Voluntary compensation insurance provides workers compensation benefits to workers who are injured on the job but aren't covered by state workers compensation laws. It is an optional coverage that can be added to a standard workers compensation policy. It protects employers from lawsuits by injured workers.
The following demonstrates what can happen when an employer hires an uninsured worker. Paula owns a small inn called Placid Pines. The inn is located on two acres of landscaped grounds, most of which Paula maintains herself. A few times a year she hires Bob to do cleanup work like raking leaves and pruning hedges. Bob is a full-time employee at a local landscaping firm and does occasional odd jobs for Paula.
One day, Bob is sawing a dead branch off a tree on Paula's property when he accidentally severs a finger. Paula rushes Bob to a hospital, where his finger is successfully reattached. Bob files a claim under Placid Pines' workers compensation policy but his claim is denied. The insurer contends that Bob isn't eligible for workers compensation benefits because he is a casual worker at the inn, not a regular employee. Bob has no health insurance and sues Placid Pines for $50,000.
Laws Don't Cover Everyone
While state workers compensation laws cover a majority of employed individuals, most have some exceptions. Many laws exclude independent contractors, domestic workers, agricultural and farm workers, and people employed on a casual or seasonal basis. Some laws also exclude taxi drivers, members of the clergy, certain salespeople, railroad workers, and masters or crew members on ships. (Railroad and ship workers are covered under federal laws.)
Some states don't require businesses to purchase workers compensation coverage if they employ less than a specified number of workers (such as 2, 3 or 4). Thus, employees of some very small companies may be uninsured.
In the Placid Pines scenario outlined above, Paula could have insured Bob for workers compensation by purchasing the Voluntary Compensation endorsement. Why should Paula spend money on insurance she isn't obligated to provide?
Voluntary Compensation coverage can head off lawsuits by injured workers. Bob sued Placid Pines because he had large medical bills and no health insurance. If Paula had voluntarily provided workers compensation benefits, Bob would have had no reason to sue Paula's business. Moreover, voluntary benefits are a gesture of goodwill. By offering these benefits, Paula would have demonstrated that she cared about Bob and was concerned about his welfare.
Covers Employees Described in the Schedule
Voluntary Compensation coverage applies to the group of workers described in the endorsement schedule. The description must be accurate to ensure workers will be covered. Two example are Casual Workers and Farm Workers.
To ensure workers are covered, be sure they are described accurately in the endorsement schedule.
Like the standard NCCI workers compensation policy, the Voluntary Compensation endorsement covers two ypes of injuries: bodily injury by accident and bodily injury by disease (including death). An injury is covered only if meets all of the following criteria:
- It's sustained by an employee included in the group described in the endorsement schedule.
- It arises out of and in the course of employment necessary or incidental to work in a state listed in the endorsement schedule. The specific state in which the workers are employed must be listed in the endorsement.
- It occurs during the policy period and takes place in the United States, its territories or possessions, or Canada. The injury may occur somewhere else (such as in a foreign country) if the employee is a U.S. or Canadian citizen temporarily away from those places (on a business trip).
An occupational disease is covered only if it is caused or aggravated by the conditions of employment. For example, if a worker contracts asbestosis, his disease will be covered only if it was caused or made worse by his work for the insured employer.
Voluntary Compensation coverage affords the same benefits workers would have received if they were subject to the state workers compensation law. For instance, if New York is listed in the endorsement, the workers will receive the benefits normally provided by New York's workers compensation law.
The endorsement provides no coverage for employees who are covered by any workers compensation law. Workers who are subject to the law don't need voluntary coverage. The endorsement also excludes any injury the employer causes to a worker intentionally.
Workers are provided benefits according to the law of the state listed in the endorsement schedule.
Release of Liability
As a condition of receiving benefits, a worker must release the employer and the insurer of all responsibility for the injury or death. In other words, the worker cannot accept benefits for an injury, and then file a lawsuit against the employer or the insurer for the same injury. The worker must also transfer to the insurer his or her rights of subrogation against anyone liable for the injury.
Finally, the Voluntary Compensation endorsement affords employers liability coverage. This coverage protects the employer if the worker declines workers compensation benefits and then sues the business for damages.