Workers Compensation Extraterritorial Issues by Maureen Gallagher Brief History Workers Compensation in the United States of America is a combination of private insurance and/or governmental programs. The governmental programs include Monopolistic States where an employer may only purchase Work Comp from the state jurisdiction (OH, ND, WA, WY, Puerto Rico and the U. S. Virgin Islands) and/or State Funds owned and operated by the state but competing with private insurers. There are 19 states operating State Funds wherein the fund was started by the state and is to varying degrees controlled by it. In 11 of the 19 states, the fund is the insurer of last resort (Assigned Risk). As states passed Work Comp laws starting in the early 1900s (Wisconsin 1911) through 1949 (Mississippi), each state established its unique Work Comp system. This resulted in a mishmash of laws, benefits, compensability and eligibility from state to state. There are many different, non-uniform Work Comp laws in the United States (state, territorial and federal). The state and territorial laws, which exist in every state, Puerto Rico and the U. S. Virgin Islands, are especially non-uniform in terms of which kinds of employments are covered, dollar amounts of wage benefits payable for different kinds and degrees of disability. Whereas we have a Uniform National Plumbing Code to protect the health of the nation and Uniform Commercial Code enacted in all 50 states for a standard method of dealing with business law questions involving commerce, no such code exists for our nation s employers and employees for Work Comp. The complexity of our varied Work Comp system presents challenges for employers in three key areas: Establishing proper coverage in jurisdictions in which the employer has operations or other jurisdictions the employer has employees working, living or traveling in Distributed by WorkCompEdge. Cannot be duplicated without permission. Page 1
Understanding what jurisdiction benefits the employee can collect Determining what rates (premiums) will apply. (This subject mirrors in its complexity the coverage and benefit structures of the various state and federal laws. We will briefly discuss pricing and only as it relates to extraterritorial issues in this article). We will address the following in this article: 1. The Work Comp Policy How is coverage provided for various jurisdictions? 2. Insuring employees working, living or traveling in another jurisdiction 3. Insurance pricing as it relates to extraterritorial issues The Work Comp Insurance Policy How is coverage provided for various jurisdictions? It is important to understand how the Work Comp policy affords coverage for various states. I have included a sample Information Page from a Workers Compensation policy below. (In most other policies, we call the Information Page, the Declaration Page usually the first page of the policy). The two items which reference what states are insured are 3A and 3C. 3A is fairly simple. The insurance agent for the employer must have the insurance carrier list the states the employer operates in or expects to operate in at the inception of the policy. If an employer has work or employees residing (since an employee may be able to choose his residence state) on the effective date of the policy in any state not listed in Item 3A of the Information Page, coverage will not be afforded for that state unless the insurance carrier is notified within thirty days. 3C is a safety net. States are listed where an employer expects it may have employees working in but the work in those states will begin after the effective date or renewal date of the policy, with some exception noted below. The policy requires that the policyholder (employer) must notify the insurance company at once if the employer begins any work in any state listed in item 3C. At Once is not defined when looking for coverage under Item 3C of the policy. However, it is clear that if work is taking place in a state when the policy goes into effect or renews, that state needs to be listed in Item 3A. Distributed by WorkCompEdge. Cannot be duplicated without permission. Page 2
The following suggested wording should be used in 3C, whenever possible: All states, U S territories and possessions except Washington, Wyoming, North Dakota, Ohio, Puerto Rico and the U.S. Virgin Islands and states designated in Item 3A of this Information Page. The exceptions noted are due to the Monopolistic status of these jurisdictions. This broad wording will assure coverage in most jurisdictions even in unforeseen circumstances. Situations where this wording might not be possible include: The employer is insured with a State Fund that only writes in their state, therefore they cannot extend coverage to other states under 3C. Many State Funds have made arrangements with insurance carriers for this situation (i.e. Colorado and Arizona State Funds use Argonaut) The insurer is not licensed in all states. Many regional insurers are licensed in a handful of states while other carriers may only be licensed in one state often for strategic reasons. It would be impossible (and possibly illegal) for these carriers to list a state they are not licensed in. Several insurance carriers are unwilling to provide this broad wording as they have an interest in understanding where the employer they are insuring may be operating. This could be because the insurance carrier does not want to provide insurance in certain states they consider more challenging from a Work Comp standpoint or because they want possible states of operation specifically listed as a red flag for their auditor to look for potential payroll in those states at audit. On a side note, I often have individuals ask during my presentations why we just don t add the Broad Form All States Endorsement. I know I am speaking with a Work Comp veteran like myself when I get this question as this endorsement has not existed since the mid 1980s. The only way you can add coverage for other states you are not operating in when the policy is written is through Item 3C on the Information Page of the Work Comp Policy. Distributed by WorkCompEdge. Cannot be duplicated without permission. Page 3
