Work Comp Audit Time and Agents E & O

[AZDave]

Wrote GL on a steel contractor May 2014. Few days later quoted the work comp. The only market for this risk is NCCI, assigned risk. I called NCCI direct to obtain the correct class code as there are a few different codes for steel risks. I sent out the quote and didn't hear back. The rate was a bit over $50/$100 of payroll.

Early this year while doing a coi request, learned they obtained work comp thru another agency. Policy was issued thru NCCI and Travelers is the carrier that picks up AZ pool. I offered to BOR it to my agency for renewal and they obliged. Policy now in my agency. The class code assigned to the policy was not the same class code I quoted - the code assigned had a rate of $9/$100 (code 5057 Steel NOC). So now I'm thinking I screwed up in the beginning and quoted the wrong class.

Audit Time.

Auditor advised insured that they were classed incorrectly and the governing class of 5059 is to be applied. Auditor did not know the rates. I had the discussion with the insured. Final audit numbers are not out yet, but I'm thinking they are going to owe quite a bit. Payroll around $150,000 - paid $14,000 and should have paid $75,000.

Does this first agent have an E & O issue here?

 

[Indiana_Adam]

On carriers, I would reach out to AmeriSafe and Applied Underwriters as that is most likely right up their alley. May have better rates and will give them coverage outside of the state of AZ if they do any work outside of that state or have employees who reside out of state. It's an issue here as we live in a tri-state area, though may not be for you.

I don't know on the E&O side as I've no experience with using the coverage. I would hope the originating agent would be on the hook, but usually everyone gets dragged into the lawsuit. Is there even a valid E&O claim here? The coverage would have paid out in the event of a loss. At that time, if NCCI was the client's only option, would said client have closed the business/opted not to start or paid the $75,000 or operated illegally without WC? I realize the claim doesn't need to be valid for it to be expensive in legal fees. Has the client threatened to sue yet, or are you just preparing for the worst?

Maybe talk to the other agent and see if he/she spoke to NCCI to get the correct class code or just guessed? If NCCI recommended that class code, that could help out a lot and put it back on NCCI.

Wish you luck!

 

[Arnage150]

Classifications have grey areas. Was it pretty cut and dry or not? ie did he only do structural erection and they classified him as artistic/decorative or did he do a little of both? Are you positive you can challenge the audit? Put some employees in a lower rated similar code?

If is cut and dry I don't think any attorney would take the case. I also dont think it would be your E&O claim as you didnt make the error.

 

[AZDave]

Some of the work can be class split into the lower class, but majority should have been classed correctly in higher classification.

It is not a question of my E & O here, but the first agents.

Is it the insured's job or the agents job to choose the proper class? Insured told agent scope of work. Agent provided insured with quote using the wrong class code (most likely just to get the business).

Insured would have bid work differently if they were classed correctly, and would have paid the premium.

 

[Blastr17]

If the client signed the app for that class code it's probably on them.

 

[insurance1822]

I wish I could offer input here...but I'm just reading this & thinking I should stick w/ personal lines.

AZDave - You've always had good input on these forums & I really hope this works out for you. I'd have to imagine this isn't your first scare in the business? I have scares every year or so...and I hate that. Good luck & I'm sure you'll be OK (could be much worse if there was a huge loss that's not covered.)

 

[AZDave]

Thanks 1822. Its all good for me. I am the agent for current term, going forward there won't be any audit surprises.

They are pissed at the previous agent for not getting it right. If it were a few grand, no problems. They are potentially looking at $50 - $70 k balance due, and audits are due NOW.

 

[plewi003]

Hate to be in your clients shoes. Agent should have looked at the scope description. If I have a questionable class I usually print the scope and have the client sign this as well so they know what class they were put in. I don't see an E&O issue here since ultimately the client signed the app, and you were not privy to the client's conversation with prior agent. Also you would think the client would be suspicious that your rate was so much higher in the first place... Sometimes the lesson is if it sounds to good to be true it probably is.....