Recap of Chapter Sixteen

Workers’ Compensation is the exclusive remedy for most job-related employee injuries. Under this system, employers assume liability for covered workplace injuries, and injured employees generally waive the right to sue the employer. Benefits are provided regardless of fault. Covered injuries include occupational accidents, which are unplanned events that occur during employment and cause injury, and occupational diseases or illnesses that arise from conditions of employment.

Eligible employees are those who have an employer-employee relationship, in which the employer directs the work, provides the equipment, and determines the employee’s duties and compensation. Casual laborers, independent contractors, and agricultural workers are commonly excluded from Workers’ Compensation coverage. Employers may extend coverage to individuals who are not automatically eligible under state law, such as sole proprietors, by purchasing a Voluntary Compensation Endorsement.

Workers’ Compensation benefits are governed by state law. In compulsory states, employers are required to provide Workers’ Compensation coverage for eligible employees. In elective states, employers may choose whether to provide coverage, but those who decline may face lawsuits for workplace injuries. Some workers are covered under federal laws instead of state Workers’ Compensation programs. These include the Jones Act for crews of ocean vessels, the U.S. Longshore and Harbor Workers’ Compensation Act for non-crew maritime workers, the Federal Employers Liability Act for interstate railroad workers, and the Defense Base Act for employees working on U.S. military bases outside the United States.

Employers have several options for obtaining Workers’ Compensation coverage. Coverage may be purchased through private insurers in the standard market or through state funds, which are state-owned insurance programs. In monopolistic states, coverage is available only through the state fund, while in competitive states, the state fund competes with private insurers. Many states also maintain an assigned risk plan for employers who cannot obtain coverage in the standard market. Employers that meet statutory requirements may also qualify for self-insurance.

The National Council on Compensation Insurance (NCCI) develops the standard Workers’ Compensation and Employers Liability Policy used in most states. The General Section explains that the policy is a contract between the employer and the insurer. It also identifies information listed on the Information Page, including the state or states whose Workers’ Compensation laws apply and the employer’s workplace locations. Injured employees receive benefits based on the Workers’ Compensation law of the state where the injury occurs.

Part One describes Workers’ Compensation coverage, which applies to bodily injury by occupational accident or disease, including death. The insurer pays the benefits required by law and has the duty to defend the insured against covered claims. The insurer also pays certain supplementary payments, such as bond premiums and interest on judgments. However, the policy does not cover loss of earnings incurred by the insured while assisting in the defense. The insured is responsible for payments in excess of statutory benefits, including those resulting from willful misconduct, violations of health or safety laws, or discrimination against an employee in violation of the law. The insured must report workplace injuries promptly, and the policy automatically conforms to applicable state law.

Workers’ Compensation laws generally provide four types of benefits under Part One. Medical benefits pay for all necessary medical treatment related to a covered workplace injury. A funeral expense benefit provides a burial allowance if the employee dies from the injury. Death and survivor benefits compensate eligible dependents for the loss of income resulting from the employee’s work-related death.

Disability income benefits replace a portion of lost wages, with the amount and duration determined by the type of disability. A temporary total disability prevents the employee from working during recovery, although recovery is expected, and benefits are usually subject to a waiting period. A temporary partial disability allows the employee to perform some work during recovery but at reduced earnings, with benefits typically similar to those for a temporary total disability. A permanent partial disability is a lasting impairment that still allows some work and may be compensated through scheduled benefits, which provide a fixed benefit for a specified number of weeks. A permanent total disability prevents the employee from ever returning to work, and benefits are generally paid for life.

The Second Injury Fund encourages employers to hire workers with pre-existing disabilities or impairments. If an employee with a prior disability sustains a second work-related injury, and the combined effect is greater than the second injury alone, the insurer pays only the benefits that would have been owed had only the second injury occurred. The Second Injury Fund pays the remaining benefits attributable to the combined disability.

Rehabilitation benefits help injured employees return to work as soon as possible. These benefits may include physical therapy, occupational therapy, and vocational rehabilitation or job retraining when the employee cannot return to their previous position.

Part Two provides Employers Liability coverage for damages the employer is legally obligated to pay because of a workplace injury that is not covered by Workers’ Compensation laws. This coverage applies to certain employee lawsuits outside the employer-employee relationship, such as claims under the Doctrine of Dual Capacity, where an employee sues the employer in another legal role, such as a product manufacturer. It also covers claims for loss of consortium, consequential injuries to an employee’s dependents, and liability assumed when a third party transfers an injured employee’s claim back to the employer through a contractual agreement.

Part Two does not cover punitive or exemplary damages awarded because of the illegal employment of an employee, obligations payable under Workers’ Compensation laws, damages arising from defamation or discrimination, or bodily injury claims covered by federal workers’ compensation laws. An each accident limit applies to occupational accidents, while an each employee limit and an aggregate limit apply to occupational diseases and illnesses.

Part Three provides Other States insurance. If the employer begins operations in a state not listed for Workers’ Compensation coverage, this part extends coverage to that state, provided it is designated on the Information Page and the state's laws permit coverage under this provision.

Part Four outlines the insured’s duties following a workplace injury. These duties include providing immediate medical care as required by law, promptly forwarding all notices, claims, and legal documents to the insurer, and cooperating with the insurer in the investigation and defense of the claim.

Part Five explains how the policy premium is determined. Premiums are calculated using the insurer’s manuals, with each work classification assigned a rate that is multiplied by a premium basis, most commonly remuneration, which includes payroll and other compensation paid to eligible workers during the policy period. The insured initially pays a deposit premium based on estimated payroll, and the final premium is determined by audit using the actual premium basis. The insurer may also apply an experience modification factor, which adjusts the premium based on the employer’s claims history compared with the industry average, and a premium discount for larger risks to reflect reduced administrative expenses per unit of exposure.

Part Six outlines the policy Conditions. The first named insured serves as the employer’s representative for making policy changes, receiving any return premium, and sending or receiving notices of cancellation. The insured may not transfer any rights or duties under the policy without the insurer’s written consent. The insurer also has the right to conduct inspections for underwriting purposes and to determine the appropriate premium.