senate Bill S7862

2013-2014 Legislative Session

Relates to ensuring proper payroll auditing of policies for workers' compensation insurance

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Archive: Last Bill Status - In Committee


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor

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Jun 16, 2014 referred to rules

S7862 - Bill Details

Current Committee:
Senate Rules
Law Section:
Workers' Compensation Law
Laws Affected:
Amd §§54, 93, 95 & 131, Work Comp L

S7862 - Bill Texts

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Relates to ensuring proper payroll auditing of policies for workers' compensation insurance.

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BILL NUMBER:S7862

TITLE OF BILL: An act to amend the workers' compensation law, in
relation to ensuring proper payroll auditing of policies for workers'
compensation insurance

Purpose of the Bill: This bill would permit the State Insurance Fund
("NYSIF") to cancel a workers---compensation policy based on the
policyholder's failure to cooperate with a payroll audit.

Summary of Provisions:

Section 1 of the bill would amend subdivision 5 of § 54 of the
Workers' Compensation Law ("WCL") to permit NYSIF to cancel a workers'
compensation policy on 30 days' notice for the policyholder's failure
to cooperate with a payroll audit. Failure to cooperate with a payroll
audit is defined to mean the policyholder's failure to: (1) keep an
appointment, after at least two attempts, with a payroll auditor
during such policyholder's regular business hours upon being provided
advance written notice of such appointments; or (2) furnish relevant
business records in the course of a payroll audit as required under
WCL §§ 95 and 131. NYSIF would also be required to provide an
additional warning notice at least 15 days in advance of sending a
cancellation notice.

Section 2 of the bill would amend § 93 of the WCL to authorize NYSIF
to refuse to issue a policy to an entity or successor entity that owes
a balance of unpaid premium on a policy cancelled for failure to
cooperate with a payroll audit.

Section 3 of the bill would amend § 95 of the WCL to specify that
NYSIF policyholders are required to provide NYSIF premium auditors
with records containing information relevant to any policy period
including any ledgers, journals, registers, vouchers, contracts, tax
reports, payroll and distribution records, and computer programs for
retrieving data and also records pertaining to a subcontractor.

Section 4 of the bill would amend subdivision 1 of § 131 of the WCL to
specify that all employers are required to provide their workers'
compensation insurers with records containing information relevant to
any policy period including any ledgers, journals, registers,
vouchers, contracts, tax reports, payroll and distribution records,
and computer programs for retrieving data and also records pertaining
to a subcontractor.

Section 5 of the bill would provide for an effective date of 90 days
after enactment and would apply to policies issued or renewed after
that date.

Prior Legislative History: This is a new bill.

Statement in Support: This legislation would allow NYSIF to better
set appropriate premiums on the workers' compensation insurance
policies it writes by having authority to cancel a policy for the
policyholder's failure to cooperate with a payroll audit.


Workers' compensation premiums are based on a rate applicable to the
classification of work performed by an employer's employees multiplied
by the payroll applicable to those employees. All workers'
compensation insurers have the right under the WCL to audit their
policyholders' records to verify that the amount of payroll and number
of employees reported by the policyholder at the beginning of the
policy period are accurate and that the nature of the policyholder's
business is consistent with the classification of its employees for
rating purposes. Without this tool, an insurer cannot assess the
extent of the risk posed by the policyholder's business and determine
appropriate premiums.

Premium audits are particularly crucial for NYSIF because of its
unique place in the workers' compensation insurance market. NYSIF is
the insurer of last resort for workers' compensation. NYSIF must
insure any employer that applies for workers' compensation insurance,
regardless of the risks posed by that employer's operations. In
contrast, private insurers are entitled to select their risks and may
refuse to insure any employer they believe may not provide accurate
payroll information.

Current law allows NYSIF to cancel a policy for workers' compensation
only for nonpayment of premium. Private workers' compensation
insurers, however, may cancel a policy on any ground merely by
providing the policyholder with 30 days' advance notice. If a private
insurer has difficulty obtaining an audit, it may either cancel the
policy or refuse to renew the policy at the next policy anniversary.
Unlike private insurers, NYSIF must continue to provide coverage
unless the policyholder defaults on its premium payments even if NYSIF
is unable to gain access to the policyholder's books and records.

Having authority to cancel a policyholder for its failure to cooperate
with an audit will allow NYSIF to get better cooperation from
policyholders in obtaining audits. In the vast majority of these
cases, actual cancellation will be unnecessary.

