Workers Compensation

Workers' compensation is consider a ______________ coverage

"no-fault"

Workers' Compensation Exclusions

- Aircraft Operation (all members of the flying crew i.e. pilots, navigators, etc. are excluded) - Foundry Operations (those involved in melting and pouring the metal into the mold or other part of the foundry operations process are excluded) - Asbestos Abatement (those involved in the procedures designed to control the release of asbestos fibers from asbestos-containing materials are excluded) - Daycare Services (these are excluded if daycare services are provided by the insured primarily for use by its employees' dependents)

Which of the following are examples of claims that might be covered by Employers' Liability Coverage?

- Consequential Bodily Injury - Care and Loss of Service - Dual Capacity

Policy Providers

- In most states, employers have the ability to purchase a workers' compensation insurance policy from a variety of providers - Policy providers include competitive state funds (state-run insurance companies), private insurance companies, and, in some states, self-insurance (employers' insurance themselves)

Collecting Additional Information: Additional Information that the insured may provide for a workers' compensation insurance policy include:

- Operations relevant to workers' compensation coverage - Scope of work - Safety procedures - Hiring practices - Payroll history - Any other details not found on ACORD forms, but are necessary for the insurance company

Remuneration (aka payroll) excludes:

- Tips and other gratuities received by employees - Payment by an employer to group insurance or group pensions plans for employees - The value of special rewards for individual invention or discovery - Dismissal or severance payments except for time worked or for accrued vacation - Payments for active military duty - Employee discounts on goods purchased from the employee's employer - Expense reimbursements to employees to the extent that an employer's records substantiate that the expense was incurred as a valid business expense - Sick pay paid to an employee by a third party such as an insured's group insurance carrier that is paying disability income benefits to a disabled employee - Supper money for late work - Work uniform allowance - Employer-provided perquisites ("perks") such as: a. An automobile. b. An airplane flight c. An incentive vacation (e.g., a contest winner) d. A discount on property or services e. Club memberships f. Tickets to entertainment events - Employer contributions to salary reduction, employee savings plans, retirement, or cafeteria plans/contributions made by the employer, at the employer's expense, that are determined by the amount contributed by the employee.

Remuneration (aka payroll) includes:

- Wages or salaries including retroactive wages or salaries (payroll) - Total cash received by employees for commissions and draws against commissions - Bonuses including stock bonus plans - Extra pay for overtime work - Pay for holidays, vacations, or sick days - Annuity plans - Payment or allowance for hand tools or power tools used by hand provided by employees used in their work or operations for the insured - The rental value of an apartment or a house provided for an employee based on comparable accommodations - The value of lodging, other than an apartment or a house, received by employees as part of their pay, to the extent shown in the insured's records - The value of meals received by employees as part of their pay to the extent shown in the insured's records - The value of store certificates, merchandise, credits, or any other substitutes used for money received by employees as part of their pay - Payments for salary reduction, retirement, or cafeteria plans that are made through deductions from the employee's gross pay - Davis-Bacon wages paid to employees or placed by an employer into third-party pension trusts - Expense reimbursements to employees to the extent that an employer's records do not substantiate that the expense was incurred as a valid business expense - Payment for the filming of commercials excluding subsequent residuals which are earned by the commercial's participant(s) each time the commercial appears in print or is broadcast - Payment by an employer of amounts otherwise required by law to be paid by employees to statutory insurance or pension plans, such as the Federal Social Security Act

A submission includes 4 types of documents:

1. Estimated Annual Payroll Figures 2. Supplemental Application 3. Currently Valued Loss Run Reports 4. Completed ACORD Forms

Workers' compensation coverage consists of three parts:

1. Part One: Workers' Compensation 2. Part Two: Employers' Liability 3. Part Three: Other-States

An insured's EMR can be obtained from two possible sources:

1. an X-Mod history report, or 2. an X-Mod worksheet.

