Understanding Workers' Compensation Insurance
Prior to federal and state workers' compensation legislation in the United States, employees who were injured on the job had no formal system in place to compensate them for injuries sustained while working for an employer. The only recourse for the injured employee was to sue the employer under civil or tort law. Furthermore, the employee would have the burden of proving employer malice or negligence. Even though the employers potential liability was limitless, most courts in the U.S. typically ruled in favor of the employer. This left employees to cover their own expenses including lost wages, medical costs, and lost future earnings.
State regulations determine workers compensation requirements for employers in each state. However, every state requires that employers pay for the coverage. They can purchase it through private insurance companies or through state insurance funds. Most states also have additional injury funds established to pay for injuries of uninsured employees under certain circumstances.
Statutory Workers Compensation Coverage
Legally requiring workers compensation coverage brings advantages to both employers and employees alike. The basis of the legal system is built around the Prussian concept of "no fault" insurance. This concept generally means that on the job injuries are an accepted fact of business and the workers' compensation system is designed to manage the financial consequences of accidents in the most efficient and judicious manner possible. The concept of no-fault eventually expanded into auto insurance as a means of limiting litigation for each accident.
The primary benefit for employers participating in a state workers compensation program is that they have tort exemption for injuries that are covered under a workers compensation
policy. The insurance company will pay the cost of lost wages and medical benefits for employees injured on the job.
Employees benefit from an employer's workers compensation policy because claims are not based on proving negligence or employer liability. This means that employees may receive compensation for injuries that occur through their own carelessness or occupational exposure without any burden of bringing a suit against their employer. Under the current workers compensation system, employees receive compensation more quickly and more often than employees without access to workers comp coverage.
Workers Comp Coverage Varies by State
Since workers compensation systems are administered by each individual state, there may be important differences in how each state interprets laws and statutes regarding coverage and benefits. The federal government also administers its own system for federal employees and utilizes its own set of rules and requirements for federal employees.
Business owners and employers that do not carry workers compensation insurance (except for Texas) often face stiff fines and penalties for not maintaining comp coverage. Additionally, they will be responsible for paying for any lost wages and medical expenses for injured employees if they fail to provide coverage.
Workers Compensation Insurance is the Best Alternative
Workers compensation coverage is not a perfect solution. In fact, it can be somewhat confusing because of individual state laws and statutes. However, it is still an American success story. It is a much better system than the United States had prior to modern workers compensation legislation and reform. Employers now receive instant relief from employee law suits (known as exclusive remedy) and employees get a fast and equitable, no-fault program for relief from on the job injuries.