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| June 2008, Volume 18 |
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280.4-2WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY COVERAGE ANALYSIS(September 2006) The Workers Compensation And Employers Liability Policy, Form WC 00 00 00 A, was developed by the National Council on Compensation Insurance, Inc. (NCCI). It is the standard coverage form used to provide insurance for an employer and covers the insured's statutory liability under the various state workers compensation laws or acts. It provides defined benefits to employees for injuries sustained or diseases contracted arising out of and in the course of their employment. All states have laws requiring such protection for workers and those laws prescribe the amount and duration of the benefits provided. Employers Liability covers the insured employer against its common law or tort liability for employee injuries that fall outside the scope of the state laws or acts that are separate and distinguished from the liability imposed by workers compensation laws. Examples are hiring, firing, disciplinary actions and other workplace procedures. The policy provides the mandatory benefits prescribed and required by the various state laws for accidental work-related injuries that occur in the course of employment, subject to its terms and conditions. It must be emphasized that the injury must arise from and be related to the injured worker's job duties. The policy also covers related costs for disease or death that occurs as a result of the accident. If the employed worker’s injury is not compensable under workers compensation or occupational disease laws, Employers Liability coverage responds to the injured worker's allegations of negligence on the part of the employer, subject to its terms, conditions, limitations and exclusions. The coverage provided by the basic policy may be expanded, restricted, clarified or brought into compliance with specific state regulatory requirements by use of a variety of available endorsements. POLICY MAKEUP
The Workers Compensation and Employers Liability Insurance Policy consists of one general section and six parts. The general section describes the other components of the policy such as the Information Page and all endorsements and schedules listed there.
· Part Two provides employers liability insurance. · Part Three provides optional other states insurance. · Part Four outlines the insured's duties in the event of an injury. · Part Five explains the premium provisions. · Part Six contains policy conditions not shown elsewhere in the policy. All endorsement form numbers referred to in this document are from the Forms Manual of Workers Compensation and Employers Liability Insurance published by the NCCI. ANALYSIS OF THE WORKERS COMPENSATION AND EMPLOYERS LIABILITY
INSURANCE POLICY, WC 00 00 00 A
The policy opens by explaining that, in return for the premium payment by the insured, and subject to all the terms and conditions of the policy, the insurance company agrees to provide the coverages contained in it. GENERAL SECTION
A. The Policy
The policy includes the Information Page and all endorsements and schedules shown on it as of the inception date of coverage. It is an insurance contract between the insured employer and the insurance company named on the Information Page and the only agreements involved with the insurance coverage provided are the ones stated in the policy. Policy terms and conditions can only be changed or waived by written endorsements issued by the insurance company. The intent of this language is to prevent any oral agreements or unauthorized written agreements from being considered or treated as part of the insurance contract. The provision also states that no terms of the policy can be waived except by endorsement. Waiver is defined as the intentional or voluntary relinquishment of a known right. As a result, this provision requires that any such relinquishment be in the form of a written endorsement. Example: Sheila read a brochure about Employers Liability coverage in the human resources office that described the coverage in the policy. She noticed several statements to the effect that the content of the brochure content was only a description of the coverage. This was because the wording in the brochure was or might be different than the language in the policy itself. The human resources manager discussed the material with Sheila and informed her that the brochure only describes the coverage and the only coverage that actually applies is that found in the policy. B. Who Is Insured
The employer named in Item 1 of the Information Page is the insured. Unlike many casualty policies, the spouse of an individual, partner or member or manager of a joint venture is not automatically included and covered as an insured. If the spouse is an employer, the spouse must either be listed on the policy or have a separate policy covering the operations for which the spouse is the employer. If the form of business is a partnership, and the insured is one of the partners, the insured is covered only to the extent of being the employer of the employees of the partnership. Example: A partner in a law firm is covered with respect to the employees of the law firm. However, coverage does not apply to that partner’s household employees. Joint Venture As Insured Endorsement, Form WC 00 03 05, is used to cover a business operating as a joint venture. Separate or different legal entities may be insured under the same policy if a single entity has simple majority ownership of all such entities. Please refer to PF&M Section 280.4-3, Workers Compensation And Employers Liability Insurance Policy Available Endorsements And Their Uses, for more information about this endorsement. C. Workers Compensation Law
