One of the first things that comes to mind with many people on the topic of injury law, including workers compensation, is fraud. Everyone has a suspicion that someone on workers compensation may be malingering a bit, or even engaged in outright fraud. Of course no one denies this does happen. Everyone tried to do their best to weed these cases out, but a few slip through the cracks despite best efforts. These cases help no one, least of all the doctors and attorneys who may have unwittingly obtained benefits for someone being less than truthful about their injuries.
But what exerts a bigger influence and impact on the workers compensation system than employee benefit fraud is employer premium fraud.
This can even result in criminal convictions for workers compensation premium fraud.
A Pflugerville, Texas, landscape company pleaded guilty March 21 to misrepresenting its payroll so it could pay less for workers’ compensation coverage, according to the Texas Department of Insurance . . . From 2009 to 2015, Jammers Groundscapes defrauded Texas Mutual by concealing payroll associated with a related company that didn’t carry workers’ compensation insurance. This misrepresentation of payroll resulted in a lower workers’ compensation policy premium . . . Jammers Groundscapes entered the plea in a Travis County District Court and was ordered to pay $400,000 to Texas Mutual Insurance Co., the workers’ compensation carrier. The conviction resulted from a Texas Mutual investigation.
This kind of fraud not only can affect the insurance companies' bottom line, but also affect the ability of an injured employee to get coverage for an injury. If the employee is hidden under a different entity, that may prevent the employee or the attorney from locating proper coverage (trying to match up the pay check with the insurance coverage records), and/or it may result in the insurance carrier disputing the claim. The claimant may still be able to get compensation for the injury, as fraud in supplying information to the insurance carrier does not void or preclude coverage for legitimate injuries, but it may be more difficult to sort through liability and coverage in hearings.
Premium fraud may occur through different means. Some employers may only list (for example) the owners, secretary, and/or supervisors as employees and everyone else may not be reported to the insurance for premium purposes because they are listed as "independent contractors" who are not covered. This designation by the employer may be improper and inaccurate, resulting in coverage without premiums paid. Other employers may misclassify their employees-- for example, by listing a team of landscapers as office workers. Another way is for employers to have more than one entity and have the insurance coverage run through one entity and the majority of the payroll through another, but to have them co-mingle the business and revenue.
In one instance, a couple who owned separate tree-trimming and gardening companies classified their tree trimmers as gardeners to save a significant amount of money. In July 2009, SCIF audited one of the couple’s businesses and found that vast sums of money were being transferred from the tree-trimming company to the gardening company to pay expenses and payroll. In November 2011, the couple pleaded guilty to 29 counts of misrepresenting facts to SCIF and five felony counts of misrepresenting facts to a workers’ compensation insurance company, with sentencing enhancements for a loss of more than $100,000 and a taking involving more than $500,000. They also pleaded guilty to multiple counts of tax evasion, which were uncovered after the SCIF audit. They were given 10 years’ probation and ordered to pay $3.4 million in restitution, plus penalties and interest. The judge ordered that if the couple failed to fulfill the terms of probation, they would both be sentenced to five years in prison.
One California contractor was just arrested and cited for failure to carry workers compensation coverage for his jobs in California where such coverage is required.
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