In the United States of America, any business that employs workers is required to purchase comprehensive workmen's compensation insurance. Most if not all states make it mandatory for companies to buy workmen's insurance, especially in hazardous industries. Most policies will most probably consist of an Information Page with declarations, endorsements page, and the policy form. It may also include various schedules like a list of locations. Employers need to understand how the insurance works to protect them and choose the right one.
Understanding Ratings and Classifications
When you get workmen's insurance, the company is assigned either a single or multiple classifications. These classifications are based on the type of business and how it operates. For instance, a hardware store is one that sells hardware at retail prices. So, the premium you pay for the insurance will depend on the classification, the remuneration you are paying workers and the rate for each classification. Sometimes premiums are affected by the experience modifier which is mainly your history of claims.
The good news for employers aka businesses is that the classifications, compensation rates, and various other issues regarding workers compensation are worked out by the state workers compensation bureau. What that means is that private insurers can't make things up to boost their probability. That said in many states functions like statistical analysis, rate marking, etc. are delegated to the National Council on Compensation Insurance abbreviated as NCCI. That's why they are called NCCI states.
NCCI organizations are nonprofit but owned by the insurers or insurance companies. Though they still use a uniform system of rules and classification systems.
While there are NCCI states, there are also ones that are non-NCCI states like Wisconsin, Delaware, and California. The states are fully independent to develop their rates and rules. Then there are states like Washington, North Dakota, Ohio and Wyoming where private insurers are not allowed. Monopolistic states (Washington, North Dakota, Ohio, and Wyoming) issue their policies through a state fund.
What is a Standard Policy Form for Workmen's Insurance?
The NCCI has over the years managed to come up with a standard set of rules for workers compensation which has become a universal policy. The same policy is also used by many otherwise independent states. The policy allows for two basic types of coverages. The first part covers mainly Workers Compensation, while the other is Employers Liability. For the sake of simplicity, this article is focused on workmen's insurance or Workers Compensation as it is called.
CLAIM COUNTS AND COSTS BY CLAIM RECEIVED YEAR, STATUS AND LIABILITY
|Received Year||Fiscal Year 2018|
|Status Description||Claim Liability||Number of Claims||Incurred Costs Total||Incurred Costs Average|
|COMPENSABLE||Self Insured||12,737||$ -|
|COMPENSABLE||State Fund||15,316||$ 326,292,107||$ 21,304|
|FATAL||Self Insured||6||$ -|
|FATAL||State Fund||48||$ 11,494,136||$ 239,461|
|INVALID||Self Insured||5821||$ -|
|INVALID||State Fund||24||$ 534||$ 22|
|KEPT ON SALARY||Self Insured||1||$ -|
|KEPT ON SALARY||State Fund||6,342||$ 53,085,929||$ 8,371|
|LOSS OF EARNING POWER||Self Insured|
|LOSS OF EARNING POWER||State Fund||304||$ 5,743,562||$ 18,893|
|NON-COMPENSABLE||Self Insured||17,005||$ -|
|NON-COMPENSABLE||State Fund||72,320||$ 106,312,153||$ 1,470|
|NOT YET ALLOWED||Self Insured||197||$ -|
|NOT YET ALLOWED||State Fund||1015||$ 288,078||$ 284|
|PROVISIONAL||Self Insured||151||$ -|
|PROVISIONAL||State Fund||123||$ 323,656||$ 2,631|
|REJECTED||Self Insured||5,157||$ -|
|REJECTED||State Fund||16,110||$ 5,628,280||$ 349|
|TOTAL PERMANENT DISABILITY||Self Insured|
|TOTAL PERMANENT DISABILITY||State Fund||2||$ 10,877||$ 5,438|
Data source: Washington State Department of Labor and Industries (https://www.lni.wa.gov/ClaimsIns/Insurance/DataStatistics/WorkersCompData/default.asp)
Workers Compensation Coverage
Workmen's insurance or compensation coverage benefits workers who have sustained injuries while on the job. The best feature of this coverage, for the most part, is affordability. Also, injured workers can't sue you (employers) for serious issues like negligence to get benefits. Plus, in most cases, an injured worker is eligible for benefits even if it was their fault. Take for instance an employee who might have sustained a head injury because they weren't wearing a hard hat despite receiving instructions to wear protective gear. So, even in this instance, the employee will be entitled to benefits under the insurance policy.