This means the workers or workmen's compensation law and the occupational disease law of each state or jurisdiction listed on the Information Page under Item 3.A. It includes any changes in those laws that become effective during the policy term. It does not include any federal workers compensation or occupational disease law or any terms or provisions of any non-occupational disability benefits law. Older versions of this policy included detailed citations of the various state statutes but this is no longer necessary because workers compensation and occupational disease laws and statutes are readily available for review and are generally well known. This also means that the changes in law that occur during the policy period do not need to be endorsed to the policy as in the past. Since this paragraph specifically excludes federal workers compensation, occupational disease or similar laws, special endorsements are available and must be used to add any such coverage to the policy. Please refer to PF&M Section 280.4-3, Workers Compensation And Employers Liability Insurance Policy Available Endorsements And Their Uses, for more information about this endorsement. Note: This paragraph provides a means for the policy to also cover the employer's obligation under workers compensation and occupational disease laws in territories as well as in states, if they are listed on the Information Page under Item 3.A. The insurance requirements and arrangements for the territories of Puerto Rico, the United States Virgin Islands, American Samoa and Guam must be reviewed to determine if they are eligible for coverage under this policy. D. State
When the term "state" appears anywhere in the policy, it means any state of the United States of America and the District of Columbia. All states of the United States and the District of Columbia have enacted workers compensation laws, acts or statutes. E. Locations
The policy covers the workplaces listed in Item 1. or Item 4. on the Information Page. It also covers all other workplaces in states listed under Item 3., unless covered by other insurance or by some form of self-insurance. The policy is arranged to cover the total liability of an employer as established under any state workers compensation law. Some states have laws that require the total liability of an employer be insured under one policy. In states that do not have such a requirement, it is possible to "carve out" certain workplaces and exclude them from coverage. This is done by using Designated Workplaces Exclusion Endorsement, Form WC 00 03 02. Please refer to PF&M Section 280.4-3, Workers Compensation And Employers Liability Insurance Policy Available Endorsements And Their Uses, for more information about this endorsement. Where permitted by law, multiple policies can be issued to insure various employers engaged in large construction projects and those policies can be combined for premium discount purposes. These policies must be issued by the same insurance company or group and must be limited to the applicable employer's work at the construction site. Similar coordinated policies are also permitted to address other related cases and circumstances. PART ONE: WORKERS COMPENSATION INSURANCE
A. How This Insurance Applies
The workers compensation insurance provided covers bodily injury by accident or bodily injury by disease, including death that results from either. The accident that causes the bodily injury or death must occur during the policy term and fall under the workers compensation or occupational disease law having jurisdiction. Coverage applies on an "occurrence" or claims-incurred basis. Bodily injury by disease must either be caused by the insured's employment or be aggravated by conditions of the employment. The employee's last day of his or her last exposure to the conditions that caused or aggravated the bodily injury by disease must take place during the policy term. The basis of insurance coverage for occupational disease conforms to the provisions of occupational disease laws. These generally impose liability on the last employer in whose employment the employee was harmfully exposed. B. We Will Pay
The insurance company agrees to promptly pay benefits due as required of the insured employer by the workers compensation law that applies. This is the basic insuring agreement and indemnity provision and is probably the most important section in the policy. This means the entire liability of the employer under the designated law or laws is insured under the policy. Specific benefits are not listed because coverage depends on the applicable state workers compensation law, including any revisions or amendments that might apply to a particular loss. Because of the structure and arrangement of state workers compensation laws, coverage under this part is for unlimited dollar amounts for any particular accident as well as to any number of accidents that occur during the policy period. State workers compensation laws provide for unlimited medical benefits to injured employees. Although disability benefits are limited to a given percentage of pre-accident wages, they are paid for the lifetime of an injured worker or for the lifetime of a surviving spouse. By implication, this provision recognizes that the number of employees may vary and the employer may engage in new or different operations. In either case, the policy intent is to cover all operations and employees and respond to the full extent of every statutory liability imposed by law on the employer, except for payments the insured must make as outlined in section F. below. C. We Will Defend
The insurance company has both the right and the duty to defend any claim, suit or other legal action against the insured employer with respect to benefits paid by this insurance coverage. This defense provision is provided at the insurance company's expense and this gives it the right to investigate and settle any legal action. However, the company is not obligated to defend any legal action not covered by this insurance. This provision is similar to that found in most liability policies. A few of these policies provide for a right to defend but not a duty to do so. This provision obligates the insurer to retain and compensate legal counsel as necessary to properly represent the insured. This includes any administrative and judicial proceedings and appeals. The insurer can select legal counsel it deems appropriate as part of its right to defend. It also has the right to investigate and settle claims without involving the insured. It assumes defense costs with no monetary limitation. Like similar provisions in other liability policies, the insurer's duty to defend is broader than the duty to indemnify. Unless the allegations on which a claim is based clearly remove it from the scope of coverage, the insurer must defend until it is established that the claim is not covered by the policy. D. We Will Also Pay
The insurance company also pays a number of costs and expenses as part of a claim, suit or legal action in addition to other amounts for which payment is required by the policy. They include:
