Workers’ compensation

Question 1:

Prior to the enactment of worker’s compensation statues, what defenses would employers use in order to avoid paying for employees injuries? Must be minimum of 200 words

Question 2:

Discuss the significance of historical developments in workers compensation law and program. Must be minimum of 200 words. 

Book: The insurance professional’s practical guide to workers’ compensation: From history through audit (Rev: 2nd ed.) 978-0-578-02096-9

The Insurance
Professional’s
Practical Guide to
Workers’
Compensation

The Insurance Professional’s
Practical Guide to Workers’
Compensation
From History through Audit
Christopher J. Boggs
CPCU, ARM, ALCM, LPCS, AAI, APA, CWCA, CRIS, AINS

© 2011 by Wells Media Group, Inc.
All rights reserved.
First edition published 2009.
Printed in the United States of America
ISBN: 978-0-578-02096-9

Contents
1 Workers’ Compensation History: The Great Tradeoff! ………….. 1
2 On-the-Job Injury: The ‘Course and Scope’ Rule …………………. 7
3 Gray Areas in ‘Course and Scope’ Injuries …………………………. 17
4 Occupational Disease and Workers’ Compensation
Protection……………………………………………………………………….. 22
5 Benefits Provided Under Workers’ Compensation Laws ……… 28
6 Second Injury Funds: Are They Still Necessary or Just a
Drain On the System? ………………………………………………………. 35
7 Who Qualifies as an ‘Employee’ in Workers’ Compensation
Law? ……………………………………………………………………………… 43
8 The General Contractor’s Responsibility to Provide
Protection……………………………………………………………………….. 48
9 Contractual Risk Transfer and Workers’ Compensation ……….. 52
10 Employees Exempt from Workers’ Compensation ……………… 58
11 Extraterritorial Considerations – When to Add a ‘3.A.’ State … 65
12 The Surprising Importance of Employers’ Liability Protection 78
13 Nonemployee ‘Employees:’ The Borrowed Servant Doctrine .. 97
14 Work Comp for PEOs and Their Client/Employers …………… 109
15 Combinability of Insureds ………………………………………………. 115
16 Audit Rules and Guidelines …………………………………………….. 122
17 Audit Problems Leading to Additional Premiums …………….. 134
18 A Primer on the Workers’ Compensation Experience
Rating Worksheet ………………………………………………………….. 138
Appendix A: Workers’ Compensation Coverage Checklist ….. 162

Appendix B: Selected Workers’ Compensation Laws from
all 50 States …………………………………………………………………… 165
Appendix C: NCCI’s Workers’ Compensation Policy …………. 181
Appendix D: Workers’ Compensation Endorsement
Listing and Description …………………………………………………… 188
Appendix E: First Report of Injury Requirements for all
50 States ……………………………………………………………………….. 198
Appendix F: Glossary …………………………………………………….. 206
Author Biography ………………………………………………………….. 216

1
Chapter 1
Workers’ Compensation History: The Great
Tradeoff!
Eighteenth century pirates and a nineteenth century German
“Iron” Chancellor preceded the United States in the creation of a so-
cial system for the protection of injured workers. The modern work-
ers’ compensation system owes parts of its existence to this unique
parentage.
Arrrrgh, I’m Hurt!
Pirates, contrary to popular myth, proved to be highly organized
and entrepreneurial. Prior to their assignment to the ranks of outlaws,
they were considered highly-prized allies of the government; plun-
dering and sharing the spoils with governors of the pre-
Revolutionary colonies giving them a safe port.
Privateering (the gentlemen’s term for piracy) was a dangerous
occupation; taking booty away from those who did not want to give
it up leads to sea battles, hand-to-hand combat and injury. Because of
the ever-present chance of impairment, a system was developed to
compensate injured “employees.” There was one catch: he or she
(there were female pirates, as well) had to survive the wounds to col-
lect benefits as there was no recorded compensation for death.
Piratesinfo.com provides some information regarding the amount
of payment made to the injured:
 Loss of an eye – 100 pieces of eight (Spanish dollar);
 Loss of a finger – 100 pieces of eight;
 Loss of left arm – 500 pieces of eight;
 Loss of right arm – 600 pieces of eight;
 Loss of left leg – 400 pieces of eight; and
 Loss of right leg – 500 pieces of eight.

Chapter 1 – Workers’ Compensation History
2
Average weekly wage for colonial Americans of this period
equated to approximately two pieces of eight per week. Loss of an
eye or finger would merit payment approximating 50 weeks of wag-
es. The right arm was worth 300 weeks (a little less than six years).
These compare rather closely to modern compensation schedules.
In addition to being compensated, injured crew members were
allowed to remain on board and offered less strenuous duty. This was
the creation of the first return-to-work program.
Marxism, Socialism and Workers’ Compensation
Otto von Bismarck, the “Iron Chancellor,” introduced Workers’
Accident Insurance” in 1881. Phased in between 1881 and 1884, the
program became the model for workers’ compensation programs in
Europe and ultimately America.
Bismarck was not known as a socially-conscious ruler; the work-
ing conditions of the common man were not necessarily foremost in
his mind. History teaches that his main concerns were the unification
and growth of Germany (Prussia) and the protection of his position.
But Bismarck’s main political rivals were Marxists with socialist
agendas — a feigned concern for the plight of the common man. On
the top of this agenda was the creation of a social program for the
protection of workers injured on the job, a workers’ compensation
program.
The “Iron Chancellor” eventually outlawed Marxist and other
socialist-leaning parties, securing his rule. However, he did borrow
some of their ideas to keep peace among the people. Workers’ Acci-
dent Insurance became the first compulsory workers’ compensation
program enacted in a modern, industrialized Europe.
Austria followed Germany’s lead, instituting a workers’ com-
pensation program in 1887. Norway joined the work comp revolu-
tion in 1894; and Finland instituted a workers’ comp program in
1895.
The United Kingdom followed suit in 1897 by replacing the out-
dated Employer’s Liability Act of 1880 with its own Workmen’s
Compensation Act. The employer’s liability act was relatively expen-
sive protection that depended on the court system. This is the same

Chapter 1 – Workers’ Compensation History
3
type of program common in America during the late nineteenth cen-
tury and early twentieth century.
American and Workers’ Compensation
America did not enjoin the workers’ compensation social revolu-
tion until the 1900s. Maryland (1902), Massachusetts (1908), Mon-
tana (1909) and New York (1910) each introduced workers’ com-
pensation statutes. All four laws were struck down under constitu-
tional challenge as violating “due process.”
New York’s 1910 act faced fierce opposition from labor unions.
Union officials feared that state control of worker benefits would
reduce the need for and popularity of the union. With socialized care
and compensation, they feared the necessity of the union was com-
promised and long-term loyalty to the union was in question.
On March 24, 1911, the New York Court of Appeals declared
the state’s compulsory workers’ compensation law unconstitutional.
One hundred forty-six (146) workers were killed the next day in a
fire at the Triangle Waist Company in New York City. Not all were
killed in the fire, most died attempting to escape the flames, jumping
from nine and 10 stories up to the street below.
With no workers’ compensation system, family members and
dependents had to turn to the courts in an attempt to force Triangle to
compensate the injured and the families of the dead. The owners
were tried for manslaughter and acquitted. A civil suit against the
owners netted each of 23 families $75 in damages (The Columbia
Electronic Encyclopedia). New York finally adopted a workers’
compensation law in 1913 that would withstand constitutional chal-
lenges.
Employer Negligence
Prior to the enactment of workers’ compensation laws, the only
source of compensation for any injured employee was through the
courts. Employees had to prove the employer was negligent to gain
any compensation for lost wages or medical bills. Employers utilized
several defenses against charges of negligence:

Chapter 1 – Workers’ Compensation History
4
 Assumption of Risk: Proving negligence requires evidence
that a duty of care is owed. When an employee assumes the
risk of an inherently dangerous or recognizably potentially
dangerous activity, the duty of care is lifted off the employ-
er. With no required duty of care, there can be no negligence.
Employees in hazardous occupations were believed to un-
derstand the hazards and assumed the risk of injury;
 Contributory Negligence: Doctrine of defense stating that if
the injured person is even partially culpable in causing or
aggravating his own injury, he is barred from any recovery
from the other party. This is an absolute defense; and
 Fellow Servant Rule: Defense against employer negligence
asserting that an employee’s injury was caused by a fellow
employee and not by the acts of the employer. If proven,
negligence was not asserted against the employer and recov-
ery could be severely limited or barred.
Very few workers had the means to bring suit. Those who could
afford a lawsuit had to overcome the defenses available to the em-
ployer. The result: very few employers were held responsible for
injury and required to pay. Awards for successful suits were unpre-
dictable, ranging from too little to merit the trouble to more than the
employer planned.
Congress enacted two laws to limit the harshness of these de-
fenses. The Employers’ Liability Acts of 1906 and 1908 were federal
attempts to soften the contributory negligence doctrine. These legis-
lative attempts did little to protect injured workers from the ravages
of defense attorneys and juries.
The Great Tradeoff!
Human capital (the value of the employee) became a driving
force behind the push for a system of protection. Stories (although no
evidence currently exists) of injured mine workers being laid at the
doors of their houses with no compensation or admission of negli-
gence from the mine owners, leaving the families to struggle for a
means of support and help, made their way through industrialized

Chapter 1 – Workers’ Compensation History
5
cities and states leading to demands for a better system. Recognition
of the value of employees and other events between 1900 and 1911
helped spur the movement towards a social system of workers’ com-
pensation:
 1908 – President Taft signed the first viable workers’ com-
pensation statute into law with the creation of the Federal
Employers Liability Act designed to protect railroad workers
involved in interstate commerce (the program is still in ex-
istence today);
 1908-1909 – Various states set up commissions to study the
merits and drawbacks of a social system of injured employee
compensation. Overwhelmingly these commissions reported
that business, industry and employees supported such a sys-
tem (the basis of study was the German law);
 1910 – Crystal Eastman compiled and penned “Work Acci-
dents and the Law.” This document presented the problems
inherent in the then-current system of negligence-based
compensation in light of the cost to human capital. It also
highlighted the benefits of a workers’ compensation program
as preventative in nature (employers would be more willing
to invest in safety if the cost of injury was ultimately on
them). This work is credited with changing businesses’ and
labor groups’ attitudes towards workers’ compensation and
employee safety;
 1911 – Triangle Waist Company fire (detailed above); and
 1911 – “The Great Tradeoff” debate. Before any plan could
move forward, an agreement between labor and industry had
to be reached; both had to be willing to give up something
for a workers’ compensation system to function properly.
The employer agreed to pay medical bills and lost wages, re-
gardless of fault; and the employee agreed to give up the
right to sue.
Wisconsin passed its workers’ compensation law in May 1911,
becoming the first state to effectuate an ongoing workers’ compensa-
tion program that survived legal challenges. Nine more states adopt-

Chapter 1 – Workers’ Compensation History
6
ed workers’ compensation laws before the close of 1911. By the end
of 1920, 42 states plus Alaska and Hawaii (even though statehood
didn’t come for either until 1959) enacted workers’ compensation
statutes. Mississippi was the last state to implement a workers’ com-
pensation statute, waiting until 1948.
Voluntary vs. Compulsory
Early programs (1911-1916) were voluntary participation laws.
Employers were not compelled by the various statutes to purchase
workers’ compensation. Compulsory participation laws had been
found unconstitutional. The Fourteenth Amendment required due
process before a person or entity could be compelled to part with
property.
In 1917, the Supreme Court upheld the constitutionality of com-
pulsory insurance requirements, opening up the doors for every state
to require the purchase of workers’ compensation coverage. Then, as
now, each state instituted different threshold requirements.
Conclusion
Workers’ compensation laws have evolved and expanded since
the beginning, but these are the roots of the modern American work-
ers’ compensation system. The following chapters detail many of the
issues surrounding workers’ compensation rather than focusing
merely on the coverage provided in the policy

7
Chapter 2
On-the-Job Injury:
The ‘Course and Scope’ Rule
Workers’ compensation statutes differ among jurisdictions re-
garding the threshold for compulsory participation, benefit sched-
ules, contractor/sub-contractor relationships and most other statutory
specifics. But there is one concept on which every state agrees and to
which every state subscribes. This point of agreement is that to be
compensable, injury or illness must arise out of and in the course
and scope of employment.
The Three Tests
“Arising out of…” indicates a causal connection between the
furtherance of the employer’s business and the injury. If the employer
benefits in some way from the activity, then the injury or illness suf-
fered in the pursuit of that activity is considered to “arise out of” the
employment. One of three “causal connection” doctrines is applied
by the various states:
 Increased risk doctrine. This is the most common among
the jurisdictions. If the employment increases the chance of
injury, then there is a causal connection between the work
and the injury.
 Actual risk doctrine. If the employment itself presents a risk
of injury, then there is a causal connection between the em-
ployment and the injury.
 Positional risk doctrine. This is the minority view. Jurisdic-
tions applying this test only require the injury occur at work
to prove a causal connection between the work and the inju-
ry. The mere fact the person is at work is enough.

Chapter 2 – The ‘Course and Scope’ Rule
8
“In the course…” is a function of the timing and location of the
injury or illness. The implication is that the injury must occur during
operations for the employer, or “during employment,” and at the em-
ployer’s location or a location mandated or reasonably expected by
the employer. New working conditions and relationships do not
necessarily limit this to an on-site, 8-to-5 exposure.
Generally, if there is provable causal connection between the
work and the injury (the “arising out of” test is satisfied), the “in the
course of” test is also satisfied. However, the “in the course of” test
is sometimes required to prove the injury arose out of the employ-
ment.
“Scope of employment…” test serves to more specifically de-
fine the first two tests by: 1) analyzing the motivations of the em-
ployee, 2) analyzing the employer’s direction and control over the
actions of the employee and 3) analyzing the employer’s ability to
foresee the activities of the employee. Employee actions which ulti-
mately lead to an accident or injury must be motivated, in whole or
in part, by the “desire” to further the interests of the employer. Moti-
vation or desire can be out of fear that failure to perform will result
in the loss of a job, or from a more altruistic desire to do well for the
employer. The basis for the motivation or desire is irrelevant; it is the
fact that the motivation exists that leads to compensability. Further,
the actions must, to some extent, be at the presumed direction of the
employer or potentially foreseen by the employer.
Injury may, in fact, arise out of and be in the course of employ-
ment but still be outside the scope of employment, negating compen-
sability under workers’ compensation law. For example, while enter-
taining clients, a company executive gets into an argument with a
group sitting at another table because they are being too loud. A fight
breaks out and the executive is severely injured. Such injury is not
likely compensable under workers’ compensation. Yes, the injury
arose out of and in the course of employment (entertaining clients to
further the employer’s business), but was outside the scope of em-
ployment. The employer’s goals were not furthered by the fight (nor
was that the motivation), and the employer likely never directed nor

Chapter 2 – The ‘Course and Scope’ Rule
9
foresaw the need for the employee to be involved in a fistfight as a
result of his employment.
Another example of an injury outside the scope of employment
can be found in Exhibit 2.1 at the end of this chapter. This recounts
the story of a McDonald’s employee shot after ejecting a patron from
the restaurant.
Not Always Easy to Establish Course and Scope
Establishing an injury as work related is much simpler when em-
ployees work from a fixed place of employment on a fixed schedule
and are injured while in the midst of their assigned duties. A produc-
tion employee injured by a press (or whatever type of machine) dur-
ing her shift will meet all three tests with only minor question. Like-
wise, an office employee injured when a computer falls on him raises
little doubt that the injury arose out of and in the course and scope of
employment. There are few objections that could be raised in these
situations upon which a denial of coverage could be based (beyond
drug use).
Employees away from the employer’s premises, involved in em-
ployer-sponsored recreational activities, who like to horseplay or pull
practical jokes on their coworkers, who have personal issues that
leak over into work, or who have pre-existing conditions or a predis-
position to injury present particular problems when judging the com-
pensability of an injury. Injury to any employee falling into one of
these categories requires careful evaluation before coverage is as-
sured.
Have Briefcase/Tool Belt, Will Travel
Many employees travel to conduct business on behalf of their
employer; injury suffered by an employee away from the premises
for business purposes is generally considered to arise out of and in
the course and scope of employment and is compensable. The prox-
imate cause of the employee’s injury is the furtherance of the em-
ployer’s interest; that’s the reason for such a broad extension of cov-
erage for employees injured while travelling.

Chapter 2 – The ‘Course and Scope’ Rule
10
For example, a specialty electrical contractor is hired to install
wiring at a plant several hundred miles away from the contractor’s
home office. The eight-man crew will be on site four days. Several
hotel rooms are rented for the employees to stay in when the day’s
work is done. Every evening, the crew goes out to dinner; while
walking to a restaurant next to the hotel, one employee steps in a
hole, falls and breaks his arm. This is a compensable injury as he was
still in the course and scope of his employment.
Under the application of “proximate cause,” the employee would
not have been walking through the parking lot to get dinner but for
the fact that his employer sent him there to work. He is furthering the
employer’s business. Additionally, eating dinner is within the course
and scope of the employment as the employer likely provided a sti-
pend to pay for the meals, “directed” them to eat and could have rea-
sonably foreseen them needing and wanting to eat.
After dinner, a member of the crew decides to drive over to visit
some family and friends in the area. On his way back to the hotel he
is badly injured in an at-fault automobile accident. Does the workers’
compensation carrier have grounds to deny the compensability of the
injury? Yes, payment for this injury will likely be denied. Visiting
family and friends does not arise out of the employment and is not in
the course and scope of the employment. The employer did not direct
the employee to depart nor did he sanction the deviation from the
approved path (job, hotel, dinner). This is considered abandonment
of employment. The employee has undertaken a personal task/errand
that neither benefits the employer, nor is approved by the employer.
Abandonment of employment is the point at which an employee
deviates from the permitted or expected course and scope of the off-
premises work and engages in activities not intended for the ad-
vancement of the employer’s business nor directed by the employer.
This includes any activity in direct contradiction to the rules, re-
quests, or expectations of the employer.
Working from Home
Employees working from home-based offices are afforded the
same workers’ compensation protection as those camped in an office

Chapter 2 – The ‘Course and Scope’ Rule
11
building. Determining the compensability for an injury suffered at
home requires meeting the same qualifications as one suffered on
site; injury must arise out of and in the course and scope of employ-
ment.
Tennessee’s Supreme Court ruled on such a case in November
2007. InsuranceJournal.com reported the Court’s findings in
Wait v. Travelers Indemnity Co. of Illinois on November 26, 2007.
Kristina Wait took a lunch break from her work for the Ameri-
can Cancer Society; a neighbor knocked on her door and Wait let
him inside. After a brief conversation the neighbor left but returned a
few minutes later, claiming he forgot his keys, and brutally assaulted
Wait upon re-entering the home.
Wait’s claim for workers’ compensation benefits was ultimately
denied by the Tennessee Supreme Court. The court reasoned that
while the kitchen was equivalent to an office-based lunch or break
room and taking lunch was within normal course and scope of em-
ployment (expected and foreseen by the employer), the attack was
outside the purview of workers’ compensation because it had nothing
to do with Wait’s role for the ACS. It was simply a personally moti-
vated attack unrelated to the employment.
Other Home-Based Problems
Another example of non-compensable injury might include a
home-based employee taking a break to go attend to his children. He
has abandoned his employment and is no longer pursuing the em-
ployer’s interest, but his own. If he is injured while playing with the
children, such injuries did not arise out of or in the course and scope
of employment. If, however, a file cabinet topples over on him while
searching for information, the injury is compensable.
Unique workers’ compensation exposures are created for em-
ployers allowing employees to work from home; exposures that may
not be present with office-based workers. These include greater ex-
posure to road hazards, a change in the “coming and going” rule (de-
tailed in Chapter 3) and difficulty meeting the requirement to provide
a safe and healthy work environment.

Chapter 2 – The ‘Course and Scope’ Rule
12
For security and safety purposes or to provide a more profes-
sional appearance, employees with a home office may be directed or
encouraged to set up a post office box or other mail box arrange-
ments rather than utilizing their home address. Having such a box
requires the employee to check it periodically, unlike office-based
employees whose mail is delivered to their desk or a central mail
room. Traveling to and from the box is considered arising out of and
in the course and scope of employment. Injury suffered in an auto
accident may be a compensable injury.
Employers may allow certain employees to telecommute three or
four days a week, requiring them to report to the office only once or
twice a week for various reasons. Generally, workers’ compensation
benefits do not apply to employees travelling to and from work
(known as the coming and going rule). However, since the employee
is leaving one per se office location to travel to another, the entire
trip may be considered in the course and scope of employment mak-
ing any injury compensable.
Additional consideration must be given to telecommuting em-
ployees’ health and safety. Employers are charged with providing a
safe and healthy work environment; the requirement extends to em-
ployees working in their homes. Employers assure that employee
workspace in the office is ergonomically designed, but rarely is such
precaution taken with home-based employees. Repetitive motion
injuries (such as carpel tunnel syndrome), back injuries from incor-
rect desk set-up and posture and eye strain are just as likely among
telecommuting employees as among office-based staff. Employers
are not on-site to risk manage and loss control the home office de-
sign, but workers’ compensation claims from the same sorts of of-
fice-based injuries can still present themselves.

Exhibit 2.1
McDonald’s Denial of Work Comp Benefits to Worker Shot is
Appropriate
Nigel Haskett, 21 at the time he was shot, is or was an employee
of a McDonald’s franchise in Little Rock, Arkansas. On August 26,

Chapter 2 – The ‘Course and Scope’ Rule
13
2008, Haskett physically restrained a man and expelled him from the
restaurant to end his battery of a female patron. Perry Kennon, the
alleged attacker, went to his car, retrieved a gun and shot Haskett
several times as he stood in front of the door to prevent Kennon’s re-
entry.
Police and the public have hailed Haskett’s actions as heroic. But
the franchisee’s workers’ compensation carrier is not swayed by such
sentiment – they have denied Haskett’s claim for workers’ compen-
sation benefits outright, claiming that his injuries did not “arise out
of or within the course and scope of his employment” (as reported on
rawstory.com and various other news sources).
The “Course and Scope” Rule
Few provisions surrounding workers’ compensation coverage are
agreed on by multiple states, much less every state. But every state
does abide by the three-test “course and scope” rule. To be compen-
sable, the injury must “arise out of and be in the course and scope
of employment.” Each of these terms is more specifically defined as
follows:
 “Arising out of…” indicates a causal connection between
the furtherance of the employer’s business and the injury. If
the employer benefits in some way from the activity, then
the injury or illness suffered in the pursuit of that activity is
considered to “arise out of” the employment.
 “In the course of…” is a function of the timing and location
of the injury or illness. The implication is that the injury
must occur during operations for the employer, or “during
employment,” and at the employer’s location or a location
mandated or reasonably expected by the employer.
 “Scope of employment…” serves to more specifically de-
fine the first two tests by: 1) analyzing the motivations of the
employee, 2) analyzing the employer’s direction and control
over the actions of the employee, and 3) analyzing the em-
ployer’s ability to foresee the activities of the employee. Em-
ployee actions which ultimately lead to an accident or injury

Chapter 2 – The ‘Course and Scope’ Rule
14
must be motivated, in whole or in part, by the “desire” to fur-
ther the interests of the employer. Motivation or desire can
be out of fear that failure to perform will result in the loss of
a job, or from a more altruistic desire to do well for the em-
ployer. The basis for the motivation or desire is irrelevant; it
is the fact that the motivation exists that leads to compensa-
bility. Further, the actions must, to some extent, be at the
presumed direction of the employer or potentially foreseen
by the employer.
Comparing Haskett’s Actions with the “Course and Scope” Tests
Do Haskett’s actions meet the requirements of each test? Com-
paring his actions with each requirement will clarify whether the
workers’ compensation carrier is correct in its denial or not.
Arising out of…: Does protecting patron safety benefit the busi-
ness and further the business’ objectives? Haskett’s attorney stated
his belief in an interview with a Little Rock television station that
these actions accomplished both. If it can be proven that the employ-
er and the business did or would somehow benefit from Haskett’s
actions, his injury may be judged to have “arisen out of” his em-
ployment.
Presumably, McDonald’s business objective is to prepare and
serve food while maintaining a safe and clean environment for its
employees and customers. The question of whether wrestling some-
one out of the restaurant to prevent them from attacking another per-
son qualifies as being a part of that objective. If customers feel safe,
they are likely to eat at the restaurant.
Although a definitive “yes” to the question of “arising out of…”
is tough to give, Haskett’s actions border on furthering the business’
objectives. It appears that his being shot arose out of his employment
and satisfies the first test.
In the Course of…: This test is much easier to assign a defini-
tive “yes.” Haskett was on the premises of his employer, he was “on
the clock” and presumably working at the time (not on break). No
question that the injury occurred during the course of his employ-
ment.

Chapter 2 – The ‘Course and Scope’ Rule
15
Scope of Employment: Compensability of Haskett’s injury is on
shaky ground when compared against the “scope of employment”
test. This test has three qualifiers: 1) the motivation of the employee
must be to further the employer’s business, 2) the employer must
have some direction and control over the employee’s actions and 3)
the situation and actions must be foreseeable by the employer.
 Employee’s motivation: It is not likely that Haskett was mo-
tivated by the employer’s business objectives. While his mo-
tivation was admirable, the protection of a seemingly de-
fenseless individual, it does not meet the first test.
 Direction and control of the employer: While the employer,
in a letter to the press, supports and applauds Haskett’s dedi-
cated actions, neither he nor any manager directed Haskett to
act as he did. The second qualifier is also not met.
 Employer’s ability to foresee the situation and actions: The
question as to whether the situation was foreseen by the em-
ployer is somewhat gray based on the differing accounts
provided by the two parties. According to McDonald’s, part
of employee training and orientation is a directive to not “try
to be a hero.” The employee handbook specifically states
that the police are to be called and the employee is to not en-
gage a robber or other such individuals. Haskett states in
news reports that he never received this training.
If such warning and direction is in the employee handbook,
which probably contains a signed statement that it was read in its
entirety by Haskett, then the employer did foresee the possibility for
a dangerous situation and gave strict instruction for employees to not
engage. It was the anticipation and instruction of the employer that
the employee stay out of harm’s way. The third qualifier also falls
against Haskett and in favor of the workers’ compensation carrier.
Haskett’s injury was NOT in the “scope of employment.” His ac-
tions met none of the three “scope” requirements and he fails the
third test.

Chapter 2 – The ‘Course and Scope’ Rule
16
Not Compensable
Sadly, two-out-of-three is not good enough; all three “course and
scope” tests must be passed. The workers’ compensation carrier may
be correct in their denial of workers’ compensation benefits for this
injury.
Some arguments for compensability of this injury say that
Haskett would not have been injured “but for” his being at work; this
argument falls short because workers’ compensation is not solely
based on proximate cause. Just being “at work” is not enough to gar-
ner protection.
Based on the letter of the law, this is not a compensable claim
when compared to the three-test “course and scope” requirement.
Perhaps Haskett and his attorney can show “implied consent” or “rat-
ification” of his actions since the employer did not try to stop him
from throwing Kennon out of the store; or pull him inside when he
stood at the door to prevent the attacker’s reentry. The employer’s
inaction may be considered “at the employer’s direction.”
Regardless, this will likely go to trial before it is finally settled. It
is impossible to know what any jury will do, so stay tuned.

17
Chapter 3
Gray Areas in ‘Course and Scope’ Injuries
The threshold requirements that to be compensable an injury
must: 1) arise out of, 2) be in the course of, and 3) be in the scope of
employment leaves many gray areas. Major gray areas in the course
and scope rules include:
 The Coming and Going Rule;
 “Forced Fun”; and
 Horseplay and Practical Jokes
‘Coming and Going’ Rule
Injury suffered traveling to work or home from work or even
while going to and returning from lunch is generally not compensa-
ble. Known as the coming and going rule, the logic behind the rule
is that the employee is not furthering the employer’s interest or serv-
ing the business’ needs. The employee is serving his own purposes
and furthering his own cause during this course of travel; namely
going to an employment situation where a paycheck is delivered for
services rendered, going to lunch or going home.
The employer is not the proximate cause of the individual being
on the road; the employee has not arrived at a place where services
are rendered to the employer and injury suffered is not compensable.
Exceptions to the coming and going rule do exist. Anytime travel
is an integral part of employment or such travel furthers the employ-
er’s business, the coming and going rule is superseded, making injury
compensable. Travel considered integral to the employment includes
travel between jobsites and travel to meet clients.
Other “special hazard” exceptions to the coming and going rule
include:

Chapter 3 – Gray Areas in ‘Course and Scope’ Injuries
18
 Employer-furnished transportation. If the employer under-
takes to provide group transportation to and from office or
job site, injury suffered during the trip is compensable. An
off-beat example, especially in areas where there is little
snow, is the small business owner who picks up his/her em-
ployees on snowy days to assure the office is staffed and, al-
truistically, to keep the employees from having to drive.
Employee injury during this travel is potentially compensa-
ble under workers’ compensation;
 The employee performs a beneficial errand for the employ-
er. Going to the bank, the post office or on any other errand
to further the business of the employer qualifies as a benefi-
cial errand. If the errand requires the employee to deviate
from her normal route, any injury suffered from the time the
employee leaves the premises until she returns to her normal
route is likely compensable. Errands taking the employee
outside his normal ways and means are considered “for the
benefit” of the employer making injury compensable;
 Injury suffered by an “on call” employee. Doctors or those
in other employments who must be ready to respond when
the “call” comes are considered to be within the course and
scope of employment immediately upon responding to the
call. The drive is considered to be part of furthering the em-
ployer’s business making injury compensable;
 If the employer reimburses or pays the employees transpor-
tation costs, the trip is considered business-related and for
the benefit of the employer. Injury suffered is compensable
unless abandonment of employment is proven;
 Injury suffered once the employee enters the parking lot.
Courts ascribe a reasonable time for employees to reach their
assigned work station. During this time, the employee is
considered to be in the course and scope of employment.
“The clock” begins to tick (so to speak) when the employee
arrives in the parking lot. The reverse is true; the employee
is considered to be within course and scope until he leaves
the parking lot. Injury suffered prior to and after leaving the

Chapter 3 – Gray Areas in ‘Course and Scope’ Injuries
19
parking lot is not covered (unless one of the other exceptions
apply). The breadth of this special exception is applied dif-
ferently by each state.
Play Ball! Or ‘Forced Fun’
Extending the “course and scope of employment” doctrine to rec-
reational activities combines questions of fact decided by juries and
questions of law decided by the court. Employees injured while par-
ticipating in recreational activities while on the employer’s premises
or at the employer’s “direction” may qualify for workers’ compensa-
tion coverage. Four tests are applied to the facts surrounding the in-
jury to decide compensability:
1. Did the accident occur on the employer’s premises? An
affirmative response does not guarantee compensability.
An employee injured while engaged in a pick-up basket-
ball game on the employer’s premises will not be eligi-
ble for workers’ compensation becasuet he employer is
not directly benefitiing from the activity nor is the em-
ployer directing the activity. Making recreational facili-
ties available does not make the employer liable. But
neither is it required that the injury occur on the employ-
er’s premises to be compensable.
2. Was the event or team organized by the employer?
Company-organized softball teams competing in “indus-
trial leagues” may qualify under this provision. Howev-
er, several employees deciding to form a team is wholly
different from a team organized by the employer, en-
couraging “good” ballplayers to participate.
3. Did the employer pay for the activity? It is unclear if
this refers to the total cost or a subsidy on behalf of the
team. For example, the league charges every player $50
but the company pays $40 on behalf of each play-
er/employee. While the activity is not fully paid for by
the employer, it could be viewed as an employer-paid or
sponsored (with participation encouraged).

Chapter 3 – Gray Areas in ‘Course and Scope’ Injuries
20
4. Did the employer benefit? Advertising in the communi-
ty (team shirts), improved employee morale or better
team work. An employer can “benefit” from these activi-
ties in more ways than tangible outputs.
Employee picnics, team building outings and Christmas dinners
are a few examples of other types of recreational and social activities
that may lead to compensable injuries. State statutes should be re-
viewed regarding the issue of recreational activities. Some states
have adopted relative pro-employer statutes to limit compensability
to activities in which employees are “expected” to participate.
Horseplay and Practical Jokes
Court and legislative attitudes have shifted regarding the com-
pensability of injury suffered as a result of horseplay. Historically
courts held that horseplay was such a deviation from the course and
scope of employment as to qualify as an abandonment of duty. Injury
suffered outside the “course and scope” is not eligible for workers’
compensation protection; injured employees, even the non-
participating (innocent) party, were routinely denied coverage.
“We are clearly convinced here that our old rule should be
abandoned. Although appropriate for the time in which it arose, we
are persuaded by the overwhelming weight of contrary authority in
our sister states and current legal commentary.” With this state-
ment, the Kansas Supreme Court overturned decades of prior case
law regarding compensability of injury resulting from horseplay. The
court’s opinion in Coleman v. Armour Swift-Eckrich mirrors the pre-
vailing attitude surrounding injury arising out of horseplay; especial-
ly injury to the non-participating/innocent employee that such injury
could still fall within the course and scope of employment.
Prevailing opinion now centers on and applies a treatise known
as “Larson’s Workers’ Compensation Law” (Larson). Larson applies
a four-part test of the facts surrounding the horseplay-associated in-
jury to establish compensability. The four tests of fact are:
 The extent and seriousness of the deviation. Was the horse-
play “reasonable” or did the parties go so far out of the way

Chapter 3 – Gray Areas in ‘Course and Scope’ Injuries
21
as to constitute unreasonable deviation? In one case, three
men wrapped another employee from his ankles to his
shoulders in duct tape. The injured employee was allowed to
forego the sole remedy offered by workers’ compensation
and sue the participants in tort as the activities were consid-
ered too far outside “normal.”
 The completeness of the deviation. Was the horseplay
comingled with the regular performance of duties or did it
involve (and require) an abandonment of duty?
 The extent to which the practice of horseplay has become an
accepted part of the employment. If horseplay, practical
jokes and hazing are common and not discouraged or forbid-
den by the employer, then it is reasonably judged to be part
of normal employment and within course and scope.
 The extent to which the nature of employment may be ex-
pected to include some horseplay. Some industries lend
themselves to horseplay; those working in those industries
should expect to be exposed to it. As such, it is a normal part
of employment and injury may be compensable.
According to Larson itself, it is not required that all four tests be
satisfied for an injury to be compensable. “It is now clearly estab-
lished that the nonparticipating victim of horseplay may recover
compensation.”

22
Chapter 4
Occupational Disease and Workers’
Compensation Protection
Occupational diseases cause 860,000 illnesses and 60,300 deaths
in the United States annually, according to the American Academy
of Family Physicians. Illness directly attributable to work conditions
and exposures is diagnosed in approximately 10 percent of hospital-
ized patients.
Judged against the standard that to be compensable an injury or
illness must arise out of and in the course and scope of employment,
rarely do employers or even employees view an illness as clearly
crossing the required threshold. Qualifying an illness as a compensa-
ble occupational disease often requires industrial commission or
court intervention. Occupational disease claims can be further com-
plicated, in the legal sense, by environmental factors, personal habits,
pre-existing conditions and the individual’s medical history.
To be considered “occupational” and therefore compensable, the
disease must arise out of or be caused by conditions peculiar to the
work. Black lung disease (coal workers’ pneumoconiosis (CWP) or
anthracosis) results from prolonged exposure to coal dust in higher-
than-normal concentrations, making the disease peculiar to the coal
mining industry. Another example of a compensable occupational
disease peculiar to an industry is a healthcare worker contracting an
infectious disease such as HIV or hepatitis as a result of exposure to
and contact with infected blood.
Sources of Occupational Disease
Conditions attributable to occupational exposure cover the gamut
of common and uncommon illnesses, making it all the more difficult
to connect the dots between the illness or injury and the course and

Chapter 4 – Occupational Disease and Workers’ Comp Protection
23
scope of employment. Injuries commonly connected to work condi-
tions include: carpal tunnel syndrome (and other repetitive-motion
type injuries), hearing loss (when around noisy operations), black
lung disease, asbestosis, silicosis, contact dermatitis and even Lyme
disease contracted by employees working in wooded areas.
Some illnesses less clearly attributable to work-related exposure
include:
 Asthma: Usually affects employments working with animal
and plant products, wood dust, metals such as cobalt, cutting
oils and irritants such as sulfur dioxide;
 Bronchitis: Common among employees working around
high concentrations of acids, smoke and nitrogen oxides;
 Hypersensitivity pneumonitis: Most often found in workers
around moldy hay and cutting oils (common among farming
and agricultural operations; may want to recommend cover-
age to farms without the requisite number of employees);
 Respiratory irritation and infections: Affects mainly office
workers arising out of indoor air pollution (a.k.a. sick build-
ing syndrome);
 Liver cancer: Generally results from exposure to vinyl chlo-
ride common in plastics manufacturing;
 Bladder cancer: Found in employment exposed to benzidine
(common in plastics and chemical manufacturing);
 Skin cancer: Common in workers with long-term exposure
to ultraviolet light (i.e. landscapers, construction workers,
etc.);
 Brain and other tumors: May be the result of employee’s
long-term exposure to radiation;
 Spontaneous abortion: Often results from exposure to eth-
ylene oxide;
 Sperm abnormalities: Can result from exposure to dibromo-
chloropropane commonly used in the manufacture of pesti-
cides;

Chapter 4 – Occupational Disease and Workers’ Comp Protection
24
 Birth defects: Usually the result of exposure to ionizing ra-
diation (may open the employer to an Employers’ Liability
claim);
 Coronary artery disease: Mostly attributable to employees
exposed to carbon monoxide and stressful working condi-
tions;
 Neurologic disorders: Nervous system disorders are general-
ly the result of employee exposure to toxins, organic sol-
vents, metals and pesticides. Prolonged exposure or exposure
to a high concentration of these substances can cause head-
aches, fatigue, cognitive disorders and even depression;
 Parkinson’s disease: Associated with employment exposed
to carbon monoxide poisoning and/or chronic exposure to
manganese fumes or dust;
 Stress-related illnesses: Heart attacks, stroke and other like
injuries will be explored below; and
 Eye and sight problems: Office-bound employees often ex-
perience eye and sight problems due to the need to focus on
a computer screen for long periods.
Medicine and the Courts
Classifying illness as an occupational disease making it compen-
sable under workers’ compensation requires the combination of med-
ical opinion and testimony and a legal finding of fact. Each case is
judged on its own merits and encompassing circumstances, thus
there is no singular test that can be applied to every case to declare
the illness as compensable or non-compensable.
Medical opinion leading to the conclusion that an illness is work-
related is not necessarily based on the disease but on the facts sur-
rounding the patient’s sickness. Physicians will investigate:
 The timing of the symptoms relational to work: Do symp-
toms worsen at work and improve following prolonged ab-
sence from work (in the evening and on weekends);
 Co-workers showing similar symptoms: Do co-workers
show some of the same symptoms currently or in the past

Chapter 4 – Occupational Disease and Workers’ Comp Protection
25
(may not be to the same degree as the patient as each indi-
vidual has varying tolerances);
 If such illness is common to employees in that particular in-
dustry;
 If the employee has a predisposition that may lend itself to
the illness such as an allergy; and
 Personal habits and medical history of the patient: Patients in
poor medical condition (overweight, smokers, unrelated
heart disease, etc.) and poor family medical histories may be
more likely to contract a disease or illness than others in sim-
ilar circumstances would not, clouding the relationship be-
tween the occupation and the illness. For example, smokers
may be ill-equipped to fight off the effects of chemical con-
centrations to which others may have no problem being ex-
posed
Industrial commissions and courts: 1) compile the opinion of the
treating physician and the opinions of other expert medical witness-
es, 2) couple the medical evidence with the facts surrounding the
case and 3) compare the subject case with precedent to render a
compensability ruling. This process can sometimes take years.
Stress- Related Illness
Establishing an illness as work-related is difficult even with am-
ple evidence to show a causal connection between the exposures ap-
plicable to the position and the contracted disease. It is made more
difficult when the “cause” of the illness leading to bodily injury is a
factor as intangible as “stress.”
Stress is most commonly pulled into occupational injury claims
when the employee is seeking compensation for a heart attack, stroke
or other related cardiovascular injuries. Case law surrounding the
compensability of a “stress-induced” heart attack is less than con-
sistent.
Tennessee’s Supreme Court provided some relevant guidance
regarding the compensability of stress-related injury in its March
2007 Lane v. City of Cookeville ruling. After considering the dispar-

Chapter 4 – Occupational Disease and Workers’ Comp Protection
26
ate medical evidence and the facts surrounding the heart attack Lane
suffered allegedly due to the stress related to his police detective
role, the court ruled that Lane’s heart attack was not the result of any
extraordinary stress and subsequently denied his petition for perma-
nent total disability benefits.
The court declared in this ruling that a heart attack is compensa-
ble if caused by the worker’s physical exertion or by mental or emo-
tional stimulation. The stimulation would have to result from a spe-
cific acute or sudden stressful event rather than a generalized condi-
tion of stress. Presumably, a long build up of stress would not fall
into the compensable category.
Other published court findings and general “rules of thumb” re-
quire that the stress be of an unusual or abnormal nature, not stress
that would be common to a certain job.
Which Policy Responds?
Occupational illnesses generally have a long “gestation” period.
Employees may be exposed to the harmful condition for many years
before the illness manifests. It is also possible that the employee
doesn’t contract the disease until years after the exposure ends.
The workers’ compensation policy specifically states that the
policy in effect at the employee’s last exposure responds to the ill-
ness — even if the employee is working for another employer at the
time the disease manifests itself.
Conclusion
Occupational disease resulting in bodily injury tends to lend it-
self to litigation. Since there is rarely a definable place or time of the
injury, industrial commissions and courts will likely continue to play
a large role in these claims.
Employees’ personal habits and medical histories will, likewise,
continue to find their way into the piles of evidence as workers’
compensation carriers look for legitimate ways to deny coverage.
Employees who are overweight (or even obese), with high blood
pressure and smoke will likely have to prove that those conditions in

Chapter 4 – Occupational Disease and Workers’ Comp Protection
27
no way contributed to the “work-related” heart attack for which they
are seeking benefits.
Employees contracting cancer from long-term exposure to radia-
tion may see carriers digging into their medical history to find a fam-
ily history of cancer.
Not to blame or accuse, but the nature of occupational disease
claims will see and has seen both extremes in court.

