Workers' Compensation Insurance

The standard policy has three parts:

• Part One, workers compensation. Pays the benefits the state's workers compensation law requires: medical care, a share of lost wages while the employee cannot work, benefits for permanent impairment, vocational rehabilitation in some states, and death benefits to dependents. There is no limit on this part other than what the law provides, and fault does not matter.
• Part Two, employers liability. Covers lawsuits by employees and others that arise from a work injury but fall outside the workers compensation law: a spouse's claim for loss of companionship, a claim by an employee in a state that allows suits for certain conduct, or a third party over action, where an injured employee sues a building owner or equipment maker who then sues the employer. It carries three limits: per accident, per employee for disease, and a policy limit for disease.
• Part Three, other states insurance. Extends Part One to states listed on the policy where the business does not yet have operations, which matters for firms with staff who travel to sites in other states.

The exclusive remedy is the reason the system exists. An employee covered by workers compensation generally cannot sue the employer for negligence, and the employer does not have to prove anything to limit its exposure. That trade breaks down if the employer does not carry the coverage.

The umbrella that schedules employers liability sits above Part Two, not Part One. Statutory benefits have no limit to exceed; the lawsuits covered under employers liability do.

Part One excludes very little, because the law decides what is compensable. Injuries outside the course and scope of employment, such as a commute or a personal errand, are generally not covered, and many states allow defenses for intoxication or willful misconduct. Employers liability carries more exclusions:

• Employment practices. Discrimination, harassment and wrongful termination claims belong on an employment practices policy.
• Intentional injury. Bodily injury intentionally caused or aggravated by the employer.
• Liability assumed by contract. Excluded except in narrow circumstances, so an indemnity promised to a building owner in a service contract may not be covered.
• Fines and penalties. Including penalties for violating workplace safety or child labor laws.
• Injuries covered elsewhere. Employees covered by federal programs such as the Longshore Act need separate cover.

Two exposures sit outside the policy by design. Independent contractors are not employees, but a contractor who is misclassified, or a subcontractor with no coverage of its own, can make its workers the hiring firm's responsibility. And injuries to the public on the premises belong to the premises liability policy for visitors and tenants, which in turn excludes injuries to the insured's own employees.

Workers compensation is rated on payroll, not on property values or sales. Each job is assigned a class code with a rate per hundred dollars of payroll, set by the rating bureau for the state: in most states that is the National Council on Compensation Insurance, and several large states run their own bureau. A property business commonly carries a building operations code for maintenance, porter and grounds staff, a clerical code for office staff, and the class code for its operation, such as a hotel or a care facility.

Three adjustments follow:

• The experience modifier. Compares the business's actual losses over three recent years with the losses expected for its payroll and classes. A modifier above 1.00 raises the premium, below 1.00 lowers it. Frequent small claims move it more than one large claim, which is why returning injured staff to light duty matters so much.
• Schedule credits and debits. Where the state allows them, the underwriter adjusts for safety programs and management.
• Premium discount and expense constants. Larger premiums earn a discount; small ones carry a fixed charge.

The premium on the policy is an estimate. After the term, the carrier audits actual payroll by class and adjusts it. An audit that finds payroll in a higher-rated class, or subcontractors without their own certificates, adds premium after the fact. Employers liability limits are chosen separately, and should match what the umbrella requires underneath it. A few states write workers compensation only through a state fund, where these steps follow that fund's rules.

• Payroll by class code and state, with job descriptions for anyone who does more than one job.
• The current experience rating worksheet and loss runs for at least three years, with detail on open claims.
• Safety programs: training, ladder and fall protection, lifting equipment and procedures, lockout for machinery.
• Return to work and light duty policies.
• Use of subcontractors, and whether certificates of insurance are collected from every one.
• For operations with vehicles, driver records and the auto policy.

Underwriters read the loss runs for frequency first. Many small strains and falls tell them more about how the business runs than one serious injury does, and the fixes they reward are practical ones: mechanical lifts in care settings, carts and bed risers for housekeeping, and fall protection for roof and gutter work.

Report every injury to the carrier promptly. States set deadlines for employers to report injuries, and late reporting raises the cost of claims because treatment and wage payments start later and litigation becomes more likely. The carrier directs or approves medical care within the state's rules, pays wage benefits after the state's waiting period, and manages the claim until the employee returns to work or the claim is settled.

Getting the employee back to work, in a modified role if necessary, is one of the most effective ways to control the cost of a claim. Lost wage benefits stop when the employee is back at work, and the claim's cost stays in the experience modifier for three years.

Where someone other than the employer caused the injury, such as a defective machine or a contractor's negligence, the carrier can pursue that party to recover what it paid. Employers liability claims run like any liability claim, with defense counsel appointed by the carrier.

Some claims are disputed: whether the injury happened at work, whether a condition was aggravated by the job or existed before, or how much permanent impairment remains. Each state has an administrative system, usually a workers compensation board or commission, that hears those disputes, and many claims end in a settlement approved by that body. The employer's role is to supply accurate records: the incident report, witness statements, job descriptions and payroll.

Almost every state requires employers to carry workers compensation, with limited exceptions. Texas, the one state where it is optional for most private employers, is the exception that matters. A Texas employer that does not subscribe gives up the exclusive remedy and can be sued directly by an injured employee, which is a serious consideration for any business with a substantial payroll.

Senior living operators with large care staffs carry a heavy exposure: resident handling produces frequent back and shoulder injuries, and staffing turnover makes training harder. Hotel housekeeping, kitchen and engineering staff face lifting, slips and burns. Management firms employing site staff need to be clear which entity employs the maintenance and leasing teams, since the owner and the manager often assume the other carries the coverage. Dealers with technicians in the shop and the field carry machinery, lifting and driving exposures.

Some owners employ almost no one. An apartment or condominium owner whose site staff are all employed by a management company may carry only a small policy for office staff, or none, but should still check whether any maintenance work is done by people paid directly, because an injury with no policy behind it is paid out of pocket. Car wash operators employ attendants and technicians around moving equipment and wet floors, and their payroll belongs in the right class from the first day.

• The wrong employer on the policy. Site staff employed by the owner while the management firm carries the coverage, or the reverse.
• Uninsured subcontractors. Their workers become your audit charge and possibly your claim.
• Missing states. Employees working in a state not listed on the policy.
• Low employers liability limits. Limits below what the umbrella requires, leaving a gap between the layers.
• Misclassified payroll. Staff coded to a cheaper class, corrected at audit with a bill.