Insurance Defense


Texas is the only state that allows an option to not purchase workers’ compensation coverage, regardless of the number of employees, company size, or type of business. The right to opt out of the workers’ compensation system was included in the first Texas Workers’ Compensation laws written in 1913 and workers’ compensation is still “elective” in Texas today.

 Recent statistics show that approximately 35% of Texas employers are nonsubscribers. The first survey to estimate the percentage of nonsubscribers was conducted in 1983 and showed that 44% of all Texas employers were nonsubscribers and nonsubscribing employers employed 20% of the workforce. Since that time, the percentage of employers who have opted out of the Texas Workers’ Compensation system has declined, but the percentage of employees employed by nonsubscribers has increased. This is a result of larger employers (employers of 500 or more employees) choosing nonsubscription while smaller employers are not opting out of the workers’ compensation system.

 There are a variety of reasons why employers choose nonsubscription. The following is a non-exhaustive list of some of those reasons:

• High cost of workers’ compensation insurance premiums
• Rising medical costs
• Ability to more effectively manage employee injury claims
• Elimination of  fraudulent claims
• Fewer accidents due to an emphasis on safety
• Immediate notice of any on-the-job injuries.
• Requirement that employees arbitrate any dispute related to an on-the-job injury.

Nonsubscription, however, does present some unique legal challenges that are
different from those faced by employers who are subscribers. While companies that subscribe to workers’ compensation insurance can only be sued in limited circumstances, nonsubscribing employers can be sued for any employee injury. While an employee who files suit against a nonsubscriber must establish that the employer was negligent, the nonsubscribing employer does lose certain common law defenses including the negligence of a fellow employee, assumption of the risk, and the contributory negligence of the injured employee. A nonsubscribing employer may still defend on the basis that the employee was intoxicated; was the sole cause of his/her injuries; and that the injury occurred outside the course and/or scope of employment.

As nonsubscription has become more and more popular over the years, insurance companies have developed a broad range of products to insure the risks of nonsubscribers. Over the years, these products have become more comprehensive, offering benefits for medical expenses, disability compensation, and legal liability coverage. The majority of these programs also include binding arbitration agreements. It should also be noted that these plans must comply with the reporting, disclosure, and fiduciary requirements of ERISA.

by Kent D. Williamson and Mark T. Craig

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