Chapter 9

Question 1

Workers comp statute

Answer 1

A statute that obligates employers regardless of fault to pay specified medical, disability, rehabilitation, and death benefits for their employees’ job-related injuries and diseases.

Question 2

Occupational disease

Answer 2

Disease thought to be caused by work or the work environment.

Question 3

Explain the basic requirements for an injury or disease to be covered for workers comp benefits.

Answer 3

injury or disease must arise out of and in the course of employment. Must be casually related to the employment and occur while the employee is engaging in work-related activity.

Question 4

Briefly explain the types of benefits included in medical benefits.

Answer 4

Full and unlimited medical expense benefits for a covered disease. This can include medical, hospital, surgical, and other related medical care costs including pt and prosthetic devices.

Question 5

Briefly explain the types of benefits included in disability income benefits

Answer 5

Subject to a waiting period deductible, compensation for wage loss for a temporary disability, a temporary total disability, a permanent partial disability, or a permanent total disability, is limited to a percentage of the employee’s average weekly wage at the time of disability and is also subject to maximum and minimum weekly benefit amounts, which vary widely from state to state. State laws also require compensation for a specific number of weeks for the loss of or loss of use of specific body parts. These injuries are referred to as “scheduled injuries” because the injuries and corresponding benefits are listed I’m a document called a schedule.

Question 6

Briefly explain the types of benefits included in rehabilitation benefits.

Answer 6

Payment of expenses for complete medical treatment and medical rehabilitation Vocational rehabilitation may also be required by law.

Question 7

Briefly explain the types of benefits available in death benefits.

Answer 7

a flat amount for burial expense and partial replacement of the worker’s former weekly wage.

Question 8

Identify the employees and types of employment that are frequently excluded from state workers comp statutes.

Answer 8

The statutes of some states exempt employers with fewer than a stipulated number of employees and many statutes specifically exclude certain employments such as farm labor, domestic workers, and casual employees. (hired for a short period, usually to accomplish a particular task). Some employees are excluded because alternate plans are provided for them. For example, federal statutes govern the rights of various classes of employees to recover benefits or damages from their employers for occupational injury or disease. Examples of such classes of employees are government workers, maritime workers, and interstate railroad workers.

Question 9

Why is it important for a principal to verify that all its independent contractors carry valid workers comp insurance on their employees?

Answer 9

If an independent contractor does not carry workers comp for its employees, the principal for whom the independent contractor is working may be held responsible for providing workers compensation to employees of the independent contractor.

Question 10

Fran was attending a training class on behalf of her employer at a professional training center in a bordering state. She had to rent a car to get to and from her hotel room and the training center. While driving to the training class, she was rear-ended. SHe suffered injuries requiring medical care and incurred lost wages. What benefits are payable to Fran under her employer’s workers comp coverage?

Answer 10

Generally, Fran, as an employee, would be covered for any work-related injury sustained while at her place of employment or while traveling for her employer. Injuries occurring while traveling to or from work at a fixed location are typically not covered by a workers comp statute. Fran was traveling to the training class where she was working that day, which would indicate that she was not covered by her employer’s policy. However, she was traveling for her employer while attending the training class in the bordering state and, therefore, workers comp benefits are payable for her loss.

Question 11

Steve was employed by a temp agency and was assigned to a department store during Christmas season. While lifting a heavy box, he strained his bback and then required medical care and rehab. He also incurred a month of lost wages. Which employer’s workers comp policy, if any, will provide benefits for Steve’s injury?

Answer 11

The temp agency provides workers comp for temporary employees; the temp employee is an employee of the providing firm, not the firm using his services. Therefore, the temp agency’s polcy will respond to Steve’s injury.

Question 12

LHWCA (US Longshore and Harbor Worker’s Compensation Act

Answer 12

A federal statute that eliminates the right of most maritime workers (other than vessel crew members) to sue their employers and, in return, requires such employers to provide injured or ill workers with benefits like those provided by state workers comp statutes.

Question 13

Jones act

Answer 13

A federal statute that permits injured members of a vessel’s crew (or survivors of a deceased crew member) to sue their employer for damages due to the employer’s negligence.

Question 14

Competitive state fund

Answer 14

A state fund that sells workers comp insurance in competition with private insurers.

Question 15

Monopolistic state fund (exclusive state fund)

Answer 15

A facility, owned and operated by a state government, that provides workers comp insurance and does not permit any other insurers to sell workers comp insurance in that state. (PR, USVI ND, OH, WA, WY)

Question 16

Employers mutual insurance company

Answer 16

A mutual insurer established by a state’s legislature to write workers comp insurance or any qualified employer in the state.

