workers’ compensation basics

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Workers’ Compensation Basics


DisclaimerInsurance forms and endorsements vary based on insurance company; changes in edition dates; regulations; court decisions; and state jurisdiction. The instructional materials provided by The Insurance Community Center and its authors is intended as a general guideline and any interpretations provided by The Community do not modify or revise insurance policy language. •Information which is copyrighted and proprietary to Insurance Services Office, Inc. (“ISO Material”) is included in this publication. Use of the ISO Material is limited to ISO Participating Insurers and their Authorized Representatives. Use by ISO Participating Insurers is limited to use in those jurisdictions for which the insurer has an appropriate participation with ISO. Use of the ISO Material by Authorized Representatives is limited to use solely on behalf of one or more ISO Participating Insurers.•The authors of these materials and The Insurance Community Center assumes neither liability nor responsibility to any person or business with respect to any loss that is alleged to be caused directly or indirectly as a result of the instructional materials provided.

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What this class will cover

1. The evolution of Workers’ Compensation laws in the U. S.

2. Workers’ Compensation coverage concepts

3. Basics of providing Workers’ Compensation coverage

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Before There Was WC in the US

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Foundation of WC Laws in the US

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Objectives of WC Laws


WC Legal Concepts

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Employers Liability• Some states WC not mandatory for one or two

employees• On the job injury NOT occupational disease or

AOE/COE• Some states permit suits and recovery by

spouses for damages (loss of consortium, comfort and affection)

• Third party "Action Over" suits (non-contractual)

• Exception to “exclusive remedy” to the degree not excluded from policy

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Individual State Differences

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Individual State Differences

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Employer and Employee Definitions


Employer Defined by State Statutes

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Employer

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Employee

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Employee or Independent Contractor

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IRS Guidelines• Does employer set the times and places of

work• Does employer provide the tools,

equipment, vehicles, materials for the job• Does employer provide training• Does employer reimburse for expenses• Does employer file W-2 or 1099

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IRS Guidelines• Does employee personally perform the

services• Does employee continuous perform work

for the same employer• Does employee maintain separate

business with required license, permit and insurance

• Does employee file as a business

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Qualifying Injury / Illness

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Penalties

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The Workers’ Compensation Policy


Policy Forms

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Required Information


Required Information To Complete Application for Coverage

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Required Information To Complete Application for Coverage

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Purpose of Payroll and Job Descriptions

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Purpose of Payroll and Job Descriptions

• Basic rules apply – established by– NCCI or other rating bureau– Non-NCCI States

• California• New York• New Jersey• Delaware• Pennsylvania

– These states use classification systems similar to NCCI

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NCCI

• Publishes classification codes in their Scopes Manual / eSCAD on line WCIRB– An alphabetical index– Numerical index

– www.ncci.com

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Establishing Classifications

• Each specific job classification is assigned a four-digit number (code)

• Each code has its own rate used to establish premium

• Governing class– The code that most accurately describes the

business operations– Carries highest amount of payroll (other

than standard exceptions)

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Establishing Classifications

• Standard exceptions– NOT included in governing class unless

specifically included

• Examples– Clerical– Outside sales

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Standard Classification System

• Contains over 700 industry classifications and describes groups of employers whose businesses are relatively similar

• NPD – No Payroll Division– All payroll goes in governing class no

separation of payroll for clerical or outside sales

• NOC – Not otherwise classified

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Classification by Industry Group

• Groups businesses with similar hazards• Costs distributed fairly among similar

business• Grouping allows cost control through

industry wide safety and loss prevention• New industries can add classifications

– Large enough group– Identifiable job risks

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Classification by Industry Group

• Assignment by analogy– Type of business not explicitly classified– Uses similar business classifications and

hazards

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Step to Determine Proper Class

1. Review classification pages of the Basic Manual

2. See alphabetical index in Scopes Manual3. See industry index of Scopes Manual4. Review phraseology under each possible

industry group

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More Than One Governing Class

• Type of industry requires separate rating by classifications

• Employer separates payroll• Example - construction

– Drywall– Framing– Roofing– Electrical

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Premium Development• Proper classification• Proper payroll

– Company owners may have minimum and maximum payrolls

• Insurance company loss factors– Used to increase basic rates for loss

adjustment costs and expenses

• Experience modification factor

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Experience Modification Factor • This is a factor used by insurance companies

for insureds that qualify based upon the amount of annual premium paid

• Rating bureaus (NCCI and others) compare the insured’s loss data to the average of all employers in that state that have the same classification codes

• Can increase or decrease the premium developed by the classification code rate time the payroll

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Experience Modification Factor • Frequency and/or severity or both affect

the Ex Mod• Typically a period of time is used for

payroll and loss data collection, often four years and excluding the most recent policy year

• System designed to provide a safer work environment for employees

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Experience Modification Factor • Rewards employers with good loss

records• Penalizes employers with worse than

average loss records• Eligibility –NCCI (varies by state)

– The minimum premium requirements range from $2,500 to $5,750 annually or from $4,500 to $11,500 for the last 2 years of the experience period

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Eligibility

• Eligibility ’09 for Experience Period- CA– $16,300 in premium based on Current (2010)– Pure Premium Rate during experience period– Remuneration during experience period

times current pure premium

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Software Systems to Help Analyze Mod

• www.specificsoftware.com• www.intellicomp.com• ModMaster: www.specificsoftware.com

