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Employers Liability

The other part of the standard workers compensation policy - employers liability insurance provides coverage for damages because of bodily injury to an employee; standard and increased limits, statistical codes.;

Overview

Employers Liability Insurance definition:

Coverage against common law liability of an employer for accidents to employees, as distinguished from liability imposed by a workers compensation law.

 
While workers compensation insurance pays benefits required by statute to an injured employee, employers liability insurance provides coverage for defense costs and any amount the employer must legally pay as damages because of bodily injury to an employee. Although workers compensation is the exclusive remedy for on-the-job injuries, there are certain situations where employees may receive workers compensation benefits and still sue the employer. Examples of employers liability claims are:
  • third party claims - claims made by a third party who has been sued by an injured employee
  • care and loss of service claims (e.g. loss of companionship or "consortium")
  • dual capacity claims - when an employer acts in two capacities toward a person (e.g. the employer also manufactures the equipment that contributed to the employee's injury).

Standard limits of liability per accident

The standard EL limits are not found in the statute itself, but are contained in the Basic Manual for Workers Compensation & Employers Liability Insurance – 2001 Edition. This manual and its rules are filed with and  approved for use by the Indiana Department of Insurance. Below is an excerpt from the manual page.

 

 

 

Basic Manual, Rule 3.14.a., page R29

 

14. Limits of Liability

a. Standard Limits of Liability

Standard limits of liability apply to Employers Liability Insurance: 

  • With or without Workers Compensation Insurance
  • For employees subject to Voluntary Compensation Insurance 
  • For operations subject to USL&HW Act
  • For damages under admiralty law or FELA

(1) Bodily Injury by Accident

Bodily Injury by Accident (each accident limit) applies to all bodily injury resulting from a single accident.

 

(2) Bodily Injury by Disease

Bodily Injury by Disease is represented by two limits:

  • Each Employee Limit
    Each Employee Limit is the maximum amount of damages that an insurer will pay for a single employee during the policy year. It applies as a separate limit to bodily injury by disease to any one employee.
  • Policy Limit
    Policy Limit is an aggregate limit that applies to all bodily injury occurring from disease during the term of the policy, regardless of the number of employees who are injured by disease. An aggregate limit is the maximum amount of damages that an insurer will pay during the policy year.

 

Employers Liability, Voluntary Compensation, USL&HW Act & Extensions

Admiralty Law
and FELA

Bodily Injury by Accident

$100,000—each accident

$100,000

Bodily Injury by Disease

$100,000—each employee

Not applicable

Bodily Injury by Disease

$500,000—policy limit

$100,000

 


Increased Limits


Increased limits for standard Part Two Employers Liability Insurance is calculated using the Table for Increased Limits (Rule 3.A.14.b.(1), Page R31 - see table below. Admiralty (Jones Act) and railroad workers (FELA) have their own endorsements and set of limits.

The maximum limits available on Assigned Risk Policies are $1 million-each accident/1 million-policy limit/$1 million-each employee.
 
Table for Increased Limits*
 

Limits of Liability (000 omitted)

Percentage 

Minimum Premium For Increased Limits 

$ 500/500/500

0.8%

$75.00

1,000/1,000/1,000

1.1

120

2,000/2,000/2,000

1.4

140

3,000/3,000/3,000

1.6

160

4,000/4,000/4,000

1.8

180

5,000/5,000/5,000

2.0

200

6,000/6,000/6,000

2.2

210

7,000/7,000/7,000

2.4

220

8,000/8,000/8,000

2.6

230

9,000/9,000/9,000

2.8

240

10,000/10,000/10,000

3.0

250


*Refer to Appendix C for additional limits values.
 
 
 
Additional Premium for Increased Limits
Basic Manual, Rule 3.A.14.b.(1)(b), page R29:
The additional premium for increased limits must be determined by multiplying the total manual premium by the percentage in the Table for Increased Limits.

Increased limits for admiralty and FELA are calculated using another table (Rule 3.A.14.b.4) (old Rule XIII.D.2). They are totally independent of one another. It is not necessary to have the same limits for each on the same policy.
 

Nonratable Disease Element
Is the nonratable disease element portion of a class code rate included when calculating the premium for increased limits for Employers Liability insurance? This question arises for black lung disease coverage for coal mine risks. The Basic Manual, page R31 states the increased limit premium is determined by "multiplying the total premium by the percentage in Table of Increased Limits." This premium is subject to experience rating, premium discount, and retro rating.

