Definition of Exclusive Remedy in Business Insurance

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Exclusive Remedy

Workers’ compensation has been around in the U.S. for over a century. Originally, it provided employees with compensation to cover only lost wages. Today, it also allows workers to recoup medical bills for work-related injuries while also receiving regular payments to cover basic expenses. Should an employee die from work-related injuries, workers’ compensation benefits will help pay for burial costs and other related items.

Items Not Covered

Workers' compensation bars employees from suing their employers for injuries. The system is essentially a trade-off in which injured employees give up their right to sue employers in court in exchange for the right to receive compensation benefits, regardless of who was at fault for the injuries. Workers’ comp does this by stopping employees from requesting further money through other sources. This is done through a clause called an exclusive remedy.

The Exclusive Remedy

This clause is named exclusive remedy because the insurance company deems workers’ comp as the one solution for compensation. Whatever is deemed necessary to cover the employee is done through the program. Even if it involves extensive medical procedures that result in long-term care and unemployment, workers’ compensation is designed to come up with a proper reimbursement solution.

Once a worker begins to receive benefits from the compensation program, they are no longer allowed to sue their employer for additional reparations. It’s an agreement between the company and the worker to maintain compensation while they recuperate. Without it, the business would continue to worry about further lawsuits that could wipe them out.

How It Works

Let’s say a warehouse worker falls from a ladder and breaks their leg. Once a claims adjuster determines the injury qualifies for workers’ compensation, the individual gets payments for lost wages as well as medical bills.

Frustrated at the compensation levels and the time it took to review, the employee decides to file a separate lawsuit. They intend to receive additional funds to cover their injuries and lifestyle. Most likely, the attorneys would ask the worker if they were already receiving compensation. If they answered truthfully, then the lawsuit would be dismissed even before it got to court.

While exclusive remedy eliminates the option to sue, it also eliminates fault as a determination for workers’ comp benefits. If an injured employee wanted to sue for damages, they would have to show that the employer was at fault. The lawsuit would fail if the employee was deemed responsible for their own injuries.

Exceptions

There are exceptions to workers’ compensation that allow an employee to sue a company. For instance, let’s say an employee files a lawsuit that claims the company was negligent. In the example of the person who fell off a ladder, they can say that the equipment wasn’t well-maintained, thus the reason for the fall.

These exceptions are state-regulated. Therefore, they can vary in the scope of lawsuits. Some areas favor the employers more than the employees in these types of suits. Others make it easier for a worker to sue for negligence.

Protection

To protect themselves, businesses must review state policies on post-compensation lawsuits, especially if they’re just starting. If suing a company is permitted, the employer needs to speak with its insurer to understand the levels of liability insurance within the compensation program. This portion of the policy can cover legal fees and other payments if a plaintiff’s complaints are deemed verifiable.

This is especially true in states with monopolistic state funds for workers’ compensation. These regions don’t offer additional liability for companies if the employee decides to sue. In this situation, the business must purchase stop gap coverage to handle legal fees and other payments.