puzzle piece imageWorkers Compensation in Illinois 

From The AIM Case Files

Helping Particles Accelerate

We recently helped a company that provides technical workers to a major particle accelerator.  They had a major problem--their experience modifier had risen above 1.00, and that would preclude their continuing to work on the federal project.  Fortunately, AIM was able to identify and correct problems in the modifier calculation, resulting in reduced mod calculations and our client being able to continue to help keep those sub-atomic particles accelerating.  You can take a look at the nice letter they sent us here.

Keep Those Banners Flying

We just finished helping a small Chicago area manufacturer of large printed banners and pop-up displays recover $14,000 in Workers Comp premium overcharges. Their insurance company had made a change in classification code (to a more expensive class) for their sewing employees. We discovered that the insurer had failed to give proper notice of this change, and by working with the Illinois Department of Insurance we were able to get three years worth of policies corrected, with the resulting premium reduction.

$15,000 Refund for Waste Hauler

Not long ago, we obtained a $15,000 refund for a waste hauler in Lexington, South Carolina.  The experience modifiers for this client had been higher than they should have been for several years, due to the failure of the insurer to properly report Second Injury Fund reimbursements to NCCI.

A.I.M. got the insurer to file corrected reports, then we made sure NCCI recalculated those experience modifiers.  Finally, we followed up with the subsequent insurers to get them to revise audit charges by incorporating those now-lower experience modifiers.

All in a days work.

The South Carolina Situation

We were commissioned to do a study a few years ago about how employers in South Carolina benefitted (or sometimes didn't) from the operation of that state's Second Injury Fund.  Our study found that in over 50% of cases where an employer's insurance company had gotten a reimbursement from the Fund, the insurance company hadn't reported the reimbursement to NCCI, so that the employer's experience modifier could be lowered.
Now, we're working with individual employers affected by this problem, to help them recover those premium overcharges.  And so far, we're finding an even higher percentage of overcharged employers than we found in the original study.

Even though
South Carolina enacted new legislation to try to address the problem after our original study was released, it appears that the insurance industry never bothered to actually fix the experience mod errors for all these employers.  So now we're making them fix these overcharges, one employer at a time.

If you're a South Carolina employer that had a Workers Comp injury reimbursed by the Second Injury Fund in recent years, you may well want to have AIM check to see if your company ever got the experience mod adjustments you were entitled to.  The odds are that you didn't, and we can do something about that.  Click here for more information.

The Case We Can't Talk About

Sometimes, the results of our consulting work can't be discussed in any specifics or detail.  That's the case recently, where AIM consulted with the San Francisco 49ers football organization on a Workers Compensation premium matter.  The case was covered by a Confidentiality Agreement, so we can't disclose anything more than that we provided consulting services to the 49ers regarding Workers Compensation premiums, and that it appears the 49ers were satisfied with our efforts.

Still, it illustrates that AIM can be of assistance to a wide variety of employers regarding Workers Compensation insurance premiums, even organizations you don't normally think about in the context of Workers Compensation insurance.


Helping a Recycling Company Stay "Green"

Well, we're at least helping them keep a little more of their green, as in dollars spent on Workers' Compensation insurance.  Their insurance company, on the most recent audit, reallocated payroll completely out of an inexpensive classification, and moved it all into a much more expensive class.  In most states, there wouldn't be anything that could be done about such a practice.  But in the particular state where this recycling company is based, it turns out that the rules are a little different.  Reallocating payroll so completely that payroll is totally removed from one class and placed into another is considered the same as a change in classification, and is prohibited when it's done late in the term of the policy.

The bottom line is that A.I.M. reduced the cost of the premium charges on the audit billing by about $220,000.


An Exhausting Classification Case

This Nevada client had recently been inspected by NCCI and assigned to the Painters code, on the basis that they used pressure washing equipment to clean kitchen exhaust vents.  NCCI took the position that the use of pressure washing equipment meant this company should be assigned the code used for painting and paperhanging.  This change in classification caused a large increase in manual rate and premiums for this client.  Even worse, their insurer used this as a basis to change the prior year's premium charges as well.