However, the rate for the nonratable disease element is not subject to experience rating, so could the rate for the disease loading be part of the calculation to determine the premium for increased limits (which is subject to experience rating)? Example:

Element
Rate
Payroll
Premium
EL %
EL Premium
Code 1005 rate
$7.00
$1,000,000
$70,000
.80
$560
Nonratable disease element

$3.21

$1,000,000

$32,100

.80

$257

Full advisory rate

$10.21

$1,000,000

$102,100

.80

$817


*Increased limit of $500/500/500 is desired, so percentage of .80 applies.

In this example, the insured could realize an additional premium for employers liability increased limits of either $560 (excluding the disease loading) or $817 (including disease loading). What's the accurate interpretation on this rule?

Per previous NCCI Underwriting Notes on this matter, the disease loading is included in the calculation.

Also note that Basic Manual Rule 3.A.20 (old Rule VII.C.1.), includes disease loadings and nonratable elements in the definition of standard premium, so the $817 amount is correct.
 

Statistical Codes
"Employers Liability only" claims are reported as losses in the statistical plan. Refer to Statistical Plan - 2008 Edition Rule Part 4-C-4:

"Employers Liability losses including Allocated Loss Adjustment Expenses (ALAE) must be reported as part of the incurred indemnity loss and paid indemnity loss as appropriate. Employers Liability ALAE represents the expenses of a carrier in connection with claim settlements, which can be directly allocated to a particular claim.

Employers Liability ALAE should not be reported in the ALAE incurred amount or ALAE paid amount."

The Statistical Plan - 2008 Edition Rule 6-K-4, lists the Type of Claim - Loss Conditions. Two codes are possible involving Employers Liability:
  • Code 02 - Employers Liability only
  • Code 03 - Workers Compensation Including Employers Liability
ALAE
Question: Why is Allocated Loss Adjustment Expense (ALAE) included in employers liability claims but not in workers compensation claims? The Statistical Plan makes this distinction and it appears to go back many years.

 

Answer: Employers liability (EL) insurance is a tort-type, liability cover with limits. You would expect to keep tabs on your ALAE because the policy limit would include both the loss and ALAE costs. Also, apparently ISO has always included ALAE in other lines, all which contain policy limits.

 

Workers compensation (WC) in contrast, is no fault in concept, and the insurer must pay whatever the statute requires and pay whatever it costs to defend a claim.

 
 
Experience Rating
Losses are defined in the Experience Rating Plan Manual, Rule 2.C.13. and include Employers Liability Coverage, subject to the accident limitations shown in the Tables of Weighting and Ballast Values. For example, a single accident involves both WC and EL losses. The total loss is $250,000. The carrier would report the loss amount of $250,000 and code the type of coverage - loss conditions, as (03) based on WC and EL payments arising out of the incident which resulted in an injury to one worker. The Stat Plan does not give the carrier the option to report this as two separate claims.

Let's assume the state claim accident limit is $190,000 and the EL limit is $55,000. We would use the $190,000 state accident limitation.

For Indiana advisory rates effective 1/1/2017, the State Per Claim Accident Limitation is $190,000 and the Employers Liability Accident Limitation is $55,000. In most states, the state per claim accident limitation is usually higher than the EL limit.
 
 
EL Portion of Rates
Employers Liability losses are included in with indemnity losses, therefore, it is currently impractical to attempt to split out the portion (percent) of the advisory rate that contemplates employer liability insurance. Typically, EL is a very small portion of costs. Indemnity costs in total in Indiana are only about a third of all costs.
 
Claims Experience
As of February 2017, we took a quick look at employer liability claims as reported in the unit statistical plan for the years 2007 through 2014. These claim amounts are useful for determining EL coverage limits. Here's a summary:
  
EL.jpg
 

Notes:

·         Reviewed in February 2017

·         From USP data on NCCI database

·         Indiana data from policy years 2007 - 2014

·         Illinois data from policy years 2007 - 2014

·         Some claims were removed during data validation process

·         Undeveloped claim values at latest reporting level

·         Does not include self-insured claims

 

 
 

Related Files

The material in this document has been prepared and shared for informational purposes only and should not be relied upon as legal advice on any particular situation.