28
Chapter 5
Benefits Provided Under Workers’
Compensation Laws
Injuries or illnesses established as compensable under applicable
workers’ compensation law require prescribed benefits be paid to the
injured employee. Benefit limits and duration vary by jurisdiction
but each state provides essentially the same three “classes” of bene-
fits:
 Medical benefits;
 Disability/Indemnity benefits; and
 Death Benefits.
Medical Benefits
Medical benefits are usually unlimited with no deductible. Pay-
ments are made to the point that the injured employee is cured and/or
given maximum relief. Bills for service go directly to the workers’
compensation carrier and payment is made directly to the healthcare
provider; the employee’s only responsibility is to follow the doctor’s
orders.
Although the medical care provided, and the billing, are handled
exclusively by the treating physician and the workers’ compensation
carrier, states differ regarding physician choice. Twenty-one states
require the employee to use the physician picked by the employer
from among a list of “authorized” physicians. The twenty-nine re-
maining states plus the District of Columbia allow the employee to
choose the physician, with some requiring periodic consultation with
an insurer-chosen physician. But nineteen of the “employee-choice”
states limit the employee’s options to physicians within a managed
care type network.

Chapter 5 – Benefits Provided Under Workers’ Compensation Laws
29
Basic medical benefits are treated the same in every state. All
statutes require medical costs, surgical fees, nursing care expense
and medication costs necessary to “effect a cure and give relief” be
fully paid by the workers’ compensation insurer. Additional medical
benefits are the same in every state, but with jurisdictional nuances.
Rehabilitative services are a prime example. Every state provides
some form of rehabilitation benefit, but not necessarily to the same
extent or in the same amount.
Rehabilitative service benefits can include medical rehabilita-
tion, vocational rehabilitation and psychological rehabilitation. Some
states include the cost of rehabilitation services within the auspices
of the medical benefits making coverage unlimited, where other
states provide a sub-limit in the form of a dollar amount (as a specif-
ic benefit limit or based on the percentage of disability) or as a time
limit (maximum number of weeks or visits, etc.).
Qualifying for rehabilitation services benefits requires the em-
ployee suffer “catastrophic injury” as defined by each state. General-
ly, a “catastrophic injury” requires some form of permanence. Reha-
bilitation services benefits pay, subject to any applicable sub limits:
 The cost of occupational rehabilitation necessary to return to
maximum mobility and performance the injury will allow;
 For necessary modifications to the employee’s home allow-
ing for maximum self-sufficiency;
 For modifications to the employee’s vehicle, such as the cost
to affix a wheel chair lift, etc.; and
 The cost to modify the employee’s work space if able to re-
turn to work at the same employer.
If the employee is unable to return to work with his previous
employer due to the unavailability of an accommodating position or
the inability to offer a job to accommodate the employee’s limita-
tions, vocational rehabilitation benefits are extended to cover:
 The costs of aptitude and interest tests to customize an edu-
cation/training program to the employee;

Chapter 5 – Benefits Provided Under Workers’ Compensation Laws
30
 The costs necessary for the employee to learn new skills or
enhance existing skills;
 The cost necessary to provide job search and interview
skills; and
 The cost of job placement services.
Travel expenses to and from medical treatments are also paid
under the medical benefit. Some states reimburse all mileage driven
in the pursuit of medical treatment for work-related injury; others
require the mileage to exceed a certain threshold (North Carolina
requires the round trip to be greater than 20 miles before mileage is
reimbursed).
Disability/Indemnity Benefits
Injured employees may be totally unable to work or to garner the
same pay as was earned prior to the injury, subjecting them to either
a complete loss of income or a diminished lifestyle. Medical benefits
coverage pays any and all medical bills arising out of an occupation-
al injury or illness, but loss of income is a separate benefit paid at the
direction of and in amounts mandated by workers’ compensation
statutes.
Disability/indemnity benefits are subject to statutory minimum
and maximum weekly payments, a maximum period of payments
and/or a maximum amount of payments. These statutorily-defined
limits are based on the severity of the injury and the expected term
(length) of the resulting condition.
Injury severity is classified as either partial or total. The term of
the injury is assigned to either temporary or permanent status. Bene-
fit payments are based on the combination of these conditions as per
the following examples:
 Temporary Partial: Defines an injury from which the em-
ployee is expected to completely recover in some period of
time with no or only minor long-term effects. A broken arm
is an example if this type of injury. Employees suffering
temporary partial injuries can generally return to work under
“light-duty” assignments until the “temporary” condition

Chapter 5 – Benefits Provided Under Workers’ Compensation Laws
31
heals. Benefits for employees within this category of injury
include medical benefits, lost wages and/or differential pay if
income is lower due to light-duty assignment;
 Temporary Total: A full recovery from the injury is ex-
pected, but for a period of time the employee is completely
unable to work due to the injury. These types of injuries
might require bed rest or hospitalization while the employee
heals. All medical bills are paid as are lost wages subject to
minimum and maximum amounts once any required waiting
period (discussed below) has been satisfied. Duration of
benefits: Thirty-three states pay temporary total disability
benefits for the duration of the disability; one limits payment
to the point of “maximum medical improvement;” and the
rest cut off payment at a specified number of weeks ranging
between 104 and 500 weeks;
 Permanent Partial: The employee has suffered an injury
from which he will never recover, but one that will not pre-
vent him from returning to some type of work. Amputation
of a finger or leg and the loss of an eye or ear are examples
of this injury classification. Benefits paid include all medical
costs, statutorily scheduled benefits based on the injury (i.e.
40 weeks for the loss of a thumb) and potentially rehabilita-
tive service benefits. Duration of benefits: Nine states pay
for the duration of the disability (which seems unusual since
it is “permanent”); six limit payment to 500 weeks; three
base the length of benefit payments on the percentage of im-
pairment; and the remainder limit payment to a specified
number of weeks ranging between a low of 200 weeks to a
high of 1,500 weeks (almost 29 years); and
 Permanent Total: Recovery is not predicted; the employee
is not expected to ever be able to return to work. Benefits
paid will include medical bills to maximum cure and/or re-
lief and lost wages. Duration of benefits: Although the inju-
ry is permanent and total, disability benefits are not neces-
sarily paid for life. Many states pay for the “duration of the
disability,” others specify that payment is for the rest of the

Chapter 5 – Benefits Provided Under Workers’ Compensation Laws
32
injured employee’s life. A few states end benefits at specified
ages; some end payment at “age 65,” others at “age 67” or
some at “retirement age.” Two of the more restrictive states
limit payment to 400 or 500 weeks and one state limits total
disability benefits to $125,000.
Benefit payments are calculated based on the employee’s “aver-
age weekly wages” (AWW) for the most recent 12 month period and
are limited by minimum and a maximum benefit amounts. Injured
employees whose AWW is below the maximum limit still do not
receive 100 percent of their average weekly wage during the period
of disability, rather they receive a percentage of the AWW specified
by the state. Two reasons benefits are lower than the employee’s
AWW are: 1.) benefits are not taxable; and 2.) to encourage injured
employees to return to work — a moral hazard is created when the
employee makes just as much out of work as he does while at work.
Most states pay two-thirds (66 2/3 percent) of the employee’s aver-
age weekly wage, but the benefit ranges anywhere between 60 per-
cent and 80 percent of the employee’s AWW. Disability benefits are
usually adjusted annually to account for inflation and expected
changes in income.
Maximum disability benefits are based on a percentage of the
statewide average weekly wage (SAWW) across all industries. For
example, one state bases its maximum average weekly wage benefit
on 200 percent of the state’s average weekly wage; where several
other states use 66 2/3 percent of the state’s average weekly wage to
limit its maximum benefit. All other states fall somewhere in this
range.
Injured employees must satisfy waiting periods before they are
eligible to receive disability/indemnity benefits. “Elimination peri-
ods” range between three and seven days with each state incorporat-
ing a retroactive provision allowing the elimination period to be in-
demnified should the period of disability exceed a specified thresh-
old. North Carolina, for example, has a seven day waiting period be-
fore disability benefits are paid; however, if the period of disability
goes beyond 21 days, the policy goes back and retroactively indem-

Chapter 5 – Benefits Provided Under Workers’ Compensation Laws
33
nifies the employee for the first seven days, effectively providing
coverage from the date of injury.
Although workers’ compensation is a no-fault system intended to
be the sole remedy, there are activities in which employees can par-
ticipate that can potentially eliminate or reduce disability benefits.
Employees who intentionally inflict injury on themselves or whose
injury can be directly attributable to the use or abuse of alcohol or
drugs may see their disability benefits eliminated. Employees in
some states who fail to wear required safety equipment risk seeing
their benefits reduced by a specified percentage.
Death Benefits
Death benefits are the last of the three benefit classes dictated by
workers’ compensation statutes, this extends a limited amount to-
wards funeral expenses plus a weekly benefit to eligible dependents.
To collect death benefits from the workers’ compensation policy: 1)
death must occur within a certain period of time following the work-
related injury to be considered a work-related death and 2) a request
for death benefits must be made within a specified period fol-
lowing death (to avoid long-tail death claims).
Funeral/burial expense benefits vary widely across the country.
The national funeral expense benefit average is a little more than
$5,200. Mississippi provides the lowest benefit at $2,000, while
Minnesota has the highest at $15,000.
Dependent benefits are also limited by statute. Some states pay
benefits based on the employee’s average weekly wages for the re-
mainder of the surviving spouse’s life, others limit payment to a
specified number of weeks. Provisions in other states pay until the
spouse remarries or until a certain dollar amount is paid; there is tru-
ly no “standard” provision regarding spouses.
Benefits paid to or for surviving children are somewhat more
uniform. Most states pay some specified amount until the child is 18.
Some states provide additional benefits based on the child’s educa-
tion or ability status.

Chapter 5 – Benefits Provided Under Workers’ Compensation Laws
34
Death benefits, like the other workers’ compensation benefits,
are not nationally uniform so individual state laws must be studied to
completely understand the specific state allowances.
Conclusion
Every state pays basic medical benefits essentially uniformly.
However, each state takes a different path towards the satisfaction of
additional medical benefits, disability benefits and death benefits.
Resource information can be found on each state’s workers’ compen-
sation/industrial commission Web site, from the Bureau of Labor
Statistics (BLS) and on the AFLCIO Web site.

35
Chapter 6
Second Injury Funds: Are They Still
Necessary or Just a Drain On the System?
Second (or subsequent) injury funds (SIFs) have been abolished
in 19 states. Alabama and Maine began this movement in 1992, with
Arkansas and New York being the most recent converts; each ending
its respective program in 2007. Some states, such as South Carolina,
have already passed laws that call for the end of their second injury
funds over the next several years. Further, the American Insurance
Association has been at war against second injury funds since at least
the mid-1990s, working to convince the remaining states to abolish
or substantially alter the fund programs that still exist. Appendix “B”
lists the status of second injury funds for all states.
Has the time for second injury funds passed? Are these archaic
social programs that have outlived their usefulness? It depends on
who is being asked and that party’s agenda. Regardless of which side
is making the argument, the focus is on money: the cost if the plan is
kept intact or the cost if the plan is abolished. It is all about the mon-
ey, regardless of the eloquence of any other presented reason.
In the search for answers to these questions, the next few para-
graphs will provide a bit of SIF program history, the threshold for
protection, benefits offered, how the funds are financed and conclude
with arguments for and against dismantling this decades-old employ-
er safety net.
History of Second Injury Funds
New York created the nation’s first Second Injury Fund in 1916,
just three years after creation of its workers’ compensation statute.
Few states followed suit until World War II with most states adopt-
ing second injury funds in the early-to-mid 1940s based around a

Chapter 6 – Second Injury Funds: Still Necessary?
36
model national code. The rush to provide this employer protection
was created by the desire to clear the path for veterans who had sus-
tained injury during the war. Injured veterans were not being hired
due to employers’ fears of being held financially responsible for the
cumulative effect of an on-the-job injury coupled with a pre-existing
war injury. Second injury funds were designed to temper if not com-
pletely remove this fear.
Employers’ fears were cultivated by several court cases culmi-
nating in a 1925 Oklahoma Supreme Court ruling, Nease v. Hughes
Stone Co. This proved to be a landmark case regarding an employer’s
liability for an employee’s injuries which synergistically compound a
pre-existed condition.
W.A. Nease was already blind in one eye when he began work
for Hughes Stone Company. During his employment, an explosion
destroyed Nease’s remaining eye, leaving him blind and permanently
and totally disabled. The employer through the insurance carrier pro-
vided 100 weeks of indemnity payments as was required by statutory
provisions governing the loss of one eye. Nease argued that since he
was permanently disabled, not merely partially disabled, he was due
lifetime benefits. The Oklahoma Supreme Court agreed, awarding
him lifetime benefits and making the employer and the insurer re-
sponsible for total disability indemnity benefits.
A U.S. Labor Department report stated that between 7,000 and
8,000 one-eyed, one-legged and one-handed men in Oklahoma lost
their jobs immediately following this ruling. Employers did not want
to take the chance of being held financially responsible for an em-
ployee’s total disability. A mechanism to relieve employers of this
responsibility was required. Second injury funds were created to
remedy the problems and accomplish two goals:
1. Encourage employers to hire and retain workers with pre-
existing injuries or conditions; and
2. Provide economic relief to employers for an employee’s sub-
sequent injury.

Chapter 6 – Second Injury Funds: Still Necessary?
37
Threshold Requirements to Receive Benefits
Not every injury suffered by an individual with a pre-existing in-
jury or condition is compensable under the second injury funds still
in operation. Certain requirements must be met before any benefits
are payable from these funds. States differ on the application of SIF
compensability requirements, but each applies the following re-
quirements to varying degrees:
 There must be a prior injury that is a hindrance or obstacle to
employment. Some states allow the prior injury to emanate
from any cause while others require the prior injury to be
work-related. It is not necessary for successive injuries to be
to the same or a similar body part to be eligible for SIF pro-
tection; or
 There must be a pre-existing medical condition that affects
employment such as epilepsy, diabetes, Parkinson’s disease,
arthritis and others found in a list of 34 to 37 different condi-
tions. Some states consider the list of conditions an “exclu-
sive list,” meaning that only listed conditions are eligible for
second injury fund protection; other states consider this a
“presumptive list” meaning that those listed are the only ones
presumed to require second injury protection, but compensa-
ble conditions are not limited to the list allowing others to be
submitted for consideration.
 The prior injury or condition must be diagnosed and docu-
mented by the employer before the second injury occurs.
Massachusetts is the only state that places a time limit as to
when the employer must know about the pre-existing condi-
tion; employers must document the pre-existing condition
within 30 days of hire before any subsequent injury is eligi-
ble for second injury fund protection. Other states only re-
quire that the condition be known and documented before
the subsequent injury. This documentation can be as simple
as a letter in the employee’s file noting the condition. This is
a potentially tricky situation due to the Americans with Dis-
abilities Act (ADA) and what employers can and cannot ask

Chapter 6 – Second Injury Funds: Still Necessary?
38
or do. These conditions can be discovered and documented
as a result of a post-hire physical or a medical condition
questionnaire completed by the employee. Attorneys should
be consulted regarding the legalities surrounding this re-
quirement and how the data can be gathered without violat-
ing ADA or other laws.
 A few states require the prior injury to be classified as a
permanent partial disability.
 Some states require a certain percentage of impairment; and
others only pay if the second injury results in permanent to-
tal disability.
 The fund must be put on notice when an employee with a
pre-existing condition is injured; regardless if it is known
whether or not benefits are going to be requested.
 A waiting period must be satisfied during which time the
primary workers’ compensation carrier pays all disabil-
ity/indemnity benefits. The waiting period can range be-
tween 52 and 104 weeks.
Benefits Offered by Second Injury Funds
Second injury fund states operate as either “reimbursement
funds” or “take-over funds” to pay benefits owed to qualifying em-
ployees. Reimbursement fund states operate on the principle that the
best and most efficient mechanism for handling on-going injury
claims is the continued involvement of the insurance carrier or self-
insured employer’s third party administrator (TPA); these states re-
imburse the insurance carrier or self-insurer for all payments made to
employees qualifying for protection. Take-over fund states, as the
name suggests, remove the injured employee from the primary
workers’ compensation system and take over payment of disabil-
ity/benefits, removing the insurance carrier or self-insured employer
from the process.
Every state SIF pays qualifying employees the difference be-
tween the injury suffered and the cumulative effect of the trauma.
Using the Nease ruling presented above as an example, had a second
injury fund existed the primary insurer would have only been re-

Chapter 6 – Second Injury Funds: Still Necessary?
39
quired to pay the 100 weeks for the loss of an eye and the second
injury fund would have taken over and paid all disability benefits due
an individual with a permanent total disability.
Benefits offered by some but not all states include (not an all-
inclusive list):
 Lost wages from a second job held by the employee.
States providing this benefit reason that if the employee
holds two jobs (presumably for needed extra money), then
the permanent total disability not only prevents him from
working his primary job but also prevents his working a sec-
ond job, thus a percentage of those lost wages are also paid.
 Primary workers’ compensation benefits for uninsured
workers. A few states extend their second injury fund to
provide primary workers’ compensation benefits to injured
employees of employers that did not purchase workers’ com-
pensation coverage.
 Continued disability payments when state-mandated
benefits end. Some states limit permanent total disability
benefits to a specified number of weeks; second injury funds
in a few of those states pick up and continue benefits for in-
jured employees that “outlive” the benefit period. Indiana,
for example, limits permanent total disability benefits to 500
weeks; if the injured employee is still alive, the second inju-
ry fund picks up and provides continued benefits in 150
week increments.
Financing Second Injury Funds
Second injury funds are most commonly financed by insurer as-
sessments, employers and/or self-insured funds. These assessments
can be in the form of a required dollar amount per claim or a per-
centage of each specified type of claim. These percentages generally
range between 2.5 percent to 6 percent or more.
Statutes often specify the injuries that must be assessed. North
Carolina, for example, requires a $250 assessment for all losses that
result in the “loss, or loss of use, of each minor member in every case

Chapter 6 – Second Injury Funds: Still Necessary?
40
of a permanent partial disability where there is such loss;” and $750
“for 50 percent or more loss, or loss of use of each major member,
defined as back, foot, leg, hand, arm, eye, or hearing.”
Funding is sometimes provided by death benefits owed to an
employee with no legal heirs. The death benefit that was due to the
employee is put into the second injury fund. In fact, this is Texas’
sole means of financing its second injury fund.
The Decline of Second Injury Funds
Second (subsequent) injury funds (SIFs) represent socialized
care requiring that the large group of insurers, self-insurers and, in
some states, employers subsidize the few. This is one bullet in the
revolver used by the American Insurance Association (AIA) and oth-
er anti-SIF groups to shoot at the remaining second injury funds.
Two other charges leveled against the remaining funds by the an-
ti-SIF groups are:
 The Americans with Disabilities Act (ADA) makes these
funds obsolete. SIFs are no longer necessary because the
ADA prohibits discrimination against disabled workers pro-
vided: 1) the employer has 15 or more employees; 2) the job
can be performed if only “reasonable accommodations” are
made; and 3) the accommodations do not create an undue
hardship on the employer; and
 Second injury funds have failed to meet the objective of
promoting the hiring of disabled workers.
It’s an intriguing combination of charges. If ADA laws made the
funds obsolete, then the SIFs no longer have to make promoting the
hiring of disabled workers a priority. Now these funds can focus on
the more important goal of being a safety net for employers now re-
quired by law to hire disabled workers.
One trade association attorney stated it best when she conceded
that the ADA did effectively replace the first goal of second injury
funds. She went on, however, to make the point that while the ADA
created a legal requirement to assist the disabled, it did nothing to
help employers bound by the law secure financing for any additional

Chapter 6 – Second Injury Funds: Still Necessary?
41
costs that may be created if and when an employee with a pre-
existing medical condition is permanently and totally disabled be-
cause of the cumulative effects of a workplace injury. Should em-
ployers forced to hire disabled workers also be saddled with addi-
tional costs over which they have no control, such as higher costs
resulting from an increased experience modification factor and/or the
possible loss of premium credits due to more expensive claims?
Many view the experience modification factor argument as falla-
cious since experience mods are weighted more towards frequency
than severity (with severe claims subject to a “stop gap” amount).
Such a counter-argument is true, unless the insured is in a state’s as-
signed risk program, making the insured subject to an Assigned Risk
Adjustment Program (ARAP) factor. ARAP factor calculations give
greater weight to severity than do NCCI or state workers’ compensa-
tion rating bureaus. Short of being in the assigned risk plan, the lack
of a second injury fund may be inconsequential in the effect on expe-
rience modification factors.
Other arguments for the dissolution of second injury funds made
by anti-SIF groups include:
 They deviate from the principle that an employer’s costs
should be internalized. All costs of doing business should be
on the employer regardless of their part in creating the cost.
Workers’ compensation itself is a cost of doing business and
all costs associated with providing this social benefit, includ-
ing the costs of cumulative traumas, should be paid by the
employer; with the ultimate cost being passed to the con-
sumer rather than other employers or insurers. Anti-SIF
groups argue than any increase in the cost of coverage will
be more than negated by lower premiums due to the absence
of carrier assessments (ultimately paid as part of the premi-
um anyway). This leads to the next objection to second inju-
ry funds:
 Most second injury funds have accumulated large unfunded
deficits;
 Second injury funds carry a large administrative cost;

Chapter 6 – Second Injury Funds: Still Necessary?
42
 SIF disputes promote attorney involvement, further increas-
ing the cost of second injury funds specifically and workers’
compensation coverage in general;
 Some states extend benefits to employees whose employer
failed to secure workers’ compensation coverage either be-
cause they were not required to by law or they violated the
law mandating they buy it. This may be a misuse of assessed
funds; employers who break the law should not be bailed out
by every other employer and insurance carrier operating
within the law. Certainly no one wants the injured employee
to go without care or benefits, but this is not part of the orig-
inal intent of these funds. The injured employee has the court
system and other government social programs from which to
garner benefits; and
 Most states require the employer to know about and have
noted in the employee’s file any pre-existing condition in or-
der to qualify for second injury fund protection. Due to mod-
ern employment law and privacy concerns, such questioning
may be considered an invasion of the employee’s right to
privacy regarding his health. Navigating these waters just to
qualify for second injury fund protection could be hazardous.
Second injury funds are quickly losing favor and being legislated
out of existence. Nineteen have disappeared since 1992 (incidentally,
the year that the ADA was passed) and at least one more is set to
dissolve by2013. Have these funds outlived their usefulness? There
appear to be more arguments for closing these funds than for their
continuation.

43
Chapter 7
Who Qualifies as an ‘Employee’ in
Workers’ Compensation Law?
Workers’ compensation is compulsory in all states except Texas
and New Jersey. But even New Jersey, with all its provisos, is essen-
tially compulsory; and Texas’ coverage is compulsory for some con-
tractor classifications. Although requirements vary, every compulso-
ry and pseudo-compulsory state mandates that “employers” with a
specified number of “employees” provide workers’ compensation
benefits either through the purchase of a workers’ compensation poli-
cy, as a qualified self-insurer or out of pocket.
Thirty-seven states and the District of Columbia require any enti-
ty with one employee or more to provide workers’ compensation
benefits; only 13 states allow employers to have more than one em-
ployee before protection is required (these thresholds range between
three and five employees). Sounds simple, except that this calcula-
tion is complicated by each state’s definition of “employee;” the def-
inition hinges on how the person is engaged to do the work and the
employer’s legal structure.
‘Employee?’
“Employee” is generally defined as a person hired to perform
certain services or tasks for particular wages or salary under the con-
trol of another (the employer); or a worker hired to perform a specif-
ic job usual and customary to the employer’s business operation in
exchange for money or other remuneration. “Independent contrac-
tors” generally do not fall within the definition of an “employee” un-
less statute requires their classification as an employee; or when the
individual is titled an independent contractor for tax purposes but is
actually an employee under workers’ compensation definitions.

Chapter 7 – Who Qualifies as an ‘Employee’ in Work Comp Laws?
44
Two disparate views of the difference between an “employee”
and an “independent contractor” exist, one applied by the IRS and a
broader view enforced by the insurance industry and industrial/labor
commissions countrywide. Workers’ compensation-defined “em-
ployees” encompass more than just hourly or salaried workers; they
can include what some incorrectly deem to be independent contrac-
tors (paid without withholding — a 1099). Certain tests are applied
to differentiate between a “legal” employee and a true independent
contractor for workers’ compensation purposes. “Test” questions in-
clude:
 Does the employer/contracting party control the individual’s
ways and means (i.e., does the employer tell the contractor
when to show up, how to do the job, and when to leave or is
the contractor free to come and go as he or she pleases);
 Are the tools and materials supplied by the employ-
er/contracting party;
 Does the “independent contractor” work for anyone else or
does he contract solely with the employer; or
 Does the “independent contractor” carry his/her own insur-
ance?
Generally, the level of control is the deciding factor when classi-
fying a worker as an employee or an independent contractor. The
higher the degree of control over the worker, the more likely he will
be considered an employee rather than an independent contractor. If
the employer: 1) sets the hours and methods of doing the job, 2) sup-
plies the tools and materials and/or 3) is the sole source of income
for the contractor, the higher the likelihood that the worker will be
considered an employee not an independent contractor.
This is only a representative sample of the questions that may be
applied in determining employee or independent contractor status;
and not all the tests have to affirmatively indicate status as an em-
ployee, only a preponderance of evidence is required. Statutes step in
at times and assign a worker “employee” status even when the person
might qualify as a true independent contractor.

Chapter 7 – Who Qualifies as an ‘Employee’ in Work Comp Laws?
45
Likewise, general contractors may find themselves responsible
for injury to de jure employees who work directly for an uninsured
subcontractor. In most states, employees of uninsured subcontractors
are statutorily defined as employees of the general contractor.
A more detailed description and definition of independent con-
tractors is found in Chapter 8.
Legal Structure and Workers’ Compensation
Neither sole proprietorships, partnerships, LLCs nor corporations
define “employee” or calculate the number of employees using the
same methods. Further, most states do not differentiate between a
full-time or part-time employee. Legal structure and statute dictate
who qualifies as an employee and, ultimately, the number of em-
ployees (for statutory counting purposes).
Sole Proprietorships and Partnerships
Sole proprietors and partners are most often exempted from the
workers’ compensation law and do not count toward the total num-
ber of employees. In jurisdictions subscribing to this statutory pre-
cept, a three-member partnership with one other worker has, by such
statute, only one employee. States that exclude sole proprietors and
partners from the definition of “employee” generally allow these in-
dividuals to subject themselves to the law and the benefits if desired.
There are a few states that do not exempt partners from the defi-
nition of “employee” requiring coverage unless a specific rejection
notice is filed. There are even a few states that require sole proprie-
tors to be classified as an employee if there are other employees on
staff. The few states that define sole proprietors and partners to be
employees generally allow these individual to exclude themselves
from coverage.
Corporate Officers
Corporate officers, whether compensated or not, are commonly
subject to the workers’ compensation law and are included in the
calculation of the total number of employees. Although most work-
ers’ compensation statutes allow these corporate officers to exclude

Chapter 7 – Who Qualifies as an ‘Employee’ in Work Comp Laws?
46
themselves from the protection, they are still included in the total
calculation of employees regardless of their coverage status. Some
states apply variations to this rule for not-for-profit corporations.
A corporation with three officers and one employee has, by stat-
ue, four employees even if the officers exclude themselves by en-
dorsement.
Limited Liability Companies
Limited liability companies (LLCs) are unique entities designed
to combine some of the tax benefits of a partnership with some of the
legal protections afforded corporations. Each jurisdiction dictates
whether the members and managers of an LLC are treated as partners
not subject to the workers’ compensation statute or as corporate of-
ficers who are subject to the law. Members are simply the owners of
the LLC and may or may not participate in the day-to-day manage-
ment of the company. Members involved in the management main-
tain a dual role as members and managers. How each state views and
treats LLC members and managers is found in Appendix B.
Natural vs. Legal Persons
Differences among legal structures determine who is considered
the “employer” and ultimately who is an “employee.” An employer
is always a person, either a natural person or a legal person.
 Natural person: A flesh and blood human being. In work-
ers’ compensation the employer is a natural person(s) in sole
proprietorships and partnerships. Managers and members of
an LLC are viewed as natural persons in a majority of states
making these natural persons the employers.
 Legal person (a.k.a. juridical person): A legal fiction, a
“person” created by statute and born with the filing of arti-
cles of incorporation (or organization). These legal persons
are given the right to own property, sue and be sued. Corpo-
rations are legal persons. Several states consider LLCs a le-
gal person, making the managers and members employees.

Chapter 7 – Who Qualifies as an ‘Employee’ in Work Comp Laws?
47
“Employers” are not required to be covered by workers’ compen-
sation, but statute requires employers to provide workers’ compensa-
tion benefits for their “employees.” Thus, the sole proprietor as the
“natural person” employer is excluded from the count; but the corpo-
rate officer is included as an employee because he/she works for the
corporation — a “legal person.”
See Appendix B for more information regarding employee
counts and those workers that do not qualify as employees under the
workers’ compensation law of each state.

48
Chapter 8
The General Contractor’s Responsibility to
Provide Protection
Sound risk management essentially requires general contractors
to contractually mandate that workers’ compensation coverage be in
place anytime a subcontractor is hired. And subcontractors cannot
hide behind statute in contract situations; workers’ compensation
coverage can be contractually required regardless of statutory provi-
sions (contracts can be more stringent than state law but not less so
(exculpatory)).
Forty-four states
(1)
and the District of Columbia statutorily regu-
late workers’ compensation benefits within the general contractor-
subcontractor relationship. “Employees” (as defined earlier) of a
subcontractor in these states must be provided workers’ compensa-
tion benefits if an injury occurs. Benefits will be paid either by the
injured employee’s direct employer (the subcontractor) or by the
general contractor who hired the subcontractor. The general contrac-
tor is statutorily assigned the responsibility of providing workers’
compensation benefits to the uninsured subcontractor’s injured em-
ployee, regardless of the number of employees working for the sub-
contractor. Plus, any additional premium for these de jure employees
will be charged to the general contractor, even if no loss occurs.
A general contractor-subcontractor relationship should not be
confused with the relationship between a principal/owner and an in-
dependent contractor.
 An “independent contractor” is an entity with whom a
principal/owner directly contracts to perform a certain task
or tasks. Independent contractors are generally engaged to
perform operations not within the usual trade or business of
the principal and such tasks are contract-specific. All work

Chapter 8 – The General Contractor’s Responsibility
49
required of the contract is performed by the independent
contractor and employees. Independent contractors are typi-
cally not considered employees of the principal.
 A “general contractor” is an entity with whom the princi-
pal/owner directly contracts to perform certain jobs. Some or
all of the enumerated tasks are subsequently contracted to
other entities (subcontractors) for performance. For general
contractor relationships to exist there must be three parties: a
principal, an independent contractor and a subcontractor
hired by the independent contractor. Independent contractor
status changes to general contractor when any part of the
work is subcontracted to another entity.
Principals are not commonly held financially responsible for any
injury to the independent contractor’s employees or any employees of
subcontractors hired by the independent contractor (making the in-
dependent contractor a general contractor). But, as stated above, the
general contractor is financially responsible for any injuries to the
employees of an uninsured subcontractor.
Principles and General Contractors
If neither the general contractor nor the subcontractor have
workers’ compensation coverage, the principal/owner could poten-
tially be sued by an injured worker to recover any out-of-pocket ex-
penses incurred (medical bills and lost wages). However, it is unlike-
ly that the principal will be held financially responsible as the princi-
pal does not statutorily qualify as an employer or a general contrac-
tor. Although not held to “employer” status, the principal could be
sued under other theories of liability such as negligent supervision,
failure to provide a safe work environment or any other negligence
theories often ascribed to property owners. If sued, the principal’s
general liability policy or the workers’ compensation policy (if one
exists) should provide defense and payment if found liable.
Principals and general contractors should contractually require
that any entity with which they contract provide workers’ compensa-
tion insurance. The mere act of purchasing coverage works to prove

Chapter 8 – The General Contractor’s Responsibility
50
that the independent contractor or any subcontractor does not believe
an employee-employer relationship exists or is created.
Any contract between the principal and general contractor should
specifically place the responsibility of confirming subcontractor
workers’ compensation coverage solely on the general contractor.
The general contractor should agree via the contract that if it does
not require and confirm the presence of such insurance, it could be
held statutorily responsible for injury to any of the subcontractor’s
employees. Lastly, the general contractor must also agree to defend
and hold the principal harmless in case of injury to any direct or de
jure employee.
Creating a Subcontractor Relationship
General contractor-subcontractor relationships are not confined
to the construction industry; the relationship is just more statutorily
regulated in the construction industry than most others. General con-
tractor-subcontractor relationships are created every day in other in-
dustries. A city hires a consultant to study traffic patterns; the con-
sultant hires an engineering firm to do on-site studies creating a gen-
eral contractor relationship. A corporation hires a business consultant
who subcontracts the cost control management work to another par-
ty, also creating a general contractor relationship. General contrac-
tor-subcontractor relationships are created by an endless array of ac-
tivities.
Workers’ compensation laws regarding general contractor-
subcontractor relationships are designed to create a safety net for any
injured worker — assuring benefits will be paid by somebody. To
avoid being held financially responsible for another entity’s employ-
ees, the general contractor is prudent to contractually require any
lower tier contractor to carry workers’ compensation coverage.
Contractual risk transfer is detailed in Chapter 9.

(1)
Alabama, Alaska, Arizona, Arkansas, Colorado, Connecticut, Florida, Georgia,
Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Massachu-
setts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada,
New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Da-

Chapter 8 – The General Contractor’s Responsibility
51
kota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Ten-
nessee, Utah, Vermont, Virginia, West Virginia, Wisconsin, Wyoming.

52
Chapter 9
Contractual Risk Transfer and Workers’
Compensation
Beyond contractually requiring “lower tier” contractors to main-
tain workers’ compensation coverage, “upper tier” contractors should
consider incorporating other requirements into their contracts and
agreements.
 “Upper tier” refers to the principal (owner) and primary
general contractor;
 “Lower tier” contractors are the subcontractors and sub-
subcontractors.
Previous chapters have focused on the definition of an employee,
who is considered an employer and who could be held financially
responsible for an injury. But insurance is not the only risk transfer
mechanism available to protect upper tier contractors from the finan-
cial impact of an injury to a worker who is not a direct employee.
Contractual risk transfer’s contribution to upper tier contractor pro-
tection is the focus of this chapter.
Basics of Contractual Risk Transfer
Effective contractual risk transfer requires specific transfer word-
ing in the contract between the upper tier and lower tier contractors.
Since these disparate financing and control techniques (insurance
and contractual risk transfer) are ultimately intertwined, understand-
ing how workers’ compensation policies and insurers respond to con-
tractual risk transfer language is paramount.
Commonly known as the “indemnification agreement,” all con-
tracts between upper and lower tier contractors should contain some

Chapter 9 – Contractual Risk Transfer and Workers’ Compensation
53
form of indemnification and hold harmless wording. Provisions of
such contractual wording may read as follows:

“For and in exchange for fair and equitable consideration,
transferee (name of the lower tier contractor) agrees to in-
demnify, hold harmless and waive any right of subrogation
against transferor (name of the upper tier contractor) from
any and all loss or cost arising from bodily injury to (trans-
feree’s) employees, subcontractors or subcontractor’s em-
ployees hired by (transferee).”

This sample wording is limited to an upper tier contractor’s ex-
posure to injuries covered by workers’ compensation. Broader word-
ing can be used to cover other exposures such as bodily injury and
property damage liability to third parties or liability arising out of
completed operations.
Notice, there are three parties to contractual risk transfer; the
transferor, the transferee and the financer. Each is defined as follows:
 Transferors – The party from which risk is being trans-
ferred. This may include the owner, the project management
firm, and/or the general contractor. Other common terms for
the transferor include indemnitee and promisee;
 Transferees – The party accepting the risk. This can include
the general contractor, subcontractors and sub-
subcontractors. Other common terms include indemnitor and
promisor; and
 Financer – The party called on to respond financially. This
can include the “transferee” or an insurance company.
Indemnification and hold harmless agreements are the essence of
effective contractual risk transfer. Indemnification is the contractual
obligation of one party (the indemnitor) to return another party (the
indemnitee) to essentially the same financial condition enjoyed be-
fore the loss with no improvement or betterment. Hold harmless
wording provides protection from the legal process and any accom-
panying liability and expense that may arise from an injury. Unlike
contractual requirements to purchase workers’ compensation, indem-

Chapter 9 – Contractual Risk Transfer and Workers’ Compensation
54
nification wording is not necessarily affected by, nor does it affect,
the transferee’s insurance coverage. It is purely a contractual issue
requiring one party to stand in place of another.
There are three levels of contractual risk transfer commonly
found in contracts:
 Limited transfer: The transferee accepts only the financial
consequences of loss resulting from his sole negligence. If
the transferor or another party contributes to the loss, the
transferee is not financially responsible for that part of the
loss. Essentially, the transferor is only protected for its vicar-
ious liability arising out of the actions of the transferee. This
level is allowed in every state.
 Intermediate transfer: The transferee agrees to accept the
financial consequences of occurrences caused in whole or in
part by its negligence. This includes if the transferor or an-
other entity contributes to the loss in some way. Only a few
states allow this degree of transfer.
 Broad transfer: Provides the greatest scope and requires the
transferee to indemnify and hold harmless the transferor
from all liability arising out of an incident, even if the act is
committed solely by the transferor. This may qualify as an
exculpatory contract and is illegal in most jurisdictions be-
cause the wording is considered “unconscionable.” Uncon-
scionable is defined as a contract that is unreasonable due to
the unequal bargaining strength of the parties, or the result of
undue influence or unfair tactics.
Regardless of which level of transfer is desired, consult with le-
gal counsel familiar with the jurisdiction as any decision may be af-
fected by statute. Individual states may allow nothing more than lim-
ited transfer contracts, where others may allow broad transfer.
Contractual Risk Transfer Done Right with Wrong Results
Contractual risk transfer’s importance cannot be underestimated;
nor should its effectiveness be overestimated. Recounting a recent
claim will work to explain the dichotomy of this statement.

Chapter 9 – Contractual Risk Transfer and Workers’ Compensation
55
Three parties were involved in this suit – the general contractor,
the subcontractor and a sub-subcontractor. The general contractor bid
out all the work on a large commercial building project in a monopo-
listic state, awarding the contract to supply the structural steel and
erection to the subject subcontractor. The subcontractor only sup-
plied the structural steel and delivered it to the construction site;
choosing to subcontract the erection work to a third party, the sub-
subcontractor (allowable by contract).
The subcontractor was required to contractually agree to indem-
nify and hold the general contractor harmless for any bodily injury or
property damage resulting solely from the acts of the subcontractor
or contributed to by the subcontractor (an intermediate transfer). In
like manner, the subcontractor required the sub-subcontractor to sign
a contract containing the same risk transfer wording.
An employee of the sub-subcontractor fell and was injured. The
injured worker sued the general contractor for gross negligence and
reckless disregard for safety. The general contractor transferred the
claim to the subcontractor to defend and indemnify, as was required
by contract. Since the subcontractor contractually transferred its risk
down to the sub-subcontractor, the direct employer of the injured
worker was pulled into the suit and responsible to indemnify and
hold the subcontractor harmless, and the subcontractor, the general
contractor.
Had the general contractor not contractually required the subcon-
tractor to indemnify and hold it harmless, it would have been wholly
responsible for its own defense and ultimate payout. Likewise, had
the subcontractor not transferred its exposure to the sub-
subcontractor, it may have become the sole party responsible to pay
any injury or damages. This is the main goal of contractual risk
transfer, to make the entity closest to the activity (and thus with the
most control over the situation) financially responsible for any injury
that occurs.
So far the contractual risk transfer is operating as anticipated and
planned, but additional facts must be known before the unveiling of
the end of the story and the ultimate subjugation of the contractual
risk transfer provisions.

