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Seeking Lower WC Rates Leads to Higher Ones

State Investigates NYCIRB after Reclassification Prompts Bankruptcy:

By Ben Miller Reporter



Statewide Fireproof Door Co.'s troubles began with some advice that backfired.


In November 2012, Statewide's insurance broker recommended to the company's president that the company reclassify its employees to save about 27% on its workers' compensation premiums. So the owners put in a request to the New York Compensation Insurance Rating Board for a change.


The board came back with a different classification − but one that was about four times more expensive than what Statewide Fireproof had started out with. Darrel Caneiro, Statewide's president, dumped the company's old insurance policy with V3 Insurance Partners and took out a new policy with the New York State Insurance Fund. NYSIF agreed that the company's employees belonged under their original classification, but the rating board ruled again that Statewide belonged in a door-manufacturing category instead of a fireproof equipment or sheet metal-manufacturing business.


Statewide's workers' compensation costs shot up from about $24,000 to $92,000 a year for its six employees.


Despite Caneiro's attempts to get local politicians and the governor to do something about it, nothing changed.


Statewide, which is family-owned and has operated in Brooklyn since 1965, is selling off its equipment and will close in about a week.


"We wouldn't have opened this can of worms (if it weren't for our insurance broker)," Caneiro said. "We didn't know anything about it."


Caneiro said that to his understanding, most companies in his line of work have their employees classified with the NYCIRB as 3076 − fireproof equipment manufacturing. He also said that his business didn't represent much of a risk to insurers − in the past 10 years, they've paid one claim.


"One guy cut his finger and had to get 10 stitches," Caneiro said.


According to a Wednesday article on the New York Daily News' website, the state's Department of Financial Services is investigating the rating board to see if the incident was isolated and if the board acted within its obligations.


Representatives from the DFS didn't return requests for an interview for this article. Bill Taylor, vice president of underwriting and field services for the NYCIRB, said the agency's actions in the matter followed its normal procedure.


"The facts bear out that it was our standard routine process and it basically is the way we handle all our disputes or inquiries of that nature," Taylor said. "So it wasn't really anything unusual for this case."


He said the NYCIRB is one of the few state-rating agencies in the country that both investigates work sites and re-audits statements from insurance carriers to make sure that employees are classified correctly.


The board tries to investigate all policies it monitors for employee classification annually, but he said it doesn't always audit every one.


"We have 400,000 policies or so and it's an expansive amount to police," he said.


Taylor said the purpose of audits such as the one that led to the employee reclassification at Statewide is to make sure that every employer is paying its fair share. He said many companies knowingly manipulate their employees' classifications to get lower insurance premiums.


"The whole emphasis is to avoid misclassification and to maintain the integrity of the system," he said.


Michael Durant, New York state director for the National Federation of Independent Business, said Statewide's story isn't unique. He said he's heard stories from multiple members of similar cost increases at the hands of state agencies and organizations. The NYCIRB isn't a government entity, but is the official rating agency of the insurance commissioner. Durant said he heard from an ice cream store that closed down last year when its employees were reclassified.


"The state assumes the worst and all hell breaks loose," Durant said.


Durant said employers must deal with multiple classifications for their employees − they may be classified one way for workers' compensation insurance-rating purposes and another way for tax purposes, for example. On top of that, the NYCIRB offers more than 600 ratings for various kinds of employees. That, he asserted, can create confusion for employers.


"That can lead good actors, good employers (to be) in violation of laws when they don't even know that they are," he said.


Ultimately, he said, the state needs more than legislative reform to address such problems. Durant believes that there needs to be a cultural shift in agencies such as the NYCIRB.


"Despite the fancy rhetoric the last two years about opening New York for business and the recently enacted workers' comp reform, (this) shows that not only is there a mentality that needs to be changed, but there's also a lot of work left on the table," he said.


Source: WorkCompCentral

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