Lesson 6 Workers Compensation & Employers Liability Policy

Lesson 6 Workers Compensation & Employers Liability Policy Introduction Prior to the passage of workers compensation laws, the only recourse an injured employee had was to sue the employer. This process was not working. Job-related injuries and deaths were increasing, and many employees and their families were driven to financial ruin because of the inability to collect or the time required for collecting damages from an employer. Finally, public pressure forced change, and many states began enacting basic workers compensation statutes. By 1934, all states had approved workers compensation laws, and a system to compensate injured workers was created. In this lesson, we will study how the Workers Compensation Policy and Employers Liability Policy gives an employer protection for claims arising out of employee injuries. This lesson will consist of six topics: 1. Statutory Considerations 2. Workers Compensation Information Page 3. Workers Compensation Coverage 4. Employers Liability Coverage 5. Other States Insurance 6. Endorsements Learning Objectives After completing this lesson, you will be able to: 1. Name and describe the four types of benefits paid by workers compensation insurance. 2. Name the monopolistic states, and explain how to obtain workers compensation and employers liability coverage in those states. 3. Explain the coverages activated in Items 3.A., 3.B., and 3.C. of the Workers Compensation Information Page. 4. Describe payments not covered in Part One-Workers Compensation Insurance. 5. Describe the four most common types of Employers Liability insurance claims. 6. Understand the provision for Other States Insurance under Part Three of the Workers Compensation Policy. 7. Describe the uses of specific Workers Compensation and Employers Liability endorsements. Forms you will need to print for this lesson: Workers Compensation and Employers Liability Policy - WC 00 00 00 A1992 Information Page WC 00 00 01 B Rev. 03/10 151

Lesson 6 Topic A - Statutory Considerations Today's workers compensation insurance is tied to state statutes. All fifty states, the District of Columbia, and Puerto Rico have their own laws governing workers compensation. The specific benefits and provisions of workers compensation laws vary from state to state. In this topic, we will not study specific state benefits. We will study the workers compensation system that creates the need for Workers Compensation and Employers Liability Insurance Policies. Liability insurance as it applies to: Covered Employment Workers Compensation Benefits Insurance Requirements Monopolistic States Covered Employment Each state law stipulates which employees must be covered by workers compensation. Most employees fall under these laws. However, certain employees such as agricultural employees or domestic employees may be exempt, and in many states employees of a business with less than a stipulated number of employees are exempt. You should consult your own state's law for the specifics in your state. Workers Compensation Benefits Generally speaking, workers compensation laws mandate statutory benefits that must be paid when an employee is injured on the job. They provide an exclusive or sole remedy. The employer assumes the cost of injuries and disease that arises out of and in the course of employment. The employer pays a known cost (the insurance premium) for the exposure. The employee benefits by timely delivery of benefits in the greatest majority of cases. Rev. 03/10 152

Learning Objective: Name and describe the four types of benefits paid by workers compensation insurance. Covered Benefits The four types of benefits paid under workers compensation insurance are: 1. Medical Expenses Medical expenses are the costs for medical treatment of an injured or sick employee who is covered by the state law. States rarely impose a dollar limitation on medical expenses, but may stipulate that expenses must be reasonable and necessary. 2. Disability Income Lost wage benefits are paid to replace the loss of income suffered by an injured or sick employee who is covered by the state law. State law will define the types of and the amount of the benefit. These payments are not designed to be a full replacement of the injured worker's lost pay. They are usually subject to minimums and maximums. All states have a waiting period of some type before these benefits are paid. 3. Rehabilitation Expenses Most states have rehabilitation benefits written into their law. Every state pays for physical rehabilitation, and some states provide for vocational rehabilitation subject to time and/or dollar limits. In many cases, these benefits include related expenses such as travel and lodging. 4. Death Benefits If an employee's death arises out of and in the course of employment, a death benefit is payable. These benefits include funeral expenses and may also include weekly income benefits for the employee's eligible dependents. Rev. 03/10 153

