Tag Archives: gallagher

The Future of Insurance [Infographic]

With the Internet playing an increasingly important role in business operations across all sectors, companies now realize they need to adapt to the digital sphere to maximize their earning potential and customer reach. Research shows that businesses that embrace digital adoption see a five times greater impact on growth than those who resist going digital.

In comparison with others, the insurance industry has been quite slow in using digital channels as a core part of business operations. 79% of insurers say they are still learning about digital, while more than half of insurance companies do not have operating models that can incorporate digital. This is extraordinary in an era where online operation is not a bonus but a prerequisite to become an industry leader.

More than half of the world’s population spends time online every single day, indicating that customers want to be able to interact with companies through digital channels. A business that gets its digital operations right will deliver on customer expectations and retain those customers, who, in turn, will speak in a positive light about the brand. This word-of-mouth marketing is highly likely to result in more customers. It’s high time that insurers realize this and take action to allow for their customers to interact with them online.

The infographic below, which was created by Top Quote, outlines the digital challenges faced by the insurance industry and what insurers can do to address these challenges.


Preventing Kitchen Fires in Apartments

My real estate clients have seen their share of fires, especially in apartments, and I have seen first-hand the devastating impact of a fire on an apartment complex. Often, these fires happen because of tenants’ carelessness, especially with fires that start in the kitchen. So, in the spirit of Fire Prevention Week this week, I wanted to share information about a device that can prevent many fires from ever starting.

The product, called Fire Avert, simply plugs into the wall socket behind an electric stove, and the stove is then plugged into the Fire Avert device. If a smoke alarm sounds in the apartment, the device hears the alarm and shuts off the stove. This simple step will prevent the many fires that start because someone forgets that the stove is on (perhaps even leaving the apartment), steps outside for too long and leaves the stove untended, etc.

There are subtleties to the device (which the inventor describes here), but that’s the basic approach: cut off the source of many fires before they ever start.

A fire loss is disruptive and time-consuming. It hurts tenants and places hardships on the local property manager, who has to deal with the fire marshal, cause and origin experts, contractors and consultants hired by the insurance carrier. It affects the corporate insurance manager, who is often responsible for working with the insurance adjuster, documenting all costs, navigating through coverage disputes and providing extensive information to the forensic accountants to assist with calculating the loss of rents.

Reconstruction can takes weeks, months or even more than a year. If law and ordinances increasing the cost of construction apply, the rebuilding is delayed further.  When all is said and done, the insurance carriers then scrutinize losses and often raise the premiums on renewal. Suffice it to say, a fire loss is an exhausting and costly endeavor for apartment owners. Just ask anyone who has been through one.

After recently tracking a property owner that installed the Fire Avert device in all its units, I have become a true believer in its ability to prevent fires. There are many devices being sold today that “stop” a fire, but this is the only product that prevents the fire from ever starting. Don’t get me wrong: The devices that “stop” a fire are better than no protection. Products that “stop” the fire often reduce the impact substantially. Instead of burning the entire building down, a fire might only take out the kitchen.  An $8,000 to $20,000 loss is better than a $250,000 to $1 million loss. However, no loss is the best outcome. Fire Avert can make that happen.

I know many property owners that incur two to four kitchen fires a year. These fires have cost $60,000 to $2 million. Had the owners not had these kitchen fires, their portfolios would be loss-free. I am confident the premiums for these owners would be at least 30% less without kitchen fires.

All property owners budget capital improvements each year. The cost of the Fire Avert (listed on the website for $196 a unit) can easily be rolled in over a two- or three-year period. If the current success of these devices is an indication, Fire Avert will pay for itself through future insurance premium savings.

I have no stake in this company. I am just a fan of the product and the owner/inventor, Peter Thorpe, a firefighter. His inspirational story and more about this remarkable device can be found at http://www.fireavert.com.

If all apartment owners installed this product, placing insurance would be much easier, insurance premiums would be substantially less, insurance carriers would pay less in claims and, most important, lives would be saved.

State-by-State Look at Small Medical Claims

Should an employer pay small medical claims or turn them in to the workers compensation insurance company?