Workers Compensation and Employers Liability Insurance Policy WC 00 00 01 Information Page ABC Insurance Company Policy No. xxxxxxxxxxxxxx Individual Partnership Corporation or 1. The Insured: Mailing Address: Other workplaces not shown above: 2. The policy period is from to at the insured s mailing address. 3. A. Workers Compensation Insurance: Part One of the policy applies to the Workers Compensation Law of the states listed here: B. Employers Liability Insurance: Part Two of the policy applies to work in each state listed in Item 3.A. The limits of our Liability under Part Two are: Bodily Injury by Accident $ each accident Bodily Injury by Disease $ each limit Bodily Injury by Disease $ each employee C. Other States Insurance: Part Three of the policy applies to the states, if any listed here: D. This policy includes endorsements and schedules: Insuring employees working or traveling in another jurisdiction Compliance is a special term that refers to what an employer must do or not do under the law. With the exception of Texas, all states require employers to purchase Work Comp insurance for their employees or qualify for self insurance in the state to meet the statutory requirements under the Work Comp rules. As outlined above, compliance of the Work Comp laws varies from state to state. If an employer has employees traveling on a limited basis from their home states, their headquarter state may have established a time limit on coverage for out-of-state injuries; Distributed by WorkCompEdge. Cannot be duplicated without permission. Page 4
the most common limit is about 6 months. Some jurisdictions are silent on this issue but case law has made some determinations in this area. In other words, if an employee usually worked in Michigan but spent 3 months working on assignment in Kentucky and was injured in Kentucky, the employee would most likely still be eligible for Michigan benefits. In states with a timeline, an employee working in another state for more than the designated duration is no longer entitled to benefits in the home state but the employee is probably entitled to the compensation in the state in which he or she is currently working. Various factors complicate the above statements including: What benefits apply? An employee may have selection of remedy State Statutes, Case Law, Common Law and Tests Reciprocity State Specific Extraterritorial Rules Work Comp exemption for small employers States requiring Work Comp coverage listed in 3A States Requiring Disability in addition to Work Comp Which benefits apply? One of the most important factors is that an employee injured outside of their state of residence may have selection of remedies (benefits). Therefore, it is important to have the states of current operation listed in 3A as well as any states employees regularly travel to, travel through, live in or are working in for an extended period of time. There are many situations where employees live in one state and work in another. This is particularly prevalent in the Northeast and Midwest. The above injured Michigan employee may want to opt for Kentucky benefits because Kentucky has lifetime medical and Michigan does not. Just because the employee is eligible for Michigan benefits doesn t mean he/she wants them. Conversely, just because the employee wants another state s benefits doesn t mean they will qualify for them. An employee might seek to recover another jurisdiction s benefits for a variety of reasons. Laws of one state may not apply to the accident at all if, for example, the employee is not covered as in an arising-out-of or in-the-course-of employment Distributed by WorkCompEdge. Cannot be duplicated without permission. Page 5
problem (a prerequisite in all jurisdictions to be eligible for Work Comp). As an example, an employee may have been injured on the way to work and the state where they were injured does not allow for Work Comp in this circumstance even though this would be a compensable injury in the employee s headquarter state. Or perhaps there is a disqualification in one state due, for example, to an employee s intoxication that would not be a disqualifier in another state. In addition, the maximum amount of income benefits available to employees varies considerably from state to state. All other factors being equal, an injured employee will normally seek coverage under the state law that provides the highest income benefits. The insurance policy does not determine what law applies at the time of injury. The law determines what is payable. Note the Information Page above just says, Part One or Part Three of the policy applies to the Workers Compensation Law of the states listed here: The states are then listed. No where in the policy does it tell an adjuster what benefits will be paid