WORKERS COMPENSATION
OTHER STATES COVERAGE
By LeRoy Utschig, CPCU, CLU, ARM
In this month's column we will discuss the highlights of the exposures and coverages given to employees temporarily working in a state where they normally do not work. We will also explain a way to provide automatic workers compensation coverage in the situation where an employer hires workers to work in a state not listed on the declarations page of the employer's workers compensation contract.
Floods in Iowa during the 1990s set the stage for an actual loss. Due to the floods, a roofing contractor did not have any work in Iowa. To earn money, the Iowa-based contractor and her employees went to Indiana to do roofing work. While at the job site, one worker was standing on the ground close to an aluminum extension ladder. Another worker had climbed almost to the top of the ladder when the ladder slipped sideways and touched the electrical power lines leading to the building. In a split second, the man on the ladder was electrocuted. The man standing next to the ladder was seriously injured but lived. He sustained severe burns on much of his body.
These workers were working in a state other than their home state of Iowa. After the project was completed, their plans were to return to Iowa to work there. As this was temporary work in another state, the injured employee and widow of the deceased were entitled to Iowa workers compensation benefits. Had the Iowa benefits not applied, the workers would have received Indiana benefits as the workers were working in and injured in the state of Indiana.
Determination of which state's workers compensation benefits would apply is not made by any insurance company. Each state has a governing body or court that makes coverage determination(s), such as deciding which state's benefits apply. In Indiana, the Workers Compensation Board makes these kinds of decisions. Iowa's workers compensation coverage determinations are made by the Division of Industrial Services Department of Employment Services.
Normally, a worker is entitled to the benefits of the state in which the worker is employed on a full-time basis. Where the worker lives usually does not affect this. For instance, if a worker lives in Minnesota but is hired to work and does work on a full-time basis in South Dakota, the Minnesota residency does not affect the worker's benefits. South Dakota benefits are paid to the Minnesota resident. Being hired to work in and working in South Dakota determines that the worker will receive South Dakota workers compensation benefits.
A worker's home state's benefits (Tennessee, for example) will travel along with the worker while the worker is temporarily in another state (such as Arkansas). This extraterritorial provision (Tennessee's) typically ceases when a worker will be working in another state (Arkansas) on a full-time basis. Normally, once the worker starts to work in the new state (Arkansas), the old state's (Tennessee) provisions cease.
This is not always the case, as illustrated by the following loss. An Illinois trucker, with Illinois workers compensation coverage, started operations in Florida. The agent placed the Florida trucking exposure in the Florida Workers Compensation Assigned Risk Plan.
An Illinois resident was hired in Illinois, by the Illinois trucker, to work in Florida on a full-time basis. After two weeks of training in Illinois, the man moved to Florida on a permanent assignment. Four months later, the man was injured in Florida. Initially, the man presented his workers compensation claim to the Florida insurer. Several weeks later, at the instigation of an attorney, the man withdrew his claim against the Florida insurer and filed a claim against the Illinois insurer. The reason for doing this is that the Illinois workers compensation benefits were about 60% higher than the Florida benefits.
Neither the Florida nor the Illinois insurer made the coverage determination. Determination of whether Illinois' benefit provisions applied was made by an Illinois court. The decision was to pay the worker Illinois workers compensation benefits as the man was hired and trained in Illinois. Illinois chose to ignore the fact that the man was on permanent assignment in another state.
There are few absolutes in workers compensation. This is demonstrated by the case of the Illinois trucker who started a Florida operation. Our approach needs to be to try to anticipate the many different scenarios that can occur.
Other states coverage
Per the workers compensation declarations page, workers compensation benefits are paid for the state(s) listed in Item 3.A. of the declarations page. Occasionally, a worker will be temporarily working in a state not listed in Item 3.A. While the benefits of the home state go along with the worker, this may not always be adequate.
For example, an Indiana worker was temporarily working in Illinois. Only Indiana was shown in Item 3.A. of the employer's workers compensation declarations page. However, the worker was injured in Illinois. Indiana benefits were payable per the workers compensation declarations page. However, the Illinois Industrial Commission decided that the worker was entitled to Illinois benefits. As it is set up, the workers compensation policy will pay only Indiana benefits. The worker received Illinois benefits. There is a difference of about 71% between the Indiana and Illinois benefits. This 71% difference in benefits would be paid by the employer.
Another scenario is where the insured starts a permanent operation in a state not listed in Item 3.A. of the workers compensation declarations page. There is no coverage at all in this case. Some insurance policies, such as property and inland marine, provide automatic coverage for new locations. Workers compensation contracts are different. There is no automatic coverage if the insured commences an operation in a state not listed in Item 3.A.
Other states coverage
Automatic coverage for a state(s) not listed in Item 3.A. of the workers compensation declarations page can be provided. Putting the appropriate wording into Item 3.C. of the declarations page will trigger automatic coverage for any new state(s) in which an insured initiates operations. This is the wording to put into Item 3.C.:
Coverage is provided in any state not listed in Item 3.A. above or the monopolistic fund states.
Monopolistic fund states are those states where workers compensation coverage must be purchased from the state. Private insurers are not allowed to provide workers compensation coverage in those states.
The suggested wording will provide automatic coverage in 44 states and the District of Columbia. Occasionally, you may hear the phrase Broad Form Other States Endorsement (BFOSE). Broad Form Other States Endorsement is no longer available. The above suggested wording replaced the BFOSE.
