Chapter 18

Question 1

Which of the following statements about workers’ compensation is NOT correct?

A) An employee must accept the benefits mandated by law.
B) An employee who is eligible for workers’ compensation coverage may sue a negligent employer.
C) Workers’ compensation covers work-related injuries.
D) Most occupations are subject to state workers’ compensation laws.

Answer 1

Answer: B

Workers’ compensation, which takes the form of a specified monetary benefit to the employee after a work-related injury, is paid without any consideration of fault or negligence on the part of either the employer or employee. It is an exclusive remedy, which means that the employee cannot sue the employer for work-related illnesses or injuries. It is also a certain remedy, for which the employee gives up the right to sue the employer for what could be a larger but uncertain benefit. Workers’ compensation laws apply to most occupations.

Question 2

Which one of the following statements about workers’ compensation insurance is CORRECT?

A) The legal foundation for workers’ compensation is the doctrine of tort liability.
B) The Social Security Administration handles the administration of workers’ compensation benefits.
C) Employers’ liability insurance is the same as workers’ compensation coverage.
D) Workers’ compensation benefits apply without regard to the employer’s negligence.

Answer 2

Answer: D

Workers’ compensation is a kind of no-fault insurance. Injured workers may receive benefits without having to prove that their employer was negligent. Typically, employers’ liability insurance and workers’ compensation insurance are found in the same policy but they are not the same coverage.

Question 3

Which one of the following statements regarding workers compensation laws is CORRECT?

A) An injured worker must prove negligence on the part of the employer.
B) Workers compensation is governed at the federal level.
C) Workers compensation is optional.
D) Benefits are paid to workers injured on the job regardless of who is at fault.

Answer 3

Answer: D

Workers compensation benefits are paid to workers who suffer job-related injuries or diseases without consideration of fault or negligence. Workers compensation is regulated at the state level. All states but Texas have compulsory workers compensation laws. In these states, every employer must provide the benefits and amounts stipulated in the laws or face penalties for noncompliance.

Question 4

What is the primary purpose of workers’ compensation laws?

A) Providing benefits to workers who are laid off.
B) Providing job security.
C) Providing compensation to employees who have sustained injury, illness, or death during the course of employment.
D) Making the workplace a safer environment.

Answer 4

Answer: C

Workers’ compensation provides a just and fair means of compensating employees who have sustained injury, illness, or death during the course of employment.

Question 5

What is the primary purpose of workers compensation?

A) Improve employees’ working conditions.
B) Provide compensation to employees for injuries arising out of their employment.
C) Pay benefits to employees that are temporarily laid off.
D) Provide accident insurance for employees, both on and off the job.

Answer 5

Answer: B

Prior to the advent of workers compensation, most employees injured on the job went uncompensated, creating an economic burden for themselves, their family, and society. Workers compensation was introduced to provide a remedy for this situation.

Question 6

Workers compensation pays:

A) only when the employer is negligent.
B) only when another employee is negligent.
C) only when the employee is at fault.
D) without regard to fault.

Answer 6

Answer: D

The problem with fault and negligence as the basis of recovery for employee injuries is that the defenses available to employers were extremely difficult to overcome, leaving many injured workers uncompensated. Modern workers compensation regulation took fault and negligence out of the equation for compensation and made employers responsible for injured worker benefits without regard to fault.

Question 7

Bob’s TV store needs workers’ compensation coverage for his employees. He could purchase coverage from all of the following sources EXCEPT:

A) self-insurance.
B) an assigned risk plan.
C) an insurance company that writes workers’ compensation.
D) the state if it is monopolistic.

Answer 7

Answer: A

Self-insurance is simply the retention of risk. The company sets aside funds to meet projected losses rather than purchase coverage elsewhere. If the company is not able to demonstrate to the state that it has the financial resources to cover losses, the state will require that the company purchase insurance.

Question 8

Which one of the following statements about workers compensation insurance is NOT correct?

A) Self-insurance of workers compensation is permitted.
B) Every type of employment is subject to workers compensation laws.
C) Workers compensation policies provide benefits for rehabilitation.
D) Coverage for lost wages is a benefit of workers compensation insurance.

