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 State” [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).

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.

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.

What Enron Can Teach Us About D&O Coverage

The Enron saga is, itself, utterly fascinating. If you haven’t had the chance there are several good documentaries about it, one being “Enron: The Smartest Men in the Room”. Unfortunately I don’t believe it’s available on Netflix anymore, but alternate streaming services still have it (here’s an Amazon link). I’m sure there’s more in-depth and technical sources out there but as a relatively “soft” documentary it’s a great film with which to wind down a day. also has an interesting set of articles if you’re looking for more to peruse.

While perhaps not the most interesting of all the specific topics dealing with Enron, there are some curious lessons in the way insurance played out – especially D&O. If you’re just looking for the take-home point it’s this: even if a defendant pleads guilty that is not considered a “final adjudication” of guilt (I know!), at least in the Enron case. This was surprising to me, as well as to Enron’s D&O insurers I suppose, whom I understand had a total of about $350M in limits put up. Here is an expert explaining the circumstance from an IRMI Whitepaper (I have since lost the link but I *believe* the below is verbatim):

Former Enron CFO Andrew Fastow pleaded guilty in criminal proceedings associated with Enron’s bankruptcy. Yet since the Enron D&O policy forms were written on a “final adjudication” basis, the insurer was obligated to continue defending Mr. Fastow against civil lawsuits because his conduct still had not been subject to “final adjudication.” Although Mr. Fastow had already pleaded guilty to criminal charges, he had not yet been sentenced and until that time could still change his plea. But by continuing to defend Mr. Fastow, other far less culpable directors and officers—including retired directors—had their remaining policy limits depleted. 

My notes say the IRMI article called the “Final Adjudication” language a “minefield”, but I wouldn’t go that far (seriously IRMI?).  However, it is one of the most preferential provisions an insured can secure in a D&O policy – and be careful out there because while it is becoming *more* common it should certainly not be considered the default. While such language may provide for sub-optimal circumstances – such as a “guilty” director getting defense coverage they “shouldn’t” have – the benefit of preserving coverage for alleged fraudulent acts, which are ultimately baseless, far outweighs such consequences. 

But there’s a second consideration to all of this as well.  What if instead of “guilty”, Andrew Fastow had pleaded no contest?  Is a plea of nolo contendere a “Final Adjudication”?  The short answer is… “No!”  But do bear in mind that jurisdictions vary. This “Policyholder Advisor Alert” from the law firm Anderson Kill (NY) does a great job of explaining how the variations on the “Final Adjudication” clause in policy can play out, both theoretically and practically:

The most advantageous conduct exclusions are triggered only by a final and non-appealable adjudication against the policyholder. Conversely, insurance companies may interpret references to “determinations in fact,” “adverse admissions,” or other potentially non-final determinations as giving them license to adopt an earlier trigger. Triggers like “written admission by the Insured” or “plea of nolo contendere or no contest regarding such conduct” make it more likely that the insurance company will apply the exclusion. An insurance company might attempt to latch onto a statement by the policyholder’s representative at deposition or a preliminary finding of fact by the court. Even an exclusion that lacks only the “non-appealable” component could be fodder for an insurance company to argue against coverage, even if an incorrect result is overturned on appeal.


Final, non-appealable adjudication language ensures the policyholder gets its full “day” in court and pushes the coverage decision further into the future, increasing the likelihood of a settlement that avoids the conduct exclusion altogether.

You will note that they specifically mention some provisions which state “an admission by the insured” or similar – this is because carriers are inserting these into “Final Adjudication” clauses with regularity, though not always. Again, it’s important to know how your particular provisions work.

Another topic to discuss, which the above Anderson Kill article touches on, is severability. This is the portion of your policy, usually hidden in the “warranty” and “state conditions” and similar pages that people tend not to read. In short, severability determines whether one insured’s actions impute/affect another insured’s coverage. For example if one director is found guilty of fraud what happens to the coverage for the other directors? What happens to the coverage for the corporation? What happens if the CEO knowingly falsified and signed the coverage application – will that exclude coverage for other individuals?

This, again, is something that is going to be unique to each carrier. However, I am happy to say that many offer decently advantageous “severability” clauses either in their base form or via endorsement. When you’re looking at these you want to pay attention to two key areas:

1. What happens if one director is found guilty – is coverage preserved for “innocent” insureds?

In this case I would say most policies I’ve personally dealt with do preserve coverage. Some very small D&O policies, or add-ons you might get with other coverage, very well may not be as generous but my experience shows this isn’t a contentious ask.

2. What happens if the application is falsified?

This scenario is typically more complex as, while many carriers will provide details in this situation, they vary widely in to whom the falsification is “imputed” to. The more generous provisions will state something along the lines of “if an application is falsified by [C-Level Executives/Directors] it’s imputed to the corporation but not to other directors and officers”. In such a situation, a CEO falsifying an application would remove coverage for the corporate entity, but not for other executives. This is also why D&O carriers often insist that applications be signed by particular individuals.

D&O policies are some of the most complex beasts out there, and such complexity isn’t often known until the crisis arrives. So if you have the time, I would highly suggest you look at not only Enron data (I picked that simply because of its fame and the info is plentiful), but anything else you can get your hands on. These types of policies, being “relatively” new to the scene and non-standard are also going to be highly sensitive to jurisdictional changes (jurisdiction itself being a concern when you have a policy for a national or international client!).

