Workers Compensation Insurance Laws

Workers' compensation insurance is a type of insurance coverage that provides benefits to employees who are injured or become ill as a result of their job duties. The purpose of workers' compensation insurance is to provide financial support for medical expenses and lost wages for employees who are unable to work due to their injury or illness.

Workers' compensation insurance is typically required by law, and employers are typically responsible for purchasing and maintaining the coverage. The benefits provided by workers' compensation insurance vary by jurisdiction, but typically include medical care, rehabilitation, and compensation for lost wages or permanent disability.

The most important feature of workers compensation laws is that employees are eligible for benefits whether the employer is negligent or not. All that is usually required to establish the worker's right to compensation is that the injury arose out of and in the course of his or her employment.

Under elective type laws discussed below, this principle is not as completely established. An employer that chooses to remain outside the scope of workers compensation law faces serious obstacles in defending against a suit an employee brings.

In all states, coverage extends to benefits for occupational diseases. No questions are raised with respect to the employer's negligence, the employee's contributory negligence, the negligence of a fellow servant, or the employee's assumption of risk. These issues are all set aside and the employee who sustains an occupational injury is paid as a matter of right.

State laws usually specify the circumstances when a worker's injuries are not compensable. For example, one particular state has five situations where a compensation award may be denied:

1. If the sole cause of the injury was the employee's intoxication
2. If the injury arose in the course of work absolutely forbidden by the employer
3. If the worker willfully injured himself or herself
4. If the worker was engaged in illegal employment
5. If the worker was injured while attempting to injure a fellow worker or other person*

*This possible exclusion of coverage is usually applied in connection with accidents that arise out of horseplay or practical jokes. In these cases, the injured worker who initiated the horseplay or joke that led to the injury is denied benefits.

However, an employee injured at work because of horseplay that others initiated is entitled to benefits.

In cases like these, the employer must prove that one of these situations caused the accident to occur. Discrepancies and ambiguities are usually resolved in the injured worker's favor.

As stated above, compensable injuries must arise out of and during the course of employment. The fact that the employee is injured while working is not sufficient. The injury must also arise out of the work.

In many cases, this is difficult to prove. If an employee is injured going to or returning from work or while eating lunch on the employer's premises, the question of compensation depends on the individual circumstances and if the facts conclusively prove that the accident arose out of and during the course of the employment.

In general, workers compensation laws do not cover employees before or after working hours or before entering and after leaving their employer's premises if they work at fixed locations such as offices or factories.

However, the broad nature and scope of coverage that these laws encompass provides benefits under a number of situations.

On the other hand, employees such as traveling salespersons who do not work at fixed locations are covered under the terms of the law from the time they leave home on sales calls until they return home or to a destination not related to the employer's work, such as a hotel.

In some cases, an employee may have to work at a remote location and maintain temporary living quarters at that location. These employees may be injured or be involved in an accident when away from the job location, during non-working hours, or while engaged in recreational activities.

In cases like these, benefits have been paid because they arose out of, as a result of, and in the course of employment.

The employer may pay the expenses of its employees for transportation to and from jobsites. In that case, accidents or injuries that occur in the course of that transportation are compensable.

In some cases, benefits are awarded where an employee is injured when engaged in an activity not connected with employment because it promotes the employer's interests and good will.

In cases where an employer or the employee's supervisor assaults and injures an employee, the employee can either claim benefits under the law or sue the employer. This is because the assault could be considered a breach of the employer-employee relationship.

However, if a fellow employee assaults an employee in the course of employment, the law covers the injuries the employee sustained and he or she does not have a right of action against the employer.

Controversies periodically arise over allegations that an employee was injured while violating the employer's established work rules. This does not bar recovering benefits in and of itself, and claims may not be rejected because work was not performed in an approved manner.

Benefits are also provided for injuries sustained in legitimate employment even though state labor laws prohibit the worker's employment because of age, sex, or other considerations, such as illegally employed minors who receive benefits.

