WORKERS' COMPENSATION INSURANCE
Parts 3 through 6 of a Workers' Compensation and Employers Liability Insurance Policy Part Six: Conditions Cancellation
1. The named insured may cancel this policy. The named insured must mail or deliver advance written notice to the insurer stating when the cancellation is to take effect. 2. The insurer may cancel this policy. The insurer must mail or deliver to the named insured not less than ten days advance written notice stating when the cancellation is to take effect. Mailing that notice to the named insured at the named insured's mailing address shown in Item 1 of the Information Page will be sufficient to prove notice. 3. The policy period will end on the day and hour stated in the cancellation notice. 4. Any of these provisions that conflicts with a law that controls the cancellation of the insurance in this policy is changed by this statement to comply with the law.
Workers' Compensation and Disability: Additional Definitions Confining vs. Non-Confining Disabilities
A confining disability is one that requires the disabled to remain indoors, whether it is at a home, hospital, or some other facility. Some insurance policies require the disability to be "confining" in order to pay benefits. Non-confining disabilities are the opposite; the worker has a disability, but it does not prevent him or her from going outside.
Workers' Compensation and Disability Definitions Non-Occupational
A non-occupational disability is a disease, injury, sickness, or some other ailment that has no connection to a job or work-related activities. A non-occupational disability prevents the individual from being able to perform the regular duties of his or her job. A small number of states (Hawaii, California, New Jersey, New York, & Rhode Island) require employers to pay income benefits, such as Workers' Compensation, to non-occupationally disabled workers, even though they were not injured during or because of their job. In order to receive income benefits, the worker must be able to prove that he or she is not able to perform any of the necessary functions of their job, that there are no other occupations, for which they have the necessary training, education, and experience for, that they are able to perform despite the disability, that their disability is a result of injury or illness, that their medical condition requires the constant and continuous supervision and treatment by a licensed medical doctor.
Workers' Compensation and Disability: Additional Definitions Permanent Disability
A permanent disability is one that prevents workers from performing their material work duties and responsibilities for the rest of their lives. There are situations in which a worker who qualifies as permanently disabled is actually able to return to work, although his duties are likely only a portion of what they used to be. Situations such as these are predominant when workers recover from their injury, but not completely, and a doctor confirms that they never will fully recover. This means the person would become permanently partially disabled. Part of the permanent disability confirmation process is having a doctor confirm that the disabled's condition is not getting better or worse. Once the doctor reaches this diagnostic conclusion, he writes what is called a Permanent and Stationary (P&S) report. The P&S report includes such details as the worker's current and future medical care needs, any limits on the type or quantity of work, any specific medical problems - such as physical mobility or cognitive impairment issues, the level of pain the worker suffers from, and other defining characteristics of the disability.
Workers' Compensation Laws: Federal Laws Related to Workers' Compensation Federal Employer Liability Act (FELA) 45 USC § 54A
A regulation, standard, or requirement in force, or prescribed by the Secretary of Transportation under chapter 201 of title 49 or by a State agency that is participating in investigative and surveillance activities under section 20105 of title 49, is deemed to be a statute under sections 53 and 54 of this title.
Workers' Compensation Laws: Federal Laws Related to Workers' Compensation The Jones Act 46 USC § 30104
A seaman injured in the course of employment or, if the seaman dies from the injury, the personal representative of the seaman may elect to bring a civil action at law, with the right of trial by jury, against the employer. Laws of the United States regulating recovery for personal injury to, or death of, a railway employee apply to an action under this section.
Workers' Compensation and Disability: Additional Definitions Temporary (Short Term) Disability
A temporary disability, or short term disability, is when an employee is injured or becomes sick off the job. In other words, the workers' disability is not related whatsoever to their job; it did not take place on the job, and it wasn't caused by hazardous characteristics at a job location. Temporary (short term) disability insurance is designed to help employees injured off the job. Usually, the insurance will pay a predetermined percentage of the employee's salary for a specified and finite amount of time. The employee must be sick or injured in a way that prevents him from doing his job, either fully or partially. Temporary disability insurance is often paid by the employer under a group insurance plan, which has a contract agreement with an insurance provider. It can also be paid with money the employer specifically sets aside for temporary disability cases. Short-term disability benefits do not usually have a long elimination period; it can be anywhere for 1-14 days. Employers will almost always require the workers to use their sick days before they can start taking disability benefits. Qualifications for temporary disability benefits vary by state and employer. It is typical for employers to require their employees to have worked for the company a specific duration and to work full time in order to qualify for temporary disability benefits.
