Is Your Workers’ Comp Policy Fulfilling the Statutory Obligations While in Other States?

APRIL 2, 2024

Most states require employers to carry workers’ compensation insurance, and impose strict penalties if the employer does not. While most employers are aware of their home state’s laws, many overlook the exposures created when employees are temporarily working outside of the state in which payroll is reported for workers’ compensation. If the employer, or their insurance broker, has not structured their workers’ compensation coverage correctly, these incidental “other state” exposures can lead to both underinsured losses and potential legal consequences.

Penalties for Noncompliance

• Almost every state prescribes fines for employers who default on their obligation to provide workers’ compensation coverage; imprisonment is possible in 23 states.
• Failure to insure is treated as a misdemeanor in most states, and employers may face significant fines and penalties.
• Employers who fail to provide coverage may be subject to “cease work” orders, exposed to lawsuits by injured employees, and lose the right to standard common law defenses.
• Some state laws make defaulting employers liable for up to double benefits to injured employees.
• Corporate officers can be held personally liable in some states.

While workers’ compensation laws, insurance requirements and benefits available vary by state, very few business owners are aware of how this can impact coverage. Workers’ compensation policies do not automatically extend coverage to other states unless they are specifically requested by the employer (the insured) and listed on the policy’s information page. The workers’ compensation law of the state where an employee is injured determines what benefits are provided — not the policy.

Which States Should Be Listed on the Policy’s Information Page:

• The state where the insured’s home office is located
• States in which the insured’s branch offices are located
• Any state where even one employee works on a regular basis
• Insured’s state of incorporation
• Any state where a subcontractor is hired to perform work if the subcontractor does not carry workers’ compensation insurance
• Any state where the insured is required to register to conduct business
• Any state where a contract of hire is made

Coverage Scenario #1

A California-based company expanded its work into Arizona and Nevada.

One of the company’s California employees was killed in an auto accident while working in Nevada. Since its workers’ compensation policy didn’t include Nevada — and the Nevada workers’ compensation statute allows the employee’s family to elect its death benefits — the company was responsible to pay the difference between the California and the Nevada death benefit, which amounted to $80,000.

If the company had been a client of USI Insurance Services, we would have recommended that it have both Arizona and Nevada listed for other states coverage on its workers’ compensation policy information page.

Coverage Scenario #2

A contractor based in Florida won a bid to work on a project in southern Georgia. While they carried a Florida workers’ compensation policy, the contractor did not realize that Georgia should be added for other states coverage.

Unfortunately, one of the contractor’s employees who resides in Florida was injured on the job in Georgia. While Florida allows up to 104 weeks of benefits for the injured employee’s temporary partial disability, because he was injured in Georgia, he could elect to collect benefits under Georgia’s workers’ compensation law, which allows up to 350 weeks of benefits for this type of disability.

Since Georgia was not listed on the contractor’s workers’ compensation policy, the contractor was forced to pay the difference between the Florida and Georgia benefits, which amounted to $121,000 over several years.

If this contractor had been a USI client, we would have recommended they include Georgia for other states coverage to avoid this significant underinsured loss.