It's one of the favorite scams unethical companies use to reduce costs, make more money and gamble needlessly with the lives of workers -- and a Florida construction company owner just got caught doing it.
The scam works like this: The construction company owner needs to provide the state and clients proof that he or she has insurance coverage in case an employee is injured. However, insurance is costly when you're asking your employees to do dangerous things, like climb scaffolding, break down walls or use dangerous tools, like nail guns and wielders.
Those costs get passed on, in part, to consumers when the construction company bids on a job -- but since everyone is paying the same sort of insurance rates, it's fair. Companies have to find some other way to lower their rates or make an outstanding bid.
Unless one company manages to operate on a vastly lower budget by lying to its insurer about what its employees actually do. In this case, for example, the construction company -- which handled all sorts of construction -- lied to its insurer claiming that they did low-risk work (plastering and stucco) only. That gave the company the ability to vastly underbid competitors paying legitimate insurance policies.
In addition, some companies will lie about how much revenue they take in and how many employees they actually have -- paying their employees through check cashing services so the money stays off the books the insurance company sees. This particular Florida company decided this was another excellent way to reduce premiums -- or maybe thought insurers couldn't be convinced the plaster/stucco business was quite that successful. The owner hid about $5 million in payroll checks that way.
By defrauding her workers' compensation insurer, the owner of the company cut her premium costs from around $733,500 to around $26,600.
Not only is this several types of fraud, but the scam left workers exposed to serious economic harm. If one had been seriously injured, he or she would have been left without adequate coverage. Homeowners who hired the company could have found themselves liable on their homeowner's insurance for uncovered bills, but a seriously injured worker could have still been unable to recover a useful amount.
If your workers' compensation is denied due to a lack of coverage, make sure that you find out more about your legal options for economic recovery.
Source: Insurance Journal, "Florida Construction Co. Owner Accused of $700K Workers’ Comp Scam," Dec. 21, 2017