Workers' Compensation Insurance (Chapter 14)

Employers Liability Insurance

Employers Liability insurance covers the gap between the Workers' Compensation policy and the General Liability policy. Its provisions include coverage for: 1. Injuries sustained by non-employees that arise out of covered employment 2. A spouse's loss of consortium 3. Damages under the Doctrine of Dual Capacity, which applies when an employee is injured by a product the employer manufactures 4. Consequential bodily injury (when another party suffers injury resulting from the employee's injury)

Exclusive Remedy

Exclusive remedy means that 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 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

Permanent Partial

Permanent partial disability describes 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.

Death and Survivor Benefits (Funeral Expense Benefit)

Survivor income benefits are a percentage of the deceased worker's wages and are also provided to the surviving spouse and any dependent children.

Temporary Partial

Temporary partial disability describes an injury that allows an employee to do some work, but prevents him/her from performing his/her regular duties until full recovery. Benefits are usually calculated as a percentage of the difference in the wages.

Temporary Total

Temporary total disability describes an injury from which an employee is expected to recover and return to work, but which prevents the employee from doing any work while recovering. Benefits begin after a waiting period of 3 days. Retroactive benefits will later be paid back to the initial date of disability, if the disability lasts beyond 14 days. The benefit amount is a percentage of the statewide average weekly wage, subject to minimum and maximum limits.

Limits of Liability

The minimum limits are $100,000 per accident for injuries, $100,000 per employee for disease, and $500,000 aggregate for disease.

Covered Insured

The purpose of this is insurance is to protect the employer regarding legal obligations arising out of a work related loss of a covered employee. The insured under this policy is the employer, who may be an individual (sole proprietor), partnership, corporation, or other legal entity. The employer is responsible for paying the premium. Injured employees are entitled to the benefits, but are not considered insureds as the policy is purchased and designed to protect the liability of the employer.

Other States Insurance

This coverage applies only if more than one state is shown in the Policy Territory. If the insured begins work in a state listed in 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 entering a state not listed in the Information Page.

Occupational Disease

An occupational disease must arise out of the course of employment and must 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 may likely be eligible for benefits.

Independent Rating Organizations

Any rating organization must apply for and acquire a license from the Commissioner before being allowed to operate in California. The California Workers' Compensation Inspection Rating Bureau is a nonprofit rating organization comprised of all companies licensed to transact workers' compensation in California. Rating organizations are maintained in this state to: 1. Provide reliable statistics and rating information with respect to Workers' Compensation and employer's liability insurance 2. Collect and tabulate information and statistics for the purpose of developing pure premium rates to be submitted to the Commissioner for issuance and approval 3. Inspect risks for classification or rate purposes and to furnish to the insurer and, upon request of the employer, to the employer full information concerning the rates applicable to the employer's insurance Many states have their own rating bureaus and there are national rating organizations, such as the National Council on Compensation Insurance and the American Cooperative Council on Compensation Technology.

State Compensation Insurance Fund (SCIF)

California has established State Insurance Funds as an alternative for an employer to purchase Workers' Compensation Insurance. The fund operates as a public insurer 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. In California, this fund is known as the State Compensation Insurance Fund (called "State Fund" for short). Employers who are unable to purchase coverage in the voluntary market may purchase coverage directly from the fund and they cannot be declined by it. Licensed brokers may also place business through the fund.

Medical Benefits

California provides unlimited coverage for all necessary medical (including hospital) expenses related to a covered injury or illness without time or dollar limitations. Note: In California, an employee is entitled to no more than 24 chiropractic and 24 physical therapy visits per industrial injury.

California Rating System

California's Workers' Compensation experience rating system is a merit rating system intended to provide employers a direct financial incentive to reduce work-related accidents. The experience rating system objectively distributes the cost of Workers' Compensation insurance more equitably among employers assigned to particular industry classifications. Not all employers are eligible for experience rating. For those employers who qualify, experience rating is mandatory. Insurers are allowed open competition premium determination as long as they notify the Department of Insurance of these rates; with this system the Insurers generally charge what they wish without prior approval.

Compulsory vs. Elective

Compulsory - Employers are required by law to provide Workers' Compensation benefits to their employees with insurance, or demonstrate the ability to provide required benefits. 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 - 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. In California, Workers' Compensation coverage is compulsory. Benefits must be provided by an employer.

Supplemental Job Displacement Service Benefit

For those whose disability prohibits them from returning to their usual job, this benefit provides compensation after the end of a temporary disability. A disabled employee becomes eligible for this benefit if he/she has not returned to work within 60 days of the last disability payment. The benefit is a non-transferrable voucher that can be used to pay for retraining, skill enhancement, or both. The voucher amount is between $4,000 and $10,000 depending upon the percentage of permanent disability. No more than 10% of the amount may be used for counseling.