E. Other Insurance
The insurance company does not pay more than its proportion or share of costs and benefits covered by this insurance and other insurance policies or self-insurance arrangements. All shares are equal until the loss is paid, except for cases where limits of liability apply. If any applicable limits by any other insurance policy or self-insurance arrangement are exhausted, all remaining insurance pays in equal shares until the loss is completely paid. In some cases, more than one workers compensation policy may apply to a particular accident or occupational disease. In others, another source of coverage may apply, such as a self-insurance arrangement. This section addresses the manner in which coverage applies when more than one source of coverage may apply to a claim. In all jurisdictions, employers must either purchase insurance to cover their full liability or qualify as a self-insurer by meeting certain specific financial requirements. A few large and financially stable employers may be completely self-insured. However, most self-insurers also purchase excess coverage, either voluntarily or as part of the procedure that qualifies them for self-insurance. Excess coverage is similar to other kinds of excess liability insurance. It pays the amount that exceeds a certain monetary threshold usually made up of a deductible or retention amount. This excess may apply as specific excess on a particular loss or as aggregate excess for the total of losses that occur during the policy period. However, the main reason for this section is to specify that different insurers or self-insurers pay losses in equal shares. The limits of liability referred to above may appear in situations where a self-insured employer retains losses up to a certain amount, with excess insurance for losses above that amount. This section also acknowledges that at some point some insurance or self-insurance arrangements will be exhausted. This may refer to either payment of all available insurance up to a limit of liability or funds no longer available from which to pay losses due to insolvency of an insurer or for other reasons. In these and similar cases, all remaining insurance not exhausted contributes to any loss in equal shares. F. Payments You Must Make
The insured employer is responsible for certain payments that exceed the benefits provided by the applicable workers compensation law. Examples include penalties for violations or criminal activities or other reasons determined to be uninsurable as a matter of public policy. The insurance company does not pay in these cases and the insured must make payments:
In cases where the insurance company makes payments on behalf of the insured that exceed the benefits regularly provided by the workers compensation law, the insured must promptly reimburse the company for those payments made. Example: Happy Valley Printers employed several underage teenagers to work in its ancient plant. One of the teens sustained a severe injury to his arm when an overheated machine broke down during a particularly hectic period. The insured reported the loss and submitted the claim promptly and was honest about the worker’s age and the circumstances surrounding the accident. A provision in the state's workers compensation law provided for payments exceeding regular benefits for underage workers and Happy Valley’s insurers were required to make the additional payments. Because Happy Valley violated state hiring laws, the carrier demanded and received reimbursement from Happy Valley for those additional payments. G. Recovery From Others
The insurance company has both the insured's rights and the rights of any party entitled to benefits under this insurance policy to recover the payments made from anyone liable and responsible for causing the injury. The insured must do everything possible and necessary to protect those rights and help the insurance company enforce them. This represents the equivalent of subrogation provisions in other policies, although that word is not used in order to simplify the policy language. Subrogation is broadly defined legally as the substitution of one person in the place of another with reference to a lawful claim, demand or right. It used to be referred to as "standing in the shoes" of another person. Most workers compensation laws provide that the employer is subrogated or entitled to the employee's rights of recovery against third parties, to the extent of the compensation owed by the employer. Under this provision, the employee's rights of recovery against others are passed to the employer by the workers compensation act and are then, in turn, passed to the insurer by the insurance contract. Example: An employee is injured in the course of employment due to the negligence of someone other than the employer. The employee ordinarily has the right to sue the party responsible for the injury for damages at common law. Any damages recovered in such a case are usually subject to the workers compensation insurer's right to recover amounts equal to the benefits they paid under the policy. Expressed in a different way, the insurance company, through the employer, gains the employee's rights of recovery against third parties to the extent of the benefits it paid under the policy. Waiver of Our Right to Recover from Others Endorsement, Form WC 00 03 13, is used to waive the insurer's right of subrogation against designated third parties responsible for an injury. This endorsement includes a schedule to list the persons or organizations that the insurance company will not subrogate against. Most insurers make a premium charge when this endorsement is used. Please refer to PF&M Section 280.4-3, Workers Compensation And Employers Liability Insurance Policy Available Endorsements And Their Uses, for more information about this endorsement. H. Statutory Provisions
This section of the policy consists of six statements that apply to the insured employer where and when required by the law or laws of the state or states insured under the policy. · The insurance company is considered to have received notice of an injury to an employee at the same time that the insured employer receives notice. · Bankruptcy, insolvency or default on the part of the insured employer does not relieve the insurance company of its responsibilities and duties under this policy when a covered injury occurs.
