Workers' Compensation Insurance
The grand bargain
Workers compensation is a no-fault statutory system. Employees give up the right to sue the employer for work-related injuries, and the employer pays scheduled benefits regardless of fault. The exclusive remedy rule limits the employee to statutory benefits from the employer, but third parties whose negligence contributed to the injury may still be sued.
Benefits
Medical benefits are typically unlimited and lifetime. Disability income comes as temporary total, temporary partial, permanent partial, or permanent total, usually a percentage of average weekly wage subject to a state maximum. Death benefits pay dependents plus a burial allowance, and rehabilitation benefits are often provided.
The policy
Part One, Workers Compensation, pays statutory benefits with no dollar limit. Part Two, Employers Liability, responds to suits not barred by the exclusive remedy, such as loss of consortium, with typical limits of $100,000/$500,000/$100,000. Part Three extends coverage to other states; Parts Four through Six cover duties, premium, and conditions.
Premium
Premium is payroll per $100 of payroll by classification, adjusted by the experience modification factor and audited at expiration.
Who is covered
Employees, including minors and part-timers. Sole proprietors, partners, and LLC members are excluded unless they elect coverage; corporate officers are included unless they elect out. Federal acts include FELA for railroad workers, the Jones Act for seamen, the LHWCA for harbor workers, and the Black Lung Benefits Act.
Trap: assuming benefits are unlimited in dollar amount (they are statutory and capped), or that the employer can be sued in tort by its own employee.
Worked example: $500,000 of payroll at $4.00 per $100 yields $20,000; applying a 0.90 experience modification gives $18,000 before audit adjustments.