Workers’ Compensation

1. Workers’ Compensation INSY 6010 Fall 2003

2. Common Law Defenses: • Before Workers’ Compensation, employers were usually able to fend off injury suits even if they were negligent because workers had to prove the employer was at fault. Three common law defenses shifted the balance of justice in favor of employers. They were: • Assumption of Risk: Employees accepted jobs accepted the risks that accompanies the job. • Fellow-Servant Rule: The employer was not responsible for injury caused to one employee by another employee. The employee assumed the risk of negligence of fellow employees by accepting the job.

3. Contributory Negligence: If the employee contributed in part to his/her own injury, the employer was not negligent. • Workers’ Compensation Objectives: • Provide sure, prompt, reasonable income and medical benefits regardless of fault. • Provide a single remedy, reduce court delays, and reduce costs of personal injury cases. • Relieve the public and private charities of the burden of uncompensated work accidents. • Encourage employers’ interest in safety through an experience rating system. • Promote unbiased study of accidents.

4. Eliminate lawyer and witness fees and time consuming trials and appeals. • Workers’ Compensation (Formerly Workmans’ Compensation): • Worker’s Compensation (WC) was adopted to provide workers suffering work-related injuries or illnesses adequate compensation without having to sue their employer. • The two principal elements of WC are income replacement and rehabilitation. • Additional objectives include accident prevention and cost allocation.

5. Approximately 80% of the workers in the US are covered by WC. • Those who are not include: agricultural workers, domestics, casual employees, hazardous work employees, charitable/ religious workers, small organization employees, railroad and maritime employees, minors, and extraterritoriality workers. • WC is a state-sponsored program and, therefore, varies from state to state. • Each state has its own law. • The first was adopted in 1911 in Wisconsin.. • The last was adopted in 1948 in Mississippi. • As do the U.S. Territories:

6. The District of Columbia has a law. • Federal workers are covered by the Federal Employers’ Compensation Act. • Maritime workers are covered by the Jones Act. • The Federal Employers’ Liability Act covers railroad workers but is not a compensation act, as such. • Efforts to create a single Federal Workers’ Compensation Law has been unsuccessful thus far. • Today WC has gotten out of control. Abuse of the system, increased medical expenses and differences in WC laws among the states have all contributed to this trend. • All states now require employers to carry WCI.

7. Worker’s Compensation Insurance (WCI) was implemented to create a mechanism for employers to finance WC. • There are three types of WCI: state funds, private insurance, self-insured groups of employers and self-insurance. • Insurance premiums are considered a cost of doing business while a self-insured reserve fund is not. However, claims paid by self-insured employers are a cost of doing business. • Rates are based on: number of employees, work hazards, accident experience, potential future losses, overhead and profits, quality of safety program and actuarial estimates.

8. Cost Allocation - based upon nature of the industry and the degree of risk. As risk increases, costs increase. • Methods of determining premium rates: • The National Council on Compensation Insurance compiles experience data with respect to accidents by type of industry. This data is used to establish WCI rates by employer type. • Premiums are a function of payroll and are paid at the beginning of the policy year. Payrolls are audited and premiums are adjusted at the end of the policy year.

9. The rate is about two-percent of payrolls. • Some policies are “participating” and allow employers to “participate” in the profits of the insurance company by receiving dividends. • Larger employers may be charged premiums based on their experience rating. • Large employers may also use the retrospective rating method, a “cost plus” type of premium approach. • Large employers often receive discounts because of their volume, benefiting from an economy of scale.

10. Rating systems: • Schedule Rating: Insurance companies establish baseline safety conditions and then evaluate the employer’s conditions against their established baselines. Credits are awarded for conditions that are better than baseline and debits are assessed for conditions that are worse than baseline. Rates are adjusted accordingly. • Manual Rating: A rate manual has rates established for various occupations. Different occupations may have different rates. The employers premium is determined by the prorated combination of individual rates based upon the occupational mix.

11. Experience Rating: Premiums are based upon the type employer. Premium rates are based upon the predicted losses by type. If the employer’s experience is better than expected, the rates will be adjusted down, if worse, rates will be adjusted up. • Retrospective Rating: Employers pay an established rate for a given period. At the end of that period, an appropriate monetary adjustment is made based upon an assessment of the employer’s actual experience. • Premium Discounting: Large employers receive discounts on their premiums, based upon their size. The theory is that the same amount of administrative work is required for small as well as large employers so larger employers have lower administrative costs per employee than smaller employers.

