Glossary of Terms

A collection of terms any agent or insured should know when dealing with Workers’ Compensation insurance.

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An unforeseen, unintended event. Something unexpected or which could not be considered as a foreseeable occurrence and consequence of an undertaking. Sometimes results in personal injury or damage to equipment or material.

Accidental Injury

An injury that was not intended to happen from the point of view of the injured person nor the point of view of the insured.

Action over Claim

A demand by a third party in a subrogation action suing for damages from the employer. Also see Third-Party-Over-Claims.

Aggregate Limit

The maximum amount of damages an insurer will pay under a contract or section of an insurance policy during the policy period.

Application of Policy

A section of the Workers Compensation policy stating that the job related accident (or the last day of exposure to a compensable disease) must occur during the policy period even though payment of benefits may extend over many years. Clarifies liability for an occupational disease that has gradually occurred over a consider¬able period of time.


The transfer of one’s interest in an insurance contract to another person or entity. In many kinds of insurance, valid only with the consent of the insurer. Or, to transfer, after an event insured against, one’s right to collect an amount payable under an insurance contract.

Assumption of Risk

A term describing the act of voluntarily placing oneself in a potentially dangerous situation with full awareness of the hazards involved. As one of the common law defenses for employers, may free an employer or others from liability under certain circumstances.

Audit Premium

See Final Premium.

Average Weekly Wage

Under workers compensation law, typically an amount based upon the employee’s actual wages earned during the previous year, then adjusted by a statutory percentage to provide the amount of weekly disability benefits payable to an injured worker.

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Basic Premium

In Workers Compensation insurance, the premium arrived at by multiplying a specified rate by the number of hundreds of dollars of an employer’s payroll.


The amount paid for certain types of loss under the terms of an insurance policy. In a Workers’ Compensation policy for example, benefits include payments for events such as death, loss of limbs or sight and loss of time as specified by workers’ compensation laws.

Bodily Injury by Accident; Bodily Injury by Disease

Refers to the Workers Compensation policy definition that describes the differences between bodily injury due to “accident” and bodily injury due to “disease,” so that one injury cannot be deemed to fall within both categories. The distinction is important since the limits of liability under Part Two Employers Liability apply differently to each.

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Termination of an insurance contract before the end of the period specified in the policy. A policy may be canceled by either the insured or the insurer, subject to provisions set out in the policy.

Cancelation, Flat

Cancelation of an insurance policy as of its date of inception without premium charge. The policy is canceled before it ever goes into effect.

Cancelation, Pro-Rata

Termination of an insurance policy with the premium adjusted in proportion to the exact time the coverage has been in force.

Cancelation, Short-Rate

Cancelation of an insurance policy at the request of the insured with return to the insured of less than the proportion of the premium payable upon pro-rata cancelation. This type of cancelation allows the insurer to recover a small additional amount to cover expenses of canceling the policy.

Cash Benefit

Refers to either impairment benefits or disability benefits. The former are paid for a physical impairment, the latter for both a physical impairment and a resulting wage loss.


A demand to recover under an insurance policy or the estimated or actual amount of a loss.


One who makes a claim.

Classification Code Number

The identifying number for an occupational classification found in the Workers Compensation Manual governing Workers Compensation insurance policies.

Common Law Defenses

Defenses, also called pro-employer defenses, available to an employer who is sued by an employee. Some such defenses have been modified or nullified in various jurisdictions. Also see Assumption of Risk, Contributory Negligence, and Negligence of a Fellow Employee.

Compensable Injury

Under workers compensation law, refers to an injury that is accidental from the injured person’s point of view and arises both out of and in the course of employment.

Competitive State Fund

A state fund that writes Workers Compensation insurance in competition with private insurers.

Compulsory Law

A type of state workers compensation law requiring each employer to accept and comply with all the law’s provisions. Also see Elective Law.


Portion of an insurance contract that outlines the duties and responsibilities of both the insured and the insurer.

