Most business owners know that workers’ compensation insurance covers employees when they’re injured on the job. However, they may not know that policies in almost every state also pay their legal fees if an employee decides to sue for their injuries. Understanding this and other details about workers’ compensation coverage can come in handy should you ever have to file a claim.
Workers’ Compensation Coverage Parts
The majority of states use a standardized workers’ compensation insurance policy created by the National Council on Compensation Insurance (NCCI). The policy form has two coverage parts. The first coverage part, often referred to as part one, is the one most people understand as the policy that pays benefits to employees who suffer occupational injuries or illnesses.
Part two, the lesser-known workers’ compensation coverage, is also called employer’s liability insurance. It covers a business’s legal expenses if part one doesn’t apply. For instance, an employer’s liability may kick in if:
- An injury or illness isn’t covered by the state’s workers’ comp law: Take, for example, mental health claims. Some states don’t cover these even if they’re connected to the employee’s job so that a worker may sue.
- The worker believes their employer was grossly negligent: Injured employees can reject the benefits provided in part one and sue if they believe their employer’s negligence caused their injuries.
- The employee isn’t covered by the state’s workers’ comp law: In some states, employers aren’t required to cover certain workers like corporate officers or domestic workers. If these employees are injured, they may sue for damages.
While policies in most states offer both coverage parts, four―North Dakota, Washington, Ohio, and Wyoming―do not include employer’s liability in their workers’ compensation coverage. Employers in these states can look into stop gap coverage to protect their businesses fully.
What Injuries Are Included?
For an injury or illness to be covered by workers’ compensation, it has to have arisen from the course and scope of employment. This phrase implies two things:
- The injury has to originate in tasks the employee takes on to further the employer’s business.
- The injury has to occur at the business location and during its hours of operation, or at a time and location that the employer either mandated or could reasonably expect the employee to be
Let’s look at an employee’s car accident, for instance. If an employee is in a car accident while running an errand for the employer, the injury is most likely covered. However, the same injury isn’t covered if the accident happens on the employee’s commute to or from work.
While that example uses a sudden traumatic injury, that’s not the only type of injury that counts for workers’ comp. In most states, claims can also be filed for:
- Repetitive stress injuries: These injuries are typically caused by overuse like carpal tunnel syndrome or chronic back problems.
- Occupational illnesses: Typically, an occupational disease is the result of exposure to hazardous materials, such as mesothelioma, but hearing loss and stress-related illnesses like post-traumatic stress disorder can also fall in this category.
- Additional traumatic injury: Some states cover injuries stemming from workplace violence, terrorist attacks, and natural disasters.
Employees with preexisting conditions, such as degenerative disc disease, that are exacerbated by their work can also file workers’ comp claims. Typically, coverage only applies to treatment for the new injury, and their disability benefits are often reduced.
What Injuries Are Excluded From Workers’ Compensation Coverage?
Workers’ compensation insurance does not cover injuries that occur outside the scope of an employee’s assigned job duties. However, some workplace injuries may also be excluded in certain circumstances, including:
- Injuries that can be remediated with first aid: Small cuts and scrapes typically don’t warrant a workers’ comp claim
- Injuries sustained while committing a crime: An example of this might be an employee breaking an ankle while hurrying through the office to hide the wad of petty cash they have stolen
- Injuries resulting from horseplay: Workers’ compensation usually doesn’t kick in for an employee who gets knocked in the head while goofing around
- Injuries that occur when the worker is violating company policy: A common example of this is if a worker does not wear safety gear required by the business
- Injuries sustained when the employee is intoxicated: Workers’ comp generally doesn’t pay if an employee is drunk or high at the time of the injury
- Injuries occurring during voluntary social events: An employee who is injured during a company softball game usually has to cover their own medical bills; however, if the person can show that participation was mandatory, they may receive benefits
One situation where coverage is questionable is break time. Some states see onsite breaks as beneficial to the business owner and cover injuries that occur during breaks on company property. This, however, isn’t always the case.
Does Workers’ Compensation Insurance Cover COVID-19 Infection?
The best answer to whether workers’ compensation covers the coronavirus is “it depends.” State workers’ comp laws vary, so exposure to infectious diseases may fit some states’ definitions of occupational illness, although they are usually for certain professions. At the very least, workers in the healthcare industry and other first responders may have an argument for compensable claims.
During the pandemic, 31 states have considered measures to extend workers’ compensation benefits to occupations most at risk of infection. Many create a presumption that certain workers, such as first responders and healthcare workers, contracted COVID-19 via their employment, placing the burden on employers to prove the workers were infected in some other way. These measures have met with varying degrees of success, so business owners and employees should check with their state workers’ compensation agency for more information.
