Voluntary Compensation Coverage

Women in a pink shirt and black skirt falling off a ladder
Image courtesy of [Erin Patrice O'Brien] / Getty Images.

Voluntary compensation coverage affords workers compensation benefits to individuals who aren't covered under state workers compensation laws. As its name suggests, it is optional coverage that employers may purchase voluntarily. This coverage can serve as a hedge against lawsuits by uninsured workers. Here is an example.

Example

Beth owns Beth's Baubles, a costume jewelry store. She has just learned that her company has been sued!

The plaintiff is a former worker named Tiffany. Tiffany appeared at Beth's store about a year ago. She said she was eager to learn the retail business, and wanted to work in Beth's store to gain some experience. Beth agreed. She allowed Tiffany to work one or two days a month stocking shelves, counting inventory and performing other odd jobs.

Two months ago, Tiffany was helping Beth move some boxes when she fell and injured her back. Since Tiffany was a casual worker rather than a regular employee, she wasn't covered under the store's workers compensation policy. Tiffany doesn't have medical insurance and has incurred substantial medical expenses due to her injury. She is seeking $50,000 in compensatory damages from Beth's Baubles!

Laws Don't Cover Everyone

While state workers compensation laws apply to a majority of employed individuals, they don't cover everyone. Most laws have exceptions.

Many exclude independent contractors, domestic workers, agricultural and farm workers, and people employed on a casual or seasonal basis. Some laws also exclude taxi drivers, members of the clergy, certain salespeople, railroad workers, and masters or crew members on ships. (Railroad and ship workers are covered under federal laws.) Special rules may apply to leased workers.

Many states require businesses to purchase workers compensation coverage if they employ even one worker. However, some states permit businesses to forego this coverage if they employ less than a specified number of workers (such as 2, 3 or 4).

Voluntary Compensation

In the previous scenario, Beth was not required to purchase workers compensation coverage for Tiffany because Tiffany was a casual employee. Nevertheless, Beth could have purchased this coverage voluntarily. She could have asked her insurer to add the Voluntary Compensation endorsement to her company's workers compensation policy.

Voluntary Compensation coverage extends workers compensation benefits to workers who would not otherwise be eligible to receive these benefits. Why would you want to spend money on insurance you are not required to provide?

Voluntary Compensation coverage can head off lawsuits by injured workers. Tiffany sued Beth's Baubles because she needed help paying her medical bills. If Beth had voluntarily provided workers compensation benefits, Tiffany would have had no reason to sue Beth's company. Moreover, voluntary benefits are a gesture of good will. By offering these benefits, Beth would have demonstrated that she cared about Tiffany and was concerned about her welfare.

Covers Employees Only

To qualify for coverage under the Voluntary Compensation endorsement, a worker must be an employee as that term is defined by your state's workers compensation law. In most states, volunteer workers don't qualify as employees so they aren't covered under Voluntary Compensation. As noted previously, independent contractors aren't considered employees. Thus, they can't be covered under the Voluntary Compensation endorsement either.

Covered Injuries

The injuries covered under Voluntary Compensation are virtually identical to those that are covered under the standard NCCI workers compensation policy. The endorsement covers bodily injury by accident or bodily injury by disease (including death). For an injury to be covered, it must:

  • Be sustained by an employee included in the group of employees described in the endorsement schedule. For example, the endorsement might cover "casual workers" or farm workers."
  • Arise out of and in the course of employment necessary or incidental to work in a state listed in the endorsement schedule. The specific state in which the workers are employed must be listed in the endorsement.
  • Occur during the policy period and take place in the United States, its territories or possessions, or Canada. The injury may occur somewhere else (such as in a foreign country) if the employee is a U.S. or Canadian citizen temporarily away from those places (on a business trip).

An occupational disease is covered only if it is caused or aggravated by the conditions of your employment. For example, suppose a worker contracts asbestosis. The worker's disease is covered by your policy only if your employment of that worker cause the disease or made it worse.

Benefits Provided

Voluntary Compensation coverage affords the same benefits that would have been provided if the workers were subject to the state workers compensation law. For instance, if "New York" is listed in the endorsement, the workers will receive the benefits normally provided by New York's workers compensation law.

The endorsement provides no coverage for employees that are covered by any workers compensation law. Workers who are subject to the law don't need voluntary coverage. The endorsement also excludes any injury you cause to a worker intentionally.

Release of Liability

As a condition of receiving benefits, a worker must release you and the insurer of all responsibility for the injury or death. In other words, the worker cannot accept benefits for an injury, and then file a lawsuit against you or the insurer for the same injury. The worker must also transfer to the insurer his or her rights of subrogation against anyone liable for the injury.

Employers Liability

Finally, the Voluntary Compensation endorsement affords employers liability coverage. This coverage protects you if the worker declines workers compensation benefits, and sues you for damages instead.