WCL Section 52 (1)(D) states that:
If at any time an employer intentionally and materially understates or conceals payroll, or intentionally and materially misrepresents or conceals employee duties so as to avoid proper classification for calculation of premium paid to secure compensation, or intentionally and materially misrepresents or conceals information pertinent to the calculation of premium paid to secure compensation, such employer shall be deemed to have failed to secure compensation and shall be subject to the sanctions applicable to this section.
The “sanctions” laid out on the balance of the section include fines, penalties, stop-work orders, criminal prosecution and personal liability for all penalties and fines by the president, secretary and treasurer of the violating corporation.
In Urbano v. Bletsas Plumbing & Heating, 2015 NY Slip Op 00416 (3d Dept. 2015) the Third Department considered this very provision of the WCL where the carrier raised WCL 52(1)(D) claiming that because Bletsas had defrauded it by underreporting the number of employees (one of which was the claimant) and paying those employees “off the books” the employer should be “deemed to have failed to secure compensation” and thus the UEF, and not the carrier, should be liable for the claim.
The Appellate Division unfortunately disagreed with the carrier’s interpretation of the phrase “deemed to have failed to secure compensation” holding that in context of the balance of WCL it was clear that the defense of “coverage” would only have been properly raised had the carrier timely cancelled coverage under WCL 54(5) before the work injury took place, and that the legislative history of this 2007 Amendment provision clearly illustrated that it was “designed to punish fraud perpetrated by the employer, not to rescind coverage or release the carrier from liability to an injured employee.”
The AD ruling in Urbano forces this carrier to cover a loss for a risk against which is received no premium. The remedy of an action commenced on the policy was unaddressed by the Court, but we would assume that the carrier’s chance of recovering from its insured is slim to none given that the penalties imposed by the Board for the fraud under WCL Sec. 52 are nondischargable and would prime any judgment lien the carrier could eventually obtain.