Analysis

This paragraph shows the omnibus nature of the WC coverage. If the insured has 1 workplace or 20 workplaces, this WC policy applies. There is coverage if the insured has listed all the workplaces on the information page and there is coverage if such locations are not specifically listed, as long as the state is noted in Item 3.A.

Analysis

Coverage under workers compensation insurance applies to bodily injury by accident and bodily injury by disease(including resulting death). The agreement does contain two stipulations: (1) bodily injury by accident must occur during the policy period; and (2) bodily injury by disease must be caused or aggravated by conditions of employment, with the employee's last exposure to those conditions occurring during the policy period.

It is interesting to note that while the workers compensation policy applies to bodily injury, the policy does not define that term. This can, and often does, lead to potential disputes over the question of coverage should an employee make a claim based on mental stress. Is mental stress a bodily injury under the workers compensation policy?

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, and (3) mental stimulus resulting in mental injury. Most jurisdictions and workers compensation boards have no problem awarding benefits under the first two groupings, because the employee is disabled due to an injury that is associated with a physical manifestation, a definite bodily injury. In the last category, the mental injury as a result of mental stress, decisions vary from jurisdiction to jurisdiction. For example, courts in Illinois, Mississippi, and Texas have decided mental injury caused by mental stress is a compensable injury; courts in Kansas, Wyoming, Ohio, and Wisconsin have denied WC coverage for such injuries.

The most substantial factor found in those cases denying compensation without bodily injury is the difficulty of proof in order to prevent fraud. Because mental injury is vague, shadowy, and intangible, and could be within the control of the sufferer, it was feared that without some corresponding bodily injury, the disability could too easily be simulated. Mental pain or anxiety was regarded as something metaphysical, too subtle and speculative to be capable of measurement by any standard known to law. It is as if the courts were saying they could not comprehend a method to objectively value a claim based on mental pain without any bodily injury to evaluate; therefore, such claims had to be denied.

Jurisdictions that permit compensation for claims for mental injury without accompanying bodily injury emphasize the idea that the difficulty of formulating appropriate legal tests does not justify denying claims for mental injury caused by mental stress. For example, in NPS Corp. v. Insurance Company of North America, 517 A.2d 1211 (1986), the New Jersey appeals court held that emotional distress and mental anguish caused to an employee by sexual harassment from a fellow employee constituted bodily injury. The court stated that New Jersey has come to recognize that mental and emotional distress is just as real as physical pain and that its valuation is no more difficult. Within that framework, the court disagreed with the defendant's argument that bodily injury necessarily entails some physical or corporeal harm caused by the application of external violence. The court said, “We are unable to separate a person's nerves and tensions from his body since, clearly, emotional trauma can be as disabling to the body as a visible physical wound”.

Note that the New Jersey Supreme Court offered its disagreement with this thinking in SL Industries, Inc. v. American Motorists Insurance Company, 607 A.2d 1266 (1992). In that case, the Supreme Court said that NPS presents “irreconcilable inconsistencies and ambiguities lacking coherent underlying principles”. The Court held that “in the context of purely emotional distress without physical manifestations, the phrase 'bodily injury' is not ambiguous; its ordinary meaning connotes some sort of physical problem”.

The question of the need for bodily injury to be present in order to recover for a mental injury claim will not be settled quickly. It may be that, at this time, a majority of authorities hold that bodily injury does not even include mental stress, but if a trend is discernible, it is toward a recognition that mental injury due to stress and tension is comparable to bodily injury on the theory that there is no rational distinction between mental stress causing a heart attack as opposed to causing some mental reaction. The trend is toward accepting the idea that incapacity due to mental disability is just as real and acknowledgeable as that due to physical injury, such as heart attack; the disturbance to the claimant in either case is not imaginary.