Who Does Workers’ Compensation Insurance Cover?
Most of the 49 states that mandate workers’ comp coverage require employers to purchase policies as soon they hire a single employee. Many extend that requirement to part-time staff, family members, foreigners, and minors. The rest of the states say a business has to have a minimum number of employees before it has to buy coverage, often between three and five people. Meanwhile, Kansas says employers need workers’ compensation coverage once their payroll hits $20,000.
Common Workers’ Compensation Exemptions
Even when states obligate employers to carry workers’ compensation insurance, most list several workers who do not have to be covered. Some of the most common exemptions are:
- Business owners and sole proprietors
- Partners in a partnership
- Corporate officers
- Limited liability company (LLC) members
- Independent contractors
- Agricultural workers
- Real estate agents working on full commission
- Domestic workers like nannies or gardeners
- Casual laborers
Additionally, federal employees, longshoremen, and railroad workers get their workers’ compensation from federal programs, so they are not eligible for benefits from the state.
Workers’ Compensation Insurance Coverage for Out-of-State Employees
Out-of-state employees can cause some complications when it comes to workers’ compensation. Typically, there are two situations employers might face:
- Employees who always work in another state
- Employees traveling to another state for work
In both scenarios, the employer needs to know which state’s workers’ compensation laws to follow. Most states recognize the place where the employee does most of their work as the primary location so that the state’s laws typically take precedence. When an employer first buys a policy, they need to list all the states where they conduct business as well as the states that they anticipate conducting business. As they open operations in new locations, they must contact their insurer to add them to the workers’ comp policy.
That takes care of the first situation, but what about the second? In this case, there are two issues: Does the home state’s workers’ compensation coverage follow the traveling employee? How does the receiving state view that coverage?
The first answer is easy. Every state allows its workers’ comp coverage to follow the traveling employee. Sometimes, that coverage is limited but, for the most part, an employee who travels for work is covered.
The second one is much trickier because each state determines this one for itself. Some require all employers to follow their workers’ comp laws while others sign reciprocal agreements with other states. Others only have reciprocity in certain situations, such as in some industries but not in others.
Long story short? It’s complicated, and that’s a good reason to work with an agent when buying workers’ compensation coverage for out-of-state employees.
What Benefits Do Injured Workers Receive?
When employees suffer on-the-job injuries or occupational diseases, they can file a claim for workers’ compensation benefits from their state regardless of whose fault their injuries are. In exchange for these benefits, employees cannot sue their employers. This is known as the grand bargain in workers’ compensation history.
The specific benefits depend on the state, but most governments require workers’ comp policies to cover:
- Medical treatments: In addition to doctor appointments, workers’ comp sometimes covers prescription drugs, travel to and from treatments, and necessary medical equipment.
- Lost wages: This is usually paid in the form of weekly disability payments of about 60% of the injured workers’ wages, depending on the severity of the injury.
- Vocational rehabilitation: Almost every state has some sort of return-to-work program that provides career counseling, resume writing, and job training.
- Death benefits: Family members and other dependents of a worker who dies from their injuries can apply for death benefits that provide financial support and cover funeral expenses. These are usually a percentage of the employee’s average weekly wage and are capped at a certain amount.
Injured employees are entitled to all appropriate and necessary medical treatment, so workers’ comp policies do not have deductibles or coverage limits. However, some states restrict coverage by limiting some types of treatments. For instance, a worker may only be allowed a certain number of physical therapy sessions.
What If My Employer Doesn’t Have Workers’ Compensation Coverage?
Employees whose companies don’t have a workers’ compensation policy generally have two options:
- Sue their employer for personal injury
- File a claim with their state’s uninsured employers’ fund
Lawsuits can take months, even years, to complete, so an employee who goes this route may end up paying their medical bills out of pocket for a long time. Plus, they may have to prove the employer did something wrong to win the case. Meanwhile, the payout may be greater than the one from workers’ comp because the judgment can include money for pain and suffering and punitive damages.
Filing a claim with your state’s uninsured employers’ fund usually gets money in your hand faster, but it limits how much you can receive in the same way workers’ compensation insurance does. Moreover, not every state has an uninsured employers’ fund, so you may want to check with your state workers’ comp board.
Employers should note that if they are required to carry workers’ compensation and don’t, they can face stiff penalties for noncompliance, including fines and sometimes even jail time. They can even be held liable for their employees’ medical bills, depending on state laws.
This article provides a general overview of what workers’ compensation insurance covers. However, every state has different guidelines that your specific policy must follow. To understand your workers’ compensation coverage, work with a licensed insurance agent, preferably one with plenty of experience in workers’ comp.