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Workers' compensation -- Penalties

The Minnesota Legislature established penalties as a consequence for behavior that violates the workers' compensation law. Just as important, the Department of Labor and Industry (DLI) views the assessment of penalties as an educational tool that helps insurers to keep future claims on track. The following material explains the process DLI uses to determine if a penalty is warranted for a violation of the workers' compensation statutes and rules.

The types of penalties assessed are warnings and monetary fines payable to the Assigned Risk Safety Account (ARSA) and the employee. The penalty amount is set by the statutes and rules. Many of these penalties may also be assessed by a compensation judge. A comprehensive list of penalties that may be assessed by compliance is included in this section.

Penalties that may be assessed

Frivolous denial of liability


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Penalty:  Frivolous denial of liability
Statute violated -- Minnesota Statutes 176.221 Subd. 1 and 176.225. Subd. 1
Applicable rule -- Minnesota Rules Part 5220.2570; 5220.2770; 5220.2760
Assessment statutes -- Minnesota Statutes 176.221 Subd. 3a; 176.225, Subd. 1
Penalty payable to -- Assigned Risk Safety Account; employee
Assessed against -- insurance company or self-insured employer


Determination

A frivolous denial under the rules includes on that:

  • does not state facts indicating that an investigation has been completed or that a good-faith effort to investigate has been attempted; or

  • states a basis that is clearly an inaccurate statement of fact or applicable law.

Calculation

The penalty amount is based on the number of penalties against the insurer for violations in the two-year period prior to the current assessment. The chart below shows the current penalty amounts for each violation.

Violation number
Penalty amount
One to five $1,000
Six or more $2,000

In addition, a penalty may be assessed under Minnesota Statutes 176.225, Subd. 1, payable to the employee, in the amount of up to 30 percent of the benefits found to be delayed.

These penalties may be assessed in addition to penalties for late denials of liability under the provisions of Minnesota Statutes 176.221, Subd. 3a and Minnesota Rules Part 5220.2770.

How to avoid a penalty

The easiest way to avoid this penalty is to promptly investigate claims and be familiar with the statutes and rules. Do not deny a claim without conducting an investigation and document your investigation. Inform employers that prompt reporting allows more time to conduct an investigation to make proper determinations regarding acceptance or denial of liability. Remind health care providers that authorizations to release medical information are not necessary for work-related injuries. Be sure to attach to the denial any medical and other documentation used as a basis for the denial.

 

Late denial of liability


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Penalty:  Late denial of liability
Statute violated -- Minnesota Statutes 176.221 Subd. 1
Applicable rule -- Minnesota Rules Part 5220.2770
Assessment statutes -- Minnesota Statutes 176.221 Subd. 3a
Penalty payable to -- Assigned Risk Safety Account (ARSA)
Assessed against -- insurance company or self-insured employer


Determination

The information used to determine if a penalty will be assessed includes:

  • the first day of disability;

  • the date the employer received notice of the injury or disability, whichever is later; and

  • the date the denial was served on the employee.

A denial of liability is served on the employee and must be filed within 14 days of the first day of disability or the day the employer received notice, whichever is later. If the denial of liability is served beyond the 14-day time limit and no other liability determination has been previously filed, the denial of liability is late and a penalty may be assessed.

If the 14th day falls on a weekend or legal holiday, the day the denial is due becomes the next regular business day.

Calculation

The penalty amount is based on the number of days the denial was filed late. The chart below shows the current assessment amounts.

Number of days late
Penalty amount
One to 15 $250
16 to 30 $500
31 to 60 $1,000
61 or more $2,000


How to avoid a penalty

When the insurer receives the First Report of Injury (FROI) form from the employer in a timely manner, it is up to them to make payment or deny the claim in a timely manner (by filing an Notice of Primary Liability Determination (NOPLD) form showing the first action on the claim). They need to be sure to provide all dates and information requested on the form and to be certain the information being supplied is accurate.

When filing an NOPLD denying either primary or partial liability, be sure to give a complete and specific reason for the denial as required by Minnesota Rules Part 5220.2570 Subp. 2. Remember, penalties can also be assessed for nonspecific or frivolous denials.

The unavoidable

The insurer may not always be able to avoid this penalty. If the employer is late in filing the claim, there is a good chance the denial of liability will also be late. While Minnesota Statutes 176.221 Subd. 6 requires this penalty be assessed against the insurer, it also provides for recovery of penalty costs in situations where the late denial of liability is caused by the employer's late filing of the claim.