In addition, the relatively small number of polices which NYSIF would
actually cancel for the policyholder's failure to cooperate with a
payroll audit would be, in most instances, policies that NYSIF now
cancels for non-payment of premium with a large balance of premium
due. In these cases, the authority to cancel a policy for failure to
cooperate with an audit would allow NYSIF to cancel these policies
sooner with a lower balance of unpaid premium.

Some NYSIF policyholders intentionally understate their payroll when
they apply for a policy with NYSIF and delay payroll audits for an
indefinite period of time in order to avoid being charged premium on
their full payroll that an audit would reveal. In most cases, these
policies are ultimately cancelled for non-payment of premium without
an audit being performed. This results in the policyholder receiving
months of coverage based on an artificially low premium. Attempts at
collection of premiums after cancellation for non-payment are often
fruitless because the employer is out of business or in bankruptcy.
The cost of these uncollectible premiums is ultimately borne by the
vast majority of NYSIF policyholders in the form of lower premium
discounts and dividends.


If NYSIF had the ability to cancel these policies for failure to
cooperate with an audit, it could cancel these policies earlier and
avoid prolonging coverage based on inadequate premiums.

Even after cancellation takes effect, policyholders who allow NYSIF to
conduct an audit on their cancelled policy would be eligible to obtain
a new policy with NYSIF. NYSIF would have discretion to reinstate the
cancelled policy erasing any gap in coverage for any employer that
NYSIF concludes is acting in good faith to pay NYSIF what it is owed.

Fiscal Implications: None.

Effective Date: This would take effect ninety days after it becomes
law and apply to policies issued or renewed after such effective date.

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                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  7862

                            I N  S E N A T E

                              June 16, 2014
                               ___________

Introduced by Sen. SAVINO -- (at request of the State Insurance Fund) --
  read  twice  and  ordered printed, and when printed to be committed to
  the Committee on Rules

AN ACT to amend the workers' compensation law, in relation  to  ensuring
  proper  payroll  auditing of policies for workers' compensation insur-
  ance

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1.  Subdivision  5 of section 54 of the workers' compensation
law, as amended by section 23 of part GG of chapter 57 of  the  laws  of
2013, is amended to read as follows:
  5. Cancellation and termination of insurance contracts. No contract of
insurance issued by an insurance carrier against liability arising under
this chapter shall be cancelled within the time limited in such contract
for  its  expiration unless notice is given as required by this section.
When cancellation is due to non-payment  of  premiums  and  assessments,
such cancellation shall not be effective until at least ten days after a
notice  of  cancellation  of  such contract, on a date specified in such
notice, shall be filed in the office of the chair and also served on the
employer. When cancellation is due to any reason other than  non-payment
of  premiums  and  assessments, such cancellation shall not be effective
until at least thirty days  after  a  notice  of  cancellation  of  such
contract,  on  a  date  specified  in such notice, shall be filed in the
office of the chair and also served on the employer; provided,  however,
in  either case, that if the employer has secured insurance with another
insurance carrier which becomes effective prior to the expiration of the
time stated in such notice, the cancellation shall be  effective  as  of
the  date  of  such other coverage. No insurer shall refuse to renew any
policy insuring against liability arising under this chapter  unless  at
least  thirty  days  prior  to its expiration notice of intention not to
renew has been filed in the office of the chair and also served  on  the
employer.
  Such  notice  shall be served on the employer by delivering it to him,
her or it or by sending it by mail, by certified or  registered  letter,
return  receipt  requested, addressed to the employer at his, her or its
last known place of business; provided that, if the employer be a  part-
nership, then such notice may be so given to any of one of the partners,

