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How long do insurers have to sue for workers compensation premium?

For the first time, a California appellate court has determined the time period within which a workers compensation insurer must sue for premium.  

State Fund cancelled Walldesign’s policies for non-payment effective 12/15/03.  The payroll audits were conducted “between June 2004 and August 2005” and SCIF issued its million-dollar invoice on October 25, 2005, nearly two years after cancellation.  A collection agency filed suit on October 9, 2009 -- nearly six years after cancellation. 

Walldesign argued that this was too late.  It asserted that the four-year statute of limitations (the usual window to sue on written contracts) began either when the policies were cancelled (12/15/03), or when the Fund completed its audit (8/23/05). Either way, the October 9, 2009 suit would be untimely.  

SCIF asserted that the statute of limitations did not begin to run until October 25, 2005, when it sent Walldesign the final bill.  Thus, SCIF argued, the suit had been timely filed.  The trial judge agreed with Walldesign and dismissed the suit.  However, in a published “case of first impression” that sets legal precedent, the California Court of Appeal (Fourth District) reversed and reinstated the suit. 

SCIF’s policy gave it the right to conduct audits within three years after the end of the policy period.  The Court held that the four-year statute of limitations did not begin until SCIF submitted the final invoice, which it could do within a “reasonable time” of the end of its three-year audit rights.  In effect, an insurer with three-year audit rights could have as much as seven years after policy cancellation or expiration – plus a reasonable time to prepare the final invoice -- to file suit.  The case is State Compensation Insurance Fund v. Walldesign Incorporated 199 Cal.App.4th 1525 (October 20, 2011).

Published: Monday, January 30, 2012
Last updated: Tuesday, September 9, 2014
By: Arthur J. Levine, Ph.D.

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