Manual Premium

= class code base rate x remuneration / 100

Incurred Losses (aka "incurred")

= paid losses + outstanding losses

Class code (AKA Classification Code)

A 4 digit number used to classify a specific job definition to help identify different workplace exposures

Closed Claim

A claim that has been settled

Open Claim

A claim that has not been settled and/or on which payments are still being made

Permanent Disability (aka PD)

A class of workers compensation disability in which the injured employee is incapable of ever working again at any employment. Under most statutes, the employee will receive weekly wages for life

Waiver of Subrogation

A contractual provision where one party agrees to waive its right to pursue the other party in the case of a loss (Note: some states do not allow waivers of subrogation)

Base Rate

A rate the insurance carrier has filed with the state for a class code that is the starting point for premium calculations (Note: Workers' Compensation base rates are multiplied against 'per $100 of payroll')

Experience Modifier (AKA X-MOD or EMR)

A rating factor used to compare an insured's claim and payroll history against other employers with similar options. Used to adjust the premium for an applicant positively or negatively

Non-Disability

A status for a claim where an injured employee required medical treatment but did not have to miss any work time

Disability

A status for a claim where it was necessary for an injured employee to recuperate away from work

Waiver of Subrogation example:

A sub-contractor is injured when a general contractor tripped him on the job site, leading to a broken ankle. The sub-contractor's insurance carrier will pay the benefits owed to the injured employee and then pursue the general contractor's insurance carrier for the paid loss amount. A waiver of subrogation in favor of the general contractor will prevent the sub-contractor's insurance carrier from recovering the paid loss amount.

Claim Number

A unique identifier that attaches an insurance claim/loss to a specific worker

Third Party Over

A workers' compensation claim is the sole remedy available for an employee injured within the scope of employment. However, in certain situations, the employer may be held liable for additional damages. These are called "Third Party Over" or "Negligence" actions

Supplemental Applications

ACORD forms provide the majority of information needed for an insurance carrier to write a policy. However, insurance carriers may still require additional information regarding the insured's business operations as it relates to their industry. Supplemental applications are what provide this additional information to the insurance carriers

Consequential Bodily Injury

An employee filed a claim against their employer as one of their family members was injured or became ill due to the employee's working conditions

Average weekly wage (aka AWW)

An employee's pre-injury earning capacity, based on earnings in the period directly preceding a work-related injury or illness. The formula for calculating AWW varies by state

Dual Capacity

An injured employee, after filing and receiving benefits for a workers' compensation claim, also sues their employer for actions other than as an employer. - Most often seen as a products liability claim against a manufacturer who is also the employer

Loss Run Report (aka loss report)

An insured's reported claims history for a specific policy period

Which type of Waiver of Subrogation will provide the ability to issue an unlimited amount of waivers at a fixed cost?

Blanket Waiver of Subrogation

Workers' compensation laws are _____________ in every state.

Compulsory

Scheduled Rating (AKA rating plan)

Credit or debits an insurer may offer depending on the safety practices and claims history of an insured

Employers in ___________ states have the option to enroll in the workers' compensation system and may elect NOT to purchase a workers' compensation insurance policy

Elective (Texas is the only elective state)

Compulsory

Employers are required to comply with state workers' compensation laws and must purchase a workers' compensation insurance policy

Stop Gap (Employers' Liability) Endorsement

Employers in monopolistic states must purchase workers' compensation insurance from the state fund. The state fund policy does not often cover all of the employer's liabilities which are required and automatically included in non-monopolistic states. Since this is the case, employers in monopolistic states doing business in non-monopolistic states must obtain the additional required employers' liability coverage to be in compliance. To do so, a "stop gap" or "employers liability coverage gap" is usually attached with their state fund insurance policy. The stop gap employers' liability endorsement fills in the state fund's employers' liability coverage (Part 2) gap that is required by the non-monopolistic states

True or False: Workers compensation laws are elective in all states except Texas

False (Texas is the only elective state)

