Workers Compensation Coverage – Insurance company underwriter surprised by a claim from unknown entity

It happens. We’ve witnessed it. An insurance company underwriter or company branch manager is surprised that a claim by an employee under another entity, is paid for by their workers compensation policy. How can this happen?

You’d be surprised at the confusion over the proper use of entities on a workers compensation policy. Let’s shed some light…

If a workers compensation policy is written with the named insured being ABC, Inc. and the application only indicates ABC, Inc. as the named insured, typically an insurance company underwriter will take a look at the information provided, maybe ask a few questions and issue the policy. 

Lets say ABC, Inc. is some kind of office operation, where all employees are properly classified as clerical workers.  A little time goes by and the insurance company is presented with a claim from a worker of XYZ, Inc., a company whose workers install commercial sewer mains. The employee suffers a serious injury and the insurance company claims department researches the claim finding common ownership of ABC, Inc. and XYZ, Inc. and are obligated to pay the claim. The branch manager, underwriting manager and underwriter are all confused. They don’t understand how this may have happened!

What just happened here? Well, it falls under the general category of common ownership and combinable entities. Under most workers comp rules you are allowed to combine common ownership entities onto one workers compensation policy. That means a policy issued to ABC, Inc. may also provide coverage for the employees of XYZ, Inc. if the common ownership meets the guides established by the advisory authority of their state.

So what’s this mean? What if the insurance company that issued the workers comp policy to ABC, Inc. was fine with the clerical operation and wanted to provide coverage for that type of business but would not normally provide coverage for the type of work XYZ, Inc. performed? That means they had no idea they were on the XYZ, Inc. risk and would have normally not written workers comp coverage on ABC, Inc. if they had known of the other exposure. That would have been a failure of underwriting.

You might be surprised of the combination of combinable entities and relationships between various, seemingly unrelated, entities. Sure, it’s a question that’s asked on a workers compensation application. But normally one that agents, employers, insurance company underwriters and managers don’t pay much attention to, is not understood and one that could result in a surprise!

Lesson Learned: Insurance company underwriters…pay attention to entities! Learn how they work and apply them correctly when underwriting a workers compensation policy!