13.5 Workers Comp Exclusions and Endorsements
Key Takeaways
- Part One has very few exclusions because benefits are statutory; the real claim bars are statutory: intoxication as the proximate cause, intentional self-inflicted injury, and injuries during initiated horseplay or a fight the worker started
- Part Two (employers liability) excludes contractually assumed liability, punitive damages for illegal employment, statutory penalties for serious-and-willful misconduct, and intentionally caused injury
- Key endorsements: Voluntary Compensation (covers workers not subject to the act, e.g., farm/domestic), USL&H (WC 00 01 06), Foreign Voluntary Compensation, and the Waiver of Subrogation endorsement
- The Sole Proprietors/Partners/Officers endorsement elects to INCLUDE or EXCLUDE owners; many states let officers opt out to lower premium, but they then have no benefits
- An employee leasing/PEO or alternate-employer endorsement, and the designated-workplace exclusion, address who and where coverage attaches
Why Part One Has Few Exclusions
Because Part One simply pays what the statute requires, the policy itself excludes little; what limits a claim are the statutory misconduct bars the act imposes. Memorize the short list:
| Statutory Bar | Explanation |
|---|---|
| Intoxication as proximate cause | Injury caused by the worker's alcohol/drug intoxication |
| Intentional self-inflicted injury | The worker deliberately caused the harm (including suicide attempts) |
| Initiated horseplay | The injured worker started the horseplay (a non-aggressor victim is still covered) |
| Aggressor in a fight | The worker who started the altercation |
| Violation of law / failure to use safety device | Some states reduce, not eliminate, benefits |
Trap: A bystander hurt by a co-worker's horseplay is covered; only the initiator is barred. Likewise, the worker who did not start the fight is covered.
Part Two Exclusions
Employers liability (Part Two) is a true liability coverage and therefore lists exclusions resembling other liability forms:
- Liability assumed under contract (hold-harmless agreements).
- Punitive or exemplary damages arising from employing a worker in violation of law (e.g., illegally employed minors).
- Statutory penalties for the employer's serious-and-willful misconduct.
- Intentionally caused bodily injury.
- Obligations already payable as workers' compensation under Part One, or under unemployment/disability-benefit laws.
- Injury to a worker knowingly employed in violation of law and injury occurring outside the United States, Canada, and named territories (which is where Foreign Voluntary Compensation steps in).
The Endorsement Toolkit
| Endorsement | What It Does |
|---|---|
| Voluntary Compensation | Provides comp-style benefits to workers not subject to the act (farm labor, domestics) so they take benefits instead of suing |
| USL&H (WC 00 01 06) | Extends Part One to longshore/harbor workers under the federal act |
| Foreign Voluntary Compensation | Covers employees working outside the U.S./Canada, often with repatriation and endemic-disease coverage |
| Waiver of Subrogation | Insurer gives up its recovery right against a named party (often required by a customer contract); usually carries an added premium charge |
| Sole Proprietors, Partners, Officers | Elects to include or exclude owners/officers from coverage |
| Alternate Employer / Employee Leasing (PEO) | Addresses coverage where a leasing firm or labor contractor supplies workers |
| Designated Workplaces Exclusion | Limits coverage to specified locations |
Owner Inclusion/Exclusion and Premium
In most states, sole proprietors, partners, and corporate officers are presumed included or excluded by statute, with an election available on the Sole Proprietors/Partners/Officers endorsement.
- Excluding an officer removes their payroll from the premium base, lowering cost, but the officer then has no workers' comp benefits and must rely on health/disability insurance.
- Including an officer adds payroll (often capped at a statutory minimum/maximum officer wage) and provides benefits.
Worked Example: A corporation excludes two officers earning $150,000 each. If their class rate is $1.50 per $100, excluding $300,000 of payroll saves (300,000/100) x 1.50 = $4,500 in manual premium — but neither officer would collect a comp benefit for a job injury. This trade-off (lower premium vs. lost benefits) is a favorite exam scenario.
During a shift, Worker A starts horseplay by throwing an object; it ricochets and injures Worker B, an innocent bystander. How does workers' compensation respond?
A corporation's two officers each earn $120,000 in a class rated $1.20 per $100 of payroll. The corporation files the officer-exclusion election. Approximately how much manual premium is saved, and what is the trade-off?
Why Part One Is Nearly Absolute
Part One has very few exclusions because the insurer simply promises to pay whatever the state statute requires — it cannot contract around the law. Coverage is no-fault, so even an injured worker's own negligence, horseplay (if within the course of employment), or violation of a safety rule does not bar benefits. The narrow Part One exclusions involve conduct outside the statute: injuries the employer caused by serious and willful misconduct, certain intentional acts, and obligations the employer assumed by contract. The exam often offers 'employee was careless' as a tempting but wrong denial reason.
Part Two Exclusions and the Endorsement Toolkit
Part Two excludes: liability assumed under contract; punitive damages for employing someone in violation of law; injury to an employee knowingly employed in violation of law; injury intentionally caused by the employer; and obligations under comp, disability, or similar laws (those are Part One). Key endorsements broaden territory and scope: Voluntary Compensation (extends benefits to workers not subject to comp, like farm or domestic labor), Foreign Voluntary (overseas employees), USL&H, Maritime/Jones Act, and the Sole Proprietors, Partners, Officers, and Others endorsement that includes or excludes owners.
Owner Inclusion/Exclusion and Premium Effect
Many states let sole proprietors, partners, LLC members, and corporate officers elect to include or exclude themselves from coverage. Including an owner adds their payroll (subject to a state-set minimum/maximum payroll for owners) to the premium base; excluding them removes that payroll but leaves the owner without comp benefits. Worked: a corporation's two officers each earn $120,000 in a class rated $1.20 per $100, but the state caps officer payroll at $60,000 each for rating — premium uses $60,000 × 2 = $120,000 × ($1.20/$100) = $1,440 for the officers, not the full salaries.
Voluntary Compensation Endorsement Mechanics
The Voluntary Compensation endorsement covers employees not subject to the workers compensation law (farm labor, domestic workers, casual employees) by offering them statutory-style benefits as if they were covered, in exchange for a release. If the worker rejects the offered benefits and sues instead, the claim shifts to Part Two Employers Liability. This endorsement prevents an uncovered worker from being left without remedy and protects the employer from an uninsured tort suit. The exam tests that exempt workers are reached by endorsement, not by the base Part One coverage.