There is another aspect that should not be overlooked at this point. Since the workers compensation policy applies to injury by accident, can mental stress be equated with “accident” for purposes of recovery under the policy? Mental stress severe enough to cause disability generally does not develop overnight, and if it is a gradual process over a long period, can it be termed an accident? The workers compensation policy offers no definition of the word, but Black's law dictionary does offer the following: with reference to workers compensation acts, an act is an event that takes place without one's foresight or expectation; an undesigned, sudden, and unexpected event. Its synonyms are chance, mishap, mischance, or misfortune.

Many terms used in insurance forms are open to differing judicial interpretations and “accident” is no exception. The general principle is that impairments, albeit physical ones, developing in imperceptible stages as a result of continuing in particular work over an appreciable period of time are not compensable as accidental injuries. This principle has been adhered to in cases that decline compensation for a mental disability claim. For example, in Lawson v. Employers Insurance of Wausau, 330 F. Supp. 321 (1971), a federal court decided that a general mental breakdown resulting from overwork or long employment at a particular type of activity was not a compensable accident; the court stated that the employee's anxiety and hypertension did not disable the employee within the meaning of the state WC law.

However, other jurisdictions have ignored the general principle upheld in the Lawson case and granted compensation, equating a gradual deterioration of mental stability with an accident. The supreme court of Arizona in Fireman's Fund Insurance Company v. Industrial Commission, 579 P.2d 555 (1978) held that an employee who suffered a mental breakdown as a result of constant work pressures did sustain a personal injury claim arising out of an in the course of her employment. The court agreed with the worker's contention that the mental breakdown resulted from a gradual buildup of stress and tension at work and was sufficiently unanticipated to be called unexpected, and, hence, accidental within the meaning of the statute providing compensation. The court said that Arizona followed English law that injury is caused by accident when either the external cause or the resulting injury itself is unexpected or accidental.

Basically, then, the differing court decisions on compensation for impairments that develop over a period of time are reduced to disagreeing about whether “accident” means only a sudden one-shot trauma or whether the word can encompass gradual trauma. This judicial disagreement raises the importance of defining words and phrases used in an insurance policy, be it a workers compensation policy or any other, in the policy format itself.

Analysis

The part one — workers compensation insurance — insuring agreement is simple and straight forward: “We will pay promptly when due the benefits required of you by the workers compensation law.” “Workers compensation law” is defined as the workers or workmen's compensation law and occupational disease law of each state or territory listed in item 3.A on the information page, and includes any amendments to that law that are in effect during the policy period.

This does indeed sound simple and straight forward, except for the fact that an employee that is injured while working in a certain state can claim the compensation benefits of that state regardless of the fact that the employer is based is another state. In other words, an injured employee can choose among several possible states (depending on the laws of the states and the circumstances of the injuries) for his or her benefits and the employer-insured should be aware of this fact. Just because company A is located in Tennessee does not mean that an injured employee always has to file for workers compensation benefits in Tennessee; if that employee was injured while on business in Maryland, for example, he or she could seek the compensation benefits of Maryland.

This does smack of “forum shopping”, picking and choosing where to file a claim just to get the higher benefits, but such a practice is limited by the various state laws and by some judicial decisions, such as those decisions based on the “election of remedies” theory. An example of this theory is Bradshaw v. Old Republic Insurance Company, 922 S.W.2d 503 (1996). In this case, Bradshaw worked for a Tennessee company but was injured while on business in Maryland. He filed for benefits in Maryland but was turned down; he then filed in Tennessee and was also turned down. The Tennessee court declared that the election of remedies rule barred his Tennessee claim since he had “affirmatively acted” to get benefits in another state. Just because that other state denied his claim, he could not then seek the benefits of Tennessee; he had made his choice ( Maryland ) and to allow a second choice (or a third or fourth), would be unfair to the workers comp system and a burden to the legal system.

