November 22, 2013, by Willy Hoffman Jr, CIC
Legal requirements for Worker’s Compensation policies in DC, MD, and VA:
All Homeowners policies exclude Liability coverage for any individual that "should" be covered by a Worker's Compensation policy. I emphasized the word "should", because it does not say "is covered". For example, you live in DC and have a nanny or au pair that works more than 20 hours per week; he/she is driving to pick up your kids from school and gets in an auto accident. Regardless of who were at fault in the accident, your nanny can file a Worker’s Compensation claim against you for her medical bills and lost income. Since the nanny "should" be covered by DC Worker’s Compensation, your Homeowners policy will not pay the claim, even if you don't have a Worker’s Compensation policy. Like most states, DC law requires you to pay 100% of your employee’s medical bills as well as lost income for the rest of their life. Adding an Umbrella policy will not help – they have the same Worker’s Compensation exclusion as the Homeowners’ policy.
Fortunately, the solution is simple; purchase a Worker’s Compensation policy for your domestic employees. The premiums typically range from $350.00 to $750.00 per year. The Work Comp policy would cover 100% of your obligations under the state law.
If you live in a state like VA that does not require Work Comp coverage, or you live in MD and have a housekeeper that earns less than $85.00 per week, you still may want to purchase a Work Comp policy. When the state law does not apply, the domestic employee cannot collect Work Comp benefits, but they can sue you under tort law. Under Work Comp law, the employee does not need to prove you are negligent, but under tort law they do have to prove your negligence caused their injuries. Since they are not required to be covered under Work Comp law, your Homeowners and Umbrella policies would defend and pay this claim. The problem is that these policies have limits, unlike a Work Comp policy which is unlimited. For example, if an employee sued you for $1,000,000 of medical bills and $500,000 for lost income, and you only have a Homeowners policy with $500,000 of Liability coverage, you may have to pay $1,000,000 out-of-pocket. A Work Comp policy would pay the entire claim.
It is important to note here that most direct writers (insurance companies that sell directly and don’t have agents), like Geico, don’t even offer Workers Compensation. In addition, their clients are often working with customer service representatives, not licensed agents. Consequently, insurance advice, including what coverages their clients need is frequently not provided. This is one of the reasons so many people with nannies and other domestic employees don't even realize they have a large gap in coverage.