Extraterritorial Workers’ Compensation: When Do You Need Foreign Workers’ Compensation Coverage?

Jeffrey Cavignac, CPCU, ARM, RPLU, CRIS, MLIS – President, Cavignac & Associates
The world is getting smaller and — now more than ever — business is becoming global.  It’s not uncommon nowadays for companies to set up operations in foreign countries. They might hire local citizens in those countries or send their American employees overseas, sometimes for extended periods of time.

One of your key employees has an extended engagement in China.  They are going to be stationed there for six months.  Unfortunately, they get involved in a work-related accident and are seriously injured. You turn in the claim to your domestic workers’ compensation company and they begin asking questions. You start to wonder, “Is my employee covered?”

Most domestic workers’ compensation insurers extend coverage to covered employees for “temporary” travel outside the United States.  If an employee is injured in a foreign country and coverage applies, the employee would receive “state of hire” benefits.  The problem is that “temporary” is not defined.  Nor has there been any case law to help clarify just how long temporary is. 

In a recent survey by our firm of several insurance companies, the ambiguity of this topic became clear. The following comment is reflective of how most of them viewed this exposure:

“I believe that if a person retains their California residence and travels abroad up to 3-4 months, then the California policy would still extend coverage but, once again, that is my opinion. There could be unique circumstances and evidence that overrides the extension of coverage. Because of the ambiguity, our company does not have a set defined period of time. This remains a decidedly gray area and because of that, it makes sense for employers with known foreign travelers to clearly understand their employees’ travel duties/responsibilities and duration of time abroad and to consider the purchase of foreign coverage to make the issue black and white vs. gray.”

Despite the fact that there is not a clear consensus, we can deduce some basic guidelines: 

If an employee occasionally travels abroad, a week or two at a time, even up to three months, you should be able to rely on your domestic workers’ compensation policy.  Note that when you have an exposure, it still makes sense to supplement this with an FVWC (Foreign Voluntary Workers’ Compensation) policy.  This policy is intended to fill any gaps the domestic policy might have, most obviously endemic disease and repatriation.  FVWC is often purchased as part of a foreign package policy. Minimum premiums for a foreign package start at $2,500.

  • An endemic disease is one that is particular to a country.  The endemic disease coverage language of a foreign workers’ compensation endorsement establishes that coverage applies to injury or death arising out of endemic disease even if the disease is not covered under the workers’ compensation or occupational disease law of the designated state.
  • Repatriation expense coverage reimburses the insured for expenses over and above normal transportation costs when it is necessary to bring an injured, sick, or deceased employee back to the United States.  Some foreign workers’ compensation coverage endorsements impose a sublimit on repatriation expense coverage; the adequacy of any such sublimit should be carefully evaluated.  The extra transportation costs under such circumstances can be enormous.

If an employee is going to locate overseas for more than three months, you should specifically schedule them on the foreign policy.  They will be charged a rate just like they would under the domestic policy (albeit higher*) and they will receive State of Hire benefits.

If your company is going to establish a foreign corporation with foreign employees working in that country, you will in all likelihood be covered by that country’s compulsory insurance program, but you should verify this, as each country is different.

Conclusion

Many countries have strict insurance laws as it pertains to liability, property and workers’ compensation. While the focus of this article is workers’ compensation, it is important to bear in mind that, if you have exposure in a foreign country, all of your exposures should be carefully evaluated and understood.  Where appropriate, local legal counsel (or domestic counsel familiar with the country in question) should be engaged, and a foreign insurance program should be implemented.  The expertise of an insurance broker familiar with constructing a foreign insurance portfolio shouldn’t be underestimated.

Bottom line, if you have employees traveling overseas, you should buy foreign workers’ compensation insurance.  The coverage is relatively inexpensive and spending a small amount of dollars to protect against potentially large losses makes good risk management sense.

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*Rates for Foreign Voluntary Workers’ Compensation are higher than domestic rates because:

  • working in foreign countries is viewed as a higher risk
  • coverage applies 24 hours a day