11 Feb Navigating Multi-State Workers’ Compensation Coverage: Avoiding Costly Gaps

When purchasing workers’ compensation insurance, employers must consider all states where an employee could be entitled to file a claim. Failing to do so can create significant gaps in coverage, leaving businesses exposed to liability and payment obligations.

The risk of such gaps is particularly high because employees have the right to choose the jurisdiction for their claims based on three key factors:

• The state where their work is primarily localized
• The state where the injury occurred
• The state where they reside

Traditionally, these three factors often pointed to the same state. However, the rise of remote work and evolving workplace environment have created new scenarios, making it more challenging to determine an employee’s primary work location.

How Workers’ Compensation Policies Define Coverage

Workers’ compensation policies only cover claims arising in the states specifically listed in the policy. Each state has unique rules governing coverage and exclusions, making it crucial that policies align with where employees may file claims.

To establish jurisdiction, states generally consider the following:

• Is the employee’s work primarily localized in a state listed in the policy?
• Where was the employee physically located when accepting the job offer?
• Where does the employee live?

For businesses operating in multiple states, determining where an employee’s job is “principally localized” is essential. Most states define this as the location where employees regularly work, reside, or spend a substantial portion of their working time. If this location is not covered by the employer’s policy, a gap in coverage may arise, creating a conflict between what the policy will pay and what the employer may legally owe.

Employer Responsibility Regardless of Coverage

Even if an employer’s policy does not provide coverage for an out-of-state employee, the employer remains responsible for fulfilling workers’ compensation obligations under the laws of each relevant state. Employers must proactively assess their coverage to ensure they are adequately protected and compliant with multi-state regulations.

By carefully evaluating jurisdictional risks and updating their workers’ compensation policies accordingly, employers can mitigate financial exposure and ensure that employees receive the benefits they are entitled to—without unexpected costs falling back on the business.