General Information

 

A provision of the workers compensation policy makes clear that the insured is responsible for any payments in excess of regular workers compensation benefits, including penalties imposed because of injury to any person knowingly employed in violation of the law. So, for example, if an employer makes a minor work in a highly dangerous situation that the law strictly states is limited to adult workers, and that minor is injured, the employer will pay any penalties imposed upon him or her by the state; the workers compensation insurer will pay the workers compensation costs according to state law, but the employer will pay any excess costs.

 

Furthermore, an exclusion in the employers liability section of the policy eliminates coverage of bodily injury to an employee hired in violation of the law with the actual knowledge of the employer or the actual knowledge of any of the insured's executive officers. And, the employers liability section of the policy also has an exclusion for punitive or exemplary damages because of bodily injury to an employee employed in violation of law. So, for example, if the injured minor mentioned in the previous paragraph is allowed to sue the employer for personal injuries in lieu of workers compensation, any punitive damages won by the minor will be paid by the employer and not the workers compensation insurer.

 

Common Law Actions

 

In a small number of states, including Oklahoma and Vermont among others, statutory workers compensation benefits are not extended to illegally employed minors. However, because the illegally employed minor is not entitled to statutory benefits does not mean the employer is freed from financial responsibility; on the contrary, the minor is therefore able to bring suit against the employer at common law. In circumstances such as this, since the employer permitted the minor to work in violation of law, the chances of the suit being successful are greatly increased. Furthermore, because workers compensation coverage is triggered by statute, and statutorily the illegally employed minor is not eligible for benefits in these jurisdictions, part one of the workers compensation policy, the workers compensation insurance, is relieved from responding. Common law actions may also be initiated against an employer by an illegally employed injured minor's parents.

 

Additionally, some jurisdictions—Illinois, Louisiana and New Jersey, for example—that do extend benefits to illegally employed minors by statute also give the injured minor the option of receiving the statutory benefits or suing the employer at common law.

 

The employers liability section (part two) of the workers compensation and employers liability policy applies to liability of the employer under the circumstances noted above, subject to two important exceptions as noted previously.

 

The insuring clause says nothing about employees being legally employed; instead stating the policy covers all sums the insured must legally pay because of bodily injury to employees. However, the policy exclusions provide that the employers liability section shall not cover: 1. punitive or exemplary damages because of bodily injury to an employee hired in violation of law; and, 2. bodily injury to an employee while employed in violation of law with the “actual knowledge” of the employer or an executive officer of the insured business.

 

The second exclusion means there is no coverage at all if the employer-insured or an executive officer of the insured's business knowingly employs a minor in violation of the law. Precisely what is meant by “actual knowledge” of the insured or who is an executive officer requires judicial interpretation. For example, whether a personnel manager of a business is to be considered an executive officer is open to debate.

 

It is important to note, however, that this second exclusion has been held unenforceable in at least one jurisdiction. In National Grange Mutual v. Schneider, 392 A.2d 641 (1978), the insurer relied on this exclusion in denying employers liability coverage to a meat market where a thirteen-year-old (hired knowingly without a work certificate even though he was too young to obtain one) severely injured an arm in a meat grinder. The claim was entered under the employers liability part of the policy because the minor had exercised the option given to illegally employed minors in New Jersey to sidestep the workers compensation's exclusive remedy provisions and brought suit at common law.

 

Because the damages would have been covered had the minor brought claim under the workers compensation part of the policy, the court held it was against public policy for the insurer to be allowed to exclude coverage under the employers liability insurance. “The reformers who created workers compensation and factory law remedies for injured employees and industrially abused minors simply would not purposely deprive an illegally employed thirteen-year-old, who claims injury by the negligence of his employer, insurance protection granted routinely to almost everyone else . . . If the insurers hesitate to cover illegal employments, perhaps their remedy is reimbursement from the employer and not deprivation of the employee. The exclusion may not be applied to an illegally employed minor without violating New Jersey law.”

 

The New Jersey Superior Court again considered the issue—and arrived at the same conclusion—in Variety Farms v. New Jersey Manufacturers Insurance, 410 A.2d 696 (1980). In this case, a fifteen-year-old lost an arm when allowed to operate power-driven equipment in spite of the state's labor law restricting anyone under sixteen from such work. As in Grange, the minor exercised his option to bring suit at common law rather than accept the statutory benefits. The insurer denied coverage based on the employers liability exclusion pertaining to employees employed in violation of the law with the knowledge of the insured.

 

The court ruled,

 

If [the insurer's] position is sound . . . an injured minor knowingly employed 'in violation of law' would be denied the protection of statutorily mandated insurance coverage under a policy such as the one herein involved. . . The statute reserves to a minor under the age of 18 the option to sue for damages in a common law action for injuries received by reason of the negligence of his or her employer, instead of limiting the minor to workers compensation benefits . . . In short, the clear legislative purpose is to give the minor certain additional rights and to deprive him of none. We have no hesitancy in concluding that the minor's common law negligence action must, in any event, come within the purview of the standard policy as the one issued by New Jersey Manufacturers, whether encompassed within part one (workers compensation) or part two (employers liability). This is so because of the employer's statutory duty to provide for the complete payment of any obligation he may incur to an injured employee by virtue of the workers compensation law. Since this duty must be implemented, if not by self-insurance, then from insurance from a company authorized 'to engage in workers compensation and employers liability in this state,' we cannot conceive of a legislative intent not to include somewhere in such policy the claim of a minor who is injured while at work and opts to pursue his common law remedy for damages against the employer.

