What exactly is the “Exclusive Remedy”

Exclusive Remedy

What is the exclusive remedy for risk management and small business professionals?  In the world of insurance, the term ‘exclusive remedy‘ refers to the workers’ compensation system.  These systems are administered by the sate governments of each individual state, not the federal government. In most states, this grand bargain began around 100 years ago.  It was an agreement between employment and labor during a time when many employers severely abused the rights of workers. As a result of these abuses, many workers were beginning to unionize.  In an attempt to keep both sides happy, most states created a workers compensation system to deal with both medical benefits to employees and protection from most lawsuits for employers.

workers-compensation-insurance-is-the-exclusive-remedyThese workers’ compensation systems are administered by each individual state and not the federal government. Because of this, each state provides the system a tad bit different.  Wisconsin was the first state to administer a workers’ compensation system in the year 1911. Mississippi was the last state to come around to the exclusive remedy in 1948.


workers-compensation-forms-aid-the-exclusive-remedyThe term ‘exclusive remedy‘ came about because the benefits that are provided under the workers compensation system are supposed to be the sole remedy available to employees injured on the job. The benefits to employees are, they have the confidence to go to work knowing that if they are injured on the job they will have their medical costs covered and some lost wages. Employers benefit from the system by having most lawsuits taken away for injuries that occur as a normal part of business operations. Businesses are not covered for injuries that are caused by the intentional actions of the business and its management. This includes decision-making or neglect by the business to operate the way in which they do business in safe conditions.

Workplace-Safety-Toolkit-Exclusive-RemedyAs time has passed and work environments have changed so has the opinion of many in the business community about the need for an exclusive remedy in todays’ business climate. A few states have removed workers compensation as a requirement for some types of businesses. A few other states have proposed the idea, but are still in a wait and see approach. At this time Texas and Oklahoma re the only states to implement what is referred to as an Opt-out program. This is a program where if the business qualifies they can elect not to carry coverage and provide an alternative to what most states give through the workers comp exchanges. Both have in place certain minimum standards that are similar to those standards required under most workers compensation systems. Opponents of these system frequently critique that there are very strict reporting policies put on the responsibility of the employee. In the system set forth by Oklahoma employees must report the injury to management within 24 hours or they may not be eligible for coverage. Most states are sitting in a wait and see approach and depending on the success or failure of these states will determine the future of the workers’ compensation system.



Workers Comp Opt-Out Programs

In recent years, a small number of states have considered implementing an opt-out option for workers’ compensation insurance for certain employers. Workers’ comp insurance is compulsory in every state except Texas (some states have exceptions for employers with just a few employees). Essentially, opt-out programs allow generally large employers to provide an alternative form of work comp benefits from the statutory defined benefits enacted in a given state. Oklahoma enacted their current workers comp opt-out law in 2013. There is at least some consideration in Tennessee and South Carolina to adopt similar programs (however, these alternative plans are currently on hold in both Tennessee and South Carolina due to concerns raised in other states such as Oklahoma).


Stay up to date on the South Carolina Workers Compensation System at myinsurancequestion.com

As recently reported in the below story, the Oklahoma Workers’ Compensation Commission ruled part of Oklahoma’s current law to be unconstitutional:

There will likely be a final determination of this ruling by the Oklahoma Supreme Court.

Workers’ comp insurance is designed to be an ‘exclusive remedy’ for employees injured on the job. This is generally the case when employers’ carry workers comp insurance (where as employers without workers’ comp insurance bear the risk of being financially responsible to employees injured at work). This system is designed to control costs for employers with respect to workplace injuries, whereas without statutorily defined benefits, employers would be routinely subject to litigation related to on the job injuries.

Most opt-out programs are conditioned on the premise that workers injured on the job will receive equal or better benefits under the alternative program as they would if their employer participated in the traditional workers’ comp system in a given state. In Oklahoma, there is criticism that the definition of workplace injury is varied by companies that decide the workers comp opt-out option from the traditional workers’ comp system. For example, the article above indicates the Dillard’s department store’s alternative benefits plan considers injuries arising from exposure to asbestos on the job as a non-covered injury. On the other hand, statutory worker’s comp laws cover injuries arising from workplace asbestos exposure.

At a minimum, the Oklahoma Workers Compensation Commission’s decision highlights a legitimate concern with respect to opt-out programs. In other words, it seems reasonable to assume that certain employers might at least attempt to provide less benefit than statutorily defined benefits if allowed and they could get away with it.

It will be interesting to see how this trend develops nationally. It is important that injured employees maintain the right to have adequate and efficiently provided benefits. It remains to be seen whether alternative programs can accomplish that or not. Self-insurance has clearly worked in certain situations, so it’s possible the system can still work or even improve with less regulation. However, if not done correctly, there is also substantial opportunity for alternative programs to be manipulated by large employers with substantial negotiating leverage.

What is Workers’ Compensation Insurance?

Workers’ Compensation Insurance is a state mandated insurance coverage required by nearly every state in the country. The basic purpose of Workers’ Compensation Insurance is to assure injured workers get medical care and compensation for a portion of the income they lose while they are unable to work as a result of injuries sustained on the job.  Workers give up the right to sue employers for injuries that occur as a part of normal business practices. Inured workers can sue employers if there is some form of negligence on the part of the employer.

Workers' Compensation

Workers receive these benefits regardless of who was at fault in the accident. In most cases if a worker is killed while working, workers comp (as it is often abbreviated) provides death benefits for the worker’s dependents. Also, Workers’ Compensation Coverage prevents the employer from bearing the full cost of injuries that occur during normal business operations. Employers also gain the relief that they cannot be sued for injuries that occur as a part of normal business practices.

In the United States, Workers’ Compensation Laws were implemented throughout the first half of the 20th century.  In 1908 President Taft signed the first legislation requiring mandatory employer coverage for employees working in multi-state commerce. Over the next 40 years each state enacted their own state specific workers’ compensation programs. Wisconsin was the first state to adopt such legislation and Mississippi was the last state to adopt a formal workers’ compensation program.

Workers' Compensation Insurance Claim Form

One of the most important legal concepts with regards to workers’ compensation insurance is that it is the “exclusive remedy” when an employee is injured on the job.  This means that employers who purchase coverage  can not be held liable for employee injuries in most states, except under narrow circumstances where the employer intended to cause injury to the employee or was willfully negligent. The idea behind the exclusive remedy clause is to force compromise between employers and employees. Employees give up the ability to to win large suits against employers in order to receive fast and limited financial return. Employers exchange liability regardless of fault, for legal protection from potentially devastating tort judgments in court.

In most states, employers are legally required to carry this insurance coverage. Each state has certain exemptions to the requirement. Two states (Oklahoma and Texas) have laws that allow certain employers to opt-out of the workers’ compensation requirement, if they qualify. Tennessee and South Carolina Legislatures are also proposing similar opt-out provision’s. This opt-out provision has been in the news a bit as of late. Oklahoma is in its second year of allowing companies to opt-out and fewer than thirty businesses have applied for and been granted the privilege.  Unlike Texas’s system, Oklahoma employers must meet certain financial and other requirements to qualify, including a written benefit plan that provides coverage and benefit levels that meet or exceed the minimum requirements set forth in the law.

Most states and employers are taking a wait and see approach to these changes to the opt-out provision.