Workmen's Insurance generally provides the following benefits:
- Disability Coverage: It usually entails providing workers with a partial replacement of their income when they are unable to work because of the injury. The benefit extends to both permanent and temporary disability, as well as partial or total income replacement.
- Death benefit: The benefits are extended to the spouse and minors of the employee who lost his or her life when on the job.
- Medical coverage: It will include hospital care, doctor visitation, physical therapy, medication, etc.
- Vocational Rehab: Generally, it gives workers an opportunity to learn a new skill owing to their disability making it impossible to return to their previous career or job.
Even though the types of benefits workers may receive for injuries and fatalities tend to be consistent across all states, there is a difference in the benefits they get. The benefits vary from one state to the next. That's why state law governing worker's compensation is part of the policy employers get. In other words, the policy's contract is a practical extension of the state's compensation law.
The compensation covers bodily injury and disease both of which should be related to the occupation. However, each state lists which conditions are covered under the law. One instance of occupational illness is asbestosis caused by asbestos. Also, covered are major accident-related injuries. For conditions to be covered there has to be a direct link to the occupation which has either caused it or made it worse.
Workmen's Compensation Insurance Exclusions
The workers compensation law in many states may award an injured worker a few extra benefits if the injury could have been prevented by the employer. Take, for instance, a shop selling meat. Your employee Jack has recommended that the broken guard on the slicing machine be changed as it is dangerous. But each time the guard was brought up you failed to take action. However, later on not having the guard installed leads to Jack losing a finger. The government, attorneys and the insurance agencies will see this as a failure on the part of an employer to act appropriately to ensure workplace safety.
The failure of the employer to act quickly may lead to Jack receiving twice the worker compensation benefits. However, most workers compensation policies across all 50 states won't cover the excessive benefits so you'll be required to pay for it out of pocket.
Similar to the above-mentioned scenario the workers' compensation policy has many exclusions.
The excursions are often highlighted by the fact that they are not part of the policy since:
- There was willful and serious misconduct on your (employer's) part. It is similar to the meat slicer guard instance above which leads to Jack losing a finger.
- You hire an employee who isn't legal or is in direct violation of the employment law. For instance hiring a 14, or a 15-year-old worker for your meat shop where the law clearly outlines that the individual needs to be at least 16 years of age.
- Your business is failing to comply with the safety or health regulations of the state. For instance, you are failing to ensure that all workers use a guard when using the slicing machine. Using a slier without a guard is a violation of the OSHA Machine Guarding Standard.
- You are discriminating or discharge an employee in violation of the law. For instance, firing Jack because they have filed a claim for compensation because he lost a finger to a missing slicer guard.
What is Subrogation?
You may have heard the term subrogation used by an insurer which is best explained with an example. Suppose a worker was injured by negligence caused by another party. The insurer will pay the damages while reserving the right to recoup their losses from the negligent party. For instance, if Jack was using a handguard when operating the meat slicing machine. Though lost a finger because the guard malfunctioned. So, it was the malfunction which caused Jack to lose a finger.
The insurer will pay the compensation. However, it may file a product liability suit against the company manufacturing the guard to recoup payment. As an employer, you are obligated to uphold the insurer's right to recover their payment from the negligent or faulty party.
Workmen's insurance is mandatory for most if not all businesses in America. However, when in the process of acquiring the policy business owners should go over and investigate the nuances of the policy. Sure, insurance policies need to be in accordance with state and federal law, but there is still enough room for companies to maneuver. So, it would be in your best interest to perhaps hire an attorney to help navigate the legal waters surrounding the policy.