Mar 7, 2008


Prior to the passage of workers' compensation laws, it was difficult for employees to receive compensation for their work-related injuries or diseases. Group benefits were meager, and the Social Security program had not yet been enacted. The only recourse for employees was to sue their employer for damages. In addition to the time and expense of such actions (as well as the possibility of being fired), the probability of a worker's winning such a suit was small because of the three common-law defenses available to employers. Under the contributory negligence doctrine, a worker could not collect if his or her negligence had contributed in any way to the injury. Under the fellow-servant doctrine, the worker could not collect if the injury had resulted from the negligence of a fellow worker. And finally, under the assumption-of-risk doctrine, a worker could not recover damages if he or she had knowingly assumed the risks inherent in the trade.

To help solve the problem of uncompensated injuries, workers' compensation laws were enacted to require that employers provide employee benefits for losses resulting from work-related accidents or diseases. These laws are based on the principle of liability without fault. Essentially, an employer is absolutely liable for providing the benefits prescribed by the workers' compensation laws, regardless of whether the employer would be considered legally liable in the absence of these laws. However, benefits, with the possible exception of medical expense benefits, are subject to statutory maximums.

All states have workers' compensation laws. In addition, the federal government has enacted several similar laws. The Federal Employees Compensation Act provides benefits for the employees of the federal government and the District of Columbia. Railroad employees and seamen aboard ships are covered under the Federal Employer's Liability Act, and stevedores, longshoremen, and workers who repair ships are covered under the U.S. Longshore and Harbor Workers' Act.

Type of Law
Most workers' compensation laws are compulsory for all employers covered under the law. A few states have elective laws, but the majority of employers do elect coverage. If they do not, their employees are not entitled to workers' compensation benefits and must sue for damages resulting from occupational accidents or diseases. However, the employers lose their right to the three common-law defenses previously described.

Financing of Benefits
Most states allow employers to comply with the workers' compensation law by purchasing coverage from insurance companies. Several of these states also have competitive state funds from which coverage may be obtained, but these funds usually provide benefits for fewer employers than insurance companies do. Six states have monopolistic state funds that are the only source for obtaining coverage under the law.

Almost all states, including some with monopolistic state funds, allow employers to self-insure their workers' compensation exposure. These employers must generally post a bond or other security and receive the approval of the agency administering the law. While the number of firms using self-insurance for workers' compensation is small, these firms account for approximately one-half the employees covered under such laws.

In virtually all cases, the full cost of providing workers' compensation benefits must be borne by the employer. Obviously, if an employer self-insures benefits, the ultimate cost will include the benefits paid plus any administrative expenses.

Employers who purchase coverage pay a premium that is calculated as a rate per $100 of payroll and that is based on the occupations of their workers. For example, rates for office workers may be as low as $.10, and rates for workers in a few hazardous occupations may exceed $50. Most states also require that, when their total workers' compensation premiums exceed a specified amount, employers be subject to experience rating; that is, employers' premiums become a function of benefits paid for past injuries to their workers. To the extent that safety costs are offset or eliminated by savings in workers' compensation premiums, experience-rating laws encourage employers to take an active role in correcting conditions that may cause injuries.

Covered Occupations
Although it is estimated that about 90 percent of workers in the United States are covered by workers' compensation laws, the percentage varies among the states from less than 70 percent to more than 95 percent. Many laws exclude certain agricultural, domestic, and casual employees. Some laws also exclude employers with a small number of employees. Furthermore, coverage for employees of state and local governments is not universal.

Before an employee can be eligible for benefits under a workers' compensation law, he or she must work in an occupation covered by that law and be disabled or killed by a covered injury or illness. The typical workers' compensation law provides coverage for accidental occupational injuries (including death) arising out of and in the course of employment. In all states, this includes injuries arising out of accidents, which are generally defined as sudden and unexpected events that are definite in time and place. Most workers' compensation laws exclude self-inflicted injuries and accidents resulting from an employee's intoxication or willful disregard of safety rules.

Every state has some coverage for illnesses resulting from occupational diseases. While the trend is toward full coverage for occupational diseases, some states cover only those diseases that are specifically listed in the law.


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