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Bad Things Happen When Employees Travel to Other States

Author: Chris Boggs

Evidently some of my articles make it hard for some agents to sleep. Well, don't read this article if you plan on sleeping well tonight – especially if any of your clients have employees who travel to other states to work.

Traveling employees create workers' compensation coverage nightmares; but many agents are unaware of these travelling landmines until after the injury. The problems arise at the junction of two key concepts: 1) Extraterritoriality and 2) Reciprocity.

Extraterritoriality relates to and is a function of the state from which the employee departs to perform work for his employer, the "sending" state. The concept of reciprocity applies to the state to which the employee travels to work, the "receiving" state. More specifically:

  • Extraterritoriality: Questions related to extraterritoriality include: How does the "sending" state's workers' compensation policy respond when one or several workers leave the state to perform operations for or conduct duties on behalf of the employer? More simplistically, does the workers' compensation coverage follow the employee when he/she leaves the state to work? Are there any limitations on the extraterritorial benefits?
  • Reciprocity: How does the state to which the worker has travelled to work, the "receiving state" view the workers' compensation coverage from the "sending" state? Actually, there are two parts to this question: 1) Does the receiving state's workers' compensation law have jurisdiction over the out-of-state workers travelling into the state? and 2) Does the workers' comp policy from the sending state satisfy the receiving state's workers' compensation statutes?


Answering the first question is easy. Every state provides extraterritorial work comp benefits to employees travelling to another state for business purposes. However, some states limit the applicability of these "travelling" (or following) benefits in one of two ways, either:

  1. Extraterritorial benefits end after a specified number of days. Some states limit the number of days coverage follows the worker to another state; or
  2. The worker must "qualify" for in-state benefits based on a multi-part test. Many "test"-based states apply Larson's four-part test to determine whether an employee working in another state qualifies for in-state (sending state) protection and benefits. Larson's four-part test extends in-state benefits to out-of-state (travelling) employees if one of the following four qualifies applies:
  3. The worker's employment is principally localized in the sending state;
  4. The employee is working under a contract of hire made in the sending state for employment not principally localized in any state;
  5. The employee is working under a contract of hire made in the sending state for employment principally localized in another state whose worker's compensation law is not applicable to the employer (such as a state that has a number threshold); or
  6. The employee is working under a contract of hire made in the sending state for employment outside the United States.
"Test" states not directly applying Larson generally use a similar variation. If the worker does not qualify under the state's test, benefits do not follow the worker; in short, there is no extraterritoriality. 

Extraterritoriality looks simple, but it's not. Although every state extends some level of extraterritorial protection, there are limitations. Knowing the sending state's laws is the first step in solving the "Have toolbox, will travel" problem. But the real fun is just starting.

Reciprocity is more frustrating than extraterritoriality. While every state provides extraterritorial benefits to qualified employees and/or for a certain amount of time, extraterritorial laws don't consider the receiving state. In practicality, extraterritorial benefits apply only when the receiving state recognizes the coverage. So, the important question is, what are the receiving state's reciprocity rules?

Some states simply don't care about another state's extraterritorial coverage. Employees working in non-reciprocating circumstances or non-reciprocal states must abide by and are subject to the workers' comp law of the state to which the employee travelled to work.

Reciprocity statutes vary widely and fall into one of three "levels" or grants of reciprocity:
  • No reciprocity: Non-reciprocal states are not concerned with the laws of any other state; employees working in nonreciprocal states must abide by its work comp law.
  • Full reciprocity: Fully reciprocal states generally maintain a list of states with which they have a reciprocity agreement, fully recognizing the other jurisdiction's laws – without limitation.
  • Limited reciprocity: These states that do reciprocate, but not in full. Four common reasons for non-reciprocity are:
    • The class of business: Construction is the most common class of business excluded from reciprocity. States that otherwise reciprocate refuse to recognize the "sending" state's workers' compensation coverage when the insured is in a construction class;
    • The number of employees: Some states reciprocate when the out-of-state employer sends only a limited number of workers into the state. These are generally states that have a number threshold greater than one for even an in-state employer to have workers' compensation. In these states, once the number of out-of-state workers eclipses a certain number, the state no longer reciprocates;
    • The length of time in the state: A few states recognize the sending state's coverage for a limited amount of time. Once the time limit is eclipsed, reciprocity ends; or
    • The lack of mutual reciprocity: These are quid pro quo states. Mutual reciprocity states recognize the sending state's benefits only if the sending state recognizes the receiving state's benefits when the roles are reversed (the sending state becomes the receiving state and vice versa). Imagine these states sticking their respective tongues out at each other and saying, "You don't recognize our workers' compensation coverage so we aren't going to recognize yours. Take that!"