Third Party Action Over - Example

Hank rents office space from Laura. In the lease agreement is a provision that states that, if Laura is found liable for any damages that occur within the space Hank is renting, Hank must reimburse Laura for those damages. Hank decides to build a break room and hires Monty to install cabinetry. Two months after the cabinets are installed, one of them falls on Janice, causing injuries. Janice collects workers' compensation from Hank, which is the only remedy available by law. However, Janice also sues Laura, the landlord, for not providing a safe building. Since Janice is not limited to workers' compensation from Laura (since Janice is not Laura's employee), a court awards Janice $100,000 in damages. Laura then turns to Hank, the tenant, to be reimbursed for the damages under the lease contract. Hank must pay Laura $100,000, in addition to the workers' compensation award he already paid! The fact that the relationship and the lease agreement allowed Hank to be liable for more than just workers' compensation payments makes this a Third Party Over action.

Straight Time Wage

In the insurance industry, concern is mostly placed on an insured's level of exposure rather than the extra amount paid to an employee for overtime. This translates to insurance carriers wanting to know: - How many hours were worked by an insured's employees (including overtime hours) - Payroll estimates based off of regular pay rates NOT overtime pay rates When these rules are used in calculating the estimated payroll figures for an employee, the outcome is considered the employee's straight time wage. (Estimated payroll figures are the sum of an insured employee's straight time wages grouped by class code. This means an insured must calculate every employee's straight time wage and then add them all together)

Contractual Liability

It is common in business transactions for contracts to include clauses that require one party to indemnify the other if the other party is found liable for damages or injuries to third persons.

Requesting Loss Run Reports

Loss run reports must be requested from the insurance carriers who wrote each of the insured's policies over the last five policy periods (if applicable). - In order to release the information, the insurance carriers need to receive an agent of service authorization letter from the insured. The letter provides permission for the insurance carrier to release the insured's loss run data, most often, to the insured's current agent of record (you). - The insurance policy carrier is bound by law to provide the loss run report within a certain period of time (dependent on the state). This is state-regulated to ensure that the insured has the freedom to shop for more affordable insurance policies.

Paid Losses

Losses paid to claimant during the reported period

Outstanding Losses

Losses reported to the insurer, but are still in the process of settlement

Overtime

Occurs when an employee works more than a 40-hour workweek. The additional hours worked are paid at a rate of time and one-half (aka time and a half) the employee's regular rate of pay

Vocational Rehab (aka VR)

Part of the rehabilitation process which focuses on restoring a person's physical and/or mental work performance capacity

Paid Compensation (aka indemnity or indemnity payments)

Payments made for the employee's lost wages for a claim

Paid Medical (aka medical or MED)

Payments made for the medical treatment of the injured employee

Remuneration vs Payroll

Payroll (straight time wages) makes up the majority of the estimated "payroll" figures, but it is more accurate to have an insured estimate their remuneration figures

Part Two: Employers' Liability Coverage

Protects the employer in the event an employee makes a claim against them for an injury or illness that is NOT COVERED by workers' compensation laws

Part One: Workers' Compensation Coverage

Provides benefits to employees who are injured or sickened as a result of their employment

Which type of Workers' Compensation benefit will pay for physical rehabilitation costs and any associated expenses incurred by the injured or ill employee?

Rehabilitation Expenses

Claiming Damages from a Non-Employer

Remember, an injured employee may still claim damages from a non-employer. When an injured employee secures a judgment against a non-employer, the non-employer usually attempts to collect reimbursement from the employer. - When the non-employer uses contractual liability as the reason for reimbursement, it's called Third Party Over action - When no contractual liability exists, a negligence action is filed

What are the factors most commonly used when calculating an injured or ill employee's benefit expense?

Severity of the injury, Employee's weekly rate

Calculating straight time wages: An employee's gross wages for the year was $55,000. The employee's regular pay rate was $20/hr., but was paid at time and a half for 500 overtime hours worked. What are the employee's straight-time wages?

