CAT Express v. Muriel (previously Hammer) – Employee/Independent Contractor Status and the Limit of IL DOI to Adjudicate

This is a piece of case law that has me pretty confused. If anyone has any insight please contact me!

The IL First District Appellate Court recently issued a ruling in CAT Express v. Mureil. The ‘overview’ of this is:

CAT Express is a trucking company that purchased an IL Workers Compensation Assigned Risk “Pool” policy. They declared 6 clerical employees and paid about $1200 in premium. Upon audit the carrier (Liberty) categorized CAT Express’s [no idea how a possessive apostrophe works there to be honest –ed] independent contractor truckers as “employees”. This boosted premium to over $350K.

CAT engaged NCCI, who handles IL Work Comp rating disputes, and NCCI declined to hear stating they cannot determine whether someone is an employee but can only interpret NCCI Work Comp rating and rules. NCCI advised CAT of their right to appeal to the Director of Insurance (at the time Jennifer Hammer but the pleading was updated to reflect the current Director, Robert Muriel). The DOI investigated and said that these independent contractor truck drivers were employees for purposes of Work Comp premium and that the audit of $350K was appropriate.

CAT Express appealed. The subject of the appeal was actually never heard as the First District IL Appellate court asked the parties to submit supplemental briefs to explain why the Director of Insurance even had the authority to determine employee status in the first place. Both parties did, and they concurred that the Director did have that authority.

Long story short – the court found these briefs uncompelling and rules the Director of Insurance *did not* have authority to determine employment status for purposes of premium calculation. I would suggest reading the opinion, but they make a handful of specific notes:

    1. The Director/Department has only the authority vested to it by legislation, and that authority is [that which] “may be necessary and proper for the efficient administration of the insurance laws of this Stateā€ [such as enforcing rules].
    2. The Director/Department does have the authority to hear appeals for the application of rating systems/rules, such as hearing appeals from NCCI’s rulings.
    3. The Director/Department erred in taking up this matter after NCCI declined. In short, the determination made – that these independent contractor truckers were employees – is outside the “necessary and proper” administration of insurance law and is instead a legal determination that should be made by courts. The Director had no jurisdiction over this particular dispute.

The reason I find this puzzling is that I’ve been through NCCI dispute processes, up to presenting in front of the board for my district, and determining employees *for the purposes of premium only* is absolutely a function of the rules and ratings of NCCI. For coverage disputes absolutely not, but who is and is not an employee (or more specifically what payroll should and should not be captured) is in their manual.

So I’m not sure why NCCI declined or if such was appropriate – perhaps it was the way the grievance was worded. I no longer have access to NCCI online so I can’t review the specific parts of the manual that apply.

Secondly, and more broadly, the classification of a party for the purposes of premium calculation seems exactly within the “necessary and proper” purview of the Director. I am emphasizing “for the purposes of premium calculation” as that is from the ruling itself – the court uses that specific phrase.

To clarify: The determination of “employee” is only for purposes of generating premium. The Department classification is not, to my knowledge, relevant in any other capacity. For example, being an “employee” for purposes of Work Comp premium doesn’t mean you’re also an “employee” for, say, benefits eligibility.

That said I am out of my comfort zone; I suppose there could be some legal ramification of which I am unaware. Perhaps there is precedent that a determination of employee status on WC is a de facto determination elsewhere under law. If that is the case I would follow the theory, but no such information was provided in the opinion.

As a rhetorical tool – assuming the classification of “employee” for Work Comp rating is inconsequential elsewhere, review the situation while changing the term. For example, instead of using “employee status” use “chargeable exposure”. Is it proper for a Director of Insurance to determine the chargeable exposure for Work Comp policies? Perhaps I’m being a tad disingenuous but I do think doing such can be clarifying.

This is especially true because there are situations where those whose payroll is captured (for premium purposes) on a policy may not be eligible for benefits. Or, more often, those whose payroll isn’t captured are ultimately eligible for benefits. In fact this happens quite a lot and is why I suggest having work comp even if you have no employees; because the legal determination of an employee is separate and distinct from the premium determination of an employee (though it is true they try to be aligned as much as possible).

[UPDATE]
I found Davis v. Ed Hickman, P.A., March 2020 (editorial here; full opinion here) which is an Arkansas Appeals Court decision that found a worker was not entitled to benefits even though his payroll was captured for purposes of Work Comp premium and explicitly states that payroll being captured for purposes of work comp premium is simply a factor in determining employee/independent contractor status and not a determinant by itself. Granted AR DOI legislative authority may be broader, and I’m not sure how a “Work Comp Commission” ruling compares to a DOI appeal, but it’s still another piece that adds confusion.
[/UPDATE]

For what it’s worth I don’t have a horse in this race – I don’t particularly care where a matter is adjudicated as long as it’s transparent and fair. I do admit to incredible frustration as a broker when dealing with Workers Compensation; it is by far the most troublesome policy to administrate and inquiries are often met with conflicting responses. So if you’re reading any level of annoyance in this post, that’s probably why.

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