Workers Compensation
Mandatory insurance covering medical expenses and lost wages for employees injured on the job, required by law in nearly all US states.
What It Is
Workers Compensation insurance is a mandatory coverage in nearly all US states that provides benefits to employees who are injured or become ill as a result of their employment. The policy has two coverage parts: Coverage Part A (Workers Compensation) pays statutory benefits as defined by the applicable state workers compensation law, and Coverage Part B (Employers Liability) provides liability coverage for employment-related injury claims that fall outside the workers compensation statute.
Coverage Part A has no dollar limit — it pays whatever benefits the state statute requires, including medical expenses, lost wages (temporary and permanent disability), rehabilitation costs, and death benefits. Coverage Part B has specified limits, typically $100,000/$500,000/$100,000 (each accident / disease-policy limit / disease-each employee).
Workers compensation is a no-fault system — employees receive benefits regardless of who caused the injury. In exchange, employees generally give up the right to sue the employer for workplace injuries (the exclusive remedy doctrine). This trade-off is the foundation of the workers compensation system.
Why It Matters for Brokers
Workers compensation is a mandatory coverage in all but a few states, and failure to carry it exposes the employer to criminal penalties, civil fines, and unlimited personal liability for workplace injuries. For brokers, workers comp is often the largest premium line for construction and manufacturing accounts. Understanding classification codes, experience modification rates, payroll audits, and state-specific requirements is essential. Workers comp also interacts with other coverages — particularly CGL, auto, and umbrella — requiring careful coordination.
Real-World Example
A roofing company with 45 employees and $3.2M in annual payroll pays $224,000 per year in workers compensation premium. An employee falls from a scaffold and sustains a spinal injury requiring $680,000 in surgery, rehabilitation, and ongoing medical care, plus $340,000 in lost wage benefits over four years. Coverage Part A pays the full $1,020,000 in statutory benefits with no dollar limit. The employee cannot sue the employer for negligence under the exclusive remedy doctrine. Without workers comp, the employer would face the full $1,020,000 exposure plus potential negligence lawsuit damages.
Common Mistakes
- 1Not verifying that all states where the insured has employees are listed on the workers comp policy's covered state schedule.
- 2Failing to anticipate payroll audit adjustments — underestimated payroll at inception leads to large audit bills at year-end.
- 3Overlooking the Employers Liability (Coverage B) limits, which are often left at minimum $100K/$500K/$100K when higher limits are available and advisable.
How brokerageaudit.com Handles This
Policy Checker extracts all workers compensation policy details including covered states, classification codes, payroll by class, EMR, and both Part A and Part B limits. It flags any state where the client has reported operations but that is not listed on the policy. Submission Intake includes a comprehensive workers comp questionnaire capturing payroll by state, employee count by classification, and loss history for accurate quoting.