What's Covered By Workers Compensation Insurance?
Workers Comp Benefits Are Paid Regardless of Fault
Workers compensation insurance is mandatory in all states except Texas. Consequently, most businesses that employ workers are obligated by law to purchase a workers compensation policy. A policy typically consists of an Information Page (declarations), a policy form, and various endorsements. It may also include one or more schedules, such as a list of locations.
Standard Workers Compensation Policy Form Explained
All states have a regulatory bureau that oversees workers compensation rates, policy forms, and other issues related to workers compensation insurance. Many states delegate functions like statistical analysis, classification, experience rating, and form development to the National Council on Compensation Insurance (NCCI), a nonprofit organization owned by insurers. In these states, called "NCCI states," insurers issue workers compensation policies on a standard form published by the NCCI. The form provides two basic coverages: Workers Compensation and Employers Liability.
The standard form is used in NCCI states and in many independent states, meaning states that don't rely on the NCCI for statistical and rating services.
How Does Workers Compensation Coverage Work?
Workers compensation coverage affords benefits to employees injured in the course of employment. Benefits are provided regardless of fault, so injured workers need not sue their employer to obtain compensation. Workers are generally eligible for benefits even if their own carelessness contributed to their injury. For example, a restaurant worker could collect benefits for a finger injury they sustained on a meat slicer even though the injury occurred because they failed to use the machine guard and refused to wear cut-resistant gloves.
The specific benefits workers receive are determined by laws of the states in which they're employed. Workers compensation laws typically provide the following types of benefits:
- Medical Coverage: Includes doctor visits, hospital care, prescription medications, physical therapy, and other medical treatments.
- Disability: Provides a partial replacement of income lost when workers are unable to work due to an on-the-job injury. The amount and duration of benefits depend on whether the disability is temporary or permanent, and partial or total.
- Vocational Rehabilitation: Enables workers who cannot return to their prior occupation to learn a new skill based on their current capabilities.
- Death Benefits: Afforded to the spouse and minor children of a worker killed on the job.
While most states afford similar types of benefits, the amounts they pay varies from state to state. For example, some states provide up to 600 weeks of payments for income lost due to a permanent partial disability. Other states provide only 300 weeks. Similarly, many states calculate disability payments based on 66.66% of workers' average weekly wages. However, a few states base payments on 70% or even 80% of workers' average weekly wage.
Workers comp laws are actually part of the policy. They are incorporated into the form by the reference to workers compensation law in the General Section.
Workers compensation insurance covers bodily injury by accident (accidental injuries) that occurs during the policy period. It also covers bodily injury by disease (occupational disease) that's caused or aggravated by the conditions of employment. An example of an occupational disease is asbestosis. State laws determine which diseases qualify for coverage under workers compensation insurance. A disease will be covered by the policy only if the worker's last exposure to the conditions that make him sick occurred during the policy period.
Is Employer Misconduct Excluded?
Most state workers compensation laws prohibit employers from firing or otherwise discriminating against employees who have filed workers comp claims. Many states and the federal government have established occupational safety and health laws that employers must follow. Some states restrict employers' use of minors in the workplace.
Employers who violate employment or workplace safety laws may be fined by a regulatory agency or forced to pay extra benefits to injured workers. Such fines and extra benefits aren't covered by the policy. It specifically excludes any payments the employer must make (over and above the normal workers comp benefits) for any of the acts listed below:
- Serious and willful misconduct: For example, an employer has not replaced a missing guard on a cutting machine even though three workers have sustained cuts. When another worker is badly injured by the machine, the state regulatory agency orders the employer to pay the worker supplemental benefits on the basis that it has engaged in serious and willful misconduct.
- Knowingly employing a worker in violation of the law: For instance, a meat shop hires a 14-year-old to work as a butcher, violating a state law requiring employees of meat shops to be at least 16.
- Failure to comply with a health or safety law or regulation: In the cutting machine example cited above, the absence of a guard would likely constitute an OSHA Violation.
- Discrimination by coercion, discharge, or other action against any employee in violation of the workers compensation law: For example, an employer fires an injured worker in retaliation for filing a workers compensation claim.
What About Other States Coverage?
Workers compensation insurance is state-specific. Coverage applies only to the employer's workplaces in the states listed in the Information Page under Item 3.A. This isn't a problem if a business never has any activities outside its home state. Yet, employers can develop interstate exposures during the policy period they didn't anticipate when the coverage was written. For instance, an employer may acquire a new client or send workers to a training class in an adjacent state. Alternatively, the business may hire workers who live in one state to work in another.
Fortunately, businesses can protect themselves against potential interstate exposures by purchasing Other States Insurance, Part Three of the policy. Other States Insurance pays benefits injured workers are entitled to receive because of injuries sustained in any of the states listed in Item 3.C of the Information Page. The employer should try to list as many states as possible in Item 3.C (other than its existing workplaces, which should be listed in Item 3.A). Some, but not all, insurers will include broad language such as "all states other than monopolistic states and states listed in Item 3.A."
What Is the Subrogation Clause?
Like most insurance policies, the standard workers comp form contains a subrogation clause. Entitled Recovery From Others, it states that your insurer has your rights and the rights of injured workers to recover its payments from anyone liable for an injury. That is, if a third party negligently injures your employee on the job, your insurer may sue that party to recoup the cost of the benefits it pays to the worker.
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Bachus & Schanker LLC. "Workers Compensation: State-by-State Comparison." Accessed June 12, 2020.
Workers Compensation Rating Bureau of Wisconsin. "Workers Compensation and Employers Liability Insurance Policy," Page 1. Accessed June 16, 2020.
PSA Financial. "Beware the “State” of Your Workers’ Compensation Coverage." Accessed June 16, 2020.
Workers Compensation Rating Bureau of Wisconsin. "Workers Compensation and Employers Liability Insurance Policy," Page 2. Accessed June 16, 2020.