Arbiters and Conflicts of Interest

An interesting story at Professional Liability Matters regarding an arbitration settlement that was voided because the arbitrator, in this case as judge, did not disclose an affiliation he had with one of the parties.  You can read the article here.  The interesting part comes in the legal theory to determine conflict; from the California Court of Appeals (emphasis added): 

On appeal, the California Court of Appeals noted that the standard for disclosure is not whether the judge was actually biased, but whether a reasonable person “could entertain a doubt that he could be impartial.”  Because the judge included one of the firm’s partners as a reference on his resume, the court determined that this standard was met.  Accordingly, the Court held that the judge had erred in failing to make the disclosure and vacated the arbitration award. 

This touches on a topic that insurance coverage lawyers have been dealing with for years. Namely, that an insured can state that a particular lawyer or firm, in a case where a determination of coverage impacts that insured, has a potential conflict of interest simply because they are panel counsel of the insurance carrier and thus the carrier has sway over their economic likelihood. I.e., it’s theorized a particular law could have an incentive to perform in the insurance carrier’s favor rather than in the insured’s favor.

An example would be a situation where an insured is brought up on potential fraud charges. The theory goes – and mind this is simplified and subject to jurisdictional law – that a carrier’s panel counsel has incentive to steer the decision toward a finding of fraud rather than negligence so that the insurance carrier will not have to pay an award. This would then encourage the carrier to use that particular counsel in the future. c.f. San Diego Navy Federal Credit Union, et al. v. Cumis Insurance Society, Inc.

States handle this matter differently – some state that a conflict doesn’t really exist or, if it does, the professional ethics and requirements put upon lawyers is sufficient to preclude “steering” cases in this manner. While an insured can still hire their own counsel in cases they believe they have conflict, many locales state it’s at their own cost.  However, other jurisdictions do require the carrier to pay for an insured’s independently chosen counsel if there’s a significant conflict.

In jurisdictions where “independent counsel” is mandated (California being one) an interesting question arises when an insurance contract has an arbitration clause. I’ll be honest in saying that I’m not familiar with California policies, but if their arbitration clauses read like others I’ve seen then an insurance contract can require insureds to submit to binding arbitration in matters of dispute. These clauses often specifically define the firm to be used. 

If such is in your contract, it seems like a potential “steering” problem, similar to that exists with lawyers, is created. After all if a state assumes that legal counsel will be influenced by volume of business, why wouldn’t an arbitration firm? I’ll admit it’s probably a harder argument to make, but certain jurisdictions consider a legal counsel conflict to be per se, so if the conflict is automatically presumed, it’s not that big of a stretch to apply it to other scenarios. 

And remember the article above – in the situation of this particular arbiter, all that was needed was for a “reasonable person” to “entertain doubt” of their impartiality. So while perhaps a difficult argument, the obstacles are still pretty low. And it would only take one court case to, essentially, invalidate any arbitration agreement in a particular jurisdiction when the insurance carrier was solely responsible for appointing the arbiter.

Insurance Agents Potentially Responsible to Non-Clients

This article from Professional Liability Matters summarizes a recent court decision over an action brought by the Cleveland Indians baseball team against an insurance broker for what was essentially failure to provide adequate professional services. The funny part is, this broker was not a person placing coverage for the Cleveland Indians but rather was a broker who had merely added the Cleveland Indians as an Additional Insured to their own client’s policy. 

Long story short is that the Cleveland Indians hired National Pastime Sports, LLC, an entertainment and games provider, to operate festivities before a game; these included an inflatable slide. National Pastime used an independent broker to secure General Liability coverage which included the Cleveland Indians as an “Additional Insured”. The broker did not secure inflatable coverage even though they were specifically told of the use of such beforehand. 

Unfortunately, the inflatable slide collapsed and killed and attendee. The Cleveland Indians sought coverage under National Pastime’s policy as a Additional Insured but, as mentioned, there was no inflatable coverage so they were unable to collect. The Cleveland Indians brought suit against the broker which was upheld upon appeal. The court concluded that simply by virtue of being an Additional Insured on National Pastime’s policy, National Pastime’s broker owed them a certain level of care. 

In short, this means that insurance professionals could owe a duty not only to their clients but (theoretically) any other named party on their client’s policies including Additional Insureds, Mortgagees, etc. 

Without a Lexis Nexis account I can’t comment as to whether the duty owed to these additional interests is the same level of duty owed to direct clients. And, further, this particular case does seem to stand alone. However, we’ve all seen how liability and subsequent litigation always starts with a crack before the dam breaks. 

Following along this path leads to further questions, such as what happens when you have an adversarial relationship between the client and an Additional Interest. For example, it’s (usually) in your client’s best interest to limit the scope of Additional Insured status, say by using a newer “Designated Person or Organization” endorsement which tends to be more restrictive**. Are you obligated to notify the Additional Insured that they could get more comprehensive Additional Insured coverage even though it would (1) cost your client more and (2) mean any losses impact your client’s history? While perhaps it’s a stretch to make that argument, it’s still plausible. 

Note that Law 360 also states this case was denied for appeal.


* Mortgagee and Loss Payable status usually provide certain benefits not otherwise found in Loss Payee-type clauses. These include promise of notification should the policy cancel or non-renew, as well as the ability to retain coverage when it’s otherwise voided by the Named Insured, such as if the insured commits arson. 

** Older endorsements (e.g. CG 20 10 11 85) don’t limit coverage to just ongoing operations, meaning the endorsement provides Products/Completed-Ops coverage. There are various other restrictions as well.