Insurance Requirements All states, except New Jersey and Texas, require that employers carry workers compensation insurance. New Jersey law requires that if an employer rejects workers compensation, they must purchase employers liability insurance. In most states, workers compensation is provided by insurance companies, competitive state funds, or selfinsurance, if allowed under statute. Learning Objective: Name the monopolistic states, and explain how to obtain workers compensation and employers liability coverage in those states. Monopolistic States A monopolistic state is one in which an employer can purchase workers compensation only from the state. The four monopolistic states are North Dakota, Ohio, Washington, and Wyoming. Puerto Rico and the U.S. Virgin Islands also have monopolistic workers compensation insurance programs. Rev. 03/10 154

Lesson 6 Topic B - Information Page Learning Objective: Explain the coverages activated in Items 3.A., 3.B., and 3.C. of the Workers Compensation Information Page. The Information Page is included as part of the policy. This page is not only informational; it also defines some of the coverage provided by the Workers Compensation Policy. Please look at this page now, which you should have printed at the beginning of this lesson. We will look at each item separately. As you can see in the policy, the Information Page is organized into Items. These items show: Item 1 - The insured is named here. If a partnership is listed, partners are also insured, but only in their capacity as employer of the partnership's employees. The mailing address is also shown here, as well as all other work locations of the Named Insured. Item 2 - Indicates the policy period. Item 3 This is probably the most important part of the Information Page. It consists of four parts, which we will review now. Item 3.A This item triggers, or activates, workers compensation insurance for your insureds. In this space, you list all of the states where the insured has known operations. This activates benefits under the compensation laws of those listed states. The insured should list all states where the insured has known operations or where the employer expects to have operations. Tip: Monopolistic states cannot be listed in item 3.A. Rev. 03/10 155

Learning Objective: Explain the coverages activated in Items 3.A., 3.B., and 3.C. of the Workers Compensation Information Page. Item 3.B This section triggers employers liability insurance (Part Two of the Workers Compensation and Employers Liability Policy) for those states listed in Item 3.A. Item 3.B. also indicates the limits of Liability for Coverage-Part Two. The standard limits for this coverage are: 1. $100,000 bodily injury Each Accident 2. $500,000 bodily injury by Disease Policy Limit 3. $100,000 bodily injury by Disease Each Employee Tip: You can increase these limits for a corresponding premium adjustment. Refer to your Workers Compensation Manual for the rules and rates. Item 3.C This item triggers Coverage-Part Three of the policy: Other States Insurance. An employee may suffer employment-related injury or disease where workers compensation benefits of another state would apply, and the employer may be responsible for providing those benefits. If an insured begins work in one of the states listed here after the effective date of the policy and no other insurance applies, the policy responds as if the 3.C. state were a 3.A. state. Tip: Monopolistic states cannot be listed in item 3.C. Recommended wording for this Item follows: "All states, other than North Dakota, Ohio, Washington, Wyoming and the states listed in Item 3.A. of this Information Page." Not all of your companies will be willing or able to use this wording. You should request it on the policies that you write so that your insureds will have broad coverage for their possible out-of-state exposure. Remember, if work is taking place in a state when the policy goes into effect or renews, that state must be listed in Item 3.A. We will look at some of the provisions of Other States Insurance in Topic E. Rev. 03/10 156

Learning Objective: Explain the coverages activated in Items 3.A., 3.B., and 3.C. of the Workers Compensation Information Page. Monopolistic States The monopolistic states are North Dakota, Ohio, Washington and Wyoming. Item 3.D Policy endorsements are listed in this section. Item 4 Workers Compensation Policies are based on payrolls assigned to risk classifications that describe the work the employees perform for the insured. You will see a classification code with a brief description of the work assigned to that code. Some examples include: 1. Caterer 2. Dry cleaning and laundry store-retail and route supervisors; drivers 3. Law office-all employees, and clerical, messengers, drivers In this section, the policy lists the appropriate classifications, the estimated payroll figures, the rates, and the estimated annual premium for the insured. Rev. 03/10 157

