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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) Yes
B) No
C) Depends on the circumstances
D) Only if the accident were your fault
E) 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) Yes
B) No
C) Depends on the circumstances
D) Only if the accident were your fault
E) 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 CareProvide a safe place to workProvide an adequate number of competent fellow employeesProvide safe tools and equipmentWarn the employee of inherent dangersMake and enforce rules for the safety of all employees
Common-Law DefensesAssumption of riskContributory negligenceNegligence of fellow employee
State Workers’ Compensation LawsOriginally 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 LawsChoice 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 ProvidedIndemnity payments for time lost from work
60-75% of wagesTax freeMaximum set by state
Payment for medical servicesUnlimitedNo deductibles or coinsurance
Rehabilitation servicesDeath 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 LawsProcedure for Obtaining Benefits
Notification requirements
AdministrationCourtsSpecial commission
Third-Party ClaimsApplies when employee eligible for WC benefits was injured by the tort of a third partyEmployee 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 LawsFederal 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
• Fatal• Permanent Total• Permanent Partial• Temporary Total• Medical Only
Illinois WC BenefitsState 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’ BenefitsBurial Benefit: $4,20066 2/3% of AWW w/ COLAMin Weekly Benefit: Lesser of $441.93 or AWWMax Weekly Benefit: $1,178.48Max Lifetime: Greater of $500,000 or 25 yrsRemarriage “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 AWWMax Weekly Benefit: $636.15 or $1,178.48**Duration:
Non-Schedule: % of disability * 500 wksSchedule: 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 CoveragePart 2: Employers’ Liability
The “Policy Language” for Parts 1 & 3 is in state WC statutes
Workers Compensation and Employers Liability Insurance Policy
Information PageGeneral SectionPart One - Workers Compensation InsurancePart Two - Employers Liability InsurancePart Three - Other States InsurancePart Four - Your Duties if Injury OccursPart Five - PremiumPart Six - Conditions
Information Page
1 Describes insured
2 Shows coverage period
3 Summarizes coverages
4 Premium estimate
Classification, estimated payroll, rate
General Section
The Policy
Who is Insured
Workers Compensation Law
State
Locations
Part One - Workers CompensationA. 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 PayBenefits required by workers compensation law
C. We Will DefendD. We Will Also Pay
Insured’s expensesBonds 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 - continuedE. Other InsuranceF. Payments You Must Make
Payments in excess of regular benefits required because:Serious or willful misconductHiring an employee in violation of lawFailure to comply with safety regulationsDischarge, coerce or discriminate against employee
G. Recovery From OthersH. 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
– 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 InsurancePart 4 - Duties If Injury OccursPart 5 - Premium
Recordkeeping requirementsAdjusted premiums
Part 6 - ConditionsInspectionAssignmentCancellation
Current Issues
• Fraud
• Terrorism Exposure
• Assault on Exclusive Remedy
• California WC Reform