Consequential Bodily Injury Claim

Demand for damages by a spouse or other relative suffering subsequent injury as a result of an employee’s injury. This type of claim falls under the Employers Liability portion of Workers Compensation and Employers Liability insurance policies.


A legal agreement between two parties, for consideration. An insurance policy is a contract.

Contributory Negligence

Lack of care on the part of an injured individual, contributing to the injury. Where applied, the concept of contributory negligence can prevent the injured worker from recovering damages under employers liability laws. One of the common law defenses available to an employer.

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Death Benefits

See Survivor Benefits.

Deposit Premium

A provisional premium based on the probable amount of payroll and calculated at the beginning of the policy year, then adjusted following-an audit when the policy period ends.

Disability Under workers compensation laws, may refer either to the inability to carry on one’s normal occupation due to personal injury or illness or to a physical condition unrelated to the ability to work. In workers compensation cases, specific definitions apply to disabilities that are partial, total, temporary and permanent.

Disability Benefits

Refers to payments that compensate a disabled employee for loss of income or earning capacity. In practice, may also refer to benefits paid for an injury regardless of effect on earning ability.

Disfigurement Benefits

A type of lump-sum disability benefit paid because of a theoretical disadvantage the injured worker suffers in attaining employment because of an injury that physically disfigures the person.

Dual Capacity Doctrine

A theory attempting to justify a demand by an injured employee against the employer acting in a capacity other than as an employer. Typically applied in addition to application of the pertinent workers compensation law.

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Effective Date

The starting date of a policy; the time at which the insurance protection begins.

Elective Law

A nearly obsolete type of workers compensation law under which both employers and employees have the option to accept or reject the law’s provisions. If rejected, the employer loses the three common law defenses. Also see Compulsory Law and Common Law Defenses.


One who performs services for another under a contract of hire, express or implied; acts under the direction and control of the person by whom he or she is hired; and performs a service for pay. Also see Independent Contractor.


A person, firm, partnership, association, corporation, a legal representative of a deceased employer, or the receiver or trustee of a person, partnership, association, or corporation who uses or engages the services of another under a contract of hire.

Employers Liability Coverage Endorsement (Stopgap Coverage)

An endorsement used in states where the state fund does not provide Employers Liability coverage. In these states, the endorsement deletes Part One Workers Compensation of the policy and replaces it with Part Two Employers Liability.

Employers Liability Insurance

Coverage to protect an employer against claims for damages arising out of injuries to employees in the course of their work. A Workers Compensation policy insures the employer against liability under state compensation laws. Employers Liability insurance provides pro¬tection in cases not covered by the compensation law.


An amendment in writing (including print or stamping) added to and made a part of an insurance contract to change the original terms by restricting, expanding or otherwise modifying the standard coverage.

Excess Insurance

Refers to insurance that pays only after all other applicable insurance has been exhausted.


Something not covered by an insurance policy as specifically stated in the policy contract.

Exclusive Remedy Doctrine

One of the precepts upon which the workers compensation system was founded, stipulating that the only means available to employees to receive compensation from employers for injuries covered by workers compensation laws is through the benefits mandated by those laws.

Exclusive State Fund

See Monopolistic State Fund.


In insurance terminology, refers to a record of premiums and losses under a policy; the basis upon which future rates or costs are predicted.

Experience Modification

In computing insurance premiums, refers to a provision for premium adjustment that recognizes the merits or demerits of individual risks.


The date on which insurance protection under a policy ends.

Extraterritorial Provisions

Refers to stipulations in workers compensation laws that a worker hired to work in a certain jurisdiction is covered by the laws of that jurisdiction even if injured while working elsewhere.

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Federal Vocational Rehabilitation Act

A federal law providing federal government aid to states and territories enabling the payment of rehabilitation benefits under workers compensation statutes.

Fellow Servant Rule

See Negligence of a Fellow Employee.

