Workers Compensation

Self-Insurance Plans and Employer Groups

1. 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. 2. Large employers are sometimes attracted to self-insurance plans because losses can be predictable and benefits are capped by statute. 3. Employers must obtain a Self-Insurance Certificate and may also purchase excess insurance or reinsurance. 4. Some states also require the employer to purchase a surety bond.

Compulsory versus Elective

1. Compulsory - Employers are required by law to provide Workers' Compensation benefits to their employees with insurance, or demonstrate the ability to provide required 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. 2. Elective - 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 bring a suit against the employer and the employer is denied the use of common-law defenses, such as assumption of risk, contributory negligence, and negligence of a fellow employee.

Part One - Workers' Compensation Insurance

1. How This Insurance Applies - This insurance applies to bodily injury by accident, bodily injury by disease, or bodily injury resulting in death. a. The accident must occur during the policy period. b. The bodily injury must be caused by the conditions of employment. 2. The Insurer Will Pay - The insurer will promptly pay the Workers' Compensation benefits due. 3. 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. 4. The Insurer Will Also Pay - The following amounts, in addition to other amounts payable: a. Expenses incurred by the insured, at the request of the insurer, but not loss of earnings. b. Premiums for appeal bonds. c. Litigation costs taxed against the insured. d. Interest on a judgment against the insured. e. Expenses incurred by the insurer. 5. Other Insurance - The insurer will not pay more than its share of the benefits and costs covered by the policy. 6. Payment the Insured Must Make - The insured is responsible for paying benefits in excess of those provided by the Workers' Compensation law, including those required because of the: a. Insured's serious or willful misconduct. b. Insured knowingly employing an employee in violation of law. c. Insured failing to comply with health or safety laws. d. Insured firing, coercing, or otherwise discriminating against any employee in violation of the Workers' Compensation law. Note: If the insurer makes any excess payments, the insured must promptly reimburse the insurer. 7. Recovery From Others (Subrogation) - The insurer reserves the right to recover its payments from anyone liable for injury. 8. Statutory Provisions - The following apply as required by law: a. Notice of an injury must be given to the insured promptly. b. Bankruptcy of the insured does not relieve the insurer of its duties under the policy. c. The insurer is liable to any person entitled to benefits under the policy. d. Under the Workers' Compensation law, jurisdiction over the insurer is jurisdiction over the insured. e. The policy will conform to Workers' Compensation laws that apply to benefits and assessments payable under the policy, such as taxes, special funds, etc. f. Terms of this policy that conflict with state law are automatically changed to conform to that law.

Part Six - Conditions

1. Inspection - The insurer has the right, but not the obligation, to inspect the insured's workplace. 2. Long Term Policy - If a policy period lasts for more than 1 year and 16 days, all policy provisions shall apply as if a new policy were issued at each annual anniversary date that the policy is in force. 3. 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. 4. Cancellation a. If the policy is cancelled by the insurer, the insurer must provide written notice to the insured, stating when the cancellation will take effect. b. Generally, the insurer must give the insured at least 10 days' written notice. c. The policy will end on the day and hour stated in the cancellation notice. d. This policy will automatically comply with any changes in the law regarding cancellation. 5. Sole Representative - The first Named Insured will act on the behalf of all insureds, receive any cancellation notice, and receive any unearned premium.

Part Five - Premium

1. Insurer's Manuals - All premiums are determined by the insurer's manuals of rules, rates, rating plans, and classifications as authorized by state law. 2. 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. 3. Remuneration - The premium for each work classification is determined by multiplying a rate and a premium basis. This is the most common premium calculation approach. 4. Premium Payments - The insured will pay the entire premium when due. 5. 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: a. By the Insurer - The final premium will be calculated pro rata for the time the policy was in force. b. 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 a Certificate of Insurance is issued. Deposit premium is based upon este policy period ends. 6. Records - The insured will keep records of information needed to calculate the premium. The insurer will receive copies upon request. 7. Audit - The insurer may audit any records pertaining to the policy at any time, including 3 years after the policy period ends.

