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Information for Workers' Compensation Nonsubscribers

(September 2013)

Workers’ compensation is a state-regulated insurance system that pays the medical bills and some lost wages of employees injured on the job.  Texas doesn’t require most private employers to have workers’ compensation insurance. Employers who don’t offer workers’ compensation coverage are called nonsubscribers.

Nonsubscribers lose important legal protections, including immunity from most lawsuits by injured workers. They could also be forced to pay high damage awards if an injured employee can prove in court that the employer was negligent in any way.

If an employer has workers’ compensation insurance, Texas law limits the employer’s liability for work-related injuries. Injured employees may get medical and income benefits set by state law but may not sue their employers.

Workers’ Compensation Insurance

Employers who choose to provide workers’ compensation coverage must do so in one of three ways:

  • buy a workers’ compensation insurance policy from an insurance company licensed by the Texas Department of Insurance
  • be certified by TDI to self-insure workers’ compensation claims
  • join a self-insurance group that has received a certificate of approval from TDI.

When an employer buys a workers’ compensation policy or is certified to self-insure, the insurance company (or a third-party administrator in the case of self-insurance) pays the medical and income benefits to the employee.

The Texas Property and Casualty Insurance Guaranty Association covers licensed workers’ compensation insurance companies. This means the guaranty association will pay claims if the insurance company becomes financially unable.

Employee Benefits

Workers receive benefits based on the type and severity of their injuries. Benefits can include

  • lifetime medical benefits for necessary treatment of injuries and illnesses
  • disability income benefits for a specified period of time and up to dollar limits set by law
  • limited funeral expenses for workers killed on the job
  • death benefits for dependents of workers killed on the job.

An employee’s family may get additional benefits if the employee is killed and the death was caused by the employer’s gross negligence or intentional act or omission.

Being a Nonsubscriber

Employers without workers’ compensation could be forced to pay punitive damages if they lose injury lawsuits. They also lose certain common-law defenses, such as arguing that

  • the injured worker’s negligence caused the injury
  • the negligence of fellow employees caused the injury
  • the injured worker knew of the danger and voluntarily accepted it.

Courts may also order employers to pay judgments for pain and suffering and punitive damages.

If a court decides that an employer was negligent in any way – even if the employee’s negligence played a greater role in causing the injury – the employer will likely be held fully financially responsible. The employer must also pay defense-related legal expenses, such as attorney fees.

Alternative Coverages are Not Substitutes

Some employers buy accident and health policies, employer indemnification agreements, and disability policies as cheaper alternatives to workers’ compensation. Even though these policies may provide benefits to an injured employee, Texas law doesn’t recognize them as substitutes for workers’ compensation insurance. TDI rules prohibit insurance companies from saying alternative coverages are substitutes for workers’ compensation insurance.

Employers who buy alternative coverages may be sued by their injured employees and lose their right to use key common-law defenses in court. Many alternative policies also don’t cover court judgments for pain and suffering, punitive damages, and legal fees.

Unlike workers’ compensation policies, alternative policies typically have specific policy limits on medical benefits for each covered employee. In addition, alternative policies usually base disability payments on the employee’s salary and have shorter maximum payment periods than those provided by the state’s workers’ compensation laws.

Unlicensed Companies

If you’re buying workers’ compensation insurance, make sure your company is licensed. State law doesn’t recognize policies sold by unlicensed companies, including those legally selling surplus lines insurance. Surplus lines insurance is for unusual risks that most licensed companies are unwilling to insure. Companies and agents that sell this kind of insurance must be licensed in their home state or country and authorized to sell surplus lines insurance in Texas.

Injured employees may sue employers with policies from unlicensed companies.  Employers also lose their common-law defenses.

The Texas Property and Casualty Insurance Guaranty Association -- which pays policyholder claims against licensed companies that become insolvent -- doesn’t cover unlicensed companies. Claims against unlicensed companies will likely go unpaid if the company becomes insolvent. You can find out if a company is licensed by calling TDI’s Consumer Help Line at 1-800-252-3439 or 512-463-6515 in Austin or by viewing company profiles on our website at www.tdi.texas.gov.

Professional Employer Organizations (PEOs)

PEOs, also known as staff leasing companies, are licensed by the Texas Department of Licensing and Regulation (TDLR). If you’re considering employee leasing, use the search feature on TDLR’s website at www.license.state.tx.us/LicenseSearch to verify a PEO’s license. You may also call TDLR at 1-800-803-9202 or 512-463-6599 in Austin.

Some PEOs may offer workers’ compensation coverage for their employees. If a PEO you’re considering says it offers workers’ compensation coverage, verify that the company is licensed to sell workers’ compensation insurance. Call TDI’s Consumer Help Line to check a company’s license status or view company profiles on our website.

Not all PEOs provide workers’ compensation coverage for their employees and the employees of their client companies. Under certain circumstances, a client company may be liable for employee injuries if the PEO doesn’t have workers’ compensation coverage.

Coverage Comparison 

 

Workers´ Compensation

"Alternative" Policy

Unauthorized Policy

No Coverage

Who determines benefit levels?

Texas law

Court

Court

Court

Who pays medical and lost-income benefits?

Insurance carrier

Insurance company up to policy limits; employer pays rest

Depends on the policy

Employer

Who pays employer's legal fees?

Insurance company

Governed by policy

Depends on the policy

Employer

Are benefits protected by a guaranty association?

Yes

Limited

No

No

Can an injured worker win judgments for pain and suffering and punitive damages?

No

Yes, up to certain limits

Yes, up to certain limits

Yes, up to certain limits

Note: Policy terms in unlicensed policies may be unenforceable.

For More Information or Assistance

For answers to general insurance questions, for information about filing an insurance-related complaint, or to report suspected insurance fraud, call the Consumer Help Line at 1-800-252-3439 or 512-463-6515 in Austin between 8 a.m. and 5 p.m., Central time, Monday-Friday, or visit our website at www.tdi.texas.gov.

You can also visit HelpInsure.com to help you shop for automobile, homeowners, condo, and renters insurance, and TexasHealthOptions.com to learn more about health care coverage and your options.

For printed copies of consumer publications, call the 24-hour Publications Order Line at 1-800-599-SHOP (7467) or 512-305-7211 in Austin.

To report suspected arson or suspicious activity involving fires, call the State Fire Marshal’s 24-hour Arson Hotline at 1-877-4FIRE45 (434-7345).

The information in this publication is current as of the revision date. Changes in laws and agency administrative rules made after the revision date may affect the content. View current information on our website. TDI distributes this publication for educational purposes only. This publication is not an endorsement by TDI of any service, product, or company.



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