Finance 431:
Property-Liability Insurance
Lecture 16:
Workers’ Compensation and Employers’
Liability
Workers’ Compensation and Employers’
Liability
Who is an Employer?
Employer Liability Under Common Law
State WC Laws
Federal Compensation Laws
Types of Injuries Covered
Illinois WC Benefits
The WC and Employers Liability Policy
Current WC Issues
Who is an employer?
Characteristics of employers
Engages the services of individual
Fixes hours
Provides tools
Defines methods and means
Employer versus independent contractor
Proprietors and partners are not employees
You hire Happy Housecleaners to clean
your apartment. One of the cleaning
crew is injured cleaning your place. Are
you an employer in this situation?
A)
B)
C)
D)
E)
Yes
No
Depends on the circumstances
Only if the accident were your fault
None of the above
You hire your next door neighbor to
remove a tree from your backyard. He
uses his own chain saw to cut the tree.
He is injured when the tree falls on him.
Are you an employer in this situation?
A)
B)
C)
D)
E)
Yes
No
Depends on the circumstances
Only if the accident were your fault
None of the above
The University of Illinois hires an adjunct
professor to teach a class. Since she can only
teach on Thursday evenings, the class is held
at that time. The professor selects the book
and prepares her own lectures. She falls off
the stage during class and is injured. Is the U
of I an employer in this situation?
A) Yes
B) No
C) Depends on the circumstances
D) Only if the stage was in disrepair
E) None of the above
Employer Liability Under Common Law
Employer’s Duty of Care
Provide a safe place to work
Provide an adequate number of competent fellow
employees
Provide safe tools and equipment
Warn the employee of inherent dangers
Make and enforce rules for the safety of all employees
Common-Law Defenses
Assumption of risk
Contributory negligence
Negligence of fellow employee
State Workers’ Compensation Laws
Originally held unconstitutional
Maryland 1902 - unconstitutional
Federal law 1908 - provided new benefits
New York 1910 - unconstitutional
Wisconsin 1911 - upheld
New York 1913 - upheld
Principles of WC Laws
Prompt payment of determinable benefits
Elimination of delays and reduced costs
Guarantee of benefit payments through insurance
Promotion of safety
Common Features of Compensation Laws
Choice of Law
Employee chooses which benefits to receive if more
than one state law applies:
State where injury occurred
Location of usual employment
Where employee was hired
Persons and Employments Covered
Covers employees and not independent contractors
Exception - must cover employees of uninsured
independent contractors
Common Features of Compensation Laws
Description of Injuries and Diseases Covered
Injury must be caused by accident arising
out of and in the course of employment
Disease must be covered by the statute as
one that normally results from the nature of
the employment and exposure to the disease
must arise from employment
Common Features of Compensation Laws
Benefits Provided
Indemnity payments for time lost from work
60-75% of wages
Tax free
Maximum set by state
Payment for medical services
Unlimited
No deductibles or coinsurance
Rehabilitation services
Death benefits
Methods of Financing Benefits
Most WC statutes require employers to prove they
have the financial ability to pay WC benefits
Private insurance
– Guaranteed Cost
– Retrospectively Rated
– Large Deductible (3rd Party Deductible)
Insurance through assigned risk plans
Insurance through competitive or monopolistic state
funds
Qualified “self-insurance” plans
Excess insurance
Common Features of Compensation Laws
Procedure for Obtaining Benefits
Notification requirements
Administration
Courts
Special commission
Third-Party Claims
Applies when employee eligible for WC benefits
was injured by the tort of a third party
Employee has three choices:
1 Sue the third party
Can file for WC benefits if unsuccessful
2 Accept WC benefit
Employer is subrogated to rights of employee
against third party to extent of WC benefits
3 Accept WC benefit and sue third party
Employer has lien on proceeds of recovery to extent
of WC benefits
Federal Compensation Laws
Federal Employers’ Liability Act (1908)
Applies to employees of interstate railroads
Eliminates traditional employer defenses in suits
by employees
Longshore and Harbor Workers’ Compensation Act
Provides more generous WC benefits to maritime
workers (loading, repairing, building vessels)
Jones Act (1920)
Extends FELA to crew members
Migrant and Seasonal Agricultural Worker
Protection Act (1983)
Types of Injuries
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•
•
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Fatal
Permanent Total
Permanent Partial
Temporary Total
Medical Only
Illinois WC Benefits
State Average Weekly Wage (SAWW) = $883.86
(applies for 1/15/08-7/14/08)
Maximum Benefits are 133 1/3% of SAWW or $1178.48
Average Weekly Wage (AWW) =
(Earnings Over Last 52 Weeks – Overtime Pay)/52
Survivors’ Benefits
Burial Benefit: $4,200
66 2/3% of AWW w/ COLA
Min Weekly Benefit: Lesser of $441.93 or AWW
Max Weekly Benefit: $1,178.48
Max Lifetime: Greater of $500,000 or 25 yrs
Remarriage “Award”: 2yrs Lump Sum w/o children
Illinois WC Benefits (continued)
Permanent Total Disability
66 2/3% of AWW w/ COLA
Min Weekly Benefit: Lesser of $441.93 or AWW
Max Weekly Benefit: $1,178.48
Max Lifetime: Unlimited
Temporary Total Disability
66 2/3% of AWW
3 Workday waiting period/14 day retroactive period
Min Weekly Benefit: Lesser of $290* or AWW
Max Weekly Benefit: $1,178.48
*Assumes Married, 2 children
Illinois WC Benefits (continued)
Permanent Partial Disability
60% of AWW
Min Weekly Benefit: Lesser of $290* or AWW
Max Weekly Benefit: $636.15 or $1,178.48**
Duration:
Non-Schedule: % of disability * 500 wks
Schedule: Thumb
70 wks
Hand
190 wks
Foot
155 wks
Leg
200 wks
Hearing Both Ears 200 wks
*Assumes Married, 2 children
**$1,051.99 if amputation or enucleation occurs
Illinois WC Benefits: Example
An employee is injured at work while
performing his job duties. His medical bills
are $400. His average weekly wage is $1,600.