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD13942-02-4

S. 7862                             2

and if the employer be a corporation then the notice may be given to any
agent  or  officer  of  the  corporation  upon whom legal process may be
served; and further provided that an employer may designate  any  person
or  entity  at  any  address to receive such notice including the desig-
nation of one person or entity to receive notice on behalf  of  multiple
entities  insured  under one insurance policy and that service of notice
at the address so designated upon the person or entity so designated  by
delivery  or  by mail, by certified or registered letter, return receipt
requested,  shall  satisfy  the  notice  requirement  of  this  section.
[Provided, however, the] THE right to cancellation of a policy of insur-
ance  in  the  state INSURANCE fund, HOWEVER shall be exercised only for
non-payment of premiums and assessments, OR FAILURE BY THE  EMPLOYER  TO
COOPERATE WITH A PAYROLL AUDIT, or as provided in section ninety-four of
this  chapter.    THE  STATE  INSURANCE FUND MAY CANCEL A POLICY FOR THE
EMPLOYER'S FAILURE TO COOPERATE WITH A PAYROLL  AUDIT  IF  THE  EMPLOYER
FAILS TO (A) KEEP AN APPOINTMENT WITH A PAYROLL AUDITOR, AFTER THE STATE
INSURANCE FUND HAS MADE AT LEAST TWO ATTEMPTS TO SCHEDULE AN APPOINTMENT
DURING  THE  EMPLOYER'S  REGULAR  BUSINESS  HOURS, WHEN SUCH EMPLOYER IS
PROVIDED ADVANCE WRITTEN NOTICE OF  SUCH  APPOINTMENTS  OR  (B)  FURNISH
BUSINESS  RECORDS  IN THE COURSE OF A PAYROLL AUDIT AS REQUIRED PURSUANT
TO SECTIONS NINETY-FIVE AND ONE HUNDRED THIRTY-ONE OF THIS  CHAPTER.  AT
LEAST  FIFTEEN  DAYS  IN ADVANCE OF SENDING A NOTICE OF CANCELLATION FOR
FAILURE TO COOPERATE WITH A PAYROLL  AUDIT,  THE  STATE  INSURANCE  FUND
SHALL  SEND  A  WARNING  NOTICE  TO  THE  EMPLOYER IN THE SAME MANNER AS
PROVIDED IN THIS SUBDIVISION FOR SERVING A NOTICE OF CANCELLATION.  SUCH
NOTICE  SHALL  SPECIFY A MEANS OF CONTACTING THE STATE INSURANCE FUND TO
SET UP AN AUDIT APPOINTMENT. THE STATE INSURANCE FUND WILL  BE  REQUIRED
TO  PROVIDE  ONLY  ONE SUCH WARNING NOTICE TO AN EMPLOYER RELATED TO ANY
PARTICULAR PAYROLL AUDIT PRIOR TO CANCELLATION.
  The provisions of this subdivision shall not  apply  with  respect  to
policies containing coverage pursuant to subsection (j) of section three
thousand  four  hundred  twenty  of  the insurance law relating to every
policy providing comprehensive personal liability insurance  on  a  one,
two, three or four family owner-occupied dwelling.
  In the event such cancellation or termination notice is not filed with
the  chair  within  the  required  time period, the chair shall impose a
penalty in the amount of up to five hundred  dollars  for  each  ten-day
period  the insurance carrier or state insurance fund failed to file the
notification. All penalties collected pursuant to this subdivision shall
be deposited in the uninsured employers' fund.
  S 2. Section 93 of  the  workers'  compensation  law,  as  amended  by
section  24  of part GG of chapter 57 of the laws of 2013, is amended to
read as follows:
  S 93. Collection of premium in case of default. a. If  a  policyholder
shall  default  in any payment required to be made by [him] SUCH POLICY-
HOLDER to the state insurance fund OR SHALL FAIL  TO  COOPERATE  WITH  A
PAYROLL  AUDIT AS SPECIFIED IN SUBDIVISION FIVE OF SECTION FIFTY-FOUR OF
THIS CHAPTER, after due notice, [his] SUCH POLICYHOLDER'S  insurance  in
the  state INSURANCE fund may be cancelled and the amount due from [him]
SUCH POLICYHOLDER shall be collected by  civil  action  brought  against
[him]  SUCH  POLICYHOLDER in any county wherein the state insurance fund
maintains an office in the name of the commissioners of the state insur-
ance fund and the same when collected, shall  be  paid  into  the  state
insurance  fund,  and such policyholder's compliance with the provisions
of this chapter requiring payments to be made  to  the  state  insurance

