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WASHINGTON-Policyholders with retrospectively rated workers compensation policies can have their premiums increased if employees file claims in a jurisdiction that offers higher benefits than anticipated under the original policy, a federal appeals court has ruled.
The dispute arose over a three-year workers comp policy written by The Hartford Accident & Indemnity Co., now known as The Hartford Financial Services Group Inc., covering players and coaches of the Washington Redskins football team.
The policy contained a retrospective rating clause that allowed the premium to be adjusted until three years after it expired. The policy used Virginia as the basis for calculating the initial premiums.
But during the first year of the policy, in 1989, injured players filed claims in the District of Columbia to receive the higher benefits paid there compared to Virginia. Washington's courts upheld this choice, as the team played its games in the District of Columbia.
After that decision, The Hartford reclassified the Redskins players and coaches as employees working in the District of Columbia. After recalculating the premium to reflect the higher benefit levels in Washington, the insurer billed the Redskins $5.3 million in additional premiums. The Redskins refused to pay, prompting The Hartford to sue.
Before the appeals court, the Redskins argued that The Hartford couldn't increase premiums because of jurisdiction changes, as that could only be done if payroll or work classification changed.
The U.S. Circuit Court of Appeals for the District of Columbia, however, rejected this argument in its Oct. 28 opinion. The appeals court upheld the insurer's right to increase the premium and granted summary judgment on the issue of liability in favor of the insurer.
"Here, Hartford accounted for a large, legally mandated, rise in benefit levels through an appropriate adjustment to its premium calculation, as the policy contemplated," the opinion by Circuit Judge Stephen Williams said in reversing the district court opinion.
Lawyers for The Hartford said the opinion properly upholds its right to charge premiums that reflect benefit levels.
"This is a classic example of a case in which the experience estimated at the beginning of a three-year period turned out to be far less than the law required, and this justifies the company's right to apply the proper rating factors even after the policy expired," said Doug Simpson, counsel for The Hartford.
He added that as there are few decisions on this topic, insurers can use this one to resolve future disputes with policyholders.
But an attorney for the team said that because the insurer agreed to use Virginia premium rates in the policies, even after the ruling by the Washington court, it cannot later change the policy. Also, because The Hartford represented team management in the Washington case and lost, they "are using the loss to their own benefit," said Barry Levine, a partner with Dickstein Shapiro Morin & Oshinsky in Washington.
The case now returns to the district court for a trial on damages, where Mr. Levine vows the insurer "will not get a dime."
The team also plans to file a motion to reargue the decision.