Foreign coverage
A New Mexico employer had a workers compensation policy with the "Other States" wording. He bought some material in Mexico and then sent a truck into Mexico to bring the machinery back to New Mexico. One of the U.S. workers was injured while in Mexico.
To expedite the injured man's return to the United States, the employer paid the Mexican medical charges and then submitted the medical bills to the insurer for reimbursement. A quick response came from the insurer. The claim was denied based on the injury's occurring outside of an insured location. Here is the clause from the workers compensation insurance policy that was quoted by the insurer: "This policy covers all of your workplaces listed in Items 1. or 4. of the Information Page; and it covers all other workplaces in Item 3.A. states unless you have other insurance or are self-insured for such workplaces."
Item 1. of the information page includes the insured's name, address and effective dates. Item 3.A. lists the states in which the insured wants this insurer to provide coverage. Mexico or any other non-U.S. country is not included in a workers compensation policy. More businesses are doing business with foreign companies. Recently, I met four people who were on their way to foreign countries. Two were going to China, one person was going to the Middle East and another to Europe. My recommendation is that you ask every insured if (s)he does foreign business travel. Should you think that is not necessary, consider how many of this magazine's readership have gone on a Caribbean Cruise courtesy of some insurer's promotion. They would be on a foreign business trip and would have no workers compensation coverage.
Foreign Coverage Endorsement, Form WC 48 06 03 11 87, from the National Council on Compensation Insurance (NCCI) is available to provide coverage for the person(s) hired to work in this country, while they are temporarily working in a foreign country. This form provides coverages we normally do not think of in regard to workers compensation.
Coverage is provided only for employees hired in the United States. Bodily injury by accident or disease, including any endemic disease, is insured. War, invasion, and hostilities-caused injuries are not covered. Form WC 48 06 03 22 87 lists the employees to be covered and which state's benefits are to apply to them. On behalf of the insured, the insurer will voluntarily pay the benefits for the listed state to an employee injured in a foreign country.
A foreign country might say that the injured employee falls under its workers compensation or similar law. This exposure is covered under the section of the endorsement called Legal Liability Under Workers Compensation Law. The maximum benefits payable would be per the limits for the state listed in the endorsement.
Repatriation expenses are the costs incurred to have an injured person returned to this country. Excess Repatriation Expenses, Form WC 48 06 03, covers the difference between transporting a person under medical care and the normal expenses to have the person travel back to the U.S. Employers liability per any country's workers compensation, occupation or related law(s) is also covered.
Numerical exemption
Several states have numerical exemptions. Depending upon the state, the law does not require an employer of between three to five employees to buy workers compensation insurance. The employer can voluntarily buy coverage for his/her employees. A contractor in those states must be very sure that every subcontractor (s)he hires has purchased workers compensation insurance. Should the subcontractor not have workers compensation coverage, the coverage for all of the subcontractor's employees will be provided by the contractor's own insurance program.
Coverage election
Corporate officers are typically automatically insured by their own workers compensation program. These officers can elect not to be covered. Be careful when writing a new account. For example, a Nebraska account had changed insurers and a corporate officer had a loss. No coverage applied as the corporate officer, while insured by the prior insurer, had elected not to be covered by the firm's workers compensation insurance. The No Coverage Election Form was filed with the workers compensation authorities, and they were the ones who said coverage did not apply.
Partners and the individual owner of a business are usually not covered per the workers compensation rules of most states. Coverage for partners and individual owners can be provided if they sign an election form stating that they wish to be included on their firm's workers compensation contract. Any firm hiring a partnership or a firm operating as an individual will cover all of the partnership's or individual employer's employees if there is no workers compensation coverage in force for these firms. Normally, the firm hiring them requires a certificate of insurance from either the partnership or the individually operated firm. That is not enough. Partners or individuals are not always covered by their own workers compensation policy. For the hiring firm not to pick up workers compensation coverage for the partners or individual, the certificate needs to indicate that the individual or partners are insured by their respective contracts.
Limited liability companies (LLC) are fairly new entities that are being seen on an increasing basis. As there is no one way for the partners of the limited liability company to be treated, I cannot give you an overall rule. Some states treat several of the partners in a LLC as partners. Other states treat them as if they were corporate officers. The place to look for the answer to this question is the State Exception Pages found at the beginning of the NCCI-published workers compensation rating rules for your state.
Summary
These are the key ideas presented in this article:
* An employee's home state's workers compensation benefits go with an employee who is temporarily working in another state.
* When a worker is temporarily working in another state, the state where the temporary work is being done may say that its benefits apply.
* "Other States" wording in Item 3.C. of the declarations page provides automatic workers compensation coverage in any new state(s) where the employer starts to operate on a permanent basis.
* Foreign Endorsement can be added to a workers compensation contract to provide coverage of the U.S.-based employee while (s)he is temporarily working outside of the United States.
* Corporate officers can elect not to be covered by workers compensation. Their election not to be covered may continue even though their firm has changed insurers.
* Partners and individual owners can elect to be covered. When hiring them, be sure their certificate of insurance specifies that there is coverage for the partners or individual.
* With limited liability companies, the Workers Compensation State Exception Page will need to be checked to determine how they are to be treated for insurance coverage. *
To introduce the concept of extraterritoriality, two actual losses will be cited. Extraterritoriality means that the workers compensation benefits of the state where the employee normally works full time will go with the employee while the employee is temporarily working in another state(s). For example, a worker who is working full time in Michigan receives Michigan workers compensation benefits while working in Michigan. The Michigan workers compensation benefits will also apply when the Michigan-based employee is temporarily working in another state, such as Kentucky.