12. Combination Method: The combination of any two or more of the above. • What injuries/illnesses can be claimed? • Coverage tests: • Personal Injury: Refers to bodily harm such as a broken whatever. • By Accident: presumably to distinguish from intentional self-inflicted injury. • Injuries that arise out of employment: Employees are injured while performing assigned work tasks. • Injuries that occur in the course of employment: Injuries occurring as a result of an accident that may not have been directly from performing a work task that occurred at a time and place reasonable enough to connect it with employment.

13. Injuries may be physical or psychological. • Positional Risk: Accident arises out of employment if the circumstances of the employment place the worker in the particular place at the particular time the employee is injured by a force not personal to the employee. The so called “but for” test. • Actual risk: If employment subjects the employee to hazards continuously or infrequently. Are they more at risk than the normal public of having an accident of a particular type. • Accident or Injury Claims: • The term accident has taken on new meaning from the traditional sudden, unexpected and unusual to merely unexpected and unintended thus recognizing occupational disease.

14. Injury has changed to include disease and mental aggravation rather than just strictly physical damage. • In ‘the course of employment’ may include: • Running errands. • Engaged in some non-employer-related activity that will benefit the worker. • Employer-sponsored activities in which participation was strongly recommended. • Really depends upon the state and the circumstances. • Travelling employees who have no specific employment site. • Employees required to entertain clients/customers.

15. ‘Arising out of employment’ may include: • Injured at home while on call or standby. • Off duty injuries that occurred in the home where the employee lives on the work premises. • Injuries occurring on break if the break area is on the work premises. • Injuries incurred while employee is violating safety rules. • Injury/Accident Claims: • Going or Coming: Generally not covered unless: • Worker is provided transportation. • Worker is paid mileage. • Worker performs some work at home or performs some duty en route.

16. Injuries caused by worker’s own fault: • Negligence is generally covered by WCI, but some states do not cover injury if caused totally by worker’s negligence. • Purposeful self-infliction: Usually never covered. Injury was caused by the victim’s intentional act and not because of employment. • Willful misconduct: Required premeditation to not be covered. Ignorance and poor judgement are usually covered. • Horseplay: Covered if the employee did not initiate the activity but was an innocent victim. • Intoxication: Usually depends upon circumstances and the particular state law. Not automatically non-compensable. • Mental stress claims: • More often being covered although in some circumstances a physical injury must accompany the claim.

17. Pre-existing medical conditions: • If the pre-existing condition is aggravated or exacerbated by work activities. • Second-injury funds that pay the costs of a second injury to an individual already handicapped by an existing injury. • Occupational Disease Claims: • Occupational disease is any ailment that is contracted in the course of employment and is characteristic of a particular trade or process that increases workers’ risk over that of the normal public exposure. • Today almost all states recognize occupational illnesses as a compensable claim. • Scheduled diseases are those diseases normally associated with a particular trade.

18. Other diseases, those diseases not normally associated with at particular trade but was caused by employment. • Work-relatedness disease must meet the test that the disease was contracted ‘in the course of’ and/or ‘arising out of’ employment. • Pre-existing conditions are not always recognized as an occupational disease. • Some states apportion a fraction of the pre-existing disease that arose out of employment. • Death benefits are paid to dependents; • Presumed dependents: • Spouse, no ex-spouses. • Children of school age.

19. Proven dependents: • Family members living with the deceased at the time of his/her death. • Others who are a part of the household and can prove dependency. • Those who may not receive benefits may be those who were dependent upon the deceased at the time of his/her death but due to statutory regulations they are excluded. • Benefits: • Cash - impairment and disability benefits. • Medical - cover medical expenses, no cash to the victim.

20. Rehabilitation - includes both physical and vocational rehabilitation. • Physical Rehabilitation - attempts to reduce the level of impairment and return victim to a level of physical ability that will enable her/him to return to the same line of work. • Vocational Rehabilitation - retrains the victim for another vocation that is within his/her impaired capabilities. • Death - includes burial expenses and compensation to the dependents. • Disability • The loss of physical or mental capacity that reduces the individual’s ability to earn a living and/or requires treatment. • Normally determined by a physician. • Calendar days are normally used to determine the period of disability.