The Supreme Court of Tennessee affirmed this thinking in Eadie v. Complete Company, 142 S.W.3d 288 (2004). In that case, a worker was injured while working in Georgia . His company was incorporated in Tennessee . Being a South Carolina resident, the worker filed an original claim in South Carolina seeking any and all rights he was entitled to under the workers comp laws of South Carolina; the employee also filed WC claims in Tennessee and Georgia . When the compensation issue got to the Tennessee Supreme Court, that Court ruled that an employee who suffers a compensable injury in another state may be barred from recovering benefits under Tennessee law through the election of remedies doctrine. This doctrine is designed to prevent forum shopping, vexatious litigation, and double recovery for the same injury. The Court construed the actions of the employee as affirmative conduct constituting a binding election of remedies and his actions barred his attempts to claim WC benefits in Tennessee .

Analysis

Part one coverage also includes the insurer's right and duty to defend the insured in any proceeding for benefits payable under the policy. It should be noted that the insurer reserves to itself the right to settle claims or suits, so the insured has no veto power over the matter. For example, if the insured does not want to pay benefits to an injured employee because the insured believes the employee is faking the injury, the insurer need not get the permission of the insured in order to pay the claim if it so decided.

Also, the insurer states clearly that it has no duty to defend a claim or suit that is not covered under the policy. This is for those courts that would say that if a clear denial of the duty to defend under certain circumstances is not placed in the policy language, then the insurer must defend any and all claims or lawsuits.

Analysis

These payments are similar to the supplementary payments that are offered under a CGL coverage form. Note that these costs are in addition to the amounts payable as workers compensation payments, so any of these costs that are paid by the insurer will not cut into the amounts available for workers comp benefits.

Analysis

Part one coverage is subject to an other insurance clause. This specifies that the insurer will pay no more than its share of benefits and costs and all shares are considered equal until the loss is paid. Due to the statutorily imposed nature of the benefits payable under workers compensation laws, there is no specified limit of liability on the workers comp policy, but any amounts to be paid as WC benefits will be split equally among affected insurers and self-insureds.

Analysis

This clause is akin to a set of exclusions for workers compensation coverage. However, since the wording on the policy actually states that the insured will reimburse the insurer for any payments made in excess of the benefits regularly provided by the WC law if such payments are required by the four items listed, these exclusions are more like limitations on the amounts that the insurer will pay; for example, if the insured knowingly hires a minor in violation of the state WC law and the minor is injured on the job, the insurer will pay the compensation benefits required by law for that injury, but any amount required to be paid as a penalty due to the hiring of a minor will either be paid by the insured or will be reimbursed to the insurance company by the insured if the company pays. This clause, for the most part, tries to make the insured pay for his or her own intentional conduct.

Analysis

This is the subrogation clause and entitles the insurer to recover its workers comp payments from a party that can be shown to be actually liable for an employee's injuries.

Analysis

Where required by law, the workers compensation section is subject to several “statutory provisions.” The more important clauses among these provide that: notice to the insured of an injury constitutes notice to the insurer; default, bankruptcy, or insolvency of the insured does not relieve the insurer of obligations under the policy (indeed, the insurer states that it is directly and primarily liable to any person entitled to payable benefits); jurisdiction over the insured is jurisdiction over the insurer for purposes of workers compensation law — that is, the state law that decides what compensation is to be paid to the injured employee is the guide for both the insured and the insurer. These provisions and a statement that policy terms in conflict with a state's workers compensation law “are changed by this statement to conform to law” simply enforce the fact that workers compensation coverage is guided by state (as opposed to federal) law.

Analysis

The important point to note here is that the employers liability insurance applies to bodily injury that arises “out of and in the course of the injured employee's employment” by the insured. Aside from the issue of just what “bodily injury” includes (which was discussed previously), another point of contention can be just what “out of and in the course of employment” means. Since the various states' laws do not offer a definition of this phrase and the WC policy itself does not offer a definition, it has fallen to the courts to define the term.

“The test of the right to participate in the workers compensation fund is … whether a causal connection existed between an employee's injury and his employment either through the activities, the conditions, or the environment of the employment”. This is a quote from an Ohio state supreme court decision — Bralle v. Daugherty, 61 Ohio St.2d 302 (1980) — and makes the point that an employee has to be injured as a result of his or her employment for workers comp or employers liability insurance to 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 are decided on a case-by-case basis. The cases listed next are examples.