Nothing in any of the statements above relieves the insured of its duties under this policy. Note: Only those provisions actually required by law in a given state are made part of the insurance contract and only with respect to the policy coverage for that state. For example, the right of "direct action" against the insurer granted under the third statement above does not apply in any state not having an applicable direct action statute. PART TWO: EMPLOYERS LIABILITY INSURANCE
Part Two of the policy provides Employers Liability Insurance as opposed to Part One that provides Workers Compensation Insurance. The main difference between the two parts is that Part One applies to the statutory benefits paid by the insured and Part Two applies to common or tort law or other damages for which the insured is liable. A. How This Insurance Applies
Employers liability insurance is coverage for bodily injury by accident or bodily injury by disease. In both cases, bodily injury includes death. It does not provide coverage for personal injury, usually defined to include slander, libel, false imprisonment and invasion of privacy, or for any kind of property damage. This section defines covered bodily injury. This insurance is subject to five conditions:
B. We Will Pay
The insurance company agrees to pay all amounts for which the insured is legally responsible and liable because of bodily injury to the insured's employees. This condition applies only if the coverage provided applies to the bodily injury. Where the law permits such recovery for damages, the insurance company is responsible for damages:
This is the indemnity provision of Part Two. The insurer agrees to pay all sums for which the insured employer is legally responsible as damages because of bodily injury covered by this contract. "Damages" is the key word. Employers liability insurance is coverage against torts or other liability for "damages." This contrasts with the employer's statutory liability for workers compensation "benefits" under Part One. "Damages" is not defined in the policy but a generally accepted legal meaning is: "A
pecuniary (financial) compensation or indemnity, which may be recovered in the
courts by any person who has suffered loss, detriment, or injury, whether to
his person, property, or rights, through the unlawful act or omission or
negligence of another." The kinds of damages covered in this part are not meant to be inclusive. They simply illustrate the primary categories into which these claims normally fall. This includes so-called "third party over" claims made against the employer by a third party who has been sued by an injured employee. Example: An employee of Company A was injured on a construction site. She tripped over some pipes that fell from a pile of pipes improperly stacked by employees of Company B while she was carrying some pipe fittings. She was entitled to both workers compensation benefits from her employer and to damages from Company B. If she sues Company B and Company B, in turn, sues (or "impleads") the insured employer for contribution or indemnification, employers liability coverage applies. In some states, a spouse, relative or another person in a close relationship with an injured employee may bring a separate claim for damages for care or loss of services, companionship or consortium against the employer. This is one example of an exception to the "exclusive remedy" normally provided by workers compensation laws. Some state workers compensation laws provide that workers compensation is the only remedy available to an injured employee and his or her spouse, relatives and personal representatives. The statutes in other states may not be as comprehensive and restrictive and persons other than the employee may have causes of action against the employer in some cases. These causes of action are normally based on alleged negligence on the part of the insured employer and are not based on the same no-fault theory that applies to workers compensation. Employers liability also covers damages owed by an employer in a few states under the so-called "dual capacity" doctrine. This doctrine states that an employer may have two different legal personalities for purposes of liability to an employee. Example: Joe worked for Sturdy Steel Doors. He was packaging a steel security door and one of the spring-loaded hinges snapped open and seriously injured his arm. When the hinge was inspected, it was determined that the spring-loaded component of the hinge did not have the proper retaining pin to hold it in place. Sturdy Steel may be liable for Joe’s injury because of the defective hinge. Note: True no-fault workers compensation laws, like the United States Longshore and Harbor Workers Compensation Act (USL&HWCA), are not covered under Part Two because they compensate on a no-fault basis. Coverage for USL&HWCA, Federal Black Lung and other federal laws may be provided under Part One by an endorsement to the policy that amends the language in Part One C to include a federal law or laws, in addition to the applicable state or territory laws listed in Item 3.A. C. Exclusions
The insurance coverage provided by this part of the policy does not apply to the following:
Note: This exclusion eliminates all obligations under workers compensation or similar laws from Part Two because they are either covered under Part One or are not covered at all. However, if a particular employee is not covered under a workers compensation law, he or she may sue the employer for damages, and that claim may be covered under Part Two. For example, agricultural and domestic workers are usually excluded from workers compensation laws.
Note: This is an important exclusion and is similar to corresponding exclusions in other liability policies. It also raises at least two points, the importance of which vary from state to state, depending on the state law. First, most states have some form of exception to the exclusive remedy doctrine when the employer intentionally causes an injury to a worker and these exceptions usually require the employer to have specifically intended to injure the employee. This exclusion eliminates coverage for these types of injuries. Second, the exclusion applies to the employer but not to co-workers. In most states, the employer is not responsible for the intentional tort of an employee.
Note: This exclusion clarifies the types of employer conduct not covered by the policy. The language in this section clarifies that these acts fall outside common law negligence. · Any bodily injury to persons working subject to the Longshore and Harbor Workers Compensation Act, the Nonappropriated Fund Instrumentalities Act, the Outer Continental Shelf Lands Act, the Defense Base Act or the Federal Coal Mine Health and Safety Act of 1969. This exclusion also applies to any other federal workers or workmen's compensation law, any other federal occupational disease law and any amendments to any of these laws. Note: This exclusion eliminates coverage under specifically listed federal acts and clarifies policy language.