Final Premium

In Workers Compensation insurance, refers to the premium the insured must pay based on the actual amount of payroll calculated at the end of the policy year after an audit has been conducted.

Full Coverage

In Workers Compensation insurance, refers to coverage for all occupational diseases, including automatic extension to new diseases as they appear.

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General Exclusions

For Workers Compensation insurance rating purposes, refers to certain employer operations that are not anticipated in the classification code number assigned when the policy is written. Such exclusions represent specified activities that require a separate classification code number.

General Inclusions

Incidental but necessary operations that are normally included as part of the insured’s primary business operations.

General Rules

A section of the Workers Compensation Manual that contains usage guidelines and rules concerning classification and rating procedures.

Governing Classification

The business classification that carries the largest amount of payroll for insureds with more than one classification.

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Anything that increases the chance of loss or the frequency or severity of a loss.


Refers in many states, either through the wording of the law itself or by virtue of court interpretations through the years, to employments that involve working in or around machinery. Formerly a requirement for workers compensation coverage in some jurisdictions, but no longer an issue.

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Independent Contractor

As contrasted to an employee, one who is not on the insured’s normal payroll even though working for the insured for wages. Under workers compensation law, differentiating an independent contractor from an employee has been construed variously by courts of law, usually in a manner that ensures the worker will receive benefits either from the employer or from another source.

Industrial Disability

In certain jurisdictions, refers to an individual’s loss of earnings as the criterion upon which total or partial disability is based. Also see Medical Disability.

Information Page

The portion of a Workers Compensation policy that contains identifying data such as name and address of the insured, policy period, coverages and premium.

Injury Code

In a Unit Statistical Plan, refers to a number used to identify the type of injury under which a claim is filed. The coding number may change over the course of a claim as more is discovered about the injury.


A contract or device for transferring risk from a person, business or organization to an insurance company that agrees, in exchange for a premium, to pay for losses through an accumulation of premiums.


The person or organization covered by an insurance policy.


Insurance company.

Insuring Agreements

The portion of an insurance contract that broadly specifies the coverage the policy provides.

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Law of Large Numbers

An insurance concept referring to spreading the risk that a loss will occur over a large and diverse group, decreasing the risk that large losses will happen at the same time to many insureds.

Limits of Liability

Maximum amount that an insurance company agrees to pay when a covered loss occurs. In a Workers Compensation and Employers Liability policy, limits of liability apply only to the Employers Liability portion. The Workers Compensation part of the policy has no limits, instead paying whatever benefits are required by state law. Also called liability limits or limits of insurance.

Long Term Policy

Refers to a condition in the Workers Compensation and Employers Liability policy stating that, although the policy may be written for a term of three years, all provisions apply separately to each consecutive year and the premium is computed annually.

Longshore and Harbor Workers Compensation Act Coverage Endorsement

An endorsement required by federal law for employers who employ maritime workers to work in, on, or around navigable waters of the U.S. and its territories, but not masters or members of ship crews.

Loss Adjustment Expense (LAE)

Refers to costs associated with settling insurance claims, apart from the claim itself. Includes both allocated expense (ALAE), which can be applied to a specific claim, and unallocated expense (ULAE), such as general overhead, that is not applied to a specific claim. LAE is considered in setting claim reserves.

Loss Coverage Code

In a Unit Statistical Plan, refers to a number used to identify the characteristics of a claim and the law covering it.

Loss of Consortium

Refers to the loss of companionship of an injured worker, typically to his or her spouse. Sometimes used to circumvent the. exclusive remedy of workers compensation and make a claim under the Employers Liability section of an insurance policy.

Loss Reserves

Certain dollar amounts insurance companies are required to set aside to cover the cost of claims.

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Manual Premium

In Workers Compensation insurance, a premium determined by multiplying a published rate (the manual rate) by the number of hundreds of dollars of the insured’s payroll.

Maritime Employees

Under the Longshore and Harbor Workers Compensation Act, refers to workers directly connected with navigation and commerce, including stevedores, repair and delivery workers, but not masters or crews of ships.

