A Discussion

Summary: Domestic, agricultural, and casual employees are not treated in a uniform manner under the workers compensation (WC) mechanisms of the various states. Some states have amended their workers compensation laws to include domestic and agricultural employees either on a compulsory basis (without exception or within certain guidelines, such as when the length of service exceeds a certain time period or the payroll in these categories exceeds a certain amount), or to allow employers to provide coverage voluntarily.

Alternatively, a certain amount of liability protection is available in some state jurisdictions to employers under policies such as the homeowners, farmowners, and personal liability. These policies provide for defense and settlement of claims lodged by employees who are exempt from the workers compensation law. In states where such employees fall subject to workers compensation law, these policies will not respond, due to a liability exclusion explained in this article.

This article presents a discussion of workers compensation coverage for domestic and agricultural employees under various options.

Topics covered: Coverage under personal liability policies Voluntary compensation coverage Employees subject to compensation law Classifications

Coverage under Personal Liability Policies

The personal liability policy and homeowners policies cover liability of the insured arising out of injury to domestic employees; the medical payments portion of those policies can also apply to the medical and funeral expenses of domestic employees, or “residence employees” as they are called in the coverage forms (this term, incidentally, is defined as an employee of an insured whose duties are related to the maintenance or use of the residence premises, including household or domestic services). The farmowners policy also may be endorsed to provide the same coverage on farm employees. Thus, insureds under any one of these noted policies are protected against liability claims that may be brought by employees, and may also be able to obtain an amount of medical protection payments for their employees.

All of those policies, however, exclude both liability and medical payments coverages to any employee of the insured who is entitled to workers compensation benefits. Coverage also is excluded when benefits are payable or required to be provided under a workers compensation law. So, for example, if a state makes workers compensation insurance mandatory for domestic or agricultural employees, the coverage of those personal liability policies becomes invalid. The rationale for these exclusions is to prevent overlapping coverages.

There are many insureds, however, with one or more employees, domestic or farm, who, for various reasons, desire to provide compensation coverage for employees not statutorily protected in that jurisdiction. To people in this situation, providing workers compensation benefits seems most desirable, particularly after it is pointed out that these benefits go further than those available under medical payments coverage—indemnity during disability, awards to dependents in case of death, etc. Such statutory benefits can be obtained for employees by purchasing voluntary compensation insurance.

Voluntary Compensation Coverage

Voluntary compensation coverage is intended to correspond to that of statutory benefits. Coverage provided under voluntary compensation insurance is identical to that for employers and employees required to be insured under the law.

For example, in International Schools Services, Inc. v. New Jersey Dept. of Labor and Workforce Development, 974 A.2d 433 (N.J. Super. 2009), the court found that a party that provides its overseas employees with voluntary compensation coverage as part of its long-term disability benefits is a coverage offset by any amounts payable to employees for whom mandatory workers compensation insurance applies and does not satisfy the insurance requirements of workers compensation laws. If plaintiff's overseas employees are subject to the act, they would be entitled to voluntary compensation benefits in excess of the amounts due under mandatory workers compensation insurance.

As noted by the courts in Insurance Co. of North America v. Safety Nat. Cas. Corp., CIV. A. No. 93-1279, 1993 WL 406538 (E.D. Pa. Oct. 4, 1993) and Collier v. Allstate Ins. Co., 395 F.2d 719 (5th Cir. 1968), under National Council on Compensation Insurance (NCCI) definitions, employers' stop gap and foreign voluntary compensation coverages are included in the manual premium. NCCI defines “foreign voluntary compensation insurance” as insurance that “affords the benefits of a designated compensation law as if the affected employee were subject to that law, even though the law does not require payment of benefits to such employees” because they are employed in a foreign country.

The endorsement—which is attached to the standard workers compensation and employers liability policy and is designated WC 00 03 11—states, “we will pay an amount equal to the benefits that would be required of you if you and your employees described in the schedule were subject to the workers compensation law shown in the schedule. We will pay those amounts to the persons who would be entitled to them under the law”. In other words, benefits are provided for injuries that would have been compensable in the same manner as they would have been provided had the employment been subject to any applicable workers compensation laws.

The insurance provided by this endorsement applies to bodily injury sustained by an employee in the group of employees described in the schedule. The bodily injury also must occur in the course of employment necessary or incidental to work in a state listed in the schedule and must occur during the policy period. The insurance does not cover any obligation imposed by a workers compensation law or bodily injury intentionally caused or aggravated by the named insured.

As befitting the voluntary nature of this endorsement, it states that before any payments are made to those entitled to them, the beneficiaries must release the insured and the insurer, in writing, of all responsibility for the injury. Any right to recover from others who may be responsible for the injury must be transferred to the insurer and the injured party must cooperate fully with the insurer in enforcing the right of recovery. Additionally, the endorsement declares that if the persons entitled to the benefits of the insurance fail to do those things just noted, or if they claim damages from the insured or the insurer, the duty to pay under this endorsement ends at once.

WC 00 03 11 can be used to cover all employees, like domestic or farm workers, who are not subject to the workers compensation laws and it can be attached to an existing workers compensation policy that is in place for those employees that are required by state law to be covered by workers compensation insurance. This is an appropriate course for a business that employs workers and needs a compensation policy, but what about a homeowner that wants WC coverage for a domestic worker, like a housekeeper or gardener? In that case, endorsement WC 00 03 12 can provide the fitting manner of coverage.