Our review found significant basis for disputing this NCCI decision, and we assisted the client in preparing a presentation to the Nevada Workers' Comp appeal board, which held in the client's favor and returned them to their original class code.  This enabled the client to avoid the premium increases for both of the years that their insurance company was billing them for, as well as avoiding the large future premium increases that would have resulted from NCCI's classification change.


The Case of the California Classification Code

This client was a printer with operations in both Illinois and California.  And although the Illinois operations had no recoverable overcharges, it turned out there was a significant problem with the way premiums had been computed for the California part of the company.  California's Workers' Comp premiums are subject to the rules and regulations of an entirely separate rating bureau.  While NCCI handles such work for most states, California has the WCIRB.  And under WCIRB classification rules, a different class (and manual rate) applied for this client's California work, because their work was to print advertising fliers for grocery stores--which under California rules, was eligible for a lower classification than the one used for other kinds of printing.

We were able to produce an $85,000 premium reduction for this client by correcting this problem, and lower all future premiums for their California operations in the process.


Unique North Carolina Rule

For a North Carolina plumber, we found that their experience mod was higher than it should have been, because of a unique North Carolina regulation pertaining to over-reserving of claims.  Correcting this mistake saved this client a fast $5,000 (not all of our clients are large employers, and not all of our refunds are huge, but we work just as hard for smaller clients and smaller refunds as we do for any other case.)


And Another North Carolina Case...

For another North Carolina client, we recently found that they were in the wrong classification code.  The insurance company had them classed in a paper coating class, when the client actually mixed chemicals to make adhesives that third parties then would use to, among other things, coat paper.  Fixing this mistake saved the client $35,000, and lowered future premiums as well.

No matter what state your company operates in, or what kind of work you do, you might well benefit from a review of your Workers' Comp charges.  You never know what kinds of overcharges might be hidden in the fine details.


A Double Whammy

This case found AIM producing a refund for a plumbing contractor that totaled over $100,000. The cause of the overcharges? A combination of miscalculated experience modifiers and resulting lack of contractors credit on several policies. You see, if your company's experience modifier is above a certain point it disqualifies you from getting a contractor's credit (which is calculated based on hourly wages). Correcting the modifiers brought them low enough for the contractor's credit to come into play. It took a while to get NCCI to make all the corrections necessary, and then for the insurance companies involved to correct their billings and refund the overcharges, but it was worth the wait for this employer.

Bad Vibrations

This client came to us with a serious problem--a recent NCCI inspection had assigned a much more expensive classification to their operations. In fact, this new classification was so expensive that they didn't see how they could stay in business. The client did field testing and corrections of rotating mechanical equipment, performing sensitive acoustic analysis of unwanted vibrations in the equipment, and then making adjustments to correct the unwanted vibrations.

We helped this client make their case to the NCCI appeals board, and the end result was that most of their field workers were removed from the expensive millwright classification. The huge increases in Workers Compensation insurance premium were thus averted, and the company could happily continue helping their clients.

Inherit The Mod

AIM was called in because the insurance company had turned over Workers' Comp audits to a collection agency, looking to collect approximately $30,000 from a small masonry contractor. Turns out the company had been formed when two sons merged the separate companies that had been owned by their respective fathers. The fathers' companies had earned credit mods--experience modification factors lower than 1.00--because of their good loss history. But the insurance company had treated the sons' company as if it were a completely new business. This was a mistake. When AIM got the NCCI to correctly calculate an experience modifier for the sons' company based on the loss history of the fathers' companies, the resulting experience modification factor (and the contractor's credit which they then became eligible to receive) completely offset the $30,000 additional premium the insurer had been seeking.



