interstate travel by employees of those states listed in Item 3.A. of the policy Information Page.

Transcription

1 Beware of Out-of-State Workers Compensation Exposures By: Duane Schroeder, CPCU Vice President Indiana Compensation Rating Bureau Like a gator lurking in murky water, there may be an E&O issue ready to grab you when your clients travel out-of-state. Perhaps you can rest easier if you better understand Other States Insurance coverage. Extra-territorial issues inherently are complex. An employee may attempt to pursue a claim in any state: the state of residence, the contract state, the state in which work was performed, the state of injury, and the state(s) in which workers compensation coverage was insured by the employer. It is up to the state's regulatory authority (in Indiana, it's the Workers Compensation Board) to take jurisdiction over a claim or deny it. There can be significant differences among state statutes regarding the eligibility of benefits for "temporary" workers. Voluntary Market Other States Insurance Operations which are known or expected are properly listed in item 3.A on the policy information page. Part Three - Other States Insurance of the WC policy is designed to provide both temporary and automatic coverage for new operations in other states, plus coverage for incidental exposures in other states. It provides coverage for insured's operations that are not "known or expected." In other words, Other States Insurance allows an insured to have additional coverage, based upon possible exposures in states where the employer does not have current or anticipated "operations" at the time the policy is issued. This coverage is shown by listing those covered states in item 3.C on the policy information page. Typically, carriers will use a broad statement of coverage such as all states except North Dakota, Ohio, Puerto Rico, Washington West Virginia and Wyoming. Assigned Risk Market Limited Other States Insurance For assigned risk policies, the Other States provision is modified by the inclusion of the Residual Market Limited Other States Insurance Endorsement WC (A). Unlike Part Three of the standard policy, this endorsement does not provide automatic coverage for actual operations in other states. Limited Other States Insurance is "designed solely for unknown or unanticipated exposures." The words "temporary or incidental" exposure is also used in describing the RM Limited Other States Insurance Endorsement. The purpose of the RM Limited Other States Insurance Endorsement is to amend the coverage available to residual market policyholders under Part Three of the policy. This endorsement was created to provide protection for casual exposures resulting from

2 interstate travel by employees of those states listed in Item 3.A. of the policy Information Page. From a residual market perspective, the use of Part Three - Other States Insurance of the policy is inappropriate because it grants coverage for not only the exposure resulting from incidental interstate travel but also the exposure resulting from the actual commencement of long-term business operations in other states. By virtue of the statespecific nature of workers compensation statutes, insurers or state pools in the residual market are not obligated to extend policy coverage beyond that which is needed to satisfy the requirements of the employer's state of domicile. Consequently, some employers may be faced with obtaining separate policies from each state where a potential exposure exists. The RM Limited Other States Endorsement includes an important notice that reads: "If you hire any employees outside those states listed in Item 3.A on the Information Page or begin operations in any such state, you should do whatever may be required under that state's law, as this endorsement does not satisfy the requirements of that state's workers compensation law." The table below summarizes the coverage differences. Coverage Issues Voluntary Market Residual Market To obtain Other States coverage: Where coverage provided: States included: Type of coverage: Payment of claim: by request and optional for carrier to provide Part Three of policy for states listed in Item 3.C of policy information page at carrier option; no monopolistic fund states full Part Three coverage: 1) full coverage for new operations commencing after policy effective; 2) full coverage for new operations as of effective date if reported within 30 days; 3) full coverage for incidental travel exposure direct by carrier or reimburse insured if state restricts direct payment automatic for limited coverage RM Limited Other States Insurance Endorsement WC (A) automatic for limited coverage in all states limited coverage replaces Part Three coverage: 1) temporary, incidental or casual exposure coverage only (like interstate travel); 2) as long as no existing separate coverage & separate coverage not required by state law; 3) no automatic new operations coverage & no promise to add coverage same as voluntary