In some cases, employees engage in employer-sponsored sporting activities. It is generally held that injuries sustained in those activities are compensable under workers compensation laws.

For the most part, workers compensation laws provide benefits for accidental injuries and accidental death. Questions occasionally arise about whether or not a particular occurrence is an accident. The courts generally hold that an accident is an unplanned or unexpected unfavorable event.

Applying this approach, even an unusual injury that results from the ordinary strain of an employee's usual work is treated as a compensable accident under the law, similar to aggravating a previously existing disease or condition.

A heart attack is treated as compensable if it can be proved that unusual stress, strain, or tension that resulted from the employee's work brought it on. The law also includes any deliberate or willful act of a third party in the definition of accident.

The workers compensation insurance laws of a given state obviously provides extremely valuable protection to workers who fall within its scope. It also benefits the employer. While the employer is liable to its employees for every occupational accident, that liability is limited to the benefits detailed in the law as long as the employer meets the law's security provisions.

If the employer complies with these security provisions, the injured employee must accept the benefits and cannot sue the employer, regardless of its negligence. Employers liability in the workers compensation law is exclusive and replaces all other liability to an affected employee, a spouse, dependents, or anyone else entitled to recover damages.

While an employee cannot sue the employer for negligence, the courts have held that a cause of action exists if the employer willfully assaults an employee. For example, a California court decision held that an employer was liable and subject to suit because of its fraud and conspiracy in concealing the dangers of asbestos from a worker. It ruled that the employer could be sued because it fraudulently concealed a known health risk.

Workers compensation policies specifically cover damages claimed against an insured in a capacity other than as an employer. They are broadened to clarify an employer's immunity to suit by an employee on the grounds that the employer was liable for committing a wrongful act unrelated to his or her role as an employer. This is sometimes referred to as dual capacity.

An employee injured through a fellow employee's apparent negligence may not sue the fellow employee for damages. The injured employee is entitled to only benefits that the workers compensation law provides. These situations arise from time to time when employees are injured while a fellow employee drives them to work.

Employers liability is exclusive only with respect to injuries or diseases that are compensable under the workers compensation law. If a particular accident or occupational disease is not within that law, the employee retains the right to sue at common law and claim negligence on the part of the employer.

In such suits, the employer has recourse to the usual common law defenses. The distinction between an employer's statutory liability under workers compensation law and the common law negligence liability to employees for situations that fall outside these laws must be clearly understood.

Standard workers compensation policies apply to the employer's statutory liability under the workers compensation law of the applicable state as well as its liability for negligence.

In most states where the employer is not insured as the workers compensation law requires, an injured employee has the right to sue the uninsured employer. In those cases, that employer cannot use the usual common law defenses to defend against such suits.

In addition, the employee also has the option to claim the regular benefits the law provides. The uninsured employer must pay those benefits.

As stated above, an employee whose injury falls within the workers compensation law must accept the benefits it provides and not sue the employer. Spouses of injured employees periodically attempt to sue an employer because an industrial accident deprived them of the employee's spousal services.

This is commonly referred to as "loss of consortium." These suits usually fail because the benefits in the workers compensation law are the sole remedy for injuries or death that arise out of industrial accidents. If such a suit was successful, it would be contrary to the workers compensation law's intent, which is designed to eliminate all common law actions.

However, if such a suit is successful, a separate section of the workers compensation policy protects the employer. This is Part Two and is discussed later in this topic. Note: There is nothing in the workers compensation law that prevents a covered employee entitled to benefits, including those already receiving benefits, from suing a third party alleging that the third party caused the accident.

The workers compensation laws in most states give an injured employee the right to sue a third party not connected with the employment. However, they usually place a limit on the employee's right to recover from the third party. This is to keep the employee from collecting from both the employer and the third party.

Even when a third party causes an employee injury, the employer is still directly and primarily responsible for all workers compensation and medical benefits, as if there was no third party involved.

Because of this provision, the employer has the responsibility to provide the benefits due the injured employee if the third party does not have assets from which the injured employee could recover.