Answer 8

Answer: B

Every state excludes some types of jobs from workers compensation coverage. Possible exceptions include corporate officers who are sole shareholders, domestic employees who work a limited number of hours, and agricultural workers. When benefits are not required by law, an employer still may provide them on a voluntary or elective basis.

Question 9

Which one of the following is NOT a benefit of workers compensation insurance?

A) Rehabilitation costs.
B) Pain and suffering.
C) Lost wages.
D) Medical expenses.

Answer 9

Answer: B

Pain and suffering is not a type of benefit covered by workers compensation insurance.

Question 10

Which one of the following determines the amount of a workers compensation claim?

A) Federal law.
B) Mandate of the Commissioner.
C) Agreement of the parties.
D) State law.

Answer 10

Answer: D

State law fixes the amount of compensation in a workers compensation claim. The compensation is paid without consideration of fault or negligence on the part of either the employer or employee. In exchange for this right of compensation, the employee gives up the right to sue the employer.

Question 11

All of the following are benefits specified by workers compensation laws EXCEPT:

A) lost wages.
B) medical expenses.
C) rehabilitation benefits.
D) retirement plan contributions.

Answer 11

Answer: D

Workers compensation laws provide that injured workers are compensated for their lost wages, the cost of covered medical expenses, death benefits, and the cost of rehabilitation. The laws do not provide for retirement plan contributions.

Question 12

Occupational diseases are covered under workers’ compensation. All of the following are occupational diseases EXCEPT:

A) chicken pox that is contracted at work.
B) exposure to chemicals on the job that lead to cancer.
C) black lung disease for a coal miner.
D) cancer contracted by workers working with asbestos.

Answer 12

Answer: A

Coverage for occupational diseases is limited to those that arise out of and in the course of employment. Chicken pox is not an occupational disease because it is not peculiar to the employment.

Question 13

Which of the following individuals would be eligible for workers’ compensation benefits?

A) Employee who falls on a wet factory floor.
B) Employee who has a heart attack on the job.
C) Employee who falls in a restaurant while on her lunch break.
D) Employee who has an auto accident on the way home from work.

Answer 13

Answer: A

The other examples did not arise out of employment or in the course of employment.

Question 14

Which one of the following individuals is likely to have a valid workers compensation claim?

A) Employee injured while performing a task for which he had not yet been trained.
B) Retired employee injured while visiting his old workplace.
C) Employee who suffers a diabetic coma from failure to take prescribed medicine.
D) Sole proprietor injured in an auto accident while driving to a friend’s house.

Answer 14

Answer: A

First, to be covered an injury must occur on the job or arise out of the employee’s work. Therefore, neither the claim of the retired employee or the sole proprietor would be covered. Second, negligence is not an issue. To qualify for workers compensation, an employee must have experienced a work-related injury, and, while the definition of work-related has been considerably broadened over the years, failure to take prescribed medication would not be considered an accident unless the job interfered with the employee’s ability to take it.

Question 15

Workers’ compensation laws cover employees in the course of employment. Some classes of workers, such as domestic servants, are exempt but may be covered by a voluntary compensation endorsement. This endorsement agrees to pay benefits:

A) to all employees.
B) to employees who are exempt only.
C) only if the employer requests that benefits be paid.
D) to employees not covered or exempt.

Answer 15

Answer: C

In a monopolistic state the coverage must be purchased from the state-run insurer. The 5 monopolistic states are North Dakota, Ohio, Washington, West Virginia, and Wyoming.

Question 16

In states that use the workers’ compensation competitive state funds method, all of the following would typically be viable options available to an employer EXCEPT:

A) purchasing coverage from the state fund only.
B) purchasing coverage from a private insurance company.
C) if the employer meets certain criteria, providing coverage through self-insurance.
D) purchasing coverage from the state fund.

Answer 16

Answer: A

In states using the competitive state funds approach, employers are not limited to only being able to purchase workers’ compensation insurance from the state fund. Other options are available, including those listed in the other answer choices.