Parts 1 and 2 of a Workers' Compensation and Employer's Liability Insurance Policy Part Two: Employers Liability Insurance Excluded and Voluntary Coverage Categories
Although comprehensive in nature, workers' compensation coverages do not cover all types of employees. While occupations that are exempt from workers' compensation are not uniform across all states, the following are some occupations that are commonly ineligible for workers' compensation coverage... agricultural workers, domestic servants, casual workers, police and fire department covered by pension plans, anyone covered under a federal workers' compensation plan. In most states, executive officers are considered employees of the corporate entity and therefore automatically covered employees. Some or all executive officers are permitted to opt out of coverage depending on the rules in that particular state but are otherwise covered. In contrast to executive officers, sole proprietors, partners, and members of limited liability companies are typically excluded under state workers' compensation laws. The employer can add one or more of these classes of employment to their workers' compensation coverage through a voluntary compensation endorsement. An employee that is affected by the addition of this endorsement must sign a waiver which surrenders the employee's right to sue and, simultaneously, accepts workers' compensation as the exclusive remedy for occupational injuries and sicknesses. However, someone working in a "voluntary coverage" class of employment may choose to reject benefits under workers' compensation coverage that is extended by endorsement, and instead choose to pursue his/her rights to file suit against the employer. Costs incurred in this action, including any awards to the employee, would be covered by the Employer's Liability coverage included in the policy.
Workers' Compensation and Disability Definitions Occupational
An occupational disability is one that is obtained while at, or because of work on a job. This disability can come in the form of being diagnosed with a disease such as cancer due to long-term on-the-job exposure to asbestos. It can also come in the form of a catastrophic accident, such as falling off a beam, in which the worker is left unable to fulfill the duties of the job. In order to be considered occupational, the disability must be directly correlated with the workers' job.
Workers' Compensation Laws: Federal Laws Related to Workers' Compensation Federal Employer Liability Act (FELA) 45 USC § 55
Any contract, rule, regulation, or device whatsoever, the purpose or intent of which shall be to enable any common carrier to exempt itself from any liability created by this chapter, shall to that extent be void: Provided, That in any action brought against any such common carrier under or by virtue of any of the provisions of this chapter, such common carrier may set off therein any sum it has contributed or paid to any insurance, relief benefit, or indemnity that may have been paid to the injured employee or the person entitled thereto on account of the injury or death for which said action was brought.
Workers' Compensation Laws: Federal Laws Related to Workers' Compensation Federal Employer Liability Act (FELA) 45 USC § 60
Any contract, rule, regulation, or device whatsoever, the purpose, intent, or effect of which shall be to prevent employees of any common carrier from furnishing voluntarily information to a person in interest as to the facts incident to the injury or death of any employee, shall be void, and whoever, by threat, intimidation, order, rule, contract, regulation, or device whatsoever, shall attempt to prevent any person from furnishing voluntarily such information to a person in interest, or whoever discharges or otherwise disciplines or attempts to discipline any employee for furnishing voluntarily such information to a person in interest, shall, upon conviction thereof, be punished by a fine of not more than $1,000 or imprisoned for not more than one year, or by both such fine and imprisonment, for each offense: Provided, That nothing herein contained shall be construed to void any contract, rule, or regulation with respect to any information contained in the files of the carrier, or other privileged or confidential reports. If any provision of this chapter is declared unconstitutional or the applicability thereof to any person or circumstances is held invalid, the validity of the remainder of the chapter and the applicability of such provision to other persons and circumstances shall not be affected thereby.
Workers' Compensation Laws: Federal Laws Related to Workers' Compensation Federal Employer Liability Act (FELA) 45 USC § 59
Any right of action given by this chapter to a person suffering injury shall survive to his or her personal representative, for the benefit of the surviving widow or husband and children of such employee, and, if none, then of such employee's parents; and, if none, then of the next of kin dependent upon such employee, but in such cases there shall be only one recovery for the same injury.
Workers' Compensation Laws A Brief History of Workers' Compensation Origins
Before the development of the modern "Workers' Compensation" system, injured workers had little or no protection for either their jobs or their families. It was most common for injured workers to simply be replaced and employers were unlikely to take any steps to mitigate the harms or dangers in the workplace. The country of Germany was the first modern government to attempt to implement some form of a workers' compensation program. In 1838, Germany passed legislation that provided protections for both employees and passengers of railroads in the event of an accident. This was followed in 1854 with the passage of a law requiring certain categories of employers to contribute to a "sickness fund" and in 1876 by a "Voluntary Insurance Act," which was a failure in implementation. In 1883, German Chancellor Bismarck introduced the Sickness Bill followed by the Accident Bill in 1884. These programs were designed to assist workers in the event of accidental injury, illness or age, and formed the foundation for what has become the modern workers' compensation system. This was followed in 1897 by passage of a "workmen's" compensation act in England.