That is the most common question an insurance agent gets from employers. The answer to this question is not simple. It can depend on several factors, including:

  • Whether the state has approved the experience rating adjustment (ERA) in the experience modification formula.
  • Whether the employer has expertise in paying according to the state fee or reasonable and customary schedule, and whether the employer has access to discounted medical networks, as insurance carriers do.
  • Whether a small deductible to handle small medical claims might beappropriate and assist in complying with state rues.
  • State rules and penalties where the employer is located.
  • Whether the state of operation has a favorable alternative option for handling small medical claims.
  • How organized and detailed the employer is?

Experience Rating Adjustment (ERA)

For years, insurance agents recommended that employers pay small workers compensation medical claims out-of-pocket and not submit them to their insurance carrier. The rationale was that frequency affects the experience modification formula more than severity does, so frequent claims would produce a higher experience modification and increase costs.

When the experience rating formula was created, assumptions were built into it. One assumption is that one large claim should not have as much effect as a number of smaller claims that total the same amount. For example, a single $90,000 claim should not have the same impact as five $18,000 claims. One large claim may not reflect the insured’s overall operations. However, five $18,000 claims indicate a problem with safety or other issues. In addition, studies have shown frequency often leads to severity.

The practice of employers not reporting small claims in an attempt to keep their experience modification low troubled many of the workers compensation stakeholders (insurance companies, actuaries, OSHA, National Council of Compensation Insurance [NCCI] and other state independent advisory organizations). The lack of reporting meant that the database of loss experience was not complete, possibly leading to poor statistical analysis.

To address this issue, an experience rating adjustment (ERA) was introduced into the formula. In states where ERA is approved, medical-only claims (injury code 6 claims) are reduced by 70% before being used to calculate experience rating. Also, the expected loss rate and discount ratio, used to compute expected losses and expected primary losses, have been changed to reflect that medical-only claims will be reduced by 70%. Many feel the incentive to not report medical-only claims has been eliminated in states where ERA is approved.

The ERA-approved states are: Alabama, Alaska, Arkansas, Arizona, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Maine, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oklahoma, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, Virginia, West Virginia and Wisconsin. The District of Columbia has also approved ERA.

Those that have not approved ERA are: California, Colorado, Delaware, Massachusetts, Missouri, New Jersey, New York, North Dakota, Oregon, Ohio, Pennsylvania, Washington, Wyoming and Texas.

After analyzing “what if” scenarios on employers either reporting to the carrier or paying medical-only claims on their own, studies conclude that the employer did not save money by paying medical-only claims. This was even truer in ERA states, particularly if the employer does not know how to apply the state fee schedule or has no access to discounted networks like those developed by insurance carriers.

The above illustration is representative of the reduction that would be realized on the $13,981 in medical bills had they been applied against the state fee schedule and insurance company network discounts. After these discounts, the total claims in the modification formula at 30% would be $1,846 ($6,152 x .30 = $1,846), reducing the modification from 1.275 to 1.20 vs. the 1.18 experience modification without reporting medical-only claims. No doubt reporting no medical claims produces a lower modification; however, many employers have no knowledge of how to apply the workers compensation state fee schedules and will not have access to insurance carrier discount networks. This often results in the employer paying higher medical costs and higher overall worker compensation costs.

Employers could arrange with a third-party fee schedule company to assist with state fee schedules, but this would depend on the volume of work. It may be awkward to engage a fee-schedule company without a formalized program to allow the employer to pay its own medical claims under a deductible program. Alternatively, the employer can look up the fee schedule amount by procedure code and fee schedule.

The employer will have to know how to create an “explanation of benefits” for the medical provider. In summary, some knowledge is required if an employer is going to take advantage of state fee discounts in paying its own medical claims.

Potential Risks and Penalties

Clearly, an employer paying its own medical claims in non-ERA states presents a more attractive option than doing so in ERA states, as the impact on the experience modification is greater. However, there are several factors to consider. There is always a risk the claim could become more serious. Many states have distinct periods of time that allow for a claim denial. If the claim becomes problematic or significant medical is needed, or if an employee becomes disabled (and the condition can be tied back to the original medical claim), the employer may lose the ability to have the claim denied at a later date because of the state’s statutes.