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Information Used to Calculate Mod• Unit Statistical Filings• Audited payroll by classification• Claim information

– Valuation dates are 18, 30, 42, 54, 66 months after the inception of policy

– Filing date – 2 months after valuation

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Business Ownership Affect on Ex Mod• Most states have regulations pertaining

to the sale or acquisition of a business and how that affects the business Ex Mod

• If the business is maintained as a separate entity with new owners, it will keep the same Ex Mod unless:– There is a material change in ownership AND

either• a material change in operations or• a material change in employees

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WC Coverage Review


WC Coverage Basics

• Named insured should be the actual employer name

• Mailing address• Locations of work• Payroll information• Classification of jobs

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What is Shown on The Dec Page1 Part 1 is the statutory coverage and pays

state required benefits2 Policy Period3 A This is where all states are listed where

operations or work locations are known3 B Part 2 is Employer’s Liability – defends the

insured if the employee is allowed to sue Limits of insurance $500,000 up to

$2,000,000

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The Declarations Page3 C This section should include language that

states: “all other states, other than monopolistic states or those shown in 3A. This allows the benefits in those possible work states to be paid, rather than the state benefits of those shown in 3A which may be lower

4 Classification schedule to develop premium

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Coverage Review – Part 1• General Section

– Covers all of employers workplaces listed on the Dec (Information) Page as well as all locations shown in 3. A.

• Insurance applies– AOE / COE– Pay all claims required

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Coverage Review – Part 1

• Benefits paid– Medical– Disability– Death – Rehabilitation costs

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Coverage Review – Part 1• Payments not paid by insurance – any

additional money required because of:– Serious and willful misconduct– Knowingly violated the law in employment– Failure to comply with health or safety law

or regulation– Discharge, coerce or discriminate against an

employee

• Statutory provisions apply

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Coverage Review – Part 2• Pays defense and damages for lawsuits

filed by employees or dependents against the named insured employer

• Insurance applies– Bodily injury by accident or by disease – AOE

/ COE and occur during policy period– Necessary or incidental to work – Suit must be brought within the US,

territories or possessions or Canada

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Coverage Review – Part 2• If the insured is performing work in a

monopolistic state, the statutory coverage is purchased through the state

• Employer’s Liability is not included– Must purchase Stop Gap Liability – Some states require this to be added to the

Commercial General Liability policy – Others may allow this to be added to another

WC policy carried by the insured• Show this coverage as an underlying

coverage on the Umbrella policy

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Coverage Review – Part 2• Insuring Agreement

– Pays all sums legally liable– Care and loss of services– Consequential BI to spouse, child, parent,

brother or sister of injured employee– BI to an employee arising of a capacity

other than as an employer (such as a manufacturer of a product that causes the injury)

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Coverage Review – Part 2• Exclusions

– Contractually assumed liability– Punitive damages– Knowledgeable violation of law– Obligations required under any WC law –

covered under Part 1– BI outside US, territories, possessions or

Canada, except for outside temporarily– Damages arising out of coercion, criticism,

discrimination, harassment– Covered under federal laws

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Coverage Review – Part 3• Other states

– 3. C. applies only if one or more states are shown and work begins in disclosed states after policy effective date

– Any work that begins before effective date of policy and not reported within 30 days –no coverage

– Reimburse for benefits if not permitted to pay directly

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Employee Outside Listed State or US

• Most state laws allow benefits for residents working temporarily outside their own state or country

• Many states may allow benefits for non-residents if the requirements of that State are met– 23 states cover all in-state injures– 4 states have special limits (AZ)– 6 states exclude if covered in another state

(CA)

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Employee Outside Listed State or US

• Miscellaneous– Other states leave it up the courts to

decide except• OH bars claims by those temporarily in state• NY fact specific

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Coverage Review – Part 4

• Duties after a loss– Report– Give specifics of injury or illness– Send demands and notices– Cooperate– Do nothing to impair subrogation rights– No voluntary payments

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Worker's Compensation Endorsements / Coverages

• Voluntary Compensation and Employers Liability Coverage – WC 00 03 11 A– Provides benefits to persons not subject to

the Act– Describe the type of employment in the

Endorsement Schedule– Examples of use:

• Sole proprietors, partners or officers don’t fall under the Act

• Types of employment not covered under the Act

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WC - Federal Endorsements• Longshore and Harbor Workers’

Compensation Act - WC 00 02 06– Provides WC benefits to employees, (other than

masters and members of crew of a vessel)– Injured in maritime employment

• Loading and unloading a vessel• Repairing or rebuilding a vessel • Subject to size (ft of vessel and tonnage)

– 1984 – Specific exceptions• Restaurants, clerical, employed by marina and

more….• If subject to state workers’ compensation coverage

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Waiver of Subrogation

• Specific endorsement added to a Workers’ Compensation to waive the carriers right to go against the organization named who may be responsible for the accident

• A charge is typically made if the insurance company will allow subrogation rights to be waived

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References and Resources• NCCI – National Council on Compensation –

See Silverplume / Sage to Access• WCIRB www.wcirbonline.com• U.S. Chamber of Commerce (202) 463-5381

– 2009 Analysis of Workers Compensation Laws• The Workers Compensation Guide – See

Silverplume / Sage• International Risk Management Institute

www.irmi.com 1-800-827-4242• Your bureau manual – WCIRB, NCCI or

others

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workers’ compensation basics

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