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.
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:
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