Three Key Aspects Of Employees Compensation Claims
Employees Compensation Policy (formerly known as Workmen’s Compensation Policy) covers the statutory liability of an employer under the Employees (Workmen’s) Compensation Act 1923 for the death of or bodily injuries or occupational diseases sustained by the workmen arising out of and in course of employment. The policy covers Accidental Death, Permanent Total Disablement, Permanent Partial Disablement, Temporary Disablement and Legal costs and expenses incurred in connection with the claim.
The policy is also extended to cover statutory liability under the Fatal Accidents Act as well as under common law. The policy offered in the Indian market differs from many international concepts of “Employers Liability Insurance” in that it does not have a “limit of indemnity” (whether “Any One Event” or “Any One Year”). Instead, the policy protects the employer form the obligations under the Employees compensation statute.
The assessment of claims under the EC policy requires a clear understanding of the statute and interpretation of the legal provisions. This article highlights three key issues that require attention.
1. The definition of wages:
One of the important factors on which the compensation is worked out is the wages drawn by an employee or worker. While death and permanent disablement claims are usually dealt with by the designated EC commissioner, the temporary disablement claims are handled by the insurer.
The term wages mean the employees total remuneration paid or fallen due for payment including overtime, value of board and/or lodging, housing accommodation bonuses and all other perquisites privileges or benefits in kind or money, received by the employees from the employer in connection with their employment which are capable of being estimated in money.
These terms do not however include any travelling allowance or the value of any travelling concession or a contribution paid by the employer of a workman towards any pension or provident fund, or a sum paid to a workman to cover any special expenses entitled on him by the nature of his employment.
While claims are being assessed, it is important to include all benefits capable of being estimated in monetary terms. This includes bonuses that are paid to the worker as per Payment of Bonus Act or otherwise. If these are not included, the compensation payable to the worker can get reduced. Correspondingly, it is also important to include all such components in the wages declared as sum insured under the policy.
2. Calculating average monthly wages:
Method of calculating the wages has to be as per Sec 5 of the EC Act. There are three situations laid down in the Act for this purpose.
1. Where employee has a continuous employment record of 12 months or more, immediately preceding the accident.
2. Where the employee has an employment record of less than one month
3. All other cases
In respect of situation 1 above, the monthly wage is calculated by the total wages earned during 12 months preceding the accident divided by 12.
In respect of situation 2 above, the monthly wage is calculated by the following approach. A similar worker to the one that was injured is considered as a reference point and the amount of wages earned by him for 12 months is taken and is divided by 12. If no such worker who is doing similar work is employed by the employer, then a similar worker in the same locality is considered.
In respect of situation 3 and in cases where rule applicable to situation 2 cannot be applied, then the average of the available period is considered. For instance, if a worker’s wage was paid Rs. 50,000 for 150 days preceding the accident, then the wages would be Rs. 50,000 X 30/150 = Rs. 10,000.
Unless the correct methodology is used, the amount of wages will not be correctly determined and the compensation worked out can be incorrect.
3. Medical expenses:
While the base EC policy does not cover medical expenses, it can be covered at an additional premium for a specified amount per employee, such as Rs. 50,000 or Rs. 1,00,000 etc.
As per the EC Act, the employee shall be reimbursed the actual medical expenditure incurred by him for treatment of injuries caused during course of employment. The settlement of claim has to be for actual expenses for the payment of medical surgical and hospital expenses (including cost of transport to hospitals), incurred by the Insured.
It is therefore important to claim for all medical expenses including inpatient or outpatient expenses that are reasonably incurred in connection with the injury.
To conclude, while there are many other issues that impact claims, the above three aspects are key to getting the best outcome in respect of EC claims. The claims under EC policy is formula driven as defined in the statute. So once the wages are properly defined and incorporated in the policy and is calculated correctly, a proper adjudication of claim can be ensured.