D. We Will Defend
The insurance company has both the right and the duty to defend any claim, suit or other legal action brought against the insured for damages to which the coverage under this policy applies and it does so at its own expense. It also has the right to investigate and settle any claim, suit or other legal action, with or without the insured's involvement. However, it is not obligated to defend any legal action against the insured not covered by this insurance policy and it has no duty to defend or continue defending after the limit of insurance that applies is paid and exhausted. This provision is similar to those in most liability policies, as well as Part One of this policy. A few of these policies provide for a right to defend but not a duty to do so. This provision or any similar defense provision obligates the insurance company to retain and compensate competent legal counsel as necessary to properly represent the insured. This includes any administrative or judicial proceedings and appeals. The insurer can select legal counsel it deems appropriate as part of its right to defend. It also has the right to investigate and settle claims without involving the insured. It assumes defense costs with no monetary limitation on them. Like similar provisions in other liability policies, the insurer's duty to defend is broader than the duty to indemnify. Unless the allegations on which a claim is based clearly remove it from the scope of coverage, the insurer must defend until it is established that the claim is not covered by the policy. Employers liability insurance is subject to limits of liability under Part Two G. discussed below. As a result, this section specifies that the insurer's duty to defend ends when the limits of insurance have been exhausted by indemnity payments. Defense costs are not included in determining when the appropriate limit has been exhausted. E. We Will Also Pay
The insurance company also pays a number of costs and expenses as part of a claim, suit or legal action in addition to other amounts for which payment is required by the policy. These are identical to those listed in Part One:
F. Other Insurance
The insurance company does not pay more than its proportion or share of costs and benefits covered by this insurance and other insurance policies or self-insurance arrangements. When limits of liability apply, all shares are equal until the loss is paid. If any applicable limits by any other insurance policy or self-insurance arrangement are exhausted, all remaining insurance pays in equal shares until the loss is completely paid. The main purpose of this section is to provide for payment by different insurers or self-insurers in equal shares. The limits of liability referred to may occur in cases where an employer has a self-insured retention up to a certain amount and excess insurance above that amount. The last sentence suggests that certain insurance or self-insurance may be "exhausted." This refers to payments that equal the available limit of liability, funds not available due to an insurer's insolvency or for some other reason. In those cases, any remaining insurance contributes to the loss in equal shares. G. Limits of Liability
The insurance company's obligation to pay for damages is limited to the limits of liability shown in Item 3.B. on the Information Page. The manner in which they apply is as follows:
Note: Disease is not bodily injury by accident unless it is a direct result of bodily injury by accident.
Note: Bodily injury by disease does not include disease that is a direct result of a bodily injury by accident. Note: The insurance company does not pay any claims for damages after the applicable limit of insurance has been exhausted by claim payments. Rule 3, Item 14 of the Basic Manual for Workers Compensation and Employers Liability Insurance provides for standard limits of liability for these coverages of:
These standard limits can be increased to higher limits for the additional percentage premium charge provided for in this rules section. Additional or "excess" employers liability insurance can be provided under excess or umbrella policies, written separately from the workers compensation and employers liability policy. A few states require unlimited employers liability insurance and special endorsement forms are available to meet these requirements. H. Recovery From Others
The insurance company obtains the rights of the insured to recover any payments made from any party responsible and liable for a covered injury to which this insurance applies. The insured must do everything possible to protect those rights and assist the insurer in enforcing them. Similar to the same provision in Part One G., this is the subrogation provision that applies to employers' liability. The major difference in this provision from the one in Part One G. is that it does not give the insurer the insured employee's rights of recovery. It is limited to giving the insurer the rights of the employer against third parties. This difference is necessary because the insurer can only acquire rights from the employer through the insurance contract. Waiver of Our Right to Recover from Others Endorsement, Form WC 00 03 13, can be used to waive the insurer's right of subrogation against designated third parties who may be responsible for an injury. The endorsement provides a schedule to list the third party for which subrogation is waived. Please refer to PF&M Section 280.4-3, Workers Compensation And Employers Liability Insurance Policy Available Endorsements And Their Uses, for more information about this endorsement. I. Action Against Us
The insurance company cannot be sued or have any other legal action brought against it unless:
This section further specifies that nobody may name the insurance company as a defendant in a legal action brought against the insured in order to determine the liability of the insured. In addition, if the insured or the insured's estate becomes bankrupt or insolvent, the insurer is not relieved of its obligations under this coverage part. This provision is the opposite of the "direct action" provision under Part One H.3. In other words, this provision specifically provides that there is no right of direct action against the insurer until these requirements are met. PART THREE: OTHER STATES INSURANCE
A. How This Insurance Applies
Note: This clarifies that if other states are listed in Item 3.C. on the Information Page, and the insured initiates work or operations in those states, the policy applies as though that state was listed in Item 3.A. on the Information Page. This includes even minimal contacts that might trigger application of that state's workers compensation law, as discussed above.
Note: Part Three coverage is not meant to apply to ongoing operations. As a result, no premium is charged, regardless of the extent of the insured's known operations or the number of states listed. A payroll or other premium basis is available only if the insured actually begins operations or starts work in those states. In those cases, the appropriate state rate or rates apply to the premium basis that actually develops during the policy period.