Chapter 9 – Contractual Risk Transfer and Workers’ Compensation
56
The injured employee of the sub-subcontractor was tacking
down a roof at a height of about three stories, walking backwards; he
physically lifted up the safety barriers to get outside of them so he
could complete the job. Continuing to tack while walking backwards
he fell and was paralyzed. Illegal drugs were found in his system
after required testing.
The subcontractor delivered the material, left the job site, and
never returning for any reason. The subcontractor was not charged
with the supervision of the job, and was not even on site in the days
leading up to or on the day of the injury.
Contractual risk transfer had done its job by placing the burden
on the party closest to and best able to control the work methods and
means, the sub-subcontractor. However, this is not how it ended. The
case never made it to trial; it was settled by the insurance carriers
involved. The sub-subcontractor paid $2 million, the subcontractor
(who was not even there) paid $1 million and the general contractor
got out paying only $200,000.
Had this case gone to trial and had the contractual provisions
held up under state law the entire burden would likely have been
borne by the sub-subcontractor. The general contractor may have had
to ante-up if it were proven he failed to maintain a safe work envi-
ronment (a requirement that cannot be transferred away); but the
subcontractor would likely not have had to pay anything. If laws
were upheld, the employee should have received nothing for violat-
ing safety rules and regulations and testing positive for drugs. But
this is pure theory and conjecture since no court ever heard the case.
Waiver of Subrogation
Construction contracts of recent years have tried to require that
lower tier contractors endorse a “waiver of subrogation” onto a
workers’ compensation policy in favor of the upper tier contractors.
Many insurers have historically refused this request for reasons out-
side the scope of this chapter (although this trend is changing in
some states). Waiver of subrogation endorsements should not be
necessary if the contract between the parties already waives such
rights.

Chapter 9 – Contractual Risk Transfer and Workers’ Compensation
57
Subrogation rights flow from the harmed party’s right to be made
whole by the party responsible for the loss. If the right to subrogate
against the upper tier contractor is waived by contract prior to an in-
jury, the insurer of the injured worker’s employer (the transferee) has
no right to subrogate either. Waiver of subrogation should be a part
of the indemnification and hold harmless section of the contract, not
provided by an endorsement to the policy.
If a particular state’s statute affects the level of indemnification
allowed, waiver of subrogation wording may need to be addressed in
a separate paragraph within the contract to lessen the chance that the
provision will be voided if the level of transfer is outside of allowa-
ble transfer provisions.
Conclusion
If a worker is injured, he or she likely will sue everyone within
reach. This cannot be avoided. The goal of contractually required
insurance, and the use of contractual risk transfer, is simply to place
the ultimate financial burden on the party most directly related to and
responsible for the injured party.

58
Chapter 10
Employees Exempt from Workers’
Compensation
Employee-employer relationships regarding workers’ compensa-
tion are complicated by the IRS, industrial commissions, the courts
and state statute. Each has its own definition or applies a different
test to define “employee.”
Prior chapters discussed the difference between an independent
contractor and an employee; the responsibility placed on upper tier
contractors when lower tier contractors do not provide workers’
compensation benefits for their direct employees; and the importance
of contracts and contractual risk transfer in managing some of these
relationships. This chapter will re-cap some previously covered in-
formation and apply it to “employment situations” exempt from stat-
utory workers’ compensation protection.
Who Is an Employee and How Many Are Required?
Thirty-seven states and the District of Columbia require every
employer with one employee or more to provide workers’ compensa-
tion coverage. Only 13 states allow employers to forego coverage
until they surpass a certain threshold number of employees; once
eclipsed, it becomes necessary for employers in those states to pro-
vide benefits. A few of the “threshold” states lower the threshold
number if the employer falls within a contractor classification.
“Employee” and “employer” were defined in Chapter 7. Re-
member, as a general rule, the “employer” is not required to be pro-
tected by workers’ compensation but “employees” must be protected
as per individual state statutes. The determination often revolves
around the entity’s legal structure.

Chapter 10 – Employees Exempt from Workers’ Compensation
59
 Sole Proprietorships: A sole proprietor (individual owner)
is the employer. The individual owner, in nearly every state,
does not count towards the number of employees. A sole
proprietor with no employees is not required to carry work-
ers’ compensation. Any employees other than the individual
owner, whether full or part time, change this requirement.
Generally, even when a sole proprietor is required to protect
his employees, the individual owner is only protected if cov-
erage is specifically elected; and not every state allows the
proprietor the option of coverage. A few states extend cover-
age to the sole proprietor, but allow the individual to exclude
himself from coverage by filing a rejection form.
 Partnerships: Partners, like sole proprietors, are the em-
ployer and as such do not count towards the number of em-
ployees. While this is not true in every state, the majority
treat partners and sole proprietors the same regarding calcu-
lation and the option to elect (and in a few states, reject)
coverage.
 Corporations: Corporations are “legal persons” (defined in
Chapter 7) and are considered the employer. The corporation
itself does not qualify for workers’ compensation coverage
since it is, in reality, a fictitious person and the employer.
Corporate officers are considered “employees” of this ficti-
tious person and count towards the total number of employ-
ees. Most states allow certain corporate officers to exclude
themselves from workers’ compensation protection simply
by completing a rejection form. Some states limit the num-
ber or position titles of officers who can be excluded. Not-
for-profit corporations are viewed differently in a few states
in that the corporate officers (usually volunteers) are not in-
cluded as employees and do not count towards the total
number of employees.
 Limited Liability Company: Limited Liability Companies
(LLCs) are subject to a wider range of views regarding the
inclusion or exclusion of the owners than are the previously
defined entity types. Twenty-three states treat members and

Chapter 10 – Employees Exempt from Workers’ Compensation
60
managers as the “employers,” specifically excluding them
from the employee count and coverage; 20 states view the
LLC as the “employer” and treat members and managers as
corporate officers and thus employees. Seven states and the
District of Columbia combine these extremes by classifying
the members and managers as “employees” or “employers”
based on specific criteria such as: how the entity chooses to
be taxed, the number of members/managers, the operation
classification (managers or members included as an employ-
ee if construction class or “high hazard class,” excluded oth-
erwise), or the percentage of ownership.
 Professional Associations: Professional associations (PAs)
as a business entity are limited to a few professions such as
physicians, dentists, attorneys, architects and other like pro-
fessionals. States’ views of professional associations are
more diverse than the disparity over LLCs. Many states treat
PAs like corporations, making the organizers corporate of-
ficers and thus employees. Other states equate these entities
to LLCs; still other states place these entities in a separate
class. Adding to the confusion, different insurance carriers in
the same state might view PAs differently; one might con-
sider them like partnerships while another carrier might treat
them like corporations.

Professional Associations are more like corporations from a
legal standpoint than any of the other business types present-
ed. While the existence rights and provisions of a PA may
not be the same in every state, in most jurisdictions:
 Professional Associations like corporations are
created by the filing of Articles of Incorporation;
 Professional Associations and corporations can
exist apart from the individuals that formed them
(they exist as a legal person), meaning the PA
can own property, sue, be sued and incur debt.
And they can live beyond the natural life of the
founders; and

Chapter 10 – Employees Exempt from Workers’ Compensation
61
 Both Professional Associations and corporations
can sell stock.
Individual state statutes must be consulted to decide if pro-
fessional association organizers are considered “employees”
or “employers.” If there is a disagreement among insurers,
legal assistance may be required or the respective department
of insurance may need to be consulted
Worker’s compensation protection is not required when the
number of employees falls below the requisite number. Knowing the
threshold and the definition of an employee in a particular state is
paramount when placing workers’ compensation for multi-state cli-
ents. As mentioned above, only 13 states allow a threshold greater
than one “employee.”
Employments Not Subject to Workers’ Compensation
Certain “employment” situations and arrangements are exempt
from the requirements of workers’ compensation. Each state views
exempted employment classes differently. Some allow total exclu-
sion, while others may require coverage if certain thresholds are
breached (generally very high thresholds in comparison to the stand-
ard requirements).
Casual Labor – No Workers’ Compensation Required
Workers engaged in casual labor on behalf of the employer are
not considered “employees” and are not required to be protected by a
workers’ compensation policy. This exclusionary provision applies in
nearly every state with each applying different requirements to the
exception. States may:
 Simply define casual labor and exclude the requirement to
provide protection. Some states apply subjective terms to
this definition such as “brief,” “occasional,” “irregular,”
“sporadic” or “infrequent,” which may require arbitration or
litigation to objectify;

Chapter 10 – Employees Exempt from Workers’ Compensation
62
 Assign a maximum dollar limit that can be paid or a maxi-
mum number of days the job can last before the work is no
longer considered “casual;” or
 Assign a number of “casual employees” allowed.
Casual labor is generally defined as work that is not in the usual
course of trade, business, occupation or profession of the employer
(contracting party). This could include relationships such as a manu-
facturer hiring a landscaping company to maintain the grounds; or
the owner of an insurance agency hiring a carpenter to upgrade the
office. The contractors hired are not performing duties that would
normally be done by any employee; they are doing work outside the
normal operational requirements. Essentially, a casual laborer is one
that does not directly promote or advance the employer’s business or
operation.
Other Employments Often Exempt from Workers’ Compensa-
tion
Having fewer than the requisite number of employees and casual
labor “employees” are just two of the employment situations that are
exempt from workers’ compensation statutes. Other employment re-
lationships not subject to workers’ compensation protection require-
ments include:
Domestic employees: Most states specifically remove the re-
quirement of providing workers’ compensation protection for domes-
tic employees. Some states place a payroll limit or a numerical limit
above which coverage is once again required.
Agricultural, Farm, Ranch, Aquaculture employees: Nearly
every state excludes these workers from the definition of an “em-
ployee” and do not require coverage be provided to these workers.
Like domestic employees, some states do limit the exception to oper-
ations or individuals with less than a specified number of workers or
a specified payroll amount. A few states limit this exception with
special provisions such as the type of work being performed or the
familial relationships.

Chapter 10 – Employees Exempt from Workers’ Compensation
63
Commissioned Real Estate Agents: Many states remove the re-
quirement to provide workers’ compensation protection to real estate
agents or subagents paid purely on a commission basis. This exclu-
sion does not apply in every state.
The above are the most commonly found exclusions to the work-
ers’ compensation requirement, but there are several beyond these
that may only apply in a few states. Such limited exclusions include:
 Volunteer ski patrol employees;
 Members of the clergy;
 Some taxicab drivers;
 Professional athletes;
 Athletic contest officials;
 Officers of non-profit associations and corporations;
 Direct sale people (i.e. Mary Kay consultants and directors);
 Newspaper re-sellers; and
 Musicians/performers.
This is not an all-inclusive list.
Legal Recourse
If an exempted worker/employee is injured, the only recourse
available to recover any medical costs or lost wages from the em-
ployer is the legal system. Essentially, the injured party has the same
legal rights as a member of the general public, but the injured party
also has to prove that the employer was negligent in causing the inju-
ry or illness. The employer is allowed the same defenses as were
available prior to the enactment of workers’ compensation laws:
 Assumption of Risk: Proving negligence requires evidence
that a duty of care is owed. When an employee assumes the
risk of an inherently dangerous or recognizably dangerous
activity, the duty of care is lifted from the employer. With no
required duty of care, there can be no negligence. Employees
in hazardous occupations are believed to understand the haz-
ards and to assume the risk of injury;

Chapter 10 – Employees Exempt from Workers’ Compensation
64
 Contributory or Comparative Negligence (depending on the
state): Doctrine of defense stating that if the injured person
was even partially culpable in causing or aggravating his
own injury, he is barred or severely limited in the amount of
recovery from the other party; and
 Fellow Servant Rule: Defense against employer negligence
asserting that an employee’s/worker’s injury was caused by a
fellow employee not by the acts of the employer. If proven,
negligence is not chargeable against the employer and recov-
ery could be severely limited or barred.
Unless negligence can be proven, no finding of guilt or a re-
quirement to pay will materialize.
Workers’ Compensation Coverage Provided
Workers’ compensation coverage can be extended to many of
these exempt employments by attaching one of the available Volun-
tary Compensation Endorsements. These endorsements extend work-
ers’ compensation protection to employments customarily exempted
by individual state law by allowing the employer to designate the
class of employees they wish protected. Essentially, workers become
de facto employees, removing their need to sue and prove negligence
and the employer’s requirement to pay for and provide a defense.
See Appendix B for more information on exempt employees. Ap-
pendix D lists and describes most available workers’ compensa-
tion endorsements.

65
Chapter 11
Extraterritorial Considerations – When to
Add a ‘3.A.’ State
Out-of-state and other state jurisdiction problems arise at the
junction of two concepts: 1) Extraterritoriality and 2) Reciprocity.
Extraterritoriality deals with employees who leave a state and reci-
procity relates to how the state deals with employees entering the
state. More specifically:
 Extraterritoriality: How does the state’s workers’ compen-
sation policy respond when one or several workers leave the
state or states providing coverage to perform operations for
or conduct duties on behalf of and for the furtherance of the
employer’s business? Does the workers’ compensation cov-
erage extend to that state?
 Reciprocity: How does the state to which the worker has
travelled to work view the workers’ compensation coverage
carried by the employer in the “sending” state? Does the re-
ceiving state’s workers’ compensation law apply to the em-
ployer sending the workers? Does the sending employer’s
work comp policy satisfy the receiving state’s workers’
compensation statutes?
Knowing where employees regularly work and might temporari-
ly work during the policy period is absolutely essential when plan-
ning workers’ compensation protection. Potential coverage gaps or
the complete loss of protection are possible when employees conduct
operations on behalf of the employer in states where the insured does
not have a business location — an office address. These extraterrito-
rial exposures must be discovered, planned for and managed in the
policy.

Chapter 11 – When to Add a ‘3.A.’ State
66
Two methods/options are offered by the workers’ compensation
policy to manage the exposure created when employees are injured
working in jurisdictions other than the employer’s domicile state or a
branch-location state. Workers’ compensation extends protection and
benefits to states listed as either “Primary/ 3.A.” states or an “Other
State” also known as a “3.C.” state.
Deciding which category, 3.A. or 3.C., to place a particular state
is not always crystal clear; a haze often surrounds workers in other
states or the staffing of employees from another state. All jurisdic-
tions except Connecticut and New Jersey have specific statutes ad-
dressing an employer’s extraterritorial exposures. The following par-
agraphs attempt to clarify a few of the complex problems surround-
ing extraterritorial coverage decisions. Variability of state laws does
not allow state-specific information to be presented.
Primary States (3.A.) Listing Requirements
State of domicile and branch office states should obviously be
scheduled as 3.A. states. Employers whose employees work exclu-
sively from fixed locations in the domiciled state or a listed branch
location have little or no concern over extra jurisdictional exposures.
The jurisdictional choices are rather straightforward unless one of the
branch states is a monopolistic fund state.
Monopolistic states require the insured to purchase a workers’
compensation policy from the state. Only four monopolistic states
are still in operation: North Dakota, Ohio, Washington and Wyo-
ming. Insureds operating in one of these states must purchase the
workers’ compensation protection from the state, but will require an
alternate means to secure employers liability coverage. This will be
discussed in a later chapter.
Extraterritorial coverage dilemmas arise when employees travel
and work outside the scheduled “3.A.” domicile and/or branch office
states. All the information surrounding the employment situation in
question must be known in order to be able to pinpoint which states
necessitate scheduling as a primary 3.A. jurisdiction. Most likely,
there is no specific guidance offered by the applicable state’s statute
nor will the underwriters be able to or willing to provide a definitive

Chapter 11 – When to Add a ‘3.A.’ State
67
answer regarding a particular state’s need to garner status as a prima-
ry coverage state. Often the court will be the final word in a question
of jurisdiction. When the court gets involved, the outcome is seldom
beneficial to the agent that placed the coverage. Making the determi-
nation before the injury and erring on the side of caution is prefera-
ble. Reaching a conclusion is made easier when the exposure is
realized and the necessary information is available.
Employee Options
Employees injured in the course of employment for either a di-
rect employer or a de jure employer (an employer created by law as
detailed in previous chapters) potentially have several options re-
garding which state’s workers’ compensation benefits they are al-
lowed to claim. They can choose the greater of:
 Benefits available from their state of residence;
 Benefits extended from the state in which they primarily
work;
 Benefits available in the state in which the injury occurred;
or
 Benefits prescribed by the state in which the employer’s
workers’ compensation coverage is provided.
However, statutes or the common law in each state serve to
greatly limit these options. State industrial commissions and/or the
courts have developed specific “tests” to judge from which jurisdic-
tion an injured worker can demand or expect benefits. Statutory and
common law tests are either “significant contact” based or “contract
of hire” based.
Jurisdictional Tests
“Significant contact” tests base jurisdictional decisions around
the employee. Three primary tests/questions work to determine
which states need to be scheduled as primary, 3.A. states. These
questions are:
 Where does the employee live?

Chapter 11 – When to Add a ‘3.A.’ State
68
 Where does the employee primarily work?
 In what state was the contract of hire made?
If a “preponderance of contact” evidences a state not listed as a
3.A. state, there may be a gap in protection. For example, the em-
ployer, ABC Plumbers, located in State “A,” hires James who lives
just across the state line in State “B.” James goes into State “A” eve-
ry morning to pick up his job orders and once a week to get his
paycheck, but nearly all of his jobs are near his home in State “B.”
ABC does not have a business office location in State “B;” should
State “B” be listed as a 3.A. state?
Evidence indicates that State “B” has significant contact with the
employee and thus should be listed as a primary state. Since the bulk
of the employee’s work is in State “B,” it is likely that the injury will
occur there. Further, State “A’s” law may allow or the courts may
decide that the employee is eligible for the higher benefits offered by
State “B” as per the employee options listed above.
Even in states that do not apply the “significant contact” assess-
ment, agents may be well-served to apply this three-question test
when deciding which states to list as primary coverage states. Since
civil trials are decided based on a “preponderance of evidence,” us-
ing this test may prove conservatively cautious, but accurate.
“Contract of hire” states approach the issue of extraterritorial ju-
risdiction from the employment contract standpoint. The state of hire
is essentially the deciding factor. The vast majority of states statuto-
rily subscribe to this approach; however court decisions often heark-
en back to the “significant contact” test.
Four tests apply in contract of hire jurisdictions to decipher
whether another state is required to be listed as a 3.A. state. Not eve-
ry “contract of hire” state utilizes the same qualifiers, but the majori-
ty extends benefits to employees meeting ANY of the following re-
quirements:
 Is the employment principally localized in this state?
 Is the employee working under a contract of hire made in
this state for employment not principally localized in any
state?

Chapter 11 – When to Add a ‘3.A.’ State
69
 Is the employee working under a contract of hire made in
this state for employment principally localized in another
state whose worker’s compensation law is not applicable to
the employer?
 Is the employee working under a contract of hire made in
this state for employment outside the United States?
If any of the tests are satisfied, employees working in other states
are extended the benefits they would receive just as if they were
working in the subject state. This is conditioned on, as detailed in
upcoming paragraphs, the laws of the states in which the employee is
working — specifically the reciprocity provisions.
Illinois is a contract of hire state. In 2006, its Supreme Court
rendered a decision in Mahoney v. Industrial Commission that may
have stepped beyond the bounds of “reasonable” interpretation of the
contact of hire provisions when the court proclaimed, “the Act ‘clear-
ly states that site of the contract for hire is the exclusive test for de-
termining the applicability of the Act to persons whose employment
is outside Illinois where the contract of hire is made within Illinois’.”
Mahoney began work for United Airlines’ Chicago, Ill., terminal
in 1969; working there until 1993. He voluntarily transferred to Or-
lando, Fla., in 1993. After moving to Florida, Mahoney purchased a
house, remarried and only returned to Illinois for occasional training
or to visit relatives; evidentiary proof he fully established residence
in Florida.
He suffered compensable injuries in 1999 and 2001, both while
working at the Florida location. At the time of his first injury he had
been a Florida resident for nearly six years.
Mahoney received the requisite benefits allowed/required under
the Florida allowed/required under the Florida Workers’ Compensa-
tion Act, but he subsequently filed claim under the Illinois Workers’
Compensation act asserting that the “contract of hire” provisions en-
titled him to Illinois benefits, which are somewhat higher than Flori-
da’s. The Illinois Supreme Court agreed and awarded him benefits
under Illinois law.

Chapter 11 – When to Add a ‘3.A.’ State
70
Another State’s Laws – Reciprocity
Not every state will recognize another state’s extraterritorial pro-
vision. Essentially, some states don’t care what another state law
provides; employees working in their jurisdiction will abide by and
be subject to the law of the state in which the employee is working,
allowing the employee more benefit selection options.
The third “contract of hire” test — “Is the employee working un-
der a contract of hire made in this state for employment principally
localized in another state whose worker’s compensation law is not
applicable to the employer?” — highlights this non-reciprocity opin-
ion and requires knowledge of the law of any state where employees
are working, whether temporarily or principally. If the employee is
working in a reciprocal state, the domicile state benefits will apply;
employees injured in a non-reciprocal state may subject the employer
to a gap in coverage as the employee may be allowed to choose the
other state’s benefits. Employers, and their agents, with employees
working principally in another state should not depend on this extra-
territorial extension of coverage to provide the necessary workers’
compensation benefits.
Knowing reciprocal status between states will allow better deci-
sions when considering the need to extend primary 3.A. status to a
particular state. Difficulty lies in the fact that the states do not have
relatable reciprocal agreements. For instance, Oregon fully recipro-
cates with 24 states, according to the state Web site, while Idaho on-
ly lists eight states with which it reciprocates.
Each state has and develops its own reciprocal agreements.
States that mutually honor others’ extraterritorial provisions limit the
injured employee’s choice of jurisdictional benefits to those of the
home state or state to which the employee is primarily assigned. Em-
ployees injured while working in a non-reciprocating state may have
their choice of any of the four employee options previously dis-
cussed; and a court will likely participate in this determination.
Several states offer limited reciprocity, even to states with which
they freely reciprocate otherwise. Limited reciprocation may be
based on the employer’s business classification, the amount of time
the employees are in the state or the number of employees working

Chapter 11 – When to Add a ‘3.A.’ State
71
in the state. If these thresholds are eclipsed, coverage must be ex-
tended to that state via a 3.A. listing.
Florida, Montana, Nevada, New York, Washington (a monopo-
listic state) and possibly Illinois will not honor another state’s extra-
territorial provisions when the employer is in the construction indus-
try. When a contractor’s employees are working, even temporarily, in
one of these states, the state must be listed as a 3.A. state. Massachu-
setts is required to be listed as a 3.A. state anytime an employee is
working there, regardless of the classification of the employer. Pay-
roll earned in these states must be calculated using the respective
state’s rates.
New Mexico and Wisconsin both restrict reciprocity and man-
date 3.A. status for any employer having three or more employees in
their respective states, even on a temporary basis. South Carolina
extends the employee count to four or more. Alabama, Arkansas and
North Dakota (a monopolistic state) are the other examples of states
applying limited extraterritorial reciprocity.
Assigning Primary / 3.A. Status
No fixed rules or guidelines exist to delineate exactly the cir-
cumstances under which a particular state should be assigned 3.A.
status. Lawyers are even unwilling to pin themselves down to a “yes”
or “no,” only an “it depends.” Following are recommendations to
consider when determining whether a state should be scheduled as a
3.A. state. Without specific information regarding a particular em-
ployment situation, these are not “rules,” only suggestions. States
that may require assignment to 3.A. status include:
 The employer’s state of domicile – the “home office” (with-
out question);
 The employer’s state of incorporation if the employer incor-
porated in a state other than where the primary operations or
carried out (the home office). Employers sometimes incorpo-
rate in states other than where they operate for tax govern-
ance reasons; the state of incorporation may need to be listed
as a 3.A. state;

Chapter 11 – When to Add a ‘3.A.’ State
72
 States where branch offices are located;
 Any state outside office-location states where the employer
hires temporary “employees” solely to perform operations in
that state of hire;
 Any state where a subcontractor is hired to perform work on
behalf of a general contractor if proof of workers’ compensa-
tion is not provided. Remember, general contractor-
subcontractor relationships are not limited to construction
operations. Uninsured subcontractors may become de jure
employees in the other state based on that state’s law;
 Any state that has “significant contact” with an employee. If
the employee lives and primarily works in a state different
than the employer, that state should be assigned status as a
3.A. state;
 Any state where employees work more than a prescribed
number of days during the policy year. Ninety days may be a
good gauge, but this is not a concrete number – individual
state law should be reviewed for jurisdictional requirements;
 Any state that does not reciprocate with the employer’s state
of domicile or scheduled branch locations;
 States with limited reciprocity provisions;
 The state in which the “contract of hire” was executed (even
if the employee moves);
 Any state where the employee works on a regular basis (60
to 75 percent of the time might be a good guide);
 Any state where the employer has more than a pre-
determined number of employees working for longer than a
few consecutive days. Three or more employees longer than
30 days may be a good measure; and
 Monopolistic states require a separate policy.
Remember, these are merely recommendations and not rules to
be followed in every case. Additionally, underwriters may be unwill-
ing to extend 3.A. status even when a good case can be made for the
need.

Chapter 11 – When to Add a ‘3.A.’ State
73
Not every state in which employees are working will require or
even be eligible by underwriting guidelines for assignment as a 3.A.
state; but there still exists the potential for an injury in another state
to trigger that state’s workers’ compensation law. The second option
offered in the workers’ compensation policy for extending coverage
to extraterritorial jurisdictions is the Other States provision. These
are the 3.C. states.
Other States Insurance (3.C.)
Part Three – “Other States Insurance” is essentially two para-
graphs within the entire workers’ compensation policy, but the cov-
erage extended and the potential problems created by noncompliance
with this small section must not be overlooked or underestimated.
The other states section dictates how the workers’ compensation
policy will respond if and when an employee is injured in a non-3.A.
state but due to extraterritorial reciprocity problems is given the
option to choose the benefits mandated by the state of injury
rather than the state of domicile.
Other states (3.C.) coverage allows the employer’s workers’
compensation policy benefits to comply with the statutory benefits
required by the state where an employee is injured but in which the
insured: 1.) does not currently have on-going operations, and 2.) does
not plan to have on-going operations during the policy period such as
would necessitate its scheduling as a primary coverage state. Em-
ployees injured while working in a scheduled 3.C. state will receive
the benefits prescribed under that state’s law if made necessary by
application of law or a court decision. Effectively the workers’ com-
pensation policy responds and pays benefits in listed 3.C. states just
as if the state was scheduled under 3.A.
It is absolutely essential that any state qualifying for 3.A. status
based on the assignment tests detailed previously be extending 3.C.
status when the underwriter, for whatever reason, is unwilling to as-
sign 3.A. status to that state. Employees are obviously working in or
have significant contact with those states and a court may decide that
the injured employee is eligible for the state-of-injury benefits rather
than those mandated in the state of domicile or coverage.

Chapter 11 – When to Add a ‘3.A.’ State
74
From an errors and omissions (E&O) perspective, documenting
that 3.A. status was requested but was disallowed by the underwriter
is imperative. Get the denial in writing, signed by the underwriter
and keep it in the insured’s file. This will serve as a defense and
hopefully help to avoid any gaps in the desired protection. (It will
also serve as a good reminder at renewal to follow up to find out if
status in that state has changed, necessitating 3.A. status.) Once the
underwriter officially denies 3.A. status, specifically list that state in
the 3.C. section of the application and confirm that the state is pre-
sent on the declarations page when the policy arrives.
Employers should structure their “other states” protection to in-
clude any state to which the underwriter is willing to extend cover-
age. Most E&O carriers recommend 3.C. status be garnered with the
phrase, “All states other than 3.A. states and monopolistic states.” If
the underwriter is willing to provide such a broad 3.C. extension, so
much the better for the client; however, some carriers will not allow
this breadth of protection due either to license status (the carrier may
only be licensed in a few states), or the desire for greater information
regarding the location and activities of the employees.
At minimum, other states (3.C.) status should be extended to:
 Bordering states. This negates the exposure arising from em-
ployees that live in one state but work in the primary state;
 Any state to which income taxes are paid or would be paid;
and
 States to which employees may travel to attend classes, con-
ventions or other meetings.
Recommended – Preferred 3.C. Status Wording:
To properly extend workers’ compensation protection for other
states, it may be advisable to trigger 3.C. status by:
 Specifically scheduling those states that qualify for 3.A. sta-
tus as per the assignment test delineated above but which the
underwriter will not allow such assignment;
 Specifically listing the bordering states and the other states
as recommended in the preceding paragraph; and

Chapter 11 – When to Add a ‘3.A.’ State
75
 Completing the schedule of protection by adding the termi-
nology, “All remaining states other than 3.A. states and mo-
nopolistic states.”
Following the above advisory, the Other States (3.C.) blank for a
North Carolina domiciled risk with employees occasionally working
in surrounding states plus Maryland and New Jersey, and commonly
attending seminars in Texas may be completed as follows:
“SC, Ga., Tn., Va., Md., NJ, Texas and all remaining states other
than 3.A. states and monopolistic states.”
While this may seem rather long (yes, there is limited space, but
the comments section can be used), it succeeds in assuring that states
that need to be listed are listed. It also shows the client that the agen-
cy has gone above and beyond to manage his exposures.
Underwriting’s Bogus Claim
“We can’t list ________ as a 3.C. state because we are not li-
censed there.” This is a bogus claim; underwriters may not want to
list the state, but they CAN. Paragraph A.3. under Part Three – Other
States Insurance says: “We will reimburse you (the named insured)
for the benefits required by the workers’ compensation law of that
state if we are not permitted to pay the benefits directly to persons
entitled to them.”
Other than not being licensed in the state, why would the carrier
not be allowed to pay the injured worker? Just because they don’t
want to list a state doesn’t mean they can’t.
Penalties for Non-Compliance
Penalties for not properly scheduling a state as a 3.A. or a 3.C.
jurisdiction are clear and potentially severe, especially in a state that
should be classified as a 3.A. state on the day the policy goes into
effect.
NCCI’s workers’ compensation policy specifically declares: “If
you have work on the effective date of this policy in any state not

Chapter 11 – When to Add a ‘3.A.’ State
76
listed in Item 3.A. of the Information Page, coverage will not be af-
forded for that state unless we are notified within thirty days.”
Any state required to be scheduled as a 3.A. state but not listed
on the day the policy is effective or within 30 days of the effective
date will not be afforded protection. If an injury occurs in an unlist-
ed-but-should-be 3.A. state, all benefits required of that state will be
paid strictly by the employer. Knowing up front which states are re-
quired to be scheduled as 3.A. states is essential in order to avoid this
denial of coverage. This is why proper file documentation is impera-
tive if the underwriter refuses to list a state as a primary 3.A. state.
Listing it as a 3.C. state when the underwriter refuses to extend pri-
mary status may mitigate some of these exposures, but there is no
guarantee.
Injuries occurring in a state not requiring 3.A. status but which is
also not extended coverage under the other states, 3.C., provision
will subject the insured to a potential gap in benefits but not a total
denial of coverage. For example, an employer domiciled in State “C”
has an employee injured in State “D.” The breadth of operations in
State “D” does not necessitate 3.A. status but neither was the policy
adequately planned to extend “Other States” (3.C.) status to “D.” If
the employee, via an industrial commission or court decision, quali-
fies to receive “D’s” benefits, the employer’s workers’ compensation
policy will only pay the benefits available in State “C.” The differ-
ence between “C’s” and “D’s” benefits will be paid by the employer.
Had State “D” been covered under the Other States, 3.C., provision,
the employer’s workers’ compensation policy would have paid bene-
fits as if State “D” were a primary, 3.A., state.
If the insured begins operations in a 3.C. state during the policy
period, the insurance carrier is to be notified “at once.” If notification
does not meet policy requirements, any injury will be subject to the
same denial of benefits found when a 3.A. listing is required but not
made — there will be no coverage.
Conclusion
Extraterritorial exposures and reciprocity problems open the em-
ployer and the agent to many pitfalls and potential coverage gaps.

Chapter 11 – When to Add a ‘3.A.’ State
77
This is a complex subject that requires specific information regarding
the states in which a particular employer works or might potentially
work.

78
Chapter 12
The Surprising Importance of Employers’
Liability Protection
Workers’ compensation insurance was designed to be and re-
mains the employee’s sole remedy to recover medical costs and lost
wages resulting from bodily injury suffered in the “course of em-
ployment” (as defined earlier). There are, however, bodily and finan-
cial injuries that: 1) fall outside workers’ compensation protection,
and 2) are excluded by the general liability policy.
Part Two – Employers’ Liability Insurance dovetails to con-
nect the workers’ compensation policy and the commercial general
liability policy, filling gaps created by the narrowness of the workers’
compensation policy and exclusions in the commercial general liabil-
ity policy.
Although included as part of the workers’ compensation policy,
employers’ liability insurance is similar to and contains components
of both the commercial general liability and the workers’ compensa-
tion policies. Part II shares slightly more similarities with the com-
mercial general liability policy than with workers’ compensation
(Part One).
Employers’ Liability and Commercial General Liability
Employers’ liability and commercial general liability coverage
both:
 Require negligence be proven by the injured person or enti-
ty before any payment of benefits. Workers’ compensation is
a “no-fault,” exclusive remedy system where the only re-
quirement to receive the statutorily-prescribed benefits is an
injury arising out of and in the course of and in the course

Chapter 12 – The Importance of Employers’ Liability Protection
79
and scope of employment. Conversely, the employers’ lia-
bility section (Part Two) requires the injured party (be they
the employee, a family member or another entity) to prove
that: 1) there was a duty owed to them, 2) the duty was
breached by the insured, 3) an injury occurred and 4)
the breach of duty was the proximate cause of the inju-
ry. If negligence cannot be proven, the insured has no
legal liability and the insurer has no duty to indemnify
the injured party.
 Apply a specific limit. Limits in the workers’ compensation
policy are mandated by state statute, regardless of the
amount. Employers’ liability coverage has a specific limit of
liability — except in one (N.Y.) or possibly two states
(Mass.) where the coverage is unlimited. Basic employers’
liability limits are $100,000 per occurrence for bodily injury;
$100,000 per employee for bodily injury by disease; and
$500,000 aggregate for bodily injury by disease. These lim-
its can be increased by endorsement and the payment of ad-
ditional premium.
 Coverage is written on a per occurrence basis with an ag-
gregate limit for injury by disease. As above, the bodily in-
jury limit is per occurrence with no aggregate; however,
bodily injury by disease is subject to an annual aggregate
limit.
 Additional limits are available from an umbrella/excess
policy. Part One – Workers’ compensation, as stated above,
pays whatever is required by statute with only a statutory
cap. Employers’ liability (Part Two) is subject to the limits
shown on the declarations page. If additional limits are de-
sired, the underlying limits are adequate and the insurance
company is willing to provide the additional protection, an
umbrella or excess policy can sit over the employers’ liability
coverage to increase the available limits.
 Defense is provided in excess of the coverage limits.

Chapter 12 – The Importance of Employers’ Liability Protection
80
Employers’ Liability and Workers’ Compensation
Employers’ liability coverage dovetails and correlates with
workers’ compensation benefits by requiring that:
 Bodily injury or financial injury for which the insured is
held legally liable must arise out of and in the course and
scope of the employee’s employment for the insured. Em-
ployers’ liability coverage is payable only when an outside
party suffers bodily injury or financial injury as a direct re-
sult of the work-related injury suffered by the employee.
There is one extension of employers’ liability coverage al-
lowing the eligible “outside party” to be the employee. The
breadth and provisions of coverage will be discussed in a
later section.
 The employment leading to injury must occur in or be at-
tributable to a 3.A. listed (primary) state. Subject to the ex-
traterritorial jurisdiction requirements of each state and the
additional considerations highlighted in a prior section of
this chapter, this coverage part only extends protection if the
employee is injured in a state or strictly eligible for benefits
from a state specifically scheduled under 3.A. Employees in-
jured while working in a non-3.A. state may not be eligible
for extraterritorial extensions of coverage from the primary
state of domicile due to lack of reciprocity between the sub-
ject states; if such reciprocity is unavailable, employers’ lia-
bility coverage does not extend to any third party claims
arising out of that injury.
 Bodily injury must occur during the policy period and the
last day of any exposure causing or aggravating a bodily
injury by disease must occur during the policy period.
These same requirements apply before an injury can be
compensable in the workers’ compensation policy.
‘Outside Party’
Before moving any further into the discussion of employers’ lia-
bility protection, the term “outside party,” used several times above

Chapter 12 – The Importance of Employers’ Liability Protection
81
and several more times in the remainder of the employers’ liability
discussion, must be understood as it relates to the workers’ compen-
sation policy and the commercial general liability policy. For this
discussion, “outside party” has two definitions based on which cov-
erage form is being discussed. This difference must be clearly ev-
ident before moving forward in this discussion.
Workers’ compensation is a “three-known-party” policy: 1) the
employer/insured, 2) the employee (the injured), and 3) the insurance
carrier. All three are known from the beginning. Any individual or
entity not qualifying as one of these known parties is considered an
“outside party.”
Commercial general liability coverage also involves three par-
ties, but only two are known up front: 1) the insured (as defined in
the policy); and 2) the insurer. The third party, the injured party is
unknown making them the “outside party” in a commercial general
liability policy.
Work Compensation and CGL Gaps Necessitate Employers’ Li-
ability Insurance
Why coverage as significant and crucial as employers’ liability is
routinely ignored is baffling. Employers’ liability protection has been
mistakenly viewed as a throw-away coverage that is simply tacked
onto the workers’ compensation policy. Understanding and focusing
attention on workers’ compensation and general liability is seen as a
better use of the agent’s time. One reason may be that few agents
have ever been a part of an employers’ liability claim.
But as mentioned earlier, the importance of this dovetail cover-
age cannot and should not be overlooked. This is the tie that binds
two major coverages together — such gap coverage deserves as deep
an understanding as do the coverages it joins together.
Workers’ Compensation and CGL Provisions
Part Two – Employers’ Liability insurance fills the gaps between
the workers’ compensation policy and the commercial general liabil-
ity policy. Workers’ compensation coverage does not, have any spe-
cific exclusions, per se; penalties are assessed, but no specific exclu-

Chapter 12 – The Importance of Employers’ Liability Protection
82
sions apply; the limited breadth of protection necessitates this addi-
tional coverage. Conversely, the commercial general liability policy
contains two specific employee injury exclusions that underlie the
need for this dovetail protection.
Workers’ compensation insurance benefits are statutorily man-
dated and restricted to costs directly assignable to a specific employ-
ee injured in the course and scope of employment. Coverage is not
designed to compensate any outside party, only the injured employee
or the employee’s dependents if the worker dies as a result of the
work related injury or illness (death benefits are considered pay-
ments directly attributable to and solely for the “benefit” of the de-
ceased employee not for the injury suffered by any outside party).
Commercial general liability is different. Two exclusions found
in ISO’s CGL policy preclude the extension of coverage to any party
suffering bodily injury or financial loss as a result of an injury to an
employee. These exclusions are:
 Exclusion “d.” Workers’ Compensation and Similar Laws
excludes any obligation of the insured under a workers’
compensation, disability benefits or unemployment compen-
sation law or any similar law; and
 Exclusion “e.” Employers’ Liability excludes bodily injury
to: 1.) An employee of the insured arising out of and in the
course of employment by the insured; or while performing
duties related to the conduct of the insured’s business; or 2.)
The spouse, child, parent, brother or sister of that “employ-
ee” as a consequence of an employee injured in the course
and scope of employment. Exclusion “e.” applies whether the
insured may be liable as an employer or in any other capaci-
ty and to any obligation to share damages with or repay
someone else who must pay damages because of the injury.
Exclusion “e.” does not apply to liability assumed by the in-
sured under an “insured contract.”
Exclusion “e.” is designed to exclude bodily injury arising out of
and in the course and scope of employment to any person qualifying
as an “employee” and not already excluded by the workers’ compen-

Chapter 12 – The Importance of Employers’ Liability Protection
83
sation exclusion (exclusion “d.”). This is the “catch-all” employee
exclusion.
The limited provisions of the workers’ compensation policy and
the exclusions in the commercial general liability policy combine,
with one exception, to preclude coverage for any injury or loss suf-
fered by an outside party as a result of an injury to an employee. This
gap is closed, to some extent, by the employers’ liability insurance.
Before jumping into the coverage provided by the employers’ li-
ability policy, the exception to the commercial general liability poli-
cy’s exclusion “e.” requires exploration and comment.
Exception to the Employers’ Liability Exclusion in the CGL
Liability to an “outside party” arising out of an injury to an em-
ployee is covered by the unendorsed commercial general liability
policy, provided such liability is contractually assumed prior to the
injury under an “insured contract” as defined in the applicable CGL
form.
Go back and reread “Contractual Risk Transfer Done Right with
Wrong Results” in chapter 9, which recounts an employee injury
claim that accurately highlights how this exception to the commer-
cial general liability’s employers’ liability exclusion (exclusion “e.”)
applies. Each higher tier contractor transferred its exposure down to
the lower tier contractors beginning with the general contractor and
ending at the sub-subcontractor.
Since the sub-subcontractor contractually agreed to assume the
liability of the upper-tier contractor prior to the injury, the sub-
subcontractor’s general liability policy responded and paid for injury
to the sub-subcontractor’s own employee. So, yes, an insured’s gen-
eral liability policy may respond and pay for injury to its own em-
ployee when such employee contractually qualifies as an “outside
party” (defined previously) by exception to the general liability poli-
cy exclusion.
Beware and do not depend on this automatic extension of cover-
age. Even though such is standard wording in ISO’s CGL, many in-
surance carriers are removing this automatic protection by attaching
the CG 21 39 exclusion to contractors (and many other classes of

