CHAPTER 19 WORKERS COMPENSATION

Transcription

1 CHAPTER 19 WORKERS COMPENSATION The development of present day workers compensation laws evolved through a process of laws enacted that stemmed from the Industrial Revolution. Prior to the enactment of such laws, the relationship between the employer and the employee was based on common law. Common law is based on case decisions acting as a precedent rather than on written law. Under common law, the employer is obligated to provide: A safe place to work Safe equipment and tools Reasonably competent fellow employees Enforcement of safety rules Reasonable warnings regarding on-the-job hazards and dangers Before the passage of workers compensation laws, an employer who was negligent was responsible for injury or death of an employee. If such negligence were found, the employer would be required to pay for on-the-job injuries. To establish such negligence, the injured employee had to sue the employer and prove such negligence in a court of law. However, an employer could be relieved of negligence by employing certain common law defenses. These common law defenses were: The fellow servant rule Contributory negligence Assumption of risk Under the fellow servant rule, if an employee were injured by another employee, a suit could not be filed against the employer. The injured employee would have to try to recover damages from the fellow employee. According to the contributory negligence rule, if an employee in any way contributed to the injury sustained, the employer was relieved of negligence and the employee lost all right to collect damages. Assumption of risk meant the employee assumed any risk associated with the job for which he/she was paid wages. If an employee found the job to be more hazardous than anticipated and chose to continue in the job, this reinforced the idea that he/she had assumed such risks. Near the turn of the 20 th century, these law interpretations were considered to be too harsh on employees. Many states adopted employers liability acts to help improve the position of employees. The problem with these acts was that the employee still had to prove negligence. Due to this, workers compensation laws were developed. Germany was the first country to develop such a system in the 1

2 l880s and was followed by Great Britain. In the United States, Wisconsin in 1911 was the first state to successfully pass workers compensation laws. In the following years, all the other states passed workers compensation laws that vary as to benefits, requirements, and coverages. All states adhere to the concept that the employee is entitled to workers compensation benefits without regard to fault or negligence of any party if the employee suffers an injury or contracts a disease that is work related. In exchange for this right of compensation, the employee gives up the right to sue the employer for a possible greater benefit. An employee may sue a negligent third party. For example, if an employee is hurt by a defective piece of machinery, he/she could sue the manufacturer. It should be noted that if the employee suffers a self-inflicted injury or the injury sustained is due to intoxication, coverage will not be provided under workers compensation insurance. The federal government has enacted laws that apply to federal government employees, longshore workers, harbor workers, and extrahazardous operations such as railroad workers. These laws take precedence over any state law. Under the Longshore and Harbor Act, specified benefits must be paid to those injured while working upon navigable water or shore areas of the U.S. and its territories. Masters and members of crews are covered under admiralty law and have the right to sue their employers for damages if injured. An employer who has such exposures can attach a Longshore and Harbor Act Coverage endorsement or a Maritime Endorsement to a standard workers compensation and employers liability policy. Since California has compulsory workers compensation laws covering private and public employment, an employer who does not provide liability for workers compensation is subject to paying benefits out of pocket, being fined, and having the business closed down. If the employer has just one employee, it is necessary to provide for workers compensation benefits. Coverage is elective for working members of a partnership and for working officers and directors of a private corporation who are sole shareholders. As the cost of workers compensation insurance is paid for by the employer, it ultimately is passed on to the consumer as part of production costs. In California there are certain classes of employment that are exempt from workers compensation laws. These include the following: Domestic employees who worked less than 52 hours or earned less than $100 during the preceding 90 days. Charity workers and volunteer workers at camps operated by nonprofit organizations. Public sector clerks and deputies who serve without pay. 2

3 Employees of regional occupational centers, programs, or school districts offering training to pupils outside of the attendance area of enrolled pupils. Students in sports events, and amateur athletic participants who are not employees. Employer sponsored bowling teams. Coverage under workers compensation depends upon where the employee works. Employees who work in a fixed location are covered while at that location. Employees who do not have a fixed location such as salespersons are covered from the time of leaving home until returning home. Employees may be covered while not working if the activity is considered to be promoting the goodwill of the employer. Workers compensation policies provide a protection package for both workers and employers through two separate coverages. The workers compensation insurance section provides benefits to employees for injury, disability or death arising out of employment. The employer s liability section protects employers from common law liability involving employee injuries not covered by workers compensation laws. An example of this type of lawsuit would be care and loss of essential services and consequential bodily injury to spouses and children. Methods of Coverage In order to provide liability for workers compensation, most employers will purchase workers compensation insurance. However, an employer may selfinsure. The state will require the self-insured employer to set up a formal program for handling losses and to maintain proper funding of reserves. Depending on a state s laws, workers compensation may be purchased from a private insurer, from a monopolistic state fund, or from either a private insurer and the state fund. California allows employers to purchase insurance from a private insurer or the state fund (State Compensation Insurance Fund). The California State Fund is a public enterprise fund and may transact workers compensation to the same extent as any private insurer. All employers are eligible to purchase the needed insurance through State Fund. The State Fund is a direct writer and uses its own employees who are known as field underwriters. Types of Benefits Workers compensation laws provide for the following four benefits: Medical Benefits Income Benefits 3

