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Lesson 6: issues in workers compensation.

Objectives

After completing this lesson, you will be able to:

* Discuss employment of minors as it relates to a workers compensation (WC) policy

* Summarize compensation benefits to employees of contractors or subcontractors

* State some workers compensation related items that homeowners need to know about working with contractors or subcontractors

* Understand coverage for a leased employee

* Explain stop gap coverage as it relates to workers compensation

* Discuss workers compensation for volunteers

Key Terms

CGL--Commercial general liability.

Leased Employee--One who is dispatched by his employer to another for some service.

Monopolistic States--North Dakota, Ohio, Washington, West Virginia, Wyoming.

NCCI (National Council on Compensation Insurance) files forms on behalf of its member states and establishes the rules for classification and premium determination.

Principals--Owners of businesses that employ contractors or subcontractors.

Stop Gap Coverage--Designed to provide liability insurance for an employer in monopolistic states in which the state only offers workers compensation coverage.

Third-Party-Over Actions--These arise when an injured employee sues a negligent third party who, in turn, is able to bring an action against or enjoin the employer.

Lesson

Often courts are asked to decide whether injuries fall within the workers compensation system or not. A number of such situations have resulted in the formation of doctrines that are often used to decide workers compensation coverage issues (see this lesson's read more section).

This lesson reviews several issues that are key to understanding the workers compensation system but are not at this time associated with doctrinal interpretations.

Mental Stress Claims

The workers compensation policy does not define bodily injury. This often leads to disputes over the question of coverage for mental stress claims.

Generally, workers compensation cases involving emotional or mental conditions can be divided into three groups:

1. Mental stimulus resulting in physical injury

2. Physical trauma resulting in mental injury

3. Mental stimulus resulting in mental injury

Most jurisdictions and workers compensation boards have no problem awarding benefits under the first two groups because the employee is disabled by an injury that is associated with a physical manifestation. In cases of mental injury as a result of mental stress, decisions vary.

The most substantial factor in cases denying compensation without bodily injury is the difficulty of proving injury. Because mental injury is vague, shadowy, intangible, and could be within the control of the sufferer, the fear is that the disability can be simulated too easily. With no way to objectively evaluate a mental injury, claims had to be denied.

Other jurisdictions permit compensation for mental injury claims without accompanying bodily injury, emphasizing that the difficulty of formulating appropriate legal tests does not justify denying the claims.

The dispute over whether bodily injury must be present in order to recover for a mental injury claim will not be settled soon. At this time, most authorities hold that bodily injury does not include mental stress. If there is a discernible trend, it is toward recognition of mental injury due to stress and tension. The reasoning: mental injury may be brought about in the same manner that stress causes a heart attack or other physical condition.

In the Course of Employment

Bodily injury to an employee must arise out of and in the course of employment for workers compensation benefits to apply. But what exactly is meant by the phrase "out of and in the course of employment?"

The phrase is meant to show that an employee must be injured as a result of employment before workers compensation or employers liability insurance will kick in; that is, the employment has to cause the injury. If a causal connection between the injury and the employment is disputed, such disputes must be decided on a case-by-case basis.

There are some activities engaged in by employees that raise the question whether such activities are related to employment. Examples are recreational activities (such as the company softball team or picnic), coming and going, horseplay and fights, and alcohol or drug consumption.

If such activities are paid for and supervised by the employer for the purpose of generating or improving the employer-employee relationship, an injury sustained by an employee can be considered to be in the course of employment.

In general, injuries sustained by an employee while coming to and going from work are not considered employment-related. There are exceptions to this rule, which usually apply when the employee is doing some work-related activity during the travel or if the employer controls the site where the injury occurred, such as a company parking lot.

As for injury during horseplay or fights, the circumstances dictate whether the injury is sustained in the course of employment. If an employee is on the job and gets hurt because of the horseplay of another person, that injury is usually compensable. But if the employee perpetrating the horseplay gets hurt, that usually is not considered work-related.

The situation is similar when it comes to a fight. The instigator of the fight usually is not entitled to workers compensation benefits, but the injured victim may be, depending on the circumstances.

* If the fight is personal (for example, a political disagreement), the injury cannot be said to occur in the course of employment.

* If the fight is business related (for example, an argument over possession of a tool), the injury may be considered in the course of employment and be compensable.

Finally, alcohol or drug consumption is not usually sufficient to defeat recovery of workers compensation benefits if the user is injured at work. However, if the worker is rendered incapable of doing his or her job due to alcohol or drug intake and is injured while under the influence, that injury is not generally considered to have occurred in the course of employment.

On the other hand, if the employee has consumed alcohol or drugs but can still function on the job and is injured, for example, at his or her station, that injury is in the course of employment and workers compensation benefits usually apply. Some states may have legislated differently in regard to alcohol or drug consumption and compensability.

To summarize, even though the workers compensation system is not based on fault or negligence, there are conditions governing when benefits are to be paid. Being an employee and getting hurt is no guarantee of workers compensation benefits.

Employment of Minors

State laws govern employment of minors. The scope of coverage under workers compensation and employers liability insurance for minors employed contrary to law varies by state. Therefore, it is not practical to apply general statements to particular cases.

