Every employer knows it's a drag: Paying premiums for workers' compensation insurance for each employee to cover injuries that may never happen, and when or if injuries occur they may even be the fault of the employee.
Reading the policies isn't fun either: They're filled with employer duties and responsibilities. But under the workers' compensation system, employers are required to obtain insurance that provides coverage for workers who suffer from work-related illnesses and injuries.
|Compromise between employers and employees
As an agent, it's your job to help your clients realize that workers' compensation insurance is not as anti-employer as it seems. It's really a compromise between employers and employees. Employees receive benefits if they're injured regardless of who was ultimately at fault. Employers are protected from arduous and expensive lawsuits brought by injured employees seeking monetary damages for pain and suffering or mental anguish.
Typical workers' compensation statutes are intended to provide an exclusive remedy for on-the-job injuries or illnesses to all employees, subject to the law. Thus, the only remedy available to an injured employee under workers' compensation is to recover on a no-fault basis, the benefits required by the applicable statute. This means that employers that comply with workers' compensation statutes are generally immune from lawsuits brought by injured workers.
There are a few exceptions that allow employees to bring a tort action against their employer — for example, intentional injury caused by the employer — but those situations generally occur only when the employer is accused of acting negligently.
|State systems vary
A few states, known as monopolistic states, require businesses to secure coverage through state-operated systems. Currently, the monopolistic states are Ohio, North Dakota, Washington and Wyoming.
About two-thirds of the states subscribe to the National Council on Compensation Insurance and are called NCCI states. These states each have their own workers' compensation bureau but rely on NCCI for such things as classifications and rating systems.
The states that don't subscribe to NCCI are dubbed "independent" states and allow private insurers to sell workers' compensation. Independent states use their own classification and rating systems, although they're often similar to the NCCI systems.
Texas and Oklahoma — known as "opt-out" states — are the only states that don't require all private employers to purchase workers' compensation insurance. Texas has been an opt-out state for decades, while Oklahoma has only been an opt-out state for four years, but the law has since been deemed unconstitutional by the Oklahoma Workers Compensation Commission.
Texas employers that contracted with the state government are required to have workers' compensation insurance, however. Even though workers' comp coverage is not required in Texas and Oklahoma, employers should remember that when they don't purchase the insurance, they lose important defenses against lawsuits by injured employees.
Injuries to an employee from a fight started by that employee are generally not covered by workers' comp. (Photo: Shutterstock)
|Similar structure across states
Although workers' compensation is governed by state law, with the rules and regulations differing widely from state to state, the structure of the workers' compensation system can be similar by state. The main differences between states are procedural rules and rates to be paid.
Most states require employers who don't comply with the applicable workers' compensation statutes to pay a fine. The fine can vary based on several factors including:
— The length of time the employer is non-compliant;
— The number of employees; and
— The reason for noncompliance.
Depending on the state in which the business is located, if an employer isn't complying with the mandated workers' compensation insurance requirements, fines and penalties can cost them from thousands to hundreds of thousands of dollars for each violation. For instance, non-compliant business owners in New York with four or fewer employees face fines up to $5,000, but if the same business owner has five or more employees the fines can reach $50,000.
Intentional noncompliance in several states, including Pennsylvania, may be considered a felony.
To stress the importance of compliance with workers' compensation statutes for employers, make sure you, as the agent, know exactly what penalties and punishments are implemented in the state where you sell workers' compensation insurance and all the states in which your clients do business.
Related: Multi-million dollar workers' comp referral scheme uncovered in Calif.
|Injuries excluded from workers' comp coverage
On the other hand, some injuries and illnesses are not covered by workers' compensation, for example:
- Injuries caused by intoxication or drugs,
- Self-inflicted injuries,
- Injuries from a fight started by an employee,
- Injuries resulting from horseplay or violation of a company policy,
- Injuries inflicted during the commission of a felony,
- Injuries suffered off the job,
- Injuries claimed after an employee is terminated or laid off, and
- Injuries to an independent contractor.
To avoid fines, unknown liability, criminal charges, jail time, and even felony charges, it's in the best interest of employers to comply with all workers' compensation laws implemented in the states in which they run their businesses.
If you have a reluctant employer as a client, you can emphasize that having proper workers' compensation insurance coverage is a smart investment that protects the business, the employees, and the employer.
Hannah Smith ([email protected]) is a staff writer with FC&S, the premier resource for insurance coverage analysis. Additional information about FC&S Online is available at www.NationalUnderwriter.com.
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