In addition, many states have penalties that apply if the employer does not report the claim to the carrier or the state. Arkansas issued bulletin warning employers, insurers and other workers compensation stakeholders against the practice of businesses paying small workers compensation claims directly, saying the practice was in violation of Ark. Code Ann. Section 11-9-106(a), which deals with making materially false representations for the purpose of avoiding payment of the proper insurance premium. The law authorizes insurers to offer a deductible to policyholders, but the law does not authorize direct payments, with or without a valid deductible program. The bulletin emphasized that even with an authorized deductible program all claims must be submitted for “first dollar” payment by the insurer. Other states require all incidents must be reported even if “notice only.” In other states, the doctor reports the claim to the state with a copy to the carrier of record so the opportunity to pay your own medical claims is certainly more challenging. An employer must also be aware of penalty situations in its states regarding timeliness of payment. For instance, in Michigan, as in many other states, the bill must be paid within 30 days of receipt.

Small-Deductible Programs

Most states have approved the use of small-deductible plans. Currently, 36 states (Alabama, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota and Tennessee) have state-approved small-deductible rules ranging from $500 (Oregon) to $25,000 (Missouri, Ohio and Texas) for medical and indemnity.

In some states, an insurer is not required to offer a deductible if the employer’s ability to make payment of the claims under the deductible is in doubt. Some states have specific requirements for small-deductible plans while others allow insurers to file their own plans. In Arizona, Idaho, Louisiana, Michigan and Mississippi, insurers are permitted to file small-deductible programs, but most carriers haven’t. North Dakota, Washington and Wisconsin are notable exceptions as states not allowing small-deductible plans.

In return for assuming a deductible applicable to every claim, the employer receives a premium credit. These plans are extremely popular as a cost-cutting tool for many employers, especially contractors. Sometimes, underwriters use deductibles as a defensive tool, or the employer reluctantly accepts a deductible, as it may have been the only way to obtain a competitive premium. A deductible is simple to manage from the employer’s standpoint. Claims are submitted to the carrier.

The carrier pays the claims after applying the state fee schedules and other network discounts. The employer is billed at the end of the month for reimbursement of the claims under the deductible amount.

Selecting a small deductible is not always a pricing consideration. A company may be more attractive to a carrier if it is willing to take on a small deductible. This is especially true of contractors.

Whether the claims under the deductible go into the experience modification depends on the state the employer is located in. Currently there are 15 NCCI states offering net deductible options for small deductibles: Alabama, Colorado, Florida, Georgia, Hawaii, Iowa, Kansas, Kentucky, Maine, Missouri, New Mexico, Oklahoma, Rhode Island, South Carolina and South Dakota.

Small-Deductible-Programs Reference Table

The following NCCI table provides a summary of the small deductible programs in the states where the Basic Manual applies. For complete details regarding the rules of any program, refer to the appropriate state pages.

Alaska, District of Columbia, Idaho, Louisiana, Mississippi and Oregon have not filed programs with NCCI.

So what does net vs. gross mean? Assume the employer is in Kentucky, a net small-deductible state. The employer signs up for a small deductible and gets a small premium credit. It sends the bills to the carrier, and the carrier bills for the amounts under the deductible at the end of the month. When the claims activity for this employer is reported to the NCCI, it is reported “net” AFTER the deductible has been applied. If the employer had a $500 deductible, a $400 claim would show up at the NCCI as $0 and a $1,000 claim would show up as $500. (Remember this is after the state fee schedules and carrier cost containment networks have been applied, so it could have started out as a $3,000 medical claim).

Some states require insurers to report losses on a gross basis, which is the full amount paid by the insurer, irrespective of deductible reimbursements received from the employer. In a gross state, say Indiana, an employer can sign up for a small deductible and get a small premium credit. When this employer’s claims are reported to the NCCI, they are reported “gross” — as if no deductible existed.

Assuming the same claim scenario — a client with a $500 deductible — the $400 claim is reported to NCCI as $400 and a $1,000 claim shows up as $1,000 for experience modification purposes even though the insured is reimbursing some of the claim under the deductible.