Step 1: Overtime Pay - First, calculate the employee's overtime pay rate. $20/hour x 1.5 = $30/hour - Second, calculate the employee's total overtime pay for the year $30/hour x 500 overtime hours = $15,000 Step 2: Apply the Regular Pay Rate - Now that you know how much was paid for overtime, the next step is to determine how much would have been paid if only the regular pay rate was applied (remember, insurance carriers don't want overtime included in payroll) $15,000/1.5 = $10,000 Step 3: Reduction Amount - Calculate the Non-Included Overtime Pay Amount - The next step is to determine how much the overtime pay rate increased the employee's gross wage $15,000 - $10,000 = $5,000 Step 4: Calculate the Employee's Annual Straight Time Wages - The last step is to reduce the employee's annual gross wage by the amount it was increased due to overtime $55,000 - $5,000 = $50,000/year Summary: The employee's straight-time wage for the example is $50,000 whereas the employee's gross wage is $55,000. This small difference in calculating payroll makes a major impact on an insured's policy pre

Recovery (aka subrogation)

The amount paid by an insurance company to cover an insured individual that is actually owed by another party. The insurance company will collect or "recover" the debt owed by the other party after the fact.

Governing Class Code

The classification code (other than a standard exception) that best describes the workers compensation exposure of an employer's business, as determined by majority of payroll

Expense (aka "EXP" or "loss adjustment expense" or "LAE")

The cost of operating the insurance business exclusive of losses or claims

Expiration date

The end of an insurance policy

Employers Liability Insurance Exclusion

The first exclusion under Employer Liability Insurance excludes coverage for "liability assumed under a contract." - This means that coverage for Third Party Over actions has been removed and is NOT covered by the Workers Compensation/Employer Liability Insurance Form

Litigated

The injured employee has hired an attorney to represent his/her interests on the workers' comp claim

EMR equal to 1.0

The insured's losses are average

An exclusive remedy provision states that:

Workers Compensation Benefits are considered to be the sole remedy an injured employee has against their employer

Part 3: Other-States Coverage

Workers' compensation coverage (Part One) only provides coverage in the states declared in the policy. However, an unforeseen event or expansion may require an employee to operate in a state not covered by the policy. - If the employee is then injured, a workers' compensation claim could be under the law of another state. - If this is the case, a state's workers' compensation laws could have higher benefit payouts than the insured's policy allows for and the insured would be responsible for the difference - To combat this issue, a coverage-broadening statement can be included in the ACORD 130 (3c) so that the insurance carrier will cover the (potentially increased) amount required for benefits in the non-declared state(s). Here is an example statement: "All states except monopolistic"

Experience Mods (X-Mods)

are rating factors used to compare an insured's claim and payroll history against other employers with similar operations. - Insurance companies use it as an indicator to determine how well the insured manages the risks correlated to what they do. - Depending on the rating, X-Mods adjust the insured's policy premium positively or negatively. - Another way of looking at it, X-Mods are an incentive for insureds to create better working environments to lower or completely avoid employee-related injuries.

A currently valued loss run report means

the claims information has last been updated within 90 days of the policy's expiration. Otherwise, most insurance companies would not accept the loss run report

A __________ ___ _______________ is a policy endorsement where one party agrees to waive its right to pursue the other party in the case of a loss

waiver of subrogation

Part 2: Employers' Liability Coverage Limits - Unlike Part 1 of coverage which has no limits, state laws have determined limits for employer's liability coverage. These limits vary from state to state but the most common basic limits are:

- $100,000 per occurrence for bodily injury - $100,000 per employee for bodily injury by disease - $500,000 overall policy limit for bodily injury by disease An insured can have these limits increased on their policy by paying an additional percentage on the premium (the percentage amount varies by the insurance company)

ACORD 125

- Considered to be the foundation of all commercial applications, this document provides detailed information regarding the insured. - Workers' Compensation and Professional Liability do not require this form for a commercial submission. Regardless, it is most often included in these coverage lines' submissions since it contains information not duplicated on any other ACORD commercial application forms.

Each state has its own method to calculate the amount that will be provided to pay for an injured or ill employee's benefit expenses. More often, the following two factors are used somewhere in their calculations:

- The employee's average weekly wage - The severity of the injury or illness

The worker should be considered an employee if...