S. 7862                             3

fund  shall date from the time of the payment of said money to the state
insurance fund.
  b.  An  employer,  whose policy of insurance has been cancelled by the
state insurance fund for non-payment of premium and assessments, OR  FOR
FAILURE  TO  COOPERATE  WITH  A  PAYROLL AUDIT, or [withdraws] CANCELLED
pursuant to section  ninety-four  of  this  article,  is  ineligible  to
contract  for  a subsequent policy of insurance with the state insurance
fund [while] UNTIL THE STATE INSURANCE FUND  RECEIVES  FULL  COOPERATION
FROM  SUCH  EMPLOYER  IN  COMPLETING  ANY PAYROLL AUDIT ON THE CANCELLED
POLICY AND the billed premium on the cancelled  policy  [remains  uncol-
lected]  IS  PAID, INCLUDING ANY ADDITIONAL AMOUNTS BILLED FOLLOWING THE
COMPLETION OF ANY PAYROLL AUDIT.
  c. The state insurance fund shall not be required to write a policy of
insurance for any employer which is owned or controlled or the  majority
interest of which is owned or controlled, directly or indirectly, by any
person  who  directly  or  indirectly  owns  or  controls  or  owned  or
controlled at the time of cancellation an employer whose  former  policy
of insurance with the state insurance fund was cancelled for non-payment
of  premium  and assessments, OR FOR FAILURE TO COOPERATE WITH A PAYROLL
AUDIT, or [withdraws] CANCELLED pursuant to section ninety-four of  this
article  or  who  is  or  was at the time of cancellation the president,
vice-president, secretary or treasurer of such  an  employer  until  THE
STATE  INSURANCE  FUND  RECEIVES  FULL COOPERATION FROM SUCH EMPLOYER IN
COMPLETING ANY PAYROLL AUDIT AND the billed  premium  on  the  cancelled
policy  is  paid,  INCLUDING ANY ADDITIONAL AMOUNTS BILLED FOLLOWING THE
COMPLETION OF ANY PAYROLL AUDIT.
  For purposes of this subdivision, "person" [shall include individuals,
partnerships, corporations, and other associations] MEANS  ANY  INDIVID-
UAL, FIRM, COMPANY, PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY,
JOINT  VENTURE, JOINT-STOCK ASSOCIATION, ASSOCIATION, TRUST OR ANY OTHER
LEGAL ENTITY WHATSOEVER.
  D. FOR THE PURPOSES OF THIS SECTION, THE WORD "PREMIUM"  INCLUDES  ALL
AMOUNTS  REQUIRED  TO  BE PAID TO THE STATE INSURANCE FUND INCLUDING ANY
ASSESSMENT BY THE WORKERS' COMPENSATION BOARD THAT THE  STATE  INSURANCE
FUND BILLS TO AN EMPLOYER.
  S  3. Section 95 of the workers' compensation law, as amended by chap-
ter 135 of the laws of 1998, is amended to read as follows:
  S 95. Record and audit of payrolls.  (1) Every employer who is insured
in the state insurance fund shall keep a true and accurate record of the
number of [his] ITS employees,  THE  CLASSIFICATION  OF  ITS  EMPLOYEES,
INFORMATION  REGARDING  EMPLOYEE  ACCIDENTS  and the wages paid by [him]
SUCH EMPLOYER, AS WELL AS SUCH RECORDS RELATING TO ANY PERSON PERFORMING
SERVICES UNDER A SUBCONTRACT WITH SUCH  EMPLOYER  THAT  IS  NOT  COVERED
UNDER  THE  SUBCONTRACTOR'S  OWN WORKERS' COMPENSATION INSURANCE POLICY,
and shall furnish, upon demand, a sworn statement of  the  same.    Such
record  AND ANY OTHER RECORDS OF AN EMPLOYER CONTAINING SUCH INFORMATION
PERTAINING TO ANY POLICY PERIOD  INCLUDING,  BUT  NOT  LIMITED  TO,  ANY
LEDGERS,  JOURNALS,  REGISTERS,  VOUCHERS,  CONTRACTS,  TAX  RETURNS AND
REPORTS, PAYROLL AND DISTRIBUTION RECORDS,  AND  COMPUTER  PROGRAMS  FOR
RETRIEVING  DATA, CERTIFICATES OF INSURANCE PERTAINING TO SUBCONTRACTORS
AND ANY OTHER BUSINESS RECORDS SPECIFIED BY THE RULES OF THE BOARD shall
be open to inspection BY THE STATE INSURANCE FUND at  any  time  and  as
often  as  may be necessary to verify the number of employees [and], the
amount of the payroll, THE CLASSIFICATION OF EMPLOYEES  AND  INFORMATION
REGARDING  EMPLOYEE  ACCIDENTS.    Any  employer  who shall fail to keep
[such] ANY record REQUIRED IN THIS SECTION, who shall willfully fail  to

