|Because work comp is state based, the policy responds only when a state is specifically listed as either a 3.A. (primary) state or granted protection as a 3.C. (secondary) state, which may or may not require a specific listing depending on the insurance carrier.|
Primary or 3.A. status is required when:
Gaps exist between the extraterritorial provisions of the home state and the reciprocity allowances of the state to which the employee travels to work temporarily; or
There are on-going (not temporary) operations in a state.
Deciding which state or states require(s) listing as a 3.A. state is easy when the employees are based in a single location – such as an office building or service location. At least it used to be – COVID-19 has complicated the issue.
Single Location Employees
When employees work at a single location such as an office building, service location or a manufacturing plant, 3.A. assignment is easy. Regardless where the employees live, only the state in which the operation(s) is/are located must be considered when extending status as a 3.A. primary state.
Does this same focused guideline apply to employers located near state lines if employees live in a neighboring state and travel across state lines to get to work? Yes, as per the Coming and Going Rule. Traditionally the coming and going rule holds that injuries suffered traveling to or home from work, or even while going to and returning from lunch, are not compensable. The logic behind the rule is that the employee is not furthering the employer’s interest or serving the business’ need while travelling to or home from work; the employee is serving his or her own needs (the need to have a job and earn a living).
Because of the coming and going rule, even when a location-specific employee lives in another state, the state of residency is not required to be listed as a 3.A. state. The employee’s are assigned to the operational location.
COVID-19 may have complicated the issue and even negated the idea of the coming and going rule. Historically the “Coming and Going Rule” has allowed employers to “ignore” an employee’s state of residence, but COVID-19 has pushed employees out of the employer’s location and has required them to set up operations in their home. Now the state of residence may matter.
If the employee simply lives across the state line and travels to the employer’s location, there are no operations in the other state (the state of residency). Because the employees are or may soon be quarantined in their homes, there are now operations in another state – specifically the employee’s state of residency. Whether the employee’s home state needs to be listed as a 3.A. state is a function of permanency and the extraterritoriality and reciprocity provisions of the states in question (the employer’s operational state and the employee’s state of residency).
If the employee likes working from home and the employer sees no drop in quality and quantity of work (maybe even an increase in both), working from home may become permanent. If these home-based “operations” become permanent, the employee’s state of residence should or must be a 3.A. state.
But if the situation is only temporary and will never be anything but temporary, should the employee’s state of residence be listed as a 3.A. state during the temporary relocation? The answer depends on the application of the involved state’s extraterritoriality and reciprocity provisions. Basically, the answer is complicated because state variations must be considered.
Extraterritoriality and Reciprocity
Extraterritoriality and reciprocity issues present a major problem for agents. Which state or states must be listed as primary 3.A. states, which states can be listed as secondary (3.C.) states and which states can be essentially ignored?
Remember that the extraterritoriality and reciprocity concept applies only when the insured has employees in any state other than the domicile state or branch office states on a temporary basis. If the operations are anything other than “temporary,” the concept of extraterritoriality and reciprocity does not apply, the state with ongoing operations must be extended 3.A. status.
Extraterritoriality relates to the coverage provided in the state where the employer is located and the employee is primarily based. Extraterritoriality’s primary question is, does the employer’s workers’ compensation coverage follow the employee when he/she travels to work temporarily in another state? The good news, every state provides extraterritorial protection. The bad news, the extraterritorial extension of coverage is not consistent from state to state.
The flip side to extraterritoriality is reciprocity. Does the state to which the employee travels to work recognize the sending state’s workers’ compensation coverage? Again, the answer is not consistent and varies greatly from state to state.
Details of extraterritoriality and reciprocity are not the focus of this article. However, several resources are available from the VU detailing extraterritoriality and reciprocity. To fully understand the issues and concepts, access the following:
A state-by-state breakdown of the extraterritoriality and reciprocity regulations (linked here);
A 41-page Risk & Reality Report entitled “Untangling the Work Comp Mess – When Employees Travel” detailing extraterritoriality and reciprocity. Risk & Reality Reports are generally $29 for members and $59 for non-members, but this report is FREE to Big I members until April 17, 2020; and
A webinar detailing extraterritoriality and reciprocity. The above referenced Risk & Reality Report is based on this webinar.
Let’s look at a couple examples of extraterritoriality and reciprocity to explore these concepts more fully.
Example 1: Tennessee and Arkansas
One or several employees work in Memphis but live just across the Mississippi River in Arkansas. Assume that a governmental mandate prevents these workers from coming into Tennessee for work and they are required to set up temporary operations in their homes in Arkansas.
The first question, does the workers’ compensation policy for the Tennessee employer/insured follow any employees while they work temporarily in other states? The second question, does the state to which the employees travel to work on a temporary basis recognize the employer’s workers’ compensation?
Yes, Tennessee provides extraterritorial coverage on a temporary basis. However, the amount of time is relatively short. State regulations define “temporary” to mean no more than 14 consecutive days and no more than 25 days in the calendar year (aggregate). On the fifteenth consecutive day, Tennessee ends its extraterritorial protection. When the “sending” state’s coverage ends, the “receiving” state has jurisdiction.