When a legally employed minor is injured in the course of employment, the workers compensation system functions the same as in any employee injury situation. That is, the injured minor is eligible for all benefits prescribed by the state's workers compensation law, to be paid by the employer's workers compensation insurance.

However, when illegally employed minors are injured in the course of employment, employers may find themselves in difficult situations regarding insurance coverage, particularly when the employer has knowingly permitted the illegal employment.

Note that a provision of the workers compensation policy makes clear that the insured is responsible for any payments in excess of regular workers compensation benefits, including penalties imposed because of injury to any person knowingly employed in violation of the law.

Therefore, if an employer allows a minor to perform work restricted by law to adult employees and the minor is injured, the employer must pay any penalties imposed by the state. The workers compensation insurer will pay only the standard benefits. The employer may also be liable for additional penalties: some states impose a 50 percent increase in benefits, double compensation or triple compensation when minors are employed in prohibited work.

Principals and Contractors

The workers compensation laws of most states impose liability on principals (owners) for compensation benefits to employees of contractors or subcontractors.

These statutes vary from state to state but usually are qualified by a provision imposing liability on the principal only in the absence of workers compensation insurance provided by the subcontractor.

The status of the injured worker as an independent contractor or an employee is imputed. The Internal Revenue Service (IRS) determines the status of a worker using factors such as:

* Who delivers instructions and enforces compliance

* How training is done

* Where direction and control comes from

* Who hires, supervises and pays workers

* Who sets the hours of work

* Who discharges workers and terminates the work

* Who furnishes the tools and materials

* Who supplied investment or capital

The overriding consideration in the IRS approach is control. Who controls the situation, and what is the relationship between the one who exercises control and the one injured? That idea of control also influences courts regarding the status of injured persons.

In general, a principal or contractor is not held responsible for the workers compensation claims of employees of contractors or subcontractors unless the subordinate employer has failed to provide coverage.

This can happen through the expiration of a subcontractor's workers compensation insurance, the failure of a subcontractor to provide proper coverage, or because a subcontractor has too few employees to fall under the workers compensation statutes.

There are, however, exceptions to this. By statute in several jurisdictions the principal may be liable:

1. If the work contracted is the principal's usual business or occupation

2. If the principal retains control of the premises and supervises the work

In states where a minimum number of employees governs coverage under the act, liability may be passed upward to a contractor or principal who qualifies either because of the number of his own direct employees or because of the combined number involved with several nonqualifying subcontractors.

A principal or contractor may also be held liable if the subcontractor's insurance is canceled or the subcontractor's insurer becomes insolvent.

When the principal or contractor is responsible for compensation due an injured worker, the standard workers compensation and employers liability policy covers benefits due. This obligation to the employees of the subcontractor applies even if the principal does not have enough employees to be required to carry workers compensation.

This can cause a dilemma for homeowners who hire maintenance workers. If the contractors and subcontractors hired for the job have no workers compensation policies and one of their employees is injured on the job, the homeowner will typically not have a workers compensation policy to cover any required benefits.

In general, anyone who fails to check the insurance protection of contractors or subcontractors is gambling for high stakes, especially homeowners, since homeowners forms exclude coverage for bodily injury to any person eligible to receive any benefits required to be provided by the insured under any workers compensation law.

The only other options homeowners have are to self-insure or buy a workers compensation policy, if available. The self-insurance option could be expensive in case of serious injury; buying a workers compensation policy makes more sense financially but could run afoul of state regulations or, more likely, prove impossible to get in the standard marketplace.

In most cases, a principal or contractor that is compelled to pay compensation to an employee of another has an action against the person who is primarily liable. Homeowners should be aware of the fact that they or their insurer can seek recovery from another party if that other party is responsible for the employee's injury.

Leased Employees

A leased or borrowed employee is defined as one who is dispatched by his employer to another for some service. The leased employee must be loaned with his or her consent and must come under the exclusive control and direction of the employer to whom leased.

Examples include temporary office workers or workers leased from an employment agency by a contractor to construct a building or drive trucks.

The fact that the employee is paid by a particular entity is not, in itself, conclusive in determining who is the employer. In general, the party that controls the work is the employer. When employer A lends an employee to employer B, the latter becomes liable for workers compensation coverage under certain circumstances.

Besides the legal issues, contractual and statutory points must also be considered. A firm leasing employees to another firm may specify in the lease agreement which party must provide workers compensation coverage. Leased workers and all concerned parties should be aware of the respective responsibilities.

If one employer provides workers compensation and employers liability, it may add the alternative employer endorsement (WC 00 03 01) to its existing workers compensation policy.

This endorsement applies to bodily injury to employees in the course of special or temporary employment by the alternative employer named in the schedule. The insurer agrees, under the terms of the alternative employer endorsement, to reimburse the alternative employer for the benefits required if the insurer is not permitted to pay the benefits directly to the injured persons.

If both employers agree to provide coverage each should have its own workers compensation policy. The agreement between the two employers may spell out the amounts of benefits and premiums to be paid by the respective parties.