In Appeal of Griffin, 671 A.2d 541 (1996), Griffin got into a fight with coworkers and was injured; he filed for benefits. The compensation board decided his injuries did not arise out of and in the course of employment and Griffin appealed to the court. The New Hampshire appeals court stated that the injury did arise out of employment. The court found that Griffin was driving his coworkers back from a meal and the fight started with a quarrel about his driving — the driving was work-related, the fight was about the driving, thus, the injuries were work-related.

This case was noted with approval in Kolson v. District of Columbia Department of Employment Services, 699 A.2d 357 (1997). The District of Columbia Court of Appeals ruled that injury arises in the course of employment for workers compensation purposes when a traveling employee is injured while engaging in reasonable and foreseeable activity that is reasonably related to or incidental to his or her employment.

Also, in Peterson v. Industrial Commission, 490 P.2d 870 (1971), the Court of Appeals of Arizona stated that “an accident has been said to occur in the course of employment if the employee is injured while he or she is doing what a person so employed may reasonably do within a time during which the person is employed and at a place where the person may reasonably be during that time”.

In Williams v. Martin Marietta Energy Systems, Inc., 99 Ohio App.3d 520 (1994), an Ohio appeals court decided that an injury suffered by an employee during a blood drive did not arise out of and in the course of employment. The court suggested that an employee need not be in actual performance of his or her duties in order for injury to be in the course of employment and that the employee is within the course of employment when he or she does such things as are usually and reasonably incidental to the work of the employer. In this case, although the employer provided the Red Cross with cooperation and organizing assistance for a blood drive, the employer had no control over the attempted drawing of blood from Williams. The employee's participation in the blood drive was not a regular incident and condition of employment and so, the injuries suffered by the employee were not workers comp material.

In Copeland v. Boots Pharmaceuticals, 916 P.2d 277 (1996), Copeland was a traveling sales rep and, while traveling on sales calls, stopped for the night in a hotel. Copeland was bitten by a spider in the hotel and filed for WC benefits for injuries to her leg, mouth, eyes, and gastro-intestinal system. After benefits were denied, Copeland appealed and the appeals court in Oklahoma decided her injuries did not arise from her employment. The court said that the injuries did not stem from an employment-related risk and there was no connection between her job and the risk of encountering spiders; it was a personal risk and not a business risk.

Analysis

The employers liability portion of the policy — part two — is similar to other liability insuring agreements. This section covers the insured for liabilities arising out of the injury of an employee in the course of employment that are not in the scope of workers compensation coverage. The insurer agrees to pay all sums that the insured becomes legally obligated to pay as damages because of bodily injury to employees, “provided the bodily injury is covered by this employers liability insurance.” So, such bodily injury must arise out of and in the course of employment by the insured, and the employment must be necessary or incidental to the insured's work in a state or territory listed on the information page.

Insured damages — where recovery is permitted by law — include: (1) the insured's liability for damages claimed against a third party by one of the insured's employees (so called “third-party-over” actions — see Workers Compensation and Exclusive Remedy); (2) damages assessed for care and loss of services; and (3) consequential bodily injury to a spouse, child, parent, brother, or sister of the injured employee. In addition, the employers liability section covers damages assessed “because of bodily injury to your employee that arises out of and in the course of employment, claimed against you (the insured) in a capacity other than as employer” (dual capacity actions — see Workers Compensation and Exclusive Remedy).

These covered damages correspond well with certain exclusions found on the commercial general liability (CGL) coverage forms. The CGL forms specifically exclude damages to be paid due to any obligation of the insured under a workers compensation law; the forms exclude coverage for bodily injury to an employee of the insured (or to an employee's spouse, child, parent, etc. for consequential bodily injury) that arises out of and in the course of employment by the insured; and the exclusions apply whether the insured may be liable either as an employer or in any other capacity (dual capacity), and they apply to any obligation to share damages with or repay someone else who must pay damages (third-party-over actions).

