Surge in Penalties to Employers for Non-Compliance of Illinois Workers’ Compensation Insurance

By Diandra Abate, Income Partner, Amundsen Davis Law

Contractors and other employers working on projects in the State of Illinois should be aware that the State is intensifying its enforcement of workers’ compensation insurance compliance via notice of non-compliance and penalties to employers. Even “brief” projects or operations within Illinois trigger an employer’s obligation to comply with provisions of the Illinois Workers’ Compensation Act, which mandates that most employers carry active workers’ compensation insurance and file proof of coverage annually with the State.

Under Section 4 of the Illinois Workers’ Compensation Act (“Act”), employers must secure workers’ compensation liability by either filing for self-insurance with the Illinois Workers’ Compensation Commission (IWCC) or purchase insurance from an authorized carrier.

All employers operating in the State of Illinois must provide proof of insurance compliance. Failure to maintain appropriate insurance coverage can result in severe penalties, which range from substantial fines to potential criminal charges. See Section 4(a-1); Section 4(c); Section 4(d) of the Illinois Workers’ Compensation Act.

Recently, many employers—particularly those based out of state—have received noncompliance notices from the IWCC. This often occurs when businesses conduct what they believe to be “temporary work” in Illinois without understanding the limitations of their own insurance coverage.

A common misunderstanding arises from the distinction between Sections 3A and 3C of standard workers’ compensation insurance policies. Section 3A lists the states where an employer is actively operating at the time the policy is issued. In contrast, Section 3C is often seen as a “catch-all” for other states where the employer may operate, but its coverage is limited to incidental exposures and does not replace or mitigate an employer’s legal responsibility to have insurance under section 3A. Our firm has recently seen an increase number of cases where employers have not been properly advised of their insurance coverage, therefore subjecting employers to legal liability.

Illinois does not accept 3C coverage in place of 3A for employers when employers have ongoing operations in the state. “Ongoing operations” are defined as regular and continuous business activities—whether temporary, seasonal, or part-time—that expose employees to the risk of workplace injuries.

By partnering with a licensed broker and reviewing policy annually, parties can work to secure the necessary insurance for employers while complying with the provisions of the Act. Should an employer receive a new project in the State of Illinois, it is highly recommended that an employer be proactive in notifying its workers’ compensation carrier of new work in Illinois prior to the start of work within the State.

To protect your business and comply with the Act, consider the following steps:

1. Consult with an Illinois licensed insurance broker to ensure your policy provides proper coverage in all relevant states, including Illinois.
2. Review your policies annually for proper coverage to in order to eliminate any lapses, exclusions, or misclassifications.
3. Maintain accurate records of employees, employee payroll, job sites, and job duties to assess exposure and ensure proper classification. If applicable, ensure valid certificates of insurance are in place at all times for any and all parties you may be responsible for under the Act, including but not limited to: subcontractors, borrowed employees on your jobsites, etc.
4. Notify your insurance carrier immediately when beginning work in a new state, particularly if that work could be considered ongoing operations under Illinois law.

If you receive a noncompliance notice from the State of Illinois, do not hesitate to contact us at Amundsen Davis Law. We are more than happy to review the facts of your case and assess your options to move towards resolution.