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Spike in firm's comp premium justified by potential contractor claims: Court

Spike in firm's comp premium justified by potential contractor claims: Court

A Connecticut health care contracting firm is on the hook for more than $66,000 in workers compensation premiums — rather than the $1,000 it initially expected to pay — because of the potential risk of defending comp claims from the firm's independent contractors, a Connecticut appellate court has ruled.

Compassionate Care Inc. refers “health care professionals,” including nurses and nurse's assistants, to provide services to private individuals and organizations such as nursing homes, court records show. Providers can accept or reject assignments from Compassionate Care, and they are free to work with other agencies.

Compassionate Care does not withhold taxes from the providers' pay, and does not supervise or evaluate their work, records show.

The company worked with an unidentified insurance broker to buy workers comp insurance for its office staff in 2006, records show. Several insurers denied its application because they were concerned that they would be responsible for claims involving the health care providers, although Compassionate Care considered them to be independent contractors.

Compassionate Care went on to apply for workers comp coverage through the residual market, which is operated by the National Council on Compensation Insurance Inc., records show. The premium for that policy, to be issued by Travelers Indemnity Co., was estimated at $1,031 based on the headcount of Compassionate Care's clerical staff.

Travelers' policy, issued in July 2006, contained a provision that allowed an audit of Compassionate Care's records “to determine final premium,” records show. Compassionate Care submitted supplementary information, including wage reports and tax forms, to Travelers.

Soon after, Travelers requested proof that the health care providers carried workers comp coverage for themselves. Compassionate Care provided documentation that the providers had professional liability coverage, but not workers comp coverage.

Travelers determined in November 2006 that the health care providers were considered employees under Connecticut's workers comp law and ultimately upped Compassionate Care's premium bill to $66,353, due the following month, records show. Compassionate Care refused to pay, and Travelers canceled the policy.

Compassionate Care sued Travelers in March 2007, alleging that Travelers was obligated to provide workers comp coverage for the original estimated premium, records show. The company also alleged that Travelers acted in bad faith.

Travelers filed a counterclaim in November 2009, arguing that Compassionate Care's refusal to pay the increased premium was a breach of contract, records show.

A Connecticut Superior Court judge found that health care providers are employees of Compassionate Care and ruled that the company should pay the $66,353 premium. Compassionate Care appealed.

In its unanimous ruling Tuesday, a three-judge panel of the Connecticut Appellate Court held that the health care providers are not employees of Compassionate Care. However, the panel also found that the company must pay the higher premium to cover claims that providers could file against the company.


In its opinion, the court said the health care providers are independent contractors because Compassionate Care does not direct or supervise their work.

However, the court noted that Travelers' policy audit showed that the health care providers were “part of its exposure to risks entailed in insuring” Compassionate Care, since the insurer would be required to defend Compassionate Care against any claims by the providers. Therefore, the court found, Compassionate Care should pay the higher premium to cover that risk.

If a health care provider “filed a claim against (Compassionate Care) for workers compensation benefits, (Travelers) would be contractually required to defend any claim at their expense,” the panel ruled. “If, for example, (Travelers) were not entitled to collect a premium from (Compassionate Care) based on its risk exposure but, instead, based solely on (Compassionate Care's) contentions that the (providers) were independent contractors, (Travelers) would be indemnifying the entirety of (Compassionate Care's) risk in exchange for little compensation.”

Compassionate Care argued that it should not have to pay the higher premium because it signed only an insurance application, and was not contractually obligated to pay the higher premium, records show.

However, the appellate court found that Travelers' application and policy gave the insurer a contractual right to charge a higher premium based on its final audit of Compassionate Care's operations.