Question 17

In most cases, an injured employee receives payments under workers compensation insurance from whom?

A) State Department of Employment.
B) Insurance company.
C) Employer.
D) Division of Workers Compensation.

Answer 17

Answer: B

For the vast majority of workers compensation claims, the injured worker receives payments directly from an insurance company. An exception is if the employer has decided to self-insure and has obtained state approval for the self-insurance plan. While companies that self-insure are large and have many hundreds of employees, these represent a small percentage of the total number of employees covered by workers compensation in the United States.

Question 18

Pete’s construction company has had some loss problems. Pete’s carrier has informed him that his workers’ compensation policy will not be renewed. What is Pete’s best option for obtaining replacement coverage?

A) Self-insurance.
B) The Federal Employer’s Liability Act.
C) The Jones Act.
D) Assigned risk plan.

Answer 18

Answer: D

An assigned risk plan is Pete’s best choice because his carrier must cover his company. He could self-insure, but only if he meets all the state requirements.

Question 19

Coverage for workers’ compensation may be obtained from all of the following EXCEPT:

A) self-insurance.
B) a commercial general liability policy.
C) assigned risk plans.
D) the Federal Employers Liability Act.

Answer 19

Answer: B

Workers’ compensation is included in state assigned risk plans, the FELA, and company self-insurance plans. A commercial general liability policy excludes workers’ compensation claims because they are more appropriately covered elsewhere.

Question 20

The insurer retains certain rights under the conditions section of a workers’ compensation policy. Which of the following is one of those conditions?

A) The insurer retains the right to inspect the insured’s workplace for insurability when the insured can arrange it.
B) The insurer does not have the right to inspect the insured’s workplace for insurability at any time.
C) The insurer retains the right to inspect the insured’s workplace for insurability at any time.
D) The insurer retains the right to adjust the premium if the loss experience becomes worse.

Answer 20

Answer: C

The insurer retains the right to inspect the insured’s workplace for insurability at any time. The insurer, however, is not obligated to do so.

Question 21

The purpose of employers’ liability insurance is to provide

A) insurance for high-risk employers.
B) liability protection where workers compensation does not apply.
C) excess workers compensation benefits.
D) voluntary workers compensation benefits.

Answer 21

Answer: B

Where workers compensation laws do not apply, injured workers are still entitled to sue their employer. Employers’ liability insurance is available for those situations.

Question 22

The standard workers compensation policy imposes all of the following duties on the employer EXCEPT:

A) immediately notify the insurance company of a work related injury.
B) provide for immediate medical services as required by law.
C) make voluntary payments to an injured employee.
D) cooperate with the insurance company.

Answer 22

Answer: C

The benefits an injured employee is entitled to receive are specified by law, so there is nothing voluntary about them. The insured employer’s duties in the event of a loss include notifying the insurer promptly of all legal notices or demands as well as providing immediate medical services, cooperating with the insurer, and immediately notifying the insurer of a work-related injury.

Question 23

Bob’s construction company, based in Wisconsin, is doing a job in Illinois. Bob’s declaration page for his workers’ compensation policy lists Minnesota, Iowa, Illinois, and Wisconsin as states where he will do work. Pete, an employee working in Illinois, is injured on the job. How would Bobs’ policy respond?

A) Pay benefits only if Bob is held liable.
B) Pay benefits based on Illinois workers’ compensation laws.
C) Pay benefits as if Pete had been injured in Wisconsin.
D) Pete may choose coverage under the benefits that are best for him.

Answer 23

Answer: B

Because Illinois is a state listed on Bob’s declaration page, benefits will be paid under the statutes in the state of Illinois. Coverage does not apply in states not listed on the declarations page as long as the company was doing business when the policy commenced.

Question 24

All of the following could create an employers liability loss EXCEPT:

A) lawsuit brought by an injured worker’s spouse.
B) an employee not covered by the workers’ compensation law.
C) personal injury.
D) legal defense costs.