21. Disability Categories: • Permanent total disability: • A worker is no longer able to work even after medical treatment or rehabilitation. • Temporary total disability: • A condition of workers who are unable to work for a period of time, but can return to their normal work duties after recovery. • Permanent partial disability: • A permanent loss of work capacity but the worker is still able to work. • Temporary partial disability: • A temporary loss of work capacity but the worker can work at reduced capacity until recovery. After recovery, the worker can return to his/her normal work activities.

22. Loss of wages: • Workers are given benefits to replace their lost income. • Total = normally 662/3% of normal weekly wages. • Alabama: $94.60 min, $344.00 max. • Partial is usually computed as the difference between previous earnings and earnings subsequent to injury. • Alabama: $220 max. • Impairments: • Scheduled - pre-determined amount based upon injury. • Non-scheduled - based upon one of the three theories covered below.

23. Determination of the degree of disability: • Whole Person theory: • What the worker is capable of doing after recuperation is subtracted from what he/she could do before the injury. • The difference is the disability. • Wage-Loss Theory: • Wages actually being earned are subtracted from the wages the worker could have earned had the injury not occurred. • The compensation is a percentage of the difference.

24. Loss of Wage-Earning Capacity: • A determination is made on how much an employee could have made in the future had the injury not occurred. • The compensation is a percentage of the difference. • Problems with WC and WCI: • Cost of the program has become enormous. • Many workers do not receive adequate re-compensation. • Certain injuries are difficult to diagnose - stress for example. • There is much abuse of the system - i.e. false claims.

25. Future of WC - Reform. • Stabilize costs. • Streamline administrative costs. • Reduce medical costs. • Limit stress-related claims. • Limit vocational rehabilitation benefits. • Increase benefits for disabilities. • Reduce insurer’s overhead charges. • Provide more public input in setting rates. • Reduce litigation as much as possible. • Improve case management.

26. Streamline claims processing. • Require insurance carriers to justify their rates.

27. Alabama Workers Comp Program • More than four (4) employees, full-time or part-time and including officers of a corporation, the Alabama Workers' Compensation Law requires you to have workers' compensation insurance coverage. • Employers of domestic employees, farm laborers, or casual employees and municipalities having a population of less than 2,000 (according to the most recent federal census) are not required to provide coverage but can elect to be covered by the provisions of the Alabama Workers' Compensation Law.

28. Alabama Workers Comp Program • Alabama's Workers' Compensation Law provides the employee is guaranteed a "benefit certain" in the event of an on-the-job injury or occupational disease. • The employer pays for this insurance. • The employer is protected by the "exclusive remedy" provisions of the Law. This means that an injured worker is entitled only to the benefits required by law, thus the employer's liability is limited.

29. Alabama Workers Comp Program • These conditions must exist to entitle an injured employee to benefits under the Alabama WC Law. • The employee must work for an employer whose business is covered by the law. (Generally, the law covers employers of five or more employees; it does not apply to owner/operator or leased operator of common carriers engaged in interstate commerce, domestic servants, casual employees, farm laborers, U.S. and State government.) • The injury must result from an accident. ("Accident" is defined as an unexpected or unforeseen event happening suddenly and violently with or without human fault producing, at the same time, injury to the physical structure of the body or damage to an artificial member of the body by accidental means.

30. Alabama Workers Comp Program • The accident must arise out of and in the course of the employment. (There must be a relationship between the employment and the accident, and it must occur within the period of employment, at a place where the employee may reasonably be, and while he is fulfilling the duties of his employment or engaged in something incidental to it.) • Proper notice of the accident and injury must be given to the employer. (The law requires that notice be given within five days, but in any case notice must be given within ninety days following the accident. Actual knowledge has been held to be equivalent to statutory notice.)