Workers' Compensation Premium Formula
Classification Rate x Payroll x Experience Modifier = Premium
Premium Computations Experience Modification Factor
Commonly referred to as the "X-Mod" in insurance circles, the experience modification factor is one of the most important factors in determining workers' compensation premiums. The X-Mod is a multiplication factor that is based upon the individual insured's history of on-the-job or work related accidents and the amounts of any claims made for such accidents. The X-Mod begins at the value of 1.0, as a representation of an average employer with average risks and an average history of claims or work-related accidents. When modified by the base premium amount, the result is unchanged, and an average employer with average risks, etc, would pay only the base premium amount. In practice, however, it's unlikely to see an X-Mod of a perfect 1.0. It's far more likely that the number will be higher or lower than the "average risk," represented by 1.0. Higher numbers, e.g. an X-Mod of 1.67, represent higher premiums that must be paid. In this case, the insured would pay 167% of the base premium. This 67% surcharge reflects the insured's poor history with on-the-job safety and claims management. On the other hand, an employer with a stellar track record of safety and near zero claims over time might have an X-Mod of only 0.89. In this case the insured would pay only 89% of the base premium and receive the 11% discount as a reward for having minimal claims and safe workers. Smaller employers represent a smaller pool of risk. Therefore, the experience modification factor, which deals with probabilities based upon large numbers, is an inappropriate representation of the exposures an individual employer might represent. Because of this, carriers also offer "merit" rating programs for smaller employers that take into account the individual employers history of claims made and loss to premium ratios and awards discounts based on these factors.
Parts 1 and 2 of a Workers' Compensation and Employer's Liability Insurance Policy Part Two: Employers Liability Insurance Exclusions to Employers Liability Coverage
Contractual Liability Punitive Damages (awarded because an employee was employed illegally) Injury (caused intentionally by the insured) Obligations Imposed by Workers' Compensation Law, Occupational Disease Law, Unemployment Compensation Law, Disability Benefits Law Injury that Occurs Outside the United States, its Territories, or Canada (this does not include injury to a resident temporary who is outside of the above mentioned territories) Damages Resulting from Violations of Employment Practice Laws Bodily Injury That Results from Work That Is Under Federal Jurisdiction Fines Imposed by a Violation of Federal or State Law Damages That Are Payable Under the Migrant and Seasonal Agricultural Worker Protection Act
Workers' Compensation and Disability Definitions Total Disability Own Occupation
Disability is being unable to perform the material and substantial duties of your main occupation; we consider your main occupation to be the one that you are engaged in at the time you become disabled. Typically, if a worker becomes disabled, he may need to work in a different occupation, so long as his disability does not prevent him from being able to execute the duties of his new job, to earn some level of income. This can be a burden on workers who are accustomed to a particular occupation. The worker may also decide unilaterally, because of his disability, that he wants to work in a different, possibly lower-paying occupation—in which case the disability income benefits could stop. That is why the own-occupation definition of disability is preferable. Insurers that use the own-occupation definition of total disability will consider the workers' occupation to be that which he was engaged in at the time he became disabled. The worker will not be penalized for choosing a different occupation, whatever it may be (so long as it's not the same one), and can continue receiving disability benefits (per the rules and provisions set forth in the insurance policy). As an example, let's say Todd injures his leg permanently while working in the construction industry; he has been a construction worker for twenty years. With his own-occupation disability insurance, he can decide to work and earn a wage as a teacher and still be able to keep his disability benefits. It should be noted that in today's insurance market, the own-occupation disability definition does not always reflect the traditional one. It used to be that most insurance companies had the same definition of own-occupation disability. Now some insurance companies offer "modified" own-occupation insurance that contains different language than the traditional own-occupation insurance. Buyers of disability insurance need to be cautious when purchasing own-occupation insurance to be sure it adheres to their expectations and needs. There are also an increasing number of disability insurance companies that no longer use the own-occupation definition any longer. Instead, they use the income replacement definition which is you are unable to perform the material and substantial duties of your occupation, and you are not engaged in any other occupation.
Premium Computations Rates
Each type of job classification comes with a specific rate that reflects the relative risk associated with that job classification.
Parts 1 and 2 of a Workers' Compensation and Employer's Liability Insurance Policy Part Two: Employers Liability Insurance
Employers Liability primarily provides coverage for an employer who becomes liable for an occupational accident or sickness which is not recognized as compensable by the workers' compensation laws of the relevant state or states. Remember that workers' compensation is no-fault coverage. Any occupational accident or sickness that an employer is held liable for cannot be ignored or overruled by the laws of a state or states that are involved. Employers Liability coverage is intended to handle other liability situations that fall outside the scope of normal workers' compensation coverage. The minimum per accident limit is and the minimum per employee occupational disease limit are both $100,000. The aggregate limit is $500,000.
Premium Computations: Adjustments and Discounts Premium Discounts
Employers with premiums in excess of $5,000 per year are eligible for a "volume discount" on their total premium. This discount is based on a graduated scale that increases as premium costs increase, i.e. higher premiums receive larger discounts.
