Workers’ comp limits and what they mean—for workers’ and employers
Your workers’ compensation policy is so much more than a mandatory insurance product. It protects your workers in the event of an injury or illness, and simultaneously wraps around your business—paying out benefits to injured workers while also providing you with a risk transfer strategy in case of liability.
But what are the workers’ comp limits on your coverage? Is there a ceiling? Moreover, does it offer your business the full protection it needs when paying for an employee’s injury?
The general rules for workers’ compensation coverage can be summarized fairly easily, but the nuances of a workers’ comp policy vary on a state-by-state basis. In this guide, we’ll walk through a high-level summary of what business owners need to know about your insurance policy and point you to the resources you need to dive deeper into your state workers’ compensation law.
What costs does workers’ compensation cover?
Workers’ compensation exists to pay out benefits to workers who become injured or develop a job-related illness.
With a few exceptions, workers’ compensation policies feature two parts:
- Part A: Employee Benefits
- Part B: Employer Liability
What Part A covers
The insurance company will design Part A of your insurance policy to meet your state’s insurance requirements and workers’ comp limits. It pays out medical bills and lost wages to injured or ill employees. Those benefits also pay for rehabilitation costs—like physical therapy—to help an employee return to work. In the event of a fatality, the coverage becomes a death benefit to the employee’s family.
What Part B covers
The employer liability portion of the policy covers the business in case the injured or ill party (or their family) have grounds for a lawsuit or additional claims beyond what the state requires insurance carriers to cover in Part A.
Why is Part B so important?
You already have a liability insurance policy, right? So why does the employer’s liability coverage in your workers’ comp policy matter?
Part B differs from your general liability insurance policy. The workers’ comp Part B protects you if an employee sues you for negligence after an injury. You need Part B because employee lawsuits typically aren’t covered by your general liability insurance coverage.
You’ll get Part B as part of a workers’ compensation plan purchased on the open market. However, if you live in a monopoly state and must buy from the state fund, you won’t purchase this coverage from the state fund. You’ll need to source these employer liability coverage and insurance plans through your broker.
When does Part B coverage kick in?
As you know, an employee receiving workers’ compensation benefits generally can’t sue for additional compensation. Even when they can, they must first usually pull all the levers available to them through the workers’ compensation claim process.
However, there are some exceptions to the liability shield workers compensation statutes offer, including:
- If the employer intentionally or recklessly causes a bodily injury or occupational disease or illness (including through another employee, e.g., assault and battery)
- If there is contractor or subcontractor involvement
- If an employer denies a workers’ comp claim in bad faith
- If an employer retaliates against the injured/ill worker from making the claim
In these cases, it’s Part B that kicks in to pay for medical treatment, lost wages, legal costs, and even punitive damages.
It’s worth noting that some states have taken careful note to carve out exceptions where the employee can sue. You’ll want to be familiar with the laws in the states you operate in to be clear on where that line is for your business. Remember that if you have employees who travel from state to state this becomes even more complicated, so you’ll want to ensure all of your liability policies match up.
Workers’ compensation insurance limits, simplified
Every work-related injury or illness looks different, and every salary looks different, and the state plays a significant role in designing workers compensation benefits. That’s why limits on workers’ compensation insurance policy differ from your other business insurance lines.
Let’s dive into the workers’ comp limits for Part A and Part B. They’re easier to grasp than you think.
Part A: employee benefit limits
The scale of workers’ comp claims can vary dramatically. The NCCI reports that the average workers’ compensation claim in 2019-2020 was $41,353. However, the largest ever workers’ compensation settlement was paid out in March 2017 for $10M.
There’s almost no strict dollar figure assigned to what an insurance company or state fund will pay out for a covered employee with a compensable workplace injury or illness.
Instead, state legislators and insurance regulators require your insurance carrier to pay out the cost of the approved claim for the injured worker. These costs include immediate medical treatment, lost wages, and other medical expenses needed to help the injured worker start to return to full health.
So, are there any limits at all?
Limits exist in the form of weeks, months, or years rather than a dollar figure. Each state sets a limit on the amount of time a worker can spend receiving workers’ comp benefits. Think of workers’ compensation as a plan for paying for temporary disabilities, until such a time when the worker can return to work or their care provider determines they won’t ever be able to return to work.
Part B: employer liability limits
Insurers bring in basic work comp limits in Part B employer liability.
Because your employer liability insurance protects your business from liability, insurers can bring in limits. The typical employer liability limit is usually $100,00 per accident, $500,000 per policy, and $100,000 per employee. Usually, these limits are enough coverage. After all, if a worker accepts workers’ compensation benefits for an injury or illness, they can’t usually sue you directly.
Where do the workers’ comp limits impact a business? Usually, the liability limits impact you most if you don’t have Part B coverage at all or another policy to protect you.
However, there are only a few reasons why you might not have Part B coverage. These are include if you:
- Are self-insured
- Buy workers’ compensation from a state fund in a monopolistic state
In either of these cases, you can purchase Coverage B, employer liability elsewhere.
Does your business have enough insurance coverage?
The employer liability coverage protects the insured business in the event of a lawsuit related to a workers’ compensation claim.
The state regulator still has a heavy hand in dictating policy terms for employer liability. It’s up to you as the business owner to protect the business from liability through comprehensive safety and risk management programs.
As we noted above, an employee receiving a workers’ compensation benefit usually isn’t eligible to sue the employer, unless they’re one of the exceptions we listed above. And if you have a strong risk management program, the likelihood you’ll use this policy goes down. Because you’re unlikely to make a claim against the policy, choosing to increase the limits of your Coverage B should be highly dependent on your state and your business structure.
For example, you might choose to increase your workers’ comp limits because you’re a subcontractor in the construction industry and the general contractor has required a higher minimum policy limit as part of your contract.
What is the longest an injured employee can be on workers’ comp?
Workers can usually receive workers’ compensation benefits for as long as needed, but the hard limit varies by state and by disability (temporary, permanent, or full or partial disability). If the claim is compensable, the worker can usually expect to receive benefits until they return to work and receive at least 90% of their ordinary salary. However, once the claim reaches a matter of years and looks more permanent, limits start to kick in.
In some states, there may be a limit of up to seven years for workers to continue receiving temporary disability benefits. These limits can be shorter. In California, workers can receive workers’ comp for 104 weeks within a five-year period, unless they have an injury that prevents them from returning to work.
Making the transition from workers’ compensation to state disability
After most workplace injuries or illnesses, injured or sick employees continue getting weekly temporary disability benefits until they reach what’s called “maximum medical improvement.”
At maximum medical improvement, the injured employee’s health care provider says they have improved as much as is possible. Once they reach this point, it’s time to determine whether those improvements allow them to go back to work in some capacity.
Workers experiencing a compensable injury or illness will go through an Impairment Rating Evaluation (IRE) after 104 weeks of benefits or if the injury becomes permanent or if the medical team determines the injured worker has improved as much as they can.
However, there is no limit on permanent disability benefits in most states. Once a worker is deemed to be permanent and totally disabled, the worker will typically roll over to the state’s disability program. Workers won’t receive state disability payments while also receiving workers’ compensation benefits.
Get to know your state work comp limit requirements
We’ve walked you through the overview of workers’ comp limits. However, each state is different. We suggest having a discussion with your insurance broker or agent to fully understand the requirements of each state.
Looking for workers’ compensation coverage? Ask your agent about coverage with Foresight Insurance.