Insurance
Home›Insurance›Liability Insurance›California appeals court rules insurer can cancel work…
California appeals court rules insurer can cancel workers' comp after silence
The decision, certified Aug. 6, 2026, said the employer did not have a compelling business reason for ignoring multiple audit requests and a certified letter delivered Aug. 10, 2021.
A California appeals court ruled that an employer's failure to respond to payroll audit requests can amount to blocking the audit, allowing an insurer to cancel a workers' compensation policy.
In the case, Employers Preferred Insurance Company sought to cancel a 2021 policy after the company covered by Purchase Green Artificial Grass did not provide payroll data needed to finalize the premium. The insurer sent letters and emails on May 5, May 27, and June 7, 2021, followed by a certified letter sent Aug. 5, 2021 and delivered Aug. 10. After no response, the insurer moved to cancel the 2021 policy effective Sept. 14, 2021.
The dispute became significant after an employee was injured and filed a workers' comp claim on Feb. 3, 2022. The insurer denied the claim, citing the Sept. 14 cancellation, and an arbitration process initially sided with the employer, saying the policy and Insurance Code did not spell out what a failure to permit an audit means.
Insurance Business reports the appeals court disagreed, finding the policy language created an affirmative obligation to provide access to records for a payroll verification audit and that ignoring three rounds of requests plus the certified letter was unreasonable. The court also rejected the employer's equitable estoppel argument tied to a later letter that listed an incorrect policy end date, and it annulled the Workers' Compensation Appeals Board order, sending the case back for further proceedings.