Note: A fellow employee is not a third party. A worker may not sue a fellow employee for damages.

There are several ways to initiate actions against third parties responsible for injuries. In some states, the employer or the insurance company responsible to the injured employee takes over the employee's rights to proceed against third parties responsible for the injury.

Provisions require that the employer or the insurance company pay the injured employee any excess amounts collected from the third party over and above the amounts the injured employee received as direct workers compensation benefits. Some states allow the employee to proceed against the third party even though he or she accepted workers compensation benefits.

If the injured worker's suit against the third party is successful, the worker must reimburse the self-insured employer or the insurance company for the workers compensation benefits he or she received after determining the net recovery or expenses. As a result, an employee might collect more than the benefits due under the law by recovering higher damages from a third party.

The right of employees to sue employers and third parties in a given state should always be reviewed carefully because they are always subject to review and revision.

Most workers compensation laws allow the injured worker either to sue the third party responsible for the injury or take the benefits available under the workers compensation law that applies.

Workers compensation policies may be endorsed to waive the insurance company's right of subrogation against third parties. Such endorsements are usually subject to an additional premium charge.

In some cases, the injured employee sues a third party alleging the third party's negligence as the reason for the accident. The third party may argue that the accident and resulting injury to the employee resulted from the employer's primary and active negligence, not the third party's negligence. This is known as a "third-party over" or a "liability over" suit.

The third party usually sues the employer in the employee's original suit and argues that the judgment should be against the employer. The employer then becomes a defendant in the suit and the court decides whether judgment should be against the employer, the third party, or both.

The employers liability section of the workers compensation and employers liability policy covers any liability assessed against the employer. The commercial general liability policy does not provide coverage. The United States Longshore and Harbor Workers Compensation Act also allow these third-party suits and "liability over" suits. Commercial general liability policies cover the third party's negligence.

Dole versus Dow Chemical Co., 30 N.Y. 2nd 143 was a landmark case that the New York Court of Appeals decided. It signaled an increase in "third-party over" actions. Before this ruling, if an injured employee sued and recovered full damages from one of two or more individuals whose combined negligence contributed to the injury, the third party held liable for the entire loss could not recover any part of the damages from the other negligent defendant(s).

This court ruling stated that contribution was permitted based on comparative negligence. As a result, a negligent party who is sued may then sue another party for that party's negligence that contributed to the accident and receive partial reimbursement.

This reimbursement is determined and apportioned based on the degree or percentage of negligence. There are situations where the injured worker's employer may be partially liable for a portion of the damages assessed against the third party. This is based on apportioning the percentages of negligence as the court determines.

The employer's workers compensation insurance company pays the apportioned damages assessed against the negligent employer under Part Two–Employers Liability.

No-fault automobile laws in some states may reduce the amount of "third-party over" litigation in cases where a third party who operates a motor vehicle in the course of his or her employment injures an employee.

Under workers compensation laws, a worker injured in the course of employment is entitled to unlimited medical, surgical, hospital, and nursing care.

Medical Benefits

Injured workers are entitled to medical, surgical, hospital, and nursing care. These benefits usually include x-rays, medical specialists, artificial limbs or appliances, and prescription drugs. Some states give employees the freedom to choose their own physician.

However, most require that the employer provide the medical treatment and the employer retains the right to select the physician(s) who provides the treatment.

Occupational Disease Coverage

Conditions characteristic of and unique to a particular trade, occupation, process, or employment cause occupational diseases. This does not include ordinary diseases to which the general public is exposed. The workers compensation laws in all states and the Canadian provinces have provisions to cover all occupational diseases.

The Federal Coal Mine Health and Safety Act is a federal law that provides benefits for coal miners who contract black lung disease (pneumoconiosis) in cases where the benefits payable under the state's workers compensation law are inadequate.

Usual Exertion VS Unusual Exertion

Different states may have different approaches with respect to coverage for injuries due to exertion. Some follow the "usual exertion" rule that makes an injury compensable under workers compensation laws if the ordinary stress and strain associated with the employment is a substantial cause of the injury.

