Defense of State Insurance Fund Lawsuits

The State Insurance Fund (“Fund”) provides workers' compensation insurance policies that are to be governed by ordinary rules of contract construction. (20 A.D.3d 173).

To establish a breach of contract to pay the premium due, the Fund must prove the terms of the workers’ compensation policy (11 Misc 3d 802). To succeed on an account stated--a cause of action based upon an underlying contractual relationship where one party has not objected to the statement of account or invoice sent by the other party--the Fund must submit evidence that its statement was mailed to the employer and no protest received. (11 Misc 3d 802).

The Fund must prove the audits, upon which it relies, by admissible evidence, not hearsay. (2004 NY Slip Op 51337[U]).

If the Fund claims an early cancellation penalty, it must prove that notice of cancellation was given to the employer and filed with the Workers’ Compensation Board. (2011 NY Slip Op 32191[U]).

Workers’ compensation coverage is not needed for independent contractors unless they are subcontractors. The requirement to get coverage for subcontractors only applies to an employer proven to be a contractor. (2005 NY Slip Op 50340[U]).

If the employer can arguably demonstrate that an alleged employee is an independent contractor, the Fund must demonstrate that the person is indeed an employee and not an independent contractor. (2014 NY Slip Op 31103[U]).

If a contractor is required to demonstrate coverage for a subcontractor a certificate of insurance may not be enough because “a certificate of insurance is merely evidence of a contract for insurance, not conclusive proof that the contract exists”. (2010 NY Slip Op 32984[U]).

The most frequent challenge to the Fund’s claim for nonpayment of premiums is the Fund’s improper classification of employees. Such a challenge may not be litigated in court, even if the Fund “arbitrarily and without any basis, assigned higher classifications” (208 Misc. 316).

Instead, the aggrieved employer must properly file a challenge with the Underwriting Committee of the Rating Board, and if that doesn’t help, a hearing at the New York Insurance Department, and, only then, if that didn’t help, an Article 78 proceeding in court.

While a rate classification may not be contested in court, the actual rate applied to the classification may be challenged in the Fund’s court action seeking the unpaid premium. (195 A.D.2d 372).

A classification protest cannot be submitted to the Rating Board later than 12 months after the policy expired, so there is a possible exception to the rule barring court challenges to the classification if the Fund’s audit was conducted over twelve months before the policy period ended, but only if the audit was conducted too late to file for review with the Board, and the employer can show that the classification was improper. (2011 NY Slip Op 31743[U]).

If after getting sued, the employer is able to file a timely request with the Rating Board for a classification review, the court is not obligated to stay the action pending the Board’s final determination. (13 Misc. 2d 745).

However, the Fund’s demand for payment of premiums was held to involve a law requiring state agencies to make reasonable payment arrangements where immediate collection posed a hardship to the public. (2002 NY Slip Op 50709[U]).

The court may calculate the correct premium using factors including the payroll classification, manual rate, territorial charge, penalty and assessment charge. (2 Misc. 3d 972).