Answer 24

Answer: C

Personal injury is not covered under Part Two of the workers’ compensation policy. An injury to an employee due to employer negligence in a situation not covered under workers’ compensation is covered under employers liability.

Question 25

Bob has a workers’ compensation policy with the ABC Insurance Company. One of his employees is injured in the course of employment. All of the following are duties of Bob EXCEPT:

A) providing medical services as required by workers’ compensation.
B) cooperate with the insurer in the investigation, settlement, or defense of a claim.
C) pay for the medical bill of the injured employee.
D) providing information to the insurer about the injury.

Answer 25

Answer: C

The medical bills will be paid by the workers’ compensation policy and are not Bob’s responsibility. Another duty is to notify the insurer promptly of all notices, demands, and legal papers.

Question 26

Joe is the general contractor building a new shopping center. He has hired subcontractors to do some of the work for him. What will cover the employees of the subcontractor if the subcontractor does not take out workers’ compensation coverage?

A) The Federal Employer’s Liability Act.
B) They must sue their employer for coverage.
C) Joe’s workers’ compensation policy.
D) Assigned risk plan.

Answer 26

Answer: C

They would be covered under Joe’s policy. To ensure that the subcontractors have coverage, Joe should require them to provide a certificate of insurance.

Question 27

Part Two, Employers Liability insurance, of a workers’ compensation insurance policy includes all of the following limits of liability EXCEPT:

A) for all bodily injury arising from a single accident.
B) for all bodily injury by disease during the policy term.
C) for each employee injured by disease during the policy term
D) for all compensation paid under benefits required by workers compensation law.

Answer 27

Answer: D

Part Two, Employers Liability insurance, of a workers’ compensation insurance policy includes limits of liability for all bodily injury arising from a single accident (regardless of the number of employees injured), for all bodily injury by disease during the policy term (regardless of the number of employees injured by disease), and for each employee injured by disease during the policy term. Part One, Workers’ Compensation, of a workers’ compensation policy promises to pay all compensation and other benefits required by workers’ compensation law. No dollar limit applies to benefits paid under Part One except those that are a part of the law.

Question 28

How many types of coverage does a workers’ compensation policy have?

A) Six.
B) Two.
C) One.
D) Three.

Answer 28

Answer: B

The workers’ compensation policy provides bodily injury and employers liability coverage. The other four parts of the policy outline other states’ insurance, duties of the insured, premiums, and conditions.

Question 29

Sue, an employee of Paul’s Bicycle Shop, was on a service call repairing some bicycles at Bill’s home. On her way back to the shop she was involved in an automobile accident and injured. Where would Sue find coverage?

A) Both Paul’s auto policy and workers’ compensation policy.
B) Paul’s workers’ compensation policy.
C) Her own auto policy.
D) Paul’s auto policy.

Answer 29

Answer: B

Paul’s workers’ compensation policy would cover her bodily injury if she is injured on the job.

Question 30

Janet, an employee of Ted’s TV Shop, is injured while playing baseball for the company-sponsored softball team. Under which policy would Janet find coverage for her injuries?

A) Health insurance.
B) Part one of workers’ compensation.
C) Part two of workers’ compensation.
D) Parts one and two of workers’ compensation.

Answer 30

Answer: A

Because Janet is not in the course of employment when she is injured, there would be no coverage under Ted’s workers’ compensation policy. Janet would be covered for her injuries under her personal health insurance policy.

Question 31

State workers compensation insurance covers which of the following workers?

A) Corporate CEOs.
B) Crews of ocean-going vessels.
C) Railroad employees.
D) Harbor workers.

Answer 31

Answer: A

In most cases, an executive of a company is considered to be a covered employee under workers compensation law. Federal law covers all the other workers. Crews of ocean-going vessels are covered by the Jones Act, and railroad employees are covered by the Federal Employers’ Liability Act. Harbor workers are covered by the Longshore and Harbor Workers Compensation Act.

Question 32

Bob is employed as ship’s navigator on an American flagged ship in Duluth, MN, and is injured as a result of the owner’s negligence. Under which law would Bob find coverage?

