Avoid Problems With Out of State Workers Comp Claims

As any employer with locations in more than one state knows, the workers compensation policy is written specifically for the states where the employer has physical facilities.  On the Information Page, that comes with each new policy or policy renewal, is Item 3.A (for most insurance carriers) which designates the states where the workers’ compensation policy is applicable.  Workers’ compensation coverage does not apply to claims filed in other states.

Work Comp Statues Specify When Coverage Applies Out of State

While the insurance carriers attempt to limit their exposure to claims occurring where they may not have claims offices, or knowledge of the workers’ compensation statutes, the states take a much broader approach. The work comp statutes of most states specify when and how their work comp act applies out of state.  Normally, the state statute will indicate that if the contract to hire was negotiated within their state, their work comp laws apply regardless where the injury occurs.

Most state work comp statutes will have extraterritorial provisions that state if the principal place of employment is within their jurisdictional boundaries, a work comp injury occurring outside of the state boundaries is still covered by the state law.  The work comp statutes also normally specify that any work related injury occurring within their borders is subject to their workers’ compensation statutes, even for employers and employees whose place of business is not within their state line boundaries.

Problems Occur When Claim Filed Where Employer Does Not Have Coverage

When the employee is injured in another state where the employer does not normally do business, the extraterritorial provisions of the state work comp act work great, as long as the employee elects to utilize the benefits of the home state workers’ compensation act.  The problems occur when the employee elects to file the claim in a state where the employer does not have a physical location and the employer does not have workers’ compensation coverage.

The usual reason an employee files for benefits in a state other than the home state is the amount of temporary total disability (TTD) benefits that will be paid.  Consider the highly successful salesman from Georgia earning $1,500 per week.  If he is injured in Iowa with its high maximum weekly TTD rate, he will receive $1,000 per week while he is unable to work, if he elects Iowa for work comp benefits.  If he elects Georgia benefits, the TTD rate is capped at $500 per week.

This creates a coverage issue for the employer.  When the work comp policy is purchased, the employer should have the insurance agent or broker specify in Item 3.C of the Information Page the other states for which coverage is requested.  Some agents will approach this by listing every state and territory except North Dakota, Ohio, Washington, Wyoming, Puerto Rico and the US Virgin Islands (the four monopolistic states and two monopolistic territories where the state/territorial governments provide the work comp coverage).  This can result in an accidental oversight where the agent leaves out a state.

Insert Language Into Item 3C to Prevent Problems.

A better approach is to insert the following on the Information Page in Item 3.C:  “All states and US territories except North Dakota, Ohio, Washington, Wyoming, Puerto Rico and the U.S. Virgin Islands and those states listed in Item 3.A of the Information Page.”  While this is the best approach to out of state coverage, some insurers, especially single state insurers or small regional insurers, will object to providing work comp coverage in other states where they are not licensed to do business.

Most employers think of their workers’ compensation policy and their workers’ compensation coverage as one and the same.  Actually, the work comp policy is divided into several sections with Part 1 being the actual work comp coverage.  Part 2 is employer’s liability insurance which covers injuries to employees when work comp coverage does not apply.   Part 3 is Other States Insurance.  With this coverage, workers compensation and employers liability insurance is provided for incidental exposure in states not listed in Item 3.A of the Information Page.

It should be noted that Other States Insurance covers only incidental exposures.  When the employer starts to have employees in a state on a regular basis, the states needs to be included in those listed in Item 3.A of the Information Page. If your business has employees who occasionally travel out of state, it is a good idea to routinely review your coverage with your insurance agent to confirm that your policy provides for incidental out of state exposures.

Author Michael B. Stack, CPA, Principal, Amaxx Risk Solutions, Inc. He is an expert in employer communication systems and helps employers reduce their workers comp costs by 20% to 50%. He resides in the Boston area and works as a Qualified Loss Management Program provider working with high experience modification factor companies in the Massachusetts State Risk Pool.  He is co-author of the #1 selling book on cost containment, Your Ultimate Guide To Mastering Workers Comp Costs www.reduceyourworkerscomp.com. Contact: mstack@reduceyourworkerscomp.com.

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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.