Chapter 12 – The Importance of Employers’ Liability Protection
84
insureds) commercial general liability policies. The CG 21 39, titled
“Contractual Liability Limitation,” redefines an insured contract by
removing definition “f.” Removing “f.” deletes coverage for the as-
sumption of tort liability of another party via contract.
In short, the contractual risk transfer coverage as recounted
above and detailed in earlier paragraphs will be negated in the CGL
policy containing this exclusionary endorsement. Additionally, such
contractual assumption is specifically excluded in the employers’
liability coverage part. Attachment of this exclusion creates a large
coverage gap in the contractual liability coverage available to the
insured.
Many construction contracts request proof via the certificate of
insurance that “broad form contractual liability” exists; this is a hold-
over term from the years prior to the 1986 CGL revisions. However,
stating that broad form contractual liability protection does in fact
exist may actually be misrepresentation if the definition of “insured
contract” has been limited by the attachment of the CG 21 39. Such
misrepresentation may leave the client open to charges of breach of
contract and the agent open to an errors and omissions suit. This is a
wide gap!
Employers’ Liability Coverages
Employers’ liability policy wording specifies four types of
claims to which this coverage part responds:
1. Third-party-over actions;
2. Loss of consortium (loss of family service);
3. Consequential bodily injury; and
4. Dual Capacity actions.
Each of these is detailed in the following paragraphs.
Third-Party-Over
While in college I spent one summer working for a manufactur-
ing operation. There I learned a number of new skills and a lot about
myself including why I was going to college. During my tenure I
witnessed a workers’ compensation claim in the form of a 15-year-

Chapter 12 – The Importance of Employers’ Liability Protection
85
old getting his hand caught in a large crimping machine next to my
work station (yes, there are a number of things wrong with the situa-
tion).
He developed a rhythm of putting in the blank, activating the
machine and removing the completed piece. Finished parts were
coming out very quickly; but somewhere along the way his timing
was thrown off and he put the blank in at the precise moment he ac-
tivated the machine (nope, no safety problems here).
Thousands of pounds of pressure per square inch landed on this
kid’s hand; but because the machine was unable to make a full reso-
lution it did not release, trapping my co-worker’s hand. The machine
was not equipped with an emergency release mechanism and would
not “let go.”
This kid is screaming and crying (and I’m not ashamed to say I
probably would have done the same, even as a 19-year-old). I’m
standing there with no idea what to do. I don’t want to pull him, the
machine is far stronger than I and everyone else is frozen. Finally my
friend musters enough clarity to reach up and turn off the machine, at
which point he is released. I catch him as he falls. He gets to his feet
and takes off running with no clear destination. An older, more expe-
rienced worker grabs him and puts a tourniquet around his wrist to
stop the bleeding.
At the end of this ordeal, a 15-year-old kid had two of his middle
fingers removed because they were crushed beyond repair.
If there were sufficient grounds to prove negligence, he could
have filed a products liability claim against the machine’s manufac-
turer claiming, among other things, insufficient safety in the ma-
chine’s design and lack of adequate guards.
A suit never materialized, but had it occurred, the equipment
manufacturer would have discovered that the guards designed to pro-
tect the worker had been removed to speed up production (a fact I
learned later). With this information, the manufacturer could have
sued the employer for acting improperly.
This is an example of a third-party-over suit where an employer
is sued by an “other party” as a direct result of an injury to an em-
ployee. Any liability to the “other party” would be excluded from the

Chapter 12 – The Importance of Employers’ Liability Protection
86
workers’ compensation coverage discussed previously; and coverage
would also be excluded by the two commercial general liability poli-
cy exclusions.
Protection and payment can only be found in the employers’ lia-
bility policy.
Loss of Consortium
Depending on the seriousness of the employee’s injury, the fami-
ly may suffer in ways that aren’t compensated or even compensable
by the workers’ compensation coverage part. These include addition-
al costs to hire outside help to provide the services that were provid-
ed by the injured employee, the loss of companionship (which does
include sexual relations) and, in some jurisdictions, claims for emo-
tional injury.
For example, additional expenses are incurred because a lawn
service has to be hired to care for the injured employee’s yard since
he can no longer perform that task. A percentage of the lost wages
are paid by the workers’ compensation policy, but additional expens-
es are not necessarily contemplated by the workers’ compensation
policy and must be paid by the employers’ liability section.
Consequential Bodily Injury
A work-related disease may be the best example of consequen-
tial bodily injury. If the employee were to contract a work-related
infectious disease that was subsequently spread to another member
of the immediate family, this would be a prime example of conse-
quential bodily injury covered by the employers’ liability policy.
To qualify for coverage, the consequential bodily injury must be
the direct result of a work-related injury suffered by the employee.
Dual Capacity
Employers may have business-related contact with their employ-
ees outside the employee-employer relationship. These additional
relationships can be in the form of a product supplier, service pro-
vider or as the owner of a premises. Such dual persona creating this
increased contact may subject the employer to liability for injury to

Chapter 12 – The Importance of Employers’ Liability Protection
87
an employee that may occur at work but which does not necessarily
arise out of and in the course and scope of employment.
Dual persona relationships create employer obligations to the
worker independent of those imposed on an insured strictly as the
employer. In essence, the exclusivity of workers’ compensation pro-
tection is waived in situations where the employer could be liable to
the general public for the same injury.
My father worked as a plant electrician for a soft drink bottling
company in the mid-1960s. As a “perk” the employees were allowed
to take the ready-to-ship bottles directly off the line to drink while at
work (they were ice cold and fresh, plus real sugar was still used
back then).
Had my dad been poisoned by a contaminated drink ready for
shipment to the general public, he, or his heirs, could have sued un-
der the dual capacity doctrine to recover amounts outside the benefits
payable under the workers’ compensation coverage. In such an in-
stance, the employer ceases being the employer and steps into a sec-
ond role (a second persona) as a product supplier. The logic is, had
this drink gone out to the general public, the supplier would have
been faced with a products liability suit; and since the general public
could have been exposed to the same injury, the injured employee
can access the same redress for injuries suffered as any member of
the general public.
Health care workers can also be subject to dual capacity relation-
ships. Doctors and nurses injured in the course of employment may
be cared for at the medical facility in which they work. Once the
hospital or medical facility undertakes to provide care available to
the general public, it has taken on a second persona (that of service
provider) and potentially subjected themselves to the dual capacity
doctrine.
Employers’ Liability – Exclusions, Monopolistic States and Lim-
its
The National Council on Compensation Insurance’s (NCCI’s)
1991 edition of the workers’ compensation and employers’ liability
policy (see Appendix C) lists 12 specific exclusions applying to Sec-

Chapter 12 – The Importance of Employers’ Liability Protection
88
tion Two – Employers’ Liability Insurance. Each of these exclusions
is listed below and several are briefly explored in more detail.
NCCI’s employers’ liability exclusions are (contains material copy-
righted by the National Council on Compensation Insurance):
 Liability assumed under a contract. As per earlier discus-
sion, employers’ liability for liability to an “outside party”
assumed under contract is extended from the commercial
general liability policy unless the definition of an “insured
contract” has been altered by endorsement. If the CG 21 39
exclusionary endorsement has been attached, the employer’s
only source of protection is the workers’ compensation poli-
cy (Part One) covering the medical costs and lost wages of
the employee. Any “outside party” liability for an injury to
an employee contractually transferred to the insured will
have to be paid out of the insured employer’s pocket.
 Punitive or exemplary damages arising from an employee
employed in violation of law. Neither Part One – Workers’
Compensation Insurance nor Part Two – Employers’ Liability
Insurance will cover the cost of any court-prescribed penal-
ties or punishment arising out of an employee injured while
illegally employed. The workers’ compensation coverage
part has to pay normal benefits, just not additional benefits
imposed by the courts.
 Any bodily injury to an employee while knowingly em-
ployed by the insured in violation of the law. Part One –
Workers’ compensation coverage will pay the statutorily re-
quired benefits (but no more) to any “employee” injured,
even if such person is working in direct violation of the law
with the full knowledge of the insured. However, the em-
ployers’ liability part specifically excludes any coverage for
illegal employees.
 Any obligation imposed by a workers’ compensation, occu-
pational disease, unemployment compensation, or disability
benefits law, or any similar law. If the injury or loss is cov-
ered or supposed to be compensable under the workers’

Chapter 12 – The Importance of Employers’ Liability Protection
89
compensation policy, unemployment compensation policy or
other such law it is not covered under employers’ liability
part.
 Bodily injury intentionally caused or aggravated by the in-
sured. Covered, up to statutory limits, under the workers’
compensation part but excluded in this coverage part.
 Bodily injury occurring outside the United States of Ameri-
ca, its territories or possessions, and Canada unless the in-
jured employee is a citizen or resident of the United States
of America or Canada who is temporarily outside these
countries. Coverage is excluded for foreign nationals work-
ing outside of the coverage territory. Domestic employees
working outside the coverage territory on a temporary basis
are covered.
 Damages arising out of coercion, criticism, demotion,
evaluation, reassignment, discipline, defamation, harass-
ment, humiliation, discrimination against or termination of
any employee, or any personnel practices, policies, acts or
omissions. This is an Employment Practices Liability expo-
sure covered under another policy type; besides, there is not
necessarily any bodily injury arising out of these claims.
 Bodily injury to any person in work subject to the Long-
shore and Harbor Workers’ Compensation Act (33 USC
Sections 901-950), the Non-appropriated Fund Instrumen-
talities Act (5 USC Sections 8171-8173), the Outer Conti-
nental Shelf Lands Act (43 USC Sections 1331-1356), the
Defense Base Act (42 USC Sections 1651-1654), the Fed-
eral Coal Mine Health and Safety Act of 1969 (30 USC
Sections 901-942), any other federal workers’ or work-
men’s compensation law or other federal occupational dis-
ease law, or any amendments to these laws. The policy can
be endorsed as necessary to remove any or all five of these
Federal Compensation Act exclusions if such exposure ex-
ists. The available endorsements are:

Chapter 12 – The Importance of Employers’ Liability Protection
90
 Longshoremen’s and Harbor Workers’ Compen-
sation Act Coverage Endorsement – WC 00 01
06A
 Nonappropriated Fund Instrumentalities Act
Coverage Endorsements – WC 00 01 08A
 Outer Continental Shelf lands Act Coverage En-
dorsement – WC 00 01 09A
 Defense Base Act Coverage Endorsement – WC
00 01 01A
 Federal Code Mine Health and Safety Act Cov-
erage Endorsement – WC 00 01 02
 Bodily injury to any person subject to the Federal Employ-
ers’ Liability Act (45 USC Sections 51-60), any other feder-
al laws obligating an employer to pay damages to an em-
ployee due to bodily injury arising out of or in the course of
employment, or any amendments to those laws. The Federal
Employers’ Liability Act Coverage Endorsement (WC 00 01
04A) can be attached giving back employers’ liability cover-
age for employees qualifying for protection under Federal li-
ability laws.
 Bodily injury to a master or a member of the crew of any
vessel. Two endorsements are available allowing the insured
to provide coverage for employees subject to the provisions
of maritime law. These endorsements are:
 Maritime Coverage Endorsement (WC 00 02
01A) – This endorsement is used if the insured
has no protection and indemnity (P&I) policy.
 Voluntary Compensation Maritime Coverage
Endorsement (WC 00 02 03) – This endorse-
ment is used to voluntarily extend coverage to
employees not normally required to be protected
by a workers’ compensation policy.
 Fines or penalties imposed for violation of federal or state
law. Neither the workers’ compensation coverage part nor
the employers’ liability coverage section will pay any penal-
ties assessed against the insured for violation of laws. Exam-

Chapter 12 – The Importance of Employers’ Liability Protection
91
ple violations include fines imposed by OSHA or other regu-
latory bodies for failure to provide a safe work environment
or provide and/or require the use of personal protective
equipment. These costs will be borne solely by the employer.
 Damages payable under the Migrant and Seasonal Agri-
cultural Worker Protection Act (29 USC Sections 1801-
1872) and under any other federal law awarding damages
for violation of those laws or regulations issued thereun-
der, and any amendments to those laws. As above, there is
no coverage for employment or employment conditions in
violation of applicable laws.
The endorsements listed above will be detailed further in the up-
coming paragraphs.
Monopolistic States
Only four monopolistic states remain in operation: North Dako-
ta, Ohio, Washington and Wyoming. Insureds with on-going opera-
tions in one of these states must purchase workers’ compensation
protection from the state and must find an alternate means to secure
employers’ liability coverage.
Three methods are available to fill this protection gap to which
employers operating in monopolistic states are subject.
1. Stand-alone employers’ liability coverage. Employers
domiciled and operating nearly exclusively in a monopolistic
state can purchase a stand-alone employers’ liability policy
from a private insurer. These states do not offer this protec-
tion.
2. Endorsement to the workers’ compensation and employ-
ers’ liability insurance policy. WC 00 03 03C can be at-
tached to an employer’s policy operating in a non-
monopolistic state with employees working in a monopolis-
tic state and subject to that state’s laws. The employer buys a
separate workers’ compensation policy from the state cover-
ing just the employees in the monopolistic state, and then
they attach this endorsement to their domicile-state policy,

Chapter 12 – The Importance of Employers’ Liability Protection
92
listing the monopolistic states in which employees are in-
volved in on-going operations.
3. Endorsed onto the commercial general liability policy.
Employers domiciled in non-monopolistic states but with
employees in monopolistic states may choose to endorse the
commercial general liability policy to extend employers’ lia-
bility benefits to cover the monopolistic state employees. As
above, the workers’ compensation policy is purchased from
the state and the commercial general liability policy is en-
dorsed to extend employers’ liability protection. Each mo-
nopolistic state requires a state-specific endorsement. Some
underwriters are unwilling to extend this protection via the
CGL (especially if they are unwilling to allow the umbrella
to sit over the employers’ liability section).
Regardless of which method is chosen, extending employers’ lia-
bility coverage to employees in monopolistic states is of utmost im-
portance. As has been discussed in this chapter, employers’ liability
protection fills many gaps between the workers’ compensation policy
and the protection offered by the commercial general liability policy.
A Word about Limits
Standard limits offered by the employers’ liability policy
($100,000 Each Occurrence Bodily Injury, $100,000 Each Occur-
rence for Employee Disease with a $500,000 Employee Disease Ag-
gregate) are just too low. Remember, this coverage serves to fill the
gaps between the workers’ compensation policy and the commercial
general liability policy.
Workers’ compensation coverage is limited only by statute and
the commercial general liability protection is generally no less than
$1 million per occurrence (sometime higher); so why should the lim-
its of the policy that fills this gap be so low?
Increasing employers’ liability coverage limits is relatively inex-
pensive. Five hundred thousand dollar across the board limits
($500,000 / $500,000 / $500,000) increases the entire policy premi-
um about 2 percent (varies depending on the carrier), and jumping

Chapter 12 – The Importance of Employers’ Liability Protection
93
the coverage to $1 million / $1 million / $1 million increases the
premium by only around 3 percent over standard. And anytime the
umbrella carrier is willing to extend benefits over the employers’ lia-
bility coverage that opportunity should be taken.
Employers’ Liability Endorsements
Endorsements used to alter a few of the exclusions specific to
employers’ liability coverage were listed in earlier paragraphs. These
endorsements are more specifically detailed below. Each alters to
some extent both the workers’ compensation (Part One) and employ-
ers’ liability (Part Two) sections. A description of each endorsement,
including the intent and eligibility factors, is presented, with each
charted in Appendix D.

Longshoremen’s and Harbor Workers’ Compensation Act Cov-
erage Endorsement (WC 00 01 06A): Classifying a worker as a
longshoreman or harbor worker requires the application of two spe-
cific tests: the “situs” and “status” tests. USL&HW benefits are ex-
tended to employees that meet both requirements:
 Situs requires that the employment be on, above or below
navigable waters and adjoining areas. But working around or
over water does not in itself qualify an individual for the
benefits prescribed by the USL&HW Act. To qualify for
such coverage requires satisfying the “status” test.
 Status as a longshoreman or harbor worker requires that the
employment involve the loading and unloading of ships; or
the maintenance, repair or dismantling of ships.
Unless both tests are satisfied, the employee is not a longshoreman
or a harbor worker and is not eligible for the applicable benefits. An
individual or group of employees working on a bridge above naviga-
ble waters does not necessarily qualify for nor require USL&HW
protection. While they are working above navigable water, the em-
ployees do not meet the status test as they are not working with ships
or water-going vessels.

Chapter 12 – The Importance of Employers’ Liability Protection
94
Each state prescribes the benefits provided and must be listed for
coverage to apply as for any other employee. USL&HW coverage
does not apply to masters or crew members of vessels.

Nonappropriated Fund Instrumentalities Act Coverage En-
dorsement (WC 00 01 08A): Civilians working on U.S.-based mili-
tary installations are picked up by this endorsement. This includes
non-military personnel working in exchange stores, movie theaters
and other such operations. This endorsement extends the USL&HW
Act benefits to these employees.

Defense Base Act Coverage Endorsement (WC 00 01 01A): The
defense base act is like the nonappropriated funds instrumentality act
in that it extends USL&HW benefits to cover civilian employees
working on military bases, however, there are some important differ-
ences.
 The defense base act covers civilian employees working in
any capacity on military bases outside the continental Unit-
ed States. This includes Alaska and Hawaii;
 Covered operations include civilian employees of contrac-
tors or subcontractors engaged in public works projects with
any U.S. governmental agency while outside the continental
U.S. (i.e. Iraq and Afghanistan);
 Includes civilian employees working on contracts approved
and funded under the Foreign Assistance Act outside the
continental U.S.;
 Coverage extends to employees working for U.S. employers
providing welfare or similar services to members of the
armed forces outside the continental U.S. This includes such
operations as the USO and Red Cross; and
 Coverage under the defense base act applies to all civilian
employees, not just U.S. citizens.
To trigger coverage, the endorsement must contain a description of
the work and the location of the work.

Chapter 12 – The Importance of Employers’ Liability Protection
95
Outer Continental Shelf Lands Act Coverage Endorsement (WC
00 01 09A): “Outer continental shelfs” are submerged lands that lie
seaward of various states subject to U.S. jurisdiction. USL&HW
benefits are extended by describing the work and the endorsement
must indicate in which state the location would be if the territorial
boundaries extended to the outer continental shelf. This endorsement
generally applies to employees engaged in the development, explora-
tion or removal of natural resources (oil and gas) from the sea floor
by use of a fixed platform.

Federal Coal Mine Health and Safety Act Coverage Endorse-
ment (WC 00 01 02): Federal Black Lung workers’ compensation
benefits are provided in the states listed in this endorsement, even in
monopolistic states, in support of the Federal Coal Mine Health and
Safety Act. Benefits are specified by Federal law.

Federal Employers’ Liability Act Coverage Endorsement (WC
00 01 04A): The oldest continuous operating workers’ compensation
act signed into law by President Taft in 1908 (See Chapter 1 –
“Workers’ Compensation History: The Great Tradeoff!”). Coverage
is for railroad employees engaged in interstate commerce.

Maritime Coverage Endorsement (WC 00 02 01A): This en-
dorsement is used to extend workers’ compensation and employers’
liability coverage to employers required to provide maritime benefits
under Admiralty Law, DHSA or the Jones Act to their employees but
who do not have a Protection and Indemnity(P&I) policy or the P&I
does not cover their entire operations. Coverage is triggered by de-
scribing the maritime operations that are to be insured which may
include: limitations by size, ownership or name of the vessel; or lim-
ited by the names of waterways to be navigated by the vessel.

Voluntary Compensation Maritime Coverage Endorsement (WC
00 02 03): Like the Maritime Coverage Endorsement, except this is
used only when workers’ compensation and employers’ liability cov-
erage is not required as there is less than the minimum number of

Chapter 12 – The Importance of Employers’ Liability Protection
96
employees. Same as the voluntary compensation endorsement used
for non-maritime employees. The endorsement extends workers’
compensation and employers’ liability protection. Employees are
covered by naming or describing the vessel to which they are as-
signed.

97
Chapter 13
Nonemployee ‘Employees:’ The Borrowed
Servant Doctrine
“The vital test in determining whether a workman furnished by
[the primary employer] is a servant of [the special employer] is
whether they (the employee(s)) are subject to the “special employ-
er’s” control or right of control not only with regard to the work to
be done but also with regard to the employee’s manner of performing
it.” This paraphrase (changed to remove specificities) of the 1935
Pennsylvania Supreme Court’s ruling in Venezia v. Philadelphia
Electric Company has been the basis upon which questions, suits and
claims involving supposed borrowed servants have been answered,
decided and settled.
Workers’ compensation coverage, as has been detailed, is to be
the sole remedy for the injured employee and a protection against
lawsuits for the employer (except in cases of egregious acts). The
next several paragraphs will attempt to define who the “employer” is
or may be — with a particular emphasis on the “borrowed servant
doctrine.”
Three ‘Employers’
“Employer” has been inversely defined or delineated in earlier
chapters by defining the “employee.” Indirectly defining an employ-
er can lead to misclassification of, or simply missed, employments
leaving gaps in protection that could have been avoided if the rela-
tionship was recognized and properly managed up front. Employee-
employer relationships presuppose certain duties and responsibilities
upon each party; such a relationship can exist outside the usual and
customarily understood context. Understanding how status as the
employer can be created will allow the client and its agent the oppor-

Chapter 13 – The Borrowed Servant Doctrine
98
tunity to manage the risk before the injury occurs. Employer status
can be created in one of three ways:
 As primary/direct or de facto employer;
 As statutory/de jure employer; or
 As a “special employer.”
Primary/Direct or De Facto Employer
Direct employment is the traditional and most common employ-
er-employee relationship. Status as a direct or primary employer is
generally created via a contract of hire. Such contract may either be a
formal written contract or an understood contract that follows nego-
tiations, the employer’s offer of employment and the offer’s ac-
ceptance by the employee. All or nearly all direct employer-
employee relationships share the same rights and operate in essen-
tially the same manner (the following is not an all-inclusive list):
 The right to hire and fire any employee (as allowed by state
law) is vested solely in the direct employer.
 Direct/primary employers exercise or have the right to exer-
cise absolute control over their employee. Work hours, work
methods and work location are all controlled by the di-
rect/primary employer.
 Employees of direct employers generally do not or are not
necessarily allowed to work for anyone other than the direct
employer without the employer’s express permission or at
the employer’s direction.
 Remuneration is paid by direct employers, whether a sole
proprietor, partner, corporation or other entity, on a regularly
scheduled basis via either a salary, commission, piecework
basis or some other means. This is usually the employee’s
sole source (or primary source) of individual income.
 If the employer provides employee benefits, direct employ-
ees are eligible to receive and can reasonably expect these
benefits.
 Applicable taxes are withheld from the worker’s paycheck.

Chapter 13 – The Borrowed Servant Doctrine
99
 Employees of direct employers are generally eligible to re-
ceive state and/or federally-mandated unemployment bene-
fits if they do lose their job.
A de facto employer is an employer “in fact or in reality.” Em-
ployees often referred to as independent contractors are “in fact” em-
ployees. Employers may try to dodge federal and state employment
laws, withholding requirements or the providing of benefits by clas-
sifying factual employees as independent contractors. The degree of
control exercised by the employer (as delineated above) often influ-
ences the worker’s classification as either a true independent contrac-
tor or a de facto employee.
IRS applies a much more lenient definition of independent con-
tractor than does the insurance industry, particularly workers’ com-
pensation carriers. Not withholding taxes and operating under a sepa-
rate entity name (with potentially a few other qualifications) may be
all that is required for the IRS to consider a worker an independent
contractor.
However, workers’ compensation rules are more stringent re-
garding the true nature and classification of a particular worker. The
higher the degree of control over the worker, the more likely he will
be considered an employee rather than an independent contractor.
“Control” is defined later.
Direct and de facto employers are charged with providing work-
ers’ compensation benefits as prescribed by individual state law and
discussed in previous chapters. An employer’s violation of such re-
quirements can result in criminal charges, fines and penalties (vary-
ing by state). Employers that lend or lease their direct employees to
another employer (the special employer) are generally not relieved of
their duty to provide workers’ compensation coverage; this will de-
pend on the contract if one exists. Knowing which direct employees
remain the employer’s responsibility allows better planning of the
workers’ compensation protection.

Chapter 13 – The Borrowed Servant Doctrine
100
Statutory and De Jure Employees
Statutory or de jure employers are created by force of law. Chap-
ters 7 (Who Qualifies as an Employee in Workers’ Compensation
Law) and 8 (The General Contractors’ Responsibility to Provide Pro-
tection) detailed the statutory relationships that create employer-
employee relationships. De jure and statutory can be used nearly
synonymously as part of this discussion; de jure is defined to mean
“by right or according to the law.” The employer is not the direct
employer or even necessarily “related” to the statutory employee, but
becomes the employer of record by a vote of the legislature and
sometimes the findings of a court.
General contractors hiring uninsured subcontractors become the
statutory or de jure employers of the uninsured subcontractor’s em-
ployees and are thus legally responsible to provide or arrange for
workers’ compensation benefits to be paid to an injured worker. For-
ty-four states have codified this relationship.
Any worker injured while in the course and scope of employ-
ment for a statutory (de jure) employer must be extended the same
protection and benefits as those owed to the employees of the direct
employer. Indemnification and hold harmless agreements between a
general contractor and a subcontractor can create a relationship that
must be managed via endorsement to the workers’ compensation pol-
icy.
Special Employer
Control and the right of control is the overriding and deciding
factor when analyzing the “borrowed servant doctrine.” Does the
“special employer” have the absolute right to control the actions of
the worker? As stated previously, control only over the work being
done is not sufficient; before status as a special employer can be as-
signed, the right of control must also encompass the manner in which
the work is performed.
Classification as a “special employer” is the third means by
which an employer-employee relationship can be created. Of the
three, this is the most unique as it is not created by a direct contract
of hire or even by a statutory requirement; this relationship and the

Chapter 13 – The Borrowed Servant Doctrine
101
responsibilities that accompany it are born almost solely out of the
right of control.
Defining ‘Control’
Employer-employee relationships impose specific duties and re-
sponsibilities upon each party. Employers are charged with many
duties, among these are providing a safe and healthy work environ-
ment, making sure the correct tools are available to complete the as-
signed tasks, confirming that employees are properly trained and as-
suring that funds are available to cover the medical costs and/or lost
wages should an injury occur (as per relevant statute). Employees,
likewise, owe to their employer specific responsibilities; including
the duty to do the job that is assigned to them and to do it to the best
of their ability and with the best interest of their employer in mind.
Special employer situations under the “borrowed servant doc-
trine” are no different. Employer duty and employee responsibility
are present, but such duties and responsibilities arise strictly from the
right of control as has been repeatedly pointed out in the opening
paragraphs.
Each governmental body with an interest in this relationship and
the insurance industry for its own purposes apply specific tests when
working to establish whether a particular worker is due protection
under the “borrowed servant doctrine.” All of these interested parties
list the “right of control” as one factor in the list of tests to be ap-
plied; but “control” itself is not defined by the individual tests, its
definition is drawn and applied from other sources. Following are the
markers that evidence “control:”
 The entity or person controls the manner in which the work
is performed. Controlled workers are taken step-by-step
through the process with the person in control confirming or
providing the necessary training to complete each step lead-
ing to the desired outcome;
 The place of performance is delineated by the entity or per-
son with control;

Chapter 13 – The Borrowed Servant Doctrine
102
 Time of performance is mandated. The worker is expected to
show up at specified times and work a set number of hours
(with breaks for rest and lunch). When such specific period
is over, the worker is free to leave;
 Details of the performance are mandated by the entity in
control. The necessary tools, supplies and work areas are
provided by the person or entity in control. The finished
product must meet the controlling entity’s standards;
 The person supervising the worker is a direct employee of
the entity or person that hired the worker; and
 The work is being done exclusively for the entity that hired
the worker (although the employer may turn over the fin-
ished product to another person or entity). Essentially, the
worker is benefiting only the employer’s business operation.
Absent sufficient evidence to the contrary, the original (direct)
employer is presumed to retain control. But once the weight of the
evidence based on the markers above conclusively shifts control to
the “special employer,” then the remaining “borrowed servant doc-
trine” tests can be scrutinized to determine if a “doctrinal” employer-
employee relationship exists.
Other Borrowed Servant Tests
States and the federal government apply specific tests to deter-
mine if a particular worker qualifies as a “borrowed servant” and the
employer as a “special employer.” The majority of these tests re-
volve around the question of control. The insurance industry, thanks
to Lex Larson and his “Larson’s Workers’ Compensation,” marries
the right of control detailed above with the various other tests to con-
ceive and produce a three-part test to determine a worker’s status as
a borrowed servant and the employer’s status as that of a special em-
ployer. These tests are:
1. Has the employee made a contract of hire, express or im-
plied, with the special employer? In essence, has the direct
employer volunteered or directed the employee to work for

Chapter 13 – The Borrowed Servant Doctrine
103
the special employer and has the employee agreed to such
assignment;
2. Is the work being done essentially that of the special em-
ployer (as discussed under the right of control); and
3. Does the special employer have the right to control the de-
tails of the work?

If all of those three questions are answered in the affirmative,
then the employer is almost certainly a special employer and the em-
ployee a borrowed servant. There are other tests not contemplated by
Larson that may need to be or will be considered by the court to ab-
solutely prove special employer and borrowed servant status; these
include:
 Does the presumed special employer have the right to dis-
charge the worker? If so, that evidences a borrowed servant;
 Who has the obligation to pay the employee? If the employ-
ee is paid by the borrowing employer, this is more proof of
“special employer” status;
 What is the course of dealings between the direct employer
and the presumed special employer? Is there a contractual re-
lationship or requirement? Employer-employee status can
potentially be created by contract; and
 Is the lent employee a specialist? And does the presumed
special employer have the skill or knowledge to supervise
the manner in which the work is being performed? This is a
“negative test.” If the borrowing employer does not have the
ability or skill necessary, the lent worker will likely not be
considered a borrowed servant since one cannot control what
one does not understand and cannot do; thus the individual is
not a putative employee but a specialist.
Combining and analyzing the right of control, Larson’s three-
prong test and the four other distinguishing test factors will produce
as nearly as possible a definitive answer to the question of “special
employer” and a resulting “borrowed servant.” Special employers

Chapter 13 – The Borrowed Servant Doctrine
104
owe the same duties to their borrowed servants as they do to any di-
rect employee. An employer-employee relationship is created that
must be managed from both a human resources and a risk manage-
ment angle.
Borrowed Servants
There are only a few work/employment situations that may lead
to or lend themselves to special employer and borrowed servant situ-
ations. While this is not an all-inclusive list, these are the most com-
mon:
 Temporary staffing operations: The employee works for a
temporary staffing company that “leases” the worker to other
entities to fulfill short-term or maybe even long-term em-
ployment needs. This is not to be confused with an employee
leasing operation such as a PEO; that is a wholly different
arrangement with different risk management concerns and
solutions (detailed in Chapter 15). The contract between the
staffing firm and the employer may require the staffing firm
to provide the workers’ compensation coverage even though
the leasing employer is, by all tests, the special employer.
 Property managers required by the property owner to
extend workers’ compensation protection to the employ-
ees actively managing the property.
 Employee hired by the direct employer to work exclu-
sively on or at the special employer’s location or job site.
White v. Bethlehem Steel (U.S. Court of Appeals decision in
2000) addressed this issue. The employer (C.J. Langenfelder
& Son Inc.) leased his equipment and employees to Bethle-
hem Steel. One of the employees had worked for Langen-
felder for 26 years but had worked nearly exclusively at
Bethlehem for his entire tenure. The employee was injured
on the job; he collected the benefits due him from Langen-
felder, but then sued Bethlehem Steel. The court found that
since Bethlehem met all the requirements, it was the special
employer and White was a borrowed servant. The employee-

Chapter 13 – The Borrowed Servant Doctrine
105
employer relationship blocked White’s ability to sue Bethle-
hem since workers’ compensation is the sole remedy in the
employer-employee relationship. Such a relationship could
also result from an accounting firm having an employee who
works exclusively for one client and, in fact, has a desk at
the client’s office and daily reports there without going to
the employer’s location; or a computer/software company
that keeps an employee on-site on a full-time basis for a
large client; etc.
 Contractual relationships between a general contractor
and subcontractor. Indemnification and hold harmless re-
quirements may result in the general contractor becoming a
special employer, especially in third-party-over suits. As de-
tailed in an earlier chapter the subcontractor or sub-
subcontractor (and on down) could be held financially re-
sponsible for suits against a third party made by an injured
employee, even if that employee received all the benefits due
and did not sue the employer. Contractual relationships can
potentially create a special employer exposure.
The Workers’ Compensation Solution?
Primary employers may not be relieved of their duty to provide
workers’ compensation benefits to employees who are considered
borrowed servants of a special employer. In fact, a contractual rela-
tionship may exist between the direct employer and the special em-
ployer specifically stating that coverage is to be maintained by the
direct employer. The point thus far has been to spotlight the need for
agents to discover these relationships (be they overt or hidden in a
contract) and offer a potential solution to the client and even the cli-
ent’s customer (maybe winning a new account due to being so detail-
oriented).
The Alternate Employer Endorsement (WC 00 03 01A) is de-
signed to extend coverage when employees are considered the “bor-
rowed servants” of a special employer. It is attached to the direct
employer’s policy, naming the special employer thus extending pro-
tection from the employer’s policy to the putative employer.

Chapter 13 – The Borrowed Servant Doctrine
106
All four of the above “borrowed servant” examples are eligible
for the Alternate Employer Endorsement per the endorsement in-
structions. However, the instructions are only theoretical in nature
and underwriting approval is not guaranteed; it may not even be like-
ly.
 Temporary staffing firms. Underwriters willing to provide
coverage, from the outset, for a temporary staffing firm will
likely understand the need for this coverage and agree to
provide this endorsement to all clients under the contract. If,
however, the underwriter is unwilling to name the special
employer (the lessee) as an alternate employer, the special
employer may need to attach the Multiple Coordinated Poli-
cy Endorsement (WC 00 03 23) to the workers’ compensa-
tion policy. This endorsement extends benefits to the leased
employees rather than having to depend on the staffing firm
for coverage. Agents writing coverage for the special em-
ployer need to be aware of the exposure and the availability
of this endorsement;
 Property management firms. Again, underwriters may see
and understand the need for this extension and agree to pro-
vide the endorsement when requested by the property owner;
 Employees working almost exclusively on the property of
another. Underwriters may not be willing to extend such
coverage as they may not see the need. If there is a contract,
agents may be able to convince the underwriter to meet the
contractual requirement; and
 Contractual risk transfer. It is unlikely an underwriter will
ever allow the use of this endorsement in a contractual situa-
tion; doing so would be akin to naming the upper tier con-
tractor as an additional insured (but is not as broad in that it
only provides a means to finance the suit not protect against
it). But the unwillingness of the underwriter to give this en-
dorsement, especially if the CGL underwriter has altered the
definition of an “insured contract,” may create a big out-of-
pocket expense for the lower tier contractor. The lower tier

Chapter 13 – The Borrowed Servant Doctrine
107
contractor highlighted in “Contractual Risk Transfer Done
Right with the Wrong Results” could have been out-of-
pocket $2 million if the CGL redefined “insured contract.”
If the underwriter will not extend protection, the special employ-
er should be notified that its workers’ compensation policy may be
called upon to provide the required benefits due these borrowed
servants. Likewise, agents whose clients may be considered the spe-
cial employer need to advise them of the possibility that such protec-
tion may be required and that an accompanying additional premium
may result from the additional employees (see Chapter 12).
Extra-Insurance (Outside) Protection Provided by the Borrowed
Servant Doctrine
Being considered a borrowed servant may extend unexpected
protection to the worker and his direct employer apart from any
workers’ compensation matter. Such protection arises out of the sole
remedy protection living in workers’ compensation statutes.
Many, if not most, borrowed servant suits researched while con-
structing this chapter had little or nothing to do with workers’ com-
pensation coverage, per se, but rather dealt with the injured party’s
rights to sue the person who caused their injury and that person’s
direct employer.
Essentially, if the person causing the injury is judged to be, “doc-
trinally,” a borrowed servant, he is considered an employee of the
special employer. As a “fellow employee” of the injured person he
cannot be held personally liable for the injured person (provided this
person did not act egregiously or intentionally) because workers’
compensation is the sole source of recovery for injury arising out of
and in the course of employment, however caused.
Likewise, the direct employer of the borrowed servant cannot be
held vicariously liable for the actions of its direct employee since
that employee is under the control of another entity. The theory of
respondeat superior (Latin for “let the master answer”) applies to the
special employer not the direct employer due to the finding of fact
regarding who has control of the employee. Since the special “mas-

Chapter 13 – The Borrowed Servant Doctrine
108
ter” has already responded by paying workers’ compensation bene-
fits, the direct “master” has no need and cannot be compelled to
contribute.

109
Chapter 14
Work Comp for PEOs and Their
Client/Employers
Professional employer organizations (PEOs) began their rise af-
ter the adoption of the Tax Equity and Fiscal Responsibility Act of
1982 cleared a path for the creation and expansion of such entities.
Over 700 professional employer organizations operate in all 50
states. According to the National Association of Professional Em-
ployer Organizations, between two and three million employees
work under a PEO arrangement and PEOs as an industry earned $61
billion in gross revenues in 2007 (gross revenues are the total pay-
rolls plus the fees charged by the PEO).
PEO contracts are co-employment arrangements whereby the
professional employer organization and the client with which it con-
tracts both retain some right of control over the individual worker or
workers collectively. Such relationship is wholly different than a
leased employee or the use of a borrowed servant as detailed in
Chapter 14. Leased employees and borrowed servants are under the
absolute control of the special employer. Co-employment vests re-
sponsibility and control with both parties to the contract.
The National Association of Professional Employer Organiza-
tions (NAPEO) (http://www.napeo.org) explains these responsibili-
ties in their Web site as follows:

The PEO relationship involves a contractual allocation and
sharing of employer responsibilities between the PEO and the
client. This shared employment relationship is called co-
employment.

Chapter 14 – Work Comp for PEOs and Their Client/Employers
110
As co-employers with their client companies, PEOs contractually
assume substantial employer rights, responsibilities, and risk
through the establishment and maintenance of an employer rela-
tionship with the workers assigned to its clients. More specifical-
ly, a PEO establishes a contractual relationship with its clients
whereby the PEO:

 Co-employs workers at client locations, and thereby assumes
responsibility as an employer for specified purposes of the
workers assigned to the client locations.
 Reserves a right of direction and control of the employees.
 Shares or allocates with the client employer responsibilities
in a manner consistent with maintaining the client’s respon-
sibility for its product or service.
 Pays wages and employment taxes of the employee out of its
own accounts.
 Reports, collects and deposits employment taxes with state
and federal authorities.
 Establishes and maintains an employment relationship with
its employees that is intended to be long term and not tempo-
rary.
 Retains a right to hire, reassign and fire the employees.
When evaluating the employer role of either the PEO or the cli-
ent, the facts and circumstances of each employer obligation should
be examined separately, because neither party alone is responsible
for performing all of the obligations of employment. Each party will
be solely responsible for certain obligations of employment, while
both parties will share responsibility for other obligations. When the
facts and circumstances of a PEO arrangement are examined appro-
priately, both the PEO and the client will be found to be an employer
for some purposes, but neither party will be found to be “the” em-
ployer for all purposes.

Chapter 14 – Work Comp for PEOs and Their Client/Employers
111
NCCI and PEO Arrangements
NCCI has continued to monitor the workers’ compensation is-
sues and problems created when employers choose to join a PEO. A
2005 report printed in NCCI’s Workers’ Compensation Issues Report
delineates and briefly discusses many of the continuing issues. A few
of the problems/issues discussed in the NCCI article include:
 Experience Modification Calculations: Most states require
the PEO to individually monitor and report the claims expe-
rience of each individual client. The purpose is to thwart the
efforts of employers with bad experience to escape their
problems by joining a PEO for a couple of years then com-
ing back out and starting over. Since individual experience
must be monitored and reported, the employer’s experience
mod will be correct based on its experience; it will not get a
1.0 when it leaves the PEO unless that is what it has earned;
 The ability of executive officers to exclude themselves (if al-
lowed by law); and/or the ability of sole proprietors or part-
ners to include themselves (if allowed by law). The ability to
include or exclude members of an LLC (based on the appli-
cable state law);
 Problems that might arise if the employer/client hires an un-
insured subcontractor. Is the PEO’s workers’ compensation
carrier required to pay as the statutory employer?
 Problems that arise out of PEOs being insured in state as-
signed risk pools; and
 Are the proper endorsements in place? For example, NCCI
states in this article that the Alternate Employer Endorse-
ment is not intended for use in co-employment situations.
However, without using this endorsement there is a problem
when trying to effectuate and confirm the proper dovetailing
of coverage between the employer/client and the PEO (de-
tailed below).
The report from NCCI specifically lists and highlights more
problems than those listed above.

