Cracking Under Pressure: Answers to the Workers’ Compensation Quiz

We gave you the questions on Friday; you have had all weekend to ponder your responses. Here are the answers for which you have been waiting. Good luck, we hope you do well.

1. What country was the first to implement a Workers’ Compensation System? (10 Pts)

• Germany under Otto von Bismarck, the “Iron Chancellor,” introduced “Workers’ Accident Insurance” in 1881. Phased in between 1881 and 1884, the program became the model for workers’ compensation programs in Europe and ultimately America.

2.Which US State was the first to pass a workers’ compensation-type law (ultimately struck down by the court as unconstitutional)? (10 Pts)

• Maryland passed a WC law in 1902. The law was struck down under constitutional challenge as a violation of “due process.”

3.Which state passed the first WC law that withstood legal challenge? What year? (5 Pts)

• Wisconsin in May 1911. The first state to effectuate an ongoing workers’ compensation program that survived legal challenges.

4.“A person created by statute and ‘born’ with the filing of articles of incorporation or organization” defines what? (10 Pts)

• A “legal” person. There are two types of persons: natural persons and legal persons. The difference matters for one major reason: Who counts as an employee? Especially important when analyzing the GC’s responsibility.

5.To be compensable, an injury must meet three requirements; what are they? (10 Pts)

• The injury must: 1) Arise out of employment; 2) Be in the course of employment; and 3) Be within the scope of employment.

• “Arising out of…” indicates a causal connection between the furtherance of the employer’s business and the injury. If the employer benefits in some way from the activity, then the injury or illness suffered in the pursuit of that activity is considered to “arise out of” the employment.

• “In the course…” is a function of the timing and location of the injury or illness. The implication is that the injury must occur during operations for the employer, or “during employment,” and at the employer’s location or a location mandated or reasonably expected by the employer.

• “Scope of employment…” serves to more specifically define the first two tests by: 1.) analyzing the motivations of the employee; 2.) analyzing the employer’s direction and control over the actions of the employee; and 3.) analyzing the employer’s ability to foresee the activities of the employee. Employee actions which ultimately lead to an accident or injury must be motivated, in whole or in part, by the “desire” to further the interests of the employer.

6.What phrase describes the point at which an employee departs from the course and path approved or anticipated by the employer? (15 Pts)

• Abandonment of employment.

7.Injury suffered travelling to or home from work are generally not compensable. This is known as what? (15 Pts)

• The Coming and Going Rule. The logic behind the rule is that the employee is not furthering the employer’s interest or serving the business’ needs. The employee is serving his own purposes and furthering his own cause during this course of travel. At what point is the employee considered to have “arrived” or “departed?” Injury suffered once the employee enters the parking lot. Courts ascribe a reasonable time for employees to reach their assigned work station. During this time, the employee is considered to be in the course and scope of employment. “The clock” begins to tick (so to speak) when the employee arrives in the parking lot. The reverse is true; the employee is considered to be within course and scope until he leaves the parking lot. Injury suffered prior to and after leaving the parking lot is not covered (unless an exception applies). The breadth of this special exception is applied differently by each state.

8.List two (2) of the five (5) exceptions to the rule in question 7: (10 Pts)

• Travel is an integral part of the job

• Employer-furnished transportation (i.e. to and from job sites)

• The employee performs a beneficial errand for the employer. Going to the bank, the post office or on any other errand to further the business of the employer qualifies as a beneficial errand. If the errand requires the employee to deviate from her normal route, any injury suffered from the time the employee leaves the premises until she returns to her normal route is likely compensable. Errands taking the employee outside his normal ways and means are considered “for the benefit” of the employer making injury compensable;

• Injury suffered by an “on call” employee. Doctors or those in other employments who must be ready to respond when the “call” comes are considered to be within the course and scope of employment immediately upon responding to the call.

• If the employer reimburses or pays the employees transportation costs, the trip is considered business-related and for the benefit of the employer. Injury suffered is compensable unless abandonment of employment is proven.

9.Four tests are applied when deciding whether an injury suffered during recreational activity is compensable; list two (2) of these tests: (10 Pts)

• Did the accident occur on the employer’s premises? An affirmative response does not guarantee compensability. Making recreational facilities available does not make the employer liable. But neither is it required that the injury occur on the employer’s premises to be compensable.

• Was the event or team organized by the employer? Company-organized softball teams competing in “industrial leagues” may qualify under this provision. However, several employees deciding to form a team is wholly different from a team organized by the employer, encouraging “good” ballplayers to participate.

• Did the employer pay for the activity? It is unclear if this refers to the total cost or a subsidy on behalf of the team.

• Did the employer benefit? Advertising in the community (team shirts), improved employee morale or better team work; an employer can “benefit” from these activities in more ways than tangible outputs.

10. To be considered “occupational” and therefore compensable under workers’ compensation, a disease must arise out of or be caused by conditions _________ to the work. (5 Pts)

• “Peculiar!” Examples include black lung disease for coal miners and a healthcare worker contracting HIV or some other diseases from exposure to infected blood.

11.Stress-related illness (i.e. heart attack) is compensable if it can be proven that the stress leading to the heart attack was _________ or ___________. (10 Pts)

• The stress must be of an unusual or abnormal nature. The stimulation would have to result from a specific acute or sudden stressful event rather than a generalized condition of stress. Presumably, a long build up of stress would not fall into the compensable category.

12.Which WC policy responds to an occupational illness? (5 Pts)

• The workers’ compensation policy specifically states that the policy in effect at the employee’s last exposure responds to the illness — even if the employee is working for another employer at the time the disease manifests itself.

13.List the three main categories of benefits provided by workers’ compensation: (5 Pts)

• Medical benefits – unlimited; without a deductible; paid to cure or maximum medical benefit; rehabilitation and vocational rehabilitation are included.

