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Most insurance policies exclude injury or lawsuits from employees. This includes aircraft, commercial general liability, property, business auto, and most other lines of property and casualty insurance. Workers’ Compensation (Work Comp) insurance is the sole remedy for injuries to employees. It is a vast issue. Although federal legislation contributes to the governance of work comp, it remains highly regulated by each state’s specific statute. This results in a lot of variables in Work Comp insurance, so we’ll just take a high-altitude overview of the subject.
As a trade-off for being the sole remedy for employee injuries workers’ compensation is a no-fault system, meaning it’s not a liability. The employer does not have to be proved negligent for workers’ compensation to respond. As a result, it is the exclusive remedy to injuries to employees while they’re acting in the scope of their employment. Again, it’s different from state to state as to all the variables, so you must pay attention depending on what state laws are applicable.
There are two parts to a workers’ compensation policy: Part A or Part One, is Workers’ Compensation. It provides those payments due to the injury right. This includes medical benefits that pay for all the medical expenses related to the injury. There’s no financial or time limitation in the policy. All medical care is determined by the doctors and then it pays the compensation benefits. The wage replacement pays a certain amount based on the employee’s time at the time of the injury for a specific period. There are numerous regulations to this provision depending on the state but typically it does reimburse some of that lost compensation resulting from the injury. There is a death or dependent benefit paid out in the event of the death of an employee, while acting in the scope of their employment, including a fixed cost for burial and potential payments. Coverage would apply to a spouse up until certain milestones (number of years or remarriage) and dependent children up until certain ages. These costs are all typically included in Part A of the Work Comp policy.
Part two or Part B of a workers’ compensation insurance policy is the Employers Liability coverage. The Insurance Risk Management Institute (IRMI) defines this coverage as “(it) provides coverage to the insured (employer) for liability to employees for work-related bodily injury or disease, other than liability imposed on the insured by a workers compensation law.”
A situation where this could come into play is where the employer was also the manufacturer of the product that caused the injury. For instance, if an aircraft manufacturer has one of their employees injured in an aircraft crash in an aircraft produced by that manufacturer. even though the aircraft manufacturer was the employer, it was their negligence as the manufacturer that could potentially lead to an employee lawsuit. Coverage for this exposure would fall to the Employer’s Liability section of the Work Comp policy.
Most states require employers to carry workers’ compensation for their employees. There are exceptions with a couple of states that have alternative options. Some states may not be required to provide workers’ compensation coverage where the only employee is the individual owner.
There are four monopolistic states in Work Comp insurance: Ohio, Wyoming, North Dakota, and Washington. These states require businesses to purchase a Work Comp policy from their state program. Monopolistic state Work Comp insurance policies may not provide Employer’s Liability as part of their policy. If you’re based in a non-monopolistic state, but have employees/operations in a monopolistic state, you should consider a Stop Gap endorsement to extend Employer’s Liability to those monopolistic states.
This can be complicated, so it is important to carefully review this information with your agent.
The premium for workers’ compensation policies is based on payroll. There is a rate assigned to that payroll based on the employee classifications for the various roles in the business and the states the employees are located . For instance, it’s a lower rate for clerical/office workers than it is for pilots or ground crew. Premiums are also loss rated. Higher losses in the category of the business and/or state could increase the rate for that class code in that state.
Since the exposure is based on payroll, most Work Comp policies are auditable. At the end of the policy period, the insurance company will send an auditor or a self-audit form to review what the actual payroll was from what was estimated at the beginning of the policy. If the actual payroll was higher than the initial estimated payroll, an additional premium will be due. If the payroll was less than estimated, a credit will be issued along with a refund check.
The definition of an employee can change from state to state. That’s important when there’s an independent contractor involved. There are some specific things that you need to look at in your state and/or the IRS to determine whether you need to be covering that independent contractor on your policy or not. If independent contractors don’t have their own policy, nor are they already included in your payroll you might be surprised at the end of the policy period when there is a payroll audit resulting in additional premium being due.
In aviation, employees often reside, work, and travel in different states from the employer. In the event of a loss, the employee typically can choose the benefits in the state they’re employed, where they reside, or where the loss occurred. They will typically select the option most favorable. If there are employees residing in different states, it is important to ensure there is coverage in each applicable state and to include an Other States endorsement. For companies who have employees that travel internationally, a Foreign Voluntary Compensation endorsement to a Work Comp policy can provide some repatriation reimbursement.
Work Comp insurance policies can be often purchased through a traditional insurance company. But there are other methods such as group self-insurance funds or qualified self-insurance programs. There are assigned risk markets or residual markets for those types of risks that most carriers don’t typically want to write. In addition to the monopolistic states, there are other states that have their own insurance programs.
Solid risk management techniques can be utilized to reduce Work Comp losses and improve the insurance premiums for these policies. A well-developed Safety Management System (SMS) and employee training include Human Factors training can reduce losses. Being prepared to address losses in advance can also reduce the overall claims expenses and the resulting insurance premiums. Those could include an Injury Response Plan, active claims management, and Return-to-Work programs.
Again, this article is a quick high-altitude overview of Worker’s Compensation insurance. It’s something most businesses are required to carry. Since Work Comp is required for most employers and the sole remedy for injuries to workers, any injury related to employees is typically excluded from any other type of insurance policy. Given the variables and complexities in Work Comp insurance, it is important to work with an insurance agent well versed in your industry and Work comp coverage.
If Aeris Insurance Solutions can help you with any of these issues, don’t hesitate to reach out to us at 844-422-0023 or info@aerisinsurance.com.