Thus, it is obvious that the language of the employers liability coverage does (and is meant to) complement the language of the workers compensation exclusions found on the CGL form. The idea that employee injuries are to be covered by WC policies and not general liability policies is strongly favored and emphasized in the insurance industry.

Analysis

Employers liability is subject to twelve exclusions. There is no coverage for liability of another assumed under a contract; however, this exclusion does not apply to a warranty that the insured's work will be done in a workmanlike manner. Punitive or exemplary damages because of bodily injury to an employee employed in violation of the law are excluded, as is mere compensatory coverage for bodily injury to an employee while employed in violation of the law with the insured's “actual knowledge.” Pointing out the distinct nature of the separate parts of the workers compensation and employers liability policy, part two excludes any obligation imposed by a workers compensation, occupational disease, unemployment compensation, or disability benefits law, or any similar law. In addition, there is no coverage for bodily injury intentionally caused or aggravated by the insured.

Also excluded are damages arising out of the criticism, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, discrimination against, or termination of any employee, or any personnel practices, policies, acts, or omissions. This multi-worded exclusion emphasizes the point that employers liability insurance is not meant to apply, for example, to injuries alleged by an employee who was fired or demoted. It can be noted that since many of these types of claims would involve mental stress allegations, this particular exclusion can, to a degree, make irrelevant the arguments over whether bodily injury coverage under part two of the WC policy includes mental stress. Even if a court should decide that bodily injury does include mental stress, if the claim is based on any of the items listed in the exclusion, coverage is not applicable. If such an exclusion were to appear in part one of the WC policy, that might help to alleviate the dispute over the definition of bodily injury that was discussed previously.

Bodily injury to any person subject to the Longshore and Harbor Workers Compensation Act, the Defense Base Act, the Federal Coal Mine Health and Safety Act, or any other federal workers compensation law is excluded. Bodily injury to any person in work subject to the Federal Employers' Liability Act or any other federal laws obligating an employer to pay damages to an employee due to bodily injury arising out of or in the course of employment is also excluded. And, damages payable under the Migrant and Seasonal Agricultural Worker Protection Act and under any other federal law awarding damages for violation of those laws or regulations are also excluded. (For information on workers comp coverage under these federal laws, see Federal Workers Compensation Endorsements.) And, damages under the Jones Act (see Longshore & Harbor Workers Compensation and The Jones Act) are excluded. These exclusions reiterate the point that a workers compensation policy is meant to apply under state laws and not federal laws.

Analysis

This clause is similar to the defense clause under part one of the workers compensation and employers liability insurance policy, as described previously. However, this defense clause adds the stipulation that the insurer has no duty to defend or continue defending after the applicable limit of liability is paid. This is the “escape” clause that insurers put in liability policies so that they don't have to continue to spend money on the defense of an insured after the limits of liability are used up. Whether this means that an insurer can simply put up the limits of liability before trial and then walk away from the defense of the insured is questionable, legally and morally.

Analysis

This provision is the same as that found under part one of the WC policy.

Analysis

This provision is the same as the other insurance clause discussed previously under part one of the WC policy.

Analysis

This clause is meant to convey the fact that the limits of liability under part two of the WC policy are capped, capped by the limits as shown on the information page; this, of course is a different approach than the payment schedule under part one of the policy (which has no limits specifically listed on the policy).

The limits of liability are divided into amounts for bodily injury by accident and by disease. The “by accident” limit is based on each accident, so that the insurer will pay no more than the listed amount in any one accident regardless of how many employees are injured. For example, if three employees are injured in the same accident and the bodily injury by accident limit is $300,000, then that is the total amount payable by the insurer. This is not to say that all three employees will receive equal amounts — that is to be decided by the facts of the case — but, they will receive in total $300,000.