 

In many jurisdictions, however, courts have chosen to limit illegally employed minors to the remedies provided by the workers compensation laws of their state. Such states include Delaware, Kentucky, Louisiana, Virginia and Maine. The Supreme Judicial Court of Maine in Fanion v. McNeal, 557 A.2d 2 (1990), held that even though a minor was employed in violation of child labor laws, that child was limited to remedies provided by Maine's Workers Compensation Act for work-related injuries. As explained by the court, “the exclusivity sections of the Workers Compensation Act mean exactly what they say…If an employer subject to the Act secures the payment of worker compensation as it is required to do, any of its employees (as well as the representative of any employee) is barred from suing that employer for damages for work-related injured…the employee must look to the workers compensation system for his exclusive remedy…Nothing in the act suggests a legislative decision to give illegally employed minors special treatment or to penalize their employers beyond the sanctions provided by the Child Labor Laws themselves.”

 

Compensation Claims

 

In the many states, illegally employed minors are entitled to the same compensation benefits as though the employment were legal. As these benefits are statutorily imposed under workers compensation law, they fall under the workers compensation policy. If there is no further penalty, an employer in these jurisdictions is fully covered.

 

Some states, however, have decided that illegally employed minors injured in the course of employment are entitled to compensation benefits above those normally prescribed for employees under the workers compensation law. In addressing this issue, one court stated, “It is the strong social policy of the state to limit and regulate child labor and to give the minor certain rights in addition to those of adults and to deprive him of none.”

 

Therefore, several states prescribe that a penalty of a certain amount be added to the regular compensation benefits when an illegally employed minor is injured. Some states require a fifty percent increase in benefits, including Arizona, Maryland and Missouri. Illinois requires a fifty percent increase if the minor is under the age of sixteen. In California, an employer will be held liable for a fifty percent increase if the illegally employed minor was hired pursuant to a birth certificate, driver's license, or other reasonable evidence of the fact the employee is over the age of fifteen years, even though such evidence of age was falsely obtained by the employee.

 

Other states require double compensation, as in Alabama and Ohio. In Arkansas, double compensation is required unless the minor misrepresents his age in writing to the employer. Mississippi and New Jersey mandate double compensation except for students fourteen and over who are employed between semesters or who are involved in on the job training.

 

Rhode Island requires a tripling of benefits. In Wisconsin, double compensation is mandated for minors employed without a permit and triple compensation is required when minors are employed in prohibited work.

 

Some of the states that prescribe penalties for illegally employed minors also specify that such penalties be paid by the employer — and not by the insurer. While the provisions vary, usually knowledge of the illegal employment by the employer makes no difference. California, Maryland, Mississippi, New Jersey, New York, and Pennsylvania, among others, are in this category.

 

Other states, like Missouri and New Hampshire, provide for a penalty, but do not indicate who shall pay it. The workers compensation policy provides in paragraph F that the insured shall reimburse the insurer for any payments made in excess of the benefits regularly provided under the law that the insurance company may be required to pay because the injured employee was employed in violation of the law with the knowledge of the insured. Thus, in states where there is no express provision in the law, or an administrative or judicial ruling, such penalties must be paid by the employer, either directly or by reimbursement to the insurer, if the employer knew of the illegal employment.

 

The purported intent of the additional compensation requirement varies depending on jurisdiction. In an Illinois case where the insured was precluded from reimbursing the insurer for the additional benefits paid to a minor due to illegal employment, the court explained that the state's fifty percent increase in compensation benefits for illegally employed minors was not reimbursable because the payment was not a penalty. According to the court, the test of whether a law imposed a penalty or remedy was to ascertain whether the wrong sought to be redressed was a wrong to the public or a wrong to the individual. And, since the additional compensation was to be received by the injured minor or his representative, the court held that the law must be construed as remedial and not as penal. The decision precluded the insured from reimbursing the insurer for the additional benefits paid a minor due to illegal employment. See In Cormack v. Great American Indemnity Co., 78 N.E.2d 507 (Ill., 1948).

 

Similarly, in Industrial Com'r v. McCarthy, 68 N.E.2d 434 (N.Y., 1946), the New York Court of Appeals held that the increased payment was not punitive in character and was not a penalty but rather simply “increased compensation.”

 

Courts in other jurisdictions, however, have found the additional compensation requirement to be strictly penal in nature. As a Michigan appeals court stated, “the double compensation provisions of this section permitting a minor employee who has been hired illegally without a permit and who is injured in the course of his work to recover from both his employer and the principal who has contracted to hire his employer was intended to be a penalty against employers to discourage the illegal employment of minors.” See Hamilton v. Superior Mushroom Co., 282 N.W.2d 831 (Mich.App., 1979).

 

Also, in Dependents of Stafford v. U.S. Cattle Corp., 389 So. 2d 923 (Miss. 1980), the Supreme Court of Mississippi explained that even though proper construction of the Workmen's Compensation Act generally construed ambiguities in favor of the claimant, because double compensation benefits “were a form of penalty,” the provision allowing such benefits by reason of the employer's violation of child labor law should be strictly construed with any doubts to be resolved in favor of the employer.

 

Other courts, however, have taken the stance that the purpose of assessing the additional compensation benefits against employers is two-fold. As stated by the court in Chickachop v. Manpower, Inc., 84 N.J.Super. 129 (N.J.Super.L., 1964), although the intent of giving double workmen's compensation benefits to certain minor employees and reserving to them their common law right to recover damages for injuries caused by employer's negligence was “to put injured minors in more favorable position than other employees,” the penalty was imposed upon employer “in order to assure strict compliance with labor laws.”

 

Likewise, in Ligonier Tavern Inc. v. W.C.A.B. 681, A.2d 222 (Pa.Cmwlth., 1996), the court opined that the Legislature's intent in requiring an employer who violates Child Labor Laws to pay workers' compensation claimants an additional fifty percent was not only to provide minors with regular compensation for their injuries, but also to provide them with fruits of a penalty designed to ensure that employers obey child labor law.