Chapter 14 – Work Comp for PEOs and Their Client/Employers
112
Insuring PEOs
Four endorsements are available for use in co-employment situa-
tions (an additional form may be necessary depending on the juris-
diction). Two are client-specific and two are designed to be attached
to the PEO’s policy. Contractual agreement between the PEO and the
employer regarding which entity is responsible for providing work-
ers’ compensation benefits govern which endorsements are used.
Employer/Client is responsible for providing workers’ compen-
sation
When the employer/client is contractually responsible for
providing benefits, two endorsements dovetail to provide the neces-
sary or required workers’ compensation benefits:
 Labor Contractor Endorsement (WC 00 03 20 A). This en-
dorsement is attached to the client’s (the leasing employer’s)
policy. Attachment of this endorsement extends benefits to
the leased employees from the employer’s policy and essen-
tially provides additional insured status to the scheduled
PEO. The use of this endorsement is coupled with the …
 Labor Contractor Exclusion Endorsement (WC 00 03 21).
Attached to the PEO’s workers’ compensation policy, this
exclusionary endorsement excludes coverage for employees
leased to the client(s) scheduled in the form. This endorse-
ment is used when the client leases employees on an “other-
than-short term” basis and such client is charged with
providing the workers’ compensation benefits.
PEO is responsible for providing workers’ compensation protec-
tion
As above, two endorsements, one attached to the employ-
er’s/client’s policy and the second to the PEO’s, work in tandem to
assure that coverages mesh as per the contractual agreement that the
PEO will extend workers’ compensation benefits to the workers.
 Employee Leasing Client Exclusion Endorsement (WC 00
03 22). Attach this endorsement to the employer’s/client’s

Chapter 14 – Work Comp for PEOs and Their Client/Employers
113
workers’ compensation policy to exclude the extension of
workers’ compensation benefits to employees leased on a
long-term basis from the labor contractor (PEO) scheduled
in the policy. Only used when the PEO is responsible for
providing coverage. The employer/client must confirm that
the PEO attaches the …
 Professional Employer Organization (PEO) Extension En-
dorsement (WC 00 03 20 B). Workers’ compensation and
employers’ liability benefits extend exclusively from the
PEO when this endorsement is attached to the PEO’s policy.
This extension only applies to employees leased to the cli-
ent(s) listed on the schedule.
 Alternate Employer Endorsement (WC 00 03 01 A). Alt-
hough NCCI states that this endorsement is not properly
used in co-employment situations and even the form itself
does not contemplate its use in these relationships; if the in-
sured is located in a state that has not approved the PEO Ex-
tension Endorsement discussed above, this may be the only
way to extend coverage from the PEO’s form to protect the
employer/client. This endorsement is attached to the PEO’s
policy naming the employer/client as the alternate employer.
The use of this form in co-employment contracts is not rec-
ommended and should be avoided if possible.
Workers’ Compensation Policies for Employers in PEOs
As evidenced by the above discussion, it is absolutely essential
that the employer/client have in place a workers’ compensation poli-
cy even when the PEO is contractually providing coverage. Since
both entities are legally employers and in fact are the “employers of
record,” such contractual arrangement does not preclude the necessi-
ty of coverage.
Exposure to a workers’ compensation claim still exists if an un-
insured subcontractor is hired, if there are employees hired outside of
the leasing contract (temporary workers, etc.) and other potential
gaps in protection as studied and monitored by NCCI. And while it
may seem like a weak argument, without a workers’ compensation

Chapter 14 – Work Comp for PEOs and Their Client/Employers
114
policy in force, the employer/client has nothing to which these en-
dorsements can attach attesting that coverage is extended from an-
other party.
Lastly, if the PEO loses its coverage or suddenly goes out of
business, the employer is in violation of the law until coverage can
be placed. Certainly many employers have received notice that the
PEO with which they were contracted is no longer in business. When
I owned my agency I had a PEO (I bought it with that set up, I did
not create the relationship). I received a fax one evening stating that
the PEO would cease to operate the next day; workers’ compensation
coverage had to be placed, immediately, and I became responsible
for payroll administration and other functions inherent in human re-
sources management.
Employers should carry the workers’ compensation policy even
if it must be set up using “If Any” payrolls. The cost is very low for
the protection it provides. A central theme of risk management is
“don’t risk a lot for a little.” The small premium may avoid big prob-
lems.

115
Chapter 15
Combinability of Insureds
Consolidating separate legal entities’ loss experience to develop
a common experience modification factor has the potential to cause
confusion for the client and sometimes the agent. Clients may view
such mixing of loss experience due simply to common majority
ownership as less than reasonable, especially if the commonly-
owned entities substantially differ with regard to the relative hazard
presented (i.e. the owners of a heavy equipment contracting company
purchase a marina).
Combinability rules do not merely marry the experience of enti-
ties that are currently in operation and related via common majority
ownership, they also assure that owners do not avoid their historical-
ly poor loss records simply by closing down one entity and reopen-
ing and operating under another corporate name. Most agents would
agree that such a stunt is unethical at best and may actually be con-
sidered fraud. Changing the name of the operation does not change
the operational methods of the owner(s).
Understanding combinability rules necessitate a basic under-
standing of the theory and practice behind the calculation of experi-
ence modification factors. Following is a brief synopsis of experi-
ence modification calculations.
Calculating Experience Modification Factors
Workers’ compensation loss costs are calculated and charged
based on the average expected losses for that particular business
classification. All insureds in the same hazard class (based on the
assigned code) are charged the same basic loss cost (individual carri-
ers apply conversion factors to these loss costs to develop their indi-
vidual rates). However, not all insureds within a particular hazard

Chapter 15 – Combinability of Insureds
116
class operate in the same manner, nor does each experience the same
losses. To adjust for these differences in operation and loss histories,
a method had to be created allowing for premium/rate differentiation
between the above average, average and below average insureds
within any particular hazard class code.
Experience modification factors (experience mods) allow such
“customizing” and individualization of the workers’ compensation
premium. Basing the standard premium on the insured’s unique loss
history allows the class’ average rates to remain relatively constant
and the subject insured to be rewarded or punished based on its own
experience (rather than be subject solely to the experience of the
group).
“Stop loss” limits used as part of the experience mod calculation
makes loss frequency weightier than loss severity. One large claim
will not damage an experience mod factor as drastically as three
small claims in a single experience period (the “experience period” is
usually the three years ending 12 months prior to the policy effective
date — a 6/1/08 mod would apply the experience for the three years
ending 6/1/07).
Calculating experience modification factors is far more compli-
cated than presented in three short paragraphs. Mod calculations are
a function of expected losses, actual losses, payrolls, class averages,
loss limits (medical only vs. medical plus indemnity) and formulary
factors applied by NCCI (or the applicable rating bureau) to all such
collected data. Chapter 18 provides a detailed analysis of experience
modification calculations.
Knowing and understanding that experience modification factor
calculations allow for the reward or punishment of individual em-
ployers allows one to more clearly view the need for loss experience
combinability. Employers should not be freed of their premium re-
sponsibility simply due to legal structure. And rarely are majority-
owned entities not interrelated such that employees work for multiple
entities even though they appear to be operating for just one employ-
er in the course and scope of their daily duties (combinability avoids
some of the problems created by the borrowed servant doctrine).

Chapter 15 – Combinability of Insureds
117
A Case for Combinability Rules
Owners theoretically run each and every operation (past and pre-
sent) in essentially the same manner and with the same attitudes. An
employer that is concerned with safety and strives to provide the best
equipment and training will likely always act the same with each
entity. Likewise, employers looking for the easiest and cheapest way
out will likely continue down the same path in the future. Combina-
bility rules are, to some extent, based around the theories:
 Employers that operate in the supposed best interest of their
employees should have all their entities (current and future)
rewarded due to such attitude. Commonly-owned operations
will likely be managed in the same manner and the same
care and concern is expected to be showed for all employees
(regardless of the hazard of the operation).
 If an employer allows unsafe operations in one entity, it is
reasonable to postulate that such attitude will carry over to
the new entity and all commonly-owned entities (current and
future). Employers not operating (or not appearing to oper-
ate) in the best interest of their employees should be subject
to their past (or current) experience.
Past actions are not a guarantee of future actions, but they stand
as a very good indicator. To not reward or punish allows employ-
ers/owners to act with impunity, knowing that as long as no law is
broken, all that is necessary to escape a poor loss history is the kill-
ing off of an old and birthing a new corporation.
Without the ability to combine loss histories, workers’ compen-
sation carriers would potentially be victims of inadequate premiums.
In like manner, average and above average risks would be victimized
by higher premiums than necessary. The “average loss cost” balance
would be tilted and all employers would likely see an increase in
their rates rather than just the ones that “earned” the increase. Rate
predictability and possibly rate adequacy may be compromised with-
out combinability rules.

Chapter 15 – Combinability of Insureds
118
Granted, there are exceptions to every rule such as is demon-
strated by the employer that had a hiccup in its loss history not indic-
ative of its past. Not every injury can be avoided, even with top-
notch safety and training, bad “things” sometimes just happen. This
is why there is underwriting discretion and the availability of rate
credits and debits. A historically above-average employer with a bad
year or two in their experience modification calculation can have the
debit mod negated by a rate credit.
Conversely, an average or below average employer that has
been fortunate can be debited to account for the increased hazard
presented to the insured. Employers that do not practice or refuse to
comply with recommended safety practices, as reported by the loss
control department, can see their rates increased by a debit factor in
anticipation of the increased potential for employee injury.
Combinability Guidelines
Common majority ownership is the basic rule of combinability.
When the same person, group of persons or a corporation owns a
majority interest in another entity, the owned entity’s loss experience
is combined with the owning entity to develop a common (com-
bined) experience modification factor.
The combinability concept seems simple enough, however
achieving “common majority ownership” can be accomplished in one
of several relational constructs:
 The corporation (a “legal person”) owns a majority in-
terest in other entities. When Corp “A” owns a “majority
interest” (this term will be defined in upcoming paragraphs)
in Corp “B,” the loss experience of both corporations is
pooled to produce a single, combined experience modifica-
tion factor;
 The business’ owner(s) (“natural person(s)”) individually
or collectively maintain majority interest in more than
one entity. If John holds majority interest in Corp “A” and
he individually gains majority interest in Corp “B,” the two
entities are combined for experience rating. However, if

Chapter 15 – Combinability of Insureds
119
John has majority interest in only one of the two entities,
they are not combinable (i.e. John maintains 75 percent in-
terest in Corp “A” but only 25 percent in Corp “B”). To con-
tinue, assume that John and Joe combine to own majority in-
terest in Corp “A” and Corp “B;” common majority owner-
ship exists and the experience is combinable;
 The corporation combines with some or all of its owners
to hold a majority interest in another entity. Corp “A”
(again, a “legal person”) maintains 30 percent interest in
Corp “B;” John and Joe (100 percent owners of Corp “A”)
hold 25 percent of Corp “B.” The combined ownership of the
legal person and the natural persons result in common major-
ity ownership (55 percent) of Corp “B” making the two enti-
ties combinable ; or
 The business owns a majority interest in another entity
which, itself, owns or owned a majority interest in a third
entity currently operating or which operated in the last
five years.
This is not an exhaustive list of relationships that can lead to
combinability of loss experience; it is but a representation of the
most common. These guidelines are subject to NCCI and/or individ-
ual state rating bureau interpretations. Agents, brokers and carriers
should use these descriptions only for informational purposes as final
determination rests in these other advisory bodies.
Natural and Legal Persons
Notice the repeated use of the natural and legal person(s) concept
in the above paragraphs. Common majority interest can be created
when a single “person” or a group of “persons” combine to hold a
majority interest in multiple entities. It matters little whether the
owners of other entities are natural persons, legal persons or a com-
bination. Nor does it matter how they combine to create common
majority interest between or among two or more entities.
Legal persons are generally created by the actions and desires of
natural persons. Some legal persons are owned by one or only a few

Chapter 15 – Combinability of Insureds
120
natural persons (a small business) while some are “owned” by many
shareholders (traded on the stock exchanges). Natural and legal per-
sons are defined as follows:
 Natural person: A flesh and blood human being. In work-
ers’ compensation the employer is a natural person(s) in sole
proprietorships and partnerships. Managers and members of
an LLC are viewed as natural persons in a majority of states
making these persons the employers.
 Legal person (a.k.a. juridical person): A legal fiction, a
“person” created by statute and born with the filing of arti-
cles of incorporation. These legal persons are given the right
to own property, sue and be sued. Corporations are legal per-
sons and several states consider LLCs a legal person.
‘Majority Interest’
Majority interest is created when the same person or group of
person(s) combine to own more than 50 percent of an entity. But ma-
jority interest can be created in many ways. NCCI lists the following:
 An entity or persons (as detailed above) owns the majority of
the voting stock of another entity; or
 Both entities share a majority of the same owners (if there is
no voting stock). Generally these are natural persons that
own multiple entities.
 If neither of the above applies, majority interest is created if
a majority of the board is common between two or among
several entities;
 Participation of each general partner in the profits of the
partnership (limited partners are excluded); or
 When ownership interest is held by an entity as a fiduciary
(excludes a debtor in possession, a trustee under an irrevoca-
ble trust or a franchisor).
Combinability Conclusion
Based on and applying the above common majority interest
rules, the possibility exists for more than one combination of com-

Chapter 15 – Combinability of Insureds
121
mon related entities. Deciding which combination of entities applies
is based on the following two rules (presented in order of im-
portance):
1. Which combination involves the most entities?
2. If the above does not apply, the combination is based on the
group that produces the largest estimated standard premium.

Regardless of how a group is created and combined, no entity’s
experience will be used more than once.
Finally, although separate entities may be combinable for expe-
rience modification calculation, this does not exclude them from
having separate workers’ compensation policies. Separate legal enti-
ties are entitled (and really required) to be written on separate work-
ers’ compensation policies; combinability rules exist merely to assure
that loss histories are not escaped by the creation of multiple legal
entities or the closing of one and opening of a new one.

122
Chapter 16
Audit Rules and Guidelines
Workers’ compensation coverage is initially priced on an esti-
mated basis. The insured estimates payrolls (and sometime class
codes) at the beginning of the policy period for the upcoming year on
which the insurance carrier charges a premium using the prescribed
rates. After the close of the policy year, the insurance carrier desires
to firm up the numbers to confirm collection of the actual premium
earned for the actual exposure insured. This “firming-up” is known
as the premium audit (see Chapter 12).
Premium audits are addressed by Part Five, paragraph G., of
NCCI’s Workers’ Compensation and Employers’ Liability Insurance
Policy. The form reads as follows:

G. Audit: You will let us examine and audit all your records that
relate to this policy These records include ledgers, journals, reg-
isters, vouchers, contracts, tax reports, payroll and disbursement
records, and programs for storing and retrieving data. We may
conduct the audits during regular business hours during the pol-
icy period and within three years after the policy period ends.
Information developed by audit will be used to determine final
premium. Insurance rate service organizations have the same
rights we have under this provision.
Premium Basis
Premium, with rare exception, is based on payroll, also known as
remuneration. Below are the common remuneration inclusions and
exclusions:
Remuneration Included:
 Wages/Salaries;

Chapter 16 – Audit Rules and Guidelines
123
 Commissions If on draw, and draw is greater than commis-
sions earned — use the entire amount of the draw;
 Bonuses, unless awarded for individual invention or discov-
ery;
 Overtime – One-third of amount is subtracted from the total
amount (one-half if it is double-time pay);
 Pay for holidays, vacations, or periods of sickness;
 Pay for time not worked (i.e., paid for an 8-hour day when
only 7 hours worked);
 Pay for travel time to or from work or specific job site;
 Employer payments of amounts otherwise required by law
(i.e., Statutory insurance, Social Security, etc.);
 Contributions to a savings plan or vacation fund required by
a union contract;
 IRS Qualified Salary Reduction Plan (i.e. 401K) (refers to
the employee’s contribution and any qualified agreement be-
tween the employer and the employee to pay into a retire-
ment plan in lieu of direct wages);
 Employee Savings Plans – Only the amount given by the
employee, not the employer’s match, if any;
 Contributions to an IRA made by the employee;
 Payment on any basis other than time worked such as piece-
work, incentive plans or profit sharing plans;
 Payment or allowance for tools;
 Value of housing/lodging;
 Value of meals; and
 Substitutes for money (merchandise certificates, store credit,
etc.).

Remuneration Excluded:
 Tips and other gratuities;
 Payments by employer to Group Insurance or Pension Plans
(employer matching);
 Special rewards for individual invention or discovery;
 Severance pay;

Chapter 16 – Audit Rules and Guidelines
124
 Pay for those on active military duty;
 Employee discounts;
 Expense reimbursements;
 Money for meals for overtime work;
 Work uniform allowance;
 Sick pay paid by a third party; and
 Employer-provided perks (company autos, incentive vaca-
tions, memberships).
Special Payroll Considerations – Sole Proprietors, Partners, LLC
Members and Executive Officers
Actual payroll for each employee is used in the calculation of the
final workers’ compensation premium with just a few common ex-
ceptions. Sole proprietors, partners, LLC members and executive
officers are treated differently than regular employees.
Sole proprietors and partners in states that allow these persons to
choose to be subject to the workers’ compensation law and covered
by the policy are generally assigned a payroll regardless of their ac-
tual gross income. This amount is adjusted annually to account for
inflation and other cost of living factors. Each state which allows
these individuals to “opt in” assigns its own payroll limit (it is not the
same throughout the country).
Executive officers are generally subject to an upper and lower
weekly payroll limit rather than a set annual payroll like sole proprie-
tors and partners. If, for instance, the minimum weekly payroll as-
signable to an executive officer is $331 per week ($17,212 per year)
with a maximum weekly payroll of $1,300 per week ($67,600 per
year); an executive officer paid $300,000 per year will appear on the
audit at $67,600 per year. Remember, not all officers are executive
officers. Executive officers are generally limited to the president or
CEO, the CFO and certain levels of vice presidents. The delineation
is a function of the articles of incorporation and can vary from entity
to entity.
Members and managers of an LLC are, once again, subject to
state laws. Some states treat these individuals as sole proprie-
tors/partners while others view them as executive officers. The sub-

Chapter 16 – Audit Rules and Guidelines
125
ject law should be reviewed to confirm how these individuals are
classified and thus how payrolls will be assigned based on the de-
scriptions above. Likewise, proper assignment of the found-
ers/organizers of a professional association (PA) will be subject to
individual state statutes.
Three operational and actuarial reasons for such payroll limita-
tions are:
1. Getting paid more does not increase the likelihood that an in-
jury will occur. A plumbing company executive officer actu-
ally engaged in plumbing work and earning $150,000 per
year is no more likely to get hurt than the $15 per hour
“plumber’s helper.” In fact, he is probably less likely to get
hurt due to experience and personal interest. The amount of
pay does not increase the chance of injury;
2. Medical costs, theoretically, don’t fluctuate based on the in-
dividual’s income. A broken leg costs the same to set for the
owner and the hourly employee;
3. Indemnity payments are limited to a minimum and maxi-
mum in each state. As discussed in Chapter 5, each state sets
the minimum and maximum weekly indemnity benefits. If
the maximum that an injured executive or employee can re-
ceive in any given year is $75,000 (just for example sake), it
is not reasonable to expect the insured to pay a premium
based on a gross income of $200,000. This operational rule
is combined with the previous two to limit the amount of
payroll assignable to these special classes of people.
Governing Classification and the Single Enterprise Rule
Once final payrolls are calculated, a “Governing Classification”
is assigned to the employer. The governing classification is generally
based on the class code generating the largest payroll; rarely the
highest rated code is used as the governing class (usually only used
in construction-related operations if used at all). All employee pay-
rolls, with certain exclusions and exceptions expounded upon later,
are assigned to the governing classification.

Chapter 16 – Audit Rules and Guidelines
126
The governing classification is intended to represent the expo-
sure created by the overall operational business, not the exposure of
each individual employee. Applying the single enterprise rule, the
governing classification is designed to anticipate all the normal activ-
ities conducted by a particular operation or business. For example, a
steel fabrication plant may have employees that rivet, others that
bend and shape the steel, others that paint the finished product and
still others that add braces and brackets. Even though there are dif-
ferent exposures presented by each of these operations, all payroll is
assigned to the same class code.
Further, there are some activities a business conducts that appear
to be so unrelated to the primary operations as to require or allow
separate classification be assigned. However, NCCI considers some
of these activities to be an integral part of the business’ operations
thus the payroll of the individuals engaged in these activities is in-
cluded in the governing classification. Known as “General Inclu-
sions” these included activities are:
 Employees that work in a restaurant, cafeteria or commissary
run by the business for use by the employees (this does not
apply to such establishments at construction sites);
 Employees manufacturing containers such as boxes, bags,
can or cartons for the employer’s use in shipping its own
products;
 Staff working in hospitals or medical facilities operated by
the employer for use by the employees;
 Maintenance or repair shop employees; and
 Printing or lithography employees engaged in printing for
the employer’s own products.
Payroll for any employee engaged in the above activities is as-
signed to the governing classification.
Exceptions to the Governing Classification Rules
There are four exceptions to the governing classification and
single enterprise rules. These are:

Chapter 16 – Audit Rules and Guidelines
127
 The “Standard Exception” classifications;
 The “Interchange of Labor” rules;
 The “General Exclusion” classes; and
 Employers eligible for classification under the “Multiple En-
terprise” rule.
‘Standard Exception’ Classifications
Some duties/activities are so common to most businesses and
may be so far outside the operational activities of the entity that em-
ployees engaged in these positions are considered exceptions to the
governing classification rules. Payroll for these “standard exception”
classes of employees is subtracted from the governing classification
and assigned to the applicable standard exception code and rated
separately from the governing class. The standard exception classes
include:
 Clerical Employees – Class Code 8810;
 Clerical Telecommuter – Class Code 8871;
 Drafting Employees – Class Code 8810;
 Salespersons – Class Code 8742; and
 Drivers – Class Code 7380.
For a particular employee or group of employees to qualify for
assignment into one of the standard exception classifications, he/she
must be physically separated from the operative hazards of the busi-
ness by means of walls, floors, partitions or counters. Such separa-
tion requirement does not negate the assignment of an employee to a
standard exception class if he is only entering the area of operation to
conduct duties consistent with his class code; such as a clerical em-
ployee entering the operations area to deliver paychecks.
Standard exception classifications are not necessarily limited to
these five class codes; some states utilize state-specific class codes
that are also eligible for assignment as a standard exception. For ex-
ample, Texas allows certain employees to be assigned to “Executive
Officers NOC” (class code 8809) and the payroll for these employees

Chapter 16 – Audit Rules and Guidelines
128
is pulled out of the governing classification and rated as a standard
exception.
Employees falling into a standard exception classification may
not always be eligible for “standard exception” separation. Attention
must be paid to the governing classification description; at times, the
governing classification may state “…&…” or “…including….” If
such wording appears, the payroll for the standard exception em-
ployee is included in the governing classification. The reason for
such inclusion, the analogy of that particular operation requires the
presence of the standard exception employees to accomplish the
goals of such business. A few examples of this include (not an ex-
haustive list):
 Farm: Nursery Employees & Drivers (Class Code 0005);
 Chemical manufacturing NOC – all operations & Drivers
(Class Code 4829);
 Carpet, rug or upholstery cleaning & Drivers (Class Code
2585);
 Physicians & Clerical (Class Code 8832);
 Photographer – All employees & Clerical, Salespersons and
Drivers (Class Code 4361); and
 School: Professional Employees & Clerical (Class Code
8868).
Interchange of Labor
A second exception to the governing classification rule is the “in-
terchange of labor” rule. The applicability of this rule varies by state;
some states only allow its use in the construction, erection or steve-
doring classes of business while other states permit the interchange
of labor rule to apply to any type of business operation.
Interchange of labor rules allow a single employee’s payroll to be
split between or among several class codes that may be present with-
in the operations. The advantage to the employer (premium payer) of
such allowance is an ultimately lower premium. Without the inter-
change of labor rule, the employee’s entire payroll would be assigned
to the governing (likely highest rate) classification. With the inter-

Chapter 16 – Audit Rules and Guidelines
129
change of labor rule in effect, the employer is charged based on the
employee’s actual exposure to injury.
For instance, an employee in the construction industry who does
framing work (5645) and hardwood floor installation (5437) can see
his payroll divided between these different operations and realize a
reduction in premium provided the following specific provisions are
met:
 All classifications used for an employee are appropriate to
the job performed;
 Payroll records exist that allocate the employee’s wages be-
tween/among the different classes. This requires an actual,
dollar amount payroll split, a percentage of payroll is not al-
lowed;
 The division of payroll is not available with any of the
standard exception classifications (with the possible excep-
tion of the driver code); and
 The operations/activities are not conducted on the same job
site.
Continuing the above example using assigned risk rates of $25
for code 5645 and $14 for code 5437, an employee earning an annual
payroll of $30,000 will cost the employer $7,500 if there is no inter-
change of labor. If, however, all the interchange of labor guidelines
are met, and the employee’s payroll is split as follows: $20,000 for
framing and $10,000 for hardwood floor installation; the employee
will only cost $6,400 in workers’ compensation premium (ignoring
expense constants, modification factors and debits or credits).
The interchange of labor rule is great for the employer due to the
premium savings and is fair for the insurance carrier because expo-
sures differ based on activity. When the employee is on scaffolding
he is more like to suffer a severe injury than when installing flooring.
Employers and their agents must understand and take advantage
of the interchange of labor rules allowed in each state. Large payrolls
can greatly benefit from such splits thus agents should encourage
detailed payroll records be kept and the audits should be checked
closely.

Chapter 16 – Audit Rules and Guidelines
130
General Exclusion Classifications
Some operational activities do not fit into the analogous assign-
ment of the governing classification due to the unexpected existence
of such an operation as part of a particular business. It is not reason-
able to expect the hardware store code (8010) to pick up the expo-
sure created by an onsite sawmill operation (2710) for example.
Such operations are known as “general exclusion” classes. Gen-
eral exclusion classes are listed separately on the workers’ compensa-
tion policy and a separate rate (based on the class code) is charged
for the employees within these classes of operations.
General exclusion classes are the opposite of “standard excep-
tion” classes. General exclusion classes are completely unexpected
and not considered part of the analogy of the governing classification
of an operation requiring separation to allow the insurer to garner
the, usually, higher premium for the increased exposure. Standard
exceptions represent operations common to most business and are of
such minimal hazard that the insured should not be punished by hav-
ing the payroll for these classes included in the governing classifica-
tion, but should rather enjoy a lower premium for the reduced expo-
sure.
Operations and activities falling within the general exclusion
classification are:
 Employees working in aircraft operations;
 Employees performing new construction or alterations;
 Stevedoring employees;
 Sawmill operation employees; and
 Employees working in an employer-owned daycare.
Multiple Enterprise Rule
The single enterprise rule requires that all activities usual and
customary to a particular operation be assigned to one “governing”
class code (with the exceptions described above). However, a partic-
ular entity may conduct additional operations not usual or customary
to such an enterprise; such disparate activities may allow the insured

Chapter 16 – Audit Rules and Guidelines
131
to qualify for the separation of payroll into multiple classifications
under the “multiple enterprise rule.”
A secondary operation producing a basic premium equal to or
higher than the governing class code (the code generating the highest
payroll) premium automatically qualifies for separation under the
multiple enterprise rule with the only requirement being segregation
of payrolls.
If, however, the basic premium generated by the secondary oper-
ation is less than the governing class code basic premium, four tests
must be satisfied before the insured can make use of the multiple
enterprise rule. These are:
1. The operation is not commonly found within the operation of
the subject insured’s business;
2. The operation could each exist as a separate entity;
3. Financial records are kept separately for each operation; and
4. The operations are physically separated by means of a parti-
tion, wall or placement in a separate building.

Such separation of payrolls may benefit the insured employer by
a reduction in premium if the secondary enterprise carries a lower
rate per $100 of payroll. Additionally, employers that qualify for
separation of payrolls under the multiple enterprise rule may also be
able to benefit from the application of the interchange of labor rule
as presented above and based on the state.
ABCs of Premium Audits
There are specific guidelines that agents and the employer
should apply to every audit. These are the “ABCs” of premium au-
dits.

A: Always be there. A representative from the company familiar
with the financial records and the operations of the company should
be present at every audit. The auditor will likely have questions and
unless someone is available to answer these questions and explain
the financial documents, the auditor will have to make some poten-

Chapter 16 – Audit Rules and Guidelines
132
tially costly assumptions and/or mistakes. This duty should not be
delegated to any member of the staff not intimately familiar with the
business and its finances.

B: Be prepared. The auditor will need all the necessary financial
records to conduct the audit and will likely ask for a tour of the facil-
ity. Prepare a place for the auditor to work and help them complete
their job as quickly as possible. Some data that will need to be ready
includes:
 Payroll records: Payroll journal and summary; 941s; state
unemployment reports; an explanation and break out of
overtime payments; and the general ledger.
 Employee records: Include a detailed description of job du-
ties; the number of employees; employee hire and fire dates;
and class code splits if applicable.
 Cash disbursements: Cost of and payments to subcontrac-
tors; cost of materials; and the cost of any casual labor hired.
 Certificates of Insurance: Make sure to supply current certif-
icates of insurance covering the entire period of the audit or
the entire period of time the contractor has worked for the
insured. If the sub’s policy renews in the middle of the audit
period, a new certificate should be requested covering the
remainder of the insured’s policy period.
 OCIP projects: If the insured has been a part of any wrap-up,
the auditor needs this information in order to remove the
payroll from the calculation.
C: Copy of the auditor’s work papers. Don’t let the auditor leave
without getting a copy of the audit work papers. This will allow the
insured and the agent to review the audit and confirm that there are
no errors BEFORE the audit is processed and billed (fixing it “after-
the-fact” is more difficult).

D: Don’t volunteer more information than asked. The auditor will
ask questions, this is expected. Insureds should be advised to only

Chapter 16 – Audit Rules and Guidelines
133
answer the questions asked and not lead the auditor down a path that
may be detrimental to the insured.

E: Exceptions to the single entity rule. The exceptions listed above
should be capitalized on by the insured. Audits should, at the very
minimum, contain at least one standard exception code. If the in-
sured is eligible for any of the other payroll splits described above,
those codes should also be included.
Knowing the rules and exceptions, giving the auditors everything
they need to complete the audit quickly and following the above
rules will increase the chances of a favorable audit.

134
Chapter 17
Audit Problems Leading to Additional
Premiums
Let’s dispense with the niceties and all attempts to eloquently
ease into a discussion on the troubles surrounding workers’ compen-
sation audits. Rather let’s jump right into the problem — assignment
of “employee” status to non-employees. This is not the only problem,
but this is where most additional premium headaches seem to origi-
nate.
Statutes in most jurisdictions are rather clear regarding who is
and is not an employee, but auditors have taken it upon themselves,
on many occasions, to assign an individual “employee” status in di-
rect contradiction to statutory language; particularly when it comes
to sole proprietors, partners, corporate officers, properly insured sub-
contractors and true independent contractors. Worse yet, different
carriers’ audit departments treat the same exposure in different ways,
which leaves agents to guess on the outcome. Guessing usually ends
with the client being stuck with an additional premium bill and the
loss of a client.
There was one agent who was sued by his insured to recover the
amount of the additional premium audit (in the neighborhood of
$75,000 to $80,000) resulting from independent and statutorily ex-
empt subcontractors being assigned “employee” status. The insured
claimed the agent never advised him which workers might and might
not be considered employees and thus the agent erred in his profes-
sional responsibility and duty to the insured. Even if no lawsuit had
been filed, the client will likely move his coverage at renewal (or
sooner), even if the audit is right.
Challenging an auditor’s ruling seems to be a no-win proposition
akin to tilting at windmills. Some underwriters have related that they

Chapter 17 – Audit Problems Leading to Additional Premiums
135
cannot overrule the auditor; and even the states seem to be or choose
to be impotent in a classification dispute.
Before completely ripping auditors apart, let’s agree that good
ones can be a valuable resource when working on a difficult account.
Some company auditors will even take the time to help agents classi-
fy the insured (which could possibly help win an account). I have
had occasion to establish an up-front agreement with the auditor re-
garding a particular insured’s classification at audit. Auditors who go
above and beyond need to be recognized to their managers and the
manager’s manager. Bosses generally hear nothing at all or bad re-
ports, a good report will stand out in their mind and the auditor will
be an ally later.
To be fair, the auditor’s job is not always easy. Judging who is
and is not an employee is not always clear. Several chapters in this
book have tried to offer guidance, but even with this and other mate-
rial, there are still gray areas. When there is a gray area, the auditor
will go with the conservative approach and assign “employee” status.
The bad part is the agent doesn’t generally find out until receiving the
angry call from the insured holding the audit bill in his hand. How
the auditor is approached once the audit is contested will hopefully
go a long way towards amiably rectifying any problems.
Regardless, the agent needs to protect himself or herself from the
whims of the auditor or the sufficiency of gray area that may lead to
an additional premium audit. Employee status in workers’ com-
pensation is a function of law, not a function of the policy, and
since agents are not generally lawyers, the best they can do is make
an educated interpretation — but even that might be wrong.
Stuart Powell CPCU, CIC, CLU, ARM, ChFC, AMIM, AAI,
ARe, vice president of Insurance Operations for the Independent In-
surance Agents of North Carolina, crafted a letter for agents to send
to their clients upon purchase or renewal of a workers’ compensation
policy. This well-written letter explains to the client what workers’
compensation is, how it is priced, how employee status is determined
and what will happen at audit.

Chapter 17 – Audit Problems Leading to Additional Premiums
136
The Letter

Insured Addressee
Business Name
Street Address
City, State, Zip

Re: Workers’ Compensation Policy

Dear Client:

You recently purchased (renewed) a Workers’ Compensation and
Employers’ Liability Insurance Policy. This policy is designed to
support and comply with (this state’s )Workers’ Compensation Laws
and to provide benefits as prescribed by statute to any injured em-
ployee whose injury or disease “arises out of and in the course and
scope of” their employment.

Payroll generally determines the ultimate cost of coverage. Estimated
payroll supplied by you at the beginning of the policy year deter-
mines the deposit premium. An audit of actual payrolls is completed
by the carrier at the end of the policy period to determine the final
premium. If actual payroll is less than your estimate, a premium re-
fund may be sent. Likewise, actual payroll higher than estimated re-
sults in an additional premium bill.

Today’s business climate makes it difficult to determine who quali-
fies as an “employee;” the use of leased employees, subcontractors
and independent contractors contributes to the confusion. Employ-
ment contracts, statute or common law usually establish employment
(and employee) status. Calling a worker by a name other than em-
ployee (i.e. “subcontractor” or “independent contractor”) does not
overcome the facts. Additionally, how compensation is reported to
the IRS (use of a 1099 Form) is not sufficient to establish that the
individual is not, in fact, an employee.

Workers’ compensation pays benefits to injured “employees;” any
individual determined by statute or the court to be your employee is
entitled to benefits. Because benefit payments are the responsibility
of the insurance carrier, they are becoming very aggressive in mak-

Chapter 17 – Audit Problems Leading to Additional Premiums
137
ing sure you pay the proper premium for the benefits they must pro-
vide. Insurance company auditors have traditionally allowed the use
certificates of insurance to establish exemption from “employee”
status. Recently, auditors have begun to disregard these certificates
particularly in cases of workers’ compensation “ghost” policies (a
workers’ compensation policy written for an unincorporated business
with no employees and which does not extend coverage to the busi-
ness’ owner(s)).

Additionally, workers that perform the same tasks employees per-
form or would perform may lead the auditor to define such individu-
als as employees, resulting in additional premium based on the indi-
vidual’s compensation. These are workers you might label as “inde-
pendent contractors” or “subcontractors.” Depending on the number
of workers in question, the premium adjustment could be substantial.

An opinion from an attorney trained in employment law is required
to answer any questions about the status of a particular worker or
group of workers. We as your agent appreciate the opportunity to
assist you in your workers’ compensation insurance program; how-
ever, we are not attorneys and are unable to provide a legal opinion
as to whether a particular worker is or is not a statutory or common
law employee.

Sincerely yours,

Your Independent Agent

Conclusion
Keeping other agents and clients informed allows a better system
to be built. Communicating with clients up front will also avoid
some heartburn in the end.

138
Chapter 18
A Primer on the Workers’ Compensation
Experience Rating Worksheet
“I’ve been told that my work comp experience mod is all my
fault; is that true?” Over my career I’ve been asked this or some-
thing similar many times, as have many insurance practitioners. But
the answer to this seemingly simple question isn’t so simple.
Yes, the experience modification factor (Ex Mod, X-Mod, the
Mod, etc.) is primarily a function of the insured’s losses. But an in-
depth review of the experience modification worksheet proves that at
least part of the experience mod is a function of factors and/or rules
promulgated by either NCCI, a Bureau or state – so, no, the insured
is not totally “at fault” for the final mod.
Confused yet? Getting to the heart of the insured’s experience
modification factor and removing confusion requires three questions
to be answered (not necessarily in the order presented):
 Why are experience modification factors developed and
used?
 How is an experience modification factor developed and cal-
culated?
 Which has greater effect on an experience modification cal-
culation, claims frequency or claims severity?
To answer the second and third questions, this chapter breaks
down the experience mod worksheet into its component parts. Each
factor and rule is detailed using simple explanations and terminolo-
gy. After review of this chapter, explaining the process to insureds
should be easy, or at least easier.

Chapter 18 – Experience Rating Worksheet
139
Why Must it Be?
Beyond what the insured does (their operations), the ultimate
workers’ compensation premium must somehow account for how the
insured manages the risks associated with what they do. One method
used to measure how effectively the insured manages its employee
injury risk is the experience modification factor.
Workers’ compensation’s base loss costs/rates are calculated
considering the “average” insured within a particular class of busi-
ness. Actuaries develop the concept of the “average” operational
class risk by analyzing past loss experience and applying it to the
probability of future losses for that class of operation. Developed
loss costs/rates for each class differ from state to state to account for
the loss experience differences and the expense variability among the
states. (Granted, this is an over-simplified explanation of how loss
costs/rates are developed; but rate development is outside the scope
and purpose of this chapter.)
Use of an “average” insured rate seems reasonable, except that
there is no such thing as an “average” insured or business; each in-
sured institutes its own philosophy and method to its business opera-
tions. Such disparate ideas and systems produce a wide range of re-
sults. “Ex mods” are a way of keeping score; of indicating whether
an insured is a better-than-“average” risk or worse-than-“average”
risk. In essence, the experience modification factor customizes the
workers’ compensation premium to match the exposure (loss experi-
ence) created or presented by an individual insured.
Actual loss experience is compared to expected loss experience
(detailed later in this chapter) to develop the experience modification
factor. Since the loss cost/rate is based on the “average” risk, an ex-
perience mod of 1.00 is the base line. Insureds developing a “mod”
less than 1.00 (i.e. 0.80) receive a credit towards the final premium
and is considered a better-than-average risk. Operations developing
an experience mod higher than 1.00 (i.e. 1.15) are considered a
worse-than-average risk and are penalized.
In application, the calculated “x-mod” is actuality a percent-
age. The developed premium is multiplied by the developed mod to
account for the experience of the insured.

Chapter 18 – Experience Rating Worksheet
140
Using the above example mods, a developed premium of $5,000
would be altered as follows:
 $5,000 x 0.80 (credit mod) = $4,000
 $5,000 x 1.15 (debit mod) = $5.750
(The final estimated annual premium is developed by adding
various other factors and values to the amount developed after the
experience mod is applied. These values/factors may include (but
only if applicable): loss constants, assigned risk charges (or ARAP),
scheduled credits/debits, premium size discounts, expense constants
and/or taxes.)
Not only does the experience modification factor allow the ulti-
mate premium to conform to the exposure presented by the insured,
it also allows the insured some control over its own destiny regarding
the final premium. Unlike discretionary credits, the insured is enti-
tled to the credit garnered from an experience mod less than 1.00.
Additionally, the mod acts as an incentive for insureds to first avoid
injuries and second to control the costs of injuries that do occur.
Only the Eligible
Not every insured qualifies for an experience modification fac-
tor. Eligibility is based on the insured’s premium size. Most often the
eligibility threshold is based on the total work comp premium devel-
oped over two years; and if more than two years is considered, the
average of the years used must be greater than a specified amount
(most commonly half the two-year total). Each state applies its own
minimum premium threshold for eligibility.
Reading the Experience Rating Worksheet
Proper analysis of the results produced by the experience rating
worksheet requires an understanding of the data contained in the
form. The layout of the rating worksheet detracts from the flow. Ex-
ample 18.1 removes the superfluous information (information not
necessary to develop the final experience mod) to allow a clearer
view of the calculation process.