The “by disease” limit has an aggregate limit and an each employee limit. The policy limit shown is the aggregate figure, that is, the total amount payable by the insurer for all bodily injuries arising out of a disease, regardless of the number of employees who suffer injury from the disease. So, for example, if thirty employees suffer injury from a disease for which the employer is legally liable, the total amount available for all the injured employees is the amount listed as the policy limit for bodily injury by disease. How the amount is split up is, as above, decided by the facts of the case. The disease limit is also subject to an each employee limit in that, regardless of the aggregate limit, each employee injured by disease can collect only up to the amount listed on the information page.

As an example, the insured has a $250,000 policy limit for injury by disease and a $25,000 limit for each employee for injury by disease. If the thirty employees noted previously are injured by disease, they have a $250,000 pool to be divided among them, but each employee can only be paid under this policy a total of $25,000. These scheduled limits of liability may not be enough to completely pay the amounts for which the insured is found liable, but scheduled limits of liability are legal and only very rarely are disregarded by courts.

The standard limit of liability under part two for bodily injury by accident is $100,000 per each accident. The limit for bodily injury by disease is $100,000 per employee with a per policy aggregate of $500,000. Increased limits are available for an additional premium.

Analysis

This is the subrogation clause as discussed under part one of the policy.

Analysis

This provision spells out a bit of the contractual relationship between the insured and the insurer. The insured has agreed not to exercise a right of action, that is, file a lawsuit, against the insurer unless certain things have occurred. Basically, the insured agrees not to sue the insurer unless a claim has been filed against the insured, all the provisions of the policy have been followed by the insured, a definite amount of liability has been assessed against the insured, and then the insurer has, for whatever reason, refused to pay the amount due.

This clause makes the point that the WC policy is a contractual agreement between the insured and the insurer and so, no other outside party has the right under this policy to sue the insurer to enforce the provisions of the policy.

The insurer has agreed through this provision not to abandon its contractual commitments under the WC policy to the insured even if the insured goes bankrupt or becomes insolvent. Claims will still be paid even if the insured is no longer in business.

Analysis

Part three of the workers compensation and employers liability policy provides other states insurance. Basically, the important point behind this coverage is that the workers compensation portion (part one) of the policy applies only to obligations imposed on the insured by compensation laws of states listed in item 3.A. of the information page. This means that if an insured is confronted with a claim under a workers compensation law of a state to which the insured had not fully expected to be subject — a state not listed in item 3.A. of the declarations — there is no coverage under part one of the policy, but coverage under part three is available.

Other states insurance applies if one or more states where the insured reasonably anticipates working in are shown in item 3.C. of the declarations or information page. If the insured begins work in one of the states listed after the effective date of the policy, the policy applies as if that state were listed in item 3.A. for workers compensation and employers liability purposes. To avoid an uninsured loss due to oversight, it has been suggested that the statement “all states except North Dakota, Ohio, Washington, and Wyoming (these are monopolistic states), and states designated in item 3.A. of the information page” be inserted in item 3.C. However, an insurer licensed to operate in only a limited number of states should not include this broad statement in the WC policy because it might convey to some the impression that the insurer has the ability to write insurance in all states. This is not the case, of course, since other states insurance does not give any insurer the approval to write workers compensation coverage in a particular state if that insurer is not licensed to do so.

A key point in this part of the workers compensation policy is the importance of giving notice to the insurer. The current policy emphasizes that if the insured already has ongoing work on the effective date of the policy in any state not listed in item 3.A. of the information page, “coverage will not be afforded for that state unless we (the insurer) are notified within thirty days”. For example, if the insured is working in Delaware at the time his WC policy renews, and Delaware is not listed under 3.A. of the information page, the insured must notify the insurer that he is working in Delaware within thirty days of the policy inception date; otherwise, there is no coverage for any possible workers compensation claims after that time period expires. Furthermore, another paragraph in the other states part of the policy reminds the insured to “tell us (the insurer) at once if you begin work in any state listed in item 3.C. of the information page”.