Workers' Compensation Laws: Federal Laws Related to Workers' Compensation Federal Employer Liability Act (FELA) 45 USC § 52
Every common carrier by railroad in the Territories, the District of Columbia, the Panama Canal Zone, or other possessions of the United States shall be liable in damages to any person suffering injury while he is employed by such carrier in any of said jurisdictions, or, in case of the death of such employee, to his or her personal representative, for the benefit of the surviving widow or husband and children of such employee; and, if none, then of such employee's parents; and, if none, then of the next of kin dependent upon such employee, for such injury or death resulting in whole or in part from the negligence of any of the officers, agents, or employees of such carrier, or by reason of any defect or insufficiency, due to its negligence, in its cars, engines, appliances, machinery, track, roadbed, works, boats, wharves, or other equipment.
Workers' Compensation Laws: Federal Laws Related to Workers' Compensation Federal Employer Liability Act (FELA) 45 USC § 51
Every common carrier by railroad while engaging in commerce between any of the several States or Territories, or between any of the States and Territories, or between the District of Columbia and any of the States or Territories, or between the District of Columbia or any of the States or Territories and any foreign nation or nations, shall be liable in damages to any person suffering injury while he is employed by such carrier in such commerce, or, in case of the death of such employee, to his or her personal representative, for the benefit of the surviving widow or husband and children of such employee; and, if none, then of such employee's parents; and, if none, then of the next of kin dependent upon such employee, for such injury or death resulting in whole or in part from the negligence of any of the officers, agents, or employees of such carrier, or by reason of any defect or insufficiency, due to its negligence, in its cars, engines, appliances, machinery, track, roadbed, works, boats, wharves, or other equipment. Any employee of a carrier, any part of whose duties as such employee shall be the furtherance of interstate or foreign commerce; or shall, in any way directly or closely and substantially affect such commerce as above set forth shall, for the purposes of this chapter, be considered as being employed by such carrier in such commerce and shall be considered as entitled to the benefits of this chapter.
Workers' Compensation Laws: Federal Laws Related to Workers' Compensation US Longshore and Harbor Workers' Compensation Act (33 USC § 904)
Every employer shall be liable for and shall secure the payment to his employees of the compensation payable under sections 907, 908, and 909 of this title. In the case of an employer who is a subcontractor, only if such subcontractor fails to secure the payment of compensation shall the contractor be liable for and be required to secure the payment of compensation. A subcontractor shall not be deemed to have failed to secure the payment of compensation if the contractor has provided insurance for such compensation for the benefit of the subcontractor. Compensation shall be payable irrespective of fault as a cause for the injury.
Premium Computations Payroll
For purposes of calculating workers' compensation premiums, payroll is expressed in terms of $100 increments, rounded to the nearest hundred dollar amount, i.e. $149.00 in payroll would be rounded to $100 and $151.00 would be rounded to $200.00. Because payroll is expressed in $100.00 amounts, it is actually easier to factor the payroll portion of the calculation by treating the Classification rate as a percentage.
Workers' Compensation and Disability: Additional Definitions Second Injury Fund
If an individual who is partially disabled (has lost an eye, for example) suffers the same disability (loses the other eye) that individual would become totally disabled. One way states deal with this situation is to establish a second injury fund. This fund is designed to pay the difference in benefits that are required when a disabling accident occurs to an already disabled employee. One purpose of a second injury fund is to remove a disincentive for employers to hire disabled workers.
Parts 3 through 6 of a Workers' Compensation and Employers Liability Insurance Policy Part Six: Conditions Long-Term Policy
If the policy period is longer than one year and sixteen days, all provisions of this policy will apply as though a new policy were issued on each annual anniversary that this policy is in force.
Workers' Compensation Laws: Federal Laws Related to Workers' Compensation Federal Employer Liability Act (FELA) 45 USC § 53
In all actions on and after April 22, 1908 brought against any such common carrier by railroad under or by virtue of any of the provisions of this chapter to recover damages for personal injuries to an employee, or where such injuries have resulted in his death, the fact that the employee may have been guilty of contributory negligence shall not bar a recovery, but the damages shall be diminished by the jury in proportion to the amount of negligence attributable to such employee: Provided, That no such employee who may be injured or killed shall be held to have been guilty of contributory negligence in any case where the violation by such common carrier of any statute enacted for the safety of employees contributed to the injury or death of such employee.
Workers' Compensation Laws: Federal Laws Related to Workers' Compensation Federal Employer Liability Act (FELA) 45 USC § 54
In any action brought against any common carrier under or by virtue of any of the provisions of this chapter to recover damages for injuries to, or the death of, any of its employees, such employee shall not be held to have assumed the risks of his employment in any case where such injury or death resulted in whole or in part from the negligence of any of the officers, agents, or employees of such carrier; and no employee shall be held to have assumed the risks of his employment in any case where the violation by such common carrier of any statute enacted for the safety of employees contributed to the injury or death of such employee.