Question 17

Specific excess insurance

Answer 17

Insurance that covers loss due to a single occurrence only for the amount that exceeds the policy retention. Different from aggregate loss as it requires a retention limit for one loss (or all losses from one occurrence)

Question 18

In addition to a state’s workers comp coverage being time limited outside the US, what other prolem should an insured be aware of?

Answer 18

Workers comp laws in the US may not provide coverage for reparation expense or endemic disease.

Question 19

Why do assigned risk plans for workers comp insurance exist?

Answer 19

To make insurance available. Some businesses cannot obtain private insurance in the voluntary market because they do not meet the insurers underwriting criteria. An employer rejected by private insurers can apply to the assigned risk plan in the appropriate state to obtain coverage.

Question 20

Aside from being created by state legislature, explain how an employers mutual insurance company differs from and other mutual insurer.

Answer 20

Closely resembles any other mutual insurer except that it is typically required by its charter to provide workers comp insurance to any qualified insurer in the state.

Question 21

Exceptional Widgets is a small manufacturer with a dozen employees. The owner is considering retaining the risk of workers comp losses. What could a producer tell the owner of Exceptional Widgets about qualifying for self-insurance?

Answer 21

To qualify as a self-insurer, an employer must post a surety bond with the workers comp administrative agency of the state to guarantee the security of benefit payments. In addition, most states require evidence of an ability to administer the benefit payments and services mandated by the law. Self-insurance is usually practical only for employers with large numbers of employees in a given state. Consequently, a producer may also advise the owner that Exceptional Widgets is not an ideal candidate for self-insurance.

Question 22

xceptional Widgets is a small manufacturer with a dozen employees. The owner is considering retaining the risk of workers comp losses. As an alternative to establishing a qualified self=insured plan to self-insure her company workers comp losses, the owner of Exceptional Widgets is also considering joining a self-insured group. What can a producer tell the owner about the advantages and disadvantages of a self-insured group?

Answer 22

Because the often deal directly with their members, self-insured groups claim that their costs for selling and servicing the coverage are lower than those of commercial insurers. However, in most states, self-insured groups are not covered by state guarantee funds. Therefore, to increase the comfort level of their members and to avoid catastrophically large losses, self-insured groups usually purchase excess insurance.

Question 23

Workers Comp and Employer’s Liability Insurance Policy (WC & EL)

Answer 23

Policy used in most states to provide wc and el insurance. Developed by National Council on Compensation Insurance (NCCI)

Question 24

Describe the information shown in item 3 of the information page in a standard workers comp and employers liability policy.

Answer 24

Summarizes coverage provided by the policy. Item 3.A states that Part One – Workers Comp Insurance applies to the workers comp law of the state or states listed in that item. This space should list all states in which the insured has operations and the insurer is licensed to provide coverage. Item 3.B. shows the limits of liabiliy that apply to Part II – Employers lLiability Coverage for BI by accident and disease. Item 3.C indicates that part III – Other States Insurance applies to any additional states listed under that item. Item 3.D can be filled in with a list of all endorsements and schedules attached to the policy at inception. In some cases, the endorsements are listed in a separate schedule attached to the policy.

Question 25

Explain an insurer’s payment obligations and legal requirements under Part One of the WC&EL policy.

Answer 25

Obligates the insurer to pay all compensation and other benefits required of the insured by the workers comp law or occupational disease law of any state listed in item 3.A of the information page.

Question 26

Name 4 instances that would require an insured to reimburse an insurer for penalties required under a workers comp law.

Answer 26

Willful misconduct; knowingly employing anyone illegally; failure to comply with health and safet laws and regulations; discrimination against employees who claim workers comp benefits.

Question 27

Sam works as a risk manager for the owner of a commercial building. He has requested and received the Information Page of and electrical contractor’s WC&EL policy. Which items on the information page will Sam likely check and for what? FOr the purposes of this question do not consider endorsements such as being added as an additional insured.’