AIM to the Rescue

We recently helped two separate manufacturers who both had the same classification mistake, even though they were in different businesses. The first manufactured a filtration system used by machine shops and other manufacturers to recycle cutting oils. The second manufactured lifesaving rescue equipment used to free motorists trapped in vehicles. Both of these employers had been in Class Code 3632, the Machine Shop classification that is also assigned to a variety of other manufacturers who do not fit into a more specific classification.

The thing is, both of these employers really did fit into a more specific classification, because the products they made were both hydraulically driven. The proper classification code for such manufacturers carries a rate approximately one third lower than the machine shop class. Yet both of these companies had been in the wrong (and more expensive class) for years.

Fortunately, AIM was able to correct this mistake by working with their respective insurance companies, and these clients ended up receiving significant lump-sum refunds, along with cutting their current and future Workers' Comp premiums substantially.

A Classic Example

Often, potential clients of AIM will tell me that they believe their agent already provides the kind of scrutiny and review of Workers' Comp premiums that we do, and so they feel that our services really aren't needed. This actually isn't so (after all, every company we've ever produced a refund or reduction for had an agent) but some employers still can't be persuaded. But one recent case of ours illustrates the kind of deeply-embedded mistake that we often find causing Workers Comp overcharges, and it also illustrates why agents often can't be effective at catching and correcting these kinds of problems.

The trouble for this insured employer started when the NCCI inspected their operations. The result of the inspection was to change this employer to a more expensive classification. Under the rules, the insurance company was obligated to follow what NCCI told them was the correct classification. Thus, this company's annual premiums for Workers' Compensation insurance were increased by more than a third, all in one fell swoop.

They asked their agent to help them, as they felt the NCCI decision was wrong. And the agent did indeed try to help them, assisting them in requesting a review by NCCI of this classification decision. But all the insured's letters (and those of the agent) were of to avail. NCCI insisted their classification change was correct, and thus it would stand, and the insurance company therefore insisted that it had no choice but to use this more expensive class to compute premiums.

At this point, the insured employer turned to A.I.M. After all, since we work on a contingent-fee, they felt they had nothing to lose.

Our review quickly turned up disturbing questions. For one thing, when we examined the actual NCCI inspection report, we found that the inspector's description of the employer's operations appeared inaccurate in some key aspects. We tried to point this out to NCCI (as had the insured earlier) but NCCI insisted that its inspector had made no mistake. NCCI further said that, if the insured wanted the matter resolved, they should use the Workers' Compensation Appeals Board mechanism that had been set up in Illinois in recent years (similar to boards set up in many other states).

We helped this employer prepare their presentation to the Appeals Board here in Illinois, and we explained to the board what we felt were the errors made by NCCI in its inspection. But the Appeals Board said that the employer had failed to sufficiently prove that NCCI had erred, and thus the board did not overturn the NCCI decision.

We here at AIM are experienced with working with the Appeals Board, and we knew that the board is not the final word in such disputes. So we encouraged the employer to appeal the decision of the Appeals Board to the Illinois Department of Insurance. We also helped them prepare their presentation to hearing officers at the Department of Insurance.

The result? The hearing officers reviewed the material we presented, and the testimony of the owner of the company, and my own testimony about the flaws in the NCCI inspection. They also heard from NCCI. And in the end, the hearing officers determined that NCCI had indeed erred in its classification decision. They overturned both NCCI and the Workers Compensation Appeals Board. In their ruling, the hearing officers criticized NCCI for its failings in their inspection of this insured, and even ordered NCCI to pay for the cost of the hearing.

This particular case took several years to finally resolve, but it did indeed have a happy ending (from the point of view of the insured employer, at least). And our point is not to criticize the agent, who did everything a good agent should. Rather, we just want to explain how some of these mistakes are just beyond the control and authority of insurance agents. A.I.M. isn't in business to replace agents, but rather to supplement their efforts and to provide a level of specialization and expertise that typically isn't available to an agent.

By the way, this particular client was a job-shop precision machining company. For technical reasons, it appears that it is very common for precision machining shops in Illinois to be overcharged. For more information on this subject, check out our section on Precision Machining & Workers Compensation in Illinois.