Medical Benefits

Workers compensation benefits covering the cost of medical services, usually provided without dollar or time limits. The majority of workplace injuries involve medical benefits only since substantial impairment or wage loss is not typically the case.

Medical Disability

In certain jurisdictions, refers to how an individual’s physical condition affects functioning as the criterion upon which total or partial disability is based. Also see Industrial Disability.

Medical Rehabilitation

Refers to a process of returning an injured employee to improved physical functioning. Also see Vocational Rehabilitation.

Minimum Premium

The smallest premium that will be charged for a policy, regardless of how small the payroll is and whether or not the actual calculated premium is less.

Monopolistic State Fund

A state Workers Compensation insurance plan established by law as the only provider of Workers Compensation insurance in the state, prohibiting private insurers from writing Workers Compensation insurance. Also called Exclusive State Fund.

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Failure to do what a prudent individual would ordinarily do under particular circumstances or, conversely, doing what a prudent person would not have done. Negligence may be caused by acts of omission, commission or both.

Negligence of a Fellow Employee

A doctrine whereby the employer is not held liable for injury one employee inflicts upon another. Sometimes called the Fellow Servant Rule, wherein the master is held not liable for injury to one servant by another. One of the common law defenses available to employers.


An abbreviation of “Not Otherwise Classified,” referring, under Workers Compensation insurance, to risks for which no classification definition more precisely describes the operation.

No-Fault Liability

The basic legal concept of the workers compensation system whereby the cost of occupational injuries or diseases is assessed against the employer without regard to whether the employer was negligent or otherwise responsible under common law.

Nonoccupational Disease

A disease not related to or arising from a particular type of employment, but rather, a disease to which members of the general public are as likely to be exposed.

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Occupational Disease

An injury involving disease that arises out of employment due to causes or conditions characteristic of and peculiar to the particular trade, occupation, process or employment, and excluding ordinary diseases to which the general public is exposed.

Occupational Safety and Health Act (OSHA)

A law that encourages employers and employees to reduce workplace hazards and improve safety and health programs.

Occupational Injury

An injury occurring in the course of employment and caused by inherent or related hazards. Under some workers compensation statutes, refers to disease as well as injury.

Occupational Risk

The theory that the financial cost of employment-related accidents and diseases is a legitimate cost of production and should be shifted to the consumer in the product price in the same manner as depreciation or similar costs are shifted.


See Occupational Safety and Health Act.

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Payroll Audit

An examination of the insured’s payroll records by a representative of the insurer to determine the premium due on a policy for which payroll is the basis.

Permanent Partial Disability

Under Workers Compensation insurance, a condition that actually or presumptively results in a permanent partial loss of earning power; presumptively because certain medical conditions may be assigned to this classifi¬cation even though earning power is not affected. Also see Industrial Disability and Medical Disability.

Permanent Total Disability

Under Workers Compensation insurance, a condition that is actually or presumptively considered the equivalent of a complete and permanent loss of earning power. Many compensation laws specify that certain injuries, such as total loss of sight, loss of both hands or both legs, constitute permanent total disability regardless of the insured’s ability to perform some type of gainful work. Also see Industrial Disability and Medical Disability.


An insurance contract.

Policy Period

The length of time an insurance policy is in effect, commonly one year.


The consideration or money paid to an insurance company in return for insurance protection.

Premium Discount

Refers to a percentage discount based on the size of the computed premium, with larger premiums subject to larger percentage discounts, recognizing relatively less insurer expense in issuing and servicing large policies. The discount is designed to distribute the cost of Workers Compensation insurance equitably among risks of all sizes, so that larger policies pay no more than their fair share of loss costs and insurance company expenses.

Pro-Employer Defenses

See Common Law Defenses.

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The cost of a unit of insurance for a specified period.


