Workers Comp Rates Disputed by the Defendant Construction Company*

Case Summary:

This is a review of a Breach of Contract lawsuit followed by a Motion for Summary Judgment. The plaintiff in this case was a construction company that contended their insurance carrier had been unjustly raising their workers comp rates over the course of five years.

The carrier had justified its rate hikes by stating the insurance agreement allowed them to adjust workers comp rates based on the number of claims they received from all employers in the state. The construction company countered that the portion of the contract that covered rate adjustments was ambiguous, and they believed it stated that the company's rates would only be affected by the claims its own workers filed.

After failing to come to an understanding with the carrier, the construction company filed a lawsuit citing a "continuing pattern of premium overcharge" and breach of contract. The insurance carrier responded by filing a Motion for Summary Judgment.

Statement of Facts...

On March 3rd, 2011, Clarkson Development Company (CDC) renewed an insurance contract with Jefferson Mutual Commercial Insurers, Ltd. The contract set out the terms of a workers compensation insurance contract wherein the carrier agreed to provide CDC with health insurance for CDC's 450 employees. This was done in return for a set annual premium.

Paragraph 12 of the contract stated:

"Jefferson Mutual Commercial Insurers shall calculate any annual increase in the insured's insurance premiums based upon the insured's annual number of reported injury accidents and associated workers compensation claims filed.

That increase shall be calculated by the formula set out in paragraph 16 herein. The number of injury accident and workers compensation claims filed by the insured shall be no more than 10% of the annual premiums charged in the last fiscal year. The increase in premiums shall be based partly in each company's incorporation of safety measures set out in paragraph 18 herein.

Those injury accident workers compensation claims filed shall be subtracted by the number of denied claims. If a denied claim escalates into litigation in any court of competent state jurisdiction, the insured's injury accident workers compensation claims will not be finally determined until such time as a disposition of the litigation is resolved. In the interim the insured's premiums will continue as if the injury accident workers compensation has not yet been filed.

In the event such a claim is litigated in state or federal court and such claim is resolved in favor of the claimant, that claim shall be included in the next fiscal year's computation of premiums for the company. This contract shall be renewable each year and cannot be modified unless agreed to in writing by both parties."

Over time, CDC's accountants noticed that CDC's workers comp rates rose 24%. The company was confounded by the increase, especially as their number of claims decreased 18% since the previous fiscal year. The company's attorneys contacted the carrier and inquired about the increase.

The carrier, in turn, referred CDC's attorneys to the terms of the insurance contract. CDC's attorneys responded stating their decrease in injury claims entitled them to a decrease in their workers comp rates. The carrier stated the increase in premiums was as a result of the extraordinarily high number of claims filed by a substantial number of its insured in the state. Both parties stalemated. From the stalemate came the lawsuit filed by CDC.

Lawsuit and Motion for Summary Judgment...

Once CDC filed its Breach of Contract suit, the carrier filed its Motion for Summary Judgment. CDC contended their understanding of the language in Paragraph 12 was their insurance premiums would be based not on the number of claims filed by the aggregate number of similarly sized and staffed businesses in the state, but rather upon the number of injury claims they filed.

The carrier's Motion for Summary Judgment contended the terms of the contract, and specifically Paragraph 12, were clear. Those terms meant the aggregate number of reported injury claims, and not each individual company's report of injury claims.

Outcome...

After hearing the admitted evidence and arguments of both sides' attorneys, the court found:

"The parties entered into an annual contract wherein the defendant carrier would provide insurance to the Plaintiff company's employees. The annual increase in premiums said to be the basis of the suit and responding motions is determinate of this case.

Although the court normally looks to a written agreement between two parties as the basis upon which the outcome of a hearing will be determined, there are those times when the terms of a contract are disputed. When that occurs it is left to the court to determine the intention of both parties.

At all times when the court finds the terms of a contract to be unclear, the court will rule in favor of the party against whom the contract was drawn.

We find in this case the words and intentions of Paragraph 12 to be unclear. We agree with the Plaintiff's contention that the words and meaning of Paragraph 12 are ambiguous and misleading. As a result we have no choice but to rule in favor of the Plaintiff Company in this case.

As to the Defendant Carrier's Motion for Summary Judgment, we find the alleged breach of contract pled by the Plaintiff Company to be sufficient in a determination of facts upon which this lawsuit may go forward. As a result we must deny the Defendant Carrier's Motion for Summary Judgment. This case will be set on the Court's trial calendar for August 12th, 2011."

Important Points... Workers comp rates are those premiums charged by insurance carriers to their insured. The rates are normally changed annually. Those changes are often dependent upon the number of workers comp claims filed during the past fiscal year. Breach of Contract disagreements can occur often when insurance coverage issues arise. When that breach is alleged, the Courts have traditionally found against the party who wrote the contract and in favor of the party against whom the contract was drawn.

*This case example is for educational purposes only. It is based on actual events although names have been changed to protect those involved. Any resemblance to real persons or entities is purely coincidental.