31. Alabama Workers Comp Program • In cases of temporary total or temporary partial disability, no compensation shall be allowed for the first three days after disability, nor in any case, unless the employer has actual knowledge of the injury or is notified thereof within the period specified. Compensation shall begin with the fourth day after disability, and in the event the disability from the injury exists for a period as much as 21 days, compensation for the first three days after the injury shall be added to and payable with the first installment due the employee after the expiration of the 21 days.

32. Alabama Workers Comp Program Circumstances which may negate a claim for benefits: • When the accident is caused by the willful misconduct of the employee. • When caused by the act of a third person or fellow employee for personal reasons, and not directed against him as an employee or because of his employment. • By the employee's intention to bring about the injury or death of himself or another. • By the employee's intoxication from alcohol or use of illegal drugs.

33. Alabama Workers Comp Program Circumstances which may negate an employee's claim for benefits: • By failure or willful refusal to use safety equipment provided by the employer. • By willful refusal or willful neglect of the employee to perform a statutory duty. • By the employee's willful breach of a reasonable rule or regulation of the employer, of which rule or regulation the employee has knowledge.

34. Alabama Workers Comp Program Weekly compensation benefits for injury and death claims are computed as follows: • For injury claims, multiply the employee's average weekly earnings for 52 weeks prior to injury by 66 2/3%. Benefits cannot exceed maximum benefits in effect on date of injury. The State's Average Weekly Wage is determined in accordance with Section 25-5-68. • For death claims, multiply the employee's average weekly earnings prior to the accident by 50% if the employee has one dependent, or by 66 2/3% if the employee has two or more dependents. Death benefits are subject to maximum and minimum in effect on date of injury. If the deceased employee, at the time of his or her death, has no dependents, then within 60 days of his or her death, the employer shall pay a one-time lump sum payment of $7,500 to the deceased worker's estate.

35. Alabama Workers Comp Program Weekly compensation benefits for injury and death claims are computed as follows: • In no case can weekly rate of compensation be less than the minimum compensation which was in effect at the time of injury, unless the average weekly earnings of the injured employee were less than that minimum. In such case, 100% of the injured employee's average weekly earnings are paid.

36. AL WORKERS COMPENSATION COVERAGE OPTIONS • There are five ways to cover your workers' compensation liability. You can: • Purchase insurance from an approved commercialworkers' compensation carrier. • Purchase insurance through the Assigned Risk Pool when insurance carriers decline to write an insurance policy for you. • Provide coverage through a group self-insurance fund. • Individually self-insure, if qualified. • Purchase an approved alternative workers' compensation policy from an authorized insurance carrier.

37. Commercial Insurance - Voluntary Market • DESCRIPTION:You can purchase an approved insurance policy through a licensed insurance agent underwritten by an approved insurance carrier who will write an insurance policy for you. This is known as purchasing insurance coverage on the "voluntary market.“ • CANDIDATES: Any employer who has a low to medium workers' compensation exposure or claim history. • SOURCES: Purchased through your insurance agent.

38. Commercial Insurance - Voluntary Market • ADVANTAGES: Recognized by the State Courts. Provides an approved policy at a reasonable price that is guaranteed by the Alabama Insurance Guaranty Association. Your choice of buying from the insurance carrier with the most competitive rates. • DISADVANTAGES: Insurance carrier determines whether or not to renew your policy. You are subject to rate increases. • COMMENTS: The Alabama Department of Insurance approves all insurance carriers, their policies and the agents who represent them. A directory containing the names and addresses of approved insurance carriers can be obtained from the Insurance Department.

39. Commercial Insurance - Assigned Risk Pool • DESCRIPTION: You can purchase insurance through the Assigned Risk Pool when insurance carriers decline to write an insurance policy for you. This is known as purchasing insurance coverage on the "involuntary market." • CANDIDATES: Any employer who has a medium to high workers' compensation exposure or claim history. • SOURCES: Administered by the National Council on Compensation Insurance (NCCI). Purchased through your insurance agent.

40. Commercial Insurance - Assigned Risk Pool • ADVANTAGES: Provides an approved policy that is recognized by the State Courts and is guaranteed by the Alabama Insurance Guaranty Association. • DISADVANTAGES: High cost. No choice of insurance carrier. Subject to rate increases. • COMMENTS: You must contact and be refused by two insurance carriers and make direct application to the NCCI Assigned Risk Pool through your insurance agent providing proof that the insurance carriers turned you down. Insurance carriers participating in the Assigned Risk Pool have been approved by the Alabama Department of Insurance.