 

Late filing of First Report of Injury form


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Penalty:  Late filing of First Report of Injury form
Statute violated -- Minnesota Statutes 176.231 Subd. 1 and 2
Applicable rule -- Minnesota Rules Part 5220.2820
Assessment statutes -- Minnesota Statutes 176.231 Subd. 10
Penalty payable to -- Assigned Risk Safety Account (ARSA)
Assessed against -- employer or insurance company


Determination

The information used to determine if a penalty will be assessed includes:

  • the first day of disability;

  • the date the employer received notice of the injury or disability, whichever is later;

  • the date the insurer received notice of the alleged injury from the employer; and

  • the date the First Report of Injury (FROI) form is received by the department.

The penalty may be assessed against the employer if the insurance company does not receive the FROI form within 10 days of the first day of disability or the date the employer received notice, whichever is later.

The penalty may be assessed against the employer if the employer is self-insured and if the FROI form is not received by the department by the 14th day after the first day of disability or the date the employer received notice, whichever is later.

The penalty may be assessed against the insurance company if the insurance company received the FROI form from the employer in a timely manner, but did not file the report with the department by the 14th day after the first day of disability or the date the employer received notice, whichever is later.

If the date the FROI form is due falls on a weekend or legal holiday, the due date is the next regular business day.

This penalty can be assessed on claims that are required to be filed by Minnesota Statutes 176.231. If there is no claimed disability beyond the waiting period, the claim is not required to be reported and is not subject to this penalty.

Calculation

The penalty amount is based on the number of penalties assessed against the employer or insurance company for violations during the previous 12-month period prior to the current violation. The chart below shows the current penalty amounts for each violation.

Violation number
Penalty amount
One warning
Two $125
Three $250
Four $375
Five or more $500


How to avoid a penalty

Documentation is the key to avoiding this penalty. The insurance company should document the date it received the FROI form from the employer in box 50 of the form. Make sure the date is marked clearly. If it is not clear, the date will not be readable when it is placed in the department's imaging system.

The Minnesota workers' compensation statutes do not require the filing of a FROI form with the department if the claimed disability does not exceed the waiting period. Quite often, an insurer does not send the department a FROI form for this reason, but later learns there is claimed disability beyond the waiting period. The insurer then sends DLI benefit payment information for a claim for which there is no FROI form. By the time the insurer files the FROI form in response to the department's written request, the filing is late and subject to penalty. Therefore, if the injury results in compensable disability beyond the waiting period later in the claim, the insurer should ensure the FROI form is filed with the department as soon as notice of the disability is received. Also, the insurer needs to document the status of the original period of disability when filing the completed Notice of Insurer's Primary Liability Determination (NOPLD) form.

Continually educate employers about the timely filing of claims. Remind them of the consequences if they fail to file the FROI form in a timely manner. Supply as much of the information requested on the FROI form as possible, especially the data used to determine timeliness of the FROI form. If there are unusual circumstances the department should know about, attach a note to the FROI form.

 

Late first payment of benefits


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Penalty:  Late first payment of benefits
Statute violated -- Minnesota Statutes 176.221 Subd. 1
Applicable rule -- Minnesota Rules Part 5220.2770 and 5220.2790
Assessment statutes -- Minnesota Statutes 176.221 Subd. 3 and 176.225 Subd. 5
Penalty payable to -- Assigned Risk Safety Account (ARSA); employee
Assessed against -- insurance company or self-insured employer


Determination

The information used to determine if a penalty will be assessed includes:

  • the first day of disability;
  • the date the employer received notice of the injury or disability, whichever is later;
  • the date of first payment of temporary total disability; and
  • whether the employer is continuing to pay the employee full wages per Minnesota Statutes 176.221 Subd. 9.

The first payment of temporary total disability must be issued by the 14th day after the first day of disability or the date the employer received notice, whichever is later. If the payment is late and the claim has not previously been denied, a penalty may be assessed. A penalty is not assessed if there is a proper wage continuation plan by the employer.

Calculation

When penalty amounts are assessed for late first-payment of temporary total disability, two penalty amounts are calculated. One is payable to the employee and the other is payable to the Assigned Risk Safety Account.

Payable to the employee per Minnesota Statutes 176.225, Subd. 5
The amount of the penalty payable to the employee is 25 percent of the benefits found to be delayed. The amount of benefits found to be delayed is the amount of benefits paid up to a date two weeks before the date the first payment was made.

Payable to the ARSA per Minnesota Statutes 176.221
The amount payable to the ARSA is based on

  • the number of days the payment was made late; and

  • the amount of benefits due to the date of the first payment.

The total benefits paid to the date of the first payment is multiplied by a set percentage, determined by the number of days the first payment is late. The amount of this penalty is subject to a maximum set by statute and rule.

Number of days late
Percent of late benefits
Maximum penalty amount
One to 15 30 percent $500
16 to 30 55 percent $1,500
31 to 60 80 percent $3,500
61 or more 105 percent $5,000


How to avoid a penalty

When the insurer receives the FROI form from the employer in a timely manner, it is up to them to make payment or deny the claim in a timely manner (by filing a Notice of Primary Liability Determination (NOPLD) form showing the first action on the claim). They need to be sure to provide all dates and information requested on the form and to be certain the information being supplied is accurate.

