State Insurance Department Erred With Employment Status Opinion

February 3, 2020 / Writing and Speaking

By Don R. Sampen, published, Chicago Daily Law Bulletin January 28, 2020

The 1st District Appellate Court recently held that the Illinois Department of Insurance lacked authority to decide a workers’ compensation premium dispute between an insurer and its insured.

The case is CAT Express Inc. v. Muriel, 2019 IL App (1st) 181851 (Dec. 16, 2019). The insured, CAT Express, was represented by Blitch Westley Barrette S.C. of Oak Brook. Barnes P.C. represented the insurer, Liberty Mutual. And the Illinois Attorney General’s Office represented the Department of Insurance.

CAT, a trucking company, applied to the Illinois Assigned Risk Plan for workers’ compensation insurance coverage, and the plan randomly assigned coverage to Liberty Mutual. CAT disclosed only six clerical employees to Liberty for which the coverage would apply and did not disclose any truck drivers. Based on the six employees, Liberty Mutual calculated a premium of $1,284.

After a premium audit, however, Liberty Mutual learned that CAT contracted with numerous owners-operators, creating a much larger policy exposure because they could be considered CAT employees.

Liberty Mutual issued an endorsement demanding an additional annual premium of $356,592 to cover the owners-operators. CAT canceled the policy, and Liberty adjusted the premium owed to $150,000.

CAT thereupon sought a determination from the National Council on Compensation Insurance concerning the employment status of the owners-operators. The council is an insurance rating and data-collection bureau specializing in workers’ compensation. It provides data and analysis to insurance companies and regulatory authorities nationwide.

Section 462 of the Insurance Code, 215 ILCS 5/462, authorizes rating organizations, such as the council, to resolve disputes involving persons aggrieved by application of a rating system. In response to CAT’s application, however, the council advised that the matter sought to be decided — the employment status of owners-operators — was beyond its dispute-resolving jurisdiction.

The council, nonetheless, advised CAT that it could appeal its determination to the Illinois Department of Insurance. As a result, CAT requested a hearing before the department. A hearing officer was assigned. That officer determined that the owners-operators were, in fact, CAT employees. CAT sought review by the circuit court, which affirmed, and then filed this appeal.


In an opinion by Justice Daniel J. Pierce, the 1st District vacated the circuit court order and found the insurance department lacked authority to decide the parties’ dispute. He focused initially on Section 401(c) of the Insurance Code.

That section, Pierce said, is broad and authorizes the department director to conduct investigations and hearings as necessary for the efficient administration of insurance laws of the state.

But, despite its breadth, the section does not authorize the director to resolve disputes over employment status and premiums as between an insurer and insured. Such disputes do not involve the efficient administration of insurance laws.

Liberty Mutual’s determination that CAT owed additional premiums, moreover, involved private interests and no claim was made that Liberty’s audit results violated any insurance law or regulation.

While the director had authority to approve policy forms, examine insurance companies, license insurance producers and engage in other insurance-related activities, the director has no authority to administer individual insurance contracts.

In addition, while the code’s Section 462 requires rating agencies, such as the insurance council, to provide insureds with information regarding experience rates affecting an insured, and to review an applied rating system, CAT here was not aggrieved by application of the council rating system. Rather, it was aggrieved by Liberty Mutual’s determination concerning the number of workers to which the rating system applied.

In short, nothing in the code gave the insurance department express or implied authority to resolve the employment status dispute between CAT and Liberty Mutual.

Pierce observed that a remedy is available, such as a declaratory judgment action filed in circuit court, or a contract action involving the scope of coverage. In this case, however, the department acted without authority when it issued its final order.

The 1st District, therefore, vacated the department’s final order and vacated the circuit court’s order affirming the department’s order.

Key point

The Department of Insurance lacks authority to decide matters involving employment status or individual coverage disputes as between an insurer and insured.

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