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Did you know that approximately 10 percent of all Insurance Agent Errors & Omissions (E&O) claims occur as a result of the placement of workers’ compensation insurance? Many of these claims are well in excess of $100,000.

Some of the issues that can cause problems are:

• Questions involving coverage for sole proprietors, partnerships, or single-member LLCs;
• Ensuring employees in all states are covered;
• Placing clients in a trust/alternative program; and
• U.S. Longshoreman and Harbor (USL&H) coverage

There is no uniformity in how different states handle coverage for sole proprietors. In many states, coverage for sole proprietors is excluded but they can “opt in” if they elect coverage. In others, they are covered but can opt out. It’s important to understand how your state handles this issue so that you can explain it to your client. Additionally, you should always make sure to document your client’s choice. Make sure that you have them shown on the application as included or excluded, and that they sign the application. Additionally, when issuing certificates of insurance that show workers’ comp coverage pay attention to the question “Any proprietor or partners or executive officer or member excluded?” as this could come into play if there is a problem later.

It’s very important to make sure that your client has WC coverage in all of the states in which they are doing business (excluding monopolistic states). Sometimes your clients may have employees temporarily working in another state. While the policy may provide coverage, if the benefits of the other state are greater than that of the home state, the employer may be on the hook to pay the difference. If the client sets up a permanent new location and that state is not reflected on the policy, there would be no coverage. A good solution is to add the “Other States” endorsement and show all states where the employees will work (or all states other than monopolistic if you can find a carrier willing to offer it). As always, it’s important to document any discussion with your client and to make sure that they understand the need to let you know of any changes to the states where they require coverage.

The main issue with placing clients in a trust is to be cognizant of the financial stability of the trust. In New York, a number of these have declared insolvency in the past few years. Without a guaranty fund to provide protection, a higher level of caution should be exercised and this lack of a guaranty fund should be clearly communicated to your customer.

Do you have any clients that are subject to the USL&H Workers’ Compensation Act? You might be surprised. This act provides coverage for longshoreman, harbor workers and other maritime workers injured during the course of employment. What about the employee of a flower shop who is delivering flowers to a cruise ship or a river tour boat? If they deliver the load to the dock they’re OK, but if they board the ship to make the delivery and are injured while on board, they would be subject to the Act.

Placing workers’ compensation isn’t hard, and it shouldn’t be scary. When placing the coverage, just make sure to pay attention to detail, work with an application, and document, document, document.