Chapter 18 – Experience Rating Worksheet
141
Beginning at the top, let’s work our way to the final number –
the experience modification factor. Once the calculation process is
detailed, this chapter will turn its focus to the variables that affect the
final “mod”: frequency versus severity; ERA versus Non-ERA; and
how to calculate the lowest possible ex-mod for a particular insured.
From the Top
DATE. This is the effective date of the experience modification
factor being calculated and is generally a function of the “Anniver-
sary Rating Date.” The Anniversary Rating Date (ARD) is the effec-
tive date of the first workers’ compensation policy issued to the in-
sured and it sets, to some extent, the effective date of the experience
modification factor. The month and day of the first policy become
the “anniversary rating date” that applies to each subsequent year. A
specific written request is required to change the ARD.
The experience mod’s effective “Date” directly affects the policy
periods used by the applicable rating authority (NCCI or state rate
bureau) to calculate the experience mod. These policy periods are
known as the “experience period.”
EXPERIENCE PERIOD. “Experience period” is NOT a
term found on the worksheet; however, knowing the applicable
“experience period” is required to properly analyze the work-
sheet. Most commonly the “experience period” is the three
years ending one year prior to the experience modification fac-
tor’s effective date (“Date” above). So in essence, the experi-
ence modification factor worksheet encompasses the last four
policy years (48 months) but only utilizes the oldest three years
(36 months) to apply towards the development of the “mod.”
In Example 18.1 the effective date (Date) of the experience mod
is 1/1/2011, but the “experience period” used to develop the mod
ends 1/1/2010 – one year prior to the effective date. The experience
period in the example is the 36 months beginning 1/1/2007 and end-
ing 1/1/2010. Loss experience during the most current 12 months is
not used for several reasons: the mod is developed several months
before the policy year ends; accurate loss values may not be availa-

Chapter 18 – Experience Rating Worksheet
142
ble; the audit cannot be completed in time; and because there may be
unreported or non-compensable losses.
According to NCCI, the “experience period” can be shorter or
longer than three years; as short as 12 months up to as much as 45
months. Twelve and 24 month “experience periods” are common
when the insured is relatively new in business and have just become
eligible for experience rating. Some causes for the use of an experi-
ence period longer than the oldest 36 months could include:
 Changes in the effective rating date;
 Multiple policy effective dates;
 Changes in ownership;
 Interstate policy issues; or
 Policy periods longer than 1 year and 16 days.
CODE. Indicates what the insured does as they are the classifi-
cations assignable to the insured by the authority having jurisdiction,
whether it be NCCI or a state rate bureau. (See Chapter 17 for details
on classification rules.) When evaluating the experience mod, these
must be checked for accuracy.
ELR. The “Expected Loss Rate” is developed individually by
each state based on the loss experience for the class of operation in-
dicated by the CODE (each CODE has its own ELR). As its name
suggests, this is the factor use to develop “EXPECTED LOSSES”
(discussed below). The ELR is presented as a three-digit number, but
in applicability it is missing a decimal point. A decimal should be
inserted following the second number from the right; so in the exam-
ple the ELR presented as 543 should be applied as 5.43. Likewise,
the second ELR presented as 076 is applied as 0.76, and so on.
How the ELR is applied to PAYROLL to develop EXPECTED
LOSSES is clarified in the applicable upcoming paragraphs.
D-RATIO. Like the ELR, the D-RATIO is specified by each in-
dividual state and is different for each class code. This ratio is used
to develop the expected primary losses (EXP PRIM LOSSES) used
in the final calculation of the experience mod. Also like the ELR, the
D-Ratio is presented as a whole number when in applicability it is

Chapter 18 – Experience Rating Worksheet
143
missing a decimal point. In Example 18.1, the D-Ratio shown as 10
should be applied as .10. In essence, this D-Ratio (as the term “ratio”
indicates) is a percentage; the percentage is applied to the “EX-
PECTED LOSSES” to develop the expected primary losses (EXP
PRIM LOSSES).

Chapter 18 – Experience Rating Worksheet
144
Example 18.1 Workers Compensation Experience Rating
ERA State

Date: 1/1/2011
State: Any with ERA

EFF- Date 1/1/2007 EXP- Date 1/1/2008
Code ELR D-
Ratio
Payroll Exp
Losses
Prim
Losses
Claim
Data
IJ O/F Act Inc
Losses
Prim
Losses
5645 543 10 700000 38010 3801 2007001 1 O 19000 5000
5606 076 10 100000 760 76 2007003 5 F 14500 5000
8742 020 12 110000 220 26 #8 5 F 6700 6700
8810 012 15 60000 72 11 #4 6 F 3500 3500

Policy Total 970000 (Subject Premium = 44921) 43700

EFF- Date 1/1/2008 EXP- Date 1/1/2009
Code ELR D-
Ratio
Payroll Exp
Losses
Prim
Losses
Claim
Data
IJ O/F Act Inc
Losses
Prim
Losses
5645 543 10 750000 40725 4073 2008004 1 O 17000 5000
5606 076 10 105000 798 80 2008005 5 F 16500 5000
8742 020 12 115000 230 28 2008006 5 F 6700 5000
8810 012 15 62000 74 11 2008008 6 F 7500 5000
#4 6 F 7200 7200

Policy Total 1032000 (Subject Premium = 47940) 54900

EFF-Date 1/1/2009 EXP-Date 1/1/2010
Code ELF D-
Ratio
Payroll Exp
Losses
Prim
Losses
Claim
Data
IJ O/F Act Inc
Losses
Prim
Losses
5645 543 10 825000 44798 4480 2009001 2 F 9550 5000
5606 076 10 115000 874 87 2009003 5 F 3100 3100
8742 020 12 130000 260 31 2009006 5 F 5750 5000
8810 012 15 68000 82 12 #6 6 F 7200 7200

Policy Total 1138000 (Subject Premium = 56340) 25600

(A)
027
(B) (C) (D-E)
114187
(D)
126903
(E)

12716
(F) (H-I)
54750
(G)

33400
(H)
106420
(I)
51670

(11)
Primary Loss
(12)
Stabilizing
Value
(13)
Ratable Excess
(14)
Total $
(15)
Exp Mod
Actual
(I)

51670
(C)x(1-W)+(G)

116756
(A) x (F)

14783
(J)

183209

Expected
(E)

12716

116756
(A) x (C)

30830
(K)
160303
(J)/(K)
1.14

Chapter 18 – Experience Rating Worksheet
145

ELR and D-Ratio Factors. The ELR and D-Ratio factors in ef-
fect WHEN the experience mod is calculated are used for ALL years
within the experience period. Thus, the ELR and D-Ratio in effect on
the mod’s effective date are used, not the factors in use during each
of the years in the experience period.
However, there are exceptions to this rule. Delaware and Penn-
sylvania are those exceptions. These states apply the ELR and D-
Ratio in effect during each year in the experience period. Worksheets
in these two states will/may show different ELR and D-Ratios for
each year in the experience period.
PAYROLL. Rather self-explanatory. This is the insured’s au-
dited payroll. The ELR (discussed above) is applied to PAYROLL
to develop the EXPECTED LOSSES. If payrolls are incorrect, ex-
pected losses will be skewed and the entire mod calculation will be
altered because many of the factors used in the final calculation are
based on expected losses; and expected losses are based on accurate
class codes and payroll amounts.
EXPECTED LOSSES. As the name suggests, this represents
the amount of losses statistically expected per applicable classifica-
tion. Notice that each class is assigned its own expected loss amount.
The ELR and PAYROLL are the key factors used to calculate this
amount (again, for each class) as follows:
 (PAYROLL / 100) X ELR = EXPECTED LOSSES
Remember, the ELR is missing a decimal point in front of the
second numeral from the right. Using the information contained in
Example 18.1, the EXPECTED LOSSES for CODE (classification
code) 5645 is developed as shown here:

 (700,000 / 100) x 5.43 = 38010
As calculated, the total EXPECTED LOSSES for code 5645 are
$38,010. The same calculation method is applied to each class code
for every year in the experience period.

Chapter 18 – Experience Rating Worksheet
146
Primary vs. Excess Losses
Before moving any further into the worksheet and its calcula-
tions, the concepts of Primary and Excess losses must be detailed. As
will be demonstrated more specifically later in this chapter, the total
cost of the injury, to some extent, matters less than the fact that the
injury occurred at all. The fact of the loss is more statistically rele-
vant than its size because the cost of one particular injury does little
to predict the amount of future losses. Remember, one purpose of the
experience mod is to price for future losses.
To lessen the size of a loss’ effect on the “mod” (its severity),
and enhance the effect of the fact that the loss occurred (the frequen-
cy), losses are broken into two parts – “Primary” and “Excess.” Pri-
mary losses are given more “weight” in the calculation as there is no
weighting or credibility factor applied to these losses in the final cal-
culation (subject to ERA in applicable states – discussed later). Ex-
cess losses are considered and applied as part of the “mod;” however
excess losses are subject to a “credibility” factor lowering the
amount of the excess loss that is considered in the calculation (de-
tailed more specifically later).
What part of the loss is considered “primary” and which part is
“excess?” Most often, the first $5,000 of any loss is considered to be
the “primary” amount. While $5,000 is the most common, there are
some state exceptions; California, for example, applies the first
$7,000 as the primary amount. “Excess” losses are all amounts over
$5,000 (or whatever is used as the primary amount) for one individu-
al loss (subject to a maximum amount).
Claims exceeding the “primary” threshold must be specifically
listed under CLAIM DATA and the total amount included under
ACT INC LOSSES on the “mod” worksheet. Losses below the “pri-
mary” threshold can be grouped together, listing the total of all loss-
es garnering a particular injury type (IJ). Any losses grouped togeth-
er are not subject to the primary/excess concept. The total of grouped
losses is included as “primary” losses.
Continuing On!

Chapter 18 – Experience Rating Worksheet
147
EXP PRIM LOSSES. Short for “Expected Primary Losses,”
this is the percentage of EXPECTED LOSSES statistically anticipat-
ed to fall under the concept of primary losses (as discussed above).
Development of EXP PRIM LOSSES involves the D-RATIO and the
EXPECTED LOSSES.
Once again, the D-Ratio is actually a percentage. Using the D-
Ratio in Example 18.1 for class code (CODE) 5645, an EXP PRIM
LOSSES amount of $3,801 is developed. In practical terms, here is
the formula:
 EXPECTED LOSSES x D-RATIO = EXP PRIM LOSSES
Or
 38010 x 10% = $3,801
Like the EXPECTED LOSSES, this calculation is done for each
class code in every year of the experience period.

CLAIM DATA. Somewhat self-explanatory; the claim num-
ber for claims exceeding a dollar amount threshold (commonly
$2,000) and the number of claims in a group for those not ex-
ceeding that threshold. Information necessary to complete this
section is taken from loss runs and/or unit statistical cards (unit
stats).

IJ. This indicates the type, classification or severity of the in-
jury(ies). Nine IJ codes are available:
 1 – Death
 2 – Permanent Total Disability
 3 – Major Permanent Partial Disability
 4 – Minor Permanent Partial Disability
 5 – Temporary Total or Temporary Partial Disability
 6 – Medical Only
 7 – Contract Medical or Hospital Allowance
 8 – Compromised Death – CA only
 9 – Permanent Partial Disability

Chapter 18 – Experience Rating Worksheet
148
Medical only claims (IJ code 6) are of particular interest. Many
states only include a portion of medical only claims in the experience
mod calculation. These are called ERA states; or “Experience Rating
Adjustment” states. In ERA states only 30 percent of medical only
claims(including grouped medical only claims) are included in the
mod calculation as part of “actual” losses. The worksheet states that
the rating reflects “a decrease of 70% medical only….” Don’t be
confused by the use of “70%,” remember that only 30% of the
amount is included (and this applies to both actual total incurred and
actual primary losses).
States applying ERA are: Alabama, Arizona, Arkansas, Connect-
icut, DC, Florida, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky,
Maine, Maryland, Michigan, Minnesota, Mississippi, Montana, Ne-
braska, Nevada, New Hampshire, New Mexico (2010), North Caro-
lina, Oklahoma, Rhode Island, South Carolina, South Dakota, Ten-
nessee, Utah, Vermont, Virginia, West Virginia and Wisconsin.
(Colorado discontinued use of ERA on January 1, 2011.)

O/F. Indicates the status of the claim. “O” indicates the claim is
open. “F” means “final” or that the claim is closed.

ACT INC LOSSES. Actual Incurred Losses taken directly from
the insured’s loss information. Notice that “incurred” losses are used.
Incurred losses are the total of paid and reserved losses. Only losses
over a specified amount (commonly $2,000) must be specifically
listed; losses below such amount can be grouped by type/severity as
shown in the above IJ discussion.
Referring back to an earlier section of this chapter, remember
that the fact that the loss occurred is more important than the amount
of the loss. Although this more specifically relates to the develop-
ment of actual primary losses (ACT PRIM LOSSES) in the next col-
umn, it also applies to Actual Incurred Losses by capping reported
actual losses to a maximum amount.
Each state develops its own maximum loss amount (which may
be adjusted annually). In North Carolina, for example, the maximum

Chapter 18 – Experience Rating Worksheet
149
claim amount beginning April 1, 2010, is $241,000; but in South
Carolina it is $281,000.
Beyond the individual loss maximum, there is a catastrophic loss
maximum. This applies when more than one worker is injured in the
same incident. The catastrophic loss maximum is most often two
times the individual loss maximum. Using the above information as
an example, the catastrophic maximum in NC is $482,000.
What does this mean? If five workers are injured in the same in-
cident (a wall collapses), the total loss that could/should be reported
for all five men cannot exceed $482,000. If that’s the cost for one
person – so be it.
Lastly, the amount of actual incurred losses used in the form is
the total of the amount of paid losses plus reserved losses on what is
known as the “valuation date.” The valuation date is generally six
months after the end of the last policy period in the experience peri-
od.
If there is any question regarding the accuracy of the incurred
loss figures for open claims, these must be discussed and resolved
prior to the valuation date and calculation of the experience mod.
Higher-than-necessary incurred values can affect the ultimate experi-
ence mod.

ACT PRIM LOSSES. This is the column to record the in-
sured’s Actual Primary Losses. Referring back to the earlier discus-
sion regarding primary versus excess, only the first $5,000 (in most
states) of any one single loss is included as the actual primary loss.
Grouped losses are included in full as the amount represents many
losses that don’t exceed the individual listing limit (generally
$2,000).
As part of the calculation process at the bottom of the experience
rating worksheet, discussed next, actual incurred losses (ACT INC
LOSSES) and actual primary losses (ACT PRIM LOSSES) applying
injury code (IJ) 6 (medical only) are reduced further. The total of
each “actual” amount is reduced by 70 percent; only 30 percent of
medical only claims make it to the bottom of the form for calculation
purposes – if it’s an ERA state (listed above).

Chapter 18 – Experience Rating Worksheet
150
Compiling the Data
Most of the information necessary to develop the experience
modification factor is input and captured in the columns detailed in
preceding paragraphs. However, two factors/values must be promul-
gated and provided by the authority calculating the “mod” (NCCI or
state rating bureau): 1) the weighting (W) factor; and 2) the ballast
(B) value. Both are found at the bottom of the mod worksheet and
discussed in the following paragraphs. Each factor in the calculation
is detailed in the following paragraphs following the same model
used previously.
Box (A). This is the weighting (“W”) or credibility factor sup-
plied by the authority developing the rating worksheet (NCCI or
state rating bureau). Essentially this factor represents the authority’s
opinion regarding the credibility of the loss data as it relates to pre-
dicting future losses. The higher the number, the more weight or
credibility is given to the loss data; and likewise the lower the num-
ber the less credible the past losses are for predicting future losses.
Determination of the actual weighting factor is proprietary, but
in general terms it is based directly or indirectly on the insured’s
premium or payroll amounts – specifically, the credibility factor is
based on expected losses; and expected losses are a function of the
payroll and the expected loss ratio (ELR). The smaller the risk, the
less weight is given to past and expected losses – resulting in a low
(A) factor; conversely, the larger the risk, the greater the weight giv-
en to past and expected losses – resulting in a higher (A) factor.
Two functions are served by the weighting factor:
1. It is applied to excess losses (expected and actual)
limiting the amount of each used in the calculation;
and
2. Its inverse is used to develop the stabilizing value
(discussed later). The inverse is developed by
subtracting the weight factor from 1 as follows: 1-
(A) = inverse of A
This weighting/credibility factor may be presented with or with-
out a decimal point before the second number from the right. Con-
tinuing to use Example 18.1, the sampled weighting factor is “027.”
Some worksheets may show this number as “0.27” or even “.27.”

Chapter 18 – Experience Rating Worksheet
151
Regardless how the value is shown, it is to be applied as a percent-
age, just like the ELR and D-Ratio discussed earlier; all three exam-
ples in this paragraph indicate that only 27 percent of the excess
losses (expected or actual) is to be used in the calculation; and its
inverse – 63 percent – is used as part of the stabilizing value calcula-
tion.
Box (B). No one knows why this box exists; it’s not used for an-
ything. Evidently some states use it to show the ballast value, but
most commonly this is a blank space.
Box (C): Expected Excess Losses. To develop the value input in
this box, subtract total expected primary losses (EXP PRIM LOSS-
ES) from total expected losses (EXPECTED LOSSES). Total ex-
pected primary losses are found in box (E), and total expected losses
are taken from box (D).
 (D) – (E) = Expected Excess Losses (C)
The “W” factor, found in box (A), is applied to this amount to
develop the ratable excess amount applicable to expected losses and
entered in the lower box (13).
Box (D). Total Expected Losses. As was detailed previously, ex-
pected losses are developed for each class code for every year in the
experience period. All of these developed values are added together
and entered in box (D).
Box (E). Expected Primary Losses. Like box (D), box (E) is de-
veloped by adding together all the developed expected primary loss-
es (EXP PRIM LOSSES) found in the worksheet.
Box (F). Actual Excess. Developed by subtracting the actual
primary losses (box (I)) from actual incurred losses (box (H)). The
“W” factor, found in box (A), is applied to this amount to develop
the ratable excess amount applicable to actual losses and entered in
the upper part of box (13).
Box (G). Ballast Value. The ballast value is also based on the
size of the risk. The larger the risk, the higher the ballast amount.
Like the “W” factor in box (A), the ballast value is promulgated by
the authority developing the mod or the mod factors. As its name
suggests, the ballast value is designed to avoid too great of move-

Chapter 18 – Experience Rating Worksheet
152
ment away from the center/base (a mod of 1.00). It is part of the sta-
bilizing value (found in box (12)) applied to both actual and excess
values in the calculation.
Box (H). Total of Actual Incurred Losses from top of form. But
keep in mind this may not be the total of the actual incurred losses
(ACT INC LOSSES) presented during the experience period in states
that apply ERA (experience rating adjustment) factors to medical
only losses (injury code 6). In ERA states, the medical only losses
are reduced by 70 percent (only 30 percent of these losses count to-
wards the total). Thus, the amount in this box could be known as the
“reduced” actual incurred losses. (Example 18.3 shows the differ-
ence between ERA and non-ERA states)
Box (I). Total of Actual Primary Losses (ACT PRIM LOSSES).
Like box (H), this is the total of the actual primary losses developed
in the experience period section of the worksheet. And also like box
(H), the amount input in box (I) is actually the reduced total of pri-
mary losses if the risk is in an ERA state and there are medical only
losses. (Also see Example 18.3.)
Compiling the Data and Calculating the Mod
All the data gathering and grouping is done, now on to the easy
part, the actual calculation. Note that the “Actual” loss data is in the
top boxes and the “Expected” loss data is placed in the lower boxes.
At the end of this long line of date is the developed experience modi-
fication factor. Refer to Example 18.1 or another completed work-
sheet.
Column (11) – Primary Loss
 Top box – ACTUAL – enter the value developed in box (I)
(Actual primary losses – reduced by ERA if applicable).
 Lower box – EXPECTED – input the value presented in box
(E).
Column (12) – Stabilizing Value
This value has been hinted at several times throughout this chap-
ter. The stabilizing value serves two functions: 1) sets the minimum
experience mod available for any particular risk (because the total

Chapter 18 – Experience Rating Worksheet
153
losses can NEVER be zero when a stabilizing factor is part of the
calculation; and 2) it, as the name suggests, maintains balance, not
allowing the experience mod to fluctuate wildly or widely. Note that
the stabilizing value (12) is based on expected excess losses not ac-
tual losses of any kind, so there will ALWAYS be a stabilizing val-
ue.
Both the “W” factor found in box (A) and the ballast value found
in box (G) are used to develop the stabilizing value. The inverse of
the “W” factor is used (1-W) and the ballast amount is added. Since
both the “W” factor and the ballast are affected by the size of the
risk, they combine in the stabilizing value to keep it “balanced.”
As is easily noted, the stabilizing value is the same for both the
ACTUAL row and the EXPECTED row. The formula is:
 (C) x (1-W) + (G) = Stabilizing Value
Or
 EXPECTED EXCESS LOSSES X (1-box (A)) + Ballast
Value = Stabilizing Value
Using the inverse of the “W” value means that the more credible
the authority considers the loss data to be, the lower the percentage
of the Expected Excess losses (box (C)) is used to develop the stabi-
lizing value. And the less credible the losses, the greater the amount
of expected excess losses is used to calculate the stabilizing value.
As the size of the risk increases, so too does the ballast value. So
even though the percentage of the expected excess value goes down
as the credibility of the lass data goes up (because of the size of the
risk), the effect of the lower percentage is, to some extent (not on a
1-to-1 basis), countered by the increased ballast value. Still the net
result is the possibility of a lower “lowest possible” experience mod.
Column 13 – RATABLE EXCESS
This is the second place the “W” factor found in box (A) is ap-
plied. The excess losses for both actual incurred losses (box (F) and
expected losses (box (C)) are multiplied by the credibility or “W”
factor (a percentage value) as follows:
Top Box – ACTUAL – Box (F) x Box (A)
Lower Box – EXPECTED – Box (C) x Box (A)

Chapter 18 – Experience Rating Worksheet
154
Column 14 – TOTALS
Columns (11), (12) and (13) are added together to develop the
total values for both the ACTUAL row (top row) and the EX-
PECTED row (bottom row). The total for the ACTUAL row is as-
signed box (J) and the EXPECTED row is box (K). Once added to-
gether, the ACTUAL total is divided by the EXPECTED total to
produce the experience modification factor.
Column 15 – EXP MOD (Experience Modification Factor)
As stated above, the actual total is divided by the expected total
to produce the experience modification factor. As discussed above,
this indicates how well the insured manages its employee injury risk.
So the final calculation looks like this:
 (J) / (K) = Experience Modification Factor
State Differences
Not all states apply the factors as presented in the above discus-
sion. Following is the list of states that use different calculation for-
mula; included is a calculation code key for easy reference:
Calculation Codes

AI = Actual Incurred EE – Expected Excess
AP – Actual Primary WV – Weighting or
AE – Actual Excess Credibility Factor
TEL – Total Expected Losses BV – Ballast Value
EP – Expected Primary WMV – Weighted
Maximum Value

NCCI
Experience Mod =
AP + (EE x (1-WV) + BV) + (WV x AE)
EP + (EE x (1-WV) + BV) + (WV x EE)

Michigan, New York, North Carolina and Wisconsin
Experience Mod =
AP + BV + (AE x WV) + ((1-WV) x EE
EP + BV + (EE x WV) + ((1 – WV) x EE

Chapter 18 – Experience Rating Worksheet
155

 Essentially the same as NCCI’s
 Each state uses the same factors, but maybe in a different
order
Delaware and Pennsylvania
Experience Mod =
(AI x WV) + (TEL x WMV) + TEL x (1-WV))
TEL

 “WMV” – Unique factors developed by State. Develop fac-
tors based on premium size and expected losses
 Mod capped on either side of prior mod
Minnesota
Experience Mod = 1+
((AI-TEL) x WV) + ((AP-EP)x(1-
WV))
TEL + BV

New Jersey
Experience Mod =
AEx WV)+(APxWMV)+(EEx(1-WV))
+(EPx(1-WMV))
TEL

 WV – Applies to Excess Losses
 WMV – Applies to Primary Losses
 TEL – Based on and calculated using Manual Premium

Texas
Experience Mod =
AP + BV + (WV X AE) + ((1-WV)xEE)
TEL + BV
Comparison Calculations

Chapter 18 – Experience Rating Worksheet
156
Frequency versus Severity
In the beginning this chapter promised to address the question of
frequency versus severity and which has the greatest effect on the
development of the experience modification factor. The answer has
been hinted at several times throughout this chapter; frequency has a
greater effect on the final “mod” than does severity.
As proof, see Example 18.2. Notice that the actual incurred loss
totals are the exact same for each year of the experience period – in-
cluding grouped losses and medical only losses; the difference is the
number of losses crossing the primary/excess threshold in the two
oldest experience period years (07-08 and 08-09).
Because of the increased frequency in losses crossing the prima-
ry/frequency threshold, the experience modification factor is 1.19
rather than the 1.14 developed in Example 18.1. This is true because
of the increased number of actual primary losses coupled with the
related drop in actual excess losses (which affects the mod less than
primary losses).

ERA versus Non-ERA Status
Reverting back to the same loss levels presented in Example
18.1, we can compare the difference in modification factors devel-
oped in ERA versus non-ERA states. Example 18.3 vividly shows
how including the entire amount of medical only claims (injury code
(IJ) 6) negatively affect the final experience modification factor.
Remember, in ERA states only 30 percent of medical only losses
apply in the calculation of the “mod.” But in non-ERA states the en-
tire amount of medical only claims are included in the calculation. In
the example insured’s case, this produces an 11 percent higher
“mod”: 1.25 rather than 1.14.
The effect of the ERA reduction must not be underestimated or
dismissed. As stated earlier, the ERA reduction applies to both total
Actual Incurred loss amounts and Actual Primary loss amounts.

Lowest Possible Experience Modification Factor
Example 18.4 shows the method for calculating the lowest pos-
sible experience mod for any insured. If there are no losses, the only

Chapter 18 – Experience Rating Worksheet
157
factor/value in the actual row of the experience modification calcula-
tion is the Stabilizing Value. And because the Stabilizing Value is
based on expected excess losses and the ballast value, there will al-
ways be a stabilizing value.
In this example, the lowest possible experience mod for the in-
sured is 0.73.
This same process is used to show any insured what their lowest
possible mod could be at any time (since the mod fluctuates based on
payrolls and expected losses). Simply divide the stabilizing value
found in the “Actual” loss row by the total in the “Expected” loss
row found in Box K.
Experience Modification Factors
Experience mod calculations combine the insured’s loss experi-
ence, the authority’s opinion of the loss experience’s credibility and
a balancing value (the ballast value) to develop the final experience
modification factor. The mod is heavily influenced by the insured’s
ability to manage its worker injury exposure, but factors developed
by NCCI or the state rate bureau also play a part in the final factor;
so the final number is not TOTALLY dependent on the insured’s
actions or inactions.
This chapter has detailed all parts of the experience mod work-
sheet. Reviewing and judging the correctness of any workers’ com-
pensation experience rating worksheet should no longer be as chal-
lenging; nor should explaining the finer points of the worksheet to an
insured be a problem. Before simply accepting an experience modi-
fication factor as accurate and correct, agents, brokers, risk manag-
ers, or anyone responsible for monitoring the insured’s workers’
compensation program must:

1. Confirm that the class codes are correct;
2. Confirm that payrolls are correct;
3. Review reserves on Open claims BEFORE the
valuation date for explanation and reasonableness;
4. Confirm, as much as possible, that the correct ELR,
D-Ratio, Credibility Factor (“W” factor) and Ballast
Value are correct;

Chapter 18 – Experience Rating Worksheet
158
5. Confirm that ERA factors have been properly
applied to Actual Losses (where applicable); and
6. Do a simple math calculation to confirm the reported
experience mod.

Chapter 18 – Experience Rating Worksheet
159
Example 18.2 Workers Compensation Experience Rating
ERA State / Greater Frequency

Date: 1/1/2011
State: Any with ERA
EFF- Date 1/1/2007 EXP- Date 1/1/2008
Code ELR D-
Ratio
Payroll Exp
Losses
Exp Prim
Losses
Claim
Data
IJ O/F Act Inc
Losses
Act Prim
Losses
5645 543 10 700000 38010 3801 2007001 1 O 7000 5000
5606 076 10 100000 760 76 2007003 5 F 14500 5000
8742 020 12 110000 220 26 2007004 5 F 12050 5000
8810 012 15 60000 72 11 #8 5 F 6700 6700
#4 6 F 3500 3500

Policy Total 970000 (Subject Premium = 44921) 43750

EFF- Date 1/1/2008 EXP- Date 1/1/2009
Code ELR D-
Ratio
Payroll Exp
Losses
Exp Prim
Losses
Claim
Data
IJ O/F Act Inc
Losses
Act Prim
Losses
5645 543 10 750000 40725 4073 2008004 1 O 11000 5000
5606 076 10 105000 798 80 2008005 5 F 14500 5000
8742 020 12 115000 230 28 2008006 5 F 6700 5000
8810 012 15 62000 74 11 2008007 5 F 8000 5000
2008008 6 F 7500 5000
#5 6 F 7200 7200

Policy Total 1032000 (Subject Premium = 47940) 54900

EFF-Date 1/1/2009 EXP- Date 1/1/2010
Code ELR D-
Ratio
Payroll Exp
Losses
Exp Prim
Losses
Claim
Data
IJ O/F Act Inc
Losses
Act Prim
Losses
5645 543 10 825000 44798 4480 2009001 2 F 9550 5000
5606 076 10 115000 874 87 2009003 5 F 3100 3100
8742 020 12 130000 260 31 2009006 5 F 5750 5000
8810 012 15 68000 82 12 #6 6 F 7200 7200

Policy Total 1138000 (Subject Premium = 56340) 25600

(A)
027
(b)

(C) (D-E)
114187
(D)
126903
(E)
12716
(F)(H-I)
44800
(G)
33400
(H)
106470
(I)
61670

(11)
Primary Loss
(12)
Stabilizing Value
(13)
Ratable Excess
(14)
Totals
(15)

Exp Mod
Actual
(I)
61670

(C)x(1-W)+(G)
116756
(A)x(F)

12096
(J)
190522
Expected
(E)
12716

116756
(A)x(c)
30830
(K)
160303
(J)(K)
1.19

Chapter 18 – Experience Rating Worksheet
160
Example 18.3 Workers Compensation Experience Rating
Non-ERA State

Date: 1/1/2011
State: Any state with NO ERA
EFF- Date: 1/1/2007 EXP-Date: 1/1/2008
Code

ELR D-
Ratio
Payroll Exp.
Losses
Exp. Prim
Losses
Claim
Data
IJ O/F Act Inc.
Losses
Act Prim
Losses
5645 543 10 700000 38010 3801 2007001 1 O 19000 5000
5606 076 10 100000 760 76 2007003 5 F 14500 5000
8742 020 12 110000 220 26 #8 5 F 6700 6700
8810 012 15 60000 72 11 #4 6 F 3500 3500

Policy Total 970000 (Subject Premium= 44921) 43700

EFF- Date: 1/1/2008 EXP- Date: 1/1/2009
Code ELR D-
Ratio
Payroll Exp.
Losses
Exp. Prim
Losses
Claim
Data
IJ O/F Act Inc.
Losses
Act Prim
Losses
5645 543 10 750000 40725 4073 2008004 1 O 17000 5000
5606 076 10 105000 798 80 2008005 5 F 16500 5000
8742 020 12 115000 230 28 2008006 5 F 6700 5000
8810 012 15 62000 74 11 2008008 6 F 7500 5000
#4 6 F 7200 7200

Policy Total 103200 (Subject Premium= 47940) 54900

EFF- Date: 1/1/2009 EXP- Date: 1/1/2010
Code ELR D-
Ratio
Payroll Exp.
Losses
Exp. Prim
Losses
Claim
Data
IJ O/F Act Inc.
Losses
Act Prim
Losses
5645 543 10 825000 44798 4480 2009001 2 F 9550 5000
5606 076 10 115000 874 87 2009003 5 F 3100 3100
8742 020 12 130000 260 31 2009006 5 F 5750 5000
8810 012 15 68000 82 12 #6 6 F 7200 7200

Policy Total 1138000 (Subject Premium= 56340) 25600

(A)

027
(B) (C) (D-E)
114187
(D)
126903
(E)
12716
(F) (H-I)
56500
(G)

3340
0
(H)
124200
(I)
67700

(11)
Primary Loss
(12)
Stabilizing Value
(13)
Ratable Excess
(14)
Totals (15)
Exp Mod Actual
(I)
67700
(C)x(1-W)+(G)
116756
(A)x(F)
15255
(J)
199711
Expected
(E)
12716 116756
(A)x(C)
30830
(K)
160303
(J)(K)
1.25

Chapter 18 – Experience Rating Worksheet
161
Example 18.4 Workers Compensation Experience Rating
No Losses / Lowest Possible Method

Date: 1/1/2011
State: Any State
EFF-Date: 1/1/2007 EXP-Date: 1/1/2008
Code ELR D-
Ratio
Payroll Exp.
Losses
Exp. Prim
Losses
Claim
Data
IJ O/F Act Inc.
Losses
Act Prim
Losses
5645 543 10 700000 38010 3801
No Losses
5606 076 10 100000 760 76
8742 020 12 110000 220 26
8810 012 15 60000 72 11

Policy Total 970000 (Subject Premium= 44921) 0

EFF-Date: 1/1/2008 EXP-Date: 1/1/2009
Code ELR D-
Ratio
Payroll Exp.
Losses
Exp. Prim
Losses
Claim
Data
IJ O/F Act Inc.
Losses
Act Prim
Losses
5645 543 10 750000 40725 4073
No Losses
5606 076 10 105000 798 80
8742 020 12 115000 220 28
8810 012 15 62000 72 11

Policy Total 1032000 (Subject Premium= 47940) 0

EFF-Date: 1/1/2009 EXP-Date: 1/1/2010
Code ELR D-
Ratio
Payroll Exp.
Losses
Exp. Prim
Losses
Claim
Data
IJ O/F Act Inc.
Losses
Act Prim
Losses
5645 543 10 825000 44798 4480
No Losses

5606 076 10 115000 874 87
8742 020 12 130000 260 31
8810 012 15 68000 82 12

Policy Total 1138000 (Subject Premium= 56340) 0

(A)
027
(B)

(C) (D-E)

114187
(D)
126903
(E)

12716
(F) (H-I)
0
(G)
33400
(H)

0
(I)

0

(11)
Primary Loss
(12)
Stabilizing Value
(13)
Ratable Excess
(14)
Totals
(15)
Exp Mod
Actual
(I)

0
(C)x(1-W)+(G)
116756
(A)x(F)

0
(J)

116756
Expected
(E)

12716

116756
(A)x(C)
30830
(K)
160303
(J)(K)

0.73

162
Appendix A
Workers’ Compensation Coverage Checklist
Coverage/Risk Management Question Y N Notes
Entity Type (1)
Do any employees live outside the state of domicile or
branch locations? List states. (2)

Do any employees regularly travel out of state? Which
States? (3)

Are there any employees working from their home?
Are home-based employee work areas inspected to assure
compliance with ergonomic standards?

Does the employer furnish any group transportation (4)?
Do employees perform errands for the employer in their
own car before or after work? (5)

Do employees participate in employer-sponsored recrea-
tional activities (athletics, company picnics, etc.)? (5)

Any exposure to chemicals, x-ray or radiation?
Are Material Safety Data Sheets required and kept on
site?

Is personal protective equipment (PPE) provided and
inspected regularly to confirm proper operation?

Are employees trained in the use of PPE and required to
use it at all times?

Are any independent contractors (IC’s) or subcontractors
(SC’s) used?

Are current Certificates of Insurance required of all IC’s
and SC’s? (6)

Please provide a copy of sample contracts. Both contracts
in which you AGREE to indemnify and hold harmless
and those in which you TRANSFER risk to another par-
ty.

List the states in which the insured currently conducts
operations. Are they listed under 3.A.?

What level of contractual risk transfer is allowed in each
state (limited, intermediate, broad)? (7)

Appendix A – Workers’ Compensation Coverage Checklist
163
Coverage/Risk Management Question Y N Notes
Is the insured operating in any monopolistic states (ND,
Ohio, Wash, or Wyo.)? (8)

Do any employees have pre-existing medical conditions
that could be compounded by a work-related injury (only
applicable in states with Second Injury Funds)? (9)

Does the employer hire temporary labor in states where
they are working on a temporary basis? (10)

Does the employer have any plans to begin operations in
states not listed as a 3.A. state?

Has the CGL policy been limited by the attachment of
the CG 21 39 exclusion?

Do employees ever travel outside the US on business?
Do any employees work on boats on or above navigable
waters? (11)

Are there any employees with maritime exposures? (12)
Any employees working on military bases? (12)
Are any employees leased from an employee leasing
firm? (13)

Any employees from a PEO (co-employment)? (14)
Does the employer ever “borrow” a worker from another
employer? (13)

Are there any other business in which the entity or the
entity’s owners hold a majority interest? (15)

Are payrolls kept separated when employees are eligible
for payroll splits under the interchange of labor rule?

Are there any employees exempt from workers’ compen-
sation coverage (i.e. casual labor, domestic servants, farm
laborers, etc.)? (16)

(1) “Employee” status differs based on entity type. Corporate offic-
ers are considered employees. Sole proprietors or partners are not
generally considered employees. Members/managers of LLC’s may
be either based on the specific statute.
(2) These states may need to be listed as 3.A. states or, at the very
least, 3.C.
(3) If there are only on a temporary basis without ongoing opera-
tions, these need to be listed as 3.C. states. If on-going operations or
working in such a state longer than a set amount of time, 3.A. status
may be required (see particular state statute).

Appendix A – Workers’ Compensation Coverage Checklist
164
(4) Any injury occurring during group transportation may be consid-
ered compensable.
(5) Injury may be compensable as they may be considered “arising
out of and in the course of employment.” May require arbitration or a
court ruling.
(6) Depending on state law, the employees of an uninsured IC’s or
SC’s may be considered the responsibility of the Contracting party.
(7) Limited – the transferor is only protected against its vicarious
liability solely for the actions of the transferee. Intermediate – the
transferor is indemnified for the actions of the transferee acting alone
or in connection with another party. Broad – requires the transferee
to indemnify and hold harmless the transferor from all liability aris-
ing out of an incident, even if the act is committed solely by the
transferor.
(8) Requires the insured to purchase WC from that state and to pur-
chase a separate employers’ liability policy.
(9) Be careful with this one. Some states with active second injury
funds generally require the insured to know up front and have this
information in the employees file before the SIF will pay a claim.
(10) 3.A. status will likely be necessary.
(11) If “status” and “situs” tests are satisfied, USLS&HW coverage
will need to be endorsed.
(12) Specific endorsements are required for such exposures.
(13) Alternate Employer Endorsement may be necessary.
(14) Several endorsements are available based on the contract. En-
dorsements must be attached to both the direct employer’s and the
PEO’s policy.
(15) Must find out if operations are combinable.
(16) Employer may want to consider providing coverage using the
Voluntary Compensation Endorsement .

