A new California appeal court decision underscores how critical it is to make sure your workers’ comp insurance policy stays in force and that you have proof of insurance. Here’s what happened.
Surprise Inspection
At midnight on Friday, Jan. 26, 2001, the California Division of Labor Standards Enforcement (DLSE) inspected a business owned by Leo’s Associates. The DLSE inspector asked to see proof of workers’ compensation insurance, which California Labor Code Section 3700 requires all employers to have. The company couldn’t provide proof of coverage, so the inspector issued a stop order until coverage was obtained and fined the company $18,000, based on a $1,000 fine for each employee not covered by workers’ comp insurance.
Nonpayment of Premiums Results in Cancellation
Leo’s Associates had been insured for workers’ compensation through the State Compensation Insurance Fund (SCIF). The policy, however, was canceled on Nov. 7, 2000, after SCIF sent a cancellation notice because Leo’s Associates hadn’t made past-due premium payments.
On Jan. 5, 2001, Leo’s Associates finally paid the full past-due premium. But SCIF didn’t notify Leo’s Associates that the policy cancellation was withdrawn until Feb. 7, 2001. In May 2001, SCIF gave Leo’s Associates a new certificate of coverage for the policy period, which included the Jan. 26, 2001, inspection date.
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Employer Challenges Fines
Leo’s Associates challenged the DLSE stop order and penalties at an administrative hearing and later in court. The company argued that even though the policy had lapsed as of the inspection date, it was subsequently reinstated retroactive to the date of lapse. The DLSE argued that the penalties should stand because no insurance was in effect at the time of the inspection.
Penalties Upheld
The appeal court sided with the DLSE. According to the court, the retroactive reinstatement of a lapsed policy does not satisfy the requirement that workers’ compensation insurance be in effect on the day of an inspection. Here, said the court, the policy was not in force when the inspection occurred.
Avoid Problems
California law requires employers to carry workers’ compensation insurance or to be properly self-insured. Not complying can open you up to expensive fines and a stop work order, as Leo’s Associates discovered. And, if an employee is injured and you’re uninsured, you could be sued for steep damages.
You never know when a DLSE inspector will turn up on your doorstep or when a workplace injury will occur. So be sure to take all reasonable measures to keep your workers’ comp insurance policy in force at all times—and to have on hand your insurer’s certificate of coverage.