Go to Lesson 6 Topic B Information Page p7 of the course to see review the elements of the Information Page. Also, go to the Forms Library to see a sample of an Information Page. Please refer to the end of Lesson 6 Topic B to complete Self Quiz 15. Rev. 03/10 158

Lesson 6 Topic C - Workers Compensation Coverage Coverage Part One: Workers Compensation Insurance, deals with how the policy makes the payments mandated by state worker compensation laws. This topic addresses: 1. Workers Compensation Insuring Agreement 2. Payments Not Covered The wording of the Workers Compensation Policy is shorter, but no less important than the other policies you have studied. It is important for you to understand what this policy says so that you can provide service to your agency's clients. Workers Compensation Insuring Agreement How This Insurance Applies On page 1 of your Workers Compensation Policy, at the top of the second column, you will see, A. How This Insurance Applies. This is the insuring agreement for workers compensation coverage, which says the policy will pay for: Bodily injury by accident occurring during the policy period Bodily injury by disease caused by conditions of employment We Will Pay Item B. We Will Pay informs us that the insurer will "pay promptly when due the benefits required...by the workers compensation law." The Workers Compensation Policy does not list the specific benefits or the amounts payable under the law. It merely says the policy will comply with whatever the law requires. The insured has this coverage for those states listed in Item 3.A. of the Information Page of the policy. Items C, D, and E address additional coverages included and other insurance provisions. Rev. 03/10 159

Learning Objective: Describe payments not covered in Part One - Workers Compensation Insurance. Payments You Must Make On page 2, look at Item F. This section identifies four types of payments in excess of benefits that are not going to be covered by the policy. They are: 1. Payments required because of the serious and willful misconduct of the Named Insured. 2. Payments required for an employee who the Named Insured knowingly hired in violation of law. Example A restaurant hires a 14-year-old employee to clear tables, when state labor laws clearly indicate the workers must be at least 16 years old. 3. Payments required when the named insured failed to comply with a health or safety law or regulation. Example OSHA fines Montgomery Construction Co. $10,000 by for failing to follow safety regulations for constructing walls, which leads to a worker's injury. The policy pays the required workers compensation benefits, but the policy does not pay the fine. 4. Payments required when the Named Insured discharges, coerces, or otherwise discriminates against any employee in violation of the state's workers compensation law. Example Jones Corp. discharges an employee for making a workers compensation claim. The employee successfully sues for wrongful termination, resulting in $100,000 judgment for wrongful termination plus $4,757 in compensation benefits. The policy will pay for the benefits, but not for the judgment. For all of the "Payments You Must Make," the provision adds a statement requiring the insured to reimburse the insurance company for any payments in excess of benefits regularly provided by the workers compensation law. Rev. 03/10 160

Lesson 6 Topic D - Employers Liability Coverage Part Two-Employers Liability Insurance provides coverage for the Named Insured's legal liability arising out of covered, employment-related injury or disease that is not covered as a workers compensation benefit. This coverage is not controlled or mandated by state law. In this topic, we review the Employers Liability Coverage: 1. Insuring Agreement 2. Defense and Supplementary Payments 3. Exclusions Learning Objective: Describe the four most common types of employers liability insurance claims. Insuring Agreement Employers liability insurance will pay all damages for which an insured is legally liable due to covered employee's bodily injury where permitted by law. Four specific types of claims are included as covered losses. These claims are: 1. Third-Party-Claims or Third-Party-Action Over Claims Employees cannot sue their employer for work-related injuries because the workers compensation coverage is the employee's "sole-remedy" of recovery. However, the employee can sue a third party such as a manufacturer of the equipment causing the injury or the owner of the premises where the injury occurred. If an insured needs liability protection in a situation where he/she contributed in some way to the damages claimed; employers liability coverage will apply. Example: An employee of Polly's Plastics is injured by a piece of machinery in the manufacturing plant. The employee collects workers compensation benefits and then also sues the manufacturer of the machinery in a products liability suit. The manufacturer looks to the Polly's Plastics for reimbursement and/or contribution because Polly's supervisor removed all of the guards from the machinery. Rev. 03/10 161