A process of restoring the injured or handicapped to the fullest physical, mental, social, vocational and economic usefulness of which they are capable.

Rehabilitation Benefits

Benefits for both medical rehabilitation and vocational rehabilitation for cases involving severe disabilities.


Payment of money related to a loss to or on behalf of the insured when a loss, as defined in the policy, occurs.


The entire earnings, wages, money or other substitute for money of all employees engaged in operations covered by a Workers Compensation policy, including executive officers and other employees engaged in operations covered by the policy, during the policy period.

Retroactive Period

Refers to a specified number of work days or weeks during which injured employees must be out of work before disability benefits begin. After the period has passed, compensation benefits are paid from the date of injury, including the waiting period. Also see Waiting Period.

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Scheduled Benefits

Refers to specific dollar amounts as stipulated by workers compensation laws to be paid for certain injuries without regard to other factors, such as ability to work. Typically paid only for severe and permanent injuries.

Scheduled Injury

A specific and, usually, severe and permnnent injury listed in the workers compensation law, such as loss of a limb or loss for hearing, for which a specified amount of compensation is paid whether or not the employee suffers a loss of earning power. The amount to be paid is called a scheduled benefit.

Second Injury Fund

A special fund developed to help pay workers compensation costs when a preexisting injury combines with a subsequent injury to produce disability greater than that caused by the second injury alone. Typically, the funds are accumulated by assessing insurers and self-insurers, employer payments, portions of death benefits when no dependents survive or by legislated appropriations. Also called special injury funds and subsequent injury funds.


A funding method under which the employer assumes the liability for paying workers compensation benefits. Typically a financial option only for larger corporations, some jurisdictions permit group self-insurance, a situation under which small employers pool their resources to insure each others’ workers compensation obligations.

Stopgap Coverage

See Employers Liability Coverage Endorsement.


Transfer of recovery rights from an insured to the insurance company when the insurer pays a claim brought against the insured.

Survivor Benefits

Benefits designed to help compensate the survivors of an employee whose death results from a job-related injury. Also called death benefits.

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Temporary Partial Disability

Under workers compensation law, a condition resulting in a partial loss of earning power or ability to work, from which recovery can be expected.

Temporary Total Disability

Under workers compensation law, a condition that completely prevents the employee from working, but from which complete or partial recovery can be expected, enabling the employee to return to work.


A demand against the employer by someone other than the employee in an action suing for damages from the employer after paying a liability judgment to the employee. Also see Action Over Claim.

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The insurance function that scrutinizes relevant characteristics of a proposed insured to determine eligibility and acceptability for insurance.

Unit Statistical Plans

Any of several state plans or the National Council on Compensation Insurance plan designed to accumulate, develop and disseminate statistical data concerning workers compensation and employers liability claims.

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Vocational Rehabilitation

Refers to a process of returning an injured employee to an employable condition. Also see Medical Rehabilitation.

Voluntary Compensation and Employers Liability Coverage Endorsement

An endorsement used to provide Workers Compensation benefits and Employees Liability insurance on a voluntary basis for employees who, for various reasons, are not included under the workers compensation law or whose status under the law is questionable or doubtful.

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Waiting Period

A statutory period during which income benefits are not paid following an employee’s injury. Waiting periods apply only to compensation benefits. Medical benefits are provided immediately. If disability continues for a certain number of days or weeks, most laws provide for payment of income benefits retroactive to the date of injury, including the waiting period. Also see Retro-active Period.

Workers Compensation Insurance

Coverage required by state law to provide compensation for workers who are injured on the job in the course of their employment.

Workers Compensation Law

Rules of conduct or action prescribed and enforced by a controlling authority to govern employer-employee relations in handling occupational disabilities. All states, the District of Columbia and the U.S. territories have enacted workers compensation laws. Federal workers compensation laws apply to certain employments.

Workers Compensation Manual

A publication of the National Council on Compensation Insurance containing underwriting rules, classifications, and rates for Workers Compensation insurance.

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