Note: The insured must tell the insurance company when any work begins in a state not listed in Item 3.A. on the Information Page. This part permits an insurer not authorized to make workers compensation benefits payments to an injured employee in a given state to make those payments indirectly through the employer.
Note: This provision strengthens the notification requirement so the insurer can more accurately determine the extent of the coverage it provides. If notification is not made by the insured on a timely basis, coverage does not apply to that state. This also benefits the insured because of more accurate reporting of other states exposures. B. Notice
The insured must immediately notify the insurance company of any work started in any state listed in Item 3.C. on the Information Page. Note: When this occurs, the insurer has the opportunity to endorse the policy to change that state to a state listed in 3.A. and to determine a premium basis for it by audit or another method. Part Three is a unique feature of the Workers Compensation and Employers Liability Insurance Policy. It provides additional coverage to the insured for possible workers compensation exposures in states where the employer does not now have or expect operations or work. With respect to workers compensation insurance, Part Three relates specifically to the "extraterritorial" effect of most state workers compensation laws. These laws apply, or are interpreted to apply, to work-related accidents that occur both in the state in question as well as to accidents that occur elsewhere under certain circumstances: · The contract of hire was made within the state;
Example: An employer had operations only in New York State but sent an employee to Indiana on business. While performing his job in the Hoosier State, he sustained serious injury. The employee may be entitled to claim benefits under the Indiana Workers Compensation Law. On the other hand, an employee working for a California employer injured in an accident in California may be able to assert a claim under the New York Workers Compensation Law if he or she was hired in New York State. As a result, most employers having employment contacts of any kind in various states may need coverage for possible workers compensation exposures in those states. Note: Part Three also extends the policy's employers liability coverage to employment necessary or incidental to operations in states listed in Item 3.C. on the Information Page. Remember that Part Two A. 2. restricts the coverage in Part Two to apply only to employment necessary or incidental to work in states listed in Item 3.A. on the Information Page. Since Part Three indicates that states listed in Item 3.C. force the policy to apply as though that state were listed in Item 3.A., the effect of listing states in Item 3.C. is to extend the employers liability insurance coverage to states listed in Item 3.C. on the Information Page in the same manner as workers compensation insurance. PART FOUR: YOUR DUTIES IF INJURY OCCURS
The insured is obligated to immediately report to the insurance company any injury that occurs that might be covered by this insurance but the obligations do not end there. The other required duties of the insured include:
These duties apply to any loss, injury, accident or damages that occur and are covered under Part One, Part Two or Part Three of the policy. For an interesting court case involving the reporting of claims, please refer to PF&M Section 280_C001, Notice to Workers Compensation Department Also Held to Be Notice to General Liability Department, in Court Cases. PART FIVE: PREMIUM
Part Five of the policy describes how and when premium is calculated, when it is payable and how cancellation of the policy affects premium. It also imposes record-keeping requirements on the insured and gives the carrier the right to inspect and audit the insured's records as they relate to the policy. A. Our Manuals
The insurance company determines the premium charge for the policy based on its manuals of rules, rates, rating plans, classifications and codes. The insurer can change the manuals and apply those changes to this policy if the changes are authorized by law or by a government agency charged with regulating this insurance coverage. As used in this provision, "manuals" has a very specific meaning. In the majority of cases, an insurer's manuals of rules, rates, rating plans, classifications and codes are the corresponding manuals filed with the appropriate insurance regulatory authorities by the NCCI in its capacity as a licensed rating or advisory organization, on behalf of its member carriers. These manuals include:
As mentioned above, NCCI prepares and files manuals on behalf of its members in states where it is the authorized rating or advisory organization. In a few states, independent rating bureaus prepare and file manuals similar to the NCCI manuals in those states where they are the authorized rating organization. In addition, individual insurance companies may be authorized or required to file their own manuals, such as rate manuals or other parts, in certain states. In these cases, the reference in the policy means the manual or manuals of the individual insurance company. From a strictly legal standpoint, the effect of Part Five A. of the policy is to incorporate the various manuals by reference into the insurance contract. The premium provision resembles Part One of the policy in that it effectively incorporates the provisions of the various state workers compensation laws into the policy. Manuals are subject to periodic revisions and rates or loss costs specifically are usually revised annually, if not more frequently, in most states. The second sentence of this provision provides that changes in the manuals will apply to the policy if authorized by law or by a regulatory agency. See Rule 1. F. in the Basic Manual for Workers Compensation and Employers Liability Insurance for an explanation of the handling of classification changes or corrections. Rule changes ordinarily apply only to policies issued or renewed on or after the effective date of the rule change. On the other hand, changes in manual rates or loss costs may apply to existing policies based on the terms of the rate filing that applies and its approval. In most cases, rate changes due to changes in the benefit provisions of the state workers compensation law are applied to existing policies on a pro rata basis as of the effective date of the rate change. Pending Rate Change Endorsement, Form WC 00 04 04, and Rate Change Endorsement, Form WC 00 04 07, are the two standard policy endorsements used with these types of rate changes. B. Classifications