Parts 1 and 2 of a Workers' Compensation and Employer's Liability Insurance Policy Covered Losses
In order to qualify as a covered loss under workers' compensation coverage, the loss must be a "compensable injury" to an employee that occurs during the course and scope of employment. To be considered a compensable injury the following criteria must be met... The employee must work in a covered occupation The injury must occur while the employee is working or at work. The injury must occur while the employee is working the hours he or she was assigned or expected to work. The employee must have been performing the duties he or she is employed to do at the time of the injury. The cause of the injury must be reasonably related to the employee's job. A covered illness is... An illness that arises out of an individual's employment and is caused by conditions that are particular to that form of employment. Benefits will not be paid for the following... Intentional Injury Intoxication Legal Violation Failure to Use a Required Safety Feature Knowing Failure to Comply with Statutory Requirements
Workers' Compensation and Disability: Additional Definitions Partial Disability
Insurance carriers require workers to be unable to perform the "material duties" of their occupation to be considered disabled. At the time a worker files a claim, the insurance carrier will review the workers' job duties and identify which are "material". If the insurance company determines that the worker can perform some of the job duties, then he or she is considered partially disabled. The worker will also be considered partially disabled if he or she can perform all of the duties of their job, but for fewer hours each day. A person can be permanently or temporarily partially disabled.
Workers' Compensation Laws A Brief History of Workers' Compensation Wisconsin, 1911
It wasn't until 1911 that the State of Wisconsin passed the first workmen's compensation law that would remain standing against legal challenges. It was able to pass with the support of the business community after the legislature agreed to what has become known as "The Great Trade Off." In essence, the business community agreed to provide medical and wage replacement benefits, and the injured employee gave up his/her right to sue the employer. Ten more states passed workmen's compensation laws in 1911, four more joined in 1912 and still eight more adopted similar laws in 1913. By 1948, all U.S. states had some form of workmen's compensation laws on the books.
Premium Computations: Adjustments and Discounts Adjustment Upon Audit
It's important to remember the premium that is paid at the inception or beginning of the workers' comp policy is usually called the estimated premium. It is re-evaluated at the end of the year, or term, to determine if more premiums or credits are owed and to estimate the next term's premium. Workers' comp premiums are actually, therefore, paid in full "after the fact," once the entire payroll for a coverage period has been finalized. A carrier has the right to perform an audit of all policy related records and information for up to three years after the end of the policy. In a workers' compensation audit, a representative of the carrier will come in to verify the accuracy of both payroll records and the job classifications to which individual employees have been assigned. This potential reclassification represents the greatest potential for an insured to get "hit" with excess premiums over the estimated amounts. If employees are not properly classified at the start of the policy term the amounts due will be retroactive to the beginning of the policy period. Of course, it's also possible that a reclassification could result in a refund to the insured, but those situations usually don't present the problems presented by additional charges. Changes in estimated payroll, of course, can also have a significant impact on premium. In short, the need for accuracy at the start of the policy in both job classification and payroll estimation cannot be stressed enough.
Workers' Compensation Benefits Fall Into Four Broad Categories
Medical Expense Benefits (there are no time or dollar limits on medical expense benefits) Disability Income Benefits (disability income benefits are designed to replace a percentage of the injured workers' income) Death Benefits Rehabilitation Benefits
Workers' Compensation Laws: Federal Laws Related to Workers' Compensation Federal Employer Liability Act (FELA) 45 USC § 56
No action shall be maintained under this chapter unless commenced within three years from the day the cause of action accrued. Under this chapter an action may be brought in a district court of the United States, in the district of the residence of the defendant, or in which the cause of action arose, or in which the defendant shall be doing business at the time of commencing such action. The jurisdiction of the courts of the United States under this chapter shall be concurrent with that of the courts of the several States.
Workers' Compensation Laws: Federal Laws Related to Workers' Compensation Federal Employer Liability Act (FELA) 45 USC § 58
Nothing in this chapter shall be held to limit the duty or liability of common carriers or to impair the rights of their employees under any other Act or Acts of Congress.
Parts 1 and 2 of a Workers' Compensation and Employer's Liability Insurance Policy Part Two: Employers Liability Insurance Other Payments
Payments may also be made under the employer's liability coverage for family members of an insured's injured employee for care and loss of service or consequential bodily injury. Care and loss of service refers to a spouse's "loss of consortium," i.e. the company, affection and service of the other spouse. Other family members may also exercise claims for emotional damages as a result of the loss. Consequential injury refers to an injury suffered by a spouse or family member as a result of the original injury, e.g. an occupational infection occurs (a nursery care worker in a hospital acquires pink eye) which is then transmitted to family members (all of the workers' household members acquire pink eye).
