A Workers' Compensation policy contains three parts:
Part A, Workers' Compensation, covers the statutory benefits required by those states listed. Part B, Employer's Liability, covers actions not covered under workers' compensation benefit laws such as gross negligence, and third-party-over suits. Part C, Other States Insurance, is often overlooked. It provides coverage for an insured's employees traveling through or temporarily working in states other than the insured's home state, or those states in which the insured operates. It extends the policy so that an injured employee can receive statutory benefits as prescribed by the other states listed on the endorsement.
The Declarations Page of Workers' Compensation policy schedules the states in which coverage applies for Parts A and C. Part A will schedule all states in which the insured has either physical operations or employees. Part A should include out-of-state outside salespersons. Part A prescribes which state's workers' compensation laws will apply to a claim. Without coverage through Part C, the states listed in Part A are the only laws that will apply to a claim. Part C extends workers' compensation coverage to states outside those in which the insured operates, and applies the laws of those states to any workers' compensation claims. Part C should include all other states not listed in Part A.
Insurance laws apply on a state by state basis. Each state has created its own set of workers' compensation laws, as well as levels of benefits, compensability, and eligibility. The courts have held that each state has the right to apply its own rules to each claim. An employee injuring herself outside her home state is still covered by state law, but which one applies? In today's world, it is typical for your San Francisco employee to travel outside of California. Your employee is injured in Chicago on a short, one-day client visit. Which states' laws apply?
When an employee is injured in a state where the employer does not normally do business, extraterritorial provisions or reciprocity agreements may apply. These are agreements between states in which they agree to honor each other's laws in situations as outlined above. Additionally, different states have different guidelines for how its laws apply to a claim, and an employee injured in their jurisdiction. It does not automatically revert to the employee's state of hire or residence.
A costly problem could occur when the employee elects to file the claim in a state where the employer does not typically operate. If the claim is filed in a state not scheduled on the policy (Part A or C), the employer does not have the required workers' compensation coverage. Absent Part C coverage for the state in question, there is the potential for a coverage gap between what the insurance policy will pay, and what the state requires it to pay.
For example, your traveling California employee decides to file the claim in Illinois. Your Workers' Compensation policy does not include "Illinois" in either Part A or C. What if Illinois offers broader medical care than what is prescribed in California law? The insurance policy will not dictate what state's laws apply to a given claim. Workers' Compensation is a statutory coverage, so the law will. Even if a claimant prefers to file the claim in California, the other state may require him to file it in the state the injury occurred. When the claim is paid by the insurance company, it will pay the benefits based on those covered by the policy, California's statutory benefits. If the other state's benefits are broader, or its compensability higher, the insured would be required by the state to pay the difference.
Most national insurers offer comprehensive Other States insurance coverage. Regional insurers will restrict Part C coverage to states in which they are filed. State insurance funds are more restrictive, and most do not provide any coverage outside their own state.
You should review your Workers' Compensation policy declarations page for the list of states included in Part C. The safest course for companies operating throughout the United States is to place its Workers' Compensation policy through a national insurer. An insurance policy with all states listed in Parts A and C will ensure that the required statutory benefits are available for an injured employee, and save you the headache of paying out of pocket for a claim.
David B. Erice - Assistant Vice President - Property & Casualty
David Erice is an Assistant Vice President at Equity Risk Partners, a full-service insurance brokerage, employee benefits, and risk management consulting firm. Mr. Erice works in the property & casualty practice, serving the due diligence requirements of private equity firms, providing technical client advocacy including analysis of client's risks and exposures.
Mr. Erice has 15 years of property & casualty experience. Prior to joining Equity Risk Partners in 2011, he was Marketing Manager for a commercial lines firm, and also worked for a wholesale insurance brokerage. He began his career at Victor O. Schinnerer & Co. as part of their Public Entities division. He holds a bachelor's degree in Radio & Television from San Francisco State University.
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Michael Marcon - President, HUB International and Founder, Equity Risk Partners
Michael Marcon has more than 30 years of insurance experience, pioneering the delivery of insurance due diligence to private equity firms and specializing in alternative risk financing and transactional insurance products. Before launching Equity Risk Partners, Mr. Marcon was Executive Vice President of Aon Risk Services - Mergers and Acquisitions Group and he was instrumental in creating the Private Equity practice for Aon's predecessor company, Rollins Hudig Hall. He served as Regional Manager - Finance for Transamerica Corporation, as well as positions in Special Risk Financial and Capital Management for CIGNA Corporation.
Mr. Marcon holds an undergraduate degree in economics from Ursinus College (where he was the former chairman of the board of trustees) and an MBA in finance from Drexel University. Mr. Marcon tweets from @mcm7464 and can also be reached through his blog, Michael Marcon Tweets, where he writes about business, tradition, and life.
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