In short, the answer is because it is required. Prior to the Workers Disability Compensation Act (“WDCA”) being enacted, employers and employees relied on common law tort remedies when a work injury occurred. Often times, these common law tort claims resulted in large settlements against the employer, jeopardizing the survival of the business.
Comparative/contributory negligence defenses available to employers also made it difficult for employees to obtain settlements that adequately represented the employee’s inability to earn a wage. The WDCA was enacted to level the playing field and provide both sides with protections in the event an employee was injured.
The WDCA provided protection for employees with a work-related injuries by making available, at a minimum, wage loss benefits and coverage for appropriate medical treatment. In exchange, employers received the protection from employees pursuing a remedy through civil litigation based on the exclusive remedy provision of the WDCA, with some limited exceptions.
THE REQUIREMENT
The WDCA makes it a requirement to carry workers compensation insurance, unless you fall within an exception. But nearly all employment relationships in Michigan are covered by the WDCA. An employer subject to the WDCA may forego purchasing an insurance policy, and instead obtain approval as a self-insured employer, but insurance must be made available.
PENALTIES FOR FAILURE TO COMPLY
If an employer that is subject to the WDCA fails to obtain the required insurance, it will still remain liable to the injured employee. In addition, the employer will be guilty of a misdemeanor and will be subject to penalties for failure to comply with the requirement. The fine is not more than $1,000.00, or imprisonment for not more than six months. But, each day’s failure is a separate offense. As you can see, these fines can quickly become crippling to a business, even over a short period of noncompliance.
An employer that refuses to comply with the requirement to obtain insurance also risks having the director of the Bureau of Workers Compensation file a separate Complaint against the employer. The Court may also issue an Order restraining the employer from employing any person in his or her business while the proceeding is pending.
Additionally, the injured employee of an employer that failed to comply with the WDCA will still be able to recover damages from the employer in a civil action. If the employer is a corporation, limited liability company, or limited liability partnership, the officers and directors of the corporation, the managers, or the partners, respectively, shall be individually and jointly and severally liable for any portion of the obligation and expenses that are not satisfied by the entity. Also, if compensation is awarded under this act, the employer’s property may not be exempt from seizure or sale on execution and may be used to satisfy the judgment.
COSTS OF INSURANCE
The cost of a workers compensation insurance policy in Michigan will depend on the job classification of the work being covered. There are about 400 different job classifications, with a majority of jobs falling within about 200 of the classifications. Each job classification has a pure premium rate that represents a rate based on an analysis of losses recorded for that particular classification. The rates are administered by the Compensation Advisory Organization of Michigan (“CAOM”). To see where your business may fall within the job classification, and to compare the various rate values, please visit https://caom.com/. The rate is expressed as dollars and cents per $100.00 dollars of payroll for each class code.
Insurers in Michigan are not required to use the pure premium rate when calculating insurance premiums, although most utilize this number as a starting point for their calculations. There may be differences in the annual premiums between insurers for the same job classification. Much like homeowners insurance, or car insurance, you can shop around for the policy that will work best for you by balancing the cost of premiums and the level of service each insurer is known to provide.
Although policy premiums can be quite costly, it can be more costly to avoid obtaining workers compensation insurance if you are subject to the WDCA. Avoiding the requirement to obtain insurance could result in devastation to not only your business, but your personal finances as well.
