Workers compensation for a small business

Rough Notes, Dec 2000 by Utschig, LeRoy H

Since the September issue, we have been discussing insurance coverages for small businesses, using as an example a fictitious hardware store called Riverside Hardware Store (RHS). This month we continue the discussion by focusing on workers compensation coverage.

Workers compensation pays benefits to a worker who incurs a job-related injury or illness. Coverage is included for medical bills and lost wages. A common workers compensation regulation is that an employer of even one full-time employee must buy the coverage. There are several states where employers do not need to purchase workers compensation until they have several employees. Injured employees can sue to recover for their injuries even though the employer might not be required to have workers compensation due to the numerical exemption.

Basic workers compensation

Workers compensation coverage applies to all employees of the named insured. In some states, coverage will not apply to domestics, casual workers and farm workers.

When a worker is injured in the course of working, medical bills incurred are automatically covered. Indemnity coverage (paying for about two-thirds of a worker's normal wages) applies in the event a worker cannot work due to a work-related accident. Coverage for funeral expenses is also a part of the benefits provided. Sometimes a worker will sustain a life-long disability, such as losing a limb or the sight in one eye. Again, there is payment for that type of injury.

Employers liability is the second coverage that is a part of every workers compensation contract. While the intent of every state's Workers Compensation Act is to provide coverage for every work/injury situation, some losses will "fall through the cracks." An example of a loss compensable under employers liability would be a male teacher who contracts chicken box from the students and becomes sterile as a result. Not every state includes chicken pox in its list of covered sicknesses or diseases. Should the man in this illustration sue as a result of the injury he sustained, employers liability coverage at the school where he works would respond.

Workers compensation for a small store

Riverside Hardware Store purchased a workers compensation policy that did not have any amendments to it. The store's insurance agent believed that was adequate coverage as he never modified any workers compensation contract that he sold.

One of Riverside Hardware Store's employees was sent to another state to attend a trade show. En route to the show, the employee was badly injured in an auto accident. The employee learned that the workers compensation benefits were better in the state where he was injured than in his home state. The policy provided workers compensation benefits per the state listed on the policy. The store's workers compensation coverage did not cover the difference in benefits between the state of employment and the state where the injury happened.

For no premium charge, this loss could have been covered in full. Workers compensation policies issued by insurance companies can be amended to provide coverage in states other than the states) listed on the declaration page for workers compensation benefits. For many years, this coverage was endorsed on by adding an "all states endorsement." While an endorsement is no longer required to provide coverage in the states listed in the declaration, the name "all states coverage" is still used by many insurance people. By adding the wording, automatic coverage will apply in all states except the monopolistic fund states.

Monopolistic fund states require that workers compensation coverage be purchased from the state. As far as I know, monopolistic fund states' workers compensation does not have a provision for providing an "all states" provision.

Employers liability

Employers liability coverage is a part of every workers compensation policy in those states where private insurance companies are allowed to write workers compensation insurance. Employers liability is not part of the coverage provided in monopolistic fund states.

Coverage for employers liability applies only in those states listed on the declaration page for workers compensation benefits. For example, if Indiana is the only state listed for workers compensation coverage, the employers liability coverage applies only in the state of Indiana.

We will go back to Riverside Hardware Store for an imaginary example. An employee, other than the one already injured, went to a trade show in Iowa. While at the trade show, RHS's employee hired some Iowa natives to do some work for Riverside. One of these workers was injured. These workers were hired for a short time of several hours. Due to their brief work time, they were considered as casual workers and not compensable under Iowa's workers compensation laws.

The injured worker brought suit to recover for his injuries. Riverside Hardware Store's workers compensation policy did not cover the loss because the claim was not compensable under the Workers Compensation Act. The claim was then presented under RHS's employers liability coverage. No coverage was afforded under the employer's liability provisions because the state of Iowa was not listed as a covered state.