Chapter 16 Insurance Exam

Workers’ Compensation Insurance

One of the most well-known types of commercial liability insurance coverage is Workers’ Compensation, which is the exclusive remedy for workplace injuries to employees. Because benefits are paid regardless of fault, Workers’ Compensation minimizes litigation for both employees and employers by automatically providing benefits to eligible employees suffering from occupational accidents and occupational illnesses. Each state has its own Workers’ Compensation statutes, which determine mandatory coverage, employee eligibility, and the benefits provided to injured workers.

Though Workers’ Compensation coverage is ultimately dictated by state law, the policy established by the National Council on Compensation Insurance (NCCI) is the industry standard in most states. This Workers’ Compensation and Employers Liability policy provides coverage for the damages the insured business is legally obligated to pay for employees’ workplace injuries.

Types of Laws - Assumption of Risk

This defense placed all the risk on the employee as being responsible for knowing the work conditions prior to employment

Types of Laws - Fellow Servant Rule

This defense removed the employer’s negligence if a fellow employee contributed in any way to the loss

Types of Laws - Contributory Negligence

This defense was used to argue that the employee was partially at fault and therefore not eligible to recover benefits from the employer

Types of Laws - Exclusive Remedy

for job-related injuries, meaning the employer assumes absolute liability for injuries to employees and injured employees are barred from suing the employer, even if they refuse Workers’ Compensation benefits

Compulsory States

jurisdictions where Workers’ Compensation benefits are mandated by state law and employers are required to provide Workers’ Compensation benefits to their employees, either with commercial insurance or by utilizing approved self-insurance. If a policy does not comply with state law, the insurer or self-insurer is required to provide all legally mandated benefits. Employers who violate state law by not providing Workers’ Compensation benefits are not protected from lawsuits. Most states are compulsory states.

Elective States

jurisdictions where Workers’ Compensation benefits are not mandated by state law, meaning employers have the choice to accept or reject Workers’ Compensation laws. If an employer chooses to reject the Workers’ Compensation laws and not provide benefits, an injured employee may file a claim or lawsuit against the employer for injuries. In this case, the employer is denied the use of common law defenses, including assumption of risk, the fellow servant rule, and contributory negligence defenses.

Monopolistic State

Workers’ Compensation insurance is only available through the state fund

Competitive States

Workers’ Compensation insurance is available through private insurers, and any state fund that exists competes with the private insurers. Most states are competitive states

Federal Workers’ Compensation Laws - The Jones Act

applies to the crews of ocean vessels

Federal Workers’ Compensation Laws - The US Longshore and Harbor Workers’ Compensation Act

which applies to non-crew workers of ocean vessels, such as workers who load, unload, build, or repair ships

Federal Workers’ Compensation Laws - Federal Employers Liability Act (FELA)

applies to interstate railroad workers

Federal Workers’ Compensation Laws - Outer Continental Shelf Lands Act

applies to offshore oil rig workers

Federal Workers’ Compensation Laws - Migrant and Seasonal Agricultural Worker Protection Act

applies to farmworkers and other agricultural workers working on a seasonal basis or traveling across state or national borders to find work

Federal Workers’ Compensation Laws - Federal Mine Safety and Health Act

applies to those working in coal mines

Federal Workers’ Compensation Laws - Federal Employees Compensation Act

applies to all civilian federal employees in the United States

Federal Workers’ Compensation Laws - Defense Base Act

applies to workers on military bases outside of the United States

Employment Conditions - Covered Employment

Because Workers’ Compensation insurance responds to workplace injuries, it only provides coverage if an employment relationship exists between the employer and the injured person. An employer-employee relationship exists if the employer:

• Retains the right to direct the way work will be completed

• Supplies the necessary equipment and tools to complete the work

• Determines the work hours

• Determines the end results of the work to be completed

• Controls the frequency and timing of compensation for work

This definition applies generally, but each state will further clarify types of employment that are or are not covered. For example, some states may include minors and apprentices as employees covered by Workers’ Compensation.

Employment Conditions - Exempt Workers

Workers’ Compensation statutes require employers to provide benefits to all employees unless an employee is exempt. The exemptions vary by state. For example, some states may exempt workers if the employer has fewer than 1–3 employees. Other states may use the number of hours worked or wages to determine which workers are exempt.

Other workers may be exempt based on their job duties, such as:

• Casual laborers whose work is non-recurring or irregular

• Independent contractors, such as plumbers, electricians, and landscapers who work under contract for more than one employer. These workers often work beyond the employer’s control and outside the scope of the employer’s business, meaning they do not have an employer-employee relationship with the insured employer. The exact definition and exempt status of independent contractors varies by state.

• Agricultural workers, such as farm and ranch laborers. These workers are typically covered by federal laws.