Answer 27

Sam will check item 1 to verify the electrical contractor is named on the policy as an insured. Sam will also check Item 2 to see if the work performed by the contractor will be during the time the policy is in effect. He will also check Item 3 to confirm that the state where the work will be performed is in a state covered by the policy. Finally, Same may check Item 4 to see if the contractor’s work to be performed is property descrived. If it is improperly described, the contractor’s coverage may not be affected but it may give insight into who Same has contracted with,

Question 28

Joanne is a chemical engineer who works at a large experimental facility that creates ways to improve the stability of plastic explosives, making them safer to transport. One day, Joanne used a mislabeled liquid solution that acted like an acide when mixed with the other chemicals in the test tube. As a result, the solution exploded, leaving Joanne with third-degree burns over most of her body. The CEO of the facility witheld the information from the company’s insurer, hoping that Joanne would accept his offer to “settle things quietly” to protect the company from an unfavorable public image. A few days later, Joanne died as a result of her injuries. Explain how part one of the WC&EL policy will protect Joanne’s dependents, regardless of the facility’s misconduct.

Answer 28

For the protection of the employee, the WC&EL policy provides that the obligations of the insurer will not be affected by the failure of the employer to cmply with the policy requirements. The company’s insurer will pay workers comp benefits to Joanne’s dependents. Since the contract is made primarily for the benefit of the employees and their dependents, they have a direct right of action against the insurer.

Question 29

Contrast workers comp coverage with employers liability coverage.

Answer 29

In contrast with Part One Workers Comp Insurance, which covers an employer’s liability under workers comp statutes for occupational injury to employees, Part Two, Employer’s Liability Insurance covers an employer against liability for an employee’s occupational injury or disease that is not covered by a workers comp statute. In addition, unlike workers comp coverage, employers liability coverage is subject to monetary limits of liability stated in the policy.

Question 30

Explain why employers need employers liability insurance in addition to workers comp insurance.

Answer 30

Because, depending on the laws of the particular state, an employer can still be held liable under common law as the result of employee injuries, such as third-party claims or claims for care and loss of services.

Question 31

Describe the three limits of liability that apply to employers liability coverage.

Answer 31

1) The BI by accident limit is the most the insurer will pay for BI resulting from any one accident, regardless of the number of employees injured. 2) The BI by disease— policy limit is the most the insurer will pay for BI by disease, regardless of the number of employees who sustain disease, 3) The BI by disease – each employee limit is the most the insurer will pay for BI by disease to any one employee

Question 32

John is a car mechanic who works in a state listed in Item 3.A of the WC&EL information page. He drives to an unlisted state to buy the supplies he needs until his out-of-stock supplies are delivered. John is injured in an auto accident while in the unlisted state. Explain whether Part Two of the WC&EL policy will cover John’s injuries.

Answer 32

While Part Two requires that the employment out of which the injury arises be necessary or incidental to the insured’s work in a state or territory listed in Item 3.A of the Information Page, it is not a requirement that the injury must occur in one of the states or territories listed. EVen though John’s injuries occurred outside of the listed state, the injury still arose out of employment that was necessary or incidental to the insured’s work in a listed state. Therefore, Part Two of the WC&EL policy will cover John’s injuries.

Question 33

Kim is a contractor who installs energy-efficient windows. She employes 15 installers. A supplier of a popular brand of windows she installs required her to assume the supplier’s liability for injury to her employees. Yesterday, two of her installers suffered severe lacerations while installing the supplier’s windows. Kim is insured under a WC&EL policy and a CGL coverage form. Explain what coverage Kim has for this incident.

Answer 33

Employers liability coverage of Kim’s WC&EL policy does not apply to liability assumed under contract – even when Kim assumed the window supplier’s liability for injury to Kim’s own employees. Kim’s CGL coverage form, bty way of an exception to the employees liability exclusion in that form, covers Kim against liability assumed under an insured contract for injury to her employees. Otherwise, the CGL form excludes liability for injury to her employees.

Question 34

Explain the purpose of stop gap insurance.

Answer 34

Coverage for employers liability that pivate insurers provide to employers operating in a monopolistic fund state that does not include such insurance in its workers comp policies.

Question 35

The owners of a bottled water distributor located and insured in a state listed in Item 3.A are considering expanding operations into three unlisted states. Explain their responsibilities if they decide to expand operations on the effective date of the policy and how the insurer differentiates between listing the states in after 3.A or Item 3.C.

Answer 35

If the distributor has operations in a particular state on the effective date of the policy but that state is not listed in Item 3.A, the owners must notify the insurer within 30 days or else no coverage will apply for that state. Thus, when operations are known to exist in a particular state, the insurer lists that state in item 3.A. When operations do not currently take place in additional states but could be extended into those states, the insurer lists those states in Item 3.C.

Question 36

Identify occupations and situations commonly exempted from statutory workers comp insurance.