Credit Where Credit Is Due

When we reviewed the Workers' Comp premium charges for a good-sized sewer contactor in the Chicago suburbs, we found the contractor was pretty knowledgeable about Workers' Comp. They also had a close relationship with their agent. Yet our review discovered that they had not gotten the Contractor's Premium Adjustment Credit they should have on a policy from a year or two back. They had gotten the credit on the policy before this one, and on the policy after this one. And they were very surprised when I pointed out that they had not gotten the credit on this particular policy. For this year, the credit amounted to a substantial reduction in premium (in the neighborhood of $20,000) and yet somehow it had not been applied to this particular past policy.

Needless to say, we're now in the process of straightening this out, but this illustrates how things can fall between the cracks sometimes, particularly with something like the Illinois Contractors Premium Adjustment Credit. For a related story on this, by the way, take a look at our News&Views section.


A Space Case

This case involved AIM producing twin refunds for a specialized manufacturer in the western suburbs (of Chicago). Our review resulted in their receiving a refund of slightly over $22,000 from the insurance company that wrote their Workers' Comp for the years 1991 through 1996, as well as an additional refund of $15,000 from the insurance company that wrote their 1986-1990 policies. (The two insurance companies involved, by the way, are both large, well-known direct writers who specialize in writing Workers' Comp.)

This client specialized in ultra-close tolerance manufacturing of metal and glass mirrors used in weather and surveillance satellites (as well as other optical systems). But in spite having dealt with insurers who tout their Workers' Comp expertise, this manufacturer had been overcharged significantly. And even though NCCI had inspected a few years ago, the problem wasn't caught because NCCI misunderstood some aspects of the manufacturer's business.

We worked to correct the NCCI inspection, and then worked with the two insurance companies to get the overcharges returned. The results: a lower classification approved for future policies, and significant refunds back from past policies.

The Misapplied Mod

In another case, we helped a small electrical contractor get his current Workers' Comp insurer to rescind a recent large increase in the client's Experience Modification Factor. On the 1996-97 policy, the Mod had gone from 1.00 (last year) to 1.41 this year, causing a large and unexpected increase in premium.

When we reviewed the situation, we found that the insurer had not actually applied that Mod properly. We worked with the Department of Insurance, and got the insurer to remove the increased Experience Mod entirely.

Even though the insured had protested vigorously to the insurance company when he learned of this Mod increase, he had been unable to get any relief until AIM got involved. Even though the Mod was correctly calculated, the insurance company had not followed proper procedure in endorsing it onto the policy, and thus we were ultimately able to get it removed from the policy.


Appealing the Appeals Board

Another client of ours received a refund of just over $36,000 due to our efforts. These refunds were for the policies running from 1987 through 1995.

This precision-machining shop had been denied the use of the proper precision machining classification by NCCI, and assigned instead to the regular machine shop classification. In fact, NCCI had inspected not once, but twice, both times assigning the general machine shop class rather than the precision class.

Our review uncovered serious problems with both inspections, and we appealed NCCI's decision to the Appeals Board here in Illinois. But in spite of what we felt was a strong case, the Appeals Board declined to reverse NCCI's decision.

We then appealed the Appeals Board's decision, taking it to a hearing at the Illinois Department of Insurance. There we detailed the problems with the NCCI inspections, and presented the same evidence as had been presented to the Appeals Board about the nature of the client's manufacturing operations.

The result was that the hearing officer ruled that this client did in fact belong in the precision machining class (a much less expensive class than the general machine shop class) and that the client had properly belonged in that lower class for a number of years.

Results: a lower classification for all future policies, and a significant refund from past policies.



Consultants on Workers Comp Classification Codes, Experience Modifiers, Payroll Audits, & More

  • Advanced Insurance Management LLC
  • 3230 South Harlem Avenue,  Suite 203
  • Riverside, IL 60546
  • contact us:phone: 800-288-9256
  • e-mail:aim@cutcomp.com