Monopolistic States & Stop Gap Coverage: What you need to know?

North Dakota, Ohio, Washington and Wyoming are known as monopolistic states. If you just thought to yourself ‘Huh!?’, you should read further if you already work, plan to work, or want to perform work in these states.

MONOPOLISTIC STATE FUNDS

Jurisdictions where an employer must obtain workers’ compensation insurance from a compulsory state fund or qualify as a self‐insurer (as is allowed in two of the jurisdictions). Such insurance is not subject to any of the procedures or programs of the National Council on Compensation Insurance (NCCI). Instead, each jurisdiction has its own rules and regulations that govern the placement and administration of workers’ compensation insurance. The following states/jurisdictions are monopolistic fund states: North Dakota, Ohio, Washington, Wyoming, Puerto Rico, and the U.S. Virgin Islands.

Unlike the other states in the nation, that allow workers’ compensation insurance companies meeting certain financial requirements to participate in a competitive open market, these states do not. And your insurance agent can’t obtain workers’ compensation in these states for you. You (the business owner) must contact the state directly.

That doesn’t mean you shouldn’t discuss this with your agent. While these states work directly with the business owner to provide workers’ compensation coverage, the coverage differs from non‐ monopolistic states in that it does not contain Employers’ Liability.

WORKERS COMPENSATION & EMPLOYERS LIABILITY

An insurance policy that provides coverage for an employer’s two key exposures arising out of injuries sustained by employees. Part One of the policy covers the employer’s statutory liabilities under workers’ compensation laws, and Part Two of the policy covers liability arising out of employees’ work‐related injuries that do not fall under the workers’ compensation statute. In most states, the standard workers’ compensation and employers’ liability policy published by the National Council on Compensation Insurance (NCCI) is the required policy form.

Most employers understand that a workers’ compensation policy will pay for their employees’ job‐related injuries according to the terms and conditions of their policy. What many employers don’t understand is what might happen if they are negligent in providing a safe and healthy work environment for their employees. This is called ‘Employers’ Liability’.

EMPLOYERS’ LIABILITY COVERAGE

This coverage provided by part 2 of the workers’ compensation policy provides coverage to the insured (employer) for liability to employees for work‐related bodily injury or disease, other than liability imposed on the insured by a workers’ compensation law.

What I find that most don’t understand, is that in monopolistic states, there is no Part 2 or Employers’ Liability part of the policy. Part 2 of the policy provides protection for the employer that is sued by

an employee for their negligence contributing to a work‐related bodily injury or disease.

WHAT DOES THIS MEAN?

Let’s say your employee is injured on the job while operating a piece of equipment. The employee reports the injury and receives treatment which is covered by Part 1 of your workers’ compensation policy. However the injury was not simply an ‘accident’, and was caused in whole or in part because you had failed to properly maintain the equipment the employee was using at the time of the injury. In this situation, a case could be made that the injury could have been avoided if not for your negligence to provide a safe and healthy work environment, and that the employee has the right to bring a lawsuit against you, the employer, directly.

Part 2 of the workers’ compensation policy is then triggered, which provides a limit of insurance to protect the employer. This is called ‘Employers’ Liability Coverage’. Without it, you’re on your own and the workers’ compensation carrier will not provide for defense or damages.

In monopolistic states such as North Dakota, Ohio, Washington, and Wyoming there is no Part 2 – Employers’ Liability provided in the policy. This is known as a ‘gap’ in coverage.

SO WHAT TO DO?

When doing business in a monopolistic state, it is imperative that you obtain a ‘stop gap’ coverage endorsement. But it may not be that easy. Your current liability or workers’ compensation carrier may not offer this valuable coverage endorsement, leaving the liability for such claims resting squarely on your company. Ouch!

STOP GAP ENDORSEMENT

An endorsement that is primarily used to provide employers’ liability coverage for work‐related injuries arising out of exposures in monopolistic fund states (fund workers’ compensation policies do not provide employers’ liability coverage). If the employer has operations in non‐monopolistic states, the endorsement is attached to the workers’ compensation policy providing coverage in those states. For employers operating exclusively in a monopolistic fund state, the endorsement is attached to the employer’s general liability policy.

FIRST AND FOREMOST, TALK TO YOUR AGENT!

Don’t keep it a secret that you’re doing business in a monopolistic state(s). I understand that there are those business owners who view their agent as a ‘salesperson’ and because they purchase the workers’ compensation coverage from the monopolistic state directly, they feel they can avoid a conversation with their agent. However, this is a big mistake, on many different levels.

Your insurance agent is your first line of defense in protecting your company. If you believe your agent is primarily focused on selling you insurance, get a new agent. You need (and deserve) an agent who is a trusted advisor and an advocate for your company.

Do you have a question about monopolistic states, workers’ compensation, employers’ liability coverage endorsement, or stop gap coverage?

no need to capitalize ‘gap’ here

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Rob Schild

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