The unavoidable

The insurer may not always be able to avoid this penalty. If the employer is late in filing the claim, there is a good chance the first payment will also be late. While Minnesota Statutes 176.221, Subd. 6 requires this penalty be assessed against the insurer, it also provides for recovery of penalty costs in situations where the late first payment is caused by the employer's late filing of the claim.

 

Nonspecific denial of liability


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Penalty:  Nonspecific denial of liability
Statute violated -- Minnesota Statutes 176.84 Subd. 1
Applicable rule -- Minnesota Rules Part 5220.2570
Assessment statutes -- Minnesota Statutes 176.84, Subd. 2
Penalty payable to -- Assigned Risk Safety Account (ARSA)
Assessed against -- insurance company or self-insured employer


Determination

Minnesota Statutes 176.84 states, "... denials of liability shall be sufficiently specific to convey clearly, without further inquiry, the basis upon which the party issuing the notice or statement is acting."

Minnesota Rules Part 5220.2570 goes further to say a denial of liability, whether it be a primary or partial denial, must include "... a specific reason for the denial which must be in language easily readable and understandable to a person of average intelligence and education and a clear statement of the facts forming the basis for the denial. A denial which states only that the injury did not arise out of and in the course and scope of employment or that the injury was denied for lack of a medical report, for example, is not specific within the meaning of this item."

Calculation

The penalty for filing a nonspecific denial of liability is a set amount of $500 for each violation. This penalty may be assessed in addition to penalties for late or frivolous denials of liability.

How to avoid a penalty

The easiest way to avoid this penalty is to become familiar with the statute and rules. Do not use language that the rules define as being nonspecific. Do not deny a claim without conducting an investigation. Remind health care providers that authorizations to release medical information are not necessary for work-related injuries.

In addition, before the department may assess a penalty for a nonspecific denial, Minnesota Statutes 176.84 requires the department notify the insurer that the reason for the denial was not sufficiently specific to meet the standard of the statute and rules. The statute also allows the insurer an opportunity to amend the denial to meet the requirements. An insurer that takes this opportunity to correct the language of the denial in a timely manner can avoid having this penalty assessed.

 

Prohibited practices


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Penalty:  Prohibited practices
Statute violated -- Minnesota Statutes 176.194 Subd. 3
Assessment statutes -- Minnesota Statutes 176.194 Subd. 4
Penalty payable to -- Assigned Risk Safety Account (ARSA)
Assessed against -- insurance company, self-insured employer, third-party administrator or adjuster


Special note

Prohibited-practice penalties may be assessed in addition to any other penalties provided by the workers' compensation laws. They may be assessed against insurance companies, self-insured employers, third-party administrators that act on behalf of an insurer, adjusters, the Minnesota Insurance Guaranty Association or any other entity.

Determination

A penalty may be assessed when the department finds that any of nine specific types of prohibited conduct have occurred in the handling of claims.

Types of prohibited conduct
1. Failing to reply, within 30 calendar-days after receipt, to all written communication about a claim from a claimant that requests a response.
2. Failing, within 45 calendar-days after receipt of a written request, to commence benefits or to advise the claimant of the acceptance or denial of the claims by the insurer.
3. Failing to pay or deny medical bills within 45 days after the receipt of all information requested from medical providers.
4. Filing a denial of liability for workers' compensation benefits without conducting an investigation.
5. Failing to regularly pay weekly benefits in a timely manner, as prescribed by the rules adopted by the commissioner, after weekly benefits have begun. Failure to regularly pay weekly benefits means failure to pay an employee on more than three occasions in any 12-month period, within three business-days of when payment was due.
6. Failing to respond to the department within 30 calendar-days after receipt of a written inquiry from the department about a claim.
7. Failing to pay pursuant to an order from the department, compensation judge, court of appeals or the supreme court, within 45 days from the filing of the order, unless the order is under appeal.
8. Advising a claimant not to obtain the services of an attorney or representing that payment will be delayed if an attorney is retained by the claimant.
9. Altering information on a document to be filed with the department without the notice and consent of any person who previously signed the document and who would be adversely affected by the alteration.

The prohibited conduct most commonly penalized for by the department is failing to respond to the department within 30 days after receipt of a written inquiry from the department about a claim. This violation typically occurs after the department sends a written request for information about a claim. The law requires a response to the request within 30 days. If the department does not receive a response by then, a penalty may be assessed or a courtesy second request may be sent to the attention of the claims manager.

Calculation

The penalty amount is based on the number of penalties assessed against the party for violations during the previous 12-month period prior to the current violation. The chart below shows the current penalty amounts for each violation.

