13.5 Workers Comp Exclusions and Endorsements
Key Takeaways
- Part Two excludes liability assumed by contract, fines/penalties for statutory violations, intentional injury caused by the employer, and obligations under unemployment, disability-benefit, and OSHA laws.
- Punitive damages from employing a worker in violation of law and injury to illegally employed workers are excluded.
- The Voluntary Compensation Endorsement extends benefits to workers (e.g., farm or domestic labor) not required to be covered by statute.
- Foreign voluntary, sole proprietor/partner inclusion, and waiver of subrogation endorsements tailor the policy to specific exposures.
- The insurer retains subrogation rights against negligent third parties; a Waiver of Subrogation endorsement is needed before a contract can require giving up that right.
Where the Exclusions Live
Part One has essentially no exclusions — it simply pays whatever the statute requires. The meaningful exclusions are in Part Two (Employers Liability), because Part Two is true liability insurance. The policy will not pay under Part Two for:
- Liability assumed under a contract (a hold-harmless agreement)
- Fines or penalties for violation of state or federal law
- Bodily injury intentionally caused or aggravated by the employer
- Damages from employment in violation of law (illegal/underage workers) and the punitive damages that flow from it
- Liability under unemployment, disability-benefit, or similar laws
- OSHA and similar statutory penalty obligations
- Injury occurring outside the United States, its territories, or Canada (unless on temporary work assignment)
Two Frequently Tested Exclusions
Illegally employed workers. If the employer hired a minor in violation of child-labor law and that worker is injured, Part Two does not cover the resulting damages or any punitive award. Note that many states still force Part One statutory benefits to be paid (often at increased amounts) — the liability coverage is what is excluded.
Intentional acts. If the employer deliberately injures a worker, Part Two does not respond. This dovetails with the exclusive-remedy escape: intentional employer conduct both strips the exclusive-remedy shield and is excluded from coverage.
Trap: Statutory penalty increases for safety violations are not insurable; the employer pays those personally.
An employer is fined $40,000 by OSHA for a willful safety violation and, in the same incident, faces a covered employers liability suit. What does the workers comp policy pay?
Voluntary Compensation Endorsement
Some workers are not required to be covered by the state act — common examples are farm laborers, domestic/household workers, and very small employers below the statutory employee threshold. If such a worker is injured, they could sue the employer in tort because the exclusive-remedy bargain never attached.
The Voluntary Compensation Endorsement has the insurer offer the injured worker statutory-equivalent benefits as if the act applied. If the worker accepts the benefits, they release the employer; if they reject and sue, Part Two responds to the tort claim. This converts an uninsured tort exposure into a predictable benefit.
Inclusion and Coverage-Expanding Endorsements
- Sole Proprietors, Partners, Officers, and Others Coverage Endorsement — brings owners/partners (normally excluded) into coverage at a state-set payroll figure.
- Foreign Voluntary Compensation — covers employees temporarily working outside the U.S./Canada, closing the territorial exclusion, and typically adds repatriation and endemic-disease benefits.
- Longshore (WC 00 01 06 A) / Maritime / FELA endorsements — add the federal acts covered in 13.4.
- Designated Workplaces / Additional States — update Item 3.A or 3.C mid-term.
Subrogation and the Waiver of Subrogation
When a negligent third party causes a worker's injury, the insurer pays benefits and then subrogates — it steps into the worker's shoes to recover from that third party. Subrogation keeps premiums down by shifting cost to the true wrongdoer.
Contracts (construction agreements, leases) often require an employer to waive its insurer's subrogation rights against the other party. The insurer must consent in advance through a Waiver of Our Right to Recover From Others Endorsement (WC 00 03 13), which may be specific (one named party) or blanket (any party the insured contracts with). A small additional premium usually applies.
Specific vs Blanket Waivers and Cancellation
A specific waiver of subrogation names one party and is rated by the payroll attributable to that job; a blanket waiver applies to anyone the insured is contractually required to waive against and carries a percentage surcharge on total premium. Construction owners frequently demand blanket waivers, so producers should price them at quote rather than discover them at audit.
Finally, note cancellation and nonrenewal rules: workers comp policies are heavily regulated, and the insurer generally must give written notice (often 10 days for nonpayment, 30 or more otherwise) and may have to notify the state rating bureau. Because comp is compulsory, a lapse can expose the employer to direct statutory liability and penalties, making timely renewal a core service duty.
A general contractor's contract requires the subcontractor's workers comp insurer to give up its right to recover from the general contractor after paying a claim. What is needed to satisfy this contract term?