4 Death Benefits Rehabilitation benefits Medical benefits are provided without a limit as to time or dollar amount. An employee is entitled to all medical and surgical treatment necessary to cure or relieve the condition caused by injury or disease. Income benefits are payable to an employee who has a work-related disability after a waiting period of 3 days. If the disability continues beyond 14 days, the benefits are retroactive to the beginning of the disability. Benefits are paid for: Temporary total disabilities Permanent total disabilities Temporary partial disabilities Permanent partial disabilities For both permanent total disabilities and temporary total disabilities, the benefit is the lesser of a specified dollar amount or 66 2/3% of weekly wages. The benefit period for a permanent total disability may continue for life, whereas the benefit period for a temporary total disability may be limited to a maximum number of weeks. Persons with partial disabilities are able to perform some work and, therefore, the law provides for a benefit equal to a percentage of the lost wages this is the difference between earning before and after the injury. There also are scheduled benefits for permanent partial disabilities including loss of limbs, sight, or hearing. The benefits an employee receives due to a workers compensation claim are not subject to income taxes. These benefits are not reduced or prorated with other benefits such as those received from social security, a life insurance policy, or a sickness and accident policy. Death benefits include a burial allowance and income benefits to surviving spouse and/or children. The income benefit amount is 66-2/3% of the deceased worker s wages, subject to weekly minimum and maximum amounts. Dependent children are eligible for benefits until attaining the age of 18. Rehabilitation benefits are provided under workers compensation. By providing rehabilitation benefits, this could reduce the cost of workers compensation by enabling the disabled employee to re-enter the work force more quickly. Rehabilitation benefits include therapy, vocational training, devices such as wheelchairs, and costs incurred for such things as travel, lodging, and living expenses while undergoing rehabilitation. 4

5 Policy Although insurers are not required to use a standard workers compensation policy form, The National Council on Compensation Insurance has developed a standard policy which is followed with a high degree of uniformity. The policy has eight parts: Declarations General Section Part I----Workers compensation Part II---Employers liability Part III Other states insurance Part IV---Duties if injury occurs Part V----Premium Part VI---Conditions The workers compensation policy has two coverage parts. Under both parts, the insurance applies to accidental bodily injury, death, or disease that occur during the policy period. Part I, workers compensation, protects the insured against statutory claims. These involve statutory benefits required by state law. One of these regulatory requirements states that bankruptcy of the employer does not relieve the insurer of its policy obligations. Part II, employer s liability, protects against common law claims. Part II fills the gap in coverage to cover claims that are not subject to compensation laws. Falling into this category would be suits against the employer filed by spouses and children of injured workers. The insurer will provide a legal defense and will settle all claims covered by the policy. The policy also contains supplementary payments including coverage for appeal bonds, bonds to release attachments, interest on judgments, claim expenses, litigation costs taxed against the insured, and the insured s expenses incurred at the insurer s request other than loss of earnings. If other insurance applies, the insurer will pay its share of the claim subject to the policy s limit of liability. The shares paid by the insurers will be equal shares until a loss is paid (not proportionate shares based on the respective limits of insurance). Part III, other states insurance, is an optional coverage and it provides compensation coverage in additional states as long as these states are listed on the declaration page. The policy cannot cover exposures in the six states where monopolistic state funds exist. These states are Nevada, North Dakota, Ohio, Washington, West Virginia, and Wyoming. 5

