13.4 Other States, USL&H, and Federal Acts

Controlling Coverage Territory

The Information Page controls where Part One applies:

• Item 3.A lists states where the policy provides full statutory workers compensation on day one.
• Item 3.C lists states for Part Three — Other States Insurance, which responds if the insured begins operations in those states during the term.

Exam trap: if a business opens in a state listed in neither 3.A nor 3.C, there is a coverage gap. Producers often enter "all states except 3.A and monopolistic" in 3.C to avoid that gap.

Monopolistic State Funds

A few states require employers to buy workers comp from a monopolistic state fund rather than a private insurer. The traditional examples are North Dakota, Ohio, Washington, and Wyoming.

In those states the standard NCCI policy cannot provide Part One. Employers instead obtain a stop-gap endorsement on their general liability or comp policy to add employers liability coverage, because the state fund provides statutory benefits but not the Part Two tort protection.

Maritime Exposures

Maritime workers fall outside ordinary state comp:

The U.S. Longshore and Harbor Workers Compensation Act (USL&H) is added by the Longshore and Harbor Workers Compensation Act Coverage Endorsement (WC 00 01 06 A). The Jones Act (Merchant Marine Act) covers seamen and is added by the Maritime Coverage Endorsement.

Other Federal Acts

• Federal Employers Liability Act (FELA) — interstate railroad workers; like the Jones Act, it is a fault-based negligence remedy, not no-fault comp.
• Federal Employees Compensation Act (FECA) — civilian U.S. government employees.
• Defense Base Act — workers on overseas U.S. military bases.

Exam trap: USL&H and FECA are no-fault like state comp, while the Jones Act and FELA are negligence (fault-based) remedies — the worker must prove employer negligence. This fault distinction is a frequent test point.

Assigned Risk Plans and Second Injury Funds

An employer rejected by the voluntary market obtains coverage through the state's assigned risk plan (the residual market), which assigns the risk to a participating insurer or a servicing carrier. Premiums there are higher and credits limited.

Many states maintain a Second Injury Fund (subsequent injury fund). It encourages employers to hire workers with a pre-existing impairment: if a new work injury combines with that prior condition to cause greater disability, the fund pays the excess beyond what the second injury alone would have caused. This protects the employer's loss experience and removes a disincentive to hiring.

Mapping a Worker to the Correct System

The exam's favorite workers-comp synthesis question gives a worker and asks which law governs and whether it is no-fault or fault-based:

The decisive contrast: Jones Act and FELA require proving employer negligence (they are tort remedies dressed as worker protections), while USL&H, FECA, and state comp are no-fault. This fault/no-fault split is tested almost every exam.

Monopolistic States and the Stop-Gap Fix

In monopolistic state fund states — North Dakota, Ohio, Washington, and Wyoming — employers must buy Part One benefits from the state fund; a private NCCI Part One is unavailable. Because the state fund supplies statutory benefits but not Part Two employers liability, the employer adds stop-gap (employers liability) coverage by endorsement to its CGL policy to cover tort suits (third-party-over, consortium, dual-capacity).

Worked Wyoming relevance: a Wyoming employer obtains comp benefits through the Wyoming state fund, then buys stop-gap employers liability on its general liability policy to fill the Part Two gap. Exam trap: Item 3.C (Other States Insurance) of the standard policy cannot be used to cover a monopolistic state — a private insurer simply cannot write Part One there, so the stop-gap/state-fund route is mandatory. A worker starting operations in a state listed in neither 3.A nor 3.C creates an uninsured gap, which is why producers list "all states except those in 3.A and monopolistic funds" in 3.C.

Residual Market and Second Injury Funds in Practice

Employers rejected by the voluntary market obtain comp through the state's assigned risk plan (residual market). The plan assigns the risk to a participating insurer or a servicing carrier; rates are higher and schedule credits are restricted, creating an incentive to improve safety and re-enter the voluntary market.

A Second Injury Fund (subsequent injury fund) removes a disincentive to hiring impaired workers. If a new work injury combines with a pre-existing impairment to produce a greater disability than the second injury alone would cause, the employer's insurer pays only for the second injury, and the fund pays the excess. This protects the employer's experience mod and supports hiring veterans and previously injured workers.

Worked example: a worker who had previously lost vision in one eye loses vision in the other eye in a workplace accident, resulting in total blindness (permanent total disability). The insurer pays as if only the second eye were lost; the Second Injury Fund funds the difference up to permanent-total benefits.

Synthesizing the Federal/Maritime Map

A reliable exam strategy: first ask "is this a no-fault benefit system or a fault-based negligence suit?"

• No-fault benefit systems: state comp, USL&H, FECA, Defense Base Act (extends USL&H), Black Lung (coal miners).
• Fault-based (must prove employer negligence): Jones Act (seamen) and FELA (railroad).

Wyoming relevance recap: Wyoming is a monopolistic state fund state (with ND, OH, WA). Part One comes from the state fund; the employer adds stop-gap employers liability on its CGL for Part Two tort exposure, and Item 3.C cannot extend a private policy into Wyoming for statutory comp. A worker beginning operations in a state listed in neither 3.A nor 3.C is uninsured — the reason producers broadly complete 3.C "all states except 3.A and monopolistic funds."