16.4 Second Injury Fund

A Second Injury Fund provides benefits when an employee with a preexisting disabling condition sustains a new work-related injury, and the combined effect of both injuries results in a greater disability than the second injury alone would have caused. In these cases, the fund helps pay the additional compensation owed to the employee, reducing the employer's financial responsibility.

The Second Injury Fund encourages employers to hire individuals with preexisting disabilities by limiting their financial responsibility for later workplace injuries. The employer is responsible only for the benefits that would have been owed for the second injury alone, while the Second Injury Fund pays the additional compensation resulting from the combined effect of the prior disability and the new injury.

An Insurance Story

An employee with a preexisting shoulder condition is hired to work in a furniture store. While moving merchandise, the employee sustains a new work-related shoulder and arm injury.

If the same injury had occurred to an employee without the preexisting condition, the employee could have continued working with modified duties and would not have qualified for disability income benefits. Because the preexisting condition makes the new injury more severe, however, the employee is temporarily unable to work and qualifies for temporary total disability benefits.

The employer’s Workers’ Compensation and Employers Liability policy pays the medical expenses and rehabilitation costs for the work-related injury. The employee’s temporary total disability benefits are paid by the Second Injury Fund because the disability results from the combined effect of the preexisting condition and the new workplace injury.

In most states, the Second Injury Fund is financed through assessments on insurers and self-insurers, although some states also use general state revenues.