Part Three – “Other States Insurance” is essentially two paragraphs within the entire workers’ compensation policy; but the coverage extended and the potential problems created by noncompliance with this small section must not be overlooked or underestimated. The other states section dictates how the workers’ compensation policy will respond if and when an employee is injured in a non-3.A. state, but due to extraterritorial reciprocity problems is given the option to choose the benefits mandated by the state of injury rather than the state of domicile.
Other states (“3.C.”) coverage allows the employer’s workers’ compensation policy benefits to comply with the statutory benefits required by the state where an employee is injured but in which the insured: 1) does not currently have on-going operations, and 2) does not plan to have on-going operations during the policy period such as would necessitate its scheduling as a primary coverage state. Employees injured while working in a scheduled 3.C. state will receive the benefits prescribed under that state’s law if made necessary by application of law or a court decision. Effectively the workers’ compensation policy responds and pays benefits in listed 3.C. states just as if the state was scheduled under 3.A.
It is absolutely essential that any state qualifying for 3.A. status based on the assignment tests listed in the previous article be extending 3.C. status when the underwriter, for whatever reason, is unwilling to assign 3.A. status to that state. Employees are obviously working in or have significant contact with those states described in the August 13 article and a court may decide that the injured employee is eligible for the state-of-injury benefits rather than those mandated in the state of domicile or coverage.
From an errors and omissions (E&O) perspective, documenting that 3.A. status was requested but was disallowed by the underwriter is imperative. Get the denial in writing, signed by the underwriter and keep it in the insured’s file. This will serve as a defense and hopefully help to avoid any gaps in the desired protection (it will also serve as a good reminder at renewal to follow up to find out if status in that state has changed necessitating 3.A. status). Once the underwriter officially denies 3.A. status, specifically list that state in the 3.C. section of the application and confirm that the state is present on the declarations page when the policy arrives.
Employers should structure their “others states” protection to include any state to which the underwriter is willing to extend coverage. Most E&O carriers recommend “3.C.” status be garnered with the phrase, “All states other than 3.A. states and monopolistic states.” If the underwriter is willing to provide such a broad 3.C. extension, so much the better for the client; however, some carriers will not allow this breadth of protection due either to license status (the carrier may only be licensed in a few states), or the desire for greater information regarding the location and activities of the employees.
At minimum, other states (3.C.) status should be extended to:
• Bordering states. This negates the exposure arising from employees that live in one state but work in the primary state; and
• States to which employees may travel to attend classes, conventions or other meetings.
Recommended – Preferred 3.C. Status Wording
It may be advisable to trigger 3.C. status by:
• Specifically scheduling those states that qualify for 3.A. status as per the recommendations listed in the previous article but which the underwriter will not allow such assignement;
• Specifically listing the bordering states and the other states as recommended in the preceding paragraph; and
• Completing the schedule of protection by adding the terminology, “All remaining states other than 3.A. states and monopolistic states.”
Following the above advisory, the Other States blank for a North Carolina domiciled risk with employees occasionally working in surrounding states plus Maryland and New Jersey, and commonly attending seminars in Texas may be completed as follows:
“SC, Ga., Tn., Va., Md., NJ, Texas and all remaining states other than 3.A. states and monopolistic states.”
While this may seem rather long (yes, there is limited space, but the comments section can be used), it succeeds in assuring that states that need to be listed are listed. It also shows the client that you have gone above and beyond to manage his exposures.
Penalties for Non-Compliance
Penalties for not properly scheduling a state as a 3.A. or a 3.C. jurisdiction are clear and potentially severe; especially in a state that should be classified as a 3.A. state on the day the policy goes into effect.
NCCI’s workers’ compensation policy specifically declares: “If you have work on the effective date of this policy in any state not listed in Item 3.A. of the Information Page, coverage will not be afforded for that state unless we are notified within thirty days.”
Any state required to be scheduled as a 3.A. state but not listed on the day the policy is effective or within 30 days of the effective date will not be afforded protection. If an injury occurs in an unlisted-but-should-be 3.A. state, all benefits required of that state will be paid strictly by the employer. Knowing up front which states are required to be scheduled as 3.A. states is essential to avoid this denial of coverage. This is why proper file documentation is imperative if the underwriter refuses to list a state as a primary 3.A. state. Listing it as a 3.C. state when the underwriter refuses to extend primary status may mitigate some of these exposures, but there is no guarantee.
Injuries occurring in a state not required 3.A. status but which is also not extended coverage under the other states, 3.C., provision will subject the insured to a potential gap in benefits but not a total denial of coverage. For example, an employer domiciled in State “C” has an employee injured in State “D.” The breadth of operations in State “D” does not necessitate 3.A. status but neither was the policy adequately planned to extend “Other States” (3.C.) status to “D.” If the employee, via an industrial commission or court decision, qualifies to receive “D’s” benefits, the employer’s workers’ compensation policy will only pay the benefits required in State “C.” The difference between “C’s” and “D’s” benefits will be paid by the employer. Had State “D” been covered under the Other States, 3.C., provision, the employer’s workers’ compensation policy would have paid benefits as if State “D” were a primary, 3.A., state.
If the insured begins operations in a 3.C. state during the policy period, the insurance carrier is to be notified “at once.” If notification does not meet policy requirements, any injury will be subject to the same denial of benefits found when a 3.A. listing is required but not made – there will be no coverage.
Extraterritorial exposures and reciprocity problems open the employer and the agent to many pitfalls and potential coverage gaps. This is a complex subject that requires specific information regarding the states in which a particular employer works or might potentially work.