to an injured worker. When a state is listed on the Work Comp policy, essentially we have attached hundreds of pages of Work Comp statutes and laws and thousands of pages of case law for that state. Add multiple states and I would argue that, although the basic policy is only about six pages long, the addition of statutes and case law make the Work Comp policy the largest and most complex policy an employer buys. It should be noted that the policy does determine who pays (Insurer or Insured) as we will address further below. This would depend on whether the employer had 3A and 3C properly completed on the policy. State Statutes, Case Law, Common Law and Tests State statutes, case law or the common law in a jurisdiction may influence what benefits an employee may collect. These may be limited in terms of the geographical scope of their application. In addition to the state statutes, various jurisdictional industrial commissions and/or courts have also developed tests to assist in sorting out what jurisdiction s benefits apply. Various criteria that may apply to the situation include: Distributed by WorkCompEdge. Cannot be duplicated without permission. Page 6
State of hire State of residence State of primary employment State of pay State of injury State in agreement between employer and employee Reciprocity Several states will reciprocate another state s extraterritorial provisions, which basically is a way of honoring Work Comp coverage from another jurisdiction for workers of that other jurisdiction in their jurisdiction on a temporary and incidental basis. Each state has its own reciprocal agreements and they may be limited to as few as a half a dozen states they reciprocate with to as many as 30 states. For as many states that cooperate with Reciprocity just as many states will not recognize another state s extraterritorial provisions they simply don t care what another state law provides. Although many states will accept another state s benefits being paid on an injured employee working on a temporary basis in their state, there are usually time limits to the temporary status which would require the employer to arrange for coverage in the state the employees are working in when the temporary status expires. It should be noted that the employer is also relying on the employee accepting another state s benefits (other than where the employee is working) in the event of injury. Should the employee file in the state they are working within the approved temporary or incidental time period and the employer has relied on the temporary status of the employee and not purchased coverage in that state, some states may consider the employer non compliant which could result in penalties. This situation reinforces the need to obtain broad wording in 3C and/or appropriate coverage in 3A and 3C by listing all potential states that may expose the employee to work related activities. Distributed by WorkCompEdge. Cannot be duplicated without permission. Page 7
Examples of State-Specific Extraterritorial Rules Alabama will only allow a temporary employee 90 days of another s states coverage. Coverage must then be secured in Alabama. Arizona must be listed in 3C or the employer will be considered a non complying employer if the employee chooses to file an Arizona claim. Connecticut does not address extraterritorial issues but their definition of employee does. Under Section 31-275. Definitions: (B) Employee shall not be construed to include: (vi) Any person who is not a resident of this state but is injured in this state during the course of his employment, unless such person (1) works for an employer who has a place of employment or business facility located in this state at which such person spends at least fifty per cent of his employment time, or (ll) works for an employer pursuant to an employment contract to be performed primarily in this state. If the worker does not fit this definition of employee, he or she will not collect Connecticut benefits. Iowa recognizes other jurisdiction coverage only for the purpose of benefit credit. Louisiana will accept coverage from another jurisdiction if the employee is on temporary assignment. Although the employee could file a Louisiana claim the extraterritorial coverage of the employer from another jurisdiction for that worker will cause the claim in Louisiana to be dismissed. New Jersey, like Connecticut, is silent on addressing extraterritorial exposures. North Dakota honors others states coverage for incidental operations lasting fewer than 30 days. Ohio exempts an employer from obtaining coverage for temporary workers in Ohio up to 90 days. In fact, if the employees are not going to be in Ohio more than 90 days, Ohio would prefer they were covered under their home state benefits. Distributed by WorkCompEdge. Cannot be duplicated without permission. Page 8