Assigned Risk Plan (Residual Market Plan)

1. Many states offer an employer that is unable to purchase coverage in the voluntary market the opportunity to obtain coverage in a Workers' Compensation Assigned Risk Plan. 2. Typically, insurers who write Workers' Compensation Insurance in the voluntary market in the state must participate in the Assigned Risk Plan. 3. Some states, in lieu of Assigned Risk Plans, have established State Insurance Funds as an alternative for an employer to purchase Workers' Compensation Insurance. The fund operates as a public insurer (sponsored and controlled by the state) that competes with private insurers in the class of Workers' Compensation Insurance, and issues a policy similar to those issued by private insurers conforming to the Workers' Compensation laws of the state.

Monopolistic versus Competitive

1. Monopolistic - Workers' Compensation insurance is only available through a state fund. 2. Competitive - Workers' Compensation insurance is available through private insurers (most states).

Part Four - The Insured's Duties if Injury Occurs

1. Provide for immediate medical services required by law. 2. Give the insurer the names and addresses of the injured persons and any witnesses. 3. Promptly forward all notices, demands, and legal papers related to the injury to the insurer. 4. Cooperate with the insurer's investigation. 5. Do not interfere with the insurer's subrogation rights. 6. Do not voluntarily make any payments, assume obligations, or incur expenses, unless such expenses are at the insured's own cost.

General Section

1. 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. 2. Who is Insured - Establishes that the employer is the insured. 3. Workers' Compensation Law - The law of each state or territory named in the Information Page. It does not include any Federal Workers' Compensation or Occupational Disease laws. 4. State - Any state in the United States, including the District of Columbia. An injured employee is entitled to benefits in the state where the injury occurs. 5. Locations - All workplaces, locations, and states listed in the Information Page.

Second Injury Fund

1. 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 2 injuries creates a greater disability than the second injury would have created by itself. 2. The employer is responsible only for that compensation that would have been paid had the second injury occurred without the existence of the prior injury, and the fund pays the difference. 3. This fund is designed to encourage employers to hire people with disabilities by limiting employers' liability for subsequent injuries. 4. The second injury fund is usually funded by assessments against insurers and self-insurers, but may also be financed through general state revenues.

Employment Covered

1. The types of employees covered under Workers' Compensation vary from state to state. Since Workers' Compensation is a relationship between the employee and the employer, Workers' Compensation insurance may be required if the employer: a. Retains the right to direct the way work shall be completed. b. Supplies the necessary equipment and tools to complete the work. c. Determines the work hours. d. Determines the end results of the work to be completed. e. Controls the frequency and timing of compensation for work.

Employment Covered EXEMPTIONS

3. Even though certain employments are exempt or excluded, the employer may provide Workers' Compensation Insurance on a voluntary basis.

Scheduled Injuries

A schedule of benefits that applies for specific permanent partial injuries, such as a specific amount for the loss of an eye, or a specific amount for the loss of a hand. These benefits are usually paid in addition to other income benefits.

Death and Survivor Benefits (Funeral Expense Benefit)

A statutory maximum amount, varying from state to state, is provided as a burial allowance. 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, or longer if a full-time student).

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 with 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 with 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 would not have occurred.

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 later 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 percent.

Compulsory

Employers are required by law to provide Workers' Compensation benefits to their employees with insurance, or demonstrate the ability to provide required benefits. (Most states are compulsory)

Elective

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 bring a suit against the employer and the employer is denied the use of common-law defenses, such as assumption of risk, contributory negligence, and negligence of a fellow employee.

Premium Computation

Experience Rating 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. Example: If the employer's experience is .90, the premium charged will be 10 percent lower than the manual rate. If the experience is 1.25, a surcharge of 25 percent over the manual rate will apply. In this example, the .90 and 1.25 are known as "experience modification factors".

