Joseph P. Basile | E-mail Joseph Basile
The Workers’ Compensation Division of the Illinois Appellate Court issued an opinion on the issue of whether an employer “knowingly” failed to provide workers’ compensation insurance coverage on the date of an employee’s accident. This opinion is instructive because it demonstrates what evidence will be required to establish a knowing failure. In the beginning of the year, the Illinois Workers’ Compensation Commission amended its rules to update the information required in explanation of benefits for medical bills. The rule is summarized.
Commission Erred in Finding Respondent Knowingly Failed To Provide Work Comp Coverage
The Workers’ Compensation Commission Division of the Illinois Appellate Court concluded that the Commission erred in finding a respondent knowingly failed to comply with the insurance mandate of the Workers’ Compensation Act, 820 ILCS 305/1, et seq., in American Kitchen Delights, Inc. v. Illinois Workers’ Compensation Commission, 2020 IL App (1st) 191593WC. The injured worker filed an application on February 26, 2018, claiming injuries sustained on February 2, 2018. The petitioner’s attorney learned the respondent did not have workers’ compensation coverage on the date of the accident. A motion for a preliminary hearing under §4(d) of the Act was filed on April 19, 2018, alleging the respondent knowingly failed to have coverage. In response, the respondent admitted it did not have the coverage and asserted the claimant failed to present sufficient evidence that it knowingly failed to comply with the Act’s insurance mandate.
The hearing proceeded on June 1, 2018. The only witness was the respondent’s founder and president, Mr. Hasan. He received the application in March 2018. Around that time, the petitioner’s counsel spoke to Mr. Hasan about the claim and lack of insurance coverage. Mr. Hasan confirmed the petitioner worked for the respondent but was not certain he was employed on the date of the accident. The attorney introduced a paycheck, which Mr. Hasan agreed covered the pay period between January 21, 2018, and February 3, 2018. He identified an exhibit as a “Notice of Cancellation, Nonrenewal, or Declination” (Nonrenewal Notice) pertaining to the respondent’s workers’ compensation insurance policy. 2020 IL App (1st) 191593WC at ¶5. This stated that the policy expired on December 31, 2017, and would not be renewed because of the respondent’s “loss history.” Id. He confirmed the address listed on the Nonrenewal Notice was the respondent’s business address. The Nonrenewal Notice stated it was mailed on October 30, 2017, but Mr. Hasan could not recall receiving it.
He testified to the insurance renewal process, which began in September, and that he usually wrote the checks for premiums in March. He could not recall the insurance broker telling him in September 2017 that the workers’ compensation policy would not be renewed. He assumed as late as April or May 2018 that the respondent had workers’ compensation coverage because several other insurance policies had been cancelled and reinstated. He testified that the respondent received an invoice on May 17, 2018, from the insurance company, which he paid. After that, the respondent received notices informing it that notices of cancellation previously issued with respect to “commercial package,” “commercial auto,” and “umbrella” insurance policies had been rescinded effective May 23, 2018. 2020 IL App (1st) 191593WC at ¶6. He then contacted the insurance broker, who confirmed the workers’ compensation policy had not been renewed. He instructed the broker to look for a workers’ compensation carrier. He admitted that as of the date of the hearing the respondent did not have workers’ compensation insurance.
An e-mail from the respondent’s attorney dated April 12, 2018, stated she had been informed there was no workers’ compensation coverage. Mr. Hasan explained that he assumed that was what was going on but wanted confirmation of the fact and was concerned as to why the insurance agent would issue three policies but not the fourth. He said, “[W]e needed in writing from the insurance company that in fact that is happening, and that not some kind of mistake or misunderstanding on our part.” 2020 IL App (1st) 191593WC at ¶7. He did not receive definitive information in writing that the respondent did not have workers’ compensation coverage until May 21, 2018.
The Commission issued an order on November 9, 2018, finding, in part, that the respondent knowingly failed to provide workers’ compensation coverage on the date of the petitioner’s accident. The Commission rejected any implication that the lapse of insurance was inadvertent and unknown. The Commission supported its determination based on the Nonrenewal Notice dated October 30, 2017, effective December 31, 2017. It also supported its finding based on the respondent’s admission he received notice of the pending workers’ compensation claim, his assumption in April 2018 that respondent no longer had workers’ compensation coverage but wanted written confirmation of the cancellation, which was received in May 2018, and the lack of coverage as of the hearing date. The Commission found that none of the respondent’s explanations offered justification for its failure to have workers’ compensation coverage in effect on the accident date.
On appeal of the circuit court judgment confirming the Commission, the respondent argued the Commission improperly determined it knowingly failed to provide workers’ compensation insurance for purposes of §4(d) of the Act. The respondent raised two other issues, but the court found the first issue dispositive and reversed on that basis.
