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Other Sources of Coverage

Assigned Risk Plan (Residual Market Plan) Many states offer employers unable to purchase coverage in the voluntary market the opportunity to obtain coverage in a Workers' Compensation Assigned Risk Plan. Typically, insurers who write Workers' Compensation insurance in the voluntary market in the state must participate in the state's assigned risk plan. Some states, in lieu of establishing assigned risk plans, establish state insurance funds as an alternative for an employer to purchase coverage. The fund operates as a public insurer (sponsored and controlled by the state) that competes with private insurers and issues a policy similar to those issued by private insurers conforming to the Workers' Compensation laws of the state. Employers may purchase coverage directly from the Fund, and licensed brokers may also place business with the Fund. Self-Insurance Plans and Employer Groups All states, except North Dakota and Wyoming, allow employers to self-insure upon satisfying certain statutory requirements that are a guarantee of their ability to meet their obligations. Large employers are sometimes attracted to self-insurance plans because losses can be predictable and benefits are capped by statute. Employers must obtain a Self-Insurance Certificate and may also purchase excess insurance or reinsurance. Some states also require the employer to purchase a surety bond.

Compulsory vs. Elective

Compulsory - In jurisdictions where Workers' Compensation benefits are mandated by state law, employers are required to provide Workers' Compensation benefits to their employees—either via insurance or self-insurance. If the provisions of a policy do not comply with the state law, the insurer is required to provide all legally mandated benefits. (Most states are compulsory.) Note If the provisions of the policy do not comply with the state law, the insurer is required to provide all legally mandated benefits. Elective - In jurisdictions where Workers' Compensation benefits are not mandated by state law, employers have the choice to accept or reject state Workers' Compensation laws. If an employer chooses to reject the Workers' Compensation laws and an employee is injured, the employee may then file a claim or lawsuit against the employer for injuries; and the employer is denied the use of common law defenses, such as assumption of risk, contributory negligence, and negligence of a fellow employee. While most Workers' Compensation statutes compel employers to provide coverage, they also protect employers from being sued. If an employer provides Workers' Compensation insurance in compliance with state law, its employees cannot sue it for workplace injuries. If an employer violates state law by NOT providing Workers' Compensation benefits, the Workers' Compensation statute doesn't protect the employer from lawsuits. Essentially, an employer doing business without providing Workers' Compensation benefits is exposing itself to unlimited liability for workplace injuries PLUS the fines and penalties imposed by the state for violating the law. notes

Covered Injuries

Covered injuries are those that arise out of, and in the course of, employment. This means: The injury must occur while the employee is at work or working The employee is working the hours he/she is designated, or expected, to work The employee is performing the duties that he/she was employed to do The injury must arise from a risk that is reasonably related to employment Note The employer can deny benefits to an employee who intentionally injures himself/herself or if the injury results from intoxication. Occupational Disease An occupational disease must arise out of the course of employment and be caused by conditions that are particular to that employment. Example An employee who contracts a cold in the winter may not be eligible for benefits because the cold could have been contracted while the employee was not working. However, a coal miner who develops respiratory problems will likely be eligible for benefits.

Benefits Provided (Determined by State Law)

Each state determines benefit levels, benefit types, and definitions of disability. The following are common definitions: Medical Benefits - Unlimited coverage for all necessary medical (including hospital) expenses related to the covered injury that occurred during the policy period. Disability Income Benefits - Benefits are generally limited to the period of disability. Temporary Total An injury, from which an employee is expected to recover and return to work, but is unable to do any work while recovering. Benefits begin after a waiting period of several days. Retroactive benefits will be paid back to the initial date of disability if the disability lasts beyond a certain period. The benefit amount is a percentage of the employee's average weekly wage, subject to minimum and maximum limits. In most states, it is 66 2/3%. Permanent Total An injury that prevents an employee from being able to do any work for the rest of his/her life. Benefits are subject to the same weekly benefit percentage and the same minimum and maximum limits as Temporary Total. In most states, benefits are paid for life. Temporary Partial An injury after which an employee is able to do some work, but is unable to earn his/her usual wage until full recovery. Benefits are usually calculated as a percentage of the difference in the wages. Permanent Partial An injury after which an employee is able to do some work, but will never fully recover. An employee can still earn a wage, but not as much as he/she would have earned if the injury had not occurred. Scheduled Benefits A schedule of benefits applies to specific permanent partial injuries, such as a dollar amount for the loss of an eye, or a hand. These benefits are usually paid in addition to other benefits. Note Benefits are generally limited to the period of disability. Rehabilitation Benefits - Physical therapy and vocational training are utilized with the objective of returning the injured employee to work as soon as possible. These benefits are usually paid by the insurer; however, some states have established special state funds to pay for rehabilitation costs that are funded by taxes levied against insurers and self-insureds. Death and Survivor Benefits (Funeral Expense Benefit) - A statutory maximum amount, varying from state to state, is provided as a burial allowance (usually $3,000). Survivor income benefits are a percentage of the deceased worker's wages and are also provided to the surviving spouse (and usually end at remarriage); and/or children (until age 18, and sometimes longer if a full-time student).