Gross means reported without regard to the deductible. Net means reported after the deductible is applied. Net reporting of losses may allow an employer to receive a premium discount up front and favorably affect its experience modification factor by eliminating all losses below the deductible from experience rating.

So what does it mean when a state is a gross and net state? The NCCI Basic Manual will refer you to the state pages for further explanation. It can be for several reasons:

  • In Florida, for instance, only a $2,500 deductible is “net.”
  • Some states are net for medical-only and gross for indemnity.

With so many states offering small deductibles for medical-only claims, it is difficult to understand — particularly in an ERA state — why any employer would not formalize a small-deductible plan and take the advantages of the state fee schedule and carrier network medical bill discounts as well as the carrier premium credit allowed for small deductible plans. This is especially true in those states that have approved ERA, have net deductible plans and also give a credit for the deductible program. These include Kansas, Kentucky and New Mexico.

With the expanded format of the unit statistical report approved in most states, losses are reported on both a gross and net basis. Thus, insurers report the same information in all states regardless of whether gross or net losses are used to calculate experience modifiers.

State-Specific Variances

There is usually a reason why a state did not approve ERA. Some states have a mechanism in place to handle employers paying small medical claims that reduce medical claims included in the experience rating calculation.


Employers are allowed to pay the first $15,000 of any medical-only claim. Ohio also allows employers “salary continuation” which allows an employer to pay an employee his or her regular wages after a workplace injury or illness occurs. No salary continuation payments or medical-only claims paid by the employer under the $15,000 go into the modification calculation.


Oregon has a medical reimbursement option that allows interested employers to reimburse medical-only claims up to $1,500. Any reimbursed medical losses are removed (or reduced) from the experience rating.


Missouri law allows employers the right to direct the medical care for their injured workers and to pay first-aid-type claims that are $1,000 or less out-of-pocket. By paying claims under $1,000 out-of-pocket, the frequency and cost of these claims are not included in the calculation of the experience modification. There is a special NCCI endorsement that is attached to the policy.

The bill is submitted to the carrier. The carrier reprices the medical bill according to the state fee schedule and network discounts. This is true even if a bill is $1,200 but ends up being $800 after re-pricing. The claims under $1,000 do not get reported on the experience modification.

Some carriers operating in Missouri that have a higher deductible plan (i.e., $2,500) in place with an employer will allow the employer to reimburse the bill and not report the entire bill to the experience modification. They count the first $1,000 under the Missouri law and the balance of the deductible as subrogation. Any lost time claim or a claim where it is known that a permanency rating will apply (i.e., fracture) must be reported even if under $1,000.

The Missouri system has worked well for employers. It is an example of how an employer may have a different approach to paying small medical claims or decide not to pay them at all depending on the state they are located in.


Medical-only claims are subject to a deduction equal to twice the average medical-only claim cost. The amount changes each year (2014 is $2,610). The claim cost will be deducted from the loss amount before beginning any other calculations on the claim. Ultimately it reduces the regular experience modification calculation.

No employer’s experience modification can increase or decrease more than twenty-five percent during any one year. However, if an employer’s experience modification factor is calculated to be below 1.00 without this twenty-five percent limitation and that employer had an experience modification factor greater than 1.333 in the previous year, then the experience modification factor shall be set to 1.00


California employers have an option to self-pay certain workers compensation claims. Specifically, first-aid claims. Even though there is no premium reduction to pay first aid claims out-of-pocket, this practice may have a positive effect in minimizing the impact on future experience modifications, and reduce the future cost of premiums.

Several states – Alabama, Kansas, Kentucky, New Mexico, Oklahoma and Rhode Island) offer a unique opportunity in that they approved ERA (70% discount for medical-only claims), they allow a credit for the small deductible and they do not include claims under the deductible in the experience modification.

