Workers' Compensation Insurance
The bargain
Workers compensation is a no-fault statutory system: employees give up the right to sue the employer in tort, and in exchange receive medical benefits, disability income, death benefits, and rehabilitation. This is the exclusive remedy, subject only to narrow exceptions.
The three parts of the policy
- Part One - Workers Compensation: pays all benefits required by statute; it carries no dollar limit.
- Part Two - Employers Liability: covers suits that escape the exclusive remedy (e.g., third-party actions), typically $100,000 each accident / $500,000 disease policy limit / $100,000 each employee.
- Part Three - Other States: extends coverage to states listed.
Premium
Premium = payroll per $100 × classification rate × experience modification factor, adjusted by an audit after the policy term. Officers, sole proprietors, partners, and LLC members may elect to be excluded in many states; employees are classified by the work they perform.
Virginia specifics
Employers with three or more regular employees must carry coverage. The Virginia Workers' Compensation Commission administers the system. There is a 7-day waiting period, and if disability lasts beyond 21 days, benefits are paid retroactively to the date of injury. Compensation is generally 66⅔% of the average weekly wage, subject to a state maximum, and claims must be filed within two years of the accident.
Traps
- Part One has no limit; Part Two carries dollar limits.
- Coverage is the employer's, not the employee's - an injured worker with no coverage may sue in tort.
- Independent contractors and subcontractors can create uninsured exposure.
Rule of thumb: if the question involves an employee injured on the job, the answer is workers compensation before any liability policy.