Answer 36

farm labor, domestic employment, and casual labor. In addition, the law does not apply to employees with fewer than a certain minmum number of employees. In addition, the WC laws of some states do not apply to partners, sole proprieters, or executive officers.

Question 37

Explain an insurer’s obligations regarding compensation with a Voluntary Compensation and Employers Liability Endorsement.

Answer 37

The Voluntary COmpensation and Employers Liability Endorsement (Called voluntary compensation) “obligates the insurer to pay, on behalf of the insured, an amont equal to the compensation benefits that would be payable to such employees if they were subject to the workers comp law designated in the endorsement.

Question 38

What is the purpose of the workers comp classification system?

Answer 38

The class rating system serves to identify groups of similar employments, in terms of risk of injury or disease, whose experience is then combined for the purpose of establishing rates.

Question 39

Explain why payroll is an effective premium base for workers comp insurance.

Answer 39

Payroll serves as an effective premium base because it varies directly with the exposure covered by the insurance, it is relatively easy to determine and verify from available records, and it is not readily subject to manipulation by the insured.

Question 40

Briefly explain how premium determined by applying the rates to the exposures (payroll) can be modified by the WC&EL premium discount.

Answer 40

many of the expenses of providing workers comp insurance do not increase proportionately with increases in the premium. For example, the costs of policy issuance and premium collection generally do not incrase with the size of premium. Also, the percentage paid to producers as a commission is usuallyi reduced as the premium increases. In recognition of these lowered expenses, the premium discount plan provides an increasing credit for premiums in excess of a certain minimum.

Question 41

Briefly explain how premium determined by applying the rates to the exposures (payroll) can be modified by the WC&EL merit or schedule rating factors

Answer 41

In many states, the premium can also be modified by a merit or schedule rating factor to give the insured credit for conditions that are more favorable than those normally expected, such as superior housekeeping , excellent empmloyye training, and on-site medical facilities.

Question 42

Briefly explain how premium determined by applying the rates to the exposures (payroll) can be modified by the WC&EL rate deviations

Answer 42

In some states, insurers are permitted to apply a rate deviation factor (ex. 10%) to the premium as calculated by the rating manual. Insurers generally reserve these credits for better risks, although competitive pressures sometimes result in average risks receiving a rate deviation.

Question 43

Briefly explain how premium determined by applying the rates to the exposures (payroll) can be modified by the WC&EL dividend plans

Answer 43

For policies written a dividend plan, the cost of the insurance can be reduced by dividends declared by the insurer. Dividends are, essentially, a return to the insured of a portion of the premiums paid for an expiring policy term. Two general types of dividend plans are available: a flat-dividend plan and a sliding scale dividend plan. Under a flat dividend plan, all eligible policies receive the same percentage of their premium as a dividend, regardless of their individual loss experience. Under a sliding-scale dividend plan, the size of the dividend varies with the insured’s own experience; the lower the insured’s loss ratio, the higher the dividend percentage.

Question 44

The owner of West Coast Widget, a small manufacturing company, asked her insurance agent to explain several aspects of West Coast’s workers comp insurance. West Coast received one rating classification for all of its employees, although the work of some employees is more hazardous than that of others. Explain the classification system used in rating workers comp insurance.

Answer 44

The classification system identifies groups of similar employments and combines their experence to establish rates. The insurer must determine the basic classification that best describes West Coast’s business within the state. Then West Coast’s exposure base and loss experience can be pooled with similar businesses.

Question 45

The owner of West Coast Widget, a small manufacturing company, asked her insurance agent to explain several aspects of West Coast’s workers comp insurance. How would experience rating affect West Coast’s workers comp?

Answer 45

With experience rating, West Coast’s premium for workers comp could be adjusted for a future period based on the loss experience of a recent period.

Question 46

The owner of West Coast Widget, a small manufacturing company, asked her insurance agent to explain several aspects of West Coast’s workers comp insurance. They are concerned about the high premium cost, particularly in light of her employees’ excellent safety record. She would prefer to self-insure but is uncertain about performing the administrative and claims adjusting functions in-house. Could her producer suggest an alternative?

Answer 46

They would be a candidate for a large deductible plan. It would allow the insurer to self-insure most of its workers comp claims without establishing a qualifying self-insurance plan. Large deductible plans greatly reduce the premium and are available in most states. The insurer does all the administrative work connected with workers comp claims, and the insured reimburses the insurer for claims payments up to the deductible amount per occurrence.