Note that the other insurance clause in the workers compensation policy states that benefits and costs covered by the insurance are on a pro rata basis, subject to any limits of liability that may apply.

If one of the parties reneges on the contract or refuses to sign it and the lessee employer can't or won't provide workers compensation benefits, that burden generally flows back to the lessor employer. State laws may vary.

Stop Gap Coverage

Employers liability insurance is normally part of the standard workers compensation policy. An employers liability problem often arises when a monopolistic state fund operates the workers compensation program.

Employers liability coverage is not offered by these states, which creates a gap in coverage. Stop gap coverage plugs that gap. Stop gap coverage is not a substitute for workers compensation coverage but is designed to provide liability insurance for an employer sued by an employee injured in the course of employment.

In monopolistic state fund jurisdictions, employers may be able to purchase stop gap coverage from private insurers or may elect to self-insure the exposure. Stop gap coverage can mirror the employers liability coverage provided on the workers compensation policy. However, stop gap coverage is not a standardized policy; the insured must review it carefully to ensure needed coverage is provided.

Guidelines provide for basic limits of liability:

* $100,000 each accident for bodily injury by accident

* $100,000 each employee for bodily injury by disease

* $500,000 policy limit for bodily injury by disease

Higher limits are permitted. The premium is based on the workers compensation classifications and rates in the NCCI workers compensation manual.

Stop gap insurance can also provide coverage for:

* Attorneys fees and court costs incurred defending an employee lawsuit

* Lawsuits by spouses or other family members of an injured employee for loss of consortium or services

* Dual capacity and third party claims

Workers Compensation and Volunteers

An issue often arises when a volunteer is insured. Workers compensation was created to apply to injuries of employees suffered in the course of employment. Are volunteers employees?

If the volunteers are considered employees, then the workers compensation system will respond if they are injured while performing their services. Unfortunately, there is no absolute standard on the status of volunteers under the workers compensation system. An entity that uses volunteers should be familiar with local court decisions and statutes that address the question of compensability of injuries to volunteers.

Determining if a volunteer should be considered an employee depends largely upon whether consideration is granted for services. This consideration can be monetary or otherwise, but it can be seen as the basis of a contract between the worker and the other party, establishing an employer-employee relationship.

1. What is a word for guidelines concerning workers compensation issues that have sprung up from a body of court decisions?

a. issues

b. doctrines

c. decisions

d. judgments

2. When an illegally employed minor is injured in the course of employment, the workers compensation system functions the same as in any employee injury situation.

a. True

b. False

3. Which factor below is listed on an Internal Revenue Service checklist used to determine whether an injured worker is an independent contractor or an employee?

a. who supplies transportation to and from work

b. who furnishes tools and materials

c. who prepares the injured employees' taxes

d. the state in which the work was performed

4. A principal hiring a subcontractor is responsible for compensation due an injured worker, even if the principal does not have enough employees to be required to carry workers compensation.

a. True

b. False

5. Why is stop gap insurance used in monopolistic states?

a. monopolistic states impose caps on workers compensation coverage

b. monopolistic states do not recognize the sole remedy doctrine

c. there a few insurers in monopolistic states, creating a gap in available coverage

d. monopolist states do not offer employers liability coverage

Self Review Answers

1. What is a word for guidelines concerning workers compensation issues that have sprung up from a body of court decisions?

b. doctrines

A doctrine emerges when a sufficient number of court decisions have lent an air of predictability to the outcome of workers compensation issues.

2. When an illegally employed minor is injured in the course of employment, the workers compensation system functions the same as in any employee injury situation.

b. False

When a legally employed minor is injured in the course of employment, the workers compensation system functions the same as in any employee injury situation. However, when illegally employed minors are injured in the course of employment, employers may find themselves in difficult situations regarding insurance coverage, particularly when the employer has knowingly permitted the illegal employment.

3. Which factor below is listed on an Internal Revenue Service checklist used to determine whether an injured worker is an independent contractor or an employee?

b. who furnishes tools and materials

The status of the injured worker as an independent contractor or an employee is imputed. The Internal Revenue Service (IRS) determines the status of a worker using factors such as:

* who delivers instructions and enforces compliance

* how training is done

* where direction and control comes from

* who hires, supervises and pays workers

* who sets the hours of work

* who discharges workers and terminates the work

* who furnishes the tools and materials

* who supplied investment or capital

4. A principal hiring a subcontractor is responsible for compensation due an injured worker, even if the principal does not have enough employees to be required to carry workers compensation.

a. True

When the principal or contractor is responsible for compensation due an injured worker, the standard workers compensation and employers liability policy covers benefits due. This obligation to the employees of the subcontractor applies even if the principal does not have enough employees to be required to carry workers compensation.

5. Why is stop gap insurance used in monopolistic states?

d. monopolist states do not offer employers liability coverage

Employers liability coverage is not offered by these states, creating a gap in coverage. Stop gap coverage plugs that gap by providing liability insurance for an employer in case of suits by an employee injured in the course of employment.
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Publication:Workers Compensation Explained
Date:Jan 1, 2006
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Previous Article:Lesson 5: federal workers compensation coverage.

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