Other states follow the "unusual exertion" rule where unusual exertion or activity must cause the job-related injury.

Indemnity for Loss of Time

In addition to the eligible medical, surgical, hospital, and other expenses for care and rehabilitation, injured workers are also eligible to be indemnified for their loss of earnings during a period of total or partial disability.

The laws of each state determine the percentage of the worker's regular weekly wage that applies to the loss of earnings, subject to minimum and maximum amounts per week. In addition, some state laws provide a maximum period during which indemnity is paid, as well as a maximum dollar amount.

Waiting Period

Medical care payments begin immediately at the time that the accident and the compensable injury occur. However, indemnity for lost time does not begin until after a certain number of days of disability have passed. This applies in all jurisdictions.

In nearly every case, the law further states that benefits are paid for the waiting period if the disability continues beyond the designated number of days. This is known as the retroactive period.

While the length of the retroactive period is not standardized among the states, most use waiting periods of three, five, or seven days. The United States Longshore and Harbor Workers Compensation Act, the Federal Employers' Liability Act, and the Defense Base Act each have a three-day waiting period.

Scheduled Awards

Workers Compensation laws in every state provide statutory maximum amounts for certain specified permanent injuries, such as the loss of an arm, a thumb, one hand, one foot, or hearing in one ear, to name a few.

Permanent Total Disability

Most states entitle permanently disabled workers to benefits for life. For example, loss of both hands, both feet, both eyes, or a combination of any two of these is treated as a permanent disability.

Death Benefits

The funeral expenses of a worker who dies as a result of injuries from a compensable accident are paid up to the point that each state's law specifies. The surviving spouse and children become eligible for and are entitled to those benefits.

In most cases, benefits to dependents are paid to the surviving spouse for life or until he or she remarries. Benefits are paid to children up to the age of 18. In some states, the surviving spouse receives a lump sum at the time he or she remarries. These benefits are subject to minimum and maximum amounts.

Status of Benefits

Workers compensation benefits are tax exempt. They are also exempt from claims by creditors and from levies, execution, or attachments. They are not reduced by and are not prorated with other benefits received from life insurance, accident and sickness insurance, medical care insurance, or Social Security benefits.

They usually coordinate with no-fault benefits in states that have such laws in effect. Beneficiaries cannot assign benefits.

Managed Care Plans

Many states have instituted managed care plans in an effort to reduce the mounting costs of medical care in workers compensation cases. These techniques rely on primary care doctors and health care coordinators to monitor each patient's care and to develop a coordinated, efficient, and cost-effective treatment plan.

The result is a more comprehensive and continuous system of attention to medical needs instead of shuffling patients from one costly specialist to another.

Most states have compulsory workers compensation laws. A few states have elective laws. In states that have compulsory workers compensation laws, every employer that falls within the scope of the law must provide the benefits as the law states. There is a system of penalties for employers that fail to comply with the law.

Compulsory Law States

Workers compensation laws do not cover every employer and every type of employment. Depending on the jurisdiction, domestic workers, farm workers, leased and temporary employees, clergy and religious, partners, sole proprietors, and members/managers of limited liability companies may or may not come under the law.

Individual states will have their own exceptions. The exceptions and special provisions that apply in a given state should be examined carefully and that state's laws thoroughly analyzed because this will impact coverage and premium calculation.

Elective Laws States

A few states have elective laws. Under these laws, an employer subject to the law has the option to accept or reject the law without being subject to penalty. However, if an employer rejects the law and an employee is subsequently injured in the course of employment, the injured worker may sue the employer.

In cases like these, the employer is denied the three common law defenses of contributory negligence of the injured employee, negligence of a fellow servant, and assumption of risk. A few states go even further and establish a presumption of the employer's negligence in all occupational injuries.

Because of the potentially serious penalties that accompany rejecting the law, most employers accept it.