• Disability/Indemnity benefits – paid based on some percentage of the employee’s Average Weekly Wages (AWW) (subject to state minimums and maximums); subject to a waiting period;

• Death benefits – extends a limited amount towards funeral expenses plus a weekly benefit to eligible dependents (both vary by jurisdiction). To collect death benefits from the workers’ compensation policy: 1.) death must occur within a certain period of time following the work-related injury to be considered a work-related death; and 2.) a request for death benefits must be made within a specified period following death (to avoid long-tail death claims).

14.List the four disability classifications: (5 Pts)

• Temporary Partial: Defines an injury from which the employee is expected to completely recover in some period of time with no or only minor long-term effects. Generally these employees can perform light-duty tasks. A broken arm is an example.

• Temporary Total: A full recovery from the injury is expected, but for a period of time the employee is completely unable to work due to the injury. These types of injuries might require bed rest or hospitalization while the employee heals.

• Permanent Partial: The employee has suffered an injury from which he will never recover, but one that will not prevent him from returning to some type of work. Amputation of a finger or leg and the loss of an eye or ear are examples of this injury classification.

• Permanent Total: Recovery is not predicted; the employee is not expected to ever be able to return to work.

15.What were the two main goals of Second Injury Funds when they were created? (5 Pts)

• Encourage employers to hire and retain workers with pre-existing injuries or conditions (Nease v. Hughes Stone Co., OK, 1925; Nease was blind in one eye. 7,000 to 8,000 disabled men lost their job almost immediately after the case was decided); and

• Provide economic relief to employers for an employee’s subsequent injury.

16.According to the WC policy, up to how many years after expiration can the insurer audit a policy? (5 Pts)

• Part Five – Premium; Paragraph G. Audit. The carrier can audit up to three years after the policy ends.

17.List three types of remuneration EXCLUDED from the audit: (10 Pts)

• Tips & other gratuities; Group Insurance/Pension Plan contributions made by employer; Special rewards for individual invention or discovery; severance pay; Pay for those on active military duty; Employee discounts; Expense reimbursements; Money for meals for overtime work; Work uniform allowance; Sick pay paid by a third party; and Employer-provided perks (company autos, incentive vacations, memberships). Remember special overtime rules.

18.List the four types of claims Employers’ Liability coverage is designed to cover: (10 Pts)

• Third-party-over actions;

• Loss of consortium (loss of family service);

• Consequential bodily injury; and

• Dual Capacity actions (Coke plant; Ladder Mfg (personal vs. professional use)

19.List the four exceptions to the “Governing Classification” rule: (15 Pts)

• “Standard Exception” Classifications – duties/activities are so common to most business and may be so far outside the operational activities of the entity that employees engaged in these positions are considered exceptions to the governing classification rules.
  • Clerical Employees- Class Code 8810;
  • Clerical Telecommuter – Class Code 8871;
  • Drafting Employees – Class Code 8810;
  • Salespersons – Class Code 8742; and
  • Drivers – Class Code 7380.
• Interchange of Labor
  • Allows a single employee’s payroll to be split between or among several class codes;
  • The applicability of this rule varies by state; some states allow its use only in the construction, erection or stevedoring classes of business while other states permit the interchange of labor rule to apply to any type of business operation.
  • The employer is charged based on the employee’s actual exposure to injury; however, specific rules must be met
• “General Exclusion” Classifications – Some operational activities do not fit into the analogous assignment of the governing classification. These classifications are the opposite of “standard exception” classifications:
  • Employees working in aircraft operations;
  • Employees performing new construction or alterations;
  • Stevedoring employees;
  • Sawmill operation employees; and
  • Employees working in an employer-owned daycare.
• Multiple Enterprise Rule – A particular entity may conduct additional operations not usual or customary to such an enterprise; such disparate activities may allow the insured to qualify for the separation of payroll into multiple classifications.
  • A secondary operation producing a basic premium equal to or higher than the governing class code (the code generating the highest payroll) premium automatically qualifies for separation under the multiple enterprise rule with the only requirement being segregation of payrolls.
  • If the basic premium generated by the secondary operation is less than the governing class code basic premium, four tests must be satisfied:
  • The operation is not commonly found within the operation of the subject insured’s business;
  • The operation could each exist as a separate entity;
  • Financial records are kept separately for each operation; and
  • The operations are physically separated by means of a partition, wall or placement in a separate building.

20. Four tests must be satisfied to qualify for the “Interchange of Labor” exception. What are they? (15 Pts)

• All classifications used for an employee are appropriate to the job performed;

• Payroll records exist that allocate the employee’s wages between/among the different classes. This requires an actual, dollar amount payroll split, a percentage of payroll is not allowed;

• The division of payroll is not available with any of the standard exception classifications (with the possible exception of the driver code); and

• The operations/activities are not conducted on the same job site.

21.There are four “types of employees. Two of the four “types” of employees for which your insured may be responsible for providing workers’ compensation benefits are:

• “De Facto” employees
• “De Jure” employees

Define each of these types of employees. (15 Pts)

• “De Facto” De facto means “in fact or in reality.” Employers may call a de facto employee an independent contractor when they are “in fact” an employee. The degree of control often influences the worker’s classification as a true independent contractor or a de facto employee.

• “De Jure” De jure means “by right, according to the law.” A de jure employee is an employee created by an act of law. In most states, injured employees of an uninsured subcontractor become the responsibility of the general contractor; they become the “de jure employees” of the general contractor by action of workers’ compensation law.

This and more workers’ compensation information is found in “The Insurance Professionals’ Practical Guide to Workers’ Compensation: From History through Audit.”

Topics Workers' Compensation Talent Contractors