This provision states that Item 4. on the Information Page is the place where the rate and premium bases for certain business or work classifications are shown. The classifications are based on exposure estimates provided by the insured for the policy period. Classifications may also be based on an actual inspection of the operations by the insurer or by another party on its behalf. If the actual exposures should be classified differently, the insurance company assigns the proper classifications, rates and premium bases by endorsements to the policy. It is not always possible to accurately predict the kinds of work the insured will perform during the entire policy period. However, the insurer normally assumes the insured's entire workers compensation exposure for the entire policy period. As a result, the insurer must estimate the proper classifications to apply at policy inception and later confirm or revise those estimates based on information received during or after the policy period or based on a physical audit of the insured's books and records. If the insured's business or operations change during the policy period, or if it appears that the original premium estimates were not accurate at the time they were made, this provision gives the carrier the right to make any changes necessary that reflect the actual exposures. This provision can be enforced and the ability to do so is well established through previous precedent and court decisions. C. Remuneration
The estimated or deposit premium for each work classification is calculated by multiplying a premium basis by the applicable rate for the code and classification that applies to it. Remuneration or payroll is the usual premium basis and includes all payroll and remuneration paid during the policy period. The remuneration for services falls into two categories:
The premium for each classification usually depends on a premium basis, usually expressed as payroll, multiplied by a rate that applies per $100 of the payroll. Employee remuneration is not always the premium basis. For example, in some states, taxi companies generate premium based on an assumed amount of remuneration per cab driver, and not on the actual remuneration received. In other example, domestic servants are charged for on a "per capita" basis, such as $500 per employee per year. In most cases, payroll is the most common premium basis. The NCCI Basic Manual for Workers Compensation and Employers Liability Insurance provides detailed descriptions of what makes up "remuneration." It includes all payroll and any other type of remuneration either paid or that becomes payable during the policy period for business services rendered. Remuneration usually includes commissions, bonuses and non-cash compensation for services. It does not usually include tips, group insurance contributions or severance pay. This provision also provides that premium is normally based on all officers and employees whose work is part of the operations covered by the policy and to which the workers compensation law and coverage applies. In some cases, executive officers of a corporation may elect to not be subject to the workers compensation law. This provision also provides that the premium basis includes remuneration paid to "other persons engaged in work" that could lead to a covered workers compensation loss. Most workers compensation laws make a contractor liable for compensation payments to injured employees of uninsured subcontractors. This provision provides the means for an insurer to charge additional premium for the additional exposures caused by uninsured subcontractors. Proof of workers compensation coverage usually means a certificate of workers compensation insurance or other evidence of workers compensation coverage for employees of the subcontractor. This provision also allows the insurer to charge a premium based on the contract price for the services and materials provided by uninsured subcontractors if the actual payroll records for such subcontractors are not available. D. Premium Payments
The insured is responsible for paying the premium when it is due. It must be paid even if all or part of a workers compensation law is not valid. The first sentence above is fairly simple and direct. The second acknowledges the possibility that certain provisions of workers compensation laws may be held unconstitutional under the terms of a state constitution or the United States Constitution. Some early workers compensation statutes were found to be unconstitutional because they allowed the taking of an employer’s property without "due process," deprived the parties of the right to a jury trial or for other reasons. Most state workers compensation laws are not subject to attack on these constitutional grounds today but this provision acknowledges that certain provisions of a workers compensation law may be invalid on constitutional or other grounds. The "full faith and credit" clause of the United States Constitution (Art. IV, Sec. 1) is an area of continuing concern. It requires a state to have a "legitimate interest" in a compensable injury if its law is to be enforced or recognized by another state. E. Final Premium
The premium shown on the Information Page, schedules and endorsements to the policy is based on estimates. The final premium is determined after expiration by using the actual payroll and the correct classifications and rates that apply to the operations performed and the work done. If the final premium so determined is more than the estimated premium, the insured must pay the insurance company the difference. If the actual premium is less, the insurance company returns the excess to the insured, subject to the highest minimum premium for the classifications that apply. If the policy is cancelled, the final premium is determined in one of two ways:
This provision complements Part Five B. It states that the premium shown on the Information Page and elsewhere in the policy is only an estimate. It also states that the actual premium paid by the employer during the policy period is the basis for calculation of the final premium. It emphasizes that the proper classifications and rates will be applied to that premium basis to produce the final premium. Once the final premium figure is calculated, the policy provides for a final payment by either the insured or by the carrier, depending on the amounts previously paid, so that the premium paid for the policy equals the final premium. If the policy is cancelled before the expiration date, this provision states that the final premium will be calculated "pro rata" if the carrier cancels the policy and "short rate" if the insured cancels the policy. Pro rata and short rate premium refunds are described in the rules of the Basic Manual for Workers Compensation and Employers Liability Insurance. Pro rata cancellation charges the proportionate premium for each day of coverage. Short rate cancellation, and the short rate cancellation table in the rule, involves an increased charge to the insured. Short rate cancellation allows the insurer to recoup a portion of the policy writing, inspection and acquisition costs that accompany initial policy issuance. F. Records