Employment Conditions

Employment Covered Because Workers' Compensation insurance responds to workplace injuries, it only provides coverage if an employment relationship exists between the employer and the injured person. An employer-employee relationship exists if the employer: Retains the right to direct the way work shall be completed Supplies the necessary equipment and tools to complete the work Determines the work hours Determines the end results of the work to be completed Controls the frequency and timing of compensation for work Another class of workers commonly employed are independent contractors. In most states, employers are not required to cover independent contractors over whom the employer does not retain the rights to control them, is not required to withhold taxes from any compensation, and who commonly work for multiple employers. Agents need to refer to their state's Workers' Compensation Law to determine how their state defines an independent contractor. For example, many state laws consider independent contractors who work solely for one employer and in the same trade to be statutory em

Part Two - Employers Liability Insurance (continued)

How this Insurance Applies - This insurance applies to bodily injury by accident, by disease, or resulting in death. Arise out of, and in the course of, employment Take place during the policy period Be caused by the conditions of employment The employment must be necessary to the work described in the Information Page. Any suits for damages for bodily injury must occur in the United States, its territories and possessions, or Canada. The insurance protects the insured against damages under the Doctrine of Dual Capacity, which applies when an employee is injured by a product the employer manufactures. Note Employees cannot purchase supplemental benefits.

Federal Workers' Compensation Laws

In addition to state Workers' Compensation programs, federal laws governing certain types of employees: The Federal Employers Liability Act (FELA) applies to interstate railroad workers and postal workers The U.S. Longshoremen and Harbor Workers' Compensation Act applies to workers who load, unload, build, or repair ships (but not to the crew of the ship) The Jones Act or Merchant Marine Act of 1920 applies to sailors injured by the negligence of others The Federal Employees Compensation Act applies to all U.S. civilian employees Defense Base Act applies to workers on military bases outside the United States Outer Continental Shelf Lands Act applies to offshore oil rig workers

TEST TIP

In liability insurance, the claimant must prove that the insured contributed to the cause of the injury before it will pay benefits.

Part Six - Conditions

Inspection - The insurer has the right, but not the obligation, to inspect the insured's workplace. Inspections are for purposes of underwriting and determining premium and not as a guarantee of safety or compliance with state or other laws. Transfer of the Insured's Rights and Duties - The insured is not allowed to transfer any rights and duties under the policy without the insurer's written consent. Cancellation If the policy is cancelled by the insurer, the insurer must provide written notice to the insured, stating when the cancellation will take effect Generally, the insurer must give the insured at least 10 days' written notice The policy will end on the day and time stated in the cancellation notice This policy will automatically comply with any changes in the law regarding cancellation Sole Representative - The First Named Insured will act on behalf of all insureds, receive any cancellation notice, and unearned premium.

