The Dangerous Gap when Excluding Executive Officers from a Workers Comp Policy

Hi, I’m Gordon Coyle and today we’re going to talk about The Executive Officer Exclusion in the New York Workers Compensation Policy

Okay, that’s a long title, but this is important.  In New York and in most other states employers have the option to exclude themselves from workers compensation.  Typically if your company is a corporation Executive officers can opt out of workers comp by signing an exclusion form and submitting it to your insurer and the workers compensation board.

If your company is formed as an LLC, sole proprietorship, or partnership – Members, partners, and owners are automatically excluded from coverage but can elect to opt back into coverage by executing an inclusion form and submitting it to your insurer.

Now what we often see are owners of construction or contracting firms opting out from workers comp.  The thinking of the business owner is this – they typically are not doing high risk work and often only supervise, but they get charged the higher governing rate in workers comp – which can be expensive.  On top of that many contractors say hey, I’ve got health insurance and long term disability so why do I need workers comp?

The answer is that your group health policy is almost always going to have wording that excludes coverage for work related injuries, or for work related injuries if you were eligible for workers compensation.  Some policies go so far as saying that there is no coverage for injury or illnesses arising from the course of employment – that’s pretty ironclad.

Now some businessowners may say to me – I’ve put claims into my group health for work related injuries in the past and haven’t had a problem.  I get it, but there are two problems here – the first is that you’re lying on a claim form which always asks was the injury work related, right?  In New York and in a lot of other states that’s insurance fraud and could be prosecuted as a felony.

The second problem is that if you have submitted work related injury claims and not had a problem with getting it paid, I bet that it was a minor claim – less than $10,000.  The real problem is when someone has a major claim – that’s when health insurers will investigate the situation to make sure it’s legit, and that’s when you’re going to have a real problem and not have your bills paid.  That’s bad news when you’re facing hundreds of thousands of dollars in medical costs.

One other point that we see every once in a while is when a business owner opts out of workers comp because their spouse has a great plan like a teacher’s plan or a municipal worker – and they’re insured there.   Unfortunately, the same exclusion will apply and you’ll be left holding the bag which could jeopardize your personal net worth.

Now, let’s take white collar companies where an owner may be classified as Executive Officer or Outside Sales or even clerical –  these are pretty low rates and payroll is capped to a certain max for owners.  It’s in these situations that totally don’t make sense to exclude or opt out of workers comp.  Some executives have told me “I have really great health and disability insurance and don’t need workers comp.  Besides, how would I be seriously injured on the job?”

Okay so again two parts – first, it doesn’t matter how great your benefits are under group health – you’ll hit the exclusion of coverage for work related injuries.  Second, executives can be seriously injured on the job just like any other business.  Whether it’s getting hit by an uninsured driver while going to the bank, or taking a fall at the office.  Shit happens and not having the right primary coverage can bankrupt even the savviest executive.

Here’s the bottom line, like all sorts of insurance policies, one wrong move or poorly structure policy can do some serious harm to a firm’s enterprise value and the owner’s net worth – that’s why you need an expert advocate to watch for more than just the price you pay.  Price is important, but taking shortcuts to reduce costs often lead to disastrous consequences.  To make sure you and your net worth isn’t at risk give me a call, or drop me an email and see if we might be a good fit for your company.


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