WC 00 03 12 adds voluntary compensation and employers liability coverage for residence employees to a homeowners policy, a personal liability policy, or some other policy that provides similar personal liability coverage. The insurance applies to bodily injury by accident or disease sustained by the named insured's residence employees and must arise out of and in the course of employment by the named insured. The insuring agreement, exclusions, and other provisions of WC 00 03 12 are similar to those of WC 00 03 11, but there is an important point to mention. In keeping with the “personal” as opposed to the “business” flavor of WC 00 03 12, there is an exclusion that states that coverage does not apply to bodily injury arising out of any of the named insured's business pursuits.

The standard homeowners policy, with liability insurance, includes coverage for “occasional workers compensation risks.” By “occasional,” the policy is intended to provide insurance for a gardener that swings by once a week or a housekeeper that comes in twice a month or other folks who perform small tasks at the home. The “occasional worker” is defined as someone who performs less than ten hours outside of the house work or twenty hours work inside the house.

A separate employment practices liability insurance (EPLI) policy provides the highest limits—typically $500,000 to $5 million and up—and broadest coverage, including additional coverage such as wage/hour defense, harassment/discrimination of nonemployees, employment-related defamation and wrongful reference. A second option—an EPLI endorsement to an existing personal umbrella or liability policy—will typically add $250,000 toward claims by household staff.

Employees Subject to Compensation Law

In jurisdictions where domestic, agricultural, and casual workers fall subject to the workers compensation law, the employer is required to provide coverage; as previously noted, even the limited protection of personal liability forms is unavailable to insureds in these jurisdictions. In these states such employees are entitled to the same benefits as any worker protected by compensation laws. There are two methods available for arranging this coverage.

One method is simply to issue a standard workers compensation and employers liability policy designating the domestic, agricultural, or casual workers in the policy.

The second method involves the use of the workers compensation and employers liability coverage for residence employees endorsement, WC 00 03 14, issued by the National Council on Compensation Insurance. This endorsement basically contains the same provisions as the standard workers compensation and employers liability policy, and is to be attached to a standard personal liability policy, a homeowners policy, or any policy affording similar personal liability coverage with respect to the residence premises of the insured. The effect is the same as if the employee were covered by a standard WC policy since the insurer agrees to pay benefits required by the respective WC law.

A few jurisdictions—for example, New York and New Hampshire—have enacted legislation that goes beyond the mere inclusion of domestic employees in the workers compensation system and have mandated the manner in which coverage is to be provided. For example, a New York law provides that all homeowner policies issued in New York providing personal liability insurance on a one through four family, owner-occupied residence also provide coverage against workers compensation liability to certain persons who work less than 40 hours per week. The effect of this act is to place the responsibility for providing workers compensation coverage on each insurer writing personal liability insurance in the state, rather than on the employer of the domestic worker; and, it provides an inexpensive and convenient means for homeowners, for example, to obtain WC coverage when it is mandated. It does not, however, provide elective coverage for employees for whom coverage is not mandated by law.

For example, Section 3420 (j) of the New York State Insurance Law reads as follows:

(1) Notwithstanding any other provision of this chapter or any other law to the contrary, every policy providing comprehensive personal liability insurance on a one, two, three or four family owner-occupied dwelling, issued or renewed in this state on and after the effective date of this subsection shall provide for coverage against liability for the payment of any obligation, which the policyholder may incur pursuant to the provisions of the workers' compensation law, to an employee arising out of and in the course of employment of less than forty hours per week, in and about such residences of the policyholder in this state. Such coverage shall provide for the benefits in the standard workers' compensation policy issued in this state. No one who purchases a policy providing comprehensive personal liability insurance shall be deemed to have elected to cover under the workers' compensation law any employee who is not required, under the provisions of such law, to be covered.

(2) The term “policyholder” as used in this subsection shall be limited to an individual or individuals as defined by the terms of the policy, but shall not include corporate or other business entities or an individual who has or individuals who have in effect a workers' compensation policy which covers employees working in and about his or their residence.

(3) Every insurer who is licensed by the superintendent to issue homeowners or other policies providing comprehensive personal liability insurance in this state shall also be deemed to be licensed to transact workers' compensation insurance for the purpose of covering those persons specified in this subsection.

Classifications

Domestic workers can perform a variety of household services for an individual or a family. The following list provides several examples of domestic workers. It is important to note that domestics must be providing household services. Employees working out of a home office would not be considered a domestic simply because they work in an insured's home.

•Maids

•Cooks

•Housekeepers

•Laundry Workers

•Butlers

•Companions

•Gardeners

•Chauffeurs

•Nannies

•Home Health Aides

•Au Pairs

•Nurses

•Babysitters

In New York each individual domestic who works forty hours or more per week for the same employer must be covered by workers compensation insurance. Each state has a different requirement for workers compensation insurance.

There are four domestic employee classifications. For these classifications—domestic workers—inside, occasional domestic workers—inside, domestic workers—outside occasional domestic workers—outside—the premium is determined on the basis of the WC rules and rates in the workers compensation manual for the state(s) designated in the schedule.

The difference between inside domestic workers and outside domestic workers must be understood because the rates for outside domestic workers usually are higher. These terms, inside domestic workers and outside domestic workers, refer to the duties of those employees and not to the fact they may live on the insured's premises. Inside domestic workers are those whose principal duties are inside, such as a cook, a nurse, or one who performs general inside chores. Outside domestic workers are those who work principally outside the residence, such as a chauffeur or a gardener.

A minimum premium applies for each classification but when two or more classifications apply, only the highest minimum premium is charged.