Learning Objective: Describe the four most common types of employers liability insurance claims. 2. Dual Capacity Claims These claims are claims in which the employee sues the employer in some capacity other than that of employer, such as a manufacturer of a defective product, owner of a premises, etc. Some states have in place restrictions on dual capacity lawsuits, and today this type of claim is rare. Example: An employee is injured when a defectively manufactured ladder collapses. The employer is the manufacturer of that ladder. The employee files a workers compensation claim with the employer AND also sues their employer, as the manufacturer of the ladder, for the injury arising out of the defective product. 3. Consequential Bodily Injury Claims These claims involve bodily injury damages suffered by a family member arising out of the employee's job related injury/disease. Example: The spouse of an injured employee suffers a heart attack upon learning of his spouse's life-threatening injury. Note: Some states have limitations on consequential bodily injury claims. 4. Care and Loss of Services These are claims for damages suffered by a family member arising out of the loss of services that the injured / sick employee provided. Example: The child of an injured employee sues for loss of companionship and the loss of services provided by the parent, which resulted from the employee s injury. Although the frequency of the four described liability claims is low, the potential severity is high. This makes Coverage Part Two-Employers Liability important for your insureds. Rev. 03/10 162

Monopolistic State Issue In the monopolistic jurisdictions, workers compensation insurance does not include employers liability coverage. In the event that an employer purchases workers compensation from a monopolistic provider, they need to purchase employer's liability. Options for this include a separate policy, an endorsement to a workers compensation policy written for a non-monopolistic state, or an endorsement to a general liability policy (known as a Stop-Gap endorsement). Defense and Supplementary Payments Since this is a liability type of coverage, the insurance company also has the duty to defend the named insured, at the company's expense. There are other provisions, similar to the CGL Policy. Exclusions Although we will not go over each of these exclusions in detail, you need to be aware of a few important points: 1. The policy totally excludes contractual liability. There is no exception for "insured contracts" as there was in the CGL Policy. 2. There is no coverage for injuries that occur outside the United States, its territories, or its possessions, or outside Canada unless the employee is a resident of these areas and temporarily away from these countries. 3. Liability arising out of most federal acts or laws is completely excluded. Please refer to the end of Lesson 6 Topic D to complete Self Quiz 16. Rev. 03/10 163

Lesson 6 Topic E - Other States Insurance Learning Objective: Understand the provision for Other States Insurance under Part Three of the Workers Compensation Policy. Part Three of the Workers Compensation Policy is Other States Insurance. An employee may suffer employment-related injury or disease where workers compensation benefits of another state apply. If a state is not listed in Item 3.A. of the Information Page, there is no workers compensation or employers liability coverage for that state's laws. However, the employer may be responsible for providing those benefits and other costs. By listing or describing a state in Item 3.C., workers compensation and employers liability coverage is triggered if work should take place in that state. The work must begin after the effective or renewal date of the policy. The Named Insured must inform the insurance company "at once" if they begin any work in any state listed in Item 3.C. The phrase "at once" is not defined in the policy. A provision of Coverage Part Three- Other States Insurance says if an insured has work on the effective date of the policy in any state not identified in Item 3.A., no coverage will be afforded unless the insurance company is notified within 30 days. Tip: It is important to ask your insured to contact you if they begin work in any new location, regardless of where that may be. Knowledge Check Item 3.C. of Information Page triggers Part Three of the policy for Other States Insurance. Which one of the following is true about Item 3.C. of the Information Page? A. The Named Insured must inform the insurance company at once if they begin work in any state listed in Item 3.C. B. Automatic coverage is provided for states where work has begun within 90 days of the effective or renewal date or at any time after the effective or renewal date C. Gives automatic coverage for jurisdictions listed in Item 3.C., but only for 90 days after work has begun in a 3.C. jurisdiction D. If an insured begins work in a jurisdiction listed in Item 3.C. they have no requirement to notify the insurance company The correct answer is A, The Named Insured must inform the insurance company at once if they begin work in any state listed in Item 3.C. Rev. 03/10 164