Advanced Monitoring of the Experience Modification

It is important to note that the 70% reduction applied to medical claims for the experience modification in ERA states is only for a medical-only claim. As soon as an indemnity (lost wages) payment is included, the entire medical portion of the claim goes into the experience modification formula. Once the waiting period has passed to collect lost wages (anywhere from 3 to 7 days depending on the state) lost wages are paid back to day one. There are occasions when a claim may result in only 5 or 7 days off or $300 to $900 of indemnity payment but the medical is high (i.e. $10,000). Hernia operations are an example of short time off but large medical expense. If the employer were to continue to pay this individual for the week or two off and report only the medical to the carrier, only $3,000 of the medical would apply to the experience modification.

This feature of the formula highlights the importance of returning employees to work as soon as medically possible and when not medically possible, managing that one-to-three week period of wages. There is software available that can calculate a variety of “what ifs” to determine the cost saving advantages to paying close attention to this issue.

Once again the employer and agent must be aware of what the state of operation allows. Wisconsin issued a warning to employers that they cannot pay wages to injured workers to lower their experience modification. The claims must be paid by the workers compensation carrier. Wisconsin does not allow deductible plans and this action constitutes use of a deductible which has not been filed by the bureau and approved by the Office of the Commissioner of insurance for use in Wisconsin. The office warned it will pursue appropriate enforcement action about any practices noted as improper.

Medicare — Responsible Reporting Entity

In addition, employers must now contend with the rules from the Center for Medicare and Medicaid Services (CMS). But first, a little history. Federal Medicare set-aside has been in force for many years. What is in place is a process that was activated when a workers compensation settlement on a claim was imminent on an individual who was collecting Medicare because they were of Social Security age or disabled or when there was a reasonable expectation an individual would be eligible for Medicare within 30 months of the settlement time.

When these circumstances existed on a settlement of a workers compensation claim, the carrier or TPA was required to assemble medical records on this individual and send them to a company that would assess the future medical and prescription drug use only relative to the workers compensation injury (not everything covered by Medicare is covered by workers compensation).

When the employee receives his/her lump-sum workers compensation settlement a non-interest bearing bank account is also set up with the assessed amount for future medical and prescription (but no indemnity or impairment). The settlement “set-aside” (hence the name) pays bills and the employee keeps receipts. Any medical bills not paid but eligible for Medicare are then paid by Medicare.

The Secondary Payer Act was passed by Congress under George Bush. Medicare was always intended to be a secondary payer not primary but the only time this was getting done was in workers compensation settlements. Usually a denial or a delay (by way of lawsuit) of a workers compensation, general liability or automobile claim sent an eligible individual to Medicare. Medicare conditionally pays with the expectation of being reimbursed if and when a lawsuit is resolved with the workers compensation, general liability or automobile carriers.

Unlike workers compensation settlements set-aside, there was no formal method to recover what Medicare paid when the lawsuit settled. Medicare is now requiring reporting of all open general liability, automobile and workers compensation claims if another primary source of recovery is available for Medicare eligible claimants.

So this brings us to employers paying their own small medical-only claims or lost wages. An employer risks becoming the responsible reporting entity with all the burdensome reporting requirements when paying their own claims unless they adhere to the strict rules where workers compensation is exempt under ongoing responsibility for medicals (ORM) for minor incidents.

Workers compensation claims are excluded from reporting indefinitely if they meet all the following criteria:

  • Claim is for “medicals” only.
  • The associated “lost time” for the worker is no more than the number of days permitted by the applicable workers compensation law for a “medicals only” claim (or 7 calendar days if the applicable law has no such limit).
  • All payments have been made directly to the medical provider.
  • Total payment for medicals does not exceed $750.

The employer needs to evaluate whether saving a few dollars on their experience modification is worth tracking and carefully following these rules. If the employer pays any medical over $750 and the employee is Medicare eligible the employer could be creating more headaches with reporting/tracking etc than the experience modification savings is worth by paying the bills instead of sending to the carrier.

The carriers and TPAs have experts that have implemented these new rules and will have this streamlined. There are many companies now offering reporting services. Failure to report a claim carries a $1,000-a-day per claim penalty.


The variances among states dictate that there is no one, simple answer to the employer’s quandary of whether to pay small medical-only claims or turn them in to the insurance carriers for payment. An employer must weigh the advantages and disadvantages of paying small medical claims after:

  • Obtaining a complete understanding of their state’s laws.
  • Understanding the CMS rules.
  • Evaluating the staff’s ability to effectively manage their own medical bills.
  • Reviewing the insurance alternatives available (small deductibles) that take paying small medical claims into consideration.

