Every employer knows it's a drag: Paying premiums for workers'compensation insurance for each employee to cover injuries that maynever happen, and when or if injuries occur they may even be thefault of the employee.

Reading the policies isn't fun either: They're filled withemployer duties and responsibilities. But under the workers'compensation system, employers are required to obtain insurancethat provides coverage for workers who suffer from work-relatedillnesses and injuries.

Compromise between employers and employees

As an agent, it's your job to help your clients realize thatworkers' compensation insurance is not as anti-employer as itseems. It's really a compromise between employers and employees.Employees receive benefits if they're injured regardless of who wasultimately at fault. Employers are protected from arduous andexpensive lawsuits brought by injured employees seeking monetarydamages for pain and suffering or mental anguish.

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Typical workers' compensation statutes are intended to providean exclusive remedy for on-the-job injuries or illnesses to allemployees, subject to the law. Thus, the only remedy available toan injured employee under workers' compensation is to recover on ano-fault basis, the benefits required by the applicable statute.This means that employers that comply with workers' compensationstatutes are generally immune from lawsuits brought by injuredworkers.

There are a few exceptions that allow employees to bring a tortaction against their employer — for example, intentional injurycaused by the employer — but those situations generally occur onlywhen the employer is accused of acting negligently.

State systems vary

A few states, known as monopolistic states, require businessesto secure coverage through state-operated systems. Currently, themonopolistic states are Ohio, North Dakota, Washington andWyoming.

About two-thirds of the states subscribe to the NationalCouncil on Compensation Insurance and are called NCCI states.These states each have their own workers' compensation bureau butrely on NCCI for such things as classifications and ratingsystems.

The states that don't subscribe to NCCI are dubbed "independent"states and allow private insurers to sell workers' compensation.Independent states use their own classification and rating systems,although they're often similar to the NCCI systems.

Related: 9 things insurance agents can do to help employersmanage workers' comp costs

Texas and Oklahoma — known as "opt-out" states — are the onlystates that don't require all private employers to purchaseworkers' compensation insurance. Texas has been an opt-out state for decades,while Oklahoma has only been an opt-out state for four years, butthe law has since been deemed unconstitutional by the OklahomaWorkers Compensation Commission.

Texas employers that contracted with the state government arerequired to have workers' compensation insurance, however. Eventhough workers' comp coverage is not required in Texas andOklahoma, employers should remember that when they don't purchasethe insurance, they lose important defenses against lawsuits byinjured employees.

Injuries to an employee from a fight started by thatemployee are generally not covered by workers' comp. (Photo:Shutterstock)

Similar structure across states

Although workers' compensation is governed by state law, withthe rules and regulations differing widely from state to state, thestructure of the workers' compensation system can be similar bystate. The main differences between states are procedural rules andrates to be paid.

Most states require employers who don't comply with theapplicable workers' compensation statutes to pay a fine. The finecan vary based on several factors including:

— The length of time the employer is non-compliant;

— The number of employees; and

— The reason for noncompliance.

Depending on the state in which the business is located, if anemployer isn't complying with the mandated workers' compensationinsurance requirements, fines and penalties can cost them fromthousands to hundreds of thousands of dollars for each violation.For instance, non-compliant business owners in New York with fouror fewer employees face fines up to $5,000, but if the samebusiness owner has five or more employees the fines can reach$50,000.

Intentional noncompliance in several states, includingPennsylvania, may be considered a felony.

To stress the importance of compliance with workers'compensation statutes for employers, make sure you, as the agent,know exactly what penalties and punishments are implemented in thestate where you sell workers' compensation insurance and all thestates in which your clients do business.

Related: Multi-million dollar workers' comp referral schemeuncovered in Calif.

Injuries excluded from workers' comp coverage

On the other hand, some injuries and illnesses are not coveredby workers' compensation, for example:

• Injuries caused by intoxication or drugs,
• Self-inflictedinjuries,
• Injuries from a fight started by an employee,
• Injuries resulting from horseplay or violation of a companypolicy,
• Injuries inflicted during the commission of a felony,
• Injuries suffered off the job,
• Injuries claimed after an employee is terminated or laid off,and
• Injuries to an independent contractor.

To avoid fines, unknown liability, criminal charges, jail time,and even felony charges, it's in the best interest of employers tocomply with all workers' compensation laws implemented in thestates in which they run their businesses.

If you have a reluctant employer as a client, you can emphasizethat having proper workers' compensation insurance coverage is asmart investment that protects the business, the employees, and theemployer.

Related: 5 developments impacting medical marijuana inworkers' compensation

Hannah Smith ([email protected]) is a staff writer withFC&S, the premier resource for insurance coverage analysis.Additional information about FC&S Online is availableat www.NationalUnderwriter.com.