May 17, 2018 |
Many new employers, particularly small businesses, make common mistakes due to confusion about workers’ compensation versus general employer liability. Both come with legal exposure for companies, but they operate very differently from each other. Understanding the difference can help a new employer secure the right coverage for the right risk.
The requirement of workers’ compensation does not come from general legal liability, similar to negligence responsibility. Instead, it is an employer responsibility created by enacted law, the type of requirement passed by a state legislature and signed into law by the same state’s governor. Many injuries covered tend to involve physical activity moving goods, manufacturing them, or delivering product, however one of the most common claims of workplace injury is in fact stress, a recognized mental and physical injury.
Coverage for workers’ compensation works very similar to a health insurance plan, except for a company instead of an individual. However, unlike an HMO coverage, workers’ compensation is specific to providing injury medical cost and recovery fee payment, disability leave while the employee is out healing, and replacement salary for lost wages due to injury. Further, workers’ compensation also requires the injured employee to go through filters and documentation to ensure an injury actually occurred.
Consider the example of a restaurant worker. A waitress has been working a busy shift and is physically tired. While serving food she twists to turn and breaks her ankle. She not only suffered a serious injury while on the job and in the workplace, she will need a serious amount of time to recover, at least six weeks if not longer. The employer’s workers’ compensation coverage will address her medical expenses for treatment, medical equipment so she can move around, and her time in lost wage income because she can’t serve food and walk around in the restaurant.
Unlike the above, employer’s liability involves an actual civil responsibility to pay for damages when someone else suffers a loss due to an employer or is barred from legal rights by the employer. It is a very different responsibility, far closer to the idea of responsibility for negligence than simply providing medical care as seen under workers’ compensation. The coverage that protects against such financial risks, known as employers liability insurance, is a litigation response tool employers can put in place to fend off the bankruptcy-causing damage of employee lawsuits if one arises.
It’s also important to note that employer liability policies tend to address very specific risks versus open-ended injury recovery seen in workers’ compensation. This is necessary legally or the policy would end up covering just about anything possible, bankrupting the insurer in the process. One of the most common areas covered is employer negligence, which has four key parts:
Claims that typically appear under employer’s liability fall into specific categories as well. These are:
A claim is not enough, however, to trigger a response for the employer’s liability. An employee has a burden to meet defined negligence requirements noted earlier and do so to such a point that the average person would agree the employer had a responsibility and failed it. This can get extremely subjective in interpretation. No surprise, many claims seek jury trials hoping big employers by bias will be held responsible and settle to avoid a big litigation payout judgment.
As an example, let’s consider a construction workplace scenario. A construction worker is trained and told to use a steel ladder to reach where he needs to do his work. The employer, however, doesn’t want to pay for metal ladders and requires the worker to use a wooden ladder instead because it is cheaper to provide. The ladder peg breaks, and the construction worker falls down, breaking his leg. The worker is now out for weeks, in pain, and unable to earn a wage. He first pursues workers’ compensation coverage, which the employer’s plan pays, but the employee feels what is covered isn’t enough. He feels that more rehabilitative treatment should be provided, which the plan won’t pay for, and he feels the employer should be punished for causing the worker’s family to have to change their life and jobs to take care of him. The worker files a negligence claim against the employer for avoiding the use of a required steel ladder, and he also sues for the loss of his spouse’s income due to having to care for her husband. The lawsuit is the employer’s liability claim for recoveries not addressed by the workers’ compensation plan.
Employers practice liability insurance is a bit different. This type of protection is focused on mental injuries suffered by workers due to actions of the employer and its staff. The areas covered are the interpersonal risk areas where people are accused of violating company policy, failing to follow training on how to behave, or do things that violate workers’ civil rights. These areas include:
For those in California, it’s important to remember as an employer that the state is particularly harsh on companies that don’t comply with coverage law on workers’ compensation. Unlike states who require employers to buy a policy from a state agency, California employers have latitude to buy from other insurers than the State Compensation Insurance Fund (SCIF), but they do have to always have a plan in place. This requirement has to be met, even if there is only one employee (https://www.dir.ca.gov/dwc/employer.htm). Some company types are required to have coverage, even if the business has no workers at all (roofers, for example).
Many insurance providers will require deposits for workers’ compensation coverage although it is possible to find some who don’t require a deposit. This down payment goes towards covering costs, in addition to premiums paid. Other insurance providers just charge their recovery through premiums like any other type of insurance contract. SCIF is the largest coverage fund in the state and provides coverage to those companies who are not able to find coverage through other providers.
As an employer builds up a record and history of coverage, that will influence premiums going forward for coverage renewal. The influence factor is known as a modifier, which can increase or decrease future premium costs depending how many or how little claims the employer had in the past. Keeping a safe workplace means big savings going forward.
One of the big limits on claims is the fact that the injured employee has to file a workers’ compensation claim for an injury right away after getting hurt. Waiting for an extended period nullifies the claim and protects the company.
Another limitation on coverage is that employer liability protection is usually capped, typically to $1 million to protect the insurer. Where coverage is insufficient for a judgment, then the employer is on the hook directly for the difference owed after a trial.
Deductibles can vary from provider to provider, but it just means more of a cash cost up front for the employer when a claim is received. A high deductible can produce a low premium charge, but the employer may end up paying the savings away covering a base amount of the claim before the coverage kicks in. A low deductible may cost more in premium but the coverage kicks in faster and protects the employer.
Renewal is typically by contract termination date if the insurance provider wants to continue. Some may deny a renewal if a company has too many claims or has not generated a minimum amount of premium. Typically, the provider sends a notice a few months ahead noting the new cost, premium to be charged, and terms before the old coverage plan expires. It is important to track your renewal so you can shop policies to ensure you are getting the best rates possible.