Monopolistic States Workers Comp: The Broker's Placement Guide

Four states do not allow the purchase of workers compensation through a private insurance company. Instead of using private carriers, all four of these states use a State-Run Fund. As such, in North Dakota, Ohio, Washington and Wyoming, the employer cannot buy their worker's compensation coverage from anyone else and has no renewal to shop for the best possible rates. Due to this, when an employer has employees working in different states, they will have to obtain a separate policy with the state fund for each state. Consequently, the employee's wage(s) will have to be carved out into each respective policy. In addition to carving out the employee's wage(s), employers will need to add Stop-Gap Employers Liability (and/or other language) to their Commercial General Liability (CGL) Policy. The additional layer of protection is necessary because although monopolies may exist in some states, in neither Item 3.A. nor Item 3.C. of the Standard Form Policy can the name of a monopoly appear.

Before making sense of anything else, you should be able to determine what the front page of a worker's compensation policy really looks like. The front page contains numbered slots, and almost all of the work is done by only two of those slots.

What are the four monopolistic states and their funds?

The four government run monopolistic states (North Dakota, Ohio, Washington, and Wyoming) each have a single fund that handles all workers compensation policy writings. Thusly, the individual funds have developed their own systems for categorizing and pricing risk and therefore do not adhere to any NCCI classification/rating standards. This creates a situation where an employer with operations in multiple states can expect that their work classifications and experience-rated premiums cannot be transferred from state-to-state. In addition to this, Washington L&I calculates its premium on an hourly basis as opposed to per $100 of payroll, which is the only state to use an hourly system^[1]. Therefore, vacation/sick time are excluded from the exposure base.

Only Ohio and Washington allow qualified employers to be self-insured. The remaining two monopolistic states, North Dakota^[2] and Wyoming^[3], offer no other means for employers to avoid paying premiums into a required pool. They are thus forced to purchase insurance products from their state's single monopoly insurer:

How do Item 3.A. and Item 3.C. handle monopolistic states?

The Coverage Territory for the workers compensation policy Standard is controlled on the "Information" page and the monopolistic states are removed from both of the items offering this coverage. Item 3.A. will cause Part One statutory coverage to become active for those states where operation will take place under Part One, however, as no private carrier can write a monopolistic state, it cannot appear there. Item 3.C. (Other States), provides coverage for all other states in which work begins subsequent to the effective date of Item 3.C. Nevertheless, Item 3.C. specifically excludes the four mentioned states.

The only exception to reciprocity is that stated by the Fund itself. While Washington L&I has reciprocal agreements with Idaho, Oregon and some other Western States, both of their reciprocal agreements with Montana and Nevada have specific exclusions from these reciprocity agreements for construction^[4]. Do NOT assume a reciprocal agreement exists until it has been confirmed in writing by the Fund.

Remote employees sharpen the same edge. An employee who works from home in Ohio is Ohio payroll, which neither item can reach. The employer must enroll with the Ohio BWC^[5], the private carrier's auditor will strip that payroll from the standard policy, and the fund will not backdate it.

What is stop gap coverage and why do you need it?

A stop-gap endorsement (employers liability protection) is attached to a client's existing commercial general liability policy in order to provide coverage for monopolistic state exposures. Funds are responsible for paying statutory benefits but also have no responsibility for employers liability. The Part Two, which every standard workers compensation policy provides when the injured worker elects to sue as opposed to taking the benefit available through the workers compensation system, is what the stop gap adds back to the CGL for third-party action over claims, consortium or dual-capacity claims against the employer and all other lawsuits claiming that the employer was negligent. The CGL would decline these types of cases anyway due to the employee injury exclusion without such a stopgap endorsement.

Most umbrellas require an underlying employers liability policy ($1,000,000) therefore, you should be quoting stopgap at that same level and NOT at the minimum levels of Part Two:

How do certificates of insurance work with state funds?

The issue is that there is nothing to indicate an employer liability gap from viewing the certificate of insurance, because the Fund has its own and your ACORD 25 cannot stand in for coverage that your agency does not control. Show the Stop Gap under the General Liability section on your certificate of insurance. Do Not Certify a policy that was issued by a Fund to place coverage into the Workers Comp box as if your agency purchased that coverage, another very common fact pattern relating to errors & omissions.

This guide is for educational purposes and summarizes standard NCCI policy language. Your policy's specific terms, conditions, and endorsements control. Talk to a licensed broker about your actual exposures.

The Bottom Line

There are four monopolistic states (North Dakota, Ohio, Washington & Wyoming) where an employer in those states may only obtain worker's comp coverage through a state fund (never private). The State Fund will cover all statutorily required employee benefits, however, they do NOT provide Employers Liability. Due to this reason, we recommend adding Stop-Gap Coverage to your CGL Policy. We recommend you enroll with the state fund before beginning work because the State Fund will not backdate coverage. Also, keep the state out of Item 3.A. and 3.C., and verify the Stop-Gap Endorsement at every renewal.