S. 7862                             4

furnish  such  record  or who shall willfully falsify any such record[,]
shall be guilty of a misdemeanor AND SUBJECT TO A FINE OF NOT LESS  THAN
FIVE  THOUSAND DOLLARS NOR MORE THAN TEN THOUSAND DOLLARS IN ADDITION TO
ANY  OTHER  PENALTIES  OTHERWISE  PROVIDED  BY LAW, EXCEPT THAT ANY SUCH
EMPLOYER THAT HAS PREVIOUSLY BEEN SUBJECT TO  CRIMINAL  PENALTIES  UNDER
THIS  SECTION  WITHIN  THE  PRIOR TEN YEARS SHALL BE GUILTY OF A CLASS E
FELONY, AND SUBJECT TO A FINE OF NOT LESS THAN TEN THOUSAND DOLLARS  NOR
MORE  THAN  TWENTY-FIVE  THOUSAND  DOLLARS  IN ADDITION TO ANY PENALTIES
OTHERWISE PROVIDED BY LAW.
  (2) Employers subject to [subdivision] SUBSECTION (e) of  section  two
thousand  three hundred four of the insurance law and subdivision two of
section eighty-nine of this article  shall  keep  a  true  and  accurate
record  of  hours  worked for all construction classification employees.
The willful failure to keep such record, or the knowing falsification of
any such record, may be prosecuted as insurance fraud in accordance with
the provisions of section 176.05 of the penal law.
  S 4. Subdivision 1 of section 131 of the workers' compensation law, as
amended by chapter 6 of the laws of 2007, is amended to read as follows:
  (1) Every employer subject to the provisions  of  this  chapter  shall
keep  a  true  and  accurate  record  of  the number of [his or her] ITS
employees, the classification of ITS  employees,  information  regarding
employee  accidents and the wages paid by [him or her] SUCH EMPLOYER for
a period of four years after each entry therein, [which] AS WELL AS SUCH
RECORDS RELATING TO ANY PERSON PERFORMING SERVICES UNDER  A  SUBCONTRACT
OF SUCH EMPLOYER THAT IS NOT COVERED UNDER THE SUBCONTRACTOR'S OWN WORK-
ERS'  COMPENSATION  INSURANCE  POLICY.  SUCH  records  shall  be open to
inspection at any time, and as often as may be necessary to  verify  the
same by investigators of the board, by the authorized auditors, account-
ants  or inspectors of the carrier with whom the employer is insured, or
by the authorized auditors, accountants or inspectors  of  any  workers'
compensation  insurance  rating  board  or  bureau  operating  under the
authority of the insurance law and of which board or bureau such carrier
is a member or the group trust of which the employer is  a  member.  Any
and  all  records required by law to be kept by such employer upon which
the employer makes or files a return concerning wages paid to  employees
AND  ANY  OTHER RECORDS OF AN EMPLOYER CONTAINING SUCH INFORMATION RELE-
VANT TO ANY POLICY PERIOD INCLUDING BUT NOT  LIMITED  TO,  ANY  LEDGERS,
JOURNALS,  REGISTERS,  VOUCHERS,  CONTRACTS,  TAX  RETURNS  AND REPORTS,
PAYROLL AND DISTRIBUTION RECORDS, AND COMPUTER PROGRAMS  FOR  RETRIEVING
DATA,  CERTIFICATES  OF  INSURANCE  PERTAINING TO SUBCONTRACTORS AND ANY
OTHER BUSINESS RECORDS SPECIFIED BY THE RULES OF THE  BOARD  shall  form
part  of  the  records  described  in  this section and shall be open to
inspection in the same manner as provided in this section. Any  employer
who shall fail to keep such records, who shall willfully fail to furnish
such  record  as  required in this section or who shall falsify any such
records, shall be guilty of a misdemeanor and subject to a fine  of  not
less  than  five  nor  more than ten thousand dollars in addition to any
other penalties otherwise provided by law, except that any such employer
that has previously  been  subject  to  criminal  penalties  under  this
section  within the prior ten years shall be guilty of a class E felony,
and subject to a fine of not less than ten  nor  more  than  twenty-five
thousand dollars in addition to any penalties otherwise provided by law.
  S  5.  This  act shall take effect on the ninetieth day after it shall
have become a law and shall be applicable to policies issued or  renewed
after such effective date.

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