Information in this article is provided as a reference only. While I strive for accuracy, the workers compensation world is constantly changing. Consultation with the governing authority or an attorney for verification is advised.

States of Confusion: Workers Comp Extraterritorial Issues

As states passed workers compensation laws, each state established its own system. This resulted in a mishmash of laws, benefits, compensability and eligibility from state to state. Courts have ruled that a state has the right to apply its own workers compensation rules and standards to each case. Hence, most states simply don’t care what other states allow, only what is required under their workers compensation laws. There is little meaningful cooperation or coordination among states. Challenges for agents, employers, insurance companies and adjusters include understanding:

  • When coverage is required in jurisdictions where the employer has operations or employees working, living or traveling in or through.
  • How coverage is provided for various jurisdictions.
  • What jurisdictional benefits an employee can collect.

The policy

The two items that reference what states are insured under a workers compensation policy are 3.A. and 3.C. on the information page. (Federal coverage can only be added by endorsement.) 3.A. is fairly simple. The insurance agent for the employer instructs the insurance carrier to list the states where the employer operates when the policy goes into effect or is renewed. 3.C. is a safety net – at least most of the time. That item lists states where an employer expects it may have employees traveling to or through or working in. If an employer begins work in any state listed in 3.C. after the effective date of the policy, all provisions of the policy apply as though the state were listed in 3.A. Notice must be given “at once” if work begins in any state listed in 3.C., although “at once” is not defined in the policy. If the employer has work in any state listed in 3.C. on the effective date of the policy, coverage will not be afforded for that state unless the carrier is notified within 30 days.

It should be noted the insurance policy does not determine what law applies at the time of injury. The law determines what is payable. In addition, note that the workers compensation policy does not apply to Ohio, North Dakota, Washington and Wyoming, “monopolistic” states where coverage may only be purchased from the state. Although larger employers may self-insure in Ohio and Washington (but not North Dakota or Wyoming), no private insurance carrier can write workers compensation coverage for an employer.

It would seem the safe bet is to add all states except monopolistic states to 3.A. However, most underwriters are unwilling to do this or even add the ideal wording for 3.C.: “All states, U.S. territories and possessions except Washington, Wyoming, North Dakota, Ohio, Puerto Rico and the U.S. Virgin Islands and states designated in Item 3.A. of this Information Page.” The reason for the underwriters’ unwillingness varies. Common reasons underwriters provide include:

Licensing issue

The insurer is not licensed in all states. Many regional insurers are only licensed in a handful of states while other carriers may only be licensed in one state…often for strategic reasons. Carriers frequently assert it is impossible — and possibly illegal — to list a state they are not licensed in (even though policies contain wording whose clear intent is to allow carriers to pay benefits in states where they are not licensed).

Underwriting considerations

The insurance carrier may not want to provide insurance in certain states it considers more challenging from a workers compensation standpoint or because carriers do not want to write in states where they have little or no claims adjusting experience, established provider networks and knowledge of the nuances of the law.

Underwriters’ lack of awareness or knowledge

Underwriters are not claims adjusters and do not always have a full understanding  of workers compensation’s jurisdictional complexity and the employer’s risk (no coverage) and agents’ risk (errors and omission claims) for not securing coverage for all states with potential exposure. Agents are often told the employer does not need coverage in the state in which the agent is requesting coverage — which the home or primary state benefits will pay. However, the chance that an employee will be successful in securing another state’s benefits — even if the employee is only there temporarily — is just too much of a risk.

Physical location

Carrier underwriters frequently cite the “physical location” — actually needing an address — as a roadblock to adding a state to 3.A. The National Council for Compensation Insurance (NCCI) has rules on this issue. Most states that follow NCCI rules allow entry of “no business location” — but not all.  States that follow NCCI rules (including the independent bureaus like Texas) will often modify some rules. Arizona, Kentucky, Montana and Texas do not allow “no business location.” It is a regulatory reporting issue. Possible solutions to secure 3.A. coverage include:

  • Providing an entry of “Any Street, Any Town” or “No Specific Location, Any City” for the state. Many carriers will use this.
  • Using an employee’s home address in the state if there is an employee working from home there.
  • Using the agent/brokers address if they have an office there.