Lesson 6 Topic F - Endorsements Learning Objective: Describe the uses of specific workers compensation and employers liability endorsements. Workers Compensation Policies can be endorsed to tailor the policy to meet an insured's needs. Many states have amendatory endorsements that address cancellation and nonrenewal notices. There are also multi-state endorsements that address coverages, exclusions, and premiums. The endorsements that we discuss here and that apply to the Workers Compensation and Employers Liability Policies include: 1. Employers Liability Coverage Endorsement WC 00 03 03 2. Longshore and Harborworkers Compensation Act Coverage Endorsement WC 00 01 3. Outer Continental Shelf Lands Act Coverage Endorsement WC 00 01 09 4. Maritime Coverage Endorsement WC 00 02 01 5. Foreign Coverage Endorsement WC 48 06 03 State laws often exclude these people from workers compensation coverage. Named or described individuals may be included for coverage when it is allowed under a state's workers compensation statute. Employers Liability Coverage Endorsement WC 00 03 03 This endorsement provides Employers Liability Insurance Coverage for states not included in the issued Workers Compensation Policy. It is primarily used when workers compensation coverage is purchased in a monopolistic state fund. Ohio has its own specific endorsement, which is used only in Ohio. Go to the Forms Library to see a copy of this endorsement. Rev. 03/10 165

Learning Objective: Describe the uses of specific workers compensation and employers liability endorsements. Longshore and Harborworkers Compensation Act Coverage Endorsement WC 00 01 06 A Certain employees are governed by the Longshore and Harborworkers Compensation Act, which mandates special coverage for land-based employees who work on navigable waters or on ways adjoining navigable waters, wharves, piers, docks, and perhaps bridges. These benefits are much higher than those typically included in state workers compensation laws. Typical employees include longshore workers, harbor workers, shipbuilders, shipbreakers, and ship repairers. The act does not apply to masters or crewmembers of vessels. Examples of "Navigable waters" are waters used for navigation or commerce between states or ocean and sea that border the United States (Mississippi River, Ohio River, Great Lakes, intercoastal canal, Houston Ship Channel). The LHWCA Coverage Endorsement is used to provide workers compensation insurance and employers liability insurance for work subject to the act. Go to the Forms Library to see a copy of this endorsement. Outer Continental Shelf Lands Act Coverage Endorsement WC 00 01 09 A This endorsement is used to provide workers compensation and employers liability insurance for work on the outer continental shelf. We are generally dealing with employees working on drilling rigs and/or platforms. Go to the Forms Library to see a copy of this endorsement. Maritime Coverage Endorsement WC 00 02 01 A This endorsement provides employers liability coverage for employers who have maritime exposures. It applies to bodily injury to a master or crew member of a vessel and the bodily injury must occur in the operation of a vessel sailing directly between the port of the continental USA, Alaska, Hawaii, or Canada. Go to the Forms Library to see a copy of this endorsement. Rev. 03/10 166

Learning Objective: Describe the uses of specific workers compensation and employers liability endorsements. Foreign Coverage Endorsement WC 48 06 03 (Advisory Form) Coverage applies to employees hired in the United States while traveling or temporarily (90 days or less) residing outside the United States, its territories, possessions, Puerto Rico, or Canada. This endorsement is not standard, but you will typically find two important coverages. 1. Endemic Disease Endemic disease is covered as a work-related injury/disease. Endemic disease means a disease that is infectious and generally recognized as a health hazard, is restricted to a peculiar locality, and is not caused by or aggravated by the conditions of employment. An example is yellow fever. 2. Repatriation Expenses Coverage also pays for repatriation expenses, which are costs for transporting the injured employee to a medical facility or home. Many companies provide foreign workers compensation coverage through specifically designed international policies that better serve the international exposures a business may face. Go to the Forms Library to see a copy of this endorsement. Please refer to the end of Lesson 6 Topic F to complete Self Quiz 17. Rev. 03/10 167