Workers’ Comp Insurance for Small Business Owners

By Levi S. Wolf, Esquire
Wolf, Baldwin & Associates, P.C.

Effective August 29, 2011, the Pennsylvania Legislature has allowed workers' compensation insurance companies to provide workers' compensation insurance coverage to small business owners, breaking with many long years of tradition. The new law, an amendment to the Pennsylvania Workers' Compensation Act entitled "Insurance for different forms of business," can be found at 77 P.S. § 1000.7. The text of the law is so short, it can easily be reproduced here:

Insurers, including the State Workers' Insurance Fund, are authorized to provide, on a voluntary basis, to sole proprietors, partners of a partnership or members of a limited liability company, workers' compensation insurance equivalent to that which employers provide to employes which insure their liability under Article III. For the purposes of computing the premium charge, the wages of a sole proprietor, partner or member shall be at least equal to the minimum payroll for a corporate officer, and no more than the maximum payroll for a corporate officer, as established by underwriting rules approved by the Insurance Department. If an injury is compensable under the terms of this coverage, it shall be a rebuttable presumption that the wages of the injured individual are at least equal to minimum payroll for a corporate officer for the purposes of calculating his average weekly wage and paying benefits under sections 306 and 307.

At the outset, it is clear that the new law does not require insurance companies to provide coverage, nor does it require the newly expanded class of potential insureds to buy coverage. The law simply expanded the marketplace to include potential coverage for people who were not covered before.

The Insurance Agents and Brokers of Pennsylvania testified in favor of the new law in March 2011. They were concerned on two fronts: first in not being able to provide adequate coverage for their clients and, second, in not being able to acquire adequate coverage for themselves if their agency was organized as an LLC or partnership. They also noted that many companies require subcontractors to provide proof of workers' compensation coverage, which would have been impossible for sole proprietors prior to the enactment of the new law, putting the sole proprietors at a competitive disadvantage. The lack of workers' compensation coverage created ambiguity about whether a firm hiring a sole proprietor would be liable for an on the job injury; this issue can be eliminated if the sole proprietor has her own workers' comp coverage.

In all, this new law should be a positive development for most parties involved in the workers' compensation system. Insurance companies will have a new market to sell their product, and will benefit from reduced litigation surrounding the ambiguity of whether a particular injured worker is covered by workers' comp insurance. Sole proprietors, partners, and LLC members will have the ability to purchase and benefit from workers' compensation coverage for on-the-job injuries, which can include wage loss benefits, medical treatment for work-related injuries, and certain death benefits for fatal injuries. Less people will be uninsured for their work injuries, and the Pennsylvania Uninsured Employers Guaranty Fund will have less claims brought against it.

Workers' compensation law is complex and challenging, even to experienced practitioners. Employers (and those newly eligible for coverage) should contact their insurance carriers with questions. Injured workers should contact a claimant's attorney well-versed in workers' compensation law, so that all of their rights are properly preserved.

Levi S. Wolf, Esquire is a shareholder in the law firm of Wolf, Baldwin & Associates, P.C. with offices in Pottstown, Reading, and West Chester. He is the firm's managing attorney, and focuses his practice on workers' compensation law and family law. The firm is experienced in small business representation, business succession planning, contracts and civil litigation, and estate planning. Mr. Wolf can be reached at 610-323-7436 or by e-mail.