Avoiding Liability Exposures Across State Lines

 A common error employers may make is purchasing workers’ compensation coverage in one state, when employees are working and/or living in a different state. This creates a liability exposure where the policy you buy might not have coverage for claims brought on by those employees. In most cases, the states are the same across the three, but professional firefighting contractors are routinely in a more complex scenario.

For example, a CALFIRE hired equipment vendor’s employee’s work is based in the state of California, he lives in California, and he was injured on a fire in California. In this scenario, the injured employee’s only option is to pursue a lawsuit in California. Consider, however, this alternative scenario for out-of-state VIPR contractors: The employee’s work is mostly in California, she lives in Nevada, and she is injured in New Mexico.

In this scenario, the employee can bring a lawsuit against the employer in any one of those three states. Does your policy cover all three states? Unless your purchased policy specifically lists all three states, you could be at risk of having gaps in coverage.

What Does The Policy Say? The Workers’ Compensation Policy is binding on the State(s) listed in the Policy. Each state has specific language about what a policy is intended to cover, or not to cover. The first question that should always be asked is whether or not the states listed on your workers’ compensation policy are competent over your employees. Is an employee’s workplace predominantly located in a state(s) listed in the policy?

Where is the employee physically located at the time of acceptance of employment? Where did the employee reside? This is where things get complicated: If an employer has a physical presence in several states, what is the location where employees mostly work? Most states consider the location where employees routinely work, live, and/or spend a significant portion of their working hours to be their principal location. If that location is not located in the state listed on your workers’ compensation policy, you might be in trouble.

For example, a policy that covers workers in California cannot cover a Nevada resident, unless the employee’s work is mostly localized to California, but this is not always a given. A California policy is intended to provide coverage to residents of the State of California who predominately work in California.

Now, let us throw another wrinkle into this. Most states will have an extra-territorial provision to cover workers’ injuries that happen beyond a state’s borders, per initial state policy. For example, a California firefighter goes to Oregon and is injured on a fire in Oregon. That employee is still entitled to benefits provided by the California policy, and injuries like this are an incidental matter of the California policy.

However, most policies will only provide this type of coverage for a limited time while the worker is temporarily located elsewhere. In most cases, that is 30 days, but not always. Employers that have firefighters outside of their home state for longer than that time period must buy separate workers’ compensation policies covering the employment within that state if possible.

To make it more complicated, most states have a designated insurance risk pool marketplace for employers that cannot buy their workers’ compensation insurance in the private marketplace. For-profit firefighting companies usually end up purchasing coverage from these risk pools. While the Assigned Risk Pool market in and of itself can be a topic for a whole post, for the purposes of this post, it is important to know that these policies are designed only to provide coverage for employees in a single state. In addition to the question of jurisdiction, the courts have held in California that the Risk Pool carriers pay benefits only to employees within the state of California. An employer can be responsible for benefits paid in other states to the extent that these benefits exceed those paid in California, and only to employees who have a claimant who is covered by the California coverage.

Which states(s) would need to be listed? We have mentioned before that the employee may elect to have his or her claims filed in any one of the three possible states.

This is a potential conflict between what a policy may cover, and what an employer might owe its employees. The reason why the employee might choose to get benefits from a different state is because the new state might have higher benefits than the state issuing the original policy. In such cases, the original policy can only pay benefits from the original state(s) listed on the policy. Benefits outside the initial policy are the employer’s responsibility to pay.

The workplace environment changes over time, creating new challenges that claim officers must address. No longer is an employee locked in a job each and every day in a single place. This presents new challenges as to where the employee’s job is predominantly located.

It is possible for a worker hired from a different state, to reside in that state, work remotely from that state, and suffer a personal injury while working there. In that scenario, an employer would probably have to purchase insurance for employees who might get injured in this new state. The main place where an employee works is a major standard.

As a practical matter, this means an employer would require a new workers’ compensation policy if an employee was initially hired in one state, but moved to a different state for full-time employment. Even just trying to include each state on a policy is not the answer in all states: North Dakota, Ohio, Washington, Wyoming, Puerto Rico, and the US Virgin Islands are all monopoly states, meaning that you cannot purchase insurance in a private marketplace. You need to purchase a separate policy if you have employees in those states.

Most states have assigned risk pools, which are designed only to offer coverage in a single jurisdiction. These products are not designed to provide benefits beyond pooled policy jurisdiction. An assigned-risk pool policy can cover employees out-of-state for limited periods on a work-related basis, but most often those benefits are limited to the home state where the original policy was issued. Asserting that an injured employee is a member of the State that issued the policy is also crucial, as employees who are covered by jurisdictions other than an assigned pool State will not be covered by these types of products.

An important fact employers need to keep in mind is that, no matter if the coverage in their policy covers employees who are located out-of-state, employers are always responsible for paying whatever claims an employee is entitled to under the workers’ compensation laws for each state. Buying a workers’ compensation policy merely shifts this liability onto another party–the insurance company–but workers’ compensation policies are limited in the scope of the liability they can assume. This applies to all workplace injuries, whether covered under an association policy or standard workers’ compensation. Again: employers are always responsible for making sure that they have sufficient insurance.

You will notice that we did not address an issue that factors into whether or not a claim is compensable. Compensability is the term for whether an employee’s injuries are related to his or her job. Determining whether or not you have covered compensation is a task that depends on the specific state, looking at both the statutes within the state as well as the case law, in order to identify what is covered. This Article is not intended to answer questions about compensability–that is an entirely separate subject that should be addressed on its own merits.

Another very important caveat is that claims in different states are very fact-dependent, and one small detail can make a big difference in whether a policy provides insurance coverage or not. Because of that fact, this blog post is not intended to be a comprehensive solution for a challenge that you might face in managing multi-jurisdictional claims on behalf of your employees.

These situations will require the services of an experienced professional, such as your insurance broker, underwriter, or claims manager. These individuals know both the coverage and the jurisdictional issues within your state. As an employer, you probably know if you have employees who travel across state lines.

Many states have a fund for uninsured employers, which are designed to protect an injured employee if an employer has gaps in coverage. This fund does not shield employers from liability, however, since most of these funds are authorized to take any payments directly from employers. California law specifically provides personal liability to business officers.

If you actually have employees who travel across state lines, you are strongly advised to look again to see whether your policies cover the potential liability. Take a look at Sections 3A and 3C of your workers’ compensation policy to see which states were identified as providing coverage through your policy. If you have employees who perform employment-related activities or who reside in states that are not listed on your policies 3A and 3C, you may have gaps in your coverage that should be reviewed with your agent or another insurance professional.