Section 4 of the Act provides the regulations to ensure that employers maintain adequate workers’ compensation insurance and pay claims to their employees. Section 4(d) empowers the Commission to enforce the regulations. It authorizes the Commission, after conducting a hearing in accordance with due-process principles, to determine whether an employer failed to provide the insurance. If there is noncompliance, the Commission must determine if the noncompliance was knowing or negligent. Negligent noncompliance is subject to prosecution for a Class A misdemeanor. A knowing failure is more serious and “an immediate serious danger to public health, safety, and welfare sufficient to justify service by the Commission of a work-stop order on such employer, requiring the cessation of all business operations.” 820 ILCS 305/4(d). The employer is subject to prosecution for a Class 4 felony. The employer may also be sued in civil court and may not rely on defenses of assumption of risk or negligence or that the injury was caused by a fellow employee. The Commission can impose civil penalties against an employer who knowingly and willfully fails or refuses to comply with the Act’s insurance mandate.
The Commission supported its finding stating that “as early as October 30, 2017, notice was sent to respondent regarding the non-renewal of the workers’ compensation policy, effective December 31, 2017.” 2020 IL App (1st) 191593WC at ¶14. Notice of an insurer’s intention not to renew a workers’ compensation policy is governed by §143.17a of the Illinois Insurance Code, 215 ILCS 5/1, et seq. The insurer must mail written notice to the named insured at least 60 days prior to the expiration date of the current policy, and the company shall provide a specific explanation of the reasons for nonrenewal. 215 ILCS 5/143.17a. Subsection (d) provides that “[u]nder subsection (a), the company shall maintain proof of mailing of the notice of intention not to renew to the named insured on one of the following forms: a recognized U.S. Post Office form or a form acceptable to the U.S. Post Office or other commercial mail delivery service. . . . For all notice requirements under this Section, an exact and unaltered copy of the notice to the named insured shall also be sent to the named insured’s producer, if known, or the producer of record.” 215 ILCS 5/143.17a(d).
While the Nonrenewal Notice was introduced into evidence, the petitioner did not produce proof of mailing of the Nonrenewal Notice by the insurer on a recognized U.S. Post Office form or a form acceptable to the U.S. Post Office or other commercial delivery service. The court’s opinion states: “Absent evidence of proof of mailing of the Nonrenewal Notice in accordance with section 143.17a, we hold that the record was insufficient, as a matter of law, to support the Commission’s finding that the Nonrenewal Notice was sent to respondent ‘as early as October 30, 2017.’ ” 2020 IL App (1st) 191593WC at ¶15. Consequently, the Nonrenewal Notice itself, without proof of mailing required by §143.17a, was insufficient to establish respondent knowingly failed to provide workers’ compensation insurance coverage on the date of the accident.
The court also found the Commission’s three additional bases in support of its finding were not sufficient to establish the employer knowingly failed to provide the required insurance. These all were facts that occurred after the date of accident. Neither the fact that the respondent was aware of the workers’ compensation claim on February 26, 2018, nor the fact that by April 2018 the respondent was under the assumption it did not have workers’ compensation coverage shed any light on what the respondent knew or did not know concerning coverage on the date of the accident. The court commented that it was not prepared to say that there are no circumstances in which an event that postdates an accident would be sufficient to prove an employer knowingly failed to provide the required coverage. While the court did not condone the lack of urgency in obtaining coverage, the fact that the respondent did not have coverage as of the hearing date provided no indication as to what the respondent knew about the status of its coverage on February 2, 2018. The Commission erred in relying on these events in support of its finding of a knowing failure to provide coverage. Consequently, the court reversed the circuit court’s judgment that confirmed the Commission’s decision.
Commission Has Amended Its Rules Concerning Explanation of Benefits
The Commission amended its rules concerning explanation of benefits with the adoption of 50 Ill.Admin. Code §9110.100, Explanation of Benefits, effective January 24, 2020. Subparagraph (a) states in part: “In Section 8.2(d) of the Act, the term ‘explanation of benefits explaining the basis for the denial and describing any additional necessary data elements’ means an Electronic Remittance Advice (ERA) or Standard Paper Remittance (SPR) that contains all the relevant data elements denoting the reason for payment, adjustment or denial.”
The explanation must include the “appropriate Group Claim Adjustment Reasons Codes, Claim Adjustment Reason Codes (CARC), and associated Remittance Advice Remark Codes (RARC), as specified in the Accredited Standards Committee X12 (ASC X12) Standards.” 50 Ill.Admin. Code §9110.100(a). The rule provides the information for obtaining those standards. It also requires the “National Council for Prescription Drug Programs reject codes from the External Code List (ECL), available from the National Council for Prescription Drug Programs.” Id.
Subparagraph (c) requires that a paper explanation of benefits or SPR contain all information necessary to match the explanation of benefits with the associated medical bill.
Subparagraph (d) prohibits a party from rejecting a standard paper or electronic transaction for the reason that it contains data elements that are not needed or used by the party or that it includes data elements that exceed those required for a complete bill.
Subparagraph (e) permits employers, payors, or healthcare providers to exchange data for medical bills and explanation of benefits in a nonprescribed format by mutual agreement. All data elements required under this section are to be present in a mutually agreed format.
For more information on workers’ compensation, see WORKERS’ COMPENSATION PRACTICE (ILLINOIS) (IICLE®, 2019). Online Library subscribers can view it for free by clicking here. If you don’t currently subscribe to the Online Library, visit www.iicle.com/subscriptions.