Items 1 through 6 and 9
Items 7 and 8
Violation number Penalty amount Violation number Penalty amount
1 through 5 warning 1 through 5 $3,000 each
6 through 10 $3,000 each 6 through 30 $6,000 each
11 through 30 $6.000 each    

If a party has 31 or more violations during a 12-month period, a penalty of $6,000 is assessed for each violation. In addition, the department may refer the party to the Minnesota Department of Commerce for license review.

How to avoid a penalty

Although the law requires a response to the department's written request within 30 days, we realize the information we request may not be readily available, especially when an older claim is involved. When a party receives a request from the department but is unable to supply the requested information within 30 days, contact the department. Telling the department the information cannot be immediately supplied will generally satisfy the statutory requirement to respond to the initial request. The department will continue to expect to receive the information that was requested, so if the information is not supplied at a later date, it will be requested again.

If a party receives a second written request, they need to respond as soon as possible to avoid a penalty. If they had already answered the original request, they should contact the person who made the second request to determine if the information needs to be re-sent.

When the department asks for information that a party no longer has available because their file has been destroyed, they should contact the person who made the request. Often, alternative ways to obtain the information can be found.

Communication with the department is the key to avoiding penalties for failure to respond. When a file is reviewed for a prohibited practices penalty for failure to respond to our written request, we usually have already requested the information at least twice.

 

Other penalties


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There are several areas where disciplinary action is handled differently by the department if the disciplinary action is under the jurisdiction of other agencies or other branches of government. The following are some examples.

Handling of disciplinary actions
Behavioral or misrepresentation issues (including fraudulent behavior) by the insurance company, self-insured employer or third-party administrator are handled by the Minnesota Department of Commerce.
Improper activities by a qualified rehabilitation consultant (QRC) are handled by the Rehabilitation Review Panel. The result could be review of license or assessment of penalties.
Violation of rules and statutes by a health care provider are handled by the Medical Services Review Board. The result could be warnings, penalties or disqualification from receiving payment for services rendered under the workers' compensation system.
Violation of rules and statutes by managed care organizations are reviewed by the Department of Labor and Industry. The result could be suspension, revocation of license or refusal to certify.
Illegal or improper activities by attorneys are handled by the Lawyers Responsibility Board. The result could be license review and discipline.
Theft by fraud by any party is handled by city or county attorney offices. The result could be prosecution of criminal charges and restitution.
Uninsured employer penalties are handled by the Special Compensation Fund. Per Minnesota Statutes ยง176.181, the uninsured employer may be assessed a penalty of up to $1,000 per employee per week during the time the employer is not insured.

 

Civil actions within the workers' compensation statutes


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Obstruction of employee seeking workers' compensation benefits

Minnesota Statutes 176.82 Subd. 1

Any person discharging or threatening to discharge an employee for seeking workers' compensation benefits or in any manner intentionally obstructing an employee seeking workers' compensation benefits is liable in a civil action for damages incurred by the employee including any diminution in workers' compensation benefits caused by a violation of this section including costs and reasonable attorney fees, and for punitive damages not to exceed three times the amount of any compensation benefit to which the employee is entitled.

Refusal to offer continued employment

Minnesota Statutes 176.82 Subd. 2

An employer that, without reasonable cause, refuses to offer continued employment to its employee when employment is available within the employee's physical limitations shall be liable in a civil action for one year's wages. The wages are payable from the date of the refusal to offer continued employment, and at the same time and at the same rate as the employee's pre-injury wage, to continue during the period of the refusal up to a maximum of $15,000. This subdivision shall not apply to employers who employ the equivalent of 15 or fewer full-time employees.

 



Compliance penalty reference table

Assessment factors

Before a penalty is assessed, the following factors are taken into consideration.

  • Does DLI have sufficient factual evidence to support the penalty?

  • Does DLI have the statutory authority to assess the penalty?

  • Does DLI have clear support of this penalty in the rules of practice?

  • Is the penalty supported by department policy?

  • Has the violation occurred within the past two years? (Minnesota Rules Part 5220.2710)

What to do when you receive a penalty

  • Review the claim to determine if the penalty is valid. If you have no legal or factual basis to object to the penalty, pay the penalty within 30 days of the date is was served and filed. This date is stamped on the front of the penalty.

  • If you have questions about why the penalty was assessed, call the author of the penalty. If the Department of Labor and Industry can resolve any issues quickly, it will do so. Do not allow such conversations to keep you from filing an Objection to Penalty Assessment form in a timely manner.

  • If you have reason to believe the penalty is not appropriate, file an Objection to Penalty Assessment form within 30 days of the date the penalty was served and filed. The author of the penalty will contact you if any additional information is needed or if the penalty can be amended or rescinded.

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