A fairly common situation under which the other states insurance is useful is that of a firm that has a number of employees traveling in other states. These employees may all work out of one or more headquarters, which are covered by workers compensation insurance with payroll for these “other state” employees included in the premium computation. Or perhaps some have headquarters in other states, but it seems reasonable to assume that the compensation laws of those states do not apply to them — by virtue of the number of employees or their duties or both. It also seems reasonably sure that the extraterritorial features of the workers compensation law or laws of the states listed in the policy will apply to these employees if they should be injured in other states. Thus, at first sight, the insured seems fully covered.

However, there is always the possibility that the insured can be confronted with a claim under the compensation law of another state. For example, (1) an employee might be unexpectedly sent into a state which was not considered at all when insurance was written and the law of that state is found to be broad enough to include the employee; (2) a change in the law of a particular state or a new interpretation of the law by an administrative body or court might bring an employer under it; and (3) an unexpected expansion of the insured's activities in a particular state — hiring some more employees locally or changing the duties of some employees — might bring employees under the law of another state.

This part of the workers compensation policy comes into play if WC insurance does not apply because the insured or the insurance carrier is unable to take the necessary action to bring the insured under a WC law; in such a case, the carrier will reimburse the insured for all compensation and other benefits required of the insured under such law. It can be noted that other states insurance does not provide longshoremen and harbor workers compensation coverage.

Analysis

There is just about nothing out of the ordinary here in this recitation of the duties of the insured in case of an injury. The insurer requires notice of the injury, cooperation from the insured, and no interference with subrogation rights — all standard fare on an insurance policy. However, compare paragraph 1 with paragraph 6 and there may be a problem.

Paragraph 1 tells the insured to provide for immediate medical and other required services to the injured; yet, paragraph 6 tells the insured not to voluntarily make payments or incur expenses, except at the insured's own cost. If, in the process of providing immediate medical services, the insured incurs expenses, will such expenses be reimbursed by the insurer? Will the WC policy respond to these payments made by the insured, or is the insured expected not only to pay the premium for coverage under the policy but also to pay incidental expenses required by the policy out of pocket?

The WC policy is not clear on this point, so such ambiguity has to be interpreted in favor of the insured and his or her reimbursement by the insurer.

Analysis

This clause simply informs the insured that the insurer's manual is the guide for determining premiums.

Analysis

The classifications are categories into which the insurer puts the insured, based on the information supplied mainly by the insured, to properly gauge the risks of workers comp losses that the insured will face over the policy period. This clause tells the insured how the insurer views, or classifies, the business of the insured, and how that classification leads to the premium charge.

Analysis

This clause tells the insured what the basis for the premium charge is, namely, remuneration. This term simply means the payroll of the insured — the amount paid out by the insured for the work and services of its employees.

The exposure for workers that are not on the insured's regular payroll but who still represent a risk for workers compensation, is handled through the use of the contract price between the insured and these workers as a premium basis. Of course, if these workers have workers comp coverage through other employers, the risk of loss is lessened for the insured and the insurer, and so, there is no need to charge for the exposure.

Analysis

The employer named in item 1 of the information page is required to pay the policy premium. This is normal procedure for the named insured.

Analysis

The insurer informs the insured here that the premium paid at the inception of the policy is only an estimated amount. Since the premium basis (remuneration) may change during the policy period, an adequate premium charge is more properly figured at the end of the policy period, after the fact, so to speak, when the true extent of the exposures are known by the insurer.

The insured is informed here that the policy has a minimum premium, that is, a charge that will be paid regardless of the actual remuneration. And, premium determination based on cancellation is also discussed.

Analysis

The insurer needs information about the risk to charge a proper premium and the insured is asked to help in this endeavor.

Analysis

This clause gives the insurer the contractual right to audit the insured's books so that the insurer understands the business of the insured, the workers comp risks that face the insured, and the needed premium to adequately cover those risks.

