Workers’ Compensation Insurance

Workers’ Compensation Insurance

Workers’ compensation insurance is acquired by an employer. Usually, state law mandates that an employer either purchases workers’ compensation insurance or is self-insured through a separately administered and funded plan. Under a workers’ compensation insurance policy, the insurer agrees to pay the benefits due to an injured employee in exchange for the payment of premiums by the employer. The benefits to which an injured employee is entitled are defined by the particular state’s workers’ compensation statute.

Insurance Application and Conditions for Insurability

To obtain workers’ compensation insurance, employers are required to complete an application on which such insurance will be based. Misstatements in the application can ultimately result in the employer reimbursing the insurer for funds paid on an injured employee’s claim. For example, an employer that hires a minor, in violation of state law, leaves itself open to being responsible for any funds paid out to the minor on account of an on-the-job injury. Likewise, an employer who misrepresents the identity of its employees or the nature of their employment may be called upon to reimburse the insurer for funds paid out to an injured employee.

Policy Construction

Generally speaking, the workers’ compensation insurance policy is construed to cover the whole of an employer’s liability with respect to the “insured” business. This rule of interpretation is provided by statute in some jurisdictions and has developed through case law in other jurisdictions. As state law governs workers’ compensation, an insurance policy containing language that conflicts with state law will be construed so as to conform to the law.

Equivocal or unqualified language in a policy will open the door for the enlargement of coverage based on the particular state’s laws. However, express exclusions and clear terms can operate in such a policy to deny coverage for certain circumstances. Caveat: if state law provides for partial insurance only under specified conditions, and such conditions are not met, the exclusion clause will be inoperable. Generally, doubts are resolved in favor of coverage and exclusions are interpreted narrowly.

Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.