In most states, the initial workers’ compensation claim process is handled by the employer’s insurance company. The system relies on insurance companies to follow the state’s workers’ compensation rules, including accepting and paying out legitimate claims. However, it’s an unfortunate fact that some insurance companies do everything they can to avoid paying out a claim in order to keep their costs low.
To deal with this issue, at least in part, most states have created penalties that employees can collect from the insurance company when their rights have been violated. If an employer has been approved by the state to be self-insured—meaning that it reviews and pays out claims itself—the same penalties typically apply.
A common penalty is for late payment of workers’ compensation benefits. After receiving notice of a workers’ comp claim from an employee, the insurance company has a certain amount of time—often in the range of 14 to 30 days—to either accept the claim and start paying benefits or deny the claim. Some states allow workers to collect a penalty if they do not receive a decision by the required deadline.
For example, in Minnesota, the employee can collect an extra 25% if the insurance company fails to make a temporary disability payment within 14 days of receiving notice of the worker’s claim (and it hasn’t denied the claim either). In California, a 10% late fee is tacked on to any late temporary disability payment.
Because insurance companies are responsible for both paying workers’ comp benefits and deciding which claims to accept, there is the potential for a conflict of interest. Some insurance companies deny legitimate workers’ comp claims in order to keep their costs low. This either leads to the employee not receiving benefits that they are owed or receiving them only after appealing the decision through the state workers’ comp agency—using up the time and resources of those involved. (To learn more, see our article on denied workers’ comp claims.)
To discourage this, many states impose penalties for unreasonable denials of workers’ comp claims. In Iowa, for example, denying a workers’ comp claim without a reasonable basis leads to a hefty fine of up to 50% of the denied benefits, payable to the employee. In Massachusetts, when an employee appeals a claim denial and the insurance company defends it without reasonable grounds, it must pay twice the amount owed to the employee and pay for the employee’s attorneys’ fees and legal costs.
Some states also allow employees to collect interest on late payments. For example, Iowa allows a 10% interest fee on all late payments, separate from any penalties owed.
Many states impose penalties when an insurance company fails to make a payment that has been ordered by a workers’ compensation judge or that is owed under an approved workers’ comp settlement. In Rhode Island, for example, if an employee wins at a workers’ comp hearing and the insurance company is more than 14 days late paying the award, it must pay an additional 20% of the amount due. In New York, if a court award or settlement isn’t paid within ten days of the due date, an additional 20% fee is tacked on.
Workers’ compensation is a no-fault system, which means that an injured worker can receive benefits regardless of whether the employer did anything to cause the injury. Unlike personal injury lawsuits, the employer’s conduct is generally irrelevant to whether an employee is entitled to benefits. However, some states impose additional penalties on an employer whose actions contributed to the injury.
In Massachusetts, for example, when an employee is injured because of the serious and willful misconduct of the employer, the employee can collect double the compensation owed under the workers’ comp laws. In Ohio, when an employee is injured because of the employer’s violation of a workplace safety rule, the Industrial Commission can award an additional 15% to 50% to the employee.
The penalties described above are the ones commonly awarded to employees when their rights are violated under the workers’ comp laws. However, an employer or insurance company can also face steep fines payable to the state workers’ compensation agency—for example, for failing to have workers’ comp insurance or for failing to report an injury to the agency. Penalties can run in the hundreds, or even thousands, of dollars depending on the type of violation. To learn more, contact your state’s workers’ compensation agency.