Pennsylvania will reciprocate but coverage must match at least Pennsylvania benefits. Virginia may find an out-of-state employer non-complying with their Work Comp law if a worker from the out-of-state employer s jurisdiction files a Virginia claim. Washington does not reciprocate in construction unless there is a reciprocity agreement in place. WA has these agreements with Oregon, Idaho, North Dakota, South Dakota, Montana, Wyoming and Nevada. All other jurisdictions require Washington Specific coverage for construction. Otherwise, Washington will reciprocate. Wisconsin and New Mexico require immediate coverage for 3 or more employees. This would include temporary employees. However, if the out-ofstate employer had only 1 or 2 employees, the employer may not be required to obtain Wisconsin coverage for up to 3 months. Work Comp Exemption for small employers Thirteen states (AL, AR, FL, GA, MI, MS, MO, NM, NC, SC, TN, VA, and WI) exempt an employer from WC law if it has less than a specified amount of employees (usually 3 but sometimes 2, 4 or 5). However, NC is Not Exempt for exposure to radiation. AR, FL, MS, NM, TN are Not Exempt for Construction industry. The employer may not need to have coverage in a jurisdiction but it does not mean the employee could not attempt to select benefits of the jurisdiction they are working or living in should they get injured while working there. States requiring Work Comp coverage listed in 3A Massachusetts, New York and New Hampshire require coverage in 3A. New York made a significant change in their Workers Compensation law [Section 6 of the 2007 Reform Act (A.6163/S.3322)] that will impact employers if they conduct any work in New York or employ any person whose duties involve activities that take place in New York. Effective Sept. 9, 2007, all out-of-state employers are required to cover employees working in New York state with a Work Comp policy showing New York under item 3.A. of the Information Page. Other States coverage will no longer satisfy the requirements of the Distributed by WorkCompEdge. Cannot be duplicated without permission. Page 9
New York Workers Compensation Law under any circumstances. Technically, an out-ofstate employer that sends an employee to attend a seminar or conference in New York will be required to maintain a New York policy. While the WCB (workers comp bureau) is unlikely to track such incidental employment for enforcement purposes, an employer will nevertheless be subject to uninsured penalties should a compensable injury occur. In addition, an employer is required to provide benefits under the New York State Disability Benefits Law for employees who are disabled by an off-the-job injury or illness. An employer becomes a covered employer when there have been one or more employees employed in New York on each of at least 30 days in any calendar year (not necessarily consecutive days). Florida, Nevada, Montana and Washington require all employers working in the construction industry have specific coverage for their state in 3A. Otherwise, they will honor coverage for temporary work from other jurisdictions. States Requiring Disability in addition to Work Comp The five states listed below and the Commonwealth of Puerto Rico require employers to provide short-term disability insurance benefits in addition to Work Comp insurance. California State Disability Insurance (SDI) Hawaii Temporary disability Insurance (TDI) New Jersey Temporary Disability Insurance (TDI) New York Disability Benefits Rhode Island Temporary Disability Insurance (TDI) Employers can be fined if they do not have this coverage in place and have operations in these states. Many large employers often provide this coverage anyway, but this is not true of many small-to-mid sized employers. As mentioned above, with the new rules in NY requiring coverage in 3A even for incidental exposure, this is coming up more and more as an issue. All of the state disability insurance programs pay maternity disability insurance benefits for pregnancy, childbirth and related disabling medical conditions. Only California pays Distributed by WorkCompEdge. Cannot be duplicated without permission. Page 10
benefits for paternity leave. The Federal Family Medical and Leave Act (FMLA) covers paternity leave for eligible fathers, but it doesn't make sick pay mandatory. For employers with a location in one of these states, their employee rights might entitle the employee to collect state disability insurance benefits, even if they are unemployed at the time a disabling, non-occupational illness or injury occurs. However, the employee rights likely do not entitle them to collect state disability insurance benefits and unemployment benefits at the same time. Policy Premium Determination Insurance Pricing The Work Comp policy is priced using a classification system and a rate for each classification that describes the employer s business. The rates vary from state to state and often from carrier to carrier as well. The employer s payroll (per $100 in payroll) is the basis used to determine the premium with the classification/rate system. An estimated payroll is determined at the inception of the policy by classification and state. At the end of the policy term, an insurance company auditor will audit the employer s books to determine the actual payroll and correct classifications. The Employer/Agent Perspective Many times, the employer/agent wants the best deal in premium. Many agents feel pressure to fit employees in the cheapest states rates, whether or not it is correct. This pressure can come from the employer who already feels Work Comp is prohibitively expensive or other competition. The agent may feel it is the only way he/she can retain the account. Often the agent will do this knowing he or she will have an argument at audit or an uncovered or inadequately covered claim. Agents may be reluctant to let a carrier know about travels or jobs in other states as the rates in the headquarter states may be more attractive. (Listing states in 3C will surely send the auditor on a fishing expedition at the year end audit looking for payroll in those states and charge my client more premium, right?) Distributed by WorkCompEdge. Cannot be duplicated without permission. Page 11
