Suing a workers compensation insurer: what employers need to know

Suing a Workers' Compensation Insurer: What Employers Need to Know
by Bryan S. Doss, Esq.

In the realm of workers' compensation insurance, the relationship between an employer and their insurer is typically one of mutual trust and collaboration. The insurer's primary role is to provide benefits to employees who are injured on the job while protecting employers from lawsuits related to workplace injuries. However, there may be circumstances under which an employer may want to take legal action against their workers' compensation insurer.
Reasons for Suing a Workers' Compensation Insurer
While employers are generally immune from lawsuits related to work injuries due to the protections offered by the workers' compensation system, the insurer's role is often more complex. There are a few common reasons why an employer might consider suing their workers' compensation insurer:

1. Failure to Pay Claims: If the workers' compensation insurer fails to pay out legitimate claims in a timely manner, this could place the employer in a difficult position. Not only can it affect the injured worker's recovery, but it could also lead to fines or penalties against the employer for non-compliance with workers' compensation laws.
2. Improper Denial of Coverage: Insurers may improperly deny a claim, either by disputing the nature of the injury, the cause of the injury, or the level of benefits owed. In such cases, employers may need to take legal action to force the insurer to fulfill its contractual obligations.
3. Dispute Over Premiums: Workers' compensation premiums are based on the risk associated with the type of work an employer does and the number of employees on the payroll. Disputes over premium rates, classification codes, or the employer’s overall risk classification may lead to lawsuits if the insurer refuses to adjust premiums or provide accurate billing.
4. Breach of Contract: If an insurer fails to honor the terms outlined in the workers' compensation policy—whether by not providing agreed-upon services or by making inconsistent payments—the employer might consider suing for breach of contract.
5. Bad Faith Insurance Practices: In extreme cases, employers may sue their insurer for acting in bad faith. This could include the insurer's refusal to provide the necessary coverage, delay tactics, or misleading actions that harm the employer’s business.
6. Fraudulent Claims: An employer may need to sue an insurer if they believe the insurer has improperly processed fraudulent claims. This might be the case if the insurer has failed to investigate claims adequately, thereby allowing fraudulent claims to be paid out, which could ultimately affect the employer's premium rates.

The Process of Suing a Workers’ Compensation Insurer
Before pursuing legal action, it is crucial for employers to carefully document all interactions with their workers' compensation insurer. This includes keeping detailed records of all communications, claims, and payments related to the policy.
If an employer chooses to move forward with a lawsuit, the general steps include:

1. Attempt Resolution: The first step should always be to attempt resolution directly with the insurer. This might involve negotiations, reviewing policy terms, and addressing misunderstandings or errors. Mediation or arbitration can also be viable alternatives to costly litigation.
2. Legal Consultation: If informal resolution methods fail, the employer should consult an attorney who specializes in workers' compensation law. A legal professional can provide advice on whether there is a valid case, help identify any breaches of contract, and explain the next steps in the process.
3. Filing a Lawsuit: If the issue cannot be resolved through negotiation or arbitration, the employer may file a lawsuit in civil court. The suit might claim breach of contract, bad faith, or other legal violations based on the insurer’s conduct. The court process can be lengthy, but if the employer prevails, they may be awarded damages for lost profits, reputational harm, or other business-related losses.
4. Insurance Commissioner or Regulatory Body: In some cases, employers might file complaints with state insurance commissioners or regulatory bodies. These organizations can investigate claims of improper practices or fraud and impose penalties on insurers found to be in violation of laws.

Possible Consequences for Employers
While an employer has the right to challenge the actions of their insurer, there are potential risks involved in suing a workers' compensation insurer:

• Legal Costs: Litigation can be expensive and time-consuming. Employers need to be prepared for the financial commitment and potential long delays before a case is resolved.
• Impact on Business Operations: Disputes with insurers may distract from day-to-day business operations.

Prevention: How Employers Can Avoid Issues
To minimize the need for legal action, employers can take proactive steps to ensure that they are in compliance with workers' compensation requirements and that their relationships with insurers remain positive:

1. Regularly Review Insurance Policies: Employers should review their workers' compensation policies periodically to ensure they are receiving the right coverage at the right price.
2. Document Everything: Keeping thorough records of employee injuries, claims, and communications with the insurer can help avoid misunderstandings and provide evidence should a dispute arise.
3. Stay Informed on Workers’ Compensation Laws: Workers' compensation laws can change frequently. Employers should stay informed about regulations and best practices to ensure compliance.
4. Maintain Open Communication with the Insurer: Building a strong, transparent relationship with the insurer can help avoid disputes and create a clear understanding of expectations.

Suing a workers' compensation insurer is a significant step for any employer and should only be pursued after careful consideration and consultation with legal professionals. While insurers are meant to serve as a safeguard for both employers and employees in the event of a workplace injury, misunderstandings and disputes can arise. Employers who believe they have been wronged by their insurer have legal recourse, but it is important to approach the process with a clear understanding of the potential risks and outcomes.  The lawyers at Doss & Uyeno, LLP can help you understand your rights and help you with one of your companies greatest expenses.