Workers' Compensation and Disability: Additional Definitions Presumptive Disability
Presumptive disability insurance provisions are designed to protect against sudden, extreme disabilities. These include suddenly losing the ability to see, hear, speak, or walk. This provision may or may not be included in insurance provisions. For contracts that do include it, it does not usually cost extra; it is built into the contract. The primary characteristic of presumptive disability claims are that they start paying benefits immediately. This is referred to as receiving "first-day benefits".
Workers' Compensation and Disability: Additional Definitions Recurrent Disability
Recurrent disability provisions are written into many disability insurance contracts. If a worker, who was recently disabled between six to twelve months ago, becomes disabled again from the same cause or a related one, the insurance company will cover it and not require a new elimination period. Clauses like this can be very helpful, and in some cases lifesaving. It is common for individuals to suffer a serious and debilitating illness or injury, get better, then find out some time later that their previous injury has caused new complications or come back altogether.
Parts 1 and 2 of a Workers' Compensation and Employer's Liability Insurance Policy General Section
The General Section of a workers' compensation policy sets forth the five key terms and definitions required for this coverage, including inclusion of the details set forth on the "Information Page" (Policy Declarations), the insured, applicable law, and covered locations.
Premium Computations Job Classification
The NCCI (National Council on Compensation Insurance) creates "job classifications" for every type of work. These classifications are based on the relative risks and exposures that an individual might experience while operating within the usual and customary scope of work or duties that are common to a specific type of work. For example, in an office based environment, the relative risks are minimal. However, not all office workers are exposed to the same type or degree of risk. Each of these job classifications represents a different level of risk and exposure to on the job injury or illness. There are over 600 different job classifications. Job classification is extremely important in the calculation of a workers' compensation premium because an inaccurately classed employee can cost the employer significant amounts of money (which the employer might otherwise have saved) by requiring the employer to pay more than necessary. Alternatively, an inaccurately classed employee can leave the employer with an expensive bill at the end of the policy period because earlier payments, based on the misclassification, were too low. Matters get even more complicated when we take into account the fact that many workers may have more than one type of exposure. An excellent example would be the project manager for a construction company. This individual works primarily in the office and could be classed as a clerical worker. However, the project manager also visits and inspects job sites and ongoing projects where the exposures are much greater. This person, therefore, might also be classed in one of the many construction related job classifications, reflecting his/her exposure to these threats. Generally, when performing an audit, a workers' compensation auditor will assign employees to the job classification with the highest possible risk. This will, of course, have the net effect of increasing premiums.
Parts 1 and 2 of a Workers' Compensation and Employer's Liability Insurance Policy Part One: Workers' Compensation Insurance
The carrier agrees to pay all benefits required by law for bodily injury from an accident or illness, including death, for any covered worker so long as the bodily injury is "caused or aggravated by the conditions of...employment." The carrier will also cover any expenses required to defend any claim or lawsuit against the insured under this coverage. If other insurance of any sort applies, costs will be shared equally among the coverages until any one limit has been reached. In nearly every situation where two policies could pay out, workers' compensation would pay exclusively. In the few situations where another policy will pay benefits in addition to workers' compensation, the workers' comp coverage is primary. If the carrier makes any payments in excess of the benefits regularly provided by the workers' compensation law on behalf of the insured, the insured must reimburse the carrier promptly.
Workers' Compensation and Disability: Additional Definitions Residual Disability
The definition of a residual disability has two parts. The first definition is that the worker can still perform the substantial, "material" duties of their occupation, but suffers from a loss of income of at least 20% (or some other percentage, as defined in the policy). The second definition is that the worker suffers from a loss of time working and engaging in job duties as a result of a disability. Residual disability income benefits helps to protect a disabled or previously disabled worker who is beginning to work again but may not be back to the same performance, income, and sustainability levels as before the disability. The insurance company pays benefits that are proportionate to the amount of income-earning power that has been lost. If a worker has lost half of her income because of the disability, then the insurance company would pay 50% of her disability benefits, which would continue until the maximum benefit period has been reached. Residual disability and partial disability are often used interchangeably. While they are similar, there are subtle differences between the two. These differences are described below. Some insurance companies give residual and partial disability slightly different definitions. The difference lies in how the insurance company defines "disabled." For a partial disability, the insurance company may define disability as being unable to perform any job duties of the workers' main occupation during the elimination period. The elimination period is how long an individual must wait before the insurance company will pay benefits. One way to think of it is as a health insurance deductible. The longer the individual waits for the benefits, the lower their premium. For a residual disability, the insurance company may define disability as being unable to perform some job duties during the elimination period. In other words, partial disability means the worker must be completely disabled (not working) during the elimination period in order to be considered as such, and residual disability means the worker is not required to be completely disabled (can work some) during the elimination period. These definitions should not be confused with partial disability riders and residual disability riders, which are optional insurance provisions that provide slightly different benefits. These topics will be covered a little bit later in the course.
