3.3 Texas Workers' Compensation Insurance

The Nonsubscriber Rule: Texas Is Unique

The most heavily tested fact in Texas casualty law is simple: Texas is the only state where workers' compensation is generally OPTIONAL for private employers. Most states make coverage compulsory above a small head-count. Texas instead lets a private employer choose whether to carry it.

• An employer who buys workers' compensation is a subscriber.
• An employer who declines is a nonsubscriber (also called "opting out").

The optional rule applies to private employers. The exam expects you to know the key exceptions: governmental entities and public employers - state agencies, counties, cities, and public schools - generally must provide coverage, and building/construction contractors on certain public (governmental) projects can be required by contract to carry it. So the clean exam answer is: private employers may opt out; many public employers and certain government contractors may not.

The trade-off behind the system

Workers' compensation is a historic bargain. The employee gives up the right to sue for negligence in exchange for prompt, no-fault benefits; the employer gains immunity from most injury lawsuits and predictable costs. A subscriber sits inside this bargain. A nonsubscriber steps outside it - and that is where the exposure begins.

Exam tip: When a question says an employer "does not carry workers' compensation" in Texas, it is a nonsubscriber - and the next thing tested is almost always the lost common-law defenses.

Consequences for Nonsubscribers

Because the nonsubscriber leaves the statutory bargain, the law strips away the defenses that historically shielded employers. In a negligence suit by an injured worker, a nonsubscriber cannot assert:

1. Contributory negligence - it cannot blame the employee's own carelessness to defeat the claim.
2. Assumption of risk - it cannot argue the worker knew the job was dangerous and accepted it.
3. Fellow-servant rule - it cannot escape liability by showing a coworker caused the injury.

With these defenses gone, the worker need only prove the employer was even slightly negligent to win, and damages are not capped the way statutory benefits are - they can include pain and suffering and other tort damages a subscriber would never owe. That is the core risk of going bare.

Compliance duties of a nonsubscriber

Opting out is not silent. A nonsubscriber must still interact with the Division of Workers' Compensation (DWC):

• File an annual notice of nonsubscriber status with the DWC (the DWC Form-005).
• Post and provide written notice to employees that the employer does not have workers' compensation.
• Report certain workplace injuries, illnesses, and fatalities to the DWC as required.
• Many nonsubscribers buy occupational accident or nonsubscriber liability coverage to fund medical bills and defend lawsuits - this is private insurance, not statutory workers' comp.

Regulation, Coverage Options, and Subscriber Benefits

The Texas Department of Insurance, Division of Workers' Compensation (DWC) administers the system - resolving disputes, certifying self-insurers, and overseeing compliance. A subscribing employer can obtain coverage by buying from an admitted insurer, from Texas Mutual Insurance Company (the largest writer and the guaranteed-issue insurer of last resort - important: it is a private company, not a state fund), or, for large or grouped employers, through certified self-insurance approved by the DWC.

For subscribers, benefits are no-fault and paid regardless of who caused the injury, after a 7-day waiting period for income benefits:

Rates for workers' comp fall under TDI's file-and-use framework, and an employer's experience modifier raises or lowers premium based on its own loss history - rewarding safety. The recurring exam contrast is subscriber = capped, no-fault benefits + lawsuit immunity versus nonsubscriber = no premium but unlimited negligence exposure and no common-law defenses.

Who Is Covered and How Disputes Are Resolved

Workers' compensation responds to injuries arising out of and in the course of employment - including occupational diseases caused by job exposure. It does not cover routine off-the-job injuries, and it generally excludes harm from the worker's intoxication, self-inflicted injury, horseplay, or a third party's act aimed at the worker for personal reasons. The exam tests this "arising out of employment" boundary with scenarios that look work-related but are not.

Statutory employees differ from independent contractors: a true independent contractor is generally not the employer's covered employee, which is why classification disputes arise. Texas also coordinates coverage on multi-employer construction projects, where a general contractor can extend its policy to subcontractors.

Coverage gaps the WC policy does not fill

• Federal workers and certain maritime/railroad employees fall under separate federal acts (FELA, the Jones Act, the Longshore and Harbor Workers' Compensation Act), not Texas WC.
• Employer's Liability (Part Two) of the WC policy covers suits that fall outside statutory benefits - useful precisely because a subscriber's immunity is broad but not absolute.

When a benefit dispute arises, the DWC runs a structured process - a benefit review conference, then a contested case hearing, then appeals panel review, before any court action. This administrative path, not a jury trial, is how subscriber claims are decided, which is part of the predictability employers buy when they subscribe.