Quick History LessonHold onto your glasses, we’re going to nerd-out here for a minute. The early days of the American industrial revolution were a tough time to be employed. People worked long hours in rough conditions. The machines built to create efficiencies, were also built to grind up fingers and limbs. There was no safety net for employees (literally or figuratively). If you were hurt and couldn’t work, you just couldn’t work and you and your family likely suffered.
If we step into our Way Back Machine for a bit, we see the earliest traces of some kind of workers' compensation were in ancient civilizations where a lost or damaged body part simply had a monetary value to be paid. This wasn’t perfect, obviously - who decides that a thumb is worth more pieces of silver than an index finger? Left foot, right foot? As we fast forward, not much changed in a few thousand years, and in fact, things got worse, but then the Chancellor of the German Empire, Otto von Bismarck, came up with Workers’ Accident Insurance in 1884, and then we really got the ball rolling.
Here in the States, we weren’t so quick. It wasn’t until 1911 when, you guessed it, Wisconsin passed the first comprehensive workers’ compensation laws. It was a priority for Wisconsin as cheese injuries were particularly gruesome (we can’t back that up, but you can imagine it was no gouda). The other states followed suit with laws requiring and outlining Workers' Compensation regulation with Mississippi being the last to jump onboard a mere 50 years later.
Workers' Comp CoverageInsurance is the last great federalist system we have, and as such there are 50 different jurisdictions, rules, and court precedents. There are actually more when we get to DC and the territories. It's created an interesting history, with many states running state-sponsored “funds” to aid companies in finding insurance, others letting the free market do its thing, and four even requiring that the state option be the only option. As with everything, there are pros and cons to each of the set-ups, but this presents problems for companies working over state lines, and with employees living in different geographies.
The basic premise of Workers' Compensation insurance remains relatively consistent. It’s generally a requirement of doing business in every state (but not Texas). The specifics on pricing, classifications, and even requirements on how many employees you have to have before it's required can be very different. The thing to remember about whether or not you are required to have a workers' compensation policy is that even if you aren’t required, you are still liable. Medical bills for hurt employees can add up. The premium paid for Workers' Compensation insurance is always pretty cheap relative to something like paying for long-term permanent disability care for someone seriously injured.
Two Parts of a PolicyGenerally, there are two parts to what we call a Workers' Compensation policy. The first is the workers' compensation coverage itself. This part doesn’t have a dollar limit on coverage, and is instead usually dictated by the statutory requirements of the state you are operating in. This is the part that will cover injuries, medical treatments, long-term care, or even death benefits for people injured on the job.
The second part, Employers Liability Insurance, is a little different and does carry a coverage limit. It's also not quite as straightforward, so stay with us here for a minute: If you buy a Work Comp policy with “$1,000,000 Limits” the limit is referring to the Employers Liability. This part of the policy will cover you if you are sued by an employee for an injury or illness that isn’t subject to the state statutory limits. It also comes into play with third parties. If your employee is injured by a piece of equipment and sues the manufacturer, the manufacturer could then come back to the employer if they felt the injury was really a result of improper maintenance or use. Another way this coverage could come into play is in the event that a spouse of an injured worker sued you for loss of consortium, which means that the injury has harmed their relationship somehow.
It should be noted that the vast majority of Workers' Comp claims never involve Employers Liability and instead focus on the rehabilitation of injured workers, but it’s important to consider because if you find yourself heading down that road, it can be very expensive and distracting to your business.