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Most businesses are required by law to maintain workers compensation insurance which provides no-fault benefits to workers injured on the job. All 50 states and the District of Columbia have such laws; however, the exact provisions differ widely from state to state. Exactly who is required to be covered by workers compensation and from what sources you can purchase such coverage depend upon where your business is located.
In all but two states, workers compensation is compulsory. In New Jersey and Texas the employer can still elect whether or not to purchase workers compensation coverage. However, any employer who opts to forego such coverage, will be denied certain common law defenses in the event of a suit by an injured employee.
Covered Injuries & Diseases. Workers compensation insurance is designed to provide benefits for those who suffer an occupational injury or disease. A definition of occupational injury or occupational disease that appears in many state workers compensation statutes generally refers to an injury or disease arising out of and in the course of employment or similar such language. In the case of diseases it is normally required that the disease be caused by conditions which are peculiar to that employment. Diseases to which the general popultation is typically susceptible would not be covered.
Covered Benefits. The categories of workers compensation benefits payable to an injured worker or the worker's dependents are medical, disability, rehabilitation, and death. The dollar amounts of these benefits, as well as other related rules, vary considerably from state to state.
Exempt Employees. In all jurisdictions, most most employees fall within the scope of workers compensation regulation. Several states exempt from regulation employers with fewer than a specified number of employees or annual payroll below and given amount. However, even in these states construction industry employers are subject to workers compensation laws even if they have one employee.
In many states certain types of employees are exempt. Depending upon the state, these might include the following: domestic; agricultural; clergy; casual; and some types of commissioned sales people, such as real estate brokers. Also, there are certain types of employment that are subject to federal regulation. Such federal law include the following:
- Longshore and Harbor Workers' Compensation Act (LHWCA)
- Outer Continental Shelf Lands Act Coverage Endorsement
- Defense Base Act
- Nonappropriated Fund Instrumentalities Act
- Federal Employees Compensation Act (FECA)
- Federal Coal Mine Health and Safety Act of 1969 (FCMHSA) and related acts
Other Federal laws which do not expressly provide for no fault workers compensation type benefits; nevertheless do pertain to an employer's liability to injured workers. Such laws would include the following:
- General Maritime Law
- The Merchant Marine Act of 1920 (The Jones Act)
- Death on the High Seas Act
- Federal Employers Liability Act (FELA)
- Migrant and Seasonal Agricultural Workers Protection Act (MSAWPA)
Independent Contractors. Whether a particular worker is an employee or an independent contractor is central to whether workers compensation laws apply or not. Even so, many state laws provide little guidance to aid in determining whether a particular worker should be categorized as an employee or as an independent contractor.
Many state laws are completely silent on this question. A number of statutes simply state that independent contractors are not employees within the meaning of the statute. A few states have specifically spelled out criteria for determining a particular employee's status as an independent contractor or employee. Where the workers compensation statute is silent, normally an employer will have to rely on common law principals to determine the worker's status.
Employers Liability Coverage. A workers compensation policy is generally divided into two parts: Part one provides workers compensation benefits as prescribed by statute. Part two provides coverage for the insured employer's legal liability for employment-related bodily injury or disease other than that addressed by workers compensation laws.
As originally envisioned workers compensation laws were to provide injured employees their exclusive remedy. Under the law injured workers are granted benefits on a no fault basis. In return, the injured employee gives up the right to sue the employer for damages sustained as a result of the work-related injury or disease.
Although workers compensation coverage does constitute an exclusive remedy, it does not always apply. In some states, certain types of jobs or workers are exempt from workers compensation statutes. Depending upon the jurisdiction, some employers are not subject to workers compensation regulation, e.g., employers with less than a specified number of employees or annual payroll. Accordingly, Employer's Liability coverage is designed to fill this gap.
Penalties for Non-Compliance. In every state, employers who are required to purchase workers compensation insurance but do not, are exposed to significant penalties. Depending upon the jurisdiction, such penalties could include fines and possible jail time. Often a coporation's executive officers are held personally liable for such penalties. Also, employers who fail to maintain the required workers compensation insurance may be prohibited from conducting business so long as they are not in compliance with the law.
Purchasing Coverage. Depending upon where your business is located, workers compensation insurance may be purchased from one of three different sources.
- Private Insurers. In most states, workers compensation insurance is available from private insurance companies.
- Private Insurers or Competitive State Fund. Several states have a state fund which operates as a quasi private carrier. In such states, coverage may be purchased either from the state fund or an private insurer. Typically, however, state funds do not provide out-of-state coverage.
- State Fund Only. There are five states where workers compensation insurance is only available through a state fund. Specifically, North Dakota, Ohio, Washington, West Virginia, and Wyoming have a "monopolistic fund".
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