, 2013, a state must prohibit an employer whose failure to make a timely or adequate response to a claim for unemployment benefits results in the payment of such benefits to an employee who was not entitled to receive them from being relieved of liability for the payment of such benefits, if the state agency responsible for the payment of such benefits determines that the employer has “established a pattern of failing to respond timely or adequately to such requests.”  The law gives a state agency the ability to adopt stricter standards, including the denial of relief from liability for such benefit payments in the first instance.

As most employers over the past few years are keenly aware, the amount of unemployment compensation benefits paid to former employees is one factor used to determine the rate of unemployment compensation tax that will be payable by that employer in the future.  At this time, the Georgia unemployment compensation law only states that an employer’s account “may be charged” for the payment of such benefits “due to the employer’s failure to respond in a timely manner to the notice of claim filing.”  That will become mandatory on and after October 21, 2013, if the employer has engaged in a pattern of such conduct. 

Such a pattern will exist if an employer makes a habit of not responding to such claims when they are justified and then fails to respond to one that turns out not to be justified.  This coming change should be communicated to all the customers of an agency for whom it writes unemployment compensation insurance.  They should be advised to respond timely and adequately to all claims for unemployment compensation, whether justified or not.  One more way that an agency can provide value added service to its customers.

Worker’s compensation insurance was involved in another trap for the unwary that was illustrated by a call I recently received on the Free Legal Service Program that I operate on behalf of IIAG (click here for more information on this program).  The agent who called me had issued an insurance certificate for a worker’s compensation policy that her agency had written for a contractor.  Unfortunately, unbeknownst to the agent, the insurance company had canceled the policy on a date before the date the insurance certificate was issued.  The agent had assumed that the policy was still in force because she had not received notice of its cancellation from the insurance company and her customer had said nothing even though it had received the cancellation notice over two months prior to the date the insurance certificate was issued.  Now the agent was looking at an E&O claim from the contractor to which the certificate was issued, which had to pay more premium to its worker’s compensation insurance carrier since the agency’s customer did not actually have such insurance.

The moral of the above story is always check to make sure an insurance policy is in force before issuing an insurance certificate for it.  Do not assume that the insured will tell you a policy has been canceled or that you will always receive a mailed notice of cancellation from the insurance company.  Performing this check can be made easier if the agency has real time and download communication capabilities with its insurance companies.  Click here for a recent post on this subject.