Analysis

The conditions include the right of the insurer to make an inspection of the workplace “at any time.” This condition has given rise to a theory that would allow the injured employee to maintain an action for negligence against the WC insurance carrier itself. The reasoning behind this is that some insurance carriers take it upon themselves to inspect the workplace for safety engineering purposes, and if an accident then occurs, the injured worker can charge negligence on the part of the insurer for failure to perform its assumed duty to uncover and correct unsafe working conditions.

To date, most judicial decisions in this area of dispute have come down on the side of the insurer. A federal district court in Michigan stated in Kotarski v. Aetna Casualty & Surety Company, 244 F. Supp. 547 (1965) that nothing in Michigan's workers compensation act reveals the intention to allow the insurance carrier, that is performing safety inspections as an integral part of its function, to be sued as a negligent third party on the theory that its liability arises from negligent performance of a voluntary undertaking. In Barrette v. Travelers Insurance Company, 246 A.2d 102 (1968), the Connecticut high court decided that an employer's compensation carrier is not subject to suit by an injured employee for alleged negligence in the failure to inspect machinery, failure to warn the employee of the danger, and neglecting to provide devices to negate the danger. Also, in Reid v. Employers Mutual Liability Insurance Company, 319 N.E.2d 769 (1974), the Illinois supreme court held that the WC carrier engaged in making safety inspections incident to its compensation coverage was not amenable to suit by an employee for injuries caused by the carrier's negligence in performing safety inspections.

There are, of course, some cases on the other side of the issue. In a New Hampshire case, Corson v. Liberty Mutual Insurance Company, 265 A.2d 315 (1970), a workers compensation carrier that undertook the task of assisting accident prevention by inspections and advice rendered to the insured employer company was liable to an injured employee for negligent inspection. And, in Rothfuss v. Bakers Mutual Insurance Company, 107 N.J. Super. 189 (1969), the New Jersey supreme court declared that a workers compensation carrier is a third person liable to an employee in a common law action if its acts negligently cause harm to the employee.

Regardless of which argument will prevail in the future, it should be pointed out that the current standard workers compensation policy contains a rather specific disclaimer about the inspection of the workplace and the duty such an inspection places on the insurer. Under the “conditions” section of the policy, the insurance company declares that inspections are not safety inspections; they relate only to the insurability of the workplaces and the premiums to be charged. Furthermore, the insurer states that it does not undertake to perform the duty of any person to provide for the health or safety of the employees and does not warrant that the workplaces are safe or healthful, or that they comply with laws, codes, or standards. Thus, the insurer strives to intentionally limit its duty under the WC policy, and this applies to both the insured and the worker.

Analysis

These clauses are fairly simple.

If a policy is written for longer than one year and sixteen days, say for example, three years, then all the provisions in the existing policy apply as if under a brand new policy. In other words, the annual renewal is treated as an automatic rewrite of the existing policy, though both insured and insurer should reexamine the exposures in order to get proper premium for proper coverage.

The insured can not transfer his or her rights or duties to another party without the written consent of the insurer. This protects the insurer from getting an insured that it neither contracted for nor would want to insure in any instance. The exception is, of course, for the legal representative of the insured in case the insured dies.

Analysis

This clause allows the insured to cancel its policy at any time, for example with only one day notice, as long as written notice is mailed to the insurance company in advance of the cancellation date. It should be noted that the clause states that notice need only be mailed in advance and not received by the company in advance; cancellation by the insurer also is made effective by the mailing of and not the receipt of notice. Presumably, should any dispute arise over the cancellation date, a court will decide if the terms of the clause were heeded, but regardless of which party is mailing the cancellation notice, it would be prudent to mail it by certified mail, return receipt requested.

This clause also states the obvious — if the cancellation provisions conflict with state law, the state law prevails and this policy and the insurer recognize that fact.

Analysis

This provision makes the first named insured the sole representative to the insurer so that important items such as changing the policy provisions or canceling the policy can be dealt with without having the insurer sort through conflicting statements or wishes from the various insureds. This is simply a good and sensible business practice.