165
Appendix B
Selected Workers’ Compensation Laws
from all 50 States

State
WC
Statute /
Year
Adopted
Employee
Count
(Non-
Const./
Const.)
Members
of LLC
(1)
Second
Injury
Fund
Selected Excluded or Limited
Classes of Workers (not
necessarily all-inclusive)
AL Section 25-5
/ 1919
5/5 Included as
employees
No
(1992)
Domestic employees. Farm labor-
ers. Casual employees, employees
of municipalities having a popula-
tion of less than 2,000. Leased
operator or owner-operator not
considered an employee.
AK Section
23.30 / 1915
1/1 Excluded
from Cov-
erage
Yes Non-profit corporation executive
officers. Part-time baby-sitters.
Residential cleaning persons. Har-
vest and similar part-time/transient
help. Amateur event sports offi-
cials. Contract entertainers. Com-
mercial fishers. Taxicab drivers
compensated by contractual ar-
rangement. Participants in the
temporary assistance program.
Professional hockey players/
coaches covered under a health
care insurance plan.
AZ 23-6 / 1913 1/1 Based on
tax status.
Taxed as a
corp. –
included.
Taxed as
partnership-
excluded.
Yes Domestic servants working in a
person’s home. Independent con-
tractor or a worker whose employ-
ment is both casual and not in the
usual business of the employer.
Sole proprietors whit no employ-
ees.
AR 11-9 / 1939 3/2 Included as
employees
No
(2007)
Licensed real estate agents. Domes-
tic servant in private home; indi-
viduals engaged in lawn or home
maintenance or repair; and agricul-

Appendix B – Selected Workers’ Compensation Laws
166
State
WC
Statute /
Year
Adopted
Employee
Count
(Non-
Const./
Const.)
Members
of LLC
(1)
Second
Injury
Fund
Selected Excluded or Limited
Classes of Workers (not
necessarily all-inclusive)
tural/farm labor. Persons perform-
ing services for non-profit reli-
gious, charitable or relief organiza-
tions. Any person selling or vend-
ing magazines, newspapers, etc. to
the public.
CA Division 1
and 4 / 1911
1/1 Included as
employees
Yes Domestic and residential service
workers hired by the homeowner.
Volunteer clerks or deputies. Per-
sons volunteering at or for recrea-
tional camps, huts, or lodges oper-
ated by a nonprofit organization.
Volunteer ski patrolmen. Non-paid
volunteers for a public agency or a
nonprofit organization receiving
payment only for meals, transporta-
tion, lodging or incidental expens-
es. Any unpaid nonemployee offi-
ciating amateur sporting events
sponsored by any public agency or
nonprofit organization paid only a
stipend for each day of service.
Participants in amateur athletic
events. Watchmen for nonindustrial
establishments paid by subscrip-
tion.
CO Chapter 8 /
1915
1/1 Included
as em-
ployees
No
(1993)
Casual maintenance or repair
workers performing operations
for a business for a cost under
$2,000 per calendar year. Do-
mestic workers or maintenance
or repair work for a private
homeowner not on a full time
basis. License real estate agents
and brokers working on com-
mission. Independent contrac-
tors performing specific for-
hire transportation jobs. Drivers
under a lease agreement with a
common or contract carrier.
Volunteer for a ski area opera-
tor. Persons who provide host

Appendix B – Selected Workers’ Compensation Laws
167
State
WC
Statute /
Year
Adopted
Employee
Count
(Non-
Const./
Const.)
Members
of LLC
(1)
Second
Injury
Fund
Selected Excluded or Limited
Classes of Workers (not
necessarily all-inclusive)
home services as part of resi-
dential services and supports.
Person that performs services
for more than one employer at
a race event.
CT Title 31 /
Chap. 568 /
1913
1/1 Single-
member
LLC’s are
excluded.
Multi-
member
LLC’s are
included.
No
(1995)
Independent contractors. Casu-
al employees outside business
trade. Member of employer’s
household. Person engaged in
duties involving service of the
dwelling (less than 26 weeks
per year).
DE Title 19 GS
2301 / 1917
1/1 Excluded
from cov-
erage
Yes Domestic. Farm laborers. Cas-
ual employees. Independent
contractors.
DC Division V
Title 32
Chap. 15
1/1 Based on
Tax status
No
(1998)
Casual employees (laborers).
Domestic workers in and
around a private home unless
the employer employed 1 or
more household domestic
workers for 240 hours or more
during any calendar quarter in
the same or the previous year.
Licensed real estate salesperson
or a licensed real estate broker
compensated by commissions.
FL Title XXXI
Section
440/1935
4/1 Excluded
except in
construc-
tion codes
if a mem-
ber owns
more than
10 % of
LLC.
No
(1997)
Independent contractors (IC)
not in the construction industry.
Real estate licensee compen-
sated solely by commissions.
Bands, orchestras, and musical
and theatrical performers, in-
cluding disc jockeys if IC by
contract. Owner/operator of a
vehicle under contract as IC.
Casual laborers. Volunteers.
Non-compensated workers of
non-profit agencies. Exercise

Appendix B – Selected Workers’ Compensation Laws
168
State
WC
Statute /
Year
Adopted
Employee
Count
(Non-
Const./
Const.)
Members
of LLC
(1)
Second
Injury
Fund
Selected Excluded or Limited
Classes of Workers (not
necessarily all-inclusive)
rider not working on a single
horse. Drivers of independent
taxi, limousine, or other such
vehicle. Participants and offi-
cials of amateur sports events.
Domestic workers. Farmers
with less than five regular em-
ployees and/or 12 other season-
al agricultural workers for less
than 30 days. Professional ath-
letes.
GA Chap. 34
Chap. 9 /
1920
3/3 Included
as em-
ployees
No
(2004)
Independent contractors (IC).
Sports officials. Casual labor-
ers. Domestic servants. Farm
laborers.
HI Chap. 386 /
1915
1/1 Included
as em-
ployee;
status may
change
Yes Real estate salespersons / bro-
kers compensated solely by
commissions. Volunteers of
religious, charitable education-
al or non-profit operations.
Individuals that own more than
50% of the corpora-
tion/employer. Service per-
formed without wages by a
corporate officer who owns at
least 25% of the stock. Service
performed by an individual
solely for personal, family, or
household purposes provided
remuneration is less than $225
during the current calendar
quarter and during each com-
pleted calendar quarter of the
preceding twelve-month peri-
od. Domestic workers.
ID Title 72 /
1917
1/1 Excluded
from cov-
erage
Yes Household domestic workers.
Casual workers. Outworkers
(an example would be a worker
who receives mass mailing

Appendix B – Selected Workers’ Compensation Laws
169
State
WC
Statute /
Year
Adopted
Employee
Count
(Non-
Const./
Const.)
Members
of LLC
(1)
Second
Injury
Fund
Selected Excluded or Limited
Classes of Workers (not
necessarily all-inclusive)
materials from the employer
and assembles them at home).
Family members residing in the
same household. Family mem-
bers of an employer’s family
not dwelling in the same
household if a sole proprietor-
ship provided the family mem-
ber has filed a written declara-
tion of exemption. Employment
which is not carried on by the
employer for the sake of pecu-
niary gain. Corporate officers
who owns not less than 10% of
the voting stock. Crop dusters
under certain conditions. Asso-
ciate real estate brokers and
real estate sales persons com-
pensated solely by commis-
sions. Volunteer ski patrollers.
Officials of athletic contests
involving secondary schools.
IL Chap 820
Section 305
/ 1911
1/1 Excluded
from
coverage
unless in
hazardous
classifica-
tion
Yes Real estate broker compensated
by commission only.
IN Title 22 /
1915
1/1 Excluded
from
coverage
Yes Casual labor. Real estate broker
compensated solely by com-
missions. Independent contrac-
tors. Owner-operator of a mo-
tor vehicle under a written
contract. Household employ-
ees. Farm and Agricultural
employees (however, the term
“agricultural employee” is
limited to workers performing

Appendix B – Selected Workers’ Compensation Laws
170
State
WC
Statute /
Year
Adopted
Employee
Count
(Non-
Const./
Const.)
Members
of LLC
(1)
Second
Injury
Fund
Selected Excluded or Limited
Classes of Workers (not
necessarily all-inclusive)
traditional types of farm labor
directly related to the tending
of crops and livestock. Workers
injured doing other types of
work in a farm setting may be
covered by workers’ compen-
sation laws). Volunteers.
IA Chap 85,
86 & 87 /
1913
1/1 Excluded
from
coverage
Yes Domestic workers. Casual la-
borers. Agricultural workers
(with provisions).
KS Chap 44-5 /
1911
1/1 Excluded
from
coverage
No
(1993)
Volunteers of religious and like
organizations. Certain agricul-
tural workers. Commissioned
real estate agents. Employers
are exempt if they have a total
gross annual payroll of less
than $20,000. Firefighters be-
long to a relief organization.
Certain vehicle own-
er/operators.
KY Chap 342 /
1916
1/1 Excluded
from
coverage
No
(1996)
Employees engaged exclusive-
ly in agriculture. Domestic
servants in a home with less
than two full-time employees.
Any person employed by
homeowners for residential
maintenance and repair for up
to twenty (20) consecutive
workdays. Workers in religious
sects opposed to insurance.
LA Title 23 /
1914
1/1 Included
as
employee
Yes Domestic servants. Agricultural
employees of certain unincor-
porated private farms with low
annual payrolls. Crop duster
pilots under certain conditions.
Musicians and performers
(conditions apply).
ME Title 39a /
1915
1/1 Excluded
from
No
(1992)
Agricultural or aquacultural
laborers if there are six or few-

Appendix B – Selected Workers’ Compensation Laws
171
State
WC
Statute /
Year
Adopted
Employee
Count
(Non-
Const./
Const.)
Members
of LLC
(1)
Second
Injury
Fund
Selected Excluded or Limited
Classes of Workers (not
necessarily all-inclusive)
coverage er workers, or more than six
meeting certain provisions.
Independent contractors. Real
estate broker paid solely by
commissions.
MD Title 9 /
1912
1/1 Included
as em-
ployees
Yes Casual employee. Domestic
workers that earn less than
$1,000 in a calendar quarter.
Non-migrant farm workers
working as an independent
contractor. Farm workers if the
farmer has less than three em-
ployees or an annual payroll of
less than $15,000. Home
maintenance worker if hired for
less than 30 days. Own-
er/operator hired as independ-
ent contractor (IC). Real estate
broker paid solely by commis-
sion. Some volunteer workers
in political subdivisions.
MA Chap 152 /
1911
1/1 Excluded
from
coverage
Yes Professional athletes whose
contracts provide for the pay-
ment of wages during the peri-
od of any employment-related
disability. Real estate salesper-
son compensated solely by
commissions. Direct seller not
in a retail establishment. Taxi-
cab operator leasing the vehicle
from the taxicab company.
Casual employee. Domestic
workers.
MI Chap 418 /
1912
1/1 (if
specific
provisions
are met,
employer
can have
Included
as
employee
Yes Agricultural employees under
specific circumstances (based
on number and length of em-
ployment). Domestic workers if
employed less than full time.
Real estate agent or broker

Appendix B – Selected Workers’ Compensation Laws
172
State
WC
Statute /
Year
Adopted
Employee
Count
(Non-
Const./
Const.)
Members
of LLC
(1)
Second
Injury
Fund
Selected Excluded or Limited
Classes of Workers (not
necessarily all-inclusive)
up to 3
employ-
ees).
provided at least 75 percent of
income is commissions and the
contract states they are not an
employee. Independent con-
tractor.
MN Chap 176 /
1913
1/1 Excluded
from cov-
erage if
there are
10 or
fewer m
embers
and less
than
22,880
hours of
payroll in
the pre-
ceding
calendar
year pro-
vided that
manager
owns at
least a
25%
member-
ship inter-
est in the
LLC.
No
(1995)
Some executive officers (sub-
ject to percentage of owner-
ship, number of shareholders
and payroll hour limitations).
Family farm employees paying
less than $8,000 in the preced-
ing year; operations with
$300,000 in total liability in-
surance and $5,000 in farm
laborer medical insurance may
pay up to the statewide average
annual wage before WC cover-
age is required. Executive of-
ficers of a family farm corpora-
tion. Casual employees.
Household workers (includes a
domestic, repairer,
groundskeepers or maintenance
worker at a private household
earning less than $1,000 during
a quarter of the year). Veteran’s
organization officers and mem-
bers attending meetings and
conventions. Nonprofit associa-
tions with a total annual payroll
of less than $1,000. Workers
covered under the Domestic
Volunteer Service Act of 1973
(Vista volunteers, foster grand-
parents). Independent contrac-
tors.
MS Title 71 /
1948
5/5 Included
as em-
ployee but
Yes Domestic laborers. Farm labor-
ers. Employees of non-profit
fraternal, charitable, religious

Appendix B – Selected Workers’ Compensation Laws
173
State
WC
Statute /
Year
Adopted
Employee
Count
(Non-
Const./
Const.)
Members
of LLC
(1)
Second
Injury
Fund
Selected Excluded or Limited
Classes of Workers (not
necessarily all-inclusive)
can reject
under
certain
condi-
tions. If
so, does
not count
toward the
5.
or cultural organizations are not
covered. Independent contrac-
tors (special protection is given
to employees of subcontrac-
tors).
MO Chap 287 /
1926
5/1 Included
as
employee
Yes Farm laborers. Domestic work-
ers. Occasional home mainte-
nance workers. Certain real
estate agents. Volunteers at tax-
exempt organizations. Sports
officials for schools. Owner-
operator of certain motor vehi-
cles.
MT 39-71 /
1915
1/1 Excluded
from
coverage
Yes Independent contractor.
Household or domestic em-
ployees. Most volunteers. Trus-
tee of rural fire department.
NE Chap 48 /
1913
1/1 Excluded
from
coverage
No
(1997)
Agricultural workers if work-
ing less than 13 calendar weeks
in a year. Casual employees.
Executive officers owning
more than 25% of the common
stock. Executive officers of
non-profits paid less than
$1,000. Certain owner-
operators and lessor-operators.
NV Chap 616
a-d and
Chap 617 /
1913
1/1 Included
as
employee
Yes Casual laborers whose work
does not last more than 20
days. Theatrical/stage perform-
ers. Musicians not working
more than 2 days. Most domes-
tic, farm, diary, agricultural or
horticultural workers. Volun-
tary ski patrolmen. Sports offi-
cials at amateur events. Cler-

Appendix B – Selected Workers’ Compensation Laws
174
State
WC
Statute /
Year
Adopted
Employee
Count
(Non-
Const./
Const.)
Members
of LLC
(1)
Second
Injury
Fund
Selected Excluded or Limited
Classes of Workers (not
necessarily all-inclusive)
gyman, rabbi or lay reader in
the service ofa church, or any
person occupying a similar
position with respect to any
other religion. Real estate
agents paid by commission.
Direct sellers (not retail) and
commissioned workers.
NH RSA 281-A
/ 1911
1/1 Excluded
from cov-
erage if
less than 3
members;
included
as em-
ployees if
over 4
members.
Yes LLC’s with 3 or less members
and no other employees. Seller
or qualified real estate broker
or agent solely compensated by
commissions. Real estate ap-
praiser paid on a fee-for-service
basis. Direct seller. Independ-
ent contractor.
NJ 34-15 /
1911
1/1 Excluded
from
coverage
Yes Casual employees. Domestic
workers.
NM Chap 52
and 59 /
1917
3/1 Included
as
employee
No
(1996)
Casual labor (except in contrac-
tor classifications). Real estate
sales person paid by commis-
sion. Farm and ranch workers
(with exceptions).
NY WKC Arti-
cles 1-11 /
1913
1/1 Excluded
from
coverage
No
(2007)
Domestic workers working less
than 40 hours per week. Farm
workers paid less than $1,200
per year. Volunteers for non-
profit organizations. Clergy and
other members of religious
orders. Participants and offi-
cials of amateur athletics.
Teachers for non-profit reli-
gious, charitable or educational
institution. Spouse and minor
children of a farmer. People
doing yard work and other

Appendix B – Selected Workers’ Compensation Laws
175
State
WC
Statute /
Year
Adopted
Employee
Count
(Non-
Const./
Const.)
Members
of LLC
(1)
Second
Injury
Fund
Selected Excluded or Limited
Classes of Workers (not
necessarily all-inclusive)
chores around houses and non-
profit institutions (coverage
required if minor uses power
driven machinery). Certain real
estate salespeople, media repre-
sentatives and insurance
agents/brokers who sign a con-
tract that they are independent
contractors. Independent con-
tractors
NC NCGS 97 /
1929
3/3 (1 if
there is
radiation
present)
Excluded
from
coverage
Yes Domestic, farm and casual
employees provided there are
les than 10 regularly employed.
Volunteer ski patrol. Newspa-
per resellers. Sellers of agricul-
tural products working on
commission.
ND Chap 65 /
1919
1/1 Excluded
from
coverage
Yes Independent contractor. Casual
laborers. Employer’s spouse or
child (under 21). Real estate
salesperson paid by commis-
sion (based on contract provi-
sions). Member of a board of
directors. Newspaper sellers
acting as independent contrac-
tors. Customer agricultural
operations and agricultural
operations lasting less than 30
days.
OH Chap 4121
and 4123 /
1911
1/1 Excluded
from cov-
erage if
chooses to
be taxed
as a part-
nership.
Included
as an em-
ployee if
Yes A duly ordained, commis-
sioned, or licensed minister or
assistant or associate minister
of a church in the exercise of
ministry. Officers of a family
farm corporation. An incorpo-
rated individual. An individual
who otherwise is an employee
of an employer but who signs
the waiver and affidavit. Do-

Appendix B – Selected Workers’ Compensation Laws
176
State
WC
Statute /
Year
Adopted
Employee
Count
(Non-
Const./
Const.)
Members
of LLC
(1)
Second
Injury
Fund
Selected Excluded or Limited
Classes of Workers (not
necessarily all-inclusive)
taxed as a
corpora-
tion.
mestic employees paid less
than $160 in a calendar quarter.
OK Title 85 /
1915
1/1 Excluded
if own
more than
10% of
stock
No
(2000)
Five or less total employees
related to the employer by
blood or marriage. Domestic
servants and casual laborers of
a private residence provided
total payroll is less than
$10,000. Agriculture or horti-
culture workers provided prior
calendar year’s gross annual
payroll was less than $100,000
for such workers. Real estate
sales associate or broker, paid
on a commission basis. Youth
sports league workers.
OR Chap 656 /
1913
1/1 Excluded
from
coverage
Yes Domestic workers. Casual la-
borers. Garden, maintenance or
repair workers at residence
hired by homeowner. Firefight-
ers and police in municipalities
having a population greater
than 200,000 with a disability
and retirement program. Ama-
teur athletes. Some volunteers.
Ski patrol volunteers. A person
older than 18 contracting as an
independent contractor with a
publisher to sell papers, etc.
Amateur sports officials. Lan-
guage translators provided by
another entity.
PA Title 77 /
1915
1/1 Excluded
from
coverage
Section
104 of the
Act, 77
Yes Casual workers. Agricultural
laborers earning under $1200
per person per calendar year
AND no one agricultural labor-
er works 30 days or more per
calendar year. Domestic work-

Appendix B – Selected Workers’ Compensation Laws
177
State
WC
Statute /
Year
Adopted
Employee
Count
(Non-
Const./
Const.)
Members
of LLC
(1)
Second
Injury
Fund
Selected Excluded or Limited
Classes of Workers (not
necessarily all-inclusive)
P.S. Sec-
tion 22
ers. Been granted exemption
due to religious beliefs. Li-
censed real estate agents paid
by commissions only.
RI Chap 28:
29-41 /
1912
1/1 Included
as
employee
No
(1998)
Domestic workers. Non-
hazardous agricultural workers
unless there are employed more
than 25 workers for more than
13 weeks. Licensed real estate
brokers or salespersons, or
licensed or certified real estate
appraisers provided substantial-
ly all remuneration is commis-
sion or fee-based.
SC Title 42 /
1935
4/4 (1 if
ionizing
radiation
is present)
Excluded
from
coverage
Yes (set
to dis-
solve in
2012)
Casual workers. Agricultural
employees, and employers who
had a total annual payroll dur-
ing the previous year of less
than $3,000, regardless of the
number of workers employed.
Independent sellers of agricul-
tural products. Real estate
agents paid by commission.
Certain owner-operators or
lease-operators of motor vehi-
cles.
SD Title 62
and 58-20 /
1917
1/1 Included
as
employee
No
(1999)
Domestic servants, unless
working for more than 20 hours
in any calendar week and for
more than 6 weeks in any 13-
week period. Farm or agricul-
tural labor. Independent con-
tractors. Real estate agents and
owner-operators of trucks who
are certified as independent
contractors. Officers of non-
profits.
TN Title 50,
Chap 6 /
5/1 Excluded
from
Yes Leased operator or owner oper-
ator contracted to a common

Appendix B – Selected Workers’ Compensation Laws
178
State
WC
Statute /
Year
Adopted
Employee
Count
(Non-
Const./
Const.)
Members
of LLC
(1)
Second
Injury
Fund
Selected Excluded or Limited
Classes of Workers (not
necessarily all-inclusive)
1919 coverage carrier. Domestic workers.
Farm and agricultural laborers.
Volunteer ski patrol.
TX Labor Code
Title 5 /
1913
Elective /
1
Law is
silent,
probably
Included
as
employee
Yes Work comp is elective except
certain construction classes are
required to carry coverage.
UT Title 34A /
Chap 2 /
1917
1/1 Included
as
employee
No
(1994)
Agicultural laborers provided
payroll is less than $50,000
(agricultural operations with
payroll between $8,00-$50,000
have the option of either work-
ers’ compensation coverage or
liability coverage). Casual la-
bor. Domestic workers. Real
estate brokers.
VT Title 21,
Chap 9 /
1915
1/1 Included
as em-
ployee
No
(1999)
Casual employees. Person in-
volved in amateur sports. Agri-
cultural or farm employment w/
less than $10,000 in total annu-
al payroll. Resident relatives.
Domestic workers. Real estate
broker paid by commission
only.
VA 65.2 / 1918 3/3 Excluded
from
coverage
Yes Independent contractor (with
exceptions). Some elected offi-
cials. Real estate salesperson
paid by commissions. Inde-
pendent taxicab or limo driver.
Casual worker. Domestic
worker. Farm and horticultural
workers unless there are 3 or
more regularly employed
farm/horticultural workers.
Non-compensated employees.
Amateur sporting event offi-
cials.

Appendix B – Selected Workers’ Compensation Laws
179
State
WC
Statute /
Year
Adopted
Employee
Count
(Non-
Const./
Const.)
Members
of LLC
(1)
Second
Injury
Fund
Selected Excluded or Limited
Classes of Workers (not
necessarily all-inclusive)
WA RCW 51 /
1911
1/1 Included
as
employee
Yes Independent contractor. Do-
mestic workers provided there
are less than two working 40
hours per week. Gardening,
maintenance or repair for a
private homeowner. Child un-
der 18 employed by parents in
agricultural activities. Jockeys
while participating in or prepar-
ing for certain races. Newspa-
per carrier.
WV Chap 23 /
1913
1/1 Included
as
employee
No
(2003)
Domestic workers. Agricultural
workers provided there are 5 or
fewer full time employees.
Casual employers with fewer
than 3 employees. Churches.
Those involved in professional
sports. Volunteer rescue per-
sonnel under certain conditions.
WI Chap 102 /
1911
3/3 Excluded
from
coverage
Yes Farm laborers (unless employ 6
or more for 20 days in a calen-
dar year). Domestic workers.
Independent contractors per-
forming operations unrelated to
the employer. Volunteer at a
tax exempt organization.
WY 27-14 /
1915
1/1 Excluded
from
coverage
Yes Casual labor. Independent con-
tractor. Spouse or dependent of
employer in the same house-
hold. Professional athlete (with
exceptions). Domestic worker.
Private duty nurse engaged by
a private party. Volunteers.
Owner-operator of vehicle
under contract-of-hire. An in-
dividual providing child day
care or babysitting services,
whose wages are subsidized or
paid in whole or in party by the

Appendix B – Selected Workers’ Compensation Laws
180
State
WC
Statute /
Year
Adopted
Employee
Count
(Non-
Const./
Const.)
Members
of LLC
(1)
Second
Injury
Fund
Selected Excluded or Limited
Classes of Workers (not
necessarily all-inclusive)
Wyoming department of family
services.

(1) Most states that exclude members of an LLC from the law al-
low the members to elect coverage if desired. Likewise, if members
of an LLC are included as an employee, most states allow the mem-
bers to exclude themselves from coverage if they so desire.

181
Appendix C
NCCI’s Workers’ Compensation Policy
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY
WC 00 00 00 A
1
st
Reprint Effective April 1, 1992 Standard

WORKERS COMPENSATION AND EMPLOYERS LIABLITY INSURANCE POLICY

In return for the payment of the premium and
subject to all terms of this policy, we agree with
you as follows:
PART ONE
WORKERS COMPENSATION
INSURANCE

GENERAL SECTION A. How This Insurance Applies
A. The Policy
This policy includes at its effective date the In-
formation Page and all endorsements and sched-
ules listed there. It is a contract of insurance
between you (the employer named in Item 1 of
the Information Page) and us (the insurer named
on the Information Page). The only agreements
relating to this insurance are stated in this policy.
The terms of this policy may not be changed or
waived except by endorsement issued by us to be
part of this policy.
This workers compensation insurance applies to
bodily injury by accident or bodily injury by
disease. Bodily injury includes resulting death.
1. Bodily injury by accident must occur dur-
ing the policy period.
2. Bodily injury by disease must be caused or
aggravated by the conditions of your employ-
ment. The employee’s last day of last exposure
to the conditions causing or aggravating such
bodily injury by disease must occur during the
policy period.

B. Who is Insured
You are insured if you are an employer named in
Item 1 of the Information Page. If that employer
is a partnership, and if you are one of its part-
ners, you are insured, but only in your capacity
as an employer of the partnership’s employees.

C. Workers Compensation Law
Workers Compensation Law means the workers
or workmen’s compensation law and occupa-
tional disease law of each state or territory
named in Item 3.A. of the Information Page. It

B. We Will Pay
We will pay promptly when due the benefits
required of you by the workers compensation
law.

C. We Will Defend
We have the right and duty to defend at our
expense any claim, proceeding or suit against
you for benefits payable by this insurance. We
have the right to investigate and settle these
claims, proceedings or suits. We have no duty
to defend a claim, proceeding or suit that is not

Appendix C – NCCI’s Workers’ Compensation Policy
182
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY
WC 00 00 00 A
1
st
Reprint Effective April 1, 1992 Standard

includes any amendments to that law which are
in effect during the policy period. It does not
include any federal workers or workmen’s com-
pensation law, any federal occupational disease
law or the provisions of any law that provide
non-occupational disability benefits.

D. State
State means any state of the United States of
America, and the District of Columbia.

E. Locations
This policy covers all of your workplaces listed
in Items 1 or 4 of the Information Page; and it
covers all other workplaces in Item 3.A. states
unless you have other insurance or are self-
insured for such workplaces.

covered by this insurance.

D. We Will Also Pay
We will also pay these costs, in addition to
other amounts payable under this insurance, as
part of any claim, proceeding or suit we defend:
1. Reasonable expenses incurred at our request,
but not loss of earnings
2. Premiums for bonds to release attachments
and for appeal bonds in bond amounts up to the
amount payable under this insurance
3. Litigation costs taxed against you
4. Interest on judgment as required by law until
we offer the amount due under this insurance
5. Expenses we incur

E. Other Insurance
We will not pay more than our share of benefits
and costs covered by this insurance and other
insurance or self-insurance. Subject to any lim-
its of liability that may apply, all shares will be
equal until the loss is paid. If any insurance or
self-insurance is exhausted, the shares of all
remaining insurance will be equal until the loss
is paid.

F. Payments You Must Make
You are responsible for any payments in excess
of the benefits regularly provided by the work-
ers compensation law including those required
because:
1. of your serious and willful misconduct;
2. you knowingly employ an employee in viola-
tion of law;
3. you fail to comply with a health or safety law
or regulation; or
4. you discharge, coerce or otherwise discrimi-
nate against any employee in violation of the
workers compensation law.

Appendix C – NCCI’s Workers’ Compensation Policy
183
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY
WC 00 00 00 A
1
st
Reprint Effective April 1, 1992 Standard

If we make any payments in excess of the bene-
fits regularly provided by the workers compen-
sation law on your behalf, you will reimburse
us promptly.

G. Recovery From Others
We have your rights, and the rights of persons
entitled to the benefits of this insurance, to
recover our payments from anyone liable for
the injury. You will do everything necessary to
protect those rights for us and to help us en-
force them.

H. Statutory Provisions
These statements apply where they are required
by law.
1. As between an injured worker and us, we
have notice of the injury when you have notice.
2. Your default or the bankruptcy or insolvency
of you or your estate will not relieve us of our
duties under this insurance after an injury oc-
curs.
3. We are directly and primarily liable to any
person entitled to the benefits payable by this
insurance. Those persons may enforce our du-
ties; so may an agency authorized by law. En-
forcement may be against us or against you and
us.
4. Jurisdiction over you is jurisdiction over us
for purposes of the workers compensation law.
We are bound by decisions against you under
that law, subject to the provisions of this policy
that are not in conflict with that law.
5. This insurance conforms to the parts of the
workers compensation law that apply to:
a) benefits payable by this insurance;
b) special taxes, payments into security or other
special funds, and assessments payable to us
under that law.
6. Terms of this insurance that conflict with the
workers compensation law are changed by this
statement to conform to that law.
Nothing in these paragraphs relieves you of
your duties under this policy.

PART TWO
EMPLOYERS LIABILITY INSURANCE

A. How This Insurance Applies
This employers liability insurance applies to
bodily injury by accident or bodily injury by
disease. Bodily injury includes resulting death.
1. The bodily injury must arise out of and in the
course of the injured employee’s employment by
you.
2. The employment must be necessary or inci-
dental to your work in a state or territory listed in
Item 3.A. of the Information Page.
3. Bodily injury by accident must occur during
the policy period.
4. Bodily injury by disease must be caused or
aggravated by the conditions of your employ-
ment. The employee’s last day of last exposure
to the conditions causing or aggravating such
bodily injury by disease must occur during the
policy period.
5. If you are sued, the original suit and any relat-
ed legal actions for damages for bodily injury by
accident or by disease must be brought in the
United State of American, its territories or pos-
sessions, or Canada.

B. We Will Pay
We will pay all sums you legally must pay as
damages because of bodily injury to your em-
ployees, provided the bodily injury is covered by
this Employers Liability Insurance.
The damages we will pay, where recovery is
permitted by law, include damages:
1. for which you are liable to a third party by
reason of a claim or suit against you by that third
party to recover the damages claimed against
such third party as a result of injury to your em-
ployee;
2. for care and loss of services; and
3. for consequential bodily injury to a spouse,
child, parent, brother or sister of the injured em-
ployee; provided that these damages are the di-
rect consequence of bodily injury that arises out
of and in the course of the injure employee’s
employment by you; and

Appendix C – NCCI’s Workers’ Compensation Policy
184
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY
WC 00 00 00 A
1
st
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that arise out of and in the course of employ-
ment, claimed against you in a capacity other
than as employer.

C. Exclusions
This insurance does not cover:
1. Liability assumed under a contract. This
exclusion does not apply to a warranty that your
work will be done in a workmanlike manner;
2. Punitive or exemplary damages because of
bodily injury to an employee employed in vio-
lation of law;
3. Bodily injury to an employee while em-
ployed in violation of law with your actual
knowledge or the actual knowledge of any of
your executive officers;
4. Any obligation imposed by a workers com-
pensation, occupational disease, unemployment
compensation, or disability benefits law, or any
similar law;
5. Bodily injury intentionally caused or aggra-
vated by you;
6. Bodily injury occurring outside the United
States of America, its territories or possessions,
and Canada. This exclusion does not apply to
bodily injury to a citizen or resident of the
United States of America or Canada who is
temporarily outside these countries;
7. damages arising out of coercion, criticism,
demotion, evaluation, reassignment, discipline,
defamation, harassment, humiliation, discrimi-
nation against or termination of any employee,
or any personnel practices, policies, acts or
omissions;
8. bodily injury to any person in work subject to
the Longshore and Harbor Workers’ Compen-
sation Act (33 USC Sections 901-950), the
Non-appropriated Fund Instrumentalities Act (5
USC Sections 8171-8173), the Outer Continen-
tal Shelf Lands Act (43 USC Sections 1331-
1356), the Defense Base Act (42 USC Sections
1651-1654), the Federal Coal Mine Health and
Safety Act of 1969 (30 USC Sections 901-942),
any other federal workers or workmen’s com-
pensation law or other federal occupational
disease law, or any amendments to these laws;

9. bodily injury to any person in work subject to
the Federal Employers’ Liability Act (45 USC
Sections 51-60), any other federal laws obligat-
ing an employer to pay damages to an employee
due to bodily injury arising out of or in the
course of employment, or any amendments to
those laws;
10. bodily injury to a master or member of the
crew of any vessel;
11. fines or penalties imposed for violation of
federal or state law; and
12. damages payable under the Migrant and Sea-
sonal Agricultural Worker Protection Act (29
USC Sections 1801-1872) and under any other
federal law awarding damages for violation of
those laws or regulations issued thereunder, and
any amendments to those laws.

D. We Will Defend
We have the right to and duty to defend, at our
expense, any claim, proceeding or suit against
you for damages payable by this insurance. We
have the right to investigate and settle these
claims, proceedings and suits. We have no duty
to defend a claim, proceeding or suit that is not
covered by this insurance. We have no duty to
defend or continue defending after we have paid
our applicable limit of liability under this insur-
ance.

E. We Will Also Pay
We will also pay these costs, in addition to other
amounts payable under this insurance, as part of
any claim, proceeding, or suit we defend:
1. reasonable expenses incurred at our request,
but not loss of earnings;
2. premiums for bonds to release attachments
and for appeal bonds in bond amounts up to the
limit of our liability under this insurance;
3. litigation costs taxed against you;
4. interest on a judgment as required by law until
we offer the amount due under this insurance;
and
5. expenses we incur.

Appendix C – NCCI’s Workers’ Compensation Policy
185
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY
WC 00 00 00 A
1
st
Reprint Effective April 1, 1992 Standard

F. Other Insurance
We will not pay more than our share of damag-
es and costs covered by this insurance and other
insurance or self-insurance. Subject to any lim-
its of liability that apply, all shares will be equal
until the loss is paid. If any insurance or self-
insurance is exhausted, the shares of all remain-
ing insurance and self-insurance will be equal
until the loss is paid.

G. Limits of Liability
Our liability to pay for damages is limited. Our
limits of liability are shown in Item 3.B. of the
Information Page. They apply as explained
below:
1. Bodily Injury by Accident. The limit shown
for “bodily injury by accident – each accident”
is the most we will pay for all damages covered
by this insurance because of bodily injury to
one or more employees in any one accident.
A disease is not bodily injury by accident un-
less it results directly from bodily injury by
accident.
2. Bodily Injury by Disease. The limit shown
for “bodily injury by disease – policy limit” is
the most we will pay for all damages covered
by this insurance and arising out of bodily inju-
ry by disease, regardless of the number of em-
ployees who sustain bodily injury by disease.
The limit shown for “bodily injury by disease –
each employee” is the most we will pay for all
damages because of bodily injury by disease to
any one employee.
Bodily injury by disease does not include dis-
ease that results directly from a bodily injury by
accident.
3. We will not pay any claims for damages after
we have paid the applicable limit of our liability
under this insurance.

H. Recovery from Others
We have your rights to recover our payment
from anyone liable for an injury covered by this
insurance. You will do everything necessary to
protect those rights for us and to help us en-
force them.

I. Actions Against Us
There will be no right of action against us under
this insurance unless:
1. You have complied with all the terms of this
policy; and
2. The amount you owe has been determined
with our consent or by actual trial and final
judgment.
This insurance does not give anyone the right to
add us as a defendant in an action against you to
determine your liability. The bankruptcy or in-
solvency of you or your estate will not relieve us
of our obligations under this Part.

PART THREE
OTHER STATES INSURANCE

A. How This Insurance Applies
1. This other states insurance applies only if one
or more states are shown in Item 3.C. of the In-
formation Page.
2. If you begin work in any one of those states
after the effective date of this policy and are not
insured or are not self-insured for such work, all
provisions of the policy will apply as though that
state were listed in Item 3.A. of the Information
Page.
3. We will reimburse you for the benefits re-
quired by the workers compensation law of that
state if we are not permitted to pay the benefits
directly to persons entitled to them.
4. If you have work on the effective date of this
policy in any state not listed in Item 3.A. of the
Information Page, coverage will not be afforded
for that state unless we are notified within 30
days.

B. Notice
Tell us at once if you begin work in any state
listed in Item 3.C. of the Information Page.

PART FOUR
YOUR DUTIES IF INJURY OCCURS

Tell us at once if injury occurs that may be cov-
ered by this policy. Your other duties are listed

Appendix C – NCCI’s Workers’ Compensation Policy
186
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY
WC 00 00 00 A
1
st
Reprint Effective April 1, 1992 Standard

1. Provide for immediate medical and other
services required by the workers compensation
law.
2. Give us or our agent the names and addresses
of the injured persons and of witnesses, and
other information we may need.
3. Promptly give us all notices, demands and
legal papers related to the injury, claim, pro-
ceeding or suit.
4. Cooperate with us and assist us, as we may
request, in the investigation, settlement or de-
fense of any claim, proceeding or suit.
5. Do nothing after any injury occurs that
would interfere with our right to recover from
others.
6. Do not voluntarily make payments, assume
obligations or incur expenses, except at your
own cost.

PART FIVE
PREMIUM

A. Our Manuals
All premium for this policy will be determined
by our manuals of rules, rates, rating plans and
classifications. We may change our manuals
and apply the changes to this policy if author-
ized by law or a governmental agency regulat-
ing this insurance.

B. Classifications
Item 4 of the Information Page shows the rate
and premium basis for certain business or work
classifications. These classifications were as-
signed based on an estimate of the exposures
you would have during the policy period. If
your actual exposures are not properly de-
scribed by those classifications, we will assign
proper classifications, rates and premium basis
by endorsement to this policy.

C. Remuneration
Premium for each work classification is deter-
mined by multiplying a rate times a premium
basis. Remuneration is the most common pre-
mium basis. This premium basis includes pay-

roll and all other remuneration paid or payable
during the policy period for the services of:
1. all your officers and employees engaged in
work covered by this policy; and
2. all other persons engaged in work that could
make us liable under Part One (Workers Com-
pensation Insurance) of this policy. If you do not
have payroll records for these persons, the con-
tract price for their services and materials may be
used as the premium basis. This paragraph 2 will
not apply if you give us proof that the employers
of these persons lawfully secured their workers
compensation obligations.

D. Premium Payments
You will pay all premium when due. You will
pay the premium even if part or all of a workers
compensation law is not valid.

E. Final Premium
The premium shown in the Information Page,
schedules, and endorsements is an estimate. The
final premium will not be determined after this
policy ends by using the actual, not the estimat-
ed, premium basis and the proper classifications
and rates that lawfully apply to the business and
work covered by this policy. If the final premium
is more than the premium you paid to us, you
must pay us the balance. If it is less, we will
refund the balance to you. The final premium
will not be less than the highest minimum pre-
mium for the classifications covered by this poli-
cy. If this policy is cancelled, final premium will
be determined in the following way unless our
manuals provide otherwise:
1. If we cancel, final premium will be calculated
pro rata based on the time this policy was in
force. Final premium will not be less than the pro
rata share of the minimum premium.
2. If you cancel, final premium will be more than
pro rata. It will be based on the time this policy
was in force and increased by our short-rate can-
celation table and procedure. Final premium will
not be less than the minimum premium.

Appendix C – NCCI’s Workers’ Compensation Policy
187
WORKERS COMPENSATION AND EMPLOYERS LIABILITY INSURANCE POLICY
WC 00 00 00 A
1
st
Reprint Effective April 1, 1992 Standard

F. Records
You will keep records of information needed to
compute premium. You will provide us with
copies of those records when we ask for them.

G. Audit
You will let us examine and audit all your rec-
ords that relate to this policy. These records
include ledgers, journals, registers, vouchers,
contracts, tax reports, payroll and disbursement
records, and programs for storing and retrieving
data. We may conduct the audits during regular
business hours during the policy period and
within three years after the policy period ends.
Information developed by audit will be used to
determine final premium. Insurance rate service
organizations have the same rights we have
under this provision.

PART SIX
CONDITIONS

A. Inspection
We have the right, but are not obliged to inspect
your workplaces at any time. Our inspections
are not safety inspections. They relate only to
the insurability of the workplaces and the pre-
miums to be charged. We may give you reports
on the conditions we find. We may also rec-
ommend changes. While they may help reduce
losses, we do not undertake to perform the duty
of any person to provide for the health or safety
of your employees or the public. We do not
warrant that your workplaces are safe or health-
ful or that they comply with laws, regulations,
codes or standards. Insurance rate service or-
ganizations have the same rights we have under
this provision.

B. Long Term Policy
If the policy period is longer than one year and
sixteen days, all provisions of this policy will
apply as though a new policy were issued on
each annual anniversary that this policy is in
force.

C. Transfer of Your Rights and Duties
Your rights or duties under this policy may not
be transferred without our written consent. If you
die and we receive notice within thirty days after
your death, we will cover your legal representa-
tive as insured.

D. Cancelation
1. You may cancel this policy. You must mail or
deliver advance written notice to us stating when
the cancelation is to take effect.
2. We may cancel this policy. We must mail or
deliver to you not less than ten days advance
written notice stating when the cancelation is to
take effect. Mailing that notice to you at your
mailing address shown in Item 1 of the Infor-
mation Page will be sufficient to prove notice.
3. The policy period will end on the day and
hour stated in the cancelation notice.
4. Any of these provisions that conflict with a
law that controls the cancelation of the insurance
in this policy is changed by this statement to
comply with the law.

E. Sole Representative
The insured first named in Item 1 of the Infor-
mation Page will act on behalf of all insureds to
change this policy, receive return premium, and
give or receive notice of cancelation.

