Liability Beyond Your Workers' Compensation Coverage

Author:Ms Nicole Farley and Daniel P. O'Brien
Profession:Fisher & Phillips LLP

Pop quiz!

True or False? Workers' compensation is the exclusive remedy for employees pursuing a recovery against their employer. The answer is of course false. The exclusive remedy doctrine provides that when an employee is injured within the course and scope of employment, the employer's liability is limited to benefits payable under the state's workers' compensation statutes; mainly lost wages and medical benefits.

This doctrine was a trade off, giving employers "immunity" from being sued for their actions (or inactions) that resulted in injuries to employees. In return for this immunity, the employee's negligence would not be grounds to deny a workers' compensation claim. Instead, workers' compensation systems adopted the concept of "no fault" coverage.

While the no-fault end of the tradeoff has remained relatively unchanged, legislatures and particularly the courts have continued to chip away at the Exclusive Remedy doctrine. This erosion allows employees to bring suit against employers, outside of the workers' compensation system, under certain defined legal theories. Consequently, it generated uncertainty as to the insurability of suits brought by employees. A standard comprehensive-general-liability policy excludes coverage for any suit brought by an employee.

Dual Coverage Under Standard Workers' Compensation Policies

The insurance industry responded to this gap in coverage by expanding a standard workers' compensation policy beyond the scope of simply providing benefits for statutory workers' compensation issues. Workers' compensation policies now have two parts: Part One, (sometimes referred to as Coverage A) provides workers' compensation coverage; and Part Two,(sometimes referred to as coverage B) provides employer liability coverage.

Part One covers the benefits your company is required to pay under state law. There is normally no limit to this coverage. The insurer will pay all compensation and medical benefits your company is legally obligated to pay under your state's workers' compensation statutes, without limit. Part Two insures your company for the obligation to pay damages because of bodily injury by accident or disease, including death, if the condition arises out of and in the course of employment and if there is a legal-recovery theory available to the employee beyond the workers' compensation statutes.

Part Two, Employer Liability Coverage

At first glance, it may seem unlikely that any injury to an employee occurring...

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