• Domestic employees

• Sole proprietors

• Executive officers and directors

• Police and fire department employees covered by pension plans

• Those covered by a federal Workers’ Compensation law

Employment Conditions - Covered Injuries

Covered injuries are those that arise out of, and in the course of, employment. This means that:

• The injury must occur while the employee is at work or working

• The employee is working the hours they are designated or expected to work

• The employee is performing the duties that they were employed to do

• The injury must arise from a risk that is reasonably related to employment

The employer can deny benefits to employees who intentionally injure themselves or if the injury results from intoxication. Injuries resulting from legal violations, the failure to use required safety devices, the willful failure to follow posted employment rules, and the willful failure to comply with statutory requirements are also common reasons to deny benefits. The burden of proof is on the employer to prove that the injury arose from one of these exclusions.

The injuries are not considered occupational if they occurred at the workplace while the employee was present as a member of the general public, or while the employee was doing personal tasks, unrelated to employment, outside of their assigned work hours.

Employment Conditions - Occupational Accidents

Occupational accidents are unexpected and unplanned events that occur in the course of employment, are caused by hazards inherent and related to employment, and cause injury to one or more employees. These are occurrences that happen while employees are acting within the course and scope of their employment, on- or off-premises.

Employment Conditions - Occupational Diseases and Illnesses

An occupational disease is a health disorder that arises out of the course of employment and is caused by occupational hazards that are particular to that employment.

Workers’ Compensation Insurance - Benefits Provided

Each state determines benefit levels, benefit types, and definitions of disability. However, there are some common definitions. Typical benefits include medical benefits, disability income benefits, rehabilitation benefits, death benefits, and survivor benefits.

Workers’ Compensation Insurance - Benefits Provided: Medical Benefits

Medical benefits typically provide unlimited coverage for all necessary medical expenses—including hospital expenses—related to the covered injury that occurred during the policy period.

Workers’ Compensation Insurance - Benefits Provided: Disability Benefits

Temporary Total Disability (TTD): A temporary total disability is an injury from which an employee is expected to recover and return to work, but they are unable to do any work while recovering. For example, an employee is stocking a retail store, and falling merchandise causes a broken arm and leg. The stocker is not allowed to work while recovering, but they are able to go back to the same job after recovering.

Permanent Total Disability (PTD): A permanent total disability is an injury that prevents an employee from being able to do any work for the rest of their life. For example, a delivery driver is involved in an accident and suffers a spinal cord injury. They are not expected to recover from it, and the injury keeps them from doing any work. Benefits are subject to the same weekly benefit percentage and the same minimum and maximum limits as temporary total disabilities. In most states, benefits are paid for life.

Temporary Partial Disability (TPD): A temporary partial disability is an injury after which an employee is able to do some work, but they are not able to earn their usual wage until full recovery. For example, a construction worker sprains an ankle while working on a project. They are offered light duty work, but with a pay cut. Benefits are usually calculated as a percentage of the difference in wages.

Permanent Partial Disability (PPD): A permanent partial disability is an injury after which an employee is able to do some work, but they will never fully recover. The employee can still earn a wage, but not as much as they would have earned if the injury had not occurred. For example, a court stenographer is diagnosed with carpal tunnel syndrome, deemed to originate from the stenographer’s job. Though they are able to do some work, they are not able to work as many hours as they worked before the disease’s onset, leading to a loss of income. Benefits may be limited by a schedule of benefits, which specify a specific dollar amount for specific permanent partial injuries (such as loss of an eye or hand), payable for a fixed number of weeks.

Workers’ Compensation Insurance - Benefits Provided: Rehabilitation Benefits

Rehabilitation benefits may include physical therapy and vocational training, which are utilized to return the injured employee to work as soon as possible. These benefits are usually paid by the insurer, but some states have established special state funds to pay for rehabilitation costs. These state funds are funded by taxes levied against insurers and self-insureds

Workers’ Compensation Insurance - Benefits Provided: Death and Survivor Benefits

If an employee dies, death benefits may be paid to the employee’s family to provide financial support for final expenses, such as final medical bills, and to cover funeral and burial expenses. The amount of this burial allowance, also known as the Funeral Expense Benefit, is set by state law.

Because the employee’s survivors experience a loss of income being brought into the household, survivor benefits provide ongoing cash benefits to make up for this income loss, provided as a percentage of the deceased worker’s wages. Survivor benefits are paid to the surviving spouse, in which case they usually end if the spouse remarries, and to dependents, typically until age 18 or longer under certain circumstances.

Second Injury Fund

There may be instances in which an employee who has already suffered a prior disabling injury later sustains a subsequent injury, and the combination of the two injuries creates a greater disability than what would have been created if the employee had only suffered the second injury. In these instances, a Second Injury Fund helps pay compensation on behalf of an employer to an employee who sustained this kind of injury.

The purpose of the fund is to encourage employers to hire people with disabilities by limiting the employer’s liability for subsequent injuries. The employer is responsible only for the compensation that would have been paid had the second injury occurred alone, without the existence of the prior injury. The Second Injury Fund pays the remaining compensation owed to the employee.