Business Owners Policy (BOP) & Workers Comp

Business Owners Policy (BOP)

A business owners policy (BOP) is often described as the commercial equivalent of a homeowners policy. It combines property and liability protection for small businesses in a simplified package.

The liability section of a BOP does not insure an employer for work injuries to its own employees. It excludes any obligation of the insured under a workers’ compensation law, and bodily injury to an employee of the insured arising out of and in the course of employment. An employer insures that exposure under a workers compensation policy.

Workers Compensation Insurance

Workers Compensation insurance provides protection for employees who are injured as a result of their employment. It also protects an employer against legal action that an injured employee (or survivors) may pursue.

In most cases, benefits provided under workers’ compensation laws serve as the employee’s primary remedy for work-related injuries, limiting the employee’s ability to sue the employer for damages.

Workers Compensation law is based on the following principles:

• Negligence is not a factor in determining liability for bodily injuries sustained by an employee
• The injury cannot be intentionally self-inflicted
• Benefits will be paid to an injured employee on a periodic basis, commonly weekly or every two weeks as the state’s law provides
• The cost of coverage is paid by the employer (non-contributory)
• In most states, an employer subject to the law must secure the payment of its employees’ benefits, by buying insurance or, with the state’s approval, by self-insuring. The states differ on which employers are subject: some exempt employers with only a few employees, and Texas does not require most private employers to carry coverage
• Workers Compensation insurance provides coverage for work-related injuries and sickness only. It does not provide benefits to employees who suffer non-work-related injuries.

Workers Compensation insurance is available from commercial insurers. Premium charges are based on the type of business involved (work or job classification) and the total payroll.

If an employer is qualified, it may self-insure. If an employer is unable to secure Workers Compensation insurance in the standard market, most states operate an assigned risk pool which allows these employers to obtain Workers Compensation protection.

The Workers Compensation policy consists of several parts.

Part I

Coverage under Part I applies to mandated or statutory benefits. The insurer providing coverage agrees to pay the injured employee all benefits required by the Workers’ Compensation law.

The benefits available to an employee who is injured as a result of his/her employment include:

Medical Expense Benefits

• The insurer will cover unlimited reasonable medical expenses related to the occupational injury or sickness.

Income Benefits

• Loss of income benefits are paid to qualified injured or diseased employees. Generally, the injured worker must satisfy a waiting period before income benefits are paid.

Dependent Funeral Expense Benefit

• Benefits will be paid if a worker dies as a result of his/her employment. Two types of benefits are provided: burial expenses and survivor benefits. Reasonable burial or funeral expenses will be covered by the policy. In addition, a survivor or dependent benefit is also available if the worker is fatally injured.

Vocational Rehabilitation Benefits

• It not only aids the injured worker to recuperate more quickly but also helps the employer since his/her injured employee will return to work sooner. Covered expenses or services include:
  • Physical, occupational and speech therapy
  • Vocational training
  • Wheelchairs, mechanical appliances and prosthetic devices (artificial limbs)
  • Transportation and lodging during the rehabilitation period

Part II

Part II of the Workers Compensation policy is Employer’s Liability coverage and protects an employer against legal suits filed by an employee.

The standard limits of liability presently available for this protection is $100,000 per accident; $100,000 per occupational disease; and a $500,000 aggregate for occupational diseases. An employer may purchase higher limits for an additional premium.

Part III

Part III of the Workers Comp policy provides optional “Other States” insurance coverage. Part I and II are mandatory if the policy is purchased.

Other States insurance provides Workers Compensation coverage in additional states to which an employee may travel as part of his/her employment duties.

A Workers Compensation policy also includes the following policy sections:

• Part IV duties to be performed by all parties when an injury occurs
• Part V description of premiums
• Part VI conditions of the insured and insurer

All premiums will be determined by the insurer’s manuals of rules, rates, rating plans and classifications. For each work classification, a rate is multiplied by a premium basis, most commonly the payroll and other remuneration of the workers in that classification.

Experience Modification Factor is a numerical representation of claims history used to increase or decrease a company’s worker’s comp premiums at time of renewal. It is the ratio of the costs of a company’s actual workers’ compensation claims compared to the expected costs for companies of similar size in the same industry. It can be either above or below the industry average of 1.0. Above 1.0 means the claims history is worse than the industry’s average (increased premium) while below 1.0 means it is better (decreased premium).

Types of disability include:

• Permanent Total - Cannot work at all
• Permanent Partial - Loss of hand - can work
• Temporary Total - Sprained back, out six weeks
• Temporary Partial - Broken arm, light duty

Longshore and Harbor Workers’ Compensation Act

Compensation and medical benefits for disabled or deceased employees of maritime employments are provided under federal law. Employments such as longshoring, harbor work and ship repairing fall under federal guidelines. Coverage is furnished by a Workers Compensation policy with an added endorsement. The employee’s death or disability must result from an injury on the navigable waters of the U.S., including adjoining piers, wharves, dry docks, terminals and other areas used in loading, unloading, repairing or building a vessel.

The Jones Act

The Jones Act, a section of the Merchant Marine Act, allows an injured seaman to elect to sue for damages and to have a jury trial. The standard policy’s Employers Liability section excludes bodily injury to a master or member of the crew of any vessel. When the exposure exists, the Maritime Coverage Endorsement removes that exclusion, so Employers Liability covers the crew, and adds two exclusions of its own: injury covered by a protection and indemnity policy, and the employer’s duty to provide transportation, wages, maintenance and cure unless a premium is shown for it.

Federal Employees Compensation Act

Employees of the federal government are provided (civilian employees) benefits administered by the federal government. Private insurance is not involved.

Federal Employers Liability Act

This Act protects interstate railroad workers only. It allows the injured worker (or representative of the deceased worker) to sue the employer for negligence and removes assumption of risk as a defense. The worker’s own contributory negligence, the other common law defense, does not bar recovery; it reduces the damages in proportion to the worker’s share of the negligence.

Lesson Summary

A business owners policy (BOP) combines property and liability protection for a small business, but its liability section excludes the employer’s obligations under a workers’ compensation law and bodily injury to its own employees in the course of employment. Workers Compensation Insurance offers protection for work-related injuries; key points include:

• Benefits paid on a periodic basis and cover medical expenses, income loss, and dependent benefits
• May cover expenses like therapy, training, and prosthetic devices for injured workers
• Includes Employer’s Liability coverage to protect against employee legal suits, with optional coverage for injuries in other states

Other insurance policies related to workers’ compensation include the Longshore and Harbor Workers’ Compensation Act and the Jones Act for maritime employees’ coverage. Federal Employees Compensation Act provides benefits for federal government employees, while the Federal Employers Liability Act protects interstate railroad workers by allowing negligence claims against the employer.

Chapter Vocabulary

Definitions

Covered Employment (For Workers’ Comp)

The majority of workers’ compensation laws cover most employment situations. However, there are three types of employment commonly exempted: farming, casual employment, and domestic servants.

Employers Liability

Employers’ liability coverage for the legal liability of employers arising out of injuries to employees. This code should be used when coverage is issued as an endorsement or as part of a statutory workers’ compensation policy.

Independent Contractor

An individual who is not employed by a company but instead works for themselves, providing goods or services to clients for a fee.

Workers’ Compensation

Insurance that covers an employer’s liability for injuries, disability, or death to persons in their employment, without regard to fault, as prescribed by state or federal workers’ compensation laws and other statutes.