- The insured pays them and they do not have a license, but are required to have one - The insured supplies the tools, the work is performed on the insured's premises and at the direction of the insured - They are paid through commissions, piecework or by the hour

The worker should be considered an independent contractor if...

- They are paid on a "by-the-by" basis - They perform work in the same capacity for other businesses

Waiver of Subrogations can be issued in two different versions

1. Blanket Waiver of Subrogation (A blanket waiver of subrogation provides the ability to issue an unlimited amount of waivers at a fixed cost (usually 2% of annual premium). This also expedites the process for issuing waivers on certificates of insurance) 2. Scheduled Waiver of Subrogation (Also known as a 'Project Specific' waiver of subrogation. As the name infers, it is issued on a project-specific basis. This option is more common when the insured needs to issue fewer waivers on a policy. The cost is typically 5% of the premium generated for the project, and often takes a few days and some paperwork to get issued)

(Workers' Compensation Coverage) There are four types of benefits employees can receive

1. Medical Expenses (Medical costs to treat the injured or ill employee) 2. Disability Income (If the covered injured or ill employee experiences a loss of income, lost wage benefits are paid for) 3. Rehabilitation Expenses (Physical rehabilitation costs and any associated expenses incurred by the injured or ill employee) 4. Death Benefits (Funeral expenses and income stipends for the eligible dependents are paid for should an employee's death occur due to employment)

The CSR Support Cycle involved 8 major steps:

1. Obtain required submission information 2. Complete ACORD forms 3. Send the submission 4. Receive and review quotes 5. Create and present the proposal 6. Bind coverage with the insurance company 7. Check the policy 8. Support the insured

ACORD 130

1. Specific to placing workers' compensation insurance, this document details an insured's payroll, loss history, and other necessary business operations. 2. This form is a self-contained Commercial Lines application that does not require the completion of the ACORD 125. Though it may not require the ACORD 125, most often both forms are appended together. The Workers Compensation Application provides for workers' compensation, employer's liability, and voluntary compensation coverage.

Calculating Straight Time Wage

An employee's straight time wage calculation involves taking their gross wage and reducing it down to what it would have been if only the regular pay rate had been applied. The amount of wage reduction for the calculation depends on the overtime rate used to calculate the gross wage for the employee: - If the employee received time and a half (1.5 X regular pay rate), then we must divide the employees annual overtime pay by 1.5 and add the result to the regular time wages. - If the employee received double time (2 X regular pay rate), then we must divide the employees annual overtime pay by 2 and add the result to the regular time wages.

"No-fault" coverage

An injured worker does not have to prove the employer was at fault for the injury in order to qualify for coverage. - In exchange for this, the injured employee gives up the right to sue their employer for damages (as declared by the exclusive remedy provision)

Care and Loss of Services (AKA "loss of consortium")

An injured worker files a claim against their employer as they are unable to perform certain home or childcare duties as a result of a workplace injury or illness

Collecting Estimated Annual Payroll Figures

Estimated annual payroll figures are broken down by class code. This allows insurance carriers to better understand an insured's business in more detail and the exposure for each job duty. A policy's premium will be lower if an insured's workforce is 90% clerical rather than 90% electrical. The number of full and part-time employees is also important. Whether or not an insured has six full-time employees doing a job versus 12 part-time employees doing the same job impacts the policy premium.

Independent Contractors vs. Employees

Estimated payroll figures are calculated with an insured's employees but do not include independent contractors. - It is important to know the difference between employees and independent contractors so that estimated payroll figures are calculated accurately

Insurance companies use it as an indicator to determine how well the insured manages the risks correlated to what they do. Depending on the rating, X-Mods adjust the insured's policy premium positively or negatively. Another way of looking at it, X-Mods are an incentive for insureds to create better working environments to lower or completely avoid employee-related injuries. Example:

If the experience modification is effective January 1, 2022, the experience modifier will reflect payroll and loss experience between January 1, 2020, and January 1, 2021.

