17.4 Managing Workplace Risks: Workers Compensation, Employers Liability, and EPLI

Managing Workplace Risks: Workers Compensation, Employers Liability, and EPLI

Quick Answer: Employers face two main workplace liability exposures. The first is injuries and illnesses to employees. Workers compensation laws require employers to provide statutory benefits regardless of fault, and those benefits are generally the employee's exclusive remedy. Employers liability coverage handles suits that fall outside workers compensation. The second is employment practices claims such as discrimination, harassment, and wrongful termination, which are insured under employment practices liability insurance (EPLI). CGL policies exclude both.

Workers Compensation Basics

Workers compensation is a no-fault system created by state statutes:

• Employees receive medical care, disability income, rehabilitation, and death benefits for work-related injury or disease.
• In return, the employer is generally protected from employee negligence suits. This is the exclusive remedy doctrine.
• Benefit amounts, waiting periods, and eligibility are set by each state's law.

How Employers Meet Their Obligations

• Private insurance through the voluntary market, or residual market plans for hard-to-place employers
• Competitive state funds in some states
• Monopolistic state funds in North Dakota, Ohio, Washington, and Wyoming, where private workers compensation insurance generally is not available (employers liability coverage is bought separately as "stop gap" coverage)
• Qualified self-insurance for financially strong employers, often with excess coverage

Federal Programs

• U.S. Longshore and Harbor Workers' Compensation Act for many maritime workers on or near navigable waters
• Jones Act remedies for seamen (negligence suits against employers)
• Federal Employers' Liability Act (FELA) for railroad workers
• Federal Employees' Compensation Act for federal civilian employees

The Workers Compensation and Employers Liability Policy

Standard employers liability limits:

• $100,000 bodily injury by accident, each accident
• $500,000 bodily injury by disease, policy limit
• $100,000 bodily injury by disease, each employee

Higher limits are common and are often required to schedule the policy under an umbrella.

Rating Workers Compensation

Premium is generally the classification rate per $100 of payroll, adjusted by the experience modification for eligible employers and other rating plan factors. Because payroll is estimated at inception, a premium audit after expiration sets the final premium.

Employment Practices Liability Insurance (EPLI)

Employment-related claims are excluded from the CGL (the employment-related practices exclusion) and from the employers liability part of the workers compensation policy. EPLI covers them:

• Covered wrongful acts: discrimination, harassment (including sexual harassment), wrongful termination, retaliation, failure to promote, and similar employment practices. Coverage for claims by third parties such as customers can often be added.
• Trigger: Usually claims-made, with a retroactive date.
• Defense: Often within limits (defense costs erode the limit), with a retention.
• Common exclusions: wage-and-hour law violations (sometimes with small defense-only sublimits), obligations under workers compensation or unemployment laws, ERISA, bodily injury, and contractual obligations.

Risk Control for Workplace Exposures

• Safety programs, return-to-work programs, and ergonomic reviews reduce claim frequency and duration
• Accurate classification and payroll records prevent audit surprises
• Employment practices: clear written policies, training, documented performance management, and consistent discipline

Worked Scenario: A Regional Manufacturer

A manufacturer with plants in Ohio and Indiana:

1. Ohio employees: Workers compensation is purchased from the Ohio monopolistic state fund. The employer buys stop gap employers liability separately.
2. Indiana employees: A private workers compensation and employers liability policy, with Indiana listed in Item 3.A.
3. Expansion into Kentucky next year: List Kentucky in Item 3.C for other states coverage, and add it to 3.A when operations begin.
4. A terminated supervisor alleges age discrimination: This is not covered by workers compensation or the CGL. It is covered by EPLI if the claim is first made during the policy period and after the retroactive date.

Common Traps

• Treating employers liability as optional: Part Two covers suits outside workers compensation, such as third-party-over actions, and umbrellas usually require specific underlying employers liability limits.
• Forgetting Item 3.C: Other states insurance applies only to states listed there, so expansion plans matter.
• Assuming workers compensation covers employment practices: Discrimination and harassment claims need EPLI.
• Ignoring claims-made details: EPLI retroactive dates and reporting requirements determine whether a claim is covered.