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Workers' compensation and employer liability

October 11, 2010
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Workers’ compensation is established in each state based on statutes passed by the governing body in that jurisdiction. The idea behind workers’ compensation was to eliminate the theory that an employer had to be negligent to be responsible for injuries received by his/her employees; and, to replace it with a statutory obligation that effectively is a no-fault method of recovery for employees.

Benefits are designed to provide an exclusive or sole remedy and are partial and final. Based on workers’ compensation statutes employers assume the costs of occupational injuries and diseases arising out of and in the course of employment.

Variances across state lines
All states have compulsory workers’ compensation requirements, except New Jersey and Texas. New Jersey does require employers to buy either workers’ compensation or employers’ liability coverage so it is really a choice and not truly elective.

The state laws regarding workers’ compensation do vary. Some states require workers’ compensation if you employ a fixed number of employees, e.g. five or more employees or one or more if you are in specific classifications of business. Other states require workers’ compensation if payroll exceeds a fixed amount. Some states include the owner and family members for coverage and allow them to opt out of coverage while other states require that you elect to have coverage or you are automatically excluded.

As if to further complicate the statute, the laws regarding who is automatically included or excluded or may elect to be excluded vary by type of business, i.e. corporation, sole proprietor, partnership and LLC. Some states do exempt various classifications as well, i.e. agricultural or domestic workers.

Funding the benefits
Most states do agree that you are responsible for the benefits of workers’ compensation if you are in a hazardous occupation. And, they may conclude that you are in a hazardous occupation if a serious incident results in injury or death of an employee. If you are responsible for the benefits of workers’ compensation, you are legally bound to fund these benefits. This may be done in the following ways:

1 Purchase insurance from an insurance company or competitive state fund. In exchange for a premium based on a rate for your business type and the amount of your payroll, the insurance company or state fund promises to pay whatever statutory benefits are due your employee.

2 In a Monopolistic State Funds — which exist only in the states of North Dakota, Ohio, Washington and Wyoming — insurance is purchased exclusively through the state fund.

3 Self-Insurance, group and/or individual, is established under the statutes of the various jurisdictions and includes consumer protection to be certain the funds are available for the injured employee or surviving dependents.

If you do not purchase workers’ compensation, you can still be held responsible for funding the benefits available to your injured employees and will be legally bound to pay the benefits the same as though you had insurance to assist you in meeting this obligation. In addition, you may be subject to fines and penalty payments in excess of the benefit levels required by statute as a result of not having provided the basic benefits of workers’ compensation.

Different types of benefits
The amount of benefits provided by workers’ compensation statutes is established, and may be amended at any time, by the governing body in each jurisdiction. The different types of benefits are generally the same in all jurisdictions and include:

1 Medical eExpenses incurred as a result of an incident on the job and in the course of the employee’s occupation. In most states these benefits are unlimited. There are a few states that do require a deductible paid by the employee when specific circumstances exist.

2 Disability benefits vary from state to state. Generally speaking, the statute will specify the amount of lost wages and the length of time benefits are paid. Disability can also include specific compensation for scheduled injuries such as the loss of one finger, foot, eye, etc. Most states have a waiting period before disability benefits are payable. These are generally three to seven days in length and may be waived if the disability continues beyond a specified time period.

3 Rehabilitation benefits attempt to restore the injured person to maximum physical capacity and depending on the state or jurisdiction may be defined by statute and may include vocational training.

4Death benefits were the only benefits in the first workers’ compensation statutes and continue to be a primary benefit. Death benefits also vary by state depending on the wording within the statutes. The amount payable includes burial expenses and benefits payable to surviving dependents.

Not every expense you may be responsible for because of an on-the-job injury is payable by workers’ compensation. For example, you are responsible for any payments in excess of the benefits regularly provided by the workers’ compensation law including those required due to:

1. Your serious and willful misconduct;
2. You knowingly employ an employee in violation of law (i.e. child labor laws)
3. You fail to comply with a health or safety law or regulation; or
4. You discharge, coerce or otherwise discriminate against any employee in violation of the workers’ compensation law.

Employers’ liability
In addition to the statutory workers’ compensation benefits, insurance policies, except in the monopolistic states generally include Part Two — Employers’ Liability.

The individual employer selects the benefits provided by this coverage section. Basic limits of $100,000 per accident for Bodily Injury by Accident; $500,000 policy limit for Bodily Injury by Disease; and, $100,000 per employee for Bodily Injury by Disease can generally be increased for a small additional premium.

Types of claims paid under Employers’ Liability coverage applies to occupational injuries and diseases resulting in legal liability where recovery is permitted by law. For example, Employers’ Liability…

1. Pays damages to a third party as a result of injury or disease to an employee.
2. Pays damages of a direct consequential loss as a result of injury or disease to an employee for care and loss of services.
3. Pays damages of a direct consequential bodily injury to a spouse, child, parent, or sibling as a result of injury or disease to an employee.
4. Pays damages caused by the employer when he is in a capacity other than an employer resulting in injury or disease to an employee.

Defense costs are included in the Employers’ Liability policy form and are paid in addition to the liability limits. Remember, however, if there is no coverage available for the incident under the provisions of the Employers’ Liability policy form, there is no defense coverage either.

Check your state, check your policy
Because the benefits of workers’ compensation vary from state to state, it is important that you check your policy to be sure any state in which you have a business operation is listed as a “Covered State.” If you are working in a state when your policy goes into effect or renews, that state needs to be listed or you will not have protection unless the carrier receives notice of the operations for benefits paid under that state’s statute for the employees working in that state.

If you have plans or even an opportunity to be working in other states, you need to be sure that this information is also provided to your agent. These other states can then be listed on your policy in an area called “Other States Insurance” to include coverage for the potential new locations.

Workers’ compensation is a legal responsibility created by the various state legislatures. You need to be sure you have the specific information for your state(s) of operation so you are in compliance with the letter of the law.

More importantly, workers’ compensation and employers’ liability are available to you to meet the intent as well as the letter of the law. In other words, the benefits of workers’ compensation are established to ensure the financial well being of your employees in the event they are injured or contract an occupational disease while in your employ. Insurance policies are available to ensure the financial well being of your business by providing the funding for these benefits. If you haven’t secured the protection of workers’ compensation for yourself and your employees, there is no better time than now.

Scott Brothers, CIC, is the president and CEO of Joplin, Missouri-based The Insurancenter. The Insurancenter has been insuring the car care industry since 1986 and is the leading writer of insurance for the industry nationwide.

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