Finance 431: Property-Liability Insurance Lecture 16: Workers

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Finance 431Property-Liability
InsuranceLecture 16Workers Compensation and
Employers Liability
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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

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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

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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

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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

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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

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Employer Liability Under Common Law

• Employers 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

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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

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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

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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

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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

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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

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Common Features of Compensation Laws

• Procedure for Obtaining Benefits
• Notification requirements
• Administration
• Courts
• Special commission

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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

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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)

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Types of Injuries

• Fatal
• Permanent Total
• Permanent Partial
• Temporary Total
• Medical Only

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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

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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

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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

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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 companys WC policy?

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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

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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 companys WC policy?

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Wheres 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

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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

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Information Page

• 1 Describes insured
• 2 Shows coverage period
• 3 Summarizes coverages
• 4 Premium estimate
• Classification, estimated payroll, rate

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General Section

• The Policy
• Who is Insured
• Workers Compensation Law
• State
• Locations

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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
  employees 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
• Insureds expenses
• Bonds and interest on judgments

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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

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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.

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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

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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

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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

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Current Issues

• Fraud
• Terrorism Exposure
• Assault on Exclusive Remedy
• California WC Reform