188

Appendix D
Workers’ Compensation Endorsement
Listing and Description

Endorsement Name Form No. Description / Notes
Workers Compensation and
Employers Liability Policy
WC 00 00 00 A NCCI policy form
Workers Compensation and
Employers Liability Policy Infor-
mation Page & Extensions
WC 00 00 01 A Declaration Page with stand-
ard information.
Defense Base Act Coverage
Endorsement
WC 00 01 01 A Extends USL&HW-level
benefits to civilian employees
or civilian contractors work-
ing on military bases outside
the continental US (includes
Alaska & Hawaii). Removes
the Defense Base Act exclu-
sion (within exclusion “8”)
from the employers’ liability
coverage wording.
Federal Coal Mine Health and
Safety Act Coverage Endorsement
WC 00 01 02 Extends WC and EL benefits
to employees as per Federal
limits and guidelines to em-
ployees that contract “Black
Lung.”
Federal Employers’ Liability Act
Coverage Endorsement
WC 00 01 04 A Workers’ Compensation cov-
erage does not apply in any
state listed in the FELA Cov-
erage Endorsement. Cover-
age is subject to Federal

Appendix D – WC Endorsement Listing and Description
189
Endorsement Name Form No. Description / Notes
guidelines and requirements
to garner protection. Exclu-
sion “9” is removed. Em-
ployers’ Liability coverage is
extended to the states and up
to the limits specified by the
endorsement. No each em-
ployee “bodily injury by dis-
ease” limit, only a disease
aggregate limit.
Longshoremen’s and Harbor
Workers’ Compensation Act
Coverage Endorsement
WC 00 01 06 A Extends / raises statutory WC
benefits to comply with the
benefits required by the
USL&HW Act as specified
by the Federal government.
Rates may be higher to ac-
count for the increased bene-
fits. Removes the USL&HW
exclusion (within exclusion
“8”) from the employers’
liability coverage wording.
Nonappropriated Fund
Instrumentalities Act Coverage
Endorsement
WC 00 01 08 A Extends USL&HW-level
benefits to civilian employees
working on military bases
within the continental US
removes the Nonappropriated
Funds exclusion (within ex-
clusion “8”) from the em-
ployers’ liability coverage
wording.
Outer Continental Shelf Lands Act
Coverage Endorsement
WC 00 01 09 A Extends USL&HW-level
benefits to workers on fixed
structures located outside of
territorial waters but within
Outer Continentail Shelf ex-
clusion (within exclusion
“8”) from the employers’
liability coverage wording.

Appendix D – WC Endorsement Listing and Description
190
Endorsement Name Form No. Description / Notes
Maritime Coverage Endorsement WC 00 02 01 A Extends benefits to the limits
required by maritime or ad-
miralty law (Jones Act or
DHSA included). Removes
exclusion “10.” Adds two
exclusions: no coverage if
P&I coverage and no cover-
age for transportation,
maintenance and cure unless
a premium is paid.
Voluntary Compensation Maritime
Coverage Endorsement
WC 00 02 03 WC 00 02 01A must first be
attac hed. Extends WC cov-
erage to masters and mem-
bers of a crew when such is
not required by law. Extends
employers’ liability coverage
to masters and members of
the crew when not required
by law to provide coverage.
Alternate Employer Endorsement WC 00 03 01 A Designed to extend coverage
when employees are consid-
ered the “borrowed servants”
of a special employer. It is
attached to the direct em-
ployer’s policy, naming the
special employer thus extend-
ing protection from the em-
ployer’s policy to the puta-
tive employer.
Designated Workplaces Exclusion
Endorsement
WC 00 03 02 Use to exclude designated
work places but only when
proper and allowable in the
law.
Employers Liability Coverage
Endorsement
WC 00 03 03 C Extends employers’ liability
coverage to monopolistic
states (ND, Ohio, Wash. And
Wyo.).
Insurance Company as WC 00 03 04 Limits coverage to the insur-

Appendix D – WC Endorsement Listing and Description
191
Endorsement Name Form No. Description / Notes
Insured Endorsement ance carrier’s employees
only.
Joint Venture as Insured
Endorsement
WC 00 03 05 Limits coverage exclusively
to employee’s of the joint
venture. Policy does not pro-
vide coverage for employees
of the members of the joint
venture.
Medical Benefits Exclusion
Endorsement
WC 00 03 06 Makes the insured solely
responsible for paying medi-
cal benefits. Used mainly by
self-insurers.
Partners, Officers and Other
Exclusion Endorsement
WC 00 03 08 Used for individuals consid-
ered an employee by law
(varies by state) yet chooses
to exclude themselves from
the law and the benefits
available from WC coverage.
Exclusion can be accom-
plished by name or by posi-
tion.
Rural Utilities Service Endorsement WC 00 03 09 B Assures compliance with
RUS guidelines.
Sole Proprietors, Partners, Officers
and Other Coverage Endorsements
WC 00 03 10 Extends employees status and
benefits to persons normally
excluded from coverage (var-
ies by state)
Voluntary Compensation and
Employers Liability Coverage
Endorsement
WC 00 03 11 A Signifies that an employer
has voluntarily chosen to
provide workers’ compensa-
tion coverage and benefits to
those not required, by state
law, to be covered.
Voluntary Compensation and Em-
ployers Liability Coverage for Resi-
dence Employees Endorsement
WC 00 03 12 Same as WC 00 03 11 A
except limited to domestic
workers.
Waiver of our Right to Recover
from Others Endorsement
WC 00 03 13 Waives the insurance
carrier’s subrogation rights

Appendix D – WC Endorsement Listing and Description
192
Endorsement Name Form No. Description / Notes
against the scheduled entity.
Workers Compensation and Em-
ployers Liability Coverage for Resi-
dence Employees Endorsement
WC 00 03 14 This endorsement is used
when the employer is statuto-
rily required to insure domes-
tic workers (varies by state).
The endorsement is designed
to be used with homeowners’
policies, personal liability
policies or similar personal
policies.
Domestic and Agricultural Workers
Exclusion Endorsement
WC 00 03 15 Used to exclude coverage for
domestic and agricultural
workers in states where such
exclusion is allowed. Applies
when the employers employs
other workers subject to the
law but wants to exclude
coverage for domestics and
agricultural workers.
Labor Contractor Endorsement WC 00 03 20 A This endorsement is attached
to the leasing employer’s
policy, extending benefits to
the leased employees from
the employer’s policy. Essen-
tially provides additional
insured status to the sched-
uled PEO.
Professional Employer Organization
Extension Endorsement
WC 00 03 20 B This endorsement extends
workers’ compensation and
employers’ liability benefits
exclusively from the PEO.
Attached to the PEO’s policy.
This extension only applies
to employees leased to the
client(s) listed on the sched-
ule.
Labor Contractor Exclusion En-
dorsement
WC 00 03 21 Attached to the PEO’s work-
ers’ compensation policy to

Appendix D – WC Endorsement Listing and Description
193
Endorsement Name Form No. Description / Notes
exclude coverage for em-
ployees leased to the client(s)
scheduled in the form. This
endorsement is used when
the client leases employees
on an “other-than-short-term”
basis and such client is
charged with providing the
workers’ compensation bene-
fits.
Employee Leasing Client Exclusion
Endorsement
WC 00 03 22 Attached to the employer’s/
client’s workers’ compensa-
tion policy to exclude the
extension of workers’ com-
pensation benefits to employ-
ees leased on a long-term
basis from the labor contrac-
tor (PEO) scheduled in the
policy. Only used when the
PEO is responsible for
providing coverage.
Multiple Coordinated Policy
Endorsement
WC 00 03 23 This endorsement extends
benefits to the leased em-
ployees rather than having to
depend on a staffing firm to
extend coverage.
Residual Market Multiple Company
Endorsement
WC 00 03 25 Attached to employer’s poli-
cies insured in the residual
market with operations in
multiple states and the opera-
tions in the other states is
insured by a separate subsidi-
ary of the insurer.
Residual Market Limited Other
States Insurance Endorsement
WC 00 03 26A Extends “Other States” bene-
fits on a limited basis when
WC coverage is placed in a
residential market.
Aircraft Premium Endorsement WC 00 04 01 A Indicates the additional pre-

Appendix D – WC Endorsement Listing and Description
194
Endorsement Name Form No. Description / Notes
mium required under WC
code 7421 under passenger
seat code 9108.
Anniversary Rating Date
Endorsement
WC 00 04 02 Used if the anniversary rating
date (related to the experi-
ence mod) is different than
the policy effective dates.
May result from mid-term
cancellation and re-write or
other cause.
Experience Rating Modification
Factor Endorsement
WC 00 04 03 Allows the insurance carrier
to change the experience mod
mid-term.
Pending Rate Change Endorsement WC 00 04 04 Allows the insurance carrier
to change rates mid-term.
Policy Period Endorsement WC 00 04 05 Used when the policy period
is longer than 1 year and 16
days and does not consist of
complete 12 month periods.
Might be used to get to a
common effective date.
Premium Discount Endorsement WC 00 04 06 A Shows the calculation for the
premium discount.
Rate Change Endorsement WC 00 04 07 Like the WC 04 04, only the
rates have already been ap-
proved and will be effective
on the specified date.
Longshore and Harbor Workers’
Compensation Act Rate Change
Endorsement
WC 00 04 08 Like the WC 04 04, only the
rates have already been ap-
proved and will be effected
on the specified date. Applies
only to USL&HW coverage.
Contingent Experience Rating
Modification Factor Endorsement
WC 00 04 12 A contingent mod was used
to calculate the premium. A
new premium calculation will
be completed once the final
mod is calculated.
Notification of Change in WC 00 04 14 Requires the Insured to report

Appendix D – WC Endorsement Listing and Description
195
Endorsement Name Form No. Description / Notes
Ownership Endorsement changes in ownership within
90 days (ERM-14).
Assigned Risk Adjustment Program
Endorsement assigned
WC 00 04 15 A Attached to insured’s in risk
(or other such residual pro-
grams) that are also subject to
additional charges (i.e.
ARAP charges).
Assigned Risk Loss Sensitive
Rating Plan Notification
Endorsement
WC 00 04 17 A Notification that an insured
in assigned risk plans that
reaches a specified premium
level may be subject to a ret-
rospective rating plan, re-
gardless of desire.
Assigned Risk Mandatory Loss
Sensitive Rating Plan Endorsement
WC 00 04 18 C Like WC 00 04 17 A, except
the insured knows up front
and this endorsement sup-
plies the rating factors.
Premium Due Date Endorsement WC 00 04 19 Simply requires the insured
to pay when billed.
Domestic Terrorism, Earthquakes,
and Catastrophic Industrial
Accidents Premium Endorsement
WC 00 04 21 C Notification to the insured
that there is additional pre-
mium to cover the risk of
domestic terrorism or a cata-
strophic accident.
Foreign Terrorism Premium
Endorsement
WC 00 04 22 A Allows the insured to charge
for and define a foreign ter-
rorist act.
Retrospective Premium
Endorsement One Year Plan
WC 00 05 03 A Attached to the policy of
insured’s whose coverage is
written on a retrospectively
rate (loss sensitive) plan.
Endorsement defines the plan
and gives the rating factors.
Retrospective Premium
Endorsement Three Year Plan
WC 00 05 04 A Like WC 00 05 03 A, except
for three-year retro plans.
Retrospective Premium
Endorsement Long-Term
Construction Project
WC 00 05 05 A Like WC 00 05 03 A, except
intended to apply towards
long-term construction pro-

Appendix D – WC Endorsement Listing and Description
196
Endorsement Name Form No. Description / Notes
jects.
Retrospective Premium
Endorsement Aviation Exclusion
WC 00 05 08 Used when the aviation ex-
posure is not subject to the
retrospective rating plan.
Retrospective Premium
Endorsement Changes
WC 00 05 09 A Used when there are changes
in the retrospective rating
factors or their inapplicability
in certain states.
Retrospective Premium Endorse-
ment Non-Ratable Catastrophe
Element or Surcharge
WC 00 05 10 Used when a retrospectively
rated policy covers a non-
ratable catastrophe element
or surcharge. Aircraft opera-
tions and explosives and
ammunition manufacturing
classifications are examples.
Retrospective Premium
Endorsement Short Form
WC 00 05 11 Used when the insured has
more than one retrospectively
rated policy subject to the
same rating options.
Retrospective Premium Endorse-
ment One Year Plan – Multiple
Lines
WC 00 05 12 A Defines retrospective rating,
the rating elements and how
the premium is calculated.
Allows other lines of cover-
age such as GL and Auto to
be included in the calculation
of the final premium using
the same factors.
Retrospective Premium
Endorsement Three Year Plan –
Multiple Lines
WC 00 05 13 A Same as WC 00 05 12A, ex-
cept applies to three year
policies.
Retrospective Premium Endorse-
ment Long-Term Construction
Project – Multiple Lines
WC 00 05 14 A Same as WC 00 05 12 A,
except applies to long-term
construction projects.
Retrospective Premium
Endorsement Flexibility Options
WC 00 05 15 Indicates in which states the
incurred losses have been
changed to include loss ad-
justment expenses.
Benefits Deductible Endorsement WC 00 06 03 If the insured operates in a

Appendix D – WC Endorsement Listing and Description
197
Endorsement Name Form No. Description / Notes
state what allows a WC de-
ductible and to which bene-
fits the deductible apply
(medical and indemnity,
medical only or indemnity
only).
Avian Flu Endorsement Company
Specific
Limits the amount of work-
ers’ compensation and em-
ployers’ liability coverage
limits to a specified amount
for losses arising out of avian
flu.

198
Appendix E

First Report of Injury Requirements for all
50 States
State Statute Form Used
Injuries that must be
reported to Regula-
tory Authorities (All
injuries must be
reported to carrier)
Time
Limit to Report
AL 25-5-4 WCC Form 2 All reported injuries Within 15 days of oc-
currence of injuries
AK AS
23.30.095(c).
Form 07-6101 All reported injuries Immediately, but in no
case later than 10 days
after you have
knowledge that your
employee has been
injured, or claims to
have been injured or
become ill. If beyond 10
days, subject to penalty
equal to 20% of com-
pensation due.
AZ 23-908 Form
ICA 04-0101
(Rev. 7/01)
All reported injuries Within 10 days after
receiving notification of
a work related injury or
disease. Fatalities with-
in 24 hours.
AR 11-9-529 Form 1A-1 Those involving ei-
ther more than 7 days
of lost time or indem-
nity of payments
Within 10 days.
CA Chapter 7
Article 1 Sec-
tion 14005
DWC-1 and
DLSR 5020
Any physical or men-
tal injury caused by
the job which results
in lost time beyond
the date of the inci-
Must be submitted in
writing within 5 days of
any prescribed occupa-
tional injury or illness.
Injuries must be report-

Appendix E – First Report of Injury Requirements
199
State Statute Form Used
Injuries that must be
reported to Regula-
tory Authorities (All
injuries must be
reported to carrier)
Time
Limit to Report
dent or requires medi-
cal treatment beyond
first aid, or death.
ed immediately by
phone to the nearest
California OSHA of-
fice.
CO 8-43-101 WC1 All injuries or occupa-
tional disease which
result in lost time
from work in excess
of 3 shifts or calendar
days, or in permanent
physical impairment,
or fatality.
Within 10 days after
notice or knowledge of
the injury or disease.
Fatalities must be re-
ported to your insurance
carrier immediately.
CT CGS 31-316 WCC-15 Occurrence, injury or
disease resulting in
incapacity form work
of one day or more
Report is to be filed
within 1 week of notice.
DE 19-2313 DOC. No. 60-
07-01-90-10-
04
All injuries Within 10 days.
FL 69L-3.004 DWC-1 All cases except first
aid cases
Within 7 days of notice
GA 34-9-12 WC-1 Any injury requiring
medical or surgical
treatment or causing
absence from work
for more than 7 days.
In writing within 10
days.
HI 386 WC-1 Every work injury to
an employee causing
absence for one day
or more or which
requires medical ser-
vices other than first
aid treatment must be
reported.
Within 7 days of the
injury.
ID 72-602 IA-1 (02/98) If a work-related inju-
ry or illness results in
one-day lost work
time or requires medi-
cal treatment.
As soon as practicable,
but not later than ten
(10) days after the oc-
currence.

Appendix E – First Report of Injury Requirements
200
State Statute Form Used
Injuries that must be
reported to Regula-
tory Authorities (All
injuries must be
reported to carrier)
Time
Limit to Report
IL Section 6 (b)
of WC Act
IA-1 or IC-45 All injuries resulting
in loss of more than 3
scheduled workdays
or results in death.
Must report within 3
days. Fatalities must be
reported within 2 days.
IN IC 22-3-4-13 SF-34401 Injuries that result in
death or employees
absence from work
for more than 1 day.
Within 7 days of occur-
rence or knowledge
(whichever is later).
IA 86.11 IAIABC
FORM 1.2
(12/98)
Any occupational
injury or illness which
temporarily disables
an employee for more
than three days or
which results in per-
manent total disabil-
ity, permanent partial
disability, or death.
Electronically within
four business days of
specified event. Within
eight hours each acci-
dent or health hazard
that results in one or
more fatalities or hospi-
talization of three or
more employees.
KS K.S.A. 44-
557(a)
K-WC 1101-A
(Rev. 2-06)
Any accident or
claimed or alleged
accident resulting in
whole or partial inca-
pacity that continues
beyond the “day, turn,
or shift which such
injuries are sustained”
as the result of acci-
dent.
Within 28 days of the
receipt of knowledge of
such incapacity.
KY KRS 342.038 IA-1 All reported injuries Immediately, but no
more than 3 working
days of notice.
LA RS 23:1306
and 1310
LWC-WC-
1007
Death or more than
seven days of disabil-
ity. Or If there is no-
tice of a disputed
claim.
Within 10 days of inju-
ry.
ME
S.A.
Sec.
303
30-A M.R. WCB-1
of a day’s work
Injuries resulting in
the loss within 7 days.
Carrier must be noti-
fied.

Appendix E – First Report of Injury Requirements
201
State Statute Form Used
Injuries that must be
reported to Regula-
tory Authorities (All
injuries must be
reported to carrier)
Time
Limit to Report
MD 9-707 IA-1 Death or injury result-
ing in more than 3
days of disability.
Occupational disease.
Within 10 days for inju-
ry. Immediately for
disease.
MA MGI Chapter
152
Form 101 Employee is injured,
or alleges injury and
is unable to earn full
wages for 5 or more
calendar days.
Within 7 business days
from the 5
th
day of dis-
ability.
MI Rule 408.31 Form WC-100 Injury or disease re-
sulting in death or
disability extending
beyond seven days or
other “specific” loss.
Within 7 calendar days
of receiving notice.
MN 176.231 MN FR01
(02/06)
Death or serious inju-
ry arising from em-
ployment. Or if the
employee cannot
work for a period of
more than three days.
Within 24 hours if death
or serious injury. With-
in three days if employ-
ee cannot work for
more than three days.
Must be entered into
SEMA4 and sent within
three calendar days.
MS 71-3-65 and
67
IA-1 Injuries or illnesses
resulting in death,
permanent disability,
serious head or facial
disfigurement or disa-
bility lasting longer
than five days.
Within 10 days.
MO 287.380.1 WC-1-EDI Any accident result-
ing in injury.
Within 10 days after
knowledge of injury.
MT 39-71-307 ERD-991 All injuries or
illnesses.
Within six days of no-
tice.
NE Rule 29 NWCC Form 1 All injuries or
illnesses.
Within 10 days after
knowledge of injury.
NV NRS
616C.015
C-1 All injuries or
illnesses.
As soon as practicable.
NH 281-A:53 Form 8WC Any occupational
disease or injury.
As soon as possible, but
not later than 5 days

Appendix E – First Report of Injury Requirements
202
State Statute Form Used
Injuries that must be
reported to Regula-
tory Authorities (All
injuries must be
reported to carrier)
Time
Limit to Report
Injury resulting in
disability of four or
more days requires a
separate form
(13WCA).
after the employee
learns of the occurrence
of such an injury. Form
13WCA must be filed
within 7 days.
NJ R.S. 34:15-96 IA-1 All injuries reported
to carrier.
Insurance CARRIER
reports all accidents
within 3 weeks of learn-
ing of the accident.
NM 52-1-58 NM WCA
FORM E1.2
All work related inju-
ries or illnesses result-
ing in death or more
than seven days of
lost work.
Within 10 days of inju-
ry or illness giving rise
to reportable incident.
NY Sect. 110 WC
Law
C-2 All injuries causing a
loss of time from
regular duties of one
day beyond the work-
ing day or shift.
Within 10 days after the
accident occurs.
NC NCGS 97-92 Form 19 Any accident causing
more than 1 days
absence from work or
more than $2,000 in
medical cost.
Within 5 days after
knowledge of accident.
ND 65-05-01.4 SFN 2828
(05/2007)
Any injury or illness. Filed with Workforce
Safety & Insurance
(WSI)
OH 4123-28
4123-3-03
On-Line
FROI-1
Injuries and occupa-
tional diseases result-
ing in seven days or
more of total disabil-
ity or death. All inju-
ries must be reported
to the State. Ohio is a
Monopolistic State
Fund and must be
notified of all injuries.
Reported specified inju-
ry or diagnosis of occu-
pational disease to the
bureau of workers’
compensation within
one week of acquiring
knowledge of such inju-
ry or death or the diag-
nosis or death from the
occupational disease.
OK Section 24.1 Form 2 Accidental injury
which 1) results in
Within 10 days.

Appendix E – First Report of Injury Requirements
203
State Statute Form Used
Injuries that must be
reported to Regula-
tory Authorities (All
injuries must be
reported to carrier)
Time
Limit to Report
lost time beyond the
shift; 2) requires med-
ical attention away
from the work site; 3)
is fatal.
OR 656.262 440-801 Any injury that may
be compensable must
be reported.
Reports to insurance
carrier within five days.
Fatalities must be re-
ported within 8 hours
and overnight hospitali-
zation within 24 hours
to state OSHA.
PA Section 438 of
WC Act
LIBC-344 Any injury resulting
in the loss of a full
turn or shift of work.
As soon as possible.
RI 28-32-1
(Rules)
DWC-01 Any work-related
injury requiring any
medical treatment or
if the employee loses
full wages for at least
3 days. The employer
must also report any
work-related death.
Within 10 days of
knowledge of the injury
OR within 48 hours of
death.
SC 42-19-10 Form 12A Only injuries requir-
ing more than $500 in
medical cost or which
results in permanency.
Within 10 days.
SD SDCL 62-6-2 DOL-LM-101 Employers are re-
quired to complete an
Employer’s First Re-
port of Injury form
and submit it to their
worker’s compensa-
tion insurance carrier.
The employer has 7
days excluding Sundays
and holidays to submit
this form.
TN 0800-2-14-.03
(1)
LB-0021 All reported injuries. Within 1 working day
of knowledge of injury.
TX 8308-5.05
Texas
TWCC-1 All injuries resulting
in the absence from
work beyond the date
Must file the loss with
the Insurance WC Act
Carrier within 8 days

Appendix E – First Report of Injury Requirements
204
State Statute Form Used
Injuries that must be
reported to Regula-
tory Authorities (All
injuries must be
reported to carrier)
Time
Limit to Report
of the accident, or any
occupational disease.
after the employees
absence from work or
notice of occupational
disease. Do not send to
the State unless specifi-
cally requested.
UT 34A-2 and 34
A-3
Form 122 Any injury that results
in medical treatment
by a physician, loss of
consciousness, loss of
work, or transfer to
another job.
Within 7 days of inci-
dent. Within 12 hours if
(Form 1-A1) injury
results in fatality; disa-
bling, serious, or signif-
icant injury; or occupa-
tional disease incident.
“Serious injury” in-
cludes: amputation,
fractures of major
bones, and hospitaliza-
tion for medical treat-
ment.
VT Sec. 8. 21
V.S.A. §
640 (e)
Form 1 All injuries and ill-
nesses. Employer
must report but can
elect to pay medical
bills that are less than
$750.
Electronically within 72
hours of accident.
VA 65.2.900 VWC Form #3 1) lost time exceeding
7 days; 2) medical
expenses exceed
$100; 3) results in
death; 4) permanent
disability or disfig-
urement
When notified of injury.
WA Claims are filed through the injured workers healthcare provider. In 2008, the state
began a two-year pilot program that will allow the injured working to file the claim
through the employer or the healthcare provider. Under this pilot program, the em-
ployer has two days to file an incident report once the report is completed. Visit
htt;://www.lni.wa.gov/IPUB/242-378-000 for more information. Currently, em-
ployees have up to one year to give the employer notice of a work-related injury.
WCC C1 form is used to report injury. Whenever an employer has notice or

Appendix E – First Report of Injury Requirements
205
State Statute Form Used
Injuries that must be
reported to Regula-
tory Authorities (All
injuries must be
reported to carrier)
Time
Limit to Report
knowledge of an injury or occupational disease sustained by any worker in his or her
employment who has received treatment from a physician or a licensed advanced reg-
istered nurse practitioner, has been hospitalized, disabled from work or has died as the
apparent result of such injury or occupational disease, the employer shall immediately
report the same… (RCW 51.28.025)
WA DC 32-1532 FORM NO. 8
DCWC
All injuries. Within 10 days of DC
injury or knowledge.
WV 23-4-1 b WC-3 All reported injuries. Within 5 days of receipt
of notification of the
employee’s injury, or
within 5 days after the
employer has been noti-
fied by the Commis-
sioner that a claim for
benefits has been filed
on account of an injury.
WI DWD Admin-
istrative Code
80.02(2)(a)
WKC-12-E Employers must re-
port all injury claims
to their insurance
carrier within 7 days
of the incident.
Insurance carriers must
report injuries which
result in four days or
more lost time from
work to the Worker’s
Compensation Division
within 24 hours of the
incident.
WY Chapter 4 of
Wyoming
Rules Section
3 and 27-14-
502
INJRPT All injuries. The in-
jured worker is re-
quired by the statute
to report the occur-
rence and general
nature of the injury to
the employer as soon
as practical within 72
hours after the injury
becomes apparent.
The employer must file
a report of injury within
10 days after the date on
which the employer is
notified of the injury.

206
Appendix F
Glossary
Abandonment of
Employment
Engaging in an activity clearly not intended for the ad-
vancement of the employer nor directed by or anticipated
by the employer. Includes any activity in direct contradic-
tion to the rules, requests or expectations of the employer.

“Arising out of…” A casual connection between the furtherance of the em-
ployer’s business and the injury. If the employer benefits
in some way from the activity, then the injury or illness
suffered in the pursuit of that activity is considered to
“arise out of” the employment.

Assumption of Risk A defense against charges of negligence barring or severe-
ly limiting an individual’s recover under the tort of negli-
gence. The defendant must prove that 1) the plaintiff was
reasonably aware of and appreciated the danger involved;
2) the plaintiff voluntarily exposed himself to the danger;
and 3) the assumed danger was the proximate cause of the
injury or damage.

Broad Transfer Provides the greatest scope of contractual risk transfer and
requires the transferee to indemnify and hold harmless the
transferor from all liability arising out of an incident, even
if the act is committed solely by the transferor. This may
qualify as an exculpatory contract and is illegal in some
jurisdictions because the wording is considered “uncon-
scionable.”

Casual Labor Work that is not in the usual course of trade, business,
occupation or profession of the employer (contracting par-
ty). The contractors hired are not performing duties that
would normally be done by an employee; they are doing

Appendix F – Glossary
207
work outside the normal operational requirements. Essen-
tially, a casual laborer is one that does not directly pro-
mote or advance the employers business or operation.

Coming and Going
Rule
Injury suffered traveling to or home from work or even
while going to and returning from lunch is generally not
compensable. The logic behind the rule is that the employ-
ee is not furthering the employer’s interest or serving the
business’ needs.

Contract of Hire “Contract of hire” states approach the issue of extraterrito-
rial jurisdiction and when to name a 3.A. state from the
employment contract standpoint. The state of hire is essen-
tially the deciding factor. The vast majority of states statu-
torily subscribe to this approach; however court decisions
often hearken back to the “significant contact” test.

Contractual Risk
Transfer
A formal agreement between two parties whereby one
agrees to indemnify and hold another party harmless for
specified acts. Such transfer encompasses both Risk Fi-
nancing (planning for the cost of a loss) and Risk Control
(developing means to avoid or lessen the cost of a loss).
The intended goal of contractual risk transfer is to place
the financial burden of a loss on the party best able to con-
trol and prevent the loss. There are three parties to and
three levels of contractual risk transfer.

Contributory
Negligence
Doctrine of defense stating that if the injured person was
even partially culpable in causing or aggravating his own
injury he is barred from any recovery from the other party.
This is an absolute defense.

De Facto Employee De facto means “in fact or in reality.” Employers may call
a de facto employee an independent contractor when they
are “in fact” an employee. The degree of control often in-
fluences the worker’s classification as a true independent
contractor or a de facto employee.

De Jure Employee De jure means “by right, according to the law.” A de jure
employee is an employee created by an act of law. In most

Appendix F – Glossary
208
states, injured employees of an uninsured subcontractor
become the responsibility of the general contractor; they
become the “de jure employees” of the general contractor
by action of workers’ compensation law.

Doctrinal Employer-
Employee Relationship
(Special Employer)
1) The employee made a contract of hire, express or im-
plied, with the special employer? In essence, has the direct
employer volunteered or directed the employee to work for
the special employer and has the employee agreed to such
assignment; 2) The work being done essentially that of the
special employer; and 3) The special employer has the
right to control the details of the work.

Employee A person hired to perform certain services or tasks for
particular wages or salary under the control of another (the
employer); or a worker hired to perform a specific job
usual and customary to the employer’s business operation
in exchange for money or other remuneration.

Exculpatory An agreement altering tort and contract law. The root term
“exculpate” means to hold another blameless for their fu-
ture actions. Commonly used in waivers to protect one
party against injury suits from another party while partici-
pating in activities that may prove inherently dangerous.
Exculpatory agreements generally cannot be used to avoid
statutory requirements, common law duties, criminal pen-
alties or negligence in tort (duties owed to the public can-
not be contracted away). If there is unequal bargaining
strength between the parties to the contract, an exculpatory
clause may be considered unconscionable and thus unen-
forceable. These rules vary by jurisdiction.

Fellow Servant Rule Defense against employer negligence asserting that an
employee’s injury was caused by a fellow employee not by
the acts of the employer. If proven, negligence was not
asserted against the employer and recovery could be se-
verely limited or barred.

General Contractor An individual or entity with whom the principal/owner
directly contracts to perform specified jobs. Some or all of

Appendix F – Glossary
209
the enumerated tasks are subsequently contracted to other
entities (subcontractors) for performance. Three parties are
required before any entity is considered a general contrac-
tor: a principal, an independent contractor, and a subcon-
tractor hired by the independent contractor. The independ-
ent contractor’s status changes to that of a general contrac-
tor when any part of the work is subcontracted to another
entity.

General Exclusion
Classifications
These are the opposite of “standard exception” classes.
General exclusion class activities are completely unex-
pected and are not considered part of the analogy of the
governing classification of most operations. Employees
engaged in general exclusion activities require separation
to allow the insurer to garner the, usually, higher premium
for the increased exposure.
Operations and activities falling within the general exclu-
sion classification are: 1) Employees working in aircraft
operations; 2) Employees performing new construction or
alterations; 3) Stevedoring employees; 4) Sawmill opera-
tion employees; and 5) Employees working in an employ-
er-owned daycare.

General Inclusion
Classifications
Some activities are considered to be an integral part of the
business’ operations thus the payroll of the individuals
engaged in these activities is included in the governing
classification. These activities include: 1) Employees that
work in a restaurant, cafeteria or commissary run by the
business for use by the employees (this does not apply to
such establishments at construction sites); 2) Employees
manufacturing containers such as boxes, bags, can or car-
tons for the employer’s use in shipping its own products;
3) Staff working in hospitals or medical facilities operated
by the employer for use by the employees; 4) Maintenance
or repair shop employees; and 5) Printing or lithography
employees engaged in printing for the employer’s own
products.

Ghost Policy A “ghost” policy is a workers’ compensation policy written
for an unincorporated business with no employees and

Appendix F – Glossary
210
which does not extend coverage to the business’ owner(s).

Indemnitor The party called on to respond financially. This can in-
clude the “Transferee” or an insurance company.

Independent
Contractor
An entity with whom a principal/owner directly contracts
to perform a certain task or tasks. Independent contractors
are generally engaged to perform operations not within the
usual trade or business of the principal and such tasks are
contract-specific. All work required of the contract is per-
formed by the independent contractor and employees.

Interchange of Labor
Rule
The interchange of labor rule is an exception to the gov-
erning classification rule. Applicability of this rule varies
by state; some states only allow its use in the construction,
erection or stevedoring classes of business while other
states permit the interchange of labor rule to apply to any
type of business operation. Interchange of labor rules al-
low a single employee’s payroll to be split between or
among several class codes that may be present within the
operations. Certain requirements must be met before this
rule can be applied.

Intermediate Transfer The transferee agrees to accept the financial consequences
of occurrences caused in whole or in part by its negli-
gence. This includes if the transferor or another entity con-
tributes to the loss in some way.

“In the course…” A function of the timing and location of the injury or ill-
ness. The implication is that the injury must occur during
operations for the employer, or “during employment,” and
at the employer’s location or a location mandated or rea-
sonably expected by the employer.

Legal Person (a.k.a.
Juridical Person)
A legal fiction, a “person” created by statute and “born”
with the filing of articles of incorporation (or organiza-
tion). These legal persons are given the right to own prop-
erty, sue and be sued. Corporations are legal persons. Sev-
eral states consider LLC’s a legal person making the man-
agers and members employees.

Appendix F – Glossary
211

Limited Liability
Company (LLC)
An LLC is a hybrid legal entity combining the advantages
(mostly tax-based) of a partnership and the liability protec-
tion offered by a corporation. Members are simply the
owners of the LLC and may or may not participate in the
day-to-day management of the company. Members in-
volved in the management maintain a dual role as a mem-
ber and a manager.

Limited Transfer The narrowest level of contractual risk transfer. The trans-
feree only accepts the financial consequences of loss re-
sulting from his/its sole negligence. If the transferor or
another party contributes to the loss, the transferee is not
financially responsible for that part of the loss. Essentially,
the transferor is only protected for its vicarious liability
arising out of the actions of the transferee.

Majority Interest
(Combinability)
Majority interest is created when the same person or group
of person(s) combine to own more than 50 percent of an
entity and can be created in many ways: 1) An entity or
persons (as detailed above) owns the majority of the vot-
ing stock of another entity; or both entities share a majori-
ty of the same owners (if there is no voting stock). Gener-
ally these are natural persons that own multiple entities. 2)
If neither of the above applies, majority interest is created
if a majority of the board is common between two or
among several entities. 3) Participation of each general
partner in the profits of the partnership (limited partners
are excluded). 4) When ownership interest is held by an
entity as a fiduciary (excludes a debtor in possession, a
trustee under an irrevocable trust or a franchisor).

Monopolistic States Employers can purchase a workers’ compensation policy
only from the state. Only four monopolistic states are still
in operation: North Dakota, Ohio, Washington and Wyo-
ming. Employers’ liability coverage is not offered by these
states and this coverage must be procured by alternate
means.

Natural Person A flesh and blood human being. In workers’ compensation

Appendix F – Glossary
212
the employer is a natural person(s) in sole proprietorships
and partnerships. Managers and members of an LLC are
viewed as natural persons in a majority of states making
these natural persons the employers.

Occupational Disease Illness directly attributable to work conditions and expo-
sures; such injury or illness must arise out of and in the
course and scope of employment. To be considered “occu-
pational” and therefore compensable, the disease must
arise out of or be caused by conditions peculiar to the
work. Medical opinion leading to the conclusion that an
illness is work-related is not necessarily based on the dis-
ease but on the facts surrounding the patient’s sickness.

Permanent Partial
Disability
The employee has suffered an injury from which he
will never recover, but one that will not prevent him from
returning to some type of work. Amputation of a finger or
leg, the loss of an eye or ear are examples of this injury
classification.

Permanent Total
Disability
Recovery is not predicted; the employee is not expected to
ever be able to return to work. Full paralysis, total blind-
ness and total loss of hearing are examples of such an inju-
ry.

Putative Employer The special employer rather than the direct employer. Sta-
tus as the “employer of record” at such a specific time is
“put” upon the individual or entity based on several fac-
tors, the most obvious is the amount of control the per-
son/entity has over the worker.

Respondeat Superior: Latin for “let the master answer.”

“Scope of
employment…”
Analyzes the motivations of the employee, the employer’s
direction and control over the actions of the employee; and
the employer’s foresee ability of the activities of the em-
ployee. Employee actions which ultimately lead to an ac-
cident or injury must be motivated, in whole or in part, by
the “desire” to further the interests of the employer. Moti-
vation or desire can be out of fear that failure to perform

Appendix F – Glossary
213
will result in the loss of a job, or from a more altruistic
desire to do well for the employer. The basis for the moti-
vation or desire is irrelevant; it is the fact that the motiva-
tion exists that leads to compensability. Further, the ac-
tions must, to some extent, be at the presumed direction of
the employer or potentially foreseen by the employer.

Significant Contact
Test
This test is applied when making jurisdictional decisions –
which state benefits can the employee access. Significant
contact tests base these jurisdictional decisions around the
employee. Three primary tests/questions work to deter-
mine which states need to be scheduled as primary, 3.A.
states. These questions are: 1) Where does the employee
live? 2) Where does the employee primarily work? And 3)
In what state was the contract of hire made? If a “prepon-
derance of contact” evidences a state not listed as a 3.A.
state, there may be a gap in protection.

Situs The first test before an employee can be considered a
longshoreman or harbor worker. Situs requires that the
employment be on, above or below navigable waters and
adjoining areas. However working around or over water
does not in itself qualify an individual for the benefits pre-
scribed by USL&HW Act law. To qualify for such cover-
age requires satisfying the “status” test.

Standard Exception
Classifications
Some duties/activities are considered so common to most
business and/or such duties may be so far outside the oper-
ational activities of the business that employees engaged in
these activities are considered exceptions to the governing
classification rules. Payroll for these “standard exception”
classes of employees is subtracted from the governing
classification and assigned to the applicable standard ex-
ception code and rated separately from the governing
class. The standard exception classes include: 1) Clerical
Employees- Class Code 8810; 2) Clerical Telecommuter –
Class Code 8871; 3) Drafting Employees – Class Code
8810; 4) Salespersons – Class Code 8742; and 5) Drivers –
Class Code 7380.

Standard exception classifications are not necessarily lim-

Appendix F – Glossary
214
ited to these five class codes; some states utilize state-
specific class codes that are also eligible for assignment as
a standard exception.

Status To be considered a longshoreman or harbor worker re-
quires that the employment involve the loading and un-
loading of ships; or the maintenance, repair or dismantling
of ships.

Subrogation Individuals or entities suffering injury and/or damage due
to the negligence of another person or entity have the right
to recover costs and expenses from the at-fault party. If,
however, the injured party chooses to seek reimbursement
from its own insurance carrier, the rights of the injured
party are transferred to the insurance carrier. Subrogation
rights for the insurance carrier flow from the right of its
insured to recover payment. If the insured does not have
the right to recover payment, neither does its insurance
carrier. Contractual risk transfer provisions often limit the
rights of one party to recover from another party for injury
or damage. When the right of the insured to recover is
waived via a contract, lost is the insurer’s right to subro-
gate.

Temporary Partial
Disability
A full recovery from the injury is expected, but for a peri-
od of time the employee is completely unable to work due
to the injury. These types of injuries might require bed rest
or hospitalization while the employee recovers.

Temporary Total
Disability

A full recovery from the injury is expected, but for a peri-
od of time the employee is completely unable to work due
to the injury. These types of injuries might require bed rest
or hospitalization while the employee recovers.

Transferee The party accepting the risk in a contractual risk transfer
agreement. This can include the general contractor and
subcontractors. Other common terms include indemnitor
and promisor.

Transferor The party from who risk is being transferred in a contrac-

Appendix F – Glossary
215
tual risk transfer agreement. This may include the owner,
the project management firm, and/or the general contrac-
tor. Other common terms for the transferor include indem-
nitee and promisee.

Unconscionable A contract or contract provision that is unreasonable due
to the unequal bargaining strength of the parties, or the
result of undue influence or unfair tactics.

216
Author Biography
Christopher J. Boggs entered the insurance industry in 1990 and is
the former Director of Education with Insurance Journal’s Academy of
Insurance. His background includes loss control, insurance production,
consulting, and insurance education.
During his time with the Academy, Boggs wrote articles, white pa-
pers, and books covering a wide array of insurance and risk manage-
ment topics. Boggs also authored more than 250 insurance and risk
management related articles on a wide range of topics as diverse as
Credit Default Swaps, the MCS-90, and enterprise risk management.
Boggs has written and published five insurance and risk manage-
ment books:
 “The Insurance Professional’s Practical Guide to Workers’
Compensation: From History through Audit – Second Edition;”
 “Business Income Insurance Demystified: The Simplified Guide
to Time Element Coverages – Second Edition;”
 “Property and Casualty Insurance Concepts Simplified: The
Ultimate ‘How to’ Insurance Guide for Agents, Brokers, Un-
derwriters and Adjusters;”
 “Wow! I Never Knew That! 12 of the Most Misunderstood and
Misused P&C Coverages, Concepts and Exclusions;” and
 “Insurance is Not Risk Management! The Insurance Profes-
sional’s Guide to Risk Management and Insurance.”
A graduate of Liberty University with a bachelor’s degree in Journal-
ism, Boggs has continually pursued career-related education, obtaining nine
professional insurance designations: the Chartered Property Casualty Un-
derwriter (CPCU), Associate in Risk Management (ARM), Associate in
Loss Control Management (ALCM), Legal Principles Claims Management
(LPCS), Accredited Advisor in Insurance (AAI), Associate in Premium
Auditing (APA), Certified Workers’ Compensation Advisor (CWCA),
Construction Risk and Insurance Specialist (CRIS) and the Associate in
General Insurance (AINS) designations.