What Is Covered Under a Workers Compensation Policy?
If your business employs workers, you are probably required by state law to purchase a workers compensation policy. Your policy likely consists of the following parts: an Information Page (declarations), the policy form, and various endorsements. It may also include one or more schedules, such as a list of locations.
Classification and Rating
Under a workers compensation policy, your company is assigned one or more classifications based on the type of business you operate. For example, if you operate a store that sells hardware to retail customers, your business may be classified as a retail hardware store. The premium you pay for workers compensation coverage depends on the classifications used, the rate charged for each classification, and the remuneration you pay your workers (payroll). Your premium may also be affected by an experience modifier, which reflects your prior claims experience.
In virtually all states, workers compensation rates, classifications, policy forms and other issues related to workers compensation are administered by a state workers compensation bureau. However, many states delegate functions like rate making, statistical analysis and form development to an organization called the National Council on Compensation Insurance (NCCI). These states are referred to as "NCCI states."
The NCCI is a nonprofit organization owned by insurers. The NCCI states utilize a uniform classification system, manuals, and rules that have been developed by the NCCI.
Some states do not use the services of the NCCI. States like California, Wisconsin, and Delaware operate independently. These states develop their own rules and rates. Four states (Ohio, Washington, Wyoming, and North Dakota) are unique in that they do not allow private insurance. In these states, which are called monopolistic states, insurance policies must be issued by a state insurance fund.
Standard Policy Form
The NCCI has developed a standard workers compensation policy that is used in all NCCI states. The policy is also used in many independent states as well. It provides two basic coverages. Part One covers Workers Compensation while Part Two covers Employers Liability. This article focuses on Part One. Employers Liability Coverage is explained in a separate article.
Workers Compensation Coverage
Workers compensation coverage affords benefits to employees who have been injured in the course of employment. The coverage is afforded regardless of fault. That is, an injured employee need not sue you for negligence to obtain benefits. Moreover, an injured worker is generally eligible for benefits even if his or her negligence contributed to the injury. For example, suppose an employee sustains a head injury at a construction site. The injury could probably have been avoided had the employee been wearing a hard hat, as he had been instructed to do. Even so, the worker should still be eligible for benefits.
State 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 disability may be 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: These benefits are afforded to the spouse and minor children of a worker killed on the job.
While the types of benefits workers receive for work-related injuries are fairly consistent from one state to another, the amount of benefits they are afforded may vary widely from state to state. Thus, the applicable workers compensation law (of the state in which your workplaces are located) is incorporated into the policy. This means that the provisions of your state's compensation law become part of your insurance contract.
Workers compensation covers bodily injury by accident or bodily injury by disease (occupational disease). State law determines which occupational diseases are covered. An example of an occupation disease is asbestosis. The policy covers injuries caused by accidents that occur during the policy period. For a disease to be covered, it must be caused or aggravated by the conditions of employment.
Workers compensation laws may award an injured worker extra benefits if the worker is injured because of something you do or fail to do. For example, suppose that you own a meat shop. Bill, one of your employees, asked you three times last month to replace a broken guard on a meat slicing machine. Each time Bill mentioned the guard you told him to mind his own business and get to work. About a week after his last request Bill is using the machine when the meat he is slicing slips, and he accidentally severs his right index finger.
Because of your failure to fix the slicing machine, Bill is awarded double the worker compensation benefits he otherwise would have received. Your workers compensation policy will not cover the excess benefits you are required to pay as a penalty.
The standard workers compensation policy contains various exclusions.
It states that your insurer will not pay any excess benefits that are required because:
- Of serious and willful misconduct committed by you. Example: You tell Bill that he must use the slicer that lacks a guard or he will be fired.
- You knowingly employ an employee in violation of the law. Example: You hire a 14-year-old worker in violation of a law requiring employees of meat shops to be at least 16.
- You fail to comply with a health or safety law or regulation. Example: You fail to ensure that workers use a guard when operating a slicing machine, violating OSHA's Machine Guarding Standard.
- You discharge, coerce or otherwise discriminate against any employee in violation of the workers compensation law. Example: You fire Bill because he filed a workers compensation claim after severing his finger on the slicer.
Recovery From Others
If your insurer pays benefits to a worker who was injured because of someone else's negligence, your insurer has the right to obtain subrogation from the responsible party. That is, your insurer may recoup the amount of its loss payment from the party that caused the injury. For instance, suppose that an employee is slicing meat using the handguard on a slicing machine when the guard malfunctions. The malfunction causes the worker to sustain an injury.
Your workers compensation insurer will pay benefits to the worker required by law. However, it has the right to file a product liability suit against the slicer manufacturer to recover the payment it has made to the worker. You are obligated under the policy to protect the insurer’s right to recover its payments from the person or entity responsible for the worker’s injury.