Part Five - Premium

Insurer's Manuals - All premiums are determined by the insurer's manuals of rules, rates, rating plans, and classifications as authorized by state law. Classifications - The classifications shown in the Information Page are assigned based on an estimate of the exposures the insured would have during the policy period. Remuneration - The premium for each work classification is determined by multiplying a rate and a premium basis. The premium basis is employee remuneration. Premium Payments - The insured will pay the entire premium when due. Final Premium - The final premium will be determined, after this policy ends, by using the actual, not the estimated, premium basis and the proper classification that applies by law. If cancelled: By the Insurer - The final premium will be calculated pro rata for the time the policy was in force By the Insured - The final premium will be based on the time the policy was in force and increased by the insurer's short rate cancellation table Note Deposit premium is the advanced premium charged when coverage is issued. Deposit premium is based upon estimated payroll. Records - The insured will keep records of information needed to calculate the premium. Audit - The insurer may audit records pertaining to the policy at any time and for up to 3 years after the policy period ends.

Exclusions:

Liability assumed under a contract Punitive damages awarded because an employee was employed in violation of law Bodily injury to an employee while employed in violation of law Any obligation imposed by any Workers' Compensation, Occupational Disease, Unemployment Compensation, or Disability Benefits law Bodily injury intentionally caused by the insured Bodily injury caused outside of the United States, its territories and possessions, or Canada. (Injury to a resident temporarily outside of these areas would be covered) Damages arising out of coercion, criticism, defamation, evaluation, reassignment, discipline, harassment, humiliation, termination of, or discrimination against any employee, as well as arising from any personnel practices, policies, acts, or omi

Premium Computation

Manual Rating (Job Classification) - Under this rating method, the rates for Workers' Compensation are based upon job (work) classifications. Each job classification has a corresponding manual rate. Rates are higher for higher-risk occupations. Basic premiums are determined by multiplying the manual rate for each job classification by each $100 of payroll for that job classification. A new employee will be under the classification that describes the risk. The main purpose is to categorize employees according to their common exposures. Experience Rating - This rating method is used to encourage employers to decrease the frequency and severity of accidents, by basing premium on the prior loss experience of the employer. Two factors are primarily used when determining premium rates using the experience rating method—frequency and severity. Frequency of claims is the MOST significant factor of the two factors. This is the one that MOST commonly affects Workers' Compensation rates. Severity of claims is a factor but does not impact the premium rate as much as frequency of claims Example 1 If the employer's experience is .90, the premium charged will be 10% lower than the manual rate. If the experience is 1.25, a surcharge of 25% over the manual rate will apply. In this example, the .90 and 1.25 are known as "experience modification factors". Example 2 A ratio of losses to premiums are figured over the most recent 3 year period and anything under a 1.0 experience rating factor will trigger a premium reduction/discount. A ratio higher than 1.0 experience rating factor will cause a premium increase. A ratio lower than 1.0 experience rating factor will cause a premium decrease. A ratio that is maintaining a 1.0 experience factor will cause the premium to remain the same. notes

Monopolistic vs. Competitive States

Monopolistic States - Workers' Compensation insurance is only available through a state fund. Competitive States - Workers' Compensation insurance is available through private insurers as well as any state fund that may exist.

part one cont'd

Other Insurance - The insurer will not pay more than its share of the benefits and costs covered by the policy. Payment the Insured Must Make (This is the exclusion section of the policy) - The insured is responsible for paying benefits in excess of those provided by the Workers' Compensation law, including those required because of the: Insured's serious or willful misconduct Insured knowingly employing an employee in violation of law Insured failing to comply with health or safety laws Insured firing, coercing, or otherwise discriminating against any employee Note If the insurer makes any excess payments, the insured must promptly reimburse the insurer. Recovery From Others (Subrogation) - The insurer reserves the right to recover its payments from anyone liable for causing injury. Statutory Provisions - The following apply as required by law: Notice of an injury must be given promptly Bankruptcy of the insured does not relieve the insurer of its duties under the policy The insurer is liable to any person entitled to benefits under the policy Under the Workers' Compensation law of the applicable state(s), jurisdiction over the insurer is jurisdiction over the insured The policy will conform to Workers' Compensation laws that apply to benefits and assessments payable under the policy, such as taxes, special funds, etc. Terms of this policy that conflict with state law are automatically changed to conform notes