The insured must keep and maintain records that provide the information needed by the insurance company to calculate the final premium. The insured must provide copies of those records to the insurer when the insurer requests them. The records referred to are primarily payroll records. This provision is similar to the records condition in most insurance policies. G. Audit
The insured must allow the insurance company to examine and audit all records that relate to the policy. Records include, but are not necessarily limited to, ledgers, journals, registers, vouchers, contracts, tax reports, payroll and disbursement records and programs for storing and retrieving data. Records may take the form of hard copy or be electronic documents. This access is for audit purposes and to determine the final premium. The insurance company normally conducts audits during regular business hours during the policy period and within three years after the expiration date of the policy. Information gained from the audit is used to determine the final policy premium. The rights of the insurance company under this provision also apply to insurance rate service organizations. The three-year period after expiration allows audits of smaller policies in cases where annual audits are not economically practical. The reference to insurance rate service organizations gives the NCCI or other independent rating bureaus the opportunity to participate in audits and to determine that the classifications being applied to the policy are correct. PART SIX: CONDITIONS
A. Inspection
The insurance company has the right to inspect workplaces at any time but it is not obligated to do so. The inspections relate only to the insurability of the workplaces and the insurance premiums charged and are not safety inspections. The insurer may provide the insured with reports on the conditions found and recommend changes to be made. The inspections are not intended to serve the same purpose as a person with the duty to provide for the health or safety of the insured's employees or the public. The insurer does not warrant that the insured's workplaces are safe or healthful or that they meet applicable laws, codes, regulations or standards. The rights of the insurance company under this provision also apply to insurance rate service organizations. The disclaimer provisions in this condition are largely based on state laws and are similar to those found in other types of insurance policies. It relieves the insurer from any liability that might result from its performing an inspection. The inspections are for the use of the insurer and should not be for the employer. B. Long-Term Policy
If the insurance company issues a policy with a term of more than one year and 16 days, all policy provisions apply in the same manner as if a new policy was issued on each annual anniversary that the policy is in effect. A policy may be issued for any amount of time up to a period of three years. A policy with a term of no more than a year and 16 days is treated as a single year policy. Otherwise, the policy period is divided into twelve-month units and the first or last unit of less than twelve months is treated as a "short-term" policy. These units are separately subject to provisions such as minimum premium, short rate cancellation, etc. C. Transfer of Your Rights and Duties
The insured may not transfer its policy rights or duties without the written consent of the insurance company. If the insured is an individual person and dies, and the insurance company receives notice to that effect within 30 days after the date of death, the insurer treats the deceased insured's legal representative as the insured. From the insurer's point of view, restricting the ability to assign rights and duties is necessary because the nature or extent of the risk could change dramatically when a transfer or assignment occurs. A provision similar to this is found in most insurance policies. D. Cancellation
Either the insured or the insurance company has the right to cancel the policy. Four conditions make up this provision.
Both the insured and the carrier have the right to cancel the policy. This provision does not specify the reasons that the insurer can cancel the policy. However, most state laws require that the insurer's cancellation be based on certain reasons, such as nonpayment of premium, misrepresentation or substantial change in the nature and character of the risk. On the other hand, the insured is not required to state a reason for requesting cancellation. This provision also requires at least ten days notice by the insurer before the cancellation takes effect. Most state laws require longer periods and those longer periods apply automatically, as provided for in this subsection. Standard state-specific endorsements contain the cancellation notice period and other cancellation requirements. E. Sole Representative
The first named insured in Item 1. of the Information Page acts on behalf of all insureds with respect to any policy changes, premiums and notices of cancellation. More than one corporation or entity may be insured under a single policy if there is substantially common majority ownership. This policy provision is necessary when there are multiple insureds because normally only one legal entity can carry out transactions with the insurer at any one time. The first named insured is responsible for policy maintenance issues like paying premiums and audits, requesting changes or endorsements, receiving return premiums and giving or receiving notice of cancellation. ENDORSEMENTS
A number of additional endorsements are available and are used to modify coverage under the Workers Compensation and Employers Liability Insurance Policy. These endorsements customarily modify coverage in one of four ways. They are used to: ·
Broaden coverage ·
Restrict coverage ·
Clarify coverage ·
Comply with specific state requirements
Please refer to PF&M Section 280.4-3, Workers Compensation And Employers Liability Insurance Policy Available Endorsements And Their Uses, for more information on workers compensation and employers liability endorsements. |