Businesses in Pennsylvania that want to be reimbursed after overpaying workers’ compensation premiums this year face a complex legal challenge, experts said.
The overpayments came to light earlier this month after the state Insurance Department revealed an error in calculations for what are known as loss costs, which make up a portion of workers’ comp premiums.
The National Federation of Independent Businesses, which represents about 12,500 small businesses in Pennsylvania, said businesses overpaid “tens of millions” on their workers’ comp premiums because of the error and insurance carriers should pay them back.
The error is being corrected through a filing by the Pennsylvania Compensation Rating Bureau, an independent nonprofit that helps set premiums for workers’ comp insurance. The filing seeks to correct an earlier filing, which took effect in April and was based on the erroneous data. That filing raised average overall loss costs by 8.9 percent. The adjusted costs would become effective Jan. 1 but must be approved by the Insurance Department.
As to how employers can pursue reimbursement, and from whom, “I think that it’s going to be a very thorny issue,” said Luke Wake, senior staff attorney for the NFIB Small Business Legal Center, based in Sacramento, California.
“These insurance companies relied on the numbers and forms they were given by the PCRB and they’re going to say the fault lies with the PCRB, not the insurance companies,” Wake said.
“Meanwhile the small-business owners really just care about getting paid back for what they were overcharged. They don’t really care whether it’s the PCRB or the insurance companies giving them the money,” he added.
Micah Saul, an attorney who specializes in labor and employment for McNees, Wallace & Nurick in Harrisburg, said employers that are trying to recover workers’ comp overpayment might have some legal options.
Saul, who said he is not familiar with the details of the PCRB issue, said one option would be for an employer to try to pursue a claim against its insurance carrier.
“It’s going to heavily depend on the language of the policy between the carrier and the business whether such a claim would be viable,” he said.
Another potential legal avenue could be for a business to pursue a claim against the PCRB, Saul said.
But it’s unclear if the organization is considered governmental, which would give it sovereign immunity, he said. Sovereign immunity protects the government from lawsuits from private entities such as businesses.
Wake, of the NFIB, cited a 2010 court opinion that said the PCRB is “essentially private” and given some degree of regulatory power.
Saul said insurance carriers might claim that they set their rates according to the PCRB and that they are entitled to rely on the government’s calculation of those rates.
“The carriers are probably not left holding the bag on this,” Saul said.
“I think the fight will come down to whether the Pennsylvania Compensation Ratings Bureau is an arm of Pennsylvania state government,” he said.
Questions remain over which entity, the PCRB, the state Insurance Department or insurance companies, has liability.
Although the precise details of what the business community would like to see are not totally clear, it includes retroactive compensation, Wake said.
“But what that means in practice remains to be seen,” he said.
“We need to see action from the PCRB on this and they’ve given no indication they’ll give us what we are asking for. At this point, can the commissioner of insurance compel some action to help these businesses that have been overcharged? Is the governor’s office concerned these businesses have been overcharged?” Wake said.
The PCRB’s proposed adjustment would not go into effect until Jan. 1, but there is some question as to whether companies that paid workers’ comp premiums effective this year between April 1 and Dec. 31 would get the new adjustment.
The PCRB recommends that employers contact their insurance carriers with questions about policies that are based on the loss costs that took effect in April.
“The PCRB is not an insurance company…and does not underwrite coverage, issue policies, make rates or calculate premiums, either prospectively or retrospectively,” the PCRB said.
“Premiums are established by insurance carriers and they are based on a variety of considerations, only one of which is loss costs,” the PCRB website said.
Suzanne Stoltenberg, a spokeswoman for the NFIB’s Pennsylvania office in Harrisburg, said the Jan. 1 adjustment date would not help one of its members, who runs a company that makes concrete forms for highway construction.
“He re-upped his workers’ comp insurance in August and it went up between 5 and 6 percent,” Stoltenberg said.
And she spoke to the owner of a metal foundry that employs 125 workers and pays $20,000 a month in workers’ comp insurance. The company has to renew its policy this month and would therefore not be eligible for the loss cost adjustment.
Bill Taylor, president of the PCRB, said the loss cost is a component of the final rate that a carrier uses.
“Our baseline is being reduced so overall, prospectively, it should result in a reduction in the marketplace, but again, each carrier will determine the final pricing,” Taylor said.
The PCRB will have another set of adjusted loss costs sometime in December that will take effect April 1, 2019, he said.
The PCRB discovered the error, which it called an “unexpected result” while it was preparing its April 1, 2019 annual loss cost filing.
The error was made by a carrier, which had overstated its 2016 claims. Taylor declined to name the carrier.
“It was a technical error on their part,” Taylor said, declining to elaborate.