An employer's failure to obtain the required insurance is subject to punishment by fines in most states and/or imprisonment in others, under certain circumstances. In addition, most states hold employers liable for failing to provide the required insurance and permit lawsuits by employees, and the employer does not have the usual employer defenses available to it.

In some cases, the employer may be prohibited from doing any business within the state. For example, an employer may fail to provide the required workers compensation coverage. In that case, the injured employee (or the employee's legal representative if the employee dies) may choose to either receive the benefits prescribed by law or sue the employer for damages.

Under these circumstances where an employee decides to sue, the employer's defenses usually available to it are removed and do not apply. This includes contributory negligence on the employee's part, a fellow employee's negligence, and the doctrine of assumption of risk.

Some states have uninsured employers funds. Injured employees of an uninsured employer can collect benefits from this fund when they cannot collect them in any other way.

An independent contractor is usually not considered an employee and does not come within the scope of the law. For example, a building owner who contracts with an independent contractor to make repairs is not liable to the contractor under the workers compensation law.

This is different than the situation where a contractor engages a subcontractor. That situation is reviewed later in this topic.

It is often difficult to determine if an individual is an independent contractor or an employee. The deciding factor is usually not so much the express contract between the parties but rather the degree of control the contractor exercises over the employment conditions.

An independent contractor usually supplies the required materials and equipment and receives a lump-sum payment for its work instead of a daily, weekly, or monthly payment.

The independent contractor is usually responsible for only the work completed and is not subject to discharge as one employed under an employment contract or a similar employment situation.

Court decisions in this area often refer to IRS Revenue Ruling 87-41–Factors for Determining if Independent Contractor Status Applies. This publication was first published in 1987 as a guide to determine a worker's status. It lists 20 criteria to evaluate and determine who is an independent contractor versus who is an employee.

The recurring theme throughout the list is "control" of the work performed. This ruling also explains that the way the relationship or the compensation is labeled, described, or designated is irrelevant to determine a worker's actual status.

The entity that controls the worker's activities is the ultimate determining factor. The worker that has more control over the work is more likely to be an independent contractor. On the other hand, if the employer has more control over the work, it is more likely that the worker is an employee.

It is extremely important to remember that no single factor is used to make this determination. The entire test should be applied to the situation and the individual responses summarized to arrive at the final determination. The circumstances of each case are examined to determine if the injured party was an independent contractor or an employee.

As stated above, independent contractors do not come within the scope of workers compensation laws.

The standard workers compensation and employers liability insurance policy insures only employees. If an allegedly independent contractor makes a claim for benefits and is held to be an employee, the coverage the policy provides applies and the insurance company is liable, even if it did not charge a premium for the person involved.

Examples of employments held to be that of employees include commission sales persons, entertainers, installers, construction workers, and truck drivers.

The party that contracts with an independent contractor to perform work is not usually liable to the contractor. However, the contracting party should confirm that the independent contractor has arranged workers compensation coverage on the employees who perform the work.

Workers compensation laws of many states hold that a contractor that employs an uninsured subcontractor is liable to pay workers compensation benefits to the uninsured subcontractor's employees if they are injured while doing work on the specific job.

The workers compensation and employers liability insurance policy automatically insures this obligation. Contractors are required to furnish their insurance companies with certificates of insurance for each subcontractor.

Additional premiums are charged if the premium audit of the contractor's books reveals an uninsured subcontractor. This is why contractors must be certain that any subcontractors they use are properly insured.

Workers compensation laws extend this additional protection to employees of uninsured subcontractors, but doing so does not affect any other rights and obligations. As a result, uninsured subcontractors break the law by being an uninsured employer. In such cases, the uninsured subcontractor's employee has the right to sue the contractor as a third party.

Workers compensation laws that apply to contractors and subcontractors do not apply to individuals who work as subcontractors. The laws apply to only employees of subcontractors. An individual subcontractor who works without employees is either an independent contractor or an employee.

Making a proper determination is a legal question based on all of the conditions in the individual situation.