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

Part Two - Employers Liability Insurance (Stop-Gap Coverage)

Part Two - Employers Liability Insurance (Stop-Gap Coverage) 1. How This Insurance Applies - This insurance applies to bodily injury by accident, bodily injury by disease, or bodily injury resulting in death. a. The bodily injury must: 1) Arise out of, and in the course of, employment. 2) Take place during the policy period. 3) Be caused by the conditions of employment. b. The employment must be necessary to the work described in the Information Page. c. Any suits for damages for bodily injury must occur in the United States, its territories and possessions, or Canada. d. 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. 2. The Insurer Will Pay - The insurer will pay the sum, up to policy limits, the insured must legally pay 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: a. Those for which the insured is liable to a third party because of a claim. b. Care and loss of service. c. Consequential bodily injury to an injured worker's spouse, or immediate family member. d. Actions brought against the insured in a capacity other than as an employer. 3. Exclusions a. Liability assumed under a contract. b. Punitive damages awarded because an employee was employed in violation of law. c. Bodily injury to an employee while employed in violation of law with the knowledge of an insured. d. Any obligation imposed by any Workers' Compensation, Occupational Disease, Unemployment Compensation, or Disability Benefits law. e. Bodily injury intentionally caused by the insured. f. 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.) g. 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 omissions. h. Bodily injury arising from work that falls under federal jurisdiction. i. Fines or penalties imposed for a violation of federal or state law. j. Damages payable under the Migrant and Seasonal Agricultural Worker Protection Act. 4. 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. 5. The Insurer Will Also Pay - The following amounts in addition to other amounts payable under the policy: a. Expenses incurred by the insured, at the request of the insurer, but not loss of earnings. b. Premiums for appeal bonds. c. Litigation costs taxed against the insured. d. Interest on a judgment against the insured. e. Expenses incurred by the insurer. 6. Other Insurance - The insurer will not pay more than its share of the benefits and costs covered by the policy. 7. 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 for injuries, $100,000 per employee for disease, and $500,000 aggregate for disease. 8. Recovery From Others (Subrogation) - The insurer reserves the right to recover its payments from anyone liable for injury. 9. Actions Against the Insurer - There will be no right to actions against the insurer unless: a. The insured has complied with all terms of the policy. b. The amount owed by the insured has been determined with the insurer's consent or by trial and final judgment.

Rehabilitation Benefits

Physical therapy and vocational training are utilized with the objective of returning the injured employee back to work as soon as possible These benefits are usually paid by the insurer; however, some states have set up special state funds to pay for rehabilitation costs that are funded by taxes levied against insurers and self-insureds.

Exclusive Remedy

The process by which the employer assumes absolute liability for injuries to the employee. Under Workers' Compensation, if the employee is injured, the employee may not: 1. Collect benefits from the employer or the employer's insurance company and then sue the employer for negligence or liability. 2. Refuse to accept compensation benefits in order to sue the employer for a larger award.

Information Page

This page serves as the policy's Declarations Page, and contains the following information: 1. Name, Address, and Type of Business of the Insured. 2. Policy Period. 3. 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. 4. Policy Limits for Employers Liability Coverage. 5. Estimated Premiums

Retrospective Rating - Premium Computation

This rating method establishes rates in which the current year's premium is calculated to reflect the actual current year's loss experience. An initial premium is charged and then adjusted at the end of the policy period to reflect the actual loss experiences of the business.

Premium Discount - Premium Computation

This rating method takes into account the fact that certain expenses included in the premium rate are fixed and do not increase as the size of the risk increases. Therefore, larger risks receive a "discount" as credit for those expenses that do not increase proportionately with the risk.

Participating Plans (Dividend) - Premium Computation

Under this rating method, the insured is eligible for a premium refund (dividend) if the experience over the policy period falls within the guideline established by the insurer. This provides for effective insurance based upon the current policy period.

Competitive

Workers' Compensation insurance is available through private insurers (most states).

Monopolistic

Workers' Compensation insurance is only available through a state fund.