Ignoring payroll audit requests can void workers’ comp, court rules

So the insurer asked. Again and again. Across roughly three months in 2021, it sent letters and emails requesting payroll records, followed by a certified letter and then a cancellation notice. The company never produced the records. Its coverage was cancelled, effective September 14, 2021. 

Then, on February 3, 2022, one of its workers was injured and filed a claim. The insurer denied it, citing the cancelled policy. 

At arbitration, the Workers’ Compensation Appeals Board backed the employer. Its logic: neither the policy nor the Insurance Code spelled out exactly what counts as failing to permit an audit, so the cancellation could not stand. 

The appeals court saw it differently. The employer, it held, had an “affirmative obligation” to hand over records once they were requested, and months of silence added up to a failure to permit the audit. The court annulled the Board’s order and returned the case for further proceedings. 

The company’s owner testified that he was “aware of the requirement for an audit of his payroll” but did not recall getting the insurer’s letters or emails. The court was not swayed, noting he “simply did not remember getting the communications.” Intent, it said, was beside the point. The only question was whether the records showed up.