Only Texas and New Jersey have workers compensation laws that are elective. New Jersey employers still, in effect, cannot go without workers compensation insurance. In Texas, any employer can “unsubscribe” to the workers compensation system and “go bare” and be subject to the tort system. All other states require employers to purchase workers compensation insurance for their employees or qualify for self-insurance.

Which benefits apply? 

If an employer has employees traveling on a limited basis from their home states, the headquarters state may have established a time limit on coverage for out-of-state injuries. The most common limit is six months. This may be written into the statute or may be silent, but over time case law has made determinations. In other words, if an employee usually worked in Michigan but spent three months working on assignment in Kentucky and was injured in Kentucky, the employee would most likely still be eligible for Michigan benefits. In states with a timeline, an employee working in another state for more than the designated duration is no longer entitled to benefits in the home state, but the employee is probably entitled to the compensation in the state in which he or she is currently working.

One of the most important factors is that an employee injured outside of his state of residence may have selection of remedies (benefits) if he lives in one state and works in another. The Michigan employee injured in Kentucky may want Kentucky benefits because Kentucky has lifetime medical and Michigan does not. Or, an employee may have been injured on the way to work, and the state where she was injured does not allow for workers compensation in this circumstance even though this would be a compensable injury in the employee’s headquarters state. Perhaps there is a disqualification in one state because of, for example, an employee’s intoxication that would not be a disqualifier in another state. In addition, the maximum amount of income benefits available to employees varies considerably from state to state.

Piggybacking benefits

Piggybacking occurs when an employee files in one state and then in another state where he qualifies for additional benefits. What is allowed in additional payments will depend on the circumstances of the claim and the states involved. This issue has become particularly dangerous for employers that have not arranged coverage in other states because they are unaware there is an exposure there. The employer then becomes liable for the benefits due in the uninsured state, including all costs to adjust and defend the claim if litigated.

Typically, if an employee collects benefits in one state and is successful in perfecting a claim in another state with higher benefits, the benefits collected in the first state are offset from the second state’s benefits payment. For example, assume an employee collects $10,000 from Indiana then files in Illinois, which grants $18,000. Only the difference between $18,000 and $10,000, or an additional $8,000, would be paid. Employers with employees in both “wage-loss” and “impairment” states face an additional challenge: Employees could qualify for both states’ benefits with no offsets.

Most states don’t care what other states have allowed, only what is required under their laws. If the employee collected under another state’s law but qualifies in our state for additional benefits, well, so be it. If an employee has traveled to, through or lived or worked in another state to create a “substantial” relationship with the state, there is a very good chance he or she will be granted workers compensation benefits in that state.

State statutes, case law, common law and tests

State statutes, case law or the common law in a jurisdiction may influence what benefits an employee may collect. Various criteria that may apply include:

  • State of hire
  • State of residence
  • State of primary employment
  • State of pay
  • State of injury
  • State in agreement between employer and employee (unique to Ohio, and only Ohio and Indiana recognize the agreement)

The “WALSH” test is a good guide to questions to ask, in order of importance:

W   Worked – Where did the employee work most of the time?

A    Accident – Where did the accident occur?

L    Lived – Where is the employee’s home?

S    Salaried – Where is the employee getting paid from?

H    Hired – Where was the contract of hire initiated?

Just about all jurisdictions indicate an employee is entitled to the benefits of their state if the employee was working principally localized in the state, was working under a contract of hire made in the state or was domiciled in the state at the time of the accident. This is why “worked” and “accident” are given the most weight.


Several states will reciprocate another state’s extraterritorial provisions. Each state has its own reciprocal agreements, with as few as a half-dozen states or as many as 30. For as many states that cooperate with reciprocity, just as many states will not.

