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16.0 Workers' Compensation Insurance

Learning Objectives​

Upon completing this chapter, you should be able to:

  1. Describe the purpose and function of Workers’ Compensation insurance.
  2. Distinguish between compulsory and elective employment laws and explain how they affect Workers’ Compensation coverage.
  3. Explain the differences between occupational accidents and occupational diseases or illnesses.
  4. Identify the benefits provided under Workers’ Compensation insurance, as permitted by applicable state laws.
  5. Describe the purpose and role of Employers Liability insurance.
  6. Identify and explain the six parts of the Workers’ Compensation and Employers Liability insurance policy.

Overview​

Workers’ Compensation is one of the most widely recognized forms of commercial liability insurance. It serves as the exclusive remedy for most work-related injuries and illnesses sustained by employees, providing benefits regardless of fault. By ensuring that eligible employees receive medical and wage replacement benefits without the need to establish negligence, Workers’ Compensation reduces the likelihood of litigation for both employees and employers. Workers’ Compensation laws are established at the state level, and each state determines its own requirements for mandatory coverage, employee eligibility, and the types and amounts of benefits available. As a result, insurance professionals must understand the specific Workers’ Compensation statutes that apply within the states in which they conduct business.

Although Workers’ Compensation requirements are governed by individual state laws, the standard Workers’ Compensation and Employers Liability policy developed by the National Council on Compensation Insurance (NCCI) serves as the foundation for coverage in most states. This policy establishes a consistent framework for insuring employers against their legal obligations arising from employees’ work-related injuries and illnesses. It provides Workers’ Compensation benefits required by state law and Employers Liability coverage for certain claims that fall outside the Workers’ Compensation system.

This chapter examines the fundamental principles of Workers’ Compensation insurance, including the legal framework, employee eligibility requirements, and the benefits typically provided under state law. It also explains the provisions of the National Council on Compensation Insurance (NCCI) standard Workers’ Compensation and Employers Liability policy, which serves as the basis for coverage in most states. State-specific laws and requirements are addressed separately in the chapter dedicated to state Workers’ Compensation statutes.

An Insurance Story

Workplace accidents can occur in any business, regardless of the industry or the level of perceived risk. While a Commercial General Liability (CGL) policy protects a business against many third-party liability claims, it does not cover work-related injuries sustained by employees. Instead, those injuries are generally covered exclusively through Workers’ Compensation insurance.

Consider The Furniture Company and Coffee Café. Both businesses are required by state law to carry Workers’ Compensation insurance for their employees. If an employee at Coffee Café suffers a burn while preparing beverages, or a warehouse employee at The Furniture Company sustains a back injury while lifting furniture, Workers’ Compensation provides the benefits required under applicable state law. These benefits may include medical expenses, wage replacement, rehabilitation services, and other statutory benefits, regardless of which party was at fault for the injury.