07/07/17 Julius Young
A recent California Court of Appeals decision deals with the issue of how and when an insurance carrier can rescind a workers’ compensation policy.
Studies prepared for CHSWC have shown that California is plagued with a large amount of employer premium fraud (see link at the end of this post). Sometimes it may be the hiding and misrepresentation of payroll data. Or it may be misrepresentations of the nature of work done by employees.
So clarity about how and when a policy may be rescinded is critical.
In Southern Insurance Co. v. WCAB (note that the case is designated as an unpublished opinion), the misrepresentation was about the distances trucking employees would be driving.
The employer, EJ Distribution (“EJ”), filed an online application with Southern Insurance Company in December 2008. Interestingly, the application was prepared by EJ’s insurance agent. The application listed the business as “local hauling” and also that EJ’s employees did not travel out of state or in excess of a radius of 200 miles.
However, the insurance policy itself did not have an exclusion based on location of injury.
Southern was not pleased when it received a claim that an EJ trucker had hurt his back while on a trip to Tennessee for EJ.
So Southern sent a letter to EJ rescinding the policy on the grounds of material misrepresentation or concealment of material facts in the application for insurance. Southern returned the policy premium paid by EJ.
A later investigation by EJ determined that EJ had been doing trucking operations beyond 200 miles for some time, but there was a lack of specific data uncovered as to when those out of state operations actually started. So Southern apparently did not have direct proof that out of state service was underway at the time of the January 1, 2009 policy inception.