The Cost of NOT Buying Insurance. A True Story

Last week I got a phone call from a guy (a business owner) who sounded totally panicked. I could hear it in his voice immediately. Panicked about the need for workers’ compensation insurance. The conversation started casually,

“Um, yeah, we need a workers’ compensation insurance policy to cover our employees.”

We talk for a bit as I try to get an understanding of his current situation.

“Well it was something we kind of, um, overlooked over the past couple years.”

“Past couple years?” I ask. “So why are you suddenly looking for a policy now?”

Still no direct answer.

“Have you had any claims or losses in the past 3 years?” I ask.

I didn’t need to ask much more.

“Yes, I received notification from an attorney about a former employee of mine.”

The business, a retail bakery, received a letter from an attorney in the mail. It turns out a former employee who quit over a month ago dropped a bomb with a claim for cumulative trauma to the feet, back, neck, knees.

So here this business is at a point with a serious issue to contend with. They didn’t buy workers compensation insurance policy when they first hired employees. Their reasoning was they just didn’t want to incur the costs and figured this could never happen to them.

As an insurance resource partner, I hear this way too often from prospective clients trying to save money on insurance. Not just for workers compensation insurance either. This is for all lines of insurance like general liability, errors & omissions, property, etc.

Buying a workers compensation policy now will not do anything to help this business for a loss that has already occurred. You cannot buy a workers compensation policy with retroactive coverage. That’s like buying a health insurance policy after getting sick. This retail bread bakery is going to have deal with this claim on their own, without the support of insurance.

As if the day-to-day stress of operating a business isn’t enough, throwing this claim into the mix is sure to make things much more challenging from both a time and cost standpoint.

It doesn’t end here. In addition to handling this claim on their own, finding workers compensation insurance coverage at a reasonable cost moving forward with a standard carrier is going to be pretty much impossible. Any underwriter who sees a business with active employees and no insurance for over two years AND a claim?? No way. Costs now will be more than they would have ever paid if they secured insurance before they hired new employees.

Another potential problem this business could face is:

“It is a criminal offense for an employer to be unlawfully uninsured regardless of whether or not an employee is injured. California Labor Code Section 3700.5 specifies that it is a misdemeanor punishable by either a fine of up to $10,000 or imprisonment in the county jail for up to one year, or both. In addition, the state issues penalties of up to $100,000 against illegally uninsured employers. If an employee is injured, the employer is responsible for paying all benefits and may be subject to additional liability.”

So I ask you business owners out there, are you avoiding buying insurance because you feel it costs too much? Are you one of those who think a loss will never happen to you?

Well I recommend you think again. If this scenario isn’t enough to get you to think twice, there’s probably not a whole lot more that will. Put yourself in this business owners shoes. How much do they wish now that they were paying a workers compensation premium over the past two years for a policy to help now when they need it most?

It will be interesting to see how things pan out for this business, but one thing’s for sure, this mistake could put them out of business for good depending on the ultimate severity of the claim.

Can you afford to not carry insurance? The cost of not buying it in some form or another could be the demise of your business and livelihood depending on the severity of a loss.

-JK