Chapter 15
THE NONSUBSCRIBER OPTION
TO TEXAS WORKERS' COMPENSATION
INSURANCE COVERAGE
William O. Ashcraft
Anita M. Alessandra
Ashcraft Law Firm
Summary
- The expense of maintaining traditional workers' compensation insurance coverage, coupled with the desire to actively manage their own employee injury benefit programs, has prompted many employers to actively explore alternatives to purchasing coverage under the Texas Workers' Compensation Act (the "Act"). One such alternative is for the employer to exercise its right not to participate in the state-sponsored system, thereby becoming a "nonsubscriber."
- In contrast to both the subscriber and the self-insurer, a nonsubscribing employer is not obligated to pay workers' compensation benefits to employees for personal injuries or illnesses sustained in the course of employment, although the employer may, at its option, provide similar benefits through implementation of its own voluntary benefit program. In exchange for this flexibility, a nonsubscriber loses its immunity from suit through which an employee may recover damages if the employee proves that the company's negligence was the proximate cause of the injury.
- Through formulation and implementation of a well-designed employee benefit plan, nonsubscribers strive to maximize the payments flowing to injured workers while significantly lowering the costs to employers associated with on-the-job injuries or illnesses. Specifically, this task is accomplished through a greater ability to control fraud and increased control over medical treatment. Among the factors to consider when assessing the nonsubscription alternative are the employer's prior loss history, the availability of alternative insurance, the current safety/loss control program, employee relations issues, and the effect of the nonsubscription election on existing or anticipated business relationships.
- The primary legal risk associated with Act rejection is the possibility that an injured employee will assert a cause of action for negligence against the employer. When faced with such claims, the nonsubscriber is prohibited from asserting the traditional common law defenses of contributory negligence, assumption of the risk, last clear chance, and fellow-servant negligence. In all actions against an employer who does not have workers' compensation insurance, the employee, in order to recover, must establish that (a) at the time of the injury, he or she was acting within the course and scope of employment; and (b) the employer, or some agent or servant of the employer acting within the general scope of employment, was negligent.
- Should an employee succeed in establishing the basic elements of a negligence claim, the employer can assert the statutory defenses of intoxication or intentional conduct on the part of the employee, as well as the common law defenses of sole proximate cause, new and independent cause, unavoidable accident and latent defect. If an employer is nevertheless found negligent by a judge or jury, the aggrieved employee may recover compensatory damages for past and future medical expenses and lost wages, and pain and suffering. If the employee's injury resulted from the employer's fraud or malice, punitive or exemplary damages may also be awarded.
- When converting to nonsubscriber status, an employer should perform certain basic tasks which include: (1) formal rejection or coverage under the Act; (2) compliance with all statutory notification requirements; (3) establishment of an employee benefit plan under ERISA; (4) acquisition of excess indemnity and/or occupational accident insurance coverage; and (5) establishment of a medical referral and safety/risk management program.
- To maximize the benefits of Act rejection and minimize the possibility of litigation, a nonsubscriber should develop a preventive risk management program; develop relationships with competent health care providers; implement efficient claim reporting, administration, and investigation procedures; monitor workplace injuries and illnesses; establish an alternative dispute resolution program; and develop a relationship with legal counsel skilled in the area of nonsubscription.