He is totally disabled for 13 calendar days (9
workdays).
How much will paid by the company’s WC
policy?
Illinois WC Benefits: Example
66 2/3% of his AWW = $1,066.67
Max benefit for TTD = $1,178.48
He will receive benefits for 6 workdays (9 workdays
minus 3 day waiting period.
1.2 weeks * $1,066.67/week = $1,280.00
$400 for medical expenses
TOTAL: $1,680.00
Illinois WC Benefits: Example
An employee is injured at a company picnic
where attendance is optional. Her medical
bills are $200. She is able to return to work
the next day.
How much will paid by the company’s WC
policy?
Where’s The WC Policy?
In past lectures, insurance policies had
Sublimits, Exclusions, Exceptions to
Exclusions, etc.
Basic WC policy has two coverages:
Parts 1 & 3: State WC Coverage
Part 2: Employers’ Liability
The “Policy Language” for Parts 1 & 3 is in
state WC statutes
Workers Compensation and Employers
Liability Insurance Policy
Information Page
General Section
Part One - Workers Compensation Insurance
Part Two - Employers Liability Insurance
Part Three - Other States Insurance
Part Four - Your Duties if Injury Occurs
Part Five - Premium
Part Six - Conditions
Information Page
1
2
3
4
Describes insured
Shows coverage period
Summarizes coverages
Premium estimate
Classification, estimated payroll, rate
General Section
The Policy
Who is Insured
Workers Compensation Law
State
Locations
Part One - Workers Compensation
A. How This Insurance Applies
Bodily injury by accident must occur during the policy period
Bodily injury by disease must be caused or aggravated by
conditions of your employment. The employee’s last day of
exposure to the conditions causing or aggravating such bodily
injury must occur during the policy period.
B. We Will Pay
Benefits required by workers compensation law
C. We Will Defend
D. We Will Also Pay
Insured’s expenses
Bonds and interest on judgments
What is “Workers Compensation Law”?
•
What WC Law is:
– WC Law in each state listed in Item 3A
– Any amendments to the law during the policy
period
•
What WC Law is not:
– Federal WC Law
– Federal occupational disease law
– Any law that provides nonoccupational disability
benefits
Part One - continued
E. Other Insurance
F. Payments You Must Make
Payments in excess of regular benefits required because:
Serious or willful misconduct
Hiring an employee in violation of law
Failure to comply with safety regulations
Discharge, coerce or discriminate against employee
G. Recovery From Others
H. Statutory Provisions
Your default or the bankruptcy or insolvency of you or
your estate will not relieve us of our duties under this
insurance after an injury occurs.
Part 2 -Employer Liability Insurance
• Need for coverage
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Third-party-over suits
Care and loss of services
Consequential bodily injury
Dual capacity
• Exclusions
–
–
–
–
–
Outside the US or Canada
Liability assumed under contract
Punitive damages for illegally employed person
Bodily injury intentionally caused by insured
Damages from employment practices
Part 2 -Employer Liability Insurance
• Exclusions (Continued)
– USLH & Extensions
– FELA
– Injuries to members of the crew of any vessel
• Limits of Liability
– Basic Limits
• $100,000 – BI by Accident, Each Accident
• $100,000 – BI by Disease, Each Employee
• $500,000 – BI by Disease, Policy Limit
– Increased limits can be obtained for additional premium
– NY – Unlimited EL Coverage
WC and Employers’ Liability Policy
Part 3 - Other States Insurance
Part 4 - Duties If Injury Occurs
Part 5 - Premium
Recordkeeping requirements
Adjusted premiums
Part 6 - Conditions
Inspection
Assignment
Cancellation
Current Issues
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Fraud
Terrorism Exposure
Assault on Exclusive Remedy
California WC Reform