With limited exceptions, nearly all states require that contractors purchase workers’ compensation insurance when performing work in that state. That seems simple enough, right? There are, however, at least 52 different sets of workers’ compensation laws in the United States, including all 50 states, the District of Columbia, and the federal government. Each jurisdiction has slightly different requirements. Ensuring that a contractor has appropriate workers’ compensation coverage can be a complex and daunting task. Moreover, a contractor’s failure to obtain adequate workers’ compensation coverage can leave it exposed to potentially astronomical workplace injury claims and unnecessary fines. This article explores the potential perils a contractor may face as a result of out-of-state work.
The Workers' Compensation Insurance Policy
In most states, private insurance companies provide workers’ compensation coverage. However, in Wyoming, North Dakota, Ohio, and Washington, the state exclusively provides coverage to employers. A typical workers’ compensation insurance policy references what states are insured under the policy in paragraphs 3.A and 3.C. (Federal coverage can only be added by an endorsement).
Paragraph 3.A is fairly simple and should include all states that a contractor operates in at the inception of the policy. Paragraph 3.C is typically a safety net and often incorporates an Other States Insurance Endorsement. An Other States Insurance Endorsement, however, is limited in scope, and requires that the employee was in another state on a temporary basis. For example, an Other States Insurance Endorsement to a Pennsylvania workers’ compensation policy typically provides that, for coverage in another state, all of the following must apply:
- The employee claiming benefits was hired under a contract made in Pennsylvania, or was, at the time of injury, an “Employee Principally Employed in Pennsylvania;”
- The employer was not required by the law of the state where the injury occurred to have obtained separate, state-specific workers’ compensation insurance coverage; and
- The employee claiming benefits was, at the time of injury, an “Employee Working Temporarily in Another State.”
Pitfalls of an Other States Insurance Endorsement
Particularly in the Northeast, contractors often find themselves performing projects in multiple states. Within the span of one year, many contractors principally-based in Pennsylvania will also do work on projects in New Jersey, Delaware, Maryland, Washington, D.C., Virginia, and New York. That is seven different jurisdictions and seven different sets of workers’ compensation laws. Can a contractor rely on the Other States Insurance Endorsement to provide coverage when working outside of Pennsylvania? Probably not.
For illustration, a Pennsylvania-based contractor is working on a project in Northern Virginia. The contractor has not done work in Virginia before and does not intend on continuing its work in Virginia after this project. The contractor’s work, and that of its employees, in Virginia is temporary and, therefore, covered by its Other States Insurance Endorsement, right? The answer is “it depends on the terms of the Other States Insurance Endorsement.” Often times, the endorsement will define an “Employee Working Temporarily in Another State” as one traveling through, making a delivery, attending a meeting or seminar, or performing work in the other state for not more than 90 days. If the contractor’s employees are working on the project for more than 90 days, then the Other States Insurance Endorsement will not cover a workers’ compensation claim (requirement 3 above). Similarly, if the contractor hires union members from the local union hall in Virginia, those employees will not be considered “hired under a contract made in Pennsylvania” (requirement 1 above). Rather, they will be considered to be hired under a contract entered into in Virginia.
Take the same situation, but this time the contractor is working on a project in New York for less than 90 days. The contractor is covered under the Other States Insurance Endorsement because its work is temporary, correct? Think again. Contractors and subcontractors who work on construction projects in New York are required by state law to purchase specific New York workers’ compensation coverage (requirement 2 above). In other words, contractors and subcontractors must ensure that New York is listed in paragraph 3.A of their workers’ compensation policy if they work on any construction projects in New York, even for less than 90 days. If the contractor’s workers’ compensation carrier is not licensed to provide workers’ compensation coverage under New York law, then it will be necessary to purchase a separate New York-compliant policy. New York is not alone in this requirement. Massachusetts, Nevada, New Hampshire, New Mexico, Montana, Wisconsin, Ohio, and Washington all require state specific workers’ compensation coverage — always or in certain circumstances. On a related note, both New York and New Jersey require that contractors purchase disability insurance in addition to their workers’ compensation coverage.
In today’s construction industry, contractors frequently find themselves working in many states at the same time. With each new state, the contractor will find themselves facing unfamiliar laws and regulations, and, as a result, ever-expanding risks. Finding a way to comply with the new laws and regulations, and effectively manage those risks is essential to running a successful business. For instance, failing to obtain proper workers’ compensation coverage can lead to uninsured claims and significant fines. So, what can you do? Be sure to carefully read your insurance policies and discuss your specific insurance needs with your insurance broker. While policies are similar, they are not always the same. Ensure that you are well-aware of the laws of the state, city, and county in which you are working, as each jurisdiction varies. Finally, and as always, if you are unsure of your obligations, we encourage you to consult your legal counsel.