Taking Workers' Comp on the Road

by Peter Schlactus, CIC, AAI                [ Back To Table of Contents ]

T ransportation companies have special reason to worry about out-of-state injuries to their workers. First, you have 
to worry about your drivers getting into accidents "across the border" (in addition to employees making sales calls, 
commuting and attending trade shows out of state).

Second, transportation companies often have a hard time obtaining what are normally straight-forward solutions to 
protecting against this out-of-state risk.

This article will explain why out-of-state worker injuries pose a serious problem. It will then present the available 
solutions and discuss the challenges of obtaining them for your business.

A Note on Independent Contractors 

Those of you who utilize independent contractors, rather than employee drivers, may be tempted to skip this article. 
You should review the following excerpt from New York's Workers' Compensation Manual, which is typical of 
most states' regulations:

[You] shall furnish satisfactory evidence that the subcontractor had workers' compensation insurance in 
force. ..If vehicles with drivers...are engaged under contract and the owner of such vehicles has not furnished 
evidence that the workers' compensation obligation has been insured, the total payroll [or total contract price]
...shall be included...

The lesson is this: just because a driver is an independent subcontractor, you may not simply ignore or avoid workers' 
compensation.

The Problem

Workers' compensation was designed primarily to provide workers injured in a business's base state with that state's 
statutory benefits. It will also provide the base state's benefits to workers temporarily engaged in another state. For 
example, if your business has an office in Illinois and a driver travels to Wisconsin and gets into an accident, the Illinois-
based driver can still collect Illinois workers' compensation benefits.

So far, so good. The problem is that each state's laws and benefits are different. The driver's work in Wisconsin, may 
actually be sufficient to hold you responsible under Wisconsin's workers' compensation laws. If the other state's benefits 
are more generous than yours, the driver might choose to file a claim there.

Unless your workers' compensation policy gave "Other States" coverage you could end up having to compensate 
the injured driver yourself for the other state's benefits, or at least for the difference between the benefits paid by the 
other state and your own. In addition, the other state could fine you for not having workers' compensation (the fine in 
Connecticut, for instance, is $10,000).

Clearly, the consequences of not properly protecting yourself against drivers' out-of-state injuries can be severe.

Solutions

Transportation companies have three options for obtaining Other States workers' compensation coverage. The first 
two involve naming other states on the "Information Page" of your workers' compensation policy.

The Information Page has two places to list states where coverage applies. Normally, Other States coverage is 
triggered by listing one or more states in Item 3C of your policy's Information Page. This will guarantee coverage 
(under the other state's laws) should one of your workers get injured in a named state. And the coverage is free!

NOTE: You may not have permanent, ongoing operations in the states listed in Item 3C. Report all of your offices 
to your agent to ensure that you are covered.

One option is to list surrounding states individually in Item 3C. All states where a risk may develop should be listed. 
A better alternative is to use a formula such as "All states except [monopolistic states]." This phrase neatly provides 
incidental coverage in all but six states.

You cannot purchase workers' compensation from a private insurer in the six "monopolistic" states (Nevada, North 
Dakota, Ohio, Washington, West Virginia and Wyoming). The states' laws do not allow it.

                                                                        Types of Coverages

Loss Scenarios

Base Sate Named
on Policy Info. Page

Nearby States Listed
on Policy Info. Page
"All States Except..."
on Policy Info. Page
Stop-Gap Employers
Liability
Worker hurt in
Base State
Covered n/a n/a n/a
Worker hurt:
Nearby State
Base State
Benefits Only
Covered If Listed Covered unless
Monopoly State
n/a
Worker hurt:
Other State
Base State
Benefits Only
Base State
Benefits Only
Covered unless
Monopoly State
n/a
Worker hurt:
Monopoly State
Base State
Benefits Only
n/a n/a Covered

Does that mean you have to buy coverage from, say, Nevada's State Fund before you let your drivers cross the border? That's one
way, but not the only one. Most commercial insurers offer a special amendment, called Stop Gap Employers Liability coverage. It's 
not quite workers' compensation, but it does cover your liability for workers injured in a monopolistic state.

The table on page 28 lists the different kinds of out-of-state losses and the workers' compensation solutions that can protect you 
from them.

The Challenge

The simplicity of solutions described in the table can be misleading. A business may obtain Other States coverage only if its insurer 
agrees to provide the protection voluntarily. Insurers may refuse to list states in Item 3C for several reasons. The insurer may not be 
licensed in some states, the state may be monopolistic or the insurer may simply not want to get involved in certain states.

With transportation companies, many insurers become especially cautious. Permission to use the "All States Except" language in 
Item 3C is often denied. Much depends on your agent's understanding of the risks you face and ability to persuade insurers to 
cooperate.

Another challenge for transportation companies arises because so many of you have to obtain your workers' compensation from a 
state's residual pool or fund. These are a last resort for businesses that cannot find an insurance company willing to voluntarily 
provide them with coverage. Rates are normal, but there is less flexibility. Rarely can Other States coverage be obtained.

The only option for a company that has its workers' compensation in the residual market is to apply for workers' compensation in 
every state in which protection is desired. This is awkward for both you and your agent, and the best course is to seek out an agent 
with access to a voluntary workers' compensation program for transportation companies.

Conclusion

When drivers hit the road, there's no telling where they might get hurt. With Other States coverage securely in place, you will have 
the flexibility to grow and meet all of your customer's needs, wherever they may lead you. 

Peter Schlactus, a Certified Insurance Counselor and  Accredited Advisor in Insurance, is Co-President of KBS International Corp., which provides specialized  insurance programs, benefits, and  risk management services to courier companies and executives nationwide. Mr. Schlactus is available to answer inquiries  at 1-888-KBS-4321 or via e-mail at peter@courierinsurance.com.

COURIER MAGAZINE - April/June 1997            [ Back To Table of Contents ]

(c) copyright, 1999 by KBS International Corp.  All Rights Reserved.