Workers' Compensation Laws A Brief History of Workers' Compensation Workers' Compensation in the US
The drive for workers' compensation in the U.S. began in 1855 with the passage of employer liability acts, laws which essentially gave employees the right to sue their employers for negligence. The State of New York passed a workmen's compensation law in 1910, but it was almost immediately overturned.
Parts 3 through 6 of a Workers' Compensation and Employers Liability Insurance Policy Part Six: Conditions Sole Representative
The insured first named in Item 1 of the Information Page will act on behalf of all insureds to change this policy, receive return premium, and give or receive notice of cancellation.
Parts 3 through 6 of a Workers' Compensation and Employers Liability Insurance Policy Part Six: Conditions Participation Provision
The insured shall be entitled to participate in the distribution of dividends to the extent and under the conditions prescribed by the Board of Directors of the company if the Board in its sole discretion declares a dividend in accordance with law after expiration of the policy period to which the dividend is applicable.
Parts 3 through 6 of a Workers' Compensation and Employers Liability Insurance Policy Part Four: An Insured's Duties if Injury Occurs
The insured's primary duty under this policy is to notify the carrier immediately if an occupational injury or illness occurs. The insured also has the following additional duties... Provide for immediate medical and other services required by the workers' compensation law, give the carrier or their agent the names and addresses of the injured persons and of witnesses, and other information they may need, promptly give the carrier all notices, demands and legal papers related to the injury, claim, proceeding or suit, cooperate with and assist the carrier, as they may request, in the investigation, settlement or defense of any claim, proceeding or suit, do nothing after an injury occurs that would interfere with the carrier's right to recover from others, the insured should not voluntarily make payments, assume obligations or incur expenses, except at their own cost.
The Insured Is Responsible For Any Payments That Must Be Made Because...
The insured's serious or willful misconduct, the insured knowingly employs an employee in violation of law, the insured fails to comply with a health or safety law or regulation or the insured discharges, coerces, or otherwise discriminates against any employee in violation of workers' compensation law.
Parts 3 through 6 of a Workers' Compensation and Employers Liability Insurance Policy Part Six: Conditions Inspection
The insurer has the right, but is not obliged, to inspect the named insured's workplaces at any time. The insurer's inspections are not safety inspections. They relate only to the insurability of the workplaces and the premiums to be charged. The insurer may give the named insured reports on the conditions the insurer finds. The insurer may also recommend changes. While they may help reduce losses, the insurer does not undertake to perform the duty of any person to provide for the health or safety of the named insured's employees or the public. The insurer does not warrant that the named insured's workplaces are safe or healthful or that they comply with laws, regulations, codes or standards. Insurance rate service organizations have the same rights the insurer has under this provision.
Parts 3 through 6 of a Workers' Compensation and Employers Liability Insurance Policy Part Six: Conditions Transfer of Your Rights and Duties
The named insured's rights or duties under this policy may not be transferred without the insurer's written consent. If the named insured dies and the insurer receives notice within thirty days after the named insured's death, the insurer will cover the named insured's legal representative as insured.
Parts 1 and 2 of a Workers' Compensation and Employer's Liability Insurance Policy
The standard workers' compensation policy form is produced by neither the Insurance Services Office (ISO) nor the American Association of Insurance Services (AAIS), but rather by a third body: the National Council on Compensation Insurance (NCCI). This is a very different type of policy than the policies which we have been examining up until now, not the least of which comes from the complete absence of any exclusions. Again, it must be stressed that workers' compensation is "no fault" insurance, meaning liability does not play a role in the extension of coverage. An incident simply has to occur to be covered. Period. For this reason, there are, of course, no exclusions. Likewise you will not find clauses pertaining to limits of liability or a variety of definitions, and the conditions of the contract are substantially curtailed. Further, because each state has authority to regulate workers' compensation coverages within its jurisdictional limits, the policy language refers simply to compliance with State Law, rather than specifying many specific terms and conditions. The policy opens with an informational page which substitutes for the Declarations Page in a standard policy. This identifies the name of the insured, locations of operations and similar types of information, including the total estimated premium for the policy period.
Workers' Compensation Laws: Federal Laws Related to Workers' Compensation Federal Employer Liability Act (FELA) 45 USC § 57
The term "common carrier" as used in this chapter shall include the receiver or receivers or other persons or corporations charged with the duty of the management and operation of the business of a common carrier.
Workers' Compensation Laws Types of Workers' Compensation Laws Compulsory vs. Elective Coverage
The terms compulsory vs. elective coverage refer to whether or not it is legal within a state's jurisdiction for an employer to choose whether or not to carry workers' compensation insurance. Once upon a time, it was possible for an employer to make this determination for themselves. Today, however, in almost every state, this is now a mandatory coverage, i.e. compulsory. The State of Texas is now the only state in which workers' compensation coverages are elective. An employer in the State of Texas is still liable for these losses, however, regardless of whether or not the employer chooses to carry insurance coverage against them. Elective coverage should not be confused with "self-insurance," wherein an employer sets aside financial reserves to cover potential losses. This concept will be described in greater detail later in this lesson, with specific respect to self-insurance for workers' compensation coverage. For more detailed information on the topic of Self-Insurance, in general, please review the appropriate section of our second class in this course, General Principles of Insurance.