Arkansas regulations aren’t as clear. The statute requires that the workers’ comp carrier be licensed in Arkansas, but there is no clear indication of reciprocity, only and intimation. Thus, there may be no reciprocity, especially if the work comp carrier is not licensed in Arkansas.
Given these circumstances, it appears Arkansas needs or must be listed as a 3.A. state. There is no doubt Arkansas must be named a 3.A. state if the employees are working there more than 14 consecutive days because Tennessee law says that more than 14 days is not considered temporary. Further, because the Arkansas reciprocal requirements are fuzzy, not naming it as a 3.A. state may prove problematic.
Example 2: Pennsylvania, Ohio and West Virginia
Assume the insured is located in Pittsburgh, PA. Because of its proximity to the southwest corner of the state, employees drive daily from Ohio and West Virginia for work. If these employees are forced to work from home, are Ohio and West Virginia required to be listed as 3.A. states?
First, the Pennsylvania’s extraterritorial provisions must be reviewed and understood. Based on the reading of the PA statute, extraterritorial protection appears to exist without a specific time limit. The only requirement appears to be that the employees are classified as Pennsylvania employees. So, coverage extends from the Pennsylvania employer’s policy to workers working from home on a temporary bases, whether in Ohio or West Virginia.
With the extraterritoriality question answered, are there reciprocity issues that create problems? Ohio statue, according to the state breakdown linked above, reciprocates for 90 days. If the Ohio resident employees return to work before the end of 90 days, the extraterritorial provisions of Pennsylvania and the reciprocity provisions of Ohio allow the employer’s Pennsylvania coverage to respond.
However, Ohio’s administrative code specifically addresses Ohio-based employees while working in Ohio for out-of-state employers. According to the code, when the Ohio-resident employees are working in Ohio, they are subject to the Ohio workers’ compensation laws. So, any amount of time an Ohio resident spends working in the state subjects the employer to Ohio law and benefits. It appears Ohio needs to be a 3.A. state from day one. But this can’t be done because Ohio is a monopolistic state; thus, a policy must be purchased from Ohio.
West Virginia applies an odd provision. The West Virginia statute allows the employer and employee to contractually agree on which state’s benefits the employee desires to access. In the absence of such a contract, the reciprocal allowances are 30 days in a 365-day period. If there is no contract and if the employee works in their home state of West Virginia beyond 30 days, West Virginia requires 3.A. status.
As may be plain to see from these two examples, interpreting the extraterritoriality and reciprocity provisions of a given state can be and generally is tedious. Although a law degree is not required, it helps.
What Agents Must Do
From and errors and omissions (E&O) perspective, agents must take the conservative approach and name the employee’s state of a residence as a 3.A. state on an “If Any” payroll basis. If the employee is in a monopolistic state, buy the in-state coverage. A less conservative but possibly still acceptable approach is to name the employee’s state of residence as a 3.C. Other State (but this doesn’t work in a monopolistic state). A particularly bad approach is to try to interpret the laws of the relevant states and hope everything dovetails correctly.
If the state does not require 3.A. status, there is no premium charge for naming the state. If the underwriter is not willing to give 3.A. status, use 3.C. Remember, 3.C. is an “Oops” option only for use when it’s not clear that 3.A. status is needed or the carrier will not allow a state to be granted 3.A. status.
A Bogus 3.C. Carrier Claim
In response to a request to name a state a 3.C. state, underwriters 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 says: “We will reimburse you (the named insured) 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? Just because they don’t want to list a state doesn’t mean they can’t. Don’t let this objection stand unchallenged.
Home-Based Worker Injury
If an employee is injured while working from home, will the injury be compensable? This is a reasonable question, but the answer is far from simple.
Workers’ compensation is designed to pay for injuries arising out of and in the course and scope of employment. Regardless where the employee is injured, compensability is judged against these guidelines.
What was the employee doing when the injury occurred? Is there a reasonable connection between the employment and the injury or was the employee pursuing his or her own interest? Any injury requires a a fact-intensive review.
Under every day, normal conditions, employers are not required to include an employee’s state of residence on the workers’ compensation policy – if that employee reports to and primarily works at the employer’s location. The “coming and going rule” holds that travelling to and home from work does not benefit the employer (subject to a few exceptions).
However, the pandemic panic has temporarily placed us in abnormal conditions. Employees are working from home rather than at the employer’s place of business. If these employees live in a state other than where the employer is located, are these considered temporary operations in another state? If or because they are temporary operations in a state other than where the employer/insured is located, the question of workers’ compensation must be addressed. The state in which the employee lives and is working temporarily must be specifically addressed.
Rather than attempting to interpret state laws regarding the extraterritorial provisions and reciprocal allowances of each state’s workers’ compensation law, simply name the employee’s state of residence as a 3.A. or 3.C. state (depending on what the underwriters will allow). There should be little or no effect on premium. This assures there are no gaps in protection.