24-Hour Care Coverage

In the State of California, an Accident and Health Agent or a Fire and Casualty Broker-Agent are authorized to transact 24-Hour Care Coverage. 24-Hour Care Coverage is defined as the joint issuance of a Workers' Compensation Policy with a Disability Insurance Policy, health service plan contract, or other medical insurance coverage for nonoccupational injuries and illnesses. This product cannot include a Life Insurance Policy. The main feature of 24-Hour Care Coverage is to lower the cost of Workers' Compensation and health insurance coverage for employers in California. This is accomplished through insurers combining their claim database for both types of coverage, and causing the same sort of cost control common on the nonoccupational side to also be utilized in Workers' Compensation. Combining the coverage also allows more managed care programs to be used for Workers' Compensation. The Accident and Health Agent who sells 24-Hour Care Coverage is required to obtain 4 hours of continuing education credits on Workers' Compensation Insurance. Instruction of the coverage must be included in the prelicensing course curriculum.

Monopolistic vs. Competitive

Monopolistic - Workers' Compensation insurance is only available through a state fund. Competitive - Workers' Compensation insurance is available through private insurers. In California, Workers' Compensation is available through both private insurers or through the State Fund, making California a competitive state.

Permanent Total

Permanent total disability describes 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. Benefits are paid for life.

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, though some states have set up special state funds to pay for rehabilitation costs that are funded by taxes levied against insurers and self-insureds.

Employment Covered

Since Workers' Compensation is a relationship between the employee and the employer, Workers' Compensation insurance is usually required if the employer: 1. Retains the right to direct the way work shall be completed 2. Supplies the necessary equipment and tools to complete the work 3. Determines the work hours 4. Determines the end results of the work to be completed 5. Controls the frequency and timing of compensation for work By contrast, a worker is an independent contractor if he/she determines how work is conducted and compensated, and supplies his or her own equipment. Independent contractors are not eligible for Workers' Compensation, and must purchase their own liability insurance. In California, residence (domestic) employees are required to be covered by endorsement on a homeowners policy if they: 1. Were employed for at least 90 days immediately before the injury occurred 2. Worked at least 52 hours; and 3. Earned a minimum of $100 Agricultural and farm laborers are also required to be covered under the California Workers Compensation Act.

Federal Workers' Compensation Laws

State Workers' Compensation programs do not apply to all employees. Some types of workers are covered by federal laws which preclude coverage at the state level. The Federal Employers Liability Act applies to interstate railroad workers. The U.S. Longshore 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 applies to the crews of ocean vessels. The Federal Employees Compensation Act applies to all U.S. civilian Federal employees. The Defense Base Act applies to workers on military bases outside the United States.

Second Injury Fund

The Second Injury Fund pays compensation to an employee who has already suffered a prior disabling injury, and now sustains a subsequent injury, when 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 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. This fund is designed to encourage employers to hire people with disabilities by limiting employers' liability for subsequent injuries.

Voluntary Compensation Endorsement

This endorsement is used when an employer wishes to provide Workers' Compensation benefits to employees even though the law does not require the employer to provide coverage. The following information must be provided in the endorsement: 1. The class of employees to be covered 2. The state of employment 3. The designated state's Workers' Compensation Law

Foreign Coverage Endorsement

This endorsement makes the coverage under a Workers' Compensation Policy around-the-clock, continuous coverage for those employed in foreign operations or endeavors. It covers locally prevalent diseases to an area as an occupational disease, and includes the option to buy coverage for the additional amount necessary to return the employee to the United States.

Retrospective Rating

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.

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% 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."

Premium Discount

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.

Overview

Under Workers' Compensation laws, benefits must be paid for on-the-job injuries, regardless of negligence on anyone's part. This means that even if the employee is injured through his/her own negligence, he/she is entitled to benefits. Because Workers' Compensation insurance is an exclusive remedy program, it supersedes the right of the injured employee to sue for damages. In addition to providing for payment of benefits to employees as prescribed by law, Workers' Compensation policies provide Employers Liability Coverage to the employer for employees' bodily injury claims that do not fall within the scope of Workers' Compensation laws.

Participating Plans (Dividend)

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.

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.

Exclusions

1. Liability assumed under a contract 2. Punitive damages awarded because an employee was employed in violation of law 3. Bodily injury to an employee while employed in violation of law 4. Any obligation imposed by any Workers' Compensation, Occupational Disease, Unemployment Compensation, or Disability Benefits law 5. Bodily injury intentionally caused by the insured 6. 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) 7. Damages arising out of coercion, criticism, defamation, evaluation, reassignment, discipline, harassment, humiliation, or termination of or discrimination against any employee, as well as arising from any personnel practices, policies, acts, or omissions 8. Bodily injury arising from work that falls under federal jurisdiction 9. Fines or penalties imposed for a violation of federal or state law 10. Damages payable under the Migrant and Seasonal Agricultural Worker Protection Act

Self-Insurance Plans and Employer Groups

California allows 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.

Covered Injuries

Covered injuries are those that arise out of, and in the course of, employment. This means: 1. The injury must occur while the employee is at work or working 2. 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 injury results from intoxication (unless the intoxicant was furnished by or consumed with the knowledge or consent of the employer).

Disability Income Benefits

Disability benefits compensate for the reduced ability to work arising out of a covered injury. There are 4 types of disability.