3 Stepping Through the Requirements of the RM Limited Other States Insurance Endorsement For an insured to meet all the conditions of the Residual Market Limited Other States Insurance Endorsement, the insured: 1. has employees who are hired under a Indiana contract of employment; 2. has no other WC insurance for the other state in question; 3. has no known other state law requirement that the insured carry that state's WC insurance coverage; 4. is not a self-insured in that other state; and 5. the work is temporary (not begun operations in the other state). Note: There is no Indiana legal definition of "temporary," or what constitutes "beginning operations" in another state. This is a gray area that depends on individual circumstances. Having met these conditions, the endorsement directs the servicing carrier to "...pay promptly when due the benefits required of you by the workers compensation law of any state not listed in Item 3.A..." Hypothetical Situations The following situations compare a policy issued in the voluntary market (VM) with Other States Insurance to a policy issued in the assigned risk plan (AR) with the Limited Other States endorsement. Individual circumstances could change the conclusions reached. An Indiana employee travels to Florida for a week long training seminar. Both policies would respond to a claim made by this employee whether filed in Indiana or in any another state (AR), or a state listed in the Other States provision (VM). An Indiana employee makes a sales call in Kentucky. He lives in and does the majority of his work in Indiana. Both policies would respond to a claim made by this employee whether filed in Indiana or in any another state (AR), or a state listed in the Other States provision (VM). An Indiana company hires a worker in Michigan to do a three-day project in Michigan. The AR policy would respond only if the Workers Compensation Board rules the claim to be compensable under the Indiana statute (which would seem unlikely). The VM policy would respond to a claim made by this employee whether filed in Indiana or in a state listed in the Other States provision, provided the employer reports the exposure to the carrier within 30 days of the project.

4 An Indiana contractor spends a day installing siding on an Illinois residence. Per Illinois statute, any contracting work performed in that state must use Illinois rates. Specifically, Illinois HB 228 effective 1/1/98 requires construction contractors to use "...rates of the situs where the work or project is located in Illinois..." Since he would be eligible for Illinois benefits and required by statute to purchase an Illinois policy, the AR policy would not provide coverage. In the Voluntary Market, the Other States provision would trigger coverage if Illinois is listed and the employer reports the exposure to the carrier within 30 days. Coverage vs. Premium Charged By the terms of the WC insurance policy, the insurance company has a right to charge a premium for all persons engaged in work that could make them liable under Part One (Workers Compensation Insurance) of the policy. They can charge a premium (i.e. include payroll) for employees working in other states unless there is clear and convincing evidence the other state's WC law applies to the employees while they are working in that state. The presence or absence of payroll for a particular employee has a very limited influence, if any, on the decision by the state's regulatory authority as to compensability. The guidelines we use to determine which state's statute is most likely to apply, and therefore, in which state to charge a premium, are as follows: Contractors Work Cross state lines, usually return home nightly Exec supervisor visits sites Permanent staff outside state for a job Specific job State Rate Highest rated State of job Travelers state & Traveler's residence state are: Same, travel conducted from Different, travel conducted from Different, travel conducted from home State Rate Residence Truckers Payroll assigned to state of: 1. Base terminal, or if none; 2. Majority driving time, or if none; 3. Residence state

5 Adding another State to an Indiana Assigned Risk Policy As of January 1, 2005, Indiana assigned risk policies can not be extended to provide coverage for operations in any other state i.e. a separate application is required. Previously, we had been a member of the National Workers Compensation Reinsurance Pool. By agreement, states which participate in the National Pool allow other participating states exposures to be combined on one policy. The National Pool states are Alabama, Alaska, Arizona, Arkansas, Connecticut, Delaware, District of Columbia, Georgia, Idaho, Illinois, Iowa, Kansas, New Hampshire, New Jersey, Nevada, North Carolina, Oregon, South Carolina, South Dakota, Vermont, Virginia. National Pool Monopolistic All Other Conclusion Employers should report ALL out of state activities to their insurer/agent BEFORE they begin operations. If there is any doubt as to jurisdictional issues, the employer should be advised to purchase a policy specifically for the other state. You can learn more about this topic and myriad others by referencing the Comp Clues Searchable Database at the Indiana Compensation Rating Bureau web site,