A) U.S. Longshoremen’s and Harbor Workers’ Compensation.
B) Jones Act.
C) Workers’ Compensation.
D) Federal Employee Compensation Act.

Answer 32

Answer: B

The purpose of the Jones Act is to provide coverage for the masters and crews of American vessels. The law permits the injured seaman to sue his employer for damages and to have a jury trial.

Question 33

Ralph is a conductor employed by American Cross-Country Railway System. He routinely travels from Chicago to Los Angeles, and was injured falling from a train platform while helping passengers. Which of the following provides bodily injury coverage for Ralph?

A) The Federal Employees’ Compensation Act.
B) The U.S. Longshoremen’s and Harbor Workers’ Compensation Act.
C) The Federal Employers Liability Act.
D) The Jones Act.

Answer 33

Answer: C

This act covers employees of interstate railroads. It does not apply to postal employees, truckers who deliver freight to and from the railroad depot, or contractors involved in railroad construction or repair.

Question 34

What is the benefit for the employee covered by either the Federal Employers Liability Act or the U.S. Longshoremen’s and Harbor Workers’ Compensation Act?

A) There is no advantage to these employees because these terms simply describe how coverage is purchased for the exposures that they have.
B) Federal law requires eligible companies to purchase this coverage.
C) The benefits are the same as for workers’ compensation, but federal law requires coverage to be purchased here.
D) The benefits are broader than workers’ compensation coverage.

Answer 34

Answer: D

The benefits are broader than for workers’ compensation coverage. For example, the Federal Employers Liability Act allows injured workers to sue employers for negligence, and the employers cannot use certain common-law defenses.

Question 35

When calculating premiums for a workers compensation policy, the insurer will multiply the job classification rate by:

A) a risk factor provided by the National Association of Insurance Commissioners.
B) the number of employees in each job classification.
C) the number of $100 payroll units paid to employees in each job classification.
D) the total payroll for the company.

Answer 35

Answer: C

Premiums for workers compensation insurance are based on the amount of payroll multiplied by the rates for various occupational classifications shown in the insurer’s rate manual.

Question 36

Premiums for workers’ compensation are:

A) based on the amount of payroll and rates established for various occupational classifications set by the federal government.
B) based on the amount of payroll and rates established for various occupational classifications set by the insurance companies.
C) based on the amount of payroll and rates established for various occupational classifications set by the National Council on Compensation Insurance.
D) based on the amount of payroll and rates established for various occupational classifications set by the state Insurance Departments.

Answer 36

Answer: C

Rates established for various occupational classifications are set by the National Council on Compensation Insurance.

Question 37

Bill’s construction company had an experience modification factor added to his workers’ compensation policy. What did this do to his premium?

A) Nothing.
B) An experience modification factor is applied as a method of rewarding those employers with better-than-average loss experience and penalizing those with poorer experience.
C) An experience modification factor is applied as a method of rewarding those employers with better-than-average loss experience.
D) An experience modification factor is applied as a method of penalizing those employers with poor experience.

Answer 37

Answer: B

An experience modification factor is applied as a method of rewarding those employers with better than average loss experience and penalizing those with poorer experience. An insured with a good loss record pays a lower premium, and one with a poor loss record pays a higher premium.

Question 38

Premiums for workers’ compensation policies are based upon the:

A) work classification, number of employees, and the total payroll.
B) number of employees and the total payroll.
C) type of business involved and the total payroll.
D) type of business involved and the number of employees.

Answer 38

Answer: A

Premiums charged are based on the type of business (work or job classification) involved, the number of employees, and the total payroll. The rates vary greatly depending on the employment classification.

Question 39

In workers’ compensation insurance, premium discounts that reflect a lower expense in the handling of larger risks are applied if:

A) discounts are based on the type of business involved and the number of employees.
B) the premium exceeds a stipulated amount.
C) a premium experience modification factor is applied.
D) an experience modification factor is applied as a method of rewarding those employers with better-than-average loss experience.

Answer 39

Answer: B

A premium discount applies if the premium exceeds a stipulated amount, because certain expenses do not increase after the premium reaches a set limit.