 Why This Matters

Knowing the states to which employees might travel for work is essential when developing the insured's workers' compensation plan. If the extraterritorial and reciprocal exposures are missed or ignored, the complete loss of protection is possible. If the sending state's workers' comp does not respond, the insured is responsible for paying out of its own pocket all benefits required by law for a work-related injury.

No threat of "self-funding" exists when the sending and receiving states' extraterritorial and reciprocity provisions align. The sending state's workers' comp follows the worker and the receiving state recognizes the coverage. Benefits are paid under the sending state's laws and the receiving state asserts no authority over the situation.

But when extraterritorial and reciprocal laws do not dovetail, coverage for travelling employees requires specific action by the agent. Depending on the situation, work comp protection is extended in one of two ways when state laws don't sync:

  • Adding the receiving state as an additional "Primary" state – also known as a "3.A." state; or
  • Extending "Other State," also known as a "3.C." state or secondary state, status to the receiving state.

Deciding whether "3.A" or "3.C." is the appropriate option is simple: When the sending state's benefits do not apply in the receiving state, list the receiving state as a Primary (3.A.) state. Anytime there are known or suspected extraterritoriality or reciprocity issues, use "3.A." status.
"Other State" or "3.C." status is intended only as a safety net. What is meant by "safety net"? Essentially, a "3.C." listing is, or should be, limited to situations where there is no indication that the receiving state can or will assert authority over the worker; or when new temporary operations are begun during the policy period. "Other State" protection is an "uh oh" protection.

Assigning "3.A." Status

States that may require 3.A. status include:

  • The employer's "home office" and branch office states;
  • The employer's state of incorporation, if other than a home or branch office state;
  • Any state where the employer hires temporary "employees" solely to perform operations in that state of hire;
  • Any state where a subcontractor is hired to perform work on behalf of a general contractor if proof of workers' compensation is not provided;
  • Any state that has "significant contact" with an employee;
  • The state in which the "contract of hire" was executed (even if the employee moves);
  • Any state that does not reciprocate with any listed state;
  • States with limited reciprocity provisions; and
  • Monopolistic states require a separate policy.

These are merely recommendations and not rules. Keep in mind, underwriters may be unwilling to extend 3.A. status, even when a good case can be made for the need.

Using "3.C." Properly

Part Three – "Other States Insurance" dictates how the workers' compensation policy responds if an employee is injured in a non- "3.A." state, but, due to unexpected extraterritorial or reciprocity problems, is given the option to choose the benefits mandated by the state of injury rather than a listed "3.A." state.

Benefits extended to workers in "3.C." states comply with the statutory benefits required by the state where the employee is injured. Effectively the workers' compensation policy responds and pays benefits in listed 3.C. states just as if the state was scheduled under 3.A.

"Other States" protection should be structured to include any state to which the underwriter is willing to extend coverage. Most errors and omissions (E&O) carriers recommend "3.C." status be garnered with the phrase, "All states, territories and possessions other than 3.A. states and monopolistic states." However, some carriers refuse to allow this breadth of protection due either to license status (the carrier may only be licensed in a few states), or the desire for greater information regarding the location and activities of the employees.

If the underwriter is unwilling to apply the overt "All states…" wording, build the "other states" coverage as broad as possible by:

  • Specifically schedule those states that qualify for "3.A." as per the previous recommendations but which the underwriter would not allow;
  • If not included in "3.A.," specifically list all bordering states;
  • List all states to which employees regularly travel for training or meetings; and
  • Complete the schedule by adding the terminology, "All remaining states, territories and possession other than 3.A. states, listed states and monopolistic states."

Yes, the attempt is made to sneak the "All states…" wording back into the protection.

Underwriting's Bogus Claim

An underwriter might say, "We can't list ________ as a 3.C. state because we are not licensed there." This is a bogus claim. Underwriters may not want to list the state, but they CAN. Paragraph A.3. under Part Three – Other States Insurance reads: "We will reimburse you for the benefits required by the workers' compensation law of that state if we are not permitted to pay the benefits directly to persons entitled to them."

Other than not being licensed in the state, why would the carrier not be allowed to pay the injured worker directly? Just because they don't want to list a state doesn't mean they can't. But even though the facts are in your favor, the underwriter may still refuse.

Requirements and Recommendations

Avoid the nightmares created by "have toolbox, will travel" by:

  • Discussing the travelling employee exposures with all insureds;
  • Learning the extraterritorial laws of the "sending" state;
  • Understanding the reciprocity laws of the "receiving" state; and
  • Properly listing states as either Primary/3.A. states or "Other States" (3.C.).

Last Updated: August 5, 2022

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