The Importance of Correctly Classifying Your Contracting Business

A recent insurance fraud case has illustrated the importance of staying aboveboard when it comes to worker compensation insurance. A man from Wilmington, Massachusetts was indicted due to his alleged failure to correctly classify the type of work his company participated in. His motivation to misclassify his company was obvious. According to insurancejournal.com he was able to save “$120,000 in insurance premiums” because of his deception. While this type of action is obviously illegal, there are several other sound reasons why a business should never allow dishonest practices.

Insurance Fraud

The specifics of the case, which found Mr. Robert Foss indicted on four counts, are that he defrauded two insurance companies over the span of three years by classifying his business as a general contractor when, in fact, it was a roofing company. The Workers’ Compensation Ratings and Inspection Bureau (WCRIB) has designated roofing as more dangerous than general carpentry. Because the risk level is higher, there is a higher premium on insurance for roofing companies than on general carpentry companies. A similar fraud (on the personnel side) happens when a company misclassifies an employee as an independent contractor to cut expenses stemming from company benefits, insurance, and labor law. However, in this case, Mr. Foss misclassified his entire company to save money.

Insurance Fraud Endangers Employees

One of the worst aspects of this and similar fraudulent activities is that they endanger the employees of the companies who allow them. Not only is an employee more like to get injured because of the dangerous work they are doing, that employee will not have sufficient coverage to care for their medical needs and help replace income while they are out of work. Keeping workers correctly covered is a major factor for the Insurance Fraud Bureau of Massachusetts (IFB) in these types of cases. In Mr. Foss’s situation, the Attorney General’s Office is now involved in the investigation and prosecution.

Establishing a Fair Playing Field

Another aspect that draws attention to cases like these is that it puts honest businesses at a severe disadvantage. “Businesses that misrepresent their payrolls and type of business to lower their workers’ compensation premiums put honest businesses at a disadvantage, and are not providing proper coverage for their employees,” said IFB Executive Director Daniel Johnston. The IFB is eager to quickly shut down operations which are less than honest because it hurts the overall industry.

It’s vital to have a good policy for when an injury does occur. If you would like to review your policy to make sure it meets Massachusetts laws and provides adequate coverage for your potential risk, be sure to contact us at H&K Insurance, in Watertown, MA. We offer specialty plans for construction companies in addition to the full spectrum of insurance plans.

John Herlihy has served the H & K Insurance Agency Inc. clients since 1982. John, the Vice President, is engaged in all phases of the agency’s operations and management. He is dedicated to providing excellent service. John’s professional designation of CIC (Certified Insurance Counselor) signifies to clients a competent professional and their assurance of quality assistance with their insurance needs.