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Here is a fairly common problem that can arise for any employer. As an employer you know you are responsible for providing benefits under your state’s workers compensation laws to any of your employees who suffer an on the job injury. Most employers do that by buying a workers compensation insurance policy to fulfill their obligations under the law. Most employers think of their workers compensation policy and their workers compensation coverage as one and the same. Actually, the workers compensation policy is divided into several sections, with Part One being the actual workers compensation coverage.
The Part One coverage agreement under a WC policy is simple and straightforward: to quote,
“We will pay promptly when due the benefits required of you by the workers compensation law.”
There is a bit more than that, of course, but the entire Part One insuring agreement for workers compensation runs to only a single page of verbiage. Essentially, the policy doesn’t define what it pays; the relevant workers compensation law of the state, or states, does.
The whole Workers Compensation policy is only six pages, probably the shortest insurance contract you’ll ever see, and is pretty simple, but it does have one potential pitfall to beware of; it’s obviously important to know what state workers compensation law applies. That’s established on the policy information page; Item 3.A (for most states and insurance carriers) specifically designates the states where the workers compensation policy is applicable. Each state in which the policyholder has operations must be listed here. Part One coverage does not apply to claims filed under the workers compensation laws of other states.
What about incidental exposure to other state’s workers compensation laws? Part Three, Other States Insurance, covers that. With this coverage, workers compensation and employers liability insurance is provided for incidental exposure in states listed here, but not listed in Item 3.A of the Information Page.
So, what happens if you have operations in other states, or for one reason or another have employees who may be hired in or work in other states? Does your policy respond, and how? Imagine a not uncommon situation where an employer hires a sales person or service technician in another state to service customers in that area. For Part One coverage to apply, those states must be specifically listed on the policy in item 3.A, at the inception of the policy. That’s because Part Three, Other States Insurance, has a catch; It says two things:
“If you begin work in any … states after the effective date of this policy … all provisions of the policy will apply as though that state were listed in Item 3.A. of the Information Page.”.
That’s good, but it adds:
“If you have work on the effective date of this policy in any state not listed in Item 3.A…coverage will not be afforded for that state unless we are notified within thirty days.”.
Translation: if you add a state, it’s covered automatically under Part Three, but only until that policy expires. At the next renewal, you must list that state in order for coverage to continue.
The other thing to understand is that the workers compensation statutes of most states will have extraterritorial provisions that specify when and how their workers compensation act applies, both in and out of state. Normally, the state statute will indicate that if the principal place of employment is within their jurisdictional boundaries, a workers compensation injury occurring outside of state boundaries is still covered by the state law; if the contract to hire was negotiated within their state, their workers compensation laws apply regardless where the injury occurs. Additionally, workers compensation statutes also normally specify that any work related injury occurring within their borders is subject to their workers compensation statutes, even for employers and employees whose place of business is not within their state line boundaries.
So think about that. When an employee is injured in another state where the employer does not normally do business, the extraterritorial provisions of the state workers compensation act work great, as long as the employee elects to utilize the benefits of the home state workers compensation act. The problems occur when the employee elects to file the claim in a state where the employer does not have a physical location and the employer does not have workers compensation coverage.
The usual reason an employee files for benefits in a state other than the home state is the amount of disability benefits that will be paid. Consider a highly successful salesman from State A, earning $2,000 per week. Workers compensation disability benefits are generally calculated at 2/3 of wages, up to a maximum set by each state by statute. State A caps weekly disability benefits at $600 a week, so that’s all this employee would receive if he filed a claim for a work injury under State A law. Suppose he was injured while visiting a client in State B, which has a high maximum weekly disability rate; under that state’s law he will receive $1,333 per week while unable to work. Most employees would not have a problem figuring out what to do in this situation.
This creates a coverage issue for the employer, albeit one that easily fixed. When the workers compensation policy is purchased, the employer should be sure it specifies in Item 3. A. all states in which the employer has a physical presence, even if only a single salesman. The Other States provision is item 3.C of the Information Page. Here is where you list other states where there may be incidental exposure. The best way to handle that is to insert the following omnibus wording in Item 3.C: “All states and US territories except North Dakota, Ohio, Washington, Wyoming, Puerto Rico and the U.S. Virgin Islands (these are the four monopolistic states and two monopolistic territories where the state/territorial governments provide workers compensation coverage) and those states listed in Item 3.A.
This blanket “all states” wording eliminates the possibility of accidental oversight where a state is left out and no coverage would therefore be available. Even with this, though, there will always be an unavoidable potential risk created by the monopolistic states and territories, North Dakota, Ohio, Washington, Wyoming, Puerto Rico and the U.S. Virgin Islands. If you come anywhere near those jurisdictions, talk to us about custom solutions.