Workers' compensation insurance is a state-mandated coverage that pays benefits to employees who are injured or become ill as a result of their work. It covers medical treatment, lost wages, rehabilitation, and death benefits. In return, employees generally give up the right to sue their employer for workplace injuries - this is the "exclusive remedy" provision that underlies the entire workers' compensation system.
Workers' compensation is state-mandated coverage paying benefits to employees injured or made ill by their work - covering medical treatment, lost wages, rehabilitation, and death benefits in exchange for the employee giving up the right to sue their employer.
Workers' compensation is required in nearly every commercial contract involving labor or on-site work. Understanding the coverage, what contracts require, and how to verify it on a certificate of insurance is a baseline requirement for any compliance program.
Two Components of the Coverage
Workers' compensation policies actually combine two distinct coverages:
Part One - Workers' Compensation. This is the statutory coverage that pays employee benefits as required by state law. Limits on Part One are not defined by policy limits - they are defined by state statute and are technically unlimited from the insured's perspective (the insurer pays whatever the state mandates).
Part Two - Employer's Liability. This coverage protects the employer against lawsuits from employees (or their families) that fall outside the workers' compensation system. These include claims based on dual capacity, third-party-over actions, or consequential bodily injury to a spouse. Employer's liability has defined limits and appears on the COI.
Most contracts require both. The employer's liability limits are the ones specified in contract requirements and reviewed on the certificate.
Why Contracts Require Workers' Compensation Certificates
If a contractor's employee is injured at your facility or on your project, the employee's benefits are paid by the contractor's workers' compensation insurer. Without a certificate confirming this coverage:
- You may be liable for the injured worker's benefits if the contractor is uninsured or underinsured
- In some states, uninsured subcontractors' employees may be treated as your employees for workers' compensation purposes
- You may face regulatory action for allowing uninsured contractors on your property or project
Workers' compensation is not optional for most employers, and verifying that every contractor and subcontractor carries it is fundamental risk management.
Reading Workers' Compensation on a COI
Workers' compensation and employer's liability appear in their own section on an ACORD 25 form. Fields to verify:
- Statutory coverage - should indicate "Yes" or list the state(s) where coverage applies
- State(s) of coverage - must include the state(s) where work is being performed
- Employer's liability limits - typically shown as three figures:
- Each accident limit
- Disease policy limit
- Disease each employee limit
- Policy effective and expiration dates - must cover the performance period
- Waiver of subrogation - if required by your contract, must be noted on the workers' compensation line
State-Specific Requirements
Workers' compensation is a state-by-state system. Coverage requirements, benefit schedules, and even the definition of "employee" vary significantly by state. A few compliance implications:
Multi-state work. If a contractor performs work in multiple states, coverage must extend to each state where work occurs. A policy written for one state does not automatically cover workers injured in another. The COI should note all applicable states or reference "all states" coverage.
Monopolistic state funds. In some states - North Dakota, Ohio, Washington, Wyoming, and a few others - workers' compensation must be purchased from a state fund rather than a private insurer. These policies do not appear on the ACORD 25 form in the same way; a separate certificate from the state fund may be required.
Subcontractor considerations. A general contractor typically requires all subcontractors to carry their own workers' compensation. If a subcontractor is exempt or does not carry coverage, the general contractor's workers' compensation may be triggered for that subcontractor's workers - with significant premium consequences.
The Waiver of Subrogation on Workers' Compensation
The waiver of subrogation on the workers' compensation line is frequently overlooked but is one of the most important compliance checks. Here is why it matters:
If a contractor's employee is injured at your facility and the contractor's workers' compensation insurer pays benefits, the insurer may have the right to pursue you (the property owner or project owner) for contributing to the injury. A waiver of subrogation on the workers' compensation line eliminates that right.
Many contracts require waivers of subrogation on all coverage lines. The waiver must be separately noted for workers' compensation - it does not carry over automatically from the general liability line.
Common Compliance Issues
Coverage excludes the state where work is performed. The policy may be valid but limited to a state other than where work is being done.
Employer's liability limits below contract requirements. Standard employer's liability limits of $100,000/$500,000/$100,000 may not meet contractual requirements of $500,000/$500,000/$500,000 or higher.
Waiver of subrogation absent from the workers' compensation line. COI shows the waiver on general liability but not on workers' compensation.
Solo operators claiming exemption. Some states allow sole proprietors or corporate officers to opt out of workers' compensation. If your contract requires coverage and the vendor claims an exemption, verify the exemption is legitimate and that your contract permits it.
How Bramble Helps
Bramble reads workers' compensation requirements from your contracts - including state coverage, employer's liability limits, and waiver of subrogation requirements - and compares them against submitted COIs, flagging gaps in coverage, limit shortfalls, and missing waivers on the workers' compensation line.
Visit getbramble.com to see how Bramble handles contract-vs-COI compliance across all coverage lines.