Parts 1 and 2 of a Workers' Compensation and Employer's Liability Insurance Policy Part Two: Employers Liability Insurance Third-Party Actions
Third-party actions arise when the injury or illness occurs in the course and scope of employment but is caused, directly or proximately, by a third-party or a third-party's product(s). For example, if an employee is injured by a poorly designed machine at work, workers' compensation would cover the employee's injuries and care, but the insured might also have a claim against the machine's manufacturer for poor design. If the third-party is found liable and must pay a claim to the employee, they may then choose to counter-complain against the insured for comparative negligence. In this case, the carrier would also pay the costs to defend against this suit under the Employer's Liability portion of the policy. The carrier might also have a right to third-party action for purposes of subrogation. If a third-party is found to be directly or proximately at cause for an injury, accident or illness, the carrier will have "first right of recovery" from the third party under its subrogation rights. This means that if the employee wins a suit for $250,000, but the carrier has already paid out $52,000 in workers' compensation benefits, the carrier will first be paid that $52,000 and the employee would receive only $198,000.
Parts 3 through 6 of a Workers' Compensation and Employers Liability Insurance Policy Selected Endorsement: Voluntary Compensation
This endorsement enables an employer to extend the benefits provided by the Workers' Compensation Act to employees who may not be entitled to benefits under the terms of the Act, such as executive officers, partners, sole proprietors, farm workers, domestic employees, or employees traveling overseas. If such an employee is injured in the course of employment, he or she may elect to accept the scale of benefits provided by the designated workers' compensation law or pursue common law remedies.
Workers' Compensation Laws Types of Workers' Compensation Laws Monopolistic vs. Competitive Coverage
This principle refers to how workers' compensation coverage is sold within a state. In a monopolistic coverage state, the State is the only provider for workers' compensation coverage and private commercial carriers are not allowed to participate in the Workers' Compensation program. In a competitive coverage state, an employer may choose between a state insurance fund or from among as many approved and licensed carriers for that state as may be available.
Parts 3 through 6 of a Workers' Compensation and Employers Liability Insurance Policy Part Five: Premium
This section of the policy details how premium is calculated for workers' compensation policies. Workers' Compensation premiums are calculated based upon risk ratings assigned to all potential types of work an employee might perform. This rating data is contained in the carrier's workers' compensation manuals. The actual classification of each employee must also be identified. Premium is then calculated based on the rating for that job classification expressed as a percentage of the payroll paid to that employee. Payroll, in this case, includes bonuses, benefits, and many other forms of compensation. Because payroll may be difficult to accurately forecast, premiums shown on the Declarations Page are only estimated premiums. Final premiums will be calculated after the close of the policy period based upon actual payroll made during the policy period. The carrier reserves the right to perform an audit on all records related to the policy for a period up to three years after the end of the policy term.
Factors That Determine Workers' Compensation Premium
Total Amount Of Payroll Employee Job Classification The Company's Experience Modifier
Workers' Compensation and Disability Definitions Total Disability Any Occupation
Unlike the own-occupation definition of disability, the any-occupation definition explicitly prohibits working in any occupation, regardless of whether or not it is different from a workers' primary occupation. It is similar to the income replacement definition. Insurance providers, in an attempt to make the language not sound so "harsh" often include words such as "...the inability to perform the required duties of any occupation for which the individual has experience, training, and education." These words are really just a catch-all that prohibit workers from working in any occupation that they may have otherwise been able to.
Parts 3 through 6 of a Workers' Compensation and Employers Liability Insurance Policy Part Three: Other States Insurance
Workers' Compensation Insurance is provided automatically only for workers and operations located in the employer's primary "home state," i.e. the state shown in the address on the Information Page of the policy. However, if more than one state is shown on the Information Page, then workers' compensation coverages are extended to employees and operations taking place in that state. Further, if the employer begins operations in additional states not shown on the Information Page, employees and operations in that state will nonetheless be covered, as long as at least one additional state is shown and the insured notifies the carrier within 30 days of beginning operations in that state. Finally, if any additional states are shown on the Policy Information Page, the insured must notify the carrier immediately once they begin work in any of those listed states.
Premium Computations
Workers' compensation premiums represent one of the more unique and challenging aspects of commercial casualty coverages. Premium payments made by the named insured during the policy term are only estimated premium payments. The actual final premium for the policy period will not be calculated until the policy has expired. This is done because workers' compensation premiums are based on the amount of payroll actually paid during that period. An employer can estimate this amount, but factors such as overtime, new hires, terminations, unexpected closures or extended hours, and more can all impact total payroll over a long period of time.