In addition, not all reciprocity agreements address the “claims” aspect of compliance. In other words, the reciprocity means the employer does not have to secure “coverage” for an employee temporarily in another state; however, it does not mean that the employee could not pursue a claim in that state. If the employer was relying on the reciprocity provisions of the state law and did not secure coverage in that other state, the employer may be without coverage for that state and may also become “non-compliant” with the state and be subject to fines. The employer (or its agent) has decided to rely on the employee accepting his home state benefits. If the injured employee goes back to her home state for benefits, no harm, no foul.  However, if the employee perfects a claim in another state or in some instances simply chooses to file a claim in that state, then the employer would be considered a non-complying employer and could be subject to penalties.

Washington does not reciprocate in construction employment unless there is an agreement in place. Washington has these agreements with Oregon, Idaho, North Dakota, South Dakota, Montana, Wyoming and Nevada.

Some specifics

Massachusetts, Nevada, New Hampshire New Mexico, New York, Montana, and Wisconsin require coverage in 3.A.

Kentucky allows no exceptions for family members, temporary, part time or out-of-state employers performing any work in the state of Kentucky. Kentucky does not accept the Ohio C110 form.

New York made a significant change in its workers compensation law [Section 6 of the 2007 Reform Act (A.6163/S.3322)] that affected employers if they conducted any work in New York or employed any person whose duties involve activities that took place in New York. Effective Feb. 1, 2011, the New York board clarified coverage requirements. Detailed information can be found on the New York Workers Compensation Board’s website: http://www.wcb.ny.gov/content/main/onthejob/CoverageSituations/outOfStateEmployers.jsp

Florida, Nevada and Montana require all employers working in the construction industry to have specific coverage for their state in 3.A. Ohio and Washington require that employers purchase coverage from the state for all employers working in the construction industry. Otherwise, Florida, Nevada, Montana, Ohio and Washington will honor coverage for temporary work from other jurisdictions. Florida also requires the coverage be written with a licensed Florida carrier. 3.A. coverage status is required for any employer having three or more employees in New Mexico and Wisconsin even on a temporary basis.

The standard workers compensation policy exclusion for bodily injury occurring outside the U.S., its territories or possessions and Canada does not apply to bodily injury to a citizen or resident of the U.S. or Canada who is temporarily outside these countries. State workers compensation will apply, however, for those employers that have employees regularly traveling out of the country; the Foreign Workers Compensation and Employers Liability endorsement should be added to their workers compensation policy. This endorsement is used for U.S.-hired employees who are traveling or residing temporarily outside the U.S. The coverage is limited to 90 days. For employees out of the country for long periods or permanently, coverage needs to be arranged under an international policy.

The extraterritorial issues arise because many states — Alabama, Alaska, California, Connecticut, Delaware, Georgia, Illinois, Indiana, Iowa, Kentucky, Maine, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee and Wisconsin — permit concurrent jurisdiction between State and Longshore coverage. Some states — notably Florida, Louisiana, Maryland, Mississippi, New Jersey, Texas, Virginia and Washington —  do not permit this concurrent jurisdiction, and Longshore becomes the sole remedy. In concurrent jurisdictions, the employee can file in both state and federal court, and the employer must defend both.


  • Recognize that having employees who work, live or are temporarily traveling to or through other states creates premium and coverage challenges for employers and agents.
  • Take time to understand the rules of the state where there is potential exposure.
  • States requiring coverage in 3.A. for some or all situations tend to be strict and impose severe penalties for non-compliance. Many carriers are often aware of the challenges these states present and will work with the agent/employer and add on an “if any” exposure basis.
  • Always attempt to secure the broadest coverage possible under the workers compensation policy, adding to 3.A. as many states with even minimal exposure. As a fallback, get the state in 3.C.
  • Obtain coverage for operations in monopolistic states separately.
  • Address out-of-state exposures when insured by a state-specific state fund or regional carrier that only writes in one or a few states. Remember, the 3.C. wording is designed to pay benefits — by reimbursing the employer — if the carrier cannot pay directly to the employee.
  • Check for employees traveling out of the country and arrange to expand coverage with the foreign endorsement or through an international policy.
  • Check with a marine expert to assess the exposure to the Longshore Act and whether coverage is required.  Longshore is very employee-friendly.

The white paper on which this article was based can be found here.