Challenge Unlimited claims insurer overcharged in work comp premiums

A not-for-profit organization has filed suit against the insurance association that previously provided its workers' compensation insurance policies, saying the insurance company has overcharged it by more than $200,000 in premium payments.

Challenge Unlimited claims it purchased workers' compensation insurance policies from defendant Diamond Insurance Company in 2000, 2001 and 2002. Under Illinois law, Diamond Insurance Company should have based Challenge's premium payments on a formula containing a factor known as an experience modification factor, according to the complaint filed May 6 in Madison County Circuit Court.

"The Experience Modification factor acts as a multiplier that increases or decreases an employer's premium based on that employer's individual loss history," the suit states. "The Experience Modification factor is not determined by the insurance company. Instead, it is determined by a rating organization, of which the insurance company is a member, that aggregates loss history reported by all members of the organization and uses the data to compute an Experience Modification factor for each and every employer about which it has sufficient information to issue a rating."

Some rating organizations, however, lack sufficient information to issue an experience modification factor and may instead issue a contingent experience rating modifier to insurance companies. Insurance companies may only use the contingent experience rating modifier in states that allow it. Illinois did not allow insurance providers such as Diamond the right to use the contingent experience rating modifier, the complaint says.

But Diamond ignored the law and used the contingent experience rating modifier to decide Challenge's premium, which increased its payments by $74,429 in 2000, by $63,633 in 2001 and by $116,458 in 2002, Challenge claims.

Although Challenge has since demanded that Diamond reimburse it for premium overpayments, Diamond has refused to do so, according to the complaint.

Not only did Diamond charge Challenge more by using a contingent experience rating modifier, but it also charged the company extra through a schedule rating factor, the suit states.

"Schedule rating is a method of adjusting the normal premium applied to a workers compensation risk in order to account for readily identifiable factors having a bearing on the probability or severity of future losses and other risk factors not accounted for by other rating adjustments," the complaint says.

Diamond is allowed to apply a schedule rating factor, but must do so in accordance with a schedule rating plan it filed with the state of Illinois, Challenge claims.

However, Diamond inconsistently charged Challenge a schedule rating factor without conforming to the schedule rating plan. For instance, in 2000, it charged Challenge a schedule debit of 10 percent, or $42,705; in 2001, it charged 12.5 percent in schedule debit, or $50,764; and in 2002, it charged a schedule debit of 21 percent, or $93,264, according to the complaint.

In addition to the extra money it says it paid Diamond, Challenge is seeking unspecified damages, costs, disbursements, pre- and post-judgment interest and other relief the court deems just.

It will be represented by Charles L. Philbrick of Rathje and Woodward in Wheaton.

Madison County Circuit Court case number: 10-L-490.