6 Second Injury Fund California has developed a Second Injury Fund to encourage employers to hire persons who have suffered a work-related injury. If an employee suffers a subsequent injury of the same nature, that employee could be permanently and totally disabled. In this case, the employer will be charged only for the loss due to that specific second injury and not for the total disability. The employee is entitled to collect total disability benefits with the difference being paid from the second injury fund. Normally, the funds for the Second Injury Fund are acquired by assessing insurers and self-insurers, employer payments, portions of death benefits when no dependents survive, or by legislated appropriations. Rating Effective January 1, 1995, California established competitive open rating for workers compensation rates. Insurers are allowed to establish their own rates for the insurance coverage. However, each insurer must file its own manual with the Department of Insurance which is to include the rules, classifications for jobs, and rating plans the insurance company plans on using. Job classifications have to do with the type of job performed. Of course, more hazardous jobs call for a higher premium to cover the greater risk. Rates are established by multiplying the rate for the particular job times each $100 of payroll paid. Experience also affects premiums. Based on whether or not losses have occurred, premiums can be adjusted either up or down. Occupational Safety and Health Act (OSHA) This federal legislation passed in 1970 set federal standards for workplace safety and imposed fines for failure to meet them. Individual states only may retain jurisdiction over job safety conditions if they enact rules that are at least as restrictive as the federal guidelines. Federal officers may conduct investigations to make sure employers are in compliance and fine those employers who are not. If the violation is not serious, a fine as low as $1,000 can be imposed. An employer who willfully and repeatedly violates the conditions can be fined $10,000. Failure to correct a violation within a reasonable time can result in a penalty of $1,000. Employees cannot be fined for violations in the workplace. 24-Hour Coverage According to the California Insurance Code (CIC ), 24-hour coverage is the joint issuance of a workers compensation policy with a disability insurance policy, health care service plan contract, or other medical insurance coverage for non-occupational injuries and illnesses. This product shall not include a life insurance policy. Therefore, 24-hour coverage is an attempt to 6

7 blend occupational and non-occupational forms of insurance giving those covered round-the-clock protection for diseases and injuries regardless of whether due to work or not. Employers do not have to provide health care coverage for their employees, but they do have to provide liability for workers compensation. If an employer does wish to provide health coverage, 24-hour coverage allows the employers to provide both types of coverage under one integrated policy from one provider. These policies vary as to the extent of disability coverages. There are a number of pilot projects operating in California. However, there are obstacles to the implementation of 24-hour coverage. These obstacles include: the potential of conflict with federal law (ERISA); institutional barriers as to the type of carriers that have traditionally offered workers compensation and disability insurance and to the guaranty associations to which these carriers are required to belong; regulatory barriers as to the various state agencies involved; and legal barriers due to the exclusive remedy aspects of workers compensation benefits. Any life agent who wishes to sell 24-hour coverage must complete a course, program of instruction, or seminar of an approved continuing education provider on workers' compensation and general principles of employer liability which must be completed by a proctored examination approved by the commissioner. The required number of instruction hours shall be equal to but no greater than that required by the Department of Insurance curriculum board for the pre-licensing requirements of a fire and casualty broker/agent on these subjects. This requirement shall be part of, and not in addition to, the continuing education requirement for a life agent. (CIC [d]) REVIEW QUESTIONS 1. Which of the following are benefits under workers compensation? A. Rehabilitation B. Medical benefits C. Income benefits D. All the above 2. Income benefits under workers compensation are the lesser of a specified dollar amount or percent of weekly wages? A. 33-1/3 B. 66-2/3 C. 70 D. 90 7

8 3. California requires that all employers purchase workers compensation insurance through the monopolistic State Compensation Insurance Fund. A. True B. False 4. Employers are responsible for injuries to a worker: A. Unless the employee contributed to the loss. B. Unless the employee was hurt by another employee. In this case, the other employee is responsible for damages. C. Unless there is an assumption of risk on the part of the employee. D. Without regard to fault or negligence of any party. 5. The reason for the development of the Second Injury Fund was: A. To make second injuries of the same nature the responsibility of the first employer. B. To make second injuries of the same nature the responsibility of the second employer. C. To encourage employers to hire employees who have suffered an injury at work. D. To make the state solely responsible for paying for second injuries to employees. 6. Workers compensation rates: A. Are not effected by claims experience. B. Are effected minimally by job classification. C. Are on an open rating basis in California. D. Are set by the insurance commissioner. 7. According to OSHA, federal officials may conduct investigations to make sure employers are in compliance with safety rules. If an employer has repeatedly violated the conditions, he/she may be fined: A. $ 1,000 B. $ 5,000 C. $10,000 D. $50,000 8

9 8. What is 24-Hour Coverage? A. Joint issuance of workers compensation and disability income insurance. B. Joint issuance of workers compensation and disability insurance. C. Joint issuance of health insurance and disability income insurance. D. Joint issuance of accidental death and workers compensation insurance. 9