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The Occupational Accident Policy and Workers’ Compensation: The Misclassified Injured Worker Quagmire And California Law


California workers who are injured on the job, and have been misclassified as independent contractors, often face systemic impediments to pursuing workers’ compensation benefits under California law.  This can occur through an insidious insurance policy provision in occupational accident policies, which workers are often required to purchase to obtain employment.  The policy provision suspends benefits if the worker pursues a workers’ compensation claim.

Workers classified by employers as independent contractors often purchase, frequently through their employer, occupational accident coverage, which is supposed to provide coverage if the worker is injured on the job.  The coverage is regularly sold under a group policy issued by the insurance company to the employer.  Indeed, the employer frequently purchases a contingent liability policy in tandem with the accident occupation policy, to defend and protect the employer if the worker files a workers’ compensation claim.

The employer often requires its workers to purchase the occupational accident coverage to obtain employment, and deducts the cost of the coverage from the workers’ paychecks.  Many of these occupational accident policies contain a provision suspending payment of benefits following a work-related injury if the worker makes a workers’ compensation claim.  Such policies are often seen in the trucking industry, but exist in other arenas as well.

The provision suspending benefits for injured workers if they make a workers’ compensation claim puts the worker in a difficult position if they want to pursue their rights to workers’ compensation benefits under California labor law.  The policy provision suspending benefits if a workers’ compensation claim is pursued following a work-related injury works to pressure the worker from relinquishing or not pursuing his or her worker’s compensation claim.  If the worker files a workers’ compensation claim asserting he or she is in fact an employee, they will lose or risk losing needed insurance benefits under the occupational accident policy.

In this way, it often appears that employers and insurers are working together to deny workers employment status, or adequate benefits for work-related injuries.   The built-in disincentive to pursue workers’ compensation benefits supports the employer’s classification of the worker as an independent contractor, rather than employee, a classification which is often suspect.

The way this structure has been established, which appears to discourage the pursuit of workers’ compensation benefits for fear of losing occupational accident insurance benefits, may violate California law and public policy.  Under California’s Labor Code, employers cannot deduct money “from the earnings of any employee” to cover workers’ compensation costs, and workers’ compensation benefits cannot be “reduced or affected” by other available insurance.  (Labor Code §§3751 and 3752.)

The accident occupation policies also often have sweeping exclusions and limitations.  This makes the coverage illusory or ineffective, and not comparable to the benefits available under workers’ compensation.  The exclusions and limitations are frequently not adequately disclosed.  The covered worker often only receives a certificate of coverage when they obtain the insurance, not the complete policy.  The certificate of coverage usually just provides a basic outline of the coverage and policy limits, but provides inadequate information or notice of the expansive exclusions and limitations, including the workers’ compensation provision.  These exclusions and limitations are subject to challenge under California law requiring advance notice of exclusions and limitations.  (Insurance Code §§10604 -10605.)

Injured workers who desire to make a workers’ compensation claim, but have insurance coverage containing a provision making the pursuit of such a claim problematic, may want to consider seeking legal advice. The injured worker should not be placed in a position of forfeiting legal rights under California law simply to obtain insurance benefits they have a right to receive.

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