Parts Three to Six

Part Three - Other States Insurance Many employers have operations in multiple states. This policy is designed to provide coverage for as many states as the laws permit. Employers with operations in the monopolistic states must purchase coverage directly from the state entity that sells this coverage. Otherwise, agents can adapt this policy for their customers to include very broad national coverage as long as the Information Page shows the states in which they have active operations and may have potential exposures. The coverage part sets forth the guidelines for providing this "other state" coverage in the policy. This insurance applies only if more than one state is listed, and must be within the policy territory (Monopolistic states may not be listed here.) If the insured begins work in a state listed on the Information Page after the effective date of the policy, the insurance will apply if other insurance does not exist The insurer will reimburse the insured for any payments made where insurance applies, and the insurer is not allowed to pay directly The insured must notify the insurer within 30 days when an employee works in a state not listed in the Information Page

Part Two - Employers Liability Insurance

Part Two of the policy, Employer's Liability, provides insurance for bodily injury and other damages for which the insured becomes liable outside of Workers' Compensation statute and occupational disease laws. If someone is permitted by law to sue the insured for negligence or other tort damages, this part of the policy applies.

Types of Laws

Prior to Workers' Compensation laws going into effect, an employee had to sue the employer and prove negligence to receive such benefits. The employer had three common law defenses to avoid paying claims: Assumption of Risk - This defense placed all the risk on the employee as being responsible for knowing the work conditions prior to employment. Fellow Servant Rule - Removed the employer's negligence if a fellow employee contributed in any way to the loss. Contributory Negligence - Used to argue that the employee was partially at fault and therefore was not eligible to recover benefits from the employer. Once Workers' Compensation laws became effective, all work related injuries and occupational diseases became the responsibility of the Employer. This insurance became the sole source of remedy and the employee no longer had the right to sue the employer for damages. In the early 1900's, states began to hold employers accountable for work-related deaths, injuries, and disabilities caused by accident or illness without regard to fault. It was also determined that employers should pay specific damages regardless of negligence. As Workers Compensation became more commonplace, it was determined that employees would give up their right to sue the employer for on-the-job injuries in exchange for timely predictable payment of benefits. In almost every instance, Workers Compensation is considered the primary carrier regardless of any other coverage that might apply. Compensation is king over any other collectable insurance. Note The most important factor considered in Workers Compensation is occupation-related. It is the occupation that determines the rates, risks, job duties, coverages, etc.

Part Two - Employers Liability Insurance (continued)

The Insurer Will Defend - The insurer will defend any claim for benefits payable by this insurance. The insurer reserves the right to investigate and settle claims. The Insurer Will Also Pay - The following amounts in addition to other amounts payable. Expenses incurred by the insured, at the request of the insurer, but not loss of earnings Premiums for appeal bonds Litigation costs taxed against the insured Interest on a judgment against the insured Expenses incurred by the insurer Other Insurance - The insurer will not pay more than its share of the benefits and costs covered by the policy. Limits of Liability - The Limits of Liability shown on the Information Page are the most the policy will pay for all damages covered by the policy for bodily injury by accident or disease. The minimum limits are: $100,000 per accident $100,000 per occupational disease $500,000 aggregate limit Higher limits are available Recovery From Others (Subrogation) - The insurer reserves the right to recover its payments from anyone liable for injury. Actions Against the Insurer - There will be no right to actions against the insurer unless: The insured has complied with all terms of the policy The amount owed by the insured has been determined with the insurer's consent or by trial and final judgment Note Most Workers' Compensation claims are compensable claims and are paid under Part 1 of the contract. Rarely are claims filed under Part 2 of the contract. Part 2 protects an employer from lawsuits brought on by the injured employee's family.

Part Two - Employers Liability Insurance (continued)

The Insurer Will Pay - The insurer will pay the sum, up to policy limits, and the insured (the employer) is found to be legally obligated or liable for damages because of bodily injury to employees. The bodily injury must be covered by Part Two - Employers Liability Insurance, and the damages paid by the insurer include: Those for which the insured is liable to a third party because of a claim Care and loss of service Consequential bodily injury to an injured worker's spouse, or immediate family member Actions brought against the insured in a capacity other than as an employer

General Section

The Policy - Establishes that the policy is a contract between the employer and the insurer. The terms of the policy may not be changed or waived, except by endorsement. Who is Insured - Establishes that the employer is the insured. Workers' Compensation Law - The law of each state or territory named in the Information Page. State - Any state in the United States, including the District of Columbia. An injured employee is entitled to benefits provided by the state where the injury occurs. Locations - All workplaces, locations, and states listed in the Information Page.

