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 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 unconstitutional Federal law provided new benefits New York unconstitutional Wisconsin upheld New York 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 (3 rd 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 Fatal Permanent Total Permanent Partial Temporary Total Medical Only

Illinois WC Benefits State Average Weekly Wage (SAWW) = $ (applies for 1/15/08-7/14/08) Maximum Benefits are 133 1/3% of SAWW or $ Average Weekly Wage (AWW) = (Earnings Over Last 52 Weeks – Overtime Pay)/52 Survivors’ Benefits Burial Benefit: $4, /3% of AWW w/ COLA Min Weekly Benefit: Lesser of $ or AWW Max Weekly Benefit: $1, 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 $ or AWW Max Weekly Benefit: $1, 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, *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: $ or $1,178.48** Duration: Non-Schedule: % of disability * 500 wks Schedule: Thumb70 wks Hand 190 wks Foot155 wks Leg200 wks Hearing Both Ears 200 wks *Assumes Married, 2 children **$1, 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, Max benefit for TTD = $1, He will receive benefits for 6 workdays (9 workdays minus 3 day waiting period. 1.2 weeks * $1,066.67/week = $1, $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 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 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 –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 Fraud Terrorism Exposure Assault on Exclusive Remedy California WC Reform