Sole Proprietors, Partners, Officers, and Others Coverage Endorsement

In certain states, it is allowable for sole proprietors, partners, limited liability members/managers, and executive officers to determine whether or not they would like to include or exclude themselves from workers' compensation coverage. - If they are not required by law to be covered by workers' compensation insurance, they can elect for employer's workers' compensation insurance coverage by attaching a sole proprietors, partners, officers, and others coverage endorsement to the policy. - If they are required by law to be covered by workers' compensation insurance, but the state allows them to be excluded, they can opt out of their employer's workers' compensation insurance coverage by attaching a sole proprietors, partners, officers, and others coverage exclusion endorsement to the policy.

Voluntary Compensation Endorsement

In some states, workers' compensation insurance is not required for employers who have fewer than a specified number of employees. In other states, employees are classified in a category making them ineligible for coverage by workers' compensation insurance. A voluntary compensation coverage endorsement allows the employer to extend workers' compensation insurance benefits to these types of employees. If these types of employees are then injured on the job, they have the option to either volunteer for the extended benefits coverage or file a lawsuit against the employer.

Employer Liability Insurance Exclusion - Example

Mike operates the hydraulic press for a car manufacturing plant. The press has a history of malfunctioning. The press malfunctions and injures Mike. Although Mike suffers a work-related injury, he sues the manufacturer of the hydraulic press and collects damages. The manufacturer of the hydraulic press then sues the car manufacturing plant for allowing Mike to continue to operate an unsafe machine. - Since there was no contract requiring indemnification by Mike's employer, this is a negligence action and would be covered under the employer's Employers' Liability Insurance policy.

Claimaint

The covered person making the claim or responsible for a loss

Claimant

The covered person making the claim or responsible for a loss

Valuation Date

The cutoff date for adjustments made to paid claims and reserve estimates in a loss runs report

EMR less than 1.0

The insured's losses are better than average

EMR greater than 1.0

The insured's losses are worse than average

Inception Date (aka effective date)

The start of an insurance policy

Exposure

The state of being at risk to a loss or claim

Gross Wage

The total amount paid by an employer to an employee. It includes the employee's regular and overtime pay. - Total amount paid to employee before taxes, deductions, premiums, etc.

Remuneration (AKA payroll)

The total amount paid to employee for work performed (Note: Remuneration includes many other items other than payroll in its calculation; however, payroll makes up the largest component. The majority of the industry references remuneration as payroll because of this)

Net Rate (AKA final billing rate)

The ultimate rate per class code after all debits and credits have been applied

Part 1: Workers' Compensation Coverage Limits

There are no set coverage limits for the amount an employee can be paid for Part 1 Benefits coverage. - Most other policies have a fixed limit

True or False: While limits vary from state to state, state laws have determined limits for employers' liability coverage.

True

Monopolistic states...

do not allow for various options as their state laws require employers to purchase a worker's compensation policy strictly from the state fund. Typically, the state fund policies do not include employers' liability coverage and a stop gap endorsement must be purchased to remove the coverage gap. (North Dakota, Ohio, Washington and Wyoming are monopolistic states)

Workers' Compensation Coverage provides benefits to employees that:

have been injured or sickened as a result of their employment

A policy limit is the

highest amount of damages the insurance carrier will pay for a claim that the insured's policy covers - Workers' compensation coverage limits vary depending on the state

An independent contractor is a

natural person, business, or corporation that provides goods or services to another entity under terms specified in a contract or within a verbal agreement. - Unlike an employee, an independent contractor does not work regularly for an employer and is usually paid on a freelance basis. Independent contractors often work through a company or franchise, which they themselves own, or may work through an umbrella company.

A __________ _____________________ is a change to an insurance policy that adds, modifies, or removes coverage.

policy endorsement - Once an endorsement is added to the insurance policy, it becomes part of the legal insurance contract - Unless the policy endorsement specifies a time period for which the endorsement is valid, it will typically remain part of the policy until it is renewed