Second Injury Fund

The Second Injury Fund pays compensation on behalf of an employer to an employee who has already suffered a prior disabling injury, and now sustains a subsequent injury, and the combination of the two injuries creates a greater disability than the second injury would have created by itself. The employer is responsible only for compensation that would have been paid had the second injury occurred without the existence of the prior injury, and the fund pays the difference. This fund is designed to encourage employers to hire people with disabilities by limiting their liability for subsequent injuries. The second injury fund is usually funded by assessments against insurers and self-insurers, but may also be financed through general state revenues.

Workers' Compensation and Employers Liability Insurance Policy

The employers liability section of the policy doesn't pay for medical expenses incurred by the injured employee. In order for the policy to pay, the insured MUST be legally liable for injuries and damages sustained by an employee that are not addressed by Workers' Compensation statute or that are sustained by third parties and/or dependants of the injured worker. Employers liability pays all sums for which the insured is legally obligated to pay: For injuries to employees that arise out of employment but claimed against the insured in a capacity other than as employer For care and loss of services For consequential injury to dependents of an injured worker For damages claimed by a third party as a result of a worker's injuries The Workers' Compensation policy, like other policies, contains various parts that address coverages and conditions. The standard NCCI policy is only 6 pages because the details regarding payment of benefits are contained in each state's Workers' Compensation act and statutes. The policy Workers' Compensation contains the following parts: Information (Declaration Page) General Section Part One - Workers' Compensation Insurance Part Two - Employers Liability Insurance Part Three - Other States Insurance Part Four - Your Duties if Injury Occurs Part Five - Premium Part Six - Conditions

Part Four - The Insured's Duties if Injury Occurs

The insured's duties if injury occurs are to: Provide for immediate medical services required by law Give the insurer the names and addresses of the injured persons and any witnesses Promptly forward all notices, demands, and legal papers related to the injury to the insurer Cooperate with the insurer's investigation Do not interfere with the insurer's subrogation rights Do not voluntarily make any payments, assume obligations, or incur expenses

Part One - Workers' Compensation Insurance

This is the compensable part of the contract that includes: Medical Disability Death/Survivor Rehabilitation How This Insurance Applies - This insurance applies to bodily injury by accident, bodily injury by disease, or bodily injury resulting in death. The accident must occur during the policy period The bodily injury must be caused or aggravated by the conditions of employment The Insurer Will Pay - The insurer will promptly pay the benefits due. The Insurer Will Defend - The insurer will defend any claim for benefits payable by this insurance. The insurer reserves the right to investigate and settle claims. The Insurer Will Also Pay - The following amounts, in addition to other amounts payable: Expenses incurred by the insured, at the request of the insurer, but not loss of earnings Premiums for appeal bonds Litigation costs taxed against the insured Interest on a judgment against the insured Expenses incurred by the insurer

Information Page

This page serves as the policy's Declarations Page, and contains the following information: Name, Address, and Type of Business of the Insured Policy Period Policy Territory - Lists the states in which the insured currently does business, and also lists other states in which the insured may have a future exposure, excluding monopolistic fund states Policy Limits for Employers Liability Coverage Estimated Premiums

Selected Endorsements

Voluntary Compensation Endorsement This endorsement is used when an employer wishes to provide Workers' Compensation benefits to employees, although the law does not require the employer to provide coverage. The following information must be provided in the endorsement: The class of employees to be covered The state of employment The employees must waive their right to sue and accept coverage under the endorsement.

Exempt Workers

Workers' Compensation statutes require employers to provide benefits to all employees unless an employee is exempt. Some states exempt workers of employers with fewer than 1 to 3 employees. And some states exempt workers based on job duties. Examples include: Agricultural workers, such as farm and ranch laborers Domestic employees Casual laborers - Those whose work is non-recurring or irregular. Anyone covered by a Workers' Compensation plan. Police and fire department workers are examples. This does not include part time employees. Independent Contractors - Plumbers, electricians, and landscapers who work under contract for more than one employer. The definition of independent contractor varies by state, as do requirements for Workers' Compensation and exempt status. Sole - Owners, Partners, and Corporate Officers