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Workers’ compensation: an employer’s best form of insurance or a money pit?
Jim Juliano - Fall 2007

Workers’ compensation insurance may be an employer’s best insurance policy or a deep, dark money pit, depending on how the employer handles claims.

In one form or another, your state law requires an insurance plan for injured employees through a state fund or through private insurance. State laws vary greatly as to a number of procedural and financial approaches, but the common ground is the protection of employees from the financial hardships of work-related injuries.

This system protects both the employer and the employee. The employer does not have to worry about a direct suit by the employee for a work-related injury. The employee knows that he or she has a fund for recovery from an injury.

As a general principle, a worker and his family can benefit from workers’ compensation coverage for a work-related injury, regardless of the cause.

Not so in a typical negligence claim that arises outside of employment, such as an auto accident, where one element that must be proved is a cause-and-effect connection between the negligence and the injury. A defense may be raised relating to an intervening or a contributory cause or comparative negligence by the injured party. Another typical defense is assumption of the risk by the injured party.

In workers’ compensation law, these cause-and-effect defenses do not enter into the equation, unless the employee somehow acts recklessly or willfully in causing his own injury, a rare event. In other words, it does not matter who was at fault or why—it doesn’t even matter if no one was negligent. The employee has insurance coverage through state regulations for medical bills, lost wages and disability.

The statutes and regulations provide schedules of remedies for different situations and injuries.

Employers should keep in mind two key points.

First, every employer should comply with state law and enroll in the program. Failure to enroll may result in expensive remedies, perhaps even individual liability. Workers’ compensation premiums are a cost of doing business.

Second, the employer should not ignore claims. He or she should review every claim and initially answer three basic questions: Did the employee suffer an injury? What exactly was it? Did the injury happen within the scope of employment?

Workers’ compensation insurance acts the same as any other insurance: The greater the number of claims and the cost (the “experience”), the higher the premiums will rise.

Depending on the terms of the workers’ compensation plan itself and the experience, the employer may be on the hook dollar for dollar for a claim.

The risk of ignoring a claim is getting a bad surprise later. Suppose the employee claims he or she suffered a backache while getting out of a car in the company parking lot. The employee does not submit an injury report as required by the employee handbook. The medical treatment is minimal—one trip to the chiropractor and one sick day off.

At first review, the employer may let this claim slide through the system because it appears to be quite benign and inexpensive. The employer ignores the legal issue of whether the injury happened within the scope of employment (that is, was the employee on duty at the time?). The employer also ignores the employee’s own violation of the rule to submit an injury report, a violation that may have a great impact on the question of allowing the claim.

The bad surprise comes when, a year later, the employee files a claim for an additional allowance for a protruding disk that was caused by the parking lot event, accompanied by a medical report that recommends a $40,000 surgery and 10 weeks of paid disability leave.

It is too late to raise the scope of employment and injury report issues, and the employer is left with the typical battle of the medical experts as to the cause and extent of the injury—one says the injury relates to the initial event, the other says no. It’s going to cost money to defend the claim, and the risk of loss may lead to a decision to settle the case.

The ounce of prevention that may diminish this risk is the close monitoring of each claim, regardless of how minor it may seem, especially when the claim might lead to a medical problem down the road.

If the employer is diligent about these claim reviews, then workers’ compensation may be the best insurance policy ever. If not, then the costs may slowly but surely rise, and, when it is too late, the employer may face a much more costly situation.

 

 

 
 
 
 
 

This website contains general information that should not be considered legal advice or legal opinion concerning individual situations. Legal counsel should be consulted for specific advice.

Copyright 2007 by L. James Juliano Jr.
Legally Speaking® is a registered trademark of the law practice of L. James Juliano Jr.