This is a dangerous practice by which the employer is being done a disservice. Should the employer have a claim and their employee files for benefits in a state that is not covered by the policy, the insurance carrier will have several options: 1. Add the state to 3C and pick up the payroll on audit. Pay the benefits of the state the employee filed in. 2. Pay the benefits of the state in question, but charge back to the employer any benefits in excess of benefits for the state listed on the policy. 3. Deny the claim. The state was not covered. The employer pays the claim. The outcome is usually determined by a few factors as follows: 1. Depends first and foremost on how big the claim is. If it is a routine or midsized claim, I suspect the carrier may step up and pay. If the employee s injury resulted in his becoming a paraplegic, well, I suspect we might have some pause on the insurance carrier s part after all, it wasn t a covered state. 2. The size of the employer s premium and the importance of the employer s business to the insurance carrier. 3. The relationship with the agent. In my experience, there is always a hassle in a claim. Part of an agent s job is to educate an employer and reduce that hassle by clarifying intent up front and making sure the right coverage is in place. Intentional or unintentional errors in extraterritorial issues can result in devastating financial consequences. Insurance Company Perspective Insurance carriers know that most often an employee injured outside of their state of residence may have selection of remedies (benefits). Benefits levels are usually reflected in rates of the state; therefore, if an insurance carrier pays higher benefits, the insurance carrier wants to charge the higher rates. Distributed by WorkCompEdge. Cannot be duplicated without permission. Page 12
Contractors Extraterritorial Guidelines from National Council for Compensation and Insurance (NCCI) In light of the fact that contractors operating in several states are most affected by extraterritorial issues, NCCI has issued some guidelines on where the payroll of employees should be recorded for premium purposes. The rules are as follows: Payroll of employees of contractors who have their place of business in a given state and operate also in an adjoining state and who are constantly crossing states lines, but usually return to their home each night, should be assigned to their headquarters state. The payroll for executive supervisors who may visit a job but who are not in direct charge of a job should be assigned to the state in which his or her headquarters is located. For those contractors that maintain a permanent staff of employees and superintendents in another state other than their headquarters state, either for the duration of the job or any portion thereof, their payroll should be assigned to the highest rated of either the state in which the job is located or the headquarters state. The payroll of employees who are hired for a specific job project should be assigned to the state in which the job is located. Foreign Workers Compensation and Employers Liability For those employers that have employees regularly traveling out of the country, the Foreign Workers Compensation and Employers Liability endorsement should be added to their Work Comp policy. This endorsement is used for US hired employees who are traveling or residing temporarily outside the US. Coverage is limited to 90 days and includes 24 hour coverage, excess repatriation coverage and endemic disease (diseases contracted that are particular or native to an area or region). Exclusions include war, revolution, rebellion and insurrection. The cost to include this endorsement in general is small. In many cases the insurance carrier does not charge for the endorsement at all. For employees out of the country for long periods of time or permanently, coverage needs to be arranged under an International Policy. Distributed by WorkCompEdge. Cannot be duplicated without permission. Page 13
Conclusion Recognize that having employees that work, live or are temporarily in other states will create premium and coverage challenges for employers. Take time to understand the rules of the state an employer operates in. Employers should consult with their agent for a clear understanding of these foggy rules and endeavor to create the best remedy for your situation. Work with your agent and insurance carrier to address incidental exposures in states that would normally be added to 3C, but due to the strict requirements in the state, must have coverage listed in 3A. Carriers are aware of the challenges these states present and will often work with you to add on an if any exposure basis. Secure the broadest coverage possible under your Work Comp Policy with particularly attention to 3C for sleep insurance. Obtain coverage for operations in Monopolistic states separately. Address out of state exposures when insured by a state fund that only operates in their state. Check for employees traveling out of the country and arrange appropriate coverage. Recognize that the circumstances of any given claim could cause a dispute as to which benefits apply. In these cases, it is best to work through these issues constructively with the employee rather than engage in a standoff. Distributed by WorkCompEdge. Cannot be duplicated without permission. Page 14