41. Group Self-Insurance. • DESCRIPTION: You can obtain coverage by joining a group self-insurance fund. This is a common fund into which employers have, by agreement, pooled their liabilities for the purpose of providing Alabama workers' compensation benefits to their employees. • CANDIDATES: Any employer who is willing to enter into an agreement to pool their workers' compensation liabilities and who meets the underwriting requirements set forth by the Fund. • SOURCES: Purchased through your independent insurance agent or by contacting the Group Fund Administrator. • ADVANTAGES: Recognized by the State Courts. Approved and regulated by the Alabama Department of Industrial Relations. Provides workers' compensation liability coverage at a reasonable price. Choice of joining with a variety of Funds. Attractive rates.

42. Group Self-Insurance • DISADVANTAGES: The Fund determines whether or not to renew your membership. Not guaranteed by the Alabama Insurance Guaranty Association, but some are covered by the Alabama Workmen's Compensation Self-Insurers Guaranty Association. Subject to rate increases. In the event that the Fund becomes insolvent, you can be assessed to make up the monetary shortages (this is known as Joint & Several liability). • COMMENTS: The names, addresses and telephone numbers of most approved group self-insurance funds can be obtained from the Workers' Compensation Division of the Department of Industrial Relations or you can call the Self-Insurance Section at 1-800-528-5166 and request the name of the most appropriate group fund for your class or business.

43. Individual Self-Insurance • DESCRIPTION: You can become a self-insurer. This is a long-term commitment by which a financially strong employer pays benefits to injured employees as mandated by the Alabama Workers' Compensation Law. • CANDIDATES: Any employer who meets the following four financial qualifications: (1) audited financial statements; (2) a $5 million minimum net worth; (3) current assets to current liabilities ratio of 1.0 or greater; and (4) a positive net income. You may conduct a feasibility analysis to determine if it is cost effective for you to self-insure. • SOURCES:  You can also obtain an individual self-insurance packet by writing to the Department of Industrial Relations Workers' Compensation Division, 649 Monroe St., Montgomery, Alabama 36131, or speak to an employee in the Self-Insurance Section at 1-800-528-5166, or contact an insurance agent that specializes in the field of self-insurance.

44. Individual Self-Insurance • ADVANTAGES: Recognized by the State Courts. Hands-on management of claims, legal issues and safety programs. • DISADVANTAGES: Long-term liability due to lifetime medical benefits mandated by Law. • COMMENTS: Cost considerations include assessments, fees, taxes, excess insurance limits and retention, cost of the claim servicing organization, payments to the injured workers, litigation, consultation, membership in Alabama Workers' Compensation Self Insured Guaranty Association, safety and loss control and exposure to un-funded losses of incurred but not reported claims. Individual self-insurance is regulated by the Alabama Department of Industrial Relations.

45. Alternative Workers Compensation Plans • DESCRIPTION: This is commercial insurance purchased on the voluntary market. The policy may consist of any combination of life, disability, accident, health or other insurance, provided that the coverage's insure without limitation or exclusion any of the workers' compensation benefits as defined in the Law of this state. • CANDIDATES: Generally, any employer who has a low to medium workers' compensation exposure or claim history. • SOURCES: You can purchase an approved alternative insurance policy from a licensed agent who represents the alternative workers' compensation insurance carrier and who will write an insurance policy for you.

46. Alternative Workers Compensation Plans • ADVANTAGES: Regulated by the Alabama Department of Insurance. Provides an approved policy at a reasonable price. Your choice of buying from the insurance carrier with the most competitive rates. • DISADVANTAGES: Insurance carrier determines whether or not to renew your policy. Alternative coverage is a new provision in the Workers' Compensation Law that is untested in the courts. It is unclear which Guaranty Association(s) will guarantee alternative policies in the event of an insolvent insurance carrier. • COMMENTS: This coverage is purchased in the "voluntary market." The Alabama Department of Insurance approves all insurance carriers, their policies and the agents who represent them. A directory containing the names and addresses of approved insurance carriers can be obtained from the Insurance Department.

47. Questions & Comments